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Vanguard Montgomery Funds

Filed: 4 Jul 16, 8:00pm

July 5, 2016
 
via electronic filing
Megan Miller
U.S. Securities & Exchange Commission
100 F Street, N.E.
Washington, DC 20549
 
 
Re:Vanguard Charlotte Funds, File No. 811-22619
 Vanguard Convertible Securities Fund, File No. 811-04627
 Vanguard Index Funds, File No. 811-02652
Vanguard Institutional Index Funds, File No. 811-06093
 Vanguard International Equity Index Funds, File No. 811-05972
 Vanguard Montgomery Funds, File No. 811-22114
 Vanguard Ohio Tax-Free Funds, File No. 811-06083
 Vanguard Quantitative Funds, File No. 811-04526
 Vanguard Specialized Funds, File No. 811-03916
 Vanguard STAR Funds, File No. 811-03919
 Vanguard Tax-Managed Funds, File No. 811-07175
 Vanguard Valley Forge Funds, File No. 811-58431
Vanguard Variable Insurance Funds, File No. 811-05962
 Vanguard Wellington Fund, File No. 811-00121
 Vanguard Windsor Funds, File No. 811-00834

 

Ms. Miller,

     The purpose of this letter is to respond to your comments, provided via telephone on June 3, 2016, regarding the Staff’s recent Sarbanes-Oxley review of certain filings of the above-listed registrants. Each comment is summarized below, followed by the response to the comment. This letter amends the previous response letter. The response to comment 12 was inadvertently omitted from the original letter.

     In connection with the registrants’ responses, as required by the Staff, each trust acknowledges that: (1) it is responsible for the adequacy and accuracy of the disclosure in its filings; (2) Staff comments, or changes to disclosure in response to Staff comments, in the filings reviewed by the Staff do not foreclose the SEC from taking any action with respect to the filings; and (3) it may not assert Staff comments as a defense in any proceeding initiated by the SEC or any person under the federal securities laws of the United States.


 

Comment 1:Certain amended filings did not include a cover page or explanatory note. Please explain
 why these filings were made. Please ensure going forward that you include a cover page
 or explanatory note with amended filings.
 
Response:The amended N-CSR filing for Wellington Fund (Ascension #0000932471-15-006868)
 was filed to include the appropriate version of PricewaterhouseCoopers’ “Report of
Independent Registered Public Accounting Firm” for Item 6 of the filing.
 
 The amended N-SAR filing for Vanguard Specialized Funds (Ascension #0000932471-
 16-013070) was filed to make revisions to Items 47, 72AA, and 72BB for Vanguard
 Health Care Fund, a series of Vanguard Specialized Funds.
 
 We will include a cover letter or explanatory note in the future.
 
Comment 2:Please consider marking Form N-Q as unaudited.
 
Response:We will indicate that future Form N-Q filings are unaudited.
 
Comment 3:Form N-PX for Total International Stock Index Fund indicated there were three related
 submissions; however, there were five related submissions. Please explain why there
 were five related submissions.
 
Response:The size of the submission necessitated that the original document be divided into three
 separate submissions. When a single filing needs to be broken down due to size
 constraints, we refer to any accession numbers in all subsequent filings. In this instance,
 parts 2 and 3 of the original document failed to show the accession numbers so the
 submissions were refiled to ensure the accession numbers were included. Thus, parts 2
 and 3 were filed twice, resulting in five submissions rather than three.
 
Comment 4:In the chart titled “People Who Govern Your Fund,” in Form N-CSR, please include
 addresses per instructions on Form N-1A.
 
Response:We will include addresses in future filings.
 
Comment 5:Please confirm if any funds executed any trades pursuant to Rule 17a-7 under the
 Investment Company Act of 1940 (the “40 Act”). If so, please explain why disclosures
 were not included per ASC 850-10-50.
 
Response:Certain of the funds executed interfund trades pursuant to Rule 17a-7 of the 40 Act. We
 evaluated the volume of such transactions, and determined that it was not material for
 disclosure in the financial statements. ASC 850-10-50-1 states that “Financial statements
 shall include disclosures of material related party transactions, other than compensation
 arrangements, expense allowances, and other similar items in the ordinary course of
 business.”
 
Comment 6:Per ASC 210-20-55-14, in future N-CSR filings, please expand on collateral
 arrangements for those transactions treated under master netting or similar arrangements.
 For example, please disclose whether collateral that is pledged or received is restricted or
 can be re-pledged, resold, or re-hypothecated.

 


 

Response:We will expand on collateral arrangements for transactions treated under master netting
 or similar arrangements in future N-CSR filings.
 
Comment 7:Please refer to guidance on ASC 946-225-50, which indicates gains or losses from in-
 kind redemptions should be shown separately on the Statement of Operations. We noted
 that this information was disclosed in the Notes to Financial Statements but not on the
 Statement of Operations. Please explain.
 
Response:We disclose the amount of net capital gains/losses from in-kind redemptions in the
 footnotes, and expand on the tax treatment of such capital gains/losses. We believe that
 having this information in one place provides the reader with better context.
 
Comment 8:We did not see offsetting disclosures for some funds that invested in derivatives during
 the period. Do the funds have a materiality threshold for disclosing net amounts of
 derivatives exposure? If so, what is the threshold?
 
Response:Yes, we employ a materiality threshold that is based on the value of the unrealized
 gain/loss on investments subject to a master netting agreement, as a percentage of net
 assets.
 
Comment 9:Please explain how often fees payable to VGI for management, administration,
 marketing, and distribution are settled.
 
Response:We generally make payments to VGI twice a month for investment advisory, corporate
 management, administrative, marketing, and distribution services. Note, however, that
 VGI does not require reimbursement from a fund in the current period for certain costs of
 operations (as disclosed in the notes to the financial statements).
 
Comment 10:Please consider updating the caption on the Statement of Operations to indicate that
 securities lending income is net. Also, please consider adding disclosure to the lending
 note to indicate whether the fund is entitled to dividend income on securities lent.
 
Response:We will consider updating our caption to indicate that securities lending income is
 presented on a net basis and whether the fund is entitled to dividend income. Our
 footnote discloses that securities lending income represents fees charged to borrowers
 plus income earned on invested cash collateral, less expenses associated with the loan.
 The fund is entitled to dividend income on a security that is on loan, and we will consider
 disclosing this.
 
 
Comment 11:The Total International Bond Index Fund prospectus indicates that the fund offers
 Institutional Plus shares; however, the Notes to Financial Statements do not refer to such
 shares. Please consider updating notes to indicate that Institutional Plus shares were not
 offered as of the period end.
 
Response:The Total International Bond Index Fund does not presently offer Institutional Plus
 shares as the “Share Class Overview” disclosure in the new Institutional Select shares
 prospectus suggests. As such, we do not plan to update the Notes to Financial Statements
 in the annual report as suggested. We will remove the reference to Institutional Plus
 shares from the Institutional Select shares prospectus at the fund’s next annual update.

 


 

Comment 12:For LifeStrategy Funds and all other funds with affiliated investments, please consider
 updating the caption on the Statement of Operations to indicate that income and capital
gain distributions are from affiliated entities per Regulation S-X 210.6-071.
 
Response:We will consider updating the caption on the Statement of Operations to indicate that
 income and capital gain distributions are from affiliated entities.
 
Comment 13:For adjustable rate securities, please consider disclosing on the Schedule of Investments,
 a description of reference rate and spread and the end of period interest rate, or in a note
 to the Schedule of Investments, the end of period reference rate for each reference rate
 described in the schedule.
 
Response:We identify securities on the Statement of Net Assets that have an adjustable rate and
 disclose the current coupon rate for such securities. We note that there is no requirement
 under U.S. GAAP or Regulation S-X to disclose a description of the reference rate and
 spread when a security has an adjustable rate.
 
Comment 14:High Yield Bond Portfolio has sold protection on credit default swaps. Has the fund
 segregated assets to cover the full notional amount?
 
Response:Yes, the fund has segregated assets to cover the full notional amount.
 
Comment 15:In high yield funds (for example, High Yield Bond Portfolio), do any of the bonds pay
 PIK? If so, please disclose the rate paid in-kind?
 
Response:In our high yield funds, we had one security that paid PIK in 2013, however, it is no
 longer doing so. We note that there is no requirement under U.S. GAAP or Regulation S-
 X to disclose the rate paid in-kind.

 

Please contact me at (610) 669-2153 with any questions or comments regarding the above responses.

Sincerely,

/s/Jaliya S. Faulkner

Jaliya S. Faulkner
Associate Counsel
The Vanguard Group, Inc.