Vanguard Financials Index Fund and Vanguard Health Care Index Fund seek shareholder approval to change each Fund's legal classification from "diversified" to "nondiversified" under the Investment Company Act of 1940 and to eliminate the related fundamental diversification policy. The Board and Vanguard say the change would let portfolio managers more directly own concentrated benchmark constituents—reducing reliance on derivatives and related costs—and potentially improve index tracking and investment performance.
The Board unanimously recommends a vote FOR both proposals but notes that nondiversified status may raise each Fund's risk profile because performance could become more dependent on fewer issuers. If approved, federal tax diversification tests under the Internal Revenue Code will still apply. Estimated proxy solicitation costs are approximately $3 million to $4 million, allocated between the Funds. Record date for voting is August 26, 2025 and the virtual meeting is set for November 4, 2025.
Vanguard Financials Index Fund and Vanguard Health Care Index Fund will hold a virtual Joint Special Meeting on October 21, 2025 for shareholders of record as of August 26, 2025 to vote on reclassifying each Fund from diversified to nondiversified and eliminating the Funds' related fundamental diversification restriction. The Board unanimously recommends a vote FOR the proposals, saying the change would allow portfolio managers to own benchmark constituents directly rather than rely on derivatives, which have added costs and risks, and could improve tracking and performance while leaving investment objectives and strategies unchanged.
The proposal would raise each Fund's potential concentration risk because nondiversified funds may hold larger positions in fewer issuers. Federal tax diversification rules under the Internal Revenue Code would still apply. Approval requires either 67% of votes present if a quorum (>50% of outstanding voting shares) is represented, or >50% of outstanding voting securities; quorum requires >33 1/3% of a Fund's NAV. Estimated proxy solicitation costs are $2.5M–$3.5M (shared between the Funds).