Vanguard Institutional Target Retirement Funds · 2020. 11. 18. · Vanguard Institutional Target...

See the inside front cover for important information about accessto your fund’s annual and semiannual shareholder reports.

Annual Report | September 30, 2020

Vanguard Institutional TargetRetirement Funds

Vanguard Institutional Target Retirement 2040 Fund






Contents

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promisesor advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of thisreport. Of course, the risks of investing in your fund are spelled out in the prospectus.

Important information about access to shareholder reports

Beginning on January 1, 2021, as permitted by regulations adopted by theSecurities and Exchange Commission, paper copies of your fund’s annual andsemiannual shareholder reports will no longer be sent to you by mail, unless youspecifically request them. Instead, you will be notified by mail each time a reportis 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 notbe affected by this change and do not need to take any action. You may elect toreceive shareholder reports and other communications from the fund electronicallyby contacting your financial intermediary (such as a broker-dealer or bank) or, if youinvest directly with the fund, by calling Vanguard at one of the phone numbers onthe back cover of this report or by logging on to vanguard.com.

You may elect to receive paper copies of all future shareholder reports freeof charge. If you invest through a financial intermediary, you can contact theintermediary to request that you continue to receive paper copies. If you investdirectly with the fund, you can call Vanguard at one of the phone numbers on theback cover of this report or log on to vanguard.com. Your election to receive papercopies will apply to all the funds you hold through an intermediary or directly withVanguard.

Your Fund’s Performance at a Glance. . . . . . . . . . . . . . . . . . 1

About Your Fund’s Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 2

Institutional Target Retirement 2040 Fund. . . . . . . . . . . . . . .4

Institutional Target Retirement 2045 Fund. . . . . . . . . . . . . .16





• For the 12 months ended September 30, 2020, returns for the six Vanguard Institutional

Target Retirement Funds covered in this report ranged from 9.93% for the Institutional

Target Retirement 2040 Fund to 10.30% for the Institutional Target Retirement 2060

Fund. Each fund performed in line with its composite benchmark after expenses.

• The rebound in global stocks that began in March continued in the third quarter.

Massive fiscal and monetary support from governments and central banks, signs of

economic healing, and reported progress toward a COVID-19 vaccine all buoyed the

markets until September, when investor sentiment soured a little.

• In the global bond market, the pandemic led to a wave of issuance, which drove

up supply, but demand held up fairly well. U.S. Treasury yields ended the quarter

little changed.

• Vanguard Institutional Target Retirement Funds are designed to reach an allocation

of 70% bonds and 30% stocks within seven years after their target dates. The funds

invest all their assets in Vanguard index funds that seek to match the performance of

broad stock and bond market indexes.

• From their inception dates through September 30, the funds’ average annual returns

ranged from 7.39% for the Institutional Target Retirement 2040 Fund to 8.13% for the

Institutional Target Retirement 2065 Fund.

Your Fund’s Performance at a Glance

Market Barometer Average Annual Total Returns

Periods Ended September 30, 2020

One Year Three Years Five Years

Stocks

Russell 1000 Index (Large-caps) 16.01% 12.38% 14.09%

Russell 2000 Index (Small-caps) 0.39 1.77 8.00

Russell 3000 Index (Broad U.S. market) 15.00 11.65 13.69

FTSE All-World ex US Index (International) 3.55 1.50 6.49

Bonds

Bloomberg Barclays U.S. Aggregate Bond Index

(Broad taxable market) 6.98% 5.24% 4.18%

Bloomberg Barclays Municipal Bond Index

(Broad tax-exempt market) 4.09 4.28 3.84

FTSE Three-Month U.S. Treasury Bill Index 1.02 1.65 1.15

CPI

Consumer Price Index 1.37% 1.79% 1.81%

1

About Your Fund’s Expenses

2

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.

3

Six Months Ended September 30, 2020

BeginningAccount Value

3/31/2020

EndingAccount Value

9/30/2020

ExpensesPaid During

Period

Based on Actual Fund Return

Institutional Target Retirement 2040 Fund $1,000.00 $1,251.89 $0.51






Based on Hypothetical 5% Yearly Return







The calculations are based on the acquired fund fees and expenses for the most recent six-month period. The funds’ annualized expensefigures 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 dollaramounts shown as ”Expenses Paid” are equal to the annualized average weighted expense ratio for the underlying funds multiplied by theaverage account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the numberof days in the most recent 12-month period (183/366).

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher thanthe performance data cited. For performance data current to the most recent month-end, visitour website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Performance Summary

See Financial Highlights for dividend and capital gains information.

Institutional Target Retirement 2040 Fund

4

Cumulative Performance: June 26, 2015, Through September 30, 2020Initial Investment of $100,000,000

202020192018201720162015

$176,000,000

80,000,000

145,566,849

Average Annual Total ReturnsPeriods Ended September 30, 2020

OneYear

FiveYears

SinceInception

(6/26/2015)

Final Valueof a $100,000,000

Investment

Institutional Target Retirement 2040Fund 9.93% 10.00% 7.39% $145,566,849

• • • • • • • • Target 2040 Composite Index 10.73 10.35 7.73 147,955,653________ MSCI US Broad Market Index 14.99 13.70 10.98 173,014,030

Target 2040 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: forinternational stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index throughJune 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index throughAugust 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013,and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Bloomberg Barclays U.S. Aggregate Bond Index through December31, 2009, and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Bloomberg BarclaysGlobal Aggregate ex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the MSCI US BroadMarket Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjustedfor withholding taxes.

"Since Inception" performance is calculated from the fund’s inception date for both the fund and its comparative standards.

Underlying Vanguard FundsAs of September 30, 2020


5

Vanguard Total Stock Market Index FundInstitutional Shares 49.5%

Vanguard Total International Stock IndexFund Investor Shares 33.2

Vanguard Total Bond Market II IndexFund Investor Shares 11.9

Vanguard Total International Bond IndexFund Admiral Shares 5.4

The table reflects the fund's investments, except for short-terminvestments and derivatives.

Investment Companies (98.8%)

U.S. Stock Fund (49.0%)

Vanguard Total Stock Market Index Fund Institutional Shares 172,094,907 14,275,273

International Stock Fund (32.8%)

Vanguard Total International Stock Index Fund Investor Shares 570,116,158 9,555,147

U.S. Bond Fund (11.7%) 1 Vanguard Total Bond Market II Index Fund Investor Shares 296,656,106 3,423,411

International Bond Fund (5.3%)

Vanguard Total International Bond Index Fund Admiral Shares 66,551,483 1,546,657

Total Investment Companies (Cost $23,506,651) 28,800,488

Temporary Cash Investment (1.6%)

Money Market Fund (1.6%)1 Vanguard Market Liquidity Fund, 0.117% (Cost $468,248) 4,682,642 468,264

Total Investments (100.4%) (Cost $23,974,899) 29,268,752

Other Assets and Liabilities—Net (-0.4%) (119,151)

Net Assets (100%) 29,149,601

Cost is in $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.

Market

Value•

Shares ($000)


Schedule of InvestmentsAs of September 30, 2020

Financial Statements

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.

6


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

10-Year U.S. Treasury Note December 2020 2,246 313,387 256

E-mini S&P 500 Index December 2020 238 39,889 589

845

See accompanying Notes, which are an integral part of the Financial Statements.

7

($000s, except shares and per-share amounts) Amount

Assets

Investments in Securities, at Value—Affiliated Funds (Cost $23,974,899) 29,268,752

Cash Collateral Pledged—Futures Contracts 11,724

Receivables for Accrued Income 6,797

Receivables for Capital Shares Issued 42,765

Variation Margin Receivable—Futures Contracts 869

Total Assets 29,330,907

Liabilities

Payables for Investment Securities Purchased 15,773

Payables for Capital Shares Redeemed 164,972

Variation Margin Payable—Futures Contracts 561

Total Liabilities 181,306

Net Assets 29,149,601

At September 30, 2020, net assets consisted of:

Paid-in Capital 23,482,203

Total Distributable Earnings (Loss) 5,667,398


Net Assets

Applicable to 1,100,251,157 outstanding $.001 par value shares of

beneficial interest (unlimited authorization) 29,149,601

Net Asset Value Per Share $26.49

Statement of Assets and LiabilitiesAs of September 30, 2020



8

Year Ended September 30, 2020

($000)

Investment Income

Income

Income Distributions Received from Affiliated Funds 579,972

Other Income 21

Net Investment Income—Note B 579,993

Realized Net Gain (Loss)

Capital Gain Distributions Received from Affiliated Funds —

Affiliated Funds Sold 17,411

Futures Contracts 13,634

Realized Net Gain (Loss) 31,045

Change in Unrealized Appreciation (Depreciation)

Affiliated Funds 1,989,503

Futures Contracts 845

Change in Unrealized Appreciation (Depreciation) 1,990,348

Net Increase (Decrease) in Net Assets Resulting from Operations 2,601,386

Statement of Operations



9

Statement of Changes in Net Assets



Year Ended September 30,

2020 2019

($000) ($000)

Increase (Decrease) in Net Assets

Operations

Net Investment Income 579,993 545,029

Realized Net Gain (Loss) 31,045 1,099

Change in Unrealized Appreciation (Depreciation) 1,990,348 244,321

Net Increase (Decrease) in Net Assets Resulting from Operations 2,601,386 790,449

Distributions1

Total Distributions (616,023) (455,908)

Capital Share Transactions

Issued 5,669,183 5,254,578

Issued in Lieu of Cash Distributions 610,821 450,585

Redeemed (4,173,157) (1,780,334)

Net Increase (Decrease) from Capital Share Transactions 2,106,847 3,924,829

Total Increase (Decrease) 4,092,210 4,259,370

Net Assets

Beginning of Period 25,057,391 20,798,021

End of Period 29,149,601 25,057,391

1 Certain prior-period numbers have been reclassified to conform with current-period presentation.

10

For a Share Outstanding Year Ended September 30,

Throughout Each Period 2020 2019 2018 2017 2016

Net Asset Value, Beginning of Period $24.66 $24.61 $22.93 $20.10 $18.08

Investment Operations

Net Investment Income1 .539 .575 .535 .494 .461

Capital Gain Distributions Received1 — — — .002 .002

Net Realized and Unrealized Gain (Loss)

on Investments 1.898 (.005) 1.601 2.730 1.718

Total from Investment Operations 2.437 .570 2.136 3.226 2.181

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 $26.49 $24.66 $24.61 $22.93 $20.10

Total Return 9.93% 2.65% 9.39% 16.35% 12.12%

Ratios/Supplemental Data

Net Assets, End of Period (Millions) $29,150 $25,057 $20,798 $14,863 $8,724

Ratio of Total Expenses to Average Net Assets — — — — —

Acquired Fund Fees and Expenses 0.09% 0.09% 0.09% 0.09% 0.10%

Ratio of Net Investment Income to

Average Net Assets 2.17% 2.43% 2.24% 2.32% 2.62%

Portfolio Turnover Rate 15% 5% 7% 5% 0%

1 Calculated based on average shares outstanding.

Financial Highlights



11

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 at www.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

securities 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 Statement of Assets and Liabilities. 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 contracts.

During the year ended September 30, 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. The fund’s tax returns are open to examination by the

relevant tax authorities until expiration of the applicable statute of limitations, which is generally

three years after the filing of the tax return. Management has analyzed the fund’s tax positions

taken for all open federal and state income tax years, and has concluded that no provision for

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.

12


5. Credit Facilities 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 and an uncommitted credit facility provided

by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its

borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency

purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to

the committed credit facility, the participating funds are charged administrative fees and an annual

commitment fee of 0.10% of the undrawn committed 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 either 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, except that borrowings under the uncommitted credit facility may bear interest based upon

an alternative rate agreed to by the fund and Vanguard.

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 year ended September 30, 2020, the fund did not utilize the credit facilities 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 September 30, 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 and derivatives.

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.

13


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 and derivatives valued with significant unobservable

inputs are noted on the Schedule of Investments.

At September 30, 2020, 100% of the market value of the fund’s investments and derivatives was

determined based on Level 1 inputs.

D. Permanent differences between book-basis and tax-basis components of net assets, if any, are

reclassified among capital accounts in the financial statements to reflect their tax character. These

reclassifications have no effect on net assets or net asset value per share.

Temporary differences between book-basis and tax-basis components of total distributable

earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods

for financial statement and tax purposes; these differences will reverse at some time in the future.

The differences are primarily related to the deferral of losses from wash sales and the recognition

of unrealized gains or losses from certain derivative contracts. As of period end, the tax-basis

components of total distributable earnings (loss) are detailed in the table as follows:

Amount

($000)

Undistributed Ordinary Income 373,545

Undistributed Long-Term Gains —

Capital Loss Carryforwards —

Qualified Late-Year Losses —

Net Unrealized Gains (Losses) 5,293,853

The tax character of distributions paid was as follows:


2020 2019

Amount Amount

($000) ($000)

Ordinary Income* 616,023 455,908

Long-Term Capital Gains — —

Total 616,023 455,908

* Includes short-term capital gains, if any.

As of September 30, 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 23,974,899

Gross Unrealized Appreciation 5,435,778

Gross Unrealized Depreciation (141,925)

Net Unrealized Appreciation (Depreciation) 5,293,853

14


E. Capital shares issued and redeemed were:


2020 2019

Shares Shares

(000) (000)

Issued 228,010 224,272


Redeemed (167,248) (74,584)

Net Increase (Decrease) in Shares Outstanding 84,300 170,902

At September 30, 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 Sept. 30,

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 (80) 17 420 — 468,264

Vanguard Total

Bond Market II

Index Fund 2,957,662 1,689,587 1,358,876 22,813 112,225 74,085 — 3,423,411

Vanguard Total

International Bond

Index Fund 1,236,906 634,444 314,933 1,068 (10,828) 41,910 — 1,546,657

Vanguard Total

International Stock

Index Fund 8,332,505 1,580,556 553,068 (33,391) 228,545 219,340 — 9,555,147

Vanguard Total

Stock Market

Index Fund 12,545,147 1,716,640 1,673,059 27,001 1,659,544 244,217 — 14,275,273

Total 25,085,875 5,621,227 3,899,936 17,411 1,989,503 579,972 — 29,268,752

1 Not applicable—purchases and sales are for temporary cash investment purposes.

G. Management has determined that no events or transactions occurred subsequent to

September 30, 2020, that would require recognition or disclosure in these financial statements.

15


Performance Summary



16


202020192018201720162015

$176,000,000

80,000,000

146,574,231


OneYear

FiveYears

SinceInception

(6/26/2015)


Investment



Target 2045 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: forinternational stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index throughJune 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index throughAugust 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013,and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Bloomberg Barclays U.S. Aggregate Bond Index through December31, 2009, and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Bloomberg BarclaysGlobal Aggregate ex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the Dow Jones U.S. TotalStock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005, the MSCI US Broad Market Indexthrough June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholdingtaxes.




17













Vanguard Total International Bond Index Fund Admiral Shares 33,460,419 777,620






Net Assets (100%) 25,066,160



Market

Value•

Shares ($000)







www.sec.gov.

18



Futures Contracts

($000)

Value and







654


19


Assets







Liabilities










Net Assets

Applicable to 938,708,531 outstanding $.001 par value shares of






20


($000)

Investment Income

Income


Other Income 14




Affiliates Funds Sold (1,858)











21





2020 2019

($000) ($000)


Operations


Realized Net Gain (Loss) 20,327 (1,387)



Distributions1



Issued 5,171,573 4,892,911


Redeemed (3,690,228) (1,551,129)



Net Assets


End of Period 25,066,160 21,307,922


22








on Investments 1.976 (.130) 1.730 2.833 1.736


Distributions


Distributions from Realized Capital Gains — (.002) (.004) (.002) —



Total Return 10.17% 2.13% 9.92% 16.87% 12.24%












23






























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,






and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant

tax authorities until expiration of the applicable statute of limitations, which is generally three years

after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all

open federal and state income tax years, and has concluded that no provision for income tax is

required in the fund’s financial statements.


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.

24




a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by

Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings,

if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes,

subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed

credit facility, the participating funds are charged administrative fees and an annual commitment fee

of 0.10% of the undrawn committed 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 either 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,

except that borrowings under the uncommitted credit facility may bear interest based upon an

alternative rate agreed to by the fund and Vanguard.











Lending Program.




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 September 30, 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.





25



















Amount

` ($000)








2020 2019

Amount Amount

($000) ($000)



Total 515,800 375,521




Amount

($000)

Tax Cost 20,667,487




26




2020 2019

Shares Shares

(000) (000)

Issued 206,754 207,342


Redeemed (147,252) (64,485)



net assets. If this shareholder were to redeem its investment in the fund, the redemption might








($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Vanguard Market


Vanguard Total

Bond Market II

Index Fund 1,492,017 873,270 839,449 13,656 50,509 36,294 — 1,590,003

Vanguard Total

International Bond

Index Fund 637,189 316,976 171,145 796 (6,196) 21,200 — 777,620

Vanguard Total

International Stock

Index Fund 7,677,971 1,586,733 463,908 (32,433) 195,080 204,008 — 8,963,443

Vanguard Total

Stock Market

Index Fund 11,511,694 1,632,623 1,264,629 16,183 1,532,490 226,207 — 13,428,361

Total 21,330,590 4,409,602 2,739,131 (1,858) 1,771,909 488,105 — 25,165,514




27


Performance Summary



28


202020192018201720162015

$176,000,000

80,000,000

146,587,192


OneYear

FiveYears

SinceInception

(6/26/2015)


Investment



Target 2050 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: forinternational stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index throughJune 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the Select Emerging Markets Index throughAugust 23, 2006, the MSCI Emerging Markets Index through December 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013,and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Bloomberg Barclays U.S. Aggregate Bond Index through December31, 2009, and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter; for international bonds, the Bloomberg BarclaysGlobal Aggregate ex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the MSCI US BroadMarket Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjustedfor withholding taxes.




29



















Net Assets (100%) 19,514,445



Market

Value•

Shares ($000)







www.sec.gov.

30



Futures Contracts

($000)

Value and







1,017


31


Assets







Liabilities










Net Assets







32


($000)

Investment Income

Income


Other Income 10




Affiliated Funds Sold (2,905)











33





2020 2019

($000) ($000)


Operations





Distributions1



Issued 4,693,363 4,332,507


Redeemed (2,955,065) (1,150,088)



Net Assets


End of Period 19,514,445 15,986,846


34








on Investments 1.988 (.134) 1.718 2.838 1.732


Distributions


Distributions from Realized Capital Gains — (.001) (.005) (.002) —



Total Return 10.21% 2.11% 9.88% 16.92% 12.23%












35













































36








credit facility, the participating funds are charged administrative fees and an annual commitment

fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon















Lending Program.




securities sold.
















37



















Amount

($000)








2020 2019

Amount Amount

($000) ($000)



Total 384,152 264,047




Amount

($000)

Tax Cost 16,371,206




38




2020 2019

Shares Shares

(000) (000)

Issued 188,111 183,192


Redeemed (117,322) (47,748)











($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Vanguard Market


Vanguard Total

Bond Market II

Index Fund 1,121,617 721,962 704,201 8,872 40,535 27,831 — 1,188,785

Vanguard Total

International Bond

Index Fund 476,993 243,791 119,364 207 (4,031) 16,005 — 597,596

Vanguard Total

International Stock

Index Fund 5,762,135 1,444,315 345,354 (24,407) 167,786 156,222 — 7,004,475

Vanguard Total

Stock Market

Index Fund 8,635,511 1,574,120 929,880 12,466 1,190,836 173,285 — 10,483,053

Total 16,007,975 3,984,188 2,098,799 (2,905) 1,395,148 373,662 — 19,589,248




39


Performance Summary



40


202020192018201720162015

$176,000,000

80,000,000

146,686,282


OneYear

FiveYears

SinceInception

(6/26/2015)


Investment



Target 2055 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: forinternational stocks of developed markets, the MSCI EAFE Index through December 15, 2010, the MSCI ACWI ex USA IMI Index throughJune 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for emerging-market stocks, the MSCI Emerging Markets Index throughDecember 15, 2010, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S.bonds, the Bloomberg Barclays U.S. Aggregate Float Adjusted Index; for international bonds, the Bloomberg Barclays Global Aggregateex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index throughJune 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.




41











U.S. Bond Fund (6.6%) 1 Vanguard Total Bond Market II Index Fund Investor Shares 61,461,566 709,266








Net Assets (100%) 10,773,832



Market

Value•

Shares ($000)







www.sec.gov.

42



Futures Contracts

($000)

Value and






10-Year U.S. Treasury Note December 2020 423 59,022 49

960


43


Assets







Liabilities










Net Assets







44


($000)

Investment Income

Income


Other Income 6








Affiliated Funds 749,973


Change in Unrealized Appreciation (Depreciation) 750,933

Net Increase (Decrease) in Net Assets Resulting from Operations 980,721




45





2020 2019

($000) ($000)


Operations



Change in Unrealized Appreciation (Depreciation) 750,933 77,656

Net Increase (Decrease) in Net Assets Resulting from Operations 980,721 238,430

Distributions1



Issued 3,355,236 2,789,307


Redeemed (1,524,928) (550,492)



Net Assets


End of Period 10,773,832 7,964,297


46








on Investments 2.001 (.125) 1.709 2.845 1.718


Distributions


Distributions from Realized Capital Gains (.001) (.001) (.006) (.002) (.001)



Total Return 10.24% 2.16% 9.84% 16.95% 12.16%












47













































48








credit facility, the participating funds are charged administrative fees and an annual commitment

fee of 0.10% of the undrawn committed amount of the facility; these fees are allocated to the funds

















Lending Program.




securities sold.
















49



















Amount

($000)


Undistributed Long-Term Gains 12,232






2020 2019

Amount Amount

($000) ($000)


Long-Term Capital Gains 167 30

Total 190,256 116,168




Amount

($000)

Tax Cost 9,311,833




50




2020 2019

Shares Shares

(000) (000)

Issued 134,161 117,144


Redeemed (60,222) (22,775)











($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Vanguard Market


Vanguard Total

Bond Market II

Index Fund 574,144 490,371 381,814 3,405 23,160 15,068 — 709,266

Vanguard Total

International Bond

Index Fund 232,404 141,022 53,398 (174) (1,503) 8,296 — 318,351

Vanguard Total

International Stock

Index Fund 2,859,833 1,026,406 92,873 (1,028) 81,563 83,218 — 3,873,901

Vanguard Total

Stock Market

Index Fund 4,303,877 1,227,900 442,098 7,195 646,737 92,497 — 5,743,611

Total 7,979,622 2,885,699 970,183 9,371 749,973 199,272 — 10,819,452




51


Performance Summary



52


202020192018201720162015

$176,000,000

80,000,000

146,655,913


OneYear

FiveYears

SinceInception

(6/26/2015)


Investment



Target 2060 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: forinternational stocks of developed markets, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex USIndex thereafter; for emerging-market stocks, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex USIndex thereafter; for U.S. bonds, the Bloomberg Barclays U.S. Aggregate Float Adjusted Index; for international bonds, the BloombergBarclays Global Aggregate ex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the MSCI USBroad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns areadjusted for withholding taxes.




53
















Money Market Fund (1.6%)1 Vanguard Market Liquidity Fund, 0.117% (Cost $63,876) 638,798 63,880



Net Assets (100%) 3,961,515



Market

Value•

Shares ($000)







www.sec.gov.

54



Futures Contracts

($000)

Value and







393


55


Assets



Receivables for Accrued Income 540




Liabilities








Total Distributable Earnings (Loss) 528,486


Net Assets







56


($000)

Investment Income

Income


Other Income 2















57





2020 2019

($000) ($000)


Operations


Realized Net Gain (Loss) 9,442 921



Distributions1



Issued 1,671,562 1,187,527


Redeemed (618,606) (249,768)

Net Increase (Decrease) from Capital Share Transactions 1,112,750 969,928


Net Assets


End of Period 3,961,515 2,552,507


58








on Investments 2.012 (.132) 1.699 2.828 1.729


Distributions


Distributions from Realized Capital Gains (.000)2 (.001) (.004) (.001) (.001)



Total Return 10.30% 2.15% 9.83% 16.90% 12.21%


Net Assets, End of Period (Millions) $3,962 $2,553 $1,535 $809 $334






1 Calculated based on average shares outstanding.2 Distribution was less than $.001 per share.




59













































60


























Lending Program.




securities sold.
















61



















Amount

($000)


Undistributed Long-Term Gains 4,606



Net Unrealized Gains (Losses) 474,282



2020 2019

Amount Amount

($000) ($000)


Long-Term Capital Gains — 11

Total 60,380 32,743




Amount

($000)

Tax Cost 3,501,814

Gross Unrealized Appreciation 506,228


Net Unrealized Appreciation (Depreciation) 474,282

62




2020 2019

Shares Shares

(000) (000)

Issued 67,012 49,788


Redeemed (24,595) (10,382)











($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Vanguard Market


Vanguard Total

Bond Market II

Index Fund 184,795 206,685 132,797 1,105 8,389 5,236 — 268,177

Vanguard Total

International Bond

Index Fund 72,202 55,175 17,234 (92) (333) 2,769 — 109,718

Vanguard Total

International Stock

Index Fund 914,175 478,655 10,761 — 33,436 28,885 — 1,415,505

Vanguard Total

Stock Market

Index Fund 1,379,176 641,039 138,712 1,231 236,082 32,254 — 2,118,816

Total 2,555,278 1,381,554 299,504 2,238 277,578 69,223 — 3,976,096




63


Performance Summary



64

Cumulative Performance: July 12, 2017, Through September 30, 2020Initial Investment of $100,000,000

2020201920182017

$147,000,000

90,000,000

128,628,035


OneYear

SinceInception

(7/12/2017)


Investment

Institutional Target Retirement 2065Fund 10.06% 8.13% $128,628,035

• • • • • • • • Target 2065 Composite Index 10.97 8.46 129,882,485________ MSCI US Broad Market Index 14.99 12.06 144,290,688

Target 2065 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: the FTSEGlobal All Cap ex US Index for international stocks, the Bloomberg Barclays U.S. Aggregate Float Adjusted Index for U.S. bonds, theBloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index Hedged for international bonds, and the CRSP US TotalMarket Index for U.S. stocks. International stock benchmark returns are adjusted for withholding taxes.




65








Vanguard Total Stock Market Index Fund Institutional Shares 3,248,485 269,462


Vanguard Total International Stock Index Fund Investor Shares 10,619,885 177,989



Vanguard Total International Bond Index Fund Admiral Shares 563,468 13,095

Total Investment Companies (Cost $450,522) 495,448


Money Market Fund (1.5%)1 Vanguard Market Liquidity Fund, 0.117% (Cost $7,514) 75,142 7,514

Total Investments (100.0%) (Cost $458,036) 502,962

Other Assets and Liabilities—Net (0.0%) 237

Net Assets (100%) 503,199

Cost is in $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.

Market

Value•

Shares ($000)







www.sec.gov.

66



Futures Contracts

($000)

Value and







52


67


Assets

Investments in Securities, at Value—Affiliated Funds (Cost $458,036) 502,962

Cash Collateral Pledged—Futures Contracts 370

Receivables for Investment Securities Sold 2,764

Receivables for Accrued Income 69



Total Assets 509,239

Liabilities

Payables for Investment Securities Purchased 406




Net Assets 503,199


Paid-in Capital 451,929

Total Distributable Earnings (Loss) 51,270

Net Assets 503,199

Net Assets


beneficial interest (unlimited authorization) 503,199





68


($000)

Investment Income

Income





Affiliated Funds Sold 22


Realized Net Gain (Loss) 760









69





2020 2019

($000) ($000)


Operations


Realized Net Gain (Loss) 760 26



Distributions1



Issued 395,927 208,214


Redeemed (185,337) (68,197)

Net Increase (Decrease) from Capital Share Transactions 216,275 141,994

Total Increase (Decrease) 257,394 148,901

Net Assets

Beginning of Period 245,805 96,904

End of Period 503,199 245,805


70

July 12,

20171 to

Year Ended 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


Net Investment Income2 .499 .552 .555 .197

Capital Gain Distributions Received2 — — — —

Net Realized and Unrealized Gain (Loss) on Investments 1.787 (.107) 1.503 .603

Total from Investment Operations 2.286 .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 $24.60 $22.78 $22.69 $20.80

Total Return 10.06% 2.22% 9.93% 4.00%


Net Assets, End of Period (Millions) $503 $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 2.17% 2.51% 2.51% 4.33%3

Portfolio Turnover Rate 14% 8% 28% 133%

1 Inception.


3 Annualized.




71













































72


























Lending Program.




securities sold.
















73



















Amount

($000)


Undistributed Long-Term Gains 474



Net Unrealized Gains (Losses) 44,926



2020 2019

Amount Amount

($000) ($000)


Long-Term Capital Gains 1 —

Total 5,739 1,981




Amount

($000)

Tax Cost 458,036

Gross Unrealized Appreciation 49,745


Net Unrealized Appreciation (Depreciation) 44,926

74




2020 2019

Shares Shares

(000) (000)

Issued 17,604 9,534

Issued in Lieu of Cash Distributions 235 101

Redeemed (8,179) (3,114)








($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

Vanguard Market

Liquidity Fund 543 NA1 NA1 (1) — 11 — 7,514

Vanguard Total

Bond Market II

Index Fund 17,302 29,616 13,147 94 1,037 594 — 34,902

Vanguard Total

International Bond

Index Fund 7,380 6,734 1,007 (1) (11) 305 — 13,095

Vanguard Total

International Stock

Index Fund 88,401 87,330 3,515 22 5,751 3,325 — 177,989

Vanguard Total

Stock Market

Index Fund 133,113 140,341 35,094 (92) 31,194 3,840 — 269,462

Total 246,739 264,021 52,763 22 37,971 8,075 — 502,962




75

To the Board of Trustees of Vanguard Chester Funds and Shareholders of 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

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities, including the schedules of

investments, of 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 (six of the funds constituting Vanguard Chester Funds,

hereafter collectively referred to as the “Funds”) as of September 30, 2020, the related statements

of operations for the year ended September 30, 2020, the statements of changes in net assets for

each of the two years in the period ended September 30, 2020, including the related notes, and the

financial highlights for each of the periods indicated therein (collectively referred to as the “financial

statements”). In our opinion, the financial statements present fairly, in all material respects, the

financial position of each of the Funds as of September 30, 2020, the results of each of their

operations for the year then ended, the changes in each of their net assets for each of the two

years in the period ended September 30, 2020 and each of the financial highlights for each of the

periods indicated therein in conformity with accounting principles generally accepted in the United

States of America.

Basis for Opinions

These financial statements are the responsibility of the Funds’ management. Our responsibility is

to express an opinion on the Funds’ financial statements based on our audits. We are a public

accounting firm registered with the Public Company Accounting Oversight Board (United States)

(“PCAOB”) and are required to be independent with respect to the Funds in accordance with the

U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange

Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of

the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement, whether

due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the

financial statements, whether due to error or fraud, and performing procedures that respond to

those risks. Such procedures included examining, on a test basis, evidence regarding the amounts

and disclosures in the financial statements. Our audits also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements. Our procedures included confirmation of securities owned

as of September 30, 2020 by correspondence with the transfer agent. We believe that our audits

provide a reasonable basis for our opinions.

/s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania November 12, 2020

We have served as the auditor of one or more investment companies in The Vanguard Group of

Funds since 1975.

Report of Independent Registered Public Accounting Firm

76

Special 2020 tax information (unaudited) for Vanguard Institutional Target Retirement Funds

This information for the fiscal year ended September 30, 2020, is included pursuant to provisions of

the Internal Revenue Code.

The funds distributed capital gain dividends (20% rate gain distributions) to shareholders during the

fiscal year as follows:

Fund ($000)

Institutional Target Retirement 2040 Fund —



Institutional Target Retirement 2055 Fund 167


Institutional Target Retirement 2065 Fund 1

For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the

funds are qualified short-term capital gains.

The funds distributed qualified dividend income to shareholders during the fiscal year as follows:

Fund ($000)

Institutional Target Retirement 2040 Fund 389,990






For corporate shareholders, the percentage of investment income (dividend income plus short-term

gains, if any) that qualifies for the dividends-received deduction is as follows:

Fund Percentage

Institutional Target Retirement 2040 Fund 35.1%

Institutional Target Retirement 2045 Fund 39.1





77

The funds designate to shareholders foreign source income and foreign taxes paid as follows:

Foreign Source Income Foreign Taxes Paid

Fund ($000) ($000)

Institutional Target Retirement 2040 Fund 272,393 16,197





Institutional Target Retirement 2065 Fund 3,812 245

Shareholders will receive more detailed information with their Form 1099-DIV in January 2021 to

determine the calendar-year amounts to be included on their 2020 tax returns.

78

BLOOMBERG is a trademark and service mark of Bloomberg Finance L.P. BARCLAYS is a trademark and service mark

of Barclays Bank Plc, used under license. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services

Limited (BISL) (collectively, Bloomberg), or Bloomberg’s licensors, own all proprietary rights in the Bloomberg Barclays

U.S. Aggregate Bond Index, Bloomberg Barclays U.S. Aggregate Float Adjusted Index, and the Bloomberg Barclays Global

Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged) (the Indices or Bloomberg Barclays Indices).

Neither Barclays Bank Plc, Barclays Capital Inc., or any affiliate (collectively Barclays) or Bloomberg is the issuer or

producer of the Institutional Target Retirement Funds (including the Total Bond Market II Index Fund and the Total

International Bond Index Fund) and neither Bloomberg nor Barclays has any responsibilities, obligations or duties to

investors in the Institutional Target Retirement Funds. The Indices are licensed for use by The Vanguard Group, Inc.

(Vanguard) as the sponsor of the Institutional Target Retirement Funds. Bloomberg and Barclays’ only relationship with

Vanguard in respect to the Indices is the licensing of the Indices, which is determined, composed and calculated by BISL,

or any successor thereto, without regard to the Issuer or the Institutional Target Retirement Funds or the owners of the

Institutional Target Retirement Funds.

Additionally, Vanguard may for itself execute transaction(s) with Barclays in or relating to the Indices in connection with

the Institutional Target Retirement Funds. Investors acquire the Institutional Target Retirement Funds from Vanguard and

investors neither acquire any interest in the Indices nor enter into any relationship of any kind whatsoever with Bloomberg

or Barclays upon making an investment in the Institutional Target Retirement Funds. The Institutional Target Retirement

Funds are not sponsored, endorsed, sold or promoted by Bloomberg or Barclays. Neither Bloomberg nor Barclays makes

any representation or warranty, express or implied regarding the advisability of investing in the Institutional Target

Retirement Funds or the advisability of investing in securities generally or the ability of the Indices to track corresponding

or relative market performance. Neither Bloomberg nor Barclays has passed on the legality or suitability of the Institutional

Target Retirement Funds with respect to any person or entity. Neither Bloomberg nor Barclays is responsible for and has

not participated in the determination of the timing of, prices at, or quantities of the Institutional Target Retirement Funds

to be issued. Neither Bloomberg nor Barclays has any obligation to take the needs of the Issuer or the owners of the

Institutional Target Retirement Funds or any other third party into consideration in determining, composing or calculating

the Indices. Neither Bloomberg nor Barclays has any obligation or liability in connection with administration, marketing or

trading of the Institutional Target Retirement Funds.

79

The licensing agreement between Bloomberg and Barclays is solely for the benefit of Bloomberg and Barclays and not

for the benefit of the owners of the Institutional Target Retirement Funds, investors or other third parties. In addition,

the licensing agreement between Vanguard and Bloomberg is solely for the benefit of Vanguard and Bloomberg and not

for the benefit of the owners of the Institutional Target Retirement Funds, investors or other third parties.

NEITHER BLOOMBERG NOR BARCLAYS SHALL HAVE ANY LIABILITY TO THE ISSUER, INVESTORS OR TO OTHER

THIRD PARTIES FOR THE QUALITY, ACCURACY AND/OR COMPLETENESS OF THE BLOOMBERG BARCLAYS INDICES

OR ANY DATA INCLUDED THEREIN OR FOR INTERRUPTIONS IN THE DELIVERY OF THE BLOOMBERG BARCLAYS INDICES.

NEITHER BLOOMBERG NOR BARCLAYS MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE

OBTAINED BY THE ISSUER, THE INVESTORS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG

BARCLAYS INDICES OR ANY DATA INCLUDED THEREIN. NEITHER BLOOMBERG NOR BARCLAYS MAKES ANY EXPRESS

OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY

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DATA INCLUDED THEREIN. BLOOMBERG RESERVES THE RIGHT TO CHANGE THE METHODS OF CALCULATION OR

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The People Who Govern Your Fund

The trustees of your mutual fund are there to see that the fund is operated and managed in your

best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also

serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard

funds and provides services to them.

A majority of Vanguard’s board members are independent, meaning that they have no affiliation

with Vanguard or the funds they oversee, apart from the sizable personal investments they have

made as private individuals. The independent board members have distinguished backgrounds

in business, academia, and public service. Each of the trustees and executive officers oversees

213 Vanguard funds.

Information for each trustee and executive officer of the fund appears below. That information,

as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing

address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information

about the trustees is in the Statement of Additional Information, which can be obtained, without

charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.

Interested Trustee1

Mortimer J. Buckley

Born in 1969. Trustee since January 2018. Principal

occupation(s) during the past five years and other

experience: chairman of the board (2019–present) of

Vanguard and of each of the investment companies

served by Vanguard; chief executive officer (2018–

present) of Vanguard; chief executive officer, president,

and trustee (2018–present) of each of the investment

companies served by Vanguard; president and

director (2017–present) of Vanguard; and president

(2018–present) of Vanguard Marketing Corporation.

Chief investment officer (2013–2017), managing

director (2002–2017), head of the Retail Investor

Group (2006–2012), and chief information officer

(2001–2006) of Vanguard. Chairman of the board

(2011–2017) and trustee (2009–2017) of the Children’s

Hospital of Philadelphia; and trustee (2018–present)

and vice chair (2019–present) of The Shipley School.

Independent Trustees

Emerson U. Fullwood



experience: executive chief staff and marketing officer

for North America and corporate vice president (retired

2008) of Xerox Corporation (document management

products and services). Former president of the

Worldwide Channels Group, Latin America, and

Worldwide Customer Service and executive chief

staff officer of Developing Markets of Xerox. Executive

in residence and 2009–2010 Distinguished Minett

Professor at the Rochester Institute of Technology.

Director of SPX FLOW, Inc. (multi-industry manufac-

turing). Director of the University of Rochester Medical

Center, the Monroe Community College Foundation,

the United Way of Rochester, North Carolina A&T

University, and Roberts Wesleyan College. Trustee

of the University of Rochester.

Amy Gutmann

Born in 1949. Trustee since June 2006. Principal


experience: president (2004–present) of the University

of Pennsylvania. Christopher H. Browne Distinguished

Professor of Political Science, School of Arts and

Sciences, and professor of communication, Annenberg

School for Communication, with secondary faculty

appointments in the Department of Philosophy, School

of Arts and Sciences, and at the Graduate School of

Education, University of Pennsylvania.

F. Joseph Loughrey

Born in 1949. Trustee since October 2009. Principal


experience: president and chief operating officer

(retired 2009) and vice chairman of the board

(2008–2009) of Cummins Inc. (industrial machinery).

Chairman of the board of Hillenbrand, Inc. (specialized

consumer services) and the Lumina Foundation.

Director of the V Foundation. Member of the advisory

1 Mr. Buckley is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.

council for the College of Arts and Letters and

chair of the advisory board to the Kellogg Institute

for International Studies, both at the University of

Notre Dame.

Mark Loughridge

Born in 1953. Trustee since March 2012. Principal


experience: senior vice president and chief financial

officer (retired 2013) of IBM (information technology

services). Fiduciary member of IBM’s Retirement

Plan Committee (2004–2013), senior vice president

and general manager (2002–2004) of IBM Global

Financing, vice president and controller (1998–2002)

of IBM, and a variety of other prior management roles

at IBM. Member of the Council on Chicago Booth.

Scott C. Malpass

Born in 1962. Trustee since March 2012. Principal


experience: chief investment officer (retired June

2020) and vice president (retired June 2020) of the

University of Notre Dame. Assistant professor of

finance at the Mendoza College of Business, University

of Notre Dame, and member of the Notre Dame 403(b)

Investment Committee (retired June 2020). Member

of the board of Catholic Investment Services, Inc.

(investment advisors) and the board of superintendence

of the Institute for the Works of Religion.

Deanna Mulligan



experience: board chair (2020–present), chief executive

officer (2011–2020), and president (2010–2019) of

The Guardian Life Insurance Company of America.

Chief operating officer (2010–2011) and executive

vice president (2008–2010) of the individual life and

disability division of Guardian Life. Member of the

board of the American Council of Life Insurers and the

board of the Economic Club of New York. Trustee of

the Partnership for New York City (business leadership),

Chief Executives for Corporate Purpose, NewYork-

Presbyterian Hospital, Catalyst, and the Bruce Museum

(arts and science). Member of the Advisory Council

for the Stanford Graduate School of Business.

André F. Perold

Born in 1952. Trustee since December 2004. Principal


experience: George Gund Professor of Finance and

Banking, Emeritus at the Harvard Business School

(retired 2011). Chief investment officer and co-

managing partner of HighVista Strategies (private

investment firm). Member of the board of advisors

and member of the investment committee of the

Museum of Fine Arts Boston. Member of the board

(2018–present) of RIT Capital Partners (investment

firm). Member of the investment committee of

Partners Health Care System.

Sarah Bloom Raskin



experience: deputy secretary (2014–2017) of

the United States Department of the Treasury.

Governor (2010–2014) of the Federal Reserve

Board. Commissioner (2007–2010) of financial

regulation for the State of Maryland. Member of

the board of directors (2012–2014) of Neighborhood

Reinvestment Corporation. Director (2017–present)

of i(x) Investments, LLC; director (2017–present) of

Reserve Trust. Rubenstein Fellow (2017–present)

of Duke University; trustee (2017–present) of Amherst

College, and trustee (2019–present) of the Folger

Shakespeare Library.

Peter F. Volanakis

Born in 1955. Trustee since July 2009. Principal


experience: president and chief operating officer

(retired 2010) of Corning Incorporated (communications

equipment) and director of Corning Incorporated

(2000–2010) and Dow Corning (2001–2010).

Director (2012) of SPX Corporation (multi-industry

manufacturing). Overseer of the Amos Tuck School

of Business Administration, Dartmouth College

(2001–2013). Chairman of the board of trustees

of Colby-Sawyer College. Member of the board of

Hypertherm Inc. (industrial cutting systems, software,

and consumables).

Executive Officers

John Bendl

Born in 1970. Principal occupation(s) during the past

five years and other experience: principal of Vanguard.

Chief financial officer (2019–present) of each of the

investment companies served by Vanguard. Chief

accounting officer, treasurer, and controller of Vanguard

(2017–present). Partner (2003–2016) at KPMG (audit,

tax, and advisory services).

Christine M. Buchanan



Treasurer (2017–present) of each of the investment

companies served by Vanguard. Partner (2005–2017)

at KPMG (audit, tax, and advisory services).

David Cermak

Born in 1960. Principal occupation(s) during the

past five years and other experience: principal of

Vanguard. Finance director (2019–present) of each

of the investment companies served by Vanguard.

Managing director and head (2017–present) of

Vanguard Investments Singapore. Managing director

and head (2017–2019) of Vanguard Investments Hong

Kong. Representative director and head (2014–2017)

of Vanguard Investments Japan.

John Galloway


past five years and other experience: principal of

Vanguard. Investment stewardship officer (September

2020–present) of each of the investment companies

served by Vanguard. Head of Investor Advocacy

(February 2020–present) and head of Marketing

Strategy and Planning (2017–2020) at Vanguard.

Deputy assistant to the President of the United

States (2015).

Thomas J. Higgins



Finance director (2019–present), chief financial officer

(2008–2019), and treasurer (1998–2008) of each of

the investment companies served by Vanguard.

Peter Mahoney



Controller (2015–present) of each of the investment

companies served by Vanguard. Head of International

Fund Services (2008–2014) at Vanguard.

Anne E. Robinson


past five years and other experience: general

counsel (2016–present) of Vanguard. Secretary

(2016–present) of Vanguard and of each of the

investment companies served by Vanguard.

Managing director (2016–present) of Vanguard.

Managing director and general counsel of Global

Cards and Consumer Services (2014–2016) at

Citigroup. Counsel (2003–2014) at American Express.

Michael Rollings


past five years and other experience: finance

director (2017–present) and treasurer (2017) of each

of the investment companies served by Vanguard.

Managing director (2016–present) of Vanguard. Chief

financial officer (2016–present) of Vanguard. Director

(2016–present) of Vanguard Marketing Corporation.

Executive vice president and chief financial officer

(2006–2016) of MassMutual Financial Group.

John E. Schadl



Chief compliance officer (2019–present) of Vanguard

and of each of the investment companies served by

Vanguard. Assistant vice president (2019–present)

of Vanguard Marketing Corporation.

Vanguard Senior Management Team

Joseph Brennan James M. Norris

Mortimer J. Buckley Thomas M. Rampulla

Gregory Davis Karin A. Risi

John James Anne E. Robinson

John T. Marcante Michael Rollings

Chris D. McIsaac Lauren Valente

Connect with Vanguard® > vanguard.com

Fund Information > 800-662-7447

Direct Investor Account Services > 800-662-2739

Institutional Investor Services > 800-523-1036

Text Telephone for PeopleWho Are Deaf or Hard of Hearing > 800-749-7273

This material may be used in conjunctionwith the offering of shares of any Vanguardfund only if preceded or accompanied bythe fund’s current prospectus.

All comparative mutual fund data are from Morningstar,Inc., unless otherwise noted.

You can obtain a free copy of Vanguard’s proxy votingguidelines by visiting vanguard.com/proxyreporting or bycalling Vanguard at 800-662-2739. The guidelines arealso available from the SEC’s website, www.sec.gov. Inaddition, you may obtain a free report on how your fundvoted the proxies for securities it owned during the 12months ended June 30. To get the report, visit eithervanguard.com/proxyreporting or www.sec.gov.

You can review information about your fund on theSEC’s website, and you can receive copies of thisinformation, for a fee, by sending a request via emailaddressed to [email protected].

© 2020 The Vanguard Group, Inc.All rights reserved.Vanguard Marketing Corporation, Distributor.

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Vanguard Institutional Target Retirement Funds · 2020. 11. 18. · Vanguard Institutional Target...

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