Vanguard Target Retirement Target-Date Fund Series Report. Morningstar Opinion

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1 Page 1 of 5 Morningstar Target-Date Fund Series Report For Financial Professional Use Only. Target-Date Series Rating Above Below Bottom Key Features Annual Expense Ratio.19% Active/Passive Exposure 2% Active Open/Closed Architecture 1% Closed Total Net Assets ($M),762 Executive Summary Performance Through June 21, the three-year returns for each of these funds rank above their average peer's. The high-quality bias of the stock and bond portfolios caused these funds to lag their competitors during 29's speculative-driven rally, but they held up better than most during 28's financial crisis. The series' low expenses give the funds an ongoing, meaningful edge. Portfolio The underlying funds in this series feature Vanguard's hallmark index funds and its actively managed TIPS and Prime Money Market offerings. Despite a stumble on the fixed-income side in 22, Vanguard's indexing prowess is formidable. The lineup's index-fund structure makes its performance and asset allocation relatively easy to understand. Price Vanguard's unswerving dedication to low costs makes this lineup one of the least expensive options around, allowing more of its gains to compound year in and year out. People Experienced index-fund manager Duane Kelly oversees the funds' day-to-day activities, and tested Vanguard veterans run the underlying funds. John Ameriks and Vanguard's investment counseling and research group steer the funds' asset-allocation policy. John Hollyer heads up risk management. Management's investment in the funds is wanting. Parent Vanguard has written the book on low-cost, index-oriented investing. The firm's not-for-profit structure ensures low fees and investor interests remain paramount. The fund's board does not have an independent chairman, but it has acted consistently in shareholder interests. Vanguard's transparency regarding the funds is better than most, and its regulatory record is clean. Process Vanguard takes a pragmatic approach to its glide path, focusing on low-cost exposure to multiple asset classes as well as lower risk levels as investors approach and pass the retirement date. With an emphasis on index funds over actively managed offerings, the firm reduces the risks of manager turnover, high trading costs, and capacity constraints. Strategic Glide Path Total Equity Exposure 1% Vanguard Target Industry Industry Maximum/ Industry Minimum Date Vanguard Target Industry Yr Total Return - & * & & & & * & & & & - 3-Yr Performance Quartile Available Funds Income Fund 25 Fund 21 Fund 215 Fund 22 Fund 225 Fund Morningstar Opinion Simple construction and low costs keep the Vanguard Target Funds among the best target-date options available. This series has been steadfast in an industry that is inundated with changes. While other target-date series frequently adjust their glide paths and holdings, the Vanguard series has remained unchanged since 26. The series' disciplined nature is a byproduct of Vanguard's long-term investment approach and commitment to passively managed funds. Considering that shareholders intend to invest in these funds for decades, the transparent asset allocations and the simple underlying holdings make it easier to predict how the funds will perform going forward. Vanguard's glide path begins with an allocation mix of 9% equity and 1% fixed income. That combination stays constant until 25 years out from the retirement date, at which point the funds' equity exposure begins to decrease. At retirement the glide path reaches a 5% split between stocks and bonds. Within seven years of the retirement date, the asset allocation lands on a final mix of 3% equity and 7% fixed income. Overall, this series' glide path is in line with the industry average, but its initial allocation is held slightly longer than its peers, and the series arrives at its final allocation earlier than other glide paths. 23 Fund 235 Fund 2 Fund David Falkof Mutual Fund Analyst Fund 25 Fund As for the underlying holdings, the series holds seven funds throughout its lifespan, five of which are passively managed. Nearly all of the bond exposure comes from the Vanguard Total Bond Market II Index. The stock exposure mostly comes from Vanguard Total Stock Market Index, as well as some international exposure from three foreign stock indexes. Keeping in line with the underlying holdings' passive management, the Vanguard series makes no tactical adjustments throughout the glide path, so investors can expect to hold roughly the same asset allocations set forth by the glide path. Thus far, the series has performed well relative to its peers. Over the past three and five years, nearly all of the funds in the series have ranked in the top third of their respective categories. Amid the market turmoil of 28, the funds held up better than the majority of their peers, because they owned mostly higher-quality bonds and large-cap stocks. While the asset mix and the underlying funds' consistency have played a major role in the series' performance, another key driver has been its rock-bottom fees. Over the long run, the low fees will continue to give the series a leg up on its competition. This series' straightforward construction may limit its upside when racy areas of the market are running hard. But overall, these funds are a standout option for investors.

2 Page 2 of 5 Morningstar Target-Date Fund Series Report For Financial Professional Use Only. Performance As of the end of June 21, returns for all of the Vanguard Target funds ranked in the top third of their respective categories. Despite trailing their peers in 29, the funds avoided some of the severe losses in 28 and have outpaced their peers so far in 21. The series' performance is driven more by the structure of the underlying index funds that make up the Target portfolios than by management decisions. Relative to its peers, the series has less exposure to emerging markets, small-cap stocks, and high-yield bonds. These areas of the market suffered severe losses in 28 but returned some of the largest gains during 29's rally. The series' bond sleeve emphasizes higher-quality credits, which helped shield investors from worse damage during the downturn. Two of the shorter-dated funds in the series (25 and Income) have actually eked out small annualized gains over the trailing threeyear period, versus some foes that have yet to recover from heavier losses sustained in 28. Comparing this series' performance with its peers is perhaps inevitable, but gauging how well the funds have tracked their respective index benchmarks provides a better indication of what investors should reasonably expect. Vanguard uses the series' glide path and the index benchmarks of the underlying funds in the Target portfolios to create a benchmark for each fund in the series. Unlike many other target-date fund providers, in the series' annual reports, Vanguard highlights the performance of the Target funds alongside their respective benchmarks'. As of its most recent annual report (dated Sept. 3), all but one of the funds in the series outpaced their benchmarks since inception, by a range of 3 to 33 basis points (or one hundredths of a percent). The 25 fund trailed its bogy by 2 basis points. Target-Date Fund Performance as of YTD Yr 3-Yr % Rank 3-Yr 5-Yr 5-Yr % Rank Star Return % Return % Return % Return % in Cat Std Dev Return % in Cat Rating Vanguard Target QQQQ Vanguard Target QQQQ Vanguard Target QQQ Vanguard Target QQQQ Vanguard Target QQQ Vanguard Target QQQQ Vanguard Target QQQ Vanguard Target QQQQ Vanguard Target QQQ Vanguard Target QQQQ Vanguard Target Income QQQQ For peer comparisons, 1 = highest return or lowest risk, 1 = lowest return or highest risk. Target Date Funds Risk-Adjusted Returns +/- Category Data as of Attribution Analysis Trailing 3-Year Returns as of % 5.2 Glide Path 2.38 Cost.7 Selection Total Risk-adjusted return exceeding category average Risk-adjusted return trailing category average Category Data is based on longest available performance history: three or five years. For series with more than 18 months of history, but less than three years of history, the risk-adjusted return of the appropriate Morningstar Lifetime Moderate Index is used to create a 3-year history Vanguard Target Glide Path -.42 Cost.7 Selection.69 Total.97

3 Page 3 of 5 Morningstar Target-Date Fund Series Report For Financial Professional Use Only. Portfolio Series Holding-based Style Map - Equity Data as of The underlying funds in the Target portfolios are a trusty lot. The longer-dated fund portfolios include four stock index funds and a fixed-income allocation to Vanguard Total Bond Market II. The latter fund was launched in January 29 to help insulate target-date fund investors from the impact of flows into and out of its near-clone, Vanguard Total Bond Index. Each of those funds ought to track rather than beat or lag its respective benchmarks and peer groups. Vanguard stubbed its toe on the fixed-income indexing side in 22 but since then has redoubled its portfolioconstruction and risk-management prowess. Those efforts appear to have paid off, as a number of rival index funds (particularly in fixed income) fell far short of their benchmarks during market turmoil in 27 and 28. In recent years, management of the underlying funds has been successful in taking tiny steps to overcoming some, if not all, of their expenses. On the actively managed side, an allocation to Vanguard Inflation-Protected Securities kicks in five years prior to the retirement date, eventually building to roughly 2% of total assets. An allocation to Vanguard Prime Money Market enters shortly after retirement, building to a 5% allocation. In both funds, Vanguard avoided the trouble that stung more than a few inflation-protected bond funds and money market offerings in recent years. Deep- Value Core- Value Core Core- Growth High- Growth Giant Large Mid Small Micro Zone represents 75% of series' largest domestic stock holdings Fund centroid represents weighted average of series' domestic stock holdings Investments as of Yr 5-Yr % of 3-Yr % Rank 3-Yr 5-Yr % Rank Morningstar Star Category Assets Return % in Cat Std Dev Return % in Cat Risk Rating Vanguard Total Stock Mkt Idx Large Blend QQQ Vanguard Total Bond Market II Idx Inv Intermediate-Term Bond Vanguard European Stock Index Europe Stock QQQ Vanguard Pacific Stock Index Diversified Pacific/Asia Low QQ Vanguard Emerging Mkts Stock Idx Diversified Emerging Mkts QQQ Vanguard Inflation-Protected Secs Inflation-Protected Bond QQQQ Vanguard Prime Money Market Inv Money Market - Taxable Total # Holdings 7 % Portfolio in 1 Holdings Overall Morningstar Rating 2.98 Price Vanguard's Target Funds are among the cheapest that retail investors can buy. Their expenses are less than one fourth the industry average, giving them a.7% edge over their average peer, and are also meaningfully cheaper than other index fundoriented offerings. The firm's unusual ownership structure, wherein it provides its services at cost, helps keep expenses to a bare minimum. Morningstar's performance attribution analysis indicates the firm has added more value through low expenses than any other lineup. Lower expenses enable more of the funds' returns to compound, year in and year out. They also enable management (of the fixed-income and money market funds, in particular) to deliver competitive returns with less overall risk. Cost vs. Industry Vanguard Target No Load.19% Industry.88% Avg Cost Per Share Class Exp Ratio (%) Net Assets ($M) No Load.19%,762

4 Page 4 of 5 Morningstar Target-Date Fund Series Report For Financial Professional Use Only. People Management: Duane Kelly has managed the funds' day-to-day activities since their inception. Other veterans run the underlying index funds in the portfolio, including Michael Perre, Michael Buek, Gerard O'Reilly, Gregory Davis, and Kenneth Volpert. Among the actively managed funds, John Hollyer and David Glocke head up Vanguard Inflation-Protected Securities and Vanguard Prime Money Market, respectively. On average, the managers of the underlying strategies have been at the helm for roughly a decade. Vanguard tends to take a very deliberate approach to management transitions, and its management stability is comforting when considering that target-date funds are intended to be a multidecade investment. John Ameriks and Vanguard's investment counseling and research group oversee the Target Funds' asset-allocation policy. John Hollyer heads up Parent Corporate Culture: Low-cost, index-oriented investing is the heart of Vanguard. The firm is mutually owned, which was a revolutionary approach at the firm's inception and still is. That structure ensures that low fees and investor interests, rather than corporate profits, remain paramount. Vanguard's funds are managed with a close eye on limiting trading and costs, and it is apt to close too-hot funds. It closed several of its money market funds to new accounts in the wake of 28's market turmoil to protect existing shareholders, and it adopted fee waivers to prevent money-market investors from losing money in 29's low-yield environment. Vanguard's managers tend to be long-tenured, as does its corporate leadership. In all, the firm is a proven steward of investors' capital. Board Oversight: The trustees on the board overseeing the Target Funds are independent, although its chairman is not. The directors invest more in Vanguard funds than they receive in pay. Most have served on the board for five or more years and bring considerable expertise and experience to the table. The trustees also have been active shareholder advocates, firing underperforming advisors when needed. The board has kept the interests of shareholders at the forefront of its concerns. risk management. Fund strategy decisions are reviewed by the funds' board, Vanguard's portfolio review group, and the corporate board of directors. All told, the expertise and experience of this management team instills confidence. Manager Incentives: Vanguard's compensation policies are sensible and provide appropriate incentives. The managers receive base pay, an annual bonus, and long-term incentive compensation. An index fund manager's bonus is partially linked to how well a fund tracks its benchmark over a one-year period, while a three-year period is used for actively managed funds. Long-term compensation emphasizes firmwide fund performance and operational efficiencies in servicing shareholders. As of September 29, manager Duane Kelly did not own any shares of the Target Funds. Transparency: Vanguard's shareholder communications (print, Web-based, and video) are better than most. The Target Funds' Web page features a tool viewers can use to trace the evolution of its glide path and provides links to reports and portfolio holdings, so investors can easily research the underlying funds in depth. The firm's annual reports compare the funds' performance with composite indexes and relevant peer groups, making it easier to put their absolute and relative performance into context. Vanguard's institutional website contains a wealth of articles addressing issues such as asset mix, asset allocation, and investors' use of target-date funds. Regulatory History: Vanguard has kept its nose clean. Its sole infraction in recent years involved a minor $1, fine and $9,443 restitution that Vanguard's brokerage arm paid in 24 to settle claims that the brokerage paid below-market-value prices to customers who sold municipal bonds. (The citation had nothing to do with Vanguard's municipal-bond funds.) The firm has a strong compliance culture that includes a strict employee trading policy, annual compliance conferences, and designated compliance liaisons in every business unit. Series Management Manager Start Date Duane Kelly 1-23 Tenure Longest Tenure Target-Date Industry Tenure 6.8 years 6.8 years 4.6 years Underlying Funds' Management Tenure 1.1 years Longest Tenure 17.6 years Mutual Fund Industry Tenure 5.1 years Fund Family Data Star Rating QQQQ % of Assets w/star Rating 84.5% Assets (listed in USD $Mil) Mutual Fund Assets 911,342 ETF Assets 12,239 Other Assets 492,373 Total Assets ($M) 1,55,955 Number of Funds 214 Stewardship Grade A Manager Tenure 7.5 years Longest Manager Tenure 26.2 years 5-year Manager Retention Rate (%) 92.6%

5 Page 5 of 5 Morningstar Target-Date Fund Series Report For Financial Professional Use Only. Process Glide Path: The Target Funds' asset allocation starts off at a 9%/1% split between stocks and bonds. That equity allocation is roughly in line with the series' rivals', yet its index-fund focus leads to a slightly higher emphasis on large-company stocks and less exposure to emerging markets. The 21 fund's 55% stock weighting is above average, yet the glide path lands at a 5% stock/5% bond split at retirement. It then shifts to a final 3% stock/ 65% bond/5% cash split within seven years of the retirement date, or sooner than many rivals. More-aggressive peers also maintain heavier stock weightings well into retirement. The lineup's initial fixed-income sleeve (composed of an allocation to Vanguard Total Bond Market II Index) sports a higher-quality emphasis with no exposure to high-yield bonds, nongovernment mortgage-backed securities, or foreign and emerging-markets debt. Each of the equity funds lands in the large-blend square of the Morningstar Style Box with the exception of the value-leaning Vanguard European Stock Index. A small allocation to TIPS kicks in five years before the retirement date, and the series' final allocation includes a 5% allocation to Vanguard Prime Money Market. Management does not make any tactical allocation decisions along the way. Rationale: Rather than adhering to a single theoretical asset-allocation framework, Vanguard takes a pragmatic approach to its funds' glide path and overall structure. The funds gradually transition to a heavier fixed-income weighting because the firm aims to limit market risk (or the potential of capital losses due to market turmoil) for near-retirees. Vanguard's study of execution costs and liquidity resulted in lighter exposure to small-cap stocks and emerging markets. To better protect capital following the retirement date, Vanguard emphasizes higher-quality bonds and includes TIPS. The firm does not include commodities, real estate, or absolute return strategies because it believes the potential diversification benefits of those asset classes are offset by higher execution costs, the potential lack of transparency, and other operational concerns. Strategic Glide Path Total Equity Exposure 1% Vanguard Target Industry Industry Maximum/ Industry Minimum Date Vanguard Target Industry Equity Allocation Yr Total Return - & * & & & & * & & & & - 3-Yr Performance Quartile 1% U.S. Large Cap U.S. Mid/Small Cap Non-U.S. Developed Non-U.S. Emerging Other Equity % Date U.S. Large Cap U.S. Mid/Small Cap Non-U.S. Developed Non-U.S. Emerging Other Fixed-Income Allocation 1% TIPS U.S. Government U.S. Investment Grade U.S. High Yield Foreign Cash Other Fixed Income % Date TIPS U.S. Government U.S. Investment Grade U.S. High Yield Foreign Cash Other