Allocation Path to Be Modified on Existing Funds
VALLEY FORGE, PA, March 20, 2006 – Vanguard filed a registration statement today with the U.S. Securities and Exchange Commission to expand its Target Retirement Fund series by adding five funds. The new funds will feature target retirement dates at 10-year intervals (2010, 2020, 2030, 2040, and 2050), and will complement Vanguard’s six existing offerings (2005, 2015, 2025, 2035, 2045, and Income).
“Vanguard® Target Retirement Funds have become increasingly popular among individual investors and retirement plan participants. Shareholders are attracted to the simplicity and convenience of having a professionally managed, diversified portfolio of stocks and bonds in a single fund,” said Vanguard CEO John J. Brennan. “The introduction of five new funds will enable investors to select a fund that more closely matches their investment time horizon.”
With the new funds, Vanguard’s line-up of Target Retirement Funds will include 11 no-load, low-cost offerings in a range of asset mixes developed for investors in their 20s through 70s-plus. The funds are a series of broadly diversified “fund-of-funds” that gradually reduce stock exposure and increase bond exposure as the targeted retirement date approaches.
Vanguard is also changing the asset allocation models of the Target Retirement Funds:
- The existing funds’ current asset allocation path will be modified to provide increased exposure to equities over a longer period of time. The result will be a larger equity allocation of roughly 10 to 20 percentage points, depending on the fund. For example, the Target Retirement 2035 Fund will change its equity allocation to 90% from its current 80%.
- Vanguard Emerging Markets Stock Index Fund will be added to each of the funds (representing roughly 1% to 2.5% of assets), further diversifying their exposure to international markets.
- Vanguard European Stock Index Fund and Vanguard Pacific Stock Index Fund will be added to the Target Retirement 2005 and Income Funds. In aggregate, international stocks will represent 10% of the 2005 Fund and 6% of the Income Fund.
“While the changes in the portfolio construction will result in modestly higher risk profiles for the funds, we believe that shareholders will benefit from broader equity diversification and higher return potential.”
Using methodology developed by Vanguard’s Investment Counseling and Research Group, assets in Vanguard Target Retirement Funds are invested in a combination of the following Vanguard mutual funds: Vanguard Total Stock Market Index Fund, Vanguard European Stock Index Fund, Vanguard Pacific Stock Index Fund, Vanguard Emerging Market Stock Index Fund, Vanguard Total Bond Market Index Fund, Vanguard Inflation-Protected Securities Fund, and Vanguard Prime Money Market Fund.
The funds, which have grown to more than $10 billion in assets since their introduction in 2003, offer a distinctive approach that reflects Vanguard’s investment philosophy. In particular, the funds are distinguished by:
- An emphasis on indexed investing, which brings the advantages of minimal turnover, broad diversification, and reduced manager risk.
- The use of a combination of stocks and inflation-protected securities to preserve purchasing power during retirement.
- Costs that are well below average, with the funds featuring weighted expense ratios ranging from 0.21% to 0.22% versus the 1.18% expense ratio of the average balanced fund (Lipper, 2006).
The five new Target Retirement Funds, which will require a minimum initial investment of $3,000 for taxable and IRA accounts, are expected to have similarly low expense ratios.
The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is the nation’s second-largest mutual fund firm and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $960 billion in U.S. mutual fund assets, including more than $275 billion in employer-sponsored retirement plans. Vanguard offers 130 funds to U.S. investors and more than 40 additional funds in foreign markets.
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All asset figures through February 2006, unless otherwise noted.
A registration statement relating to the new Target Retirement Funds referenced above has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
For more information about Vanguard funds, visit www.vanguard.com, or call 800-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Copies of the final prospectus can be obtained from The Vanguard Group. Please note that a preliminary prospectus is subject to change.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
Diversification does not ensure a profit or protect against a loss in a declining market. Mutual funds are subject to risk, including possible loss of principal. International funds also involve additional risks, including currency fluctuations and political or economic uncertainty abroad. Funds that invest in emerging markets are also generally more risky than those that invest in developed countries. Investments in bond funds are subject to interest rate, credit, and inflation risk.
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