The Fund
The Fund is an exchange-traded fund managed by The Vanguard Group,
Inc. ("Vanguard"), the investment adviser to the Vanguard FTSE
Emerging Markets ETF. The Fund seeks to track the performance of a
benchmark index that measures the investment return of stocks issued
by companies located in emerging market countries, which we refer to
as the Underlying Index with respect to the Fund. The Underlying
Index is currently the FTSE Emerging Index. The FTSE Emerging Index
is a market-capitalization weighted index representing the
performance of large- and mid-cap companies in emerging markets. For
more information about the FTSE Emerging Index, please see "Equity
Index Descriptions The FTSE GEIS Indices" in the accompanying
underlying supplement no. 1a-I.
In June 2015, Vanguard announced that the Fund will transition to
tracking the FTSE Emerging Markets All Cap China A Inclusion Index
(the "Target Index") in the third or fourth quarter of 2015. The
transition will take place in two phases. In the first phase, the
Fund will track the FTSE Emerging Markets All Cap China A Inclusion
Transition Index (the "Interim Index"), an interim index that will
gradually increase exposure to small-capitalization stocks and China
A-shares while proportionately reducing exposure to other stocks
based on their weightings in the new index. China A-shares, which are
securities of Chinese incorporated companies that are quoted in
Renminbi, can only be traded by either residents of the People's
Republic of China or under the qualified foreign institutional
investor ("QFII") rules and stock connect schemes. In the second
phase, the Fund will begin to track the FTSE Emerging Markets All Cap
China A Inclusion Index, which will be quota-adjusted by FTSE to take
into account the quota amount allocated to foreign investors by the
Chinese regulator (the "Target Index). The gradual changes in the
Interim Index over the course of a year are expected to result in the
Interim Index eventually replicating the Target Index. For additional
information about the Interim Index and the Target Index, see the
information set forth under " The FTSE Emerging Markets All Cap
China A Inclusion Transition Index" and " The FTSE Emerging Markets
All Cap China A Inclusion Index" below.
During both the transition and final benchmark phases, the Fund will
invest by sampling the relevant index, meaning that it will hold a
broadly diversified collection of securities that, in the aggregate,
approximates the full index in terms of key characteristics. To
protect the Fund from the potential for harmful "front running" by
traders, the exact timing of the index change and portfolio
transition has not been disclosed to investors, but Vanguard expects
the index change and portfolio transition to be complete by the end
of 2016.
For additional information about the Fund, see the information set
forth under "Fund Descriptions The Vanguard FTSE Emerging Markets
ETF" in the accompanying underlying supplement no. 1a-I.
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The FTSE Emerging Markets All Cap China A Inclusion Transition Index |
We have derived all information contained in this term sheet
regarding the Interim Index, including, without limitation, its
make-up, method of calculation and changes in its components, from
publicly available information, without independent verification.
This information reflects the policies of, and is subject to change
by, FTSE International Limited ("FTSE"). FTSE has no obligation to
continue to publish, and may discontinue publication of, the Interim
Index.
The Interim Index will be calculated over twelve months and at the
start of the transition will only contain constituents of the FTSE
Emerging Index. On a monthly basis, a proportion of
small-capitalization and China A-share companies will be added until
at the end of the year-long transition, the composition is aligned
with the Target Index. The weight of China A-shares and
small-capitalization companies will be adjusted after the third
Friday of each month using a factor approach. At the start of the
index calculation, China A-shares and small-capitalization companies
will have a factor of 0 applied to their free-float adjusted market
capitalizations. Each month, the factor will be increased by 8.33%.
At month 12, the full weight of China A-shares and small cap
companies will have been added to the Interim Index and the index
constituents and weightings will be aligned with the Target Index.
The constituents' weights in the Interim Index are neutralized
between transition reviews when a corporate event leads to a rise or
fall in index weighting for a constituent could potentially be
reversed at the next monthly transition review. This may cause FTSE
to adjust the factor applied to an index constituent's market
capitalization.
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The FTSE Emerging Markets All Cap China A Inclusion Index |
We have derived all information contained in this term sheet
regarding the Target Index, including, without limitation, its
make-up, method of calculation and changes in its components, from
publicly available information, without independent verification.
This information reflects the policies of, and is subject to change
by, FTSE. FTSE has no obligation to continue to publish, and may
discontinue publication of, the Target Index.
The Target Index is a market-capitalization weighted index
representing the performance of large, mid and small-cap companies in
emerging markets. The Target Index was launched on June 5, 2015, with
a base date of December 31, 2005 and a base value of 1,000.
The Target Index will apply the same methodology as the FTSE Emerging
Index, except the Target Index will include small capitalization
stocks and China A-shares at a weighting equivalent to the aggregate
QFII and/or Renminbi QFII ("RQFII") approved quota for international
investors. The China A-shares weighting will increase as total QFII
and RQFII allocations increase. A built-in mechanism ensures that the
allocation of China A-shares is adjusted proportional to the changes
in the approved quota and is in line with the accessibility available
to international investors.