THE VANGUARD APPROACH Municipal bonunddf s

Vanguard Municipal Bond Funds

Learn how our philosophy and process produce high-quality, low-cost portfolios that offer taxexempt income and can help preserve capital.

Who we are

Vanguard Fixed Income Group uses a team-based approach to oversee our tax-exempt funds. Our experienced municipal group of approximately 45 professionals includes portfolio managers, credit analysts, and traders with an average of 14 years of experience.

$2.1T

Total assets managed by Vanguard Fixed Income Group

Source: Vanguard, as of June 30, 2021.

$222B

Total assets under management in Vanguard municipal bond funds

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Our municipal investment philosophy

Municipal bond investors have two primary goals: Tax-free income and capital preservation. They also seek enhanced total return, as long as that does not compromise tax efficiency or portfolio stability.

For more than 40 years our active municipal bond funds have delivered on each of these goals using an approach that emphasizes tax purity, high quality, and diversification:

? We seek to minimize taxable municipal bond holdings in all of our funds, to avoid surprises for clients at tax season.

? Our funds invest primarily in high-quality bonds; each of our active national funds, with the exception of Vanguard High-Yield Tax-Exempt Fund, is limited to only 5% of its bonds rated below investment grade.

? Each of our national tax-exempt funds holds thousands of bonds across sectors, providing maximum diversification.

Additionally, because of our low cost, our funds have a considerably lower fee hurdle versus the average fees of their competitors.1 This competitive advantage allows our team to think about risk differently, applying a more patient and prudent approach to deploying risk. And because of our size, we can trade at attractive prices to minimize the effect of transaction costs on fund performance.

Our entire lineup--from money markets to statespecific and national funds--is designed to let you choose the approximate maturity spectrum and tax treatment needed for your client portfolios.

Overview: Vanguard Municipal Bond Funds

Money market

National

Municipal Money Market

California Municipal Money Market

Short-Term Tax-Exempt

VMSXX2

VCTXX2

New York Municipal Money Market

VWSUX

IntermediateTerm Tax-Exempt

Limited-Term Tax-Exempt

VMLUX Long-Term Tax-Exempt

State-specific

California IntermediateTerm TaxExempt

VCADX

Massachusetts Tax-Exempt

California Long-Term Tax-Exempt

VCLAX

New Jersey Long-Term Tax-Exempt

VYFXX2

VWIUX High-Yield Tax-Exempt

VWALX

VWLUX

VMATX

New York Long-Term Tax-Exempt

VNYUX

VNJUX

Pennsylvania Long-Term Tax-Exempt

VPALX

Tax-Exempt Bond Index Fund

Tax-Exempt Bond ETF (index-based)

Ohio Long-Term Tax-Exempt

VTEAX

VTEB

VOHIX

Note: All ticker symbols are for AdmiralTM Shares, except for the Massachusetts Tax-Exempt and the Ohio Long-Term Tax-Exempt Funds, and the money market funds, which also only offer Investor Shares.

3 1 Vanguard calculations using Morningstar data. Vanguard's asset-weighted expense ratio was 0.10% on December 31, 2020, and the industry asset-weighted expense ratio, excluding Vanguard, was 0.48%.

2 See page 15 for more information.

Designed to deliver outperformance

Our process blends top-down strategy from the Senior Investment Committee--which has economic, fixed income, and risk management expertise--with bottom-up security and sector analysis from our deep and experienced team.

A team-based approach

Our funds are not reliant on the triumphs of one, or even a few, investors or trades. Instead, we seek diversified sources of alpha to help the funds provide all-weather performance throughout the market cycle. Here is how the process works.

Senior Investment Commitee provides:

? Macroeconomic projections.

? Investment process and governance for all Vanguard active fixed income funds.

? Views on Federal Reserve policy.

Municipal Strategy Group guides: ? Overall credit exposure. ? Yield-curve positioning. ? Bond structure strategies.

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Sector and subsector teams analyze and recommend positioning within:

? Credit sectors.

? Individual issuers.

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Portfolio managers

ector & subsector team

Portfolio managers are responsible for all portfolio decisions and risks and returns in each fund. The portolio managers are supported by an experienced team of more than 30 municipal bond credit analysts and traders, each with areas of expertise that contribute to our entire active municipal bond lineup. Credit analysts and traders collaborate to produce individual issuer, security, and sector-level recommendations. We combine the fundamental risk assessment from our credit analysts with the relative price lens of our traders, which helps to earn attractive compensation for the level of risk we see in an issuer.

Governance and risk management of the lineup is provided by the Senior Investment Committee and risk managers from Vanguard Risk Management Group, who provide direct risk mitigation and control through close collaboration with the portfolio managers.

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Our diversified sources of alpha

We employ a diversified set of alpha levers to add value and seek consistent results across market cycles.

Interest rates ? Yield curve. ? Duration.

Structure

? Callability (i.e., callable or putable bonds).

? Coupon (e.g., 3% versus 4%). ? Maturity.

Credit ? Issuer creditworthiness. ? Sector allocation.

Interest rates

Structure Credit

How our team pursues outperformance

Assesses creditworthiness in a highly fragmented market.

Evaluates complex relationships between coupon structures and put and call features.

Tactically positions for seasonally driven cash flows.

Understands the behavioral preferences of municipal investors.

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