The fund invests at least 80% of its assets in Government National Mortgage Association (GNMA, or ”Ginnie Mae”) pass-through certificates, which are fixed income securities representing part ownership in a pool of mortgage loans backed by the U.S. government. The balance of the fund’s assets may be invested in U.S. Treasury or other U.S. government agency securities, as well as repurchase agreements collateralized by such securities. The fund’s dollar-weighted average maturity depends on homeowner prepayments of the underlying mortgages. While the fund does not observe specific maturity guidelines, the fund’s dollar-weighted average maturity will normally fall within an intermediate-term range (5 to 10 years).
- The portfolio may invest in derivatives only if the expected risks and rewards of the derivatives are consistent with the investment objective, policies, strategies, and risks of the portfolio as disclosed in the prospectus. The advisor will not use derivatives to change the risk exposure of the portfolio.
- The portfolio may invest up to 15% of its net assets in illiquid securities. Illiquid securities are securities that a portfolio may not be able to sell in the ordinary course of business. Restricted securities are a special type of illiquid security; these securities have not been publicly issued and legally can be resold only to qualified buyers. From time to time, the board of trustees may determine that particular restricted securities are not illiquid, and those securities may then be purchased by a portfolio without limit.
- The portfolio’s daily cash balance may be invested in one or more Vanguard CMT funds, which are very low-cost money market funds. When investing in a Vanguard CMT fund, the portfolio bears its proportionate share of the at-cost expenses of the CMT fund in which it invests.
- The portfolio may temporarily depart from its normal investment policies and strategies when doing so is believed to be in the portfolio’s best interest, so long as the alternative is consistent with the portfolio’s investment objective. For instance, the portfolio may invest beyond the normal limits in derivatives or ETFs that are consistent with the portfolio’s objective when those instruments are more favorably priced or provide needed liquidity, as might be the case when the portfolio is transitioning assets from one advisor to another or receives large cash flows that it cannot prudently invest immediately.