UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02368
| Name of Registrant: | Vanguard Fixed Income Securities Funds |
| Address of Registrant: | P.O. Box 2600 |
| Valley Forge, PA 19482 |
| Name and address of agent for service: | Anne E. Robinson, Esquire |
| P.O. Box 876 | |
| Valley Forge, PA 19482 |
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: January 31
Date of reporting period: February 1, 2022—July 31, 2022
Item 1: Reports to Shareholders
Semiannual Report | July 31, 2022
Vanguard U.S.
Government Bond Funds
| Vanguard Short-Term Treasury Fund |
| Vanguard Short-Term Federal Fund |
| Vanguard Intermediate-Term Treasury Fund |
| Vanguard Long-Term Treasury Fund |
Contents
About Your Fund’s Expenses | 1 |
Short-Term Treasury Fund | 3 |
Short-Term Federal Fund | 17 |
Intermediate-Term Treasury Fund | 32 |
Long-Term Treasury Fund | 46 |
Trustees Approve Advisory Arrangements | 60 |
Liquidity Risk Management | 62 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended July 31, 2022 | |||
| Beginning Account Value 1/31/2022 | Ending Account Value 7/31/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Short-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $980.70 | $0.98 |
| Admiral™ Shares | 1,000.00 | 981.10 | 0.49 |
| Short-Term Federal Fund | |||
| Investor Shares | $1,000.00 | $975.80 | $0.98 |
| Admiral Shares | 1,000.00 | 976.30 | 0.49 |
| Intermediate-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $960.20 | $0.97 |
| Admiral Shares | 1,000.00 | 960.70 | 0.49 |
| Long-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $841.40 | $0.91 |
| Admiral Shares | 1,000.00 | 841.80 | 0.46 |
| Based on Hypothetical 5% Yearly Return | |||
| Short-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Short-Term Federal Fund | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Intermediate-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Long-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
The calculations are
based on expenses incurred in the most recent six-month period. The funds' annualized six-month expense ratios for that period are: for the Short-Term Treasury Fund, 0.20% for Investor Shares and 0.10% for Admiral
Shares; for the Short-Term Federal Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares; for the Intermediate-Term Treasury Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares; and for the Long-Term
Treasury Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares. The dollar amounts shown as “Expenses Paid" are equal to the annualized expense ratio multiplied by the average account value over the
period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (181/365).
2
Short-Term Treasury Fund
Fund Allocation
As of July 31, 2022
| Government Mortgage-Backed Securities | 3.2% |
| U.S. Government Securities | 96.8 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
3
Short-Term Treasury Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (98.3%) | ||||||
| U.S. Government Securities (93.9%) | ||||||
| 1 | United States Treasury Inflation Indexed Bonds | 0.125% | 1/15/23 | 835,145 | 842,452 | |
| United States Treasury Note/Bond | 0.125% | 8/31/23 | 125,000 | 121,211 | ||
| 2 | United States Treasury Note/Bond | 1.375% | 8/31/23 | 120,000 | 117,956 | |
| United States Treasury Note/Bond | 2.750% | 8/31/23 | 90,000 | 89,775 | ||
| United States Treasury Note/Bond | 0.125% | 9/15/23 | 70,000 | 67,802 | ||
| United States Treasury Note/Bond | 1.375% | 9/30/23 | 150,000 | 147,187 | ||
| United States Treasury Note/Bond | 0.125% | 10/15/23 | 20,000 | 19,328 | ||
| United States Treasury Note/Bond | 2.875% | 10/31/23 | 20,000 | 19,984 | ||
| United States Treasury Note/Bond | 2.250% | 12/31/23 | 235,000 | 232,613 | ||
| United States Treasury Note/Bond | 0.125% | 1/15/24 | 93,700 | 89,923 | ||
| United States Treasury Note/Bond | 2.250% | 1/31/24 | 78,500 | 77,678 | ||
| United States Treasury Note/Bond | 2.750% | 2/15/24 | 40,500 | 40,367 | ||
| United States Treasury Note/Bond | 2.125% | 2/29/24 | 84,600 | 83,490 | ||
| United States Treasury Note/Bond | 0.250% | 3/15/24 | 205,000 | 196,255 | ||
| United States Treasury Note/Bond | 2.250% | 3/31/24 | 65,000 | 64,248 | ||
| United States Treasury Note/Bond | 2.000% | 4/30/24 | 60,000 | 59,034 | ||
| United States Treasury Note/Bond | 2.250% | 4/30/24 | 143,000 | 141,324 | ||
| United States Treasury Note/Bond | 2.500% | 4/30/24 | 274,000 | 271,902 | ||
| United States Treasury Note/Bond | 2.000% | 5/31/24 | 25,000 | 24,594 | ||
| United States Treasury Note/Bond | 0.250% | 6/15/24 | 88,000 | 83,738 | ||
| United States Treasury Note/Bond | 3.125% | 7/31/24 | 230,000 | 230,467 | ||
| United States Treasury Note/Bond | 2.375% | 8/15/24 | 85,000 | 84,084 | ||
| United States Treasury Note/Bond | 1.250% | 8/31/24 | 72,000 | 69,593 | ||
| United States Treasury Note/Bond | 1.875% | 8/31/24 | 100,000 | 97,906 | ||
| United States Treasury Note/Bond | 0.375% | 9/15/24 | 180,000 | 170,662 | ||
| United States Treasury Note/Bond | 1.500% | 9/30/24 | 110,000 | 106,803 | ||
| United States Treasury Note/Bond | 2.250% | 10/31/24 | 12,428 | 12,255 | ||
| United States Treasury Note/Bond | 0.750% | 11/15/24 | 135,000 | 128,630 | ||
| United States Treasury Note/Bond | 2.250% | 11/15/24 | 63,000 | 62,114 | ||
| United States Treasury Note/Bond | 1.750% | 12/31/24 | 100,000 | 97,375 | ||
| United States Treasury Note/Bond | 2.250% | 12/31/24 | 13,145 | 12,952 | ||
| United States Treasury Note/Bond | 1.375% | 1/31/25 | 90,000 | 86,738 | ||
| United States Treasury Note/Bond | 2.500% | 1/31/25 | 57,400 | 56,862 | ||
| United States Treasury Note/Bond | 2.000% | 2/15/25 | 90,900 | 88,997 | ||
| 1 | United States Treasury Note/Bond | 1.125% | 2/28/25 | 122,000 | 116,739 | |
| United States Treasury Note/Bond | 2.750% | 2/28/25 | 23,000 | 22,928 | ||
| United States Treasury Note/Bond | 1.750% | 3/15/25 | 250,000 | 243,008 | ||
4
Short-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United States Treasury Note/Bond | 2.125% | 5/15/25 | 15,000 | 14,707 | ||
| United States Treasury Note/Bond | 0.250% | 5/31/25 | 137,000 | 127,367 | ||
| United States Treasury Note/Bond | 2.875% | 5/31/25 | 38,000 | 38,012 | ||
| United States Treasury Note/Bond | 0.250% | 6/30/25 | 115,000 | 106,698 | ||
| United States Treasury Note/Bond | 0.250% | 7/31/25 | 200,000 | 185,187 | ||
| United States Treasury Note/Bond | 2.000% | 8/15/25 | 60,000 | 58,528 | ||
| United States Treasury Note/Bond | 0.250% | 8/31/25 | 150,000 | 138,563 | ||
| United States Treasury Note/Bond | 2.750% | 8/31/25 | 35,000 | 34,902 | ||
| United States Treasury Note/Bond | 0.250% | 9/30/25 | 16,000 | 14,755 | ||
| United States Treasury Note/Bond | 0.250% | 10/31/25 | 114,000 | 104,933 | ||
| United States Treasury Note/Bond | 0.375% | 11/30/25 | 150,000 | 138,469 | ||
| United States Treasury Note/Bond | 0.375% | 12/31/25 | 20,000 | 18,419 | ||
| United States Treasury Note/Bond | 0.500% | 2/28/26 | 150,000 | 138,281 | ||
| United States Treasury Note/Bond | 0.750% | 3/31/26 | 87,000 | 80,828 | ||
| United States Treasury Note/Bond | 0.750% | 4/30/26 | 60,000 | 55,669 | ||
| United States Treasury Note/Bond | 2.125% | 5/31/26 | 25,000 | 24,418 | ||
| United States Treasury Note/Bond | 0.625% | 7/31/26 | 50,000 | 45,961 | ||
| United States Treasury Note/Bond | 1.875% | 7/31/26 | 110,000 | 106,305 | ||
| United States Treasury Note/Bond | 1.500% | 8/15/26 | 121,000 | 115,101 | ||
| United States Treasury Note/Bond | 1.625% | 9/30/26 | 67,000 | 64,058 | ||
| United States Treasury Note/Bond | 1.125% | 10/31/26 | 10,000 | 9,350 | ||
| United States Treasury Note/Bond | 1.250% | 12/31/26 | 135,000 | 126,689 | ||
| United States Treasury Note/Bond | 2.250% | 2/15/27 | 100,000 | 97,844 | ||
| United States Treasury Note/Bond | 1.125% | 2/28/27 | 7,893 | 7,346 | ||
| United States Treasury Note/Bond | 1.875% | 2/28/27 | 82,000 | 79,053 | ||
| United States Treasury Note/Bond | 2.750% | 4/30/27 | 41,000 | 41,058 | ||
| United States Treasury Note/Bond | 1.250% | 3/31/28 | 37,000 | 34,098 | ||
| United States Treasury Note/Bond | 1.250% | 4/30/28 | 70,000 | 64,444 | ||
| 6,550,017 | ||||||
| Nonconventional Mortgage-Backed Securities (4.4%) | ||||||
| 3,4 | Fannie Mae REMICS | 3.000% | 9/25/50–2/25/52 | 117,709 | 111,612 | |
| 3,4 | Freddie Mac REMICS | 2.000% | 12/25/51 | 1,263 | 1,103 | |
| 3,4 | Freddie Mac REMICS | 3.000% | 11/25/50–2/25/52 | 73,958 | 69,958 | |
| 3 | Ginnie Mae | 1.500% | 5/20/51–12/20/51 | 7,148 | 6,508 | |
| 3 | Ginnie Mae | 2.000% | 11/20/51 | 7,139 | 5,794 | |
| 3 | Ginnie Mae | 2.500% | 9/20/51 | 13,254 | 12,639 | |
| 3 | Ginnie Mae | 3.000% | 11/20/50–12/20/51 | 106,112 | 99,329 | |
| 3 | Ginnie Mae | 3.500% | 11/20/51 | 2,420 | 2,358 | |
| 309,301 | ||||||
| Total U.S. Government and Agency Obligations (Cost $7,008,611) | 6,859,318 | |||||
| Shares | ||||||
| Temporary Cash Investments (4.9%) | ||||||
| Money Market Fund (4.9%) | ||||||
| 5 | Vanguard Market Liquidity Fund (Cost $342,660) | 1.903% | 3,427,972 | 342,660 | ||
| Total Investments (103.2%) (Cost $7,351,271) | 7,201,978 | |||||
5
Short-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Conventional Mortgage-Backed Securities—Liability for Sale Commitments (-1.4%) | ||||||
| 3,4,6 | UMBS Pool (Proceeds ($91,854)) | 3.000% | 9/14/52 | (100,000) | (96,148) | |
| Other Assets and Liabilities—Net (-1.8%) | (125,364) | |||||
| Net Assets (100%) | 6,980,466 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $4,015,000 have been segregated as collateral for certain open To Be Announced (TBA) transactions. |
| 2 | Securities with a value of $8,858,000 have been segregated as initial margin for open futures contracts. |
| 3 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 4 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 5 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 6 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2022. |
| REMICS—Real Estate Mortgage Investment Conduits. | |
| UMBS—Uniform Mortgage-Backed Securities. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | 3,591 | 755,765 | 2,787 |
| Ultra Long U.S. Treasury Bond | September 2022 | 122 | 19,314 | 264 |
| 3,051 | ||||
| Short Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | (1,537) | (174,798) | (656) |
| 10-Year U.S. Treasury Note | September 2022 | (986) | (119,445) | (2,969) |
| Ultra 10-Year U.S. Treasury Note | September 2022 | (1,921) | (252,131) | (3,975) |
| (7,600) | ||||
| (4,549) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
6
Short-Term Treasury Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $7,008,611) | 6,859,318 |
| Affiliated Issuers (Cost $342,660) | 342,660 |
| Total Investments in Securities | 7,201,978 |
| Investment in Vanguard | 269 |
| Receivables for Investment Securities Sold | 276,143 |
| Receivables for Accrued Income | 26,035 |
| Receivables for Capital Shares Issued | 4,716 |
| Other Assets | 130 |
| Total Assets | 7,509,271 |
| Liabilities | |
| Payables for Investment Securities Purchased | 421,954 |
| Payables for Capital Shares Redeemed | 6,916 |
| Payables for Distributions | 1,914 |
| Payables to Vanguard | 328 |
| Liability for Sale Commitments, at Value (Proceeds $91,854) | 96,148 |
| Variation Margin Payable—Futures Contracts | 1,545 |
| Total Liabilities | 528,805 |
| Net Assets | 6,980,466 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 7,299,066 |
| Total Distributable Earnings (Loss) | (318,600) |
| Net Assets | 6,980,466 |
| Investor Shares—Net Assets | |
| Applicable to 50,507,114 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 518,270 |
| Net Asset Value Per Share—Investor Shares | $10.26 |
| Admiral Shares—Net Assets | |
| Applicable to 629,761,744 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 6,462,196 |
| Net Asset Value Per Share—Admiral Shares | $10.26 |
See accompanying
Notes, which are an integral part of the Financial Statements.
7
Short-Term Treasury Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 60,027 |
| Total Income | 60,027 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 264 |
| Management and Administrative—Investor Shares | 479 |
| Management and Administrative—Admiral Shares | 2,846 |
| Marketing and Distribution—Investor Shares | 25 |
| Marketing and Distribution—Admiral Shares | 164 |
| Custodian Fees | 17 |
| Shareholders’ Reports—Investor Shares | 10 |
| Shareholders’ Reports—Admiral Shares | 23 |
| Trustees’ Fees and Expenses | 2 |
| Other Expenses | 5 |
| Total Expenses | 3,835 |
| Expenses Paid Indirectly | (1) |
| Net Expenses | 3,834 |
| Net Investment Income | 56,193 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (123,686) |
| Futures Contracts | (7,728) |
| Realized Net Gain (Loss) | (131,414) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (62,008) |
| Futures Contracts | (589) |
| Change in Unrealized Appreciation (Depreciation) | (62,597) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (137,818) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $470,000, $14,000, and less than $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
8
Short-Term Treasury Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 56,193 | 33,805 | |
| Realized Net Gain (Loss) | (131,414) | (24,797) | |
| Change in Unrealized Appreciation (Depreciation) | (62,597) | (127,117) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (137,818) | (118,109) | |
| Distributions | |||
| Investor Shares | (3,949) | (3,666) | |
| Admiral Shares | (52,225) | (47,667) | |
| Total Distributions | (56,174) | (51,333) | |
| Capital Share Transactions | |||
| Investor Shares | (49,218) | (104,604) | |
| Admiral Shares | (209,334) | (811,375) | |
| Net Increase (Decrease) from Capital Share Transactions | (258,552) | (915,979) | |
| Total Increase (Decrease) | (452,544) | (1,085,421) | |
| Net Assets | |||
| Beginning of Period | 7,433,010 | 8,518,431 | |
| End of Period | 6,980,466 | 7,433,010 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
9
Short-Term Treasury Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.54 | $10.77 | $10.64 | $10.48 | $10.49 | $10.65 |
| Investment Operations | ||||||
| Net Investment Income1 | .076 | .036 | .070 | .245 | .227 | .127 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.280) | (.207) | .286 | .160 | (.009) | (.160) |
| Total from Investment Operations | (.204) | (.171) | .356 | .405 | .218 | (.033) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.076) | (.035) | (.070) | (.245) | (.228) | (.127) |
| Distributions from Realized Capital Gains | — | (.024) | (.156) | — | — | — |
| Total Distributions | (.076) | (.059) | (.226) | (.245) | (.228) | (.127) |
| Net Asset Value, End of Period | $10.26 | $10.54 | $10.77 | $10.64 | $10.48 | $10.49 |
| Total Return2 | -1.93% | -1.60% | 3.35% | 3.91% | 2.11% | -0.31% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $518 | $582 | $701 | $655 | $671 | $737 |
| Ratio of Total Expenses to Average Net Assets | ||||||
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 1.48% | 0.34% | 0.64% | 2.30% | 2.18% | 1.20% |
| Portfolio Turnover Rate4 | 116% | 213% | 357% | 340% | 282% | 280% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 9%, 4%, 57%, 5%, 37%, and 7%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
10
Short-Term Treasury Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.54 | $10.77 | $10.64 | $10.48 | $10.49 | $10.65 |
| Investment Operations | ||||||
| Net Investment Income1 | .081 | .047 | .079 | .254 | .238 | .138 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.280) | (.207) | .288 | .162 | (.010) | (.160) |
| Total from Investment Operations | (.199) | (.160) | .367 | .416 | .228 | (.022) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.081) | (.046) | (.081) | (.256) | (.238) | (.138) |
| Distributions from Realized Capital Gains | — | (.024) | (.156) | — | — | — |
| Total Distributions | (.081) | (.070) | (.237) | (.256) | (.238) | (.138) |
| Net Asset Value, End of Period | $10.26 | $10.54 | $10.77 | $10.64 | $10.48 | $10.49 |
| Total Return2 | -1.89% | -1.50% | 3.46% | 4.01% | 2.21% | -0.21% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $6,462 | $6,851 | $7,818 | $8,243 | $7,385 | $7,044 |
| Ratio of Total Expenses to Average Net Assets | ||||||
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.58% | 0.44% | 0.73% | 2.40% | 2.28% | 1.30% |
| Portfolio Turnover Rate4 | 116% | 213% | 357% | 340% | 282% | 280% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 9%, 4%, 57%, 5%, 37%, and 7%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
11
Short-Term Treasury Fund
Notes to Financial Statements
Vanguard Short-Term Treasury
Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary
markets, are valued by methods deemed by the board of trustees to represent fair value.
2. To Be Announced (TBA)
Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity) for settlement at a future date. The fund may be a seller of
TBA transactions to reduce its exposure to the mortgage-backed securities market or in order to sell mortgage-backed securities it owns under delayed-delivery arrangements. When the fund is a buyer of TBA
transactions, it maintains cash or short-term investments in an amount sufficient to meet the purchase price at the settlement date of the TBA transaction. The primary risk associated with TBA transactions is that a
counterparty may default on its obligations. The fund mitigates its counterparty risk by, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and
monitoring its exposure to each counterparty. The fund may also enter into a Master Securities Forward Transaction Agreement (MSFTA) with certain counterparties and require them to transfer collateral as security for
their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. Under an MSFTA, upon a counterparty default (including bankruptcy), the
fund may terminate any TBA transactions with that counterparty, determine the net amount owed by either party in accordance with its MSFTA, and sell or retain any collateral held up to the net amount owed to the fund
under the MSFTA.
3. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in
12
Short-Term Treasury Fund
mortgage-dollar-roll transactions are
typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities sold, and is compensated by interest earned on the proceeds of the sale and by a
lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys mortgage-backed securities from a dealer pursuant to a TBA transaction and
simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll transactions are used to cover an open TBA sell position. The fund continues to
earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The fund accounts for mortgage-dollar-roll transactions as purchases and sales; as
such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open mortgage dollar rolls are included in Receivables for Investment Securities Sold
or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
4. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing
brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any
securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 12% and 6% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
5. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and
has concluded that no provision for income tax is required in the fund’s financial statements.
6. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
13
Short-Term Treasury Fund
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or
sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
14
Short-Term Treasury Fund
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $269,000, representing less than 0.01% of the fund’s net
assets and 0.11% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $1,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 6,859,318 | — | 6,859,318 |
| Temporary Cash Investments | 342,660 | — | — | 342,660 |
| Total | 342,660 | 6,859,318 | — | 7,201,978 |
| Liabilities | ||||
| Conventional Mortgage-Backed Securities—Liability for Sale Commitments | — | 96,148 | — | 96,148 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 3,051 | — | — | 3,051 |
| Liabilities | ||||
| Futures Contracts1 | 7,600 | — | — | 7,600 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
15
Short-Term Treasury Fund
As of July 31, 2022, gross
unrealized appreciation and depreciation for investments, derivatives and sale commitments based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 7,374,400 |
| Gross Unrealized Appreciation | 9,765 |
| Gross Unrealized Depreciation | (191,031) |
| Net Unrealized Appreciation (Depreciation) | (181,266) |
The fund’s tax-basis
capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2022, the fund had available capital losses totaling $33,160,000 that may be carried forward indefinitely
to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2023; should the fund realize net capital losses for
the year, the losses will be added to the loss carryforward balance above.
| E. | During the six months ended July 31, 2022, the fund purchased $7,477,267,000 of investment securities and sold $8,054,465,000 of investment securities, other than temporary cash investments. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $0 and sales were $72,778,000, resulting in net realized gain of $263,000; these amounts, other than temporary cash investments, are
included in the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 84,436 | 8,196 | 143,058 | 13,378 | |
| Issued in Lieu of Cash Distributions | 3,672 | 357 | 3,414 | 319 | |
| Redeemed | (137,326) | (13,312) | (251,076) | (23,483) | |
| Net Increase (Decrease)—Investor Shares | (49,218) | (4,759) | (104,604) | (9,786) | |
| Admiral Shares | |||||
| Issued | 1,013,190 | 98,153 | 1,662,551 | 155,781 | |
| Issued in Lieu of Cash Distributions | 44,871 | 4,362 | 41,703 | 3,898 | |
| Redeemed | (1,267,395) | (123,029) | (2,515,629) | (235,349) | |
| Net Increase (Decrease)—Admiral Shares | (209,334) | (20,514) | (811,375) | (75,670) | |
| G. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
16
Short-Term Federal Fund
Fund Allocation
As of July 31, 2022
| Agency Bonds and Notes | 34.3% |
| Asset-Backed/Commercial Mortgage-Backed Securities | 18.8 |
| Government Mortgage-Backed Securities | 16.5 |
| U.S. Government Securities | 30.4 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
17
Short-Term Federal Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (82.5%) | ||||||
| U.S. Government Securities (30.9%) | ||||||
| 1,2 | United States Treasury Note/Bond | 0.125% | 3/31/23 | 590,500 | 579,520 | |
| 1 | United States Treasury Note/Bond | 0.250% | 6/15/23 | 533,000 | 520,508 | |
| United States Treasury Note/Bond | 0.125% | 7/15/23 | 129,000 | 125,513 | ||
| United States Treasury Note/Bond | 0.250% | 3/15/24 | 63,000 | 60,312 | ||
| United States Treasury Note/Bond | 3.000% | 6/30/24 | 84,000 | 84,118 | ||
| United States Treasury Note/Bond | 1.125% | 1/15/25 | 21,400 | 20,517 | ||
| United States Treasury Note/Bond | 1.500% | 2/15/25 | 69,600 | 67,251 | ||
| United States Treasury Note/Bond | 1.750% | 3/15/25 | 297,200 | 288,888 | ||
| United States Treasury Note/Bond | 2.750% | 5/15/25 | 100,000 | 99,719 | ||
| United States Treasury Note/Bond | 2.875% | 6/15/25 | 311,425 | 311,717 | ||
| 2,158,063 | ||||||
| Agency Bonds and Notes (34.9%) | ||||||
| 3 | AID-Israel | 0.000% | 11/1/24 | 6,905 | 6,410 | |
| 4 | Fannie Mae Interest Strip | 0.000% | 11/15/25 | 61,621 | 55,897 | |
| 4 | Fannie Mae Principal Strip | 0.000% | 5/15/30 | 63,061 | 49,517 | |
| 4 | Fannie Mae Principal Strip | 0.000% | 11/15/30 | 7,000 | 5,403 | |
| Federal Farm Credit Banks Funding Corp. | 1.125% | 1/6/25 | 25,000 | 23,956 | ||
| Federal Farm Credit Banks Funding Corp. | 0.680% | 3/9/26 | 275,000 | 253,954 | ||
| Federal Home Loan Banks | 2.750% | 6/28/24 | 50,000 | 49,828 | ||
| Federal Home Loan Banks | 1.250% | 12/21/26 | 310,000 | 289,107 | ||
| 4 | Federal Home Loan Mortgage Corp. | 4.000% | 12/30/24 | 300,000 | 300,687 | |
| 4 | Federal Home Loan Mortgage Corp. | 0.640% | 11/24/25 | 174,650 | 162,096 | |
| 4 | Federal Home Loan Mortgage Corp. | 0.700% | 12/30/25 | 194,850 | 180,856 | |
| 4 | Federal National Mortgage Assn. | 0.500% | 6/17/25 | 110,000 | 102,771 | |
| 4 | Federal National Mortgage Assn. | 0.375% | 8/25/25 | 65,000 | 60,187 | |
| 4 | Federal National Mortgage Assn. | 0.650% | 12/17/25 | 138,500 | 128,307 | |
| 4 | Federal National Mortgage Assn. | 0.650% | 12/17/25 | 180,495 | 167,212 | |
| 4 | Freddie Mac Coupon Strips | 0.000% | 3/15/31 | 4,455 | 3,391 | |
| 4 | Freddie Mac Principal Strips | 0.000% | 3/15/31 | 21,820 | 16,611 | |
| Private Export Funding Corp. | 3.550% | 1/15/24 | 8,700 | 8,731 | ||
| Private Export Funding Corp. | 1.400% | 7/15/28 | 26,000 | 23,411 | ||
| Resolution Funding Corp. Interest Strip | 0.000% | 10/15/29 | 15,108 | 12,097 | ||
| Resolution Funding Corp. Interest Strip | 0.000% | 1/15/30 | 4,155 | 3,292 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 1/15/30 | 394,377 | 312,680 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 4/15/30 | 227,307 | 178,545 | ||
18
Short-Term Federal Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Tennessee Valley Authority | 1.500% | 9/15/31 | 50,000 | 43,176 | ||
| 2,438,122 | ||||||
| Conventional Mortgage-Backed Securities (11.6%) | ||||||
| 4,5 | Freddie Mac Gold Pool | 2.000% | 9/1/28–6/1/30 | 2,422 | 2,311 | |
| 5,6 | Ginnie Mae | 4.500% | 8/18/52–9/21/52 | 157,500 | 160,330 | |
| 4,5 | UMBS Pool | 1.500% | 12/1/35–12/1/36 | 149,920 | 138,924 | |
| 4,5 | UMBS Pool | 2.000% | 10/1/27–3/1/37 | 243,569 | 231,839 | |
| 4,5 | UMBS Pool | 2.500% | 2/1/35–11/1/36 | 148,354 | 144,585 | |
| 4,5,6 | UMBS Pool | 3.000% | 12/1/34–6/1/37 | 29,422 | 29,280 | |
| 4,5 | UMBS Pool | 3.500% | 1/1/33–9/1/34 | 76,741 | 77,460 | |
| 4,5,6 | UMBS Pool | 4.500% | 9/14/52 | 27,000 | 31,257 | |
| 815,986 | ||||||
| Nonconventional Mortgage-Backed Securities (5.1%) | ||||||
| 4,5 | Fannie Mae REMICS | 1.500% | 12/25/51 | 20,178 | 15,646 | |
| 4,5 | Fannie Mae REMICS | 3.000% | 9/25/50–2/25/52 | 108,426 | 102,502 | |
| 4,5 | Freddie Mac REMICS | 2.000% | 12/25/51 | 174 | 152 | |
| 4,5 | Freddie Mac REMICS | 3.000% | 9/25/50–2/25/52 | 95,476 | 89,613 | |
| 5 | Ginnie Mae | 1.500% | 2/20/51–12/20/51 | 40,222 | 36,168 | |
| 5 | Ginnie Mae | 2.000% | 11/20/51 | 18,041 | 16,878 | |
| 5 | Ginnie Mae | 2.500% | 9/20/51 | 3,228 | 3,056 | |
| 5 | Ginnie Mae | 3.000% | 11/20/50–12/20/51 | 96,028 | 90,753 | |
| 5 | Ginnie Mae | 3.500% | 11/20/51 | 545 | 531 | |
| 355,299 | ||||||
| Total U.S. Government and Agency Obligations (Cost $6,004,708) | 5,767,470 | |||||
| Asset-Backed/Commercial Mortgage-Backed Securities (19.1%) | ||||||
| 4,5 | FHLMC Multifamily Structured Class A2 Series K028 Pass Through Certificates | 3.111% | 2/25/23 | 781 | 779 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K039 Pass Through Certificates | 3.303% | 7/25/24 | 154,000 | 153,584 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K040 Pass Through Certificates | 3.241% | 9/25/24 | 174,400 | 173,831 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K041 Pass Through Certificates | 3.171% | 10/25/24 | 148,000 | 147,389 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K044 Pass Through Certificates | 2.811% | 1/25/25 | 78,520 | 77,589 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K045 Pass Through Certificates | 3.023% | 1/25/25 | 156,443 | 155,311 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K046 Pass Through Certificates | 3.205% | 3/25/25 | 180,500 | 180,018 | |
| 4,5,7 | FHLMC Multifamily Structured Class A2 Series K047 Pass Through Certificates | 3.329% | 5/25/25 | 152,500 | 152,599 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K049 Pass Through Certificates | 3.010% | 7/25/25 | 148,500 | 147,408 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K144 Pass Through Certificates | 2.450% | 4/25/32 | 8,500 | 7,897 | |
| 4,5 | FHLMC Multifamily Structured Class A2 Series K145 Pass Through Certificates | 2.580% | 6/25/55 | 19,075 | 17,919 | |
| 4 | FHLMC Multifamily Structured Class A2 Series K146 Pass Through Certificates | 2.920% | 6/25/32 | 38,000 | 36,760 | |
| 4 | FHLMC Multifamily Structured Class A2 Series K147 Pass Through Certificates | 3.000% | 6/25/32 | 37,412 | 36,438 | |
| 4,5,8 | FHLMC Multifamily Structured Class A2 Series K148 Pass Through Certificates | 3.500% | 9/25/32 | 18,000 | 18,258 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K035 Pass Through Certificates | 0.315% | 8/25/23 | 6,439 | 20 | |
19
Short-Term Federal Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K036 Pass Through Certificates | 0.695% | 10/25/23 | 3,433 | 25 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K037 Pass Through Certificates | 0.920% | 1/25/24 | 58,558 | 633 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K038 Pass Through Certificates | 1.087% | 3/25/24 | 2,107 | 31 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K040 Pass Through Certificates | 0.700% | 9/25/24 | 4,101 | 48 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.514% | 12/25/24 | 19,607 | 216 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.640% | 11/25/25 | 2,325 | 41 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.879% | 12/25/25 | 9,986 | 247 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 1.159% | 1/25/26 | 117,502 | 3,942 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 1.349% | 3/25/26 | 3,717 | 150 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 1.171% | 7/25/26 | 133,670 | 5,008 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.918% | 8/25/26 | 6,683 | 208 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.306% | 9/25/26 | 3,033 | 32 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.070% | 10/25/26 | 11,047 | 39 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.295% | 12/25/26 | 77,765 | 923 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.603% | 3/25/27 | 3,029 | 73 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.668% | 4/25/27 | 35,547 | 952 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K043 Pass Through Certificates | 0.427% | 8/25/27 | 4,310 | 81 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series K135 Pass Through Certificates | 0.192% | 10/25/31 | 265,920 | 3,887 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series KG02 Pass Through Certificates | 1.026% | 8/25/29 | 15,520 | 871 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series KG04 Pass Through Certificates | 0.852% | 11/25/30 | 10,985 | 612 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series KG05 Pass Through Certificates | 0.312% | 1/25/31 | 114,000 | 2,576 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series KG06 Pass Through Certificates | 0.532% | 10/25/31 | 36,987 | 1,437 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series KIR1 Pass Through Certificates Series KIR1 | 1.043% | 3/25/26 | 89,357 | 2,903 | |
| 4,5,7,9 | FHLMC Multifamily Structured Class X1 Series KSG2 Pass Through Certificates | 0.122% | 11/25/31 | 351,602 | 3,663 | |
| Total Asset-Backed/Commercial Mortgage-Backed Securities (Cost $1,326,808) | 1,334,398 | |||||
20
Short-Term Federal Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (1.0%) | ||||||
| Money Market Fund (1.0%) | ||||||
| 10 | Vanguard Market Liquidity Fund (Cost $68,436) | 1.903% | 684,634 | 68,436 | ||
| Total Investments (102.6%) (Cost $7,399,952) | 7,170,304 | |||||
| Other Assets and Liabilities—Net (-2.6%) | (183,645) | |||||
| Net Assets (100%) | 6,986,659 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $3,283,000 have been segregated as collateral for certain open To Be Announced (TBA) transactions. |
| 2 | Securities with a value of $26,940,000 have been segregated as initial margin for open futures contracts. |
| 3 | U.S. government-guaranteed. |
| 4 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 5 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 6 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2022. |
| 7 | Variable-rate security; rate shown is effective rate at period end. Certain variable-rate securities are not based on a published reference rate and spread but are determined by the issuer or agent based on current market conditions. |
| 8 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At July 31, 2022, the aggregate value was $18,258,000, representing 0.3% of net assets. |
| 9 | Interest-only security. |
| 10 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| REMICS—Real Estate Mortgage Investment Conduits. | |
| UMBS—Uniform Mortgage-Backed Securities. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | 5,471 | 1,151,432 | 3,232 |
| Ultra Long U.S. Treasury Bond | September 2022 | 192 | 30,396 | 405 |
| 3,637 | ||||
| Short Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | (1,307) | (148,641) | (593) |
| 10-Year U.S. Treasury Note | September 2022 | (5,737) | (694,984) | (13,338) |
| Ultra 10-Year U.S. Treasury Note | September 2022 | (5,021) | (659,006) | (12,651) |
| (26,582) | ||||
| (22,945) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
21
Short-Term Federal Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $7,331,516) | 7,101,868 |
| Affiliated Issuers (Cost $68,436) | 68,436 |
| Total Investments in Securities | 7,170,304 |
| Investment in Vanguard | 268 |
| Receivables for Investment Securities Sold | 576,857 |
| Receivables for Accrued Income | 16,026 |
| Receivables for Capital Shares Issued | 6,228 |
| Other Assets | 111 |
| Total Assets | 7,769,794 |
| Liabilities | |
| Due to Custodian | 323 |
| Payables for Investment Securities Purchased | 764,579 |
| Payables for Capital Shares Redeemed | 13,336 |
| Payables for Distributions | 1,317 |
| Payables to Vanguard | 328 |
| Variation Margin Payable—Futures Contracts | 3,252 |
| Total Liabilities | 783,135 |
| Net Assets | 6,986,659 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 7,364,878 |
| Total Distributable Earnings (Loss) | (378,219) |
| Net Assets | 6,986,659 |
| Investor Shares—Net Assets | |
| Applicable to 50,112,949 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 520,479 |
| Net Asset Value Per Share—Investor Shares | $10.39 |
| Admiral Shares—Net Assets | |
| Applicable to 622,578,998 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 6,466,180 |
| Net Asset Value Per Share—Admiral Shares | $10.39 |
See accompanying
Notes, which are an integral part of the Financial Statements.
22
Short-Term Federal Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 43,020 |
| Total Income | 43,020 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 270 |
| Management and Administrative—Investor Shares | 489 |
| Management and Administrative—Admiral Shares | 2,906 |
| Marketing and Distribution—Investor Shares | 28 |
| Marketing and Distribution—Admiral Shares | 167 |
| Custodian Fees | 18 |
| Shareholders’ Reports—Investor Shares | 10 |
| Shareholders’ Reports—Admiral Shares | 47 |
| Trustees’ Fees and Expenses | 2 |
| Other Expenses | 5 |
| Total Expenses | 3,942 |
| Expenses Paid Indirectly | (3) |
| Net Expenses | 3,939 |
| Net Investment Income | 39,081 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (188,301) |
| Futures Contracts | 83,770 |
| Realized Net Gain (Loss) | (104,531) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (96,846) |
| Futures Contracts | (30,499) |
| Change in Unrealized Appreciation (Depreciation) | (127,345) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (192,795) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $1,206,000, $112,000, and less than $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
23
Short-Term Federal Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 39,081 | 48,756 | |
| Realized Net Gain (Loss) | (104,531) | 65,459 | |
| Change in Unrealized Appreciation (Depreciation) | (127,345) | (226,583) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (192,795) | (112,368) | |
| Distributions | |||
| Investor Shares | (2,680) | (10,072) | |
| Admiral Shares | (36,464) | (116,874) | |
| Total Distributions | (39,144) | (126,946) | |
| Capital Share Transactions | |||
| Investor Shares | (74,137) | (135,375) | |
| Admiral Shares | (577,020) | 197,355 | |
| Net Increase (Decrease) from Capital Share Transactions | (651,157) | 61,980 | |
| Total Increase (Decrease) | (883,096) | (177,334) | |
| Net Assets | |||
| Beginning of Period | 7,869,755 | 8,047,089 | |
| End of Period | 6,986,659 | 7,869,755 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
24
Short-Term Federal Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.70 | $11.02 | $10.79 | $10.57 | $10.55 | $10.70 |
| Investment Operations | ||||||
| Net Investment Income1 | .050 | .054 | .125 | .246 | .208 | .142 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.309) | (.215) | .274 | .221 | .021 | (.144) |
| Total from Investment Operations | (.259) | (.161) | .399 | .467 | .229 | (.002) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.051) | (.053) | (.127) | (.247) | (.209) | (.142) |
| Distributions from Realized Capital Gains | — | (.106) | (.042) | — | — | (.006) |
| Total Distributions | (.051) | (.159) | (.169) | (.247) | (.209) | (.148) |
| Net Asset Value, End of Period | $10.39 | $10.70 | $11.02 | $10.79 | $10.57 | $10.55 |
| Total Return2 | -2.42% | -1.48% | 3.71% | 4.46% | 2.20% | -0.02% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $520 | $612 | $767 | $623 | $622 | $719 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 0.97% | 0.50% | 1.14% | 2.30% | 1.98% | 1.33% |
| Portfolio Turnover Rate4 | 232% | 424% | 663% | 499% | 327% | 211% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 45%, 87%, 180%, 32%, 90%, and 30%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
25
Short-Term Federal Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.70 | $11.02 | $10.79 | $10.57 | $10.55 | $10.70 |
| Investment Operations | ||||||
| Net Investment Income1 | .056 | .065 | .130 | .257 | .219 | .153 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.310) | (.215) | .280 | .220 | .020 | (.144) |
| Total from Investment Operations | (.254) | (.150) | .410 | .477 | .239 | .009 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.056) | (.064) | (.138) | (.257) | (.219) | (.153) |
| Distributions from Realized Capital Gains | — | (.106) | (.042) | — | — | (.006) |
| Total Distributions | (.056) | (.170) | (.180) | (.257) | (.219) | (.159) |
| Net Asset Value, End of Period | $10.39 | $10.70 | $11.02 | $10.79 | $10.57 | $10.55 |
| Total Return2 | -2.37% | -1.38% | 3.81% | 4.56% | 2.30% | 0.08% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $6,466 | $7,258 | $7,280 | $4,371 | $3,963 | $4,239 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.07% | 0.59% | 1.19% | 2.40% | 2.08% | 1.43% |
| Portfolio Turnover Rate4 | 232% | 424% | 663% | 499% | 327% | 211% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 45%, 87%, 180%, 32%, 90%, and 30%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
26
Short-Term Federal Fund
Notes to Financial Statements
Vanguard Short-Term Federal
Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. To Be Announced (TBA)
Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity) for settlement at a future date. The fund may be a seller of
TBA transactions to reduce its exposure to the mortgage-backed securities market or in order to sell mortgage-backed securities it owns under delayed-delivery arrangements. When the fund is a buyer of TBA
transactions, it maintains cash or short-term investments in an amount sufficient to meet the purchase price at the settlement date of the TBA transaction. The primary risk associated with TBA transactions is that a
counterparty may default on its obligations. The fund mitigates its counterparty risk by, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and
monitoring its exposure to each counterparty. The fund may also enter into a Master Securities Forward Transaction Agreement (MSFTA) with certain counterparties and require them to transfer collateral as security for
their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. Under an MSFTA, upon a counterparty default (including bankruptcy), the
fund may terminate any TBA transactions with that counterparty, determine the net amount owed by either party in accordance with its MSFTA, and sell or retain any collateral held up to the net amount owed to the fund
under the MSFTA.
At July 31, 2022,
counterparties had deposited in segregated accounts securities with a value of $1,516,000 and cash of $1,651,000 in connection with TBA transactions.
27
Short-Term Federal Fund
3. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll
transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The
fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open
mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
4. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing
brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any
securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 14% and 20% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
5. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and
has concluded that no provision for income tax is required in the fund’s financial statements.
28
Short-Term Federal Fund
6. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or
sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
29
Short-Term Federal Fund
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $268,000, representing less than 0.01% of the fund’s net
assets and 0.11% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $3,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 5,767,470 | — | 5,767,470 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 1,334,398 | — | 1,334,398 |
| Temporary Cash Investments | 68,436 | — | — | 68,436 |
| Total | 68,436 | 7,101,868 | — | 7,170,304 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 3,637 | — | — | 3,637 |
| Liabilities | ||||
| Futures Contracts1 | 26,582 | — | — | 26,582 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
30
Short-Term Federal Fund
| E. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 7,400,742 |
| Gross Unrealized Appreciation | 29,069 |
| Gross Unrealized Depreciation | (282,452) |
| Net Unrealized Appreciation (Depreciation) | (253,383) |
| F. | During the six months ended July 31, 2022, the fund purchased $17,725,192,000 of investment securities and sold $18,489,051,000 of investment securities, other than temporary cash investments. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $0 and sales were $75,101,000, resulting in net realized gain of $271,000; these amounts, other than temporary cash investments, are
included in the purchases and sales of investment securities noted above.
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 42,278 | 4,031 | 221,361 | 20,241 | |
| Issued in Lieu of Cash Distributions | 2,387 | 229 | 8,922 | 821 | |
| Redeemed | (118,802) | (11,351) | (365,658) | (33,486) | |
| Net Increase (Decrease)—Investor Shares | (74,137) | (7,091) | (135,375) | (12,424) | |
| Admiral Shares | |||||
| Issued | 1,776,329 | 169,145 | 3,483,716 | 318,684 | |
| Issued in Lieu of Cash Distributions | 31,333 | 3,006 | 101,385 | 9,331 | |
| Redeemed | (2,384,682) | (227,676) | (3,387,746) | (310,586) | |
| Net Increase (Decrease)—Admiral Shares | (577,020) | (55,525) | 197,355 | 17,429 | |
| H. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
31
Intermediate-Term Treasury Fund
Fund Allocation
As of July 31, 2022
| Agency Bonds and Notes | 4.1% |
| Government Mortgage-Backed Securities | 0.4 |
| U.S. Government Securities | 95.5 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
32
Intermediate-Term Treasury Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (97.6%) | ||||||
| U.S. Government Securities (93.2%) | ||||||
| United States Treasury Inflation Indexed Bonds | 0.125% | 1/15/23 | 614,170 | 619,544 | ||
| United States Treasury Note/Bond | 2.000% | 8/15/25 | 11,400 | 11,120 | ||
| United States Treasury Note/Bond | 0.250% | 8/31/25 | 272,700 | 251,907 | ||
| United States Treasury Note/Bond | 2.750% | 8/31/25 | 43,600 | 43,477 | ||
| United States Treasury Note/Bond | 0.250% | 9/30/25 | 83,500 | 77,003 | ||
| United States Treasury Note/Bond | 0.250% | 10/31/25 | 45,000 | 41,421 | ||
| United States Treasury Note/Bond | 2.250% | 11/15/25 | 49,000 | 48,120 | ||
| United States Treasury Note/Bond | 0.375% | 11/30/25 | 89,300 | 82,435 | ||
| United States Treasury Note/Bond | 2.875% | 11/30/25 | 44,000 | 44,069 | ||
| United States Treasury Note/Bond | 0.375% | 1/31/26 | 113,000 | 103,889 | ||
| United States Treasury Note/Bond | 1.625% | 2/15/26 | 132,184 | 126,938 | ||
| United States Treasury Note/Bond | 6.000% | 2/15/26 | 17,000 | 18,785 | ||
| United States Treasury Note/Bond | 0.750% | 3/31/26 | 103,000 | 95,693 | ||
| United States Treasury Note/Bond | 2.250% | 3/31/26 | 7,450 | 7,310 | ||
| United States Treasury Note/Bond | 0.750% | 4/30/26 | 59,000 | 54,741 | ||
| United States Treasury Note/Bond | 1.625% | 5/15/26 | 90,300 | 86,561 | ||
| United States Treasury Note/Bond | 0.750% | 5/31/26 | 123,000 | 113,948 | ||
| United States Treasury Note/Bond | 2.125% | 5/31/26 | 80,300 | 78,431 | ||
| United States Treasury Note/Bond | 1.500% | 8/15/26 | 123,000 | 117,004 | ||
| United States Treasury Note/Bond | 1.625% | 9/30/26 | 91,400 | 87,387 | ||
| United States Treasury Note/Bond | 1.625% | 10/31/26 | 15,000 | 14,325 | ||
| United States Treasury Note/Bond | 2.000% | 11/15/26 | 55,100 | 53,395 | ||
| United States Treasury Note/Bond | 6.500% | 11/15/26 | 5,000 | 5,744 | ||
| United States Treasury Note/Bond | 6.625% | 2/15/27 | 7,000 | 8,129 | ||
| United States Treasury Note/Bond | 1.125% | 2/28/27 | 7,220 | 6,719 | ||
| United States Treasury Note/Bond | 2.750% | 4/30/27 | 39,000 | 39,055 | ||
| United States Treasury Note/Bond | 2.375% | 5/15/27 | 22,000 | 21,636 | ||
| United States Treasury Note/Bond | 0.500% | 6/30/27 | 55,000 | 49,388 | ||
| United States Treasury Note/Bond | 2.250% | 8/15/27 | 12,000 | 11,726 | ||
| United States Treasury Note/Bond | 0.500% | 10/31/27 | 118,500 | 105,613 | ||
| United States Treasury Note/Bond | 2.250% | 11/15/27 | 71,000 | 69,280 | ||
| United States Treasury Note/Bond | 6.125% | 11/15/27 | 14,000 | 16,288 | ||
| United States Treasury Note/Bond | 0.625% | 11/30/27 | 120,800 | 108,173 | ||
| United States Treasury Note/Bond | 0.625% | 12/31/27 | 100,500 | 89,853 | ||
| United States Treasury Note/Bond | 0.750% | 1/31/28 | 132,500 | 119,126 | ||
| United States Treasury Note/Bond | 2.750% | 2/15/28 | 118,500 | 118,500 | ||
| United States Treasury Note/Bond | 1.125% | 2/29/28 | 91,640 | 84,051 | ||
33
Intermediate-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United States Treasury Note/Bond | 1.250% | 3/31/28 | 153,900 | 141,828 | ||
| United States Treasury Note/Bond | 1.250% | 4/30/28 | 170,900 | 157,335 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/28 | 109,700 | 110,454 | ||
| United States Treasury Note/Bond | 1.250% | 5/31/28 | 117,500 | 108,027 | ||
| United States Treasury Note/Bond | 1.250% | 6/30/28 | 131,600 | 120,846 | ||
| United States Treasury Note/Bond | 1.000% | 7/31/28 | 51,100 | 46,190 | ||
| United States Treasury Note/Bond | 2.875% | 8/15/28 | 159,700 | 160,798 | ||
| United States Treasury Note/Bond | 5.500% | 8/15/28 | 50,000 | 57,578 | ||
| United States Treasury Note/Bond | 1.125% | 8/31/28 | 67,150 | 61,096 | ||
| United States Treasury Note/Bond | 1.250% | 9/30/28 | 124,700 | 114,178 | ||
| United States Treasury Note/Bond | 1.375% | 10/31/28 | 58,230 | 53,672 | ||
| United States Treasury Note/Bond | 3.125% | 11/15/28 | 67,500 | 68,987 | ||
| United States Treasury Note/Bond | 5.250% | 11/15/28 | 19,500 | 22,282 | ||
| United States Treasury Note/Bond | 1.500% | 11/30/28 | 88,089 | 81,785 | ||
| United States Treasury Note/Bond | 1.750% | 1/31/29 | 11,500 | 10,842 | ||
| United States Treasury Note/Bond | 5.250% | 2/15/29 | 10,000 | 11,497 | ||
| United States Treasury Note/Bond | 2.375% | 3/31/29 | 85,250 | 83,412 | ||
| United States Treasury Note/Bond | 2.375% | 5/15/29 | 16,500 | 16,149 | ||
| United States Treasury Note/Bond | 2.750% | 5/31/29 | 2,400 | 2,405 | ||
| United States Treasury Note/Bond | 3.250% | 6/30/29 | 5,071 | 5,244 | ||
| United States Treasury Note/Bond | 1.750% | 11/15/29 | 16,300 | 15,342 | ||
| United States Treasury Note/Bond | 1.500% | 2/15/30 | 23,500 | 21,653 | ||
| 1 | United States Treasury Note/Bond | 0.625% | 5/15/30 | 67,250 | 57,625 | |
| 1 | United States Treasury Note/Bond | 0.625% | 8/15/30 | 114,200 | 97,463 | |
| United States Treasury Note/Bond | 0.875% | 11/15/30 | 126,400 | 109,929 | ||
| United States Treasury Note/Bond | 1.125% | 2/15/31 | 113,500 | 100,465 | ||
| United States Treasury Note/Bond | 1.625% | 5/15/31 | 67,800 | 62,397 | ||
| United States Treasury Note/Bond | 1.250% | 8/15/31 | 142,600 | 126,602 | ||
| United States Treasury Note/Bond | 1.375% | 11/15/31 | 140,000 | 125,256 | ||
| United States Treasury Note/Bond | 1.875% | 2/15/32 | 153,000 | 142,816 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/32 | 35,000 | 35,618 | ||
| 5,360,555 | ||||||
| Agency Bonds and Notes (4.0%) | ||||||
| 2 | AID-Israel | 0.000% | 11/1/24 | 50,000 | 46,419 | |
| 3 | Fannie Mae Principal Strip | 0.000% | 5/15/30 | 52,117 | 40,923 | |
| 3 | Fannie Mae Principal Strip | 0.000% | 11/15/30 | 6,000 | 4,631 | |
| 3 | Freddie Mac Principal Strips | 0.000% | 3/15/31 | 28,909 | 22,008 | |
| Private Export Funding Corp. | 3.550% | 1/15/24 | 10,300 | 10,336 | ||
| Private Export Funding Corp. | 1.400% | 7/15/28 | 22,000 | 19,809 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 1/15/30 | 15,000 | 11,893 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 4/15/30 | 98,000 | 76,977 | ||
| 232,996 | ||||||
| Nonconventional Mortgage-Backed Securities (0.4%) | ||||||
| 4 | Ginnie Mae | 1.100% | 1/20/51 | 26,352 | 21,597 | |
| Total U.S. Government and Agency Obligations (Cost $5,917,578) | 5,615,148 | |||||
34
Intermediate-Term Treasury Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (1.8%) | ||||||
| Money Market Fund (1.8%) | ||||||
| 5 | Vanguard Market Liquidity Fund (Cost $104,568) | 1.903% | 1,046,081 | 104,566 | ||
| Total Investments (99.4%) (Cost $6,022,146) | 5,719,714 | |||||
| Other Assets and Liabilities—Net (0.6%) | 32,013 | |||||
| Net Assets (100%) | 5,751,727 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $10,389,000 have been segregated as initial margin for open futures contracts. |
| 2 | U.S. government-guaranteed. |
| 3 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 4 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 5 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | 4,923 | 559,876 | 10,395 |
| 10-Year U.S. Treasury Note | September 2022 | 238 | 28,831 | 711 |
| Ultra 10-Year U.S. Treasury Note | September 2022 | 247 | 32,419 | 955 |
| Ultra Long U.S. Treasury Bond | September 2022 | 104 | 16,465 | 228 |
| 12,289 | ||||
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | (998) | (210,040) | (1,388) |
| 10,901 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
35
Intermediate-Term Treasury Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $5,917,578) | 5,615,148 |
| Affiliated Issuers (Cost $104,568) | 104,566 |
| Total Investments in Securities | 5,719,714 |
| Investment in Vanguard | 215 |
| Cash | 2,724 |
| Receivables for Investment Securities Sold | 103,810 |
| Receivables for Accrued Income | 23,761 |
| Receivables for Capital Shares Issued | 5,644 |
| Variation Margin Receivable—Futures Contracts | 202 |
| Other Assets | 67 |
| Total Assets | 5,856,137 |
| Liabilities | |
| Payables for Investment Securities Purchased | 89,816 |
| Payables for Capital Shares Redeemed | 12,778 |
| Payables for Distributions | 1,539 |
| Payables to Vanguard | 277 |
| Total Liabilities | 104,410 |
| Net Assets | 5,751,727 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 6,241,683 |
| Total Distributable Earnings (Loss) | (489,956) |
| Net Assets | 5,751,727 |
| Investor Shares—Net Assets | |
| Applicable to 62,787,049 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 665,131 |
| Net Asset Value Per Share—Investor Shares | $10.59 |
| Admiral Shares—Net Assets | |
| Applicable to 480,164,558 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 5,086,596 |
| Net Asset Value Per Share—Admiral Shares | $10.59 |
See accompanying
Notes, which are an integral part of the Financial Statements.
36
Intermediate-Term Treasury Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 53,218 |
| Total Income | 53,218 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 211 |
| Management and Administrative—Investor Shares | 618 |
| Management and Administrative—Admiral Shares | 2,151 |
| Marketing and Distribution—Investor Shares | 29 |
| Marketing and Distribution—Admiral Shares | 124 |
| Custodian Fees | 14 |
| Shareholders’ Reports—Investor Shares | 13 |
| Shareholders’ Reports—Admiral Shares | 37 |
| Trustees’ Fees and Expenses | 1 |
| Other Expenses | 5 |
| Total Expenses | 3,203 |
| Expenses Paid Indirectly | (1) |
| Net Expenses | 3,202 |
| Net Investment Income | 50,016 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (111,751) |
| Futures Contracts | (32,401) |
| Realized Net Gain (Loss) | (144,152) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (161,118) |
| Futures Contracts | 15,197 |
| Change in Unrealized Appreciation (Depreciation) | (145,921) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (240,057) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $250,000, ($10,000), and ($1,000), respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
37
Intermediate-Term Treasury Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 50,016 | 67,910 | |
| Realized Net Gain (Loss) | (144,152) | (47,317) | |
| Change in Unrealized Appreciation (Depreciation) | (145,921) | (244,855) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (240,057) | (224,262) | |
| Distributions | |||
| Investor Shares | (5,692) | (9,491) | |
| Admiral Shares | (44,298) | (69,688) | |
| Total Distributions | (49,990) | (79,179) | |
| Capital Share Transactions | |||
| Investor Shares | (56,041) | (157,062) | |
| Admiral Shares | (12,732) | (619,102) | |
| Net Increase (Decrease) from Capital Share Transactions | (68,773) | (776,164) | |
| Total Increase (Decrease) | (358,820) | (1,079,605) | |
| Net Assets | |||
| Beginning of Period | 6,110,547 | 7,190,152 | |
| End of Period | 5,751,727 | 6,110,547 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
38
Intermediate-Term Treasury Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $11.12 | $11.65 | $11.57 | $10.96 | $10.88 | $11.11 |
| Investment Operations | ||||||
| Net Investment Income1 | .087 | .107 | .129 | .255 | .260 | .198 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.529) | (.511) | .507 | .611 | .081 | (.230) |
| Total from Investment Operations | (.442) | (.404) | .636 | .866 | .341 | (.032) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.088) | (.107) | (.127) | (.256) | (.261) | (.198) |
| Distributions from Realized Capital Gains | — | (.019) | (.429) | — | — | — |
| Total Distributions | (.088) | (.126) | (.556) | (.256) | (.261) | (.198) |
| Net Asset Value, End of Period | $10.59 | $11.12 | $11.65 | $11.57 | $10.96 | $10.88 |
| Total Return2 | -3.98% | -3.49% | 5.50% | 7.98% | 3.20% | -0.31% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $665 | $757 | $953 | $917 | $837 | $967 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 1.66% | 0.93% | 1.07% | 2.27% | 2.42% | 1.78% |
| Portfolio Turnover Rate | 60% | 181%4 | 309%4 | 214%4 | 231%4 | 181%4 |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 3%, 37%, 5%, 35%, and 6%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
39
Intermediate-Term Treasury Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $11.12 | $11.65 | $11.57 | $10.96 | $10.88 | $11.11 |
| Investment Operations | ||||||
| Net Investment Income1 | .093 | .118 | .139 | .267 | .272 | .210 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.530) | (.511) | .509 | .610 | .080 | (.230) |
| Total from Investment Operations | (.437) | (.393) | .648 | .877 | .352 | (.020) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.093) | (.118) | (.139) | (.267) | (.272) | (.210) |
| Distributions from Realized Capital Gains | — | (.019) | (.429) | — | — | — |
| Total Distributions | (.093) | (.137) | (.568) | (.267) | (.272) | (.210) |
| Net Asset Value, End of Period | $10.59 | $11.12 | $11.65 | $11.57 | $10.96 | $10.88 |
| Total Return2 | -3.93% | -3.39% | 5.60% | 8.09% | 3.30% | -0.21% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,087 | $5,353 | $6,237 | $5,452 | $4,976 | $5,100 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.76% | 1.03% | 1.16% | 2.37% | 2.52% | 1.88% |
| Portfolio Turnover Rate | 60% | 181%4 | 309%4 | 214%4 | 231%4 | 181%4 |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 3%, 37%, 5%, 35%, and 6%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
40
Intermediate-Term Treasury Fund
Notes to Financial Statements
Vanguard Intermediate-Term
Treasury Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share
classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary
markets, are valued by methods deemed by the board of trustees to represent fair value.
2. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll
transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The
fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open
mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
3. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between
41
Intermediate-Term Treasury Fund
changes in market values of bonds held by the
fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing
broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with
its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 9% and 4% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
4. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and
has concluded that no provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
42
Intermediate-Term Treasury Fund
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
7. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or
sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $215,000, representing less than 0.01% of the fund’s net
assets and 0.09% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $1,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
43
Intermediate-Term Treasury Fund
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 5,615,148 | — | 5,615,148 |
| Temporary Cash Investments | 104,566 | — | — | 104,566 |
| Total | 104,566 | 5,615,148 | — | 5,719,714 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 12,289 | — | — | 12,289 |
| Liabilities | ||||
| Futures Contracts1 | 1,388 | — | — | 1,388 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 6,030,710 |
| Gross Unrealized Appreciation | 17,205 |
| Gross Unrealized Depreciation | (317,300) |
| Net Unrealized Appreciation (Depreciation) | (300,095) |
The fund’s tax-basis
capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2022, the fund had available capital losses totaling $54,139,000 that may be carried forward indefinitely
to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2023; should the fund realize net capital losses for
the year, the losses will be added to the loss carryforward balance above.
| F. | During the six months ended July 31, 2022, the fund purchased $3,225,103,000 of investment securities and sold $3,946,062,000 of investment securities, other than temporary cash investments. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of
44
Intermediate-Term Treasury Fund
trustees in compliance with Rule 17a-7 of the
Investment Company Act of 1940. For the six months ended July 31, 2022, such purchases were $0 and sales were $57,810,000, resulting in net realized gain of $209,000; these amounts, other than temporary cash
investments, are included in the purchases and sales of investment securities noted above.
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 48,531 | 4,558 | 139,548 | 12,220 | |
| Issued in Lieu of Cash Distributions | 5,206 | 491 | 8,775 | 770 | |
| Redeemed | (109,778) | (10,336) | (305,385) | (26,773) | |
| Net Increase (Decrease)—Investor Shares | (56,041) | (5,287) | (157,062) | (13,783) | |
| Admiral Shares | |||||
| Issued | 759,251 | 71,818 | 1,293,679 | 113,258 | |
| Issued in Lieu of Cash Distributions | 37,555 | 3,546 | 57,745 | 5,070 | |
| Redeemed | (809,538) | (76,505) | (1,970,526) | (172,606) | |
| Net Increase (Decrease)—Admiral Shares | (12,732) | (1,141) | (619,102) | (54,278) | |
| H. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
45
Long-Term Treasury Fund
Fund Allocation
As of July 31, 2022
| Agency Bonds and Notes | 8.5% |
| Government Mortgage-Backed Securities | 0.4 |
| U.S. Government Securities | 91.1 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
46
Long-Term Treasury Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (99.0%) | ||||||
| U.S. Government Securities (90.2%) | ||||||
| United States Treasury Note/Bond | 2.750% | 5/31/29 | 14,750 | 14,778 | ||
| United States Treasury Note/Bond | 3.250% | 6/30/29 | 3,682 | 3,807 | ||
| United States Treasury Note/Bond | 4.375% | 2/15/38 | 2,000 | 2,410 | ||
| United States Treasury Note/Bond | 3.500% | 2/15/39 | 5,000 | 5,409 | ||
| United States Treasury Note/Bond | 4.375% | 11/15/39 | 21,600 | 25,765 | ||
| United States Treasury Note/Bond | 1.125% | 5/15/40 | 55,650 | 39,703 | ||
| United States Treasury Note/Bond | 1.125% | 8/15/40 | 85,300 | 60,483 | ||
| United States Treasury Note/Bond | 3.875% | 8/15/40 | 9,791 | 10,892 | ||
| United States Treasury Note/Bond | 1.375% | 11/15/40 | 52,900 | 39,022 | ||
| United States Treasury Note/Bond | 4.250% | 11/15/40 | 31,000 | 36,086 | ||
| United States Treasury Note/Bond | 1.875% | 2/15/41 | 112,900 | 90,761 | ||
| United States Treasury Note/Bond | 2.250% | 5/15/41 | 72,700 | 62,159 | ||
| United States Treasury Note/Bond | 4.375% | 5/15/41 | 12,863 | 15,174 | ||
| United States Treasury Note/Bond | 1.750% | 8/15/41 | 101,690 | 79,366 | ||
| United States Treasury Note/Bond | 3.750% | 8/15/41 | 12,770 | 13,804 | ||
| United States Treasury Note/Bond | 2.000% | 11/15/41 | 138,000 | 112,578 | ||
| United States Treasury Note/Bond | 3.125% | 11/15/41 | 24,300 | 23,966 | ||
| United States Treasury Note/Bond | 2.375% | 2/15/42 | 24,000 | 20,880 | ||
| United States Treasury Note/Bond | 3.125% | 2/15/42 | 14,000 | 13,759 | ||
| United States Treasury Note/Bond | 3.000% | 5/15/42 | 33,800 | 32,511 | ||
| United States Treasury Note/Bond | 2.750% | 8/15/42 | 18,500 | 17,003 | ||
| United States Treasury Note/Bond | 2.750% | 11/15/42 | 44,000 | 40,370 | ||
| United States Treasury Note/Bond | 3.125% | 2/15/43 | 46,111 | 44,828 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/43 | 61,346 | 57,225 | ||
| United States Treasury Note/Bond | 3.625% | 8/15/43 | 37,264 | 39,110 | ||
| United States Treasury Note/Bond | 3.750% | 11/15/43 | 20,557 | 21,963 | ||
| United States Treasury Note/Bond | 3.625% | 2/15/44 | 25,000 | 26,219 | ||
| United States Treasury Note/Bond | 3.375% | 5/15/44 | 39,500 | 39,858 | ||
| United States Treasury Note/Bond | 3.125% | 8/15/44 | 44,449 | 43,011 | ||
| United States Treasury Note/Bond | 3.000% | 11/15/44 | 177,251 | 167,779 | ||
| United States Treasury Note/Bond | 2.500% | 2/15/45 | 63,900 | 55,333 | ||
| United States Treasury Note/Bond | 3.000% | 5/15/45 | 35,205 | 33,313 | ||
| United States Treasury Note/Bond | 2.875% | 8/15/45 | 40,963 | 37,968 | ||
| United States Treasury Note/Bond | 3.000% | 11/15/45 | 13,600 | 12,903 | ||
| United States Treasury Note/Bond | 2.500% | 2/15/46 | 26,795 | 23,211 | ||
| United States Treasury Note/Bond | 2.500% | 5/15/46 | 12,810 | 11,087 | ||
| United States Treasury Note/Bond | 2.250% | 8/15/46 | 45,600 | 37,513 | ||
47
Long-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United States Treasury Note/Bond | 2.875% | 11/15/46 | 33,769 | 31,352 | ||
| United States Treasury Note/Bond | 3.000% | 2/15/47 | 49,998 | 47,561 | ||
| United States Treasury Note/Bond | 3.000% | 5/15/47 | 1,636 | 1,558 | ||
| United States Treasury Note/Bond | 2.750% | 8/15/47 | 5,230 | 4,764 | ||
| United States Treasury Note/Bond | 2.750% | 11/15/47 | 22,690 | 20,712 | ||
| United States Treasury Note/Bond | 3.000% | 2/15/48 | 24,804 | 23,832 | ||
| United States Treasury Note/Bond | 3.125% | 5/15/48 | 57,662 | 56,896 | ||
| United States Treasury Note/Bond | 3.000% | 8/15/48 | 41,533 | 40,079 | ||
| United States Treasury Note/Bond | 3.375% | 11/15/48 | 90,961 | 94,486 | ||
| United States Treasury Note/Bond | 3.000% | 2/15/49 | 50,420 | 49,120 | ||
| 1 | United States Treasury Note/Bond | 2.875% | 5/15/49 | 43,761 | 41,724 | |
| United States Treasury Note/Bond | 2.250% | 8/15/49 | 66,500 | 55,839 | ||
| United States Treasury Note/Bond | 2.375% | 11/15/49 | 46,400 | 40,107 | ||
| United States Treasury Note/Bond | 2.000% | 2/15/50 | 66,000 | 52,377 | ||
| United States Treasury Note/Bond | 1.250% | 5/15/50 | 85,600 | 55,801 | ||
| United States Treasury Note/Bond | 1.375% | 8/15/50 | 109,797 | 73,976 | ||
| United States Treasury Note/Bond | 1.625% | 11/15/50 | 128,012 | 92,128 | ||
| United States Treasury Note/Bond | 1.875% | 2/15/51 | 125,900 | 96,648 | ||
| United States Treasury Note/Bond | 2.375% | 5/15/51 | 144,400 | 124,680 | ||
| United States Treasury Note/Bond | 2.000% | 8/15/51 | 109,000 | 86,297 | ||
| United States Treasury Note/Bond | 1.875% | 11/15/51 | 134,000 | 102,992 | ||
| United States Treasury Note/Bond | 2.250% | 2/15/52 | 112,000 | 94,325 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/52 | 18,000 | 17,409 | ||
| 2,716,670 | ||||||
| Agency Bonds and Notes (8.4%) | ||||||
| 2 | Fannie Mae Principal Strip | 0.000% | 5/15/30 | 56,935 | 44,706 | |
| 2 | Fannie Mae Principal Strip | 0.000% | 8/6/38 | 7,100 | 3,896 | |
| Federal Farm Credit Banks Funding Corp. | 3.820% | 6/15/37 | 50,000 | 50,490 | ||
| 2 | Federal Home Loan Mortgage Corp. | 0.000% | 12/14/29 | 20,000 | 15,945 | |
| 2 | Federal Home Loan Mortgage Corp. | 0.000% | 11/15/38 | 14,465 | 7,843 | |
| 2 | Federal National Mortgage Assn. | 0.000% | 11/15/30 | 55,000 | 42,452 | |
| 2 | Federal National Mortgage Assn. | 0.000% | 10/3/33 | 8,000 | 5,490 | |
| 2 | Freddie Mac Coupon Strips | 0.000% | 3/15/30 | 12,896 | 10,179 | |
| 2 | Freddie Mac Principal Strips | 0.000% | 3/15/31 | 75,000 | 57,096 | |
| Resolution Funding Corp. Principal Strip | 0.000% | 1/15/30 | 20,000 | 15,857 | ||
| 253,954 | ||||||
| Nonconventional Mortgage-Backed Securities (0.4%) | ||||||
| 3 | Ginnie Mae | 1.100% | 1/20/51 | 14,189 | 11,629 | |
| Total U.S. Government and Agency Obligations (Cost $3,399,265) | 2,982,253 | |||||
48
Long-Term Treasury Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (0.3%) | ||||||
| Money Market Fund (0.3%) | ||||||
| 4 | Vanguard Market Liquidity Fund (Cost $10,159) | 1.903% | 101,632 | 10,159 | ||
| Total Investments (99.3%) (Cost $3,409,424) | 2,992,412 | |||||
| Other Assets and Liabilities—Net (0.7%) | 21,141 | |||||
| Net Assets (100%) | 3,013,553 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $5,853,000 have been segregated as initial margin for open futures contracts. |
| 2 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 3 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 4 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | 201 | 22,859 | 424 |
| Long U.S. Treasury Bond | September 2022 | 784 | 112,896 | 3,183 |
| Ultra Long U.S. Treasury Bond | September 2022 | 681 | 107,811 | 628 |
| 4,235 | ||||
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | (343) | (72,188) | (434) |
| 10-Year U.S. Treasury Note | September 2022 | (1,952) | (236,467) | (5,529) |
| Ultra 10-Year U.S. Treasury Note | September 2022 | (662) | (86,888) | (1,233) |
| (7,196) | ||||
| (2,961) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
49
Long-Term Treasury Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $3,399,265) | 2,982,253 |
| Affiliated Issuers (Cost $10,159) | 10,159 |
| Total Investments in Securities | 2,992,412 |
| Investment in Vanguard | 113 |
| Receivables for Investment Securities Sold | 24,049 |
| Receivables for Accrued Income | 24,538 |
| Receivables for Capital Shares Issued | 2,037 |
| Variation Margin Receivable—Futures Contracts | 1,042 |
| Other Assets | 39 |
| Total Assets | 3,044,230 |
| Liabilities | |
| Payables for Investment Securities Purchased | 17,714 |
| Payables for Capital Shares Redeemed | 12,096 |
| Payables for Distributions | 709 |
| Payables to Vanguard | 158 |
| Total Liabilities | 30,677 |
| Net Assets | 3,013,553 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 3,691,062 |
| Total Distributable Earnings (Loss) | (677,509) |
| Net Assets | 3,013,553 |
| Investor Shares—Net Assets | |
| Applicable to 59,163,293 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 604,871 |
| Net Asset Value Per Share—Investor Shares | $10.22 |
| Admiral Shares—Net Assets | |
| Applicable to 235,595,890 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 2,408,682 |
| Net Asset Value Per Share—Admiral Shares | $10.22 |
See accompanying
Notes, which are an integral part of the Financial Statements.
50
Long-Term Treasury Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 40,184 |
| Total Income | 40,184 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 116 |
| Management and Administrative—Investor Shares | 563 |
| Management and Administrative—Admiral Shares | 1,081 |
| Marketing and Distribution—Investor Shares | 27 |
| Marketing and Distribution—Admiral Shares | 62 |
| Custodian Fees | 9 |
| Shareholders’ Reports—Investor Shares | 25 |
| Shareholders’ Reports—Admiral Shares | 16 |
| Trustees’ Fees and Expenses | 1 |
| Other Expenses | 5 |
| Total Expenses | 1,905 |
| Expenses Paid Indirectly | (1) |
| Net Expenses | 1,904 |
| Net Investment Income | 38,280 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (109,160) |
| Futures Contracts | (17,190) |
| Realized Net Gain (Loss) | (126,350) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (490,782) |
| Futures Contracts | (610) |
| Change in Unrealized Appreciation (Depreciation) | (491,392) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (579,462) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $65,000, ($8,000), and less than $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
51
Long-Term Treasury Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 38,280 | 77,072 | |
| Realized Net Gain (Loss) | (126,350) | (95,059) | |
| Change in Unrealized Appreciation (Depreciation) | (491,392) | (184,702) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (579,462) | (202,689) | |
| Distributions | |||
| Investor Shares | (7,482) | (37,811) | |
| Admiral Shares | (30,787) | (143,859) | |
| Total Distributions | (38,269) | (181,670) | |
| Capital Share Transactions | |||
| Investor Shares | (19,624) | (97,549) | |
| Admiral Shares | (53,238) | (37,268) | |
| Net Increase (Decrease) from Capital Share Transactions | (72,862) | (134,817) | |
| Total Increase (Decrease) | (690,593) | (519,176) | |
| Net Assets | |||
| Beginning of Period | 3,704,146 | 4,223,322 | |
| End of Period | 3,013,553 | 3,704,146 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
52
Long-Term Treasury Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $12.29 | $13.55 | $14.05 | $11.86 | $11.96 | $11.79 |
| Investment Operations | ||||||
| Net Investment Income1 | .124 | .239 | .273 | .331 | .334 | .328 |
| Net Realized and Unrealized Gain (Loss) on Investments | (2.070) | (.923) | .677 | 2.226 | (.100) | .170 |
| Total from Investment Operations | (1.946) | (.684) | .950 | 2.557 | .234 | .498 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.124) | (.239) | (.273) | (.331) | (.334) | (.328) |
| Distributions from Realized Capital Gains | — | (.337) | (1.177) | (.036) | — | — |
| Total Distributions | (.124) | (.576) | (1.450) | (.367) | (.334) | (.328) |
| Net Asset Value, End of Period | $10.22 | $12.29 | $13.55 | $14.05 | $11.86 | $11.96 |
| Total Return2 | -15.86% | -4.92% | 6.41% | 21.84% | 2.05% | 4.21% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $605 | $750 | $931 | $971 | $794 | $882 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 2.34% | 1.90% | 1.79% | 2.55% | 2.89% | 2.70% |
| Portfolio Turnover Rate | 37% | 106%4 | 172%4 | 96%4,5 | 122%4 | 103%4,5 |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 2%, 26%, 4%, 34%, and 6%, respectively, attributable to mortgage-dollar-roll activity. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
53
Long-Term Treasury Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $12.29 | $13.55 | $14.05 | $11.86 | $11.96 | $11.79 |
| Investment Operations | ||||||
| Net Investment Income1 | .130 | .252 | .288 | .344 | .346 | .340 |
| Net Realized and Unrealized Gain (Loss) on Investments | (2.070) | (.923) | .677 | 2.226 | (.100) | .170 |
| Total from Investment Operations | (1.940) | (.671) | .965 | 2.570 | .246 | .510 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.130) | (.252) | (.288) | (.344) | (.346) | (.340) |
| Distributions from Realized Capital Gains | — | (.337) | (1.177) | (.036) | — | — |
| Total Distributions | (.130) | (.589) | (1.465) | (.380) | (.346) | (.340) |
| Net Asset Value, End of Period | $10.22 | $12.29 | $13.55 | $14.05 | $11.86 | $11.96 |
| Total Return2 | -15.82% | -4.82% | 6.51% | 21.96% | 2.16% | 4.32% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $2,409 | $2,954 | $3,292 | $3,071 | $2,532 | $2,588 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.44% | 2.00% | 1.89% | 2.65% | 2.99% | 2.80% |
| Portfolio Turnover Rate | 37% | 106%4 | 172%4 | 96%4,5 | 122%4 | 103%4,5 |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 2%, 26%, 4%, 34%, and 6%, respectively, attributable to mortgage-dollar-roll activity. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
54
Long-Term Treasury Fund
Notes to Financial Statements
Vanguard Long-Term Treasury
Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Structured debt securities, including mortgages and asset-backed securities, are
valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted average coupon, weighted average maturity,
credit enhancements, and collateral, as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value. Securities for which market quotations are
not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed
by the board of trustees to represent fair value.
2. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll
transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The
fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open
mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
3. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty
55
Long-Term Treasury Fund
risk, the fund trades futures contracts on an
exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure
the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the
Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 8% and 10% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
4. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and
has concluded that no provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the
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Long-Term Treasury Fund
extent permitted by the fund’s
investment objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The
interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
7. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Inflation adjustments to the face amount of inflation-indexed securities are
included in interest income. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the
specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $113,000, representing less than 0.01% of the fund’s net
assets and 0.05% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $1,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
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Long-Term Treasury Fund
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 2,982,253 | — | 2,982,253 |
| Temporary Cash Investments | 10,159 | — | — | 10,159 |
| Total | 10,159 | 2,982,253 | — | 2,992,412 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 4,235 | — | — | 4,235 |
| Liabilities | ||||
| Futures Contracts1 | 7,196 | — | — | 7,196 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 3,453,180 |
| Gross Unrealized Appreciation | 9,020 |
| Gross Unrealized Depreciation | (472,749) |
| Net Unrealized Appreciation (Depreciation) | (463,729) |
The fund’s tax-basis
capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2022, the fund had available capital losses totaling $112,127,000 that may be carried forward indefinitely
to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2023; should the fund realize net capital losses for
the year, the losses will be added to the loss carryforward balance above.
| F. | During the six months ended July 31, 2022, the fund purchased $1,183,424,000 of investment securities and sold $1,283,305,000 of investment securities, other than temporary cash investments. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $0 and sales were $31,486,000, resulting in
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Long-Term Treasury Fund
net realized gain of $114,000; these amounts,
other than temporary cash investments, are included in the purchases and sales of investment securities noted above.
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 62,442 | 5,829 | 147,473 | 11,701 | |
| Issued in Lieu of Cash Distributions | 7,022 | 660 | 35,678 | 2,954 | |
| Redeemed | (89,088) | (8,351) | (280,700) | (22,357) | |
| Net Increase (Decrease)—Investor Shares | (19,624) | (1,862) | (97,549) | (7,702) | |
| Admiral Shares | |||||
| Issued | 254,295 | 23,859 | 815,470 | 65,179 | |
| Issued in Lieu of Cash Distributions | 27,008 | 2,542 | 128,719 | 10,646 | |
| Redeemed | (334,541) | (31,264) | (981,457) | (78,341) | |
| Net Increase (Decrease)—Admiral Shares | (53,238) | (4,863) | (37,268) | (2,516) | |
| H. | Management has determined that no other events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
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Trustees Approve Advisory Arrangements
The board of trustees of
Vanguard Short-Term Treasury Fund, Vanguard Intermediate-Term Treasury Fund, Vanguard Long-Term Treasury Fund, and Vanguard Short-Term Federal Fund has renewed each fund’s investment advisory arrangement with
The Vanguard Group, Inc. (Vanguard), through its Fixed Income Group. The board determined that continuing each fund’s internalized management structure was in the best interests of the fund and its
shareholders.
The board based its decisions
upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about each fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of each
fund’s investment management services over both the short and long term and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing
investments for more than four decades and has advised the Short-Term Treasury, Intermediate-Term Treasury, Long-Term Treasury, and Short-Term Federal Funds since their inceptions. The Fixed Income Group adheres to a
sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that the
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term
performance of each fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory
arrangements should continue.
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Cost
The board concluded that each fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that each fund’s advisory expenses were also below the peer-group average.
The board does not conduct a
profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of
scale
The board concluded that the Short-Term
Treasury, Intermediate-Term Treasury, Long-Term Treasury, and Short-Term Federal Funds’ arrangements with Vanguard ensure that the funds will realize economies of scale as they grow, with the cost to
shareholders declining as fund assets increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
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Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Fixed Income Securities Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Short-Term Treasury Fund, Vanguard Short-Term
Federal Fund, Vanguard Intermediate-Term Treasury Fund, and Vanguard Long-Term Treasury Fund, and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least
an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program
Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated
and was implemented effectively to manage the funds' liquidity risk.
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Connect with
Vanguard®>vanguard.com
Semiannual Report | July 31, 2022
Vanguard
Corporate Bond Funds
| Vanguard Short-Term Investment-Grade Fund |
| Vanguard Intermediate-Term Investment-Grade Fund |
| Vanguard Long-Term Investment-Grade Fund |
Contents
About Your Fund’s Expenses | 1 |
Short-Term Investment-Grade Fund | 3 |
Intermediate-Term Investment-Grade Fund | 45 |
Long-Term Investment-Grade Fund | 84 |
Trustees Approve Advisory Arrangements | 111 |
Liquidity Risk Management | 113 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
| Six Months Ended July 31, 2022 | |||
| Beginning Account Value 1/31/2022 | Ending Account Value 7/31/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Short-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $968.90 | $0.98 |
| Admiral™ Shares | 1,000.00 | 969.30 | 0.49 |
| Institutional Shares | 1,000.00 | 969.50 | 0.34 |
| Intermediate-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $928.00 | $0.96 |
| Admiral Shares | 1,000.00 | 928.50 | 0.48 |
| Long-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $866.10 | $1.02 |
| Admiral Shares | 1,000.00 | 866.50 | 0.56 |
1
| Six Months Ended July 31, 2022 | |||
| Beginning Account Value 1/31/2022 | Ending Account Value 7/31/2022 | Expenses Paid During Period | |
| Based on Hypothetical 5% Yearly Return | |||
| Short-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Institutional Shares | 1,000.00 | 1,024.45 | 0.35 |
| Intermediate-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Long-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $1,023.70 | $1.10 |
| Admiral Shares | 1,000.00 | 1,024.20 | 0.60 |
The calculations are
based on expenses incurred in the most recent six-month period. The funds' annualized six-month expense ratios for that period are: for the Short-Term Investment-Grade Fund, 0.20% for Investor Shares, 0.10% for
Admiral Shares and 0.07% for Institutional Shares; for the Intermediate-Term Investment-Grade Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares; and for the Long-Term Investment-Grade Fund, 0.22% for
Investor Shares and 0.12% for Admiral Shares. The dollar amounts shown as “Expenses Paid" are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the
number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (181/365).
2
Short-Term Investment-Grade Fund
Fund Allocation
As of July 31, 2022
| Asset-Backed/Commercial Mortgage-Backed Securities | 6.6% |
| Common Stocks | 0.1 |
| Corporate Bonds - Communications | 5.2 |
| Corporate Bonds - Consumer Discretionary | 5.5 |
| Corporate Bonds - Consumer Staples | 3.2 |
| Corporate Bonds - Energy | 6.9 |
| Corporate Bonds - Financials | 29.0 |
| Corporate Bonds - Health Care | 6.5 |
| Corporate Bonds - Industrials | 5.6 |
| Corporate Bonds - Materials | 2.2 |
| Corporate Bonds - Real Estate | 4.2 |
| Corporate Bonds - Technology | 4.3 |
| Corporate Bonds - Utilities | 3.7 |
| Floating Rate Loan Interests | 0.1 |
| Sovereign Bonds | 2.1 |
| Taxable Municipal Bonds | 0.0 |
| U.S. Government and Agency Obligations | 14.8 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
3
Short-Term Investment-Grade Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
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Short-Term Investment-Grade Fund
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Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | 35,826 | 4,074,368 | 21,974 |
| Euro-Schatz | September 2022 | 153 | 17,222 | 143 |
| 22,117 | ||||
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | (995) | (209,409) | (562) |
| 5-Year Government of Canada Bond | September 2022 | (190) | (17,145) | (54) |
| 10-Year U.S. Treasury Note | September 2022 | (1,508) | (182,680) | (4,039) |
| AUD 3-Year Treasury Bond | September 2022 | (847) | (64,646) | (1,065) |
| AUD 10-Year Treasury Bond | September 2022 | (177) | (15,455) | (652) |
| Euro-Bobl | September 2022 | (5,089) | (665,079) | (16,862) |
| Euro-Bund | September 2022 | (111) | (17,884) | (797) |
| Long Gilt | September 2022 | (803) | (115,567) | (531) |
| Long U.S. Treasury Bond | September 2022 | (82) | (11,808) | (217) |
| Ultra 10-Year U.S. Treasury Note | September 2022 | (2,929) | (384,431) | (11,614) |
| (36,393) | ||||
| (14,276) | ||||
| Forward Currency Contracts | ||||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |||||
| Counterparty | Receive | Deliver | ||||||
| BNP Paribas | 9/21/22 | AUD | 5,054 | USD | 3,513 | 22 | — | |
| HSBC Bank plc | 9/21/22 | CAD | 229 | USD | 177 | 1 | — | |
| BNP Paribas | 9/21/22 | CAD | 107 | USD | 82 | 1 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | CAD | 101 | USD | 80 | — | (1) | |
| HSBC Bank plc | 9/21/22 | EUR | 54,324 | USD | 57,551 | — | (1,824) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | EUR | 15,488 | USD | 15,860 | 28 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | EUR | 8,528 | USD | 8,895 | — | (147) | |
| Standard Chartered Bank | 9/21/22 | EUR | 7,229 | USD | 7,599 | — | (184) | |
| Bank of New York | 9/21/22 | EUR | 5,954 | USD | 6,107 | 1 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | EUR | 5,984 | USD | 6,027 | 112 | — | |
| Bank of New York | 9/21/22 | EUR | 3,423 | USD | 3,666 | — | (156) | |
| State Street Bank & Trust Co. | 9/21/22 | EUR | 3,339 | USD | 3,545 | — | (119) | |
| Standard Chartered Bank | 9/21/22 | GBP | 13,581 | USD | 16,735 | — | (176) | |
| Toronto-Dominion Bank | 9/21/22 | GBP | 8,742 | USD | 10,508 | 150 | — | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 132,329 | AUD | 185,916 | 2,321 | — | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 129,532 | AUD | 185,730 | — | (347) | |
| Bank of Montreal | 9/21/22 | USD | 131,790 | AUD | 184,988 | 2,430 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 39,866 | CAD | 49,990 | 835 | — | |
| Credit Agricole CIB | 9/21/22 | USD | 343,868 | EUR | 318,649 | 16,992 | — | |
| Bank of America, N.A. | 9/21/22 | USD | 340,528 | EUR | 315,435 | 16,949 | — | |
| Deutsche Bank AG | 9/8/22 | USD | 266,570 | EUR | 263,685 | — | (3,664) | |
28
Short-Term Investment-Grade Fund
| Forward Currency Contracts (continued) | ||||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |||||
| Counterparty | Receive | Deliver | ||||||
| State Street Bank & Trust Co. | 9/8/22 | USD | 263,625 | EUR | 261,061 | — | (3,919) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 22,854 | EUR | 21,666 | 629 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 10,307 | EUR | 9,831 | 221 | — | |
| Barclays Bank plc | 9/21/22 | USD | 7,787 | EUR | 7,578 | 14 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 7,445 | EUR | 7,341 | — | (86) | |
| Bank of America, N.A. | 9/21/22 | USD | 6,566 | EUR | 6,489 | — | (90) | |
| Deutsche Bank AG | 9/21/22 | USD | 6,418 | EUR | 6,278 | — | (23) | |
| Barclays Bank plc | 9/21/22 | USD | 5,603 | EUR | 5,470 | — | (8) | |
| HSBC Bank plc | 9/21/22 | USD | 2,425 | EUR | 2,276 | 90 | — | |
| Bank of New York | 9/21/22 | USD | 1,845 | EUR | 1,820 | — | (22) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 825 | EUR | 781 | 24 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 227,546 | GBP | 182,795 | 4,670 | — | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 226,628 | GBP | 182,065 | 4,642 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 7,561 | GBP | 6,288 | — | (105) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 126 | JPY | 16,803 | — | — | |
| 50,132 | (10,871) | |||||||
| AUD—Australian dollar. |
| CAD—Canadian dollar. |
| EUR—euro. |
| GBP—British pound. |
| JPY—Japanese yen. |
| USD—U.S. dollar. |
| Centrally Cleared Credit Default Swaps | ||||||
| Reference Entity | Termination Date | Notional Amount (000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Unrealized Appreciation (Depreciation) ($000) | |
| Credit Protection Purchased | ||||||
| CDX-NA-HY-S37-V2 | 12/22/26 | USD | 38,471 | (5.000) | (1,177) | 2,465 |
| 1 Periodic premium received/paid quarterly. |
| USD—U.S. dollar. |
| Over-the-Counter Credit Default Swaps | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Credit Protection Sold/Moody's Rating | ||||||||
| Ally Financial Inc./Baa3 | 12/23/25 | GSI | 3,270 | 1.000 | (111) | 16 | — | (127) |
| American Express Co./A2 | 12/23/25 | GSI | 3,270 | 1.000 | 68 | 74 | — | (6) |
| American International Group Inc./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 43 | 31 | 12 | — |
| AT&T Inc./Baa2 | 12/21/23 | BARC | 179,110 | 1.000 | 444 | 1,492 | — | (1,048) |
| AT&T Inc./Baa2 | 12/21/23 | BARC | 44,560 | 1.000 | 110 | 371 | — | (261) |
| Berkshire Hathaway Inc./Aa2 | 12/21/22 | BARC | 16,580 | 1.000 | 80 | 22 | 58 | — |
| Boeing Co./Baa2 | 6/21/24 | GSI | 24,365 | 1.000 | (92) | 223 | — | (315) |
| Boeing Co./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | (53) | (13) | — | (40) |
29
Short-Term Investment-Grade Fund
| Over-the-Counter Credit Default Swaps (continued) | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Chubb INA Holdings Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 89 | 83 | 6 | — |
| Comcast Corp./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 58 | 66 | — | (8) |
| CVS Health Corp./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 66 | 52 | 14 | — |
| Dominion Energy Inc./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 74 | 65 | 9 | — |
| Dow Chemical Co./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 6 | 42 | — | (36) |
| Enbridge Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 30 | 38 | — | (8) |
| Federation of Malaysia/A3 | 6/22/27 | JPMC | 10,500 | 1.000 | 118 | 167 | — | (49) |
| General Electric Co./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | (8) | 13 | — | (21) |
| General Motors Co./Baa3 | 12/23/25 | GSI | 3,270 | 1.000 | (64) | (2) | — | (62) |
| International Business Machines Corp./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 63 | 68 | — | (5) |
| Kroger Co./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 68 | 52 | 16 | — |
| Lincoln National Corp./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 9 | 29 | — | (20) |
| Lowe's Cos. Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 65 | 68 | — | (3) |
| Marathon Petroleum Corp./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 27 | 20 | 7 | — |
| Marsh & McLennan Cos. Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 87 | 79 | 8 | — |
| Metlife Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 50 | 50 | — | — |
| Mondelez International Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 67 | 61 | 6 | — |
| People's Republic of China/A1 | 6/21/24 | GSI | 20,715 | 1.000 | 275 | 180 | 95 | — |
| Prudential Financial Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 49 | 50 | — | (1) |
| Republic of Chile/A1 | 6/22/27 | CITNA | 46,750 | 1.000 | (537) | 446 | — | (983) |
| Republic of Chile/A1 | 6/22/27 | JPMC | 9,900 | 1.000 | (113) | 126 | — | (239) |
| Republic of Chile/A1 | 6/22/27 | MSCS | 17,890 | 1.000 | (206) | 202 | — | (408) |
| Republic of Philippines/Baa2 | 6/22/27 | BARC | 8,250 | 1.000 | (4) | 82 | — | (86) |
| Simon Property Group LP/A3 | 12/23/25 | GSI | 3,270 | 1.000 | 13 | 31 | — | (18) |
| UnitedHealth Group Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 77 | 72 | 5 | — |
| Verizon Communications Inc./Baa1 | 12/21/22 | GSI | 33,580 | 1.000 | 101 | 45 | 56 | — |
| Verizon Communications Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 9 | 50 | — | (41) |
| 958 | 4,451 | 292 | (3,785) | |||||
| Credit Protection Purchased | ||||||||
| Bank of China Ltd. | 6/21/23 | BNPSW | 19,485 | (1.000) | (135) | (56) | — | (79) |
| Boeing Co. | 12/21/24 | JPMC | 9,690 | (1.000) | 73 | 392 | — | (319) |
30
Short-Term Investment-Grade Fund
| Over-the-Counter Credit Default Swaps (continued) | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Deutsche Bank AG | 12/21/22 | JPMC | 20,120 | (1.000) | (26) | (7) | — | (19) |
| Republic of Colombia | 6/22/27 | MSCS | 1,850 | (1.000) | 125 | 82 | 43 | — |
| 37 | 411 | 43 | (417) | |||||
| 995 | 4,862 | 335 | (4,202) | |||||
| 1 | Periodic premium received/paid quarterly. |
| BARC—Barclays Bank plc. | |
| BNPSW—BNP Paribas. | |
| CITNA—Citibank NA. | |
| GSI—Goldman Sachs International. | |
| JPMC—JPMorgan Chase Bank, N.A. | |
| MSCS—Morgan Stanley Capital Services LLC. |
The notional amount represents
the maximum potential amount the fund could be required to pay as a seller of credit protection if the reference entity was subject to a credit event.
At July 31, 2022, the
counterparties had deposited in segregated accounts securities with a value of $37,814,000 and cash of $20,140,000 in connection with open forward currency contracts and open over-the-counter swap contracts.
| Centrally Cleared Interest Rate Swaps | ||||||
| Termination Date | Future Effective Date | Notional Amount ($000) | Interest Rate Received (%) | Interest Rate (Paid) (%) | Value ($000) | Unrealized Appreciation (Depreciation) ($000) |
| 9/6/22 | N/A | 100 | 1.4371 | (1.364)2 | — | — |
| 1 | Based on 1-Day USD Overnight Fed Funds Effective Rate as of the most recent payment date. Interest payment received/paid quarterly. |
| 2 | Based on Secured Overnight Financing Rate (SOFR) as of the most recent payment date. Interest payment received/paid quarterly. |
See accompanying
Notes, which are an integral part of the Financial Statements.
31
Short-Term Investment-Grade Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $71,230,407) | 67,743,534 |
| Affiliated Issuers (Cost $464,216) | 460,840 |
| Total Investments in Securities | 68,204,374 |
| Investment in Vanguard | 2,583 |
| Foreign Currency, at Value (Cost $9,610) | 9,693 |
| Receivables for Investment Securities Sold | 2,503,299 |
| Receivables for Accrued Income | 450,594 |
| Receivables for Capital Shares Issued | 45,514 |
| Swap Premiums Paid | 4,940 |
| Variation Margin Receivable—Centrally Cleared Swap Contracts | 52 |
| Unrealized Appreciation—Forward Currency Contracts | 50,132 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 335 |
| Other Assets | 680 |
| Total Assets | 71,272,196 |
| Liabilities | |
| Due to Custodian | 2,795 |
| Payables for Investment Securities Purchased | 3,873,886 |
| Payables for Capital Shares Redeemed | 62,421 |
| Payables for Distributions | 18,110 |
| Payables to Vanguard | 3,069 |
| Swap Premiums Received | 78 |
| Variation Margin Payable—Futures Contracts | 99 |
| Unrealized Depreciation—Forward Currency Contracts | 10,871 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 4,202 |
| Total Liabilities | 3,975,531 |
| Net Assets | 67,296,665 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 71,371,354 |
| Total Distributable Earnings (Loss) | (4,074,689) |
| Net Assets | 67,296,665 |
| Investor Shares—Net Assets | |
| Applicable to 689,995,689 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 7,042,672 |
| Net Asset Value Per Share—Investor Shares | $10.21 |
| Admiral Shares—Net Assets | |
| Applicable to 4,634,738,283 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 47,305,999 |
| Net Asset Value Per Share—Admiral Shares | $10.21 |
| Institutional Shares—Net Assets | |
| Applicable to 1,268,560,736 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 12,947,994 |
| Net Asset Value Per Share—Institutional Shares | $10.21 |
See accompanying
Notes, which are an integral part of the Financial Statements.
32
Short-Term Investment-Grade Fund
See
accompanying Notes, which are an integral part of the Financial Statements.
33
Short-Term Investment-Grade Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 620,854 | 1,214,741 | |
| Realized Net Gain (Loss) | (614,710) | 751,955 | |
| Change in Unrealized Appreciation (Depreciation) | (2,395,992) | (3,215,463) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (2,389,848) | (1,248,767) | |
| Distributions | |||
| Investor Shares | (65,059) | (168,845) | |
| Admiral Shares | (459,746) | (1,102,577) | |
| Institutional Shares | (125,784) | (297,838) | |
| Total Distributions | (650,589) | (1,569,260) | |
| Capital Share Transactions | |||
| Investor Shares | (1,031,923) | 98,823 | |
| Admiral Shares | (4,746,679) | 4,902,787 | |
| Institutional Shares | (584,706) | 351,031 | |
| Net Increase (Decrease) from Capital Share Transactions | (6,363,308) | 5,352,641 | |
| Total Increase (Decrease) | (9,403,745) | 2,534,614 | |
| Net Assets | |||
| Beginning of Period | 76,700,410 | 74,165,796 | |
| End of Period | 67,296,665 | 76,700,410 | |
34
Short-Term Investment-Grade Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 | $10.65 |
| Investment Operations | ||||||
| Net Investment Income1 | .085 | .161 | .233 | .297 | .283 | .224 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.416) | (.341) | .225 | .304 | (.069) | (.087) |
| Total from Investment Operations | (.331) | (.180) | .458 | .601 | .214 | .137 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.089) | (.171) | (.238) | (.301) | (.284) | (.215) |
| Distributions from Realized Capital Gains | — | (.039) | — | — | — | (.002) |
| Total Distributions | (.089) | (.210) | (.238) | (.301) | (.284) | (.217) |
| Net Asset Value, End of Period | $10.21 | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 |
| Total Return2 | -3.11% | -1.66% | 4.29% | 5.79% | 2.07% | 1.29% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $7,043 | $8,400 | $8,617 | $8,179 | $7,846 | $9,333 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 1.66% | 1.47% | 2.14% | 2.78% | 2.71% | 2.11% |
| Portfolio Turnover Rate | 24%4 | 65%4 | 89%4 | 76%4 | 71%4 | 86% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 1%, 3%, 13%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 | $10.65 |
| Investment Operations | ||||||
| Net Investment Income1 | .090 | .171 | .244 | .308 | .294 | .236 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.416) | (.341) | .225 | .304 | (.070) | (.088) |
| Total from Investment Operations | (.326) | (.170) | .469 | .612 | .224 | .148 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.094) | (.181) | (.249) | (.312) | (.294) | (.226) |
| Distributions from Realized Capital Gains | — | (.039) | — | — | — | (.002) |
| Total Distributions | (.094) | (.220) | (.249) | (.312) | (.294) | (.228) |
| Net Asset Value, End of Period | $10.21 | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 |
| Total Return2 | -3.07% | -1.56% | 4.39% | 5.90% | 2.17% | 1.39% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $47,306 | $54,200 | $51,282 | $44,211 | $40,218 | $42,156 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.76% | 1.57% | 2.23% | 2.88% | 2.81% | 2.21% |
| Portfolio Turnover Rate | 24%4 | 65%4 | 89%4 | 76%4 | 71%4 | 86% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 1%, 3%, 13%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
35
Short-Term Investment-Grade Fund
Financial Highlights
| Institutional Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 | $10.65 |
| Investment Operations | ||||||
| Net Investment Income1 | .091 | .175 | .246 | .311 | .297 | .240 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.415) | (.341) | .226 | .304 | (.070) | (.089) |
| Total from Investment Operations | (.324) | (.166) | .472 | .615 | .227 | .151 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.096) | (.185) | (.252) | (.315) | (.297) | (.229) |
| Distributions from Realized Capital Gains | — | (.039) | — | — | — | (.002) |
| Total Distributions | (.096) | (.224) | (.252) | (.315) | (.297) | (.231) |
| Net Asset Value, End of Period | $10.21 | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 |
| Total Return | -3.05% | -1.53% | 4.42% | 5.93% | 2.20% | 1.42% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $12,948 | $14,101 | $14,267 | $10,830 | $10,100 | $11,566 |
| Ratio of Total Expenses to Average Net Assets | 0.07%2 | 0.07% | 0.07% | 0.07% | 0.07% | 0.07% |
| Ratio of Net Investment Income to Average Net Assets | 1.79% | 1.60% | 2.25% | 2.91% | 2.84% | 2.24% |
| Portfolio Turnover Rate | 24%3 | 65%3 | 89%3 | 76%3 | 71%3 | 86% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.07%. |
| 3 | Includes 1%, 3%, 13%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
36
Short-Term Investment-Grade Fund
Notes to Financial Statements
Vanguard Short-Term
Investment-Grade Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers three classes of shares: Investor Shares, Admiral Shares, and
Institutional Shares. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Certain of the fund’s
investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. The fund invests in securities of foreign
issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. To minimize the currency risk associated with investment in securities denominated in
currencies other than the U.S. dollar, the fund attempts to hedge its currency exposure. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters,
war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on the
value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services. Equity securities are valued at the latest quoted sales prices or official closing prices
taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Investments in Vanguard Market Liquidity
Fund are valued at that fund's net asset value.Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after
the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. To Be Announced (TBA)
Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity) for settlement at a future date. The fund may be a seller of
TBA transactions to reduce its exposure to the mortgage-backed securities market or in order to sell mortgage-backed securities it owns under delayed-delivery arrangements. When the fund is a buyer of TBA
transactions, it maintains cash or short-term investments in an amount sufficient to meet the purchase price at the settlement date of the TBA transaction. The primary risk associated with TBA transactions is that a
counterparty may default on its obligations. The fund mitigates its counterparty risk by, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and
monitoring its exposure to each counterparty. The fund may also enter into a Master Securities Forward Transaction Agreement (MSFTA) with certain counterparties and require them to transfer collateral as security for
their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. Under an MSFTA, upon a counterparty default (including bankruptcy), the
fund may terminate any TBA transactions with that counterparty, determine the net amount owed by either party in accordance with its MSFTA, and sell or retain any collateral held up to the net amount owed to the fund
under the MSFTA.
At July 31, 2022,
counterparties had deposited in segregated accounts securities with a value of $3,420,000 and cash of $10,778,000 in connection with TBA transactions.
37
Short-Term Investment-Grade Fund
4. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll
transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The
fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open
mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
5. Floating Rate Loan
Interests: Floating rate loan interests represent interests in amounts owed by corporate or other borrowers. These instruments may be in the form of loans, trade claims or other receivables and may include standby
financing commitments such as revolving credit facilities that obligate the fund to supply additional cash to the borrower on demand. Floating rate loan interests may be made directly with a borrower or acquired
through assignment or participation. The fund’s right to enforce a borrower’s compliance with the terms of the loan agreement, or benefit directly from the collateral supporting the loan, varies when the
loan is a direct borrowing, an assignment, or a participation. Floating rate loan interests involve various risks including risk of loss in case of default, insolvency, or the bankruptcy of the borrower and are
generally subject to restrictions on transfer with limited opportunities to sell them in secondary markets. The fund may also invest in loan commitments, which are contractual obligations for a future funding. The
fund may earn a commitment fee on any unfunded portion of these commitments which is amortized to interest income over the commitment period. Both the funded portion of a floating rate loan interest as well as its
unfunded commitment, if any, is reflected on the Schedule of Investments.
6. Swaptions: The fund
invests in options on swaps, which are transacted over-the-counter (OTC) and not on an exchange. The fund enters into swaptions to adjust the fund’s sensitivity to interest rates or to adjust its exposure to the
underlying investments. The fund may purchase a swaption from a counterparty whereby the fund has the right to enter into a swap in which the fund will pay either a fixed percentage rate or a floating rate, which is
reset periodically based on short-term interest rates, and receive a different floating rate, each applied to a notional amount. The fund may also sell a swaption to a counterparty whereby the fund grants the
counterparty the right to enter into a swap in which the fund will pay a floating rate and receive a fixed rate, each applied to a notional amount. Swaptions also include options that allow an existing swap to be
terminated or extended by one of the counterparties. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC
options generally are established through negotiation with the other party to the option contract. Although this type of arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs,
OTC options generally involve greater credit risk than exchange-traded options. Credit risk involves the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund
mitigates its counterparty risk by entering into swaptions with a diverse group of prequalified counterparties and monitoring their financial strength.
The primary risk associated
with purchasing swaptions is that interest rates or the value of the underlying investments move in such a way that the swaption is out-of-the money, the position is worthless at expiration, and the fund loses the
premium paid. The primary risk associated with selling swaptions is that interest rates or the value of the underlying investments move in such a way that the swaption is in-the-money, the counterparty exercises the
swaption, and the resulting interest rate swap results in a negative cash flow to the fund in an amount greater than the premium received. A risk associated with all types of swaptions is the possibility that a
counterparty may default on its obligations under the swaption contract.
Swaptions are valued based on
market quotations received from independent pricing services or recognized dealers. The premium paid for a purchased swaption is recorded in the Statement of Assets and Liabilities as an asset and is subsequently
adjusted daily based on the current market value of the swaption. The premium received for a written swaption is recorded in the Statement of Assets and Liabilities as an asset with an equal liability and is
subsequently adjusted daily based on the current market value of the swaption. The notional amounts of option contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of
swaptions are recorded in the Statement of Operations as unrealized appreciation (depreciation) until expired, closed, or exercised, at which time realized gains (losses) are recognized.
38
Short-Term Investment-Grade Fund
During the six months ended
July 31, 2022, the fund’s average value of investments in swaptions purchased and swaptions written each represented less than 1% of net assets, respectively, based on the average market values at each
quarter-end during the period.
7. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing
brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any
securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 7% and 3% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
8. Forward Currency
Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates.
The fund’s risks in using these
contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its
counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or
rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed
by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts
contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the
time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of
collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and
settled within two business days.
Forward currency contracts are
valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the
Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward currency contracts.
During the six months ended
July 31, 2022, the fund’s average investment in forward currency contracts represented 4% of net assets, based on the average of the notional amounts at each quarter-end during the period.
9. Swap Contracts: The
fund invests in credit default swaps to adjust the overall credit risk of the fund or to actively overweight or underweight credit risk to a specific issuer or group of issuers. The fund may sell credit protection
through credit default swaps to simulate investments in long positions that are either unavailable or considered to be less attractively priced in the bond market. The fund may purchase credit protection through
credit default swaps to reduce credit exposure to a given issuer or issuers. Under the terms of the swaps, an up-front payment may be exchanged between the seller and buyer. In addition, the seller of the credit
protection receives a periodic payment of premium from the buyer that is a fixed percentage applied to a notional amount. If, for
39
Short-Term Investment-Grade Fund
example, the reference entity is subject to a
credit event (such as bankruptcy, failure to pay, or obligation acceleration) during the term of the swap, the seller agrees to either physically settle or cash settle the swap contract. If the swap is physically
settled, the seller agrees to pay the buyer an amount equal to the notional amount and take delivery of a debt instrument of the reference issuer with a par amount equal to such notional amount. If the swap is cash
settled, the seller agrees to pay the buyer the difference between the notional amount and the final price for the relevant debt instrument, as determined either in a market auction or pursuant to a pre-agreed-upon
valuation procedure.
The fund enters into interest
rate swap transactions to adjust the fund’s sensitivity to changes in interest rates and maintain the ability to generate income at prevailing market rates. Under the terms of the swaps, one party pays the other
either an amount that is a fixed percentage rate or a floating rate, which is reset periodically based on short-term interest rates, applied to a notional amount. In return, the counterparty agrees to pay a different
floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount.
The fund enters into centrally
cleared interest rate and credit default swaps to achieve the same objectives specified with respect to the equivalent over-the-counter swaps but with less counterparty risk because a regulated clearinghouse is the
counterparty instead of the clearing broker or executing broker. The clearinghouse imposes initial margin requirements to secure the fund’s performance, and requires daily settlement of variation margin
representing changes in the market value of each contract. To further mitigate counterparty risk, the fund trades with a diverse group of prequalified executing brokers; monitors the financial strength of its clearing
brokers, executing brokers, and clearinghouse; and has entered into agreements with its clearing brokers and executing brokers.
The primary risk associated
with selling credit protection is that, upon the occurrence of a defined credit event, the market value of the debt instrument received by the fund (or, in a cash settled swap, the debt instruments used to determine
the settlement payment by the fund) will be significantly less than the amount paid by the fund and, in a physically settled swap, the fund may receive an illiquid debt instrument. A risk associated with all types of
swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap
contract. The fund mitigates its counterparty risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with
its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold,
or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either party in accordance
with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions whereby a counterparty
may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount
would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily
to the value of the swap contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
The notional amounts of swap
contracts are not recorded in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the seller of credit protection is required to take
delivery (or, in a cash settled swap, pay the settlement amount determined) upon occurrence of a credit event, periodic payments are made, or the swap terminates, at which time realized gain (loss) is recorded. The
net premium to be received or paid by the fund under swap contracts is accrued daily and recorded as realized gain (loss) over the life of the contract.
During the six months ended
July 31, 2022, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 1% and less than 1% of net assets, respectively, based on the average of the
notional amounts at each quarter-end during the period. The average amount of investments in interest rate swaps represented less than 1% of net assets, based on the average of notional amounts at each quarter-end
during the period.
40
Short-Term Investment-Grade Fund
10. Federal Income
Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
11. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
12. Credit Facilities
and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings
may be utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are
charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and
included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds
effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear
interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
13. Other: Dividend
income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Interest income includes income distributions received from
Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for
premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $2,583,000, representing less than 0.01% of the fund’s
net assets and 1.03% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
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Short-Term Investment-Grade Fund
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $7,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 9,988,797 | — | 9,988,797 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 4,474,778 | — | 4,474,778 |
| Corporate Bonds | — | 51,747,972 | 28 | 51,748,000 |
| Floating Rate Loan Interests | — | 79,124 | — | 79,124 |
| Sovereign Bonds | — | 1,433,185 | — | 1,433,185 |
| Taxable Municipal Bonds | — | 19,425 | — | 19,425 |
| Common Stocks | 74,895 | — | — | 74,895 |
| Temporary Cash Investments | 385,945 | — | — | 385,945 |
| Options Purchased | — | 225 | — | 225 |
| Total | 460,840 | 67,743,506 | 28 | 68,204,374 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 22,117 | — | — | 22,117 |
| Forward Currency Contracts | — | 50,132 | — | 50,132 |
| Swap Contracts | 2,4651 | 335 | — | 2,800 |
| Total | 24,582 | 50,467 | — | 75,049 |
| Liabilities | ||||
| Futures Contracts1 | 36,393 | — | — | 36,393 |
| Forward Currency Contracts | — | 10,871 | — | 10,871 |
| Swap Contracts | — | 4,202 | — | 4,202 |
| Total | 36,393 | 15,073 | — | 51,466 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | At July 31, 2022, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows: |
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Investments in Secuties, at Value—Unaffiliated Issuers (Options Purchased) | 225 | — | — | 225 |
| Swap Premiums Paid | — | — | 4,940 | 4,940 |
| Unrealized Appreciation—Futures Contracts1 | 22,117 | — | — | 22,117 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | — | 2,465 | 2,465 |
42
Short-Term Investment-Grade Fund
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Unrealized Appreciation—Forward Currency Contracts | — | 50,132 | — | 50,132 |
| Unrealized Appreciation— Over-the-Counter Swap Contracts | — | — | 335 | 335 |
| Total Assets | 22,342 | 50,132 | 7,740 | 80,214 |
| Swap Premiums Received | — | — | 78 | 78 |
| Unrealized Depreciation—Futures Contracts1 | 36,393 | — | — | 36,393 |
| Unrealized Depreciation—Forward Currency Contracts | — | 10,871 | — | 10,871 |
| Unrealized Depreciation— Over-the-Counter Swap Contracts | — | — | 4,202 | 4,202 |
| Total Liabilities | 36,393 | 10,871 | 4,280 | 51,544 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2022, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (163,070) | — | — | (163,070) |
| Options Purchased | — | — | (1,127) | (1,127) |
| Options Written | — | — | 2,039 | 2,039 |
| Swap Contracts | — | — | (4,781) | (4,781) |
| Forward Currency Contracts | — | 194,555 | — | 194,555 |
| Realized Net Gain (Loss) on Derivatives | (163,070) | 194,555 | (3,869) | 27,616 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | 4,347 | — | — | 4,347 |
| Options Purchased | (1,446) | — | (225) | (1,671) |
| Options Written | — | — | (45) | (45) |
| Swap Contracts | — | — | (275) | (275) |
| Forward Currency Contracts | — | 680 | — | 680 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 2,901 | 680 | (545) | 3,036 |
| F. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 71,602,314 |
| Gross Unrealized Appreciation | 251,851 |
| Gross Unrealized Depreciation | (3,621,346) |
| Net Unrealized Appreciation (Depreciation) | (3,369,495) |
| G. | During the six months ended July 31, 2022, the fund purchased $9,725,935,000 of investment securities and sold $15,237,191,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $7,261,565,000 and $5,806,060,000, respectively. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $2,503,880,000 and sales were $1,529,847,000, resulting in net realized loss of $36,868,000; these amounts, other than temporary cash
investments, are included in the purchases and sales of investment securities noted above.
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Short-Term Investment-Grade Fund
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 361,155 | 35,066 | 1,986,938 | 181,610 | |
| Issued in Lieu of Cash Distributions | 60,965 | 5,947 | 158,729 | 14,596 | |
| Redeemed | (1,454,043) | (141,384) | (2,046,844) | (187,822) | |
| Net Increase (Decrease)—Investor Shares | (1,031,923) | (100,371) | 98,823 | 8,384 | |
| Admiral Shares | |||||
| Issued | 5,521,814 | 537,271 | 18,548,849 | 1,698,725 | |
| Issued in Lieu of Cash Distributions | 364,398 | 35,554 | 883,405 | 81,245 | |
| Redeemed | (10,632,891) | (1,038,118) | (14,529,467) | (1,334,000) | |
| Net Increase (Decrease)—Admiral Shares | (4,746,679) | (465,293) | 4,902,787 | 445,970 | |
| Institutional Shares | |||||
| Issued | 1,744,482 | 169,569 | 4,071,971 | 372,794 | |
| Issued in Lieu of Cash Distributions | 116,775 | 11,396 | 277,476 | 25,509 | |
| Redeemed | (2,445,963) | (239,234) | (3,998,416) | (366,280) | |
| Net Increase (Decrease)—Institutional Shares | (584,706) | (58,269) | 351,031 | 32,023 | |
| I. | Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows: |
| Current Period Transactions | ||||||||
| Jan. 31, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Jul. 31, 2022 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 994,617 | NA1 | NA1 | (367) | (69) | 3,837 | — | 385,945 |
| Vanguard Short- Term Corporate Bond ETF | 77,702 | — | — | — | (2,807) | 619 | — | 74,895 |
| Total | 1,072,319 | — | — | (367) | (2,876) | 4,456 | — | 460,840 |
| 1 | Not applicable—purchases and sales are for temporary cash investment purposes. |
| J. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
44
Intermediate-Term Investment-Grade Fund
Fund Allocation
As of July 31, 2022
| Asset-Backed/Commercial Mortgage-Backed Securities | 2.7% |
| Corporate Bonds - Communications | 7.8 |
| Corporate Bonds - Consumer Discretionary | 5.5 |
| Corporate Bonds - Consumer Staples | 5.6 |
| Corporate Bonds - Energy | 7.0 |
| Corporate Bonds - Financials | 23.6 |
| Corporate Bonds - Health Care | 8.0 |
| Corporate Bonds - Industrials | 5.9 |
| Corporate Bonds - Materials | 2.5 |
| Corporate Bonds - Real Estate | 5.9 |
| Corporate Bonds - Technology | 5.7 |
| Corporate Bonds - Utilities | 5.5 |
| Floating Rate Loan Interests | 0.1 |
| Sovereign Bonds | 3.2 |
| Taxable Municipal Bonds | 0.1 |
| U.S. Government and Agency Obligations | 10.9 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
45
Intermediate-Term Investment-Grade Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
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Intermediate-Term Investment-Grade Fund
47
Intermediate-Term Investment-Grade Fund
48
Intermediate-Term Investment-Grade Fund
49
Intermediate-Term Investment-Grade Fund
50
Intermediate-Term Investment-Grade Fund
51
Intermediate-Term Investment-Grade Fund
52
Intermediate-Term Investment-Grade Fund
53
Intermediate-Term Investment-Grade Fund
54
Intermediate-Term Investment-Grade Fund
55
Intermediate-Term Investment-Grade Fund
56
Intermediate-Term Investment-Grade Fund
57
Intermediate-Term Investment-Grade Fund
58
Intermediate-Term Investment-Grade Fund
59
Intermediate-Term Investment-Grade Fund
60
Intermediate-Term Investment-Grade Fund
61
Intermediate-Term Investment-Grade Fund
62
Intermediate-Term Investment-Grade Fund
63
Intermediate-Term Investment-Grade Fund
64
Intermediate-Term Investment-Grade Fund
65
Intermediate-Term Investment-Grade Fund
| Counterparty | Expiration Date | Exercise Rate | Notional Amount on Underlying Swap ($000) | Market Value• ($000) | ||
| 2-Year Interest Rate Swap, Pays 3M USD LIBOR Quarterly, Receives 0.630% Semiannually | MSCS | 2/3/23 | 0.630% | 316,703 | 35 | |
| Total Options Purchased (Cost $5,605) | 115 | |||||
| Total Investments (101.7%) (Cost $35,042,425) | 32,036,396 | |||||
| Other Assets and Liabilities—Net (-1.7%) | (524,989) | |||||
| Net Assets (100%) | 31,511,407 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $6,268,000 have been segregated as collateral for open forward currency contracts and over-the-counter swap contracts. |
| 2 | Securities with a value of $75,436,000 have been segregated as initial margin for open centrally cleared swap contracts. |
| 3 | Securities with a value of $37,802,000 have been segregated as initial margin for open futures contracts. |
| 4 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 5 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2022. |
| 6 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 7 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At July 31, 2022, the aggregate value was $2,584,359,000, representing 8.2% of net assets. |
| 8 | Variable-rate security; rate shown is effective rate at period end. Certain variable-rate securities are not based on a published reference rate and spread but are determined by the issuer or agent based on current market conditions. |
| 9 | Face amount denominated in euro. |
| 10 | Face amount denominated in British pounds. |
| 11 | Guaranteed by the Republic of Azerbaijan. |
| 12 | Face amount denominated in Australian dollars. |
| 13 | Guaranteed by multiple countries. |
| 14 | Non-income-producing security—security in default. |
| 15 | Security value determined using significant unobservable inputs. |
| 16 | Face amount denominated in Mexican pesos. |
| 17 | Scheduled principal and interest payments are guaranteed by National Public Finance Guarantee Corp. |
| 18 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 1M—1-month. | |
| 3M—3-month. | |
| BNPSW—BNP Paribas. | |
| CITNA—Citibank NA. | |
| GO—General Obligation Bond. | |
| LIBOR—London Interbank Offered Rate. | |
| MSCS—Morgan Stanley Capital Services LLC. | |
| NGFP—Nomura Global Financial Products Inc. | |
| Prere.—Prerefunded. | |
| TSFR1M—CME Term SOFR 1 Month. | |
| TSFR3M—CME Term SOFR 3 Month. | |
| UMBS—Uniform Mortgage-Backed Securities. | |
| USD—U.S. dollar. |
66
Intermediate-Term Investment-Grade Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | September 2022 | 9,014 | 1,091,962 | 23,531 |
| Ultra 10-Year U.S. Treasury Note | September 2022 | 8,493 | 1,114,706 | 23,369 |
| 46,900 | ||||
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | (1,743) | (366,833) | (1,722) |
| 5-Year U.S. Treasury Note | September 2022 | (6,319) | (718,638) | (4,101) |
| AUD 3-Year Treasury Bond | September 2022 | (1,075) | (82,048) | (1,352) |
| AUD 10-Year Treasury Bond | September 2022 | (681) | (59,461) | (2,508) |
| Euro-Bobl | September 2022 | (1,174) | (153,429) | (3,857) |
| Euro-Bund | September 2022 | (730) | (117,615) | (5,981) |
| Euro-Buxl | September 2022 | (94) | (17,850) | (1,531) |
| Euro-Schatz | September 2022 | (31) | (3,489) | (38) |
| Long Gilt | September 2022 | (294) | (42,312) | (381) |
| Long U.S. Treasury Bond | September 2022 | (393) | (56,592) | (2,475) |
| Ultra Long U.S. Treasury Bond | September 2022 | (1,257) | (198,999) | (2,098) |
| (26,044) | ||||
| 20,856 | ||||
| Forward Currency Contracts | ||||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |||||
| Counterparty | Receive | Deliver | ||||||
| BNP Paribas | 9/21/22 | AUD | 3,444 | USD | 2,394 | 15 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | AUD | 3,028 | USD | 2,188 | — | (70) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | AUD | 2,532 | USD | 1,706 | 64 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | AUD | 2,207 | USD | 1,545 | — | (1) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | CAD | 3 | USD | 2 | — | — | |
| Standard Chartered Bank | 9/21/22 | EUR | 20,598 | USD | 21,718 | — | (589) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | EUR | 5,677 | USD | 5,939 | — | (115) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | EUR | 5,335 | USD | 5,458 | 14 | — | |
| Bank of New York | 9/21/22 | EUR | 5,114 | USD | 5,352 | — | (106) | |
| Bank of America, N.A. | 9/21/22 | EUR | 2,630 | USD | 2,751 | — | (53) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | EUR | 1,688 | USD | 1,700 | 31 | — | |
| State Street Bank & Trust Co. | 9/21/22 | GBP | 16,146 | USD | 19,355 | 331 | — | |
| Toronto-Dominion Bank | 9/21/22 | GBP | 11,412 | USD | 13,718 | 196 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | GBP | 3,655 | USD | 4,436 | 20 | — | |
| Deutsche Bank AG | 9/21/22 | GBP | 1,489 | USD | 1,818 | — | (3) | |
| Standard Chartered Bank | 9/21/22 | GBP | 1,459 | USD | 1,737 | 42 | — | |
| Royal Bank of Canada | 9/21/22 | GBP | 1,316 | USD | 1,586 | 19 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | MXN | 67,632 | USD | 3,384 | — | (99) | |
| Credit Agricole CIB | 9/21/22 | ZAR | 23,961 | USD | 1,546 | — | (113) | |
67
Intermediate-Term Investment-Grade Fund
| Forward Currency Contracts (continued) | ||||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |||||
| Counterparty | Receive | Deliver | ||||||
| State Street Bank & Trust Co. | 9/21/22 | USD | 110,197 | AUD | 154,822 | 1,932 | — | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 107,868 | AUD | 154,667 | — | (289) | |
| Bank of Montreal | 9/21/22 | USD | 109,749 | AUD | 154,049 | 2,024 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 10,163 | AUD | 14,570 | — | (26) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 2,656 | AUD | 3,888 | — | (64) | |
| Deutsche Bank AG | 9/21/22 | USD | 1,784 | AUD | 2,573 | — | (15) | |
| Bank of America, N.A. | 9/21/22 | USD | 1,204 | AUD | 1,754 | — | (22) | |
| Bank of New York | 9/21/22 | USD | 1,018 | AUD | 1,464 | — | (5) | |
| Bank of America, N.A. | 9/21/22 | USD | 191,558 | EUR | 178,000 | 8,962 | — | |
| Credit Agricole CIB | 9/21/22 | USD | 175,934 | EUR | 163,104 | 8,618 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 12,407 | EUR | 11,767 | 338 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 11,756 | EUR | 11,188 | 279 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 5,456 | EUR | 5,207 | 115 | — | |
| Barclays Bank plc | 9/21/22 | USD | 5,120 | EUR | 5,001 | — | (10) | |
| Standard Chartered Bank | 9/21/22 | USD | 3,395 | EUR | 3,344 | — | (35) | |
| Deutsche Bank AG | 9/21/22 | USD | 3,411 | EUR | 3,337 | — | (12) | |
| Bank of America, N.A. | 9/21/22 | USD | 3,183 | EUR | 3,146 | — | (44) | |
| Barclays Bank plc | 9/21/22 | USD | 2,756 | EUR | 2,682 | 5 | — | |
| BNP Paribas | 9/21/22 | USD | 2,579 | EUR | 2,542 | — | (29) | |
| Bank of New York | 9/21/22 | USD | 2,295 | EUR | 2,254 | — | (18) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 2,061 | EUR | 2,021 | — | (13) | |
| HSBC Bank plc | 9/21/22 | USD | 1,549 | EUR | 1,454 | 57 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 912 | EUR | 892 | — | (3) | |
| HSBC Bank plc | 9/21/22 | USD | 148 | EUR | 145 | — | (2) | |
| Standard Chartered Bank | 9/21/22 | USD | 70,733 | GBP | 56,822 | 1,452 | — | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 70,448 | GBP | 56,595 | 1,443 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 4,679 | GBP | 3,855 | — | (20) | |
| Bank of America, N.A. | 9/21/22 | USD | 2,583 | GBP | 2,152 | — | (41) | |
| Bank of New York | 9/21/22 | USD | 1,996 | GBP | 1,674 | — | (45) | |
| Deutsche Bank AG | 9/21/22 | USD | 1,358 | GBP | 1,139 | — | (31) | |
| Standard Chartered Bank | 9/21/22 | USD | 1,124 | GBP | 946 | — | (29) | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 929 | GBP | 777 | — | (19) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 63 | JPY | 8,326 | — | — | |
| Bank of America, N.A. | 9/21/22 | USD | 87,804 | MXN | 1,755,552 | 2,519 | — | |
| Toronto-Dominion Bank | 9/21/22 | USD | 31,270 | MXN | 658,083 | — | (700) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 631 | MXN | 13,099 | — | (5) | |
| 28,476 | (2,626) | |||||||
| AUD—Australian dollar. |
| CAD—Canadian dollar. |
| EUR—euro. |
| GBP—British pound. |
| JPY—Japanese yen. |
| MXN—Mexican peso. |
| USD—U.S. dollar. |
| ZAR—South African rand. |
68
Intermediate-Term Investment-Grade Fund
| Centrally Cleared Credit Default Swaps | ||||||
| Reference Entity | Termination Date | Notional Amount (000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Unrealized Appreciation (Depreciation) ($000) | |
| Credit Protection Sold | ||||||
| CDX-NA-IG-S38-V1 | 6/22/27 | USD | 2,572,250 | 1.000 | 25,921 | (3,784) |
| Credit Protection Purchased | ||||||
| CDX-NA-HY-S37-V2 | 12/22/26 | USD | 18,325 | (5.000) | (541) | 1,194 |
| 25,380 | (2,590) | |||||
| 1 Periodic premium received/paid quarterly. |
| USD—U.S. dollar. |
| Over-the-Counter Credit Default Swaps | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Credit Protection Sold/Moody's Rating | ||||||||
| Ally Financial Inc./Baa3 | 12/23/25 | GSI | 1,630 | 1.000 | (55) | 8 | — | (63) |
| America Movil SAB de CV/Baa1 | 12/21/22 | BARC | 15,000 | 1.000 | 62 | (11) | 73 | — |
| American Express Co./A2 | 12/23/25 | GSI | 1,630 | 1.000 | 34 | 37 | — | (3) |
| American International Group Inc./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 22 | 16 | 6 | — |
| Berkshire Hathaway Inc./Aa2 | 12/21/22 | BARC | 7,605 | 1.000 | 36 | 10 | 26 | — |
| Berkshire Hathaway Inc./Aa2 | 12/21/24 | BARC | 19,400 | 1.000 | 405 | 275 | 130 | — |
| Berkshire Hathaway Inc./Aa2 | 12/21/24 | JPMC | 9,400 | 1.000 | 196 | 129 | 67 | — |
| Boeing Co./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | (26) | (6) | — | (20) |
| Chubb INA Holdings Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 44 | 41 | 3 | — |
| Comcast Corp./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 29 | 33 | — | (4) |
| Credit Suisse Group Funding Guernsey Ltd./WR | 6/22/27 | JPMC | 4,9002 | 1.000 | (204) | (58) | — | (146) |
| Credit Suisse Group Funding Guernsey Ltd./WR | 6/22/27 | JPMC | 2,4002 | 1.000 | (100) | (38) | — | (62) |
| CVS Health Corp./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 33 | 26 | 7 | — |
| Dominion Energy Inc./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 37 | 32 | 5 | — |
| Dow Chemical Co./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 3 | 21 | — | (18) |
| Enbridge Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 15 | 19 | — | (4) |
| Federation of Malaysia/A3 | 6/22/27 | JPMC | 7,020 | 1.000 | 79 | 111 | — | (32) |
| General Electric Co./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | (5) | 6 | — | (11) |
| General Motors Co./Baa3 | 12/23/25 | GSI | 1,630 | 1.000 | (32) | (1) | — | (31) |
| International Business Machines Corp./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 32 | 34 | — | (2) |
| Kroger Co./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 34 | 26 | 8 | — |
69
Intermediate-Term Investment-Grade Fund
| Over-the-Counter Credit Default Swaps (continued) | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Lincoln National Corp./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 4 | 14 | — | (10) |
| Lowe's Cos. Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 33 | 34 | — | (1) |
| Marathon Petroleum Corp./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 13 | 10 | 3 | — |
| Marsh & McLennan Cos. Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 43 | 39 | 4 | — |
| Metlife Inc./A3 | 6/21/24 | BARC | 24,300 | 1.000 | 323 | 8 | 315 | — |
| Metlife Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 25 | 25 | — | — |
| Mondelez International Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 33 | 30 | 3 | — |
| Prudential Financial Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 25 | 25 | — | — |
| Republic of Chile/A1 | 6/22/27 | CITNA | 6,360 | 1.000 | (73) | 61 | — | (134) |
| Republic of Chile/A1 | 6/22/27 | JPMC | 10,450 | 1.000 | (120) | 133 | — | (253) |
| Republic of Chile/A1 | 6/22/27 | MSCS | 55,000 | 1.000 | (491) | (1,023) | 532 | — |
| Republic of Indonesia/Baa2 | 6/22/27 | BARC | 17,100 | 1.000 | (103) | 138 | — | (241) |
| Republic of Indonesia/Baa2 | 6/22/27 | BARC | 15,000 | 1.000 | (91) | 40 | — | (131) |
| Republic of Indonesia/Baa2 | 6/22/27 | GSI | 20,000 | 1.000 | (120) | 27 | — | (147) |
| Republic of Indonesia/Baa2 | 6/22/27 | JPMC | 22,500 | 1.000 | (135) | 156 | — | (291) |
| Republic of Mexico/Baa2 | 6/22/27 | BARC | 45,000 | 1.000 | (1,092) | (934) | — | (158) |
| Republic of Mexico/Baa2 | 6/22/27 | GSI | 50,000 | 1.000 | (1,213) | (1,336) | 123 | — |
| Republic of Mexico/Baa2 | 6/22/27 | GSI | 10,150 | 1.000 | (246) | (205) | — | (41) |
| Republic of Mexico/Baa2 | 6/22/27 | MSCS | 514 | 1.000 | (338) | (507) | 169 | — |
| Republic of Philippines/Baa2 | 6/22/27 | BARC | 1,000 | 1.000 | — | 10 | — | (10) |
| Republic of Philippines/Baa2 | 6/22/27 | JPMC | 20,000 | 1.000 | (12) | 98 | — | (110) |
| Republic of Philippines/Baa2 | 6/22/27 | JPMC | 7,000 | 1.000 | (5) | 59 | — | (64) |
| Republic of Philippines/Baa2 | 6/22/27 | JPMC | 5,000 | 1.000 | (3) | 50 | — | (53) |
| Simon Property Group LP/A3 | 12/23/25 | GSI | 1,630 | 1.000 | 7 | 16 | — | (9) |
| UnitedHealth Group Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 39 | 36 | 3 | — |
| Verizon Communications Inc./Baa1 | 12/21/22 | GSI | 15,585 | 1.000 | 47 | 21 | 26 | — |
| Verizon Communications Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 5 | 25 | — | (20) |
| Volkswagen International Finance NV/A3 | 6/22/27 | GSI | 11,0002 | 1.000 | (456) | (79) | — | (377) |
| (3,262) | (2,319) | 1,503 | (2,446) | |||||
70
Intermediate-Term Investment-Grade Fund
| Over-the-Counter Credit Default Swaps (continued) | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Credit Protection Purchased | ||||||||
| BASF SE | 6/22/27 | BNPSW | 6,8002 | (1.000) | 94 | (40) | 134 | — |
| Deutsche Bank AG | 12/21/22 | JPMC | 9,115 | (1.000) | (11) | (3) | — | (8) |
| Standard Chartered plc | 6/22/27 | JPMC | 6,8002 | (1.000) | (57) | (31) | — | (26) |
| Standard Chartered plc | 6/22/27 | JPMC | 3,4002 | (1.000) | (28) | (8) | — | (20) |
| (2) | (82) | 134 | (54) | |||||
| (3,264) | (2,401) | 1,637 | (2,500) | |||||
| 1 | Periodic premium received/paid quarterly. |
| 2 | Notional amount denominated in euro. |
| BARC—Barclays Bank plc. | |
| BNPSW—BNP Paribas. | |
| CITNA—Citibank NA. | |
| GSI—Goldman Sachs International. | |
| JPMC—JPMorgan Chase Bank, N.A. | |
| MSCS—Morgan Stanley Capital Services LLC. |
The notional amount represents
the maximum potential amount the fund could be required to pay as a seller of credit protection if the reference entity was subject to a credit event.
At July 31, 2022, the
counterparties had deposited in segregated accounts securities with a value of $18,907,000 and cash of $12,890,000 in connection with open forward currency contracts and open over-the-counter swap contracts.
See accompanying
Notes, which are an integral part of the Financial Statements.
71
Intermediate-Term Investment-Grade Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $34,578,741) | 31,572,732 |
| Affiliated Issuers (Cost $463,684) | 463,664 |
| Total Investments in Securities | 32,036,396 |
| Investment in Vanguard | 1,171 |
| Foreign Currency, at Value (Cost $6,072) | 6,118 |
| Receivables for Investment Securities Sold | 1,046,270 |
| Receivables for Accrued Income | 273,664 |
| Receivables for Capital Shares Issued | 18,574 |
| Swap Premiums Paid | 1,879 |
| Variation Margin Receivable—Futures Contracts | 1,570 |
| Variation Margin Receivable—Centrally Cleared Swap Contracts | 1,049 |
| Unrealized Appreciation—Forward Currency Contracts | 28,476 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 1,637 |
| Other Assets | 100 |
| Total Assets | 33,416,904 |
| Liabilities | |
| Due to Custodian | 11,350 |
| Payables for Investment Securities Purchased | 1,848,010 |
| Payables for Capital Shares Redeemed | 24,451 |
| Payables for Distributions | 10,854 |
| Payables to Vanguard | 1,426 |
| Swap Premiums Received | 4,280 |
| Unrealized Depreciation—Forward Currency Contracts | 2,626 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 2,500 |
| Total Liabilities | 1,905,497 |
| Net Assets | 31,511,407 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 35,329,603 |
| Total Distributable Earnings (Loss) | (3,818,196) |
| Net Assets | 31,511,407 |
| Investor Shares—Net Assets | |
| Applicable to 179,889,368 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 1,592,597 |
| Net Asset Value Per Share—Investor Shares | $8.85 |
| Admiral Shares—Net Assets | |
| Applicable to 3,379,433,835 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 29,918,810 |
| Net Asset Value Per Share—Admiral Shares | $8.85 |
See accompanying
Notes, which are an integral part of the Financial Statements.
72
Intermediate-Term Investment-Grade Fund
See
accompanying Notes, which are an integral part of the Financial Statements.
73
Intermediate-Term Investment-Grade Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $9.67 | $10.39 | $10.23 | $9.52 | $9.61 | $9.66 |
| Investment Operations | ||||||
| Net Investment Income1 | .116 | .218 | .252 | .300 | .300 | .277 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.811) | (.550) | .500 | .711 | (.087) | (.034) |
| Total from Investment Operations | (.695) | (.332) | .752 | 1.011 | .213 | .243 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.125) | (.224) | (.257) | (.301) | (.303) | (.274) |
| Distributions from Realized Capital Gains | — | (.164) | (.335) | — | — | (.016) |
| Total Distributions | (.125) | (.388) | (.592) | (.301) | (.303) | (.290) |
| Net Asset Value, End of Period | $8.85 | $9.67 | $10.39 | $10.23 | $9.52 | $9.61 |
| Total Return2 | -7.20% | -3.27% | 7.49% | 10.76% | 2.31% | 2.47% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $1,593 | $1,895 | $2,305 | $2,459 | $2,115 | $2,472 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 2.62% | 2.16% | 2.41% | 3.03% | 3.20% | 2.84% |
| Portfolio Turnover Rate | 32%4 | 82%4 | 113%4,5 | 114%4 | 73%4 | 63% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 1%, 1%, 12%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Intermediate-Term Investment-Grade Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $9.67 | $10.39 | $10.23 | $9.52 | $9.61 | $9.66 |
| Investment Operations | ||||||
| Net Investment Income1 | .121 | .228 | .261 | .309 | .310 | .288 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.812) | (.550) | .501 | .712 | (.087) | (.039) |
| Total from Investment Operations | (.691) | (.322) | .762 | 1.021 | .223 | .249 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.129) | (.234) | (.267) | (.311) | (.313) | (.283) |
| Distributions from Realized Capital Gains | — | (.164) | (.335) | — | — | (.016) |
| Total Distributions | (.129) | (.398) | (.602) | (.311) | (.313) | (.299) |
| Net Asset Value, End of Period | $8.85 | $9.67 | $10.39 | $10.23 | $9.52 | $9.61 |
| Total Return2 | -7.15% | -3.17% | 7.59% | 10.87% | 2.41% | 2.58% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $29,919 | $34,013 | $35,093 | $31,146 | $27,011 | $27,000 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.72% | 2.25% | 2.50% | 3.13% | 3.30% | 2.94% |
| Portfolio Turnover Rate | 32%4 | 82%4 | 113%4,5 | 114%4 | 73%4 | 63% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 1%, 1%, 12%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Intermediate-Term Investment-Grade Fund
Notes to Financial Statements
Vanguard Intermediate-Term
Investment-Grade Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the
share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Certain of the fund’s
investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. The fund invests in securities of foreign
issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. To minimize the currency risk associated with investment in securities denominated in
currencies other than the U.S. dollar, the fund attempts to hedge its currency exposure. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters,
war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on the
value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services.
Investments in Vanguard Market Liquidity Fund
are valued at that fund's net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the
close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. To Be Announced (TBA)
Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity) for settlement at a future date. The fund may be a seller of
TBA transactions to reduce its exposure to the mortgage-backed securities market or in order to sell mortgage-backed securities it owns under delayed-delivery arrangements. When the fund is a buyer of TBA
transactions, it maintains cash or short-term investments in an amount sufficient to meet the purchase price at the settlement date of the TBA transaction. The primary risk associated with TBA transactions is that a
counterparty may default on its obligations. The fund mitigates its counterparty risk by, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and
monitoring its exposure to each counterparty. The fund may also enter into a Master Securities Forward Transaction Agreement (MSFTA) with certain counterparties and require them to transfer collateral as security for
their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. Under an MSFTA, upon a counterparty default (including bankruptcy), the
fund may terminate any TBA transactions with that counterparty, determine the net amount owed by either party in accordance with its MSFTA, and sell or retain any collateral held up to the net amount owed to the fund
under the MSFTA.
At July 31, 2022,
counterparties had deposited in segregated accounts securities with a value of $2,271,000 and cash of $4,902,000 in connection with TBA transactions.
4. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the
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Intermediate-Term Investment-Grade Fund
proceeds of the sale and by a lower price on
the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to
sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll transactions are used to cover an open TBA sell position. The fund continues to earn interest on
mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these
transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables
for Investment Securities Purchased in the Statement of Assets and Liabilities.
5. Floating Rate Loan
Interests: Floating rate loan interests represent interests in amounts owed by corporate or other borrowers. These instruments may be in the form of loans, trade claims or other receivables and may include standby
financing commitments such as revolving credit facilities that obligate the fund to supply additional cash to the borrower on demand. Floating rate loan interests may be made directly with a borrower or acquired
through assignment or participation. The fund’s right to enforce a borrower’s compliance with the terms of the loan agreement, or benefit directly from the collateral supporting the loan, varies when the
loan is a direct borrowing, an assignment, or a participation. Floating rate loan interests involve various risks including risk of loss in case of default, insolvency, or the bankruptcy of the borrower and are
generally subject to restrictions on transfer with limited opportunities to sell them in secondary markets. The fund may also invest in loan commitments, which are contractual obligations for a future funding. The
fund may earn a commitment fee on any unfunded portion of these commitments which is amortized to interest income over the commitment period. Both the funded portion of a floating rate loan interest as well as its
unfunded commitment, if any, is reflected on the Schedule of Investments.
6. Swaptions: The fund
invests in options on swaps, which are transacted over-the-counter (OTC) and not on an exchange. The fund enters into swaptions to adjust the fund’s sensitivity to interest rates or to adjust its exposure to the
underlying investments. The fund may purchase a swaption from a counterparty whereby the fund has the right to enter into a swap in which the fund will pay either a fixed percentage rate or a floating rate, which is
reset periodically based on short-term interest rates, and receive a different floating rate, each applied to a notional amount. The fund may also sell a swaption to a counterparty whereby the fund grants the
counterparty the right to enter into a swap in which the fund will pay a floating rate and receive a fixed rate, each applied to a notional amount. Swaptions also include options that allow an existing swap to be
terminated or extended by one of the counterparties. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC
options generally are established through negotiation with the other party to the option contract. Although this type of arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs,
OTC options generally involve greater credit risk than exchange-traded options. Credit risk involves the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund
mitigates its counterparty risk by entering into swaptions with a diverse group of prequalified counterparties and monitoring their financial strength.
The primary risk associated
with purchasing swaptions is that interest rates or the value of the underlying investments move in such a way that the swaption is out-of-the money, the position is worthless at expiration, and the fund loses the
premium paid. The primary risk associated with selling swaptions is that interest rates or the value of the underlying investments move in such a way that the swaption is in-the-money, the counterparty exercises the
swaption, and the resulting interest rate swap results in a negative cash flow to the fund in an amount greater than the premium received. A risk associated with all types of swaptions is the possibility that a
counterparty may default on its obligations under the swaption contract.
Swaptions are valued based on
market quotations received from independent pricing services or recognized dealers. The premium paid for a purchased swaption is recorded in the Statement of Assets and Liabilities as an asset and is subsequently
adjusted daily based on the current market value of the swaption. The premium received for a written swaption is recorded in the Statement of Assets and Liabilities as an asset with an equal liability and is
subsequently adjusted daily based on the current market value of the swaption. The notional amounts of option contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of
swaptions are recorded in the Statement of Operations as unrealized appreciation (depreciation) until expired, closed, or exercised, at which time realized gains (losses) are recognized.
During the six months ended
July 31, 2022, the fund’s average value of investments in swaptions purchased and swaptions written each represented less than 1% of net assets, respectively, based on the average market values at each
quarter-end during the period.
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Intermediate-Term Investment-Grade Fund
7. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing
brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any
securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 8% and 6% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
8. Forward Currency
Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates.
The fund’s risks in using these
contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its
counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or
rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed
by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts
contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the
time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of
collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and
settled within two business days.
Forward currency contracts are
valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the
Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward currency contracts.
During the six months ended
July 31, 2022, the fund’s average investment in forward currency contracts represented 3% of net assets, based on the average of the notional amounts at each quarter-end during the period.
9. Swap Contracts: The
fund invests in credit default swaps to adjust the overall credit risk of the fund or to actively overweight or underweight credit risk to a specific issuer or group of issuers. The fund may sell credit protection
through credit default swaps to simulate investments in long positions that are either unavailable or considered to be less attractively priced in the bond market. The fund may purchase credit protection through
credit default swaps to reduce credit exposure to a given issuer or issuers. Under the terms of the swaps, an up-front payment may be exchanged between the seller and buyer. In addition, the seller of the credit
protection receives a periodic payment of premium from the buyer that is a fixed percentage applied to a notional amount. If, for example, the reference entity is subject to a credit event (such as bankruptcy, failure
to pay, or obligation acceleration) during the term of the swap, the seller agrees to either physically settle or cash settle the swap contract. If the swap is physically settled, the seller agrees to pay the buyer an
amount equal to the notional amount and take delivery of a debt instrument of the reference issuer
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Intermediate-Term Investment-Grade Fund
with a par amount equal to such notional
amount. If the swap is cash settled, the seller agrees to pay the buyer the difference between the notional amount and the final price for the relevant debt instrument, as determined either in a market auction or
pursuant to a pre-agreed-upon valuation procedure.
The fund enters into interest
rate swap transactions to adjust the fund’s sensitivity to changes in interest rates and maintain the ability to generate income at prevailing market rates. Under the terms of the swaps, one party pays the other
either an amount that is a fixed percentage rate or a floating rate, which is reset periodically based on short-term interest rates, applied to a notional amount. In return, the counterparty agrees to pay a different
floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount.
The fund enters into centrally
cleared interest rate and credit default swaps to achieve the same objectives specified with respect to the equivalent over-the-counter swaps but with less counterparty risk because a regulated clearinghouse is the
counterparty instead of the clearing broker or executing broker. The clearinghouse imposes initial margin requirements to secure the fund’s performance, and requires daily settlement of variation margin
representing changes in the market value of each contract. To further mitigate counterparty risk, the fund trades with a diverse group of prequalified executing brokers; monitors the financial strength of its clearing
brokers, executing brokers, and clearinghouse; and has entered into agreements with its clearing brokers and executing brokers.
The primary risk associated
with selling credit protection is that, upon the occurrence of a defined credit event, the market value of the debt instrument received by the fund (or, in a cash settled swap, the debt instruments used to determine
the settlement payment by the fund) will be significantly less than the amount paid by the fund and, in a physically settled swap, the fund may receive an illiquid debt instrument. A risk associated with all types of
swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap
contract. The fund mitigates its counterparty risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with
its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold,
or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either party in accordance
with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions whereby a counterparty
may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount
would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily
to the value of the swap contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
The notional amounts of swap
contracts are not recorded in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the seller of credit protection is required to take
delivery (or, in a cash settled swap, pay the settlement amount determined) upon occurrence of a credit event, periodic payments are made, or the swap terminates, at which time realized gain (loss) is recorded. The
net premium to be received or paid by the fund under swap contracts is accrued daily and recorded as realized gain (loss) over the life of the contract.
During the six months ended
July 31, 2022, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 9% and less than 1% of net assets, respectively, based on the average of the
notional amounts at each quarter-end during the period. The average amount of investments in interest rate swaps represented 1% of net assets, based on the average of notional amounts at each quarter-end during the
period. The fund had no open interest rate swap contracts at July 31, 2022.
10. Federal Income
Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years
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Intermediate-Term Investment-Grade Fund
after the filing of the tax return.
Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
11. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
12. Credit Facilities
and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings
may be utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are
charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and
included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds
effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear
interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
13. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or
sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $1,171,000, representing less than 0.01% of the fund’s
net assets and 0.47% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $2,000 (an annual rate of less than 0.01% of average net assets). |
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Intermediate-Term Investment-Grade Fund
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 3,437,668 | — | 3,437,668 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 863,605 | — | 863,605 |
| Corporate Bonds | — | 26,194,637 | 3 | 26,194,640 |
| Floating Rate Loan Interests | — | 32,694 | — | 32,694 |
| Sovereign Bonds | — | 1,001,236 | — | 1,001,236 |
| Taxable Municipal Bonds | — | 42,774 | — | 42,774 |
| Temporary Cash Investments | 463,664 | — | — | 463,664 |
| Options Purchased | — | 115 | — | 115 |
| Total | 463,664 | 31,572,729 | 3 | 32,036,396 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 46,900 | — | — | 46,900 |
| Forward Currency Contracts | — | 28,476 | — | 28,476 |
| Swap Contracts | 1,1941 | 1,637 | — | 2,831 |
| Total | 48,094 | 30,113 | — | 78,207 |
| Liabilities | ||||
| Futures Contracts1 | 26,044 | — | — | 26,044 |
| Forward Currency Contracts | — | 2,626 | — | 2,626 |
| Swap Contracts | 3,7841 | 2,500 | — | 6,284 |
| Total | 29,828 | 5,126 | — | 34,954 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | At July 31, 2022, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows: |
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Investments in Secuties, at Value—Unaffiliated Issuers (Options Purchased) | 115 | — | — | 115 |
| Swap Premiums Paid | — | — | 1,879 | 1,879 |
| Unrealized Appreciation—Futures Contracts1 | 46,900 | — | — | 46,900 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | — | 1,194 | 1,194 |
| Unrealized Appreciation—Forward Currency Contracts | — | 28,476 | — | 28,476 |
| Unrealized Appreciation— Over-the-Counter Swap Contracts | — | — | 1,637 | 1,637 |
| Total Assets | 47,015 | 28,476 | 4,710 | 80,201 |
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Intermediate-Term Investment-Grade Fund
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Swap Premiums Received | — | — | 4,280 | 4,280 |
| Unrealized Depreciation—Futures Contracts1 | 26,044 | — | — | 26,044 |
| Unrealized Depreciation—Centrally Cleared Swap Contracts1 | — | — | 3,784 | 3,784 |
| Unrealized Depreciation—Forward Currency Contracts | — | 2,626 | — | 2,626 |
| Unrealized Depreciation— Over-the-Counter Swap Contracts | — | — | 2,500 | 2,500 |
| Total Liabilities | 26,044 | 2,626 | 10,564 | 39,234 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2022, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (146,029) | — | — | (146,029) |
| Options Purchased | — | — | (537) | (537) |
| Options Written | — | — | 958 | 958 |
| Swap Contracts | (9,859) | — | (8,374) | (18,233) |
| Forward Currency Contracts | — | 50,974 | — | 50,974 |
| Realized Net Gain (Loss) on Derivatives | (155,888) | 50,974 | (7,953) | (112,867) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | 29,588 | — | — | 29,588 |
| Options Purchased | (735) | — | (107) | (842) |
| Options Written | — | — | (21) | (21) |
| Swap Contracts | 2,702 | — | (4,705) | (2,003) |
| Forward Currency Contracts | — | 7,188 | — | 7,188 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 31,555 | 7,188 | (4,833) | 33,910 |
| F. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 35,013,686 |
| Gross Unrealized Appreciation | 199,883 |
| Gross Unrealized Depreciation | (3,136,321) |
| Net Unrealized Appreciation (Depreciation) | (2,936,438) |
| G. | During the six months ended July 31, 2022, the fund purchased $7,160,499,000 of investment securities and sold $7,936,642,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $3,333,409,000 and $3,355,552,000, respectively. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $58,182,000 and sales were $2,436,391,000, resulting in net realized loss of $136,547,000; these amounts, other than temporary cash
investments, are included in the purchases and sales of investment securities noted above.
82
Intermediate-Term Investment-Grade Fund
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 90,700 | 10,113 | 373,603 | 36,840 | |
| Issued in Lieu of Cash Distributions | 20,658 | 2,312 | 71,993 | 7,179 | |
| Redeemed | (255,995) | (28,542) | (706,097) | (69,748) | |
| Net Increase (Decrease)—Investor Shares | (144,637) | (16,117) | (260,501) | (25,729) | |
| Admiral Shares | |||||
| Issued | 3,007,205 | 335,327 | 7,799,964 | 770,507 | |
| Issued in Lieu of Cash Distributions | 379,371 | 42,469 | 1,182,976 | 118,004 | |
| Redeemed | (4,618,982) | (515,852) | (7,553,233) | (747,411) | |
| Net Increase (Decrease)—Admiral Shares | (1,232,406) | (138,056) | 1,429,707 | 141,100 | |
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
83
Long-Term Investment-Grade Fund
Fund Allocation
As of July 31, 2022
| Asset-Backed/Commercial Mortgage-Backed Securities | 0.3% |
| Corporate Bonds - Communications | 5.7 |
| Corporate Bonds - Consumer Discretionary | 6.3 |
| Corporate Bonds - Consumer Staples | 3.5 |
| Corporate Bonds - Energy | 5.6 |
| Corporate Bonds - Financials | 18.6 |
| Corporate Bonds - Health Care | 10.6 |
| Corporate Bonds - Industrials | 4.6 |
| Corporate Bonds - Materials | 0.8 |
| Corporate Bonds - Real Estate | 0.5 |
| Corporate Bonds - Technology | 10.5 |
| Corporate Bonds - Utilities | 15.6 |
| Floating Rate Loan Interests | 0.0 |
| Sovereign Bonds | 1.4 |
| Taxable Municipal Bonds | 9.6 |
| U.S. Government and Agency Obligations | 6.4 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full
faith and credit of the U.S. government.
84
Long-Term Investment-Grade Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
85
Long-Term Investment-Grade Fund
86
Long-Term Investment-Grade Fund
87
Long-Term Investment-Grade Fund
88
Long-Term Investment-Grade Fund
89
Long-Term Investment-Grade Fund
90
Long-Term Investment-Grade Fund
91
Long-Term Investment-Grade Fund
92
Long-Term Investment-Grade Fund
93
Long-Term Investment-Grade Fund
94
Long-Term Investment-Grade Fund
95
Long-Term Investment-Grade Fund
96
Long-Term Investment-Grade Fund
97
Long-Term Investment-Grade Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| RBC Capital Markets LLC (Dated 7/29/22, Repurchase Value $102,720,000, collateralized by Fannie Mae 4.500%, 6/1/52, and U.S. Treasury Note/Bond 0.750%–1.625%, 2/15/26–5/31/26, with a value of $104,754,000) | 2.280% | 8/1/22 | 102,700 | 102,700 | ||
| 290,900 | ||||||
| Total Temporary Cash Investments (Cost $337,194) | 337,192 | |||||
| Total Investments (98.3%) (Cost $18,215,359) | 16,656,346 | |||||
| Other Assets and Liabilities—Net (1.7%) | 295,440 | |||||
| Net Assets (100%) | 16,951,786 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $15,492,000 have been segregated as initial margin for open futures contracts. |
| 2 | Securities with a value of $43,997,000 have been segregated as initial margin for open centrally cleared swap contracts. |
| 3 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 4 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 5 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At July 31, 2022, the aggregate value was $909,429,000, representing 5.4% of net assets. |
| 6 | Face amount denominated in British pounds. |
| 7 | Face amount denominated in euro. |
| 8 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2022. |
| 9 | Variable-rate security; rate shown is effective rate at period end. Certain variable-rate securities are not based on a published reference rate and spread but are determined by the issuer or agent based on current market conditions. |
| 10 | Scheduled principal and interest payments are guaranteed by Assured Guaranty Municipal Corp. |
| 11 | Scheduled principal and interest payments are guaranteed by Build America Mutual Assurance Co. |
| 12 | Scheduled principal and interest payments are guaranteed by National Public Finance Guarantee Corp. |
| 13 | Scheduled principal and interest payments are guaranteed by Ambac Assurance Corp. |
| 14 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 1M—1-month. | |
| 3M—3-month. | |
| GO—General Obligation Bond. | |
| LIBOR—London Interbank Offered Rate. | |
| TSFR1M—CME Term SOFR 1 Month. | |
| TSFR3M—CME Term SOFR 3 Month. | |
| USD—U.S. dollar. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | 15 | 3,157 | 6 |
| 5-Year U.S. Treasury Note | September 2022 | 130 | 14,784 | 201 |
| Long U.S. Treasury Bond | September 2022 | 3,192 | 459,648 | 9,568 |
| Ultra 10-Year U.S. Treasury Note | September 2022 | 296 | 38,850 | 510 |
| Ultra Long U.S. Treasury Bond | September 2022 | 524 | 82,956 | 1,131 |
| 11,416 | ||||
98
Long-Term Investment-Grade Fund
| Futures Contracts (continued) | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | (35) | (7,366) | (29) |
| 5-Year U.S. Treasury Note | September 2022 | (102) | (11,600) | (119) |
| 10-Year U.S. Treasury Note | September 2022 | (393) | (47,608) | (1,034) |
| Euro-Bobl | September 2022 | (5) | (653) | (17) |
| Euro-Bund | September 2022 | (106) | (17,078) | (864) |
| Euro-Buxl | September 2022 | (22) | (4,178) | (349) |
| Long Gilt | September 2022 | (75) | (10,794) | (57) |
| Ultra 10-Year U.S. Treasury Note | September 2022 | (249) | (32,681) | (20) |
| (2,489) | ||||
| 8,927 | ||||
| Forward Currency Contracts | ||||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |||||
| Counterparty | Receive | Deliver | ||||||
| JPMorgan Chase Bank, N.A. | 8/2/22 | CAD | — | USD | — | — | — | |
| Bank of America, N.A. | 9/21/22 | EUR | 1,661 | USD | 1,740 | — | (36) | |
| Standard Chartered Bank | 9/21/22 | EUR | 1,233 | USD | 1,300 | — | (35) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | EUR | 583 | USD | 605 | — | (7) | |
| Standard Chartered Bank | 9/21/22 | EUR | 499 | USD | 509 | 2 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | EUR | 266 | USD | 269 | 4 | — | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | EUR | 156 | USD | 159 | 1 | — | |
| Credit Agricole CIB | 9/21/22 | EUR | 131 | USD | 140 | — | (6) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | GBP | 661 | USD | 803 | 4 | — | |
| Toronto-Dominion Bank | 9/21/22 | GBP | 584 | USD | 703 | 8 | — | |
| Royal Bank of Canada | 9/21/22 | GBP | 446 | USD | 536 | 8 | — | |
| Standard Chartered Bank | 9/21/22 | GBP | 298 | USD | 355 | 9 | — | |
| Deutsche Bank AG | 9/21/22 | GBP | 291 | USD | 355 | — | (1) | |
| State Street Bank & Trust Co. | 9/21/22 | GBP | 163 | USD | 200 | — | (1) | |
| Bank of America, N.A. | 9/21/22 | GBP | 160 | USD | 197 | — | (2) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | GBP | 115 | USD | 141 | — | (1) | |
| Bank of America, N.A. | 9/21/22 | USD | 158 | AUD | 222 | 3 | — | |
| Bank of America, N.A. | 9/21/22 | USD | 24,785 | EUR | 22,959 | 1,233 | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 1,605 | EUR | 1,519 | 46 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 1,036 | EUR | 986 | 25 | — | |
| Bank of New York | 9/21/22 | USD | 458 | EUR | 452 | — | (5) | |
| Barclays Bank plc | 9/21/22 | USD | 404 | EUR | 394 | 1 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 345 | EUR | 340 | — | (4) | |
| Deutsche Bank AG | 9/21/22 | USD | 337 | EUR | 330 | — | (1) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 297 | EUR | 292 | — | (2) | |
| Barclays Bank plc | 9/21/22 | USD | 288 | EUR | 281 | — | (1) | |
| Credit Agricole CIB | 9/21/22 | USD | 285 | EUR | 272 | 6 | — | |
| Bank of America, N.A. | 9/21/22 | USD | 275 | EUR | 272 | — | (4) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 240 | EUR | 224 | 9 | — | |
| State Street Bank & Trust Co. | 9/21/22 | USD | 221 | EUR | 208 | 7 | — | |
| Toronto-Dominion Bank | 9/21/22 | USD | 88 | EUR | 85 | — | — | |
| HSBC Bank plc | 9/21/22 | USD | 28 | EUR | 28 | — | — | |
99
Long-Term Investment-Grade Fund
| Forward Currency Contracts (continued) | ||||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |||||
| Counterparty | Receive | Deliver | ||||||
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 10,219 | GBP | 8,220 | 196 | — | |
| Bank of America, N.A. | 9/21/22 | USD | 478 | GBP | 398 | — | (8) | |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 274 | GBP | 225 | — | (1) | |
| HSBC Bank plc | 9/21/22 | USD | 265 | GBP | 221 | — | (4) | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 179 | GBP | 149 | — | (3) | |
| Bank of New York | 9/21/22 | USD | 166 | GBP | 137 | — | (1) | |
| UBS AG | 9/21/22 | USD | 160 | GBP | 130 | 1 | — | |
| Standard Chartered Bank | 9/21/22 | USD | 154 | GBP | 130 | — | (4) | |
| Deutsche Bank AG | 9/21/22 | USD | 138 | GBP | 116 | — | (3) | |
| Toronto-Dominion Bank | 9/21/22 | USD | 71 | GBP | 59 | — | (1) | |
| Barclays Bank plc | 9/21/22 | USD | 51 | GBP | 41 | — | — | |
| Morgan Stanley Capital Services Inc. | 9/21/22 | USD | 3 | JPY | 447 | — | — | |
| Bank of America, N.A. | 9/21/22 | USD | — | MXN | 4 | — | — | |
| 1,563 | (131) | |||||||
| AUD—Australian dollar. |
| CAD—Canadian dollar. |
| EUR—euro. |
| GBP—British pound. |
| JPY—Japanese yen. |
| MXN—Mexican peso. |
| USD—U.S. dollar. |
| Centrally Cleared Credit Default Swaps | ||||||
| Reference Entity | Termination Date | Notional Amount (000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Unrealized Appreciation (Depreciation) ($000) | |
| Credit Protection Sold | ||||||
| CDX-NA-IG-S38-V1 | 6/22/27 | USD | 1,939,640 | 1.000 | 19,518 | 1,738 |
| Credit Protection Purchased | ||||||
| CDX-NA-HY-S37-V2 | 12/22/26 | USD | 1,139 | (5.000) | (34) | 74 |
| 19,484 | 1,812 | |||||
| 1 Periodic premium received/paid quarterly. |
| USD—U.S. dollar. |
| Over-the-Counter Credit Default Swaps | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Credit Protection Sold/Moody's Rating | ||||||||
| Republic of Chile/A1 | 6/22/27 | MSCS | 5,890 | 1.000 | (67) | 67 | — | (134) |
| 1 | Periodic premium received/paid quarterly. |
| MSCS—Morgan Stanley Capital Services LLC. |
The notional amount represents
the maximum potential amount the fund could be required to pay as a seller of credit protection if the reference entity was subject to a credit event.
At July 31, 2022, the
counterparties had deposited in segregated accounts securities with a value of $1,444,000 in connection with open forward currency contracts and open over-the-counter swap contracts.
See accompanying
Notes, which are an integral part of the Financial Statements.
100
Long-Term Investment-Grade Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $18,169,065) | 16,610,054 |
| Affiliated Issuers (Cost $46,294) | 46,292 |
| Total Investments in Securities | 16,656,346 |
| Investment in Vanguard | 625 |
| Foreign Currency, at Value (Cost $316) | 315 |
| Receivables for Investment Securities Sold | 124,339 |
| Receivables for Accrued Income | 187,799 |
| Receivables for Capital Shares Issued | 2,945 |
| Swap Premiums Paid | 67 |
| Variation Margin Receivable—Futures Contracts | 3,037 |
| Variation Margin Receivable—Centrally Cleared Swap Contracts | 6,414 |
| Unrealized Appreciation—Forward Currency Contracts | 1,563 |
| Other Assets | 54 |
| Total Assets | 16,983,504 |
| Liabilities | |
| Due to Custodian | 1,317 |
| Payables for Investment Securities Purchased | 9,419 |
| Payables to Investment Advisor | 620 |
| Payables for Capital Shares Redeemed | 12,411 |
| Payables for Distributions | 6,782 |
| Payables to Vanguard | 904 |
| Unrealized Depreciation—Forward Currency Contracts | 131 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 134 |
| Total Liabilities | 31,718 |
| Net Assets | 16,951,786 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 18,844,450 |
| Total Distributable Earnings (Loss) | (1,892,664) |
| Net Assets | 16,951,786 |
| Investor Shares—Net Assets | |
| Applicable to 458,479,213 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 4,023,672 |
| Net Asset Value Per Share—Investor Shares | $8.78 |
| Admiral Shares—Net Assets | |
| Applicable to 1,473,100,508 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 12,928,114 |
| Net Asset Value Per Share—Admiral Shares | $8.78 |
See accompanying
Notes, which are an integral part of the Financial Statements.
101
Long-Term Investment-Grade Fund
See
accompanying Notes, which are an integral part of the Financial Statements.
102
Long-Term Investment-Grade Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.33 | $11.42 | $11.48 | $9.79 | $10.40 | $10.06 |
| Investment Operations | ||||||
| Net Investment Income1 | .165 | .323 | .349 | .381 | .397 | .405 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.545) | (.836) | .399 | 1.854 | (.560) | .520 |
| Total from Investment Operations | (1.380) | (.513) | .748 | 2.235 | (.163) | .925 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.170) | (.340) | (.368) | (.399) | (.413) | (.421) |
| Distributions from Realized Capital Gains | — | (.237) | (.440) | (.146) | (.034) | (.164) |
| Total Distributions | (.170) | (.577) | (.808) | (.545) | (.447) | (.585) |
| Net Asset Value, End of Period | $8.78 | $10.33 | $11.42 | $11.48 | $9.79 | $10.40 |
| Total Return2 | -13.39% | -4.64% | 6.54% | 23.31% | -1.45% | 9.28% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $4,024 | $4,840 | $5,070 | $4,942 | $4,098 | $4,570 |
| Ratio of Total Expenses to Average Net Assets | 0.22% | 0.22% | 0.22% | 0.22% | 0.22% | 0.22% |
| Ratio of Net Investment Income to Average Net Assets | 3.67% | 2.94% | 2.97% | 3.57% | 4.08% | 3.87% |
| Portfolio Turnover Rate | 14% | 24% | 30% | 34%3 | 32%3 | 27% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes 1% and 0%, respectively, attributable to mortgage-dollar-roll activity. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.33 | $11.42 | $11.48 | $9.79 | $10.40 | $10.06 |
| Investment Operations | ||||||
| Net Investment Income1 | .169 | .334 | .361 | .392 | .407 | .415 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.545) | (.836) | .399 | 1.853 | (.560) | .520 |
| Total from Investment Operations | (1.376) | (.502) | .760 | 2.245 | (.153) | .935 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.174) | (.351) | (.380) | (.409) | (.423) | (.431) |
| Distributions from Realized Capital Gains | — | (.237) | (.440) | (.146) | (.034) | (.164) |
| Total Distributions | (.174) | (.588) | (.820) | (.555) | (.457) | (.595) |
| Net Asset Value, End of Period | $8.78 | $10.33 | $11.42 | $11.48 | $9.79 | $10.40 |
| Total Return2 | -13.35% | -4.54% | 6.64% | 23.43% | -1.35% | 9.39% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $12,928 | $14,769 | $15,455 | $15,335 | $12,820 | $11,925 |
| Ratio of Total Expenses to Average Net Assets | 0.12% | 0.12% | 0.12% | 0.12% | 0.12% | 0.12% |
| Ratio of Net Investment Income to Average Net Assets | 3.77% | 3.04% | 3.07% | 3.67% | 4.18% | 3.97% |
| Portfolio Turnover Rate | 14% | 24% | 30% | 34%3 | 32%3 | 27% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes 1% and 0%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
103
Long-Term Investment-Grade Fund
Notes to Financial Statements
Vanguard Long-Term
Investment-Grade Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the
share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Certain of the fund’s
investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. The fund invests in securities of foreign
issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. To minimize the currency risk associated with investment in securities denominated in
currencies other than the U.S. dollar, the fund attempts to hedge its currency exposure. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters,
war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on the
value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services.
Investments in Vanguard Market Liquidity Fund
are valued at that fund's net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the
close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll
transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The
fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open
mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
4. Floating Rate Loan
Interests: Floating rate loan interests represent interests in amounts owed by corporate or other borrowers. These instruments may be in the form of loans, trade claims or other receivables and may include standby
financing commitments such as revolving credit facilities that obligate the fund to supply additional cash to the borrower on demand. Floating rate loan interests may be made directly with a borrower or acquired
through assignment or participation. The fund’s right to enforce a borrower’s compliance with the terms of the loan agreement, or benefit directly from the collateral supporting the loan, varies when the
loan is a direct borrowing, an assignment, or a participation. Floating rate loan interests involve various risks including risk of loss in case of default, insolvency, or the bankruptcy of the borrower and are
generally subject to restrictions on
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Long-Term Investment-Grade Fund
transfer with limited opportunities to sell
them in secondary markets. The fund may also invest in loan commitments, which are contractual obligations for a future funding. The fund may earn a commitment fee on any unfunded portion of these commitments which is
amortized to interest income over the commitment period. Both the funded portion of a floating rate loan interest as well as its unfunded commitment, if any, is reflected on the Schedule of Investments.
5. Repurchase
Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements
mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and
principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into
master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty's default (including bankruptcy), the fund may terminate any repurchase agreements
with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition
of collateral.
6. Swaptions: The fund
invests in options on swaps, which are transacted over-the-counter (OTC) and not on an exchange. The fund enters into swaptions to adjust the fund’s sensitivity to interest rates or to adjust its exposure to the
underlying investments. The fund may purchase a swaption from a counterparty whereby the fund has the right to enter into a swap in which the fund will pay either a fixed percentage rate or a floating rate, which is
reset periodically based on short-term interest rates, and receive a different floating rate, each applied to a notional amount. The fund may also sell a swaption to a counterparty whereby the fund grants the
counterparty the right to enter into a swap in which the fund will pay a floating rate and receive a fixed rate, each applied to a notional amount. Swaptions also include options that allow an existing swap to be
terminated or extended by one of the counterparties. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC
options generally are established through negotiation with the other party to the option contract. Although this type of arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs,
OTC options generally involve greater credit risk than exchange-traded options. Credit risk involves the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund
mitigates its counterparty risk by entering into swaptions with a diverse group of prequalified counterparties and monitoring their financial strength.
The primary risk associated
with purchasing swaptions is that interest rates or the value of the underlying investments move in such a way that the swaption is out-of-the money, the position is worthless at expiration, and the fund loses the
premium paid. The primary risk associated with selling swaptions is that interest rates or the value of the underlying investments move in such a way that the swaption is in-the-money, the counterparty exercises the
swaption, and the resulting interest rate swap results in a negative cash flow to the fund in an amount greater than the premium received. A risk associated with all types of swaptions is the possibility that a
counterparty may default on its obligations under the swaption contract.
Swaptions are valued based on
market quotations received from independent pricing services or recognized dealers. The premium paid for a purchased swaption is recorded in the Statement of Assets and Liabilities as an asset and is subsequently
adjusted daily based on the current market value of the swaption. The premium received for a written swaption is recorded in the Statement of Assets and Liabilities as an asset with an equal liability and is
subsequently adjusted daily based on the current market value of the swaption. The notional amounts of option contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of
swaptions are recorded in the Statement of Operations as unrealized appreciation (depreciation) until expired, closed, or exercised, at which time realized gains (losses) are recognized.
During the six months ended
July 31, 2022, the fund’s average value of investments in swaptions purchased and swaptions written represented less than 1% of net assets based on the average market values at each quarter-end during the
period. The fund had no open swaption contracts at July 31, 2022.
7. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is
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Long-Term Investment-Grade Fund
the counterparty instead of the clearing
broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with
its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 4% and 2% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
8. Forward Currency
Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates.
The fund’s risks in using these
contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its
counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or
rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed
by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts
contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the
time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of
collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and
settled within two business days.
Forward currency contracts are
valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the
Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward currency contracts.
During the six months ended
July 31, 2022, the fund’s average investment in forward currency contracts represented less than 1% of net assets, based on the average of the notional amounts at each quarter-end during the period.
9. Swap Contracts: The
fund invests in credit default swaps to adjust the overall credit risk of the fund or to actively overweight or underweight credit risk to a specific issuer or group of issuers. The fund may sell credit protection
through credit default swaps to simulate investments in long positions that are either unavailable or considered to be less attractively priced in the bond market. The fund may purchase credit protection through
credit default swaps to reduce credit exposure to a given issuer or issuers. Under the terms of the swaps, an up-front payment may be exchanged between the seller and buyer. In addition, the seller of the credit
protection receives a periodic payment of premium from the buyer that is a fixed percentage applied to a notional amount. If, for example, the reference entity is subject to a credit event (such as bankruptcy, failure
to pay, or obligation acceleration) during the term of the swap, the seller agrees to either physically settle or cash settle the swap contract. If the swap is physically settled, the seller agrees to pay the buyer an
amount equal to the notional amount and take delivery of a debt instrument of the reference issuer with a par amount equal to such notional amount. If the swap is cash settled, the seller agrees to pay the buyer the
difference between the notional amount and the final price for the relevant debt instrument, as determined either in a market auction or pursuant to a pre-agreed-upon valuation procedure.
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Long-Term Investment-Grade Fund
The fund enters into centrally
cleared interest rate and credit default swaps to achieve the same objectives specified with respect to the equivalent over-the-counter swaps but with less counterparty risk because a regulated clearinghouse is the
counterparty instead of the clearing broker or executing broker. The clearinghouse imposes initial margin requirements to secure the fund’s performance, and requires daily settlement of variation margin
representing changes in the market value of each contract. To further mitigate counterparty risk, the fund trades with a diverse group of prequalified executing brokers; monitors the financial strength of its clearing
brokers, executing brokers, and clearinghouse; and has entered into agreements with its clearing brokers and executing brokers.
The primary risk associated
with selling credit protection is that, upon the occurrence of a defined credit event, the market value of the debt instrument received by the fund (or, in a cash settled swap, the debt instruments used to determine
the settlement payment by the fund) will be significantly less than the amount paid by the fund and, in a physically settled swap, the fund may receive an illiquid debt instrument. A risk associated with all types of
swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap
contract. The fund mitigates its counterparty risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with
its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold,
or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either party in accordance
with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions whereby a counterparty
may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount
would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily
to the value of the swap contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
The notional amounts of swap
contracts are not recorded in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the seller of credit protection is required to take
delivery (or, in a cash settled swap, pay the settlement amount determined) upon occurrence of a credit event, periodic payments are made, or the swap terminates, at which time realized gain (loss) is recorded. The
net premium to be received or paid by the fund under swap contracts is accrued daily and recorded as realized gain (loss) over the life of the contract.
During the six months ended
July 31, 2022, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 10% and less than 1% of net assets, respectively, based on the average of the
notional amounts at each quarter-end during the period. The average amount of investments in interest rate swaps represented 1% of net assets, based on the average of notional amounts at each quarter-end during the
period.
10. Federal Income
Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
11. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
12. Credit Facilities
and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings
may be utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are
charged administrative fees and an annual
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Long-Term Investment-Grade Fund
commitment fee of 0.10% of the undrawn
committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement
of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight
Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
13. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or
sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | Wellington Management Company llp provides investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. |
Vanguard provides investment
advisory services to a portion of the fund as described below; the fund paid Vanguard advisory fees of $108,000 for the six months ended July 31, 2022.
For the six months ended July
31, 2022, the aggregate investment advisory fee paid to all advisors represented an effective annual rate of 0.02% of the fund’s average net assets.
| C. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $625,000, representing less than 0.01% of the fund’s net
assets and 0.25% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
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Long-Term Investment-Grade Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 1,049,111 | — | 1,049,111 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 43,536 | — | 43,536 |
| Corporate Bonds | — | 13,434,739 | — | 13,434,739 |
| Floating Rate Loan Interests | — | 934 | — | 934 |
| Sovereign Bonds | — | 229,582 | — | 229,582 |
| Taxable Municipal Bonds | — | 1,561,252 | — | 1,561,252 |
| Temporary Cash Investments | 46,292 | 290,900 | — | 337,192 |
| Total | 46,292 | 16,610,054 | — | 16,656,346 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 11,416 | — | — | 11,416 |
| Forward Currency Contracts | — | 1,563 | — | 1,563 |
| Swap Contracts | 1,8121 | — | — | 1,812 |
| Total | 13,228 | 1,563 | — | 14,791 |
| Liabilities | ||||
| Futures Contracts1 | 2,489 | — | — | 2,489 |
| Forward Currency Contracts | — | 131 | — | 131 |
| Swap Contracts | — | 134 | — | 134 |
| Total | 2,489 | 265 | — | 2,754 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | At July 31, 2022, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows: |
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Swap Premiums Paid | — | — | 67 | 67 |
| Unrealized Appreciation—Futures Contracts1 | 11,416 | — | — | 11,416 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | — | 1,812 | 1,812 |
| Unrealized Appreciation—Forward Currency Contracts | — | 1,563 | — | 1,563 |
| Total Assets | 11,416 | 1,563 | 1,879 | 14,858 |
| Unrealized Depreciation—Futures Contracts1 | 2,489 | — | — | 2,489 |
| Unrealized Depreciation—Forward Currency Contracts | — | 131 | — | 131 |
| Unrealized Depreciation— Over-the-Counter Swap Contracts | — | — | 134 | 134 |
| Total Liabilities | 2,489 | 131 | 134 | 2,754 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2022, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (76,311) | — | — | (76,311) |
| Options Purchased | — | — | (121) | (121) |
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Long-Term Investment-Grade Fund
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Options Written | — | — | 162 | 162 |
| Swap Contracts | (11,023) | — | (16,455) | (27,478) |
| Forward Currency Contracts | — | 2,807 | — | 2,807 |
| Realized Net Gain (Loss) on Derivatives | (87,334) | 2,807 | (16,414) | (100,941) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | 18,175 | — | — | 18,175 |
| Options Purchased | — | — | (24) | (24) |
| Options Written | — | — | (5) | (5) |
| Swap Contracts | 1,135 | — | 9,939 | 11,074 |
| Forward Currency Contracts | — | 694 | — | 694 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 19,310 | 694 | 9,910 | 29,914 |
| F. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 18,238,068 |
| Gross Unrealized Appreciation | 297,935 |
| Gross Unrealized Depreciation | (1,867,554) |
| Net Unrealized Appreciation (Depreciation) | (1,569,619) |
| G. | During the six months ended July 31, 2022, the fund purchased $2,070,955,000 of investment securities and sold $1,549,445,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $771,489,000 and $799,835,000, respectively. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $3,318,000 and sales were $2,073,000, resulting in net realized loss of $15,000; these amounts, other than temporary cash investments,
are included in the purchases and sales of investment securities noted above.
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 149,529 | 16,142 | 630,560 | 58,007 | |
| Issued in Lieu of Cash Distributions | 76,998 | 8,534 | 259,726 | 23,855 | |
| Redeemed | (309,661) | (34,543) | (633,474) | (57,326) | |
| Net Increase (Decrease)—Investor Shares | (83,134) | (9,867) | 256,812 | 24,536 | |
| Admiral Shares | |||||
| Issued | 1,389,215 | 150,351 | 3,420,433 | 312,724 | |
| Issued in Lieu of Cash Distributions | 214,260 | 23,779 | 697,288 | 64,043 | |
| Redeemed | (1,172,512) | (130,089) | (3,295,935) | (300,568) | |
| Net Increase (Decrease)—Admiral Shares | 430,963 | 44,041 | 821,786 | 76,199 | |
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
110
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Short-Term
Investment-Grade Fund, Vanguard Intermediate-Term Investment-Grade Fund, and Vanguard Long-Term Investment-Grade Fund has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc.
(Vanguard), through its Fixed Income Group. The board also has renewed the investment advisory arrangement between Vanguard Long-Term Investment-Grade Fund and Wellington Management Company llp (Wellington Management). The board determined that renewing each fund’s advisory arrangements was in the best interests of the funds and their shareholders.
The board based its decisions
upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about each fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of each
fund’s investment management services over both the short and long term and took into account the organizational depth and stability of each advisor. The board considered the following:
Vanguard. Vanguard has been managing investments for more than four decades and has advised the Short-Term Investment-Grade and Intermediate-Term Investment-Grade Funds since their inceptions, and a
portion of the Long-Term Investment-Grade Fund since 2013. The Fixed Income Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. The portfolio manager has the support of a deep and
experienced team of investment-grade credit research analysts. The team conducts independent credit analysis on individual issuers in the universe of bonds considered for the fund. The portfolio manager draws upon the
sector experience of these analysts and the broader fixed-income team at Wellington Management to manage the fund’s duration, sector, quality, and curve positioning. The firm has managed the Long-Term
Investment-Grade Fund since its inception in 1973.
The board concluded that each
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term
and since inception performance of each fund and advisor, as applicable, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that
the performance was such that the advisory arrangements should continue.
Cost
The board concluded that each fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that each fund’s advisory fee rate or expenses were also below the peer-group average.
111
The board did not consider the
profitability of Wellington Management in determining whether to approve the advisory fee for the Long-Term Investment-Grade Fund because Wellington Management is independent of Vanguard and the advisory fee is the
result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is
owned by the funds it oversees.
The benefit of economies of
scale
The board concluded that the Long-Term
Investment-Grade Fund shareholders benefit from economies of scale because of the breakpoints in the fund’s advisory fee schedule with Wellington Management. The breakpoints reduce the effective rate of the fee
as the fund’s assets increase.
The board also concluded that
the Short-Term Investment-Grade, Intermediate-Term Investment-Grade, and Long-Term Investment-Grade Funds’ arrangements with Vanguard ensure that the funds will realize economies of scale as they grow, with the
cost to shareholders declining as fund assets increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
112
Liquidity Risk Management
Vanguard funds (except for the money market
funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt
a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’
interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Fixed Income Securities Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Short-Term Investment-Grade Fund, Vanguard
Intermediate-Term Investment-Grade Fund, and Vanguard Long-Term Investment-Grade Fund, and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an
annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program
Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated
and was implemented effectively to manage the funds' liquidity risk.
113
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Connect with
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Semiannual Report | July 31, 2022
Vanguard
Ultra-Short-Term Bond Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 37 |
Liquidity Risk Management | 39 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended July 31, 2022 | |||
| Ultra-Short-Term Bond Fund | Beginning Account Value 1/31/2022 | Ending Account Value 7/31/2022 | Expenses Paid During Period |
| Based on Actual Fund Return | |||
| Investor Shares | $1,000.00 | $993.70 | $0.99 |
| Admiral™ Shares | 1,000.00 | 994.30 | 0.49 |
| Based on Hypothetical 5% Yearly Return | |||
| Investor Shares | $1,000.00 | $1,023.80 | $1.00 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
The calculations are
based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.20% for Investor Shares and 0.10% for Admiral Shares. The dollar amounts shown
as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by
the number of days in the most recent 12-month period (181/365).
2
Ultra-Short-Term Bond Fund
Fund Allocation
As of July 31, 2022
| Asset-Backed/Commercial Mortgage-Backed Securities | 15.1% |
| Corporate Bonds | 61.8 |
| Short-Term Reserves | 0.2 |
| Sovereign Bonds | 2.6 |
| Treasury/Agency | 20.3 |
The table reflects the fund’s
investments, except for derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S.
government.
3
Ultra-Short-Term Bond Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (1.8%) | ||||||
| U.S. Government Securities (1.8%) | ||||||
| 1,2 | United States Treasury Note/Bond | 2.625% | 12/31/23 | 300,000 | 298,641 | |
| Total U.S. Government and Agency Obligations (Cost $308,033) | 298,641 | |||||
| Asset-Backed/Commercial Mortgage-Backed Securities (15.0%) | ||||||
| 3,4 | American Credit Acceptance Receivables Trust Class A Series 2021-2 | 0.370% | 10/15/24 | 188 | 188 | |
| 3,4 | American Credit Acceptance Receivables Trust Class A Series 2021-3 | 0.330% | 6/13/25 | 4,217 | 4,210 | |
| 3,4 | American Credit Acceptance Receivables Trust Class A Series 2021-4 | 0.450% | 9/15/25 | 6,348 | 6,281 | |
| 3,4 | American Credit Acceptance Receivables Trust Class B Series 2021-1 | 0.610% | 3/13/25 | 1,983 | 1,982 | |
| 3,4 | American Credit Acceptance Receivables Trust Class B Series 2021-2 | 0.680% | 5/13/25 | 3,500 | 3,484 | |
| 3,4 | American Credit Acceptance Receivables Trust Class B Series 2021-3 | 0.660% | 2/13/26 | 11,750 | 11,588 | |
| 3,4 | American Credit Acceptance Receivables Trust Class B Series 2021-4 | 0.860% | 2/13/26 | 9,200 | 8,994 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A2 Series 2021-2 | 0.260% | 11/18/24 | 9,567 | 9,518 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A2 Series 2021-3 | 0.410% | 2/18/25 | 15,856 | 15,679 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A2A Series 2022-2 | 4.200% | 12/18/25 | 45,610 | 45,653 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A3 Series 2020-2 | 0.660% | 12/18/24 | 2,679 | 2,659 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A3 Series 2020-3 | 0.530% | 6/18/25 | 9,960 | 9,838 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A3 Series 2021-1 | 0.370% | 8/18/25 | 13,881 | 13,674 | |
| 4 | AmeriCredit Automobile Receivables Trust Class A3 Series 2021-2 | 0.340% | 12/18/26 | 8,320 | 8,088 | |
| 4 | AmeriCredit Automobile Receivables Trust Class B Series 2019-3 | 2.130% | 7/18/25 | 17,539 | 17,498 | |
| 4 | AmeriCredit Automobile Receivables Trust Class C Series 2018-2 | 3.590% | 6/18/24 | 1,502 | 1,501 | |
| 4 | AmeriCredit Automobile Receivables Trust Class C Series 2020-2 | 1.480% | 2/18/26 | 2,520 | 2,443 | |
| 3,4 | ARI Fleet Lease Trust Class A2 Series 2020-A | 1.770% | 8/15/28 | 1,169 | 1,168 | |
4
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3,4 | ARI Fleet Lease Trust Class A2 Series 2021-A | 0.370% | 3/15/30 | 6,423 | 6,302 | |
| 3,4 | ARI Fleet Lease Trust Class A2 Series 2022-A | 3.120% | 1/15/31 | 3,530 | 3,480 | |
| 3,4 | ARI Fleet Lease Trust Class A3 Series 2022-A | 3.430% | 1/15/31 | 1,950 | 1,907 | |
| 3,4 | Avis Budget Rental Car Funding AESOP LLC Class A Series 2017-1A | 3.070% | 9/20/23 | 8,745 | 8,744 | |
| 3,4 | Avis Budget Rental Car Funding AESOP LLC Class A Series 2017-2A | 2.970% | 3/20/24 | 9,350 | 9,311 | |
| 4 | BMW Vehicle Lease Trust Class A2 Series 2022-1 | 0.670% | 5/28/24 | 19,895 | 19,699 | |
| 4 | BMW Vehicle Owner Trust Class A4 Series 2020-A | 0.620% | 4/26/27 | 4,230 | 4,062 | |
| 3,4,5 | Brass No. 10 plc Class A1 Series 10A | 0.669% | 4/16/69 | 10,270 | 9,889 | |
| 4,5 | Brazos Higher Education Authority Inc. Class A2 Series 2011-1, 3M USD LIBOR + 0.800% | 2.324% | 2/25/30 | 29 | 29 | |
| 3,4 | Canadian Pacer Auto Receivables Trust Class A2A Series 2021-1A | 0.240% | 10/19/23 | 3,504 | 3,486 | |
| 4 | Capital One Prime Auto Receivables Trust Class A2 Series 2021-1 | 0.320% | 2/18/25 | 15,152 | 14,972 | |
| 4 | CarMax Auto Owner Trust Class A2 Series 2022-1 | 0.910% | 2/18/25 | 26,678 | 26,321 | |
| 4 | CarMax Auto Owner Trust Class A2A Series 2021-2 | 0.270% | 6/17/24 | 2,549 | 2,540 | |
| 4 | CarMax Auto Owner Trust Class A2A Series 2021-3 | 0.290% | 9/16/24 | 7,698 | 7,646 | |
| 4 | CarMax Auto Owner Trust Class A2A Series 2021-4 | 0.240% | 11/15/24 | 14,780 | 14,649 | |
| 4 | CarMax Auto Owner Trust Class A3 Series 2019-1 | 3.050% | 3/15/24 | 94 | 94 | |
| 4 | CarMax Auto Owner Trust Class A3 Series 2020-3 | 0.620% | 3/17/25 | 25,465 | 25,085 | |
| 4 | CarMax Auto Owner Trust Class A3 Series 2022-2 | 3.490% | 2/16/27 | 3,680 | 3,659 | |
| 4 | CarMax Auto Owner Trust Class A4 Series 2020-3 | 0.770% | 3/16/26 | 4,660 | 4,480 | |
| 4 | Carvana Auto Receivables Trust Class A2 Series 2021-P3 | 0.380% | 1/10/25 | 11,008 | 10,902 | |
| 4 | Carvana Auto Receivables Trust Class A3 Series 2022-P1 | 3.350% | 2/10/27 | 5,700 | 5,581 | |
| 3,4 | Chesapeake Funding II LLC Class A1 Series 2019-1A | 2.940% | 4/15/31 | 2,947 | 2,946 | |
| 3,4 | Chesapeake Funding II LLC Class A1 Series 2020-1A | 0.870% | 8/15/32 | 7,827 | 7,750 | |
| 4 | CNH Equipment Trust Class A2 Series 2021-C | 0.330% | 1/15/25 | 14,963 | 14,737 | |
| 4 | CNH Equipment Trust Class A3 Series 2020-A | 1.160% | 6/16/25 | 4,317 | 4,251 | |
| 4 | CNH Equipment Trust Class A4 Series 2020-A | 1.510% | 4/15/27 | 2,250 | 2,163 | |
| 4 | COMM Mortgage Trust Class A2 Series 2014-CR14 | 3.147% | 2/10/47 | 26 | 26 | |
| 4 | COMM Mortgage Trust Class ASB Series 2014-CCRE16 | 3.653% | 4/10/47 | 2,011 | 2,007 | |
| 3,4,5,6 | Connecticut Avenue Securities Trust Class 1M1 Series 2021-R01, SOFR + 0.750% | 2.264% | 10/25/41 | 13,590 | 13,480 | |
| 3,4 | Dell Equipment Finance Trust Class A2 Series 2021-1 | 0.330% | 5/22/26 | 11,428 | 11,353 | |
| 3,4 | Dell Equipment Finance Trust Class A2 Series 2021-2 | 0.330% | 12/22/26 | 11,582 | 11,402 | |
| 3,4 | Dell Equipment Finance Trust Class A2 Series 2022-2 | 4.030% | 7/22/27 | 14,410 | 14,428 | |
| 3,4 | Dell Equipment Finance Trust Class A3 Series 2020-2 | 0.570% | 10/23/23 | 18,781 | 18,543 | |
| 3,4 | DLLAA LLC Class A2 Series 2021-1A | 0.360% | 5/17/24 | 7,565 | 7,478 | |
| 3,4 | DLLAD LLC Class A2 Series 2021-1A | 0.350% | 9/20/24 | 14,118 | 13,874 | |
| 3,4 | Dllmt LLC Class A2 Series 2021-1 | 0.600% | 3/20/24 | 21,184 | 20,916 | |
| 3,4 | DLLST LLC Class A3 Series 2022-1A | 3.400% | 1/21/25 | 11,000 | 10,842 | |
| 3,4 | DLLST LLC Class A4 Series 2022-1A | 3.690% | 9/20/28 | 2,810 | 2,808 | |
| 3,4 | Donlen Fleet Lease Funding 2 LLC Class A2 Series 2021-2 | 0.560% | 12/11/34 | 8,264 | 8,031 | |
| 4 | Drive Auto Receivables Trust Class A3 Series 2021-2 | 0.350% | 3/17/25 | 26,545 | 26,410 | |
| 4 | Drive Auto Receivables Trust Class A3 Series 2021-3 | 0.790% | 10/15/25 | 28,840 | 28,447 | |
| 4 | Drive Auto Receivables Trust Class B Series 2021-1 | 0.650% | 7/15/25 | 12,062 | 12,005 | |
| 4 | Drive Auto Receivables Trust Class C Series 2020-2 | 2.280% | 8/17/26 | 1,520 | 1,511 | |
| 4 | Drive Auto Receivables Trust Class D Series 2018-3 | 4.300% | 9/16/24 | 1,567 | 1,567 | |
| 4 | Drive Auto Receivables Trust Class D Series 2018-5 | 4.300% | 4/15/26 | 4,124 | 4,130 | |
| 4 | Drive Auto Receivables Trust Class D Series 2019-1 | 4.090% | 6/15/26 | 979 | 978 | |
5
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 4 | Drive Auto Receivables Trust Class D Series 2019-4 | 2.700% | 2/16/27 | 2,130 | 2,102 | |
| 4 | Drive Auto Receivables Trust Class D Series 2020-1 | 2.700% | 5/17/27 | 2,130 | 2,096 | |
| 3,4 | DT Auto Owner Trust Class A Series 2021-1A | 0.350% | 1/15/25 | 2,886 | 2,878 | |
| 3,4 | DT Auto Owner Trust Class A Series 2021-2A | 0.410% | 3/17/25 | 6,859 | 6,811 | |
| 3,4 | DT Auto Owner Trust Class A Series 2021-3A | 0.330% | 4/15/25 | 13,718 | 13,533 | |
| 3,4 | DT Auto Owner Trust Class A Series 2021-4 | 0.560% | 9/15/25 | 9,229 | 9,111 | |
| 3,4 | DT Auto Owner Trust Class A Series 2022-2A | 2.880% | 6/15/26 | 8,490 | 8,413 | |
| 3,4 | Enterprise Fleet Financing LLC Class A2 Series 2020-2 | 0.610% | 7/20/26 | 11,745 | 11,453 | |
| 3,4 | Enterprise Fleet Financing LLC Class A2 Series 2021-1 | 0.440% | 12/21/26 | 4,800 | 4,657 | |
| 3,4 | Enterprise Fleet Financing LLC Class A2 Series 2021-2 | 0.480% | 5/20/27 | 14,376 | 13,781 | |
| 3,4 | Enterprise Fleet Financing LLC Class A2 Series 2021-3 | 0.770% | 8/20/27 | 12,687 | 12,189 | |
| 4 | Exeter Automobile Receivables Trust Class A3 Series 2021-2A | 0.300% | 10/15/24 | 1,258 | 1,256 | |
| 4 | Exeter Automobile Receivables Trust Class A3 Series 2021-3A | 0.350% | 2/18/25 | 12,465 | 12,359 | |
| 4 | Exeter Automobile Receivables Trust Class A3 Series 2021-4A | 0.680% | 7/15/25 | 20,610 | 20,426 | |
| 4 | Exeter Automobile Receivables Trust Class A3 Series 2022-2A | 2.800% | 11/17/25 | 18,000 | 17,779 | |
| 3,4,5,6 | Fannie Mae Connecticut Avenue Securities Class 2M1 Series 2021-R02, SOFR + 0.900% | 2.414% | 11/25/41 | 21,125 | 21,140 | |
| 3,4 | Flagship Credit Auto Trust Class A Series 2020-3 | 0.700% | 4/15/25 | 3,408 | 3,389 | |
| 3,4 | Flagship Credit Auto Trust Class A Series 2021-1 | 0.310% | 6/16/25 | 3,633 | 3,590 | |
| 3,4 | Flagship Credit Auto Trust Class A Series 2021-2 | 0.370% | 12/15/26 | 12,684 | 12,536 | |
| 3,4 | Flagship Credit Auto Trust Class A Series 2021-3 | 0.360% | 7/15/27 | 23,614 | 23,055 | |
| 3,4 | Flagship Credit Auto Trust Class A Series 2021-4 | 0.810% | 7/17/26 | 14,043 | 13,721 | |
| 4 | Ford Credit Auto Lease Trust Class A2 Series 2021-B | 0.240% | 4/15/24 | 5,172 | 5,126 | |
| 4 | Ford Credit Auto Lease Trust Class A3 Series 2020-B | 0.620% | 8/15/23 | 3,319 | 3,317 | |
| 4 | Ford Credit Auto Lease Trust Class A3 Series 2021-B | 0.370% | 10/15/24 | 43,720 | 42,492 | |
| 4 | Ford Credit Auto Lease Trust Class A4 Series 2020-B | 0.690% | 10/15/23 | 7,150 | 7,130 | |
| 4 | Ford Credit Auto Lease Trust Class A4 Series 2022-A | 3.370% | 7/15/25 | 2,630 | 2,619 | |
| 4 | Ford Credit Auto Lease Trust Class B Series 2020-B | 1.000% | 11/15/23 | 4,790 | 4,757 | |
| 4 | Ford Credit Auto Lease Trust Class C Series 2021-A | 0.780% | 9/15/25 | 10,450 | 10,163 | |
| 4 | Ford Credit Auto Lease Trust Class C Series 2022-A | 4.180% | 10/15/25 | 8,350 | 8,297 | |
| 3,4 | Ford Credit Auto Owner Trust Class A Series 2018-2 | 3.470% | 1/15/30 | 23,140 | 23,071 | |
| 4 | Ford Credit Auto Owner Trust Class A2A Series 2022-B | 3.440% | 2/15/25 | 23,500 | 23,454 | |
| 4 | Ford Credit Auto Owner Trust Class A3 Series 2020-A | 1.040% | 8/15/24 | 3,431 | 3,393 | |
| 4 | Ford Credit Auto Owner Trust Class A3 Series 2020-B | 0.560% | 10/15/24 | 30,428 | 30,038 | |
| 4 | Ford Credit Auto Owner Trust Class A4 Series 2019-A | 2.850% | 8/15/24 | 9,179 | 9,166 | |
| 4 | Ford Credit Auto Owner Trust Class A4 Series 2020-A | 1.350% | 7/15/25 | 2,340 | 2,280 | |
| 4 | Ford Credit Auto Owner Trust Class A4 Series 2021-A | 0.300% | 4/15/24 | 3,500 | 3,441 | |
| 4 | Ford Credit Floorplan Master Owner Trust A Class C Series 2020-1 | 1.420% | 9/15/25 | 4,790 | 4,617 | |
| 4 | Ford Credit Floorplan Master Owner Trust Class A Series 2017-3 | 2.480% | 9/15/24 | 8,875 | 8,870 | |
| 4 | Ford Credit Floorplan Master Owner Trust Class A1 Series 2019-3 | 2.230% | 9/15/24 | 17,743 | 17,730 | |
| 4 | Ford Credit Floorplan Master Owner Trust Class A1 Series 2020-1 | 0.700% | 9/15/25 | 52,100 | 50,383 | |
| 4 | Ford Credit Floorplan Master Owner Trust Class D Series 2020-1 | 2.120% | 9/15/25 | 6,730 | 6,509 | |
| 3,4,5,6 | Freddie Mac STACR REMICS Trust Class M1 Series 2021-DNA6, SOFR30A + 0.800% | 2.314% | 10/25/41 | 19,430 | 19,180 | |
| 3,4 | GLS Auto Receivables Issuer Trust Class A Series 2021-3A | 0.420% | 1/15/25 | 8,790 | 8,675 | |
6
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3,4 | GLS Auto Receivables Issuer Trust Class A Series 2021-4A | 0.840% | 7/15/25 | 15,674 | 15,413 | |
| 3,4 | GLS Auto Receivables Trust Class A Series 2021-2A | 0.310% | 11/15/24 | 3,868 | 3,851 | |
| 3,4 | GLS Auto Receivables Trust Class A Series 2022-1A | 1.980% | 8/15/25 | 13,630 | 13,483 | |
| 4 | GM Financial Automobile Leasing Trust Class A3 Series 2020-2 | 0.800% | 7/20/23 | 2,722 | 2,717 | |
| 4 | GM Financial Automobile Leasing Trust Class A3 Series 2020-3 | 0.450% | 8/21/23 | 8,224 | 8,198 | |
| 4 | GM Financial Automobile Leasing Trust Class A3 Series 2021-2 | 0.340% | 5/20/24 | 37,500 | 36,849 | |
| 4 | GM Financial Automobile Leasing Trust Class A4 Series 2020-2 | 1.010% | 7/22/24 | 2,010 | 2,001 | |
| 4 | GM Financial Automobile Leasing Trust Class A4 Series 2020-3 | 0.510% | 10/21/24 | 6,440 | 6,379 | |
| 4 | GM Financial Automobile Leasing Trust Class A4 Series 2022-2 | 3.540% | 5/20/26 | 7,470 | 7,448 | |
| 4 | GM Financial Automobile Leasing Trust Class B Series 2022-2 | 4.020% | 5/20/26 | 5,250 | 5,261 | |
| 4 | GM Financial Automobile Leasing Trust Class C Series 2020-2 | 2.560% | 7/22/24 | 1,180 | 1,170 | |
| 4 | GM Financial Automobile Leasing Trust Class D Series 2020-2 | 3.210% | 12/20/24 | 1,680 | 1,666 | |
| 4 | GM Financial Automobile Leasing Trust Class D Series 2020-3 | 1.710% | 2/20/25 | 4,760 | 4,655 | |
| 4 | GM Financial Consumer Automobile Receivables Trust Class A2 Series 2022-1 | 0.760% | 2/18/25 | 18,527 | 18,315 | |
| 4 | GM Financial Consumer Automobile Receivables Trust Class A3 Series 2020-2 | 1.490% | 12/16/24 | 7,268 | 7,206 | |
| 4 | GM Financial Consumer Automobile Receivables Trust Class A4 Series 2020-2 | 1.740% | 8/18/25 | 9,000 | 8,810 | |
| 4 | GM Financial Consumer Automobile Receivables Trust Class B Series 2020-3 | 0.810% | 1/16/26 | 2,100 | 1,987 | |
| 4 | GM Financial Consumer Automobile Receivables Trust Class C Series 2020-3 | 1.370% | 1/16/26 | 900 | 860 | |
| 3,4 | GMF Floorplan Owner Revolving Trust Class A Series 2020-1 | 0.680% | 8/15/25 | 10,940 | 10,609 | |
| 3,4 | GMF Floorplan Owner Revolving Trust Class A Series 2020-2 | 0.690% | 10/15/25 | 29,460 | 28,416 | |
| 3,4 | GMF Floorplan Owner Revolving Trust Class B Series 2020-1 | 1.030% | 8/15/25 | 1,670 | 1,614 | |
| 3,4 | GMF Floorplan Owner Revolving Trust Class C Series 2020-1 | 1.480% | 8/15/25 | 1,360 | 1,316 | |
| 3,4,5 | Gosforth Funding plc Class A1 Series 2018-1A, 3M USD LIBOR + 0.450% | 1.974% | 8/25/60 | 1,018 | 1,018 | |
| 4,5 | GS Mortgage Securities Trust Class B Series 2013-GC12 | 3.777% | 6/10/46 | 4,719 | 4,665 | |
| 4 | Harley-Davidson Motorcycle Trust Class A3 Series 2021-A | 0.370% | 4/15/26 | 9,401 | 9,203 | |
| 4 | Harley-Davidson Motorcycle Trust Class A3 Series 2022-A | 3.060% | 2/15/27 | 5,660 | 5,586 | |
| 3,4 | Hertz Vehicle Financing III LLC Class A Series 2022-3A | 3.370% | 3/25/25 | 14,780 | 14,584 | |
| 3,4 | Hertz Vehicle Financing III LLC Class C Series 2022-3A | 4.350% | 3/25/25 | 2,760 | 2,714 | |
| 4 | Honda Auto Receivables Owner Trust Class A4 Series 2019-4 | 1.870% | 1/20/26 | 1,900 | 1,879 | |
| 4 | Honda Auto Receivables Owner Trust Class A4 Series 2020-2 | 1.090% | 10/15/26 | 4,730 | 4,607 | |
7
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 4 | Honda Auto Receivables Owner Trust Class A4 Series 2020-3 | 0.460% | 4/19/27 | 10,740 | 10,275 | |
| 3,4 | HPEFS Equipment Trust Class A2 Series 2021-1A | 0.270% | 3/20/31 | 10,527 | 10,477 | |
| 3,4 | HPEFS Equipment Trust Class A2 Series 2021-2A | 0.300% | 9/20/28 | 9,920 | 9,832 | |
| 3,4 | HPEFS Equipment Trust Class A2 Series 2022-1A | 1.020% | 5/21/29 | 14,500 | 14,212 | |
| 3,4 | HPEFS Equipment Trust Class A3 Series 2021-2A | 0.360% | 9/20/28 | 10,500 | 10,182 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A2 Series 2021-C | 0.240% | 1/16/24 | 25,259 | 24,976 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A2 Series 2022-A | 0.810% | 4/15/24 | 25,716 | 25,328 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A3 Series 2020-B | 0.510% | 9/15/23 | 14,894 | 14,824 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A3 Series 2021-A | 0.330% | 1/16/24 | 17,273 | 17,128 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A3 Series 2021-B | 0.330% | 6/17/24 | 3,970 | 3,877 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A4 Series 2020-B | 0.580% | 6/17/24 | 5,030 | 4,950 | |
| 3,4 | Hyundai Auto Lease Securitization Trust Class A4 Series 2021-A | 0.420% | 12/16/24 | 4,280 | 4,183 | |
| 4 | Hyundai Auto Receivables Trust Class A2 Series 2022-B | 3.640% | 5/15/25 | 12,500 | 12,502 | |
| 4 | Hyundai Auto Receivables Trust Class A2A Series 2021-C | 0.360% | 10/15/24 | 8,522 | 8,418 | |
| 4 | Hyundai Auto Receivables Trust Class A3 Series 2020-B | 0.480% | 12/16/24 | 13,017 | 12,832 | |
| 4 | Hyundai Auto Receivables Trust Class A4 Series 2019-B | 2.000% | 4/15/25 | 4,727 | 4,681 | |
| 4 | Hyundai Auto Receivables Trust Class A4 Series 2020-A | 1.720% | 6/15/26 | 9,260 | 9,018 | |
| 4 | Hyundai Auto Receivables Trust Class A4 Series 2020-B | 0.620% | 12/15/25 | 8,020 | 7,735 | |
| 4 | John Deere Owner Trust Class A2 Series 2022-B | 3.730% | 6/16/25 | 13,330 | 13,336 | |
| 4 | John Deere Owner Trust Class A3 Series 2020-B | 0.510% | 11/15/24 | 8,505 | 8,348 | |
| 4 | John Deere Owner Trust Class A4 Series 2020-B | 0.720% | 6/15/27 | 3,820 | 3,652 | |
| 3,4 | JPMorgan Chase Bank NA - CACLN Class B Series 2021-1 | 0.875% | 9/25/28 | 12,397 | 12,005 | |
| 3,4 | JPMorgan Chase Bank NA - CACLN Class B Series 2021-2 | 0.889% | 12/26/28 | 7,605 | 7,350 | |
| 3,4 | JPMorgan Chase Bank NA - CACLN Class B Series 2021-3 | 0.760% | 2/26/29 | 13,885 | 13,364 | |
| 3,4 | JPMorgan Chase Bank NA - CACLN Class C Series 2020-2 | 1.139% | 2/25/28 | 1,160 | 1,135 | |
| 3,4 | JPMorgan Chase Bank NA - CACLN Class C Series 2021-1 | 1.024% | 9/25/28 | 7,686 | 7,474 | |
| 3,4 | JPMorgan Chase Bank NA Class B Series 2020-1 | 0.991% | 1/25/28 | 6,821 | 6,715 | |
| 3,4 | JPMorgan Chase Bank NA Class C Series 2020-1 | 1.389% | 1/25/28 | 715 | 703 | |
| 3,4 | JPMorgan Chase Bank NA Class D Series 2020-1 | 1.886% | 1/25/28 | 560 | 551 | |
| 3,4 | Kubota Credit Owner Trust Class A2 Series 2022-2 | 4.070% | 6/17/25 | 17,370 | 17,416 | |
| 3,4 | Kubota Credit Owner Trust Class A3 Series 2020-1 | 1.960% | 3/15/24 | 4,161 | 4,129 | |
| 3,4 | Kubota Credit Owner Trust Class A3 Series 2020-2 | 0.590% | 10/15/24 | 16,006 | 15,646 | |
| 3,4 | Kubota Credit Owner Trust Class A4 Series 2020-2 | 0.730% | 6/15/26 | 4,810 | 4,554 | |
| 3,4,5 | Lanark Master Issuer plc Class 1A Series 2020-1A | 2.277% | 12/22/69 | 720 | 713 | |
| 3,4 | Master Credit Card Trust II Class A Series 2020-1 | 1.990% | 9/21/24 | 5,320 | 5,275 | |
| 4 | Mercedes-Benz Auto Lease Trust Class A3 Series 2021-B | 0.400% | 11/15/24 | 20,110 | 19,524 | |
| 4 | Mercedes-Benz Auto Lease Trust Class A4 Series 2020-B | 0.500% | 6/15/26 | 4,775 | 4,686 | |
8
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3,4 | MMAF Equipment Finance LLC Class A2 Series 2020-A | 0.740% | 4/9/24 | 4,218 | 4,148 | |
| 4 | Nissan Auto Lease Trust Class A2 Series 2021-A | 0.300% | 12/15/23 | 22,340 | 22,130 | |
| 4 | Nissan Auto Lease Trust Class A3 Series 2020-B | 0.430% | 10/16/23 | 15,734 | 15,665 | |
| 4 | Nissan Auto Lease Trust Class A3 Series 2021-A | 0.520% | 8/15/24 | 27,760 | 26,981 | |
| 4 | Nissan Auto Lease Trust Class A4 Series 2020-B | 0.490% | 1/15/26 | 6,930 | 6,834 | |
| 4 | Nissan Auto Receivables Owner Trust Class A3 Series 2019-B | 2.500% | 11/15/23 | 1,136 | 1,135 | |
| 4 | Nissan Auto Receivables Owner Trust Class A3 Series 2020-A | 1.380% | 12/16/24 | 11,224 | 11,108 | |
| 4 | Nissan Auto Receivables Owner Trust Class A4 Series 2018-C | 3.270% | 6/16/25 | 1,336 | 1,336 | |
| 4 | Nissan Auto Receivables Owner Trust Class A4 Series 2020-A | 1.700% | 5/17/27 | 6,830 | 6,626 | |
| 4 | Nissan Auto Receivables Owner Trust Class A4 Series 2020-B | 0.710% | 2/16/27 | 7,030 | 6,785 | |
| 3,4,5 | Pepper Residential Securities Trust Class A1U Series 21A, 1M USD LIBOR + 0.880% | 3.036% | 1/16/60 | 1,054 | 1,053 | |
| 3,4,5 | Pepper Residential Securities Trust No. 22 Class A1U Series 22A, 1M USD LIBOR + 1.000% | 3.126% | 6/20/60 | 2,272 | 2,262 | |
| 3,4,5 | Pepper Residential Securities Trust No. 24 Class A1U Series 24A, 1M USD LIBOR + 0.900% | 3.056% | 11/18/60 | 2,074 | 2,077 | |
| 3,4 | PFS Financing Corp. Class A Series 2020-A | 1.270% | 6/15/25 | 4,100 | 3,995 | |
| 3,4,5 | RESIMAC Bastille Trust Class A1 Series 2018-1NCA, 1M USD LIBOR + 0.850% | 2.648% | 12/5/59 | 1,649 | 1,646 | |
| 3,4,5 | RESIMAC Bastille Trust Class A1B Series 2021-2NCA, SOFR + 0.740% | 1.379% | 2/3/53 | 14,359 | 14,268 | |
| 3,4 | RESIMAC Premier Class A1B Series 2020-1 | 1.274% | 2/7/52 | 2,426 | 2,423 | |
| 3,4 | Santander Bank NA - SBCLN Class B Series 2021-1A | 1.833% | 12/15/31 | 11,409 | 11,005 | |
| 3,4 | Santander Consumer Auto Receivables Trust Class A Series 2020-A | 1.370% | 10/15/24 | 846 | 844 | |
| 4 | Santander Drive Auto Receivables Trust Class A2 Series 2021-4 | 0.370% | 8/15/24 | 6,247 | 6,235 | |
| 4 | Santander Drive Auto Receivables Trust Class A3 Series 2021-2 | 0.340% | 2/18/25 | 2,964 | 2,959 | |
| 4 | Santander Drive Auto Receivables Trust Class A3 Series 2021-3 | 0.330% | 3/17/25 | 19,529 | 19,423 | |
| 4 | Santander Drive Auto Receivables Trust Class A3 Series 2021-4 | 0.510% | 8/15/25 | 20,500 | 20,220 | |
| 4 | Santander Drive Auto Receivables Trust Class A3 Series 2022-2 | 2.980% | 10/15/26 | 8,800 | 8,689 | |
| 4 | Santander Drive Auto Receivables Trust Class A3 Series 2022-3 | 3.400% | 12/15/26 | 940 | 931 | |
| 4 | Santander Drive Auto Receivables Trust Class A3 Series 2022-4 | 4.140% | 2/16/27 | 19,480 | 19,497 | |
| 4 | Santander Drive Auto Receivables Trust Class B Series 2021-2 | 0.590% | 9/15/25 | 12,500 | 12,353 | |
| 4 | Santander Drive Auto Receivables Trust Class B Series 2021-3 | 0.600% | 12/15/25 | 16,000 | 15,765 | |
| 4 | Santander Drive Auto Receivables Trust Class B Series 2022-2 | 3.440% | 9/15/27 | 10,000 | 9,770 | |
| 4 | Santander Drive Auto Receivables Trust Class C Series 2020-2 | 1.460% | 9/15/25 | 4,375 | 4,350 | |
| 4 | Santander Drive Auto Receivables Trust Class C Series 2020-3 | 1.120% | 1/15/26 | 10,391 | 10,261 | |
| 4 | Santander Drive Auto Receivables Trust Class C Series 2021-1 | 0.750% | 2/17/26 | 7,620 | 7,433 | |
9
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 4 | Santander Drive Auto Receivables Trust Class D Series 2018-3 | 4.070% | 8/15/24 | 4,592 | 4,591 | |
| 4 | Santander Drive Auto Receivables Trust Class D Series 2018-4 | 3.980% | 12/15/25 | 5,812 | 5,820 | |
| 4 | Santander Drive Auto Receivables Trust Class D Series 2018-5 | 4.190% | 12/16/24 | 2,603 | 2,603 | |
| 3,4 | Santander Retail Auto Lease Trust Class A2 Series 2021-B | 0.310% | 1/22/24 | 14,490 | 14,384 | |
| 3,4 | Santander Retail Auto Lease Trust Class A2 Series 2021-C | 0.290% | 4/22/24 | 18,135 | 17,998 | |
| 3,4 | Santander Retail Auto Lease Trust Class A3 Series 2021-B | 0.510% | 8/20/24 | 22,600 | 21,787 | |
| 3,4 | Santander Retail Auto Lease Trust Class A3 Series 2021-C | 0.500% | 3/20/25 | 16,890 | 16,387 | |
| 3,4 | Santander Retail Auto Lease Trust Class A4 Series 2020-B | 0.650% | 12/20/24 | 9,950 | 9,618 | |
| 3,4 | Santander Retail Auto Lease Trust Class A4 Series 2022-B | 3.330% | 10/20/26 | 4,050 | 4,003 | |
| 3,4 | Santander Retail Auto Lease Trust Class B Series 2022-B | 3.850% | 3/22/27 | 4,790 | 4,783 | |
| 4 | Synchrony Card Funding LLC Class A Series 2022-A1 | 3.370% | 4/15/28 | 11,090 | 11,106 | |
| 4 | Synchrony Credit Card Master Note Trust Class A Series 2017-2 | 2.620% | 10/15/25 | 1,970 | 1,968 | |
| 3,4 | Tesla Auto Lease Trust Class A2 Series 2021-B | 0.360% | 9/22/25 | 23,335 | 22,819 | |
| 3,4 | Tesla Auto Lease Trust Class A3 Series 2020-A | 0.680% | 12/20/23 | 14,677 | 14,540 | |
| 3,4 | Tesla Auto Lease Trust Class A4 Series 2020-A | 0.780% | 12/20/23 | 1,270 | 1,251 | |
| 3,4 | Tesla Auto Lease Trust Class B Series 2020-A | 1.180% | 1/22/24 | 2,080 | 2,039 | |
| 3,4 | Tesla Auto Lease Trust Class C Series 2020-A | 1.680% | 2/20/24 | 1,050 | 1,028 | |
| 3,4 | Toyota Auto Loan Extended Note Trust Class A Series 2019-1A | 2.560% | 11/25/31 | 860 | 845 | |
| 4 | Toyota Auto Receivables Owner Trust Class A3 Series 2020-A | 1.660% | 5/15/24 | 2,300 | 2,284 | |
| 4 | Toyota Auto Receivables Owner Trust Class A4 Series 2020-B | 1.660% | 9/15/25 | 4,460 | 4,333 | |
| 4 | Toyota Auto Receivables Owner Trust Class A4 Series 2020-C | 0.570% | 10/15/25 | 7,530 | 7,170 | |
| 3,4 | Toyota Lease Owner Trust Class A2 Series 2021-A | 0.270% | 9/20/23 | 5,861 | 5,838 | |
| 3,4 | Toyota Lease Owner Trust Class A3 Series 2021-B | 0.420% | 10/21/24 | 19,800 | 19,146 | |
| 4 | Verizon Master Trust Class B Series 2022-1 | 1.270% | 1/20/27 | 10,135 | 9,895 | |
| 4 | Verizon Master Trust Class B Series 2022-1 | 1.390% | 1/20/27 | 4,700 | 4,583 | |
| 4 | Verizon Owner Trust Class A Series 2020-B | 0.470% | 2/20/25 | 43,360 | 42,710 | |
| 4 | Verizon Owner Trust Class A1A Series 2019-B | 2.330% | 12/20/23 | 344 | 343 | |
| 4 | Verizon Owner Trust Class A1A Series 2020-A | 1.850% | 7/22/24 | 21,961 | 21,858 | |
| 4 | Verizon Owner Trust Class B Series 2020-A | 1.980% | 7/22/24 | 16,280 | 16,097 | |
| 4 | Verizon Owner Trust Class B Series 2020-B | 0.680% | 2/20/25 | 13,620 | 13,120 | |
| 4 | Verizon Owner Trust Class C Series 2019-C | 2.160% | 4/22/24 | 11,000 | 10,915 | |
| 4 | Verizon Owner Trust Class C Series 2020-A | 2.060% | 7/22/24 | 14,500 | 14,323 | |
| 4 | Verizon Owner Trust Class C Series 2020-B | 0.830% | 2/20/25 | 21,010 | 20,218 | |
| 4 | Volkswagen Auto Lease Trust Class A2 Series 2022-A | 3.020% | 10/21/24 | 19,000 | 18,860 | |
| 4 | Volkswagen Auto Loan Enhanced Trust Class A4 Series 2020-1 | 1.260% | 8/20/26 | 3,590 | 3,478 | |
| 3,4 | Volvo Financial Equipment LLC Class A3 Series 2020-1A | 0.510% | 10/15/24 | 20,469 | 20,028 | |
| 3,4 | Volvo Financial Equipment LLC Class A4 Series 2020-1A | 0.600% | 3/15/28 | 4,700 | 4,425 | |
| 3,4 | Westlake Automobile Receivables Trust Class A2A Series 2021-1A | 0.390% | 10/15/24 | 12,769 | 12,679 | |
10
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3,4 | Westlake Automobile Receivables Trust Class A2A Series 2021-2A | 0.320% | 4/15/25 | 14,085 | 13,904 | |
| 3,4 | Westlake Automobile Receivables Trust Class A3 Series 2021-3A | 0.950% | 6/16/25 | 32,220 | 31,332 | |
| 3,4 | Westlake Automobile Receivables Trust Class A3 Series 2022-1A | 2.420% | 7/15/25 | 28,100 | 27,503 | |
| 3,4 | Wheels Fleet Lease Funding 1 LLC Class A Series 2022-1A | 2.470% | 10/18/36 | 4,040 | 3,963 | |
| 3,4 | Wheels SPV 2 LLC Class A2 Series 2020-1A | 0.510% | 8/20/29 | 4,192 | 4,141 | |
| 3,4 | Wheels SPV 2 LLC Class A3 Series 2020-1A | 0.620% | 8/20/29 | 3,475 | 3,338 | |
| 4 | World Omni Auto Receivables Trust Class A2 Series 2021-D | 0.350% | 12/16/24 | 14,305 | 14,125 | |
| 4 | World Omni Auto Receivables Trust Class A3 Series 2020-A | 1.700% | 1/17/23 | 10,674 | 10,669 | |
| 4 | World Omni Auto Receivables Trust Class A3 Series 2020-A | 1.100% | 4/15/25 | 730 | 721 | |
| 4 | World Omni Automobile Lease Securitization Trust Class A4 Series 2022-A | 3.340% | 6/15/27 | 1,200 | 1,187 | |
| 4 | World Omni Automobile Lease Securitization Trust Class B Series 2020-B | 0.700% | 2/17/26 | 5,000 | 4,863 | |
| 4 | World Omni Automobile Lease Securitization Trust Class B Series 2022-A | 3.670% | 6/15/27 | 3,890 | 3,858 | |
| 4 | World Omni Select Auto Trust Class A2 Series 2021-A | 0.290% | 2/18/25 | 11,001 | 10,915 | |
| Total Asset-Backed/Commercial Mortgage-Backed Securities (Cost $2,548,730) | 2,505,435 | |||||
| Corporate Bonds (61.5%) | ||||||
| Communications (2.4%) | ||||||
| AT&T Inc. | 1.700% | 3/25/26 | 20 | 18 | ||
| British Telecommunications plc | 4.500% | 12/4/23 | 8,059 | 8,112 | ||
| 3 | Cox Communications Inc. | 2.950% | 6/30/23 | 43,811 | 43,454 | |
| 3 | Deutsche Telekom International Finance BV | 2.485% | 9/19/23 | 1,050 | 1,039 | |
| Discovery Communications LLC | 2.950% | 3/20/23 | 21,231 | 21,166 | ||
| Discovery Communications LLC | 3.950% | 6/15/25 | 4,258 | 4,221 | ||
| 3 | Magallanes Inc. | 3.428% | 3/15/24 | 37,540 | 36,959 | |
| 3 | NTT Finance Corp. | 0.373% | 3/3/23 | 147,500 | 144,988 | |
| 3 | NTT Finance Corp. | 4.142% | 7/26/24 | 9,460 | 9,557 | |
| 7 | Optus Finance Pty Ltd. | 3.250% | 8/23/22 | 7,500 | 5,239 | |
| 3 | Sky Ltd. | 3.125% | 11/26/22 | 10,960 | 10,953 | |
| Take-Two Interactive Software Inc. | 3.300% | 3/28/24 | 11,250 | 11,207 | ||
| TWDC Enterprises 18 Corp. | 2.350% | 12/1/22 | 24,608 | 24,550 | ||
| 7 | Verizon Communications Inc. | 3.500% | 2/17/23 | 37,630 | 26,259 | |
| Vodafone Group plc | 2.500% | 9/26/22 | 3,472 | 3,469 | ||
| 7 | Vodafone Group plc | 3.250% | 12/13/22 | 48,840 | 34,099 | |
| 5,7 | Vodafone Group plc, 3M Australian Bank Bill Rate + 1.050% | 2.672% | 12/13/22 | 4,970 | 3,474 | |
| Walt Disney Co. | 0.000% | 9/20/22 | 17,900 | 17,829 | ||
| 406,593 | ||||||
| Consumer Discretionary (3.8%) | ||||||
| American Honda Finance Corp. | 0.400% | 10/21/22 | 53,271 | 52,966 | ||
| American Honda Finance Corp. | 2.050% | 1/10/23 | 15,691 | 15,625 | ||
| American Honda Finance Corp. | 1.950% | 5/10/23 | 24,393 | 24,170 | ||
| American Honda Finance Corp. | 0.875% | 7/7/23 | 51,135 | 50,007 | ||
| American Honda Finance Corp. | 3.450% | 7/14/23 | 1,355 | 1,356 | ||
| American Honda Finance Corp. | 0.650% | 9/8/23 | 49,057 | 47,792 | ||
| American Honda Finance Corp. | 3.625% | 10/10/23 | 1,550 | 1,559 | ||
| AutoZone Inc. | 3.125% | 7/15/23 | 14,980 | 14,897 | ||
11
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | BMW US Capital LLC | 3.450% | 4/12/23 | 3,099 | 3,099 | |
| 3 | BMW US Capital LLC | 3.150% | 4/18/24 | 10,000 | 9,963 | |
| 3 | Daimler Finance North America LLC | 2.550% | 8/15/22 | 23,647 | 23,645 | |
| 3 | Daimler Finance North America LLC | 3.350% | 2/22/23 | 3,393 | 3,390 | |
| 3 | Daimler Finance North America LLC | 1.750% | 3/10/23 | 17,177 | 16,983 | |
| 3 | Daimler Finance North America LLC | 3.700% | 5/4/23 | 400 | 400 | |
| DR Horton Inc. | 4.750% | 2/15/23 | 6,266 | 6,296 | ||
| 3 | ERAC USA Finance LLC | 3.300% | 10/15/22 | 471 | 471 | |
| 3 | ERAC USA Finance LLC | 2.700% | 11/1/23 | 33,025 | 32,570 | |
| General Motors Co. | 4.875% | 10/2/23 | 500 | 506 | ||
| General Motors Co. | 5.400% | 10/2/23 | 20,612 | 20,974 | ||
| General Motors Financial Co. Inc. | 3.250% | 1/5/23 | 5,349 | 5,342 | ||
| General Motors Financial Co. Inc. | 3.700% | 5/9/23 | 2,898 | 2,895 | ||
| General Motors Financial Co. Inc. | 4.250% | 5/15/23 | 100 | 100 | ||
| General Motors Financial Co. Inc. | 4.150% | 6/19/23 | 975 | 977 | ||
| General Motors Financial Co. Inc. | 1.700% | 8/18/23 | 23,095 | 22,562 | ||
| Lennar Corp. | 4.875% | 12/15/23 | 8,327 | 8,421 | ||
| Lennar Corp. | 5.875% | 11/15/24 | 15,641 | 16,111 | ||
| McDonald's Corp. | 3.350% | 4/1/23 | 11,375 | 11,380 | ||
| 3 | Nissan Motor Acceptance Co. LLC | 2.600% | 9/28/22 | 100 | 100 | |
| 3 | Nissan Motor Acceptance Co. LLC | 3.450% | 3/15/23 | 10,885 | 10,838 | |
| 3 | Nissan Motor Co. Ltd. | 3.043% | 9/15/23 | 34,851 | 34,362 | |
| O'Reilly Automotive Inc. | 3.800% | 9/1/22 | 12,452 | 12,452 | ||
| Starbucks Corp. | 3.100% | 3/1/23 | 14,493 | 14,507 | ||
| Toyota Motor Credit Corp. | 0.400% | 4/6/23 | 35,000 | 34,421 | ||
| Toyota Motor Credit Corp. | 0.500% | 8/14/23 | 9,352 | 9,098 | ||
| Toyota Motor Credit Corp. | 1.350% | 8/25/23 | 4,901 | 4,813 | ||
| Toyota Motor Credit Corp. | 2.500% | 3/22/24 | 46,595 | 46,108 | ||
| 7 | Volkswagen Financial Services Australia Pty Ltd. | 3.500% | 9/14/22 | 4,670 | 3,264 | |
| 7 | Volkswagen Financial Services Australia Pty Ltd. | 3.100% | 4/17/23 | 32,110 | 22,315 | |
| 5,7 | Volkswagen Financial Services Australia Pty Ltd., 3M Australian Bank Bill Rate + 1.300% | 2.922% | 9/14/22 | 16,520 | 11,543 | |
| 3 | Volkswagen Group of America Finance LLC | 2.700% | 9/26/22 | 20,797 | 20,777 | |
| 3 | Volkswagen Group of America Finance LLC | 4.250% | 11/13/23 | 8,429 | 8,480 | |
| 3 | Volkswagen Group of America Finance LLC | 0.875% | 11/22/23 | 6,376 | 6,139 | |
| 633,674 | ||||||
| Consumer Staples (2.2%) | ||||||
| 3 | 7-Eleven Inc. | 0.625% | 2/10/23 | 40,485 | 39,854 | |
| 3 | 7-Eleven Inc. | 0.800% | 2/10/24 | 20,365 | 19,463 | |
| Altria Group Inc. | 2.950% | 5/2/23 | 2,000 | 1,982 | ||
| 5,7 | Anheuser-Busch InBev Worldwide Inc., 3M Australian Bank Bill Rate + 0.970% | 2.212% | 9/6/22 | 27,790 | 19,412 | |
| BAT Capital Corp. | 2.764% | 8/15/22 | 2,600 | 2,599 | ||
| Campbell Soup Co. | 3.650% | 3/15/23 | 24,646 | 24,658 | ||
| 3 | Coca-Cola Europacific Partners plc | 0.500% | 5/5/23 | 17,000 | 16,568 | |
| Conagra Brands Inc. | 0.500% | 8/11/23 | 17,500 | 16,918 | ||
| Constellation Brands Inc. | 3.600% | 5/9/24 | 19,000 | 19,009 | ||
| Dollar General Corp. | 3.250% | 4/15/23 | 62 | 62 | ||
| General Mills Inc. | 2.600% | 10/12/22 | 23,025 | 23,023 | ||
| 3 | GSK Consumer Healthcare Capital US LLC | 3.024% | 3/24/24 | 22,450 | 22,185 | |
| Hormel Foods Corp. | 0.650% | 6/3/24 | 5,000 | 4,784 | ||
| 3 | JDE Peet's NV | 0.800% | 9/24/24 | 25,000 | 23,359 | |
| Keurig Dr Pepper Inc. | 0.750% | 3/15/24 | 7,970 | 7,626 | ||
| McCormick & Co. Inc. | 2.700% | 8/15/22 | 22,999 | 22,999 | ||
| 3 | Mondelez International Holdings Netherlands BV | 2.125% | 9/19/22 | 48,664 | 48,595 | |
12
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Mondelez International Inc. | 2.125% | 3/17/24 | 8,475 | 8,308 | ||
| Philip Morris International Inc. | 2.375% | 8/17/22 | 1,500 | 1,500 | ||
| Philip Morris International Inc. | 1.125% | 5/1/23 | 25,000 | 24,610 | ||
| Philip Morris International Inc. | 2.125% | 5/10/23 | 1,860 | 1,843 | ||
| 3 | Reckitt Benckiser Treasury Services plc | 3.625% | 9/21/23 | 434 | 436 | |
| 3 | Reckitt Benckiser Treasury Services plc | 2.750% | 6/26/24 | 5,560 | 5,466 | |
| Reynolds American Inc. | 4.850% | 9/15/23 | 437 | 443 | ||
| Walgreens Boots Alliance Inc. | 0.950% | 11/17/23 | 14,585 | 14,146 | ||
| 369,848 | ||||||
| Energy (3.2%) | ||||||
| BP Capital Markets America Inc. | 2.750% | 5/10/23 | 46,480 | 46,480 | ||
| Canadian Natural Resources Ltd. | 2.950% | 1/15/23 | 26,239 | 26,185 | ||
| ConocoPhillips Co. | 2.400% | 12/15/22 | 13,172 | 13,130 | ||
| Ecopetrol SA | 5.875% | 9/18/23 | 21,170 | 21,410 | ||
| Enbridge Inc. | 0.550% | 10/4/23 | 34,200 | 33,025 | ||
| 5 | Enbridge Inc., SOFR + 0.400% | 1.792% | 2/17/23 | 20,000 | 19,911 | |
| 5 | Enbridge Inc., SOFR + 0.630% | 1.987% | 2/16/24 | 13,390 | 13,208 | |
| Energy Transfer LP | 3.600% | 2/1/23 | 23,465 | 23,401 | ||
| Energy Transfer LP | 4.250% | 3/15/23 | 2,262 | 2,263 | ||
| Enterprise Products Operating LLC | 3.350% | 3/15/23 | 31,336 | 31,340 | ||
| EOG Resources Inc. | 2.625% | 3/15/23 | 51,882 | 51,673 | ||
| Kinder Morgan Inc. | 3.150% | 1/15/23 | 34,888 | 34,824 | ||
| 3 | Kinder Morgan Inc. | 5.625% | 11/15/23 | 8,538 | 8,675 | |
| MPLX LP | 4.500% | 7/15/23 | 4,000 | 4,020 | ||
| Phillips 66 | 3.700% | 4/6/23 | 12,750 | 12,779 | ||
| Pioneer Natural Resources Co. | 0.550% | 5/15/23 | 32,382 | 31,644 | ||
| Sabine Pass Liquefaction LLC | 5.625% | 4/15/23 | 11,900 | 11,973 | ||
| 3 | Saudi Arabian Oil Co. | 1.250% | 11/24/23 | 766 | 743 | |
| Saudi Arabian Oil Co. | 1.250% | 11/24/23 | 200 | 194 | ||
| Schlumberger Investment SA | 3.650% | 12/1/23 | 6,000 | 6,048 | ||
| Sinopec Group Overseas Development 2013 Ltd. | 4.375% | 10/17/23 | 6,090 | 6,173 | ||
| Sinopec Group Overseas Development 2017 Ltd. | 2.500% | 9/13/22 | 43,647 | 43,615 | ||
| 3 | Southern Natural Gas Co. LLC | 0.625% | 4/28/23 | 13,500 | 13,109 | |
| Spectra Energy Partners LP | 4.750% | 3/15/24 | 1,129 | 1,143 | ||
| 3 | Texas Eastern Transmission LP | 2.800% | 10/15/22 | 275 | 274 | |
| Thai Oil PCL | 3.625% | 1/23/23 | 2,520 | 2,514 | ||
| Thaioil Treasury Center Co. Ltd. | 3.625% | 1/23/23 | 10,220 | 10,200 | ||
| TransCanada PipeLines Ltd. | 3.750% | 10/16/23 | 18,650 | 18,668 | ||
| TransCanada PipeLines Ltd. | 1.000% | 10/12/24 | 10,186 | 9,577 | ||
| Williams Cos. Inc. | 3.700% | 1/15/23 | 21,228 | 21,215 | ||
| Williams Cos. Inc. | 4.300% | 3/4/24 | 10,244 | 10,296 | ||
| 529,710 | ||||||
| Financials (30.5%) | ||||||
| AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 3.300% | 1/23/23 | 52,970 | 52,718 | ||
| AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 4.500% | 9/15/23 | 29,189 | 29,175 | ||
| 5 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust, SOFR + 0.680% | 2.712% | 9/29/23 | 37,100 | 36,538 | |
| 3 | AIG Global Funding | 0.800% | 7/7/23 | 16,265 | 15,880 | |
| 3 | AIG Global Funding | 0.400% | 9/13/23 | 62,000 | 60,000 | |
| 3 | AIG Global Funding | 0.450% | 12/8/23 | 15,000 | 14,378 | |
| Air Lease Corp. | 3.875% | 7/3/23 | 12,623 | 12,528 | ||
| Air Lease Corp. | 3.000% | 9/15/23 | 1,843 | 1,818 | ||
| Allstate Corp. | 3.150% | 6/15/23 | 7,966 | 7,971 | ||
13
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Ally Financial Inc. | 3.050% | 6/5/23 | 15,227 | 15,118 | ||
| Ally Financial Inc. | 1.450% | 10/2/23 | 91,708 | 89,131 | ||
| American Express Co. | 3.400% | 2/27/23 | 34,235 | 34,317 | ||
| Ameriprise Financial Inc. | 4.000% | 10/15/23 | 11,775 | 11,853 | ||
| Aon Corp. | 2.200% | 11/15/22 | 21,990 | 21,934 | ||
| Aon plc | 4.000% | 11/27/23 | 28,060 | 28,249 | ||
| 3 | ASB Bank Ltd. | 3.750% | 6/14/23 | 3,800 | 3,805 | |
| 3 | Athene Global Funding | 2.800% | 5/26/23 | 51,891 | 51,502 | |
| 3 | Athene Global Funding | 1.200% | 10/13/23 | 26,054 | 25,171 | |
| 3 | Athene Global Funding | 0.950% | 1/8/24 | 52,152 | 49,792 | |
| 5,7 | Australia & New Zealand Banking Group Ltd., 3M Australian Bank Bill Rate + 2.000% | 4.251% | 7/26/29 | 2,568 | 1,796 | |
| Banco Santander SA | 0.701% | 6/30/24 | 20,000 | 19,331 | ||
| 5,7 | Banco Santander SA, 3M Australian Bank Bill Rate + 1.650% | 3.841% | 1/19/23 | 6,200 | 4,341 | |
| Bank of America Corp. | 3.300% | 1/11/23 | 1,812 | 1,813 | ||
| Bank of America Corp. | 3.004% | 12/20/23 | 66,849 | 66,680 | ||
| Bank of America Corp. | 3.550% | 3/5/24 | 82,095 | 81,960 | ||
| Bank of America Corp. | 1.486% | 5/19/24 | 19,000 | 18,649 | ||
| Bank of America Corp. | 0.523% | 6/14/24 | 20,000 | 19,402 | ||
| Bank of Montreal | 0.400% | 9/15/23 | 134,700 | 130,509 | ||
| Bank of Montreal | 0.625% | 7/9/24 | 1,800 | 1,707 | ||
| Bank of Nova Scotia | 1.625% | 5/1/23 | 3,338 | 3,300 | ||
| Bank of Nova Scotia | 0.400% | 9/15/23 | 89,065 | 86,271 | ||
| 3 | Banque Federative du Credit Mutuel SA | 2.125% | 11/21/22 | 62,997 | 62,816 | |
| 3 | Banque Federative du Credit Mutuel SA | 3.750% | 7/20/23 | 132,576 | 132,906 | |
| 5,7 | Barclays plc, 3M Australian Bank Bill Rate + 1.800% | 3.505% | 6/15/23 | 14,250 | 10,003 | |
| 3 | BNP Paribas SA | 3.500% | 3/1/23 | 23,017 | 23,004 | |
| 5,7 | BNP Paribas SA, 3M Australian Bank Bill Rate + 1.750% | 3.493% | 12/16/22 | 5,650 | 3,957 | |
| 3 | BPCE SA | 5.700% | 10/22/23 | 12,210 | 12,350 | |
| 5,7 | BPCE SA, 3M Australian Bank Bill Rate + 1.100% | 3.351% | 4/26/23 | 9,590 | 6,721 | |
| Canadian Imperial Bank of Commerce | 0.450% | 6/22/23 | 31,610 | 30,780 | ||
| Canadian Imperial Bank of Commerce | 0.950% | 6/23/23 | 11,994 | 11,736 | ||
| Canadian Imperial Bank of Commerce | 3.100% | 4/2/24 | 4,521 | 4,490 | ||
| Capital One Bank USA NA | 3.375% | 2/15/23 | 59,515 | 59,484 | ||
| Charles Schwab Corp. | 2.650% | 1/25/23 | 12,978 | 12,948 | ||
| Chubb INA Holdings Inc. | 2.875% | 11/3/22 | 12,990 | 12,984 | ||
| Citigroup Inc. | 2.700% | 10/27/22 | 26,907 | 26,905 | ||
| Citigroup Inc. | 3.500% | 5/15/23 | 1,950 | 1,952 | ||
| Citigroup Inc. | 3.875% | 10/25/23 | 3,500 | 3,539 | ||
| Citigroup Inc. | 1.678% | 5/15/24 | 29,203 | 28,737 | ||
| Citigroup Inc. | 4.044% | 6/1/24 | 91,975 | 92,096 | ||
| Citigroup Inc. | 0.776% | 10/30/24 | 18,000 | 17,267 | ||
| 3 | Cooperatieve Rabobank UA | 3.875% | 9/26/23 | 61,900 | 61,989 | |
| 3 | Cooperatieve Rabobank UA | 2.625% | 7/22/24 | 29,990 | 29,245 | |
| Credit Suisse AG | 0.520% | 8/9/23 | 55,305 | 53,512 | ||
| 3 | Credit Suisse Group AG | 2.997% | 12/14/23 | 20,620 | 20,509 | |
| Credit Suisse Group Funding Guernsey Ltd. | 3.800% | 9/15/22 | 25,624 | 25,636 | ||
| 3 | Danske Bank A/S | 1.171% | 12/8/23 | 45,475 | 44,935 | |
| 3 | Danske Bank A/S | 1.226% | 6/22/24 | 36,006 | 34,030 | |
| Danske Bank A/S | 1.226% | 6/22/24 | 4,760 | 4,499 | ||
| Deutsche Bank AG | 3.300% | 11/16/22 | 13,363 | 13,356 | ||
| Deutsche Bank AG | 0.962% | 11/8/23 | 3,700 | 3,565 | ||
| Discover Bank | 3.350% | 2/6/23 | 33,861 | 33,807 | ||
| Discover Bank | 4.200% | 8/8/23 | 41,311 | 41,512 | ||
14
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | DNB Bank ASA | 2.968% | 3/28/25 | 75,000 | 73,588 | |
| 3 | Equitable Financial Life Global Funding | 0.500% | 4/6/23 | 50,950 | 49,881 | |
| Equitable Holdings Inc. | 3.900% | 4/20/23 | 46,492 | 46,652 | ||
| Fidelity National Financial Inc. | 5.500% | 9/1/22 | 550 | 550 | ||
| Fifth Third Bancorp | 4.300% | 1/16/24 | 919 | 926 | ||
| First Republic Bank | 1.912% | 2/12/24 | 28,143 | 27,860 | ||
| 3 | Five Corners Funding Trust | 4.419% | 11/15/23 | 9,989 | 10,040 | |
| Franklin Resources Inc. | 2.800% | 9/15/22 | 13,642 | 13,625 | ||
| Globe Life Inc. | 3.800% | 9/15/22 | 155 | 155 | ||
| Goldman Sachs Group Inc. | 0.523% | 3/8/23 | 9,000 | 8,828 | ||
| Goldman Sachs Group Inc. | 0.627% | 11/17/23 | 4,711 | 4,667 | ||
| Goldman Sachs Group Inc. | 1.217% | 12/6/23 | 65,000 | 63,021 | ||
| Goldman Sachs Group Inc. | 0.673% | 3/8/24 | 17,500 | 17,141 | ||
| Goldman Sachs Group Inc. | 0.925% | 10/21/24 | 54,900 | 52,737 | ||
| 5,7 | Goldman Sachs Group Inc., 3M Australian Bank Bill Rate + 1.200% | 2.200% | 5/16/23 | 2,800 | 1,958 | |
| 3 | Guardian Life Global Funding | 3.400% | 4/25/23 | 18,931 | 18,918 | |
| HSBC Holdings plc | 3.600% | 5/25/23 | 11,000 | 11,008 | ||
| HSBC Holdings plc | 3.033% | 11/22/23 | 10,000 | 9,974 | ||
| 7 | HSBC Holdings plc | 3.350% | 2/16/24 | 29,487 | 20,476 | |
| HSBC Holdings plc | 3.950% | 5/18/24 | 90,623 | 90,406 | ||
| HSBC Holdings plc | 0.732% | 8/17/24 | 38,760 | 37,270 | ||
| HSBC Holdings plc | 1.162% | 11/22/24 | 26,200 | 25,104 | ||
| Huntington National Bank | 3.550% | 10/6/23 | 850 | 850 | ||
| International Finance Corp. | 5.875% | 8/15/22 | 2,555 | 2,556 | ||
| 3 | Jackson Financial Inc. | 1.125% | 11/22/23 | 13,915 | 13,404 | |
| 3 | Jackson National Life Global Funding | 2.375% | 9/15/22 | 500 | 500 | |
| JPMorgan Chase & Co. | 3.250% | 9/23/22 | 29,693 | 29,718 | ||
| JPMorgan Chase & Co. | 3.200% | 1/25/23 | 8,900 | 8,909 | ||
| JPMorgan Chase & Co. | 3.375% | 5/1/23 | 8,605 | 8,622 | ||
| JPMorgan Chase & Co. | 2.700% | 5/18/23 | 8,372 | 8,332 | ||
| JPMorgan Chase & Co. | 0.697% | 3/16/24 | 10,000 | 9,814 | ||
| JPMorgan Chase & Co. | 1.514% | 6/1/24 | 53,139 | 52,086 | ||
| JPMorgan Chase & Co. | 0.653% | 9/16/24 | 15,246 | 14,669 | ||
| JPMorgan Chase & Co. | 4.023% | 12/5/24 | 55,000 | 55,115 | ||
| KeyBank NA | 2.300% | 9/14/22 | 500 | 500 | ||
| KeyBank NA | 0.423% | 1/3/24 | 8,330 | 8,218 | ||
| Legg Mason Inc. | 3.950% | 7/15/24 | 10,000 | 10,016 | ||
| 3 | Liberty Mutual Group Inc. | 4.250% | 6/15/23 | 7,000 | 7,012 | |
| Lincoln National Corp. | 4.000% | 9/1/23 | 4,168 | 4,194 | ||
| 7 | Lloyds Bank plc | 1.650% | 8/12/22 | 8,750 | 6,110 | |
| 7 | Lloyds Banking Group plc | 3.650% | 3/20/23 | 8,970 | 6,259 | |
| Lloyds Banking Group plc | 4.050% | 8/16/23 | 77,829 | 78,024 | ||
| Lloyds Banking Group plc | 2.907% | 11/7/23 | 24,800 | 24,704 | ||
| 7 | Lloyds Banking Group plc | 3.900% | 11/23/23 | 8,880 | 6,186 | |
| Lloyds Banking Group plc | 0.695% | 5/11/24 | 77,785 | 75,517 | ||
| Loews Corp. | 2.625% | 5/15/23 | 3,000 | 2,993 | ||
| 3 | Macquarie Group Ltd. | 3.189% | 11/28/23 | 19,113 | 19,068 | |
| Marsh & McLennan Cos. Inc. | 4.050% | 10/15/23 | 4,853 | 4,865 | ||
| 3 | MassMutual Global Funding II | 2.500% | 10/17/22 | 17,142 | 17,114 | |
| 3 | MassMutual Global Funding II | 0.850% | 6/9/23 | 44,362 | 43,409 | |
| 3 | MassMutual Global Funding II | 0.480% | 8/28/23 | 65,560 | 63,525 | |
| MetLife Inc. | 4.368% | 9/15/23 | 2,150 | 2,177 | ||
| 3 | Metropolitan Life Global Funding I | 3.000% | 1/10/23 | 5,692 | 5,686 | |
| 3 | Metropolitan Life Global Funding I | 1.950% | 1/13/23 | 22,000 | 21,843 | |
15
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Metropolitan Life Global Funding I | 0.900% | 6/8/23 | 54,346 | 53,272 | |
| 3 | Metropolitan Life Global Funding I | 0.400% | 1/7/24 | 36,380 | 34,798 | |
| Mitsubishi UFJ Financial Group Inc. | 3.455% | 3/2/23 | 18,250 | 18,247 | ||
| Mitsubishi UFJ Financial Group Inc. | 3.761% | 7/26/23 | 52,088 | 52,055 | ||
| Mitsubishi UFJ Financial Group Inc. | 2.801% | 7/18/24 | 3,650 | 3,576 | ||
| Mitsubishi UFJ Financial Group Inc. | 0.848% | 9/15/24 | 35,185 | 33,933 | ||
| Mitsubishi UFJ Financial Group Inc. | 4.788% | 7/18/25 | 13,800 | 13,949 | ||
| 3 | Mizuho Bank Ltd. | 3.600% | 9/25/24 | 8,700 | 8,657 | |
| Mizuho Financial Group Inc. | 2.601% | 9/11/22 | 22,545 | 22,541 | ||
| Mizuho Financial Group Inc. | 3.549% | 3/5/23 | 5,500 | 5,497 | ||
| Mizuho Financial Group Inc. | 1.241% | 7/10/24 | 47,611 | 46,331 | ||
| Morgan Stanley | 4.875% | 11/1/22 | 64,824 | 65,118 | ||
| Morgan Stanley | 3.125% | 1/23/23 | 10,130 | 10,133 | ||
| Morgan Stanley | 4.100% | 5/22/23 | 11,136 | 11,189 | ||
| Morgan Stanley | 0.560% | 11/10/23 | 22,323 | 22,118 | ||
| Morgan Stanley | 0.529% | 1/25/24 | 78,994 | 77,724 | ||
| Morgan Stanley | 0.731% | 4/5/24 | 15,395 | 15,058 | ||
| Morgan Stanley | 3.737% | 4/24/24 | 10,000 | 9,984 | ||
| 3 | MUFG Bank Ltd. | 3.200% | 2/26/23 | 7,960 | 7,948 | |
| Nasdaq Inc. | 0.445% | 12/21/22 | 10,613 | 10,494 | ||
| 3 | National Bank of Canada | 2.150% | 10/7/22 | 30,655 | 30,609 | |
| National Bank of Canada | 2.100% | 2/1/23 | 40,826 | 40,618 | ||
| National Bank of Canada | 0.900% | 8/15/23 | 8,474 | 8,464 | ||
| 3 | Nationwide Building Society | 2.000% | 1/27/23 | 53,975 | 53,485 | |
| Natwest Group plc | 6.125% | 12/15/22 | 4,957 | 4,995 | ||
| 3 | NatWest Markets plc | 3.625% | 9/29/22 | 1,351 | 1,355 | |
| 3 | New York Life Global Funding | 1.100% | 5/5/23 | 12,170 | 11,964 | |
| 3 | New York Life Global Funding | 0.550% | 4/26/24 | 350 | 332 | |
| 3 | Nordea Bank Abp | 4.250% | 9/21/22 | 5,080 | 5,080 | |
| 3 | Nordea Bank Abp | 3.750% | 8/30/23 | 29,322 | 29,352 | |
| Nordea Bank Abp | 3.750% | 8/30/23 | 12,061 | 12,073 | ||
| 3 | Penske Truck Leasing Co. LP / PTL Finance Corp. | 4.125% | 8/1/23 | 655 | 656 | |
| 3 | Penske Truck Leasing Co. LP / PTL Finance Corp. | 3.900% | 2/1/24 | 747 | 743 | |
| PNC Bank NA | 2.700% | 11/1/22 | 18,577 | 18,567 | ||
| PNC Bank NA | 3.800% | 7/25/23 | 24,920 | 25,010 | ||
| PNC Financial Services Group Inc. | 3.900% | 4/29/24 | 6,978 | 7,012 | ||
| 3 | Pricoa Global Funding I | 3.450% | 9/1/23 | 22,549 | 22,548 | |
| Principal Financial Group Inc. | 3.300% | 9/15/22 | 5,440 | 5,443 | ||
| Principal Financial Group Inc. | 3.125% | 5/15/23 | 6,641 | 6,628 | ||
| 3 | Principal Life Global Funding II | 0.500% | 1/8/24 | 9,500 | 9,095 | |
| 3 | Protective Life Global Funding | 0.502% | 4/12/23 | 4,360 | 4,269 | |
| 3 | Protective Life Global Funding | 1.082% | 6/9/23 | 13,690 | 13,400 | |
| 3 | Protective Life Global Funding | 0.391% | 7/7/23 | 31,000 | 30,092 | |
| 3 | Protective Life Global Funding | 0.631% | 10/13/23 | 4,426 | 4,286 | |
| Protective Life Global Funding | 0.631% | 10/13/23 | 12,200 | 11,813 | ||
| 3 | Reliance Standard Life Global Funding II | 2.150% | 1/21/23 | 19,915 | 19,743 | |
| 3 | Reliance Standard Life Global Funding II | 3.850% | 9/19/23 | 44,405 | 44,455 | |
| Royal Bank of Canada | 1.600% | 4/17/23 | 5,794 | 5,730 | ||
| Royal Bank of Canada | 3.700% | 10/5/23 | 18,700 | 18,807 | ||
| Royal Bank of Canada | 3.970% | 7/26/24 | 160,145 | 161,079 | ||
| Santander Holdings USA Inc. | 3.400% | 1/18/23 | 2,781 | 2,775 | ||
| 3 | Skandinaviska Enskilda Banken AB | 2.200% | 12/12/22 | 19,750 | 19,686 | |
| 3 | Skandinaviska Enskilda Banken AB | 0.550% | 9/1/23 | 83,440 | 80,891 | |
| 3 | Standard Chartered plc | 1.319% | 10/14/23 | 68,973 | 68,574 | |
| 3 | Standard Chartered plc | 0.991% | 1/12/25 | 40,000 | 37,880 | |
16
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| State Bank of India | 4.500% | 9/28/23 | 6,550 | 6,600 | ||
| 5,7 | Sumitomo Mitsui Banking Corp., 3M Australian Bank Bill Rate + 0.660% | 1.740% | 8/18/22 | 13,000 | 9,080 | |
| 5,7 | Sumitomo Mitsui Banking Corp., 3M Australian Bank Bill Rate + 0.730% | 1.900% | 11/29/22 | 8,750 | 6,116 | |
| Sumitomo Mitsui Financial Group Inc. | 2.778% | 10/18/22 | 31,925 | 31,918 | ||
| Sumitomo Mitsui Financial Group Inc. | 3.102% | 1/17/23 | 40,000 | 39,974 | ||
| 7 | Sumitomo Mitsui Financial Group Inc. | 3.604% | 3/7/23 | 16,380 | 11,441 | |
| Sumitomo Mitsui Financial Group Inc. | 3.748% | 7/19/23 | 27,382 | 27,415 | ||
| Sumitomo Mitsui Financial Group Inc. | 3.936% | 10/16/23 | 4,912 | 4,941 | ||
| 3 | Sumitomo Mitsui Trust Bank Ltd. | 0.800% | 9/12/23 | 22,300 | 21,612 | |
| 3 | Sumitomo Mitsui Trust Bank Ltd. | 0.850% | 3/25/24 | 1,160 | 1,104 | |
| 3 | Swedbank AB | 1.300% | 6/2/23 | 17,950 | 17,613 | |
| Toronto-Dominion Bank | 0.750% | 6/12/23 | 19,426 | 18,998 | ||
| Truist Financial Corp. | 2.200% | 3/16/23 | 9,000 | 8,942 | ||
| 3 | UBS Group AG | 2.859% | 8/15/23 | 129,089 | 129,072 | |
| 3 | UBS Group AG | 1.008% | 7/30/24 | 40,445 | 39,250 | |
| 3 | USAA Capital Corp. | 1.500% | 5/1/23 | 2,548 | 2,512 | |
| 7 | Wells Fargo & Co. | 5.250% | 9/7/22 | 13,920 | 9,746 | |
| Wells Fargo & Co. | 3.750% | 1/24/24 | 84,919 | 85,422 | ||
| Wells Fargo & Co. | 1.654% | 6/2/24 | 106,159 | 104,167 | ||
| 5,7 | Westpac Banking Corp., 3M Australian Bank Bill Rate + 1.800% | 3.578% | 6/22/28 | 41,700 | 29,142 | |
| Willis North America Inc. | 3.600% | 5/15/24 | 15,566 | 15,492 | ||
| 5,076,375 | ||||||
| Health Care (5.9%) | ||||||
| AbbVie Inc. | 3.200% | 11/6/22 | 10,571 | 10,566 | ||
| AbbVie Inc. | 2.300% | 11/21/22 | 34,891 | 34,826 | ||
| Aetna Inc. | 2.750% | 11/15/22 | 41,965 | 41,953 | ||
| Aetna Inc. | 2.800% | 6/15/23 | 33,028 | 32,842 | ||
| AmerisourceBergen Corp. | 0.737% | 3/15/23 | 31,363 | 30,801 | ||
| Amgen Inc. | 2.250% | 8/19/23 | 17,000 | 16,827 | ||
| Anthem Inc. | 2.950% | 12/1/22 | 11,600 | 11,588 | ||
| Anthem Inc. | 3.300% | 1/15/23 | 38,155 | 38,148 | ||
| Astrazeneca Finance LLC | 0.700% | 5/28/24 | 27,765 | 26,484 | ||
| 5 | Baxter International Inc. | 1.883% | 12/1/23 | 42,000 | 41,547 | |
| 3 | Bayer US Finance II LLC | 3.875% | 12/15/23 | 21,047 | 21,051 | |
| Bristol-Myers Squibb Co. | 2.000% | 8/1/22 | 1,750 | 1,750 | ||
| Bristol-Myers Squibb Co. | 0.537% | 11/13/23 | 35,175 | 34,135 | ||
| Cardinal Health Inc. | 3.200% | 3/15/23 | 5,299 | 5,291 | ||
| Cigna Corp. | 3.050% | 11/30/22 | 29,047 | 29,029 | ||
| Cigna Corp. | 3.750% | 7/15/23 | 40,501 | 40,590 | ||
| Cigna Corp. | 0.613% | 3/15/24 | 6,000 | 5,739 | ||
| CVS Health Corp. | 4.750% | 12/1/22 | 1,795 | 1,797 | ||
| DH Europe Finance II Sarl | 2.050% | 11/15/22 | 77,443 | 77,168 | ||
| Gilead Sciences Inc. | 0.750% | 9/29/23 | 26,355 | 25,607 | ||
| Humana Inc. | 3.150% | 12/1/22 | 25,110 | 25,104 | ||
| Humana Inc. | 2.900% | 12/15/22 | 62,131 | 62,016 | ||
| Humana Inc. | 0.650% | 8/3/23 | 30,500 | 29,643 | ||
| Illumina Inc. | 0.550% | 3/23/23 | 28,917 | 28,279 | ||
| McKesson Corp. | 2.700% | 12/15/22 | 7,947 | 7,925 | ||
| Merck & Co. Inc. | 2.400% | 9/15/22 | 2,500 | 2,499 | ||
| 3 | Mylan Inc. | 3.125% | 1/15/23 | 20,916 | 20,789 | |
| Mylan Inc. | 4.200% | 11/29/23 | 9,000 | 9,018 | ||
| PerkinElmer Inc. | 0.550% | 9/15/23 | 45,170 | 43,653 | ||
17
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Roche Holdings Inc. | 2.132% | 3/10/25 | 4,770 | 4,665 | |
| Royalty Pharma plc | 0.750% | 9/2/23 | 16,014 | 15,478 | ||
| Stryker Corp. | 0.600% | 12/1/23 | 25,000 | 24,097 | ||
| Takeda Pharmaceutical Co. Ltd. | 4.400% | 11/26/23 | 42,453 | 42,827 | ||
| Thermo Fisher Scientific Inc. | 0.797% | 10/18/23 | 20,000 | 19,441 | ||
| 5 | Thermo Fisher Scientific Inc., SOFR + 0.350% | 2.522% | 4/18/23 | 80,000 | 79,764 | |
| UnitedHealth Group Inc. | 2.375% | 10/15/22 | 14,049 | 14,041 | ||
| UnitedHealth Group Inc. | 3.500% | 6/15/23 | 1,624 | 1,633 | ||
| Zoetis Inc. | 3.250% | 2/1/23 | 22,224 | 22,178 | ||
| 980,789 | ||||||
| Industrials (2.4%) | ||||||
| 7 | Australia Pacific Airports Melbourne Pty Ltd. | 4.000% | 9/15/22 | 5,000 | 3,500 | |
| Boeing Co. | 1.167% | 2/4/23 | 44,000 | 43,433 | ||
| Boeing Co. | 4.508% | 5/1/23 | 31,581 | 31,671 | ||
| Caterpillar Financial Services Corp. | 1.900% | 9/6/22 | 21,180 | 21,166 | ||
| CNH Industrial Capital LLC | 1.950% | 7/2/23 | 2,879 | 2,822 | ||
| CNH Industrial Capital LLC | 4.200% | 1/15/24 | 190 | 191 | ||
| CNH Industrial NV | 4.500% | 8/15/23 | 638 | 641 | ||
| 3 | Daimler Trucks Finance North America LLC | 1.125% | 12/14/23 | 10,695 | 10,317 | |
| Huntington Ingalls Industries Inc. | 0.670% | 8/16/23 | 28,200 | 27,252 | ||
| L3Harris Technologies Inc. | 3.850% | 6/15/23 | 22,215 | 22,227 | ||
| Norfolk Southern Corp. | 3.850% | 1/15/24 | 1,000 | 1,006 | ||
| Northrop Grumman Corp. | 3.250% | 8/1/23 | 7,654 | 7,647 | ||
| PACCAR Financial Corp. | 3.150% | 6/13/24 | 26,665 | 26,566 | ||
| 7 | QPH Finance Co. Pty Ltd. | 3.750% | 6/7/23 | 9,520 | 6,658 | |
| Quanta Services Inc. | 0.950% | 10/1/24 | 10,565 | 9,849 | ||
| Rockwell Automation Inc. | 0.350% | 8/15/23 | 29,100 | 28,222 | ||
| Ryder System Inc. | 2.500% | 9/1/22 | 12,800 | 12,784 | ||
| Ryder System Inc. | 3.875% | 12/1/23 | 17,810 | 17,830 | ||
| Southwest Airlines Co. | 4.750% | 5/4/23 | 90,363 | 91,018 | ||
| 4 | Southwest Airlines Co. Series 2007-1 Pass Through Trust | 6.650% | 8/1/22 | 300 | 300 | |
| Teledyne Technologies Inc. | 0.650% | 4/1/23 | 550 | 537 | ||
| Union Pacific Corp. | 2.950% | 1/15/23 | 23,297 | 23,267 | ||
| Union Pacific Corp. | 3.500% | 6/8/23 | 8,264 | 8,293 | ||
| 4,8 | US Airways Series 2001-1C Pass Through Trust | 7.346% | 9/20/23 | 16 | 16 | |
| 397,213 | ||||||
| Materials (1.0%) | ||||||
| Berry Global Inc. | 0.950% | 2/15/24 | 5,500 | 5,228 | ||
| Carlisle Cos. Inc. | 0.550% | 9/1/23 | 9,310 | 9,006 | ||
| Celanese US Holdings LLC | 5.900% | 7/5/24 | 13,030 | 13,128 | ||
| DuPont de Nemours Inc. | 4.205% | 11/15/23 | 15,541 | 15,692 | ||
| GC Treasury Center Co. Ltd. | 4.250% | 9/19/22 | 4,930 | 4,935 | ||
| Georgia-Pacific LLC | 8.000% | 1/15/24 | 13,574 | 14,426 | ||
| Indonesia Asahan Aluminium Persero PT | 5.710% | 11/15/23 | 35,874 | 36,611 | ||
| 3 | International Flavors & Fragrances Inc. | 0.697% | 9/15/22 | 3,035 | 3,025 | |
| LYB International Finance BV | 4.000% | 7/15/23 | 12,255 | 12,269 | ||
| Martin Marietta Materials Inc. | 0.650% | 7/15/23 | 15,000 | 14,560 | ||
| Nucor Corp. | 4.125% | 9/15/22 | 4,237 | 4,234 | ||
| Nutrien Ltd. | 3.150% | 10/1/22 | 10,516 | 10,520 | ||
| Nutrien Ltd. | 1.900% | 5/13/23 | 12,461 | 12,276 | ||
| PPG Industries Inc. | 3.200% | 3/15/23 | 7,000 | 6,986 | ||
| 162,896 | ||||||
18
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Real Estate (2.1%) | ||||||
| American Tower Corp. | 3.500% | 1/31/23 | 1,230 | 1,230 | ||
| American Tower Corp. | 3.000% | 6/15/23 | 12,640 | 12,554 | ||
| AvalonBay Communities Inc. | 2.850% | 3/15/23 | 17,450 | 17,362 | ||
| AvalonBay Communities Inc. | 4.200% | 12/15/23 | 25,272 | 25,480 | ||
| Boston Properties LP | 3.125% | 9/1/23 | 20,350 | 20,231 | ||
| Boston Properties LP | 3.800% | 2/1/24 | 7,472 | 7,473 | ||
| Camden Property Trust | 2.950% | 12/15/22 | 41,799 | 41,744 | ||
| Crown Castle International Corp. | 3.150% | 7/15/23 | 10,750 | 10,676 | ||
| ERP Operating LP | 3.000% | 4/15/23 | 68,415 | 68,429 | ||
| Essex Portfolio LP | 3.250% | 5/1/23 | 8,470 | 8,429 | ||
| Essex Portfolio LP | 3.875% | 5/1/24 | 1,050 | 1,049 | ||
| Federal Realty Investment Trust | 2.750% | 6/1/23 | 1,800 | 1,789 | ||
| Federal Realty Investment Trust | 3.950% | 1/15/24 | 20,984 | 21,008 | ||
| 7 | General Property Trust Co. | 3.591% | 11/7/23 | 20,520 | 14,279 | |
| Kimco Realty Corp. | 3.500% | 4/15/23 | 1,160 | 1,156 | ||
| Mid-America Apartments LP | 4.300% | 10/15/23 | 3,100 | 3,117 | ||
| Public Storage | 2.370% | 9/15/22 | 9,410 | 9,411 | ||
| 5 | Public Storage, SOFR + 0.470% | 2.699% | 4/23/24 | 8,845 | 8,791 | |
| Realty Income Corp. | 4.600% | 2/6/24 | 5,050 | 5,119 | ||
| Simon Property Group LP | 2.750% | 6/1/23 | 17,465 | 17,369 | ||
| Simon Property Group LP | 3.750% | 2/1/24 | 15,895 | 15,931 | ||
| Ventas Realty LP | 3.500% | 4/15/24 | 2,371 | 2,348 | ||
| Waste Management Inc. | 0.360% | 8/15/22 | 25,000 | 24,969 | ||
| Welltower Inc. | 4.500% | 1/15/24 | 9,995 | 10,069 | ||
| Welltower Inc. | 3.625% | 3/15/24 | 1,495 | 1,493 | ||
| 351,506 | ||||||
| Technology (2.0%) | ||||||
| Broadcom Corp. / Broadcom Cayman Finance Ltd. | 3.625% | 1/15/24 | 17,246 | 17,246 | ||
| Dell International LLC / EMC Corp. | 5.450% | 6/15/23 | 6,619 | 6,692 | ||
| Equifax Inc. | 3.300% | 12/15/22 | 14,895 | 14,891 | ||
| Equifax Inc. | 3.950% | 6/15/23 | 2,175 | 2,180 | ||
| Fidelity National Information Services Inc. | 0.375% | 3/1/23 | 50,000 | 49,089 | ||
| Global Payments Inc. | 3.750% | 6/1/23 | 8,895 | 8,876 | ||
| 7 | Intel Corp. | 4.000% | 12/1/22 | 29,460 | 20,642 | |
| Moody's Corp. | 2.625% | 1/15/23 | 17,654 | 17,595 | ||
| Oracle Corp. | 2.500% | 10/15/22 | 11,803 | 11,785 | ||
| Oracle Corp. | 2.400% | 9/15/23 | 68,376 | 67,606 | ||
| Roper Technologies Inc. | 0.450% | 8/15/22 | 10,000 | 9,989 | ||
| Roper Technologies Inc. | 3.650% | 9/15/23 | 3,087 | 3,092 | ||
| Skyworks Solutions Inc. | 0.900% | 6/1/23 | 80,121 | 78,235 | ||
| VMware Inc. | 0.600% | 8/15/23 | 17,495 | 16,939 | ||
| 324,857 | ||||||
| Utilities (6.0%) | ||||||
| Abu Dhabi National Energy Co. PJSC | 3.875% | 5/6/24 | 10,100 | 10,160 | ||
| American Electric Power Co. Inc. | 0.750% | 11/1/23 | 10,000 | 9,659 | ||
| Atmos Energy Corp. | 0.625% | 3/9/23 | 9,260 | 9,108 | ||
| Baltimore Gas and Electric Co. | 3.350% | 7/1/23 | 4,810 | 4,814 | ||
| Black Hills Corp. | 1.037% | 8/23/24 | 9,000 | 8,473 | ||
| CenterPoint Energy Houston Electric LLC | 2.250% | 8/1/22 | 2,000 | 2,000 | ||
| CenterPoint Energy Inc. | 2.500% | 9/1/24 | 10,182 | 9,867 | ||
| CenterPoint Energy Resources Corp. | 0.700% | 3/2/23 | 8,046 | 7,936 | ||
| Consolidated Edison Inc. | 0.650% | 12/1/23 | 34,357 | 33,138 | ||
| Dominion Energy Inc. | 2.750% | 9/15/22 | 40,140 | 40,063 | ||
| 3 | Dominion Energy Inc. | 2.450% | 1/15/23 | 69,850 | 69,380 | |
19
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 5 | Dominion Energy Inc., 3M USD LIBOR + 0.530% | 2.359% | 9/15/23 | 6,090 | 6,056 | |
| DTE Energy Co. | 0.550% | 11/1/22 | 60,220 | 59,931 | ||
| DTE Energy Co. | 2.250% | 11/1/22 | 25,900 | 25,826 | ||
| Duke Energy Corp. | 2.400% | 8/15/22 | 14,109 | 14,101 | ||
| Duke Energy Corp. | 3.950% | 10/15/23 | 447 | 449 | ||
| Duke Energy Progress LLC | 3.375% | 9/1/23 | 8,695 | 8,709 | ||
| Eastern Energy Gas Holdings LLC | 3.550% | 11/1/23 | 9,867 | 9,877 | ||
| Edison International | 2.400% | 9/15/22 | 3,001 | 2,994 | ||
| Edison International | 2.950% | 3/15/23 | 2,023 | 2,014 | ||
| Enel Finance America LLC | 0.000% | 8/5/22 | 40,000 | 39,977 | ||
| 3 | Engie SA | 2.875% | 10/10/22 | 4,640 | 4,619 | |
| Entergy Louisiana LLC | 0.620% | 11/17/23 | 16,172 | 15,641 | ||
| 5,7 | ETSA Utilities Finance Pty Ltd., 3M Australian Bank Bill Rate + 1.020% | 2.190% | 8/29/22 | 14,900 | 10,409 | |
| Eversource Energy | 2.800% | 5/1/23 | 44,715 | 44,431 | ||
| 5 | Eversource Energy, SOFR + 0.250% | 1.596% | 8/15/23 | 32,600 | 32,305 | |
| MidAmerican Energy Co. | 3.700% | 9/15/23 | 10,719 | 10,682 | ||
| NextEra Energy Capital Holdings Inc. | 0.650% | 3/1/23 | 53,300 | 52,505 | ||
| 5 | NextEra Energy Capital Holdings Inc., 3M USD LIBOR + 0.270% | 1.775% | 2/22/23 | 40,000 | 39,826 | |
| 5 | NextEra Energy Capital Holdings Inc., SOFR + 0.400% | 1.537% | 11/3/23 | 37,700 | 37,233 | |
| NTPC Ltd. | 4.750% | 10/3/22 | 18,624 | 18,657 | ||
| Oklahoma Gas and Electric Co. | 0.553% | 5/26/23 | 352 | 344 | ||
| ONE Gas Inc. | 0.850% | 3/11/23 | 65,000 | 63,888 | ||
| Public Service Electric and Gas Co. | 2.375% | 5/15/23 | 4,214 | 4,182 | ||
| Public Service Enterprise Group Inc. | 2.650% | 11/15/22 | 78,040 | 77,821 | ||
| Southern California Edison Co. | 0.700% | 4/3/23 | 20,000 | 19,629 | ||
| Southern California Edison Co. | 0.700% | 8/1/23 | 2,150 | 2,093 | ||
| Southern California Edison Co. | 3.500% | 10/1/23 | 10,000 | 9,996 | ||
| Southern Co. | 4.475% | 8/1/24 | 14,950 | 15,097 | ||
| Southern Co. Gas Capital Corp. | 2.450% | 10/1/23 | 8,325 | 8,210 | ||
| State Grid Overseas Investment 2013 Ltd. | 3.125% | 5/22/23 | 17,729 | 17,730 | ||
| 3 | State Grid Overseas Investment BVI Ltd. | 3.750% | 5/2/23 | 32,647 | 32,800 | |
| Tampa Electric Co. | 3.875% | 7/12/24 | 4,340 | 4,359 | ||
| 7 | United Energy Distribution Pty Ltd. | 3.500% | 9/12/23 | 25,140 | 17,506 | |
| Virginia Electric and Power Co. | 3.450% | 9/1/22 | 47,651 | 47,610 | ||
| Virginia Electric and Power Co. | 2.750% | 3/15/23 | 30,143 | 29,977 | ||
| WEC Energy Group Inc. | 0.550% | 9/15/23 | 13,710 | 13,290 | ||
| 1,005,372 | ||||||
| Total Corporate Bonds (Cost $10,431,985) | 10,238,833 | |||||
| Sovereign Bonds (2.6%) | ||||||
| 7 | Airservices Australia | 2.750% | 5/15/23 | 6,290 | 4,378 | |
| APICORP Sukuk Ltd. | 3.141% | 11/1/22 | 40,788 | 40,559 | ||
| Corp. Andina de Fomento | 2.375% | 5/12/23 | 10,000 | 9,917 | ||
| Development Bank of Kazakhstan JSC | 4.125% | 12/10/22 | 2,115 | 2,112 | ||
| Export-Import Bank of India | 4.000% | 1/14/23 | 28,218 | 28,256 | ||
| Kingdom of Morocco | 4.250% | 12/11/22 | 1,800 | 1,799 | ||
| 9 | Korea Monetary Stabilization Bond | 1.080% | 9/9/22 | 190,000,000 | 146,066 | |
| 9 | Korea Monetary Stabilization Bond | 3.050% | 7/9/23 | 80,000,000 | 61,590 | |
| Perusahaan Penerbit SBSN Indonesia III | 3.300% | 11/21/22 | 19,409 | 19,431 | ||
| Republic of Chile | 2.250% | 10/30/22 | 15,340 | 15,309 | ||
| Republic of Colombia | 2.625% | 3/15/23 | 31,180 | 30,900 | ||
| Republic of Croatia | 5.500% | 4/4/23 | 10,662 | 10,793 | ||
20
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Republic of Hungary | 5.375% | 2/21/23 | 23,702 | 23,907 | ||
| Republic of Hungary | 5.750% | 11/22/23 | 8,000 | 8,167 | ||
| Republic of Indonesia | 2.950% | 1/11/23 | 2,500 | 2,501 | ||
| Republic of Panama | 4.000% | 9/22/24 | 13,047 | 13,085 | ||
| State of Qatar | 3.875% | 4/23/23 | 10,000 | 10,030 | ||
| Total Sovereign Bonds (Cost $443,879) | 428,800 | |||||
| Shares | ||||||
| Temporary Cash Investments (18.5%) | ||||||
| Money Market Fund (0.1%) | ||||||
| 10 | Vanguard Market Liquidity Fund | 1.903% | 252,364 | 25,226 | ||
| Maturity Date | Face Amount ($000) | |||||
| U.S. Government and Agency Obligations (18.4%) | ||||||
| 2 | United States Treasury Bill | 3.141% | 6/15/23 | 1,570,000 | 1,530,545 | |
| United States Treasury Bill | 3.077% | 7/13/23 | 1,570,000 | 1,526,844 | ||
| 3,057,389 | ||||||
| Total Temporary Cash Investments (Cost $3,078,678) | 3,082,615 | |||||
| Total Investments (99.4%) (Cost $16,811,305) | 16,554,324 | |||||
| Other Assets and Liabilities—Net (0.6%) | 98,696 | |||||
| Net Assets (100%) | 16,653,020 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $4,449,000 have been segregated as initial margin for open futures contracts. |
| 2 | Securities with a value of $169,000 have been segregated as collateral for open forward currency contracts. |
| 3 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At July 31, 2022, the aggregate value was $3,661,738,000, representing 22.0% of net assets. |
| 4 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 5 | Variable-rate security; rate shown is effective rate at period end. Certain variable-rate securities are not based on a published reference rate and spread but are determined by the issuer or agent based on current market conditions. |
| 6 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 7 | Face amount denominated in Australian dollars. |
| 8 | Security value determined using significant unobservable inputs. |
| 9 | Face amount denominated in Korean won. |
| 10 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 1M—1-month. | |
| 3M—3-month. | |
| LIBOR—London Interbank Offered Rate. | |
| REMICS—Real Estate Mortgage Investment Conduits. | |
| SOFR—Secured Overnight Financing Rate. | |
| SOFR30A—30 Day Average Secured Overnight Financing Rate. | |
| USD—U.S. dollar. |
21
Ultra-Short-Term Bond Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | 7,253 | 1,526,473 | 2,564 |
| Short Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | (553) | (62,891) | (442) |
| AUD 3-Year Treasury Bond | September 2022 | (956) | (72,966) | (1,202) |
| (1,644) | ||||
| 920 | ||||
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| Standard Chartered Bank | 9/21/22 | AUD | 34,452 | USD | 23,943 | 150 | — |
| Toronto-Dominion Bank | 9/21/22 | AUD | 24,701 | USD | 17,082 | 191 | — |
| BNP Paribas | 9/21/22 | AUD | 1,163 | USD | 807 | 7 | — |
| JPMorgan Chase Bank, N.A. | 9/21/22 | AUD | 1,074 | USD | 764 | — | (12) |
| State Street Bank & Trust Co. | 9/21/22 | AUD | 712 | USD | 498 | — | — |
| State Street Bank & Trust Co. | 9/21/22 | AUD | 585 | USD | 404 | 5 | — |
| JPMorgan Chase Bank, N.A. | 9/21/22 | AUD | 497 | USD | 347 | 1 | — |
| Bank of America, N.A. | 9/21/22 | EUR | 34 | USD | 37 | — | (2) |
| JPMorgan Chase Bank, N.A. | 9/21/22 | GBP | 2 | USD | 3 | — | — |
| Barclays Bank plc | 9/15/22 | KRW | 80,000,000 | USD | 60,411 | 1,213 | — |
| BNP Paribas | 9/15/22 | KRW | 28,900,000 | USD | 22,096 | 165 | — |
| Citibank, N.A. | 9/15/22 | KRW | 21,100,000 | USD | 16,131 | 122 | — |
| State Street Bank & Trust Co. | 9/21/22 | USD | 118,176 | AUD | 169,460 | — | (326) |
| State Street Bank & Trust Co. | 9/21/22 | USD | 120,063 | AUD | 168,683 | 2,105 | — |
| Bank of Montreal | 9/21/22 | USD | 119,574 | AUD | 167,841 | 2,205 | — |
| JPMorgan Chase Bank, N.A. | 9/21/22 | USD | 19,620 | AUD | 28,280 | — | (157) |
| Bank of New York | 9/21/22 | USD | 6,861 | AUD | 9,870 | — | (42) |
| Toronto-Dominion Bank | 9/21/22 | USD | 1,867 | AUD | 2,689 | — | (13) |
| Bank of America, N.A. | 9/21/22 | USD | 719 | AUD | 1,039 | — | (7) |
| Standard Chartered Bank | 9/21/22 | USD | 8 | AUD | 11 | — | — |
22
Ultra-Short-Term Bond Fund
| Forward Currency Contracts (continued) | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| BNP Paribas | 9/15/22 | USD | 285,052 | KRW | 321,000,000 | 37,782 | — |
| Barclays Bank plc | 7/10/23 | USD | 60,935 | KRW | 80,000,000 | — | (1,177) |
| 43,946 | (1,736) | ||||||
| AUD—Australian dollar. |
| EUR—euro. |
| GBP—British pound. |
| KRW—Korean won. |
| USD—U.S. dollar. |
At July 31, 2022, the
counterparties had deposited in segregated accounts securities with a value of $41,641,000 and cash of $2,900,000 in connection with open forward currency contracts.
See accompanying
Notes, which are an integral part of the Financial Statements.
23
Ultra-Short-Term Bond Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $16,786,080) | 16,529,098 |
| Affiliated Issuers (Cost $25,225) | 25,226 |
| Total Investments in Securities | 16,554,324 |
| Investment in Vanguard | 649 |
| Foreign Currency, at Value (Cost $526) | 552 |
| Receivables for Investment Securities Sold | 27,877 |
| Receivables for Accrued Income | 62,130 |
| Receivables for Capital Shares Issued | 19,559 |
| Unrealized Appreciation—Forward Currency Contracts | 43,946 |
| Total Assets | 16,709,037 |
| Liabilities | |
| Due to Custodian | 1,221 |
| Payables for Investment Securities Purchased | 15,864 |
| Payables for Capital Shares Redeemed | 32,564 |
| Payables for Distributions | 3,166 |
| Payables to Vanguard | 753 |
| Variation Margin Payable—Futures Contracts | 713 |
| Unrealized Depreciation—Forward Currency Contracts | 1,736 |
| Total Liabilities | 56,017 |
| Net Assets | 16,653,020 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 16,967,290 |
| Total Distributable Earnings (Loss) | (314,270) |
| Net Assets | 16,653,020 |
| Investor Shares—Net Assets | |
| Applicable to 49,467,169 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 489,411 |
| Net Asset Value Per Share—Investor Shares | $9.89 |
| Admiral Shares—Net Assets | |
| Applicable to 816,748,563 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 16,163,609 |
| Net Asset Value Per Share—Admiral Shares | $19.79 |
See accompanying
Notes, which are an integral part of the Financial Statements.
24
Ultra-Short-Term Bond Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1,2 | 85,288 |
| Total Income | 85,288 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 661 |
| Management and Administrative—Investor Shares | 498 |
| Management and Administrative—Admiral Shares | 7,562 |
| Marketing and Distribution—Investor Shares | 28 |
| Marketing and Distribution—Admiral Shares | 429 |
| Custodian Fees | 56 |
| Shareholders’ Reports—Investor Shares | 7 |
| Shareholders’ Reports—Admiral Shares | 45 |
| Trustees’ Fees and Expenses | 5 |
| Other Expenses | 6 |
| Total Expenses | 9,297 |
| Expenses Paid Indirectly | (3) |
| Net Expenses | 9,294 |
| Net Investment Income | 75,994 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (63,886) |
| Futures Contracts | (46,186) |
| Swap Contracts | 493 |
| Forward Currency Contracts | 14,018 |
| Foreign Currencies | (14,311) |
| Realized Net Gain (Loss) | (109,872) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (119,014) |
| Futures Contracts | 10,469 |
| Swap Contracts | (197) |
| Forward Currency Contracts | 21,414 |
| Foreign Currencies | 323 |
| Change in Unrealized Appreciation (Depreciation) | (87,005) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (120,883) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $2,501,000, ($217,000), and ($77,000), respectively. Purchases and sales are for temporary cash investment purposes. |
| 2 | Interest is net of foreign withholding taxes of $171,000. |
See accompanying
Notes, which are an integral part of the Financial Statements.
25
Ultra-Short-Term Bond Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 75,994 | 110,988 | |
| Realized Net Gain (Loss) | (109,872) | 50,431 | |
| Change in Unrealized Appreciation (Depreciation) | (87,005) | (213,469) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (120,883) | (52,050) | |
| Distributions | |||
| Investor Shares | (2,021) | (3,889) | |
| Admiral Shares | (73,636) | (113,727) | |
| Total Distributions | (75,657) | (117,616) | |
| Capital Share Transactions | |||
| Investor Shares | (181,401) | (45,100) | |
| Admiral Shares | (3,121,887) | 3,579,555 | |
| Net Increase (Decrease) from Capital Share Transactions | (3,303,288) | 3,534,455 | |
| Total Increase (Decrease) | (3,499,828) | 3,364,789 | |
| Net Assets | |||
| Beginning of Period | 20,152,848 | 16,788,059 | |
| End of Period | 16,653,020 | 20,152,848 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
26
Ultra-Short-Term Bond Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $9.99 | $10.08 | $10.04 | $9.98 | $9.97 | $10.00 |
| Investment Operations | ||||||
| Net Investment Income1 | .036 | .047 | .127 | .252 | .227 | .154 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.099) | (.086) | .053 | .065 | .003 | (.037) |
| Total from Investment Operations | (.063) | (.039) | .180 | .317 | .230 | .117 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.037) | (.050) | (.140) | (.257) | (.220) | (.145) |
| Distributions from Realized Capital Gains | — | (.001) | — | — | — | (.002) |
| Total Distributions | (.037) | (.051) | (.140) | (.257) | (.220) | (.147) |
| Net Asset Value, End of Period | $9.89 | $9.99 | $10.08 | $10.04 | $9.98 | $9.97 |
| Total Return2 | -0.63% | -0.39% | 1.81% | 3.21% | 2.34% | 1.17% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $489 | $677 | $728 | $471 | $309 | $179 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 0.74% | 0.47% | 1.27% | 2.53% | 2.28% | 1.54% |
| Portfolio Turnover Rate | 19% | 57%4 | 60%4 | 70% | 61% | 70% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.20%. |
| 4 | Includes 1% and 3%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
27
Ultra-Short-Term Bond Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $19.99 | $20.15 | $20.08 | $19.96 | $19.94 | $20.00 |
| Investment Operations | ||||||
| Net Investment Income1 | .083 | .113 | .263 | .527 | .473 | .328 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.198) | (.152) | .107 | .126 | .008 | (.077) |
| Total from Investment Operations | (.115) | (.039) | .370 | .653 | .481 | .251 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.085) | (.119) | (.300) | (.533) | (.461) | (.307) |
| Distributions from Realized Capital Gains | — | (.002) | — | — | — | (.004) |
| Total Distributions | (.085) | (.121) | (.300) | (.533) | (.461) | (.311) |
| Net Asset Value, End of Period | $19.79 | $19.99 | $20.15 | $20.08 | $19.96 | $19.94 |
| Total Return2 | -0.57% | -0.20% | 1.86% | 3.31% | 2.44% | 1.26% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $16,164 | $19,476 | $16,060 | $6,443 | $5,244 | $3,474 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.85% | 0.56% | 1.31% | 2.63% | 2.38% | 1.64% |
| Portfolio Turnover Rate | 19% | 57%4 | 60%4 | 70% | 61% | 70% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 4 | Includes 1% and 3%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
28
Ultra-Short-Term Bond Fund
Notes to Financial Statements
Vanguard Ultra-Short-Term Bond
Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for different types of investors.
Certain of the fund’s
investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. The fund invests in securities of foreign
issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. To minimize the currency risk associated with investment in securities denominated in
currencies other than the U.S. dollar, the fund attempts to hedge its currency exposure. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters,
war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on the
value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary
markets, are valued by methods deemed by the board of trustees to represent fair value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
29
Ultra-Short-Term Bond Fund
mortgage-backed securities from a dealer
pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll transactions are used to cover an open TBA sell
position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The fund accounts for mortgage-dollar-roll
transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open mortgage dollar rolls are included in
Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
4. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing
brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any
securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 9% and 1% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
5. Forward Currency
Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates. The fund’s risks in using
these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its
counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or
rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed
by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts
contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the
time of the termination. The payment amount would be
30
Ultra-Short-Term Bond Fund
reduced by any collateral the fund has
pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily to the value of the forward currency contracts
exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
Forward currency contracts are
valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the
Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward currency contracts.
During the six months ended
July 31, 2022, the fund’s average investment in forward currency contracts represented 4% of net assets, based on the average of the notional amounts at each quarter-end during the period.
6. Swap Contracts: The
fund invests in credit default swaps to adjust the overall credit risk of the fund or to actively overweight or underweight credit risk to a specific issuer or group of issuers. The fund may sell credit protection
through credit default swaps to simulate investments in long positions that are either unavailable or considered to be less attractively priced in the bond market. The fund may purchase credit protection through
credit default swaps to reduce credit exposure to a given issuer or issuers. Under the terms of the swaps, an up-front payment may be exchanged between the seller and buyer. In addition, the seller of the credit
protection receives a periodic payment of premium from the buyer that is a fixed percentage applied to a notional amount. If, for example, the reference entity is subject to a credit event (such as bankruptcy, failure
to pay, or obligation acceleration) during the term of the swap, the seller agrees to either physically settle or cash settle the swap contract. If the swap is physically settled, the seller agrees to pay the buyer an
amount equal to the notional amount and take delivery of a debt instrument of the reference issuer with a par amount equal to such notional amount. If the swap is cash settled, the seller agrees to pay the buyer the
difference between the notional amount and the final price for the relevant debt instrument, as determined either in a market auction or pursuant to a pre-agreed-upon valuation procedure.
The fund enters into centrally
cleared credit default swaps to achieve the same objectives specified with respect to the equivalent over-the-counter swaps but with less counterparty risk because a regulated clearinghouse is the counterparty instead
of the clearing broker or executing broker. The clearinghouse imposes initial margin requirements to secure the fund’s performance, and requires daily settlement of variation margin representing changes in the
market value of each contract. To further mitigate counterparty risk, the fund trades with a diverse group of prequalified executing brokers; monitors the financial strength of its clearing brokers, executing brokers,
and clearinghouse; and has entered into agreements with its clearing brokers and executing brokers.
The primary risk associated
with selling credit protection is that, upon the occurrence of a defined credit event, the market value of the debt instrument received by the fund (or, in a cash settled swap, the debt instruments used to determine
the settlement payment by the fund) will be significantly less than the amount paid by the fund and, in a physically settled swap, the fund may receive an illiquid debt instrument. A risk associated with all types of
swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s
31
Ultra-Short-Term Bond Fund
maximum amount subject to counterparty risk
is the unrealized appreciation on the swap contract. The fund mitigates its counterparty risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength,
entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or
received by the fund cannot be repledged, resold, or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine
the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap
contracts contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability
position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments.
The value of collateral received or pledged is compared daily to the value of the swap contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted
and settled within two business days.
The notional amounts of swap
contracts are not recorded in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the seller of credit protection is required to take
delivery (or, in a cash settled swap, pay the settlement amount determined) upon occurrence of a credit event, periodic payments are made, or the swap terminates, at which time realized gain (loss) is recorded. The
net premium to be received or paid by the fund under swap contracts is accrued daily and recorded as realized gain (loss) over the life of the contract.
During the six months ended
July 31, 2022, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented less than 1% of net assets, respectively, based on the average of the notional
amounts at each quarter-end during the period.
The fund had no open swap
contracts at July 31, 2022.
7. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration
of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax
years, and has concluded that no provision for income tax is required in the fund’s financial statements.
8. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
9. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or
32
Ultra-Short-Term Bond Fund
emergency purposes and are subject to the
fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the
undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or the Daily Simple Secured
Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
10. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or
sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $649,000, representing less than 0.01% of the fund’s net
assets and 0.26% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
33
Ultra-Short-Term Bond Fund
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $3,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 298,641 | — | 298,641 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 2,505,435 | — | 2,505,435 |
| Corporate Bonds | — | 10,238,817 | 16 | 10,238,833 |
| Sovereign Bonds | — | 428,800 | — | 428,800 |
| Temporary Cash Investments | 25,226 | 3,057,389 | — | 3,082,615 |
| Total | 25,226 | 16,529,082 | 16 | 16,554,324 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 2,564 | — | — | 2,564 |
| Forward Currency Contracts | — | 43,946 | — | 43,946 |
| Total | 2,564 | 43,946 | — | 46,510 |
| Liabilities | ||||
| Futures Contracts1 | 1,644 | — | — | 1,644 |
| Forward Currency Contracts | — | 1,736 | — | 1,736 |
| Total | 1,644 | 1,736 | — | 3,380 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
34
Ultra-Short-Term Bond Fund
| E. | At July 31, 2022, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows: |
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
| Unrealized Appreciation—Futures Contracts1 | 2,564 | — | 2,564 |
| Unrealized Appreciation—Forward Currency Contracts | — | 43,946 | 43,946 |
| Total Assets | 2,564 | 43,946 | 46,510 |
| Unrealized Depreciation—Futures Contracts1 | 1,644 | — | 1,644 |
| Unrealized Depreciation—Forward Currency Contracts | — | 1,736 | 1,736 |
| Total Liabilities | 1,644 | 1,736 | 3,380 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2022, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (46,186) | — | — | (46,186) |
| Swap Contracts | — | — | 493 | 493 |
| Forward Currency Contracts | — | 14,018 | — | 14,018 |
| Realized Net Gain (Loss) on Derivatives | (46,186) | 14,018 | 493 | (31,675) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | 10,469 | — | — | 10,469 |
| Swap Contracts | — | — | (197) | (197) |
| Forward Currency Contracts | — | 21,414 | — | 21,414 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 10,469 | 21,414 | (197) | 31,686 |
| F. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 16,774,048 |
| Gross Unrealized Appreciation | 90,711 |
| Gross Unrealized Depreciation | (267,305) |
| Net Unrealized Appreciation (Depreciation) | (176,594) |
35
Ultra-Short-Term Bond Fund
| G. | During the six months ended July 31, 2022, the fund purchased $2,526,749,000 of investment securities and sold $5,204,849,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $104,212,000 and $120,487,000, respectively. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended July 31, 2022, such purchases were $1,253,619,000 and sales were $220,872,000, resulting in net realized loss of $1,753,000; these amounts, other than temporary cash
investments, are included in the purchases and sales of investment securities noted above.
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 130,802 | 13,198 | 616,149 | 61,217 | |
| Issued in Lieu of Cash Distributions | 1,844 | 186 | 3,508 | 349 | |
| Redeemed | (314,047) | (31,665) | (664,757) | (66,087) | |
| Net Increase (Decrease)—Investor Shares | (181,401) | (18,281) | (45,100) | (4,521) | |
| Admiral Shares | |||||
| Issued | 5,125,042 | 258,314 | 16,783,133 | 833,760 | |
| Issued in Lieu of Cash Distributions | 60,465 | 3,052 | 93,137 | 4,630 | |
| Redeemed | (8,307,394) | (418,816) | (13,296,715) | (661,031) | |
| Net Increase (Decrease)—Admiral Shares | (3,121,887) | (157,450) | 3,579,555 | 177,359 | |
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
36
Trustees Approve Advisory Arrangement
The board of trustees of
Vanguard Ultra-Short-Term Bond Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Fixed Income Group. The board determined that continuing the
fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision
upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about the fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of
services
The board considered the quality of the
investment management services provided to the fund since its inception in 2015; it also took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing
investments for more than four decades. The Fixed Income Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that
Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the short-term and since
inception performance of the fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the
advisory arrangement should continue.
37
Cost
The board concluded that the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory expenses were also below the peer-group average.
The board does not conduct a
profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of
scale
The board concluded that the fund’s
arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
The board will consider
whether to renew the advisory arrangement again after a one-year period.
38
Liquidity Risk Management
Vanguard funds (except for
the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Fixed Income Securities Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Ultra-Short-Term Bond Fund's Program and for carrying out the
specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for
the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review
Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
39
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Connect with
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Semiannual Report | July 31, 2022
Vanguard
High-Yield Corporate Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 32 |
Liquidity Risk Management | 34 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended July 31, 2022 | |||
| Beginning Account Value 1/31/2022 | Ending Account Value 7/31/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| High-Yield Corporate Fund | |||
| Investor Shares | $1,000.00 | $956.30 | $1.12 |
| Admiral™ Shares | 1,000.00 | 956.80 | 0.63 |
| Based on Hypothetical 5% Yearly Return | |||
| Investor Shares | $1,000.00 | $1,023.65 | $1.15 |
| Admiral Shares | 1,000.00 | 1,024.15 | 0.65 |
The calculations are
based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.23% for Investor Shares and 0.13% for Admiral Shares. The dollar amounts shown
as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by
the number of days in the most recent 12-month period (181/365).
2
High-Yield Corporate Fund
Fund Allocation
As of July 31, 2022
| Corporate Bonds - Communications | 17.7% |
| Corporate Bonds - Consumer Discretionary | 14.9 |
| Corporate Bonds - Consumer Staples | 3.2 |
| Corporate Bonds - Energy | 10.1 |
| Corporate Bonds - Financials | 7.4 |
| Corporate Bonds - Health Care | 10.6 |
| Corporate Bonds - Industrials | 6.6 |
| Corporate Bonds - Materials | 8.0 |
| Corporate Bonds - Real Estate | 1.5 |
| Corporate Bonds - Technology | 10.9 |
| Corporate Bonds - Utilities | 2.0 |
| Floating Rate Loan Interests | 4.1 |
| U.S. Government and Agency Obligations | 3.0 |
The table reflects the fund’s
investments, except for short-term investments, other financial instruments, and derivatives.
3
High-Yield Corporate Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (2.9%) | ||||||
| U.S. Government Securities (2.9%) | ||||||
| United States Treasury Note/Bond | 1.375% | 10/15/22 | 200,000 | 199,500 | ||
| 1 | United States Treasury Note/Bond | 0.125% | 1/31/23 | 275,000 | 271,219 | |
| United States Treasury Note/Bond | 1.625% | 4/30/23 | 275,000 | 272,164 | ||
| Total U.S. Government and Agency Obligations (Cost $750,481) | 742,883 | |||||
| Corporate Bonds (89.3%) | ||||||
| Communications (17.0%) | ||||||
| 2,3 | Altice France SA | 2.125% | 2/15/25 | 11,415 | 10,619 | |
| 2 | Altice France SA | 8.125% | 2/1/27 | 600 | 592 | |
| 2 | Altice France SA | 5.500% | 1/15/28 | 19,790 | 17,389 | |
| 2 | Altice France SA | 5.125% | 7/15/29 | 90,970 | 77,853 | |
| 2 | Arches Buyer Inc. | 4.250% | 6/1/28 | 107,255 | 91,611 | |
| 2 | Banijay Entertainment SASU | 5.375% | 3/1/25 | 26,880 | 25,624 | |
| Belo Corp. | 7.750% | 6/1/27 | 29,475 | 29,920 | ||
| Belo Corp. | 7.250% | 9/15/27 | 24,707 | 24,697 | ||
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.500% | 5/1/26 | 50,144 | 50,096 | |
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.125% | 5/1/27 | 34,282 | 33,639 | |
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.375% | 6/1/29 | 7,245 | 6,922 | |
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.500% | 8/15/30 | 85,720 | 76,274 | |
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.250% | 2/1/31 | 86,865 | 75,333 | |
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.750% | 2/1/32 | 7,000 | 6,180 | |
| CCO Holdings LLC / CCO Holdings Capital Corp. | 4.500% | 5/1/32 | 120,718 | 104,194 | ||
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.500% | 6/1/33 | 10,000 | 8,417 | |
| 2 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.250% | 1/15/34 | 17,800 | 14,726 | |
| 2 | CSC Holdings LLC | 5.500% | 4/15/27 | 82,015 | 79,427 | |
| 2 | CSC Holdings LLC | 6.500% | 2/1/29 | 35,323 | 34,132 | |
| 2 | CSC Holdings LLC | 4.125% | 12/1/30 | 123,394 | 105,047 | |
| 2 | CSC Holdings LLC | 4.625% | 12/1/30 | 22,675 | 17,240 | |
| 2 | CSC Holdings LLC | 3.375% | 2/15/31 | 82,190 | 65,752 | |
| 2 | CSC Holdings LLC | 4.500% | 11/15/31 | 144,170 | 122,639 | |
| 2 | CSC Holdings LLC | 5.000% | 11/15/31 | 27,270 | 20,522 | |
| DISH DBS Corp. | 5.000% | 3/15/23 | 48,242 | 47,483 | ||
| DISH DBS Corp. | 5.875% | 11/15/24 | 87,950 | 81,367 | ||
| DISH DBS Corp. | 7.750% | 7/1/26 | 121,605 | 100,425 | ||
| DISH DBS Corp. | 7.375% | 7/1/28 | 70,315 | 50,072 | ||
| DISH DBS Corp. | 5.125% | 6/1/29 | 22,735 | 14,889 | ||
| Embarq Corp. | 7.995% | 6/1/36 | 30,150 | 24,844 | ||
4
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Frontier Communications Holdings LLC | 5.875% | 10/15/27 | 26,240 | 25,844 | |
| 2 | Frontier Communications Holdings LLC | 5.000% | 5/1/28 | 167,919 | 157,718 | |
| 2 | Frontier Communications Holdings LLC | 6.750% | 5/1/29 | 78,962 | 70,278 | |
| Frontier Communications Holdings LLC | 5.875% | 11/1/29 | 108,903 | 91,484 | ||
| 2 | Frontier Communications Holdings LLC | 6.000% | 1/15/30 | 57,475 | 48,450 | |
| 2 | Go Daddy Operating Co. LLC / GD Finance Co. Inc. | 3.500% | 3/1/29 | 116,540 | 103,950 | |
| 2 | Iliad Holding SAS | 6.500% | 10/15/26 | 28,825 | 27,661 | |
| 2 | Iliad Holding SAS | 7.000% | 10/15/28 | 26,725 | 25,670 | |
| Lamar Media Corp. | 3.750% | 2/15/28 | 31,890 | 29,914 | ||
| Lamar Media Corp. | 4.875% | 1/15/29 | 2,920 | 2,805 | ||
| Lamar Media Corp. | 4.000% | 2/15/30 | 75,500 | 69,841 | ||
| Lamar Media Corp. | 3.625% | 1/15/31 | 59,108 | 51,972 | ||
| 2,3 | Lorca Telecom Bondco SA | 4.000% | 9/18/27 | 55,975 | 52,152 | |
| Lumen Technologies Inc. | 6.750% | 12/1/23 | 23,920 | 24,293 | ||
| Lumen Technologies Inc. | 7.500% | 4/1/24 | 17,708 | 18,158 | ||
| Netflix Inc. | 4.875% | 4/15/28 | 6,630 | 6,576 | ||
| 2 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 6.250% | 6/15/25 | 32,550 | 32,250 | |
| 2 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 5.000% | 8/15/27 | 16,096 | 15,133 | |
| 2 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 4.250% | 1/15/29 | 10,100 | 8,681 | |
| 2 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 4.625% | 3/15/30 | 81,243 | 69,009 | |
| Paramount Global Inc. | 6.250% | 2/28/57 | 33,146 | 30,580 | ||
| Paramount Global Inc. | 6.375% | 3/30/62 | 33,700 | 31,870 | ||
| Quebecor Media Inc. | 5.750% | 1/15/23 | 123,547 | 123,877 | ||
| 2 | ROBLOX Corp. | 3.875% | 5/1/30 | 119,965 | 105,753 | |
| 2 | Scripps Escrow II Inc. | 3.875% | 1/15/29 | 62,485 | 55,751 | |
| 2 | Sirius XM Radio Inc. | 3.125% | 9/1/26 | 13,825 | 13,017 | |
| 2 | Sirius XM Radio Inc. | 4.000% | 7/15/28 | 35,170 | 32,662 | |
| 2 | Sirius XM Radio Inc. | 4.125% | 7/1/30 | 75,495 | 67,740 | |
| 2 | Sirius XM Radio Inc. | 3.875% | 9/1/31 | 63,105 | 54,146 | |
| Sprint Corp. | 7.875% | 9/15/23 | 323,614 | 335,739 | ||
| Sprint Corp. | 7.125% | 6/15/24 | 70,886 | 74,245 | ||
| Sprint Corp. | 7.625% | 2/15/25 | 53,661 | 57,292 | ||
| Telecom Italia Capital SA | 6.375% | 11/15/33 | 10,545 | 8,770 | ||
| Telecom Italia Capital SA | 6.000% | 9/30/34 | 36,250 | 28,611 | ||
| Telecom Italia Capital SA | 7.721% | 6/4/38 | 36,020 | 29,760 | ||
| 2 | Telecom Italia SpA | 5.303% | 5/30/24 | 6,555 | 6,376 | |
| 2 | Telenet Finance Luxembourg Notes Sarl | 5.500% | 3/1/28 | 96,200 | 87,369 | |
| T-Mobile USA Inc. | 5.375% | 4/15/27 | 29,295 | 29,713 | ||
| 2 | UPC Broadband Finco BV | 4.875% | 7/15/31 | 83,515 | 73,907 | |
| 2 | UPC Holding BV | 5.500% | 1/15/28 | 84,310 | 76,477 | |
| 2 | Videotron Ltd. | 5.375% | 6/15/24 | 12,673 | 12,750 | |
| 2 | Videotron Ltd. | 5.125% | 4/15/27 | 1,500 | 1,455 | |
| 2,4 | Videotron Ltd. | 3.625% | 6/15/28 | 97,435 | 65,607 | |
| 2 | Videotron Ltd. | 3.625% | 6/15/29 | 61,335 | 53,565 | |
| 2 | Virgin Media Secured Finance plc | 5.500% | 5/15/29 | 43,280 | 41,000 | |
| 2 | Virgin Media Secured Finance plc | 4.500% | 8/15/30 | 42,595 | 38,317 | |
| 2,5 | Virgin Media Vendor Financing Notes III DAC | 4.875% | 7/15/28 | 38,910 | 41,151 | |
| 2 | Virgin Media Vendor Financing Notes IV DAC | 5.000% | 7/15/28 | 38,325 | 35,039 | |
| 2 | Vmed O2 UK Financing I plc | 4.250% | 1/31/31 | 94,695 | 83,156 | |
| 2 | VZ Secured Financing BV | 5.000% | 1/15/32 | 58,570 | 52,287 | |
| 2,3 | WMG Acquisition Corp. | 2.750% | 7/15/28 | 18,490 | 16,853 | |
| 2 | WMG Acquisition Corp. | 3.875% | 7/15/30 | 58,405 | 53,192 | |
| 2 | WMG Acquisition Corp. | 3.000% | 2/15/31 | 62,070 | 53,866 | |
| 2,3 | WP/AP Telecom Holdings IV BV | 3.750% | 1/15/29 | 33,365 | 30,331 | |
5
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Ziggo BV | 4.875% | 1/15/30 | 66,840 | 61,806 | |
| 4,313,794 | ||||||
| Consumer Discretionary (14.3%) | ||||||
| 2 | 1011778 BC ULC / New Red Finance Inc. | 3.875% | 1/15/28 | 48,119 | 45,287 | |
| 2 | 1011778 BC ULC / New Red Finance Inc. | 4.375% | 1/15/28 | 8,000 | 7,432 | |
| 2 | 1011778 BC ULC / New Red Finance Inc. | 3.500% | 2/15/29 | 45,540 | 41,297 | |
| 2 | 1011778 BC ULC / New Red Finance Inc. | 4.000% | 10/15/30 | 133,629 | 116,616 | |
| 2 | Adient Global Holdings Ltd. | 4.875% | 8/15/26 | 23,432 | 21,843 | |
| 2 | American Builders & Contractors Supply Co. Inc. | 4.000% | 1/15/28 | 38,713 | 36,042 | |
| 2 | American Builders & Contractors Supply Co. Inc. | 3.875% | 11/15/29 | 56,970 | 48,711 | |
| Asbury Automotive Group Inc. | 4.500% | 3/1/28 | 22,880 | 21,201 | ||
| 2 | Asbury Automotive Group Inc. | 4.625% | 11/15/29 | 26,830 | 23,735 | |
| Asbury Automotive Group Inc. | 4.750% | 3/1/30 | 13,388 | 11,933 | ||
| 2 | Asbury Automotive Group Inc. | 5.000% | 2/15/32 | 26,865 | 23,495 | |
| 2 | Ashton Woods USA LLC / Ashton Woods Finance Co. | 6.625% | 1/15/28 | 585 | 513 | |
| 2 | Ashton Woods USA LLC / Ashton Woods Finance Co. | 4.625% | 4/1/30 | 17,560 | 13,328 | |
| Bath & Body Works Inc. | 6.694% | 1/15/27 | 20,412 | 20,129 | ||
| Bath & Body Works Inc. | 5.250% | 2/1/28 | 2,500 | 2,355 | ||
| 2 | Bath & Body Works Inc. | 6.625% | 10/1/30 | 85,550 | 82,831 | |
| Bath & Body Works Inc. | 6.875% | 11/1/35 | 13,940 | 12,804 | ||
| Bath & Body Works Inc. | 6.750% | 7/1/36 | 1,860 | 1,676 | ||
| 2 | Beacon Roofing Supply Inc. | 4.125% | 5/15/29 | 17,080 | 15,138 | |
| Boyd Gaming Corp. | 4.750% | 12/1/27 | 128,570 | 123,716 | ||
| 2 | Boyd Gaming Corp. | 4.750% | 6/15/31 | 6,005 | 5,529 | |
| 2 | Builders Firstsource Inc. | 4.250% | 2/1/32 | 37,950 | 32,535 | |
| 2 | Caesars Entertainment Inc. | 6.250% | 7/1/25 | 64,450 | 64,368 | |
| 2 | Caesars Entertainment Inc. | 8.125% | 7/1/27 | 74,280 | 74,368 | |
| 2 | Caesars Entertainment Inc. | 4.625% | 10/15/29 | 46,265 | 39,203 | |
| 2 | Caesars Resort Collection LLC / CRC Finco Inc. | 5.750% | 7/1/25 | 21,605 | 21,603 | |
| 2 | Carnival Corp. | 5.750% | 3/1/27 | 14,420 | 11,429 | |
| 2 | Carnival Corp. | 4.000% | 8/1/28 | 105,835 | 92,248 | |
| 2 | Carnival Corp. | 6.000% | 5/1/29 | 113,690 | 87,517 | |
| 2 | Carnival Corp. | 10.500% | 6/1/30 | 51,630 | 45,902 | |
| Cedar Fair LP | 5.250% | 7/15/29 | 60,486 | 57,893 | ||
| Cedar Fair LP / Canada's Wonderland Co. / Magnum Management Corp. / Millennium Op | 5.375% | 4/15/27 | 32,005 | 31,174 | ||
| 2 | Cedar Fair LP / Canada's Wonderland Co. / Magnum Management Corp. / Millennium OP | 5.500% | 5/1/25 | 10,000 | 10,072 | |
| Century Communities Inc. | 6.750% | 6/1/27 | 11,293 | 11,481 | ||
| 2 | Century Communities Inc. | 3.875% | 8/15/29 | 15,427 | 13,200 | |
| 2 | Cinemark USA Inc. | 8.750% | 5/1/25 | 5,595 | 5,845 | |
| 2 | Cinemark USA Inc. | 5.875% | 3/15/26 | 11,850 | 11,381 | |
| 2 | Cinemark USA Inc. | 5.250% | 7/15/28 | 77,440 | 68,906 | |
| 2,3 | Cirsa Finance International Sarl | 6.250% | 12/20/23 | 39,240 | 38,827 | |
| 2,3 | Cirsa Finance International Sarl | 4.500% | 3/15/27 | 17,660 | 15,057 | |
| 2 | Clarios Global LP / Clarios US Finance Co. | 6.250% | 5/15/26 | 30,723 | 31,002 | |
| 2 | Clarios Global LP / Clarios US Finance Co. | 8.500% | 5/15/27 | 26,491 | 26,721 | |
| Ford Motor Co. | 4.346% | 12/8/26 | 27,780 | 27,367 | ||
| Ford Motor Co. | 3.250% | 2/12/32 | 139,570 | 116,439 | ||
| Ford Motor Co. | 4.750% | 1/15/43 | 40,000 | 32,676 | ||
| Ford Motor Co. | 5.291% | 12/8/46 | 13,765 | 11,839 | ||
| Ford Motor Credit Co. LLC | 3.087% | 1/9/23 | 32,291 | 32,168 | ||
| Ford Motor Credit Co. LLC | 4.140% | 2/15/23 | 21,180 | 21,212 | ||
| Ford Motor Credit Co. LLC | 3.096% | 5/4/23 | 11,846 | 11,715 | ||
| Ford Motor Credit Co. LLC | 4.375% | 8/6/23 | 210 | 210 | ||
6
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Ford Motor Credit Co. LLC | 3.370% | 11/17/23 | 16,305 | 16,014 | ||
| Ford Motor Credit Co. LLC | 4.134% | 8/4/25 | 15,275 | 14,959 | ||
| Ford Motor Credit Co. LLC | 3.375% | 11/13/25 | 16,070 | 15,333 | ||
| Ford Motor Credit Co. LLC | 4.389% | 1/8/26 | 4,800 | 4,694 | ||
| Ford Motor Credit Co. LLC | 2.700% | 8/10/26 | 87,840 | 79,908 | ||
| Ford Motor Credit Co. LLC | 4.950% | 5/28/27 | 29,165 | 28,653 | ||
| Ford Motor Credit Co. LLC | 3.815% | 11/2/27 | 6,000 | 5,504 | ||
| Ford Motor Credit Co. LLC | 3.625% | 6/17/31 | 2,955 | 2,515 | ||
| 6 | Ford Motor Credit Co. LLC, 3M USD LIBOR + 1.235% | 2.646% | 2/15/23 | 5,100 | 5,066 | |
| 2 | Gap Inc. | 3.625% | 10/1/29 | 42,730 | 31,310 | |
| 2 | Gap Inc. | 3.875% | 10/1/31 | 66,300 | 48,057 | |
| Griffon Corp. | 5.750% | 3/1/28 | 18,565 | 17,645 | ||
| 2 | Group 1 Automotive Inc. | 4.000% | 8/15/28 | 4,054 | 3,627 | |
| 2 | Hanesbrands Inc. | 4.625% | 5/15/24 | 21,770 | 21,646 | |
| 2 | Hanesbrands Inc. | 4.875% | 5/15/26 | 93,794 | 91,890 | |
| 2 | JELD-WEN Inc. | 4.625% | 12/15/25 | 8,571 | 7,907 | |
| 2 | JELD-WEN Inc. | 4.875% | 12/15/27 | 16,928 | 14,212 | |
| 2 | KAR Auction Services Inc. | 5.125% | 6/1/25 | 84,923 | 83,735 | |
| KB Home | 7.625% | 5/15/23 | 15,271 | 15,426 | ||
| KB Home | 4.800% | 11/15/29 | 15,825 | 14,287 | ||
| KB Home | 4.000% | 6/15/31 | 43,745 | 36,875 | ||
| 2 | KFC Holding Co. / Pizza Hut Holdings LLC / Taco Bell of America LLC | 4.750% | 6/1/27 | 32,810 | 32,892 | |
| 2 | Lithia Motors Inc. | 4.625% | 12/15/27 | 69,275 | 66,325 | |
| 2 | Lithia Motors Inc. | 4.375% | 1/15/31 | 22,880 | 20,815 | |
| 2 | Masonite International Corp. | 3.500% | 2/15/30 | 12,420 | 10,725 | |
| 2 | Mattel Inc. | 3.375% | 4/1/26 | 18,470 | 17,522 | |
| 2 | Mattel Inc. | 5.875% | 12/15/27 | 76,280 | 77,978 | |
| 2 | Mattel Inc. | 3.750% | 4/1/29 | 25,585 | 23,767 | |
| MGM Resorts International | 6.000% | 3/15/23 | 45,571 | 45,987 | ||
| MGM Resorts International | 5.750% | 6/15/25 | 51,486 | 50,853 | ||
| 2 | Michaels Cos. Inc. | 5.250% | 5/1/28 | 48,585 | 40,444 | |
| 2 | Michaels Cos. Inc. | 7.875% | 5/1/29 | 42,725 | 29,480 | |
| 2 | NCL Corp Ltd. | 7.750% | 2/15/29 | 16,060 | 12,871 | |
| 2 | NMG Holding Co. Inc. / Neiman Marcus Group LLC | 7.125% | 4/1/26 | 15,825 | 15,479 | |
| 2 | Petsmart Inc. | 4.750% | 2/15/28 | 85,461 | 80,950 | |
| 2 | Petsmart Inc. | 7.750% | 2/15/29 | 26,610 | 25,652 | |
| Royal Caribbean Cruises Ltd. | 5.250% | 11/15/22 | 10,118 | 10,047 | ||
| 2 | Royal Caribbean Cruises Ltd. | 4.250% | 7/1/26 | 11,360 | 8,743 | |
| 2 | Royal Caribbean Cruises Ltd. | 5.500% | 8/31/26 | 91,230 | 73,069 | |
| 2 | Royal Caribbean Cruises Ltd. | 5.375% | 7/15/27 | 19,070 | 14,713 | |
| 2 | Royal Caribbean Cruises Ltd. | 5.500% | 4/1/28 | 1,705 | 1,284 | |
| 2 | Scientific Games International Inc. | 7.000% | 5/15/28 | 57,625 | 58,516 | |
| Service Corp. International | 4.625% | 12/15/27 | 27,935 | 27,577 | ||
| Service Corp. International | 5.125% | 6/1/29 | 44,190 | 44,179 | ||
| Service Corp. International | 3.375% | 8/15/30 | 26,810 | 23,832 | ||
| Service Corp. International | 4.000% | 5/15/31 | 65,605 | 60,406 | ||
| 2 | Speedway Motorsports LLC / Speedway Funding II Inc. | 4.875% | 11/1/27 | 39,400 | 35,787 | |
| 2 | Taylor Morrison Communities Inc. | 5.875% | 6/15/27 | 9,642 | 9,846 | |
| 2 | Taylor Morrison Communities Inc. | 5.125% | 8/1/30 | 37,717 | 34,504 | |
| 2 | Tempur Sealy International Inc. | 3.875% | 10/15/31 | 8,438 | 6,846 | |
| Under Armour Inc. | 3.250% | 6/15/26 | 67,855 | 62,819 | ||
| 2 | William Carter Co. | 5.625% | 3/15/27 | 12,968 | 12,868 | |
| 2 | Wolverine World Wide Inc. | 4.000% | 8/15/29 | 10,000 | 8,715 | |
| 2 | WW International Inc. | 4.500% | 4/15/29 | 34,823 | 25,416 | |
7
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 5.500% | 3/1/25 | 70,661 | 69,542 | |
| 2 | Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 5.250% | 5/15/27 | 50,065 | 46,432 | |
| 2 | Wynn Macau Ltd. | 5.500% | 1/15/26 | 10,000 | 8,243 | |
| 2 | Wynn Macau Ltd. | 5.125% | 12/15/29 | 34,286 | 26,241 | |
| 2 | Wynn Resorts Finance LLC / Wynn Resorts Capital Corp. | 5.125% | 10/1/29 | 2,872 | 2,506 | |
| 2 | Yum! Brands Inc. | 4.750% | 1/15/30 | 37,170 | 36,140 | |
| Yum! Brands Inc. | 3.625% | 3/15/31 | 93,497 | 83,388 | ||
| Yum! Brands Inc. | 4.625% | 1/31/32 | 29,240 | 27,512 | ||
| 3,650,143 | ||||||
| Consumer Staples (3.1%) | ||||||
| B&G Foods Inc. | 5.250% | 4/1/25 | 60,337 | 58,129 | ||
| B&G Foods Inc. | 5.250% | 9/15/27 | 58,175 | 53,265 | ||
| 2,3 | Darling Global Finance BV | 3.625% | 5/15/26 | 12,945 | 12,508 | |
| 2 | Darling Ingredients Inc. | 5.250% | 4/15/27 | 10,305 | 10,327 | |
| 2 | Darling Ingredients Inc. | 6.000% | 6/15/30 | 14,715 | 15,286 | |
| 2 | Energizer Holdings Inc. | 4.750% | 6/15/28 | 54,462 | 46,489 | |
| 2 | Energizer Holdings Inc. | 4.375% | 3/31/29 | 82,000 | 67,685 | |
| 2 | Performance Food Group Inc. | 6.875% | 5/1/25 | 6,645 | 6,748 | |
| 2 | Performance Food Group Inc. | 5.500% | 10/15/27 | 86,710 | 85,738 | |
| 2 | Performance Food Group Inc. | 4.250% | 8/1/29 | 86,454 | 76,825 | |
| 2 | Post Holdings Inc. | 5.750% | 3/1/27 | 8,810 | 8,814 | |
| 2 | Post Holdings Inc. | 5.625% | 1/15/28 | 90,650 | 89,464 | |
| 2 | Post Holdings Inc. | 5.500% | 12/15/29 | 36,090 | 34,097 | |
| 2 | Post Holdings Inc. | 4.625% | 4/15/30 | 73,334 | 65,643 | |
| 2 | Post Holdings Inc. | 4.500% | 9/15/31 | 100,565 | 89,930 | |
| 2 | United Natural Foods Inc. | 6.750% | 10/15/28 | 40,224 | 40,490 | |
| 2 | US Foods Inc. | 4.625% | 6/1/30 | 30,538 | 28,000 | |
| 789,438 | ||||||
| Energy (9.7%) | ||||||
| Apache Corp. | 4.875% | 11/15/27 | 33,350 | 31,243 | ||
| Apache Corp. | 4.375% | 10/15/28 | 4,225 | 4,001 | ||
| Apache Corp. | 4.250% | 1/15/30 | 27,250 | 26,281 | ||
| Apache Corp. | 5.100% | 9/1/40 | 46,858 | 41,786 | ||
| Apache Corp. | 5.250% | 2/1/42 | 16,724 | 14,550 | ||
| Apache Corp. | 4.250% | 1/15/44 | 1,636 | 1,270 | ||
| Apache Corp. | 5.350% | 7/1/49 | 47,762 | 39,840 | ||
| 2 | Blue Racer Midstream LLC / Blue Racer Finance Corp. | 7.625% | 12/15/25 | 15,055 | 15,011 | |
| 2 | Blue Racer Midstream LLC / Blue Racer Finance Corp. | 6.625% | 7/15/26 | 19,310 | 18,268 | |
| 2 | Buckeye Partners LP | 4.125% | 3/1/25 | 38,844 | 37,400 | |
| Buckeye Partners LP | 3.950% | 12/1/26 | 20,553 | 19,135 | ||
| Buckeye Partners LP | 4.125% | 12/1/27 | 17,370 | 15,817 | ||
| 2 | Buckeye Partners LP | 4.500% | 3/1/28 | 88,628 | 81,632 | |
| Cheniere Energy Partners LP | 4.500% | 10/1/29 | 38,654 | 37,050 | ||
| Cheniere Energy Partners LP | 4.000% | 3/1/31 | 18,200 | 16,859 | ||
| Continental Resources Inc. | 4.375% | 1/15/28 | 34,925 | 33,645 | ||
| 2 | Continental Resources Inc. | 5.750% | 1/15/31 | 48,530 | 47,750 | |
| Continental Resources Inc. | 4.900% | 6/1/44 | 82,859 | 66,612 | ||
| DCP Midstream Operating LP | 3.875% | 3/15/23 | 31,988 | 32,006 | ||
| DCP Midstream Operating LP | 5.125% | 5/15/29 | 8,190 | 8,104 | ||
| DCP Midstream Operating LP | 5.600% | 4/1/44 | 26,895 | 23,428 | ||
| 2 | DT Midstream Inc. | 4.125% | 6/15/29 | 86,319 | 79,518 | |
| 2 | DT Midstream Inc. | 4.375% | 6/15/31 | 122,985 | 111,125 | |
| 2 | Earthstone Energy Holdings LLC | 8.000% | 4/15/27 | 24,860 | 23,702 | |
| 2 | EnLink Midstream LLC | 5.625% | 1/15/28 | 27,875 | 27,108 | |
| EnLink Midstream LLC | 5.375% | 6/1/29 | 28,150 | 26,718 | ||
8
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| EnLink Midstream Partners LP | 4.400% | 4/1/24 | 5,000 | 5,005 | ||
| EnLink Midstream Partners LP | 4.150% | 6/1/25 | 28,550 | 28,069 | ||
| EnLink Midstream Partners LP | 4.850% | 7/15/26 | 23,854 | 23,598 | ||
| EnLink Midstream Partners LP | 5.050% | 4/1/45 | 30,827 | 22,724 | ||
| EnLink Midstream Partners LP | 5.450% | 6/1/47 | 25,380 | 19,712 | ||
| EQM Midstream Partners LP | 4.000% | 8/1/24 | 8,934 | 8,674 | ||
| 2 | EQM Midstream Partners LP | 6.000% | 7/1/25 | 56,531 | 56,650 | |
| EQM Midstream Partners LP | 4.125% | 12/1/26 | 4,000 | 3,697 | ||
| 2 | EQM Midstream Partners LP | 7.500% | 6/1/27 | 3,760 | 3,845 | |
| 2 | EQM Midstream Partners LP | 6.500% | 7/1/27 | 61,070 | 61,038 | |
| EQM Midstream Partners LP | 5.500% | 7/15/28 | 25,577 | 24,275 | ||
| 2 | EQM Midstream Partners LP | 4.500% | 1/15/29 | 34,140 | 30,556 | |
| 2 | EQM Midstream Partners LP | 7.500% | 6/1/30 | 3,860 | 3,976 | |
| 2 | EQM Midstream Partners LP | 4.750% | 1/15/31 | 87,012 | 78,810 | |
| EQT Corp. | 6.125% | 2/1/25 | 4,855 | 5,058 | ||
| 2 | EQT Corp. | 3.625% | 5/15/31 | 9,613 | 8,798 | |
| 2 | Hess Midstream Operations LP | 4.250% | 2/15/30 | 730 | 648 | |
| Occidental Petroleum Corp. | 3.400% | 4/15/26 | 12,500 | 11,967 | ||
| Occidental Petroleum Corp. | 3.200% | 8/15/26 | 8,175 | 7,685 | ||
| Occidental Petroleum Corp. | 3.000% | 2/15/27 | 9,320 | 8,630 | ||
| Occidental Petroleum Corp. | 6.375% | 9/1/28 | 8,265 | 8,908 | ||
| Occidental Petroleum Corp. | 6.625% | 9/1/30 | 7,190 | 7,977 | ||
| Occidental Petroleum Corp. | 6.125% | 1/1/31 | 45,216 | 48,438 | ||
| Occidental Petroleum Corp. | 6.450% | 9/15/36 | 11,560 | 12,852 | ||
| Occidental Petroleum Corp. | 6.600% | 3/15/46 | 7,579 | 8,376 | ||
| Occidental Petroleum Corp. | 4.400% | 4/15/46 | 8,420 | 7,193 | ||
| Ovintiv Inc. | 7.200% | 11/1/31 | 4,457 | 4,928 | ||
| Ovintiv Inc. | 7.375% | 11/1/31 | 43,158 | 48,515 | ||
| Ovintiv Inc. | 6.500% | 8/15/34 | 25,560 | 27,446 | ||
| Ovintiv Inc. | 6.500% | 2/1/38 | 23,025 | 24,013 | ||
| Range Resources Corp. | 5.000% | 3/15/23 | 21,500 | 21,578 | ||
| Range Resources Corp. | 8.250% | 1/15/29 | 23,160 | 24,791 | ||
| 2 | Range Resources Corp. | 4.750% | 2/15/30 | 77,721 | 74,214 | |
| 2 | Rockies Express Pipeline LLC | 4.950% | 7/15/29 | 10,603 | 9,372 | |
| 2 | Rockies Express Pipeline LLC | 4.800% | 5/15/30 | 8,522 | 7,232 | |
| 2 | Rockies Express Pipeline LLC | 7.500% | 7/15/38 | 10,758 | 9,697 | |
| SM Energy Co. | 6.750% | 9/15/26 | 21,030 | 21,020 | ||
| SM Energy Co. | 6.625% | 1/15/27 | 2,095 | 2,095 | ||
| SM Energy Co. | 6.500% | 7/15/28 | 2,100 | 2,074 | ||
| Southwestern Energy Co. | 5.375% | 2/1/29 | 28,520 | 27,881 | ||
| Southwestern Energy Co. | 5.375% | 3/15/30 | 68,570 | 67,534 | ||
| Southwestern Energy Co. | 4.750% | 2/1/32 | 18,190 | 16,969 | ||
| Sunoco LP / Sunoco Finance Corp. | 6.000% | 4/15/27 | 70,255 | 69,951 | ||
| Sunoco LP / Sunoco Finance Corp. | 5.875% | 3/15/28 | 18,335 | 17,555 | ||
| Sunoco LP / Sunoco Finance Corp. | 4.500% | 5/15/29 | 31,095 | 27,960 | ||
| Sunoco LP / Sunoco Finance Corp. | 4.500% | 4/30/30 | 51,930 | 45,479 | ||
| Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 6.875% | 1/15/29 | 32,470 | 33,554 | ||
| Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 4.875% | 2/1/31 | 48,850 | 46,192 | ||
| 2,7 | Transocean Guardian Ltd. | 5.875% | 1/15/24 | 31,738 | 30,308 | |
| 2,7 | Transocean Phoenix 2 Ltd. | 7.750% | 10/15/24 | 13,514 | 13,110 | |
| 2,7 | Transocean Pontus Ltd. | 6.125% | 8/1/25 | 25,334 | 23,696 | |
| 2,7 | Transocean Proteus Ltd. | 6.250% | 12/1/24 | 15,566 | 14,703 | |
| 2 | Venture Global Calcasieu Pass LLC | 3.875% | 8/15/29 | 49,475 | 45,816 | |
| 2 | Venture Global Calcasieu Pass LLC | 4.125% | 8/15/31 | 61,945 | 57,250 | |
9
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Venture Global Calcasieu Pass LLC | 3.875% | 11/1/33 | 79,365 | 69,252 | |
| 2 | Vine Energy Holdings LLC | 6.750% | 4/15/29 | 465 | 482 | |
| Western Midstream Operating LP | 3.350% | 2/1/25 | 15,585 | 15,295 | ||
| Western Midstream Operating LP | 3.950% | 6/1/25 | 14,570 | 14,424 | ||
| Western Midstream Operating LP | 4.650% | 7/1/26 | 39,380 | 39,046 | ||
| Western Midstream Operating LP | 4.500% | 3/1/28 | 3,250 | 3,164 | ||
| Western Midstream Operating LP | 4.750% | 8/15/28 | 7,215 | 7,063 | ||
| Western Midstream Operating LP | 4.300% | 2/1/30 | 3,580 | 3,329 | ||
| Western Midstream Operating LP | 5.450% | 4/1/44 | 21,255 | 19,014 | ||
| Western Midstream Operating LP | 5.300% | 3/1/48 | 53,203 | 47,176 | ||
| Western Midstream Operating LP | 5.500% | 2/1/50 | 63,863 | 57,194 | ||
| 2,477,390 | ||||||
| Financials (7.1%) | ||||||
| 2 | Acrisure LLC / Acrisure Finance Inc. | 4.250% | 2/15/29 | 137,770 | 122,163 | |
| 2 | AerCap Global Aviation Trust | 6.500% | 6/15/45 | 125,050 | 117,715 | |
| Aircastle Ltd. | 4.125% | 5/1/24 | 10,995 | 10,768 | ||
| 2 | AmWINS Group Inc. | 4.875% | 6/30/29 | 11,022 | 10,032 | |
| 2 | Avolon Holdings Funding Ltd. | 5.250% | 5/15/24 | 50,695 | 50,111 | |
| 2 | Burford Capital Global Finance LLC | 6.875% | 4/15/30 | 20,330 | 18,118 | |
| 2 | Compass Group Diversified Holdings LLC | 5.250% | 4/15/29 | 26,230 | 23,170 | |
| Credit Acceptance Corp. | 6.625% | 3/15/26 | 3,000 | 3,028 | ||
| Credit Suisse Group AG | 6.250% | 12/29/49 | 210,295 | 203,261 | ||
| 2 | Enact Holdings Inc. | 6.500% | 8/15/25 | 74,125 | 74,629 | |
| 2 | FirstCash Inc. | 4.625% | 9/1/28 | 20,000 | 18,191 | |
| 2 | FirstCash Inc. | 5.625% | 1/1/30 | 14,725 | 13,836 | |
| 2 | Fly Leasing Ltd. | 7.000% | 10/15/24 | 20,132 | 11,027 | |
| 2 | Freedom Mortgage Corp. | 8.250% | 4/15/25 | 34,650 | 31,013 | |
| 2 | goeasy Ltd. | 4.375% | 5/1/26 | 48,048 | 41,345 | |
| 2 | Home Point Capital Inc. | 5.000% | 2/1/26 | 6,717 | 4,635 | |
| 2 | HUB International Ltd. | 5.625% | 12/1/29 | 32,265 | 28,967 | |
| 2 | Intesa Sanpaolo SpA | 5.017% | 6/26/24 | 43,740 | 42,229 | |
| 2 | Intesa Sanpaolo SpA | 5.710% | 1/15/26 | 110,000 | 106,814 | |
| 2 | LD Holdings Group LLC | 6.500% | 11/1/25 | 13,685 | 8,960 | |
| 2 | LD Holdings Group LLC | 6.125% | 4/1/28 | 1,065 | 647 | |
| MGIC Investment Corp. | 5.250% | 8/15/28 | 23,805 | 22,912 | ||
| 2 | Nationstar Mortgage Holdings Inc. | 5.125% | 12/15/30 | 123,360 | 102,990 | |
| Navient Corp. | 5.500% | 1/25/23 | 43,440 | 43,667 | ||
| Navient Corp. | 7.250% | 9/25/23 | 9,039 | 9,182 | ||
| Navient Corp. | 6.125% | 3/25/24 | 10,000 | 10,002 | ||
| Navient Corp. | 5.875% | 10/25/24 | 6,000 | 5,922 | ||
| Navient Corp. | 6.750% | 6/15/26 | 1,460 | 1,390 | ||
| Navient Corp. | 4.875% | 3/15/28 | 15,026 | 12,893 | ||
| Navient Corp. | 5.500% | 3/15/29 | 80,585 | 69,165 | ||
| Navient Corp. | 5.625% | 8/1/33 | 10,626 | 8,388 | ||
| OneMain Finance Corp. | 8.250% | 10/1/23 | 12,466 | 12,706 | ||
| OneMain Finance Corp. | 6.125% | 3/15/24 | 27,155 | 26,890 | ||
| OneMain Finance Corp. | 7.125% | 3/15/26 | 109,246 | 106,438 | ||
| OneMain Finance Corp. | 3.500% | 1/15/27 | 20,735 | 17,814 | ||
| OneMain Finance Corp. | 3.875% | 9/15/28 | 58,650 | 48,598 | ||
| OneMain Finance Corp. | 4.000% | 9/15/30 | 48,500 | 38,407 | ||
| 2 | Park Aerospace Holdings Ltd. | 5.500% | 2/15/24 | 15,145 | 14,967 | |
| 2 | PennyMac Financial Services Inc. | 5.375% | 10/15/25 | 62,863 | 58,946 | |
| 2 | PennyMac Financial Services Inc. | 4.250% | 2/15/29 | 64,300 | 52,336 | |
| 2 | PennyMac Financial Services Inc. | 5.750% | 9/15/31 | 19,390 | 16,063 | |
| Radian Group Inc. | 4.500% | 10/1/24 | 73,175 | 72,241 | ||
10
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Radian Group Inc. | 6.625% | 3/15/25 | 10,000 | 10,191 | ||
| Radian Group Inc. | 4.875% | 3/15/27 | 36,000 | 35,156 | ||
| SLM Corp. | 3.125% | 11/2/26 | 16,925 | 14,852 | ||
| 2 | United Wholesale Mortgage LLC | 5.500% | 11/15/25 | 17,200 | 16,068 | |
| 2 | United Wholesale Mortgage LLC | 5.750% | 6/15/27 | 24,350 | 21,282 | |
| 2 | United Wholesale Mortgage LLC | 5.500% | 4/15/29 | 10,000 | 8,576 | |
| 1,798,701 | ||||||
| Health Care (10.2%) | ||||||
| 2 | 180 Medical Inc. | 3.875% | 10/15/29 | 4,805 | 4,374 | |
| 2 | Acadia Healthcare Co. Inc. | 5.500% | 7/1/28 | 42,085 | 41,633 | |
| 2 | Acadia Healthcare Co. Inc. | 5.000% | 4/15/29 | 37,507 | 36,252 | |
| 2,3 | Avantor Funding Inc. | 2.625% | 11/1/25 | 70,860 | 70,945 | |
| 2 | Avantor Funding Inc. | 4.625% | 7/15/28 | 102,390 | 98,728 | |
| 2 | Avantor Funding Inc. | 3.875% | 11/1/29 | 6,830 | 6,299 | |
| 2 | Bausch Health Cos. Inc. | 5.500% | 11/1/25 | 51,675 | 46,342 | |
| 2 | Bausch Health Cos. Inc. | 6.125% | 2/1/27 | 17,075 | 14,561 | |
| 2 | Bausch Health Cos. Inc. | 5.750% | 8/15/27 | 12,790 | 10,645 | |
| 2 | Bausch Health Cos. Inc. | 5.000% | 1/30/28 | 13,125 | 7,002 | |
| 2 | Bausch Health Cos. Inc. | 4.875% | 6/1/28 | 33,380 | 26,663 | |
| 2 | Bausch Health Cos. Inc. | 5.250% | 1/30/30 | 25,205 | 13,056 | |
| 2,3 | CAB SELAS | 3.375% | 2/1/28 | 43,453 | 38,549 | |
| 3 | CAB SELAS | 3.375% | 2/1/28 | 34,950 | 31,006 | |
| 2 | Catalent Pharma Solutions Inc. | 5.000% | 7/15/27 | 21,270 | 21,302 | |
| 2,3 | Catalent Pharma Solutions Inc. | 2.375% | 3/1/28 | 45,735 | 40,693 | |
| 2 | Catalent Pharma Solutions Inc. | 3.125% | 2/15/29 | 12,215 | 10,827 | |
| 2 | Catalent Pharma Solutions Inc. | 3.500% | 4/1/30 | 38,905 | 34,800 | |
| Centene Corp. | 4.250% | 12/15/27 | 80,915 | 79,583 | ||
| Centene Corp. | 4.625% | 12/15/29 | 41,455 | 40,901 | ||
| Centene Corp. | 3.000% | 10/15/30 | 18,435 | 16,462 | ||
| 2 | Charles River Laboratories International Inc. | 4.250% | 5/1/28 | 43,614 | 42,620 | |
| 2 | Charles River Laboratories International Inc. | 3.750% | 3/15/29 | 24,860 | 23,029 | |
| 2 | Charles River Laboratories International Inc. | 4.000% | 3/15/31 | 24,970 | 23,002 | |
| 2 | CHS/Community Health Systems Inc. | 5.625% | 3/15/27 | 68,575 | 60,945 | |
| 2 | CHS/Community Health Systems Inc. | 6.000% | 1/15/29 | 21,435 | 18,703 | |
| 2 | CHS/Community Health Systems Inc. | 5.250% | 5/15/30 | 44,365 | 37,268 | |
| 2 | CHS/Community Health Systems Inc. | 4.750% | 2/15/31 | 38,895 | 31,332 | |
| 2 | Grifols Escrow Issuer SA | 4.750% | 10/15/28 | 23,180 | 20,586 | |
| 2,3 | Grifols SA | 1.625% | 2/15/25 | 27,965 | 27,416 | |
| 2,3 | Grifols SA | 2.250% | 11/15/27 | 42,955 | 39,203 | |
| HCA Inc. | 5.375% | 2/1/25 | 31,390 | 32,084 | ||
| HCA Inc. | 7.690% | 6/15/25 | 4,510 | 4,852 | ||
| HCA Inc. | 5.875% | 2/15/26 | 77,370 | 79,997 | ||
| HCA Inc. | 5.625% | 9/1/28 | 12,585 | 13,041 | ||
| HCA Inc. | 5.875% | 2/1/29 | 39,095 | 40,867 | ||
| HCA Inc. | 3.500% | 9/1/30 | 178,580 | 162,766 | ||
| 2 | Hologic Inc. | 3.250% | 2/15/29 | 48,275 | 43,835 | |
| 2 | IQVIA Inc. | 5.000% | 10/15/26 | 46,310 | 46,393 | |
| 2 | IQVIA Inc. | 5.000% | 5/15/27 | 99,992 | 100,138 | |
| 2,3 | IQVIA Inc. | 2.250% | 1/15/28 | 41,670 | 38,461 | |
| 2,3 | IQVIA Inc. | 2.875% | 6/15/28 | 61,595 | 57,759 | |
| 2 | Jazz Securities DAC | 4.375% | 1/15/29 | 65,260 | 62,823 | |
| 2 | Mozart Debt Merger Sub Inc. | 3.875% | 4/1/29 | 215,210 | 194,302 | |
| 2 | Mozart Debt Merger Sub Inc. | 5.250% | 10/1/29 | 135,546 | 122,465 | |
| 2 | Organon & Co. / Organon Foreign Debt Co.-Issuer BV | 4.125% | 4/30/28 | 109,270 | 103,681 | |
| 2 | Organon & Co. / Organon Foreign Debt Co.-Issuer BV | 5.125% | 4/30/31 | 46,345 | 43,419 | |
11
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Owens & Minor Inc. | 6.625% | 4/1/30 | 28,683 | 28,707 | |
| 2 | Prestige Brands Inc. | 3.750% | 4/1/31 | 8,723 | 7,498 | |
| 2 | Teleflex Inc. | 4.250% | 6/1/28 | 34,312 | 32,563 | |
| Tenet Healthcare Corp. | 4.625% | 7/15/24 | 3,978 | 3,973 | ||
| 2 | Tenet Healthcare Corp. | 4.625% | 9/1/24 | 27,250 | 27,041 | |
| 2 | Tenet Healthcare Corp. | 4.875% | 1/1/26 | 8,930 | 8,797 | |
| 2 | Tenet Healthcare Corp. | 5.125% | 11/1/27 | 1,865 | 1,838 | |
| 2 | Tenet Healthcare Corp. | 4.625% | 6/15/28 | 14,205 | 13,455 | |
| 2 | Tenet Healthcare Corp. | 6.125% | 10/1/28 | 27,450 | 26,748 | |
| 2 | Tenet Healthcare Corp. | 4.250% | 6/1/29 | 10,405 | 9,681 | |
| 2 | Tenet Healthcare Corp. | 4.375% | 1/15/30 | 23,970 | 22,336 | |
| 2 | Tenet Healthcare Corp. | 6.125% | 6/15/30 | 63,975 | 64,674 | |
| Teva Pharmaceutical Finance Co. BV | 2.950% | 12/18/22 | 7,370 | 7,322 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 3.150% | 10/1/26 | 94,130 | 84,340 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 4.750% | 5/9/27 | 14,300 | 13,534 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 6.750% | 3/1/28 | 70,935 | 71,502 | ||
| 2,585,619 | ||||||
| Industrials (6.3%) | ||||||
| 2 | APX Group Inc. | 5.750% | 7/15/29 | 22,065 | 18,542 | |
| 2 | Aramark Services Inc. | 5.000% | 4/1/25 | 54,020 | 53,901 | |
| 2 | Aramark Services Inc. | 5.000% | 2/1/28 | 45,642 | 44,565 | |
| 2 | BWX Technologies Inc. | 4.125% | 6/30/28 | 29,906 | 28,377 | |
| 2 | BWX Technologies Inc. | 4.125% | 4/15/29 | 53,005 | 49,803 | |
| 2 | Clean Harbors Inc. | 4.875% | 7/15/27 | 47,390 | 47,081 | |
| 2 | Clean Harbors Inc. | 5.125% | 7/15/29 | 25,851 | 25,146 | |
| 2 | Covanta Holding Corp. | 4.875% | 12/1/29 | 27,075 | 24,171 | |
| 2 | First Student Bidco Inc. / First Transit Parent Inc. | 4.000% | 7/31/29 | 104,477 | 92,183 | |
| 2 | Hawaiian Brand Intellectual Property Ltd. / HawaiianMiles Loyalty Ltd. | 5.750% | 1/20/26 | 76,960 | 74,946 | |
| 2 | Herc Holdings Inc. | 5.500% | 7/15/27 | 197,742 | 197,869 | |
| Howmet Aerospace Inc. | 3.000% | 1/15/29 | 1,510 | 1,352 | ||
| 2,3 | Loxam SAS | 4.250% | 4/15/24 | 5,520 | 5,557 | |
| 3 | Loxam SAS | 2.875% | 4/15/26 | 19,380 | 17,768 | |
| 3 | Loxam SAS | 3.750% | 7/15/26 | 28,395 | 26,518 | |
| 2 | Moog Inc. | 4.250% | 12/15/27 | 10,110 | 9,435 | |
| 2 | Mueller Water Products Inc. | 4.000% | 6/15/29 | 6,225 | 5,704 | |
| 2,3 | Q-Park Holding I BV | 1.500% | 3/1/25 | 27,330 | 25,089 | |
| 2,3 | Q-Park Holding I BV | 2.000% | 3/1/27 | 34,995 | 29,246 | |
| 2 | Sensata Technologies BV | 4.875% | 10/15/23 | 10,000 | 10,048 | |
| 2 | Sensata Technologies BV | 5.625% | 11/1/24 | 19,290 | 19,522 | |
| 2 | Sensata Technologies BV | 5.000% | 10/1/25 | 52,750 | 52,919 | |
| 2 | Sensata Technologies Inc. | 4.375% | 2/15/30 | 12,765 | 11,894 | |
| 2 | Sensata Technologies Inc. | 3.750% | 2/15/31 | 61,723 | 53,619 | |
| 2 | Spirit AeroSystems Inc. | 5.500% | 1/15/25 | 24,250 | 24,144 | |
| Spirit AeroSystems Inc. | 3.850% | 6/15/26 | 3,185 | 2,859 | ||
| 2 | Stericycle Inc. | 3.875% | 1/15/29 | 8,425 | 7,699 | |
| 2,3 | TK Elevator Midco GmbH | 4.375% | 7/15/27 | 20,249 | 18,939 | |
| 2 | TK Elevator US Newco Inc. | 5.250% | 7/15/27 | 57,081 | 54,754 | |
| 2 | TransDigm Inc. | 6.250% | 3/15/26 | 80,850 | 81,184 | |
| TransDigm Inc. | 5.500% | 11/15/27 | 23,820 | 22,474 | ||
| TransDigm Inc. | 4.625% | 1/15/29 | 97,941 | 88,108 | ||
| TransDigm Inc. | 4.875% | 5/1/29 | 16,188 | 14,490 | ||
| 2 | United Airlines Inc. | 4.375% | 4/15/26 | 11,920 | 11,476 | |
| 2 | United Airlines Inc. | 4.625% | 4/15/29 | 29,570 | 27,255 | |
| United Rentals North America Inc. | 5.500% | 5/15/27 | 38,166 | 38,799 | ||
12
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United Rentals North America Inc. | 4.875% | 1/15/28 | 71,121 | 71,034 | ||
| United Rentals North America Inc. | 5.250% | 1/15/30 | 24,410 | 24,689 | ||
| United Rentals North America Inc. | 4.000% | 7/15/30 | 57,240 | 53,031 | ||
| United Rentals North America Inc. | 3.875% | 2/15/31 | 48,454 | 44,182 | ||
| United Rentals North America Inc. | 3.750% | 1/15/32 | 56,825 | 50,051 | ||
| 2,3 | Verisure Holding AB | 3.250% | 2/15/27 | 33,594 | 30,116 | |
| 2,3 | Verisure Midholding AB | 5.250% | 2/15/29 | 7,557 | 6,456 | |
| 2 | WESCO Distribution Inc. | 7.125% | 6/15/25 | 10,000 | 10,344 | |
| 2 | Williams Scotsman International Inc. | 4.625% | 8/15/28 | 11,010 | 10,331 | |
| 1,617,670 | ||||||
| Materials (7.7%) | ||||||
| 2 | Advanced Drainage Systems Inc. | 6.375% | 6/15/30 | 8,885 | 9,024 | |
| 2 | Ardagh Metal Packaging Finance USA LLC / Ardagh Metal Packaging Finance plc | 3.250% | 9/1/28 | 42,625 | 39,610 | |
| 2 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 4.125% | 8/15/26 | 61,925 | 55,905 | |
| 2,5 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 4.750% | 7/15/27 | 5,520 | 5,007 | |
| 2 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 5.250% | 8/15/27 | 44,378 | 34,574 | |
| 2 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 5.250% | 8/15/27 | 70,697 | 53,807 | |
| 8 | Avient Corp. | 7.125% | 8/1/30 | 24,380 | 25,172 | |
| 2 | Axalta Coating Systems LLC | 3.375% | 2/15/29 | 55,709 | 48,761 | |
| 3 | Ball Corp. | 1.500% | 3/15/27 | 68,205 | 62,817 | |
| Ball Corp. | 3.125% | 9/15/31 | 975 | 854 | ||
| 2 | Berry Global Inc. | 4.500% | 2/15/26 | 36,204 | 35,106 | |
| 2 | Berry Global Inc. | 4.875% | 7/15/26 | 43,380 | 42,562 | |
| 2 | Berry Global Inc. | 5.625% | 7/15/27 | 7,055 | 7,126 | |
| Cemex SAB de CV | 7.375% | 6/5/27 | 17,810 | 18,077 | ||
| 2 | Cemex SAB de CV | 5.450% | 11/19/29 | 2,000 | 1,833 | |
| Cemex SAB de CV | 5.450% | 11/19/29 | 18,910 | 17,464 | ||
| 2 | Cemex SAB de CV | 3.875% | 7/11/31 | 45,620 | 36,762 | |
| Chemours Co. | 5.375% | 5/15/27 | 31,740 | 30,463 | ||
| 2 | Chemours Co. | 4.625% | 11/15/29 | 26,670 | 23,401 | |
| 2 | Clydesdale Acquisition Holdings Inc. | 6.625% | 4/15/29 | 35,100 | 35,395 | |
| Commercial Metals Co. | 4.875% | 5/15/23 | 6,540 | 6,570 | ||
| Commercial Metals Co. | 4.125% | 1/15/30 | 14,115 | 12,211 | ||
| Commercial Metals Co. | 3.875% | 2/15/31 | 4,660 | 3,928 | ||
| Commercial Metals Co. | 4.375% | 3/15/32 | 30,770 | 26,318 | ||
| 2 | Constellium SE | 5.875% | 2/15/26 | 19,025 | 18,488 | |
| 2 | Constellium SE | 5.625% | 6/15/28 | 25,079 | 22,593 | |
| 2 | Constellium SE | 3.750% | 4/15/29 | 36,650 | 31,253 | |
| 2 | Crown Americas LLC | 5.250% | 4/1/30 | 81,090 | 81,017 | |
| Crown Americas LLC / Crown Americas Capital Corp. V | 4.250% | 9/30/26 | 16,434 | 16,048 | ||
| Crown Americas LLC / Crown Americas Capital Corp. VI | 4.750% | 2/1/26 | 20,130 | 19,975 | ||
| 2,3 | Crown European Holdings SA | 2.875% | 2/1/26 | 31,200 | 30,417 | |
| 2 | Diamond BC BV | 4.625% | 10/1/29 | 13,745 | 11,588 | |
| 2 | FMG Resources August 2006 Pty Ltd. | 5.875% | 4/15/30 | 34,525 | 32,807 | |
| 2 | FMG Resources August 2006 Pty Ltd. | 4.375% | 4/1/31 | 71,178 | 61,904 | |
| 2 | FMG Resources August 2006 Pty Ltd. | 6.125% | 4/15/32 | 34,277 | 32,589 | |
| Graphic Packaging International LLC | 4.125% | 8/15/24 | 23,440 | 23,262 | ||
| 2 | Graphic Packaging International LLC | 4.750% | 7/15/27 | 7,870 | 7,702 | |
| 2 | Graphic Packaging International LLC | 3.500% | 3/15/28 | 74,555 | 68,980 | |
| 2 | Graphic Packaging International LLC | 3.500% | 3/1/29 | 17,280 | 15,658 | |
| 2 | Graphic Packaging International LLC | 3.750% | 2/1/30 | 18,085 | 16,345 | |
| 2 | NOVA Chemicals Corp. | 5.250% | 6/1/27 | 55,894 | 53,576 | |
| 2 | Novelis Corp. | 3.250% | 11/15/26 | 24,245 | 22,578 | |
| 2 | Novelis Corp. | 4.750% | 1/30/30 | 51,958 | 48,052 | |
13
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Novelis Corp. | 3.875% | 8/15/31 | 37,020 | 32,049 | |
| 2 | OCI NV | 4.625% | 10/15/25 | 22,514 | 21,854 | |
| Olin Corp. | 5.125% | 9/15/27 | 44,876 | 43,182 | ||
| Olin Corp. | 5.625% | 8/1/29 | 16,390 | 15,735 | ||
| 2 | Owens-Brockway Glass Container Inc. | 5.875% | 8/15/23 | 48,968 | 48,981 | |
| 2 | Owens-Brockway Glass Container Inc. | 5.375% | 1/15/25 | 29,319 | 27,545 | |
| 2 | Owens-Brockway Glass Container Inc. | 6.375% | 8/15/25 | 42,000 | 40,206 | |
| 2 | Owens-Brockway Glass Container Inc. | 6.625% | 5/13/27 | 42,690 | 41,056 | |
| 2 | Sealed Air Corp. | 4.000% | 12/1/27 | 8,853 | 8,419 | |
| Silgan Holdings Inc. | 4.125% | 2/1/28 | 14,225 | 13,554 | ||
| 3 | Silgan Holdings Inc. | 2.250% | 6/1/28 | 43,070 | 37,612 | |
| 2 | Standard Industries Inc. | 5.000% | 2/15/27 | 23,785 | 22,930 | |
| 2 | Standard Industries Inc. | 4.750% | 1/15/28 | 31,779 | 30,181 | |
| 2 | Standard Industries Inc. | 4.375% | 7/15/30 | 87,750 | 76,450 | |
| 2 | Standard Industries Inc. | 3.375% | 1/15/31 | 109,950 | 89,654 | |
| 2,3 | Trivium Packaging Finance BV | 3.750% | 8/15/26 | 16,095 | 15,252 | |
| 2 | Trivium Packaging Finance BV | 5.500% | 8/15/26 | 59,455 | 58,682 | |
| 2 | Trivium Packaging Finance BV | 8.500% | 8/15/27 | 1,178 | 1,144 | |
| 2 | Tronox Inc. | 4.625% | 3/15/29 | 93,970 | 81,494 | |
| 1,953,559 | ||||||
| Real Estate (1.5%) | ||||||
| 2 | Iron Mountain Inc. | 4.875% | 9/15/27 | 29,895 | 28,559 | |
| 2 | Iron Mountain Inc. | 5.250% | 3/15/28 | 1,460 | 1,402 | |
| 2 | Iron Mountain Inc. | 4.875% | 9/15/29 | 85,781 | 78,930 | |
| 2 | Iron Mountain Inc. | 5.250% | 7/15/30 | 8,045 | 7,498 | |
| 2 | Iron Mountain Inc. | 4.500% | 2/15/31 | 3,805 | 3,340 | |
| 2 | Iron Mountain Inc. | 5.625% | 7/15/32 | 12,625 | 11,985 | |
| 2 | Iron Mountain Information Management Services Inc. | 5.000% | 7/15/32 | 704 | 635 | |
| 2 | Park Intermediate Holdings LLC / PK Domestic Property LLC / PK Finance Co-Issuer | 4.875% | 5/15/29 | 9,655 | 8,893 | |
| Service Properties Trust | 4.500% | 3/15/25 | 1,582 | 1,338 | ||
| Service Properties Trust | 7.500% | 9/15/25 | 4,808 | 4,659 | ||
| Service Properties Trust | 5.250% | 2/15/26 | 6,650 | 5,527 | ||
| Service Properties Trust | 4.750% | 10/1/26 | 33,592 | 26,285 | ||
| Service Properties Trust | 4.950% | 2/15/27 | 9,445 | 7,790 | ||
| Service Properties Trust | 5.500% | 12/15/27 | 38,399 | 33,520 | ||
| Service Properties Trust | 3.950% | 1/15/28 | 18,540 | 13,740 | ||
| Service Properties Trust | 4.950% | 10/1/29 | 2,884 | 2,154 | ||
| Service Properties Trust | 4.375% | 2/15/30 | 17,714 | 12,911 | ||
| 2 | VICI Properties LP / VICI Note Co. Inc. | 5.625% | 5/1/24 | 5,000 | 5,003 | |
| 2 | VICI Properties LP / VICI Note Co. Inc. | 4.250% | 12/1/26 | 87,348 | 82,485 | |
| 2 | VICI Properties LP / VICI Note Co. Inc. | 3.750% | 2/15/27 | 15,724 | 14,402 | |
| 2 | VICI Properties LP / VICI Note Co. Inc. | 4.625% | 12/1/29 | 23,225 | 22,149 | |
| 373,205 | ||||||
| Technology (10.5%) | ||||||
| 2 | Black Knight InfoServ LLC | 3.625% | 9/1/28 | 69,188 | 64,059 | |
| Block Inc. | 2.750% | 6/1/26 | 67,887 | 63,376 | ||
| Block Inc. | 3.500% | 6/1/31 | 7,625 | 6,616 | ||
| 2 | Booz Allen Hamilton Inc. | 3.875% | 9/1/28 | 14,995 | 14,224 | |
| 2 | Booz Allen Hamilton Inc. | 4.000% | 7/1/29 | 15,535 | 14,831 | |
| CDW LLC / CDW Finance Corp. | 4.125% | 5/1/25 | 61,233 | 60,229 | ||
| CDW LLC / CDW Finance Corp. | 4.250% | 4/1/28 | 77,724 | 71,731 | ||
| CDW LLC / CDW Finance Corp. | 3.250% | 2/15/29 | 71,684 | 62,248 | ||
| 2 | Change Healthcare Holdings LLC / Change Healthcare Finance Inc. | 5.750% | 3/1/25 | 98,454 | 97,986 | |
14
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Condor Merger Sub Inc. | 7.375% | 2/15/30 | 32,265 | 28,547 | |
| 2 | Entegris Escrow Corp. | 4.750% | 4/15/29 | 34,590 | 33,360 | |
| 2 | Entegris Inc. | 4.375% | 4/15/28 | 67,165 | 63,289 | |
| 2 | Entegris Inc. | 3.625% | 5/1/29 | 20,155 | 18,006 | |
| 2 | Fair Isaac Corp. | 4.000% | 6/15/28 | 52,292 | 48,942 | |
| 2 | Gartner Inc. | 3.625% | 6/15/29 | 12,435 | 11,360 | |
| 2 | Gartner Inc. | 3.750% | 10/1/30 | 38,129 | 35,159 | |
| 2 | II-VI Inc. | 5.000% | 12/15/29 | 61,155 | 58,726 | |
| 2 | Imola Merger Corp. | 4.750% | 5/15/29 | 255,630 | 239,037 | |
| 2 | Minerva Merger Sub Inc. | 6.500% | 2/15/30 | 79,108 | 71,606 | |
| 2 | MSCI Inc. | 4.000% | 11/15/29 | 55,270 | 52,123 | |
| 2 | MSCI Inc. | 3.625% | 9/1/30 | 10,965 | 10,002 | |
| 2 | MSCI Inc. | 3.625% | 11/1/31 | 1,365 | 1,221 | |
| 2 | Nielsen Finance LLC / Nielsen Finance Co. | 5.625% | 10/1/28 | 5,230 | 5,124 | |
| 2 | Nielsen Finance LLC / Nielsen Finance Co. | 4.500% | 7/15/29 | 87,345 | 82,590 | |
| 2 | Nielsen Finance LLC / Nielsen Finance Co. | 5.875% | 10/1/30 | 4,000 | 3,923 | |
| 2 | Nielsen Finance LLC / Nielsen Finance Co. | 4.750% | 7/15/31 | 52,325 | 49,745 | |
| Nokia of America Corp. | 6.500% | 1/15/28 | 56,315 | 56,131 | ||
| Nokia of America Corp. | 6.450% | 3/15/29 | 88,747 | 83,847 | ||
| Nokia OYJ | 4.375% | 6/12/27 | 59,355 | 59,993 | ||
| Nokia OYJ | 6.625% | 5/15/39 | 129,409 | 135,366 | ||
| 2 | NortonLifeLock Inc. | 5.000% | 4/15/25 | 132,140 | 131,642 | |
| 2 | Open Text Corp. | 3.875% | 2/15/28 | 99,067 | 91,769 | |
| 2 | Open Text Corp. | 3.875% | 12/1/29 | 31,005 | 27,938 | |
| 2 | Open Text Holdings Inc. | 4.125% | 2/15/30 | 95,210 | 88,040 | |
| 2 | Open Text Holdings Inc. | 4.125% | 12/1/31 | 34,880 | 31,114 | |
| 2 | Presidio Holdings Inc. | 4.875% | 2/1/27 | 97,432 | 93,529 | |
| 2 | Presidio Holdings Inc. | 8.250% | 2/1/28 | 38,445 | 36,135 | |
| 2 | PTC Inc. | 3.625% | 2/15/25 | 18,000 | 17,529 | |
| 2 | PTC Inc. | 4.000% | 2/15/28 | 20,370 | 19,351 | |
| Qorvo Inc. | 4.375% | 10/15/29 | 48,875 | 45,484 | ||
| 2 | SS&C Technologies Inc. | 5.500% | 9/30/27 | 147,721 | 145,466 | |
| Western Digital Corp. | 4.750% | 2/15/26 | 63,443 | 62,611 | ||
| Xerox Corp. | 4.625% | 3/15/23 | 70,356 | 70,271 | ||
| Xerox Corp. | 4.800% | 3/1/35 | 27,144 | 20,715 | ||
| Xerox Corp. | 6.750% | 12/15/39 | 39,241 | 34,518 | ||
| 2 | Xerox Holdings Corp. | 5.000% | 8/15/25 | 5,145 | 4,970 | |
| 2 | Xerox Holdings Corp. | 5.500% | 8/15/28 | 158,030 | 144,349 | |
| 2,668,828 | ||||||
| Utilities (1.9%) | ||||||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.625% | 5/20/24 | 46,910 | 47,534 | ||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.500% | 5/20/25 | 37,500 | 37,728 | ||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.875% | 8/20/26 | 46,910 | 47,506 | ||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.750% | 5/20/27 | 41,391 | 41,685 | ||
| 2 | Clearway Energy Operating LLC | 4.750% | 3/15/28 | 18,731 | 18,180 | |
| 2 | Clearway Energy Operating LLC | 3.750% | 2/15/31 | 81,950 | 71,866 | |
| 2 | Clearway Energy Operating LLC | 3.750% | 1/15/32 | 16,020 | 13,656 | |
| FirstEnergy Corp. | 4.400% | 7/15/27 | 20,110 | 19,708 | ||
| 2 | NextEra Energy Operating Partners LP | 4.250% | 7/15/24 | 33,229 | 32,905 | |
| 2 | NextEra Energy Operating Partners LP | 4.250% | 9/15/24 | 3,532 | 3,471 | |
| 2 | NextEra Energy Operating Partners LP | 3.875% | 10/15/26 | 104,720 | 103,525 | |
| 2 | NextEra Energy Operating Partners LP | 4.500% | 9/15/27 | 24,185 | 23,904 | |
15
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Suburban Propane Partners LP / Suburban Energy Finance Corp. | 5.000% | 6/1/31 | 20,945 | 19,149 | |
| 480,817 | ||||||
| Total Corporate Bonds (Cost $24,497,392) | 22,709,164 | |||||
| Floating Rate Loan Interests (4.0%) | ||||||
| 6 | APX Group Inc. Term Loan B, 1M USD LIBOR + 3.500% | 5.656% | 10/7/28 | 26,816 | 25,165 | |
| 6 | Asurion LLC 2nd Lien Term Loan B-4, 1M USD LIBOR + 5.250% | 7.622% | 1/20/29 | 10,225 | 8,722 | |
| 6 | Asurion LLC Term Loan B-7, 1M USD LIBOR + 3.000% | 5.372% | 3/11/24 | 84,726 | 81,602 | |
| 6 | Asurion LLC Term Loan B-8, 1M USD LIBOR + 3.250% | 5.622% | 12/23/26 | 45,096 | 42,277 | |
| 6 | Asurion LLC Term Loan B-9, 1M USD LIBOR + 3.250% | 5.622% | 7/31/27 | 71,539 | 66,996 | |
| 6 | Athenahealth Inc. Term Loan B, TSFR1M + 3.500% | 5.653% | 2/15/29 | 34,229 | 32,551 | |
| 6 | Brown Group Holding LLC Term Loan B, 1M USD LIBOR + 2.500% | 4.872% | 7/6/28 | 51,102 | 49,161 | |
| 6 | Chamberlain Group Inc. Term Loan B, 1M USD LIBOR + 3.500% | 5.872% | 3/11/28 | 55,640 | 51,641 | |
| 6 | Clarios Global LP Term Loan B, 1M USD LIBOR + 3.250% | 5.622% | 4/30/26 | 21,870 | 20,995 | |
| 6 | Dun & Bradstreet Corp. Term Loan, 3M USD LIBOR + 3.250% | 5.550% | 6/2/26 | 108,123 | 105,041 | |
| 6 | Great Outdoors Group LLC Term Loan B-1, 1M USD LIBOR + 3.750% | 6.122% | 6/3/28 | 32,810 | 29,940 | |
| 6 | HUB International Ltd. Term Loan B, 3M USD LIBOR + 3.250% | 5.982% | 4/25/25 | 35,391 | 34,567 | |
| 6 | IRB Holding Corp. Term Loan B, TSFR1M + 3.150% | 4.874% | 12/15/27 | 121,834 | 116,351 | |
| 6 | McAfee Corp. Term Loan B, TSFR1M + 4.000% | 6.407% | 3/1/29 | 55,890 | 53,212 | |
| 6 | Medline Borrower LP Term Loan B, 1M USD LIBOR + 3.250% | 5.622% | 10/23/28 | 99,059 | 94,463 | |
| 6 | NorthRiver Midstream Finance LP Term Loan B, 3M USD LIBOR + 3.250% | 5.527% | 1/10/25 | 22,811 | 22,505 | |
| 6 | Owens & Minor Inc. Term Loan B, TSFR1M + 3.750% | 6.177% | 3/29/29 | 12,708 | 12,629 | |
| 6 | Peraton Corp. Term Loan B, 1M USD LIBOR + 3.750% | 6.122% | 1/2/28 | 33,995 | 32,947 | |
| 6 | SRAM LLC Term Loan B, 1M USD LIBOR + 2.750% | 3.250% | 5/18/28 | 24,733 | 23,744 | |
| 6 | SRAM LLC Term Loan B, 3M USD LIBOR + 2.750% | 3.250% | 5/18/28 | 3,035 | 2,913 | |
| 6 | SS&C European Holdings Sarl Term Loan B-4, 1M USD LIBOR + 1.750% | 4.122% | 4/16/25 | 10,408 | 10,144 | |
| 6 | SS&C Technologies Inc. Term Loan B-3, 1M USD LIBOR + 1.750% | 4.122% | 4/16/25 | 12,821 | 12,496 | |
| 6 | SS&C Technologies Inc. Term Loan B-5, 1M USD LIBOR + 1.750% | 4.122% | 4/16/25 | 18,074 | 17,658 | |
| 6 | Trans Union LLC Term Loan B-6, 1M USD LIBOR + 2.250% | 4.622% | 1/12/28 | 57,914 | 56,426 | |
| Total Floating Rate Loan Interests (Cost $1,047,457) | 1,004,146 | |||||
| Temporary Cash Investments (1.1%) | ||||||
| Repurchase Agreements (1.1%) | ||||||
| Bank of America Securities, LLC (Dated 7/29/22, Repurchase Value $10,702,000, collateralized by Ginnie Mae 2.500%, 2/20/52, with a value of $10,914,000) | 2.300% | 8/1/22 | 10,700 | 10,700 | ||
| Credit Agricole Securities (Dated 7/29/22, Repurchase Value $75,514,000, collateralized by U.S. Treasury Note/Bond 3.000%–4.250%, 11/15/40–2/15/49, with a value of $77,010,000) | 2.220% | 8/1/22 | 75,500 | 75,500 | ||
| JP Morgan Securities LLC (Dated 7/29/22, Repurchase Value $15,903,000, collateralized by U.S. Treasury Note/Bond 0.125%–1.375%, 8/31/22–6/30/23, with a value of $16,218,000) | 2.250% | 8/1/22 | 15,900 | 15,900 | ||
16
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| RBC Capital Markets LLC (Dated 7/29/22, Repurchase Value $100,519,000, collateralized by Fannie Mae 4.500%, 6/1/52, and U.S. Treasury Note/Bond 0.750%–2.500%, 1/31/24–5/31/26, with a value of $102,510,000) | 2.280% | 8/1/22 | 100,500 | 100,500 | ||
| TD Securities (USA) LLC (Dated 7/29/22, Repurchase Value $85,116,000, collateralized by Ginnie Mae 2.500%–3.500%, 3/20/48–1/20/52, with a value of $86,802,000) | 2.250% | 8/1/22 | 85,100 | 85,100 | ||
| 287,700 | ||||||
| Total Temporary Cash Investments (Cost $287,700) | 287,700 | |||||
| Total Investments (97.3%) (Cost $26,583,030) | 24,743,893 | |||||
| Other Assets and Liabilities—Net (2.7%) | 678,876 | |||||
| Net Assets (100%) | 25,422,769 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $28,874,000 have been segregated as initial margin for open centrally cleared swap contracts. |
| 2 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At July 31, 2022, the aggregate value was $14,991,742,000, representing 59.0% of net assets. |
| 3 | Face amount denominated in euro. |
| 4 | Face amount denominated in Canadian dollars. |
| 5 | Face amount denominated in British pounds. |
| 6 | Variable-rate security; rate shown is effective rate at period end. Certain variable-rate securities are not based on a published reference rate and spread but are determined by the issuer or agent based on current market conditions. |
| 7 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 8 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2022. |
| 1M—1-month. | |
| 3M—3-month. | |
| LIBOR—London Interbank Offered Rate. | |
| TSFR1M—CME Term SOFR 1 Month. | |
| USD—U.S. dollar. |
Other Financial Instruments as of Period End | ||||
| Floating Rate Loan Commitments | ||||
| Total Unfunded Commitment ($000) | Fair Value Commitment ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | |
| Athenahealth Inc. | 5,801 | 5,540 | — | (261) |
17
High-Yield Corporate Fund
Derivative Financial
Instruments Outstanding as of Period End
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| JPMorgan Chase Bank, N.A. | 8/31/22 | EUR | 30,030 | USD | 30,717 | 41 | — |
| JPMorgan Chase Bank, N.A. | 8/31/22 | USD | 75,676 | CAD | 97,435 | — | (410) |
| Deutsche Bank AG | 8/31/22 | USD | 839,885 | EUR | 821,485 | — | (1,507) |
| Toronto-Dominion Bank | 8/31/22 | USD | 52,507 | GBP | 43,575 | — | (595) |
| 41 | (2,512) | ||||||
| CAD—Canadian dollar. |
| EUR—euro. |
| GBP—British pound. |
| USD—U.S. dollar. |
| Centrally Cleared Credit Default Swaps | ||||||
| Reference Entity | Termination Date | Notional Amount (000) | Periodic Premium Received (Paid)1 (%) | Value ($000) | Unrealized Appreciation (Depreciation) ($000) | |
| Credit Protection Sold | ||||||
| CDX-NA-HY-S38-V2 | 6/21/27 | USD | 322,265 | 5.000 | 5,651 | 12,995 |
| 1 Periodic premium received/paid quarterly. |
| USD—U.S. dollar. |
The notional amount represents
the maximum potential amount the fund could be required to pay as a seller of credit protection if the reference entity was subject to a credit event.
See accompanying
Notes, which are an integral part of the Financial Statements.
18
High-Yield Corporate Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Unaffiliated Issuers (Cost $26,583,030) | 24,743,893 |
| Investment in Vanguard | 924 |
| Cash | 10,815 |
| Foreign Currency, at Value (Cost $67) | 30 |
| Receivables for Investment Securities Sold | 417,097 |
| Receivables for Accrued Income | 327,767 |
| Receivables for Capital Shares Issued | 19,440 |
| Variation Margin Receivable—Centrally Cleared Swap Contracts | 778 |
| Unrealized Appreciation—Forward Currency Contracts | 41 |
| Total Assets | 25,520,785 |
| Liabilities | |
| Payables for Investment Securities Purchased | 25,918 |
| Payables to Investment Advisor | 1,846 |
| Payables for Capital Shares Redeemed | 43,581 |
| Payables for Distributions | 22,675 |
| Payables to Vanguard | 1,223 |
| Unrealized Depreciation—Floating Rate Loan Commitments | 261 |
| Unrealized Depreciation—Forward Currency Contracts | 2,512 |
| Total Liabilities | 98,016 |
| Net Assets | 25,422,769 |
| At July 31, 2022, net assets consisted of: | |
| Paid-in Capital | 27,959,862 |
| Total Distributable Earnings (Loss) | (2,537,093) |
| Net Assets | 25,422,769 |
| Investor Shares—Net Assets | |
| Applicable to 584,833,038 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 3,150,207 |
| Net Asset Value Per Share—Investor Shares | $5.39 |
| Admiral Shares—Net Assets | |
| Applicable to 4,134,886,034 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 22,272,562 |
| Net Asset Value Per Share—Admiral Shares | $5.39 |
See accompanying
Notes, which are an integral part of the Financial Statements.
19
High-Yield Corporate Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest | 631,677 |
| Total Income | 631,677 |
| Expenses | |
| Investment Advisory Fees—Note B | 3,850 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 3,043 |
| Management and Administrative—Admiral Shares | 10,689 |
| Marketing and Distribution—Investor Shares | 143 |
| Marketing and Distribution—Admiral Shares | 561 |
| Custodian Fees | 92 |
| Shareholders’ Reports—Investor Shares | 45 |
| Shareholders’ Reports—Admiral Shares | 122 |
| Trustees’ Fees and Expenses | 7 |
| Other Expenses | 5 |
| Total Expenses | 18,557 |
| Expenses Paid Indirectly | (4) |
| Net Expenses | 18,553 |
| Net Investment Income | 613,124 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | (190,446) |
| Swap Contracts | (19,428) |
| Forward Currency Contracts | 116,598 |
| Foreign Currencies | (1,718) |
| Realized Net Gain (Loss) | (94,994) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | (1,793,222) |
| Floating Rate Loan Commitments | (261) |
| Swap Contracts | 15,576 |
| Forward Currency Contracts | (11,879) |
| Foreign Currencies | (341) |
| Change in Unrealized Appreciation (Depreciation) | (1,790,127) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (1,271,997) |
See accompanying
Notes, which are an integral part of the Financial Statements.
20
High-Yield Corporate Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 613,124 | 1,198,182 | |
| Realized Net Gain (Loss) | (94,994) | 376,215 | |
| Change in Unrealized Appreciation (Depreciation) | (1,790,127) | (1,294,169) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (1,271,997) | 280,228 | |
| Distributions | |||
| Investor Shares | (76,669) | (156,416) | |
| Admiral Shares | (553,813) | (1,064,431) | |
| Total Distributions | (630,482) | (1,220,847) | |
| Capital Share Transactions | |||
| Investor Shares | (226,265) | (147,124) | |
| Admiral Shares | (1,071,222) | 1,036,017 | |
| Net Increase (Decrease) from Capital Share Transactions | (1,297,487) | 888,893 | |
| Total Increase (Decrease) | (3,199,966) | (51,726) | |
| Net Assets | |||
| Beginning of Period | 28,622,735 | 28,674,461 | |
| End of Period | 25,422,769 | 28,622,735 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
21
High-Yield Corporate Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $5.77 | $5.96 | $5.94 | $5.67 | $5.91 | $5.86 |
| Investment Operations | ||||||
| Net Investment Income1 | .124 | .238 | .259 | .302 | .317 | .309 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.376) | (.185) | .034 | .278 | (.230) | .048 |
| Total from Investment Operations | (.252) | .053 | .293 | .580 | .087 | .357 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.128) | (.243) | (.273) | (.310) | (.327) | (.307) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.128) | (.243) | (.273) | (.310) | (.327) | (.307) |
| Net Asset Value, End of Period | $5.39 | $5.77 | $5.96 | $5.94 | $5.67 | $5.91 |
| Total Return2 | -4.37% | 0.84% | 5.22% | 10.45% | 1.61% | 6.19% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $3,150 | $3,612 | $3,877 | $4,102 | $3,557 | $4,146 |
| Ratio of Total Expenses to Average Net Assets | 0.23%3 | 0.23% | 0.23% | 0.23% | 0.23% | 0.23% |
| Ratio of Net Investment Income to Average Net Assets | 4.60% | 4.00% | 4.51% | 5.16% | 5.55% | 5.20% |
| Portfolio Turnover Rate | 14% | 31% | 38% | 28% | 21% | 27% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.23%. |
See accompanying
Notes, which are an integral part of the Financial Statements.
22
High-Yield Corporate Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $5.77 | $5.96 | $5.94 | $5.67 | $5.91 | $5.86 |
| Investment Operations | ||||||
| Net Investment Income1 | .127 | .244 | .265 | .308 | .323 | .314 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.376) | (.185) | .033 | .278 | (.230) | .049 |
| Total from Investment Operations | (.249) | .059 | .298 | .586 | .093 | .363 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.131) | (.249) | (.278) | (.316) | (.333) | (.313) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.131) | (.249) | (.278) | (.316) | (.333) | (.313) |
| Net Asset Value, End of Period | $5.39 | $5.77 | $5.96 | $5.94 | $5.67 | $5.91 |
| Total Return2 | -4.32% | 0.94% | 5.32% | 10.55% | 1.71% | 6.29% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $22,273 | $25,011 | $24,798 | $22,701 | $19,285 | $20,721 |
| Ratio of Total Expenses to Average Net Assets | 0.13%3 | 0.13% | 0.13% | 0.13% | 0.13% | 0.13% |
| Ratio of Net Investment Income to Average Net Assets | 4.70% | 4.10% | 4.60% | 5.26% | 5.65% | 5.30% |
| Portfolio Turnover Rate | 14% | 31% | 38% | 28% | 21% | 27% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.13%. |
See accompanying
Notes, which are an integral part of the Financial Statements.
23
High-Yield Corporate Fund
Notes to Financial Statements
Vanguard High-Yield Corporate
Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for different types of investors.
Certain of the fund’s
investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. The fund invests in securities of foreign
issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. To minimize the currency risk associated with investment in securities denominated in
currencies other than the U.S. dollar, the fund attempts to hedge its currency exposure. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters,
war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on the
value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Securities for which market quotations
are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the
board of trustees to represent fair value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Floating Rate Loan
Interests: Floating rate loan interests represent interests in amounts owed by corporate or other borrowers. These instruments may be in the form of loans, trade claims or other receivables and may include standby
financing commitments such as revolving credit facilities that obligate the fund to supply additional cash to the borrower on demand. Floating rate loan interests may be made directly with a borrower or acquired
through assignment or participation. The fund’s right to enforce a borrower’s compliance with the terms of the loan agreement, or benefit directly from the collateral supporting the loan, varies when the
loan is a direct borrowing, an assignment, or a participation. Floating rate loan interests involve various risks including risk of loss in case of default, insolvency, or the bankruptcy of the borrower and are
generally subject to restrictions on transfer with limited opportunities to sell them in secondary markets. The fund may also invest in loan commitments, which are contractual obligations for a future funding. The
fund may earn a commitment fee on any unfunded portion of these
24
High-Yield Corporate Fund
commitments which is amortized to interest
income over the commitment period. Both the funded portion of a floating rate loan interest as well as its unfunded commitment, if any, is reflected on the Schedule of Investments.
4. Repurchase
Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements
mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and
principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into
master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty's default (including bankruptcy), the fund may terminate any repurchase agreements
with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition
of collateral.
5. Forward Currency
Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates. The fund’s risks in using
these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its
counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or
rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed
by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts
contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the
time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of
collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and
settled within two business days.
Forward currency contracts are
valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the
Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward currency contracts.
During the six months ended
July 31, 2022, the fund’s average investment in forward currency contracts represented 4% of net assets, based on the average of the notional amounts at each quarter-end during the period.
25
High-Yield Corporate Fund
6. Swap Contracts: The
fund invests in credit default swaps to adjust the overall credit risk of the fund or to actively overweight or underweight credit risk to a specific issuer or group of issuers. The fund may sell credit protection
through credit default swaps to simulate investments in long positions that are either unavailable or considered to be less attractively priced in the bond market. The fund may purchase credit protection through
credit default swaps to reduce credit exposure to a given issuer or issuers. Under the terms of the swaps, an up-front payment may be exchanged between the seller and buyer. In addition, the seller of the credit
protection receives a periodic payment of premium from the buyer that is a fixed percentage applied to a notional amount. If, for example, the reference entity is subject to a credit event (such as bankruptcy, failure
to pay, or obligation acceleration) during the term of the swap, the seller agrees to either physically settle or cash settle the swap contract. If the swap is physically settled, the seller agrees to pay the buyer an
amount equal to the notional amount and take delivery of a debt instrument of the reference issuer with a par amount equal to such notional amount. If the swap is cash settled, the seller agrees to pay the buyer the
difference between the notional amount and the final price for the relevant debt instrument, as determined either in a market auction or pursuant to a pre-agreed-upon valuation procedure.
The notional amounts of swap
contracts are not recorded in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the seller of credit protection is required to take
delivery (or, in a cash settled swap, pay the settlement amount determined) upon occurrence of a credit event, periodic payments are made, or the swap terminates, at which time realized gain (loss) is recorded. The
net premium to be received or paid by the fund under swap contracts is accrued daily and recorded as realized gain (loss) over the life of the contract.
The primary risk associated
with selling credit protection is that, upon the occurrence of a defined credit event, the market value of the debt instrument received by the fund (or, in a cash settled swap, the debt instruments used to determine
the settlement payment by the fund) will be significantly less than the amount paid by the fund and, in a physically settled swap, the fund may receive an illiquid debt instrument. A risk associated with all types of
swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap
contract. The fund mitigates its counterparty risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with
its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold,
or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either party in accordance
with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions whereby a counterparty
may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount
would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily
to the value of the swap contracts exposure with each
26
High-Yield Corporate Fund
counterparty, and any difference, if in
excess of a specified minimum transfer amount, is adjusted and settled within two business days.
The fund enters into centrally
cleared credit default swaps to achieve the same objectives specified with respect to the equivalent over-the-counter swaps but with less counterparty risk because a regulated clearinghouse is the counterparty instead
of the clearing broker or executing broker. The clearinghouse imposes initial margin requirements to secure the fund’s performance, and requires daily settlement of variation margin representing changes in the
market value of each contract. To further mitigate counterparty risk, the fund trades with a diverse group of prequalified executing brokers; monitors the financial strength of its clearing brokers, executing brokers,
and clearinghouse; and has entered into agreements with its clearing brokers and executing brokers.
During the six months ended
July 31, 2022, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 1% and 0% of net assets, respectively, based on the average of the notional amounts
at each quarter-end during the period.
7. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration
of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax
years, and has concluded that no provision for income tax is required in the fund’s financial statements.
8. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
9. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and
27
High-Yield Corporate Fund
borrowings normally extend overnight but can
have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of
trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
10. Other: Interest
income is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable
debt securities that are amortized to the earliest call date.
Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | Wellington Management Company llp provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. For the six months ended July 31, 2022, the investment advisory fee represented an effective annual rate of 0.03% of the fund’s average net assets. |
In July 2022, the board of
trustees approved adding Vanguard as an investment advisor to a portion of the fund, effective on August 29, 2022.
| C. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $924,000, representing less than 0.01% of the fund’s net
assets and 0.37% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| D. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $4,000 (an annual rate of less than 0.01% of average net assets). |
| E. | Various inputs may be used to determine the value of the fund’s investments, other financial instruments, and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
28
High-Yield Corporate Fund
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments, other financial instruments, and
derivatives valued with significant unobservable inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments, other financial instruments, and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 742,883 | — | 742,883 |
| Corporate Bonds | — | 22,709,164 | — | 22,709,164 |
| Floating Rate Loan Interests | — | 1,004,146 | — | 1,004,146 |
| Temporary Cash Investments | — | 287,700 | — | 287,700 |
| Total | — | 24,743,893 | — | 24,743,893 |
| Other Financial Instruments | ||||
| Liabilities | ||||
| Floating Rate Loan Commitments | — | 261 | — | 261 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Forward Currency Contracts | — | 41 | — | 41 |
| Swap Contracts | 12,9951 | — | — | 12,995 |
| Total | 12,995 | 41 | — | 13,036 |
| Liabilities | ||||
| Forward Currency Contracts | — | 2,512 | — | 2,512 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
29
High-Yield Corporate Fund
| F. | At July 31, 2022, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows: |
| Statement of Assets and Liabilities | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | 12,995 | 12,995 |
| Unrealized Appreciation—Forward Currency Contracts | 41 | — | 41 |
| Total Assets | 41 | 12,995 | 13,036 |
| Unrealized Depreciation—Forward Currency Contracts | 2,512 | — | 2,512 |
| Total Liabilities | 2,512 | — | 2,512 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2022, were:
| Realized Net Gain (Loss) on Derivatives | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Swap Contracts | — | (19,428) | (19,428) |
| Forward Currency Contracts | 116,598 | — | 116,598 |
| Realized Net Gain (Loss) on Derivatives | 116,598 | (19,428) | 97,170 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
| Swap Contracts | — | 15,576 | 15,576 |
| Forward Currency Contracts | (11,879) | — | (11,879) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | (11,879) | 15,576 | 3,697 |
| G. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments, other financial instruments, and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 26,575,354 |
| Gross Unrealized Appreciation | 132,719 |
| Gross Unrealized Depreciation | (1,953,917) |
| Net Unrealized Appreciation (Depreciation) | (1,821,198) |
The fund’s tax-basis
capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2022, the fund had available capital losses totaling $603,648,000 that may be carried forward indefinitely
to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2023; should the fund realize net capital losses for
the year, the losses will be added to the loss carryforward balance above.
30
High-Yield Corporate Fund
| H. | During the six months ended July 31, 2022, the fund purchased $3,229,005,000 of investment securities and sold $3,897,128,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $275,086,000 and $625,137,000, respectively. |
| I. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 225,450 | 41,470 | 967,937 | 162,449 | |
| Issued in Lieu of Cash Distributions | 64,923 | 11,932 | 133,360 | 22,449 | |
| Redeemed | (516,638) | (94,599) | (1,248,421) | (209,615) | |
| Net Increase (Decrease)—Investor Shares | (226,265) | (41,197) | (147,124) | (24,717) | |
| Admiral Shares | |||||
| Issued | 2,561,735 | 468,851 | 6,260,677 | 1,051,228 | |
| Issued in Lieu of Cash Distributions | 427,788 | 78,641 | 812,641 | 136,821 | |
| Redeemed | (4,060,745) | (747,707) | (6,037,301) | (1,015,302) | |
| Net Increase (Decrease)—Admiral Shares | (1,071,222) | (200,215) | 1,036,017 | 172,747 | |
| J. | Management has determined that no other events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
31
Trustees Approve Advisory Arrangement
The board of trustees of
Vanguard High-Yield Corporate Fund has renewed the fund’s investment advisory arrangement with Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s
advisory arrangement was in the best interests of the fund and its shareholders.
The board based its decision
upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about the fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of
services
The board reviewed the quality of the
fund’s investment management services over both the short and long term and took into account the organizational depth and stability of the advisor. The board considered that Wellington Management, founded in
1928, is among the nation’s oldest and most respected institutional investment managers. The portfolio manager has the support of an experienced team of fixed income research analysts who conduct detailed credit
analysis. The advisor focuses on higher-quality high-yield bonds, as it expects these higher-quality issues to offer a more favorable risk/reward trade-off over the long-term. The team’s credit analysis seeks to
identify companies whose fundamentals are stable or improving and whose securities offer an attractive yield. The firm has managed the High-Yield Corporate Fund since its inception in 1978.
The board concluded that the
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
32
Investment performance
The board considered the short- and long-term
performance of the fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory
arrangement should continue.
Cost
The board concluded that the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also below the peer-group average.
The board did not consider the
profitability of Wellington Management in determining whether to approve the advisory fee because Wellington Management is independent of Vanguard and the advisory fee is the result of arm’s-length
negotiations.
The benefit of economies of
scale
The board concluded that the fund’s
shareholders benefit from economies of scale because of the breakpoints in the fund’s advisory fee schedule with Wellington Management. The breakpoints reduce the effective rate of the fee as the fund’s
assets increase.
The board will consider
whether to renew the advisory arrangement again after a one-year period.
33
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Fixed Income Securities Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard High-Yield Corporate Fund's Program and for carrying out the
specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for
the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review
Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
34
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Semiannual Report | July 31, 2022
Vanguard GNMA
Fund
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund‘s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended July 31, 2022 | |||
| Beginning Account Value 1/31/2022 | Ending Account Value 7/31/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| GNMA Fund | |||
| Investor Shares | $1,000.00 | $958.90 | $1.02 |
| Admiral™ Shares | 1,000.00 | 959.40 | 0.53 |
| Based on Hypothetical 5% Yearly Return | |||
| GNMA Fund | |||
| Investor Shares | $1,000.00 | $1,023.75 | $1.05 |
| Admiral Shares | 1,000.00 | 1,024.25 | 0.55 |
The calculations are
based on expenses incurred in the most recent six-month period. The fund's annualized six-month expense ratios for that period are 0.21% for Investor Shares and 0.11% for Admiral Shares. The dollar amounts shown as
“Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the
number of days in the most recent 12-month period (181/365).
2
GNMA Fund
Distribution by Stated Maturity
As of July 31, 2022
| 0 - 5 Years | 0.2% |
| 5 - 10 Years | 0.8 |
| 10 - 15 Years | 2.7 |
| 15 - 20 Years | 8.5 |
| 20 - 25 Years | 19.3 |
| Over 25 Years | 68.5 |
The table reflects the fund's
investments, except for short-term investments and derivatives.
3
GNMA Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (97.7%) | ||||||
| Conventional Mortgage-Backed Securities (91.4%) | ||||||
| 1,2 | Fannie Mae Pool | 2.120% | 5/1/31 | 20,825 | 20,003 | |
| 1,2 | Fannie Mae Pool | 2.250% | 4/1/33 | 27,145 | 24,861 | |
| 1,2 | Fannie Mae Pool | 2.690% | 3/1/37 | 8,121 | 7,457 | |
| 1,2 | Fannie Mae Pool | 2.950% | 6/1/31 | 1,925 | 1,889 | |
| 1,2 | Fannie Mae Pool | 2.960% | 6/1/31 | 2,353 | 2,310 | |
| 1,2 | Fannie Mae Pool | 3.010% | 8/1/34 | 2,045 | 1,986 | |
| 1,2 | Fannie Mae Pool | 3.050% | 7/1/31 | 2,000 | 1,975 | |
| 1,2 | Fannie Mae Pool | 3.240% | 3/1/28 | 5,957 | 5,989 | |
| 1,2 | Fannie Mae Pool | 3.260% | 12/1/37 | 4,175 | 4,081 | |
| 1,2 | Fannie Mae Pool | 3.410% | 5/1/32 | 4,100 | 4,123 | |
| 1,2 | Fannie Mae Pool | 3.420% | 4/1/31 | 1,365 | 1,379 | |
| 1,2 | Fannie Mae Pool | 3.460% | 9/1/29 | 6,326 | 6,433 | |
| 1,2 | Freddie Mac Gold Pool | 3.000% | 6/1/43–1/1/47 | 11,375 | 11,111 | |
| 1,2 | Freddie Mac Gold Pool | 3.500% | 11/1/47–8/1/48 | 1,652 | 1,653 | |
| 1,2 | Freddie Mac Gold Pool | 4.000% | 9/1/30–4/1/44 | 2,050 | 2,101 | |
| 1,2 | Freddie Mac Gold Pool | 4.500% | 4/1/34–11/1/45 | 23,799 | 24,832 | |
| 1,2 | Freddie Mac Gold Pool | 5.000% | 1/1/38–4/1/44 | 8,279 | 8,708 | |
| 1 | Ginnie Mae I Pool | 2.500% | 11/15/42–12/15/46 | 52,900 | 50,012 | |
| 1 | Ginnie Mae I Pool | 3.000% | 1/15/26–3/15/46 | 434,465 | 423,269 | |
| Ginnie Mae I Pool | 3.250% | 8/15/42 | 9,930 | 9,949 | ||
| 1 | Ginnie Mae I Pool | 3.500% | 7/15/39–6/15/48 | 352,139 | 355,832 | |
| 1 | Ginnie Mae I Pool | 3.750% | 7/15/42 | 1,117 | 1,140 | |
| 1 | Ginnie Mae I Pool | 3.875% | 10/15/40–6/15/42 | 16,604 | 17,295 | |
| 1 | Ginnie Mae I Pool | 4.000% | 8/15/24–7/15/46 | 481,605 | 497,653 | |
| 1 | Ginnie Mae I Pool | 4.500% | 4/15/33–4/15/44 | 246,572 | 259,208 | |
| 1 | Ginnie Mae I Pool | 5.000% | 1/15/30–7/15/52 | 250,277 | 264,711 | |
| 1 | Ginnie Mae I Pool | 5.500% | 9/15/23–9/15/45 | 188,532 | 202,603 | |
| 1 | Ginnie Mae I Pool | 6.000% | 2/15/24–6/15/41 | 101,057 | 106,992 | |
| 1 | Ginnie Mae I Pool | 6.500% | 7/15/23–7/15/40 | 68,865 | 72,707 | |
| 1 | Ginnie Mae I Pool | 7.000% | 11/15/31–11/15/36 | 11,865 | 12,709 | |
| Ginnie Mae I Pool | 7.250% | 1/15/27 | 7 | 7 | ||
| Ginnie Mae I Pool | 7.500% | 10/15/31 | 5,304 | 5,673 | ||
| Ginnie Mae I Pool | 8.000% | 8/15/31 | 2,043 | 2,228 | ||
| Ginnie Mae I Pool | 8.500% | 9/15/22–6/15/28 | 29 | 31 | ||
| 1,3 | Ginnie Mae II Pool | 1.500% | 4/20/44–8/15/52 | 150,002 | 132,304 | |
| 1,3,4 | Ginnie Mae II Pool | 2.000% | 10/20/43–8/15/52 | 4,060,762 | 3,729,377 | |
| 1,3,4 | Ginnie Mae II Pool | 2.500% | 11/20/42–8/15/52 | 4,991,719 | 4,730,737 | |
| 1,3,4 | Ginnie Mae II Pool | 3.000% | 4/20/31–8/15/52 | 2,936,438 | 2,864,350 | |
| 1,3,4,5 | Ginnie Mae II Pool | 3.500% | 10/20/40–8/15/52 | 2,072,483 | 2,087,013 | |
4
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1,3 | Ginnie Mae II Pool | 4.000% | 4/20/39–8/15/52 | 725,574 | 744,850 | |
| 1 | Ginnie Mae II Pool | 4.500% | 12/20/32–1/20/50 | 334,972 | 349,423 | |
| 1 | Ginnie Mae II Pool | 5.000% | 10/20/32–12/20/43 | 63,036 | 68,396 | |
| 1 | Ginnie Mae II Pool | 5.500% | 1/20/34–7/20/40 | 13,570 | 14,419 | |
| 1 | Ginnie Mae II Pool | 6.000% | 4/20/28–8/20/40 | 17,561 | 18,652 | |
| 1 | Ginnie Mae II Pool | 6.500% | 5/20/37–3/20/41 | 539 | 603 | |
| 1 | Ginnie Mae II Pool | 7.500% | 8/20/25 | 26 | 27 | |
| 1,2,3 | UMBS Pool | 1.500% | 8/25/52 | 3,000 | 2,577 | |
| 1,2,3 | UMBS Pool | 2.000% | 11/1/46–8/25/52 | 36,387 | 32,871 | |
| 1,2,3 | UMBS Pool | 2.500% | 7/1/27–8/25/52 | 106,516 | 100,147 | |
| 1,2,3 | UMBS Pool | 3.000% | 11/1/22–6/1/49 | 678 | 723 | |
| 1,2 | UMBS Pool | 4.000% | 5/1/46–6/1/46 | 2,148 | 2,191 | |
| 1,2 | UMBS Pool | 4.500% | 12/1/40–3/1/44 | 853 | 901 | |
| 1,2 | UMBS Pool | 5.000% | 9/1/35 | 4,735 | 4,927 | |
| 1,2 | UMBS Pool | 6.500% | 2/1/29–5/1/40 | 1,038 | 1,115 | |
| 17,298,513 | ||||||
| Nonconventional Mortgage-Backed Securities (6.3%) | ||||||
| 1,2,6 | Fannie Mae Pool, 12M USD LIBOR + 1.560% | 2.269% | 8/1/43 | 2,248 | 2,332 | |
| 1,2,6 | Fannie Mae Pool, 12M USD LIBOR + 1.580% | 1.954% | 9/1/44 | 3,293 | 3,458 | |
| 1,2 | Fannie Mae REMICS | 1.500% | 11/25/50–1/25/51 | 27,010 | 17,532 | |
| 1,2 | Fannie Mae REMICS | 2.000% | 9/25/42 | 4,071 | 3,879 | |
| 1,2 | Fannie Mae REMICS | 2.500% | 10/25/42 | 3,422 | 3,312 | |
| 1,2 | Fannie Mae REMICS | 3.000% | 6/25/43–7/25/49 | 39,228 | 37,351 | |
| 1,2 | Fannie Mae REMICS | 3.500% | 7/25/44–4/25/59 | 71,674 | 70,510 | |
| 1,2 | Fannie Mae REMICS | 6.000% | 10/25/28–9/25/32 | 1,633 | 1,724 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.593% | 2.990% | 10/1/44 | 2,420 | 2,368 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.600% | 1.850% | 10/1/44 | 5,709 | 5,913 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.615% | 2.216% | 9/1/44 | 2,533 | 2,628 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.620% | 1.890% | 10/1/44 | 3,236 | 3,379 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.620% | 1.998% | 7/1/44 | 1,449 | 1,521 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.620% | 2.014% | 9/1/43 | 3,081 | 3,218 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.630% | 2.069% | 4/1/44 | 2,988 | 3,105 | |
| 1,2,6 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.636% | 2.644% | 8/1/43 | 3,047 | 3,149 | |
| 1,2 | Freddie Mac REMICS | 2.000% | 4/15/42 | 4,468 | 4,228 | |
| 1,2 | Freddie Mac REMICS | 2.500% | 3/25/52 | 5,369 | 4,393 | |
| 1,2 | Freddie Mac REMICS | 3.000% | 8/15/42–3/15/43 | 84,501 | 81,771 | |
| 1,2 | Freddie Mac REMICS | 3.500% | 8/15/45 | 9,017 | 8,950 | |
| 1,2 | Freddie Mac REMICS | 4.000% | 6/15/54 | 3,733 | 3,596 | |
| 1,2 | Freddie Mac REMICS | 6.000% | 4/15/28–11/15/32 | 4,747 | 5,018 | |
| 1 | Ginnie Mae REMICS | 1.000% | 8/20/50–10/20/50 | 86,607 | 73,973 | |
| 1 | Ginnie Mae REMICS | 1.500% | 4/16/50–9/20/50 | 74,978 | 68,774 | |
| 1 | Ginnie Mae REMICS | 1.650% | 11/20/45 | 38,238 | 36,088 | |
| 1 | Ginnie Mae REMICS | 1.750% | 10/20/42–7/20/44 | 19,950 | 18,154 | |
| 1 | Ginnie Mae REMICS | 2.000% | 7/20/42–10/20/44 | 24,800 | 23,404 | |
| 1 | Ginnie Mae REMICS | 2.250% | 3/16/45 | 7,596 | 7,242 | |
| 1 | Ginnie Mae REMICS | 2.375% | 4/20/44 | 2,462 | 2,361 | |
| 1 | Ginnie Mae REMICS | 2.500% | 12/16/39–2/20/52 | 169,264 | 158,723 | |
| 1 | Ginnie Mae REMICS | 3.000% | 6/20/39–6/20/49 | 380,169 | 367,169 | |
5
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Ginnie Mae REMICS | 3.000% | 7/20/43 | 4,327 | 4,264 | |
| 1 | Ginnie Mae REMICS | 3.250% | 8/20/44–2/20/49 | 12,364 | 12,536 | |
| 1 | Ginnie Mae REMICS | 3.500% | 7/20/43–2/20/49 | 82,893 | 82,922 | |
| 1 | Ginnie Mae REMICS | 3.666% | 10/20/48 | 12,097 | 12,033 | |
| 1 | Ginnie Mae REMICS | 3.750% | 12/16/39 | 2,188 | 2,200 | |
| 1 | Ginnie Mae REMICS | 4.000% | 1/20/45 | 18,093 | 18,388 | |
| 1 | Ginnie Mae REMICS | 4.500% | 6/20/39 | 1,660 | 1,727 | |
| 1 | Ginnie Mae REMICS | 5.000% | 6/16/37 | 6,167 | 6,402 | |
| 1 | Ginnie Mae REMICS | 5.500% | 8/16/36 | 5,500 | 5,871 | |
| 1,6 | Ginnie Mae REMICS, 1M USD LIBOR + 0.200% | 2.326% | 2/20/37 | 1,406 | 1,391 | |
| 1 | Government National Mortgage Assn. | 2.350% | 5/17/46 | 4,436 | 4,357 | |
| 1 | Government National Mortgage Assn. | 2.650% | 11/17/48 | 4,880 | 4,722 | |
| 1,186,036 | ||||||
| Total U.S. Government and Agency Obligations (Cost $19,002,378) | 18,484,549 | |||||
| Asset-Backed/Commercial Mortgage-Backed Securities (1.2%) | ||||||
| 1 | Seasoned Credit Risk Transfer Trust Series 2018-3 | 3.500% | 8/25/57 | 9,766 | 8,786 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2018-4 | 3.500% | 3/25/58 | 10,271 | 9,225 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2019-1 | 3.500% | 7/25/58 | 14,147 | 12,742 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2019-3 | 3.500% | 10/25/58 | 118,295 | 114,863 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2019-3 | 3.500% | 10/25/58 | 13,188 | 13,059 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2020-1 | 2.500% | 8/25/59 | 74,477 | 69,148 | |
| Total Asset-Backed/Commercial Mortgage-Backed Securities (Cost $252,482) | 227,823 | |||||
| Shares | ||||||
| Temporary Cash Investments (4.5%) | ||||||
| Money Market Fund (2.2%) | ||||||
| 7 | Vanguard Market Liquidity Fund | 1.903% | 4,283,898 | 428,218 | ||
| Maturity Date | Face Amount ($000) | |||||
| Repurchase Agreements (2.3%) | ||||||
| Bank of America Securities, LLC (Dated 7/29/22, Repurchase Value $600,000, collateralized by Ginnie Mae 2.500%, 2/20/52, with a value of $612,000) | 2.300% | 8/1/22 | 600 | 600 | ||
| Bank of Nova Scotia (Dated 7/29/22, Repurchase Value $1,000,000, collateralized by U.S. Treasury Bill 0.000%, 1/26/23, and U.S. Treasury Note/Bond 0.250%–2.750%, 10/31/23–2/15/46, with a value of $1,020,000) | 2.250% | 8/1/22 | 1,000 | 1,000 | ||
6
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Barclays Capital Inc. (Dated 7/29/22, Repurchase Value $64,412,000, collateralized by U.S. Treasury Note/Bond 2.625%, 5/31/27, with a value of $65,688,000) | 2.220% | 8/1/22 | 64,400 | 64,400 | ||
| Citigroup Global Markets Inc. (Dated 7/29/22, Repurchase Value $27,705,000, collateralized by U.S. Treasury Note/Bond 2.000%–3.375%, 11/15/48–2/15/50, with a value of $28,254,000) | 2.250% | 8/1/22 | 27,700 | 27,700 | ||
| Credit Agricole Securities (USA) Inc. (Dated 7/29/22, Repurchase Value $19,504,000, collateralized by Treasury Inflation Indexed Note/Bond 2.500%, 1/15/29, with a value of $19,890,000) | 2.220% | 8/1/22 | 19,500 | 19,500 | ||
| HSBC Bank USA (Dated 7/29/22, Repurchase Value $3,101,000, collateralized by Treasury Inflation Indexed Note/Bond 0.500%, 4/15/24, U.S. Treasury Bill 0.000%, 2/23/23, and U.S. Treasury Note/Bond 6.000%, 2/15/26, with a value of $3,162,000) | 2.240% | 8/1/22 | 3,100 | 3,100 | ||
| HSBC Bank USA (Dated 7/29/22, Repurchase Value $76,415,000, collateralized by Fannie Mae 2.000%–3.500%, 3/1/47–5/1/52, and Freddie Mac 3.000%, 10/1/51, with a value of $77,928,000) | 2.300% | 8/1/22 | 76,400 | 76,400 | ||
| Natixis SA (Dated 7/29/22, Repurchase Value $132,424,000, collateralized by Treasury Inflation Indexed Note/Bond 1.375%, 2/15/44, and U.S. Treasury Note/Bond 1.500%–4.750%, 8/15/26–11/15/49, with a value of $135,048,000) | 2.220% | 8/1/22 | 132,400 | 132,400 | ||
7
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Societe Generale (Dated 7/29/22, Repurchase Value $89,517,000, collateralized by U.S. Treasury Note/Bond 2.461%, 4/30/24, with a value of $91,290,000) | 2.265% | 8/1/22 | 89,500 | 89,500 | ||
| TD Securities (USA) LLC (Dated 7/29/22, Repurchase Value $16,603,000, collateralized by Ginnie Mae 2.500%, 9/20/51, with a value of $16,932,000) | 2.250% | 8/1/22 | 16,600 | 16,600 | ||
| 431,200 | ||||||
| Total Temporary Cash Investments (Cost $859,587) | 859,418 | |||||
| Total Investments (103.4%) (Cost $20,114,447) | 19,571,790 | |||||
| Other Assets and Liabilities—Net (-3.4%) | (645,999) | |||||
| Net Assets (100%) | 18,925,791 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called. |
| 2 | The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock. |
| 3 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2022. |
| 4 | Securities with a value of $9,380,000 have been segregated as collateral for certain open To Be Announced (TBA) transactions. |
| 5 | Securities with a value of $5,977,000 have been segregated as initial margin for open futures contracts. |
| 6 | Variable-rate security; rate shown is effective rate at period end. Certain variable-rate securities are not based on a published reference rate and spread but are determined by the issuer or agent based on current market conditions. |
| 7 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 12M—12-month. | |
| 1M—1-month. | |
| LIBOR—London Interbank Offered Rate. | |
| REMICS—Real Estate Mortgage Investment Conduits. | |
| UMBS—Uniform Mortgage-Backed Securities. | |
| USD—U.S. dollar. |
8
GNMA Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2022 | 3,371 | 383,372 | 1,840 |
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2022 | (594) | (125,014) | 24 |
| 10-Year U.S. Treasury Note | September 2022 | (2,675) | (324,051) | (5,606) |
| Long U.S. Treasury Bond | September 2022 | (580) | (83,520) | (1,800) |
| Ultra 10-Year U.S. Treasury Note | September 2022 | (69) | (9,056) | (114) |
| (7,496) | ||||
| (5,656) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
9
GNMA Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $19,686,060) | 19,143,572 |
| Affiliated Issuers (Cost $428,387) | 428,218 |
| Total Investments in Securities | 19,571,790 |
| Investment in Vanguard | 712 |
| Cash | 5,909 |
| Receivables for Investment Securities Sold | 1,169,657 |
| Receivables for Accrued Income | 46,181 |
| Receivables for Capital Shares Issued | 3,063 |
| Other Assets | 615 |
| Total Assets | 20,797,927 |
| Liabilities | |
| Payables for Investment Securities Purchased | 1,842,797 |
| Payables for Capital Shares Redeemed | 19,925 |
| Payables for Distributions | 7,015 |
| Payables to Investment Advisor | 483 |
| Payables to Vanguard | 1,064 |
| Variation Margin Payable—Futures Contracts | 852 |
| Total Liabilities | 1,872,136 |
| Net Assets | 18,925,791 |
10
GNMA Fund
| Statement of Assets and Liabilities (continued) | |
| At July 31, 2022, net assets consisted of: | |
| ($000s, except shares and per-share amounts) | Amount |
| Paid-in Capital | 20,427,417 |
| Total Distributable Earnings (Loss) | (1,501,626) |
| Net Assets | 18,925,791 |
| Investor Shares—Net Assets | |
| Applicable to 579,360,341 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 5,727,378 |
| Net Asset Value Per Share—Investor Shares | $9.89 |
| Admiral Shares—Net Assets | |
| Applicable to 1,335,102,471 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 13,198,413 |
| Net Asset Value Per Share—Admiral Shares | $9.89 |
See accompanying Notes, which are an
integral part of the Financial Statements.
11
GNMA Fund
Statement of Operations
| Six Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 206,769 |
| Total Income | 206,769 |
| Expenses | |
| Investment Advisory Fees—Note B | 1,038 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 5,603 |
| Management and Administrative—Admiral Shares | 6,381 |
| Marketing and Distribution—Investor Shares | 213 |
| Marketing and Distribution—Admiral Shares | 322 |
| Custodian Fees | 212 |
| Shareholders’ Reports—Investor Shares | 49 |
| Shareholders’ Reports—Admiral Shares | 59 |
| Trustees’ Fees and Expenses | 5 |
| Other Expenses | 6 |
| Total Expenses | 13,888 |
| Expenses Paid Indirectly | (30) |
| Net Expenses | 13,858 |
| Net Investment Income | 192,911 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (482,556) |
| Futures Contracts | (36,643) |
| Realized Net Gain (Loss) | (519,199) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (600,158) |
| Futures Contracts | 1,106 |
| Change in Unrealized Appreciation (Depreciation) | (599,052) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (925,340) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $4,295,000, ($344,000), and $216,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying Notes, which are an
integral part of the Financial Statements.
12
GNMA Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 192,911 | 221,471 | |
| Realized Net Gain (Loss) | (519,199) | (212,099) | |
| Change in Unrealized Appreciation (Depreciation) | (599,052) | (532,825) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (925,340) | (523,453) | |
| Distributions | |||
| Investor Shares | (55,234) | (57,843) | |
| Admiral Shares | (134,671) | (156,253) | |
| Total Distributions | (189,905) | (214,096) | |
| Capital Share Transactions | |||
| Investor Shares | (650,257) | (789,418) | |
| Admiral Shares | (1,606,549) | (3,495,820) | |
| Net Increase (Decrease) from Capital Share Transactions | (2,256,806) | (4,285,238) | |
| Total Increase (Decrease) | (3,372,051) | (5,022,787) | |
| Net Assets | |||
| Beginning of Period | 22,297,842 | 27,320,629 | |
| End of Period | 18,925,791 | 22,297,842 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
13
GNMA Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.41 | $10.73 | $10.58 | $10.31 | $10.32 | $10.51 |
| Investment Operations | ||||||
| Net Investment Income1 | .092 | .085 | .178 | .285 | .298 | .284 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.520) | (.321) | .157 | .272 | (.011) | (.193) |
| Total from Investment Operations | (.428) | (.236) | .335 | .557 | .287 | .091 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.092) | (.084) | (.176) | (.287) | (.297) | (.281) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | — | (.009) | — | — | — |
| Total Distributions | (.092) | (.084) | (.185) | (.287) | (.297) | (.281) |
| Net Asset Value, End of Period | $9.89 | $10.41 | $10.73 | $10.58 | $10.31 | $10.32 |
| Total Return2 | -4.11% | -2.21% | 3.17% | 5.46% | 2.85% | 0.85% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,727 | $6,711 | $7,719 | $7,365 | $6,715 | $7,598 |
| Ratio of Total Expenses to Average Net Assets | 0.21%3 | 0.21% | 0.21% | 0.21% | 0.21% | 0.21% |
| Ratio of Net Investment Income to Average Net Assets | 1.88% | 0.80% | 1.66% | 2.71% | 2.93% | 2.70% |
| Portfolio Turnover Rate4 | 268% | 800% | 638% | 616% | 415% | 620% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.21%. |
| 4 | Includes 110%, 298%, 182%, 198%, 200%, and 156%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
14
GNMA Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2022 | Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $10.41 | $10.73 | $10.58 | $10.31 | $10.32 | $10.51 |
| Investment Operations | ||||||
| Net Investment Income1 | .097 | .098 | .184 | .295 | .309 | .294 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.520) | (.323) | .161 | .272 | (.012) | (.192) |
| Total from Investment Operations | (.423) | (.225) | .345 | .567 | .297 | .102 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.097) | (.095) | (.185) | (.297) | (.307) | (.292) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | — | (.010) | — | — | — |
| Total Distributions | (.097) | (.095) | (.195) | (.297) | (.307) | (.292) |
| Net Asset Value, End of Period | $9.89 | $10.41 | $10.73 | $10.58 | $10.31 | $10.32 |
| Total Return2 | -4.06% | -2.11% | 3.28% | 5.57% | 2.95% | 0.95% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $13,198 | $15,587 | $19,602 | $17,356 | $14,706 | $16,491 |
| Ratio of Total Expenses to Average Net Assets | 0.11%3 | 0.11% | 0.11% | 0.11% | 0.11% | 0.11% |
| Ratio of Net Investment Income to Average Net Assets | 1.99% | 0.92% | 1.72% | 2.81% | 3.03% | 2.80% |
| Portfolio Turnover Rate4 | 268% | 800% | 638% | 616% | 415% | 620% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.11%. |
| 4 | Includes 110%, 298%, 182%, 198%, 200%, and 156%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying Notes, which are an
integral part of the Financial Statements.
15
GNMA Fund
Notes to Financial Statements
Vanguard GNMA Fund is
registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different types of investors. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental
disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on
the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its
financial statements.
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or
using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including
mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted
average coupon, weighted average maturity, credit enhancements, and collateral, as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund's pricing time but after the close of the securities’ primary markets, are
valued by methods deemed by the board of trustees to represent fair value.
2. To Be Announced (TBA)
Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity) for settlement at a future date. The fund may be a seller of
TBA transactions to reduce its exposure to the mortgage-backed securities market or in order to sell mortgage-backed securities it owns under delayed-delivery arrangements. When the fund is a buyer of TBA
transactions, it maintains cash or short-term investments in an amount sufficient to meet the purchase price at the settlement date of the TBA transaction. The primary risk associated with TBA transactions is that a
counterparty may default on its obligations. The fund mitigates its counterparty risk by, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and
monitoring its exposure to each counterparty. The fund may also enter into a Master Securities Forward Transaction Agreement (MSFTA) with certain counterparties and require them to transfer collateral as security for
their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. Under an MSFTA, upon a counterparty default (including bankruptcy), the
fund may terminate any TBA transactions with that counterparty, determine the net amount owed by either party in accordance with its MSFTA, and sell or retain any collateral held up to the net amount owed to the fund
under the MSFTA.
At July 31, 2022,
counterparties had deposited in segregated accounts securities with a value of $18,225,000 and cash of $3,298,000 in connection with TBA transactions.
16
GNMA Fund
3. Mortgage Dollar
Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined
price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities
sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund also enters into mortgage-dollar-roll transactions in which the fund buys
mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll
transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The
fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open
mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.
4. Repurchase
Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements
mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and
principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into
master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty's default (including bankruptcy), the fund may terminate any repurchase agreements
with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition
of collateral.
5. Futures Contracts:
The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced,
or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices
of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further
mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing
brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any
securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
17
GNMA Fund
During the six months ended
July 31, 2022, the fund’s average investments in long and short futures contracts represented 4% and 1% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
6. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration
of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax
years, and has concluded that no provision for income tax is required in the fund’s financial statements.
7. Distributions:
Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.
The portion of distributions that exceed a fund's current and accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. Distributions are determined on a tax basis at
the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
8. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July
31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
9. Other: Interest
income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the
lives of the respective securities, except for premiums on
18
GNMA Fund
certain callable debt securities that are
amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of
the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
B. Wellington Management Company llp provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. For the six months ended July 31, 2022, the investment advisory
fee represented an effective annual basic rate of 0.01% of the fund’s average net assets.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative,
marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of
trustees and are generally settled twice a month.
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $712,000, representing less than 0.01% of the fund’s net
assets and 0.28% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022,
custodian fee offset arrangements reduced the fund’s expenses by $30,000 (an annual rate of less than 0.01% of average net assets).
E. Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The
inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
19
GNMA Fund
The following table summarizes
the market value of the fund's investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| U.S. Government and Agency Obligations | — | 18,484,549 | — | 18,484,549 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 227,823 | — | 227,823 |
| Temporary Cash Investments | 428,218 | 431,200 | — | 859,418 |
| Total | 428,218 | 19,143,572 | — | 19,571,790 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 1,864 | — | — | 1,864 |
| Liabilities | ||||
| Futures Contracts1 | 7,520 | — | — | 7,520 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
F. As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 20,117,855 |
| Gross Unrealized Appreciation | 185,689 |
| Gross Unrealized Depreciation | (737,410) |
| Net Unrealized Appreciation (Depreciation) | (551,721) |
The fund’s tax-basis
capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2022, the fund had available capital losses totaling $445,354,000 that may be carried forward indefinitely
to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2023; should the fund realize net capital losses for
the year, the losses will be added to the loss carryforward balance above.
G. During the six months ended July 31, 2022, the fund purchased $58,526,125,000 of investment securities and sold $60,523,458,000 of investment securities, other than temporary cash
investments.
20
GNMA Fund
H. Capital share transactions for each class of shares were:
| Six Months Ended July 31, 2022 | Year Ended January 31, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 194,496 | 19,430 | 629,695 | 59,106 | |
| Issued in Lieu of Cash Distributions | 52,522 | 5,325 | 54,958 | 5,183 | |
| Redeemed | (897,275) | (90,020) | (1,474,071) | (138,852) | |
| Net Increase (Decrease)—Investor Shares | (650,257) | (65,265) | (789,418) | (74,563) | |
| Admiral Shares | |||||
| Issued | 574,569 | 58,064 | 2,344,913 | 220,452 | |
| Issued in Lieu of Cash Distributions | 103,622 | 10,504 | 120,457 | 11,356 | |
| Redeemed | (2,284,740) | (230,580) | (5,961,190) | (561,063) | |
| Net Increase (Decrease)—Admiral Shares | (1,606,549) | (162,012) | (3,495,820) | (329,255) | |
I. Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements.
21
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard GNMA Fund
has renewed the fund’s investment advisory arrangement with Wellington Management Company llp (Wellington Management). The board determined that renewing the fund’s advisory arrangement was in the best interests of the fund and its shareholders.
The board based its decision
upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about the fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of the
fund’s investment management services over both the short and long term and took into account the organizational depth and stability of the advisor. The board considered that Wellington Management, founded in
1928, is among the nation’s oldest and most respected institutional investment managers. The portfolio managers are backed by a team of experienced analysts who help inform their strategic perspective and
conduct statistical and cash-flow analysis. The team leverages its deep knowledge of the mortgage industry to analyze the relative value of various GNMA bonds and seeks to construct a portfolio with lower prepayment
and extension risk than the benchmark, but with similar interest rate risk. Wellington Management has advised the GNMA Fund since its inception in 1980.
The board concluded that the
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the short- and long-term
performance of the fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory
arrangement should continue.
Cost
The board concluded that the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also below the peer-group average.
22
The board did not consider the
profitability of Wellington Management in determining whether to approve the advisory fee because Wellington Management is independent of Vanguard and the advisory fee is the result of arm’s-length
negotiations.
The benefit of economies of
scale
The board concluded that the fund’s
shareholders benefit from economies of scale because of the breakpoints in the fund’s advisory fee schedule with Wellington Management. The breakpoints reduce the effective rate of the fee as the fund’s
assets increase.
The board will consider
whether to renew the advisory arrangement again after a one-year period.
23
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Fixed Income Securities Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard GNMA Fund’s Program and for carrying out the specific
responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past
year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The
Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
24
Semiannual Report | July 31, 2022
Vanguard Real Estate Index Funds
| Vanguard Real Estate Index Fund |
| Vanguard Real Estate II Index Fund |
About Your Fund’s
Expenses
As a shareholder of the fund, you incur ongoing costs,
which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the
fund.
A fund‘s expenses are expressed as a
percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other
mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s
costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown in the table are meant to
highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold
during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s
expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
1
| Six Months Ended July 31, 2022 | |||
| Beginning
Account Value 1/31/2022 |
Ending
Account Value 7/31/2022 |
Expenses
Paid During Period | |
| Based on Actual Fund Return | |||
| Real Estate Index Fund | |||
| Investor Shares | $1,000.00 | $ 939.70 | $1.20 |
| ETF Shares | 1,000.00 | 940.50 | 0.58 |
| Admiral™ Shares | 1,000.00 | 940.60 | 0.58 |
| Institutional Shares | 1,000.00 | 940.50 | 0.48 |
| Real Estate II Index Fund | $1,000.00 | $ 940.70 | $0.38 |
| Based on Hypothetical 5% Yearly Return | |||
| Real Estate Index Fund | |||
| Investor Shares | $1,000.00 | $1,023.56 | $1.25 |
| ETF Shares | 1,000.00 | 1,024.20 | 0.60 |
| Admiral Shares | 1,000.00 | 1,024.20 | 0.60 |
| Institutional Shares | 1,000.00 | 1,024.30 | 0.50 |
| Real Estate II Index Fund | $1,000.00 | $1,024.40 | $0.40 |
The calculations are
based on expenses incurred in the most recent six-month period. The funds’ annualized six-month expense ratios for that period are: for the Real Estate Index Fund, 0.25% for Investor Shares, 0.12% for ETF Shares, 0.12% for Admiral Shares, and
0.10% for Institutional Shares; and for the Real Estate II Index Fund, 0.08%. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by
the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (181/365).
2
Real Estate Index Fund
Fund
Allocation
As of July
31, 2022
| Diversified Real Estate Activities | 0.1% |
| Diversified REITs | 2.7 |
| Health Care REITs | 8.1 |
| Hotel & Resort REITs | 2.6 |
| Industrial REITs | 11.8 |
| Office REITs | 5.9 |
| Real Estate Development | 0.2 |
| Real Estate Operating Companies | 0.5 |
| Real Estate Services | 4.0 |
| Residential REITs | 15.1 |
| Retail REITs | 11.3 |
| Specialized REITs | 37.7 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities
that have not been provided a GICS classification as of the effective reporting period.
The fund may invest in derivatives (such as
futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
The Global Industry Classification Standard
(“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be
obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without
limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
3
Real Estate Index Fund
Financial
Statements (unaudited)
Schedule of Investments
As of July 31, 2022
The fund files its complete schedule of portfolio
holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at
www.sec.gov.
4
Real Estate Index Fund
| Shares | Market
Value• ($000) | |||||
| Temporary Cash Investments (0.6%) | ||||||
| Money Market Fund (0.6%) | ||||||
| 6,7 | Vanguard
Market Liquidity Fund, 1.903% (Cost $482,230) |
4,824,316 | 482,239 | |||
| Total
Investments (100.0%) (Cost $66,280,672) |
76,718,222 | |||||
| Other Assets and Liabilities—Net (0.0%) | (9,314) | |||||
| Net Assets (100%) | 76,708,908 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $84,190,000. |
| 2 | Security value determined using significant unobservable inputs. |
| 3 | “Other” represents securities that are not classified by the fund’s benchmark index. |
| 4 | Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. |
| 5 | Represents a wholly owned subsidiary of the fund. See accompanying financial statements for Vanguard Real Estate II Index Fund's Schedule of Investments. |
| 6 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 7 | Collateral of $88,289,000 was received for securities on loan, of which $84,183,000 is held in Vanguard Market Liquidity Fund and $4,106,000 is held in cash. |
| REIT—Real Estate Investment Trust. |
7
Real Estate Index Fund
Derivative Financial Instruments Outstanding as of Period
End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination
Date |
Counterparty | Notional
Amount ($000) |
Floating
Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| American Homes 4 Rent Class A | 8/31/22 | BANA | 37,212 | (1.809) | 2,511 | — |
| Digital Realty Trust Inc. | 1/31/23 | GSI | 30,245 | (2.153) | 2,853 | — |
| Digital Realty Trust Inc. | 8/31/22 | BANA | 48,687 | (1.797) | 915 | — |
| Equity Residential | 8/31/22 | BANA | 14,444 | (1.836) | 1,339 | — |
| Equity Residential | 8/31/22 | BANA | 28,888 | (1.813) | 2,678 | — |
| Redfin Corp. | 1/31/23 | GSI | 3,059 | (2.144) | — | (15) |
| Seritage Growth Properties Class A | 1/31/23 | GSI | 4,312 | (2.129) | 446 | — |
| Simon Property Group Inc. | 1/31/23 | GSI | 38,544 | (2.165) | 4,894 | — |
| VICI Properties Inc. | 8/31/22 | BANA | 160,866 | (2.234) | 25,436 | — |
| Welltower Inc. | 8/31/22 | BANA | 61,764 | (1.804) | 2,910 | — |
| 43,982 | (15) | |||||
| 1 | Based on USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| BANA—Bank of America, N.A. | |
| GSI—Goldman Sachs International. |
At July
31, 2022, the counterparties had deposited in segregated accounts securities with a value of $17,357,000 in connection with open over-the-counter swap contracts.
See accompanying Notes, which are an integral
part of the Financial Statements.
8
Real Estate Index Fund
Statement of
Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $58,590,407) | 67,257,782 |
| Affiliated Issuers (Cost $482,230) | 482,239 |
| Vanguard Real Estate II Index Fund (Cost $7,208,035) | 8,978,201 |
| Total Investments in Securities | 76,718,222 |
| Investment in Vanguard | 2,409 |
| Cash | 4,106 |
| Receivables for Investment Securities Sold | 20,197 |
| Receivables for Accrued Income | 128,280 |
| Receivables for Capital Shares Issued | 18,678 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 43,982 |
| Total Assets | 76,935,874 |
| Liabilities | |
| Due to Custodian | 9,652 |
| Payables for Investment Securities Purchased | 102,763 |
| Collateral for Securities on Loan | 88,289 |
| Payables for Capital Shares Redeemed | 22,634 |
| Payables to Vanguard | 3,613 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 15 |
| Total Liabilities | 226,966 |
| Net Assets | 76,708,908 |
| 1 Includes $84,190 of securities on loan. | |
9
Real Estate Index Fund
| Statement
of Assets and Liabilities
(continued) | |
|
At July 31, 2022, net assets consisted of: |
|
| ($000s, except shares and per-share amounts) | Amount |
| Paid-in Capital | 66,875,970 |
| Total Distributable Earnings (Loss) | 9,832,938 |
| Net Assets | 76,708,908 |
| Investor Shares—Net Assets | |
| Applicable
to 4,475,070 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
147,117 |
| Net Asset Value Per Share—Investor Shares | $32.87 |
| ETF Shares—Net Assets | |
| Applicable
to 413,914,080 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
40,954,284 |
| Net Asset Value Per Share—ETF Shares | $98.94 |
| Admiral Shares—Net Assets | |
| Applicable
to 170,284,766 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
23,878,936 |
| Net Asset Value Per Share—Admiral Shares | $140.23 |
| Institutional Shares—Net Assets | |
| Applicable
to 540,393,314 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
11,728,571 |
| Net Asset Value Per Share—Institutional Shares | $21.70 |
See accompanying Notes, which are an
integral part of the Financial Statements.
10
Real Estate Index Fund
Statement of
Operations
| Six
Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends—Unaffiliated Issuers | 1,063,139 |
| Dividends—Affiliated Issuers | 30,576 |
| Dividends—Vanguard Real Estate II Index Fund | 117,477 |
| Interest—Affiliated Issuers | 645 |
| Securities Lending—Net | 660 |
| Total Income | 1,212,497 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 887 |
| Management and Administrative—Investor Shares | 213 |
| Management and Administrative—ETF Shares | 22,748 |
| Management and Administrative—Admiral Shares | 12,902 |
| Management and Administrative—Institutional Shares | 5,143 |
| Marketing and Distribution—Investor Shares | 6 |
| Marketing and Distribution—ETF Shares | 722 |
| Marketing and Distribution—Admiral Shares | 459 |
| Marketing and Distribution—Institutional Shares | 186 |
| Custodian Fees | 98 |
| Shareholders’ Reports—Investor Shares | 1 |
| Shareholders’ Reports—ETF Shares | 675 |
| Shareholders’ Reports—Admiral Shares | 173 |
| Shareholders’ Reports—Institutional Shares | 64 |
| Trustees’ Fees and Expenses | 20 |
| Other Expenses | 6 |
| Total Expenses | 44,303 |
| Expenses Paid Indirectly | (23) |
| Net Expenses | 44,280 |
| Net Investment Income | 1,168,217 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received—Unaffiliated Issuers | 45,697 |
| Capital Gain Distributions Received—Vanguard Real Estate II Index Fund | — |
| Investment Securities Sold—Unaffiliated Issuers1 | 1,688,874 |
| Investment Securities Sold—Affiliated Issuers2 | 21,399 |
| Investment Securities Sold—Vanguard Real Estate II Index Fund | — |
| Swap Contracts | (39,546) |
| Realized Net Gain (Loss) | 1,716,424 |
11
Real Estate Index Fund
| Statement of Operations (continued) | |
| Six
Months Ended July 31, 2022 | |
| ($000) | |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities—Unaffiliated Issuers | (7,655,293) |
| Investment Securities—Affiliated Issuers | 204,832 |
| Investment Securities—Vanguard Real Estate II Index Fund | (683,638) |
| Swap Contracts | 43,967 |
| Change in Unrealized Appreciation (Depreciation) | (8,090,132) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (5,205,491) |
| 1 | Includes $1,805,234,000 of net gain (loss) resulting from in-kind redemptions. |
| 2 | Includes $32,314,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an integral part of the
Financial Statements.
12
Real Estate Index Fund
Statement of
Changes in Net Assets
| Six
Months Ended July 31, 2022 |
Year
Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 1,168,217 | 1,487,532 | |
| Realized Net Gain (Loss) | 1,716,424 | 2,507,302 | |
| Change in Unrealized Appreciation (Depreciation) | (8,090,132) | 14,077,791 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (5,205,491) | 18,072,625 | |
| Distributions | |||
| Investor Shares | (1,879) | (3,637) | |
| ETF Shares | (490,481) | (811,715) | |
| Admiral Shares | (276,428) | (463,925) | |
| Institutional Shares | (135,640) | (220,900) | |
| Return of Capital | |||
| Investor Shares | — | (1,874) | |
| ETF Shares | — | (418,428) | |
| Admiral Shares | — | (239,147) | |
| Institutional Shares | — | (113,871) | |
| Total Distributions | (904,428) | (2,273,497) | |
| Capital Share Transactions | |||
| Investor Shares | (33,562) | (35,113) | |
| ETF Shares | (2,289,715) | 6,252,486 | |
| Admiral Shares | (70,519) | 1,052,588 | |
| Institutional Shares | 490,722 | 221,639 | |
| Net Increase (Decrease) from Capital Share Transactions | (1,903,074) | 7,491,600 | |
| Total Increase (Decrease) | (8,012,993) | 23,290,728 | |
| Net Assets | |||
| Beginning of Period | 84,721,901 | 61,431,173 | |
| End of Period | 76,708,908 | 84,721,901 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
13
Real Estate Index Fund
Financial
Highlights
| Investor Shares | ||||||
| For
a Share Outstanding Throughout Each Period |
Six
Months Ended July 31, 2022 |
Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $35.37 | $28.23 | $31.21 | $27.69 | $26.40 | $27.38 |
| Investment Operations | ||||||
| Net Investment Income1 | .459 | .602 | .586 | .719 | .787 | .761 |
| Net Realized and Unrealized Gain (Loss) on Investments | (2.600) | 7.475 | (2.498) | 3.801 | 1.639 | (.614) |
| Total from Investment Operations | (2.141) | 8.077 | (1.912) | 4.520 | 2.426 | .147 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.359) | (.620) | (.624) | (.752) | (.851) | (.788) |
| Distributions from Realized Capital Gains | — | — | — | — | — | (.011) |
| Return of Capital | — | (.317) | (.444) | (.248) | (.285) | (.328) |
| Total Distributions | (.359) | (.937) | (1.068) | (1.000) | (1.136) | (1.127) |
| Net Asset Value, End of Period | $32.87 | $35.37 | $28.23 | $31.21 | $27.69 | $26.40 |
| Total Return2 | -6.03% | 28.73% | -5.88% | 16.59% | 9.53% | 0.45% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $147 | $196 | $188 | $243 | $1,871 | $2,143 |
| Ratio of Total Expenses to Average Net Assets | 0.25% 3 | 0.26% | 0.26% | 0.26% | 0.25% | 0.26% |
| Ratio of Net Investment Income to Average Net Assets | 2.58% | 1.77% | 2.18% | 2.48% | 3.02% | 2.87% |
| Portfolio Turnover Rate4 | 4% | 7% | 8% | 6% | 24% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.25%. |
| 4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See accompanying Notes, which are an integral
part of the Financial Statements.
14
Real Estate Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For
a Share Outstanding Throughout Each Period |
Six
Months Ended July 31, 2022 |
Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $106.44 | $84.96 | $93.93 | $83.36 | $79.47 | $82.43 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.470 | 1.960 | 1.889 | 2.335 | 2.487 | 2.499 |
| Net Realized and Unrealized Gain (Loss) on Investments | (7.824) | 22.486 | (7.525) | 11.379 | 4.934 | (1.945) |
| Total from Investment Operations | (6.354) | 24.446 | (5.636) | 13.714 | 7.421 | .554 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.146) | (1.943) | (1.947) | (2.364) | (2.646) | (2.458) |
| Distributions from Realized Capital Gains | — | — | — | — | — | (.034) |
| Return of Capital | — | (1.023) | (1.387) | (.780) | (.885) | (1.022) |
| Total Distributions | (1.146) | (2.966) | (3.334) | (3.144) | (3.531) | (3.514) |
| Net Asset Value, End of Period | $98.94 | $106.44 | $84.96 | $93.93 | $83.36 | $79.47 |
| Total Return | -5.95% | 28.88% | -5.80% | 16.70% | 9.70% | 0.59% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $40,954 | $46,673 | $32,064 | $37,682 | $30,857 | $32,377 |
| Ratio of Total Expenses to Average Net Assets | 0.12% 2 | 0.12% | 0.12% | 0.12% | 0.12% | 0.12% |
| Ratio of Net Investment Income to Average Net Assets | 2.76% | 1.90% | 2.33% | 2.60% | 3.15% | 3.01% |
| Portfolio Turnover Rate3 | 4% | 7% | 8% | 6% | 24% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.12%. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See accompanying Notes, which are an integral
part of the Financial Statements.
15
Real Estate Index Fund
Financial
Highlights
| Admiral Shares | ||||||
| For
a Share Outstanding Throughout Each Period |
Six
Months Ended July 31, 2022 |
Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $150.85 | $120.40 | $133.12 | $118.14 | $112.63 | $116.83 |
| Investment Operations | ||||||
| Net Investment Income1 | 2.096 | 2.761 | 2.677 | 3.315 | 3.507 | 3.538 |
| Net Realized and Unrealized Gain (Loss) on Investments | (11.091) | 31.890 | (10.672) | 16.121 | 7.008 | (2.761) |
| Total from Investment Operations | (8.995) | 34.651 | (7.995) | 19.436 | 10.515 | .777 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.625) | (2.770) | (2.759) | (3.350) | (3.751) | (3.483) |
| Distributions from Realized Capital Gains | — | — | — | — | — | (.048) |
| Return of Capital | — | (1.431) | (1.966) | (1.106) | (1.254) | (1.447) |
| Total Distributions | (1.625) | (4.201) | (4.725) | (4.456) | (5.005) | (4.978) |
| Net Asset Value, End of Period | $140.23 | $150.85 | $120.40 | $133.12 | $118.14 | $112.63 |
| Total Return2 | -5.94% | 28.91% | -5.74% | 16.73% | 9.69% | 0.58% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $23,879 | $25,764 | $19,702 | $23,274 | $18,223 | $17,757 |
| Ratio of Total Expenses to Average Net Assets | 0.12% 3 | 0.12% | 0.12% | 0.12% | 0.11% | 0.12% |
| Ratio of Net Investment Income to Average Net Assets | 2.78% | 1.90% | 2.33% | 2.60% | 3.16% | 3.01% |
| Portfolio Turnover Rate4 | 4% | 7% | 8% | 6% | 24% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.12%. |
| 4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See accompanying Notes, which are an integral
part of the Financial Statements.
16
Real Estate Index Fund
Financial
Highlights
| Institutional Shares | ||||||
| For
a Share Outstanding Throughout Each Period |
Six
Months Ended July 31, 2022 |
Year Ended January 31, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $23.35 | $18.64 | $20.60 | $18.28 | $17.43 | $18.08 |
| Investment Operations | ||||||
| Net Investment Income1 | .328 | .432 | .421 | .518 | .543 | .568 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.724) | 4.933 | (1.646) | 2.496 | 1.085 | (.444) |
| Total from Investment Operations | (1.396) | 5.365 | (1.225) | 3.014 | 1.628 | .124 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.254) | (.432) | (.429) | (.522) | (.583) | (.542) |
| Distributions from Realized Capital Gains | — | — | — | — | — | (.007) |
| Return of Capital | — | (.223) | (.306) | (.172) | (.195) | (.225) |
| Total Distributions | (.254) | (.655) | (.735) | (.694) | (.778) | (.774) |
| Net Asset Value, End of Period | $21.70 | $23.35 | $18.64 | $20.60 | $18.28 | $17.43 |
| Total Return | -5.95% | 28.91% | -5.68% | 16.77% | 9.70% | 0.60% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $11,729 | $12,089 | $9,478 | $10,027 | $8,206 | $8,176 |
| Ratio of Total Expenses to Average Net Assets | 0.10% 2 | 0.10% | 0.10% | 0.10% | 0.09% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.81% | 1.92% | 2.37% | 2.63% | 3.18% | 3.03% |
| Portfolio Turnover Rate3 | 4% | 7% | 8% | 6% | 24% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.10%. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See accompanying Notes, which are an integral
part of the Financial Statements.
17
Real Estate Index Fund
Notes to
Financial Statements
Vanguard Real Estate Index Fund is registered under the
Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers four classes of shares: Investor Shares, ETF Shares, Admiral Shares, and Institutional Shares. Each of the share classes has different eligibility and
minimum purchase requirements, and is designed for different types of investors. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
As a part of its principal investment strategy, the fund
attempts to replicate its benchmark index by investing all, or substantially all, of its assets—either directly or indirectly through a wholly owned subsidiary—in the stocks that make up the index. Vanguard Real Estate II Index Fund is
the wholly owned subsidiary in which the fund has invested a portion of its assets. For additional financial information about the Real Estate II Index Fund, refer to the accompanying financial statements.
Significant market disruptions, such as those caused by
pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such
disruptions could have an adverse impact on the value of the fund investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation: Securities are valued as of
the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each
security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by
events occurring before the fund's pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in affiliated Vanguard funds are valued at that
fund's net asset value.
2. Swap Contracts: The
fund has entered into equity swap contracts to earn the total return on selected reference stocks in the fund’s target index. Under the terms of the swaps, the fund receives the total return on the referenced stock (i.e., receiving the
increase or paying the decrease in value of the selected reference stock and receiving the equivalent of any dividends in respect of the selected referenced stock) over a specified period of time, applied to a notional amount that represents the
value of a designated number of shares of the selected reference stock at the beginning of the equity swap contract. The fund also pays a floating rate that is based on short-term interest rates, applied to the notional amount. At the same time, the
fund generally invests an amount approximating the notional amount of the swap in high-quality temporary cash investments.
A risk associated with all types of swaps is the
possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap contract. The fund mitigates its counterparty
risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as
security for their
18
Real Estate Index Fund
performance. In the absence of a default, the collateral pledged or
received by the fund cannot be repledged, resold, or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either
party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions whereby a counterparty may terminate
open contracts if the fund's net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has
pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily to the value of the swap contracts exposure with each counterparty, and any
difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
The notional amounts of swap contracts are not recorded
in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is recorded in the Statement of Assets and Liabilities as an asset
(liability) and in the Statement of Operations as unrealized appreciation (depreciation) until periodic payments are made or the termination of the swap, at which time realized gain (loss) is recorded.
During the six months ended July 31, 2022, the
fund’s average amounts of investments in total return swaps represented less than 1% of net assets, based on the average of notional amounts at each quarter-end during the period.
3. Federal Income Taxes: The fund intends to
continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is
generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for income tax is required in the
fund’s financial statements.
4. Distributions: Distributions to shareholders are
recorded on the ex-dividend date. The portion of distributions that exceed a fund's current and accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. Distributions are determined on a tax basis at
the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Securities Lending: To earn additional income,
the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of
securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the
next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities
lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings.
19
Real Estate Index Fund
While
collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in
the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending
income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned
securities.
6. Credit Facilities and Interfund
Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility
provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes and are subject to the
fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the
facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear
interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the
uncommitted credit facility may bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the
“Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the
“Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend
overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The
board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2022, the fund did not
utilize the credit facilities or the Interfund Lending Program.
7. Other: Distributions received from investment
securities are recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Each investment security reports annually the tax character of its distributions. Dividend
income, capital gain distributions received, and unrealized appreciation (depreciation) reflect the amounts of taxable income, capital gain, and return of capital reported by the investment securities, and management’s estimates of such
amounts for investment security distributions for which actual information has not been reported. Income, capital gain, and return of capital distributions received from affiliated Vanguard funds are recorded on ex-dividend date. Interest income
includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of
investment securities are those of the specific securities sold.
20
Real Estate Index Fund
Each class of shares has equal rights as to assets and
earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are
allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard, the fund may invest up to
0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $2,409,000, representing less than 0.01% of the fund’s net assets and 0.96% of Vanguard’s capital received
pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $23,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted
prices in active markets for identical securities.
Level 2—Other
significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant
unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant unobservable inputs are noted on the Schedule of Investments.
21
Real Estate Index Fund
The following table summarizes the market value of the
fund's investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total
($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 76,235,969 | — | 14 | 76,235,983 |
| Temporary Cash Investments | 482,239 | — | — | 482,239 |
| Total | 76,718,208 | — | 14 | 76,718,222 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 43,982 | — | 43,982 |
| Liabilities | ||||
| Swap Contracts | — | 15 | — | 15 |
| E. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount
($000) | |
| Tax Cost | 66,532,469 |
| Gross Unrealized Appreciation | 16,444,842 |
| Gross Unrealized Depreciation | (6,215,122) |
| Net Unrealized Appreciation (Depreciation) | 10,229,720 |
The fund’s tax-basis
capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2022, the fund had available capital losses totaling $2,552,105,000 that may be carried forward indefinitely to offset future net capital
gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2023; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward
balance above.
| F. | During the six months ended July 31, 2022, the fund purchased $6,666,599,000 of investment securities and sold $8,517,790,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,716,008,000 and $5,022,320,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares. |
The fund purchased securities from and sold securities to
other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six months ended July 31, 2022, such
purchases were $11,282,000 and sales were $2,771,000, resulting in net realized loss of $235,000; these amounts, other than temporary cash investments, are included in the purchases and sales of investment securities noted above.
22
Real Estate Index Fund
| G. | Capital share transactions for each class of shares were: |
| Six
Months Ended July 31, 2022 |
Year
Ended January 31, 2022 | ||||
| Amount
($000) |
Shares
(000) |
Amount
($000) |
Shares
(000) | ||
| Investor Shares | |||||
| Issued | 8,183 | 239 | 40,853 | 1,192 | |
| Issued in Lieu of Cash Distributions | 1,879 | 58 | 5,511 | 161 | |
| Redeemed | (43,624) | (1,361) | (81,477) | (2,463) | |
| Net Increase (Decrease)—Investor Shares | (33,562) | (1,064) | (35,113) | (1,110) | |
| ETF Shares | |||||
| Issued | 2,739,304 | 26,810 | 12,323,320 | 119,786 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (5,029,019) | (51,400) | (6,070,834) | (58,700) | |
| Net Increase (Decrease)—ETF Shares | (2,289,715) | (24,590) | 6,252,486 | 61,086 | |
| Admiral Shares | |||||
| Issued | 1,491,343 | 10,427 | 4,265,102 | 29,377 | |
| Issued in Lieu of Cash Distributions | 242,660 | 1,768 | 616,726 | 4,188 | |
| Redeemed | (1,804,522) | (12,701) | (3,829,240) | (26,405) | |
| Net Increase (Decrease)—Admiral Shares | (70,519) | (506) | 1,052,588 | 7,160 | |
| Institutional Shares | |||||
| Issued | 1,257,128 | 57,103 | 2,230,405 | 98,845 | |
| Issued in Lieu of Cash Distributions | 125,971 | 5,933 | 311,998 | 13,695 | |
| Redeemed | (892,377) | (40,438) | (2,320,764) | (103,325) | |
| Net Increase (Decrease)—Institutional Shares | 490,722 | 22,598 | 221,639 | 9,215 | |
23
Real Estate Index Fund
H.Certain
of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard
Group. Transactions during the period in securities of these companies were as follows:
| Current Period Transactions | ||||||||
| Jan.
31, 2022 Market Value ($000) |
Purchases
at Cost ($000) |
Proceeds
from Securities Sold1 ($000) |
Realized
Net Gain (Loss) ($000) |
Change
in Unrealized App. (Dep.) ($000) |
Income
($000) |
Capital
Gain Distributions Received ($000) |
Jul.
31, 2022 Market Value ($000) | |
| Easterly Government Properties Inc. | 90,343 | 5,544 | 16,623 | (251) | (2,921) | 2,164 | — | NA 2 |
| Equity Commonwealth | NA 3 | 10,687 | 27,803 | (1,498) | 12,511 | — | — | NA 2 |
| Hudson Pacific Properties Inc. | NA 3 | 11,338 | 17,834 | (4,079) | (57,207) | 3,572 | — | NA 2 |
| Vanguard Market Liquidity Fund | 147,613 | NA 4 | NA 4 | (50) | (14) | 645 | — | 482,239 |
| Vanguard Real Estate II Index Fund | 9,542,041 | 117,477 | — | — | (683,638) | 117,477 | — | 8,978,201 |
| VICI Properties Inc. | NA 3,5 | 488,161 | 282,110 | 27,277 | 252,463 | 24,840 | — | NA 2 |
| Total | 9,779,997 | 633,207 | 344,370 | 21,399 | (478,806) | 148,698 | — | 9,460,440 |
| 1 | Does not include adjustments related to return of capital. |
| 2 | Not applicable—at July 31, 2022, the security was still held, but the issuer was no longer an affiliated company of the fund. |
| 3 | Not applicable—at January 31, 2022, the issuer was not an affiliated company of the fund. |
| 4 | Not applicable—purchases and sales are for temporary cash investment purposes. |
| 5 | Not applicable—in April 2022, VICI Properties Inc. acquired MGM Growth Properties LLC. |
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
24
Real Estate II Index Fund
Fund
Allocation
As of July
31, 2022
| Diversified Real Estate Activities | 0.1% |
| Diversified REITs | 2.7 |
| Health Care REITs | 8.1 |
| Hotel & Resort REITs | 2.5 |
| Industrial REITs | 11.6 |
| Office REITs | 5.9 |
| Real Estate Development | 0.2 |
| Real Estate Operating Companies | 0.5 |
| Real Estate Services | 4.0 |
| Residential REITs | 15.2 |
| Retail REITs | 11.3 |
| Specialized REITs | 37.9 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities
that have not been provided a GICS classification as of the effective reporting period.
The fund may invest in derivatives (such as
futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
The Global Industry Classification Standard
(“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be
obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without
limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
25
Real Estate II Index
Fund
Financial Statements (unaudited)
Schedule of
Investments
As of July
31, 2022
The fund files its complete schedule of portfolio
holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at
www.sec.gov.
26
Real Estate II Index
Fund
Derivative Financial Instruments Outstanding as of Period
End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination
Date |
Counterparty | Notional
Amount ($000) |
Floating
Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Americold Realty Trust Inc. | 1/31/23 | GSI | 7,788 | (2.093) | 396 | — |
| Park Hotels & Resorts Inc. | 1/31/23 | GSI | 5,544 | (2.110) | 690 | — |
| 1,086 | — | |||||
| 1 | Based on USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| GSI—Goldman Sachs International. |
At July
31, 2022, the counterparties had deposited in segregated accounts securities with a value of $1,092,000 in connection with open over-the-counter swap contracts.
See accompanying Notes, which are an integral
part of the Financial Statements.
29
Real Estate II Index
Fund
Statement of Assets and Liabilities
As of July 31, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $7,229,000) | 8,963,469 |
| Affiliated Issuers (Cost $26,840) | 26,840 |
| Total Investments in Securities | 8,990,309 |
| Investment in Vanguard | 316 |
| Receivables for Investment Securities Sold | 1,218 |
| Receivables for Accrued Income | 16,915 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 1,086 |
| Total Assets | 9,009,844 |
| Liabilities | |
| Due to Custodian | 1,218 |
| Payables for Investment Securities Purchased | 15,788 |
| Collateral for Securities on Loan | 14,336 |
| Payables to Vanguard | 301 |
| Total Liabilities | 31,643 |
| Net Assets | 8,978,201 |
| 1 Includes $13,847 of securities on loan. | |
|
At July 31, 2022, net assets consisted of: |
|
| Paid-in Capital | 7,206,235 |
| Total Distributable Earnings (Loss) | 1,771,966 |
| Net Assets | 8,978,201 |
| Net Assets | |
| Applicable
to 376,527,417 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
8,978,201 |
| Net Asset Value Per Share | $23.84 |
See accompanying Notes, which are an
integral part of the Financial Statements.
30
Real Estate II Index
Fund
Statement of Operations
| Six
Months Ended July 31, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends | 142,749 |
| Interest 1 | 17 |
| Securities Lending—Net | 70 |
| Total Income | 142,836 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 618 |
| Management and Administrative | 2,872 |
| Marketing and Distribution | 79 |
| Custodian Fees | 13 |
| Shareholders’ Reports | — |
| Trustees’ Fees and Expenses | 2 |
| Other Expenses | 6 |
| Total Expenses | 3,590 |
| Expenses Paid Indirectly | (1) |
| Net Expenses | 3,589 |
| Net Investment Income | 139,247 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 5,521 |
| Investment Securities Sold1 | 14,480 |
| Swap Contracts | (1,523) |
| Realized Net Gain (Loss) | 18,478 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (722,651) |
| Swap Contracts | 1,086 |
| Change in Unrealized Appreciation (Depreciation) | (721,565) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (563,840) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $17,000, ($6,000), and less than $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying Notes, which
are an integral part of the Financial Statements.
31
Real Estate II Index
Fund
Statement of Changes in Net Assets
| Six
Months Ended July 31, 2022 |
Year
Ended January 31, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 139,247 | 176,897 | |
| Realized Net Gain (Loss) | 18,478 | 53,384 | |
| Change in Unrealized Appreciation (Depreciation) | (721,565) | 1,912,230 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (563,840) | 2,142,511 | |
| Distributions | |||
| Net Investment Income and/or Realized Capital Gains | (117,477) | (186,333) | |
| Return of Capital | — | (76,790) | |
| Total Distributions | (117,477) | (263,123) | |
| Capital Share Transactions | |||
| Issued | — | — | |
| Issued in Lieu of Cash Distributions | 117,477 | 263,123 | |
| Redeemed | — | — | |
| Net Increase (Decrease) from Capital Share Transactions | 117,477 | 263,123 | |
| Total Increase (Decrease) | (563,840) | 2,142,511 | |
| Net Assets | |||
| Beginning of Period | 9,542,041 | 7,399,530 | |
| End of Period | 8,978,201 | 9,542,041 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
32
Real Estate II Index
Fund
Financial Highlights
| For
a Share Outstanding Throughout Each Period |
Six
Months Ended July 31, 2022 |
Year Ended January 31, | September 26,
20171 to January 31, 2018 | |||
| 2022 | 2021 | 2020 | 2019 | |||
| Net Asset Value, Beginning of Period | $25.69 | $20.50 | $22.64 | $20.10 | $19.17 | $20.00 |
| Investment Operations | ||||||
| Net Investment Income2 | .373 | .484 | .471 | .571 | .611 | .268 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.908) | 5.427 | (1.808) | 2.752 | 1.176 | (.834) |
| Total from Investment Operations | (1.535) | 5.911 | (1.337) | 3.323 | 1.787 | (.566) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.315) | (.477) | (.465) | (.590) | (.626) | (.225) |
| Distributions from Realized Capital Gains | — | (.034) | — | — | — | (.030) |
| Return of Capital | — | (.210) | (.338) | (.193) | (.231) | (.009) |
| Total Distributions | (.315) | (.721) | (.803) | (.783) | (.857) | (.264) |
| Net Asset Value, End of Period | $23.84 | $25.69 | $20.50 | $22.64 | $20.10 | $19.17 |
| Total Return | -5.93% | 28.96% | -5.70% | 16.78% | 9.68% | -2.89% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $8,978 | $9,542 | $7,400 | $7,848 | $6,719 | $6,126 |
| Ratio of Total Expenses to Average Net Assets | 0.08% 3 | 0.08% | 0.08% | 0.08% | 0.08% | 0.08% 4 |
| Ratio of Net Investment Income to Average Net Assets | 2.90% | 1.95% | 2.41% | 2.63% | 3.22% | 3.84% 4 |
| Portfolio Turnover Rate | 3% | 6% | 4% | 3% | 23% | 1% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Inception. |
| 2 | Calculated based on average shares outstanding. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.08%. |
| 4 | Annualized. |
See accompanying Notes, which are an integral
part of the Financial Statements.
33
Real Estate II Index
Fund
Notes to Financial Statements
Vanguard Real Estate II Index Fund is registered under
the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund is a wholly owned subsidiary of Vanguard Real Estate Index Fund (“Real Estate Index Fund”), and at July 31, 2022, the Real Estate Index Fund
was the record and beneficial owner of 100% of the fund’s net assets. As part of the Real Estate Index Fund’s principal investment strategy, it attempts to replicate the benchmark index by investing all, or substantially all, of its
assets—either directly or indirectly through the fund—in the stocks that make up the index.
Significant market disruptions, such as those caused by
pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such
disruptions could have an adverse impact on the value of the fund investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation: Securities are valued as of
the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each
security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by
events occurring before the fund's pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at
that fund's net asset value.
2. Swap
Contracts: The fund has entered into equity swap contracts to earn the total return on selected reference stocks in the fund’s target index. Under the terms of the swaps, the fund receives the total return on the referenced stock (i.e.,
receiving the increase or paying the decrease in value of the selected reference stock and receiving the equivalent of any dividends in respect of the selected referenced stock) over a specified period of time, applied to a notional amount that
represents the value of a designated number of shares of the selected reference stock at the beginning of the equity swap contract. The fund also pays a floating rate that is based on short-term interest rates, applied to the notional amount. At the
same time, the fund generally invests an amount approximating the notional amount of the swap in high-quality temporary cash investments.
A risk associated with all types of swaps is the
possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap contract. The fund mitigates its counterparty
risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate
any swap contracts with that counterparty, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting
34
Real Estate II Index
Fund
arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund's net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any
collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily to the value of the swap contracts exposure with each
counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
The notional amounts of swap contracts are not recorded
in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is recorded in the Statement of Assets and Liabilities as an asset
(liability) and in the Statement of Operations as unrealized appreciation (depreciation) until periodic payments are made or the termination of the swap, at which time realized gain (loss) is recorded.
During the six months ended July 31, 2022, the
fund’s average amounts of investments in total return swaps represented less than 1% of net assets, based on the average of notional amounts at each quarter-end during the period.
3. Federal Income Taxes: The fund intends to
continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is
generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for income tax is required in the
fund’s financial statements.
4. Distributions: Distributions to shareholders are
recorded on the ex-dividend date. The portion of distributions that exceed a fund's current and accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. Distributions are determined on a tax basis at
the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Securities Lending: To earn additional income,
the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of
securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the
next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities
lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and
costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the
securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities
35
Real Estate II Index
Fund
lending income represents fees charged to borrowers plus income earned
on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facilities and Interfund Lending Program:
The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by
Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes and are subject to the fund’s
regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which
are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an
agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted
credit facility may bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the
“Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the
“Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend
overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The
board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2022, the fund did not
utilize the credit facilities or the Interfund Lending Program.
7. Other: Distributions received from investment
securities are recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Each investment security reports annually the tax character of its distributions. Dividend
income, capital gain distributions received, and unrealized appreciation (depreciation) reflect the amounts of taxable income, capital gain, and return of capital reported by the investment securities, and management’s estimates of such
amounts for investment security distributions for which actual information has not been reported. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted
for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
| B. | In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
36
Real Estate II Index
Fund
Upon the request of Vanguard, the fund may invest up to
0.40% of its net assets as capital in Vanguard. At July 31, 2022, the fund had contributed to Vanguard capital in the amount of $316,000, representing less than 0.01% of the fund’s net assets and 0.13% of Vanguard’s capital received
pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2022, custodian fee offset arrangements reduced the fund’s expenses by $1,000 (an annual rate of less than 0.01% of average net assets). |
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted
prices in active markets for identical securities.
Level 2—Other
significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant
unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant unobservable inputs are noted on the Schedule of Investments.
The following table summarizes the market value of the
fund's investments and derivatives as of July 31, 2022, based on the inputs used to value them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total
($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 8,963,469 | — | — | 8,963,469 |
| Temporary Cash Investments | 26,840 | — | — | 26,840 |
| Total | 8,990,309 | — | — | 8,990,309 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 1,086 | — | 1,086 |
| E. | As of July 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount
($000) | |
| Tax Cost | 7,288,336 |
| Gross Unrealized Appreciation | 2,502,589 |
| Gross Unrealized Depreciation | (799,530) |
| Net Unrealized Appreciation (Depreciation) | 1,703,059 |
37
Real Estate II Index
Fund
| F. | During the six months ended July 31, 2022, the fund purchased $461,971,000 of investment securities and sold $306,012,000 of investment securities, other than temporary cash investments. |
The fund purchased securities from and sold securities to
other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six months ended July 31, 2022, such
purchases were $1,390,000 and sales were $140,000, resulting in net realized loss of $19,000; these amounts, other than temporary cash investments, are included in the purchases and sales of investment securities noted above.
| G. | Capital shares issued and redeemed were: |
| Six
Months Ended July 31, 2022 |
Year
Ended January 31, 2022 | ||
| Shares
(000) |
Shares
(000) | ||
| Issued | — | — | |
| Issued in Lieu of Cash Distributions | 5,076 | 10,506 | |
| Redeemed | — | — | |
| Net Increase (Decrease) in Shares Outstanding | 5,076 | 10,506 |
| H. | Management has determined that no events or transactions occurred subsequent to July 31, 2022, that would require recognition or disclosure in these financial statements. |
38
Trustees Approve Advisory
Arrangements
The board of trustees of Vanguard Real Estate Index Fund and the board
of trustees of Vanguard Real Estate II Index Fund have renewed their respective fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. Each board determined that continuing the
respective fund’s internalized management structure was in the best interests of the fund and its shareholders.
Each board based its decision upon an evaluation of the
advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and
product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
Each board, or an investment committee made up of board
members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the
advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, each board received periodic reports
throughout the year, which included information about the respective fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review Department’s ongoing assessment of the
advisor.
Prior to their meeting, the trustees of
each board were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether either board
approved its respective fund’s arrangement. Rather, it was the totality of the circumstances that drove each board’s decision.
Nature, extent, and quality of services
The board of the Real Estate Index Fund reviewed the quality of that
fund’s investment management services over both the short and long term, while the board of the Real Estate II Index Fund reviewed the quality of that fund’s investment management services since its inception in 2017; they each took into
account the organizational depth and stability of the advisor. Each board considered that Vanguard has been managing investments for more than four decades. The Equity Index Group adheres to a sound, disciplined investment management process; the
team has considerable experience, stability, and depth.
Each board concluded that Vanguard’s experience,
stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement with its respective fund.
Investment performance
The board of the Real Estate Index Fund considered the short- and
long-term performance of that fund, including any periods of outperformance or underperformance compared with its target index and peer group, while the board of the Real Estate II Index Fund considered the short-term and since inception performance
of that fund compared with its target index and peer group. Each board concluded that the performance of its respective fund was such that its advisory arrangement should continue.
39
Cost
Each board concluded that the respective fund’s expense ratio was
below the average expense ratio charged by funds in its peer group and that the respective fund’s advisory expenses were also below the peer-group average.
Neither board conducts a profitability analysis of
Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of scale
Each board concluded that its respective fund’s arrangement with
Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
Each board will consider whether to renew its respective
advisory arrangement again after a one-year period.
40
Liquidity Risk Management
Vanguard funds (except for the money market funds) have
adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to
assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity
risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term
cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for
classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Real Estate Index Funds
approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Real Estate Index Fund and Vanguard Real Estate II Index Fund, and for carrying out the specific responsibilities set
forth in the Program, including reporting to the board on at least an annual basis regarding the Program's operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The
board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and
was implemented effectively to manage the funds' liquidity risk.
41
Item 2: Code of Ethics.
Not applicable.
Item 3: Audit Committee Financial Expert.
Not applicable.
Item 4: Principal Accountant Fees and Services.
Not applicable.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Investments.
Not applicable. The complete schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in the Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: Exhibits.
| (a)(1) | Not applicable. |
| (a)(2) | Certifications filed herewith. |
| (b) | Certifications filed herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VANGUARD FIXED INCOME SECURITIES FUNDS | ||
| BY: | /s/ MORTIMER J. BUCKLEY* | |
| MORTIMER J. BUCKLEY | ||
| CHIEF EXECUTIVE OFFICER |
Date: September 19, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| VANGUARD FIXED INCOME SECURITIES FUNDS | ||
| BY: | /s/ MORTIMER J. BUCKLEY* | |
| MORTIMER J. BUCKLEY | ||
| CHIEF EXECUTIVE OFFICER |
Date: September 19, 2022
| VANGUARD FIXED INCOME SECURITIES FUNDS | ||
| BY: | /s/ CHRISTINE BUCHANAN* | |
| CHRISTINE BUCHANAN | ||
| CHIEF FINANCIAL OFFICER | ||
Date: September 19, 2022
| * By: | /s/ Anne E. Robinson |
Anne E. Robinson, pursuant to a Power of Attorney filed on November 29, 2021 (see File Number 33-64845), a Power of Attorney filed on October 12, 2021 (see File Number 33-23444), and a Power of Attorney filed on August 26, 2021 (see file Number 811-02652), Incorporated by Reference.