UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-04098
Name of Registrant: Vanguard Chester Funds
Address of Registrant:
P.O. Box 2600
Valley Forge, PA 19482
Name and address of agent for service:
Heidi Stam, Esquire
P.O. Box 876
Valley Forge, PA 19482
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: September 30
Date of reporting period: October 1, 2014 – March 31, 2015
Item 1: Reports to Shareholders
Semiannual Report | March 31, 2015
Vanguard PRIMECAP Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Advisor’s Report. | 8 |
| Fund Profile. | 12 |
| Performance Summary. | 14 |
| Financial Statements. | 15 |
| About Your Fund’s Expenses. | 26 |
| Glossary. | 28 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| Your Fund’s Total Returns | ||||
| Six Months Ended March 31, 2015 | ||||
| Total | ||||
| Returns | ||||
| Vanguard PRIMECAP Fund | ||||
| Investor Shares | 7.60% | |||
| Admiral™ Shares | 7.64 | |||
| S&P 500 Index | 5.93 | |||
| Multi-Cap Growth Funds Average | 8.85 | |||
| Multi-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
| Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. | ||||
| Your Fund’s Performance at a Glance | ||||
| September 30, 2014, Through March 31, 2015 | ||||
| Distributions Per Share | ||||
| Starting | Ending | Income | Capital | |
| Share Price | Share Price | Dividends | Gains | |
| Vanguard PRIMECAP Fund | ||||
| Investor Shares | $104.16 | $105.16 | $1.160 | $5.708 |
| Admiral Shares | 108.08 | 108.97 | 1.403 | 5.913 |
1
Chairman’s Letter
Dear Shareholder,
The investment environment for the six months ended March 31, 2015, was rewarding, but those rewards didn’t come easily. Corporate earnings and economic data didn’t always offer clear direction. And speculation over the Federal Reserve’s next move often sent the broad market scurrying.
Vanguard PRIMECAP Fund ended the half year with more successes than setbacks. The fund recorded a return of 7.60% for Investor Shares and 7.64% for Admiral Shares, ahead of the benchmark Standard & Poor’s 500 Index but behind the average return of multi-capitalization growth peer funds.
Health care and information technology, the two sectors the PRIMECAP Fund is most committed to, delivered demonstrably different performances. Although health care remained a fund stalwart, technology suffered. Industrial and consumer discretionary stocks picked up some of the slack.
The Fed’s cautious approach has helped the U.S. stock market
The broad U.S. stock market returned about 7% for the six months. Stocks were resilient after declining markedly at the start of the period and enduring bouts of turmoil in subsequent months. Investors’ concerns included the strength of the dollar and how it would affect the profits of U.S.-based multinational corporations.
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Overall, stocks responded favorably to both the Federal Reserve’s cautious approach to raising short-term interest rates and the monetary stimulus efforts of other nations’ central banks. A strong rebound in February, when the broad market notched its largest monthly gain since October 2011, helped lift returns for the period.
International stocks had a slightly negative return as the dollar’s strength against many foreign currencies hurt results. Without this currency effect, stocks outside of the United States generally advanced.
The developed markets of the Pacific, particularly Japan, were especially strong.
Bond prices received a boost from central bank stimulus
Bond prices also were supported by accommodative monetary policies from the world’s central banks and investors who sought safe-haven assets amid turbulence in the stock market. The broad U.S. taxable bond market returned 3.43%. The yield of the 10-year Treasury note ended March at 1.95%, down from 2.48% six months earlier. (Bond prices and yields move in opposite directions.)
Municipal bonds returned 2.40%, although results faded later in the period as more bonds were issued.
| Market Barometer | |||
| Total Returns | |||
| Periods Ended March 31, 2015 | |||
| Six | One | Five Years | |
| Months | Year | (Annualized) | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | 6.55% | 12.73% | 14.73% |
| Russell 2000 Index (Small-caps) | 14.46 | 8.21 | 14.57 |
| Russell 3000 Index (Broad U.S. market) | 7.13 | 12.37 | 14.71 |
| FTSE All-World ex US Index (International) | -0.08 | -0.21 | 5.19 |
| Bonds | |||
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 3.43% | 5.72% | 4.41% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.40 | 6.62 | 5.11 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| CPI | |||
| Consumer Price Index | -0.80% | -0.07% | 1.64% |
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International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –7.49%, a reflection of foreign currencies’ weakness relative to the dollar. International bonds hedged to eliminate the effect of currency exchange rates produced positive returns.
The Fed’s target of 0%–0.25% for short-term interest rates continued to cap returns for money market funds and savings accounts.
Health care led, technology lagged as the fund stuck to its strategy
The PRIMECAP Fund bears little resemblance to its benchmark. The fund’s advisor, PRIMECAP Management Company, maintained exposures of more than 30% each, on average, to health care and technology stocks during the period. PRIMECAP’s allocation to five of the ten industry sectors totaled about 6%.
This type of lineup is nothing new for the fund, as the advisor has long favored health care and technology stocks. These sectors, where innovation and patience are crucial to success, match up nicely with the advisor’s careful research methods and long-term investment strategy.
When PRIMECAP Management invests in stocks of companies that meet its strict criteria, it generally does so for years, rather than months, at a time. If it believes a company is sound, its prospects bright, and its management team sharp, the
| Expense Ratios | |||
| Your Fund Compared With Its Peer Group | |||
| Investor | Admiral | Peer Group | |
| Shares | Shares | Average | |
| PRIMECAP Fund | 0.44% | 0.35% | 1.28% |
The fund expense ratios shown are from the prospectus dated January 27, 2015, and represent estimated costs for the current fiscal year. For the six months ended March 31, 2015, the fund’s annualized expense ratios were 0.43% for Investor Shares and 0.34% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: Multi-Cap Growth Funds.
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advisor tends to hold on, even amid occasional detours through short-term underperformance.
Health care was the largest contributor over the period, adding more than 4 percentage points to the fund’s return––twice that of any other sector. This outperformance was mostly a result of a large allocation to the sector and its biotechnology holdings. And it’s a tribute to PRIMECAP Management, which recently added James Marchetti to its roster of distinguished portfolio managers. The biotechnology firms the advisor focused on cultivate rich drug pipelines that are
| Marking the sixth anniversary of the bull market |
| There’s been a long and steep climb in the U.S. stock market in the six years since the worst |
| of the financial crisis. |
| The dark line in the chart below traces the rise in the Russell 3000 Index from a low of 390 |
| on March 9, 2009, to 1,241 on March 9, 2015—an increase of roughly 220% in 72 months. |
| The robustness and duration of the advance defied the predictions of some market pundits. |
| Of course, the financial crisis caught many of them off guard as well. The lighter line below |
| charts the drop of about 60% in the index in 17 months, from its pre-crisis peak of 908 on |
| October 9, 2007. |
| These sharp and unexpected movements illustrate the challenge of trying to time the markets. |
| Instead of trying to guess which way the wind will blow (and for how long), investors are |
| generally better off staying committed to their investment plan through market ups and downs. |
| Rebalancing your portfolio from time to time will help keep market movements from pushing |
| your allocation to stocks and bonds off target. |
| The performance of the U.S. stock market since the start of the financial crisis |
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quite productive now or are expected to be in the years ahead. The fund’s pharmaceutical companies generated spottier results, however.
As a group, technology holdings produced tepid results, posting returns of less than 1%. By comparison, the technology stocks held by the benchmark gained almost 6%.
The PRIMECAP Fund’s stock selection was strongest in the industrial sector, where its holdings returned close to 14%, more than double those in the benchmark. Most of the outperformance came from airlines, where pricing advantages have benefited some larger firms and lower fuel prices have generally improved profitability in the industry.
The fund’s consumer discretionary holdings also lifted performance. Household appliance firms and apparel and automotive retailers stood out, as shoppers appeared to grow more confident. The drop in oil prices, however, pummeled the energy sector. Although the PRIMECAP Fund’s energy stocks declined more steeply than those of the benchmark, the advisor’s small exposure to the sector worked in its favor.
For more about the advisor’s strategy and the fund’s positioning during the six months, please see the Advisor’s Report that follows this letter.
Our commitment to balanced investing has roots reaching back many decades
On May 1, Vanguard will celebrate its 40th anniversary. Although many things have changed since 1975, our investment philosophy has not. From the start, we’ve focused on four timeless, straightforward principles that we believe help give clients the best chance for investment success:
• Goals. Create clear, appropriate investment goals.
• Balance. Develop a suitable asset allocation using broadly diversified funds.
• Cost. Minimize cost.
• Discipline. Maintain perspective and long-term discipline.
Although Vanguard has followed all of these principles since its founding, one of them—the focus on balanced investing—is in the company’s DNA. That’s because our predecessor company, Wellington Management, was a pioneer in this respect, launching a fund in 1929 that included both stocks and bonds.
Vanguard WellingtonTM Fund got its start on the eve of the Great Depression, but it thrived over the long term, thanks in large part to its balancing of stocks and bonds. And this strategy continues to define the fund, now one of the nation’s largest balanced funds.
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As we embark on our fifth decade, we’ll continue to emphasize the importance of balanced, diversified investing. How investors allocate assets between stocks and bonds has an enormous effect on their portfolio’s risks and returns. And broad diversification reduces exposure to specific risks, while providing opportunities to benefit from the market’s current leaders. (You can read more in Vanguard’s Principles for Investing Success, available at vanguard.com/research.)
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer April 13, 2015
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Advisor’s Report
For the six months ended March 31, 2015, Vanguard PRIMECAP Fund returned 7.60% for Investor Shares and 7.64% for Admiral Shares, exceeding the 5.93% return of its benchmark, the unmanaged Standard & Poor’s 500 Index, while trailing the 8.85% average return of its multi-capitalization growth fund competitors. Relative to the benchmark, the fund’s outperformance was attributable to its overweight position in health care, the top-contributing sector, and its underweight position in energy, the worst-performing sector. Stock selection was neutral to the fund’s relative results, with strong selection in industrials and consumer discretionary offset by unfavorable selection in information technology and energy.
The investment environment
Over the six months, U.S. equities continued to appreciate, and the S&P 500 Index reached a new high during the first quarter of 2015. Small-capitalization stocks, as measured by the Russell 2000 Index, widely outperformed large-caps, as measured by the Russell 1000 Index. Within each index, stocks with higher price/earnings ratios and higher forecasted growth rates outperformed stocks with lower P/E ratios and lower forecasted growth rates.
The U.S. economy continued to expand, as real gross domestic product (GDP) grew 5.0% in the third quarter of 2014 and 2.2% in the fourth quarter. The labor market improved further, with the unemployment rate declining over the period to 5.5%, the lowest level since May 2008. Inflation remained low, in part because of falling energy prices; the gasoline component of the Consumer Price Index declined 33% from February 2014 to February 2015. Lower gasoline prices contributed to improving consumer confidence and a higher savings rate over the past several months. The U.S. dollar strengthened, notably against the euro, which declined from $1.26 on September 30 to $1.08 on March 31 as the European Central Bank began buying sovereign bonds. The strong dollar hurt U.S. exporters, including many of the fund’s information technology companies, by increasing the cost of their dollar-denominated products and services sold in countries whose currencies have depreciated against the dollar or by reducing the dollar value of their products and services sold in foreign currencies.
The Federal Reserve concluded its asset purchase program in October. In March, 15 of 17 participants in the Fed’s policymaking Federal Open Market Committee indicated that it would be appropriate to begin increasing the target range in 2015 for the federal funds rate, currently at 0%–0.25%.
On the geopolitical front, in early April the United States and five other world powers reached a controversial preliminary deal with Iran to limit its nuclear program in exchange for lifting economic sanctions. The Middle East remained mired in conflict, with civil wars in Yemen, Syria, and Iraq. In Africa, one terrorist group, Boko Haram, massacred civilians in Nigeria, and another, Al-Shabaab, did the same in Kenya.
8
Outlook for U.S. equities
We are less optimistic on the outlook for U.S. equities than we have been in recent years, though we continue to find individual stocks that are attractively valued. We also believe that stocks are a more attractive investment than bonds at current prices. As of March 31, the S&P 500 Index was trading for approximately 17.3 times 2015 consensus estimated earnings per share of $120, a higher level than the average of the past 15 years. The index also appears more expensive on a price-to-sales multiple basis, because profit margins are near record highs.
Portfolio update and outlook
For the six-month period, the portfolio was overweight in health care, information technology, and industrials. These sectors made up about three-quarters of the fund’s holdings on average (compared with about 45% of the benchmark’s), including the fund’s ten largest holdings.
The fund’s outperformance was a result of favorable sector allocations, notably an overweighting of health care and underweighting of energy. Positive stock selection in industrials and consumer discretionary was offset by unfavorable selection in information technology and energy. In industrials, Alaska Air Group (+53%), American Airlines Group (+49%), United Continental Holdings (+44%), and Southwest Airlines (+32%) accounted for most of the outperformance.
The largest positive contributors in consumer discretionary were Sony (+48%), L Brands (+45%), Ross Stores (+40%), Whirlpool (+40%), Carnival (+20%), and TJX (+19%). These positives were partly offset by unfavorable stock selection in information technology, including Micron (–21%), NetApp (–17%), EMC (–12%), Microsoft (–11%), and Hewlett-Packard (–11%), along with an underweight position in Apple (+25%). In energy, unfavorable selection was led by Transocean (–51%) and Noble Energy (–28%).
Health care
We remain confident in the fundamental long-term outlook for the health care industry. Increasing worldwide demand for its products will be driven by demographic trends and by the industry’s ability to develop more effective therapies for a range of diseases and conditions. For example, Biogen recently reported positive data in an early-stage trial studying its Alzheimer’s disease treatment, rekindling researcher and investor enthusiasm in the potential of this class of drug. Eli Lilly, one of the fund’s top ten holdings, has a similar promising drug in late-stage clinical trials. Another area of tremendous progress is in the treatment of hepatitis C virus liver infections. Five years ago, the standard treatment for this deadly disease consisted of a year-long regimen, including hard-to-tolerate weekly injections, and the resulting cure rate was about 50%. Recently, Gilead and Abbvie received FDA approval for their oral therapies, which can achieve cure rates of about 95% in as little as eight to 12 weeks, and further improvements are on the horizon.
9
Although our long-term outlook for health care is positive, it is tempered by increasing concerns about reimbursement and pricing for approved drugs and biologics. Payers recently have been able to extract higher-than-expected pricing concessions from Abbvie and Gilead as they competed for share with their new hepatitis C drugs. This has made investors concerned that pricing pressure may similarly make its way into other therapeutic areas, such as diabetes, rheumatoid arthritis, and multiple sclerosis.
Ultimately, we feel that high-value therapies that are unique in the market and substantially improve patient outcomes will continue to garner favorable pricing from reimbursement authorities. As we think ahead to our stock positioning in health care, we will focus even more on the more innovative biotechnology/ pharmaceutical companies with the most distinctive pipelines. Given the uncertain pricing outlook, we feel that it might be harder for the large biotech and pharmaceutical groups to maintain their relative outperformance. Increasingly, we see more attractive opportunities in other health care areas, such as life science research tools and diagnostics.
Information technology
We continue to believe that many of the fund’s information technology holdings are attractively valued. The price-to-earnings multiple of the sector relative to that of the broader S&P 500 Index is near a multidecade low. The tech companies in the index are also far better capitalized than companies in other sectors. Many of the fund’s tech holdings have considerable percentages of their market capitalization in net cash on their balance sheets. Valuations for these holdings, which are already at reasonable multiples, are even more attractive when their net cash balances are considered.
A fundamental technology shift occurring today is the transition from client-server to internet-based, or cloud, architectures, which allow users to rent software applications and computing resources and use them over the internet. This model is more flexible than the traditional one of buying perpetual or term-based licenses to software and running the applications on local servers. We believe that Microsoft and Intel, which are nearly synonymous with the client-server era of computing, are good examples of companies that are evolving to remain relevant. Microsoft has reengineered and repriced many of its software applications to be delivered as cloud services, while the servers that power the cloud’s data centers overwhelmingly use Intel processors.
Industrials
Within industrials, we still find the airline industry attractive for equity investment despite its recent outperformance. The industry has consolidated significantly over the past decade, and today the four largest airlines constitute roughly 85% of industry capacity. Capacity has been reduced by 9% since 2007, and utilization is at historical highs, giving the airlines the opportunity to raise ticket prices. Furthermore, the industry has established new, high-margin secondary revenue streams, which are becoming significant drivers of profitability. Finally, the recent
10
drop in crude oil prices has been a major boost to the airlines, as jet fuel averages roughly 25% of an airline’s costs.
Conclusion
We remain committed to our investment philosophy, which is to invest in attractively priced individual stocks for the long term. This “bottom-up” approach often results in portfolios that bear little resemblance to market indexes; therefore, our results often deviate substantially. Furthermore, our long-term investment horizon results in low portfolio turnover, which creates the possibility for extended periods of underperformance when the stocks in our portfolio fall out of favor. We nonetheless believe that this approach can generate superior results for investors over the long term.
PRIMECAP Management Company April 13, 2015
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| PRIMECAP Fund | |||
| Fund Profile | |||
| As of March 31, 2015 | |||
| Share-Class Characteristics | |||
| Investor | Admiral | ||
| Shares | Shares | ||
| Ticker Symbol | VPMCX | VPMAX | |
| Expense Ratio1 | 0.44% | 0.35% | |
| 30-Day SEC Yield | 1.11% | 1.16% | |
| Portfolio Characteristics | |||
| DJ | |||
| U.S. Total | |||
| S&P 500 | Market | ||
| Fund | Index | FA Index | |
| Number of Stocks | 125 | 502 | 3,757 |
| Median Market Cap | $61.7B | $79.3B | $46.5B |
| Price/Earnings Ratio | 22.2x | 19.8x | 21.4x |
| Price/Book Ratio | 4.0x | 2.9x | 2.8x |
| Return on Equity | 19.8% | 18.7% | 17.5% |
| Earnings Growth | |||
| Rate | 14.7% | 13.4% | 13.5% |
| Dividend Yield | 1.6% | 2.0% | 1.9% |
| Foreign Holdings | 10.8% | 0.0% | 0.0% |
| Turnover Rate | |||
| (Annualized) | 10% | — | — |
| Short-Term Reserves | 5.2% | — | — |
| Volatility Measures | |||
| DJ | |||
| U.S. Total | |||
| S&P 500 | Market | ||
| Index | FA Index | ||
| R-Squared | 0.88 | 0.89 | |
| Beta | 0.93 | 0.92 | |
| These measures show the degree and timing of the fund’s | |||
| fluctuations compared with the indexes over 36 months. | |||
| Ten Largest Holdings (% of total net assets) | |||
| Biogen Inc. | Biotechnology | 8.4% | |
| Amgen Inc. | Biotechnology | 5.3 | |
| Eli Lilly & Co. | Pharmaceuticals | 4.5 | |
| Texas Instruments Inc. | Semiconductors | 4.2 | |
| Adobe Systems Inc. | Application Software | 3.4 | |
| FedEx Corp. | Air Freight & | ||
| Logistics | 3.3 | ||
| Roche Holding AG | Pharmaceuticals | 3.3 | |
| Google Inc. | Internet Software & | ||
| Services | 3.3 | ||
| Microsoft Corp. | Systems Software | 3.3 | |
| Southwest Airlines Co. | Airlines | 3.2 | |
| Top Ten | 42.2% | ||
| The holdings listed exclude any temporary cash investments and | |||
| equity index products. | |||
Investment Focus
1 The expense ratios shown are from the prospectus dated January 27, 2015, and represent estimated costs for the current fiscal year. For the six months ended March 31, 2015, the annualized expense ratios were 0.43% for Investor Shares and 0.34% for Admiral Shares.
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PRIMECAP Fund
Sector Diversification (% of equity exposure)
| DJ | |||
| U.S. Total | |||
| S&P 500 | Market | ||
| Fund | Index FA Index | ||
| Consumer | |||
| Discretionary | 9.8% | 12.6% | 13.4% |
| Consumer Staples | 0.5 | 9.7 | 8.4 |
| Energy | 2.2 | 8.0 | 7.3 |
| Financials | 6.1 | 16.2 | 17.6 |
| Health Care | 31.8 | 14.9 | 14.6 |
| Industrials | 16.7 | 10.4 | 11.1 |
| Information | |||
| Technology | 30.6 | 19.7 | 19.0 |
| Materials | 2.3 | 3.2 | 3.5 |
| Telecommunication | |||
| Services | 0.0 | 2.3 | 2.0 |
| Utilities | 0.0 | 3.0 | 3.1 |
13
PRIMECAP Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 30, 2004, Through March 31, 2015
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||
| Inception | One | Five | Ten | |
| Date | Year | Years | Years | |
| Investor Shares | 11/1/1984 | 15.58% | 15.91% | 10.78% |
| Admiral Shares | 11/12/2001 | 15.68 | 16.01 | 10.90 |
See Financial Highlights for dividend and capital gains information.
14
PRIMECAP Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Common Stocks (94.9%) | |||
| Consumer Discretionary (9.3%) | |||
| L Brands Inc. | 10,503,618 | 990,386 | |
| * | DIRECTV | 8,053,962 | 685,392 |
| Walt Disney Co. | 5,000,000 | 524,450 | |
| TJX Cos. Inc. | 6,875,000 | 481,594 | |
| Ross Stores Inc. | 4,522,600 | 476,501 | |
| * | Sony Corp. ADR | 14,500,000 | 388,310 |
| Carnival Corp. | 7,151,500 | 342,128 | |
| * | Bed Bath & Beyond Inc. | 2,300,975 | 176,657 |
| Whirlpool Corp. | 650,000 | 131,339 | |
| * | Amazon.com Inc. | 162,685 | 60,535 |
| VF Corp. | 772,400 | 58,170 | |
| Time Warner Cable Inc. | 293,304 | 43,960 | |
| Royal Caribbean Cruises | |||
| Ltd. | 400,000 | 32,740 | |
| Las Vegas Sands Corp. | 400,000 | 22,016 | |
| * | CarMax Inc. | 161,100 | 11,118 |
| Newell Rubbermaid Inc. | 100,000 | 3,907 | |
| 4,429,203 | |||
| Consumer Staples (0.5%) | |||
| CVS Health Corp. | 1,914,065 | 197,551 | |
| Tyson Foods Inc. Class A | 405,000 | 15,511 | |
| 213,062 | |||
| Energy (2.1%) | |||
| Schlumberger Ltd. | 3,662,200 | 305,574 | |
| EOG Resources Inc. | 2,595,000 | 237,936 | |
| ^ | Transocean Ltd. | 12,509,679 | 183,517 |
| Noble Energy Inc. | 2,900,000 | 141,810 | |
| Exxon Mobil Corp. | 615,000 | 52,275 | |
| National Oilwell Varco Inc. | 580,000 | 28,994 | |
| Encana Corp. | 1,325,000 | 14,774 | |
| * | Southwestern Energy Co. | 593,779 | 13,770 |
| * | Cameron International | ||
| Corp. | 186,200 | 8,401 | |
| Cabot Oil & Gas Corp. | 240,000 | 7,087 | |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Petroleo Brasileiro SA | |||
| ADR Type A | 600,000 | 3,654 | |
| Petroleo Brasileiro SA | |||
| ADR | 400,000 | 2,404 | |
| 1,000,196 | |||
| Financials (5.8%) | |||
| Charles Schwab Corp. | 26,103,100 | 794,578 | |
| Marsh & McLennan Cos. | |||
| Inc. | 11,681,100 | 655,193 | |
| Wells Fargo & Co. | 8,115,900 | 441,505 | |
| Chubb Corp. | 2,799,000 | 282,979 | |
| CME Group Inc. | 2,316,000 | 219,348 | |
| Progressive Corp. | 5,000,000 | 136,000 | |
| US Bancorp | 1,660,000 | 72,492 | |
| JPMorgan Chase & Co. | 860,000 | 52,099 | |
| Discover Financial Services | 806,100 | 45,424 | |
| American Express Co. | 422,100 | 32,975 | |
| 2,732,593 | |||
| Health Care (30.2%) | |||
| * | Biogen Inc. | 9,455,200 | 3,992,364 |
| Amgen Inc. | 15,796,700 | 2,525,102 | |
| Eli Lilly & Co. | 29,080,000 | 2,112,662 | |
| Roche Holding AG | 5,700,080 | 1,566,337 | |
| Novartis AG ADR | 12,563,965 | 1,238,933 | |
| Medtronic plc | 9,546,952 | 744,567 | |
| Johnson & Johnson | 6,119,469 | 615,619 | |
| * | Boston Scientific Corp. 28,142,560 499,530 |
| Thermo Fisher Scientific | ||
| Inc. | 2,428,600 | 326,258 |
| Abbott Laboratories | 6,537,900 | 302,901 |
| GlaxoSmithKline plc ADR | 3,100,000 | 143,065 |
| Sanofi ADR | 2,250,000 | 111,240 |
| AbbVie Inc. | 1,048,300 | 61,367 |
| Agilent Technologies Inc. | 880,500 | 36,585 |
| Zimmer Holdings Inc. | 295,000 | 34,668 |
| Stryker Corp. | 250,000 | 23,063 |
| 14,334,261 |
15
| PRIMECAP Fund | |||
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Industrials (15.8%) | |||
| FedEx Corp. | 9,474,068 | 1,567,485 | |
| 1 | Southwest Airlines Co. | 34,193,300 | 1,514,763 |
| Airbus Group NV | 11,021,564 | 716,527 | |
| Honeywell International | |||
| Inc. | 4,818,100 | 502,576 | |
| 1 | Alaska Air Group Inc. | 6,656,800 | 440,547 |
| Union Pacific Corp. | 3,447,400 | 373,388 | |
| * | United Continental | ||
| Holdings Inc. | 5,180,800 | 348,409 | |
| Caterpillar Inc. | 4,080,000 | 326,522 | |
| United Parcel Service | |||
| Inc. Class B | 2,181,070 | 211,433 | |
| Delta Air Lines Inc. | 4,363,000 | 196,160 | |
| American Airlines Group | |||
| Inc. | 3,645,000 | 192,383 | |
| Boeing Co. | 1,275,000 | 191,352 | |
| Deere & Co. | 2,145,500 | 188,139 | |
| CH Robinson Worldwide | |||
| Inc. | 2,080,000 | 152,298 | |
| United Technologies | |||
| Corp. | 1,007,000 | 118,020 | |
| Pentair plc | 1,509,000 | 94,901 | |
| Rockwell Automation Inc. | 750,000 | 86,992 | |
| Safran SA | 1,036,800 | 72,443 | |
| CSX Corp. | 2,090,000 | 69,221 | |
| * | Hertz Global Holdings Inc. | 2,090,000 | 45,311 |
| Expeditors International | |||
| of Washington Inc. | 750,000 | 36,135 | |
| Pall Corp. | 205,000 | 20,580 | |
| Norfolk Southern Corp. | 196,100 | 20,183 | |
| ^ | Canadian Pacific Railway | ||
| Ltd. | 105,800 | 19,330 | |
| Republic Services Inc. | |||
| Class A | 17,000 | 689 | |
| 7,505,787 | |||
| Information Technology (29.0%) | |||
| Texas Instruments Inc. | 34,447,100 | 1,969,857 | |
| * | Adobe Systems Inc. | 21,710,070 | 1,605,243 |
| Microsoft Corp. | 38,467,300 | 1,563,888 | |
| * | Google Inc. Class A | 1,419,843 | 787,587 |
| * | Google Inc. Class C | 1,419,843 | 778,074 |
| Hewlett-Packard Co. | 21,253,600 | 662,262 | |
| Intuit Inc. | 6,475,000 | 627,816 | |
| QUALCOMM Inc. | 8,310,350 | 576,240 | |
| Intel Corp. | 17,810,500 | 556,934 | |
| * | Micron Technology Inc. | 20,320,000 | 551,282 |
| EMC Corp. | 17,042,800 | 435,614 | |
| NetApp Inc. | 10,639,904 | 377,291 | |
| ^ | Telefonaktiebolaget LM | ||
| Ericsson ADR | 30,006,704 | 376,584 | |
| Cisco Systems Inc. | 12,943,050 | 356,257 | |
| Oracle Corp. | 7,535,000 | 325,135 | |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| NVIDIA Corp. | 13,380,000 | 279,976 | |
| KLA-Tencor Corp. | 4,748,100 | 276,767 | |
| Visa Inc. Class A | 4,106,880 | 268,631 | |
| 1 | Plantronics Inc. | 3,701,500 | 195,994 |
| * | Alibaba Group Holding | ||
| Ltd. ADR | 2,200,500 | 183,170 | |
| Analog Devices Inc. | 2,250,000 | 141,750 | |
| Activision Blizzard Inc. | 6,145,000 | 139,645 | |
| Corning Inc. | 5,243,200 | 118,916 | |
| Broadcom Corp. Class A | 2,355,000 | 101,960 | |
| *,^ | BlackBerry Ltd. | 10,438,600 | 93,217 |
| Apple Inc. | 546,000 | 67,939 | |
| * | eBay Inc. | 1,158,200 | 66,805 |
| MasterCard Inc. Class A | 532,500 | 46,003 | |
| * | Entegris Inc. | 2,583,472 | 35,368 |
| SanDisk Corp. | 500,000 | 31,810 | |
| * | Yahoo! Inc. | 603,100 | 26,799 |
| * | Rambus Inc. | 2,000,000 | 25,150 |
| * | F5 Networks Inc. | 197,400 | 22,689 |
| Applied Materials Inc. | 970,000 | 21,883 | |
| Altera Corp. | 500,000 | 21,455 | |
| * | salesforce.com inc | 277,300 | 18,526 |
| ASML Holding NV | 148,175 | 14,970 | |
| * | Keysight Technologies Inc. | 340,000 | 12,631 |
| Motorola Solutions Inc. | 30,000 | 2,000 | |
| 13,764,118 | |||
| Materials (2.2%) | |||
| Monsanto Co. | 6,270,125 | 705,640 | |
| Potash Corp. of | |||
| Saskatchewan Inc. | 5,699,900 | 183,822 | |
| Praxair Inc. | 925,000 | 111,684 | |
| Celanese Corp. Class A | 335,000 | 18,713 | |
| LyondellBasell Industries | |||
| NV Class A | 9,400 | 825 | |
| 1,020,684 | |||
| Total Common Stocks | |||
| (Cost $20,384,103) | 44,999,904 | ||
| Temporary Cash Investment (5.6%) | |||
| Money Market Fund (5.6%) | |||
| 2,3 | Vanguard Market | ||
| Liquidity Fund, | |||
| 0.128% | |||
| (Cost $2,638,092) | 2,638,092,000 | 2,638,092 | |
| Total Investments (100.5%) | |||
| (Cost $23,022,195) | 47,637,996 | ||
| Other Assets and Liabilities (-0.5%) | |||
| Other Assets | 336,844 | ||
| Liabilities3 | (582,717) | ||
| (245,873) | |||
| Net Assets (100%) | 47,392,123 | ||
16
PRIMECAP Fund
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 21,195,277 |
| Undistributed Net Investment Income | 152,343 |
| Accumulated Net Realized Gains | 1,429,451 |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 24,615,801 |
| Foreign Currencies | (749) |
| Net Assets | 47,392,123 |
| Investor Shares—Net Assets | |
| Applicable to 90,540,969 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 9,521,293 |
| Net Asset Value Per Share— | |
| Investor Shares | $105.16 |
| Admiral Shares—Net Assets | |
| Applicable to 347,540,911 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 37,870,830 |
| Net Asset Value Per Share— | |
| Admiral Shares | $108.97 |
• See Note A in Notes to Financial Statements. * Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $187,695,000.
1 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
3 Includes $192,547,000 of collateral received for securities on loan. ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
17
| PRIMECAP Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1 | 470,393 |
| Interest | 1,440 |
| Securities Lending | 2,476 |
| Total Income | 474,309 |
| Expenses | |
| Investment Advisory Fees—Note B | 45,024 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 11,888 |
| Management and Administrative—Admiral Shares | 22,907 |
| Marketing and Distribution—Investor Shares | 911 |
| Marketing and Distribution—Admiral Shares | 2,277 |
| Custodian Fees | 325 |
| Shareholders’ Reports—Investor Shares | 25 |
| Shareholders’ Reports—Admiral Shares | 40 |
| Trustees’ Fees and Expenses | 39 |
| Total Expenses | 83,436 |
| Net Investment Income | 390,873 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 1,859,402 |
| Foreign Currencies | (887) |
| Realized Net Gain (Loss) | 1,858,515 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | 1,118,430 |
| Foreign Currencies | 89 |
| Change in Unrealized Appreciation (Depreciation) | 1,118,519 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 3,367,907 |
| 1 Dividends are net of foreign withholding taxes of $13,051,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
18
| PRIMECAP Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 390,873 | 504,330 |
| Realized Net Gain (Loss) | 1,858,515 | 2,269,913 |
| Change in Unrealized Appreciation (Depreciation) | 1,118,519 | 6,117,551 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 3,367,907 | 8,891,794 |
| Distributions | ||
| Net Investment Income | ||
| Investor Shares | (107,352) | (118,024) |
| Admiral Shares | (448,558) | (253,860) |
| Realized Capital Gain1 | ||
| Investor Shares | (528,245) | (532,238) |
| Admiral Shares | (1,890,468) | (1,009,500) |
| Total Distributions | (2,974,623) | (1,913,622) |
| Capital Share Transactions | ||
| Investor Shares | (4,002,387) | (2,143,518) |
| Admiral Shares | 6,745,879 | 3,232,612 |
| Net Increase (Decrease) from Capital Share Transactions | 2,743,492 | 1,089,094 |
| Total Increase (Decrease) | 3,136,776 | 8,067,266 |
| Net Assets | ||
| Beginning of Period | 44,255,347 | 36,188,081 |
| End of Period2 | 47,392,123 | 44,255,347 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $17,373,000 and $8,179,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $152,343,000 and $318,267,000.
See accompanying Notes, which are an integral part of the Financial Statements.
19
| PRIMECAP Fund | ||||||
| Financial Highlights | ||||||
| Investor Shares | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, | ||||||
| Beginning of Period | $104.16 | $87.83 | $69.39 | $58.46 | $60.36 | $55.10 |
| Investment Operations | ||||||
| Net Investment Income | 0.791 | 1.124 | 1.033 | .866 | .651 | .6311 |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 7.077 | 19.812 | 19.093 | 12.857 | (1.266) | 5.076 |
| Total from Investment Operations | 7.868 | 20.936 | 20.126 | 13.723 | (.615) | 5.707 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.160) | (. 836) | (. 965) | (. 689) | (. 614) | (. 447) |
| Distributions from Realized Capital Gains | (5.708) | (3.770) | (.721) | (2.104) | (.671) | — |
| Total Distributions | (6.868) | (4.606) | (1.686) | (2.793) | (1.285) | (.447) |
| Net Asset Value, End of Period | $105.16 | $104.16 | $87.83 | $69.39 | $58.46 | $60.36 |
| Total Return2 | 7.60% | 24.72% | 29.63% | 24.17% | -1.23% | 10.36% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $9,521 | $13,273 | $13,059 | $13,632 | $14,359 | $18,028 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | 0.43% | 0.44% | 0.45% | 0.45% | 0.45% | 0.45% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 1.47% | 1.17% | 1.32% | 1.30% | 0.95% | 1.05%1 |
| Portfolio Turnover Rate | 10% | 11% | 5% | 6% | 8% | 5% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.128 and 0.21%, respectively, resulting from a special dividend from Weyerhaeuser Co. in July 2010.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
See accompanying Notes, which are an integral part of the Financial Statements.
20
| PRIMECAP Fund | ||||||
| Financial Highlights | ||||||
| Admiral Shares | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, | ||||||
| Beginning of Period | $108.08 | $91.15 | $72.03 | $60.69 | $62.65 | $57.20 |
| Investment Operations | ||||||
| Net Investment Income | 0.956 | 1.286 | 1.178 | .974 | .738 | .7111 |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 7.25 | 20.536 | 19.769 | 13.333 | (1.319) | 5.269 |
| Total from Investment Operations | 8.206 | 21.822 | 20.947 | 14.307 | (.581) | 5.980 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.403) | (.983) | (1.079) | (.785) | (.683) | (.530) |
| Distributions from Realized Capital Gains | (5.913) | (3.909) | (.748) | (2.182) | (.696) | — |
| Total Distributions | (7.316) | (4.892) | (1.827) | (2.967) | (1.379) | (.530) |
| Net Asset Value, End of Period | $108.97 | $108.08 | $91.15 | $72.03 | $60.69 | $62.65 |
| Total Return2 | 7.64% | 24.85% | 29.73% | 24.29% | -1.14% | 10.46% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $37,871 | $30,982 | $23,129 | $15,978 | $11,088 | $9,765 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | 0.34% | 0.35% | 0.36% | 0.36% | 0.36% | 0.36% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 1.56% | 1.26% | 1.41% | 1.39% | 1.04% | 1.14%1 |
| Portfolio Turnover Rate | 10% | 11% | 5% | 6% | 8% | 5% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.133 and 0.21%, respectively, resulting from a special dividend from Weyerhaeuser Co. in July 2010.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
See accompanying Notes, which are an integral part of the Financial Statements.
21
PRIMECAP Fund
Notes to Financial Statements
Vanguard PRIMECAP Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower,
22
PRIMECAP Fund
determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counter-party risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. PRIMECAP Management Company provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. For the six months ended March 31, 2015, the investment advisory fee represented an effective annual rate of 0.20% of the fund’s average net assets.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At March 31, 2015, the fund had contributed capital of $4,348,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 1.74% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
23
PRIMECAP Fund
D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of March 31, 2015, based on the inputs used to value them:
| Level 1 | Level 2 | Level 3 | |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 42,644,597 | 2,355,307 | — |
| Temporary Cash Investments | 2,638,092 | — | — |
| Total | 45,282,689 | 2,355,307 | — |
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $23,022,195,000. Net unrealized appreciation of investment securities for tax purposes was $24,615,801,000, consisting of unrealized gains of $25,500,518,000 on securities that had risen in value since their purchase and $884,717,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended March 31, 2015, the fund purchased $2,156,189,000 of investment securities and sold $2,794,467,000 of investment securities, other than temporary cash investments.
24
| PRIMECAP Fund | ||||
| G. Capital share transactions for each class of shares were: | ||||
| Six Months Ended | Year Ended | |||
| March 31, 2015 | September 30, 2014 | |||
| Amount | Shares | Amount | Shares | |
| ($000) | (000) | ($000) | (000) | |
| Investor Shares | ||||
| Issued | 438,506 | 4,191 | 603,070 | 6,273 |
| Issued in Lieu of Cash Distributions | 625,180 | 5,989 | 642,435 | 7,204 |
| Redeemed | (5,066,073) | (47,070) | (3,389,023) | (34,742) |
| Net Increase (Decrease)—Investor Shares | (4,002,387) | (36,890) | (2,143,518) | (21,265) |
| Admiral Shares | ||||
| Issued | 5,705,322 | 51,218 | 4,000,605 | 39,585 |
| Issued in Lieu of Cash Distributions | 2,216,429 | 20,496 | 1,203,134 | 13,011 |
| Redeemed | (1,175,872) | (10,843) | (1,971,127) | (19,659) |
| Net Increase (Decrease)—Admiral Shares | 6,745,879 | 60,871 | 3,232,612 | 32,937 |
H. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the six months in securities of these companies were as follows:
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold1 | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Alaska Air Group Inc. | NA2 | 29,112 | — | 2,038 | — | 440,547 |
| Plantronics Inc. | 176,858 | — | — | 1,110 | — | 195,994 |
| Southwest Airlines Co. | 1,167,068 | 19,250 | 35,964 | 4,120 | — | 1,514,763 |
| Vanguard Market Liquidity Fund | 1,831,829 | NA3 | NA 3 | 1,440 | — | 2,638,092 |
| Total | 3,175,755 | 8,708 | — | 4,789,396 | ||
1 Includes net realized gain (loss) on affiliated investment securities sold of $22,990.
2 Not applicable—at September 30, 2014, the issuer was not an affiliated company of the fund. 3 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
25
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
26
| Six Months Ended March 31, 2015 | |||
| Beginning | Ending | Expenses | |
| Account Value | Account Value | Paid During | |
| PRIMECAP Fund | 9/30/2014 | 3/31/2015 | Period |
| Based on Actual Fund Return | |||
| Investor Shares | $1,000.00 | $1,076.02 | $2.23 |
| Admiral Shares | 1,000.00 | 1,076.44 | 1.76 |
| Based on Hypothetical 5% Yearly Return | |||
| Investor Shares | $1,000.00 | $1,022.79 | $2.17 |
| Admiral Shares | 1,000.00 | 1,023.24 | 1.72 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.43% for Investor Shares and 0.34% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
27
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
28
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
29
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
|
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante |
Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
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| otherwise noted. | |
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| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
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| find out more about this public service, call the SEC at | |
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| © 2015 The Vanguard Group, Inc. | |
| All rights reserved. | |
| Vanguard Marketing Corporation, Distributor. | |
| Q592 052015 | |
Semiannual Report | March 31, 2015
Vanguard Target Retirement Funds
Vanguard Target Retirement Income Fund
Vanguard Target Retirement 2010 Fund
Vanguard Target Retirement 2015 Fund
Vanguard Target Retirement 2020 Fund
Vanguard Target Retirement 2025 Fund
Vanguard Target Retirement 2030 Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Target Retirement Income Fund. | 9 |
| Target Retirement 2010 Fund. | 19 |
| Target Retirement 2015 Fund. | 29 |
| Target Retirement 2020 Fund. | 39 |
| Target Retirement 2025 Fund. | 49 |
| Target Retirement 2030 Fund. | 59 |
| About Your Fund’s Expenses. | 69 |
| Trustees Approve Advisory Arrangement. | 71 |
| Glossary. | 72 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| Your Fund’s Total Returns | |
| Six Months Ended March 31, 2015 | |
| Total | |
| Returns | |
| Vanguard Target Retirement Income Fund | 3.29% |
| Target Income Composite Index | 3.40 |
| Spliced Mixed-Asset Target Today Funds Average | 2.58 |
| Spliced Mixed-Asset Target Today Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2010 Fund | 3.57% |
| Target 2010 Composite Index | 3.63 |
| Mixed-Asset Target 2010 Funds Average | 2.59 |
| Mixed-Asset Target 2010 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2015 Fund | 4.01% |
| Target 2015 Composite Index | 4.11 |
| Mixed-Asset Target 2015 Funds Average | 2.89 |
| Mixed-Asset Target 2015 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2020 Fund | 4.47% |
| Target 2020 Composite Index | 4.58 |
| Mixed-Asset Target 2020 Funds Average | 3.41 |
| Mixed-Asset Target 2020 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2025 Fund | 4.59% |
| Target 2025 Composite Index | 4.66 |
| Mixed-Asset Target 2025 Funds Average | 3.71 |
| Mixed-Asset Target 2025 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2030 Fund | 4.68% |
| Target 2030 Composite Index | 4.74 |
| Mixed-Asset Target 2030 Funds Average | 4.05 |
| Mixed-Asset Target 2030 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
IN
For a benchmark description, see the Glossary.
Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
1
Chairman’s Letter
Dear Shareholder,
U.S. stocks continued to gain ground over the six months ended March 31, 2015. Although international stocks did the same, falling foreign currencies washed out returns for U.S. investors. U.S. bonds, meanwhile, generated positive results, as did international bonds when their returns for U.S. investors were hedged against currency fluctuations.
Returns for the six Vanguard Target Retirement Funds covered in this report—the Target Retirement Income Fund and the funds with retirement dates of 2010 through 2030—ranged from 3.29% to 4.68%. (The funds with retirement dates of 2035 through 2060 are covered in a separate report.)
As the box on page 5 explains, the Target Retirement Funds will gradually expand their international stock and bond exposure by the end of 2015. This move will further enhance the diversification of your investments. Importantly, the overall allocation of stocks and bonds will remain the same, as will the Target Retirement Funds’ overall asset allocation strategy.
The Fed’s cautious approach was favorable for U.S. stocks
The broad U.S. stock market returned about 7% for the six months ended March 31. Stocks were resilient after declining markedly at the start of the period and
2
enduring bouts of turmoil in subsequent months. Investors’ concerns included the strength of the dollar and how that would affect the profits of U.S.-based multinational corporations.
Overall, stocks responded favorably to both the Federal Reserve’s cautious approach to raising short-term interest rates and the monetary stimulus efforts of other nations’ central banks. A strong rebound in February, when the broad market notched its largest monthly gain since October 2011, helped lift returns for the period.
International stocks had a slightly negative return as the dollar’s strength against many foreign currencies hurt results. Without this currency effect, stocks outside the United States generally advanced. The developed markets of the Pacific, particularly Japan, were especially strong.
Global central bank stimulus helped drive up bond prices
Bond prices, too, were supported by accommodative monetary policies from central banks and by investors who sought safe-haven assets amid turbulence in the stock market. The broad U.S. taxable bond market returned 3.43%. The yield of the 10-year U.S. Treasury note ended March at 1.95%, down from 2.48% six months earlier. (Bond prices and yields move in opposite directions.)
| Market Barometer | |||
| Total Returns | |||
| Periods Ended March 31, 2015 | |||
| Six | One | Five Years | |
| Months | Year | (Annualized) | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | 6.55% | 12.73% | 14.73% |
| Russell 2000 Index (Small-caps) | 14.46 | 8.21 | 14.57 |
| Russell 3000 Index (Broad U.S. market) | 7.13 | 12.37 | 14.71 |
| FTSE All-World ex US Index (International) | -0.08 | -0.21 | 5.19 |
| Bonds | |||
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 3.43% | 5.72% | 4.41% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.40 | 6.62 | 5.11 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| CPI | |||
| Consumer Price Index | -0.80% | -0.07% | 1.64% |
3
Municipal bonds returned 2.40%, though results faded later in the period as more bonds were issued.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –7.49%, a reflection of foreign currencies’ weakness relative to the dollar. International bonds hedged to eliminate the effect of currency exchange rates produced positive returns.
The Fed’s target of 0%–0.25% for short-term interest rates continued to cap returns for money market funds and savings accounts.
As equities rose, those funds more focused on stocks did best
The Vanguard Target Retirement Funds are broadly diversified “funds of funds,” investing in four or five underlying Vanguard stock and bond index funds and gradually recalibrating their allocations as the specified retirement date approaches. Each Target Retirement Fund shifts from an allocation emphasizing stocks for long-term growth to a more conservative one emphasizing bonds. This gradual shift is prudent for investors nearing or in retirement who want to preserve their assets and generate income.
| Expense Ratios | ||
| Your Fund Compared With Its Peer Group | ||
| Acquired Fund Fees | Peer Group | |
| and Expenses | Average | |
| Target Retirement Income Fund | 0.16% | 0.52% |
| Target Retirement 2010 Fund | 0.16 | 0.56 |
| Target Retirement 2015 Fund | 0.16 | 0.47 |
| Target Retirement 2020 Fund | 0.16 | 0.55 |
| Target Retirement 2025 Fund | 0.17 | 0.48 |
| Target Retirement 2030 Fund | 0.17 | 0.54 |
The fund expense figures shown—drawn from the prospectus dated January 27, 2015—represent an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement Funds invest. The Target Retirement Funds do not charge any expenses or fees of their own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.16% for the Income Fund, 0.16% for the 2010 Fund, 0.16% for the 2015 Fund, 0.16% for the 2020 Fund, 0.17% for the 2025 Fund, and 0.17% for the 2030 Fund. Peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end 2014.
Peer groups: For the Income Fund, Mixed-Asset Target Today Funds; for the 2010 Fund, Mixed-Asset Target 2010 Funds; for the 2015 Fund, Mixed-Asset Target 2015 Funds; for the 2020 Fund, Mixed-Asset Target 2020 Funds; for the 2025 Fund, Mixed-Asset Target 2025 Funds; and for the 2030 Fund, Mixed-Asset Target 2030 Funds.
4
International diversification increasing for Target Retirement Funds
The Vanguard Target Retirement Funds will expand their international exposure by the end of 2015, further enhancing the diversification of your investments. The amount allocated to international stocks will increase from 30% to 40% of the overall stock allocation, and the amount allocated to international bonds will increase from 20% to 30% of the overall bond allocation.
Although the allocation to domestic stocks and bonds will be reduced, the overall allocation of stocks and bonds will remain the same. And we aren’t changing the Target Retirement Funds’ overall asset allocation strategy, which involves gradually shifting emphasis from more aggressive investments to more conservative ones based on each fund’s target date—the approximate year when an investor in the fund would retire.
By boosting the funds’ international exposure, we aim to lower their long-term volatility. Research has shown that non-U.S. stocks have diversified the returns of U.S. stocks on average over time. With fixed income, the primary factors driving international bond prices differ from those for U.S. bonds, providing a diversification benefit.
The chart below shows how we’re adjusting the allocations to further diversify the funds.
Target Retirement Funds are adding more international stocks and bonds
5
The funds covered in this report are designed for investors who are already retired or within 20 years of retiring. That’s why the funds allocate more to bonds than their counterparts with later target dates.
With stock markets continuing to produce gains, the 2030 Fund—which held about 75% of its assets in stocks and about 25% in bonds—not unexpectedly delivered the best result, returning 4.68%. In contrast, the Income Fund, with the most conservative asset mix, had the lowest return, of 3.29%. The results of the four other funds fell in between.
U.S. stocks are represented in all six funds by their investments in Vanguard Total Stock Market Index Fund, which returned 7.07%. The six funds’ holdings in Vanguard Total International Stock Index Fund returned –0.32% as the rising U.S. dollar canceled out gains generated in foreign markets.
The funds’ bond holdings added to their positive results
The Target Retirement Funds’ fixed income component is primarily represented by two bond funds. Their core U.S. bond holding, Vanguard Total Bond Market II Index Fund, returned 3.41% as bonds continued to benefit from relatively stable inflation.
The second bond holding, Vanguard Total International Bond Index Fund, returned 4.69%. International bonds were helped as Europe and Japan maintained extraordinarily accommodative monetary policies that drove down yields and boosted bond prices. Importantly, the Total International
Bond Index Fund uses currency exchange contracts to minimize the effects of currency fluctuations; this policy largely erased the negative effect of converting foreign bond returns into more expensive U.S. dollars during the six months.
With U.S. inflation relatively dormant, Vanguard Short-Term Inflation-Protected Securities Index Fund—which is held by the three most conservative Target Retirement Funds (the Income, 2010, and 2015 Funds)—returned –1.20% as investors saw little need to buy more inflation protection.
Our focus on balanced investing has roots going back many decades
On May 1, Vanguard will celebrate its 40th anniversary. Although many things have changed since 1975, our investment philosophy has not. From the start, we’ve focused on four timeless, straightforward principles that we believe help give clients the best chance for investment success:
• Goals. Create clear, appropriate investment goals.
• Balance. Develop a suitable asset allocation using broadly diversified funds.
• Cost. Minimize cost.
• Discipline. Maintain perspective and long-term discipline.
Although Vanguard has followed all these principles since its founding, one—the focus on balanced investing—is in the company’s DNA. That’s because our predecessor
6
company, Wellington Management, was a pioneer in this respect, launching a fund in 1929 that included both stocks and bonds.
The WellingtonTM Fund got its start on the eve of the Great Depression, but it thrived over the long term, thanks in large part to its balancing of stocks and bonds. And this strategy continues to define the fund, now one of the nation’s largest balanced funds.
As we embark on our fifth decade, we’ll continue to emphasize the importance of balanced, diversified investing. How investors allocate assets between stocks and bonds has an enormous effect on the risks and returns of their portfolios. And broad diversification reduces exposure to
specific risks, while providing opportunities to benefit from the market’s current leaders. (You can read more in Vanguard’s Principles for Investing Success, available at vanguard.com/research.)
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
April 14, 2015
7
| Your Fund’s Performance at a Glance | ||||
| September 30, 2014, Through March 31, 2015 | ||||
| Distributions Per Share | ||||
| Starting | Ending | Income | Capital | |
| Share Price | Share Price | Dividends | Gains | |
| Target Retirement Income Fund | $12.84 | $13.09 | $0.129 | $0.042 |
| Target Retirement 2010 Fund | $26.67 | $26.81 | $0.464 | $0.337 |
| Target Retirement 2015 Fund | $15.44 | $15.60 | $0.284 | $0.168 |
| Target Retirement 2020 Fund | $28.40 | $29.08 | $0.541 | $0.041 |
| Target Retirement 2025 Fund | $16.50 | $16.90 | $0.322 | $0.030 |
| Target Retirement 2030 Fund | $28.95 | $29.71 | $0.558 | $0.029 |
8
Target Retirement Income Fund
| Fund Profile | |
| As of March 31, 2015 | |
| Total Fund Characteristics | |
| Ticker Symbol | VTINX |
| 30-Day SEC Yield | 1.77% |
| Acquired Fund Fees and Expenses1 | 0.16% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 39.0% |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 20.8 |
| Vanguard Short-Term Inflation-Protected | |
| Securities Index Fund Investor Shares | 16.8 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 14.3 |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 9.1 |
| Total Fund Volatility Measures | ||
| Target | Barclays | |
| Income Aggregate | ||
| Composite | Bond | |
| Index | Index | |
| R-Squared | 1.00 | 0.23 |
| Beta | 1.00 | 0.56 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement Income Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.16%.
9
Target Retirement Income Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 30, 2004, Through March 31, 2015
Target Retirement Income Fund
Target Income Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Ten Years | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement Income | ||||||
| Fund | 10/27/2003 | 5.71% | 6.70% | 3.01% | 2.61% | 5.62% |
See Financial Highlights for dividend and capital gains information.
10
Target Retirement Income Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Investment Companies (100.0%) | ||
| U.S. Stock Fund (20.8%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 46,636,612 | 2,437,230 |
| International Stock Fund (9.1%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 65,939,262 | 1,063,600 |
| U.S. Bond Funds (55.8%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 418,738,699 | 4,585,189 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 81,327,460 | 1,973,817 |
| 6,559,006 | ||
| International Bond Fund (14.3%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 155,912,109 | 1,683,851 |
| Total Investment Companies (Cost $10,184,086) | 11,743,687 | |
| Temporary Cash Investment (0.1%) | ||
| Money Market Fund (0.1%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $6,067) | 6,066,931 | 6,067 |
| Total Investments (100.1%) (Cost $10,190,153) | 11,749,754 | |
| Other Assets and Liabilities (-0.1%) | ||
| Other Assets | 49,271 | |
| Liabilities | (55,536) | |
| (6,265) | ||
| Net Assets (100%) | ||
| Applicable to 896,926,665 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 11,743,489 | |
| Net Asset Value Per Share | $13.09 | |
11
| Target Retirement Income Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 10,155,540 |
| Undistributed Net Investment Income | 3,579 |
| Accumulated Net Realized Gains | 24,769 |
| Unrealized Appreciation (Depreciation) | 1,559,601 |
| Net Assets | 11,743,489 |
• See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
12
| Target Retirement Income Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 110,747 |
| Net Investment Income—Note B | 110,747 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 13,438 |
| Affiliated Investment Securities Sold | 23,309 |
| Realized Net Gain (Loss) | 36,747 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 226,205 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 373,699 |
See accompanying Notes, which are an integral part of the Financial Statements.
13
| Target Retirement Income Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 110,747 | 187,626 |
| Realized Net Gain (Loss) | 36,747 | 46,896 |
| Change in Unrealized Appreciation (Depreciation) | 226,205 | 432,953 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 373,699 | 667,475 |
| Distributions | ||
| Net Investment Income | (113,953) | (185,400) |
| Realized Capital Gain1 | (36,816) | (161,457) |
| Total Distributions | (150,769) | (346,857) |
| Capital Share Transactions | ||
| Issued | 1,502,624 | 2,895,274 |
| Issued in Lieu of Cash Distributions | 144,378 | 333,314 |
| Redeemed | (1,340,972) | (2,497,305) |
| Net Increase (Decrease) from Capital Share Transactions | 306,030 | 731,283 |
| Total Increase (Decrease) | 528,960 | 1,051,901 |
| Net Assets | ||
| Beginning of Period | 11,214,529 | 10,162,628 |
| End of Period2 | 11,743,489 | 11,214,529 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $14,025,000 and $2,471,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $3,579,000 and $6,785,000.
See accompanying Notes, which are an integral part of the Financial Statements.
14
| Target Retirement Income Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $12.84 | $12.46 | $12.23 | $11.22 | $11.13 | $10.49 |
| Investment Operations | ||||||
| Net Investment Income | .125 | .220 | .246 | .275 | .3031 | .288 |
| Capital Gain Distributions Received | .015 | .002 | .067 | .052 | .0301 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .281 | .572 | .185 | .977 | .080 | .640 |
| Total from Investment Operations | .421 | .794 | .498 | 1.304 | .413 | . 928 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.129) | (. 218) | (. 247) | (. 273) | (. 299) | (. 288) |
| Distributions from Realized Capital Gains | (. 042) | (.196) | (. 021) | (. 021) | (. 024) | — |
| Total Distributions | (.171) | (. 414) | (. 268) | (. 294) | (. 323) | (. 288) |
| Net Asset Value, End of Period | $13.09 | $12.84 | $12.46 | $12.23 | $11.22 | $11.13 |
| Total Return2 | 3.29% | 6.47% | 4.12% | 11.74% | 3.70% | 8.97% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $11,743 | $11,215 | $10,163 | $9,382 | $4,765 | $3,623 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.16% | 0.16% | 0.16% | 0.16% | 0.17% | 0.17% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 1.82% | 1.74% | 1.99% | 2.31% | 2.65% | 2.70% |
| Portfolio Turnover Rate | 10% | 6% | 40% | 7% | 14%3 | 12% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
15
Target Retirement Income Fund
Notes to Financial Statements
Vanguard Target Retirement Income Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
16
Target Retirement Income Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $10,190,153,000. Net unrealized appreciation of investment securities for tax purposes was $1,559,601,000, consisting of unrealized gains of $1,604,017,000 on securities that had risen in value since their purchase and $44,416,000 in unrealized losses on securities that had fallen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 115,652 | 227,703 |
| Issued in Lieu of Cash Distributions | 11,123 | 26,451 |
| Redeemed | (103,369) | (196,389) |
| Net Increase (Decrease) in Shares Outstanding | 23,406 | 57,765 |
17
Target Retirement Income Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 4,174 | NA1 | NA1 | 2 | — | 6,067 |
| Vanguard Short-Term | ||||||
| Inflation-Protected | ||||||
| Securities Index Fund | 1,886,096 | 153,681 | 29,714 | 13,435 | — | 1,973,817 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 4,422,906 | 305,942 | 230,978 | 50,073 | 13,438 | 4,585,189 |
| Vanguard Total International | ||||||
| Bond Index Fund | 1,572,397 | 104,436 | 53,300 | 13,003 | — | 1,683,851 |
| Vanguard Total International | ||||||
| Stock Index Fund | 984,712 | 108,430 | 19,127 | 11,254 | — | 1,063,600 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 2,365,624 | 145,957 | 222,889 | 22,980 | — | 2,437,230 |
| Total | 11,235,909 | 818,446 | 556,008 | 110,747 | 13,438 | 11,749,754 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
18
Target Retirement 2010 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTENX |
| 30-Day SEC Yield | 1.81% |
| Acquired Fund Fees and Expenses1 | 0.16% |
Allocation to Underlying Vanguard Funds
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 36.2% |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 25.1 |
| Vanguard Short-Term Inflation-Protected | |
| Securities Index Fund Investor Shares | 14.2 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 13.5 |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 11.0 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2010 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.74 |
| Beta | 1.00 | 0.37 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2010 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.16%.
19
Target Retirement 2010 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): June 7, 2006, Through March 31, 2015
Target Retirement 2010 Fund
Target 2010 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Since Inception | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2010 | ||||||
| Fund | 6/7/2006 | 6.12% | 7.63% | 2.30% | 3.73% | 6.03% |
See Financial Highlights for dividend and capital gains information.
20
Target Retirement 2010 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Investment Companies (100.1%) | ||
| U.S. Stock Fund (25.1%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 34,038,036 | 1,778,828 |
| International Stock Fund (11.0%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 48,449,460 | 781,490 |
| U.S. Bond Funds (50.5%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 234,748,023 | 2,570,491 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 41,600,703 | 1,009,649 |
| 3,580,140 | ||
| International Bond Fund (13.5%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 88,813,117 | 959,182 |
| Total Investment Companies (Cost $5,983,523) | 7,099,640 | |
| Temporary Cash Investment (0.0%) | ||
| Money Market Fund (0.0%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $2,064) | 2,064,000 | 2,064 |
| Total Investments (100.1%) (Cost $5,985,587) | 7,101,704 | |
| Other Assets and Liabilities (-0.1%) | ||
| Other Assets | 84,119 | |
| Liabilities | (88,033) | |
| (3,914) | ||
| Net Assets (100%) | ||
| Applicable to 264,737,215 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 7,097,790 | |
| Net Asset Value Per Share | $26.81 | |
21
| Target Retirement 2010 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 5,887,888 |
| Undistributed Net Investment Income | 27,778 |
| Accumulated Net Realized Gains | 66,007 |
| Unrealized Appreciation (Depreciation) | 1,116,117 |
| Net Assets | 7,097,790 |
• See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
22
| Target Retirement 2010 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 68,659 |
| Net Investment Income—Note B | 68,659 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 7,771 |
| Affiliated Investment Securities Sold | 69,837 |
| Realized Net Gain (Loss) | 77,608 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 100,968 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 247,235 |
See accompanying Notes, which are an integral part of the Financial Statements.
23
| Target Retirement 2010 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 68,659 | 126,265 |
| Realized Net Gain (Loss) | 77,608 | 97,844 |
| Change in Unrealized Appreciation (Depreciation) | 100,968 | 273,313 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 247,235 | 497,422 |
| Distributions | ||
| Net Investment Income | (120,953) | (109,648) |
| Realized Capital Gain1 | (87,847) | (78,208) |
| Total Distributions | (208,800) | (187,856) |
| Capital Share Transactions | ||
| Issued | 835,122 | 1,771,303 |
| Issued in Lieu of Cash Distributions | 204,793 | 184,496 |
| Redeemed | (932,973) | (1,992,038) |
| Net Increase (Decrease) from Capital Share Transactions | 106,942 | (36,239) |
| Total Increase (Decrease) | 145,377 | 273,327 |
| Net Assets | ||
| Beginning of Period | 6,952,413 | 6,679,086 |
| End of Period2 | 7,097,790 | 6,952,413 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $9,384,000 and $520,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $27,778,000 and $80,072,000.
See accompanying Notes, which are an integral part of the Financial Statements.
24
| Target Retirement 2010 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $26.67 | $25.50 | $24.45 | $21.91 | $21.87 | $20.39 |
| Investment Operations | ||||||
| Net Investment Income | . 262 | .487 | .516 | .571 | .5601 | .520 |
| Capital Gain Distributions Received | .030 | .004 | .103 | .100 | .0561 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .649 | 1.402 | .999 | 2.502 | (.022) | 1.455 |
| Total from Investment Operations | .941 | 1.893 | 1.618 | 3.173 | .594 | 1.975 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 464) | (. 422) | (. 531) | (. 596) | (. 511) | (. 495) |
| Distributions from Realized Capital Gains | (. 337) | (. 301) | (. 037) | (. 037) | (. 043) | — |
| Total Distributions | (. 801) | (.723) | (. 568) | (. 633) | (. 554) | (. 495) |
| Net Asset Value, End of Period | $26.81 | $26.67 | $25.50 | $24.45 | $21.91 | $21.87 |
| Total Return2 | 3.57% | 7.55% | 6.76% | 14.74% | 2.68% | 9.83% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $7,098 | $6,952 | $6,679 | $6,155 | $4,747 | $4,247 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.16% | 0.16% | 0.16% | 0.16% | 0.17% | 0.17% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 1.85% | 1.83% | 2.08% | 2.51% | 2.46% | 2.67% |
| Portfolio Turnover Rate | 15% | 13% | 38% | 12% | 27%3 | 19% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
25
Target Retirement 2010 Fund
Notes to Financial Statements
Vanguard Target Retirement 2010 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
26
Target Retirement 2010 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $5,985,587,000. Net unrealized appreciation of investment securities for tax purposes was $1,116,117,000, consisting of unrealized gains of $1,138,192,000 on securities that had risen in value since their purchase and $22,075,000 in unrealized losses on securities that had fallen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 31,235 | 67,740 |
| Issued in Lieu of Cash Distributions | 7,751 | 7,224 |
| Redeemed | (34,928) | (76,186) |
| Net Increase (Decrease) in Shares Outstanding | 4,058 | (1,222) |
27
Target Retirement 2010 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | — | NA1 | NA1 | 1 | — | 2,064 |
| Vanguard Short-Term | ||||||
| Inflation-Protected | ||||||
| Securities Index Fund | 949,948 | 99,600 | 21,574 | 6,759 | — | 1,009,649 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 2,539,701 | 219,740 | 239,722 | 28,964 | 7,771 | 2,570,491 |
| Vanguard Total International | ||||||
| Bond Index Fund | 874,983 | 69,036 | 18,483 | 7,212 | — | 959,182 |
| Vanguard Total International | ||||||
| Stock Index Fund | 751,381 | 62,905 | 24,552 | 8,469 | — | 781,490 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 1,843,774 | 75,363 | 253,267 | 17,254 | — | 1,778,828 |
| Total | 6,959,787 | 526,644 | 557,598 | 68,659 | 7,771 | 7,101,704 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
28
Target Retirement 2015 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTXVX |
| 30-Day SEC Yield | 1.91% |
| Acquired Fund Fees and Expenses1 | 0.16% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 34.9% |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 31.4 |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 15.3 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 10.4 |
| Vanguard Short-Term Inflation-Protected | |
| Securities Index Fund Investor Shares | 8.0 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2015 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.86 |
| Beta | 1.01 | 0.51 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2015 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.16%.
29
Target Retirement 2015 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 30, 2004, Through March 31, 2015
Target Retirement 2015 Fund
Target 2015 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Ten Years | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2015 | ||||||
| Fund | 10/27/2003 | 6.84% | 8.56% | 2.52% | 3.74% | 6.26% |
See Financial Highlights for dividend and capital gains information.
30
Target Retirement 2015 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Investment Companies (100.0%) | ||
| U.S. Stock Fund (35.0%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 149,578,187 | 7,816,956 |
| International Stock Fund (15.3%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 212,177,281 | 3,422,420 |
| U.S. Bond Funds (39.3%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 640,702,986 | 7,015,697 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 73,489,276 | 1,783,585 |
| 8,799,282 | ||
| International Bond Fund (10.4%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 215,553,213 | 2,327,975 |
| Total Investment Companies (Cost $17,740,667) | 22,366,633 | |
| Temporary Cash Investment (0.0%) | ||
| Money Market Fund (0.0%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $6,608) | 6,607,894 | 6,608 |
| Total Investments (100.0%) (Cost $17,747,275) | 22,373,241 | |
| Other Assets and Liabilities (0.0%) | ||
| Other Assets | 255,861 | |
| Liabilities | (261,101) | |
| (5,240) | ||
| Net Assets (100%) | ||
| Applicable to 1,433,659,485 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 22,368,001 | |
| Net Asset Value Per Share | $15.60 | |
31
| Target Retirement 2015 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 17,482,829 |
| Undistributed Net Investment Income | 91,354 |
| Accumulated Net Realized Gains | 167,852 |
| Unrealized Appreciation (Depreciation) | 4,625,966 |
| Net Assets | 22,368,001 |
• See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
32
| Target Retirement 2015 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 218,462 |
| Net Investment Income—Note B | 218,462 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 21,160 |
| Affiliated Investment Securities Sold | 214,928 |
| Realized Net Gain (Loss) | 236,088 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 417,162 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 871,712 |
See accompanying Notes, which are an integral part of the Financial Statements.
33
| Target Retirement 2015 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 218,462 | 421,762 |
| Realized Net Gain (Loss) | 236,088 | 193,156 |
| Change in Unrealized Appreciation (Depreciation) | 417,162 | 1,185,319 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 871,712 | 1,800,237 |
| Distributions | ||
| Net Investment Income | (397,934) | (357,912) |
| Realized Capital Gain1 | (235,397) | (119,304) |
| Total Distributions | (633,331) | (477,216) |
| Capital Share Transactions | ||
| Issued | 2,466,829 | 5,138,844 |
| Issued in Lieu of Cash Distributions | 621,730 | 470,363 |
| Redeemed | (2,700,068) | (4,930,423) |
| Net Increase (Decrease) from Capital Share Transactions | 388,491 | 678,784 |
| Total Increase (Decrease) | 626,872 | 2,001,805 |
| Net Assets | ||
| Beginning of Period | 21,741,129 | 19,739,324 |
| End of Period2 | 22,368,001 | 21,741,129 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $35,029,000 and $2,743,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $91,354,000 and $270,826,000.
See accompanying Notes, which are an integral part of the Financial Statements.
34
| Target Retirement 2015 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $15.44 | $14.49 | $13.54 | $11.91 | $12.03 | $11.21 |
| Investment Operations | ||||||
| Net Investment Income | .156 | .300 | .298 | .327 | .2831 | .285 |
| Capital Gain Distributions Received | .015 | .002 | .039 | .053 | .0311 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .441 | .996 | .929 | 1.583 | (.134) | .811 |
| Total from Investment Operations | .612 | 1.298 | 1.266 | 1.963 | .180 | 1.096 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 284) | (. 261) | (. 298) | (. 313) | (. 276) | (. 276) |
| Distributions from Realized Capital Gains | (.168) | (. 087) | (. 018) | (. 020) | (. 024) | — |
| Total Distributions | (. 452) | (. 348) | (. 316) | (. 333) | (. 300) | (. 276) |
| Net Asset Value, End of Period | $15.60 | $15.44 | $14.49 | $13.54 | $11.91 | $12.03 |
| Total Return2 | 4.01% | 9.07% | 9.56% | 16.76% | 1.40% | 9.92% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) $22,368 | $21,741 | $19,739 | $16,838 | $13,435 | $12,466 | |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.16% | 0.16% | 0.16% | 0.16% | 0.17% | 0.17% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 1.93% | 1.99% | 2.17% | 2.59% | 2.24% | 2.62% |
| Portfolio Turnover Rate | 15% | 10% | 26% | 13% | 27%3 | 19% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
35
Target Retirement 2015 Fund
Notes to Financial Statements
Vanguard Target Retirement 2015 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
36
Target Retirement 2015 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $17,747,275,000. Net unrealized appreciation of investment securities for tax purposes was $4,625,966,000, consisting of unrealized gains of $4,661,112,000 on securities that had risen in value since their purchase and $35,146,000 in unrealized losses on securities that had fallen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 159,193 | 341,159 |
| Issued in Lieu of Cash Distributions | 40,425 | 31,932 |
| Redeemed | (174,401) | (326,605) |
| Net Increase (Decrease) in Shares Outstanding | 25,217 | 46,486 |
37
Target Retirement 2015 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 27,597 | NA1 | NA1 | 3 | — | 6,608 |
| Vanguard Short-Term | ||||||
| Inflation-Protected | ||||||
| Securities Fund | 1,564,974 | 306,719 | 58,000 | 11,093 | — | 1,783,585 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 6,965,045 | 589,351 | 677,420 | 78,712 | 21,160 | 7,015,697 |
| Vanguard Total International | ||||||
| Bond Index Fund | 2,130,931 | 181,391 | 66,338 | 17,567 | — | 2,327,975 |
| Vanguard Total International | ||||||
| Stock Index Fund | 3,205,926 | 299,982 | 49,330 | 36,635 | — | 3,422,420 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 7,879,758 | 299,980 | 838,427 | 74,452 | — | 7,816,956 |
| Total | 21,774,231 | 1,677,423 | 1,689,515 | 218,462 | 21,160 | 22,373,241 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
38
Target Retirement 2020 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTWNX |
| 30-Day SEC Yield | 2.02% |
| Acquired Fund Fees and Expenses1 | 0.16% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 41.8% |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 31.3 |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 18.2 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 8.7 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2020 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.90 |
| Beta | 1.00 | 0.61 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2020 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.16%.
39
Target Retirement 2020 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): June 7, 2006, Through March 31, 2015
Target Retirement 2020 Fund
Target 2020 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Since Inception | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2020 | ||||||
| Fund | 6/7/2006 | 7.50% | 9.27% | 2.17% | 4.41% | 6.58% |
See Financial Highlights for dividend and capital gains information.
40
Target Retirement 2020 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Investment Companies (99.9%) | ||
| U.S. Stock Fund (41.9%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 243,474,396 | 12,723,972 |
| International Stock Fund (18.1%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 341,949,737 | 5,515,649 |
| U.S. Bond Fund (31.3%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 869,159,048 | 9,517,292 |
| International Bond Fund (8.6%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 243,457,111 | 2,629,337 |
| Total Investment Companies (Cost $24,471,866) | 30,386,250 | |
| Temporary Cash Investment (0.2%) | ||
| Money Market Fund (0.2%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $56,637) | 56,637,114 | 56,637 |
| Total Investments (100.1%) (Cost $24,528,503) | 30,442,887 | |
| Other Assets and Liabilities (-0.1%) | ||
| Other Assets | 156,627 | |
| Liabilities | (196,381) | |
| (39,754) | ||
| Net Assets (100%) | ||
| Applicable to 1,045,372,999 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 30,403,133 | |
| Net Asset Value Per Share | $29.08 | |
41
| Target Retirement 2020 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 24,320,871 |
| Undistributed Net Investment Income | 131,908 |
| Accumulated Net Realized Gains | 35,970 |
| Unrealized Appreciation (Depreciation) | 5,914,384 |
| Net Assets | 30,403,133 |
• See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
42
| Target Retirement 2020 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 294,983 |
| Net Investment Income—Note B | 294,983 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 27,179 |
| Affiliated Investment Securities Sold | 30,183 |
| Realized Net Gain (Loss) | 57,362 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 912,648 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,264,993 |
See accompanying Notes, which are an integral part of the Financial Statements.
43
| Target Retirement 2020 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 294,983 | 542,503 |
| Realized Net Gain (Loss) | 57,362 | 27,560 |
| Change in Unrealized Appreciation (Depreciation) | 912,648 | 1,764,193 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,264,993 | 2,334,256 |
| Distributions | ||
| Net Investment Income | (534,873) | (416,278) |
| Realized Capital Gain1 | (40,536) | (9,461) |
| Total Distributions | (575,409) | (425,739) |
| Capital Share Transactions | ||
| Issued | 4,627,957 | 8,357,329 |
| Issued in Lieu of Cash Distributions | 564,611 | 419,089 |
| Redeemed | (2,966,654) | (4,981,957) |
| Net Increase (Decrease) from Capital Share Transactions | 2,225,914 | 3,794,461 |
| Total Increase (Decrease) | 2,915,498 | 5,702,978 |
| Net Assets | ||
| Beginning of Period | 27,487,635 | 21,784,657 |
| End of Period2 | 30,403,133 | 27,487,635 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $36,580,000 and $3,440,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $131,908,000 and $371,798,000.
See accompanying Notes, which are an integral part of the Financial Statements.
44
| Target Retirement 2020 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $28.40 | $26.26 | $24.04 | $20.83 | $21.17 | $19.66 |
| Investment Operations | ||||||
| Net Investment Income | . 283 | .577 | .528 | .569 | .4731 | .5101 |
| Capital Gain Distributions Received | .027 | .004 | .047 | .079 | .0441 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .952 | 2.054 | 2.179 | 3.106 | (.378) | 1.440 |
| Total from Investment Operations | 1.262 | 2.635 | 2.754 | 3.754 | .139 | 1.950 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 541) | (. 484) | (. 508) | (. 513) | (. 444) | (. 440) |
| Distributions from Realized Capital Gains | (. 041) | (. 011) | (. 026) | (. 031) | (. 035) | — |
| Total Distributions | (. 582) | (. 495) | (. 534) | (. 544) | (. 479) | (. 440) |
| Net Asset Value, End of Period | $29.08 | $28.40 | $26.26 | $24.04 | $20.83 | $21.17 |
| Total Return2 | 4.47% | 10.13% | 11.70% | 18.30% | 0.53% | 10.04% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) $30,403 | $27,488 | $21,785 | $16,078 | $11,032 | $8,890 | |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.16% | 0.16% | 0.16% | 0.16% | 0.17% | 0.17% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.05% | 2.14% | 2.23% | 2.62% | 2.11% | 2.51% |
| Portfolio Turnover Rate | 11% | 7% | 17% | 8% | 23%3 | 14% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
45
Target Retirement 2020 Fund
Notes to Financial Statements
Vanguard Target Retirement 2020 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
46
Target Retirement 2020 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $24,528,503,000. Net unrealized appreciation of investment securities for tax purposes was $5,914,384,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 161,188 | 302,759 |
| Issued in Lieu of Cash Distributions | 19,693 | 15,522 |
| Redeemed | (103,538) | (179,980) |
| Net Increase (Decrease) in Shares Outstanding | 77,343 | 138,301 |
47
Target Retirement 2020 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Dividend Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 12,218 | NA1 | NA1 | 8 | — | 56,637 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 8,633,402 | 1,537,759 | 829,670 | 101,893 | 27,179 | 9,517,292 |
| Vanguard Total International | ||||||
| Bond Index Fund | 2,156,344 | 431,123 | 42,789 | 18,371 | — | 2,629,337 |
| Vanguard Total International | ||||||
| Stock Index Fund | 4,855,061 | 710,738 | — | 57,234 | — | 5,515,649 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 11,817,952 | 859,616 | 686,118 | 117,477 | — | 12,723,972 |
| Total | 27,474,977 | 3,539,236 | 1,558,577 | 294,983 | 27,179 | 30,442,887 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
48
Target Retirement 2025 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTTVX |
| 30-Day SEC Yield | 2.02% |
| Acquired Fund Fees and Expenses1 | 0.17% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 47.0% |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 25.4 |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 20.5 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 7.1 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2025 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.92 |
| Beta | 1.00 | 0.69 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2025 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.17%.
49
Target Retirement 2025 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 30, 2004, Through March 31, 2015
Target Retirement 2025 Fund
Target 2025 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Ten Years | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2025 | ||||||
| Fund | 10/27/2003 | 7.65% | 9.78% | 2.35% | 4.23% | 6.58% |
See Financial Highlights for dividend and capital gains information.
50
Target Retirement 2025 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Investment Companies (99.9%) | ||
| U.S. Stock Fund (46.9%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 309,239,521 | 16,160,857 |
| International Stock Fund (20.5%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 436,226,460 | 7,036,333 |
| U.S. Bond Fund (25.4%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 799,300,257 | 8,752,338 |
| International Bond Fund (7.1%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 227,336,161 | 2,455,231 |
| Total Investment Companies (Cost $26,544,613) | 34,404,759 | |
| Temporary Cash Investment (0.2%) | ||
| Money Market Fund (0.2%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $62,250) | 62,250,090 | 62,250 |
| Total Investments (100.1%) (Cost $26,606,863) | 34,467,009 | |
| Other Assets and Liabilities (-0.1%) | ||
| Other Assets | 146,828 | |
| Liabilities | (171,252) | |
| (24,424) | ||
| Net Assets (100%) | ||
| Applicable to 2,038,037,645 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 34,442,585 | |
| Net Asset Value Per Share | $16.90 | |
51
| Target Retirement 2025 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 26,378,895 |
| Undistributed Net Investment Income | 146,059 |
| Accumulated Net Realized Gains | 57,485 |
| Unrealized Appreciation (Depreciation) | 7,860,146 |
| Net Assets | 34,442,585 |
• See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
52
| Target Retirement 2025 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 332,639 |
| Net Investment Income—Note B | 332,639 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 24,900 |
| Affiliated Investment Securities Sold | 54,362 |
| Realized Net Gain (Loss) | 79,262 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 1,050,299 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,462,200 |
See accompanying Notes, which are an integral part of the Financial Statements.
53
| Target Retirement 2025 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 332,639 | 629,366 |
| Realized Net Gain (Loss) | 79,262 | 45,843 |
| Change in Unrealized Appreciation (Depreciation) | 1,050,299 | 2,213,724 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,462,200 | 2,888,933 |
| Distributions | ||
| Net Investment Income | (619,149) | (498,818) |
| Realized Capital Gain1 | (57,685) | (29,547) |
| Total Distributions | (676,834) | (528,365) |
| Capital Share Transactions | ||
| Issued | 4,527,696 | 7,966,985 |
| Issued in Lieu of Cash Distributions | 664,058 | 520,247 |
| Redeemed | (2,962,620) | (5,061,387) |
| Net Increase (Decrease) from Capital Share Transactions | 2,229,134 | 3,425,845 |
| Total Increase (Decrease) | 3,014,500 | 5,786,413 |
| Net Assets | ||
| Beginning of Period | 31,428,085 | 25,641,672 |
| End of Period2 | 34,442,585 | 31,428,085 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $40,379,000 and $29,547,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $146,059,000 and $432,569,000.
See accompanying Notes, which are an integral part of the Financial Statements.
54
| Target Retirement 2025 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $16.50 | $15.18 | $13.70 | $11.71 | $11.97 | $11.11 |
| Investment Operations | ||||||
| Net Investment Income | .167 | .350 | .316 | .331 | .2571 | .262 |
| Capital Gain Distributions Received | .013 | .002 | .021 | .036 | .0201 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .572 | 1.272 | 1.451 | 1.927 | (.271) | .850 |
| Total from Investment Operations | .752 | 1.624 | 1.788 | 2.294 | .006 | 1.112 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 322) | (. 287) | (. 296) | (. 291) | (. 250) | (. 252) |
| Distributions from Realized Capital Gains | (. 030) | (. 017) | (. 012) | (. 013) | (. 016) | — |
| Total Distributions | (. 352) | (. 304) | (. 308) | (. 304) | (. 266) | (. 252) |
| Net Asset Value, End of Period | $16.90 | $16.50 | $15.18 | $13.70 | $11.71 | $11.97 |
| Total Return2 | 4.59% | 10.80% | 13.34% | 19.89% | -0.11% | 10.12% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) $34,443 | $31,428 | $25,642 | $20,022 | $14,997 | $13,652 | |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.17% | 0.17% | 0.17% | 0.17% | 0.18% | 0.18% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.04% | 2.15% | 2.27% | 2.64% | 2.01% | 2.42% |
| Portfolio Turnover Rate | 12% | 7% | 16% | 9% | 23%3 | 11% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
55
Target Retirement 2025 Fund
Notes to Financial Statements
Vanguard Target Retirement 2025 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
56
Target Retirement 2025 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $26,606,863,000. Net unrealized appreciation of investment securities for tax purposes was $7,860,146,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 271,502 | 496,821 |
| Issued in Lieu of Cash Distributions | 39,836 | 33,179 |
| Redeemed | (178,033) | (314,735) |
| Net Increase (Decrease) in Shares Outstanding | 133,305 | 215,265 |
57
Target Retirement 2025 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Dividend Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 7,412 | NA1 | NA1 | 9 | — | 62,250 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 8,028,026 | 1,411,345 | 849,070 | 93,540 | 24,900 | 8,752,338 |
| Vanguard Total International | ||||||
| Bond Index Fund | 1,995,205 | 445,557 | 63,322 | 16,899 | — | 2,455,231 |
| Vanguard Total International | ||||||
| Stock Index Fund | 6,272,198 | 846,512 | 10,000 | 72,979 | — | 7,036,333 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 15,113,492 | 1,109,258 | 999,104 | 149,212 | — | 16,160,857 |
| Total | 31,416,333 | 3,812,672 | 1,921,496 | 332,639 | 24,900 | 34,467,009 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
58
Target Retirement 2030 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTHRX |
| 30-Day SEC Yield | 2.02% |
| Acquired Fund Fees and Expenses1 | 0.17% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 52.1% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 22.7 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 19.4 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 5.8 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2030 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.93 |
| Beta | 1.00 | 0.77 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2030 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.17%.
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Target Retirement 2030 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): June 7, 2006, Through March 31, 2015
Target Retirement 2030 Fund
Target 2030 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Since Inception | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2030 | ||||||
| Fund | 6/7/2006 | 7.77% | 10.28% | 2.05% | 4.65% | 6.70% |
See Financial Highlights for dividend and capital gains information.
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Target Retirement 2030 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Investment Companies (99.9%) | ||
| U.S. Stock Fund (52.1%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 256,714,457 | 13,415,897 |
| International Stock Fund (22.7%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 361,667,494 | 5,833,697 |
| U.S. Bond Fund (19.3%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 454,663,156 | 4,978,562 |
| International Bond Fund (5.8%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 138,848,921 | 1,499,568 |
| Total Investment Companies (Cost $20,048,598) | 25,727,724 | |
| Temporary Cash Investment (0.2%) | ||
| Money Market Fund (0.2%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $57,472) | 57,472,042 | 57,472 |
| Total Investments (100.1%) (Cost $20,106,070) | 25,785,196 | |
| Other Assets and Liabilities (-0.1%) | ||
| Other Assets | 113,153 | |
| Liabilities | (151,407) | |
| (38,254) | ||
| Net Assets (100%) | ||
| Applicable to 866,587,306 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 25,746,942 | |
| Net Asset Value Per Share | $29.71 | |
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| Target Retirement 2030 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 19,927,050 |
| Undistributed Net Investment Income | 107,406 |
| Accumulated Net Realized Gains | 33,360 |
| Unrealized Appreciation (Depreciation) | 5,679,126 |
| Net Assets | 25,746,942 |
• See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
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| Target Retirement 2030 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 245,783 |
| Net Investment Income—Note B | 245,783 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 14,077 |
| Affiliated Investment Securities Sold | 33,296 |
| Realized Net Gain (Loss) | 47,373 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 808,591 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,101,747 |
See accompanying Notes, which are an integral part of the Financial Statements.
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| Target Retirement 2030 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 245,783 | 454,233 |
| Realized Net Gain (Loss) | 47,373 | 18,970 |
| Change in Unrealized Appreciation (Depreciation) | 808,591 | 1,691,511 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,101,747 | 2,164,714 |
| Distributions | ||
| Net Investment Income | (452,595) | (343,337) |
| Realized Capital Gain1 | (23,522) | (25,173) |
| Total Distributions | (476,117) | (368,510) |
| Capital Share Transactions | ||
| Issued | 3,957,250 | 6,870,930 |
| Issued in Lieu of Cash Distributions | 466,218 | 361,941 |
| Redeemed | (2,387,045) | (3,738,811) |
| Net Increase (Decrease) from Capital Share Transactions | 2,036,423 | 3,494,060 |
| Total Increase (Decrease) | 2,662,053 | 5,290,264 |
| Net Assets | ||
| Beginning of Period | 23,084,889 | 17,794,625 |
| End of Period2 | 25,746,942 | 23,084,889 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $21,900,000 and $23,076,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $107,406,000 and $314,218,000.
See accompanying Notes, which are an integral part of the Financial Statements.
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| Target Retirement 2030 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $28.95 | $26.46 | $23.51 | $19.81 | $20.36 | $18.84 |
| Investment Operations | ||||||
| Net Investment Income | . 288 | . 613 | . 540 | . 561 | . 398 | . 4531 |
| Capital Gain Distributions Received | .017 | .002 | .027 | .044 | .011 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 1.042 | 2.402 | 2.897 | 3.580 | (.542) | 1.453 |
| Total from Investment Operations | 1.347 | 3.017 | 3.464 | 4.185 | (.133) | 1.906 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 558) | (. 491) | (. 499) | (. 468) | (. 395) | (. 386) |
| Distributions from Realized Capital Gains | (. 029) | (. 036) | (. 015) | (. 017) | (. 022) | — |
| Total Distributions | (. 587) | (. 527) | (. 514) | (. 485) | (. 417) | (. 386) |
| Net Asset Value, End of Period | $29.71 | $28.95 | $26.46 | $23.51 | $19.81 | $20.36 |
| Total Return2 | 4.68% | 11.51% | 15.05% | 21.43% | -0.83% | 10.21% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $25,747 | $23,085 | $17,795 | $12,647 | $8,245 | $6,533 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.17% | 0.17% | 0.17% | 0.17% | 0.18% | 0.19% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.03% | 2.16% | 2.30% | 2.66% | 1.91% | 2.32% |
| Portfolio Turnover Rate | 12% | 7% | 14% | 4% | 19%3 | 9% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
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Target Retirement 2030 Fund
Notes to Financial Statements
Target Retirement 2030 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
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Target Retirement 2030 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $20,106,070,000. Net unrealized appreciation of investment securities for tax purposes was $5,679,126,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 135,180 | 244,389 |
| Issued in Lieu of Cash Distributions | 15,901 | 13,157 |
| Redeemed | (81,768) | (132,691) |
| Net Increase (Decrease) in Shares Outstanding | 69,313 | 124,855 |
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Target Retirement 2030 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Dividend Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 6,481 | NA1 | NA1 | 9 | — | 57,472 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 4,502,744 | 969,116 | 585,778 | 53,189 | 14,077 | 4,978,562 |
| Vanguard Total International | ||||||
| Bond Index Fund | 1,119,160 | 378,456 | 41,849 | 9,607 | — | 1,499,568 |
| Vanguard Total International | ||||||
| Stock Index Fund | 5,149,989 | 743,929 | — | 60,074 | — | 5,833,697 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 12,292,549 | 1,146,669 | 789,149 | 122,904 | — | 13,415,897 |
| Total | 23,070,923 | 3,238,170 | 1,416,776 | 245,783 | 14,077 | 25,785,196 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A typical fund’s expenses are expressed as a percentage of its average net assets. The Target Retirement Funds have no direct expenses, but each fund bears its proportionate share of the costs for the underlying funds in which it invests. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets.
The following examples are intended to help you understand the ongoing cost (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The costs were calculated using the acquired fund fees and expenses for each Target Retirement Fund.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
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| Six Months Ended March 31, 2015 | |||
| Beginning | Ending | Expenses | |
| Account Value | Account Value | Paid During | |
| 9/30/2014 | 3/31/2015 | Period | |
| Based on Actual Fund Return | |||
| Target Retirement Income Fund | $1,000.00 | $1,032.94 | $0.81 |
| Target Retirement 2010 Fund | $1,000.00 | $1,035.73 | $0.81 |
| Target Retirement 2015 Fund | $1,000.00 | $1,040.06 | $0.81 |
| Target Retirement 2020 Fund | $1,000.00 | $1,044.73 | $0.82 |
| Target Retirement 2025 Fund | $1,000.00 | $1,045.87 | $0.87 |
| Target Retirement 2030 Fund | $1,000.00 | $1,046.80 | $0.87 |
| Based on Hypothetical 5% Yearly Return | |||
| Target Retirement Income Fund | $1,000.00 | $1,024.13 | $0.81 |
| Target Retirement 2010 Fund | $1,000.00 | $1,024.13 | $0.81 |
| Target Retirement 2015 Fund | $1,000.00 | $1,024.13 | $0.81 |
| Target Retirement 2020 Fund | $1,000.00 | $1,024.13 | $0.81 |
| Target Retirement 2025 Fund | $1,000.00 | $1,024.08 | $0.86 |
| Target Retirement 2030 Fund | $1,000.00 | $1,024.08 | $0.86 |
The calculations are based on the acquired fund fees and expenses for the most recent six-month period. The funds’ annualized expense figures for that period are (in order as listed from top to bottom above) 0.16%, 0.16%, 0.16%, 0.16%, 0.17%, and 0.17%. The dollar amounts shown as ”Expenses Paid” are equal to the annualized expense figures for the underlying funds multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
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Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Target Retirement Funds has renewed the funds’ investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard’s Equity Investment Group—through its Equity Index Group—serves as the investment advisor to the funds. The board determined that continuing the funds’ internalized management structure was in the best interests of the funds and their shareholders.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the funds’ investment management services over both the short and long term, and took into account the organizational depth and stability of the advisor. The board noted that Vanguard has been managing investments for more than three decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the performance of the funds, including any periods of outperformance or underperformance relative to a benchmark index and peer groups. The board concluded that the performance was such that the advisory arrangement should continue. Information about each fund’s most recent performance can be found in the Performance Summary pages of this report.
Cost
The board concluded that the funds’ acquired fund fees and expenses were well below the average expense ratios charged by funds in their respective peer groups. The funds do not incur advisory expenses directly; however, the board noted that each of the underlying funds in which the funds invest has advisory expenses well below the relevant peer-group average. Information about the funds’ acquired fund fees and expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements sections.
The board does not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that Vanguard’s at-cost arrangement with the Target Retirement Funds and their underlying funds ensures that the funds will realize economies of scale as the assets of the underlying funds grow, with the cost to shareholders declining as assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
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Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Acquired Fund Fees and Expenses. Funds that invest in other Vanguard funds incur no direct expenses, but they do bear proportionate shares of the operating, administrative, and advisory expenses of the underlying funds, and they must pay any fees charged by those funds. The figure for acquired fund fees and expenses represents a weighted average of these underlying costs. Acquired is a term that the Securities and Exchange Commission applies to any mutual fund whose shares are owned by another fund.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Benchmark Information
Spliced Mixed-Asset Target Today Funds Average: Mixed-Asset Target Conservative Funds Average though June 30, 2012; Mixed-Asset Target Today Funds Average thereafter.
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Target 2010 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter, as well as the Barclays U.S. Treasury Inflation Protected Securities Index through June 2, 2013, and the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index thereafter; for short-term reserves, the Citigroup Three-Month Treasury Bill Index through June 2, 2013; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2015 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter, as well as the Barclays U.S. Treasury Inflation Protected Securities Index through June 2, 2013, and the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2020 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
73
Target 2025 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2030 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target Income Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter, as well as the Barclays U.S. Treasury Inflation Protected Securities Index through June 2, 2013, and the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index thereafter; for short-term reserves, the Citigroup Three-Month Treasury Bill Index through June 2, 2013; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
|
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante |
Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
| P.O. Box 2600 |
| Valley Forge, PA 19482-2600 |
Connect with Vanguard® > vanguard.com
Fund Information > 800-662-7447
Direct Investor Account Services > 800-662-2739 Institutional Investor Services > 800-523-1036 Text Telephone for People Who Are Deaf or Hard of Hearing > 800-749-7273
This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.
All comparative mutual fund data are from Lipper, a Thomson Reuters Company, or Morningstar, Inc., unless otherwise noted.
You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or sec.gov.
You can review and copy information about your fund at the SEC’s Public Reference Room in Washington, D.C. To find out more about this public service, call the SEC at 202-551-8090. Information about your fund is also available on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request in either of two ways: via e-mail addressed to publicinfo@sec.gov or via regular mail addressed to the Public Reference Section, Securities and Exchange Commission, Washington, DC 20549-1520.
© 2015 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
Q3082 052015
Semiannual Report | March 31, 2015
Vanguard Target Retirement Funds
Vanguard Target Retirement 2035 Fund
Vanguard Target Retirement 2040 Fund
Vanguard Target Retirement 2045 Fund
Vanguard Target Retirement 2050 Fund
Vanguard Target Retirement 2055 Fund
Vanguard Target Retirement 2060 Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Target Retirement 2035 Fund. | 9 |
| Target Retirement 2040 Fund. | 19 |
| Target Retirement 2045 Fund. | 29 |
| Target Retirement 2050 Fund. | 39 |
| Target Retirement 2055 Fund. | 49 |
| Target Retirement 2060 Fund. | 59 |
| About Your Fund’s Expenses. | 69 |
| Trustees Approve Advisory Arrangement. | 71 |
| Glossary. | 72 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| Your Fund’s Total Returns | |
| Six Months Ended March 31, 2015 | |
| Total | |
| Returns | |
| Vanguard Target Retirement 2035 Fund | 4.77% |
| Target 2035 Composite Index | 4.81 |
| Mixed-Asset Target 2035 Funds Average | 4.40 |
| Mixed-Asset Target 2035 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2040 Fund | 4.75% |
| Target 2040 Composite Index | 4.88 |
| Mixed-Asset Target 2040 Funds Average | 4.60 |
| Mixed-Asset Target 2040 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2045 Fund | 4.73% |
| Target 2045 Composite Index | 4.88 |
| Mixed-Asset Target 2045 Funds Average | 4.71 |
| Mixed-Asset Target 2045 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2050 Fund | 4.73% |
| Target 2050 Composite Index | 4.88 |
| Mixed-Asset Target 2050 Funds Average | 4.89 |
| Mixed-Asset Target 2050 Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2055 Fund | 4.74% |
| Target 2055 Composite Index | 4.88 |
| Mixed-Asset Target 2055+ Funds Average | 4.94 |
| Mixed-Asset Target 2055+ Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| Vanguard Target Retirement 2060 Fund | 4.70% |
| Target 2060 Composite Index | 4.88 |
| Mixed-Asset Target 2055+ Funds Average | 4.94 |
| Mixed-Asset Target 2055+ Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| IN | |
| For a benchmark description, see the Glossary. | |
Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
1
Chairman’s Letter
Dear Shareholder,
U.S. stocks continued to gain ground over the six months ended March 31, 2015. Although international stocks did the same, falling foreign currencies washed out returns for U.S. investors. U.S. bonds, meanwhile, generated positive results, as did international bonds when their returns for U.S. investors were hedged against currency fluctuations.
Returns for the six Vanguard Target Retirement Funds covered in this report—those with retirement dates of 2035 through 2060—were at or just above 4.70%. (The Target Retirement Income Fund and the funds with retirement dates of 2010 through 2030 are covered in a separate report.)
As the box on page 5 explains, the Target Retirement Funds will gradually expand their international stock and bond exposure by the end of 2015. This move will further enhance the diversification of your investments. Importantly, the overall allocation of stocks and bonds will remain the same, as will the Target Retirement Funds’ overall asset allocation strategy.
The Fed’s cautious approach was favorable for U.S. stocks
The broad U.S. stock market returned about 7% for the six months ended March 31. Stocks were resilient after declining markedly at the start of the period and enduring bouts of turmoil
2
in subsequent months. Investors’ concerns included the strength of the dollar and how that would affect the profits of U.S.based multinational corporations.
Overall, stocks responded favorably to both the Federal Reserve’s cautious approach to raising shortterm interest rates and the monetary stimulus efforts of other central banks. A strong rebound in February, when the broad market notched its largest monthly gain since October 2011, helped lift returns for the period.
International stocks had a slightly negative return as the dollar’s strength against many foreign currencies hurt results. Without this currency effect, stocks outside the United States generally advanced. The developed markets of the Pacific, particularly Japan, were especially strong.
Global central bank stimulus helped drive up bond prices
Bond prices, too, were supported by accommodative monetary policies from central banks and by investors who sought safehaven assets amid turbulence in the stock market. The broad U.S. taxable bond market returned 3.43%. The yield of the 10year Treasury note ended March at 1.95%, down from 2.48% six months earlier. (Bond prices and yields move in opposite directions.)
| Market Barometer | |||
| Total Returns | |||
| Periods Ended March 31, 2015 | |||
| Six | One | Five Years | |
| Months | Year | (Annualized) | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | 6.55% | 12.73% | 14.73% |
| Russell 2000 Index (Small-caps) | 14.46 | 8.21 | 14.57 |
| Russell 3000 Index (Broad U.S. market) | 7.13 | 12.37 | 14.71 |
| FTSE All-World ex US Index (International) | -0.08 | -0.21 | 5.19 |
| Bonds | |||
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 3.43% | 5.72% | 4.41% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.40 | 6.62 | 5.11 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| CPI | |||
| Consumer Price Index | -0.80% | -0.07% | 1.64% |
3
Municipal bonds returned 2.40%, though results faded later in the period as more bonds were issued.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –7.49%, a reflection of foreign currencies’ weakness relative to the dollar. International bonds hedged to eliminate the effect of currency exchange rates produced positive returns.
The Fed’s target of 0%–0.25% for shortterm interest rates continued to cap returns for money market funds and savings accounts.
As U.S. equities rose, the funds’ tilt toward stocks lifted returns
The Vanguard Target Retirement Funds are broadly diversified “funds of funds,” investing in four or five underlying Vanguard stock and bond index funds and gradually recalibrating their allocations as the specified retirement date approaches. Each Target Retirement Fund shifts from an allocation emphasizing stocks for longterm growth to a more conservative one emphasizing bonds. This gradual shift is prudent for investors nearing or in retirement who want to preserve their assets and generate income.
| Expense Ratios | ||
| Your Fund Compared With Its Peer Group | ||
| Acquired Fund Fees | Peer Group | |
| and Expenses | Average | |
| Target Retirement 2035 Fund | 0.18% | 0.47% |
| Target Retirement 2040 Fund | 0.18 | 0.53 |
| Target Retirement 2045 Fund | 0.18 | 0.47 |
| Target Retirement 2050 Fund | 0.18 | 0.51 |
| Target Retirement 2055 Fund | 0.18 | 0.46 |
| Target Retirement 2060 Fund | 0.18 | 0.46 |
The fund expense figures shown—drawn from the prospectus dated January 27, 2015—represent an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement Funds invest. The Target Retirement Funds do not charge any expenses or fees of their own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.17% for the 2035 Fund, 0.18% for the 2040 Fund, 0.18% for the 2045 Fund, 0.18% for the 2050 Fund, 0.18% for the 2055 Fund, and 0.18% for the 2060 Fund. Peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end 2014.
Peer groups: For the 2035 Fund, Mixed-Asset Target 2035 Funds; for the 2040 Fund, Mixed-Asset Target 2040 Funds; for the 2045 Fund, Mixed-Asset Target 2045 Funds; for the 2050 Fund, Mixed-Asset Target 2050 Funds, for the 2055 and 2060 Funds, Mixed-Asset Target 2055+ Funds.
4
International diversification increasing for Target Retirement Funds
The Vanguard Target Retirement Funds will expand their international exposure by the end of 2015, further enhancing the diversification of your investments. The amount allocated to international stocks will increase from 30% to 40% of the overall stock allocation, and the amount allocated to international bonds will increase from 20% to 30% of the overall bond allocation.
Although the allocation to domestic stocks and bonds will be reduced, the overall allocation of stocks and bonds will remain the same. And we aren’t changing the Target Retirement Funds’ overall asset allocation strategy, which involves gradually shifting emphasis from more aggressive investments to more conservative ones based on each fund’s target date—the approximate year when an investor in the fund would retire.
By boosting the funds’ international exposure, we aim to lower their longterm volatility. Research has shown that nonU.S. stocks have diversified the returns of U.S. stocks on average over time. With fixed income, the primary factors driving international bond prices differ from those for U.S. bonds, providing a diversification benefit.
The chart below shows how we’re adjusting the allocations to further diversify the funds.
Target Retirement Funds are adding more international stocks and bonds
5
The funds covered in this report are designed for investors who anticipate retiring sometime after 2030 and therefore need to invest for longterm growth. That’s why the funds allocate more to stocks than their counterparts with earlier target dates. The funds’ current stock allocations range from about 82% of assets in the 2035 fund to nearly 90% in the 2060 fund.
Because U.S. stocks continued to rise, all six funds comfortably posted returns in positive territory for the six months. For their U.S. stock exposure, the funds invest in Vanguard Total Stock Market Index Fund, which returned 7.07%. (Returns cited for underlying funds are for Investor Shares.)
Outside the United States, equities also mostly gained ground. The six funds obtain their foreign stock exposure through Vanguard Total International Stock Index Fund. However, its results were affected by the decline in value of foreign currencies versus the U.S. dollar. The currency effect translated into a –0.32% return for this holding.
The funds’ bond holdings added to their positive results
The fixed income component in the six funds is represented by two bond funds. Their core U.S. bond holding, Vanguard Total Bond Market II Index Fund, returned 3.41% as bonds continued to benefit from relatively stable inflation.
The second bond holding, Vanguard Total International Bond Index Fund, returned 4.69%. International bonds were helped as Europe and Japan maintained extraordinarily accommodative monetary policies that drove down yields and boosted bond prices.
It’s important to note that the Total International Bond Index Fund uses currency exchange contracts to minimize the effects of currency fluctuations; this policy largely erased the negative effect of converting foreign bond returns into more expensive U.S. dollars during the six months.
Our focus on balanced investing has roots going back many decades
On May 1, Vanguard will celebrate its 40th anniversary. Although many things have changed since 1975, our investment philosophy has not. From the start, we’ve focused on four timeless, straightforward principles that we believe help give clients the best chance for investment success: • Goals. Create clear, appropriate investment goals.
• Balance. Develop a suitable asset allocation using broadly diversified funds. • Cost. Minimize cost.
• Discipline. Maintain perspective and longterm discipline.
6
Although Vanguard has followed all these principles since its founding, one—the focus on balanced investing—is in the company’s DNA. That’s because our predecessor company, Wellington Management, was a pioneer in this respect, launching a fund in 1929 that included both stocks and bonds.
The Wellington Fund got its start on the eve of the Great Depression, but it thrived over the long term, thanks in large part to its balancing of stocks and bonds. This strategy continues to define the fund, now one of the nation’s largest balanced funds.
As we embark on our fifth decade, we’ll continue to emphasize the importance of balanced, diversified investing. How investors allocate assets between stocks and bonds has an enormous effect on the risks and returns of their portfolios. And broad diversification reduces exposure to specific risks, while providing opportunities to benefit from the market’s current leaders. (You can read more in Vanguard’s Principles for Investing Success, available at vanguard.com/research.)
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
April 15, 2015
7
| Your Fund’s Performance at a Glance | ||||
| September 30, 2014, Through March 31, 2015 | ||||
| Distributions Per Share | ||||
| Starting | Ending | Income | Capital | |
| Share Price | Share Price | Dividends | Gains | |
| Target Retirement 2035 Fund | $17.79 | $18.26 | $0.368 | $0.005 |
| Target Retirement 2040 Fund | $29.66 | $30.47 | $0.574 | $0.017 |
| Target Retirement 2045 Fund | $18.61 | $19.10 | $0.383 | $0.003 |
| Target Retirement 2050 Fund | $29.53 | $30.32 | $0.596 | $0.004 |
| Target Retirement 2055 Fund | $31.80 | $32.74 | $0.554 | $0.006 |
| Target Retirement 2060 Fund | $28.03 | $28.87 | $0.464 | $0.007 |
8
Target Retirement 2035 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTTHX |
| 30-Day SEC Yield | 2.03% |
| Acquired Fund Fees and Expenses1 | 0.18% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 57.5% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 24.9 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 13.5 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 4.1 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2035 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.94 |
| Beta | 1.00 | 0.85 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2035 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.17%.
9
Target Retirement 2035 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 30, 2004, Through March 31, 2015
Target Retirement 2035 Fund
Target 2035 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Ten Years | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2035 | ||||||
| Fund | 10/27/2003 | 7.92% | 10.76% | 2.21% | 4.75% | 6.96% |
See Financial Highlights for dividend and capital gains information.
10
Target Retirement 2035 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value | ||
| Shares | ($000) | |
| Investment Companies (99.9%) | ||
| U.S. Stock Fund (57.4%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 287,819,721 | 15,041,459 |
| International Stock Fund (24.9%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 404,981,262 | 6,532,348 |
| U.S. Bond Fund (13.5%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 323,497,526 | 3,542,298 |
| International Bond Fund (4.1%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 100,095,026 | 1,081,026 |
| Total Investment Companies (Cost $19,511,534) | 26,197,131 | |
| Temporary Cash Investment (0.2%) | ||
| Money Market Fund (0.2%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $48,508) | 48,508,268 | 48,508 |
| Total Investments (100.1%) (Cost $19,560,042) | 26,245,639 | |
| Other Assets and Liabilities (-0.1%) | ||
| Other Assets | 83,934 | |
| Liabilities | (101,407) | |
| (17,473) | ||
| Net Assets (100%) | ||
| Applicable to 1,436,727,707 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 26,228,166 | |
| Net Asset Value Per Share | $18.26 | |
11
| Target Retirement 2035 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 19,410,149 |
| Undistributed Net Investment Income | 107,688 |
| Accumulated Net Realized Gains | 24,732 |
| Unrealized Appreciation (Depreciation) | 6,685,597 |
| Net Assets | 26,228,166 |
See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
12
| Target Retirement 2035 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 250,408 |
| Net Investment Income—Note B | 250,408 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 9,997 |
| Affiliated Investment Securities Sold | 34,229 |
| Realized Net Gain (Loss) | 44,226 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 849,258 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,143,892 |
See accompanying Notes, which are an integral part of the Financial Statements.
13
| Target Retirement 2035 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 250,408 | 478,271 |
| Realized Net Gain (Loss) | 44,226 | 13,398 |
| Change in Unrealized Appreciation (Depreciation) | 849,258 | 1,929,163 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1,143,892 | 2,420,832 |
| Distributions | ||
| Net Investment Income | (497,437) | (393,936) |
| Realized Capital Gain1 | (6,759) | — |
| Total Distributions | (504,196) | (393,936) |
| Capital Share Transactions | ||
| Issued | 3,336,023 | 5,931,912 |
| Issued in Lieu of Cash Distributions | 495,809 | 388,557 |
| Redeemed | (2,069,477) | (3,547,498) |
| Net Increase (Decrease) from Capital Share Transactions | 1,762,355 | 2,772,971 |
| Total Increase (Decrease) | 2,402,051 | 4,799,867 |
| Net Assets | ||
| Beginning of Period | 23,826,115 | 19,026,248 |
| End of Period2 | 26,228,166 | 23,826,115 |
1 Includes fiscal 2015 short-term gain distributions totaling $6,759,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $107,688,000 and $354,717,000.
See accompanying Notes, which are an integral part of the Financial Statements.
14
| Target Retirement 2035 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $17.79 | $16.16 | $14.15 | $11.77 | $12.22 | $11.31 |
| Investment Operations | ||||||
| Net Investment Income | .178 | .359 | .340 | .344 | .235 | .250 |
| Capital Gain Distributions Received | .007 | .001 | .011 | .016 | .006 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .658 | 1.594 | 1.972 | 2.307 | (.402) | .898 |
| Total from Investment Operations | .843 | 1.954 | 2.323 | 2.667 | (.161) | 1.148 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 368) | (. 324) | (. 307) | (. 281) | (. 236) | (. 238) |
| Distributions from Realized Capital Gains | (. 005) | — | (. 006) | (. 006) | (. 053) | — |
| Total Distributions | (. 373) | (. 324) | (. 313) | (. 287) | (. 289) | (. 238) |
| Net Asset Value, End of Period | $18.26 | $17.79 | $16.16 | $14.15 | $11.77 | $12.22 |
| Total Return1 | 4.77% | 12.20% | 16.77% | 22.98% | -1.55% | 10.24% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) $26,228 | $23,826 | $19,026 | $14,220 | $10,239 | $9,223 | |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.17% | 0.18% | 0.18% | 0.18% | 0.19% | 0.19% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.03% | 2.17% | 2.33% | 2.68% | 1.81% | 2.24% |
| Portfolio Turnover Rate | 10% | 6% | 12% | 6% | 18%2 | 6% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
15
Target Retirement 2035 Fund
Notes to Financial Statements
Vanguard Target Retirement 2035 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
16
Target Retirement 2035 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at September 30, 2014, the fund had available capital losses totaling $11,731,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending September 30, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At March 31, 2015, the cost of investment securities for tax purposes was $19,560,042,000. Net unrealized appreciation of investment securities for tax purposes was $6,685,597,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 185,511 | 343,642 |
| Issued in Lieu of Cash Distributions | 27,499 | 23,005 |
| Redeemed | (115,404) | (204,875) |
| Net Increase (Decrease) in Shares Outstanding | 97,606 | 161,772 |
17
Target Retirement 2035 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 9,365 | NA1 | NA1 | 8 | — | 48,508 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 3,195,065 | 742,544 | 461,414 | 37,744 | 9,997 | 3,542,298 |
| Vanguard Total International | ||||||
| Bond Index Fund | 798,045 | 314,104 | 62,200 | 6,841 | — | 1,081,026 |
| Vanguard Total International | ||||||
| Stock Index Fund | 5,876,678 | 723,648 | — | 67,694 | — | 6,532,348 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 13,938,024 | 988,514 | 739,365 | 138,121 | — | 15,041,459 |
| Total | 23,817,178 | 2,768,810 | 1,262,979 | 250,408 | 9,997 | 26,245,639 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
18
Target Retirement 2040 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VFORX |
| 30-Day SEC Yield | 2.03% |
| Acquired Fund Fees and Expenses1 | 0.18% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 62.3% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 27.6 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 7.9 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 2.2 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2040 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.94 |
| Beta | 1.00 | 0.90 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2040 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.18%.
19
Target Retirement 2040 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): June 7, 2006, Through March 31, 2015
Target Retirement 2040 Fund
Target 2040 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Since Inception | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2040 | ||||||
| Fund | 6/7/2006 | 7.91% | 11.06% | 2.01% | 4.95% | 6.96% |
See Financial Highlights for dividend and capital gains information.
20
Target Retirement 2040 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value | ||
| Shares | ($000) | |
| Investment Companies (99.9%) | ||
| U.S. Stock Fund (62.2%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 212,246,870 | 11,092,021 |
| International Stock Fund (27.6%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 305,576,782 | 4,928,953 |
| U.S. Bond Fund (7.9%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 129,080,239 | 1,413,429 |
| International Bond Fund (2.2%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 36,385,535 | 392,964 |
| Total Investment Companies (Cost $13,576,556) | 17,827,367 | |
| Temporary Cash Investment (0.1%) | ||
| Money Market Fund (0.1%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $14,893) | 14,892,947 | 14,893 |
| Total Investments (100.0%) (Cost $13,591,449) | 17,842,260 | |
| Other Assets and Liabilities (0.0%) | ||
| Other Assets | 41,587 | |
| Liabilities | (35,470) | |
| 6,117 | ||
| Net Assets (100%) | ||
| Applicable to 585,744,894 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 17,848,377 | |
| Net Asset Value Per Share | $30.47 | |
21
| Target Retirement 2040 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 13,520,161 |
| Undistributed Net Investment Income | 71,988 |
| Accumulated Net Realized Gains | 5,417 |
| Unrealized Appreciation (Depreciation) | 4,250,811 |
| Net Assets | 17,848,377 |
See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
22
| Target Retirement 2040 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 168,783 |
| Net Investment Income—Note B | 168,783 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 4,006 |
| Affiliated Investment Securities Sold | 7,427 |
| Realized Net Gain (Loss) | 11,433 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 594,062 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 774,278 |
See accompanying Notes, which are an integral part of the Financial Statements.
23
| Target Retirement 2040 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 168,783 | 313,519 |
| Realized Net Gain (Loss) | 11,433 | 9,137 |
| Change in Unrealized Appreciation (Depreciation) | 594,062 | 1,291,043 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 774,278 | 1,613,699 |
| Distributions | ||
| Net Investment Income | (314,421) | (233,406) |
| Realized Capital Gain1 | (9,312) | (3,268) |
| Total Distributions | (323,733) | (236,674) |
| Capital Share Transactions | ||
| Issued | 2,748,071 | 4,886,111 |
| Issued in Lieu of Cash Distributions | 317,441 | 232,555 |
| Redeemed | (1,579,323) | (2,596,989) |
| Net Increase (Decrease) from Capital Share Transactions | 1,486,189 | 2,521,677 |
| Total Increase (Decrease) | 1,936,734 | 3,898,702 |
| Net Assets | ||
| Beginning of Period | 15,911,643 | 12,012,941 |
| End of Period2 | 17,848,377 | 15,911,643 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $8,764,000 and $467,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $71,988,000 and $217,626,000.
See accompanying Notes, which are an integral part of the Financial Statements.
24
| Target Retirement 2040 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $29.66 | $26.80 | $23.26 | $19.26 | $20.03 | $18.52 |
| Investment Operations | ||||||
| Net Investment Income | . 291 | .593 | .546 | .559 | . 369 | . 393 |
| Capital Gain Distributions Received | .007 | .001 | .012 | .022 | .006 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 1.103 | 2.773 | 3.485 | 3.872 | (.705) | 1.485 |
| Total from Investment Operations | 1.401 | 3.367 | 4.043 | 4.453 | (.330) | 1.878 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 574) | (. 500) | (. 496) | (. 444) | (. 368) | (. 368) |
| Distributions from Realized Capital Gains | (. 017) | (. 007) | (. 007) | (. 009) | (. 072) | — |
| Total Distributions | (. 591) | (. 507) | (. 503) | (. 453) | (. 440) | (. 368) |
| Net Asset Value, End of Period | $30.47 | $29.66 | $26.80 | $23.26 | $19.26 | $20.03 |
| Total Return1 | 4.75% | 12.66% | 17.75% | 23.43% | -1.87% | 10.23% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $17,848 | $15,912 | $12,013 | $7,982 | $4,977 | $3,831 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.18% | 0.18% | 0.18% | 0.18% | 0.19% | 0.19% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.03% | 2.18% | 2.36% | 2.69% | 1.79% | 2.23% |
| Portfolio Turnover Rate | 9% | 6% | 9% | 3% | 15%2 | 7% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
25
Target Retirement 2040 Fund
Notes to Financial Statements
Vanguard Target Retirement 2040 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
26
Target Retirement 2040 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $13,591,449,000. Net unrealized appreciation of investment securities for tax purposes was $4,250,811,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 91,677 | 169,864 |
| Issued in Lieu of Cash Distributions | 10,543 | 8,261 |
| Redeemed | (52,856) | (90,018) |
| Net Increase (Decrease) in Shares Outstanding | 49,364 | 88,107 |
27
Target Retirement 2040 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 10,023 | NA1 | NA1 | 6 | — | 14,893 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 1,274,711 | 283,449 | 171,072 | 15,106 | 4,006 | 1,413,429 |
| Vanguard Total International | ||||||
| Bond Index Fund | 318,470 | 89,457 | 27,345 | 2,720 | — | 392,964 |
| Vanguard Total International | ||||||
| Stock Index Fund | 4,262,284 | 830,886 | 110,643 | 49,793 | — | 4,928,953 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 10,056,868 | 873,384 | 454,571 | 101,158 | — | 11,092,021 |
| Total | 15,922,356 | 2,077,176 | 763,631 | 168,783 | 4,006 | 17,842,260 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
28
Target Retirement 2045 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTIVX |
| 30-Day SEC Yield | 2.03% |
| Acquired Fund Fees and Expenses1 | 0.18% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 62.2% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 27.6 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 8.0 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 2.2 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2045 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.94 |
| Beta | 1.01 | 0.90 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2045 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.18%.
29
Target Retirement 2045 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 30, 2004, Through March 31, 2015
Target Retirement 2045 Fund
Target 2045 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Ten Years | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2045 | ||||||
| Fund | 10/27/2003 | 7.92% | 11.06% | 2.16% | 5.10% | 7.26% |
See Financial Highlights for dividend and capital gains information.
30
Target Retirement 2045 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value | ||
| Shares | ($000) | |
| Investment Companies (99.8%) | ||
| U.S. Stock Fund (62.2%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 192,624,715 | 10,066,567 |
| International Stock Fund (27.5%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 276,474,521 | 4,459,534 |
| U.S. Bond Fund (7.9%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 117,432,390 | 1,285,885 |
| International Bond Fund (2.2%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 32,482,429 | 350,810 |
| Total Investment Companies (Cost $12,048,492) | 16,162,796 | |
| Temporary Cash Investment (0.1%) | ||
| Money Market Fund (0.1%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $12,340) | 12,339,889 | 12,340 |
| Total Investments (99.9%) (Cost $12,060,832) | 16,175,136 | |
| Other Assets and Liabilities (0.1%) | ||
| Other Assets | 32,969 | |
| Liabilities | (20,476) | |
| 12,493 | ||
| Net Assets (100%) | ||
| Applicable to 847,698,967 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 16,187,629 | |
| Net Asset Value Per Share | $19.10 | |
31
| Target Retirement 2045 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 12,015,347 |
| Undistributed Net Investment Income | 65,269 |
| Accumulated Net Realized Losses | (7,291) |
| Unrealized Appreciation (Depreciation) | 4,114,304 |
| Net Assets | 16,187,629 |
See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
32
| Target Retirement 2045 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 153,129 |
| Net Investment Income—Note B | 153,129 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 3,643 |
| Affiliated Investment Securities Sold | 7,610 |
| Realized Net Gain (Loss) | 11,253 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 536,569 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 700,951 |
See accompanying Notes, which are an integral part of the Financial Statements.
33
| Target Retirement 2045 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 153,129 | 290,564 |
| Realized Net Gain (Loss) | 11,253 | 8,412 |
| Change in Unrealized Appreciation (Depreciation) | 536,569 | 1,216,259 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 700,951 | 1,515,235 |
| Distributions | ||
| Net Investment Income | (303,599) | (234,723) |
| Realized Capital Gain1 | (2,378) | — |
| Total Distributions | (305,977) | (234,723) |
| Capital Share Transactions | ||
| Issued | 2,337,885 | 3,903,286 |
| Issued in Lieu of Cash Distributions | 301,446 | 231,884 |
| Redeemed | (1,337,980) | (2,365,499) |
| Net Increase (Decrease) from Capital Share Transactions | 1,301,351 | 1,769,671 |
| Total Increase (Decrease) | 1,696,325 | 3,050,183 |
| Net Assets | ||
| Beginning of Period | 14,491,304 | 11,441,121 |
| End of Period2 | 16,187,629 | 14,491,304 |
1 Includes fiscal 2015 short-term gain distributions totaling $2,378,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $65,269,000 and $215,739,000.
See accompanying Notes, which are an integral part of the Financial Statements.
34
| Target Retirement 2045 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $18.61 | $16.82 | $14.61 | $12.10 | $12.64 | $11.70 |
| Investment Operations | ||||||
| Net Investment Income | .183 | .376 | .350 | .354 | .237 | .257 |
| Capital Gain Distributions Received | .005 | .001 | .008 | .014 | .005 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | .688 | 1.747 | 2.173 | 2.433 | (.436) | .929 |
| Total from Investment Operations | .876 | 2.124 | 2.531 | 2.801 | (.194) | 1.186 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 383) | (. 334) | (. 316) | (. 286) | (. 242) | (. 246) |
| Distributions from Realized Capital Gains | (. 003) | — | (. 005) | (. 005) | (.104) | — |
| Total Distributions | (. 386) | (. 334) | (. 321) | (. 291) | (. 346) | (. 246) |
| Net Asset Value, End of Period | $19.10 | $18.61 | $16.82 | $14.61 | $12.10 | $12.64 |
| Total Return1 | 4.73% | 12.73% | 17.70% | 23.47% | -1.82% | 10.23% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $16,188 | $14,491 | $11,441 | $8,163 | $5,702 | $4,918 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.18% | 0.18% | 0.18% | 0.18% | 0.19% | 0.19% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.02% | 2.17% | 2.36% | 2.70% | 1.79% | 2.24% |
| Portfolio Turnover Rate | 8% | 7% | 10% | 7% | 16%2 | 6% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
35
Target Retirement 2045 Fund
Notes to Financial Statements
Vanguard Target Retirement 2045 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
36
Target Retirement 2045 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at September 30, 2014, the fund had available capital losses totaling $15,266,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending September 30, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At March 31, 2015, the cost of investment securities for tax purposes was $12,060,832,000. Net unrealized appreciation of investment securities for tax purposes was $4,114,304,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 124,265 | 216,231 |
| Issued in Lieu of Cash Distributions | 15,975 | 13,130 |
| Redeemed | (71,349) | (130,624) |
| Net Increase (Decrease) in Shares Outstanding | 68,891 | 98,737 |
37
Target Retirement 2045 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 8,935 | NA1 | NA1 | 6 | — | 12,340 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 1,160,867 | 262,809 | 161,572 | 13,709 | 3,643 | 1,285,885 |
| Vanguard Total International | ||||||
| Bond Index Fund | 289,934 | 92,736 | 43,155 | 2,467 | — | 350,810 |
| Vanguard Total International | ||||||
| Stock Index Fund | 3,881,078 | 720,001 | 92,415 | 45,157 | — | 4,459,534 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 9,155,174 | 673,909 | 320,748 | 91,790 | — | 10,066,567 |
| Total | 14,495,988 | 1,749,455 | 617,890 | 153,129 | 3,643 | 16,175,136 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
38
Target Retirement 2050 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VFIFX |
| 30-Day SEC Yield | 2.03% |
| Acquired Fund Fees and Expenses1 | 0.18% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 62.1% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 27.9 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 7.8 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 2.2 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2050 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.94 |
| Beta | 1.00 | 0.90 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2050 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.18%.
39
Target Retirement 2050 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): June 7, 2006, Through March 31, 2015
Target Retirement 2050 Fund
Target 2050 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | ||||||
| Since Inception | ||||||
| Inception Date | One Year | Five Years | Income | Capital | Total | |
| Target Retirement 2050 | ||||||
| Fund | 6/7/2006 | 7.91% | 11.06% | 2.03% | 4.98% | 7.01% |
See Financial Highlights for dividend and capital gains information.
40
Target Retirement 2050 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value | ||
| Shares | ($000) | |
| Investment Companies (99.9%) | ||
| U.S. Stock Fund (62.0%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 100,208,215 | 5,236,881 |
| International Stock Fund (27.9%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 145,986,620 | 2,354,764 |
| U.S. Bond Fund (7.8%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 60,413,298 | 661,526 |
| International Bond Fund (2.2%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 17,322,756 | 187,086 |
| Total Investment Companies (Cost $6,549,863) | 8,440,257 | |
| Temporary Cash Investment (0.1%) | ||
| Money Market Fund (0.1%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $10,828) | 10,827,765 | 10,828 |
| Total Investments (100.0%) (Cost $6,560,691) | 8,451,085 | |
| Other Assets and Liabilities (0.0%) | ||
| Other Assets | 28,630 | |
| Liabilities | (24,464) | |
| 4,166 | ||
| Net Assets (100%) | ||
| Applicable to 278,834,518 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 8,455,251 | |
| Net Asset Value Per Share | $30.32 | |
41
| Target Retirement 2050 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 6,529,806 |
| Undistributed Net Investment Income | 33,902 |
| Accumulated Net Realized Gains | 1,149 |
| Unrealized Appreciation (Depreciation) | 1,890,394 |
| Net Assets | 8,455,251 |
See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
42
| Target Retirement 2050 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 79,258 |
| Net Investment Income—Note B | 79,258 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 1,875 |
| Affiliated Investment Securities Sold | 5,511 |
| Realized Net Gain (Loss) | 7,386 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 274,925 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 361,569 |
See accompanying Notes, which are an integral part of the Financial Statements.
43
| Target Retirement 2050 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 79,258 | 143,739 |
| Realized Net Gain (Loss) | 7,386 | 2,188 |
| Change in Unrealized Appreciation (Depreciation) | 274,925 | 583,773 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 361,569 | 729,700 |
| Distributions | ||
| Net Investment Income | (153,721) | (108,671) |
| Realized Capital Gain1 | (1,032) | — |
| Total Distributions | (154,753) | (108,671) |
| Capital Share Transactions | ||
| Issued | 1,632,767 | 2,587,083 |
| Issued in Lieu of Cash Distributions | 151,750 | 106,886 |
| Redeemed | (925,342) | (1,280,848) |
| Net Increase (Decrease) from Capital Share Transactions | 859,175 | 1,413,121 |
| Total Increase (Decrease) | 1,065,991 | 2,034,150 |
| Net Assets | ||
| Beginning of Period | 7,389,260 | 5,355,110 |
| End of Period2 | 8,455,251 | 7,389,260 |
1 Includes fiscal 2015 short-term gain distributions totaling $1,032,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $33,902,000 and $108,365,000.
See accompanying Notes, which are an integral part of the Financial Statements.
44
| Target Retirement 2050 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | March 31, | Year Ended September 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $29.53 | $26.69 | $23.16 | $19.17 | $20.10 | $18.58 |
| Investment Operations | ||||||
| Net Investment Income | . 285 | .586 | .539 | .549 | . 360 | . 399 |
| Capital Gain Distributions Received | .007 | .001 | .012 | .022 | .006 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 1.098 | 2.771 | 3.473 | 3.866 | (.682) | 1.492 |
| Total from Investment Operations | 1.390 | 3.358 | 4.024 | 4.437 | (.316) | 1.891 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 596) | (. 518) | (. 487) | (. 439) | (. 370) | (. 371) |
| Distributions from Realized Capital Gains | (. 004) | — | (. 007) | (. 008) | (. 244) | — |
| Total Distributions | (. 600) | (. 518) | (. 494) | (. 447) | (. 614) | (. 371) |
| Net Asset Value, End of Period | $30.32 | $29.53 | $26.69 | $23.16 | $19.17 | $20.10 |
| Total Return1 | 4.73% | 12.69% | 17.74% | 23.46% | -1.89% | 10.26% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $8,455 | $7,389 | $5,355 | $3,467 | $2,074 | $1,517 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.18% | 0.18% | 0.18% | 0.18% | 0.19% | 0.19% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.03% | 2.19% | 2.36% | 2.70% | 1.79% | 2.21% |
| Portfolio Turnover Rate | 12% | 7% | 9% | 4% | 15%2 | 10% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs.
See accompanying Notes, which are an integral part of the Financial Statements.
45
Target Retirement 2050 Fund
Notes to Financial Statements
Vanguard Target Retirement 2050 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
46
Target Retirement 2050 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at September 30, 2014, the fund had available capital losses totaling $3,440,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending September 30, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At March 31, 2015, the cost of investment securities for tax purposes was $6,560,691,000. Net unrealized appreciation of investment securities for tax purposes was $1,890,394,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 54,639 | 90,220 |
| Issued in Lieu of Cash Distributions | 5,063 | 3,813 |
| Redeemed | (31,084) | (44,461) |
| Net Increase (Decrease) in Shares Outstanding | 28,618 | 49,572 |
47
Target Retirement 2050 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 5,041 | NA1 | NA1 | 4 | — | 10,828 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 599,028 | 162,244 | 112,033 | 7,075 | 1,875 | 661,526 |
| Vanguard Total International | ||||||
| Bond Index Fund | 147,582 | 52,819 | 19,133 | 1,272 | — | 187,086 |
| Vanguard Total International | ||||||
| Stock Index Fund | 1,990,809 | 457,698 | 67,680 | 23,418 | — | 2,354,764 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 4,653,479 | 552,385 | 257,377 | 47,489 | — | 5,236,881 |
| Total | 7,395,939 | 1,225,146 | 456,223 | 79,258 | 1,875 | 8,451,085 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
48
Target Retirement 2055 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VFFVX |
| 30-Day SEC Yield | 2.03% |
| Acquired Fund Fees and Expenses1 | 0.18% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 61.6% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 28.3 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 7.6 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 2.5 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2055 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.94 |
| Beta | 1.00 | 0.90 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2055 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.18%.
49
Target Retirement 2055 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): August 18, 2010, Through March 31, 2015
Target Retirement 2055 Fund
Target 2055 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | |||||
| Since Inception | |||||
| Inception Date | One Year | Income | Capital | Total | |
| Target Retirement 2055 | |||||
| Fund | 8/18/2010 | 7.89% | 1.85% | 11.35% | 13.20% |
See Financial Highlights for dividend and capital gains information.
50
Target Retirement 2055 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value | ||
| Shares | ($000) | |
| Investment Companies (99.7%) | ||
| U.S. Stock Fund (61.5%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 26,132,640 | 1,365,692 |
| International Stock Fund (28.2%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 38,866,964 | 626,924 |
| U.S. Bond Fund (7.5%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 15,323,690 | 167,794 |
| International Bond Fund (2.5%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 5,123,144 | 55,330 |
| Total Investment Companies (Cost $1,928,747) | 2,215,740 | |
| Temporary Cash Investment (0.2%) | ||
| Money Market Fund (0.2%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $3,449) | 3,449,185 | 3,449 |
| Total Investments (99.9%) (Cost $1,932,196) | 2,219,189 | |
| Other Assets and Liabilities (0.1%) | ||
| Other Assets | 8,326 | |
| Liabilities | (5,495) | |
| 2,831 | ||
| Net Assets (100%) | ||
| Applicable to 67,874,483 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 2,222,020 | |
| Net Asset Value Per Share | $32.74 | |
51
| Target Retirement 2055 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 1,926,175 |
| Undistributed Net Investment Income | 8,691 |
| Accumulated Net Realized Gains | 161 |
| Unrealized Appreciation (Depreciation) | 286,993 |
| Net Assets | 2,222,020 |
See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
52
| Target Retirement 2055 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 19,613 |
| Net Investment Income—Note B | 19,613 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 454 |
| Affiliated Investment Securities Sold | 702 |
| Realized Net Gain (Loss) | 1,156 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 67,205 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 87,974 |
See accompanying Notes, which are an integral part of the Financial Statements.
53
| Target Retirement 2055 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 19,613 | 29,476 |
| Realized Net Gain (Loss) | 1,156 | (194) |
| Change in Unrealized Appreciation (Depreciation) | 67,205 | 108,847 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 87,974 | 138,129 |
| Distributions | ||
| Net Investment Income | (31,961) | (17,283) |
| Realized Capital Gain1 | (346) | (145) |
| Total Distributions | (32,307) | (17,428) |
| Capital Share Transactions | ||
| Issued | 684,364 | 928,250 |
| Issued in Lieu of Cash Distributions | 31,653 | 17,158 |
| Redeemed | (219,287) | (311,373) |
| Net Increase (Decrease) from Capital Share Transactions | 496,730 | 634,035 |
| Total Increase (Decrease) | 552,397 | 754,736 |
| Net Assets | ||
| Beginning of Period | 1,669,623 | 914,887 |
| End of Period2 | 2,222,020 | 1,669,623 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $288,000 and $0, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $8,691,000 and $21,039,000.
See accompanying Notes, which are an integral part of the Financial Statements.
54
| Target Retirement 2055 Fund | ||||||
| Financial Highlights | ||||||
| Six Months | Aug. 18, | |||||
| Ended | 20101 to | |||||
| Year Ended September 30, | ||||||
| For a Share Outstanding | March 31, | Sept. 30, | ||||
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $31.80 | $28.67 | $24.81 | $20.45 | $20.98 | $20.00 |
| Investment Operations | ||||||
| Net Investment Income | . 330 2 | .577 | .6412 | .540 | . 388 2 | .063 |
| Capital Gain Distributions Received | .008 2 | .001 | .0112 | .022 | .001 | — |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 1.162 | 3.033 | 3.668 | 4.202 | (.698) | .917 |
| Total from Investment Operations | 1.500 | 3.611 | 4.320 | 4.764 | (.309) | .980 |
| Distributions | ||||||
| Dividends from Net Investment Income | (. 554) | (. 477) | (. 447) | (. 391) | (.179) | — |
| Distributions from Realized Capital Gains | (. 006) | (. 004) | (. 013) | (. 013) | (. 042) | — |
| Total Distributions | (. 560) | (. 481) | (. 460) | (. 404) | (. 221) | — |
| Net Asset Value, End of Period | $32.74 | $31.80 | $28.67 | $24.81 | $20.45 | $20.98 |
| Total Return3 | 4.74% | 12.69% | 17.73% | 23.56% | -1.58% | 4.90% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $2,222 | $1,670 | $915 | $381 | $124 | $2 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.18% | 0.18% | 0.18% | 0.18% | 0.19% | 0.22%4 |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 2.06% | 2.22% | 2.39% | 2.76% | 1.71% | 2.73%4 |
| Portfolio Turnover Rate | 9% | 7% | 9% | 3% | 12%5 | 3% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
| 1 | Inception. |
| 2 | Calculated based on average shares outstanding. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | Annualized. |
| 5 | Excludes the value of mutual fund shares delivered and received in connection with a change in the fund’s international equity investments from Vanguard European, Pacific, and Emerging Markets Stock Index Funds to Vanguard Total International Stock Index Fund because those transactions were effected in kind and did not cause the fund to incur transaction costs. |
See accompanying Notes, which are an integral part of the Financial Statements.
55
Target Retirement 2055 Fund
Notes to Financial Statements
Vanguard Target Retirement 2055 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2011–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
56
Target Retirement 2055 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
At March 31, 2015, the cost of investment securities for tax purposes was $1,932,196,000. Net unrealized appreciation of investment securities for tax purposes was $286,993,000, consisting entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 21,226 | 30,025 |
| Issued in Lieu of Cash Distributions | 978 | 569 |
| Redeemed | (6,828) | (10,007) |
| Net Increase (Decrease) in Shares Outstanding | 15,376 | 20,587 |
57
Target Retirement 2055 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 2,341 | NA1 | NA1 | 2 | — | 3,449 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 133,540 | 65,625 | 34,327 | 1,719 | 454 | 167,794 |
| Vanguard Total International | ||||||
| Bond Index Fund | 33,353 | 22,293 | 1,686 | 313 | — | 55,330 |
| Vanguard Total International | ||||||
| Stock Index Fund | 450,284 | 191,245 | 9,633 | 5,746 | — | 626,924 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 1,049,374 | 288,876 | 41,111 | 11,833 | — | 1,365,692 |
| Total | 1,668,892 | 568,039 | 86,757 | 19,613 | 454 | 2,219,189 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
58
Target Retirement 2060 Fund
Fund Profile
As of March 31, 2015
| Total Fund Characteristics | |
| Ticker Symbol | VTTSX |
| 30-Day SEC Yield | 2.03% |
| Acquired Fund Fees and Expenses1 | 0.18% |
| Allocation to Underlying Vanguard Funds | |
| Vanguard Total Stock Market Index Fund | |
| Investor Shares | 62.0% |
| Vanguard Total International Stock Index | |
| Fund Investor Shares | 27.9 |
| Vanguard Total Bond Market II Index Fund | |
| Investor Shares | 7.1 |
| Vanguard Total International Bond Index | |
| Fund Investor Shares | 3.0 |
| Total Fund Volatility Measures | ||
| MSCI US | ||
| Target 2060 | Broad | |
| Composite | Market | |
| Index | Index | |
| R-Squared | 1.00 | 0.94 |
| Beta | 1.00 | 0.89 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Asset Allocation
1 This figure—drawn from the prospectus dated January 27, 2015—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement 2060 Fund invests. The fund does not charge any expenses or fees of its own. For the six months ended March 31, 2015, the annualized acquired fund fees and expenses were 0.18%.
59
Target Retirement 2060 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 19, 2012, Through March 31, 2015
Target Retirement 2060 Fund
Target 2060 Composite Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended March 31, 2015.
| Average Annual Total Returns: Periods Ended March 31, 2015 | |||||
| Since Inception | |||||
| Inception Date | One Year | Income | Capital | Total | |
| Target Retirement 2060 | |||||
| Fund | 1/19/2012 | 7.89% | 1.56% | 12.20% | 13.76% |
See Financial Highlights for dividend and capital gains information.
60
Target Retirement 2060 Fund
Financial Statements (unaudited)
Statement of Net Assets
As of March 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | ||
| Value | ||
| Shares | ($000) | |
| Investment Companies (99.8%) | ||
| U.S. Stock Fund (61.8%) | ||
| Vanguard Total Stock Market Index Fund Investor Shares | 7,977,421 | 416,900 |
| International Stock Fund (27.9%) | ||
| Vanguard Total International Stock Index Fund Investor Shares | 11,642,907 | 187,800 |
| U.S. Bond Fund (7.1%) | ||
| 1 Vanguard Total Bond Market II Index Fund Investor Shares | 4,356,027 | 47,699 |
| International Bond Fund (3.0%) | ||
| Vanguard Total International Bond Index Fund Investor Shares | 1,870,013 | 20,196 |
| Total Investment Companies (Cost $607,679) | 672,595 | |
| Temporary Cash Investment (0.6%) | ||
| Money Market Fund (0.6%) | ||
| 1 Vanguard Market Liquidity Fund, 0.128% (Cost $4,049) | 4,048,957 | 4,049 |
| Total Investments (100.4%) (Cost $611,728) | 676,644 | |
| Other Assets and Liabilities (-0.4%) | ||
| Other Assets | 2,432 | |
| Liabilities | (4,848) | |
| (2,416) | ||
| Net Assets (100%) | ||
| Applicable to 23,350,308 outstanding $.001 par value shares of | ||
| beneficial interest (unlimited authorization) | 674,228 | |
| Net Asset Value Per Share | $28.87 | |
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| Target Retirement 2060 Fund | |
| At March 31, 2015, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 606,638 |
| Undistributed Net Investment Income | 2,670 |
| Accumulated Net Realized Gains | 4 |
| Unrealized Appreciation (Depreciation) | 64,916 |
| Net Assets | 674,228 |
See Note A in Notes to Financial Statements.
1 Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market
Liquidity Fund is the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
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| Target Retirement 2060 Fund | |
| Statement of Operations | |
| Six Months Ended | |
| March 31, 2015 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received | 5,896 |
| Net Investment Income—Note B | 5,896 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 134 |
| Affiliated Investment Securities Sold | 85 |
| Realized Net Gain (Loss) | 219 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 20,565 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 26,680 |
See accompanying Notes, which are an integral part of the Financial Statements.
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| Target Retirement 2060 Fund | ||
| Statement of Changes in Net Assets | ||
| Six Months Ended | Year Ended | |
| March 31, | September 30, | |
| 2015 | 2014 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 5,896 | 8,027 |
| Realized Net Gain (Loss) | 219 | (20) |
| Change in Unrealized Appreciation (Depreciation) | 20,565 | 27,610 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 26,680 | 35,617 |
| Distributions | ||
| Net Investment Income | (8,995) | (3,832) |
| Realized Capital Gain1 | (136) | (10) |
| Total Distributions | (9,131) | (3,842) |
| Capital Share Transactions | ||
| Issued | 251,417 | 355,026 |
| Issued in Lieu of Cash Distributions | 8,983 | 3,794 |
| Redeemed | (89,131) | (122,342) |
| Net Increase (Decrease) from Capital Share Transactions | 171,269 | 236,478 |
| Total Increase (Decrease) | 188,818 | 268,253 |
| Net Assets | ||
| Beginning of Period | 485,410 | 217,157 |
| End of Period2 | 674,228 | 485,410 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $116,000 and $0, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $2,670,000 and $5,769,000.
See accompanying Notes, which are an integral part of the Financial Statements.
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| Target Retirement 2060 Fund | ||||
| Financial Highlights | ||||
| Six Months | Jan. 19, | |||
| Year Ended | ||||
| Ended | 20121 to | |||
| September 30, | ||||
| March 31, | Sept. 30, | |||
| For a Share Outstanding Throughout Each Period | 2015 | 2014 | 2013 | 2012 |
| Net Asset Value, Beginning of Period | $28.03 | $25.21 | $21.74 | $20.00 |
| Investment Operations | ||||
| Net Investment Income | . 294 2 | .615 2 | .5812 | .218 |
| Capital Gain Distributions Received | .0072 | .0012 | .007 2 | .002 |
| Net Realized and Unrealized Gain (Loss) on Investments | 1.010 | 2.572 | 3.203 | 1.520 |
| Total from Investment Operations | 1.311 | 3.188 | 3.791 | 1.740 |
| Distributions | ||||
| Dividends from Net Investment Income | (.464) | (.367) | (.315) | — |
| Distributions from Realized Capital Gains | (. 007) | (. 001) | (. 006) | — |
| Total Distributions | (.471) | (.368) | (.321) | — |
| Net Asset Value, End of Period | $28.87 | $28.03 | $25.21 | $21.74 |
| Total Return3 | 4.70% | 12.72% | 17.69% | 8.70% |
| Ratios/Supplemental Data | ||||
| Net Assets, End of Period (Millions) | $674 | $485 | $217 | $33 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.18% | 0.18% | 0.18% | 0.18%4 |
| Ratio of Net Investment Income to Average Net Assets | 2.08% | 2.25% | 2.45% | 2.99%4 |
| Portfolio Turnover Rate | 7% | 11% | 10% | 40% |
The expense ratio, acquired fund fees and expenses, net income ratio, and turnover rate for the current period have been annualized.
| 1 | Inception. |
| 2 | Calculated based on average shares outstanding. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Target Retirement 2060 Fund
Notes to Financial Statements
Vanguard Target Retirement 2060 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund are available on vanguard.com.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2012–2014), and for the period ended March 31, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at March 31, 2015, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the fund. The service agreement provides that the fund’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the fund. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the fund during the period ended March 31, 2015, were borne by the funds in which the fund invests. The fund’s trustees and officers are also directors and officers of Vanguard and the funds in which the fund invests.
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Target Retirement 2060 Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At March 31, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At March 31, 2015, the cost of investment securities for tax purposes was $611,728,000. Net unrealized appreciation of investment securities for tax purposes was $64,916,000, consisting of entirely of unrealized gains on securities that had risen in value since their purchase.
| E. | Capital shares issued and redeemed were: |
| Six Months Ended | Year Ended | |
| March 31, 2015 | September 30, 2014 | |
| Shares | Shares | |
| (000) | (000) | |
| Issued | 8,858 | 13,041 |
| Issued in Lieu of Cash Distributions | 315 | 143 |
| Redeemed | (3,143) | (4,478) |
| Net Increase (Decrease) in Shares Outstanding | 6,030 | 8,706 |
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Target Retirement 2060 Fund
| F. Transactions during the period in affiliated underlying Vanguard funds were as follows: | ||||||
| Current Period Transactions | ||||||
| Sept. 30, | Proceeds | March 31, | ||||
| 2014 | from | Capital Gain | 2015 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| Vanguard Market Liquidity Fund | 437 | NA1 | NA1 | 1 | — | 4,049 |
| Vanguard Total Bond Market II | ||||||
| Index Fund | 39,012 | 17,850 | 10,012 | 512 | 134 | 47,699 |
| Vanguard Total International | ||||||
| Bond Index Fund | 9,579 | 10,207 | — | 93 | — | 20,196 |
| Vanguard Total International | ||||||
| Stock Index Fund | 131,101 | 59,435 | 1,531 | 1,720 | — | 187,800 |
| Vanguard Total Stock Market | ||||||
| Index Fund | 305,530 | 99,527 | 8,754 | 3,570 | — | 416,900 |
| Total | 485,659 | 187,019 | 20,297 | 5,896 | 134 | 676,644 |
| 1 Not applicable—purchases and sales are for temporary cash investment purposes. | ||||||
G. Management has determined that no material events or transactions occurred subsequent to March 31, 2015, that would require recognition or disclosure in these financial statements.
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A typical fund’s expenses are expressed as a percentage of its average net assets. The Target Retirement Funds have no direct expenses, but each fund bears its proportionate share of the costs for the underlying funds in which it invests. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets.
The following examples are intended to help you understand the ongoing cost (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The costs were calculated using the acquired fund fees and expenses for each Target Retirement Fund.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
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| Six Months Ended March 31, 2015 | |||
| Beginning | Ending | Expenses | |
| Account Value | Account Value | Paid During | |
| 9/30/2014 | 3/31/2015 | Period | |
| Based on Actual Fund Return | |||
| Target Retirement 2035 Fund | $1,000.00 | $1,047.65 | $0.87 |
| Target Retirement 2040 Fund | $1,000.00 | $1,047.47 | $0.92 |
| Target Retirement 2045 Fund | $1,000.00 | $1,047.32 | $0.92 |
| Target Retirement 2050 Fund | $1,000.00 | $1,047.31 | $0.92 |
| Target Retirement 2055 Fund | $1,000.00 | $1,047.38 | $0.92 |
| Target Retirement 2060 Fund | $1,000.00 | $1,046.97 | $0.92 |
| Based on Hypothetical 5% Yearly Return | |||
| Target Retirement 2035 Fund | $1,000.00 | $1,024.08 | $0.86 |
| Target Retirement 2040 Fund | $1,000.00 | $1,024.03 | $0.91 |
| Target Retirement 2045 Fund | $1,000.00 | $1,024.03 | $0.91 |
| Target Retirement 2050 Fund | $1,000.00 | $1,024.03 | $0.91 |
| Target Retirement 2055 Fund | $1,000.00 | $1,024.03 | $0.91 |
| Target Retirement 2060 Fund | $1,000.00 | $1,024.03 | $0.91 |
The calculations are based on the acquired fund fees and expenses for the most recent six-month period. The funds’ annualized expense figures for the period are (in order as listed from top to bottom above) 0.17%, 0.18%, 0.18%, 0.18%, 0.18%, and 0.18%. The dollar amounts shown as ”Expenses Paid” are equal to the annualized average weighted expense ratio for the underlying funds multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
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Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Target Retirement Funds has renewed the funds’ investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard’s Equity Investment Group—through its Equity Index Group—serves as the investment advisor to the funds. The board determined that continuing the funds’ internalized management structure was in the best interests of the funds and their shareholders.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the funds’ investment management services over both the short and long term, and took into account the organizational depth and stability of the advisor. The board noted that Vanguard has been managing investments for more than three decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the performance of the funds, including any periods of outperformance or underperformance relative to a benchmark index and peer groups. The board concluded that the performance was such that the advisory arrangement should continue. Information about each fund’s most recent performance can be found in the Performance Summary pages of this report.
Cost
The board concluded that the funds’ acquired fund fees and expenses were well below the average expense ratios charged by funds in their respective peer groups. The funds do not incur advisory expenses directly; however, the board noted that each of the underlying funds in which the funds invest has advisory expenses well below the relevant peer-group average. Information about the funds’ acquired fund fees and expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements sections.
The board does not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that Vanguard’s at-cost arrangement with the Target Retirement Funds and their underlying funds ensures that the funds will realize economies of scale as the assets of the underlying funds grow, with the cost to shareholders declining as assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
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Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Acquired Fund Fees and Expenses. Funds that invest in other Vanguard funds incur no direct expenses, but they do bear proportionate shares of the operating, administrative, and advisory expenses of the underlying funds, and they must pay any fees charged by those funds. The figure for acquired fund fees and expenses represents a weighted average of these underlying costs. Acquired is a term that the Securities and Exchange Commission applies to any mutual fund whose shares are owned by another fund.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
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Benchmark Information
Target 2035 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2040 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2045 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
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Target 2050 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index through August 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Bond Index through December 31, 2009, and the Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2055 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Float Adjusted Index; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
Target 2060 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks of developed markets, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Barclays U.S. Aggregate Float Adjusted Index; for international bonds, the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
|
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante |
Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
| P.O. Box 2600 |
| Valley Forge, PA 19482-2600 |
Connect with Vanguard® > vanguard.com
| Fund Information > 800-662-7447 | |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| Who Are Deaf or Hard of Hearing> 800-749-7273 | |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| All comparative mutual fund data are from Lipper, a | |
| Thomson Reuters Company, or Morningstar, Inc., unless | |
| otherwise noted. | |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| © 2015 The Vanguard Group, Inc. | |
| All rights reserved. | |
| Vanguard Marketing Corporation, Distributor. | |
| Q3082B 052015 | |
Item 2: Code of Ethics.
Not Applicable.
Item 3: Audit Committee Financial Expert.
Not Applicable.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Not Applicable.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
Not Applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VANGUARD CHESTER FUNDS | |
| By: | /s/ F. WILLIAM MCNABB III* |
| F. WILLIAM MCNABB III | |
| CHIEF EXECUTIVE OFFICER | |
| Date: May 21, 2015 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| VANGUARD CHESTER FUNDS | |
| By: | /s/ F. WILLIAM MCNABB III* |
| F. WILLIAM MCNABB III | |
| CHIEF EXECUTIVE OFFICER | |
| Date: May 21, 2015 | |
| VANGUARD CHESTER FUNDS | |
| By: | /s/ THOMAS J. HIGGINS* |
| THOMAS J. HIGGINS | |
| CHIEF FINANCIAL OFFICER | |
| Date: May 21, 2015 | |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on April 22, 2014 see file Number 2-17620, Incorporated by Reference.