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TIPS Fund Question
Old 02-15-2011, 08:21 AM   #1
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TIPS Fund Question

A curiosity question for the Inflation Protected Fund investors out there. I was reading the VIPSX prospectus and it really doesn't say that it invests in TIPS. It just refers simply to "inflation protected securities". Does that mean it also invests in iBonds, or other "inflation protected securities" that I might not be aware of?
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Old 02-15-2011, 08:39 AM   #2
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The fund invests at least 80% of its assets in inflation-indexed bonds issued by the U.S. government, its agencies and instrumentalities, and corporations. . . .

Up to 20% of the fundís assets may be invested in holdings that are not inflation-indexed. The fund will make such investments primarily when inflation-indexed bonds are less attractive. The fundís non-inflation-indexed holdings may include the following:
  • Corporate debt obligations.
  • U.S. government and agency bonds.
  • Cash investments.
  • Futures, options, and other derivatives. The fund may invest up to 20% of its total assets in bond futures contracts, options, credit swaps, interest rate swaps, and other types of derivatives. These contracts may be used to keep cash on hand to meet shareholder redemptions or other needs while simulating full investment in bonds, to reduce transaction costs, for hedging purposes, or to add value when these instruments are favorably priced. Losses (or gains) involving futures can be substantialóin part because a relatively small price movement in a futures contract may result in an immediate and substantial loss (or gain) for the fund. Similar risks exist for other types of derivatives. For this reason, the fund will not use derivatives for speculative purposes or as leveraged investments that magnify the gains or losses of an investment.
  • Restricted or illiquid securities. Restricted securities are privately placed securities that generally can only be sold to qualified institutional buyers and, hence, could be difficult for the fund to convert to cash, if needed. The fund will not invest more than 15% of its assets in such illiquid securities.
  • Mortgage dollar rolls are transactions in which a fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance a fundís returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. These transactions may increase a fundís portfolio turnover rate. Mortgage dollar rolls will be used only if consistent with a fundís investment objective and risk profile.
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Old 02-15-2011, 09:06 AM   #3
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Old 02-15-2011, 04:00 PM   #4
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A curiosity question for the Inflation Protected Fund investors out there. I was reading the VIPSX prospectus and it really doesn't say that it invests in TIPS. It just refers simply to "inflation protected securities". Does that mean it also invests in iBonds, or other "inflation protected securities" that I might not be aware of?
I'm sure they don't invest in iBonds. There are some pretty severe limits on how much you can invest each year in those.
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Old 02-15-2011, 11:52 PM   #5
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I was reading the VIPSX prospectus and it really doesn't say that it invests in TIPS.
In reality it invests nearly 100% in TIPS.
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