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: | Anne E. Robinson, 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, 2019—March 31, 2020
Item 1: Reports to Shareholders
Semiannual Report | March 31, 2020 |
Vanguard PRIMECAP Fund |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Liquidity Risk Management | 17 |
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.
1
Six Months Ended March 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
PRIMECAP Fund | 9/30/2019 | 3/31/2020 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $894.41 | $1.80 |
Admiral™ Shares | 1,000.00 | 894.74 | 1.47 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.10 | $1.92 |
Admiral Shares | 1,000.00 | 1,023.45 | 1.57 |
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 0.38% for Investor Shares and 0.31% 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 (183/366).
2
PRIMECAP Fund
Fund Allocation
As of March 31, 2020
Communication Services | 6.7 | % |
Consumer Discretionary | 10.6 | |
Consumer Staples | 0.0 | |
Energy | 0.9 | |
Financials | 7.2 | |
Health Care | 30.5 | |
Industrials | 13.9 | |
Information Technology | 29.6 | |
Materials | 0.6 | |
Real Estate | 0.0 |
The table reflects the fund’s investments, except for short-term investments. Sector categories are based on the Global Industry Classification Standard ("GICS"), except for the "Other" category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
3
PRIMECAP Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||||||
Value· | |||||||||
Shares | ($000 | ) | |||||||
Common Stocks (97.5%) | |||||||||
Communication Services (6.6%) | |||||||||
* | Alphabet Inc. Class A | 958,566 | 1,113,806 | ||||||
* | Alphabet Inc. Class C | 885,359 | 1,029,504 | ||||||
* | Baidu Inc. | 4,514,000 | 454,966 | ||||||
Walt Disney Co. | 3,385,820 | 327,070 | |||||||
* | Activision Blizzard Inc. | 5,100,000 | 303,348 | ||||||
* | Charter Communications Inc. Class A | 251,500 | 109,732 | ||||||
* | Facebook Inc. Class A | 580,800 | 96,877 | ||||||
* | T-Mobile US Inc. | 360,800 | 30,271 | ||||||
Comcast Corp. Class A | 800,000 | 27,504 | |||||||
* | Altice USA Inc. Class A | 703,700 | 15,686 | ||||||
3,508,764 | |||||||||
Consumer Discretionary (10.4%) | |||||||||
* | Alibaba Group Holding Ltd. ADR | 8,156,576 | 1,586,291 | ||||||
Sony Corp. ADR | 16,386,403 | 969,747 | |||||||
Ross Stores Inc. | 7,531,700 | 655,032 | |||||||
* | Amazon.com Inc. | 251,960 | 491,251 | ||||||
TJX Cos. Inc. | 8,933,000 | 427,087 | |||||||
1 | Whirlpool Corp. | 4,004,372 | 343,575 | ||||||
* | Tesla Inc. | 625,000 | 327,500 | ||||||
*,1 | Mattel Inc. | 26,514,138 | 233,590 | ||||||
L Brands Inc. | 9,558,014 | 110,491 | |||||||
^ | Carnival Corp. | 6,596,565 | 86,877 | ||||||
Royal Caribbean Cruises Ltd. | 2,356,547 | 75,810 | |||||||
* | Burlington Stores Inc. | 265,300 | 42,039 | ||||||
Marriott International Inc. Class A | 556,710 | 41,648 | |||||||
eBay Inc. | 1,320,600 | 39,697 | |||||||
Hilton Worldwide Holdings Inc. | 365,366 | 24,933 | |||||||
Restaurant Brands International Inc. | 581,700 | 23,285 | |||||||
McDonald’s Corp. | 120,900 | 19,991 | |||||||
Las Vegas Sands Corp. | 377,400 | 16,028 | |||||||
MGM Resorts International | 1,253,401 | 14,790 | |||||||
* | Ulta Beauty Inc. | 15,300 | 2,688 | ||||||
* | AutoZone Inc. | 2,950 | 2,496 | ||||||
5,534,846 | |||||||||
Consumer Staples (0.0%) | |||||||||
Constellation Brands Inc. Class A | 41,300 | 5,921 | |||||||
Philip Morris International Inc. | 55,100 | 4,020 | |||||||
Kroger Co. | 96,900 | 2,919 | |||||||
Altria Group Inc. | 74,100 | 2,865 | |||||||
15,725 | |||||||||
Energy (0.8%) | |||||||||
Hess Corp. | 5,525,500 | 183,999 | |||||||
Pioneer Natural Resources Co. | 2,271,100 | 159,318 | |||||||
EOG Resources Inc. | 2,028,000 | 72,846 | |||||||
*,^ | Transocean Ltd. | 12,328,573 | 14,301 | ||||||
Noble Energy Inc. | 1,700,000 | 10,268 | |||||||
Schlumberger Ltd. | 26,700 | 360 | |||||||
441,092 | |||||||||
Financials (7.0%) | |||||||||
JPMorgan Chase & Co. | 10,050,855 | 904,879 | |||||||
Wells Fargo & Co. | 28,151,047 | 807,935 | |||||||
Charles Schwab Corp. | 16,600,216 | 558,099 | |||||||
Marsh & McLennan Cos. Inc. | 5,810,515 | 502,377 | |||||||
Bank of America Corp. | 23,479,132 | 498,462 | |||||||
US Bancorp | 3,917,300 | 134,951 | |||||||
Discover Financial Services | 2,970,125 | 105,944 | |||||||
Progressive Corp. | 1,424,000 | 105,148 | |||||||
Citigroup Inc. | 2,100,000 | 88,452 | |||||||
CME Group Inc. | 65,068 | 11,251 | |||||||
3,717,498 | |||||||||
Health Care (29.8%) | |||||||||
Eli Lilly & Co. | 22,489,408 | 3,119,731 | |||||||
*,1 | Biogen Inc. | 9,234,742 | 2,921,688 | ||||||
Amgen Inc. | 10,526,855 | 2,134,109 | |||||||
AstraZeneca plc ADR | 28,529,788 | 1,274,140 |
4
PRIMECAP Fund
Market | |||||||||
Value• | |||||||||
Shares | ($000 | ) | |||||||
Novartis AG ADR | 13,609,025 | 1,122,064 | |||||||
* | Boston Scientific Corp. | 29,633,244 | 966,933 | ||||||
Roche Holding AG | 2,692,311 | 866,230 | |||||||
Thermo Fisher Scientific Inc. | 2,638,402 | 748,251 | |||||||
* | BioMarin Pharmaceutical Inc. | 5,944,299 | 502,293 | ||||||
Bristol-Myers Squibb Co. | 8,930,413 | 497,781 | |||||||
* | Elanco Animal Health Inc. | 15,364,019 | 344,000 | ||||||
Abbott Laboratories | 3,707,295 | 292,543 | |||||||
Medtronic plc | 2,210,000 | 199,298 | |||||||
Zimmer Biomet Holdings Inc. | 1,439,800 | 145,535 | |||||||
CVS Health Corp. | 2,410,000 | 142,985 | |||||||
2 | Siemens Healthineers AG | 3,530,571 | 136,480 | ||||||
* | Alcon Inc. | 2,400,412 | 121,989 | ||||||
Merck & Co. Inc. | 1,500,000 | 115,410 | |||||||
Stryker Corp. | 386,500 | 64,348 | |||||||
Agilent Technologies Inc. | 827,716 | 59,281 | |||||||
Sanofi ADR | 969,000 | 42,365 | |||||||
* | Edwards Lifesciences Corp. | 202,500 | 38,195 | ||||||
GlaxoSmithKline plc ADR | 548,000 | 20,764 | |||||||
* | IQVIA Holdings Inc. | 20,930 | 2,257 | ||||||
15,878,670 | |||||||||
Industrials (13.5%) | |||||||||
1 | Southwest Airlines Co. | 33,528,156 | 1,193,938 | ||||||
FedEx Corp. | 9,078,606 | 1,100,872 | |||||||
Siemens AG | 10,302,922 | 862,717 | |||||||
Airbus SE | 9,887,614 | 637,572 | |||||||
Caterpillar Inc. | 5,064,489 | 587,683 | |||||||
*,^,1 | United Airlines Holdings Inc. | 15,731,603 | 496,332 | ||||||
Union Pacific Corp. | 2,664,200 | 375,759 | |||||||
^,1 | American Airlines Group Inc. | 29,994,413 | 365,632 | ||||||
Delta Air Lines Inc. | 12,607,700 | 359,698 | |||||||
United Parcel Service Inc. Class B | 2,056,670 | 192,134 | |||||||
United Technologies Corp. | 1,938,300 | 182,840 | |||||||
Alaska Air Group Inc. | 4,909,400 | 139,771 | |||||||
Honeywell International Inc. | 980,000 | 131,114 | |||||||
TransDigm Group Inc. | 343,916 | 110,118 | |||||||
Textron Inc. | 3,818,000 | 101,826 | |||||||
AMETEK Inc. | 869,550 | 62,625 | |||||||
General Dynamics Corp. | 454,430 | 60,126 | |||||||
Deere & Co. | 400,000 | 55,264 | |||||||
CSX Corp. | 889,800 | 50,985 | |||||||
L3Harris Technologies Inc. | 240,000 | 43,229 | |||||||
* | Lyft Inc. Class A | 1,262,800 | 33,906 | ||||||
Rockwell Automation Inc. | 178,280 | 26,904 | |||||||
Pentair plc | 589,840 | 17,554 | |||||||
nVent Electric plc | 887,900 | 14,979 | |||||||
* | Ryanair Holdings plc ADR | 250,000 | 13,272 | ||||||
Boeing Co. | 70,200 | 10,470 | |||||||
7,227,320 | |||||||||
Information Technology (28.8%) | |||||||||
* | Adobe Inc. | 8,873,257 | 2,823,825 | ||||||
Microsoft Corp. | 16,824,967 | 2,653,466 | |||||||
Texas Instruments Inc. | 17,705,372 | 1,769,298 | |||||||
* | Micron Technology Inc. | 30,311,874 | 1,274,917 | ||||||
QUALCOMM Inc. | 11,988,145 | 810,998 | |||||||
Intel Corp. | 14,809,692 | 801,501 | |||||||
KLA Corp. | 5,181,260 | 744,754 | |||||||
* | Telefonaktiebolaget LM Ericsson ADR | 70,671,226 | 571,730 | ||||||
1 | NetApp Inc. | 12,649,941 | 527,376 | ||||||
NVIDIA Corp. | 1,677,730 | 442,250 | |||||||
Intuit Inc. | 1,910,400 | 439,392 | |||||||
Hewlett Packard Enterprise Co. | 38,133,096 | 370,272 | |||||||
HP Inc. | 20,419,636 | 354,485 | |||||||
Oracle Corp. | 6,790,329 | 328,177 | |||||||
Visa Inc. Class A | 1,643,200 | 264,752 | |||||||
Analog Devices Inc. | 2,615,900 | 234,516 | |||||||
Cisco Systems Inc. | 5,432,579 | 213,555 | |||||||
Apple Inc. | 545,000 | 138,588 | |||||||
Entegris Inc. | 2,395,022 | 107,225 | |||||||
Corning Inc. | 5,169,700 | 106,186 | |||||||
* | PayPal Holdings Inc. | 1,021,880 | 97,835 | ||||||
Applied Materials Inc. | 1,467,700 | 67,250 | |||||||
Mastercard Inc. Class A | 215,600 | 52,080 | |||||||
* | BlackBerry Ltd. | 10,505,100 | 43,386 | ||||||
* | Autodesk Inc. | 264,200 | 41,242 | ||||||
1 | Plantronics Inc. | 3,672,300 | 36,943 | ||||||
* | Keysight Technologies Inc. | 265,850 | 22,246 | ||||||
* | Palo Alto Networks Inc. | 112,900 | 18,511 | ||||||
* | Dell Technologies Inc. Class C | 276,000 | 10,916 | ||||||
Perspecta Inc. | 470,023 | 8,573 | |||||||
Western Digital Corp. | 200,000 | 8,324 | |||||||
* | Rambus Inc. | 534,697 | 5,935 | ||||||
Nokia Oyj ADR | 1,750,000 | 5,425 | |||||||
* | Infineon Technologies AG ADR | 150,000 | 2,175 | ||||||
* | Arista Networks Inc. | 3,000 | 608 |
5
PRIMECAP Fund
Market | |||||||||
Value· | |||||||||
Shares | ($000 | ) | |||||||
* | RingCentral Inc. Class A | 600 | 127 | ||||||
* | Okta Inc. | 500 | 61 | ||||||
15,398,900 | |||||||||
Materials (0.6%) | |||||||||
Albemarle Corp. | 2,690,335 | 151,654 | |||||||
Dow Inc. | 1,811,017 | 52,954 | |||||||
Linde plc | 277,824 | 48,064 | |||||||
DuPont de Nemours Inc. | 1,359,416 | 46,356 | |||||||
Corteva Inc. | 1,334,416 | 31,359 | |||||||
330,387 | |||||||||
Real Estate (0.0%) | |||||||||
Alexandria Real Estate Equities Inc. | 10,300 | 1,412 | |||||||
Total Common Stocks | |||||||||
(Cost $27,964,716) | 52,054,614 | ||||||||
Temporary Cash Investment (2.6%) | |||||||||
Money Market Fund (2.6%) | |||||||||
3,4 | Vanguard Market Liquidity Fund, 0.943% | ||||||||
(Cost $1,392,920) | 13,929,376 | 1,391,266 | |||||||
Total Investments (100.1%) | |||||||||
(Cost $29,357,636) | 53,445,880 | ||||||||
Other Assets and Liabilities—Net4 (-0.1%) | (56,794 | ) | |||||||
Net Assets (100%) | 53,389,086 |
Cost rounded to $000.
• | 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 $41,935,000. |
1 | Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company. |
2 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2020, the value of this security represented 0.3% of net assets. |
3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
4 | Collateral of $43,757,000 was received for securities on loan. ADR—American Depositary Receipt. |
See accompanying Notes, which are an integral part of the Financial Statements.
6
PRIMECAP Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $23,634,119) | 45,935,540 |
Affiliated Issuers (Cost $5,723,517) | 7,510,340 |
Total Investments in Securities | 53,445,880 |
Investment in Vanguard | 2,838 |
Cash | 135 |
Receivables for Investment Securities Sold | 34,451 |
Receivables for Accrued Income | 75,974 |
Receivables for Capital Shares Issued | 14,646 |
Total Assets | 53,573,924 |
Liabilities | |
Payables for Investment Securities Purchased | 28,624 |
Collateral for Securities on Loan | 43,757 |
Payables for Capital Shares Redeemed | 50,908 |
Payables to Investment Advisor | 29,401 |
Payables to Vanguard | 32,148 |
Total Liabilities | 184,838 |
Net Assets | 53,389,086 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 26,202,774 |
Total Distributable Earnings (Loss) | 27,186,312 |
Net Assets | 53,389,086 |
Investor Shares — Net Assets | |
Applicable to 44,908,367 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 4,987,661 |
Net Asset Value Per Share — Investor Shares | $111.06 |
Admiral Shares — Net Assets | |
Applicable to 420,480,892 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 48,401,425 |
Net Asset Value Per Share — Admiral Shares | $115.11 |
See accompanying Notes, which are an integral part of the Financial Statements.
7
PRIMECAP Fund
Statement of Operations
Six Months Ended | |||
March 31, 2020 | |||
($000 | ) | ||
Investment Income | |||
Income | |||
Dividends—Unaffiliated Issuers1 | 529,222 | ||
Dividends—Affiliated Issuers | 42,064 | ||
Interest—Affiliated Issuers | 11,584 | ||
Securities Lending—Net | 352 | ||
Total Income | 583,222 | ||
Expenses | |||
Investment Advisory Fees—Note B | 59,412 | ||
The Vanguard Group—Note C | |||
Management and Administrative—Investor Shares | 5,658 | ||
Management and Administrative—Admiral Shares | 35,560 | ||
Marketing and Distribution—Investor Shares | 339 | ||
Marketing and Distribution—Admiral Shares | 1,297 | ||
Custodian Fees | 1,738 | ||
Shareholders’ Reports—Investor Shares | 20 | ||
Shareholders’ Reports—Admiral Shares | 77 | ||
Trustees’ Fees and Expenses | 39 | ||
Total Expenses | 104,140 | ||
Net Investment Income | 479,082 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold – Unaffiliated Securities | 2,946,432 | ||
Investment Securities Sold – Affiliated Securities | (36,993 | ) | |
Foreign Currencies | (200 | ) | |
Realized Net Gain (Loss) | 2,909,239 | ||
Change in Unrealized Appreciation (Depreciation) | |||
Investment Securities – Unaffiliated Securities | (7,868,480 | ) | |
Investment Securities – Affiliated Securities | (1,772,599 | ) | |
Foreign Currencies | 667 | ||
Change in Unrealized Appreciation (Depreciation) | (9,640,412 | ) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (6,252,091 | ) |
1 Dividends are net of foreign withholding taxes of $17,648,000.
See accompanying Notes, which are an integral part of the Financial Statements.
8
PRIMECAP Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
March 31, | September 30, | ||||
2020 | 2019 | ||||
($000) | ($000 | ) | |||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 479,082 | 877,672 | |||
Realized Net Gain (Loss) | 2,909,239 | 4,100,360 | |||
Change in Unrealized Appreciation (Depreciation) | (9,640,412) | (6,754,614 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (6,252,091) | (1,776,582 | ) | ||
Distributions1 | |||||
Investor Shares | (444,002) | (460,605 | ) | ||
Admiral Shares | (4,239,627) | (4,127,699 | ) | ||
Total Distributions | (4,683,629) | (4,588,304 | ) | ||
Capital Share Transactions | |||||
Investor Shares | (103,537) | (352,243 | ) | ||
Admiral Shares | 1,157,074 | 501,276 | |||
Net Increase (Decrease) from Capital Share Transactions | 1,053,537 | 149,033 | |||
Total Increase (Decrease) | (9,882,183) | (6,215,853 | ) | ||
Net Assets | |||||
Beginning of Period | 63,271,269 | 69,487,122 | |||
End of Period | 53,389,086 | 63,271,269 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
9
PRIMECAP Fund
Financial Highlights
Investor Shares
Six Months | |||||||
Ended | Year Ended September 30, | ||||||
For a Share Outstanding | March 31, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $133.12 | $147.61 | $126.84 | $107.60 | $96.99 | $104.16 | |
Investment Operations | |||||||
Net Investment Income | .9451 | 1.7151 | 1.4741 | 1.3981 | 1.401 | 1.329 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (13.053) | (6.495) | 26.529 | 23.145 | 15.103 | (1.631) | |
Total from Investment Operations | (12.108) | (4.780) | 28.003 | 24.543 | 16.504 | (.302) | |
Distributions | |||||||
Dividends from Net Investment Income | (1.690) | (1.470) | (1.400) | (1.356) | (1.114) | (1.160) | |
Distributions from Realized Capital Gains | (8.262) | (8.240) | (5.833) | (3.947) | (4.780) | (5.708) | |
Total Distributions | (9.952) | (9.710) | (7.233) | (5.303) | (5.894) | (6.868) | |
Net Asset Value, End of Period | $111.06 | $133.12 | $147.61 | $126.84 | $107.60 | $96.99 | |
Total Return2 | -10.56% | -2.41% | 22.86% | 23.75% | 17.40% | -0.76% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $4,988 | $6,095 | $7,126 | $7,699 | $7,588 | $7,741 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.38% | 0.38% | 0.38% | 0.39% | 0.39% | 0.40% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.40% | 1.32% | 1.08% | 1.22% | 1.37% | 1.33% | |
Portfolio Turnover Rate | 4% | 5% | 8% | 8% | 6% | 9% |
The expense ratio and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
10
PRIMECAP Fund
Financial Highlights
Admiral Shares
Six Months | |||||||
Ended | Year Ended September 30, | ||||||
For a Share Outstanding | March 31, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $138.02 | $153.09 | $131.45 | $111.52 | $100.53 | $108.08 | |
Investment Operations | |||||||
Net Investment Income | 1.0331 | 1.8801 | 1.6221 | 1.5281 | 1.532 | 1.550 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (13.523) | (6.756) | 27.508 | 23.981 | 15.645 | (1.784) | |
Total from Investment Operations | (12.490) | (4.876) | 29.130 | 25.509 | 17.177 | (.234) | |
Distributions | |||||||
Dividends from Net Investment Income | (1.853) | (1.647) | (1.444) | (1.491) | (1.236) | (1.403) | |
Distributions from Realized Capital Gains | (8.567) | (8.547) | (6.046) | (4.088) | (4.951) | (5.913) | |
Total Distributions | (10.420) | (10.194) | (7.490) | (5.579) | (6.187) | (7.316) | |
Net Asset Value, End of Period | $115.11 | $138.02 | $153.09 | $131.45 | $111.52 | $100.53 | |
Total Return2 | -10.53% | -2.34% | 22.95% | 23.83% | 17.48% | -0.69% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $48,401 | $57,177 | $62,361 | $50,615 | $39,852 | $34,773 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.31% | 0.31% | 0.31% | 0.32% | 0.33% | 0.34% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.47% | 1.39% | 1.15% | 1.29% | 1.43% | 1.39% | |
Portfolio Turnover Rate | 4% | 5% | 8% | 8% | 6% | 9% |
The expense ratio and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
11
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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and 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
12
PRIMECAP Fund
or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market 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 counterparties, 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, 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 counterparty risk, in the event 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 Assets and Liabilities 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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
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.
13
PRIMECAP Fund
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, 2020, the investment advisory fee represented an effective annual rate of 0.18% of the fund’s average net assets.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Assets and Liabilities. All other costs of operations payable to Vanguard are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At March 31, 2020, the fund had contributed to Vanguard capital in the amount of $2,838,000, representing 0.01% of the fund’s net assets and 1.14% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
The following table summarizes the market value of the fund’s investments as of March 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||
Investments | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks | 49,551,615 | 2,502,999 | — | 52,054,614 | ||||||||||||
Temporary Cash Investments | 1,391,266 | — | — | 1,391,266 | ||||||||||||
Total | 50,942,881 | 2,502,999 | — | 53,445,880 |
14
PRIMECAP Fund
E. As of March 31, 2020, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 29,357,636 | |||
Gross Unrealized Appreciation | 29,845,957 | |||
Gross Unrealized Depreciation | (5,757,713 | ) | ||
Net Unrealized Appreciation (Depreciation) | 24,088,244 |
F. During the six months ended March 31, 2020, the fund purchased $2,795,420,000 of investment securities and sold $5,708,271,000 of investment securities, other than temporary cash investments.
G. | Capital share transactions for each class of shares were: |
Six Months Ended | Year Ended | |||||||||||||||
March 31, 2020 | September 30, 2019 | |||||||||||||||
Amount | Shares | Amount | Shares | |||||||||||||
($000 | ) | (000 | ) | ($000 | ) | (000 | ) | |||||||||
Investor Shares | ||||||||||||||||
Issued | 371,336 | 2,875 | 625,656 | 4,823 | ||||||||||||
Issued in Lieu of Cash Distributions | 432,066 | 3,129 | 449,317 | 3,799 | ||||||||||||
Redeemed | (906,939 | ) | (6,878 | ) | (1,427,216 | ) | (11,115 | ) | ||||||||
Net Increase (Decrease)—Investor Shares | (103,537 | ) | (874 | ) | (352,243 | ) | (2,493 | ) | ||||||||
Admiral Shares | ||||||||||||||||
Issued | 1,481,083 | 10,628 | 2,512,990 | 18,918 | ||||||||||||
Issued in Lieu of Cash Distributions | 3,984,207 | 27,842 | 3,905,419 | 31,871 | ||||||||||||
Redeemed | (4,308,216 | ) | (32,253 | ) | (5,917,133 | ) | (43,874 | ) | ||||||||
Net Increase (Decrease)—Admiral Shares | 1,157,074 | 6,217 | 501,276 | 6,915 |
15
PRIMECAP Fund
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 period in securities of these companies were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss) | App. (Dep. | ) | Income | Received | Value | ||||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market Liquidity Fund | 1,855,920 | NA1 | NA1 | (312 | ) | (1,954 | ) | 11,584 | — | 1,391,266 | ||||||||||||||||||||||
American Airlines Group Inc. | 817,917 | — | 5,918 | (13,057 | ) | (433,310 | ) | 6,065 | — | 365,632 | ||||||||||||||||||||||
Biogen Inc. | NA2 | 45,777 | 40,580 | 22 | 770,716 | — | — | 2,921,688 | ||||||||||||||||||||||||
Mattel Inc. | 302,366 | — | 339 | (396 | ) | (68,041 | ) | — | — | 233,590 | ||||||||||||||||||||||
NetApp Inc. | 679,019 | — | 13,617 | 2,778 | (140,804 | ) | 12,414 | — | 527,376 | |||||||||||||||||||||||
Plantronics Inc. | 137,050 | — | — | — | (100,107 | ) | 1,102 | — | 36,943 | |||||||||||||||||||||||
Southwest Airlines Co. | 1,889,408 | — | 68,019 | (10,614 | ) | (616,837 | ) | 12,500 | — | 1,193,938 | ||||||||||||||||||||||
United Airlines Holdings Inc. | 1,407,965 | — | 10,370 | (5,217 | ) | (896,046 | ) | — | — | 496,332 | ||||||||||||||||||||||
Whirlpool Corp. | 666,628 | — | 26,640 | (10,197 | ) | (286,216 | ) | 9,983 | — | 343,575 | ||||||||||||||||||||||
Total | 7,756,273 | 45,777 | 165,483 | (36,993 | ) | (1,772,599 | ) | 53,648 | — | 7,510,340 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 Not applicable—at September 30, 2019, the issuer was not an affiliated company of the fund.
I. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
16
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard PRIMECAP Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
17
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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.
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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
Q592 052020
Semiannual Report | March 31, 2020 |
Vanguard Target Retirement Funds |
Vanguard Target Retirement Income Fund |
Vanguard Target Retirement 2015 Fund |
Vanguard Target Retirement 2020 Fund |
Vanguard Target Retirement 2025 Fund |
Vanguard Target Retirement 2030 Fund |
Vanguard Target Retirement 2035 Fund |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents
About Your Fund’s Expenses | 1 |
Target Retirement Income Fund | 3 |
Target Retirement 2015 Fund | 14 |
Target Retirement 2020 Fund | 25 |
Target Retirement 2025 Fund | 36 |
Target Retirement 2030 Fund | 47 |
Target Retirement 2035 Fund | 58 |
Trustees Approve Advisory Arrangements | 69 |
Liquidity Risk Management | 71 |
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.
1
Six Months Ended March 31, 2020
Beginning | Ending | Expenses | |||||||||
Account Value | Account Value | Paid During | |||||||||
9/30/2019 | 3/31/2020 | Period | |||||||||
Based on Actual Fund Return | |||||||||||
Target Retirement Income Fund | $1,000.00 | $965.36 | $0.59 | ||||||||
Target Retirement 2015 Fund | $1,000.00 | $955.14 | $0.64 | ||||||||
Target Retirement 2020 Fund | $1,000.00 | $932.23 | $0.63 | ||||||||
Target Retirement 2025 Fund | $1,000.00 | $915.87 | $0.62 | ||||||||
Target Retirement 2030 Fund | $1,000.00 | $903.11 | $0.67 | ||||||||
Target Retirement 2035 Fund | $1,000.00 | $890.58 | $0.66 | ||||||||
Based on Hypothetical 5% Yearly Return | |||||||||||
Target Retirement Income Fund | $1,000.00 | $1,024.40 | $0.61 | ||||||||
Target Retirement 2015 Fund | $1,000.00 | $1,024.35 | $0.66 | ||||||||
Target Retirement 2020 Fund | $1,000.00 | $1,024.35 | $0.66 | ||||||||
Target Retirement 2025 Fund | $1,000.00 | $1,024.35 | $0.66 | ||||||||
Target Retirement 2030 Fund | $1,000.00 | $1,024.30 | $0.71 | ||||||||
Target Retirement 2035 Fund | $1,000.00 | $1,024.30 | $0.71 |
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) 0.12%, 0.13%, 0.13%, 0.13%, 0.14%, and 0.14%. 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 (183/366).
2
Target Retirement Income Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Bond Market II Index Fund Investor Shares | 37.6 | % | ||
Vanguard Total Stock Market Index Fund Investor Shares | 17.9 | |||
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 16.5 | |||
Vanguard Total International Bond Index Fund Investor Shares | 15.6 | |||
Vanguard Total International Stock Index Fund Investor Shares | 12.4 |
The table reflects the fund's investments, except for short-term investments and derivatives.
3
Target Retirement Income Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||
Value• | ||||
Shares | ($000 | ) | ||
Investment Companies (99.9%) | ||||
U.S. Stock Fund (17.9%) | ||||
Vanguard Total Stock Market Index Fund Investor Shares | 44,921,709 | 2,817,939 | ||
International Stock Fund (12.4%) | ||||
Vanguard Total International Stock Index Fund Investor Shares | 145,074,379 | 1,955,603 | ||
U.S. Bond Funds (54.1%) | ||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 524,588,873 | 5,912,116 | ||
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 106,197,619 | 2,598,656 | ||
8,510,772 | ||||
International Bond Fund (15.5%) | ||||
Vanguard Total International Bond Index Fund Investor Shares | 216,581,801 | 2,447,374 | ||
Total Investment Companies (Cost $13,643,875) | 15,731,688 | |||
Temporary Cash Investment (0.1%) | ||||
Money Market Fund (0.1%) | ||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $11,575) | 115,703 | 11,557 | ||
Total Investments (100.0%) (Cost $13,655,450) | 15,743,245 | |||
Other Assets and Liabilities—Net (0.0%)2 | (6,187 | ) | ||
Net Assets (100%) | 15,737,058 |
Cost rounded to $000.
• | 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. |
2 | Cash of $1,448,000 has been segregated as initial margin for open futures contracts. |
4
Target Retirement Income Fund
Derivative Financial Instruments Outstanding as of Period End | |||||
Futures Contracts | |||||
($000 | ) | ||||
Value and | |||||
Number of | Unrealized | ||||
Long (Short) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation | ) | |
Long Futures Contracts | |||||
E-mini S&P 500 Index | June 2020 | 120 | 15,418 | 1,167 |
See accompanying Notes, which are an integral part of the Financial Statements.
5
Target Retirement Income Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |
Assets | ||
Investments in Securities, at Value—Affiliated Funds (Cost $13,655,450) | 15,743,245 | |
Cash Collateral Pledged—Futures Contracts | 1,448 | |
Receivables for Investment Securities Sold | 2,807 | |
Receivables for Accrued Income | 14,844 | |
Receivables for Capital Shares Issued | 9,132 | |
Total Assets | 15,771,476 | |
Liabilities | ||
Payables for Investment Securities Purchased | 14,844 | |
Payables for Capital Shares Redeemed | 19,325 | |
Variation Margin Payable—Futures Contracts | 249 | |
Total Liabilities | 34,418 | |
Net Assets | 15,737,058 |
At March 31, 2020, net assets consisted of: | ||
Paid-in Capital | 13,478,201 | |
Total Distributable Earnings (Loss) | 2,258,857 | |
Net Assets | 15,737,058 | |
Net Assets | ||
Applicable to 1,195,251,750 outstanding $.001 par value shares of | ||
beneficial interest (unlimited authorization) | 15,737,058 | |
Net Asset Value Per Share | $13.17 |
See accompanying Notes, which are an integral part of the Financial Statements.
6
Target Retirement Income Fund
Statement of Operations
Six Months Ended | ||
March 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Income Distributions Received from Affiliated Funds | 231,951 | |
Other Income | 10 | |
Net Investment Income—Note B | 231,961 | |
Realized Net Gain (Loss) | ||
Capital Gain Distributions Received from Affiliated Funds | — | |
Affiliated Funds Sold | 171,594 | |
Futures Contracts | (2,895 | ) |
Realized Net Gain (Loss) | 168,699 | |
Change in Unrealized Appreciation (Depreciation) | ||
Affiliated Funds | (985,924 | ) |
Futures Contracts | 1,167 | |
Change in Unrealized Appreciation (Depreciation) | (984,757 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (584,097 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Target Retirement Income Fund
Statement of Changes in Net Assets
Six Months Ended March 31, | Year Ended September 30, | ||||
2020 | 2019 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 231,961 | 415,089 | |||
Realized Net Gain (Loss) | 168,699 | 22,491 | |||
Change in Unrealized Appreciation (Depreciation) | (984,757 | ) | 626,217 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (584,097 | ) | 1,063,797 | ||
Distributions1 | |||||
Total Distributions | (254,271 | ) | (656,163 | ) | |
Capital Share Transactions | |||||
Issued | 1,508,242 | 2,449,733 | |||
Issued in Lieu of Cash Distributions | 241,371 | 627,398 | |||
Redeemed | (2,157,695 | ) | (3,114,349 | ) | |
Net Increase (Decrease) from Capital Share Transactions | (408,082 | ) | (37,218 | ) | |
Total Increase (Decrease) | (1,246,450 | ) | 370,416 | ||
Net Assets | |||||
Beginning of Period | 16,983,508 | 16,613,092 | |||
End of Period | 15,737,058 | 16,983,508 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
8
Target Retirement Income Fund
Financial Highlights
Six Months | ||||||||||||
Ended | ||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||
Net Asset Value, Beginning of Period | $13.85 | $13.52 | $13.46 | $13.08 | $12.59 | $12.84 | ||||||
Investment Operations | ||||||||||||
Net Investment Income | .1901 | .3411 | .3341 | .2501 | .229 | .238 | ||||||
Capital Gain Distributions Received | — | — | .0011 | .0041 | .007 | .015 | ||||||
Net Realized and Unrealized Gain (Loss) | ||||||||||||
on Investments | (.660) | .533 | .107 | .422 | .692 | (.225) | ||||||
Total from Investment Operations | (.470) | .874 | .442 | .676 | .928 | .028 | ||||||
Distributions | ||||||||||||
Dividends from Net Investment Income | (.193) | (.352) | (.327) | (.254) | (.227) | (.236) | ||||||
Distributions from Realized Capital Gains | (.017) | (.192) | (.055) | (.042) | (.211) | (.042) | ||||||
Total Distributions | (.210) | (.544) | (.382) | (.296) | (.438) | (.278) | ||||||
Net Asset Value, End of Period | $13.17 | $13.85 | $13.52 | $13.46 | $13.08 | $12.59 | ||||||
Total Return2 | -3.46% | 6.75% | 3.31% | 5.26% | 7.54% | 0.18% | ||||||
Ratios/Supplemental Data | ||||||||||||
Net Assets, End of Period (Millions) | $15,737 | $16,984 | $16,613 | $16,645 | $10,790 | $10,633 | ||||||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||||||
Acquired Fund Fees and Expenses | 0.12% | 0.12% | 0.12% | 0.13% | 0.13% | 0.14% | ||||||
Ratio of Net Investment Income to Average Net Assets | 2.72% | 2.54% | 2.47% | 1.90% | 1.78% | 1.83% | ||||||
Portfolio Turnover Rate | 10% | 10% | 6% | 8% | 11% | 14% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
9
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
10
Target Retirement Income Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
11
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 13,655,450 |
Gross Unrealized Appreciation | 2,344,691 |
Gross Unrealized Depreciation | (255,729) |
Net Unrealized Appreciation (Depreciation) | 2,088,962 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 108,554 | 182,664 | |
Issued in Lieu of Cash Distributions | 17,443 | 48,017 | |
Redeemed | (157,331) | (233,197) | |
Net Increase (Decrease) in Shares Outstanding | (31,334) | (2,516) |
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Target Retirement Income Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |
Vanguard Market Liquidity Fund | 4,215 | NA1 | NA1 | (33 | ) | (19 | ) | 48 | — | 11,557 | ||||||
Vanguard Short-Term Inflation-Protected Securities Index Fund | 2,821,896 | 107,799 | 317,169 | (6,425 | ) | (7,445 | ) | 19,837 | — | 2,598,656 | ||||||
Vanguard Total Bond Market II Index Fund | 6,303,317 | 389,569 | 897,172 | 34,819 | 81,583 | 81,527 | — | 5,912,116 | ||||||||
Vanguard Total Bond Market ETF2 | — | 18,653 | 18,673 | 20 | — | — | — | — | ||||||||
Vanguard Total International Bond Index Fund | 2,738,130 | 100,254 | 287,664 | 12,813 | (116,159 | ) | 73,497 | — | 2,447,374 | |||||||
Vanguard Total International Stock Index Fund | 2,012,186 | 458,518 | 143,176 | 1,635 | (373,560 | ) | 27,641 | — | 1,955,603 | |||||||
Vanguard Total Stock Market Index Fund | 3,104,490 | 682,385 | 527,377 | 128,765 | (570,324 | ) | 29,401 | — | 2,817,939 | |||||||
Total | 16,984,234 | 1,757,178 | 2,191,231 | 171,594 | (985,924 | ) | 231,951 | — | 15,743,245 |
1 | Not applicable—purchases and sales are for temporary cash investment purposes. |
2 | The fund invested in ETF Shares during the period, but sold their positions before period end. |
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
13
Target Retirement 2015 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Bond Market II Index Fund Investor Shares | 35.1 | % | ||
Vanguard Total Stock Market Index Fund Investor Shares | 21.7 | |||
Vanguard Total International Bond Index Fund Investor Shares | 15.0 | |||
Vanguard Total International Stock Index Fund Investor Shares | 14.5 | |||
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 13.7 |
The table reflects the fund's investments, except for short-term investments and derivatives.
14
Target Retirement 2015 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000 | ) | ||||||
Investment Companies (100.0%) | ||||||||
U.S. Stock Fund (21.7%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 48,204,715 | 3,023,882 | ||||||
International Stock Fund (14.5%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 150,656,464 | 2,030,849 | ||||||
U.S. Bond Funds (48.8%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 434,537,131 | 4,897,234 | ||||||
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 78,019,304 | 1,909,132 | ||||||
6,806,366 | ||||||||
International Bond Fund (15.0%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 185,157,696 | 2,092,282 | ||||||
Total Investment Companies (Cost $11,660,067) | 13,953,379 | |||||||
Temporary Cash Investment (0.1%) | ||||||||
Money Market Fund (0.1%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $14,698) | 146,986 | 14,681 | ||||||
Total Investments (100.1%) (Cost $11,674,765) | 13,968,060 | |||||||
Other Assets and Liabilities—Net (-0.1%)2 | (8,194 | ) | ||||||
Net Assets (100%) | 13,959,866 |
Cost rounded to $000.
• | 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. | |
2 | Cash of $1,440,000 has been segregated as initial margin for open futures contracts. |
15
Target Retirement 2015 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||||||||||||
Futures Contracts | ||||||||||||||
($000 | ) | |||||||||||||
Value and | ||||||||||||||
Number of | Unrealized | |||||||||||||
Long (Short | ) | Notional | Appreciation | |||||||||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||||||||
Long Futures Contracts | ||||||||||||||
E-mini S&P 500 Index | June 2020 | 120 | 15,418 | 1,168 |
See accompanying Notes, which are an integral part of the Financial Statements.
16
Target Retirement 2015 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value—Affiliated Funds (Cost $11,674,765) | 13,968,060 | |||
Cash Collateral Pledged—Futures Contracts | 1,440 | |||
Receivables for Investment Securities Sold | 66,953 | |||
Receivables for Accrued Income | 12,263 | |||
Receivables for Capital Shares Issued | 10,753 | |||
Total Assets | 14,059,469 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 80,763 | |||
Payables for Capital Shares Redeemed | 18,591 | |||
Variation Margin Payable—Futures Contracts | 249 | |||
Total Liabilities | 99,603 | |||
Net Assets | 13,959,866 | |||
At March 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 11,264,056 | |||
Total Distributable Earnings (Loss) | 2,695,810 | |||
Net Assets | 13,959,866 | |||
Net Assets | ||||
Applicable to 993,371,692 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 13,959,866 | |||
Net Asset Value Per Share | $ 14.05 |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Target Retirement 2015 Fund
Statement of Operations
Six Months Ended | ||||
March 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Income Distributions Received from Affiliated Funds | 210,464 | |||
Other Income | 7 | |||
Net Investment Income—Note B | 210,471 | |||
Realized Net Gain (Loss) | ||||
Capital Gain Distributions Received from Affiliated Funds | — | |||
Affiliated Funds Sold | 402,823 | |||
Futures Contracts | (3,202 | ) | ||
Realized Net Gain (Loss) | 399,621 | |||
Change in Unrealized Appreciation (Depreciation) | ||||
Affiliated Funds | (1,267,362 | ) | ||
Futures Contracts | 1,168 | |||
Change in Unrealized Appreciation (Depreciation) | (1,266,194 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (656,102 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
18
Target Retirement 2015 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||||||
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
($000 | ) | ($000 | ) | |||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net Investment Income | 210,471 | 393,784 | ||||||
Realized Net Gain (Loss) | 399,621 | 354,227 | ||||||
Change in Unrealized Appreciation (Depreciation) | (1,266,194 | ) | 144,719 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (656,102 | ) | 892,730 | |||||
Distributions1 | ||||||||
Total Distributions | (734,000 | ) | (1,036,939 | ) | ||||
Capital Share Transactions | ||||||||
Issued | 1,125,520 | 1,965,353 | ||||||
Issued in Lieu of Cash Distributions | 713,503 | 1,009,506 | ||||||
Redeemed | (2,136,345 | ) | (3,593,321 | ) | ||||
Net Increase (Decrease) from Capital Share Transactions | (297,322 | ) | (618,462 | ) | ||||
Total Increase (Decrease) | (1,687,424 | ) | (762,671 | ) | ||||
Net Assets | ||||||||
Beginning of Period | 15,647,290 | 16,409,961 | ||||||
End of Period | 13,959,866 | 15,647,290 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Target Retirement 2015 Fund
Financial Highlights
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | March 31, | Year Ended September 30, | |||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $15.42 | $15.60 | $15.75 | $15.19 | $14.90 | $15.44 | |
Investment Operations | |||||||
Net Investment Income | .2071 | .3761 | .3711 | .3051 | .311 | .327 | |
Capital Gain Distributions Received | — | — | .0011 | .0051 | .007 | .018 | |
Net Realized and Unrealized Gain (Loss) on Investments | (.843) | .455 | .328 | .846 | .968 | (.433) | |
Total from Investment Operations | (.636) | .831 | .700 | 1.156 | 1.286 | (.088) | |
Distributions | |||||||
Dividends from Net Investment Income | (.379) | (.372) | (.318) | (.289) | (.299) | (.284) | |
Distributions from Realized Capital Gains | (.355) | (.639) | (.532) | (.307) | (.697) | (.168) | |
Total Distributions | (.734) | (1.011) | (.850) | (.596) | (.996) | (.452) | |
Net Asset Value, End of Period | $14.05 | $15.42 | $15.60 | $15.75 | $15.19 | $14.90 | |
Total Return2 | -4.49% | 6.08% | 4.54% | 7.95% | 9.03% | -0.66% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $13,960 | $15,647 | $16,410 | $17,250 | $17,479 | $18,858 | |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |
Acquired Fund Fees and Expenses | 0.13% | 0.13% | 0.13% | 0.13% | 0.14% | 0.14% | |
Ratio of Net Investment Income to Average Net Assets | 2.71% | 2.52% | 2.39% | 2.02% | 1.96% | 1.95% | |
Portfolio Turnover Rate | 12% | 10% | 7% | 7% | 9% | 16% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
20
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
21
Target Retirement 2015 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
22
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 11,674,765 |
Gross Unrealized Appreciation | 2,512,145 |
Gross Unrealized Depreciation | (217,682) |
Net Unrealized Appreciation (Depreciation) | 2,294,463 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 74,308 | 132,213 | |
Issued in Lieu of Cash Distributions | 46,910 | 73,100 | |
Redeemed | (142,709) | (242,220) | |
Net Increase (Decrease) in Shares Outstanding | (21,491) | (36,907) |
23
Target Retirement 2015 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |
Vanguard Market Liquidity Fund | 10 | NA1 | NA1 | (20 | ) | (17 | ) | 47 | — | 14,681 | ||||||
Vanguard Short-Term Inflation-Protected Securities Index Fund | 2,041,604 | 154,620 | 276,986 | (5,126 | ) | (4,980 | ) | 14,644 | — | 1,909,132 | ||||||
Vanguard Total Bond Market II Index Fund | 5,331,310 | 427,644 | 960,856 | 55,782 | 43,354 | 68,813 | — | 4,897,234 | ||||||||
Vanguard Total Bond Market ETF2 | — | 6,143 | 6,150 | 7 | — | — | — | — | ||||||||
Vanguard Total International Bond Index Fund | 2,354,655 | 133,799 | 309,087 | 25,709 | (112,794 | ) | 63,299 | — | 2,092,282 | |||||||
Vanguard Total International Stock Index Fund | 2,372,022 | 428,863 | 369,899 | 5,215 | (405,352 | ) | 31,119 | — | 2,030,849 | |||||||
Vanguard Total Stock Market Index Fund | 3,546,381 | 734,534 | 790,716 | 321,256 | (787,573 | ) | 32,542 | — | 3,023,882 | |||||||
Total | 15,645,982 | 1,885,603 | 2,713,694 | 402,823 | (1,267,362 | ) | 210,464 | — | 13,968,060 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 The fund invested in ETF Shares during the period, but sold their positions before period end.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
24
Target Retirement 2020 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Investor Shares | 30.1 | % |
Vanguard Total Bond Market II Index Fund Investor Shares | 29.6 | |
Vanguard Total International Stock Index Fund Investor Shares | 20.3 | |
Vanguard Total International Bond Index Fund Investor Shares | 12.5 | |
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 7.5 |
The table reflects the fund's investments, except for short-term investments and derivatives.
25
Target Retirement 2020 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000 | ) | ||||||
Investment Companies (100.0%) | ||||||||
U.S. Stock Fund (30.1%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 137,371,474 | 8,617,313 | ||||||
International Stock Fund (20.3%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 431,530,671 | 5,817,033 | ||||||
U.S. Bond Funds (37.1%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 751,742,248 | 8,472,135 | ||||||
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares | 87,543,129 | 2,142,181 | ||||||
10,614,316 | ||||||||
International Bond Fund (12.5%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 317,694,792 | 3,589,951 | ||||||
Total Investment Companies (Cost $23,771,573) | 28,638,613 | |||||||
Temporary Cash Investment (0.1%) | ||||||||
Money Market Fund (0.1%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $33,142) | 331,562 | 33,116 | ||||||
Total Investments (100.1%) (Cost $23,804,715) | 28,671,729 | |||||||
Other Assets and Liabilities—Net (-0.1%)2 | (14,786 | ) | ||||||
Net Assets (100%) | 28,656,943 |
Cost rounded to $000.
• | 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. |
2 | Cash of $3,360,000 has been segregated as initial margin for open futures contracts. |
26
Target Retirement 2020 Fund
Derivative Financial Instruments Outstanding as of Period End |
Futures Contracts |
($000 | ) | |||||||||||||||
Value and | ||||||||||||||||
Number of | Unrealized | |||||||||||||||
Long (Short | ) | Notional | Appreciation | |||||||||||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||||||||||
Long Futures Contracts | ||||||||||||||||
E-mini S&P 500 Index | June 2020 | 280 | 35,976 | 309 |
See accompanying Notes, which are an integral part of the Financial Statements.
27
Target Retirement 2020 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value—Affiliated Issuers (Cost $23,804,715) | 28,671,729 | |||
Receivables for Investment Securities Sold | 108,890 | |||
Receivables for Accrued Income | 21,353 | |||
Receivables for Capital Shares Issued | 17,475 | |||
Cash Collateral Pledged—Futures Contracts | 3,360 | |||
Total Assets | 28,822,807 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 116,353 | |||
Payables for Capital Shares Redeemed | 48,930 | |||
Variation Margin Payable—Futures Contracts | 581 | |||
Total Liabilities | 165,864 | |||
Net Assets | 28,656,943 | |||
At March 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 23,123,676 | |||
Total Distributable Earnings (Loss) | 5,533,267 | |||
Net Assets | 28,656,943 | |||
Net Assets | ||||
Applicable to 987,114,049 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 28,656,943 | |||
Net Asset Value Per Share | $29.03 |
See accompanying Notes, which are an integral part of the Financial Statements.
28
Target Retirement 2020 Fund
Statement of Operations
Six Months Ended | ||||
March 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Income Distributions Received from Affiliated Funds | 436,731 | |||
Other Income | 27 | |||
Net Investment Income—Note B | 436,758 | |||
Realized Net Gain (Loss) | ||||
Capital Gain Distributions Received from Affiliated Funds | — | |||
Affiliated Funds Sold | 623,282 | |||
Futures Contracts | (3,903 | ) | ||
Realized Net Gain (Loss) | 619,379 | |||
Change in Unrealized Appreciation (Depreciation) | ||||
Affiliated Funds | (3,192,807 | ) | ||
Futures Contracts | 309 | |||
Change in Unrealized Appreciation (Depreciation) | (3,192,498 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,136,361 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
29
Target Retirement 2020 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||||||
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
($000 | ) | ($000 | ) | |||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net Investment Income | 436,758 | 802,773 | ||||||
Realized Net Gain (Loss) | 619,379 | 344,679 | ||||||
Change in Unrealized Appreciation (Depreciation) | (3,192,498 | ) | 476,788 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,136,361 | ) | 1,624,240 | |||||
Distributions1 | ||||||||
Total Distributions | (1,159,070 | ) | (1,431,551 | ) | ||||
Capital Share Transactions | ||||||||
Issued | 2,951,707 | 5,598,664 | ||||||
Issued in Lieu of Cash Distributions | 1,131,242 | 1,402,515 | ||||||
Redeemed | (4,920,180 | ) | (7,517,881 | ) | ||||
Net Increase (Decrease) from Capital Share Transactions | (837,231 | ) | (516,702 | ) | ||||
Total Increase (Decrease) | (4,132,662 | ) | (324,013 | ) | ||||
Net Assets | ||||||||
Beginning of Period | 32,789,605 | 33,113,618 | ||||||
End of Period | 28,656,943 | 32,789,605 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
30
Target Retirement 2020 Fund
Financial Highlights
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||||||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||
Net Asset Value, Beginning of Period | $32.24 | $32.14 | $31.19 | $29.09 | $27.52 | $28.40 | ||||||||||||||||||
Investment Operations | ||||||||||||||||||||||||
Net Investment Income | .4291 | .7781 | .7291 | .6361 | .619 | .622 | ||||||||||||||||||
Capital Gain Distributions Received | — | — | .0021 | .0081 | .012 | .026 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | ||||||||||||||||||||||||
on Investments | (2.489 | ) | .736 | 1.079 | 2.231 | 2.065 | (.946 | ) | ||||||||||||||||
Total from Investment Operations | (2.060 | ) | 1.514 | 1.810 | 2.875 | 2.696 | (.298 | ) | ||||||||||||||||
Distributions | ||||||||||||||||||||||||
Dividends from Net Investment Income | (.789 | ) | (.745 | ) | (.631 | ) | (.562 | ) | (.591 | ) | (.541 | ) | ||||||||||||
Distributions from Realized Capital Gains | (.361 | ) | (.669 | ) | (.229 | ) | (.213 | ) | (.535 | ) | (.041 | ) | ||||||||||||
Total Distributions | (1.150 | ) | (1.414 | ) | (.860 | ) | (.775 | ) | (1.126 | ) | (.582 | ) | ||||||||||||
Net Asset Value, End of Period | $29.03 | $32.24 | $32.14 | $31.19 | $29.09 | $27.52 | ||||||||||||||||||
Total Return2 | -6.78 | % | 5.29 | % | 5.87 | % | 10.17 | % | 10.05 | % | -1.13 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net Assets, End of Period (Millions) | $28,657 | $32,790 | $33,114 | $31,263 | $27,542 | $26,693 | ||||||||||||||||||
Ratio of Total Expenses to | ||||||||||||||||||||||||
Average Net Assets | — | — | — | — | — | — | ||||||||||||||||||
Acquired Fund Fees and Expenses | 0.13 | % | 0.13 | % | 0.13 | % | 0.13 | % | 0.14 | % | 0.14 | % | ||||||||||||
Ratio of Net Investment Income to Average Net Assets | 2.66 | % | 2.51 | % | 2.30 | % | 2.15 | % | 2.14 | % | 2.07 | % | ||||||||||||
Portfolio Turnover Rate | 13 | % | 13 | % | 10 | % | 9 | % | 15 | % | 25 | % |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Calculated based on 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
31
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
32
Target Retirement 2020 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
33
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 23,804,715 | |||
Gross Unrealized Appreciation | 5,607,043 | |||
Gross Unrealized Depreciation | (739,720 | ) | ||
Net Unrealized Appreciation (Depreciation) | 4,867,323 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 91,727 | 181,093 | ||||||
Issued in Lieu of Cash Distributions | 34,711 | 49,211 | ||||||
Redeemed | (156,223 | ) | (243,796 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | (29,785 | ) | (13,492 | ) |
34
Target Retirement 2020 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 7,708 | NA1 | NA1 | (28) | (25) | 55 | — | 33,116 |
Vanguard Short-Term Inflation-Protected Securities Index Fund | 2,145,955 | 426,465 | 417,201 | (6,472) | (6,566) | 16,364 | — | 2,142,181 |
Vanguard Total Bond Market II Index Fund | 9,579,114 | 929,358 | 2,220,682 | 85,962 | 98,383 | 123,314 | — | 8,472,135 |
Vanguard Total Bond Market ETF2 | — | 5,526 | 5,532 | 6 | — | — | — | — |
Vanguard Total International Bond Index Fund | 4,211,439 | 231,051 | 697,598 | 28,369 | (183,310) | 113,051 | — | 3,589,951 |
Vanguard Total International Stock Index Fund | 6,769,805 | 956,529 | 709,214 | (17,343) | (1,182,744) | 90,317 | — | 5,817,033 |
Vanguard Total Stock Market Index Fund | 10,101,340 | 1,557,952 | 1,656,222 | 532,788 | (1,918,545) | 93,630 | — | 8,617,313 |
Total | 32,815,361 | 4,106,881 | 5,706,449 | 623,282 | (3,192,807) | 436,731 | — | 28,671,729 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 The fund invested in ETF Shares during the period, but sold their positions before period end.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
35
Target Retirement 2025 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Investor Shares | 36.1 | % |
Vanguard Total Bond Market II Index Fund Investor Shares | 27.8 | |
Vanguard Total International Stock Index Fund Investor Shares | 24.3 | |
Vanguard Total International Bond Index Fund Investor Shares | 11.8 |
The table reflects the fund's investments, except for short-term investments and derivatives.
36
Target Retirement 2025 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000) | |||||||
Investment Companies (100.0%) | ||||||||
U.S. Stock Fund (36.1%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 228,239,844 | 14,317,485 | ||||||
International Stock Fund (24.3%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 717,520,166 | 9,672,172 | ||||||
U.S. Bond Fund (27.8%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 980,347,831 | 11,048,520 | ||||||
International Bond Fund (11.8%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 413,490,886 | 4,672,447 | ||||||
Total Investment Companies (Cost $32,275,508) | 39,710,624 | |||||||
Temporary Cash Investment (0.1%) | ||||||||
Money Market Fund (0.1%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $45,567) | 455,924 | 45,538 | ||||||
Total Investments (100.1%) (Cost $32,321,075) | 39,756,162 | |||||||
Other Assets and Liabilities—Net (-0.1%)2 | (55,541 | ) | ||||||
Net Assets (100%) | 39,700,621 |
Cost rounded to $000.
• | 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. |
2 | Cash of $4,020,000 has been segregated as initial margin for open futures contracts. |
37
Target Retirement 2025 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||||||||||||
Futures Contracts | ||||||||||||||
($000 | ) | |||||||||||||
Value and | ||||||||||||||
Number of | Unrealized | |||||||||||||
Long (Short | ) | Notional | Appreciation | |||||||||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||||||||
Long Futures Contracts | ||||||||||||||
E-mini S&P 500 Index | June 2020 | 335 | 43,042 | (1,363 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
38
Target Retirement 2025 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value—Affiliated Funds (Cost $32,321,075) | 39,756,162 | |||
Cash Collateral Pledged—Futures Contracts | 4,020 | |||
Receivables for Investment Securities Sold | 90,000 | |||
Receivables for Accrued Income | 27,962 | |||
Receivables for Capital Shares Issued | 22,773 | |||
Total Assets | 39,900,917 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 144,944 | |||
Payables for Capital Shares Redeemed | 54,657 | |||
Variation Margin Payable—Futures Contracts | 695 | |||
Total Liabilities | 200,296 | |||
Net Assets | 39,700,621 | |||
At March 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 31,825,745 | |||
Total Distributable Earnings (Loss) | 7,874,876 | |||
Net Assets | 39,700,621 | |||
Net Assets | ||||
Applicable to 2,298,978,914 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 39,700,621 | |||
Net Asset Value Per Share | $17.27 |
See accompanying Notes, which are an integral part of the Financial Statements.
39
Target Retirement 2025 Fund
Statement of Operations
Six Months Ended | ||||
March 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Income Distributions Received from Affiliated Funds | 604,135 | |||
Other Income | 42 | |||
Net Investment Income—Note B | 604,177 | |||
Realized Net Gain (Loss) | ||||
Capital Gain Distributions Received from Affiliated Funds | — | |||
Affiliated Funds Sold | 281,971 | |||
Futures Contracts | (3,122 | ) | ||
Realized Net Gain (Loss) | 278,849 | |||
Change in Unrealized Appreciation (Depreciation) | ||||
Affiliated Funds | (4,649,790 | ) | ||
Futures Contracts | (1,363 | ) | ||
Change in Unrealized Appreciation (Depreciation) | (4,651,153 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,768,127 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
40
Target Retirement 2025 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||||||
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
($000 | ) | ($000 | ) | |||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net Investment Income | 604,177 | 1,043,757 | ||||||
Realized Net Gain (Loss) | 278,849 | 93,771 | ||||||
Change in Unrealized Appreciation (Depreciation) | (4,651,153 | ) | 865,279 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,768,127 | ) | 2,002,807 | |||||
Distributions1 | ||||||||
Total Distributions | (1,174,627 | ) | (1,174,162 | ) | ||||
Capital Share Transactions | ||||||||
Issued | 4,581,007 | 7,794,924 | ||||||
Issued in Lieu of Cash Distributions | 1,150,386 | 1,152,542 | ||||||
Redeemed | (5,234,106 | ) | (7,489,764 | ) | ||||
Net Increase (Decrease) from Capital Share Transactions | 497,287 | 1,457,702 | ||||||
Total Increase (Decrease) | (4,445,467 | ) | 2,286,347 | |||||
Net Assets | ||||||||
Beginning of Period | 44,146,088 | 41,859,741 | ||||||
End of Period | 39,700,621 | 44,146,088 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
41
Target Retirement 2025 Fund
Financial Highlights
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||||||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 19.34 | $ | 19.02 | $ | 18.25 | $ | 16.77 | $ | 15.90 | $ | 16.50 | ||||||||||||
Investment Operations | ||||||||||||||||||||||||
Net Investment Income | .260 | 1 | .464 | 1 | .419 | 1 | .380 | 1 | .362 | .364 | ||||||||||||||
Capital Gain Distributions Received | — | — | .001 | 1 | .004 | 1 | .006 | .012 | ||||||||||||||||
Net Realized and Unrealized Gain (Loss) | ||||||||||||||||||||||||
on Investments | (1.820 | ) | .390 | .807 | 1.534 | 1.280 | (.624 | ) | ||||||||||||||||
Total from Investment Operations | (1.560 | ) | .854 | 1.227 | 1.918 | 1.648 | (.248 | ) | ||||||||||||||||
Distributions | ||||||||||||||||||||||||
Dividends from Net Investment Income | (.471 | ) | (.434 | ) | (.369 | ) | (.327 | ) | (.342 | ) | (.322 | ) | ||||||||||||
Distributions from Realized Capital Gains | (.039 | ) | (.100 | ) | (.088 | ) | (.111 | ) | (.436 | ) | (.030 | ) | ||||||||||||
Total Distributions | (.510 | ) | (.534 | ) | (.457 | ) | (.438 | ) | (.778 | ) | (.352 | ) | ||||||||||||
Net Asset Value, End of Period | $ | 17.27 | $ | 19.34 | $ | 19.02 | $ | 18.25 | $ | 16.77 | $ | 15.90 | ||||||||||||
Total Return2 | -8.41% | 4.89% | 6.79% | 11.74% | 10.67% | -1.60% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net Assets, End of Period (Millions) | $ | 39,701 | $ | 44,146 | $ | 41,860 | $ | 37,111 | $ | 31,706 | $ | 30,048 | ||||||||||||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||||||||||||||||||
Acquired Fund Fees and Expenses | 0.13% | 0.13% | 0.13% | 0.14% | 0.14% | 0.15% | ||||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 2.67% | 2.51% | 2.24% | 2.21% | 2.18% | 2.07% | ||||||||||||||||||
Portfolio Turnover Rate | 15% | 11% | 8% | 10% | 15% | 24% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
42
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
43
Target Retirement 2025 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
44
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 32,321,075 | |||
Gross Unrealized Appreciation | 8,912,121 | |||
Gross Unrealized Depreciation | (1,478,397 | ) | ||
Net Unrealized Appreciation (Depreciation) | 7,433,724 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 234,635 | 422,593 | ||||||
Issued in Lieu of Cash Distributions | 57,837 | 68,077 | ||||||
Redeemed | (276,529 | ) | (407,912 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | 15,943 | 82,758 |
45
Target Retirement 2025 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 23,149 | NA1 | NA1 | (80) | (30) | 162 | — | 45,538 |
Vanguard Total Bond Market II Index Fund | 12,038,750 | 2,381,339 | 3,611,488 | 100,712 | 139,207 | 160,690 | — | 11,048,520 |
Vanguard Total Bond Market ETF2 | — | 23,245 | 23,270 | 25 | — | — | — | — |
Vanguard Total International Bond Index Fund | 5,106,622 | 621,399 | 861,869 | 8,625 | (202,330) | 141,715 | — | 4,672,447 |
Vanguard Total International Stock Index Fund | 10,791,314 | 1,489,364 | 572,119 | (42,995) | (1,993,392) | 148,010 | — | 9,672,172 |
Vanguard Total Stock Market Index Fund | 16,219,435 | 2,034,394 | 1,558,783 | 215,684 | (2,593,245) | 153,558 | — | 14,317,485 |
Total | 44,179,270 | 6,549,741 | 6,627,529 | 281,971 | (4,649,790) | 604,135 | — | 39,756,162 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 The fund invested in ETF Shares during the period, but sold their positions before period end.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
46
Target Retirement 2030 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Investor Shares | 40.5% |
Vanguard Total International Stock Index Fund Investor Shares | 27.4 |
Vanguard Total Bond Market II Index Fund Investor Shares | 22.6 |
Vanguard Total International Bond Index Fund Investor Shares | 9.5 |
The table reflects the fund's investments, except for short-term investments and derivatives.
47
Target Retirement 2030 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000 | ) | |
Investment Companies (100.1%) | |||
U.S. Stock Fund (40.6%) | |||
Vanguard Total Stock Market Index Fund Investor Shares | 228,660,554 | 14,343,876 | |
International Stock Fund (27.4%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 718,711,417 | 9,688,230 | |
U.S. Bond Fund (22.6%) | |||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 708,283,371 | 7,982,354 | |
International Bond Fund (9.5%) | |||
Vanguard Total International Bond Index Fund Investor Shares | 298,157,235 | 3,369,177 | |
Total Investment Companies (Cost $29,509,602) | 35,383,637 | ||
Temporary Cash Investment (0.1%) | |||
Money Market Fund (0.1%) | |||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $41,549) | 415,451 | 41,495 | |
Total Investments (100.2%) (Cost $29,551,151) | 35,425,132 | ||
Other Assets and Liabilities—Net (-0.2%)2 | (80,049 | ) | |
Net Assets (100%) | 35,345,083 |
Cost rounded to $000.
• | 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. |
2 | Cash of $3,200,000 has been segregated as initial margin for open futures contracts. |
48
Target Retirement 2030 Fund
Derivative Financial Instruments Outstanding as of Period End | |||||
Futures Contracts | |||||
($000 | ) | ||||
Value and | |||||
Number of | Unrealized | ||||
Long (Short) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation | ) | |
Long Futures Contracts | |||||
E-mini S&P 500 Index | June 2020 | 266 | 34,177 | (1,507 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
49
Target Retirement 2030 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | ||
Assets | |||
Investments in Securities, at Value—Affiliated Funds (Cost $29,551,151) | 35,425,132 | ||
Cash Collateral Pledged—Futures Contracts | 3,200 | ||
Receivables for Investment Securities Sold | 51,630 | ||
Receivables for Accrued Income | 20,166 | ||
Receivables for Capital Shares Issued | 28,250 | ||
Total Assets | 35,528,378 | ||
Liabilities | |||
Payables for Investment Securities Purchased | 124,289 | ||
Payables for Capital Shares Redeemed | 58,454 | ||
Variation Margin Payable—Futures Contracts | 552 | ||
Total Liabilities | 183,295 | ||
Net Assets | 35,345,083 | ||
At March 31, 2020, net assets consisted of: | |||
Paid-in Capital | 29,243,793 | ||
Total Distributable Earnings (Loss) | 6,101,290 | ||
Net Assets | 35,345,083 | ||
Net Assets | |||
Applicable to 1,137,524,288 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 35,345,083 | ||
Net Asset Value Per Share | $31.07 |
See accompanying Notes, which are an integral part of the Financial Statements.
50
Target Retirement 2030 Fund
Statement of Operations
Six Months Ended | ||
March 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Income Distributions Received from Affiliated Funds | 518,171 | |
Other Income | 39 | |
Net Investment Income—Note B | 518,210 | |
Realized Net Gain (Loss) | ||
Capital Gain Distributions Received from Affiliated Funds | — | |
Affiliated Issuers Sold | 95,244 | |
Futures Contracts | (2,947 | ) |
Realized Net Gain (Loss) | 92,297 | |
Change in Unrealized Appreciation (Depreciation) | ||
Affiliated Issuers | (4,502,802 | ) |
Futures Contracts | (1,507 | ) |
Change in Unrealized Appreciation (Depreciation) | (4,504,309 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,893,802 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
51
Target Retirement 2030 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||
March 31, | September 30, | |||
2020 | 2019 | |||
($000 | ) | ($000 | ) | |
Increase (Decrease) in Net Assets | ||||
Operations | ||||
Net Investment Income | 518,210 | 892,786 | ||
Realized Net Gain (Loss) | 92,297 | 1 | ||
Change in Unrealized Appreciation (Depreciation) | (4,504,309 | ) | 649,511 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,893,802 | ) | 1,542,298 | |
Distributions1 | ||||
Total Distributions | (970,908 | ) | (869,831 | ) |
Capital Share Transactions | ||||
Issued | 4,380,882 | 7,520,484 | ||
Issued in Lieu of Cash Distributions | 954,496 | 856,060 | ||
Redeemed | (4,239,596 | ) | (5,848,492 | ) |
Net Increase (Decrease) from Capital Share Transactions | 1,095,782 | 2,528,052 | ||
Total Increase (Decrease) | (3,768,928 | ) | 3,200,519 | |
Net Assets | ||||
Beginning of Period | 39,114,011 | 35,913,492 | ||
End of Period | 35,345,083 | 39,114,011 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
52
Target Retirement 2030 Fund
Financial Highlights
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||||||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 35.22 | $ | 34.74 | $ | 32.93 | $ | 29.77 | $ | 27.77 | $ | 28.95 | ||||||||||||
Investment Operations | ||||||||||||||||||||||||
Net Investment Income | .458 | 1 | .830 | 1 | .754 | 1 | .683 | 1 | .634 | .633 | ||||||||||||||
Capital Gain Distributions Received | — | — | .001 | 1 | .006 | 1 | .008 | .016 | ||||||||||||||||
Net Realized and Unrealized Gain (Loss) | ||||||||||||||||||||||||
on Investments | (3.741 | ) | .486 | 1.744 | 3.167 | 2.390 | (1.242 | ) | ||||||||||||||||
Total from Investment Operations | (3.283 | ) | 1.316 | 2.499 | 3.856 | 3.032 | (.593 | ) | ||||||||||||||||
Distributions | ||||||||||||||||||||||||
Dividends from Net Investment Income | (.867 | ) | (.767 | ) | (.670 | ) | (.576 | ) | (.597 | ) | (.558 | ) | ||||||||||||
Distributions from Realized Capital Gains | — | (.069 | ) | (.019 | ) | (.120 | ) | (.435 | ) | (.029 | ) | |||||||||||||
Total Distributions | (.867 | ) | (.836 | ) | (.689 | ) | (.696 | ) | (1.032 | ) | (.587 | ) | ||||||||||||
Net Asset Value, End of Period | $ | 31.07 | $ | 35.22 | $ | 34.74 | $ | 32.93 | $ | 29.77 | $ | 27.77 | ||||||||||||
Total Return2 | -9.69% | 4.15% | 7.65% | 13.25% | 11.15% | -2.16% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net Assets, End of Period (Millions) | $ | 35,345 | $ | 39,114 | $ | 35,913 | $ | 30,877 | $ | 24,966 | $ | 22,684 | ||||||||||||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||||||||||||||||||
Acquired Fund Fees and Expenses | 0.14% | 0.14% | 0.14% | 0.14% | 0.15% | 0.15% | ||||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 2.57% | 2.46% | 2.22% | 2.21% | 2.20% | 2.08% | ||||||||||||||||||
Portfolio Turnover Rate | 13% | 8% | 9% | 9% | 16% | 24% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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.
See accompanying Notes, which are an integral part of the Financial Statements.
53
Target Retirement 2030 Fund
Notes to Financial Statements
Vanguard 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0%of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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Target Retirement 2030 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
55
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 29,551,151 | |||
Gross Unrealized Appreciation | 7,548,094 | |||
Gross Unrealized Depreciation | (1,675,620 | ) | ||
Net Unrealized Appreciation (Depreciation) | 5,872,474 |
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, 2019, the fund had available capital losses totaling $1,479,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 123,127 | 224,037 | ||||||
Issued in Lieu of Cash Distributions | 26,122 | 27,921 | ||||||
Redeemed | (122,325 | ) | (175,095 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | 26,924 | 76,863 |
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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 | Realized | March 31, | ||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | ||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | |||||||||||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | ||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ||
Vanguard Market Liquidity Fund | 8,567 | NA1 | NA1 | (47 | ) | (54 | ) | 136 | — | 41,495 | |||||||
Vanguard Total Bond Market II Index Fund | 8,637,980 | 2,013,229 | 2,845,268 | 71,331 | 105,082 | 116,012 | — | 7,982,354 | |||||||||
Vanguard Total Bond Market ETF2 | — | 8,114 | 8,123 | 9 | — | — | — | — | |||||||||
Vanguard Total International Bond Index Fund | 3,659,942 | 512,290 | 663,660 | 3,719 | (143,114 | ) | 101,261 | — | 3,369,177 | ||||||||
Vanguard Total International Stock Index Fund | 10,715,003 | 1,407,064 | 383,090 | (20,460 | ) | (2,030,287 | ) | 147,613 | — | 9,688,230 | |||||||
Vanguard Total Stock Market Index Fund | 16,122,186 | 1,850,830 | 1,235,403 | 40,692 | (2,434,429 | ) | 153,149 | — | 14,343,876 | ||||||||
Total | 39,143,678 | 5,791,527 | 5,135,544 | 95,244 | (4,502,802 | ) | 518,171 | — | 35,425,132 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 The fund invested in ETF Shares during the period, but sold their positions before period end.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
57
Target Retirement 2035 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Investor Shares | 45.0 | % | ||
Vanguard Total International Stock Index Fund Investor Shares | 30.4 | |||
Vanguard Total Bond Market II Index Fund Investor Shares | 17.3 | |||
Vanguard Total International Bond Index Fund Investor Shares | 7.3 |
The table reflects the fund's investments, except for short-term investments and derivatives.
58
Target Retirement 2035 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||||
Value• | |||||||
Shares | ($000 | ) | |||||
Investment Companies (100.1%) | |||||||
U.S. Stock Fund (45.1%) | |||||||
Vanguard Total Stock Market Index Fund Investor Shares | 238,509,807 | 14,961,720 | |||||
International Stock Fund (30.4%) | |||||||
Vanguard Total International Stock Index Fund Investor Shares | 749,182,357 | 10,098,978 | |||||
U.S. Bond Fund (17.3%) | |||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 510,329,481 | 5,751,413 | |||||
International Bond Fund (7.3%) | |||||||
Vanguard Total International Bond Index Fund Investor Shares | 213,463,332 | 2,412,136 | |||||
Total Investment Companies (Cost $26,785,134) | 33,224,247 | ||||||
Temporary Cash Investment (0.1%) | |||||||
Money Market Fund (0.1%) | |||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $43,032) | 430,240 | 42,973 | |||||
Total Investments (100.2%) (Cost $26,828,166) | 33,267,220 | ||||||
Other Assets and Liabilities—Net (-0.2%)2 | (56,405 | ) | |||||
Net Assets (100%) | 33,210,815 |
Cost rounded to $000.
• | 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. |
2 | Cash of $3,600,000 has been segregated as initial margin for open futures contracts. |
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Target Retirement 2035 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||||||||||||||
Futures Contracts | ||||||||||||||||
($000) | ||||||||||||||||
Value and | ||||||||||||||||
Number of | Unrealized | |||||||||||||||
Long (Short) | Notional | Appreciation | ||||||||||||||
Expiration | Contracts | Amount | (Depreciation) | |||||||||||||
Long Futures Contracts | ||||||||||||||||
E-mini S&P 500 Index | June 2020 | 300 | 38,546 | 2,921 |
See accompanying Notes, which are an integral part of the Financial Statements.
60
Target Retirement 2035 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $26,828,166) | 33,267,220 |
Cash Collateral Pledged—Futures Contracts | 3,600 |
Receivables for Investment Securities Sold | 60,000 |
Receivables for Accrued Income | 14,565 |
Receivables for Capital Shares Issued | 20,768 |
Total Assets | 33,366,153 |
Liabilities | |
Payables for Investment Securities Purchased | 108,500 |
Payables for Capital Shares Redeemed | 46,215 |
Variation Margin Payable—Futures Contracts | 623 |
Total Liabilities | 155,338 |
Net Assets | 33,210,815 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 26,576,874 |
Total Distributable Earnings (Loss) | 6,633,941 |
Net Assets | 33,210,815 |
Net Assets | |
Applicable to 1,766,589,896 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 33,210,815 |
Net Asset Value Per Share | $18.80 |
See accompanying Notes, which are an integral part of the Financial Statements.
61
Target Retirement 2035 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 474,400 |
Other Income | 33 |
Net Investment Income—Note B | 474,433 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 81,026 |
Futures Contracts | (6,369) |
Realized Net Gain (Loss) | 74,657 |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (4,711,333) |
Futures Contracts | 2,921 |
Change in Unrealized Appreciation (Depreciation) | (4,708,412) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (4,159,322) |
See accompanying Notes, which are an integral part of the Financial Statements.
62
Target Retirement 2035 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 474,433 | 834,948 | |
Realized Net Gain (Loss) | 74,657 | (5,766) | |
Change in Unrealized Appreciation (Depreciation) | (4,708,412) | 378,643 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (4,159,322) | 1,207,825 | |
Distributions1 | |||
Total Distributions | (909,779) | (819,561) | |
Capital Share Transactions | |||
Issued | 3,867,932 | 6,583,434 | |
Issued in Lieu of Cash Distributions | 894,998 | 806,942 | |
Redeemed | (3,609,492) | (5,173,902) | |
Net Increase (Decrease) from Capital Share Transactions | 1,153,438 | 2,216,474 | |
Total Increase (Decrease) | (3,915,663) | 2,604,738 | |
Net Assets | |||
Beginning of Period | 37,126,478 | 34,521,740 | |
End of Period | 33,210,815 | 37,126,478 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
63
Target Retirement 2035 Fund
Financial Highlights
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||||||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||
Net Asset Value, Beginning of Period | $ 21.60 | $ 21.46 | $ 20.20 | $ 18.09 | $ 16.95 | $ 17.79 | ||||||||||||||||||
Investment Operations | ||||||||||||||||||||||||
Net Investment Income | .271 | 1 | .500 | 1 | .459 | 1 | .418 | 1 | .393 | .391 | ||||||||||||||
Capital Gain Distributions Received | — | — | .001 | 1 | .003 | 1 | .003 | .007 | ||||||||||||||||
Net Realized and Unrealized Gain (Loss) | ||||||||||||||||||||||||
on Investments | (2.547 | ) | .146 | 1.243 | 2.180 | 1.530 | (.865 | ) | ||||||||||||||||
Total from Investment Operations | (2.276 | ) | .646 | 1.703 | 2.601 | 1.926 | (.467 | ) | ||||||||||||||||
Distributions | ||||||||||||||||||||||||
Dividends from Net Investment Income | (.524 | ) | (.464 | ) | (.410 | ) | (.356 | ) | (.371 | ) | (.368 | ) | ||||||||||||
Distributions from Realized Capital Gains | — | (.042 | ) | (.033 | ) | (.135 | ) | (.415 | ) | (.005 | ) | |||||||||||||
Total Distributions | (.524 | ) | (.506 | ) | (.443 | ) | (.491 | ) | (.786 | ) | (.373 | ) | ||||||||||||
Net Asset Value, End of Period | $ 18.80 | $ 21.60 | $ 21.46 | $ 20.20 | $ 18.09 | $ 16.95 | ||||||||||||||||||
Total Return2 | -10.94% | 3.37% | 8.51% | 14.76% | 11.64% | -2.75% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net Assets, End of Period (Millions) | $ 33,211 | $ 37,126 | $ 34,522 | $ 29,798 | $ 24,531 | $ 22,800 | ||||||||||||||||||
Ratio of Total Expenses to | ||||||||||||||||||||||||
Average Net Assets | — | — | — | — | — | — | ||||||||||||||||||
Acquired Fund Fees and Expenses | 0.14% | 0.14% | 0.14% | 0.14% | 0.15% | 0.15% | ||||||||||||||||||
Ratio of Net Investment Income to | ||||||||||||||||||||||||
Average Net Assets | 2.48% | 2.42% | 2.19% | 2.22% | 2.21% | 2.07% | ||||||||||||||||||
Portfolio Turnover Rate | 11% | 7% | 8% | 9% | 14% | 23% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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.
See accompanying Notes, which are an integral part of the Financial Statements.
64
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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Target Retirement 2035 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
66
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 26,828,166 | |||
Gross Unrealized Appreciation | 8,162,074 | |||
Gross Unrealized Depreciation | (1,720,099 | ) | ||
Net Unrealized Appreciation (Depreciation) | 6,441,975 |
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, 2019, the fund had available capital losses totaling $5,779,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 177,430 | 319,514 | ||||||
Issued in Lieu of Cash Distributions | 39,637 | 43,129 | ||||||
Redeemed | (169,127 | ) | (252,750 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | 47,940 | 109,893 |
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Target Retirement 2035 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |
Vanguard Market Liquidity Fund | 9,487 | NA | 1 | NA | 1 | (38 | ) | (59 | ) | 132 | — | 42,973 | ||||
Vanguard Total Bond Market II Index Fund | 6,178,454 | 1,618,892 | 2,175,643 | 56,131 | 73,579 | 84,039 | — | 5,751,413 | ||||||||
Vanguard Total Bond Market ETF2 | — | 5,244 | 5,250 | 6 | — | — | — | — | ||||||||
Vanguard Total International Bond Index Fund | 2,693,932 | 349,495 | 529,901 | 2,623 | (104,013 | ) | 73,299 | — | 2,412,136 | |||||||
Vanguard Total International Stock Index Fund | 11,251,819 | 1,297,702 | 288,758 | (8,874 | ) | (2,152,911 | ) | 156,307 | — | 10,098,978 | ||||||
Vanguard Total Stock Market Index Fund | 17,027,238 | 1,460,298 | 1,029,065 | 31,178 | (2,527,929 | ) | 160,623 | — | 14,961,720 | |||||||
Total | 37,160,930 | 4,731,631 | 4,028,617 | 81,026 | (4,711,333 | ) | 474,400 | — | 33,267,220 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 The fund invested in ETF Shares during the period, but sold their positions before period end.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
68
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Target Retirement Funds has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each fund’s 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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed 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 considered that Vanguard has been managing investments for more than four 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 arrangements.
Investment performance
The board considered the performance of each fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue.
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.
69
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of scale
The board concluded that Vanguard’s arrangements with the Target Retirement Funds and their underlying funds ensure 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 arrangements again after a one-year period.
70
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Target Retirement Income Fund, Vanguard Target Retirement 2015 Fund, Vanguard Target Retirement 2020 Fund, Vanguard Target Retirement 2025 Fund, Vanguard Target Retirement 2030 Fund, and Vanguard Target Retirement 2035 Fund, and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the funds’ liquidity risk.
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Connect with Vanguard® > vanguard.com
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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.
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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q3082 052020 |
Semiannual Report | March 31, 2020 |
Vanguard Target Retirement Funds |
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 |
Vanguard Target Retirement 2065 Fund |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the
intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Target Retirement 2040 Fund | 3 |
Target Retirement 2045 Fund | 14 |
Target Retirement 2050 Fund | 25 |
Target Retirement 2055 Fund | 36 |
Target Retirement 2060 Fund | 47 |
Target Retirement 2065 Fund | 58 |
Trustees Approve Advisory Arrangements | 69 |
Liquidity Risk Management | 71 |
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.
1
Six Months Ended March 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
9/30/2019 | 3/31/2020 | Period | |
Based on Actual Fund Return | |||
Target Retirement 2040 Fund | $1,000.00 | $877.84 | $0.66 |
Target Retirement 2045 Fund | $1,000.00 | $865.30 | $0.70 |
Target Retirement 2050 Fund | $1,000.00 | $865.55 | $0.70 |
Target Retirement 2055 Fund | $1,000.00 | $865.39 | $0.70 |
Target Retirement 2060 Fund | $1,000.00 | $865.61 | $0.70 |
Target Retirement 2065 Fund | $1,000.00 | $864.90 | $0.70 |
Based on Hypothetical 5% Yearly Return | |||
Target Retirement 2040 Fund | $1,000.00 | $1,024.30 | $0.71 |
Target Retirement 2045 Fund | $1,000.00 | $1,024.25 | $0.76 |
Target Retirement 2050 Fund | $1,000.00 | $1,024.25 | $0.76 |
Target Retirement 2055 Fund | $1,000.00 | $1,024.25 | $0.76 |
Target Retirement 2060 Fund | $1,000.00 | $1,024.25 | $0.76 |
Target Retirement 2065 Fund | $1,000.00 | $1,024.25 | $0.76 |
The calculations are based on the acquired fund fees and expenses for the most recent six-month period. The funds’ annualized expense figures for the period are (in order as listed from top to bottom above) 0.14%, 0.15%, 0.15%, 0.15%, 0.15%, and 0.15%. The dollar amounts shown as ”Expenses Paid” are equal to the annualized average weighted expense ratio for the underlying funds multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (183/366).
2
Target Retirement 2040 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund | |
Investor Shares | 49.7% |
Vanguard Total International Stock Index | |
Fund Investor Shares | 33.2 |
Vanguard Total Bond Market II Index | |
Fund Investor Shares | 12.1 |
Vanguard Total International Bond Index | |
Fund Investor Shares | 5.0 |
The table reflects the fund's investments, except for short-term
investments and derivatives.
3
Target Retirement 2040 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($ 000 | ) | ||||||
Investment Companies (100.1%) | ||||||||
U.S. Stock Fund (49.7%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 205,946,979 | 12,919,054 | ||||||
International Stock Fund (33.3%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 640,610,403 | 8,635,428 | ||||||
U.S. Bond Fund (12.1%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 278,173,617 | 3,135,017 | ||||||
International Bond Fund (5.0%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 114,883,039 | 1,298,178 | ||||||
Total Investment Companies (Cost $21,804,266) | 25,987,677 | |||||||
Temporary Cash Investment (0.2%) | ||||||||
Money Market Fund (0.2%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $41,521) | 415,427 | 41,493 | ||||||
Total Investments (100.3%) (Cost $21,845,787) | 26,029,170 | |||||||
Other Assets and Liabilities—Net (-0.3%)2 | (65,594 | ) | ||||||
Net Assets (100%) | 25,963,576 |
Cost rounded to $000.
• 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.
2 Cash of $3,000,000 has been segregated as initial margin for open futures contracts.
4
Target Retirement 2040 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000 | ) | ||||
Value and | |||||
Number of | Unrealized | ||||
Long (Short) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation | ) | |
Long Futures Contracts | |||||
E-mini S&P 500 Index | June 2020 | 250 | 32,121 | 2,435 |
See accompanying Notes, which are an integral part of the Financial Statements.
5
Target Retirement 2040 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |
Assets | ||
Investments in Securities, at Value—Affiliated Funds (Cost $21,845,787) | 26,029,170 | |
Cash Collateral Pledged—Futures Contracts | 3,000 | |
Receivables for Investment Securities Sold | 45,000 | |
Receivables for Accrued Income | 7,992 | |
Receivables for Capital Shares Issued | 20,625 | |
Total Assets | 26,105,787 | |
Liabilities | ||
Payables for Investment Securities Purchased | 89,307 | |
Payables for Capital Shares Redeemed | 52,385 | |
Variation Margin Payable—Futures Contracts | 519 | |
Total Liabilities | 142,211 | |
Net Assets | 25,963,576 | |
At March 31, 2020, net assets consisted of: | ||
Paid-in Capital | 21,685,631 | |
Total Distributable Earnings (Loss) | 4,277,945 | |
Net Assets | 25,963,576 | |
Net Assets | ||
Applicable to 811,645,921 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 25,963,576 | |
Net Asset Value Per Share | $31.99 |
See accompanying Notes, which are an integral part of the Financial Statements.
6
Target Retirement 2040 Fund
Statement of Operations
Six Months Ended | ||
March 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Income Distributions Received from Affiliated Funds | 359,890 | |
Other Income | 21 | |
Net Investment Income—Note B | 359,911 | |
Realized Net Gain (Loss) | ||
Capital Gain Distributions Received from Affiliated Funds | — | |
Affiliated Funds Sold | 15,765 | |
Futures Contracts | (5,650 | ) |
Realized Net Gain (Loss) | 10,115 | |
Change in Unrealized Appreciation (Depreciation) | ||
Affiliated Funds | (4,048,612 | ) |
Futures Contracts | 2,435 | |
Change in Unrealized Appreciation (Depreciation) | (4,046,177 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,676,151 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Target Retirement 2040 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||
March 31, | September 30, | |||
2020 | 2019 | |||
($000 | ) | ($000 | ) | |
Increase (Decrease) in Net Assets | ||||
Operations | ||||
Net Investment Income | 359,911 | 634,780 | ||
Realized Net Gain (Loss) | 10,115 | (8,193 | ) | |
Change in Unrealized Appreciation (Depreciation) | (4,046,177 | ) | 137,697 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,676,151 | ) | 764,284 | |
Distributions1 | ||||
Total Distributions | (701,834 | ) | (599,639 | ) |
Capital Share Transactions | ||||
Issued | 3,495,283 | 5,852,726 | ||
Issued in Lieu of Cash Distributions | 690,100 | 590,157 | ||
Redeemed | (2,886,606 | ) | (4,010,068 | ) |
Net Increase (Decrease) from Capital Share Transactions | 1,298,777 | 2,432,815 | ||
Total Increase (Decrease) | (3,079,208 | ) | 2,597,460 | |
Net Assets | ||||
Beginning of Period | 29,042,784 | 26,445,324 | ||
End of Period | 25,963,576 | 29,042,784 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
8
Target Retirement 2040 Fund
Financial Highlights
Six Months | ||||||||
Ended | Year Ended September 30, | |||||||
For a Share Outstanding | March 31, | |||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $37.27 | $37.26 | $34.73 | $30.59 | $28.09 | $29.66 | ||
Investment Operations | ||||||||
Net Investment Income | .4521 | .8501 | .7861 | .7181 | .660 | .648 | ||
Capital Gain Distributions Received | — | — | .0011 | .0031 | .003 | .007 | ||
Net Realized and Unrealized Gain (Loss) on Investments | (4.841) | (.005) | 2.441 | 4.143 | 2.687 | (1.634) | ||
Total from Investment Operations | (4.389) | .845 | 3.228 | 4.864 | 3.350 | (.979) | ||
Distributions | ||||||||
Dividends from Net Investment Income | (.891) | (.779) | (.684) | (.599) | (.615) | (.574) | ||
Distributions from Realized Capital Gains | — | (.056) | (.014) | (.125) | (.235) | (.017) | ||
Total Distributions | (.891) | (.835) | (.698) | (.724) | (.850) | (.591) | ||
Net Asset Value, End of Period | $31.99 | $37.27 | $37.26 | $34.73 | $30.59 | $28.09 | ||
Total Return2 | -12.22% | 2.63% | 9.37% | 16.26% | 12.11% | -3.43% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $25,964 | $29,043 | $26,445 | $22,324 | $17,371 | $15,724 | ||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||
Acquired Fund Fees and Expenses | 0.14% | 0.14% | 0.14% | 0.15% | 0.16% | 0.16% | ||
Ratio of Net Investment Income to | ||||||||
Average Net Assets | 2.39% | 2.38% | 2.17% | 2.23% | 2.23% | 2.09% | ||
Portfolio Turnover Rate | 7% | 5% | 8% | 8% | 16% | 21% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
9
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
10
Target Retirement 2040 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
11
Target Retirement 2040 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||
($000 | ) | |
Tax Cost | 21,845,787 | |
Gross Unrealized Appreciation | 5,814,261 | |
Gross Unrealized Depreciation | (1,628,443 | ) |
Net Unrealized Appreciation (Depreciation) | 4,185,818 |
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, 2019, the fund had available capital losses totaling $9,289,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||||
March 31, 2020 | September 30, 2019 | ||||
Shares | Shares | ||||
(000 | ) | (000 | ) | ||
Issued | 92,953 | 164,515 | |||
Issued in Lieu of Cash Distributions | 17,596 | 18,379 | |||
Redeemed | (78,146 | ) | (113,431 | ) | |
Net Increase (Decrease) in Shares Outstanding | 32,403 | 69,463 |
12
Target Retirement 2040 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market | ||||||||||||||||||||||||||||||||
Liquidity Fund | 9,867 | NA | 1 | NA | 1 | (42 | ) | (29 | ) | 98 | — | 41,493 | ||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Bond Market ETF2 | — | 5,244 | 5,250 | 6 | — | — | — | — | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Bond Market II | ||||||||||||||||||||||||||||||||
Fund | 3,396,422 | 931,710 | 1,265,731 | 31,169 | 41,447 | 46,304 | — | 3,135,017 | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Bond | ||||||||||||||||||||||||||||||||
Index Fund | 1,444,631 | 218,047 | 307,284 | (2,507 | ) | (54,709 | ) | 40,845 | — | 1,298,178 | ||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Stock | ||||||||||||||||||||||||||||||||
Index Fund | 9,672,231 | 951,621 | 103,931 | (860 | ) | (1,883,633 | ) | 134,749 | — | 8,635,428 | ||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Stock Market | ||||||||||||||||||||||||||||||||
Index Fund | 14,559,106 | 1,026,241 | 502,604 | (12,001 | ) | (2,151,688 | ) | 137,894 | — | 12,919,054 | ||||||||||||||||||||||
Total | 29,082,257 | 3,132,863 | 2,184,800 | 15,765 | (4,048,612 | ) | 359,890 | — | 26,029,170 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
2 The fund invested in ETF Shares during the period, but sold their positions before period end.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
13
Target Retirement 2045 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund | ||||
Investor Shares | 54.1 | % | ||
Vanguard Total International Stock Index | ||||
Fund Investor Shares | 36.1 | |||
Vanguard Total Bond Market II Index | ||||
Fund Investor Shares | 6.9 | |||
Vanguard Total International Bond Index | ||||
Fund Investor Shares | 2.9 |
The table reflects the fund's investments, except for short-term investments and derivatives.
14
Target Retirement 2045 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000 | ) | ||||||
Investment Companies (100.0%) | ||||||||
U.S. Stock Fund (54.1%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 203,430,037 | 12,761,166 | ||||||
International Stock Fund (36.1%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 631,430,707 | 8,511,686 | ||||||
U.S. Bond Fund (6.9%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 145,595,666 | 1,640,863 | ||||||
International Bond Fund (2.9%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 60,640,274 | 685,235 | ||||||
Total Investment Companies (Cost $19,854,274) | 23,598,950 | |||||||
Temporary Cash Investment (0.1%) | ||||||||
Money Market Fund (0.1%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $32,041) | 320,503 | 32,012 | ||||||
Total Investments (100.1%) (Cost $19,886,315) | 23,630,962 | |||||||
Other Assets and Liabilities—Net (-0.1%)2 | (32,306 | ) | ||||||
Net Assets (100%) | 23,598,656 |
Cost rounded to $000.
• 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. |
2 | Cash of $2,880,000 has been segregated as initial margin for open futures contracts. |
15
Target Retirement 2045 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000 | ) | |||||||||||||||
Value and | ||||||||||||||||
Number of | Unrealized | |||||||||||||||
Long (Short | ) | Notional | Appreciation | |||||||||||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||||||||||
Long Futures Contracts | ||||||||||||||||
E-mini S&P 500 Index | June 2020 | 240 | 30,836 | 2,749 |
See accompanying Notes, which are an integral part of the Financial Statements.
16
Target Retirement 2045 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value—Affiliated Funds (Cost $19,886,315) | 23,630,962 | |||
Receivables for Accrued Income | 4,363 | |||
Receivables for Capital Shares Issued | 19,421 | |||
Cash Collateral Pledged—Futures Contracts | 2,880 | |||
Total Assets | 23,657,626 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 5,500 | |||
Payables for Capital Shares Redeemed | 52,972 | |||
Variation Margin Payable—Futures Contracts | 498 | |||
Total Liabilities | 58,970 | |||
Net Assets | 23,598,656 | |||
At March 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 19,757,502 | |||
Total Distributable Earnings (Loss) | 3,841,154 | |||
Net Assets | 23,598,656 | |||
Net Assets | ||||
Applicable to 1,192,415,319 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 23,598,656 | |||
Net Asset Value Per Share | $19.79 |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Target Retirement 2045 Fund
Statement of Operations
Six Months Ended | ||||
March 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Income Distributions Received from Affiliated Funds | 318,484 | |||
Other Income | 11 | |||
Net Investment Income—Note B | 318,495 | |||
Realized Net Gain (Loss) | ||||
Capital Gain Distributions Received from Affiliated Funds | — | |||
Affiliated Funds Sold | 27,589 | |||
Futures Contracts | (3,227 | ) | ||
Realized Net Gain (Loss) | 24,362 | |||
Change in Unrealized Appreciation (Depreciation) | ||||
Affiliated Funds | (4,060,435 | ) | ||
Futures Contracts | 2,749 | |||
Change in Unrealized Appreciation (Depreciation) | (4,057,686 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,714,829 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
18
Target Retirement 2045 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||||||
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
($000 | ) | ($000 | ) | |||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net Investment Income | 318,495 | 575,372 | ||||||
Realized Net Gain (Loss) | 24,362 | (5,828 | ) | |||||
Change in Unrealized Appreciation (Depreciation) | (4,057,686 | ) | 5,053 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,714,829 | ) | 574,597 | |||||
Distributions1 | ||||||||
Total Distributions | (636,663 | ) | (535,587 | ) | ||||
Capital Share Transactions | ||||||||
Issued | 3,124,468 | 5,288,388 | ||||||
Issued in Lieu of Cash Distributions | 626,488 | 527,209 | ||||||
Redeemed | (2,470,742 | ) | (3,514,240 | ) | ||||
Net Increase (Decrease) from Capital Share Transactions | 1,280,214 | 2,301,357 | ||||||
Total Increase (Decrease) | (3,071,278 | ) | 2,340,367 | |||||
Net Assets | ||||||||
Beginning of Period | 26,669,934 | 24,329,567 | ||||||
End of Period | 23,598,656 | 26,669,934 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Target Retirement 2045 Fund
Financial Highlights
Six Months | |||||||
Ended | Year Ended September 30, | ||||||
For a Share Outstanding | March 31, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $23.38 | $23.49 | $21.80 | $19.12 | $17.60 | $18.61 | |
Investment Operations | |||||||
Net Investment Income | .2731 | .5271 | .4921 | .4501 | .411 | .406 | |
Capital Gain Distributions Received | — | — | — | .0011 | .002 | .004 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (3.311) | (.128) | 1.636 | 2.696 | 1.692 | (1.034) | |
Total from Investment Operations | (3.038) | .399 | 2.128 | 3.147 | 2.105 | (.624) | |
Distributions | |||||||
Dividends from Net Investment Income | (.552) | (.483) | (.428) | (.375) | (.386) | (.383) | |
Distributions from Realized Capital Gains | — | (.026) | (.010) | (.092) | (.199) | (.003) | |
Total Distributions | (.552) | (.509) | (.438) | (.467) | (.585) | (.386) | |
Net Asset Value, End of Period | $19.79 | $23.38 | $23.49 | $21.80 | $19.12 | $17.60 | |
Total Return2 | -13.47% | 2.06% | 9.85% | 16.84% | 12.16% | -3.49% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $23,599 | $26,670 | $24,330 | $20,413 | $15,987 | $14,283 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | — | — | — | — | — | — | |
Acquired Fund Fees and Expenses | 0.15% | 0.15% | 0.15% | 0.15% | 0.16% | 0.16% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.30% | 2.35% | 2.16% | 2.23% | 2.43% | 2.10% | |
Portfolio Turnover Rate | 5% | 4% | 7% | 8% | 13% | 20% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
20
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
21
Target Retirement 2045 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
22
Target Retirement 2045 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 19,886,315 | |||
Gross Unrealized Appreciation | 5,479,648 | |||
Gross Unrealized Depreciation | (1,732,252 | ) | ||
Net Unrealized Appreciation (Depreciation) | 3,747,396 |
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, 2019, the fund had available capital losses totaling $8,755,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 132,618 | 236,957 | ||||||
Issued in Lieu of Cash Distributions | 25,292 | 26,255 | ||||||
Redeemed | (106,081 | ) | (158,490 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | 51,829 | 104,722 |
23
Target Retirement 2045 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market | ||||||||||||||||||||||||||||||||
Liquidity Fund | 12,586 | NA1 | NA1 | (50 | ) | (30 | ) | 101 | — | 32,012 | ||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Bond Market II | ||||||||||||||||||||||||||||||||
Index Fund | 1,907,023 | 430,532 | 733,020 | 21,005 | 15,323 | 25,456 | — | 1,640,863 | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Bond | ||||||||||||||||||||||||||||||||
Index Fund | 807,216 | 90,579 | 180,738 | 638 | (32,460 | ) | 22,693 | — | 685,235 | |||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Stock | ||||||||||||||||||||||||||||||||
Index Fund | 9,583,046 | 922,172 | 103,883 | — | (1,889,649) | 133,770 | — | 8,511,686 | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Stock Market | ||||||||||||||||||||||||||||||||
Index Fund | 14,386,873 | 811,239 | 289,323 | 5,996 | (2,153,619 | ) | 136,464 | — | 12,761,166 | |||||||||||||||||||||||
Total | 26,696,744 | 2,254,522 | 1,306,964 | 27,589 | (4,060,435 | ) | 318,484 | — | 23,630,962 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
24
Target Retirement 2050 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund | |
Investor Shares | 53.9% |
Vanguard Total International Stock Index | |
Fund Investor Shares | 36.0 |
Vanguard Total Bond Market II Index | |
Fund Investor Shares | 7.1 |
Vanguard Total International Bond Index | |
Fund Investor Shares | 3.0 |
The table reflects the fund's investments, except for short-term investments and derivatives.
25
Target Retirement 2050 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||
Value• | ||||||
Shares | ($000 | ) | ||||
Investment Companies (100.0%) | ||||||
U.S. Stock Fund (53.9%) | ||||||
Vanguard Total Stock Market Index Fund Investor Shares | 152,090,966 | 9,540,666 | ||||
International Stock Fund (36.0%) | ||||||
Vanguard Total International Stock Index Fund Investor Shares | 473,391,776 | 6,381,321 | ||||
U.S. Bond Fund (7.1%) | ||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 110,872,457 | 1,249,533 | ||||
International Bond Fund (3.0%) | ||||||
Vanguard Total International Bond Index Fund Investor Shares | 46,644,177 | 527,079 | ||||
Total Investment Companies (Cost $16,194,347) | 17,698,599 | |||||
Temporary Cash Investment (0.2%) | ||||||
Money Market Fund (0.2%) | ||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $41,130) | 411,365 | 41,087 | ||||
Total Investments (100.2%) (Cost $16,235,477) | 17,739,686 | |||||
Other Assets and Liabilities—Net (-0.2%)2 | (35,700 | ) | ||||
Net Assets (100%) | 17,703,986 |
Cost rounded to $000.
• | 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. |
2 | Cash of $3,750,000 has been segregated as initial margin for open futures contracts. |
26
Target Retirement 2050 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000 | ) | ||||||||||||||
Value and | |||||||||||||||
Number of | Unrealized | ||||||||||||||
Long (Short | ) | Notional | Appreciation | ||||||||||||
Expiration | Contracts | Amount | (Depreciation | ) | |||||||||||
Long Futures Contracts | |||||||||||||||
E-mini S&P 500 Index | June 2020 | 312 | 40,087 | 1,670 |
See accompanying Notes, which are an integral part of the Financial Statements.
27
Target Retirement 2050 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | ||
Assets | |||
Investments in Securities, at Value—Affiliated Funds (Cost $16,235,477) | 17,739,686 | ||
Cash Collateral Pledged—Futures Contracts | 3,750 | ||
Receivables for Accrued Income | 3,267 | ||
Receivables for Capital Shares Issued | 22,402 | ||
Total Assets | 17,769,105 | ||
Liabilities | |||
Payables for Investment Securities Purchased | 22,255 | ||
Payables for Capital Shares Redeemed | 42,217 | ||
Variation Margin Payable—Futures Contracts | 647 | ||
Total Liabilities | 65,119 | ||
Net Assets | 17,703,986 |
At March 31, 2020, net assets consisted of: | |||
Paid-in Capital | 16,130,694 | ||
Total Distributable Earnings (Loss) | 1,573,292 | ||
Net Assets | 17,703,986 | ||
Net Assets | |||
Applicable to 555,487,796 outstanding $.001 par value shares of | |||
beneficial interest (unlimited authorization) | 17,703,986 | ||
Net Asset Value Per Share | $31.87 |
See accompanying Notes, which are an integral part of the Financial Statements.
28
Target Retirement 2050 Fund
Statement of Operations
Six Months Ended | |||
March 31, 2020 | |||
($000 | ) | ||
Investment Income | |||
Income | |||
Income Distributions Received from Affiliated Funds | 235,315 | ||
Other Income | 10 | ||
Net Investment Income—Note B | 235,325 | ||
Realized Net Gain (Loss) | |||
Capital Gain Distributions Received from Affiliated Funds | — | ||
Affiliated Funds Sold | 16,059 | ||
Futures Contracts | (963 | ) | |
Realized Net Gain (Loss) | 15,096 | ||
Change in Unrealized Appreciation (Depreciation) | |||
Affiliated Funds | (3,024,734 | ) | |
Futures Contracts | 1,670 | ||
Change in Unrealized Appreciation (Depreciation) | (3,023,064 | ) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,772,643 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
29
Target Retirement 2050 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
March 31, | September 30, | ||||
2020 | 2019 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 235,325 | 410,082 | |||
Realized Net Gain (Loss) | 15,096 | (5,175 | ) | ||
Change in Unrealized Appreciation (Depreciation) | (3,023,064 | ) | 41,890 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,772,643 | ) | 446,797 | ||
Distributions1 | |||||
Total Distributions | (462,317 | ) | (371,271 | ) | |
Capital Share Transactions | |||||
Issued | 2,948,537 | 4,866,735 | |||
Issued in Lieu of Cash Distributions | 453,580 | 364,259 | |||
Redeemed | (1,933,635 | ) | (2,640,064 | ) | |
Net Increase (Decrease) from Capital Share Transactions | 1,468,482 | 2,590,930 | |||
Total Increase (Decrease) | (1,766,478 | ) | 2,666,456 | ||
Net Assets | |||||
Beginning of Period | 19,470,464 | 16,804,008 | |||
End of Period | 17,703,986 | 19,470,464 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
30
Target Retirement 2050 Fund
Financial Highlights
Six Months | ||||||||||||
Ended | ||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||
Net Asset Value, Beginning of Period | $37.63 | $37.80 | $35.07 | $30.63 | $27.95 | $29.53 | ||||||
Investment Operations | ||||||||||||
Net Investment Income | .440 | 1 | .851 | 1 | .794 | 1 | .727 | 1 | .636 | .623 | ||
Capital Gain Distributions Received | — | — | .001 | 1 | .002 | 1 | .003 | .006 | ||||
Net Realized and Unrealized Gain (Loss) | ||||||||||||
on Investments | (5.324 | ) | (.204 | ) | 2.629 | 4.332 | 2.714 | (1.609 | ) | |||
Total from Investment Operations | (4.884 | ) | .647 | 3.424 | 5.061 | 3.353 | (.980 | ) | ||||
Distributions | ||||||||||||
Dividends from Net Investment Income | (.876 | ) | (.789 | ) | (.684 | ) | (.587 | ) | (.585 | ) | (.596 | ) |
Distributions from Realized Capital Gains | — | (.028 | ) | (.010 | ) | (.034 | ) | (.088 | ) | (.004 | ) | |
Total Distributions | (.876 | ) | (.817 | ) | (.694 | ) | (.621 | ) | (.673 | ) | (.600 | ) |
Net Asset Value, End of Period | $31.87 | $37.63 | $37.80 | $35.07 | $30.63 | $27.95 | ||||||
Total Return2 | -13.45% | 2.07% | 9.84% | 16.84% | 12.14% | -3.46% | ||||||
Ratios/Supplemental Data | ||||||||||||
Net Assets, End of Period (Millions) | $17,704 | $19,470 | $16,804 | $13,407 | $9,634 | $7,893 | ||||||
Ratio of Total Expenses to | ||||||||||||
Average Net Assets | — | — | — | — | — | — | ||||||
Acquired Fund Fees and Expenses | 0.15% | 0.15% | 0.15% | 0.15% | 0.16% | 0.16% | ||||||
Ratio of Net Investment Income to | ||||||||||||
Average Net Assets | 2.30% | 2.36% | 2.16% | 2.24% | 2.24% | 2.11% | ||||||
Portfolio Turnover Rate | 5% | 3% | 7% | 6% | 12% | 18% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
31
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
32
Target Retirement 2050 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
33
Target Retirement 2050 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||
($000 | ) | |
Tax Cost | 16,235,477 | |
Gross Unrealized Appreciation | 2,965,773 | |
Gross Unrealized Depreciation | (1,459,894 | ) |
Net Unrealized Appreciation (Depreciation) | 1,505,879 |
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, 2019, the fund had available capital losses totaling $6,196,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||||
March 31, 2020 | September 30, 2019 | ||||
Shares | Shares | ||||
(000 | ) | (000 | ) | ||
Issued | 77,898 | 135,480 | |||
Issued in Lieu of Cash Distributions | 11,376 | 11,274 | |||
Redeemed | (51,196 | ) | (73,930 | ) | |
Net Increase (Decrease) in Shares Outstanding | 38,078 | 72,824 |
34
Target Retirement 2050 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market | ||||||||||||||||||||||||||||||||
Liquidity Fund | 14,171 | NA | 1 | NA | 1 | (33 | ) | (42 | ) | 93 | — | 41,087 | ||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Bond Market II | ||||||||||||||||||||||||||||||||
Index Fund | 1,395,754 | 375,081 | 549,011 | 13,749 | 13,960 | 18,783 | — | 1,249,533 | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Bond | ||||||||||||||||||||||||||||||||
Index Fund | 584,131 | 85,295 | 118,793 | (983 | ) | (22,571 | ) | 16,776 | — | 527,079 | ||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Stock | ||||||||||||||||||||||||||||||||
Index Fund | 6,993,878 | 874,332 | 81,356 | — | (1,405,533 | ) | 98,726 | — | 6,381,321 | |||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Stock Market | ||||||||||||||||||||||||||||||||
Index Fund | 10,504,597 | 828,523 | 185,232 | 3,326 | (1,610,548 | ) | 100,937 | — | 9,540,666 | |||||||||||||||||||||||
Total | 19,492,531 | 2,163,231 | 934,392 | 16,059 | (3,024,734 | ) | 235,315 | — | 17,739,686 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
35
Target Retirement 2055 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund | ||||
Investor Shares | 53.8 | % | ||
Vanguard Total International Stock Index | ||||
Fund Investor Shares | 36.1 | |||
Vanguard Total Bond Market II Index | ||||
Fund Investor Shares | 7.1 | |||
Vanguard Total International Bond Index | ||||
Fund Investor Shares | 3.0 |
The table reflects the fund's investments, except for short-term investments and derivatives.
36
Target Retirement 2055 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000 | ) | ||||||
Investment Companies (99.9%) | ||||||||
U.S. Stock Fund (53.8%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 82,464,364 | 5,172,990 | ||||||
International Stock Fund (36.1%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 257,416,120 | 3,469,969 | ||||||
U.S. Bond Fund (7.1%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 60,470,395 | 681,502 | ||||||
International Bond Fund (2.9%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 25,153,473 | 284,234 | ||||||
Total Investment Companies (Cost $9,801,315) | 9,608,695 | |||||||
Temporary Cash Investment (0.4%) | ||||||||
Money Market Fund (0.4%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $36,525) | 365,271 | 36,483 | ||||||
Total Investments (100.3%) (Cost $9,837,840) | 9,645,178 | |||||||
Other Assets and Liabilities—Net (-0.3%)2 | (29,964 | ) | ||||||
Net Assets (100%) | 9,615,214 |
Cost rounded to $000.
• | 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. |
2 | Cash of $3,080,000 has been segregated as initial margin for open futures contracts. |
37
Target Retirement 2055 Fund
Derivative Financial Instruments Outstanding as of Period End |
Futures Contracts |
($000 | ) | |||||||||||||||
Value and | ||||||||||||||||
Number of | Unrealized | |||||||||||||||
Long (Short | ) | Notional | Appreciation | |||||||||||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||||||||||
Long Futures Contracts | ||||||||||||||||
E-mini S&P 500 Index | June 2020 | 326 | 41,886 | 2,459 |
See accompanying Notes, which are an integral part of the Financial Statements.
38
Target Retirement 2055 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value—Affiliated Issuers (Cost $9,837,840) | 9,645,178 | |||
Cash | 280 | |||
Receivables for Accrued Income | 1,781 | |||
Receivables for Capital Shares Issued | 12,513 | |||
Cash Collateral Pledged—Futures Contracts | 3,080 | |||
Total Assets | 9,662,832 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 5,889 | |||
Payables for Capital Shares Redeemed | 41,053 | |||
Variation Margin Payable—Futures Contracts | 676 | |||
Total Liabilities | 47,618 | |||
Net Assets | 9,615,214 | |||
At March 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 9,771,085 | |||
Total Distributable Earnings (Loss) | (155,871 | ) | ||
Net Assets | 9,615,214 | |||
Net Assets | ||||
Applicable to 277,865,647 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,615,214 | |||
Net Asset Value Per Share | $34.60 |
See accompanying Notes, which are an integral part of the Financial Statements.
39
Target Retirement 2055 Fund
Statement of Operations
Six Months Ended | ||||
March 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Income Distributions Received from Affiliated Funds | 125,731 | |||
Other Income | 5 | |||
Net Investment Income—Note B | 125,736 | |||
Realized Net Gain (Loss) | ||||
Capital Gain Distributions Received from Affiliated Funds | — | |||
Affiliated Funds Sold | 5,144 | |||
Futures Contracts | (1,323 | ) | ||
Realized Net Gain (Loss) | 3,821 | |||
Change in Unrealized Appreciation (Depreciation) | ||||
Affiliated Funds | (1,644,956 | ) | ||
Futures Contracts | 2,459 | |||
Change in Unrealized Appreciation (Depreciation) | (1,642,497 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,512,940 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
40
Target Retirement 2055 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||||||
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
($000 | ) | ($000 | ) | |||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net Investment Income | 125,736 | 207,163 | ||||||
Realized Net Gain (Loss) | 3,821 | 432 | ||||||
Change in Unrealized Appreciation (Depreciation) | (1,642,497 | ) | 55,011 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,512,940 | ) | 262,606 | |||||
Distributions1 | ||||||||
Total Distributions | (240,555 | ) | (169,592 | ) | ||||
Capital Share Transactions | ||||||||
Issued | 2,015,513 | 3,278,128 | ||||||
Issued in Lieu of Cash Distributions | 236,321 | 166,487 | ||||||
Redeemed | (1,085,162 | ) | (1,346,248 | ) | ||||
Net Increase (Decrease) from Capital Share Transactions | 1,166,672 | 2,098,367 | ||||||
Total Increase (Decrease) | (586,823 | ) | 2,191,381 | |||||
Net Assets | ||||||||
Beginning of Period | 10,202,037 | 8,010,656 | ||||||
End of Period | 9,615,214 | 10,202,037 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
41
Target Retirement 2055 Fund
Financial Highlights
Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | ||||||||||||||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||
Net Asset Value, Beginning of Period | $40.84 | $40.95 | $37.98 | $33.15 | $30.14 | $31.80 | ||||||||||||||||||
Investment Operations | ||||||||||||||||||||||||
Net Investment Income | .479 | 1 | .929 | 1 | .868 | 1 | .796 | 1 | .642 | .631 | ||||||||||||||
Capital Gain Distributions Received | — | — | .0011 | .0021 | .003 | .005 | ||||||||||||||||||
Net Realized and Unrealized Gain (Loss) on Investments | (5.790 | ) | (.209 | ) | 2.819 | 4.688 | 2.974 | (1.736 | ) | |||||||||||||||
Total from Investment Operations | (5.311 | ) | .720 | 3.688 | 5.486 | 3.619 | (1.100 | ) | ||||||||||||||||
Distributions | ||||||||||||||||||||||||
Dividends from Net Investment Income | (.929 | ) | (.830 | ) | (.718 | ) | (.654 | ) | (.593 | ) | (.554 | ) | ||||||||||||
Distributions from Realized Capital Gains | — | — | — | (.002 | ) | (.016 | ) | (.006 | ) | |||||||||||||||
Total Distributions | (.929 | ) | (.830 | ) | (.718 | ) | (.656 | ) | (.609 | ) | (.560 | ) | ||||||||||||
Net Asset Value, End of Period | $34.60 | $40.84 | $40.95 | $37.98 | $33.15 | $30.14 | ||||||||||||||||||
Total Return2 | -13.46% | 2.09% | 9.79% | 16.86% | 12.13% | -3.58% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net Assets, End of Period (Millions) | $9,615 | $10,202 | $8,011 | $5,600 | $3,399 | $2,279 | ||||||||||||||||||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||||||||||||||||||
Acquired Fund Fees and Expenses | 0.15% | 0.15% | 0.15% | 0.15% | 0.16% | 0.16% | ||||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 2.31% | 2.37% | 2.18% | 2.26% | 2.27% | 2.17% | ||||||||||||||||||
Portfolio Turnover Rate | 4% | 3% | 5% | 5% | 8% | 18% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio 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. |
See accompanying Notes, which are an integral part of the Financial Statements.
42
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
43
Target Retirement 2055 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
44
Target Retirement 2055 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 9,837,840 | |||
Gross Unrealized Appreciation | 761,913 | |||
Gross Unrealized Depreciation | (952,116 | ) | ||
Net Unrealized Appreciation (Depreciation) | (190,203 | ) |
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, 2019, the fund had available capital losses totaling $1,384,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 49,014 | 84,041 | ||||||
Issued in Lieu of Cash Distributions | 5,459 | 4,747 | ||||||
Redeemed | (26,383 | ) | (34,610 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | 28,090 | 54,178 |
45
Target Retirement 2055 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market | ||||||||||||||||||||||||||||||||
Liquidity Fund | 13,725 | NA | 1 | NA | 1 | (11 | ) | (41 | ) | 76 | — | 36,483 | ||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Bond ll Index Fund | 731,996 | 226,280 | 291,718 | 5,048 | 9,896 | 10,028 | — | 681,502 | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Bond | ||||||||||||||||||||||||||||||||
Index Fund | 301,749 | 51,567 | 56,778 | (767 | ) | (11,537 | ) | 8,875 | — | 284,234 | ||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Stock | ||||||||||||||||||||||||||||||||
Index Fund | 3,658,733 | 623,314 | 43,828 | — | (768,250 | ) | 52,618 | — | 3,469,969 | |||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Stock Market | ||||||||||||||||||||||||||||||||
Index Fund | 5,503,625 | 626,034 | 82,519 | 874 | (875,024 | ) | 54,134 | — | 5,172,990 | |||||||||||||||||||||||
Total | 10,209,828 | 1,527,195 | 474,843 | 5,144 | (1,644,956 | ) | 125,731 | — | 9,645,178 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
46
Target Retirement 2060 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund | ||||
Investor Shares | 53.6 | % | ||
Vanguard Total International Stock Index | ||||
Fund Investor Shares | 36.4 | |||
Vanguard Total Bond Market II Index | ||||
Fund Investor Shares | 7.0 | |||
Vanguard Total International Bond Index | ||||
Fund Investor Shares | 3.0 |
The table reflects the fund's investments, except for short-term investments and derivatives.
47
Target Retirement 2060 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000 | ) | ||||||
Investment Companies (99.9%) | ||||||||
U.S. Stock Fund (53.5%) | ||||||||
Vanguard Total Stock Market Index Fund Investor Shares | 37,143,090 | 2,329,986 | ||||||
International Stock Fund (36.4%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 117,385,620 | 1,582,358 | ||||||
U.S. Bond Fund (7.0%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 27,196,751 | 306,507 | ||||||
International Bond Fund (3.0%) | ||||||||
Vanguard Total International Bond Index Fund Investor Shares | 11,596,531 | 131,041 | ||||||
Total Investment Companies (Cost $4,589,821) | 4,349,892 | |||||||
Temporary Cash Investment (0.5%) | ||||||||
Money Market Fund (0.5%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $20,397) | 204,093 | 20,385 | ||||||
Total Investments (100.4%) (Cost $4,610,218) | 4,370,277 | |||||||
Other Assets and Liabilities—Net (-0.4%)2 | (18,003 | ) | ||||||
Net Assets (100%) | 4,352,274 |
Cost rounded to $000.
• | 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. |
2 | Cash of $1,820,000 has been segregated as initial margin for open futures contracts. |
48
Target Retirement 2060 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000 | ) | |||||||||
Value and | ||||||||||
Number of | Unrealized | |||||||||
Long (Short | ) | Notional | Appreciation | |||||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||||
Long Futures Contracts | ||||||||||
E-mini S&P 500 Index | June 2020 | 151 | 19,401 | 1,534 |
See accompanying Notes, which are an integral part of the Financial Statements.
49
Target Retirement 2060 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |
Assets | ||
Investments in Securities, at Value—Affiliated Funds (Cost $4,610,218) | 4,370,277 | |
Cash | 52 | |
Cash Collateral Pledged—Futures Contracts | 1,820 | |
Receivables for Accrued Income | 798 | |
Receivables for Capital Shares Issued | 10,163 | |
Total Assets | 4,383,110 | |
Liabilities | ||
Payables for Investment Securities Purchased | 26,772 | |
Payables for Capital Shares Redeemed | 3,698 | |
Variation Margin Payable—Futures Contracts | 366 | |
Total Liabilities | 30,836 | |
Net Assets | 4,352,274 | |
At March 31, 2020, net assets consisted of: | ||
Paid-in Capital | 4,576,006 | |
Total Distributable Earnings (Loss) | (223,732 | ) |
Net Assets | 4,352,274 | |
Net Assets | ||
Applicable to 142,342,457 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 4,352,274 | |
Net Asset Value Per Share | $30.58 |
See accompanying Notes, which are an integral part of the Financial Statements.
50
Target Retirement 2060 Fund
Statement of Operations
Six Months Ended | ||
March 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Income Distributions Received from Affiliated Funds | 55,048 | |
Other Income | 2 | |
Net Investment Income—Note B | 55,050 | |
Realized Net Gain (Loss) | ||
Capital Gain Distributions Received from Affiliated Funds | — | |
Affiliated Funds Sold | 1,718 | |
Futures Contracts | (780 | ) |
Realized Net Gain (Loss) | 938 | |
Change in Unrealized Appreciation (Depreciation) | ||
Affiliated Funds | (743,278 | ) |
Futures Contracts | 1,534 | |
Change in Unrealized Appreciation (Depreciation) | (741,744 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (685,756 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
51
Target Retirement 2060 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
March 31, | September 30, | ||||
2020 | 2019 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 55,050 | 86,239 | |||
Realized Net Gain (Loss) | 938 | (656 | ) | ||
Change in Unrealized Appreciation (Depreciation) | (741,744 | ) | 29,171 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (685,756 | ) | 114,754 | ||
Distributions1 | |||||
Total Distributions | (102,334 | ) | (68,127 | ) | |
Capital Share Transactions | |||||
Issued | 1,177,994 | 1,629,071 | |||
Issued in Lieu of Cash Distributions | 99,595 | 66,263 | |||
Redeemed | (495,936 | ) | (622,889 | ) | |
Net Increase (Decrease) from Capital Share Transactions | 781,653 | 1,072,445 | |||
Total Increase (Decrease) | (6,437 | ) | 1,119,072 | ||
Net Assets | |||||
Beginning of Period | 4,358,711 | 3,239,639 | |||
End of Period | 4,352,274 | 4,358,711 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
52
Target Retirement 2060 Fund
Financial Highlights
Six Months | ||||||||
Ended | Year Ended September 30, | |||||||
For a Share Outstanding | March 31, | |||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $36.07 | $36.16 | $33.51 | $29.25 | $26.58 | $28.03 | ||
Investment Operations | ||||||||
Net Investment Income | .4241 | .8221 | .7681 | .7081 | .555 | .54 | 0 | |
Capital Gain Distributions Received | — | — | — | .0021 | .003 | .00 | 4 | |
Net Realized and Unrealized Gain (Loss) on Investments | (5.110) | (.192) | 2.495 | 4.126 | 2.635 | (1.52 | 3) | |
Total from Investment Operations | (4.686) | .630 | 3.263 | 4.836 | 3.193 | (.97 | 9) | |
Distributions | ||||||||
Dividends from Net Investment Income | (.804) | (.717) | (.613) | (.574) | (.503) | (.46 | 4) | |
Distributions from Realized Capital Gains | — | (.003) | — | (.002) | (.020) | (.00 | 7) | |
Total Distributions | (.804) | (.720) | (.613) | (.576) | (.523) | (.47 | 1) | |
Net Asset Value, End of Period | $30.58 | $36.07 | $36.16 | $33.51 | $29.25 | $26.58 | ||
Total Return2 | -13.44% | 2.07% | 9.81% | 16.84% | 12.13% | -3.61% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $4,352 | $4,359 | $3,240 | $2,081 | $1,143 | $733 | ||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||
Acquired Fund Fees and Expenses | 0.15% | 0.15% | 0.15% | 0.15% | 0.16% | 0.16% | ||
Ratio of Net Investment Income to Average Net Assets | 2.31% | 2.37% | 2.19% | 2.28% | 2.28% | 2.19% | ||
Portfolio Turnover Rate | 4% | 2% | 3% | 4% | 6% | 21% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. | |
2 | Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees. |
See accompanying Notes, which are an integral part of the Financial Statements.
53
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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
54
Target Retirement 2060 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
55
Target Retirement 2060 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |||
($000 | ) | ||
Tax Cost | 4,610,218 | ||
Gross Unrealized Appreciation | 242,734 | ||
Gross Unrealized Depreciation | (481,141 | ) | |
Net Unrealized Appreciation (Depreciation) | (238,407 | ) |
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, 2019, the fund had available capital losses totaling $656,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||
March 31, 2020 | September 30, 2019 | |||||
Shares | Shares | |||||
(000 | ) | (000 | ) | |||
Issued | 32,625 | 47,218 | ||||
Issued in Lieu of Cash Distributions | 2,603 | 2,140 | ||||
Redeemed | (13,712 | ) | (18,120 | ) | ||
Net Increase (Decrease) in Shares Outstanding | 21,516 | 31,238 |
56
Target Retirement 2060 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |
Vanguard Market | ||||||||||||||||
Liquidity Fund | 6,033 | NA1 | NA1 | (11 | ) | (12 | ) | 37 | — | 20,385 | ||||||
Vanguard Total | ||||||||||||||||
Bond Market II | ||||||||||||||||
Index Fund | 312,722 | 114,637 | 127,529 | 2,000 | 4,677 | 4,386 | — | 306,507 | ||||||||
Vanguard Total | ||||||||||||||||
International Bond | ||||||||||||||||
Index Fund | 127,829 | 29,593 | 20,935 | (432 | ) | (5,014 | ) | 3,837 | — | 131,041 | ||||||
Vanguard Total | ||||||||||||||||
International Stock | ||||||||||||||||
Index Fund | 1,561,857 | 378,217 | 10,564 | — | (347,152 | ) | 22,925 | — | 1,582,358 | |||||||
Vanguard Total | ||||||||||||||||
Stock Market | ||||||||||||||||
Index Fund | 2,355,656 | 382,864 | 12,918 | 161 | (395,777 | ) | 23,863 | — | 2,329,986 | |||||||
Total | 4,364,097 | 905,311 | 171,946 | 1,718 | (743,278 | ) | 55,048 | — | 4,370,277 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
57
Target Retirement 2065 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund | |
Investor Shares | 53.7% |
Vanguard Total International Stock Index | |
Fund Investor Shares | 36.3 |
Vanguard Total Bond Market II Index | |
Fund Investor Shares | 7.0 |
Vanguard Total International Bond Index | |
Fund Investor Shares | 3.0 |
The table reflects the fund's investments, except for short-term investments and derivatives.
58
Target Retirement 2065 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000 | ) | |
Investment Companies (100.6%) | |||
U.S. Stock Fund (54.0%) | |||
Vanguard Total Stock Market Index Fund Investor Shares | 4,722,697 | 296,255 | |
International Stock Fund (36.5%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 14,828,090 | 199,883 | |
U.S. Bond Fund (7.1%) | |||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 3,434,349 | 38,705 | |
International Bond Fund (3.0%) | |||
Vanguard Total International Bond Index Fund Investor Shares | 1,464,747 | 16,552 | |
Total Investment Companies (Cost $631,003) | 551,395 | ||
Temporary Cash Investment (0.0%) | |||
Money Market Fund (0.0%) | |||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $2) | 23 | 2 | |
Total Investments (100.6%) (Cost $631,005) | 551,397 | ||
Other Assets and Liabilities—Net (-0.6%)2 | (3,093 | ) | |
Net Assets (100%) | 548,304 |
Cost rounded to $000.
• 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. |
2 | Cash of $50,000 has been segregated as initial margin for open futures contracts. |
59
Target Retirement 2065 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000) | ||||||
Value and | ||||||
Number of | Unrealized | |||||
Long (Short | ) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation | ) | ||
Long Futures Contracts | ||||||
E-mini S&P 500 Index | June 2020 | 4 | 514 | (23 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
60
Target Retirement 2065 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |
Assets | ||
Investments in Securities, at Value—Affiliated Funds (Cost $631,005) | 551,397 | |
Cash Collateral Pledged—Futures Contracts | 50 | |
Receivables for Accrued Income | 97 | |
Receivables for Capital Shares Issued | 2,766 | |
Total Assets | 554,310 | |
Liabilities | ||
Due to Custodian | 694 | |
Payables for Investment Securities Purchased | 3,890 | |
Payables for Capital Shares Redeemed | 1,413 | |
Variation Margin Payable—Futures Contracts | 9 | |
Total Liabilities | 6,006 | |
Net Assets | 548,304 | |
At March 31, 2020, net assets consisted of: | ||
Paid-in Capital | 626,174 | |
Total Distributable Earnings (Loss) | (77,870 | ) |
Net Assets | 548,304 | |
Net Assets | ||
Applicable to 28,467,270 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 548,304 | |
Net Asset Value Per Share | $19.26 |
See accompanying Notes, which are an integral part of the Financial Statements.
61
Target Retirement 2065 Fund
Statement of Operations
Six Months Ended | ||
March 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Income Distributions Received from Affiliated Funds | 6,067 | |
Other Income | 6 | |
Net Investment Income—Note B | 6,073 | |
Realized Net Gain (Loss) | ||
Capital Gain Distributions Received from Affiliated Funds | — | |
Affiliated Funds Sold | 78 | |
Futures Contracts | (116 | ) |
Realized Net Gain (Loss) | (38 | ) |
Change in Unrealized Appreciation (Depreciation) | ||
Affiliated Funds | (91,783 | ) |
Futures Contracts | (23 | ) |
Change in Unrealized Appreciation (Depreciation) | (91,806 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (85,771 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
62
Target Retirement 2065 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
March 31, | September 30, | ||||
2020 | 2019 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 6,073 | 7,243 | |||
Realized Net Gain (Loss) | (38 | ) | — | ||
Change in Unrealized Appreciation (Depreciation) | (91,806 | ) | 7,079 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (85,771 | ) | 14,322 | ||
Distributions1 | |||||
Total Distributions | (9,765 | ) | (3,976 | ) | |
Capital Share Transactions | |||||
Issued | 306,589 | 295,477 | |||
Issued in Lieu of Cash Distributions | 9,419 | 3,802 | |||
Redeemed | (92,221 | ) | (91,083 | ) | |
Net Increase (Decrease) from Capital Share Transactions | 223,787 | 208,196 | |||
Total Increase (Decrease) | 128,251 | 218,542 | |||
Net Assets | |||||
Beginning of Period | 420,053 | 201,511 | |||
End of Period | 548,304 | 420,053 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
63
Target Retirement 2065 Fund
Financial Highlights
Six Months | July 12, | ||||||||
Ended | Year Ended | 20171 to | |||||||
March 31, | September 30, | Sept. 30, | |||||||
For a Share Outstanding Throughout Each Period | 2020 | 2019 | 2018 | 2017 | |||||
Net Asset Value, Beginning of Period | $22.69 | $22.64 | $20.79 | $20.00 | |||||
Investment Operations | |||||||||
Net Investment Income2 | .273 | .529 | .524 | .150 | |||||
Capital Gain Distributions Received2 | — | — | — | — | |||||
Net Realized and Unrealized Gain (Loss) on Investments | (3.246 | ) | (.116 | ) | 1.496 | .640 | |||
Total from Investment Operations | (2.973 | ) | .413 | 2.020 | .790 | ||||
Distributions | |||||||||
Dividends from Net Investment Income | (.457 | ) | (.363 | ) | (.170 | ) | — | ||
Distributions from Realized Capital Gains | — | .000 | 3 | — | — | ||||
Total Distributions | (.457 | ) | (.363 | ) | (.170 | ) | — | ||
Net Asset Value, End of Period | $19.26 | $22.69 | $22.64 | $20.79 | |||||
Total Return4 | -13.51% | 2.09% | 9.75% | 3.95% | |||||
Ratios/Supplemental Data | |||||||||
Net Assets, End of Period (Millions) | $548 | $420 | $202 | $19 | |||||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | |||||
Acquired Fund Fees and Expenses | 0.15% | 0.15% | 0.15% | .15%5 | |||||
Ratio of Net Investment Income to Average Net Assets | 2.37% | 2.42% | 2.37% | 3.30%5 | |||||
Portfolio Turnover Rate | 2% | 2% | 1% | 29% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Distribution was less than $.001 per share. |
4 | 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. |
5 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
64
Target Retirement 2065 Fund
Notes to Financial Statements
Vanguard Target Retirement 2065 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
65
Target Retirement 2065 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
66
Target Retirement 2065 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||
($000 | ) | |
Tax Cost | 631,005 | |
Gross Unrealized Appreciation | 5,065 | |
Gross Unrealized Depreciation | (84,696 | ) |
Net Unrealized Appreciation (Depreciation) | (79,631 | ) |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||
March 31, 2020 | September 30, 2019 | |||
Shares | Shares | |||
(000 | ) | (000 | ) | |
Issued | 13,702 | 13,620 | ||
Issued in Lieu of Cash Distributions | 391 | 195 | ||
Redeemed | (4,136 | ) | (4,206 | ) |
Net Increase (Decrease) in Shares Outstanding | 9,957 | 9,609 |
67
Target Retirement 2065 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market | ||||||||||||||||||||||||||||||||
Liquidity Fund | 351 | NA1 | NA1 | (1 | ) | — | 7 | — | 2 | |||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Bond Market II | ||||||||||||||||||||||||||||||||
Index Fund | 29,564 | 17,701 | 9,339 | 107 | 672 | 464 | — | 38,705 | ||||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Bond | ||||||||||||||||||||||||||||||||
Index Fund | 12,616 | 7,391 | 2,866 | (28 | ) | (561 | ) | 421 | — | 16,552 | ||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
International Stock | ||||||||||||||||||||||||||||||||
Index Fund | 150,631 | 92,067 | 445 | — | (42,370 | ) | 2,468 | — | 199,883 | |||||||||||||||||||||||
Vanguard Total | ||||||||||||||||||||||||||||||||
Stock Market | ||||||||||||||||||||||||||||||||
Index Fund | 227,011 | 118,768 | — | — | (49,524 | ) | 2,707 | — | 296,255 | |||||||||||||||||||||||
Total | 420,173 | 235,927 | 12,650 | 78 | (91,783 | ) | 6,067 | — | 551,397 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
68
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Target Retirement Funds has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each fund’s 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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed 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 considered that Vanguard has been managing investments for more than four 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 arrangements.
Investment performance
The board considered the performance of each fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue.
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.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
69
The benefit of economies of scale
The board concluded that Vanguard’s arrangements with the Target Retirement Funds and their underlying funds ensure 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 arrangements again after a one-year period.
70
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Target Retirement 2040 Fund, Target Retirement 2045 Fund, Target Retirement 2050 Fund, Target Retirement 2055 Fund, Target Retirement 2060 Fund, and Target Retirement 2065 Fund, and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the funds’ liquidity risk.
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Connect with Vanguard® > vanguard.com
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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.
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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q3082B 052020 |
Semiannual Report | March 31, 2020 | |
Vanguard Institutional Target Retirement Funds | |
Vanguard Institutional Target Retirement Income Fund | |
Vanguard Institutional Target Retirement 2015 Fund | |
Vanguard Institutional Target Retirement 2020 Fund | |
Vanguard Institutional Target Retirement 2025 Fund | |
Vanguard Institutional Target Retirement 2030 Fund | |
Vanguard Institutional Target Retirement 2035 Fund | |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. | |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents
About Your Fund’s Expenses | 1 |
Institutional Target Retirement Income Fund | 3 |
Institutional Target Retirement 2015 Fund | 14 |
Institutional Target Retirement 2020 Fund | 25 |
Institutional Target Retirement 2025 Fund | 36 |
Institutional Target Retirement 2030 Fund | 47 |
Institutional Target Retirement 2035 Fund | 58 |
Trustees Approve Advisory Arrangements | 69 |
Liquidity Risk Management | 71 |
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 Institutional 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 Institutional 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.
1
Six Months Ended March 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
9/30/2019 | 3/31/2020 | Period | |
Based on Actual Fund Return | |||
Institutional Target Retirement Income Fund | $1,000.00 | $966.27 | $0.44 |
Institutional Target Retirement 2015 Fund | $1,000.00 | $956.37 | $0.44 |
Institutional Target Retirement 2020 Fund | $1,000.00 | $932.51 | $0.43 |
Institutional Target Retirement 2025 Fund | $1,000.00 | $916.33 | $0.43 |
Institutional Target Retirement 2030 Fund | $1,000.00 | $903.58 | $0.43 |
Institutional Target Retirement 2035 Fund | $1,000.00 | $890.71 | $0.43 |
Based on Hypothetical 5% Yearly Return | |||
Institutional Target Retirement Income Fund | $1,000.00 | $1,024.55 | $0.46 |
Institutional Target Retirement 2015 Fund | $1,000.00 | $1,024.55 | $0.46 |
Institutional Target Retirement 2020 Fund | $1,000.00 | $1,024.55 | $0.46 |
Institutional Target Retirement 2025 Fund | $1,000.00 | $1,024.55 | $0.46 |
Institutional Target Retirement 2030 Fund | $1,000.00 | $1,024.55 | $0.46 |
Institutional Target Retirement 2035 Fund | $1,000.00 | $1,024.55 | $0.46 |
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) 0.09%, 0.09%, 0.09%, 0.09%, 0.09%, and 0.09%. 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 (183/366).
2
Institutional Target Retirement Income Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Bond Market II Index Fund Investor Shares | 37.5% |
Vanguard Total Stock Market Index Fund Institutional Shares | 17.9 |
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 16.5 |
Vanguard Total International Bond Index Fund Admiral Shares | 15.8 |
Vanguard Total International Stock Index Fund Investor Shares | 12.3 |
The table reflects the fund's investments, except for short-term investments and derivatives.
3
Institutional Target Retirement Income Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000) | ||
Investment Companies (99.8%) | |||
U.S. Stock Fund (17.9%) | |||
Vanguard Total Stock Market Index Fund Institutional Shares | 17,568,088 | 1,102,573 | |
International Stock Fund (12.2%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 56,073,467 | 755,871 | |
U.S. Bond Funds (53.9%) | |||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 205,257,728 | 2,313,254 |
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 41,513,004 | 1,017,484 | |
3,330,738 | |||
International Bond Fund (15.8%) | |||
Vanguard Total International Bond Index Fund Admiral Shares | 43,167,207 | 975,579 | |
Total Investment Companies (Cost $5,935,805) | 6,164,761 | ||
Temporary Cash Investment (0.0%) | |||
Money Market Fund (0.0%) | |||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $1,440) | 14,406 | 1,439 |
Total Investments (99.8%) (Cost $5,937,245) | 6,166,200 | ||
Other Assets and Liabilities—Net (0.2%)2 | 9,268 | ||
Net Assets (100%) | 6,175,468 |
Cost rounded to $000.
• | 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. |
2 | Cash of $603,000 has been segregated as initial margin for open futures contracts. |
4
Institutional Target Retirement Income Fund
Derivative Financial Instruments Outstanding as of Period End | |||||
Futures Contracts | |||||
($000) | |||||
Value and | |||||
Number of | Unrealized | ||||
Long (Short) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation) | ||
Long Futures Contracts | |||||
E-mini S&P 500 Index | June 2020 | 50 | 6,424 | 487 |
See accompanying Notes, which are an integral part of the Financial Statements.
5
Institutional Target Retirement Income Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $5,937,245) | 6,166,200 |
Cash Collateral Pledged—Futures Contracts | 603 |
Receivables for Investment Securities Sold | 11,559 |
Receivables for Accrued Income | 5,807 |
Receivables for Capital Shares Issued | 6,128 |
Total Assets | 6,190,297 |
Liabilities | |
Payables for Investment Securities Purchased | 5,807 |
Payables for Capital Shares Redeemed | 8,918 |
Variation Margin Payable—Futures Contracts | 104 |
Total Liabilities | 14,829 |
Net Assets | 6,175,468 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 5,933,614 |
Total Distributable Earnings (Loss) | 241,854 |
Net Assets | 6,175,468 |
Net Assets | |
Applicable to 291,092,674 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 6,175,468 |
Net Asset Value Per Share | $21.21 |
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement Income Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 88,574 |
Other Income | 2 |
Net Investment Income—Note B | 88,576 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 12,599 |
Futures Contracts | 273 |
Realized Net Gain (Loss) | 12,872 |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (326,594) |
Futures Contracts | 487 |
Change in Unrealized Appreciation (Depreciation) | (326,107) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (224,659) |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Institutional Target Retirement Income Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 88,576 | 152,437 | |
Realized Net Gain (Loss) | 12,872 | 3,112 | |
Change in Unrealized Appreciation (Depreciation) | (326,107) | 247,509 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (224,659) | 403,058 | |
Distributions1 | |||
Total Distributions | (92,248) | (162,258) | |
Capital Share Transactions | |||
Issued | 738,962 | 1,303,756 | |
Issued in Lieu of Cash Distributions | 91,652 | 161,167 | |
Redeemed | (680,117) | (1,024,418) | |
Net Increase (Decrease) from Capital Share Transactions | 150,497 | 440,505 | |
Total Increase (Decrease) | (166,410) | 681,305 | |
Net Assets | |||
Beginning of Period | 6,341,878 | 5,660,573 | |
End of Period | 6,175,468 | 6,341,878 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement Income Fund
Financial Highlights
Six Months | June 26, | ||||||
Ended | Year Ended September 30, | 20151 to | |||||
For a Share Outstanding | March 31, | Sept. 30, | |||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $22.27 | $21.45 | $21.27 | $20.60 | $19.46 | $20.00 | |
Investment Operations | |||||||
Net Investment Income | .3082 | .5522 | .5372 | .4042 | .341 | .1112 | |
Capital Gain Distributions Received | — | — | .0022 | .0062 | .010 | — | |
Net Realized and Unrealized Gain (Loss) on Investments | (1.045) | .860 | .167 | .667 | 1.127 | (.599) | |
Total from Investment Operations | (.737) | 1.412 | .706 | 1.077 | 1.478 | (.488) | |
Distributions | |||||||
Dividends from Net Investment Income | (.312) | (.569) | (.522) | (.398) | (.337) | (.052) | |
Distributions from Realized Capital Gains | (.011) | (.023) | (.004) | (.009) | (.001) | — | |
Total Distributions | (.323) | (.592) | (.526) | (.407) | (.338) | (.052) | |
Net Asset Value, End of Period | $21.21 | $22.27 | $21.45 | $21.27 | $20.60 | $19.46 | |
Total Return | -3.37% | 6.73% | 3.34% | 5.30% | 7.66% | -2.44% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $6,175 | $6,342 | $5,661 | $5,039 | $2,031 | $843 | |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.09% | 0.10%3 | |
Ratio of Net Investment Income to Average Net Assets | 2.74% | 2.56% | 2.50% | 1.94% | 1.83% | 1.99%3 | |
Portfolio Turnover Rate | 13% | 12% | 13% | 7% | 7% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement Income Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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Institutional Target Retirement Income Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
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Institutional Target Retirement Income Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 5,937,245 |
Gross Unrealized Appreciation | 344,307 |
Gross Unrealized Depreciation | (114,865) |
Net Unrealized Appreciation (Depreciation) | 229,442 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 32,896 | 60,874 | |
Issued in Lieu of Cash Distributions | 4,118 | 7,555 | |
Redeemed | (30,631) | (47,640) | |
Net Increase (Decrease) in Shares Outstanding | 6,383 | 20,789 |
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Institutional Target Retirement Income Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 31% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 3,648 | NA1 | NA1 | (21) | (1) | 27 | — | 1,439 |
Vanguard Short-Term Inflation-Protected Securities Index Fund | 1,059,539 | 74,834 | 111,857 | (1,871) | (3,161) | 7,701 | — | 1,017,484 |
Vanguard Total Bond Market II Index Fund | 2,366,497 | 296,870 | 395,589 | 8,353 | 37,123 | 30,903 | — | 2,313,254 |
Vanguard Total International Bond Index Fund | 1,011,957 | 99,763 | 98,483 | 1,157 | (38,815) | 27,579 | — | 975,579 |
Vanguard Total International Stock Index Fund | 760,495 | 188,795 | 47,230 | (3,640) | (142,549) | 10,362 | — | 755,871 |
Vanguard Total Stock Market Index Fund | 1,144,972 | 326,875 | 198,704 | 8,621 | (179,191) | 12,002 | — | 1,102,573 |
Total | 6,347,108 | 987,137 | 851,863 | 12,599 | (326,594) | 88,574 | — | 6,166,200 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
13
Institutional Target Retirement 2015 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Bond Market II Index Fund Investor Shares | 35.1% |
Vanguard Total Stock Market Index Fund Institutional Shares | 21.7 |
Vanguard Total International Bond Index Fund Admiral Shares | 15.0 |
Vanguard Total International Stock Index Fund Investor Shares | 14.6 |
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 13.6 |
The table reflects the fund's investments, except for short-term investments and derivatives.
14
Institutional Target Retirement 2015 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000) | ||
Investment Companies (99.8%) | |||
U.S. Stock Fund (21.7%) | |||
Vanguard Total Stock Market Index Fund Institutional Shares | 28,120,244 | 1,764,827 | |
International Stock Fund (14.5%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 87,837,479 | 1,184,049 | |
U.S. Bond Funds (48.6%) | |||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 252,970,256 | 2,850,975 |
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 45,094,236 | 1,105,259 | |
3,956,234 | |||
International Bond Fund (15.0%) | |||
Vanguard Total International Bond Index Fund Admiral Shares | 54,084,919 | 1,222,319 | |
Total Investment Companies (Cost $7,728,285) | 8,127,429 | ||
Temporary Cash Investment (0.1%) | |||
Money Market Fund (0.1%) | |||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $9,525) | 95,310 | 9,520 |
Total Investments (99.9%) (Cost $7,737,810) | 8,136,949 | ||
Other Assets and Liabilities—Net (0.1%)2 | 4,834 | ||
Net Assets (100%) | 8,141,783 |
Cost rounded to $000.
• | 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. |
2 | Cash of $990,000 has been segregated as initial margin for open futures contracts. |
15
Institutional Target Retirement 2015 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | June 2020 | 82 | 10,536 | 798 |
See accompanying Notes, which are an integral part of the Financial Statements.
16
Institutional Target Retirement 2015 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $7,737,810) | 8,136,949 |
Cash Collateral Pledged—Futures Contracts | 990 |
Receivables for Investment Securities Sold | 41,814 |
Receivables for Accrued Income | 7,151 |
Receivables for Capital Shares Issued | 7,032 |
Total Assets | 8,193,936 |
Liabilities | |
Payables for Investment Securities Purchased | 36,761 |
Payables for Capital Shares Redeemed | 15,222 |
Variation Margin Payable—Futures Contracts | 170 |
Total Liabilities | 52,153 |
Net Assets | 8,141,783 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 7,661,536 |
Total Distributable Earnings (Loss) | 480,247 |
Net Assets | 8,141,783 |
Net Assets | |
Applicable to 382,366,109 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 8,141,783 |
Net Asset Value Per Share | $21.29 |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Institutional Target Retirement 2015 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 118,843 |
Other Income | 6 |
Net Investment Income—Note B | 118,849 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 69,998 |
Futures Contracts | (2) |
Realized Net Gain (Loss) | 69,996 |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (572,114) |
Futures Contracts | 798 |
Change in Unrealized Appreciation (Depreciation) | (571,316) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (382,471) |
See accompanying Notes, which are an integral part of the Financial Statements.
18
Institutional Target Retirement 2015 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 118,849 | 214,324 | |
Realized Net Gain (Loss) | 69,996 | 34,124 | |
Change in Unrealized Appreciation (Depreciation) | (571,316) | 268,085 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (382,471) | 516,533 | |
Distributions1 | |||
Total Distributions | (269,259) | (260,266) | |
Capital Share Transactions | |||
Issued | 855,798 | 1,475,692 | |
Issued in Lieu of Cash Distributions | 267,767 | 258,627 | |
Redeemed | (1,055,484) | (1,511,326) | |
Net Increase (Decrease) from Capital Share Transactions | 68,081 | 222,993 | |
Total Increase (Decrease) | (583,649) | 479,260 | |
Net Assets | |||
Beginning of Period | 8,725,432 | 8,246,172 | |
End of Period | 8,141,783 | 8,725,432 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Institutional Target Retirement 2015 Fund
Financial Highlights
Six Months | June 26, | ||||||
Ended | Year Ended September 30, | 20151 to | |||||
For a Share Outstanding | March 31, | Sept. 30, | |||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $22.96 | $22.39 | $21.87 | $20.64 | $19.06 | $20.00 | |
Investment Operations | |||||||
Net Investment Income | .3122 | .5612 | .5362 | .4332 | .345 | .1242 | |
Capital Gain Distributions Received | — | — | .0022 | .0062 | .008 | — | |
Net Realized and Unrealized Gain (Loss) on Investments | (1.259) | .716 | .459 | 1.182 | 1.380 | (1.064) | |
Total from Investment Operations | (.947) | 1.277 | .997 | 1.621 | 1.733 | (.940) | |
Distributions | |||||||
Dividends from Net Investment Income | (.579) | (.537) | (.449) | (.381) | (.152) | — | |
Distributions from Realized Capital Gains | (.144) | (.170) | (.028) | (.010) | (.001) | — | |
Total Distributions | (.723) | (.707) | (.477) | (.391) | (.153) | — | |
Net Asset Value, End of Period | $21.29 | $22.96 | $22.39 | $21.87 | $20.64 | $19.06 | |
Total Return | -4.36% | 6.08% | 4.60% | 8.02% | 9.14% | -4.70% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $8,142 | $8,725 | $8,246 | $7,614 | $6,023 | $2,790 | |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.09% | 0.10%3 | |
Ratio of Net Investment Income to Average Net Assets | 2.72% | 2.55% | 2.42% | 2.07% | 2.04% | 2.21%3 | |
Portfolio Turnover Rate | 16% | 16% | 15% | 10% | 10% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Institutional Target Retirement 2015 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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Institutional Target Retirement 2015 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
22
Institutional Target Retirement 2015 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 7,737,810 |
Gross Unrealized Appreciation | 543,796 |
Gross Unrealized Depreciation | (143,859) |
Net Unrealized Appreciation (Depreciation) | 399,937 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 37,276 | 67,681 | |
Issued in Lieu of Cash Distributions | 11,627 | 12,579 | |
Redeemed | (46,520) | (68,538) | |
Net Increase (Decrease) in Shares Outstanding | 2,383 | 11,722 |
23
Institutional Target Retirement 2015 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 33% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 1,347 | NA1 | NA1 | (7) | (5) | 25 | — | 9,520 |
Vanguard Short-Term Inflation-Protected Securities Index Fund | 1,164,292 | 107,063 | 160,403 | (2,535) | (3,158) | 8,516 | — | 1,105,259 |
Vanguard Total Bond Market II Index Fund | 3,016,657 | 410,508 | 634,262 | 13,973 | 44,099 | 38,771 | — | 2,850,975 |
Vanguard Total International Bond Index Fund | 1,287,116 | 148,827 | 166,776 | 3,003 | (49,851) | 34,369 | — | 1,222,319 |
Vanguard Total International Stock Index Fund | 1,301,255 | 261,175 | 144,059 | (5,382) | (228,940) | 17,413 | — | 1,184,049 |
Vanguard Total Stock Market Index Fund | 1,956,012 | 484,929 | 402,801 | 60,946 | (334,259) | 19,749 | — | 1,764,827 |
Total | 8,726,679 | 1,412,502 | 1,508,301 | 69,998 | (572,114) | 118,843 | — | 8,136,949 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
24
Institutional Target Retirement 2020 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 30.1% |
Vanguard Total Bond Market II Index Fund Investor Shares | 29.5 |
Vanguard Total International Stock Index Fund Investor Shares | 20.3 |
Vanguard Total International Bond Index Fund Admiral Shares | 12.6 |
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 7.5 |
The table reflects the fund's investments, except for short-term investments and derivatives.
25
Institutional Target Retirement 2020 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000) | ||
Investment Companies (100.0%) | |||
U.S. Stock Fund (30.1%) | |||
Vanguard Total Stock Market Index Fund Institutional Shares | 105,989,121 | 6,651,877 | |
International Stock Fund (20.3%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 332,541,100 | 4,482,654 | |
U.S. Bond Funds (37.0%) | |||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 578,655,619 | 6,521,449 |
Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 67,378,319 | 1,651,443 | |
8,172,892 | |||
International Bond Fund (12.6%) | |||
Vanguard Total International Bond Index Fund Admiral Shares | 123,177,036 | 2,783,801 | |
Total Investment Companies (Cost $21,247,061) | 22,091,224 | ||
Temporary Cash Investment (0.0%) | |||
Money Market Fund (0.0%) | |||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $9,839) | 98,432 | 9,831 |
Total Investments (100.0%) (Cost $21,256,900) | 22,101,055 | ||
Other Assets and Liabilities—Net (0.0%)2 | (1,296) | ||
Net Assets (100%) | 22,099,759 |
Cost rounded to $000.
• | 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. |
2 | Cash of $1,610,000 has been segregated as initial margin for open futures contracts. |
26
Institutional Target Retirement 2020 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | June 2020 | 134 | 17,217 | 381 |
See accompanying Notes, which are an integral part of the Financial Statements.
27
Institutional Target Retirement 2020 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $21,256,900) | 22,101,055 |
Cash Collateral Pledged—Futures Contracts | 1,610 |
Receivables for Investment Securities Sold | 106,552 |
Receivables for Accrued Income | 16,475 |
Receivables for Capital Shares Issued | 11,422 |
Total Assets | 22,237,114 |
Liabilities | |
Payables for Investment Securities Purchased | 81,474 |
Payables for Capital Shares Redeemed | 55,603 |
Variation Margin Payable—Futures Contracts | 278 |
Total Liabilities | 137,355 |
Net Assets | 22,099,759 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 21,124,412 |
Total Distributable Earnings (Loss) | 975,347 |
Net Assets | 22,099,759 |
Net Assets | |
Applicable to 1,026,815,357 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 22,099,759 |
Net Asset Value Per Share | $21.52 |
See accompanying Notes, which are an integral part of the Financial Statements.
28
Institutional Target Retirement 2020 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 327,948 |
Other Income | 20 |
Net Investment Income—Note B | 327,968 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 56,289 |
Futures Contracts | (842) |
Realized Net Gain (Loss) | 55,447 |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (2,045,237) |
Futures Contracts | 381 |
Change in Unrealized Appreciation (Depreciation) | (2,044,856) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,661,441) |
See accompanying Notes, which are an integral part of the Financial Statements.
29
Institutional Target Retirement 2020 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 327,968 | 579,085 | |
Realized Net Gain (Loss) | 55,447 | 32,952 | |
Change in Unrealized Appreciation (Depreciation) | (2,044,856) | 669,129 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,661,441) | 1,281,166 | |
Distributions1 | |||
Total Distributions | (644,846) | (530,177) | |
Capital Share Transactions | |||
Issued | 2,353,617 | 4,175,722 | |
Issued in Lieu of Cash Distributions | 640,431 | 525,289 | |
Redeemed | (2,716,186) | (3,162,786) | |
Net Increase (Decrease) from Capital Share Transactions | 277,862 | 1,538,225 | |
Total Increase (Decrease) | (2,028,425) | 2,289,214 | |
Net Assets | |||
Beginning of Period | 24,128,184 | 21,838,970 | |
End of Period | 22,099,759 | 24,128,184 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
30
Institutional Target Retirement 2020 Fund
Financial Highlights
Six Months | June 26, | |||||||
Ended | 20151 to | |||||||
For a Share Outstanding | March 31, | Year Ended September 30, | Sept. 30, | |||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $23.69 | $23.08 | $22.23 | $20.58 | $18.84 | $20.00 | ||
Investment Operations | ||||||||
Net Investment Income2 | .320 | .575 | .532 | .464 | .444 | .138 | ||
Capital Gain Distributions Received2 | — | — | .001 | .005 | .007 | — | ||
Net Realized and Unrealized Gain (Loss) on Investments | (1.849) | .585 | .773 | 1.582 | 1.453 | (1.298) | ||
Total from Investment Operations | (1.529) | 1.160 | 1.306 | 2.051 | 1.904 | (1.160) | ||
Distributions | ||||||||
Dividends from Net Investment Income | (.597) | (.531) | (.448) | (.391) | (.162) | — | ||
Distributions from Realized Capital Gains | (.044) | (.019) | (.008) | (.010) | (.002) | — | ||
Total Distributions | (.641) | (.550) | (.456) | (.401) | (.164) | — | ||
Net Asset Value, End of Period | $21.52 | $23.69 | $23.08 | $22.23 | $20.58 | $18.84 | ||
Total Return | -6.75% | 5.34% | 5.92% | 10.17% | 10.16% | -5.80% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $22,100 | $24,128 | $21,839 | $17,587 | $11,613 | $4,835 | ||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 | ||
Ratio of Net Investment Income to Average Net Assets | 2.69% | 2.54% | 2.35% | 2.20% | 2.25% | 2.48%3 | ||
Portfolio Turnover Rate | 17% | 13% | 8% | 6% | 5% | 2% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
31
Institutional Target Retirement 2020 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
32
Institutional Target Retirement 2020 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
33
Institutional Target Retirement 2020 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 21,256,900 |
Gross Unrealized Appreciation | 1,515,242 |
Gross Unrealized Depreciation | (670,706) |
Net Unrealized Appreciation (Depreciation) | 844,536 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 98,300 | 186,336 | |
Issued in Lieu of Cash Distributions | 26,519 | 25,097 | |
Redeemed | (116,634) | (139,093) | |
Net Increase (Decrease) in Shares Outstanding | 8,185 | 72,340 |
34
Institutional Target Retirement 2020 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 38% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 7,341 | NA1 | NA1 | (26) | (8) | 21 | — | 9,831 |
Vanguard Short-Term Inflation-Protected Securities Index Fund | 1,631,586 | 351,534 | 322,355 | (4,664) | (4,658) | 12,610 | — | 1,651,443 |
Vanguard Total Bond Market II Index Fund | 7,038,855 | 1,254,291 | 1,915,979 | 47,366 | 96,916 | 91,725 | — | 6,521,449 |
Vanguard Total International Bond Index Fund | 3,076,071 | 347,831 | 530,327 | 10,703 | (120,477) | 82,139 | — | 2,783,801 |
Vanguard Total International Stock Index Fund | 4,963,136 | 788,137 | 337,594 | (42,220) | (888,805) | 66,607 | — | 4,482,654 |
Vanguard Total Stock Market Index Fund | 7,443,414 | 1,429,776 | 1,138,238 | 45,130 | (1,128,205) | 74,846 | — | 6,651,877 |
Total | 24,160,403 | 4,171,569 | 4,244,493 | 56,289 | (2,045,237) | 327,948 | — | 22,101,055 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
35
Institutional Target Retirement 2025 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 36.0% |
Vanguard Total Bond Market II Index Fund Investor Shares | 27.8 |
Vanguard Total International Stock Index Fund Investor Shares | 24.4 |
Vanguard Total International Bond Index Fund Admiral Shares | 11.8 |
The table reflects the fund's investments, except for short-term investments and derivatives.
36
Institutional Target Retirement 2025 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000) | ||
Investment Companies (99.9%) | |||
U.S. Stock Fund (36.0%) | |||
Vanguard Total Stock Market Index Fund Institutional Shares | 179,783,937 | 11,283,240 | |
International Stock Fund (24.3%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 565,444,313 | 7,622,189 | |
U.S. Bond Fund (27.8%) | |||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 773,193,927 | 8,713,896 |
International Bond Fund (11.8%) | |||
Vanguard Total International Bond Index Fund Admiral Shares | 162,716,940 | 3,677,403 | |
Total Investment Companies (Cost $30,731,896) | 31,296,728 | ||
Temporary Cash Investment (0.1%) | |||
Money Market Fund (0.1%) | |||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $19,183) | 191,953 | 19,172 |
Total Investments (100.0%) (Cost $30,751,079) | 31,315,900 | ||
Other Assets and Liabilities—Net (0.0%)2 | (5,929) | ||
Net Assets (100%) | 31,309,971 |
Cost rounded to $000.
• | 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. |
2 | Cash of $2,821,000 has been segregated as initial margin for open futures contracts. |
37
Institutional Target Retirement 2025 Fund
Derivative Financial Instruments Outstanding as of Period End | |||||
Futures Contracts | |||||
($000) | |||||
Value and | |||||
Number of | Unrealized | ||||
Long (Short) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation) | ||
Long Futures Contracts | |||||
E-mini S&P 500 Index | June 2020 | 235 | 30,194 | 1,826 |
See accompanying Notes, which are an integral part of the Financial Statements.
38
Institutional Target Retirement 2025 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $30,751,079) | 31,315,900 |
Cash Collateral Pledged—Futures Contracts | 2,821 |
Receivables for Investment Securities Sold | 106,535 |
Receivables for Accrued Income | 22,158 |
Receivables for Capital Shares Issued | 22,721 |
Total Assets | 31,470,135 |
Liabilities | |
Payables for Investment Securities Purchased | 77,158 |
Payables for Capital Shares Redeemed | 82,518 |
Variation Margin Payable—Futures Contracts | 488 |
Total Liabilities | 160,164 |
Net Assets | 31,309,971 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 30,613,597 |
Total Distributable Earnings (Loss) | 696,374 |
Net Assets | 31,309,971 |
Net Assets | |
Applicable to 1,454,402,183 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 31,309,971 |
Net Asset Value Per Share | $21.53 |
See accompanying Notes, which are an integral part of the Financial Statements.
39
Institutional Target Retirement 2025 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 467,789 |
Other Income | 34 |
Net Investment Income—Note B | 467,823 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 3,737 |
Futures Contracts | (4,241) |
Realized Net Gain (Loss) | (504) |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (3,484,284) |
Futures Contracts | 1,826 |
Change in Unrealized Appreciation (Depreciation) | (3,482,458) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,015,139) |
See accompanying Notes, which are an integral part of the Financial Statements.
40
Institutional Target Retirement 2025 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 467,823 | 767,992 | |
Realized Net Gain (Loss) | (504) | 7,412 | |
Change in Unrealized Appreciation (Depreciation) | (3,482,458) | 864,318 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,015,139) | 1,639,722 | |
Distributions1 | |||
Total Distributions | (842,721) | (660,179) | |
Capital Share Transactions | |||
Issued | 3,985,855 | 6,425,739 | |
Issued in Lieu of Cash Distributions | 837,029 | 653,036 | |
Redeemed | (2,989,585) | (2,782,280) | |
Net Increase (Decrease) from Capital Share Transactions | 1,833,299 | 4,296,495 | |
Total Increase (Decrease) | (2,024,561) | 5,276,038 | |
Net Assets | |||
Beginning of Period | 33,334,532 | 28,058,494 | |
End of Period | 31,309,971 | 33,334,532 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
41
Institutional Target Retirement 2025 Fund
Financial Highlights
Six Months | June 26, | |||||||
Ended | Year Ended September 30, | 20151 to | ||||||
For a Share Outstanding | March 31, | Sept. 30, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $24.07 | $23.53 | $22.46 | $20.48 | $18.65 | $20.00 | ||
Investment Operations | ||||||||
Net Investment Income2 | .329 | .585 | .528 | .480 | .452 | .140 | ||
Capital Gain Distributions Received2 | — | — | .001 | .005 | .006 | — | ||
Net Realized and Unrealized Gain (Loss) on Investments | (2.263) | .494 | .997 | 1.895 | 1.538 | (1.490) | ||
Total from Investment Operations | (1.934) | 1.079 | 1.526 | 2.380 | 1.996 | (1.350) | ||
Distributions | ||||||||
Dividends from Net Investment Income | (.599) | (.527) | (.452) | (.392) | (.165) | — | ||
Distributions from Realized Capital Gains | (.007) | (.012) | (.004) | (.008) | (.001) | — | ||
Total Distributions | (.606) | (.539) | (.456) | (.400) | (.166) | — | ||
Net Asset Value, End of Period | $21.53 | $24.07 | $23.53 | $22.46 | $20.48 | $18.65 | ||
Total Return | -8.37% | 4.91% | 6.85% | 11.85% | 10.76% | -6.75% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $31,310 | $33,335 | $28,058 | $21,610 | $13,626 | $5,362 | ||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | ||
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 | ||
Ratio of Net Investment Income to Average Net Assets | 2.72% | 2.54% | 2.29% | 2.27% | 2.30% | 2.52%3 | ||
Portfolio Turnover Rate | 15% | 9% | 9% | 4% | 4% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
42
Institutional Target Retirement 2025 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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Institutional Target Retirement 2025 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
44
Institutional Target Retirement 2025 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 30,751,079 |
Gross Unrealized Appreciation | 2,027,355 |
Gross Unrealized Depreciation | (1,460,708) |
Net Unrealized Appreciation (Depreciation) | 566,647 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 162,717 | 281,963 | |
Issued in Lieu of Cash Distributions | 33,765 | 31,008 | |
Redeemed | (127,082) | (120,506) | |
Net Increase (Decrease) in Shares Outstanding | 69,400 | 192,465 |
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Institutional Target Retirement 2025 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 34% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | |||||||||
Sept. 30, | Proceeds | Realized | March 31, |
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 10,018 | NA1 | NA1 | (49) | (11) | 85 | — | 19,172 |
Vanguard Total Bond Market II Index Fund | 9,075,032 | 2,447,182 | 3,000,863 | 57,794 | 134,751 | 122,722 | — | 8,713,896 |
Vanguard Total International Bond Index Fund | 3,909,420 | 587,166 | 675,911 | 3,765 | (147,037) | 108,103 | — | 3,677,403 |
Vanguard Total International Stock Index Fund | 8,132,250 | 1,427,968 | 312,444 | (39,832) | (1,585,753) | 111,488 | — | 7,622,189 |
Vanguard Total Stock Market Index Fund | 12,222,096 | 2,069,785 | 1,104,466 | (17,941) | (1,886,234) | 125,391 | — | 11,283,240 |
Total | 33,348,816 | 6,532,101 | 5,093,684 | 3,737 | (3,484,284) | 467,789 | — | 31,315,900 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
46
Institutional Target Retirement 2030 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 40.5% |
Vanguard Total International Stock Index Fund Investor Shares | 27.4 |
Vanguard Total Bond Market II Index Fund Investor Shares | 22.6 |
Vanguard Total International Bond Index Fund Admiral Shares | 9.5 |
The table reflects the fund's investments, except for short-term investments and derivatives.
47
Institutional Target Retirement 2030 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||
Value• | ||
Shares | ($000) | |
Investment Companies (100.0%) | ||
U.S. Stock Fund (40.5%) | ||
Vanguard Total Stock Market Index Fund Institutional Shares | 191,383,174 | 12,011,208 |
International Stock Fund (27.4%) | ||
Vanguard Total International Stock Index Fund Investor Shares | 601,209,015 | 8,104,298 |
U.S. Bond Fund (22.6%) | ||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 594,672,956 | 6,701,964 |
International Bond Fund (9.5%) | ||
Vanguard Total International Bond Index Fund Admiral Shares | 123,923,504 | 2,800,671 |
Total Investment Companies (Cost $29,505,644) | 29,618,141 | |
Temporary Cash Investment (0.0%) | ||
Money Market Fund (0.0%) | ||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $9,117) | 91,223 | 9,111 |
Total Investments (100.0%) (Cost $29,514,761) | 29,627,252 | |
Other Assets and Liabilities—Net (0.0%)2 | 4,599 | |
Net Assets (100%) | 29,631,851 |
Cost rounded to $000.
• 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.
2 Cash of $3,301,000 has been segregated as initial margin for open futures contracts.
48
Institutional Target Retirement 2030 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | June 2020 | 275 | 35,333 | 2,680 |
See accompanying Notes, which are an integral part of the Financial Statements.
49
Institutional Target Retirement 2030 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $29,514,761) | 29,627,252 |
Cash Collateral Pledged—Futures Contracts | 3,301 |
Receivables for Investment Securities Sold | 79,280 |
Receivables for Accrued Income | 16,986 |
Receivables for Capital Shares Issued | 30,265 |
Total Assets | 29,757,084 |
Liabilities | |
Payables for Investment Securities Purchased | 55,419 |
Payables for Capital Shares Redeemed | 69,243 |
Variation Margin Payable—Futures Contracts | 571 |
Total Liabilities | 125,233 |
Net Assets | 29,631,851 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 29,416,940 |
Total Distributable Earnings (Loss) | 214,911 |
Net Assets | 29,631,851 |
Net Assets | |
Applicable to 1,383,842,883 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 29,631,851 |
Net Asset Value Per Share | $21.41 |
See accompanying Notes, which are an integral part of the Financial Statements.
50
Institutional Target Retirement 2030 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 428,432 |
Other Income | 32 |
Net Investment Income—Note B | 428,464 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | (14,044) |
Futures Contracts | (5,827) |
Realized Net Gain (Loss) | (19,871) |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (3,734,113) |
Futures Contracts | 2,680 |
Change in Unrealized Appreciation (Depreciation) | (3,731,433) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,322,840) |
See accompanying Notes, which are an integral part of the Financial Statements.
51
Institutional Target Retirement 2030 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 428,464 | 704,886 | |
Realized Net Gain (Loss) | (19,871) | 6,284 | |
Change in Unrealized Appreciation (Depreciation) | (3,731,433) | 663,899 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,322,840) | 1,375,069 | |
Distributions1 | |||
Total Distributions | (793,596) | (597,892) | |
Capital Share Transactions | |||
Issued | 4,140,631 | 6,417,870 | |
Issued in Lieu of Cash Distributions | 786,523 | 590,618 | |
Redeemed | (2,418,528) | (2,365,021) | |
Net Increase (Decrease) from Capital Share Transactions | 2,508,626 | 4,643,467 | |
Total Increase (Decrease) | (1,607,810) | 5,420,644 | |
Net Assets | |||
Beginning of Period | 31,239,661 | 25,819,017 | |
End of Period | 29,631,851 | 31,239,661 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
52
Institutional Target Retirement 2030 Fund
Financial Highlights
Six Months | June 26, | |||||||
Ended | 20151 to | |||||||
For a Share Outstanding | March 31, | Year Ended September 30, | Sept. 30, | |||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value, Beginning of Period | $24.27 | $23.89 | $22.61 | $20.36 | $18.45 | $20.00 | |
Investment Operations | |||||||
Net Investment Income2 | .322 | .582 | .531 | .485 | .455 | .145 | |
Capital Gain Distributions Received2 | — | — | .001 | .004 | .004 | — | |
Net Realized and Unrealized Gain (Loss) on Investments | (2.571) | .330 | 1.201 | 2.160 | 1.615 | (1.695) | |
Total from Investment Operations | (2.249) | .912 | 1.733 | 2.649 | 2.074 | (1.550) | |
Distributions | |||||||
Dividends from Net Investment Income | (.607) | (.529) | (.450) | (.393) | (.163) | — | |
Distributions from Realized Capital Gains | (.004) | (.003) | (.003) | (.006) | (.001) | — | |
Total Distributions | (.611) | (.532) | (.453) | (.399) | (.164) | — | |
Net Asset Value, End of Period | $21.41 | $24.27 | $23.89 | $22.61 | $20.36 | $18.45 | |
Total Return | -9.64% | 4.15% | 7.73% | 13.27% | 11.30% | -7.75% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $29,632 | $31,240 | $25,819 | $19,142 | $11,486 | $4,431 | |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 | |
Ratio of Net Investment Income to Average Net Assets | 2.63% | 2.51% | 2.27% | 2.29% | 2.34% | 2.64%3 | |
Portfolio Turnover Rate | 13% | 8% | 7% | 4% | 3% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
53
Institutional Target Retirement 2030 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
54
Institutional Target Retirement 2030 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
55
Institutional Target Retirement 2030 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 29,514,761 |
Gross Unrealized Appreciation | 1,817,594 |
Gross Unrealized Depreciation | (1,702,423) |
Net Unrealized Appreciation (Depreciation) | 115,171 |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 167,430 | 279,267 | |
Issued in Lieu of Cash Distributions | 31,248 | 27,952 | |
Redeemed | (101,743) | (101,098) | |
Net Increase (Decrease) in Shares Outstanding | 96,935 | 206,121 |
56
Institutional Target Retirement 2030 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 35% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 15,684 | NA1 | NA1 | (66) | (6) | 103 | — | 9,111 |
Vanguard Total Bond Market II Index Fund | 6,875,728 | 2,161,125 | 2,484,044 | 45,420 | 103,735 | 93,939 | — | 6,701,964 |
Vanguard Total International Bond Index Fund | 2,952,418 | 568,033 | 612,278 | 3,817 | (111,319) | 83,384 | — | 2,800,671 |
Vanguard Total International Stock Index Fund | 8,541,807 | 1,541,546 | 233,684 | (24,648) | (1,720,723) | 118,290 | — | 8,104,298 |
Vanguard Total Stock Market Index Fund | 12,896,361 | 2,107,659 | 948,445 | (38,567) | (2,005,800) | 132,716 | — | 12,011,208 |
Total | 31,281,998 | 6,378,363 | 4,278,451 | (14,044) | (3,734,113) | 428,432 | — | 29,627,252 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
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Institutional Target Retirement 2035 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 45.2% |
Vanguard Total International Stock Index Fund Investor Shares | 30.3 |
Vanguard Total Bond Market II Index Fund Investor Shares | 17.3 |
Vanguard Total International Bond Index Fund Admiral Shares | 7.2 |
The table reflects the fund's investments, except for short-term investments and derivatives.
58
Institutional Target Retirement 2035 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||
Value• | ||
Shares | ($000) | |
Investment Companies (99.9%) | ||
U.S. Stock Fund (45.1%) | ||
Vanguard Total Stock Market Index Fund Institutional Shares | 191,378,065 | 12,010,888 |
International Stock Fund (30.3%) | ||
Vanguard Total International Stock Index Fund Investor Shares | 599,014,016 | 8,074,709 |
U.S. Bond Fund (17.3%) | ||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 409,901,961 | 4,619,595 |
International Bond Fund (7.2%) | ||
Vanguard Total International Bond Index Fund Admiral Shares | 85,161,079 | 1,924,640 |
Total Investment Companies (Cost $26,667,785) | 26,629,832 | |
Temporary Cash Investment (0.1%) | ||
Money Market Fund (0.1%) | ||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $22,996) | 229,897 | 22,962 |
Total Investments (100.0%) (Cost $26,690,781) | 26,652,794 | |
Other Assets and Liabilities—Net (0.0%)2 | (6,124) | |
Net Assets (100%) | 26,646,670 |
Cost rounded to $000.
• 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.
2 Cash of $3,604,000 has been segregated as initial margin for open futures contracts.
59
Institutional Target Retirement 2035 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | June 2020 | 300 | 38,546 | 3,221 |
See accompanying Notes, which are an integral part of the Financial Statements.
60
Institutional Target Retirement 2035 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $26,690,781) | 26,652,794 |
Cash Collateral Pledged— Futures Contracts | 3,604 |
Receivables for Investment Securities Sold | 71,200 |
Receivables for Accrued Income | 11,759 |
Receivables for Capital Shares Issued | 33,422 |
Total Assets | 26,772,779 |
Liabilities | |
Payables for Investment Securities Purchased | 67,362 |
Payables for Capital Shares Redeemed | 58,125 |
Variation Margin Payable—Futures Contracts | 622 |
Total Liabilities | 126,109 |
Net Assets | 26,646,670 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 26,602,873 |
Total Distributable Earnings (Loss) | 43,797 |
Net Assets | 26,646,670 |
Net Assets | |
Applicable to 1,251,727,228 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 26,646,670 |
Net Asset Value Per Share | $21.29 |
See accompanying Notes, which are an integral part of the Financial Statements.
61
Institutional Target Retirement 2035 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 376,615 |
Other Income | 27 |
Net Investment Income—Note B | 376,642 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | (14,724) |
Futures Contracts | (4,492) |
Realized Net Gain (Loss) | (19,216) |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (3,761,829) |
Futures Contracts | 3,221 |
Change in Unrealized Appreciation (Depreciation) | (3,758,608) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,401,182) |
See accompanying Notes, which are an integral part of the Financial Statements.
62
Institutional Target Retirement 2035 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 376,642 | 634,079 | |
Realized Net Gain (Loss) | (19,216) | (2,464) | |
Change in Unrealized Appreciation (Depreciation) | (3,758,608) | 444,387 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,401,182) | 1,076,002 | |
Distributions1 | |||
Total Distributions | (710,973) | (540,615) | |
Capital Share Transactions | |||
Issued | 3,675,038 | 5,824,878 | |
Issued in Lieu of Cash Distributions | 705,511 | 534,790 | |
Redeemed | (2,206,204) | (2,072,971) | |
Net Increase (Decrease) from Capital Share Transactions | 2,174,345 | 4,286,697 | |
Total Increase (Decrease) | (1,937,810) | 4,822,084 | |
Net Assets | |||
Beginning of Period | 28,584,480 | 23,762,396 | |
End of Period | 26,646,670 | 28,584,480 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
63
Institutional Target Retirement 2035 Fund
Financial Highlights
Six Months | June 26, | ||||||
Ended | Year Ended September 30, | 20151 to | |||||
For a Share Outstanding | March 31, | Sept. 30, | |||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $24.47 | $24.25 | $22.78 | $20.23 | $18.27 | $20.00 | |
Investment Operations | |||||||
Net Investment Income2 | .314 | .579 | .533 | .489 | .457 | .142 | |
Capital Gain Distributions Received2 | — | — | .001 | .003 | .003 | — | |
Net Realized and Unrealized Gain (Loss) on Investments | (2.887) | .174 | 1.394 | 2.457 | 1.664 | (1.872) | |
Total from Investment Operations | (2.573) | .753 | 1.928 | 2.949 | 2.124 | 1.730 | |
Distributions | |||||||
Dividends from Net Investment Income | (.606) | (.528) | (.454) | (.394) | (.164) | — | |
Distributions from Realized Capital Gains | (.001) | (.005) | (.004) | (.005) | — | — | |
Total Distributions | (.607) | (.533) | (.458) | (.399) | (.164) | — | |
Net Asset Value, End of Period | $21.29 | $24.47 | $24.25 | $22.78 | $20.23 | $18.27 | |
Total Return | -10.93% | 3.45% | 8.54% | 14.85% | 11.68% | -8.65% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $26,647 | $28,584 | $23,762 | $17,576 | $10,702 | $4,037 | |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 | |
Ratio of Net Investment Income to Average Net Assets | 2.54% | 2.47% | 2.25% | 2.30% | 2.37% | 2.62%3 | |
Portfolio Turnover Rate | 11% | 7% | 8% | 4% | 2% | 0% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Inception. | |
2 | Calculated based on average shares outstanding. | |
3 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
64
Institutional Target Retirement 2035 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
65
Institutional Target Retirement 2035 Fund
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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.
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Institutional Target Retirement 2035 Fund
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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 26,690,781 |
Gross Unrealized Appreciation | 1,675,740 |
Gross Unrealized Depreciation | (1,710,506) |
Net Unrealized Appreciation (Depreciation) | (34,766) |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 146,951 | 251,112 | |
Issued in Lieu of Cash Distributions | 27,602 | 25,250 | |
Redeemed | (91,164) | (87,855) | |
Net Increase (Decrease) in Shares Outstanding | 83,389 | 188,507 |
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Institutional Target Retirement 2035 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 33% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 11,647 | NA1 | NA1 | (58) | (34) | 104 | — | 22,962 |
Vanguard Total Bond Market II Index Fund | 4,834,583 | 1,558,700 | 1,879,108 | 35,171 | 70,249 | 65,507 | — | 4,619,595 |
Vanguard Total International Bond Index Fund | 2,058,908 | 436,306 | 495,722 | 2,489 | (77,341) | 58,541 | — | 1,924,640 |
Vanguard Total International Stock Index Fund | 8,662,203 | 1,418,920 | 249,429 | (18,683) | (1,738,302) | 119,382 | — | 8,074,709 |
Vanguard Total Stock Market Index Fund | 13,034,246 | 1,689,027 | 662,341 | (33,643) | (2,016,401) | 133,081 | — | 12,010,888 |
Total | 28,601,587 | 5,102,953 | 3,286,600 | (14,724) | (3,761,829) | 376,615 | — | 26,652,794 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
68
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Institutional Target Retirement Funds has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each fund’s 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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the investment management services provided to the funds, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than four 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 arrangements.
Investment performance
The board considered the performance of each fund since its inception, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue.
69
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.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of scale
The board concluded that Vanguard’s arrangements with the Institutional Target Retirement Funds and their underlying funds ensure 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 arrangements again after a one-year period.
70
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Institutional Target Retirement Income Fund, Vanguard Institutional Target Retirement 2015 Fund, Vanguard Institutional Target Retirement 2020 Fund, Vanguard Institutional Target Retirement 2025 Fund, Vanguard Institutional Target Retirement 2030 Fund, and Vanguard Institutional Target Retirement 2035 Fund, and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the funds’ liquidity risk.
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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.
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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q6732 052020 |
Semiannual Report | March 31, 2020 | |
Vanguard Institutional Target Retirement Funds | |
Vanguard Institutional Target Retirement 2040 Fund | |
Vanguard Institutional Target Retirement 2045 Fund | |
Vanguard Institutional Target Retirement 2050 Fund | |
Vanguard Institutional Target Retirement 2055 Fund | |
Vanguard Institutional Target Retirement 2060 Fund | |
Vanguard Institutional Target Retirement 2065 Fund | |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. | |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents
About Your Fund’s Expenses | 1 |
Institutional Target Retirement 2040 Fund | 3 |
Institutional Target Retirement 2045 Fund | 14 |
Institutional Target Retirement 2050 Fund | 25 |
Institutional Target Retirement 2055 Fund | 36 |
Institutional Target Retirement 2060 Fund | 47 |
Institutional Target Retirement 2065 Fund | 58 |
Trustees Approve Advisory Arrangements | 69 |
Liquidity Risk Management | 71 |
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 Institutional 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 Institutional 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.
1 |
Six Months Ended March 31, 2020
Beginning | Ending | Expenses | ||||
Account Value | Account Value | Paid During | ||||
9/30/2019 | 3/31/2020 | Period | ||||
Based on Actual Fund Return | ||||||
Institutional Target Retirement 2040 Fund | $1,000.00 | $878.11 | $0.42 | |||
Institutional Target Retirement 2045 Fund | $1,000.00 | $865.24 | $0.42 | |||
Institutional Target Retirement 2050 Fund | $1,000.00 | $865.59 | $0.42 | |||
Institutional Target Retirement 2055 Fund | $1,000.00 | $865.61 | $0.42 | |||
Institutional Target Retirement 2060 Fund | $1,000.00 | $865.65 | $0.42 | |||
Institutional Target Retirement 2065 Fund | $1,000.00 | $863.96 | $0.42 | |||
Based on Hypothetical 5% Yearly Return | ||||||
Institutional Target Retirement 2040 Fund | $1,000.00 | $1,024.55 | $0.46 | |||
Institutional Target Retirement 2045 Fund | $1,000.00 | $1,024.55 | $0.46 | |||
Institutional Target Retirement 2050 Fund | $1,000.00 | $1,024.55 | $0.46 | |||
Institutional Target Retirement 2055 Fund | $1,000.00 | $1,024.55 | $0.46 | |||
Institutional Target Retirement 2060 Fund | $1,000.00 | $1,024.55 | $0.46 | |||
Institutional Target Retirement 2065 Fund | $1,000.00 | $1,024.55 | $0.46 |
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) 0.09%, 0.09%, 0.09%, 0.09%, 0.09%, and 0.09%. 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 (183/366).
2 |
Institutional Target Retirement 2040 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 49.8 | % | |
Vanguard Total International Stock Index Fund Investor Shares | 33.1 | ||
Vanguard Total Bond Market II Index Fund Investor Shares | 12.1 | ||
Vanguard Total International Bond Index Fund Admiral Shares | 5.0 |
The table reflects the fund’s investments, except for short-term investments and derivatives.
3 |
Institutional Target Retirement 2040 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||
Value· | ||||||
Shares | ($000 | ) | ||||
Investment Companies (99.9%) | ||||||
U.S. Stock Fund (49.8%) | ||||||
Vanguard Total Stock Market Index Fund Institutional Shares | 183,324,130 | 11,505,422 | ||||
International Stock Fund (33.1%) | ||||||
Vanguard Total International Stock Index Fund Investor Shares | 568,057,383 | 7,657,414 | ||||
U.S. Bond Fund (12.0%) | ||||||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 247,227,025 | 2,786,249 | |||
International Bond Fund (5.0%) | ||||||
Vanguard Total International Bond Index Fund Admiral Shares | 51,040,238 | 1,153,509 | ||||
Total Investment Companies (Cost $23,444,316) | 23,102,594 | |||||
Temporary Cash Investment (0.1%) | ||||||
Money Market Fund (0.1%) | ||||||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $15,589) | 155,960 | 15,577 | |||
Total Investments (100.0%) (Cost $23,459,905) | 23,118,171 | |||||
Other Assets and Liabilities-Net (0.0%)2 | (11,207 | ) | ||||
Net Assets (100%) | 23,106,964 |
Cost rounded to $000.
· | 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. |
2 | Cash of $3,004,000 has been segregated as initial margin for open futures contracts. |
4 |
Institutional Target Retirement 2040 Fund
Derivative Financial Instruments Outstanding as of Period End |
Futures Contracts |
($000 | ) | ||||||||
Value and | |||||||||
Number of | Unrealized | ||||||||
Long (Short | ) | Notional | Appreciation | ||||||
Expiration | Contracts | Amount | (Depreciation | ) | |||||
Long Futures Contracts | |||||||||
E-mini S&P 500 Index | June 2020 | 250 | 32,121 | 2,589 |
See accompanying Notes, which are an integral part of the Financial Statements.
5 |
Institutional Target Retirement 2040 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | ||
Assets | |||
Investments in Securities, at Value—Affiliated Funds (Cost $23,459,905) | 23,118,171 | ||
Cash Collateral Pledged—Futures Contracts | 3,004 | ||
Receivables for Investment Securities Sold | 6,250 | ||
Receivables for Accrued Income | 7,178 | ||
Receivables for Capital Shares Issued | 33,649 | ||
Total Assets | 23,168,252 | ||
Liabilities | |||
Payables for Investment Securities Purchased | 18,165 | ||
Payables for Capital Shares Redeemed | 42,604 | ||
Variation Margin Payable—Futures Contracts | 519 | ||
Total Liabilities | 61,288 | ||
Net Assets | 23,106,964 | ||
At March 31, 2020, net assets consisted of: | |||
Paid-in Capital | 23,366,762 | ||
Total Distributable Earnings (Loss) | (259,798 | ) | |
Net Assets | 23,106,964 | ||
Net Assets | |||
Applicable to 1,092,235,209 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 23,106,964 | ||
Net Asset Value Per Share | $21.16 |
See accompanying Notes, which are an integral part of the Financial Statements.
6 |
Institutional Target Retirement 2040 Fund
Statement of Operations
Six Months Ended | |||
March 31, 2020 | |||
($000 | ) | ||
Investment Income | |||
Income | |||
Income Distributions Received from Affiliated Funds | 317,993 | ||
Other Income | 19 | ||
Net Investment Income—Note B | 318,012 | ||
Realized Net Gain (Loss) | |||
Capital Gain Distributions Received from Affiliated Funds | — | ||
Affiliated Funds Sold | 4,663 | ||
Futures Contracts | (4,990 | ) | |
Realized Net Gain (Loss) | (327 | ) | |
Change in Unrealized Appreciation (Depreciation) | |||
Affiliated Funds | (3,646,084 | ) | |
Futures Contracts | 2,589 | ||
Change in Unrealized Appreciation (Depreciation) | (3,643,495 | ) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,325,810 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
7 |
Institutional Target Retirement 2040 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
March 31, | September 30, | ||||
2020 | 2019 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 318,012 | 545,029 | |||
Realized Net Gain (Loss) | (327 | ) | 1,099 | ||
Change in Unrealized Appreciation (Depreciation) | (3,643,495 | ) | 244,321 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,325,810 | ) | 790,449 | ||
Distributions1 | |||||
Total Distributions | (616,023 | ) | (455,908 | ) | |
Capital Share Transactions | |||||
Issued | 3,279,663 | 5,254,578 | |||
Issued in Lieu of Cash Distributions | 610,821 | 450,585 | |||
Redeemed | (1,899,078 | ) | (1,780,334 | ) | |
Net Increase (Decrease) from Capital Share Transactions | 1,991,406 | 3,924,829 | |||
Total Increase (Decrease) | (1,950,427 | ) | 4,259,370 | ||
Net Assets | |||||
Beginning of Period | 25,057,391 | 20,798,021 | |||
End of Period | 23,106,964 | 25,057,391 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
8 |
Institutional Target Retirement 2040 Fund
Financial Highlights
For a Share Outstanding | Six Months Ended March 31, | Year Ended September 30, | June 26, 20151 to Sept. 30, | ||||||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||
Net Asset Value, Beginning of Period | $24.66 | $24.61 | $22.93 | $20.10 | $18.08 | $20.00 | |||||||
Investment Operations | |||||||||||||
Net Investment Income2 | .305 | .575 | .535 | .494 | .461 | .151 | |||||||
Capital Gain Distributions Received2 | — | — | — | .002 | .002 | — | |||||||
Net Realized and Unrealized Gain (Loss) on Investments | (3.198 | ) | (.005 | ) | 1.601 | 2.730 | 1.718 | (2.071 | ) | ||||
Total from Investment Operations | (2.893 | ) | .570 | 2.136 | 3.226 | 2.181 | (1.920 | ) | |||||
Distributions | |||||||||||||
Dividends from Net Investment Income | (.604 | ) | (.519 | ) | (.453 | ) | (.393 | ) | (.161 | ) | — | ||
Distributions from Realized Capital Gains | (.003 | ) | (.001 | ) | (.003 | ) | (.003 | ) | — | — | |||
Total Distributions | (.607 | ) | (.520 | ) | (.456 | ) | (.396 | ) | (.161 | ) | — | ||
Net Asset Value, End of Period | $21.16 | $24.66 | $24.61 | $22.93 | $20.10 | $18.08 | |||||||
Total Return | -12.19% | 2.65% | 9.39% | 16.35% | 12.12% | -9.60% | |||||||
Ratios/Supplemental Data | |||||||||||||
Net Assets, End of Period (Millions) | $23,107 | $25,057 | $20,798 | $14,863 | $8,724 | $3,032 | |||||||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |||||||
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 | |||||||
Ratio of Net Investment Income to Average Net Assets | 2.44% | 2.43% | 2.24% | 2.32% | 2.62% | 2.81%3 | |||||||
Portfolio Turnover Rate | 9% | 5% | 7% | 5% | 0% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
9 |
Institutional Target Retirement 2040 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
10 |
Institutional Target Retirement 2040 Fund
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
11 |
Institutional 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |||
($000 | ) | ||
Tax Cost | 23,459,905 | ||
Gross Unrealized Appreciation | 1,404,379 | ||
Gross Unrealized Depreciation | (1,743,524 | ) | |
Net Unrealized Appreciation (Depreciation) | (339,145 | ) |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||||
March 31, 2020 | September 30, 2019 | ||||
Shares | Shares | ||||
(000 | ) | (000 | ) | ||
Issued | 130,348 | 224,272 | |||
Issued in Lieu of Cash Distributions | 23,538 | 21,214 | |||
Redeemed | (77,602 | ) | (74,584 | ) | |
Net Increase (Decrease) in Shares Outstanding | 76,284 | 170,902 |
At March 31, 2020, one shareholder was the record or beneficial owner of 34% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
12 |
Institutional Target Retirement 2040 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | |||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | ||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | ||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | |||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | ||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ||
Vanguard Market Liquidity Fund | 13,655 | NA1 | NA1 | (70 | ) | (11 | ) | 89 | — | 15,577 | |||||||
Vanguard Total Bond Market II Index Fund | 2,957,662 | 997,929 | 1,233,300 | 22,340 | 41,618 | 40,143 | — | 2,786,249 | |||||||||
Vanguard Total International Bond Index Fund | 1,236,906 | 276,877 | 314,933 | 925 | (46,266 | ) | 35,428 | — | 1,153,509 | ||||||||
Vanguard Total International Stock Index Fund | 8,332,505 | 1,291,332 | 272,691 | (21,513 | ) | (1,672,219 | ) | 115,116 | — | 7,657,414 | |||||||
Vanguard Total Stock Market Index Fund | 12,545,147 | 1,424,773 | 498,273 | 2,981 | (1,969,206 | ) | 127,217 | — | 11,505,422 | ||||||||
Total | 25,085,875 | 3,990,911 | 2,319,197 | 4,663 | (3,646,084 | ) | 317,993 | — | 23,118,171 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
13 |
Institutional Target Retirement 2045 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 54.0% |
Vanguard Total International Stock Index Fund Investor Shares | 36.0 |
Vanguard Total Bond Market II Index Fund Investor Shares | 7.1 |
Vanguard Total International Bond Index Fund Admiral Shares | 2.9 |
The table reflects the fund's investments, except for short-term investments and derivatives.
14
Institutional Target Retirement 2045 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||
Value• | ||
Shares | ($000) | |
Investment Companies (99.9%) | ||
U.S. Stock Fund (53.9%) | ||
Vanguard Total Stock Market Index Fund Institutional Shares | 167,645,267 | 10,521,417 |
International Stock Fund (36.0%) | ||
Vanguard Total International Stock Index Fund Investor Shares | 521,056,526 | 7,023,842 |
U.S. Bond Fund (7.1%) | ||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 122,957,807 | 1,385,735 |
International Bond Fund (2.9%) | ||
Vanguard Total International Bond Index Fund Admiral Shares | 25,303,954 | 571,869 |
Total Investment Companies (Cost $20,170,491) | 19,502,863 | |
Temporary Cash Investment (0.2%) | ||
Money Market Fund (0.2%) | ||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $36,814) | 368,160 | 36,772 |
Total Investments (100.1%) (Cost $20,207,305) | 19,539,635 | |
Other Assets and Liabilities-Net (-0.1%)2 | (10,837) | |
Net Assets (100%) | 19,528,798 |
Cost rounded to $000.
• | 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. |
2 | Cash of $4,228,000 has been segregated as initial margin for open futures contracts. |
15
Institutional Target Retirement 2045 Fund
Derivative Financial Instruments Outstanding as of Period End |
Futures Contracts |
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | June 2020 | 482 | 61,930 | 2,023 |
See accompanying Notes, which are an integral part of the Financial Statements.
16
Institutional Target Retirement 2045 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $20,207,305) | 19,539,635 |
Cash | 519 |
Cash Collateral Pledged—Futures Contracts | 4,228 |
Receivables for Accrued Income | 3,658 |
Receivables for Capital Shares Issued | 36,604 |
Total Assets | 19,584,644 |
Liabilities | |
Payables for Investment Securities Purchased | 13,281 |
Payables for Capital Shares Redeemed | 41,565 |
Variation Margin Payable—Futures Contracts | 1,000 |
Total Liabilities | 55,846 |
Net Assets | 19,528,798 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 20,144,936 |
Total Distributable Earnings (Loss) | (616,138) |
Net Assets | 19,528,798 |
Net Assets | |
Applicable to 931,092,734 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 19,528,798 |
Net Asset Value Per Share | $20.97 |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Institutional Target Retirement 2045 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 261,425 |
Other Income | 11 |
Net Investment Income—Note B | 261,436 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | (10,064) |
Futures Contracts | (3,009) |
Realized Net Gain (Loss) | (13,073) |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (3,393,788) |
Futures Contracts | 2,023 |
Change in Unrealized Appreciation (Depreciation) | (3,391,765) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,143,402) |
See accompanying Notes, which are an integral part of the Financial Statements.
18
Institutional Target Retirement 2045 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 261,436 | 455,897 | |
Realized Net Gain (Loss) | (13,073) | (1,387) | |
Change in Unrealized Appreciation (Depreciation) | (3,391,765) | 132,234 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (3,143,402) | 586,744 | |
Distributions1 | |||
Total Distributions | (515,800) | (375,521) | |
Capital Share Transactions | |||
Issued | 3,110,573 | 4,892,911 | |
Issued in Lieu of Cash Distributions | 511,684 | 371,618 | |
Redeemed | (1,742,179) | (1,551,129) | |
Net Increase (Decrease) from Capital Share Transactions | 1,880,078 | 3,713,400 | |
Total Increase (Decrease) | (1,779,124) | 3,924,623 | |
Net Assets | |||
Beginning of Period | 21,307,922 | 17,383,299 | |
End of Period | 19,528,798 | 21,307,922 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Institutional Target Retirement 2045 Fund
Financial Highlights
Six Months | June 26, | ||||||||
Ended | 20151 to | ||||||||
For a Share Outstanding | March 31, | Year Ended September 30, | Sept. 30, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |||
Net Asset Value, Beginning of Period | $24.79 | $24.86 | $23.05 | $20.11 | $18.07 | $20.00 | |||
Investment Operations | |||||||||
Net Investment Income2 | .296 | .574 | .538 | .497 | .464 | .149 | |||
Capital Gain Distributions Received2 | — | — | — | .001 | .002 | — | |||
Net Realized and Unrealized Gain (Loss) on Investments | (3.516) | (.130) | 1.730 | 2.833 | 1.736 | (2.079) | |||
Total from Investment Operations | (3.220) | .444 | 2.268 | 3.331 | 2.202 | (1.930) | |||
Distributions | �� | ||||||||
Dividends from Net Investment Income | (.600) | (.512) | (.454) | (.389) | (.162) | — | |||
Distributions from Realized Capital Gains | — | (.002) | (.004) | (.002) | — | — | |||
Total Distributions | (.600) | (.514) | (.458) | (.391) | (.162) | — | |||
Net Asset Value, End of Period | $20.97 | $24.79 | $24.86 | $23.05 | $20.11 | $18.07 | |||
Total Return | -13.48% | 2.13% | 9.92% | 16.87% | 12.24% | -9.65% | |||
Ratios/Supplemental Data | |||||||||
Net Assets, End of Period (Millions) | $19,529 | $21,308 | $17,383 | $12,054 | $6,989 | $2,317 | |||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — | |||
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 | |||
Ratio of Net Investment Income to Average Net Assets | 2.36% | 2.41% | 2.23% | 2.33% | 2.42% | 2.79%3 | |||
Portfolio Turnover Rate | 7% | 4% | 6% | 5% | 1% | 0% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement 2045 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
21
Institutional Target Retirement 2045 Fund
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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Institutional 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 20,207,305 |
Gross Unrealized Appreciation | 1,092,821 |
Gross Unrealized Depreciation | (1,758,468) |
Net Unrealized Appreciation (Depreciation) | (665,647) |
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, 2019, the fund had available capital losses totaling $5,475,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 122,558 | 207,342 | |
Issued in Lieu of Cash Distributions | 19,500 | 17,471 | |
Redeemed | (70,672) | (64,485) | |
Net Increase (Decrease) in Shares Outstanding | 71,386 | 160,328 |
23
Institutional Target Retirement 2045 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 31% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 11,719 | NA1 | NA1 | (31) | (42) | 101 | — | 36,772 |
Vanguard Total Bond Market II Index Fund | 1,492,017 | 527,643 | 665,044 | 13,026 | 18,093 | 20,366 | — | 1,385,735 |
Vanguard Total International Bond Index Fund | 637,189 | 129,307 | 171,145 | 745 | (24,227) | 17,908 | — | 571,869 |
Vanguard Total International Stock Index Fund | 7,677,971 | 1,214,469 | 283,332 | (23,867) | (1,561,399) | 106,299 | — | 7,023,842 |
Vanguard Total Stock Market Index Fund | 11,511,694 | 1,305,393 | 469,520 | 63 | (1,826,213) | 116,751 | — | 10,521,417 |
Total | 21,330,590 | 3,176,812 | 1,589,041 | (10,064) | (3,393,788) | 261,425 | — | 19,539,635 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
24
Institutional Target Retirement 2050 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 53.9 | % | ||
Vanguard Total International Stock Index Fund Investor Shares | 36.0 | |||
Vanguard Total Bond Market II Index Fund Investor Shares | 7.2 | |||
Vanguard Total International Bond Index Fund Admiral Shares | 2.9 |
The table reflects the fund's investments, except for short-term investments and derivatives.
25 |
Institutional Target Retirement 2050 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||
Value• | |||||
Shares | ($000 | ) | |||
Investment Companies (99.8%) | |||||
U.S. Stock Fund (53.8%) | |||||
Vanguard Total Stock Market Index Fund Institutional Shares | 128,075,013 | 8,037,988 | |||
International Stock Fund (36.0%) | |||||
Vanguard Total International Stock Index Fund Investor Shares | 398,906,964 | 5,377,266 | |||
U.S. Bond Fund (7.1%) | |||||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 94,729,148 | 1,067,597 | ||
International Bond Fund (2.9%) | |||||
Vanguard Total International Bond Index Fund Admiral Shares | 19,327,960 | 436,812 | |||
Total Investment Companies (Cost $15,681,113) | 14,919,663 | ||||
Temporary Cash Investment (0.2%) | |||||
Money Market Fund (0.2%) | |||||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $27,868) | 278,753 | 27,842 | ||
Total Investments (100.0%) (Cost $15,708,981) | 14,947,505 | ||||
Other Assets and Liabilities-Net (0.0%)2 | (3,253 | ) | |||
Net Assets (100%) | 14,944,252 |
Cost rounded to $000. |
• | 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. |
2 | Cash of $3,787,000 has been segregated as initial margin for open futures contracts. |
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Institutional Target Retirement 2050 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||||||
Futures Contracts | ||||||||
($000 | ) | |||||||
Value and | ||||||||
Number of | Unrealized | |||||||
Long (Short | ) | Notional | Appreciation | |||||
Expiration | Contracts | Amount | (Depreciation | ) | ||||
Long Futures Contracts | ||||||||
E-mini S&P 500 Index | June 2020 | 295 | 37,903 | 2,978 |
See accompanying Notes, which are an integral part of the Financial Statements.
27 |
Institutional Target Retirement 2050 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $15,708,981) | 14,947,505 |
Cash Collateral Pledged—Futures Contracts | 3,787 |
Receivables for Accrued Income | 2,789 |
Receivables for Capital Shares Issued | 32,965 |
Total Assets | 14,987,046 |
Liabilities | |
Due to Custodian | 148 |
Payables for Investment Securities Purchased | 11,186 |
Payables for Capital Shares Redeemed | 30,848 |
Variation Margin Payable—Futures Contracts | 612 |
Total Liabilities | 42,794 |
Net Assets | 14,944,252 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 15,668,611 |
Total Distributable Earnings (Loss) | (724,359) |
Net Assets | 14,944,252 |
Net Assets | |
Applicable to 711,376,501 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 14,944,252 |
Net Asset Value Per Share | $21.01 |
See accompanying Notes, which are an integral part of the Financial Statements.
28 |
Institutional Target Retirement 2050 Fund
Statement of Operations
Six Months Ended | ||
March 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Income Distributions Received from Affiliated Funds | 197,765 | |
Other Income | 7 | |
Net Investment Income—Note B | 197,772 | |
Realized Net Gain (Loss) | ||
Capital Gain Distributions Received from Affiliated Funds | — | |
Affiliated Funds Sold | (12,741 | ) |
Futures Contracts | (2,982 | ) |
Realized Net Gain (Loss) | (15,723 | ) |
Change in Unrealized Appreciation (Depreciation) | ||
Affiliated Funds | (2,584,370 | ) |
Futures Contracts | 2,978 | |
Change in Unrealized Appreciation (Depreciation) | (2,581,392 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,399,343 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
29 |
Institutional Target Retirement 2050 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 197,772 | 334,430 | |
Realized Net Gain (Loss) | (15,723) | 2,257 | |
Change in Unrealized Appreciation (Depreciation) | (2,581,392) | 120,178 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,399,343) | 456,865 | |
Distributions1 | |||
Total Distributions | (384,152) | (264,047) | |
Capital Share Transactions | |||
Issued | 2,762,603 | 4,332,507 | |
Issued in Lieu of Cash Distributions | 381,102 | 261,168 | |
Redeemed | (1,402,804) | (1,150,088) | |
Net Increase (Decrease) from Capital Share Transactions | 1,740,901 | 3,443,587 | |
Total Increase (Decrease) | (1,042,594) | 3,636,405 | |
Net Assets | |||
Beginning of Period | 15,986,846 | 12,350,441 | |
End of Period | 14,944,252 | 15,986,846 |
1 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
30 |
Institutional Target Retirement 2050 Fund
Financial Highlights
Six Months | June 26, | |||||
Ended | Year Ended September 30, | 20151 to | ||||
For a Share Outstanding | March 31, | Sept. 30, | ||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value, Beginning of Period | $24.82 | $24.88 | $23.07 | $20.11 | $18.07 | $20.00 |
Investment Operations | ||||||
Net Investment Income2 | .297 | .577 | .542 | .503 | .466 | .149 |
Capital Gain Distributions Received2 | — | — | — | .001 | .002 | — |
Net Realized and Unrealized Gain (Loss) on Investments | (3.514) | (.134) | 1.718 | 2.838 | 1.732 | (2.079) |
Total from Investment Operations | (3.217) | .443 | 2.260 | 3.342 | 2.200 | (1.930) |
Distributions | ||||||
Dividends from Net Investment Income | (.593) | (.502) | (.445) | (.380) | (.160) | — |
Distributions from Realized Capital Gains | — | (.001) | (.005) | (.002) | — | — |
Total Distributions | (.593) | (.503) | (.450) | (.382) | (.160) | — |
Net Asset Value, End of Period | $21.01 | $24.82 | $24.88 | $23.07 | $20.11 | $18.07 |
Total Return | -13.44% | 2.11% | 9.88% | 16.92% | 12.23% | -9.65% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $14,944 | $15,987 | $12,350 | $7,950 | $4,329 | $1,259 |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 |
Ratio of Net Investment Income to Average Net Assets | 2.36% | 2.42% | 2.24% | 2.34% | 2.43% | 2.81%3 |
Portfolio Turnover Rate | 8% | 3% | 5% | 5% | 1% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
31 |
Institutional Target Retirement 2050 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
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Institutional Target Retirement 2050 Fund
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
33 |
Institutional 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 15,708,981 |
Gross Unrealized Appreciation | 714,402 |
Gross Unrealized Depreciation | (1,472,900) |
Net Unrealized Appreciation (Depreciation) | (758,498) |
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, 2019, the fund had available capital losses totaling $2,256,000 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, 2020; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000 | ) | (000) | |
Issued | 109,301 | 183,192 | |
Issued in Lieu of Cash Distributions | 14,496 | 12,261 | |
Redeemed | (56,562 | ) | (47,748) |
Net Increase (Decrease) in Shares Outstanding | 67,235 | 147,705 |
34 |
Institutional Target Retirement 2050 Fund
At March 31, 2020, one shareholder was the record or beneficial owner of 31% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable capital gains.
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 11,719 | NA1 | NA1 | (29) | (26) | 82 | — | 27,842 |
Vanguard Total Bond Market II Index Fund | 1,121,617 | 462,151 | 539,434 | 8,834 | 14,429 | 15,378 | — | 1,067,597 |
Vanguard Total International Bond Index Fund | 476,993 | 96,934 | 119,364 | 158 | (17,909) | 13,493 | — | 436,812 |
Vanguard Total International Stock Index Fund | 5,762,135 | 1,072,878 | 250,303 | (21,246) | (1,186,198) | 80,271 | — | 5,377,266 |
Vanguard Total Stock Market Index Fund | 8,635,511 | 1,205,527 | 407,926 | (458) | (1,394,666) | 88,541 | — | 8,037,988 |
Total | 16,007,975 | 2,837,490 | 1,317,027 | (12,741) | (2,584,370) | 197,765 | — | 14,947,505 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
35 |
Institutional Target Retirement 2055 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 53.6 | % | ||
Vanguard Total International Stock Index Fund Investor Shares | 36.3 | |||
Vanguard Total Bond Market II Index Fund Investor Shares | 7.2 | |||
Vanguard Total International Bond Index Fund Admiral Shares | 2.9 |
The table reflects the fund's investments, except for short-term investments and derivatives.
36
Institutional Target Retirement 2055 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||||
Value• | ||||||||
Shares | ($000 | ) | ||||||
Investment Companies (99.9%) | ||||||||
U.S. Stock Fund (53.5%) | ||||||||
Vanguard Total Stock Market Index Fund Institutional Shares | 68,110,718 | 4,274,629 | ||||||
International Stock Fund (36.3%) | ||||||||
Vanguard Total International Stock Index Fund Investor Shares | 214,963,409 | 2,897,707 | ||||||
U.S. Bond Fund (7.2%) | ||||||||
1 Vanguard Total Bond Market II Index Fund Investor Shares | 50,651,631 | 570,844 | ||||||
International Bond Fund (2.9%) | ||||||||
Vanguard Total International Bond Index Fund Admiral Shares | 10,214,506 | 230,848 | ||||||
Total Investment Companies (Cost $8,610,092) | 7,974,028 | |||||||
Temporary Cash Investment (0.3%) | ||||||||
Money Market Fund (0.3%) | ||||||||
1 Vanguard Market Liquidity Fund, 0.943% (Cost $23,043) | 230,401 | 23,012 | ||||||
Total Investments (100.2%) (Cost $8,633,135) | 7,997,040 | |||||||
Other Assets and Liabilities-Net (-0.2%)2 | (14,722 | ) | ||||||
Net Assets (100%) | 7,982,318 |
Cost Rounded to $000.
• | 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. |
2 | Cash of $2,779,000 has been segregated as initial margin for open futures contracts. |
37
Institutional Target Retirement 2055 Fund
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
($000 | ) | |||||||||||||||
Value and | ||||||||||||||||
Number of | Unrealized | |||||||||||||||
Long (Short) | Notional | Appreciation | ||||||||||||||
Expiration | Contracts | Amount | (Depreciation) | |||||||||||||
Long Futures Contracts | ||||||||||||||||
E-mini S&P 500 Index | June 2020 | 281 | 36,104 | 2,390 |
See accompanying Notes, which are an integral part of the Financial Statements.
38
Institutional Target Retirement 2055 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value—Affiliated Funds (Cost $8,633,135) | 7,997,040 | |||
Cash | 199 | |||
Cash Collateral Pledged—Futures Contracts | 2,779 | |||
Receivables for Accrued Income | 1,481 | |||
Receivables for Capital Shares Issued | 22,967 | |||
Total Assets | 8,024,466 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 25,830 | |||
Payables for Capital Shares Redeemed | 15,735 | |||
Variation Margin Payable—Futures Contracts | 583 | |||
Total Liabilities | 42,148 | |||
Net Assets | 7,982,318 | |||
At March 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 8,586,388 | |||
Total Distributable Earnings (Loss) | (604,070 | ) | ||
Net Assets | 7,982,318 | |||
Net Assets | ||||
Applicable to 378,530,675 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 7,982,318 | |||
Net Asset Value Per Share | $ | 21.09 |
See accompanying Notes, which are an integral part of the Financial Statements.
39
Institutional Target Retirement 2055 Fund
Statement of Operations
Six Months Ended | ||||
March 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Income Distributions Received from Affiliated Funds | 102,919 | |||
Other Income | 3 | |||
Net Investment Income—Note B | 102,922 | |||
Realized Net Gain (Loss) | ||||
Capital Gain Distributions Received from Affiliated Funds | — | |||
Affiliated Funds Sold | 3,090 | |||
Futures Contracts | (1,116 | ) | ||
Realized Net Gain (Loss) | 1,974 | |||
Change in Unrealized Appreciation (Depreciation) | ||||
Affiliated Funds | (1,393,741 | ) | ||
Futures Contracts | 2,390 | |||
Change in Unrealized Appreciation (Depreciation) | (1,391,351 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,286,455 | ) |
See accompanying Notes, which are an integral part of the Financial Statements.
40
Institutional Target Retirement 2055 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||||||
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
($000 | ) | ($000 | ) | |||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net Investment Income | 102,922 | 158,297 | ||||||
Realized Net Gain (Loss) | 1,974 | 2,477 | ||||||
Change in Unrealized Appreciation (Depreciation) | (1,391,351 | ) | 77,656 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,286,455 | ) | 238,430 | |||||
Distributions1 | ||||||||
Total Distributions | (190,256 | ) | (116,168 | ) | ||||
Capital Share Transactions | ||||||||
Issued | 1,938,662 | 2,789,307 | ||||||
Issued in Lieu of Cash Distributions | 188,762 | 114,709 | ||||||
Redeemed | (632,692 | ) | (550,492 | ) | ||||
Net Increase (Decrease) from Capital Share Transactions | 1,494,732 | 2,353,524 | ||||||
Total Increase (Decrease) | 18,021 | 2,475,786 | ||||||
Net Assets | ||||||||
Beginning of Period | 7,964,297 | 5,488,511 | ||||||
End of Period | 7,982,318 | 7,964,297 |
1 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
41
Institutional Target Retirement 2055 Fund
Financial Highlights
Six Months | June 26, | |||||
Ended | Year Ended September 30, | 20151 to | ||||
For a Share Outstanding | March 31, | Sept. 30, | ||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value, Beginning of Period | $24.89 | $24.92 | $23.10 | $20.11 | $18.08 | $20.00 |
Investment Operations | ||||||
Net Investment Income2 | .300 | .582 | .547 | .506 | .470 | .157 |
Capital Gain Distributions Received2 | — | — | — | .001 | .001 | — |
Net Realized and Unrealized Gain (Loss) on Investments | (3.530) | (.125) | 1.709 | 2.845 | 1.718 | (2.077) |
Total from Investment Operations | (3.230) | .457 | 2.256 | 3.352 | 2.189 | (1.920) |
Distributions | ||||||
Dividends from Net Investment Income | (.569) | (.486) | (.430) | (.360) | (.158) | — |
Distributions from Realized Capital Gains | (.001) | (.001) | (.006) | (.002) | (.001) | — |
Total Distributions | (.570) | (.487) | (.436) | (.362) | (.159) | — |
Net Asset Value, End of Period | $21.09 | $24.89 | $24.92 | $23.10 | $20.11 | $18.08 |
Total Return | -13.44% | 2.16% | 9.84% | 16.95% | 12.16% | -9.60% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $7,982 | $7,964 | $5,489 | $3,213 | $1,527 | $373 |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%3 |
Ratio of Net Investment Income to Average Net Assets | 2.37% | 2.44% | 2.26% | 2.36% | 2.47% | 3.05%3 |
Portfolio Turnover Rate | 6% | 3% | 5% | 6% | 1% | 1% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
42
Institutional Target Retirement 2055 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
43
Institutional Target Retirement 2055 Fund
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
44
Institutional 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 8,633,135 | |||
Gross Unrealized Appreciation | 285,463 | |||
Gross Unrealized Depreciation | (919,168 | ) | ||
Net Unrealized Appreciation (Depreciation) | (633,705 | ) |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |||||||
March 31, 2020 | September 30, 2019 | |||||||
Shares | Shares | |||||||
(000 | ) | (000 | ) | |||||
Issued | 76,738 | 117,144 | ||||||
Issued in Lieu of Cash Distributions | 7,153 | 5,370 | ||||||
Redeemed | (25,328 | ) | (22,775 | ) | ||||
Net Increase (Decrease) in Shares Outstanding | 58,563 | 99,739 |
At March 31, 2020, one shareholder was the record or beneficial owner of 31% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable gains.
45
Institutional Target Retirement 2055 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||||||||||||||||||||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||||||||||||||||||||||||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||||||||||||||||||||||||||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||||||||||||||||||||||||||
Value | at Cost | Sold | (Loss | ) | App. (Dep. | ) | Income | Received | Value | |||||||||||||||||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||||||||||||||
Vanguard Market Liquidity Fund | 9,364 | NA1 | NA1 | (11 | ) | (30 | ) | 53 | — | 23,012 | ||||||||||||||||||||||
Vanguard Total Bond Market II Index Fund | 574,144 | 249,819 | 265,576 | 3,577 | 8,880 | 7,997 | — | 570,844 | ||||||||||||||||||||||||
Vanguard Total International Bond Index Fund | 232,404 | 61,087 | 53,398 | (536 | ) | (8,709 | ) | 6,931 | — | 230,848 | ||||||||||||||||||||||
Vanguard Total International Stock Index Fund | 2,859,833 | 744,566 | 62,491 | — | (644,201 | ) | 41,634 | — | 2,897,707 | |||||||||||||||||||||||
Vanguard Total Stock Market Index Fund | 4,303,877 | 835,823 | 115,450 | 60 | (749,681 | ) | 46,304 | — | 4,274,629 | |||||||||||||||||||||||
Total | 7,979,622 | 1,891,295 | 496,915 | 3,090 | (1,393,741 | ) | 102,919 | — | 7,997,040 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
46
Institutional Target Retirement 2060 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 53.6 | % | |
Vanguard Total International Stock Index Fund Investor Shares | 36.3 | ||
Vanguard Total Bond Market II Index Fund Investor Shares | 7.3 | ||
Vanguard Total International Bond Index Fund Admiral Shares | 2.8 |
The table reflects the fund's investments, except for short-term investments and derivatives.
47 |
Institutional Target Retirement 2060 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||
Value• | |||||
Shares | ($000 | ) | |||
Investment Companies (100.2%) | |||||
U.S. Stock Fund (53.7%) | |||||
Vanguard Total Stock Market Index Fund Institutional Shares | 23,709,210 | 1,487,990 | |||
International Stock Fund (36.4%) | |||||
Vanguard Total International Stock Index Fund Investor Shares | 74,695,301 | 1,006,893 | |||
U.S. Bond Fund (7.3%) | |||||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 17,865,870 | 201,348 | ||
International Bond Fund (2.8%) | |||||
Vanguard Total International Bond Index Fund Admiral Shares | 3,423,568 | 77,372 | |||
Total Investment Companies (Cost $3,055,875) | 2,773,603 | ||||
Temporary Cash Investment (0.1%) | |||||
Money Market Fund (0.1%) | |||||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $2,629) | 26,319 | 2,629 | ||
Total Investments (100.3%) (Cost $3,058,504) | 2,776,232 | ||||
Other Assets and Liabilities-Net (-0.3%)2 | (8,160 | ) | |||
Net Assets (100%) | 2,768,072 |
Cost Rounded to $000.
• | 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. |
2 | Cash of $672,000 has been segregated as initial margin for open futures contracts. |
48 |
Institutional Target Retirement 2060 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||||
Futures Contracts | ||||||
($000) | ||||||
Value and | ||||||
Number of | Unrealized | |||||
Long (Short | ) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation) | |||
Long Futures Contracts | ||||||
E-mini S&P 500 Index | June 2020 | 56 | 7,195 | 386 |
See accompanying Notes, which are an integral part of the Financial Statements.
49 |
Institutional Target Retirement 2060 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount | |
Assets | ||
Investments in Securities, at Value—Affiliated Funds (Cost $3,058,504) | 2,776,232 | |
Cash Collateral Pledged—Futures Contracts | 672 | |
Receivables for Accrued Income | 507 | |
Receivables for Capital Shares Issued | 9,640 | |
Total Assets | 2,787,051 | |
Liabilities | ||
Payables for Investment Securities Purchased | 12,088 | |
Payables for Capital Shares Redeemed | 6,775 | |
Variation Margin Payable—Futures Contracts | 116 | |
Total Liabilities | 18,979 | |
Net Assets | 2,768,072 | |
At March 31, 2020, net assets consisted of: | ||
Paid-in Capital | 3,039,974 | |
Total Distributable Earnings (Loss) | (271,902) | |
Net Assets | 2,768,072 | |
Net Assets | ||
Applicable to 131,061,360 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 2,768,072 | |
Net Asset Value Per Share | $21.12 |
See accompanying Notes, which are an integral part of the Financial Statements.
50 |
Institutional Target Retirement 2060 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 34,559 |
Other Income | 1 |
Net Investment Income—Note B | 34,560 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 724 |
Futures Contracts | (444) |
Realized Net Gain (Loss) | 280 |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (478,976) |
Futures Contracts | 386 |
Change in Unrealized Appreciation (Depreciation) | (478,590) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (443,750) |
See accompanying Notes, which are an integral part of the Financial Statements.
51 |
Institutional Target Retirement 2060 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
March 31, | September 30, | ||||
2020 | 2019 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 34,560 | 47,983 | |||
Realized Net Gain (Loss) | 280 | 921 | |||
Change in Unrealized Appreciation (Depreciation) | (478,590 | ) | 31,421 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (443,750 | ) | 80,325 | ||
Distributions1 | |||||
Total Distributions | (60,380 | ) | (32,743 | ) | |
Capital Share Transactions | |||||
Issued | 900,362 | 1,187,527 | |||
Issued in Lieu of Cash Distributions | 59,794 | 32,169 | |||
Redeemed | (240,461 | ) | (249,768 | ) | |
Net Increase (Decrease) from Capital Share Transactions | 719,695 | 969,928 | |||
Total Increase (Decrease) | 215,565 | 1,017,510 | |||
Net Assets | |||||
Beginning of Period | 2,552,507 | 1,534,997 | |||
End of Period | 2,768,072 | 2,552,507 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
52 |
Institutional Target Retirement 2060 Fund
Financial Highlights
Six Months | June 26, | |||||
Ended | Year Ended September 30, | 20151 to | ||||
For a Share Outstanding | March 31, | Sept. 30, | ||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 |
Net Asset Value, Beginning of Period | $24.90 | $24.92 | $23.08 | $20.10 | $18.07 | $20.00 |
Investment Operations | ||||||
Net Investment Income2 | .302 | .589 | .554 | .511 | .466 | .135 |
Capital Gain Distributions Received2 | — | — | — | .001 | .001 | — |
Net Realized and Unrealized Gain (Loss) on Investments | (3.538) | (.132) | 1.699 | 2.828 | 1.729 | (2.065) |
Total from Investment Operations | (3.236) | .457 | 2.253 | 3.340 | 2.196 | (1.930) |
Distributions | ||||||
Dividends from Net Investment Income | (.544) | (.476) | (.409) | (.359) | (.165) | — |
Distributions from Realized Capital Gains | (.000)3 | (.001) | (.004) | (.001) | (.001) | — |
Total Distributions | (.544) | (.477) | (.413) | (.360) | (.166) | — |
Net Asset Value, End of Period | $21.12 | $24.90 | $24.92 | $23.08 | $20.10 | $18.07 |
Total Return | -13.44% | 2.15% | 9.83% | 16.90% | 12.21% | -9.65% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $2,768 | $2,553 | $1,535 | $809 | $334 | $95 |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09% | 0.10% | 0.10%4 |
Ratio of Net Investment Income to Average Net Assets | 2.39% | 2.46% | 2.29% | 2.38% | 2.45% | 2.53%4 |
Portfolio Turnover Rate | 5% | 3% | 5% | 7% | 4% | 4% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 Inception.
2 Calculated based on average shares outstanding.
3 Distribution was less than $.001 per share.
4 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
53 |
Institutional Target Retirement 2060 Fund
Notes to Financial Statements
Vanguard Institutional 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2016–2019), and for the period ended March 31, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
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Institutional Target Retirement 2060 Fund
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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Institutional 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 3,058,504 |
Gross Unrealized Appreciation | 73,555 |
Gross Unrealized Depreciation | (355,441) |
Net Unrealized Appreciation (Depreciation) | (281,886) |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000 | ) | (000) | |
Issued | 35,967 | 49,788 | |
Issued in Lieu of Cash Distributions | 2,263 | 1,505 | |
Redeemed | (9,684 | ) | (10,382) |
Net Increase (Decrease) in Shares Outstanding | 28,546 | 40,911 |
At March 31, 2020, one shareholder was the record or beneficial owner of 30% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might lead to the realization of taxable gains.
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Institutional Target Retirement 2060 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 4,930 | NA1 | NA1 | (8) | (1) | 27 | — | 2,629 |
Vanguard Total Bond Market II Index Fund | 184,795 | 95,816 | 83,516 | 968 | 3,285 | 2,663 | — | 201,348 |
Vanguard Total International Bond Index Fund | 72,202 | 25,407 | 17,235 | (257) | (2,745) | 2,295 | — | 77,372 |
Vanguard Total International Stock Index Fund | 914,175 | 324,471 | 10,660 | — | (221,093) | 13,913 | — | 1,006,893 |
Vanguard Total Stock Market Index Fund | 1,379,176 | 394,560 | 27,345 | 21 | (258,422) | 15,661 | — | 1,487,990 |
Total | 2,555,278 | 840,254 | 138,756 | 724 | (478,976) | 34,559 | — | 2,776,232 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
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Institutional Target Retirement 2065 Fund
Underlying Vanguard Funds
As of March 31, 2020
Vanguard Total Stock Market Index Fund Institutional Shares | 53.8 | % | ||
Vanguard Total International Stock Index Fund Investor Shares | 36.2 | |||
Vanguard Total Bond Market II Index Fund Investor Shares | 6.9 | |||
Vanguard Total International Bond Index Fund Admiral Shares | 3.1 | |||
The table reflects the fund's investments, except for short-term investments and derivatives. |
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Institutional Target Retirement 2065 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000) | ||
Investment Companies (100.4%) | |||
U.S. Stock Fund (53.9%) | |||
Vanguard Total Stock Market Index Fund Institutional Shares | 2,902,369 | 182,153 | |
International Stock Fund (36.4%) | |||
Vanguard Total International Stock Index Fund Investor Shares | 9,113,013 | 122,843 | |
U.S. Bond Fund (7.0%) | |||
1 | Vanguard Total Bond Market II Index Fund Investor Shares | 2,083,568 | 23,482 |
International Bond Fund (3.1%) | |||
Vanguard Total International Bond Index Fund Admiral Shares | 465,271 | 10,515 | |
Total Investment Companies (Cost $388,472) | 338,993 | ||
Temporary Cash Investment (0.0%) | |||
Money Market Fund (0.0%) | |||
1 | Vanguard Market Liquidity Fund, 0.943% (Cost $21) | 206 | 21 |
Total Investments (100.4%) (Cost $388,493) | 339,014 | ||
Other Assets and Liabilities-Net (-0.4%)2 | (1,196) | ||
Net Assets (100%) | 337,818 |
Cost Rounded to $000.
• | 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. |
2 | Cash of $30,000 has been segregated as initial margin for open futures contracts. |
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Institutional Target Retirement 2065 Fund
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | June 2020 | 2 | 257 | (11) |
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement 2065 Fund
Statement of Assets and Liabilities
As of March 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $388,493) | 339,014 |
Cash Collateral Pledged—Futures Contracts | 30 |
Receivables for Accrued Income | 58 |
Receivables for Capital Shares Issued | 2,903 |
Total Assets | 342,005 |
Liabilities | |
Payables for Investment Securities Purchased | 2,912 |
Payables for Capital Shares Redeemed | 1,271 |
Variation Margin Payable—Futures Contracts | 4 |
Total Liabilities | 4,187 |
Net Assets | 337,818 |
At March 31, 2020, net assets consisted of: | |
Paid-in Capital | 386,030 |
Total Distributable Earnings (Loss) | (48,212) |
Net Assets | 337,818 |
Net Assets | |
Applicable to 17,491,852 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 337,818 |
Net Asset Value Per Share | $19.31 |
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement 2065 Fund
Statement of Operations
Six Months Ended | |
March 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 3,694 |
Net Investment Income—Note B | 3,694 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | — |
Affiliated Funds Sold | 99 |
Futures Contracts | 28 |
Realized Net Gain (Loss) | 127 |
Change in Unrealized Appreciation (Depreciation) | |
Affiliated Funds | (56,434) |
Futures Contracts | (11) |
Change in Unrealized Appreciation (Depreciation) | (56,445) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (52,624) |
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement 2065 Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
March 31, | September 30, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 3,694 | 4,124 | |
Realized Net Gain (Loss) | 127 | 26 | |
Change in Unrealized Appreciation (Depreciation) | (56,445) | 4,738 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (52,624) | 8,888 | |
Distributions1 | |||
Total Distributions | (5,739) | (1,981) | |
Capital Share Transactions | |||
Issued | 219,595 | 208,214 | |
Issued in Lieu of Cash Distributions | 5,685 | 1,977 | |
Redeemed | (74,904) | (68,197) | |
Net Increase (Decrease) from Capital Share Transactions | 150,376 | 141,994 | |
Total Increase (Decrease) | 92,013 | 148,901 | |
Net Assets | |||
Beginning of Period | 245,805 | 96,904 | |
End of Period | 337,818 | 245,805 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement 2065 Fund
Financial Highlights
Six Months | July 12, | |||||
Ended | Year Ended | 20171 to | ||||
March 31, | September 30, | Sept. 30, | ||||
For a Share Outstanding Throughout Each Period | 2020 | 2019 | 2018 | 2017 | ||
Net Asset Value, Beginning of Period | $22.78 | $22.69 | $20.80 | $20.00 | ||
Investment Operations | ||||||
Net Investment Income2 | .283 | .552 | .555 | .197 | ||
Capital Gain Distributions Received2 | — | — | — | — | ||
Net Realized and Unrealized Gain (Loss) on Investments | (3.287) | (.107) | 1.503 | .603 | ||
Total from Investment Operations | (3.004) | .445 | 2.058 | .800 | ||
Distributions | ||||||
Dividends from Net Investment Income | (.465) | (.355) | (.165) | — | ||
Distributions from Realized Capital Gains | (.001) | — | (.003) | — | ||
Total Distributions | (.466) | (.355) | (.168) | — | ||
Net Asset Value, End of Period | $19.31 | $22.78 | $22.69 | $20.80 | ||
Total Return | -13.60% | 2.22% | 9.93% | 4.00% | ||
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $338 | $246 | $97 | $5 | ||
Ratio of Total Expenses to Average Net Assets | — | — | — | — | ||
Acquired Fund Fees and Expenses | 0.09% | 0.09% | 0.09% | 0.09%3 | ||
Ratio of Net Investment Income to Average Net Assets | 2.46% | 2.51% | 2.51% | 4.33%3 | ||
Portfolio Turnover Rate | 6% | 8% | 28% | 133% |
The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized.
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Institutional Target Retirement 2065 Fund
Notes to Financial Statements
Vanguard Institutional Target Retirement 2065 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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. Futures Contracts: The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures.
During the six months ended March 31, 2020, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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, 2017–2019), and for the period ended March 31, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
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Institutional Target Retirement 2065 Fund
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facility and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2020, the fund did not utilize the credit facility or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended March 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
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Institutional Target Retirement 2065 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At March 31, 2020, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
D. As of March 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 388,493 |
Gross Unrealized Appreciation | 3,091 |
Gross Unrealized Depreciation | (52,581) |
Net Unrealized Appreciation (Depreciation) | (49,490) |
E. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
March 31, 2020 | September 30, 2019 | ||
Shares | Shares | ||
(000 | ) | (000) | |
Issued | 9,822 | 9,534 | |
Issued in Lieu of Cash Distributions | 235 | 101 | |
Redeemed | (3,357 | ) | (3,114) |
Net Increase (Decrease) in Shares Outstanding | 6,700 | 6,521 |
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Institutional Target Retirement 2065 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Sept. 30, | Proceeds | Realized | March 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 543 | NA1 | NA1 | (1) | — | 5 | — | 21 |
Vanguard Total Bond Market II Index Fund | 17,302 | 12,410 | 6,724 | 84 | 410 | 270 | — | 23,482 |
Vanguard Total International Bond Index Fund | 7,380 | 4,084 | 606 | (8) | (335) | 246 | — | 10,515 |
Vanguard Total International Stock Index Fund | 88,401 | 63,353 | 3,071 | 23 | (25,863) | 1,449 | — | 122,843 |
Vanguard Total Stock Market Index Fund | 133,113 | 87,731 | 8,046 | 1 | (30,646) | 1,724 | — | 182,153 |
Total | 246,739 | 167,578 | 18,447 | 99 | (56,434) | 3,694 | — | 339,014 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2020, that would require recognition or disclosure in these financial statements.
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Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Institutional Target Retirement Funds has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each fund’s 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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the investment management services provided to the funds, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than four 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 arrangements.
Investment performance
The board considered the performance of each fund since its inception, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue.
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.
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The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of scale
The board concluded that Vanguard’s arrangements with the Institutional Target Retirement Funds and their underlying funds ensure 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 arrangements again after a one-year period.
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Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Institutional Target Retirement 2040 Fund, Vanguard Institutional Target Retirement 2045 Fund, Vanguard Institutional Target Retirement 2050 Fund, Vanguard Institutional Target Retirement 2055 Fund, Vanguard Institutional Target Retirement 2060 Fund, and Vanguard Institutional Target Retirement 2065 Fund, and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the funds’ liquidity risk.
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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.
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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
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All rights reserved. |
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Q6732B 052020 |
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: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: 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/ MORTIMER J. BUCKLEY*
___________________________
MORTIMER J. BUCKLEY
CHIEF EXECUTIVE OFFICER
Date: May 18, 2020
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/ MORTIMER J. BUCKLEY*
___________________________
MORTIMER J. BUCKLEY
CHIEF EXECUTIVE OFFICER
Date: May 18, 2020
VANGUARD CHESTER FUNDS
BY: /s/ JOHN BENDL*
___________________________
JOHN BENDL
CHIEF FINANCIAL OFFICER
Date: May 18, 2020
* By: /s/ Anne E. Robinson
Anne E. Robinson, pursuant to a Power of Attorney filed on January 18, 2018 (see file Number 33-32216) and a Power of Attorney filed on October 30, 2019 (see file Number 811-02554), Incorporated by Reference.