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The Conservative Income Portfolio seeks to provide current income.
The Conservative Income Portfolio invests in three Vanguard® bond funds and one Vanguard money market fund, resulting in an allocation of 75% of its assets to investment-grade bonds and 25% of assets to short-term investments. The percentages of the portfolio's assets allocated to each underlying fund are:
34.5% Vanguard Total Bond Market II Index Fund
25% Vanguard Short-Term Reserves Account
18% Vanguard Short-Term Inflation-Protected Securities Index Fund
22.5% Vanguard Total International Bond Index Fund
Through its investment in Vanguard Total Bond Market II Index Fund, the Portfolio indirectly invests in a broadly diversified collection of securities that, in the aggregate, approximates the Bloomberg Barclays U.S. Aggregate Float Adjusted Index in terms of key risk factors and other characteristics. This 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 one year. The Fund maintains a dollar-weighted average maturity consistent with that of the Index, which generally ranges between five and ten years.
Through its investment in Vanguard Short-Term Inflation-Protected Securities Index Fund, the Portfolio indirectly invests in inflation-indexed bonds issued by the U.S. government and its agencies and instrumentalities. The Fund’s target index is a market-capitalization-weighted index that includes all inflation-protected public obligations issued by the U.S. Treasury with remaining maturities of less than five years.
Through its investment in Vanguard Total International Bond Index Fund, the Portfolio indirectly invests 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 one year. To minimize the currency risk associated with investments in bonds denominated in currencies other than the U.S. dollar, the Fund attempts to hedge its currency exposure. Through its investment in Vanguard Short-Term Reserves Account, the Portfolio indirectly invests in funding agreements issued by one or more insurance companies, synthetic investment contracts (SICs), and shares of Vanguard Federal Money Market Fund. Funding agreements are interest bearing contracts that are structured to preserve principal and accumulate interest earnings over the life of the investment. The agreements pay interest at a fixed minimum rate and have fixed maturity dates that normally range from 2 to 5 years. Vanguard Federal Money Market Fund invests in high-quality, short-term money market instruments issued by the U.S. government and its agencies and instrumentalities. For more information about Vanguard Short-Term Reserves Account, please see the Vanguard Interest Accumulation Portfolio profile.
Since it invests mainly in bond funds, the Portfolio primarily is subject to a moderate level of income fluctuation risk and low to moderate levels of interest rate risk, credit risk, income risk, call risk, prepayment risk and extension risk. In addition, the Portfolio has low to moderate levels of country/regional risk, nondiversification risk, and currency hedging risk. The Portfolio also has low levels of manager risk and index sampling risk.
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**Consists of the Spliced Total Bond Market Index (34.5%), the Bloomberg Barclays U.S. 0-5 Year TIPS Index (18%), the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged) (22.5%), the FTSE 3-Month Treasury Bill Index (2.5%) and Ryan Labs 3 year GIC Index (22.5%). The Spliced Total Bond Market Index consists of the Barclays U.S. Aggregate Bond Index through December 31, 2009; and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter. Effective September 29, 2016, Barclays indexes were rebranded Bloomberg Barclays indexes.
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