The Vanguard 529 College Savings Plan

Transcription

1 Annual Report June 30, 2015 The Vanguard 529 College Savings Plan Sponsored by the State of Nevada

2 > For the 12 months ended June 30, 2015, returns for The Vanguard 529 College Savings Plan ranged from nearly 5% for the Total International Stock Index Portfolio to more than 12% for the Morgan Growth Portfolio. > The broad U.S. stock market gained about 7%, and international stocks fell about 4%. > The broad U.S. bond market returned just under 2%. Contents Your Portfolio s Total Returns 1 Chairman s Letter 2 Performance Summaries and Profiles 10 Selected Financial Data 11 About Your Portfolio s Expenses 39 Ways to Make the Most of Your Plan 41 Glossary 43 A few notes about the report on plan performance that follows: The opinions expressed here are just that informed opinions. They should not be construed as promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. For more information about the risks of investing in the portfolios of The Vanguard 529 College Savings Plan, please refer to the Program Description. For the latest data on your portfolio s performance, visit vanguard.com. Want less clutter in your mailbox? Just register with vanguard.com and opt to get reports online.

3 Your Portfolio s Total Returns Fiscal Year Ended June 30, 2015 Portfolio Index 1 Vanguard Stock Portfolios 500 Index 7.26% 7.42% Aggressive Growth Growth Index Mid-Cap Index Morgan Growth Small-Cap Index Total International Stock Index Total Stock Market Index Value Index Windsor Vanguard Balanced Portfolios Conservative Growth 2.27% 2.39% Growth Moderate Growth STAR Vanguard Bond Portfolios High-Yield Bond 1.34% 0.76% Income Inflation-Protected Securities Total Bond Market Index Vanguard Short-Term Investments Portfolio Interest Accumulation 0.17% 0.11% 1 See each portfolio s Performance Summary and Profile page for details on its benchmark index. Note: The portfolios performance includes operating expenses ranging from 0.19% to 0.49%, whereas the indexes performance does not include any expenses. 1

4 Dear College Saver: The fiscal year ended June 30, 2015, was a volatile one for the world s financial markets. Events both at home and abroad kept global stock and bond markets in constant flux. Chairman s Letter Compared with the double-digit results of one year ago, equity returns were generally less impressive. Domestic stocks produced solid gains, but international stocks lost ground. In the U.S. market, mid-sized companies outperformed larger and smaller firms, and growth-oriented stocks bested their value counterparts. Returns for U.S. bonds were also muted relative to last year s results. Against this backdrop, 17 of the 19 portfolios in The Vanguard 529 College Savings Plan posted positive results. Mirroring broad market trends, returns for the plan s single-fund stock and bond portfolios ranged from about 5% for the Total International Stock Index Portfolio to more than 12% for the Morgan Growth Portfolio. (Morgan Growth invests in stocks of large- and mid-sized U.S. companies that, according to the fund s advisors, are poised for faster-than-average revenue and earnings growth.) Among the plan s multifund portfolios, the top performer was the Aggressive Growth Portfolio, which returned 3.39%. The laggard was the Income Portfolio, which returned 0.39%. The Interest Accumulation Portfolio returned 0.17%, 2

5 a result of the Federal Reserve s policy that has held short-term interest rates near 0%. I m pleased to announce that in September 2014, Vanguard again lowered expense ratios for all of the portfolios in the plan. Previously 0.21% to 0.50%, they now range from 0.19% to 0.49%. As assets continue to grow, we are happy to be able to pass these economies of scale along to investors. Volatility led to varied results at home and across the globe Uncertainty both at home and abroad during the period led to global financial market volatility. Deflationary fears caused by a steep drop in oil prices dominated headlines early on. Mixed economic news and stock valuations perceived as high by some investors further unsettled markets. And the strong U.S. dollar had a negative effect on the profits of U.S.-based multinational companies. As the fiscal year progressed, some of the uncertainty subsided. Oil prices stabilized a bit, and growth in the United States seemed to get back on track after stumbling in early In the euro zone and Japan, the pace of expansion proved more robust than expected. These improvements helped as the Greek debt crisis intensified along with investor concerns over slowed growth in China and the imminent rise in the Federal Reserve s interest rates. Market Barometer Average Annual Total Returns Periods Ended June 30, 2015 One Year Three Years Five Years Stocks Russell 1000 Index (Large-caps) 7.37% 17.73% 17.58% Russell 2000 Index (Small-caps) Russell 3000 Index (Broad U.S. market) FTSE All-World ex US Index (International) Bonds Barclays U.S. Aggregate Bond Index (Broad taxable market) 1.86% 1.83% 3.35% Barclays Municipal Bond Index (Broad tax-exempt market) Citigroup Three-Month U.S. Treasury Bill Index CPI Consumer Price Index 0.12% 1.31% 1.83% 3

6 In this environment, global equity markets produced varied results. The broad U.S. stock market posted gains of about 7%. International stocks, as a group, fell about 4% for U.S. investors; returns would have been better if not for the dollar s strength against many foreign currencies. Developed markets in the Pacific region advanced slightly; developed markets in Europe and emerging markets lost ground. After bursting from the gate, bond prices lost momentum A strong demand for bonds earlier in the period waned in later months as questions about the timing of the Fed s rate hike weighed on returns. The broad U.S. taxable bond market returned almost 2%. The yield of the 10-year Treasury note ended June at 2.33%, down from 2.54% 12 months earlier. (Bond prices and yields move in opposite directions.) International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned about 13%; the dollar s strength again hindered results. Without this currency effect, returns were positive. As investors grew more confident about Europe s economic growth, European bond yields bounced back from their very low (and in some cases, negative) levels. Returns were negligible for money market funds and savings accounts, which remained handcuffed by the Fed s target for shortterm rates. Equity index portfolio returns varied widely for the year Results for the plan s index portfolios designed to keep pace with a market segment or an entire market regardless of the direction the market takes spanned a wide range. (The actively managed portfolios discussed later in this report seek to outperform the market through security selection.) The three broad-market portfolios the Total Stock Market Index Portfolio, the Total International Stock Index Portfolio, and the Total Bond Market Index Portfolio aim to track the performance of an entire market. All met their objectives for the period, closely tracking the returns of their indexes. As I mentioned, U.S. stocks significantly outperformed their international peers. The Total Stock Market Index Portfolio, which offers exposure to all segments of the U.S. stock market, returned about 7%. The Total International Stock Index Portfolio, which holds stocks of companies in both developed and emerging international markets, returned almost 5%. The Total Bond Market Index Portfolio invests in the broad investment-grade bond market, including bonds issued by the U.S. Treasury, government agencies, and corporations, as well as mortgagebacked securities. It returned more than 1%. 4

7 The plan s market-segment index portfolios provide exposure to a category such as value or growth stocks or a market capitalization range such as large-, mid-, or small-cap companies. The Growth Index Portfolio and the Value Index Portfolio are the plan s two stylebased options. Growth and value stocks are typically considered complementary investments when growth is performing well, value usually isn t, and vice versa. Very generally speaking, growth stocks represent companies that are expected to expand their businesses at a rapid pace, and value stocks come from more established, slower-growing companies. As I mentioned, growth stocks trumped their value counterparts. Consistent with this trend, the Growth Index Portfolio returned about 9% and the Value Index Portfolio about 5%. Three portfolios focus on market capitalization. The 500 Index Portfolio consists of large-cap companies included in the Standard & Poor s 500 Index. The Mid-Cap Index Portfolio invests in midsized companies, and the Small-Cap Index Portfolio in smaller companies. For the 12 months, mid-cap stocks generally returned the most, followed by large-caps; small-caps trailed. Following suit, the Mid-Cap Index Portfolio returned more than 8%, the 500 Index Portfolio about 7%, and the Small-Cap Index Portfolio about 5%. Although it is not an index portfolio, the Inflation-Protected Securities Portfolio seeks to capture the returns of its market. It aims to protect investors from the loss of buying power over time by holding securities that can provide a real return that accounts for inflation. It returned about 2% as the TIPS market lost ground amid low inflation expectations. International stocks muted results for the plan s multifund portfolios Vanguard index funds are also used to create the plan s multifund portfolios. Each multifund portfolio has a unique allocation of stocks, fixed income investments, or some combination of the two. As I ve mentioned, U.S. stocks returned more than bonds for the fiscal year, and both asset classes significantly outperformed international stocks, which declined. Accordingly, the multifund portfolios with more stock exposure produced greater returns; however, their results were limited by their international stock holdings. The Aggressive Growth Portfolio, which invests 100% in stocks, led the way, returning more than 3%. The Income Portfolio, which holds only bonds and stable income investments and therefore has zero exposure to stocks, was the laggard, returning less than 1%. 5

8 Results for the three remaining portfolios, which contain a mix of stocks and bonds, fell in the middle. The Growth Portfolio, with 75% of its assets in stocks and 25% in bonds, returned just over 3%. The Moderate Growth Portfolio, invested 50% each in stocks and bonds, posted a result of almost 3%. The Conservative Growth Portfolio, holding 25% percent in stocks and 75% in bonds, returned more than 2%. You can choose to invest in the multifund portfolios either on their own or as part of one of the plan s age-based options. These options allow you to select a portfolio that is appropriate for your time horizon and risk tolerance. Over time, your balance automatically shifts to more bond- or cash-oriented allocations. In these more conservative investments, your hard-earned assets become less susceptible to market volatility as your beneficiary nears college age. In addition to having the lowest costs within the plan, the age-based options transfer some of the complexities of portfolio management to the plan s investment managers. The Interest Accumulation Portfolio, which invests in short-term securities, is another component of the age-based options. Although it s not an index fund, it seeks to capture the returns of its market. This portfolio returned less than 1% for the period, a result of the Fed s continued policy of holding down shortterm interest rates. U.S. growth stocks were leaders as their value counterparts trailed For investors looking for a chance to outperform the market, the plan offers several actively managed portfolios. Whereas an index portfolio measures success by how closely it tracks its index, the goal of an active portfolio is to outpace its benchmark index. The plan s active offerings include the Morgan Growth and Windsor Portfolios, which invest 100% in stocks, and the High-Yield Bond Portfolio, which holds non-investment-grade corporate bonds. In between is the STAR Portfolio, with a mix of actively managed stock, bond, and short-term reserve funds. Although both the Morgan Growth Portfolio and the Windsor Portfolio invest solely in stocks, they differ in the types they hold. Morgan Growth consists mostly of growthoriented companies, and Windsor focuses mainly on companies that the advisors believe are undervalued by the market. Because growth stocks performed better than value for the 12 months, Morgan Growth returned more than 12% and Windsor about 5%. Both portfolios beat their benchmarks. The actively managed, balanced STAR portfolio returned just over 3%. It consists of six domestic and two international stock funds (including both growth and value) and three fixed income funds (including 6

9 Total Returns Ten Years Ended June 30, 2015 Average Annual Returns Portfolio Index 1 Vanguard Stock Portfolios 500 Index 7.52% 7.89% Aggressive Growth Growth Index Mid-Cap Index Morgan Growth (Returns since inception: 12/1/2006) Small-Cap Index Total International Stock Index Total Stock Market Index Value Index Windsor (Returns since inception: 12/1/2006) Vanguard Balanced Portfolios Conservative Growth 5.19% 5.55% Growth Moderate Growth STAR (Returns since inception: 12/1/2006) Vanguard Bond Portfolios High-Yield Bond 6.31% 7.13% Income Inflation-Protected Securities Total Bond Market Index Vanguard Short-Term Investments Portfolio Interest Accumulation 1.60% 1.64% All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the portfolios. (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 portfolio units, 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 nonqualified distributions. 1 See each portfolio s Performance Summary and Profile page for details on its respective benchmark indexes. Note: The portfolios performance includes operating expenses ranging from 0.19% to 0.49%, whereas the indexes performance does not include any expenses. 7

10 long-term and short-term bonds). Here again, returns were boosted by U.S. stocks but ultimately restrained by exposure to international stocks. The High-Yield Bond Portfolio, which holds riskier corporate bonds, returned more than 1%, ending the period slightly ahead of its benchmark. After a strong run, bond prices declined and market volatility increased in recent months. Demand from risk-averse investors surged in January amid concerns about deflation and the shaky pace of global growth. But it slackened later as the economic picture brightened and the Federal Reserve seemed close to raising short-term interest rates for the first time in almost a decade. Because bonds with longer-term durations were hit hardest, the portfolio s shorter duration positioning relative to the benchmark worked in its favor. (Duration is a measure of a bond s sensitivity to a change in interest rates. The higher a bond s duration, the more sensitive it is to changes. Rising interest rates indicate falling bond prices; declining interest rates mean rising bond prices.) Investment philosophy The goal of the Vanguard 529 Plan is to help parents, grandparents, and others save to help meet the expected higher education bills of a future student. The saver can live in any state and earn any amount of income, and the student can be of any age. To accommodate different preferences, the plan offers 19 investment choices. Its three simple but sophisticated age-based options allow participants to choose a broadly diversified portfolio based on their tolerance for risk. As the child grows older and college bills draw closer the owner s account automatically adjusts to become increasingly more conservative. The entire plan including individual portfolios, multifund portfolios, and age-based options is built on a few basic principles: Choice: Parents and other interested people, such as grandparents, can invest in a wide variety of portfolios managed by advisors that are among the best in the business. Ease: Instead of choosing individual investments, participants can simplify the process through the automatic and financially sophisticated age-based options, described on pages 41 and 42. Low cost: Fees and expenses are among the lowest of any 529 plan. Tax advantages: Earnings grow tax-deferred, and withdrawals are free from federal income tax if used for qualified education expenses. 8

11 Our commitment to balanced investing spans many decades Vanguard recently celebrated 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. 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 blend 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 their portfolio s risks and returns. 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.) Of course, there is no universal right proportion of stocks, bonds, and other assets. You should choose a mix that s consistent with your own risk tolerance, goals, and time frame. Keep in mind that your horizon shortens as the years go by. As your beneficiary nears college age, you should consider periodically modifying your asset mix to lessen its vulnerability to market declines. You can do this on your own, or let one of the plan s three age-based options do it for you. Our website has tools and insights that can help you decide. (For more information, visit vanguard.com/us/whatweoffer/ college/tools). As always, thank you for investing with Vanguard. Sincerely, F. William McNabb III Chairman and Chief Executive Officer August 21,

12 Performance Summaries and Profiles Figures as of June 30, 2015 All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the portfolios. (Current performance may be lower or higher than the performance data cited. The portfolios performance includes expense ratios during the fiscal year ranging from 0.19% to 0.49%, whereas the indexes performance does not include any expenses. For performance data and operating expenses current to the most recent monthend, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor s portfolio units, 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 nonqualified distributions. The portfolios are available as individual portfolios and, in addition, several are available within the plan s three age-based options, which become more conservative over time. The portfolios in the age-based options are the: The age-based options are described in more detail on pages 41 and

13 Vanguard 500 Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $25,000 20, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard 500 Index Portfolio 7.26% 17.06% 7.52% $20,650 S&P 500 Index ,377 Large-Cap Core Funds Average ,132 Fiscal-Year Total Returns (%) Vanguard 500 S&P 500 Index Portfolio Index Fiscal Year Total Return Total Return % 8.6% Allocation to Underlying Funds Vanguard Institutional Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard 500 Index Portfolio 0.21% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small 1 Derived from data provided by Lipper, a Thomson Reuters Company. 11

14 Vanguard Aggressive Growth Portfolio Available within the age-based options or as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $25,000 19, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Aggressive Growth Portfolio 3.39% 14.57% 7.00% $19,671 Vanguard 529 Aggressive Growth Composite ,348 Vanguard 529 Aggressive Growth Composite Average ,416 Fiscal-Year Total Returns (%) Vanguard Aggressive Growth Portfolio Composite 1 Fiscal Year Total Return Total Return % 12.4% Allocation to Underlying Funds Equity Investment Focus Style Market Cap 69.9% Vanguard Institutional Total Stock Market Index Fund 30.1% Vanguard Total International Stock Index Fund Large Medium Value Blend Growth Expense Ratio (As of June 30, 2015) Small Vanguard Aggressive Growth Portfolio 0.19% 1 Vanguard 529 Aggressive Growth Composite: Weighted 70% CRSP US Total Market Index and 30% FTSE Global All Cap ex US Index. The CRSP index replaced the MSCI US Broad Market Index on January 15, 2013, which had replaced the Dow Jones Wilshire 5000 Index on April 22, The FTSE Global All Cap ex US Index replaced the MSCI ACWI ex USA IMI Index on June 3, 2013, which replaced the MSCI EAFE + Emerging Markets Index on December 16, Vanguard 529 Aggressive Growth Composite Average: Weighted 70% multi-cap core funds average and 30% international funds average; derived from data provided by Lipper, a Thomson Reuters Company. 12

15 Vanguard Growth Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $30,000 23, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Growth Index Portfolio 9.39% 18.39% 8.79% $23,220 Spliced Growth Index ,135 Large-Cap Growth Funds Average ,020 Fiscal-Year Total Returns (%) Vanguard Growth Spliced Index Portfolio Growth Index 1 Fiscal Year Total Return Total Return % 6.0% Allocation to Underlying Funds Vanguard Growth Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Growth Index Portfolio 0.28% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small 1 Spliced Growth Index: MSCI US Prime Market Growth Index through April 16, 2013; CRSP US Large Cap Growth Index thereafter. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 13

16 Vanguard Mid-Cap Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $30,000 23, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Mid-Cap Index Portfolio 8.43% 18.00% 9.02% $23,726 Spliced Mid Cap Index ,581 Mid-Cap Core Funds Average ,969 Fiscal-Year Total Returns (%) Vanguard Mid-Cap Spliced Index Portfolio Mid Cap Index 1 Fiscal Year Total Return Total Return % 14.6% Allocation to Underlying Funds Vanguard Mid-Cap Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Mid-Cap Index Portfolio 0.26% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small 1 Spliced Mid Cap Index: MSCI US Mid Cap 450 Index through January 30, 2013; CRSP US Mid Cap Index thereafter. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 14

17 Vanguard Morgan Growth Portfolio Available as an individual portfolio. Cumulative Performance: December 1, 2006 June 30, 2015 Initial investment of $10,000 $24,000 18, ,000 Average Annual Total Returns Periods Ended June 30, 2015 Final Value Since of a $10,000 One Year Five Years Inception 1 Investment Vanguard Morgan Growth Portfolio 12.55% 17.60% 7.35% $18,380 Russell 3000 Growth Index ,634 Multi-Cap Growth Funds Average ,950 Fiscal-Year Total Returns (%) Vanguard Morgan Russell 3000 Growth Portfolio Growth Index Fiscal Year Total Return Total Return % 9.0% Expense Ratio (As of June 30, 2015) Vanguard Morgan Growth Portfolio 0.47% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small Allocation to Underlying Funds Vanguard Morgan Growth Fund 100.0% 1 Performance for the portfolio and its comparative standards is calculated since the portfolio s inception: December 1, Derived from data provided by Lipper, a Thomson Reuters Company. 15

18 Vanguard Small-Cap Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $30,000 23, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Small-Cap Index Portfolio 5.04% 17.90% 9.12% $23,945 Spliced Small Cap Index ,582 Small-Cap Core Funds Average ,476 Fiscal-Year Total Returns (%) Spliced Vanguard Small-Cap Small Cap Index Portfolio Index 1 Fiscal Year Total Return Total Return % 13.9% Allocation to Underlying Funds Vanguard Small-Cap Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Small-Cap Index Portfolio 0.26% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small 1 Spliced Small Cap Index: MSCI US Small Cap 1750 Index through January 30, 2013; CRSP US Small Cap Index thereafter. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 16

19 Vanguard Total International Stock Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $20,000 16, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Total International Stock Index Portfolio -4.83% 7.84% 5.05% $16,370 Spliced Total International Stock Index ,025 International Funds Average ,292 Fiscal-Year Total Returns (%) Vanguard Total Spliced Total International Stock International Index Portfolio Stock Index 1 Fiscal Year Total Return Total Return % 27.4% Allocation to Underlying Funds Vanguard Total International Stock Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Total International Stock Index Portfolio 0.37% 1 Spliced Total International Stock Index: Total International Composite Index through August 31, 2006; MSCI EAFE + Emerging Markets Index through December 15, 2010; MSCI ACWI ex USA IMI Index through June 2, 2013; and FTSE Global All Cap ex US Index thereafter. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 17

20 Vanguard Total Stock Market Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $25,000 21, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Total Stock Market Index Portfolio 7.02% 17.34% 8.01% $21,611 Spliced Institutional Total Stock Market Index ,288 Multi-Cap Core Funds Average ,582 Fiscal-Year Total Returns (%) Spliced Vanguard Total Institutional Stock Market Total Stock Index Portfolio Market Index 1 Fiscal Year Total Return Total Return % 9.9% Allocation to Underlying Funds Vanguard Institutional Total Stock Market Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Total Stock Market Index Portfolio 0.21% Equity Investment Focus Style Market Cap Large Medium Value Blend Growth Small 1 Spliced Institutional Total Stock Market Index: Dow Jones Wilshire 5000 Index through April 8, 2005; the MSCI US Broad Market Index through January 14, 2013; CRSP US Total Market Index thereafter. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 18

21 Vanguard Value Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $24,000 19, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Value Index Portfolio 5.29% 15.94% 6.79% $19,285 Spliced Value Index ,992 Large-Cap Value Funds Average ,415 Fiscal-Year Total Returns (%) Vanguard Value Spliced Index Portfolio Value Index 1 Fiscal Year Total Return Total Return % 12.5% Allocation to Underlying Funds Vanguard Value Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Value Index Portfolio 0.28% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small 1 Spliced Value Index: MSCI US Prime Market Value Index through April 16, 2013; CRSP US Large Cap Value Index thereafter. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 19

22 Vanguard Windsor Portfolio Available as an individual portfolio. Cumulative Performance: December 1, 2006 June 30, 2015 Initial investment of $10,000 $20,000 15, ,000 Average Annual Total Returns Periods Ended June 30, 2015 Final Value Since of a $10,000 One Year Five Years Inception 1 Investment Vanguard Windsor Portfolio 5.32% 17.63% 5.50% $15,830 Russell 1000 Value Index ,718 Multi-Cap Value Funds Average ,084 Fiscal-Year Total Returns (%) Vanguard Russell 1000 Windsor Portfolio Value Index Fiscal Year Total Return Total Return % 8.7% Expense Ratio (As of June 30, 2015) Vanguard Windsor Portfolio 0.46% Equity Investment Focus Style Value Blend Growth Market Cap Large Medium Small Allocation to Underlying Funds Vanguard Windsor Fund 100.0% 1 Performance for the portfolio and its comparative standards is calculated since the portfolio s inception: December 1, Derived from data provided by Lipper, a Thomson Reuters Company. 20

23 Vanguard Conservative Growth Portfolio Available within the age-based options or as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $20,000 16, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Conservative Growth Portfolio 2.27% 6.04% 5.19% $16,588 Vanguard 529 Conservative Growth Composite ,161 Vanguard 529 Conservative Growth Composite Average ,861 Fiscal-Year Total Returns (%) Vanguard Conservative Growth Portfolio Composite 1 Fiscal Year Total Return Total Return % 2.9% Allocation to Underlying Funds 75.2% Vanguard Total Bond Market II Index Fund 17.3% Vanguard Institutional Total Stock Market Index Fund 7.5% Vanguard Total International Stock Index Fund 1 Vanguard 529 Conservative Growth Composite: Weighted 75% Barclays U.S. Aggregate Float Adjusted Index, 17.5% CRSP US Total Market Index, and 7.5% FTSE Global All Cap ex US Index. The CRSP index replaced the MSCI US Broad Market Index on January 15, 2013, which had replaced the Dow Jones Wilshire 5000 Index on April 22, The Barclays U.S. Aggregate Float Adjusted Index replaced the Barclays U.S. Aggregate Bond Index on December 31, The FTSE Global All Cap ex US Index replaced the MSCI ACWI ex USA IMI Index on June 3, 2013, which replaced the MSCI EAFE + Emerging Markets Index on December 16, Vanguard 529 Conservative Growth Composite Average: Weighted 75% core bond funds average, 17.5% multi-cap core funds average, and 7.5% international funds average; derived from data provided by Lipper, a Thomson Reuters Company. 21

24 Expense Ratio (As of June 30, 2015) Fixed Income Investment Focus Vanguard Conservative Growth Portfolio 0.19% Average Maturity Short Med. Long Equity Investment Focus Style Value Blend Growth Credit Quality Treasury/ Agency Investment-Grade Corporate Market Cap Large Below Investment-Grade Medium Small 22

25 Vanguard Growth Portfolio Available within the age-based options or as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $24,000 18, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Growth Portfolio 3.11% 11.85% 6.44% $18,663 Vanguard 529 Growth Composite ,197 Vanguard 529 Growth Composite Average ,768 Fiscal-Year Total Returns (%) Vanguard Growth Portfolio Composite 1 Fiscal Year Total Return Total Return % 7.8% Allocation to Underlying Funds 52.2% Vanguard Institutional Total Stock Market Index Fund 25.4% Vanguard Total Bond Market II Index Fund 22.4% Vanguard Total International Stock Index Fund 1 Vanguard 529 Growth Composite: Weighted 52.5% CRSP US Total Market Index, 22.5% FTSE Global All Cap ex US Index, and 25% Barclays U.S. Aggregate Float Adjusted Index. The CRSP index replaced the MSCI US Broad Market Index on January 15, 2013, which had replaced the Dow Jones Wilshire 5000 Index on April 22, The Barclays U.S. Aggregate Float Adjusted Index replaced the Barclays U.S. Aggregate Bond Index on December 31, The FTSE Global All Cap ex US Index replaced the MSCI ACWI ex USA IMI Index on June 3, 2013, which replaced the MSCI EAFE + Emerging Markets Index on December 16, Vanguard 529 Growth Composite Average: Weighted 52.5% multi-cap core funds average, 25% core bond funds average, and 22.5% international funds average; derived from data provided by Lipper, a Thomson Reuters Company. 23

26 Expense Ratio (As of June 30, 2015) Fixed Income Investment Focus Vanguard Growth Portfolio 0.19% Average Maturity Short Med. Long Equity Investment Focus Style Value Blend Growth Credit Quality Treasury/ Agency Investment-Grade Corporate Market Cap Large Below Investment-Grade Medium Small 24

27 Vanguard Moderate Growth Portfolio Available within the age-based options or as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $21,000 17, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Moderate Growth Portfolio 2.73% 9.00% 5.93% $17,790 Vanguard 529 Moderate Growth Composite ,311 Vanguard 529 Moderate Growth Composite Average ,903 Fiscal-Year Total Returns (%) Vanguard Moderate Growth Portfolio Composite 1 Fiscal Year Total Return Total Return % 5.3% Allocation to Underlying Funds 50.3% Vanguard Total Bond Market II Index Fund 34.8% Vanguard Institutional Total Stock Market Index Fund 14.9% Vanguard Total International Stock Index Fund 1 Vanguard 529 Moderate Growth Composite: Weighted 50% Barclays U.S. Aggregate Float Adjusted Index, 35% CRSP US Total Market Index, and 15% FTSE Global All Cap ex US Index. The CRSP index replaced the MSCI US Broad Market Index on January 15, 2013, which had replaced the Dow Jones Wilshire 5000 Index on April 22, The Barclays U.S. Aggregate Float Adjusted Index replaced the Barclays U.S. Aggregate Bond Index on December 31, The FTSE Global All Cap ex US Index replaced the MSCI ACWI ex USA IMI Index on June 3, 2013, which replaced the MSCI EAFE + Emerging Markets Index on December 16, Vanguard 529 Moderate Growth Composite Average: Weighted 50% core bond funds average, 35% multi-cap core funds average, and 15% international funds average; derived from data provided by Lipper, a Thomson Reuters Company. 25

28 Expense Ratio (As of June 30, 2015) Fixed Income Investment Focus Vanguard Moderate Growth Portfolio 0.19% Average Maturity Short Med. Long Equity Investment Focus Style Value Blend Growth Credit Quality Treasury/ Agency Investment-Grade Corporate Market Cap Large Below Investment-Grade Medium Small 26

29 Vanguard STAR Portfolio Available as an individual portfolio. Cumulative Performance: December 1, 2006 June 30, 2015 Initial investment of $10,000 $20,000 16, ,000 Average Annual Total Returns Periods Ended June 30, 2015 Final Value Since of a $10,000 One Year Five Years Inception 1 Investment Vanguard STAR Portfolio 3.27% 11.12% 5.72% $16,110 STAR Composite Index ,308 STAR Composite Average ,861 Fiscal-Year Total Returns (%) STAR Vanguard Composite STAR Portfolio Index 2 Fiscal Year Total Return Total Return % 6.6% Allocation to Underlying Funds Vanguard STAR Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard STAR Portfolio 0.49% 1 Performance for the portfolio and its comparative standards is calculated since the portfolio s inception: December 1, STAR Composite Index: Weighted 50% MSCI US Broad Market Index, 25% Barclays U.S. Aggregate Bond Index, 12.5% Barclays U.S. 1 5 Year Credit Bond Index, and 12.5% MSCI EAFE Index through September 30, 2010; and 43.75% MSCI US Broad Market Index, 25% Barclays U.S. Aggregate Bond Index, 12.5% Barclays U.S. 1 5 Year Credit Bond Index, and 18.75% MSCI All Country World Index ex USA thereafter. MSCI international benchmark returns are adjusted for withholding taxes. 3 The STAR Composite Average: Weighted 43.75% general equity funds average, 25% fixed income funds average, 12.5% 1 5 year investmentgrade debt funds average, and 18.75% international funds average; derived from data provided by Lipper, a Thomson Reuters Company. 27

30 Equity Investment Focus Fixed Income Investment Focus Style Value Blend Growth Average Maturity Short Med. Long Market Cap Large Credit Quality Treasury/ Agency Medium Small Investment-Grade Corporate Below Investment-Grade 28

31 Vanguard High-Yield Bond Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $22,000 18, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard High-Yield Bond Portfolio 1.34% 7.99% 6.31% $18,445 High-Yield Corporate Composite Index ,912 High Yield Funds Average ,985 Fiscal-Year Total Returns (%) High Yield Vanguard Corporate High-Yield Composite Bond Portfolio Index Fiscal Year Total Return Total Return % 3.1% Allocation to Underlying Funds Vanguard High-Yield Corporate Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard High-Yield Bond Portfolio 0.34% Fixed Income Investment Focus Average Maturity Credit Quality Treasury/ Agency Investment-Grade Corporate Below Investment-Grade Short Med. Long 1 High-Yield Corporate Composite Index: Weighted 95% Barclays U.S. High Yield Ba/B 2% Issuer Cap Index, and 5% Barclays U.S. 1 5 Year Treasury Bond Index. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 29

32 Vanguard Income Portfolio Available within the age-based options or as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $17,000 13, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Income Portfolio 0.39% 2.34% 3.37% $13,924 Vanguard 529 Income Composite ,348 Vanguard 529 Income Composite Average ,536 Fiscal-Year Total Returns (%) Vanguard Income Portfolio Composite 1 Fiscal Year Total Return Total Return % 0.2% Expense Ratio (As of June 30, 2015) Vanguard Income Portfolio 0.19% Allocation to Underlying Funds Fixed Income Investment Focus Average Maturity Credit Quality Treasury/ Agency Investment-Grade Corporate Below Investment-Grade 50.0% Vanguard Total Bond Market II Index Fund 25.0% Vanguard Inflation-Protected Securities Fund 25.0% Vanguard Short-Term Reserves Short Med. Long 1 Vanguard 529 Income Composite: Consists of four unmanaged benchmarks, weighted 50% Spliced Total Bond Market Index, 25% Barclays U.S. Treasury Inflation Protected Securities Index, 21.25% Citigroup 3-Month Treasury Bill Index, and 3.75% Ryan Labs 3 Year GIC Index. The Spliced Total Bond Market Index consists of the Barclays U.S. Aggregate Bond Index through December 31, 2009; Barclays U.S. Aggregate Float Adjusted Index thereafter. 2 Vanguard 529 Income Composite Average: Weighted 50% core bond funds average, 25% inflation-protected bond funds average, and 25% money market funds average; derived from data provided by Lipper, a Thomson Reuters Company. 30

33 Vanguard Inflation-Protected Securities Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $18,000 14, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Inflation-Protected Securities Portfolio -2.05% 2.92% 3.63% $14,290 Barclays U.S. Treasury Inflation Protected Securities Index ,989 Inflation-Protected Bond Funds Average ,635 Fiscal-Year Total Returns (%) Barclays U.S. Treasury Vanguard Inflation Inflation-Protected Protected Securities Portfolio Securities Index Fiscal Year Total Return Total Return % -1.6% Allocation to Underlying Funds Vanguard Inflation-Protected Securities Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Inflation-Protected Securities Portfolio 0.27% Fixed Income Investment Focus Average Maturity Credit Quality Treasury/ Agency Investment-Grade Corporate Below Investment-Grade Short Med. Long 1 Derived from data provided by Lipper, a Thomson Reuters Company. 31

34 Vanguard Total Bond Market Index Portfolio Available as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $18,000 14, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Total Bond Market Index Portfolio 1.55% 3.03% 4.02% $14,829 Spliced Barclays U.S. Aggregate Float Adjusted Bond Index ,457 Spliced Intermediate-Term Investment-Grade Debt Funds Average ,681 Fiscal-Year Total Returns (%) Spliced Barclays Vanguard Total U.S. Aggregate Bond Market Float Adjusted Index Portfolio Index 1 Fiscal Year Total Return Total Return % -0.8% Allocation to Underlying Funds Vanguard Total Bond Market Index Fund 100.0% Expense Ratio (As of June 30, 2015) Vanguard Total Bond Market Index Portfolio 0.24% Fixed Income Investment Focus Average Maturity Credit Quality Treasury/ Agency Investment-Grade Corporate Below Investment-Grade Short Med. Long 1 Spliced Barclays U.S. Aggregate Float Adjusted Bond Index: Barclays U.S. Aggregate Bond Index through December 31, 2009; Barclays U.S. Aggregate Float Adjusted Index thereafter. 2 Spliced Intermediate Investment-Grade Debt Funds Average: Intermediate U.S. Government Funds Average through December 31, 2001; Intermediate Investment-Grade Debt Funds Average through August 31, 2013; Core Bond Funds Average thereafter; derived from data provided by Lipper, a Thomson Reuters Company. 32

35 Vanguard Interest Accumulation Portfolio Available within the age-based options or as an individual portfolio. Cumulative Performance: June 30, 2005 June 30, 2015 Initial investment of $10,000 $14,000 11, ,000 Average Annual Total Returns Final Value Periods Ended June 30, 2015 of a $10,000 One Year Five Years Ten Years Investment Vanguard Interest Accumulation Portfolio 0.17% 0.24% 1.60% $11,721 Interest Accumulation Composite ,768 Money Market Funds Average ,288 Fiscal-Year Total Returns (%) Vanguard Interest Interest Accumulation Accumulation Portfolio Composite 1 Fiscal Year Total Return Total Return % 3.8% Yield: 0.21% Allocation to Underlying Funds Vanguard Prime Money Market Fund 82.8% Funding Agreements 17.2% Expense Ratio (As of June 30, 2015) Vanguard Interest Accumulation Portfolio 0.19% 1 Interest Accumulation Composite: Weighted 90% Citigroup 3-Month Treasury Bill Index and 10% Ryan Labs 3 Year GIC Index. 2 Derived from data provided by Lipper, a Thomson Reuters Company. 33

36 Selected Financial Data The Vanguard 529 College Savings Plan For the Period June 30, 2014, Through June 30, 2015 Vanguard Vanguard Vanguard Vanguard 500 Aggressive Growth Mid-Cap Index Growth Index Index Portfolio Portfolio Portfolio Portfolio ($000) ($000) ($000) ($000) Increase (Decrease) in Net Position Investment Operations Income Dividends Received 16,166 28,897 2,533 4,923 Capital Gain Distributions Received Realized Net Gain (Loss) on Investment Securities Sold 3,354 37,572 1,264 2,392 Change in Net Unrealized Appreciation (Depreciation) in Value of Investments 26,960 (23,136) 13,275 23,967 Administrative Expenses (1,290) (1,884) (412) (810) Net Increase (Decrease) Resulting from Investment Operations 45,190 41,449 16,660 30,472 Unit Transactions Contributions 93, ,093 29,436 41,983 Exchanges In 63,803 43,033 28,911 26,857 Withdrawals (23,548) (27,413) (6,879) (13,847) Exchanges Out (55,103) (242,596) (19,553) (32,458) Net Increase (Decrease) from Unit Transactions 79,109 52,117 31,915 22,535 Total Increase (Decrease) 124,299 93,566 48,575 53,007 Net Position Beginning of Period 597,713 1,184, , ,061 End of Period 722,012 1,278, , ,068 Net Position Value Per Unit, End of Period $27.94 $28.68 $29.93 $39.10 Total Return 7.26% 3.39% 9.39% 8.43% Ratios/Supplemental Data (Annualized) Expense Ratio (June 30, 2014 August 31, 2014) 0.23% 0.21% 0.29% 0.27% Expense Ratio (September 1, 2014 June 30, 2015) 0.21% 0.19% 0.28% 0.26% 34