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The Independent Adviser for Vanguard Investors

February 2016

9

FOR CUSTOMER SERVICE, PLEASE CALL

800-211-7641

PERFORMANCE REV I EW

VANGUARD VARIABLE ANNUITIES

Fund (fund #)

Advice

1/29

Price

Jan.

Return

YTD

Return

12-Mo.

Return

3-Year

Return

5-Year

Return Risk

Money Market Annuity (64)

— $1.90

0.0% 0.0% -0.1% -0.2% -0.2% —

Short-Term Inv.-Grade Annuity (144)

Buy

$18.61

0.5% 0.5% 0.6% 1.2% 1.8% 0.39

Total Bond Market Annuity (67)

Hold

$37.34

1.3% 1.3% -0.8% 1.6% 3.0% 0.99

High-Yield Bond Annuity (146)

Buy

$28.55

-1.1% -1.1% -3.5% 1.5% 4.6% 1.64

Conservative Allocation Annuity (801)

Hold

$25.41

-1.4% -1.4% -2.0% 4.0% — 0.42

Moderate Allocation Annuity (803)

Hold

$27.01

-2.8% -2.8% -3.0% 4.9% — 0.60

Balanced Annuity (69)

Buy

$80.09

-2.8% -2.8% -1.6% 7.1% 7.6% 0.65

Capital Growth Annuity (603)

Buy

$37.30

-6.3% -6.3% -2.5% 13.6% 11.6% 1.02

Diversified Value Annuity (145)

Buy

$26.84

-4.3% -4.3% -3.4% 7.9% 9.0% 0.97

Equity Income Annuity (8)

Buy

$68.45

-3.3% -3.3% 0.4% 10.0% 11.3% 0.93

Equity Index Annuity (68)

Buy

$76.38

-5.0% -5.0% -1.0% 10.8% 10.4% 1.00

Growth Annuity (10)

Hold

$39.79

-6.4% -6.4% 2.2% 13.6% 12.0% 1.14

MidCap Index Annuity (143)

Buy

$42.81

-7.4% -7.4% -7.2% 9.1% 8.9% 1.07

REIT Index Annuity (147)

Hold

$52.66

-3.4% -3.4% -7.7% 7.9% 9.8% 1.28

Small Company Growth Annuity (160)

Hold

$56.53

-10.4% -10.4% -10.4% 7.2% 8.5% 1.40

Total Stock Market Annuity (604)

Hold

$27.53

-5.7% -5.7% -2.9% 10.0% 9.9% 1.02

International Annuity (86)

Buy

$33.79

-8.0% -8.0% -9.0% 0.1% 1.6% 1.24

Our ratings:

BUY: Best choice. Generally funds held in our

Model Portfolios or funds with similar objectives. HOLD:

Current prospects for the fund are not as good as those with

a Buy rating. However, investors who own shares in the fund

may wish to assess tax costs of trading into a Buy-rated fund.

SELL: The fund’s long-term prospects are not as compelling as

other funds’, or other factors may make the fund unattractive

compared to alternatives. “+” is a rating upgrade over the

previous month; “-” is a downgrade.

Investors should weigh all tax implications of fund switches

before making a sale or purchase. Some closed funds are

available for purchase by high-net-worth investors. All funds

charge a $20 annual account fee unless you have $10,000 in

the fund, $100,000 with Vanguard or accept all paperwork

through online means.

Minimum

refers to the dollar amount (e.g., $3K means

$3,000) needed to open a new taxable account.

Loads

are

denoted with an “f” for front-end and “r” for back-end.

Holding periods are noted for loads imposed on sales of

shares held less than two months (<2 mo.) or one year (<1).

3-year

and

5-year returns

are compound, annualized

returns.

Average maturity

is in years for bond funds and

days for money market funds.

12-month yields

are based

on trailing 12-month dividend/income distributions.

SEC

yields

are reported 30-day yields.

Taxable equivalent

yields

are based on SEC yields. For state funds, taxable

equivalent yields incorporate state taxes.

Risk

is fund vola-

tility measured over the previous 24 months. Equity fund risk

is measured against the S&P 500 index. Bond fund risk is

measured against the Barclays Aggregate Bond index.

Annuity ratings

May differ from taxable funds since choices

in the annuity area are more limited.

* Tax equivalent yields incorporate the 3.8% health care sur-

tax into the 33%, 35% and 39.6% tax rates.

** Fund sold with a 0.75% front-end load

*** Fund sold with a 0.25% front-end load

VANGUARD INCOME FUNDS

Fund (fund #)

Ticker Advice

Avg.

Mat.

1/29

Price

Jan.

Return

YTD

Return

12-Mo.

Return

3-Year

Return

5-Year

Return

12-Mo.

Yield

SEC

Yield

—— Tax Equivalent Yield ——

Risk

25% 28% 36.8%

*

38.8%

*

43.4%

*

TAXABLE INCOME

Ultra-Short-Term Bond (1492)

VUBFX

Buy 1.1 $9.99

0.3% 0.3% — — — — 0.83% — — — — — —

Short-Term Treasury (32)

VFISX

Sell

2.5 $10.73

0.8% 0.8% 0.7% 0.7% 0.9% 0.7% 0.82% — — — — — 0.36

Short-Term Federal (49)

VSGBX

Sell

2.7 $10.79

0.8% 0.8% 0.9% 0.8% 1.3% 0.9% 0.96% — — — — — 0.35

Short-Term Inflation Index (1967)

VTIPX

Hold 2.4 $24.27

0.5% 0.5% -0.6% -1.0% — 0.0% 0.13% — — — — — 0.61

Short-Term Investment-Grade (39)

VFSTX

Buy 3.3 $10.60

0.5% 0.5% 0.8% 1.4% 2.0% 2.0% 2.01% — — — — — 0.38

Short-Term Bond Index (132)

VBISX

Hold 2.8 $10.51

0.9% 0.9% 0.7% 1.0% 1.5% 1.2% 1.33% — — — — — 0.47

Inflation-Protected Sec. (119)

VIPSX

Hold 8.5 $13.04

1.6% 1.6% -3.3% -1.7% 2.7% 0.8% 0.36% — — — — — 1.47

Intermed. Treasury (35)

VFITX

Sell

5.7 $11.51

2.4% 2.4% 1.2% 1.9% 3.4% 1.6% 1.42% — — — — — 1.22

Intermed. Investment-Grade (71)

VFICX

Buy 6.4 $9.72

1.1% 1.1% 0.0% 2.5% 4.5% 3.0% 2.77% — — — — — 1.03

Intermed.-Term Bond Index (314)

VBIIX

Hold 7.2 $11.45

1.9% 1.9% -0.1% 2.4% 4.6% 2.6% 2.54% — — — — — 1.37

Total Bond Market (84)

VBMFX Hold 8.0 $10.77

1.4% 1.4% -0.6% 1.9% 3.3% 2.4% 2.24% — — — — — 1.00

GNMA (36)

VFIIX

Hold 6.4 $10.77

1.2% 1.2% 1.8% 2.5% 3.3% 2.3% 2.34% — — — — — 0.68

Long-Term Treasury (83)

VUSTX

Sell

25.0 $12.80

5.2% 5.2% -4.9% 5.3% 9.1% 2.7% 2.50% — — — — — 3.88

Long-Term Investment-Grade (28)

VWESX Hold 23.4 $10.00

1.4% 1.4% -6.3% 3.8% 8.0% 4.4% 4.13% — — — — — 2.67

Long-Term Bond Index (522)

VBLTX

Sell

24.1 $13.46

2.3% 2.3% -7.4% 3.3% 7.7% 4.0% 3.97% — — — — — 2.94

High-Yield Corporate (29)

VWEHX Buy 6.4 $5.46 -1.0% -1.0% -3.0% 2.0% 5.1% 6.0% 6.50% — — — — — 1.69

Emerging Mkts. Gov’t Bond Idx. (1120)** VGOVX

Buy 10.0 $9.23 -0.1% -0.1% 0.8% — — 4.9% 5.11% — — — — — 1.88

Total International Bond Index (1231)

VTIBX

Hold 8.9 $10.71

1.6% 1.6% 0.8% — — 1.7% 0.88% — — — — — 0.97

MONEY MARKET

Treasury MM (11)

VUSXX

— 49 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.18% — — — — — —

Federal MM (33)

VMFXX

— 50 $1.00

0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.27% — — — — — —

Prime MM (30)

VMMXX — 57 $1.00

0.0% 0.0% 0.1% 0.0% 0.0% 0.1% 0.36% — — — — — —

Tax-Exempt Money Market (45)

VMSXX

— 39 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —

CA Tax-Exempt MM (62)

VCTXX

— 31 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —

NJ Tax-Exempt MM (95)

VNJXX

45 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —

NY Tax-Exempt MM (163)

VYFXX

— 29 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —

OH Tax-Exempt MM (96)

VOHXX

— 40 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —

PA Tax-Exempt MM (63)

VPTXX

— 22 $1.00

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —

TAX-FREE INCOME

Short-Term Tax-Exempt (41)

VWSTX Buy 1.5 $15.83

0.3% 0.3% 0.5% 0.6% 0.9% 0.7% 0.52% 0.7% 0.7% 0.8% 0.8% 0.9% 0.12

Limited-Term Tax-Exempt (31)

VMLTX

Buy 3.0 $11.08

0.7% 0.7% 1.1% 1.4% 2.0% 1.5% 0.85% 1.1% 1.2% 1.3% 1.4% 1.5% 0.40

Intermed.-Term Tax-Exempt (42)

VWITX

Buy 5.2 $14.40

1.2% 1.2% 2.6% 3.1% 5.1% 2.8% 1.47% 2.0% 2.0% 2.3% 2.4% 2.6% 0.73

Tax-Exempt Bond Index (1491)***

VTEBX Hold 5.6 $10.26

1.1% 1.1% — — — — 1.54% 2.1% 2.1% 2.4% 2.5% 2.7% —

Long-Term Tax-Exempt (43)

VWLTX Hold 6.2 $11.86

1.2% 1.2% 3.3% 4.1% 6.5% 3.6% 2.05% 2.7% 2.8% 3.2% 3.3% 3.6% 0.91

High-Yield Tax-Exempt (44)

VWAHX Hold 6.6 $11.41

1.1% 1.1% 3.2% 4.2% 6.9% 3.6% 2.49% 3.3% 3.5% 3.9% 4.1% 4.4% 0.90

STATETAX-FREE

CA Intermed. Tax-Exempt (100)

VCAIX

Buy 5.3 $11.97

1.2% 1.2% 2.8% 3.6% 5.8% 2.7% 1.39% 2.1% 2.2% 2.5% 2.5% 2.7% 0.74

CA Long-T. Tax-Exempt (75)

VCITX

Sell

6.4 $12.32

1.2% 1.2% 3.5% 4.5% 7.2% 3.5% 1.88% 2.8% 2.9% 3.3% 3.4% 3.7% 0.91

MA Tax-Exempt (168)

VMATX Sell

6.3 $11.02

1.2% 1.2% 3.0% 3.7% 5.8% 3.0% 1.85% 2.6% 2.7% 3.1% 3.2% 3.5% 0.94

NJ Long-T. Tax-Exempt (14)

VNJTX

Sell

6.3 $12.22

1.3% 1.3% 2.1% 3.5% 5.8% 3.5% 2.51% 3.7% 3.8% 4.4% 4.5% 4.9% 1.03

NY Long-T. Tax-Exempt (76)

VNYTX

Sell

6.0 $12.02

1.2% 1.2% 3.5% 4.1% 6.0% 3.2% 1.80% 2.6% 2.7% 3.1% 3.2% 3.5% 0.85

OH Long-T. Tax-Exempt (97)

VOHIX

Sell

6.1 $12.77

1.2% 1.2% 3.4% 4.2% 6.4% 3.3% 2.07% 3.0% 3.1% 3.5% 3.6% 3.9% 0.91

PA Long-T. Tax-Exempt (77)

VPAIX

Sell

5.6 $11.80

1.1% 1.1% 3.1% 4.1% 6.1% 3.6% 2.14% 2.9% 3.1% 3.5% 3.6% 3.9% 0.84