The portfolio employs a “passive management”—or indexing—investment approach designed to track the performance of the Standard & Poor’s (S&P) Total Market Index. The portfolio invests all, or substantially all, of its assets in two Vanguard funds—Vanguard Variable Insurance Fund-Equity Index Portfolio and Vanguard Extended Market Index Fund. The S&P Total Market Index consists of substantially all of the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market. Though the portfolio seeks to track the index, its performance typically can be expected to fall short by a small percentage representing operating costs of the underlying funds.
- The portfolio may invest a small portion of assets in shares of stock or bond exchange traded funds (ETFs), including ETF Shares issued by Vanguard funds. ETFs provide returns similar to those of the stocks or bonds listed in an index or in a subset of an index. Vanguard may purchase ETFs when doing so will reduce the portfolio’s transaction costs or add value because the instruments are favorably priced. Vanguard receives no additional revenue from investing portfolio assets in ETF Shares of other Vanguard funds. Portfolio assets invested in ETF Shares are excluded when allocating to the portfolio its share of the costs of Vanguard operations.
- The portfolio reserves the right to substitute a different index for the index it currently tracks if the current index is discontinued, if the portfolio’s agreement with the sponsor of its target index is terminated, or for any other reason determined in good faith by the portfolio’s board of trustees. In any such instance, the substitute index would measure the same market segment as the current index.
- The portfolio may invest in derivatives. In general, derivatives may involve risks different from, and possibly greater than, those of a portfolio’s other investments. 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 may invest, to a limited extent, in futures and options contracts, which are types of derivatives. The portfolio will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.
- 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 fund’s investment objective. For instance, the fund may invest beyond the normal limits in derivatives or ETFs that are consistent with the fund’s objective when those instruments are more favorably priced or provide needed liquidity, as might be the case when the fund is transitioning assets from one advisor to another or receives large cash flows that it cannot prudently invest immediately.