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-speci c

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.

SeniuonriIcnipvaelsStmtreantetgCyoGmromuitte

Sector and subsector teams analyze and recommend positioning within:

? Credit sectors. ? Individual issuers.

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e p

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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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The people leading the process

Senior Investment Committee

Global fixed income, economic, and risk management experts

Sara Devereux

Global Head of Fixed Income Group

Joe Davis, Ph.D.

Global Chief Economist

Municipal Strategy Group

Heads

Paul Malloy, CFA

Head of U.S. Municipals

Manish Nagar

Global Head of Risk Management Group

Chris Alwine, CFA

Global Head of Credit3

Paul Malloy, CFA

Head of U.S. Municipals

Senior portfolio managers

Mathew M. Kiselak High-Yield Tax-Exempt Fund, Long-Term Tax-Exempt Fund

Nathan Will Head of Municipal Credit Research

Lead sector analysts

David W. Thorkelson GO

Ron Mintz, CFA High Yield

North Jersild, CFA Revenue

Adam M. Ferguson, CFA Limited-Term Tax-Exempt Fund, California Intermediate-Term Tax-Exempt Fund, New Jersey Long-Term Tax-Exempt Fund, New York Long-Term Tax-Exempt Fund (co-manager)

Stephen M. McFee, CFA Tax-Exempt Bond Index Fund, California Long-Term Tax-Exempt Fund (co-manager), Massachusetts Tax-Exempt Fund, New York Long-Term Tax-Exempt Fund (co-manager), Ohio Long-Term Tax-Exempt Fund

James M. D'Arcy, CFA Intermediate-Term Tax-Exempt Fund, California Long-Term Tax-Exempt Fund (co-manager), Pennsylvania Long-Term Tax-Exempt Fund

Justin A. Schwartz, CFA Short-Term Tax-Exempt Fund, Municipal Money Market Fund

3 Chris Alwine has served as Global Head of Credit since 2018 and has assumed the role of Global Head of Rates on an interim basis as of June 30, 2021. 6

Credit research

Credit research

The cornerstone of our active investment process is research. It is our first line of defense in identifying potential problems among bonds we own or are considering owning, and it is a key source of alpha as analysts identify opportunities throughout the municipal market.

More than 20 municipal credit analysts assess every issuer we hold. The credit-analysis process includes:

? Evaluating financial statements and budgets, including pension liabilities, and the potential effects of the macroeconomic environment.

? Projecting cash flows.

? Understanding the potential implications from political developments, sociodemographic trends, and regulatory changes.

? Conducting in-person meetings and on-site visits with treasurers, other government officials, and project developers.

The analysts produce an internal credit rating and a relative risk assessment for each issuer, along with an overall sector view. The analysts then engage the traders and portfolio managers to determine the optimal incorporation of the recommendation into our municipal fund lineup.

Why internal ratings matter

We compare our internal ratings with the issuer's current and potential ratings from those of credit rating agencies, because agency ratings generally drive market prices. Internal ratings that differ from those of credit agencies may signal either attractive investment opportunities or problems to avoid. Our credit surveillance is a continuous process that doesn't end at purchase; analysts reassess and update their credit risk assessments and ratings regularly.

Credit research process

1

Analysts form their own issuer ratings and recommendations.

2

Analysts assess the rationales for their ratings with the credit team, traders, and portfolio managers.

3

Together they form an issuer and a sector investment strategy.

4

Trading desk implements decisions.

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Covering the market

The municipal market is composed of general obligation (GO) issuers (e.g., states, cities, school districts, etc.) and revenue sectors (e.g., toll roads, not-for-profit hospitals, universities, etc.). Our analysts are assigned an area of GO or revenue coverage, separated by geography and sector. For example, one analyst covers GO bonds in the Northwest, while three different analysts share hospitals across the U.S. Constructing a coverage map in this way allows us to blanket the broad municipal market, while enabling different perspectives to emerge.

The risks across issuers are diverse and idiosyncratic. The risk factors for a Midwestern city are starkly different from those for a hospital in California and different still from those for a university in the Northeast.

Additionally, the past decade has brought significant change to the municipal bond market in the form of diminished bond insurance and smaller marketmaker inventories. Each of these circumstances favors a fully scaled, professional manager with deep resources that can properly evaluate credit risk and utilize a network of dealer relationships to acquire bonds and build prudent portfolios.

General obligation ? States ? Cities ? School districts Revenue ? Hospitals ? Universities ? Water/sewer ? Toll roads ? Other

Note: Map shows analyst coverage areas. 8

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