The fund invests in common stocks of companies in a variety of segments of the health care industry. Its selections may include pharmaceutical firms, designers and manufacturers of medical equipment and supplies, operators of hospitals and other health care facilities, and biotechnology researchers. The fund seeks a balanced representation of the industry. Stock selection is based on the advisor’s judgment of a company’s financial strength, the quality of its management, and the potential for new products that may lead to above-average growth in revenues and earnings.
- The portfolio may invest, to a limited extent, in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, bond, or currency), a physical asset (such as gold), or a market index (such as the S&P 500 Index). Investments in derivatives may subject the portfolio to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes. The portfolio will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns. In addition, the portfolio’s obligation under futures contracts will not exceed 20% of its total assets.
- The portfolio may enter into forward foreign currency exchange contracts, which are types of derivative contracts. A forward foreign currency exchange contract is an agreement to buy or sell a country’s currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date. Managers of portfolios that invest in foreign securities can use these contracts to guard against unfavorable changes in U.S. dollar/foreign currency exchange rates. These contracts, however, would not prevent the portfolio’s securities from falling in value during foreign market downswings. The portfolio will not enter into such contracts for speculative purposes. Under normal circumstances, the portfolio will not commit more than 20% of its assets to forward foreign currency exchange contracts.
- Vanguard typically invests a small portion of the portfolio’s assets in stock futures and/or shares of exchange-traded funds, including Vanguard ETFs issued by any Vanguard stock index fund.
- 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.
- The portfolio may take temporary defensive positions that are inconsistent with its normal investment policies and strategies—for instance, by allocating substantial assets to cash, commercial paper, or other less volatile instruments—in response to adverse or unusual market, economic, political, or other conditions. In doing so, the portfolio may succeed in avoiding losses but may otherwise fail to achieve its investment objective.