Vanguard High Yield Bond

Objective And Strategy

Objective
High level of current income

Strategy
The Portfolio invests mainly in a diversified group of high-yielding, higher-risk corporate bonds - commonly known as "junk bonds" - with medium- and lower-range credit-quality ratings. The Portfolio invests at least 80% of its assets in corporate bonds that are rated below Baa by Moody’s Investors Service, Inc.; have an equivalent rating by any other independent bond rating agency; or if unrated, are determined to be of comparable quality.
Low Cost Fund

Principal Risks

* This portfolio is subject to the risks of investing in low-grade corporate bonds that have a higher default risk, less liquidity and greater sensitivity to changes in the economy than investment-grade bonds. High-yield bonds are rated lower because there is a greater risk associated with the issuer's ability to pay principal and interest.

* 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.

* The Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This fund may invest in securities rated below investment grade or "junk bonds." Junk bonds may be sensitive to economic changes, political changes, or adverse developments specific to a company.

* 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.

* Credit risk is the risk that the issuer of a security may be unable to make interest payments and/or repay principal when due. A downgrade to an issuer's credit rating or a perceived change in an issuer's financial strength may affect a security's value, and thus, impact the VA Short-Term Fixed Portfolio's performance.

* 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.