Vanguard Total Bond Market Index

Objective And Strategy

Objective
Track the performance of a broad, market-weighted bond index.

Strategy
The Portfolio employs a "passive management" - or indexing - investment approach designed to track the performance of the Barclays Capital U.S. Aggregate Bond Index. This Index measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, all with maturities of more than 1 year. The Portfolio invests by sampling the Index, meaning that it holds a range of securities that, in the aggregate, approximate the full Index in terms of key risk factors and other characteristics. The Portfolio maintains a dollar-weighted average maturity consistent with that of the Index, which currently ranges between 5 and 10 years.
Low Cost Fund

Principal Risks

* This portfolio invests (or may invest) in securities of companies with micro-, small-, or mid-capitalization. Any investment in micro-, small-, or mid-capitalization companies involves greater risk than that customarily associated with investments in larger, more established companies because of the greater business risks of smaller size, limited markets and financial resources, narrower product lines, and frequent lack of management depth. As such, micro- or small-cap companies may be more subject to erratic and abrupt market movements than securities of larger, more established companies.

* This Fund does not use defensive strategies or attempt to reduce its exposure to poorly performing stocks. Therefore, if the index performs poorly, the Fund, because it is correlated to the index, will perform poorly. Correlation between the Fund's performance and that of the index may also be negatively affected by the Fund's expenses, changes in the composition of the index, and the timing of purchase and redemption of Fund shares.

* This fund has a risk of prepayment and extension. A mortgage backed bond, unlike other bonds can be hurt when interest rates fall because homeowners refinance and prepay principal. Receiving increasing prepayments in a falling interest rate environment cause the average maturity of the portfolio to shorten, reducing its potential for price gains. It requires the fund to reinvest at lower interest rates, which reduced the portfolio's total return and yield, and may cause certain bond prices to fall below the level the fund paid for them, resulting in a capital loss.

* Fixed income securities are subject to interest rate risk because the prices of fixed income securities tend to move in the opposite direction of interest rates. When interest rates rise, fixed income security prices fall. When interest rates fall, fixed income security prices rise.

* During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the portfolio to reinvest in lower yielding securities.

* Rising interest rates will generally cause the prices of bonds and other debt securities to fall. Longer maturity debt securities may be subject to greater price fluctuations than shorter maturity debt securities. In addition, falling interest rates may cause an issuer to redeem, call or refinance a debt security before its stated maturity, which may result in the fund having to reinvest the process in lower yielding securities.