has come up with a retirement income solution that uses mutual funds. The company filed registration today for the Vanguard Managed Payout Funds
, which will be funds-of-funds, investing predominantly in Vanguard domestic and international stock index funds, bond and REIT index funds, and inflation-protected securities and money market instruments. In the Vanguard tradition, the expense ratio will be a paltry 34 basis points.
The Vanguard Group today filed a registration statement with the U.S. Securities and Exchange Commission for a new series of mutual funds designed to provide monthly payments to investors in retirement.
The proposed Vanguard® Managed Payout Funds will be structured as funds-of-funds, investing predominantly in Vanguard domestic and international stock index funds, bond and REIT index funds, and inflation-protected securities and money market instruments. The funds may also allocate a portion of their assets to commodity-linked investments, as well as pursue market-neutral and other absolute-return strategies.
“The Managed Payout Funds will broaden Vanguard’s lineup of retirement income solutions, which range from traditional balanced and life-cycle funds to immediate annuities and customized withdrawal plans,” said Vanguard CEO John J. Brennan. “We believe that the new funds will appeal to individuals who are seeking a regular income stream in retirement, but who also want to retain access to their accounts to meet unexpected expenses or, potentially, for estate planning reasons.”
Each fund is designed to provide level monthly payments throughout each year, with payments adjusted each year based on the fund’s performance over the previous three years. Investors will have a choice of three portfolio options based on their personal spending needs and other goals:
• Managed Payout Real Growth Fund—designed for investors who seek a modest initial current payout, and wish to see their capital and payouts grow in real terms (inflation-adjusted) over time. This fund is expected to sustain a managed distribution policy with a 3% annual distribution rate.*
• Managed Payout Moderate Growth Fund—structured for investors who want to balance their initial payout stream with maintaining the purchasing power of their future payouts and capital. This fund is expected to sustain a managed distribution policy with a 5% annual distribution rate.*
• Managed Payout Capital Preservation Fund—geared toward investors who seek a higher payout level to satisfy current spending needs while preserving their capital over the long term. This fund is expected to sustain a managed distribution policy with a 7% annual distribution rate.*
Vanguard Quantitative Equity Group, which oversees more than $550 billion in indexed assets and $25 billion in active quantitative equity fund assets, will manage the new payout funds. In addition to overseeing 60 index-oriented funds and annuity portfolios, the group serves as the sole investment advisor to six actively managed Vanguard funds (the Strategic Equity Fund, the Strategic Small-Cap Equity Fund, and four structured-equity funds) and manages portions of six other funds.
In managing the payout funds, Vanguard will employ quantitative and qualitative analyses in an attempt to combine asset classes and investments with relatively low or negative historic correlation into a portfolio that generates positive long-term total returns through most economic and market conditions. The funds are designed to maintain their scheduled cash distributions without consuming capital over the long term.
“Vanguard Managed Payout Funds will feature balance, diversification, and low costs that are hallmarks of Vanguard investing philosophy,” said Mr. Brennan, who noted that the new offerings may be especially attractive to retirees and those who are nearing retirement intending to roll over assets to an IRA from a defined contribution, defined benefit, or other tax-advantaged plan.
Vanguard Managed Payout Funds will feature an estimated expense ratio of 0.34%. The funds will not charge a sales commission or a 12b-1 fee. Investors may redeem or exchange shares of the funds at any time without charge or penalty, subject to Vanguard frequent-trading policy limits.
The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is the nation’s second-largest mutual fund firm and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $1.2 trillion in U.S. mutual fund assets, including more than $325 billion in employer-sponsored retirement plans. Vanguard offers more than 140 funds to U.S. investors and more than 40 additional funds in foreign markets.
* A fund shareholder will receive a monthly cash distribution equal to the fund’s monthly distribution per share times the number of shares owned on the record date. As detailed in the prospectus, the monthly distribution per share is based on the following formula: approximately 1/12th of the fund’s annual distribution rate (3%, 5%, or 7%) multiplied by the fund's average NAV per share over the previous three calendar years.
All asset figures as of August 31, 2007.
The Vanguard Managed Payout Funds are not guaranteed and are subject to risk of loss associated with their underlying funds and investments. Investments in commodities and long-short market-neutral investments may involve increased risk. Investments in bond funds are subject to interest rate, credit, and inflation risk. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility. Foreign investing involves additional risks including currency fluctuations and political uncertainty.
A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
Copies of the Vanguard Managed Payout Funds' prospectus, as well as prospectuses for all other Vanguard funds can be obtained by calling 800-523-1036. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in these documents; read and consider them carefully before investing. Please note that a preliminary prospectus is subject to change.
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