Investment Strategy
Target Enrollment Portfolios allocate their assets to Underlying Funds. These options seek to provide a diversified allocation to broad asset classes, including domestic and international stocks and bonds. The allocations to the asset classes and the Underlying Funds are expected to change, reducing exposure to stocks and increasing exposure to fixed income and cash equivalents, becoming more conservative through the Beneficiaries’ expected enrollment year. The Underlying Funds in this option will rebalance on a quarterly basis until reaching the Vanguard Commencement Portfolio, and then will retain a static allocation in that Commencement Portfolio. The underlying funds are:
Vanguard Total Stock Market Index Fund – Institutional Plus Shares 57%
Vanguard Total International Stock Index Fund – Institutional Plus Shares 38%
Vanguard Total Bond Market II Index Fund – Institutional Shares 3.50%
Vanguard Total International Bond Index Fund – Institutional Shares 1.50%
Through investments in Vanguard Institutional Total Stock Market Index Fund, the Portfolios indirectly invest in large-capitalization U.S. stocks, as well as mid-, small-, and micro-capitalization U.S. stocks. The Fund holds a broadly diversified collection of securities that, in the aggregate, approximates the total market capitalization of all the U.S. common stocks regularly traded on the New York Stock Exchange and Nasdaq, through an indexing investment approach designed to track the performance of the CRSP US Total Market Index. The Fund may become nondiversified, as defined under the Investment Company Act of 1940, solely as a result of an index rebalance or market movement.
Through investments in Vanguard Total International Stock Index Fund, the Portfolios indirectly invest in international stocks. The Fund employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index, which is a float-adjusted market-capitalization-weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The Fund invests all, or substantially all, of its assets in the common stocks in its target index.
Through investments in Vanguard Total Bond Market II Index Fund, the Portfolios indirectly invest in a broadly diversified collection of securities that, in the aggregate, approximates the Bloomberg U.S. Aggregate Float Adjusted Index in terms of key risk factors and other characteristics. The Index measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities—all with maturities of more than 1 year. The Fund maintains a dollar-weighted average maturity and an average duration consistent with that of the Index.
Through investments in Vanguard Total International Bond Index Fund, the Portfolios indirectly invest in government, government agency, corporate, and securitized non-U.S. investment-grade fixed income investments, all issued in currencies other than the U.S. dollar and with maturities of more than 1 year. The Fund employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Indexed (USD Hedged). This Index is market value weighted and capped to comply with investment company diversification standards of the Internal Revenue Code. The Index methodology is not designed to satisfy the diversification requirements of the Investment Company Act of 1940. To minimize currency risk associated with investment in bonds denominated in currencies other than the U.S. dollar, the Fund will attempt to hedge its foreign currency exposure, primarily through the use of foreign currency exchange forward contracts. The Fund may become nondiversified, as defined under the Investment Company Act of 1940, solely as a result of an index rebalance or market movement. The Fund maintains a dollar-weighted average maturity consistent with that of the Index.
Investment Risks
The Portfolio is subject to the risks of the underlying bond funds, which include interest rate risk, credit risk, income risk, call risk, prepayment risk, extension risk, country/regional risk, currency and currency hedging risk, nondiversification risk, index-related risks, index sampling risk, derivatives risk, and liquidity risk. The Portfolio is subject to the risks of the underlying stock funds, which include stock market risk, investment style risk, country/regional risk, currency risk, emerging markets risk, special risks of investing in China, index-related risks, index replicating risk, index sampling risk, nondiversification risk, and sector risk.
