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, 2023—July 31, 2023
Item 1: Reports to Shareholders
Semiannual Report | July 31, 2023
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 | 18 |
Intermediate-Term Treasury Fund | 33 |
Long-Term Treasury Fund | 48 |
Trustees Approve Advisory Arrangements | 63 |
Liquidity Risk Management | 65 |
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, 2023 | |||
| Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Short-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $998.00 | $0.99 |
| Admiral™ Shares | 1,000.00 | 998.50 | 0.50 |
| Short-Term Federal Fund | |||
| Investor Shares | $1,000.00 | $997.30 | $0.99 |
| Admiral Shares | 1,000.00 | 997.80 | 0.50 |
| Intermediate-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $986.20 | $0.98 |
| Admiral Shares | 1,000.00 | 986.70 | 0.49 |
| Long-Term Treasury Fund | |||
| Investor Shares | $1,000.00 | $951.90 | $0.97 |
| Admiral Shares | 1,000.00 | 952.30 | 0.48 |
| 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, 2023
| Agency Bonds and Notes | 1.0% |
| Government Mortgage-Backed Securities | 12.6 |
| U.S. Government Securities | 86.4 |
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.
3
Short-Term Treasury Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2023
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 (101.4%) | ||||||
| U.S. Government Securities (87.6%) | ||||||
| United States Treasury Note/Bond | 0.375% | 8/15/24 | 52,000 | 49,392 | ||
| United States Treasury Note/Bond | 2.375% | 8/15/24 | 169,000 | 163,904 | ||
| United States Treasury Note/Bond | 1.250% | 8/31/24 | 84,000 | 80,377 | ||
| United States Treasury Note/Bond | 1.875% | 8/31/24 | 85,600 | 82,457 | ||
| United States Treasury Note/Bond | 0.625% | 10/15/24 | 17,200 | 16,259 | ||
| United States Treasury Note/Bond | 4.375% | 10/31/24 | 65,000 | 64,269 | ||
| United States Treasury Note/Bond | 0.750% | 11/15/24 | 45,600 | 43,035 | ||
| United States Treasury Note/Bond | 4.500% | 11/30/24 | 268,000 | 265,278 | ||
| United States Treasury Note/Bond | 1.000% | 12/15/24 | 225,900 | 213,299 | ||
| United States Treasury Note/Bond | 2.250% | 12/31/24 | 37,000 | 35,508 | ||
| United States Treasury Note/Bond | 4.250% | 12/31/24 | 17,500 | 17,265 | ||
| United States Treasury Note/Bond | 1.125% | 1/15/25 | 53,200 | 50,183 | ||
| United States Treasury Note/Bond | 2.500% | 1/31/25 | 50,000 | 48,070 | ||
| United States Treasury Note/Bond | 1.500% | 2/15/25 | 280,988 | 265,841 | ||
| United States Treasury Note/Bond | 2.000% | 2/15/25 | 71,000 | 67,694 | ||
| United States Treasury Note/Bond | 1.750% | 3/15/25 | 298,000 | 282,495 | ||
| United States Treasury Note/Bond | 3.875% | 3/31/25 | 65,000 | 63,751 | ||
| United States Treasury Note/Bond | 2.625% | 4/15/25 | 194,300 | 186,589 | ||
| United States Treasury Note/Bond | 0.375% | 4/30/25 | 100,000 | 92,281 | ||
| United States Treasury Note/Bond | 2.875% | 4/30/25 | 173,000 | 166,756 | ||
| United States Treasury Note/Bond | 2.125% | 5/15/25 | 79,200 | 75,314 | ||
| United States Treasury Note/Bond | 2.750% | 5/15/25 | 69,100 | 66,433 | ||
| United States Treasury Note/Bond | 0.250% | 5/31/25 | 226,000 | 207,390 | ||
| United States Treasury Note/Bond | 2.750% | 6/30/25 | 115,800 | 111,168 | ||
| 1 | United States Treasury Note/Bond | 3.000% | 7/15/25 | 172,800 | 166,617 | |
| United States Treasury Note/Bond | 0.250% | 7/31/25 | 113,132 | 103,215 | ||
| United States Treasury Note/Bond | 3.125% | 8/15/25 | 106,500 | 102,889 | ||
| United States Treasury Note/Bond | 2.750% | 8/31/25 | 34,500 | 33,061 | ||
| United States Treasury Note/Bond | 3.500% | 9/15/25 | 43,100 | 41,928 | ||
| United States Treasury Note/Bond | 3.000% | 9/30/25 | 21,000 | 20,213 | ||
| United States Treasury Note/Bond | 4.250% | 10/15/25 | 34,600 | 34,200 | ||
| United States Treasury Note/Bond | 3.000% | 10/31/25 | 141,500 | 136,127 | ||
| United States Treasury Note/Bond | 2.875% | 11/30/25 | 20,600 | 19,750 | ||
| United States Treasury Note/Bond | 0.500% | 2/28/26 | 245,800 | 221,297 | ||
| United States Treasury Note/Bond | 0.750% | 4/30/26 | 195,000 | 175,927 | ||
| United States Treasury Note/Bond | 3.625% | 5/15/26 | 40,000 | 39,025 | ||
| United States Treasury Note/Bond | 0.750% | 5/31/26 | 105,000 | 94,500 | ||
4
Short-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United States Treasury Note/Bond | 0.875% | 6/30/26 | 49,200 | 44,388 | ||
| United States Treasury Note/Bond | 0.625% | 7/31/26 | 82,000 | 73,185 | ||
| United States Treasury Note/Bond | 1.500% | 8/15/26 | 109,000 | 99,769 | ||
| United States Treasury Note/Bond | 0.750% | 8/31/26 | 151,500 | 135,379 | ||
| United States Treasury Note/Bond | 1.375% | 8/31/26 | 117,700 | 107,236 | ||
| United States Treasury Note/Bond | 0.875% | 9/30/26 | 118,000 | 105,721 | ||
| United States Treasury Note/Bond | 1.125% | 10/31/26 | 143,100 | 128,879 | ||
| United States Treasury Note/Bond | 1.250% | 11/30/26 | 76,600 | 69,131 | ||
| United States Treasury Note/Bond | 1.250% | 12/31/26 | 135,000 | 121,669 | ||
| United States Treasury Note/Bond | 1.875% | 2/28/27 | 134,200 | 123,170 | ||
| United States Treasury Note/Bond | 2.500% | 3/31/27 | 27,000 | 25,313 | ||
| United States Treasury Note/Bond | 0.500% | 4/30/27 | 62,000 | 53,824 | ||
| United States Treasury Note/Bond | 2.750% | 4/30/27 | 41,000 | 38,739 | ||
| United States Treasury Note/Bond | 2.625% | 5/31/27 | 84,000 | 78,934 | ||
| United States Treasury Note/Bond | 0.500% | 6/30/27 | 60,000 | 51,825 | ||
| United States Treasury Note/Bond | 3.250% | 6/30/27 | 25,200 | 24,235 | ||
| United States Treasury Note/Bond | 0.375% | 7/31/27 | 120,000 | 102,806 | ||
| United States Treasury Note/Bond | 2.750% | 7/31/27 | 100,000 | 94,281 | ||
| United States Treasury Note/Bond | 0.375% | 9/30/27 | 52,400 | 44,655 | ||
| United States Treasury Note/Bond | 0.500% | 10/31/27 | 46,000 | 39,308 | ||
| United States Treasury Note/Bond | 0.625% | 11/30/27 | 30,000 | 25,716 | ||
| United States Treasury Note/Bond | 1.250% | 4/30/28 | 42,000 | 36,684 | ||
| United States Treasury Note/Bond | 1.125% | 8/31/28 | 87,000 | 74,929 | ||
| United States Treasury Note/Bond | 1.250% | 9/30/28 | 51,400 | 44,453 | ||
| United States Treasury Note/Bond | 1.375% | 10/31/28 | 50,000 | 43,438 | ||
| United States Treasury Note/Bond | 1.375% | 12/31/28 | 20,000 | 17,328 | ||
| United States Treasury Note/Bond | 1.750% | 1/31/29 | 40,000 | 35,300 | ||
| 5,744,052 | ||||||
| Agency Bonds and Notes (1.0%) | ||||||
| 2 | Federal Home Loan Banks | 1.220% | 6/30/27 | 50,000 | 43,914 | |
| 2 | Federal Home Loan Banks | 1.000% | 8/26/27 | 25,000 | 21,672 | |
| 65,586 | ||||||
| Conventional Mortgage-Backed Securities (9.3%) | ||||||
| 2,3,4 | UMBS Pool | 2.500% | 2/1/52–8/14/53 | 84,387 | 71,130 | |
| 2,3 | UMBS Pool | 5.500% | 10/1/52–6/1/53 | 120,813 | 120,229 | |
| 2,3 | UMBS Pool | 6.000% | 10/1/52–7/1/53 | 65,359 | 66,080 | |
| 2,3 | UMBS Pool | 4.500% | 11/1/52–5/1/53 | 76,131 | 73,004 | |
| 2,3,4 | UMBS Pool | 6.500% | 8/14/53–9/14/53 | 273,000 | 278,161 | |
| 608,604 | ||||||
| Nonconventional Mortgage-Backed Securities (3.5%) | ||||||
| 2,3 | Fannie Mae REMICS | 3.000% | 9/25/50–2/25/52 | 113,339 | 80,742 | |
| 2,3 | Freddie Mac REMICS | 3.000% | 11/25/50–2/25/52 | 74,140 | 53,157 | |
| 2,3 | Freddie Mac REMICS | 2.000% | 12/25/51 | 1,288 | 689 | |
| 3 | Ginnie Mae REMICS | 3.000% | 11/20/50–12/20/51 | 106,720 | 74,137 | |
| 3 | Ginnie Mae REMICS | 1.500% | 5/20/51–12/20/51 | 6,265 | 3,360 | |
| 3 | Ginnie Mae REMICS | 2.500% | 9/20/51 | 13,481 | 9,460 | |
| 3 | Ginnie Mae REMICS | 2.000% | 11/20/51 | 7,283 | 3,812 | |
| 3 | Ginnie Mae REMICS | 3.500% | 11/20/51 | 2,506 | 1,913 | |
| 227,270 | ||||||
| Total U.S. Government and Agency Obligations (Cost $6,837,298) | 6,645,512 | |||||
5
Short-Term Treasury Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (1.0%) | ||||||
| Money Market Fund (1.0%) | ||||||
| 5 | Vanguard Market Liquidity Fund (Cost $65,487) | 5.274% | 654,998 | 65,486 | ||
| Total Investments (102.4%) (Cost $6,902,785) | 6,710,998 | |||||
| Other Assets and Liabilities—Net (-2.4%) | (158,790) | |||||
| Net Assets (100%) | 6,552,208 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $15,185,000 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 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2023. |
| 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. |
| 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 2023 | 3,019 | 612,951 | (2,707) |
| 5-Year U.S. Treasury Note | September 2023 | 1,712 | 182,876 | (689) |
| (3,396) | ||||
| Short Futures Contracts | ||||
| 10-Year U.S. Treasury Note | September 2023 | (1,601) | (178,361) | 1,120 |
| Long U.S. Treasury Bond | September 2023 | (156) | (19,412) | 334 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (773) | (90,429) | 1,836 |
| Ultra Long U.S. Treasury Bond | September 2023 | (1,653) | (218,558) | 4,107 |
| 7,397 | ||||
| 4,001 | ||||
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, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $6,837,298) | 6,645,512 |
| Affiliated Issuers (Cost $65,487) | 65,486 |
| Total Investments in Securities | 6,710,998 |
| Investment in Vanguard | 227 |
| Receivables for Investment Securities Sold | 795,462 |
| Receivables for Accrued Income | 31,994 |
| Receivables for Capital Shares Issued | 4,664 |
| Other Assets | 130 |
| Total Assets | 7,543,475 |
| Liabilities | |
| Payables for Investment Securities Purchased | 977,318 |
| Payables for Capital Shares Redeemed | 9,921 |
| Payables for Distributions | 3,409 |
| Payables to Vanguard | 313 |
| Variation Margin Payable—Futures Contracts | 306 |
| Total Liabilities | 991,267 |
| Net Assets | 6,552,208 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 7,194,127 |
| Total Distributable Earnings (Loss) | (641,919) |
| Net Assets | 6,552,208 |
| Investor Shares—Net Assets | |
| Applicable to 55,254,374 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 540,944 |
| Net Asset Value Per Share—Investor Shares | $9.79 |
| Admiral Shares—Net Assets | |
| Applicable to 614,016,321 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 6,011,264 |
| Net Asset Value Per Share—Admiral Shares | $9.79 |
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, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 137,000 |
| Total Income | 137,000 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 381 |
| Management and Administrative—Investor Shares | 487 |
| Management and Administrative—Admiral Shares | 2,497 |
| Marketing and Distribution—Investor Shares | 27 |
| Marketing and Distribution—Admiral Shares | 199 |
| Custodian Fees | 16 |
| Shareholders’ Reports—Investor Shares | 11 |
| Shareholders’ Reports—Admiral Shares | 24 |
| Trustees’ Fees and Expenses | 2 |
| Other Expenses | 6 |
| Total Expenses | 3,650 |
| Expenses Paid Indirectly | (17) |
| Net Expenses | 3,633 |
| Net Investment Income | 133,367 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (115,168) |
| Futures Contracts | (9,494) |
| Realized Net Gain (Loss) | (124,662) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (33,531) |
| Futures Contracts | 14,272 |
| Change in Unrealized Appreciation (Depreciation) | (19,259) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (10,554) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $1,657,000, $7,000, and ($3,000), 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, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 133,367 | 153,413 | |
| Realized Net Gain (Loss) | (124,662) | (300,398) | |
| Change in Unrealized Appreciation (Depreciation) | (19,259) | (72,988) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (10,554) | (219,973) | |
| Distributions | |||
| Investor Shares | (10,793) | (11,429) | |
| Admiral Shares | (122,662) | (141,900) | |
| Total Distributions | (133,455) | (153,329) | |
| Capital Share Transactions | |||
| Investor Shares | (17,337) | 15,629 | |
| Admiral Shares | (31,422) | (330,361) | |
| Net Increase (Decrease) from Capital Share Transactions | (48,759) | (314,732) | |
| Total Increase (Decrease) | (192,768) | (688,034) | |
| Net Assets | |||
| Beginning of Period | 6,744,976 | 7,433,010 | |
| End of Period | 6,552,208 | 6,744,976 | |
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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.00 | $10.54 | $10.77 | $10.64 | $10.48 | $10.49 |
| Investment Operations | ||||||
| Net Investment Income1 | .191 | .215 | .036 | .070 | .245 | .227 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.210) | (.540) | (.207) | .286 | .160 | (.009) |
| Total from Investment Operations | (.019) | (.325) | (.171) | .356 | .405 | .218 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.191) | (.215) | (.035) | (.070) | (.245) | (.228) |
| Distributions from Realized Capital Gains | — | — | (.024) | (.156) | — | — |
| Total Distributions | (.191) | (.215) | (.059) | (.226) | (.245) | (.228) |
| Net Asset Value, End of Period | $9.79 | $10.00 | $10.54 | $10.77 | $10.64 | $10.48 |
| Total Return2 | -0.20% | -3.08% | -1.60% | 3.35% | 3.91% | 2.11% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $541 | $570 | $582 | $701 | $655 | $671 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 3.88% | 2.12% | 0.34% | 0.64% | 2.30% | 2.18% |
| Portfolio Turnover Rate4 | 155% | 284% | 213% | 357% | 340% | 282% |
| 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 8%, 27%, 4%, 57%, 5%, and 37%, 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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.00 | $10.54 | $10.77 | $10.64 | $10.48 | $10.49 |
| Investment Operations | ||||||
| Net Investment Income1 | .196 | .224 | .047 | .079 | .254 | .238 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.210) | (.539) | (.207) | .288 | .162 | (.010) |
| Total from Investment Operations | (.014) | (.315) | (.160) | .367 | .416 | .228 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.196) | (.225) | (.046) | (.081) | (.256) | (.238) |
| Distributions from Realized Capital Gains | — | — | (.024) | (.156) | — | — |
| Total Distributions | (.196) | (.225) | (.070) | (.237) | (.256) | (.238) |
| Net Asset Value, End of Period | $9.79 | $10.00 | $10.54 | $10.77 | $10.64 | $10.48 |
| Total Return2 | -0.15% | -2.99% | -1.50% | 3.46% | 4.01% | 2.21% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $6,011 | $6,175 | $6,851 | $7,818 | $8,243 | $7,385 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.98% | 2.20% | 0.44% | 0.73% | 2.40% | 2.28% |
| Portfolio Turnover Rate4 | 155% | 284% | 213% | 357% | 340% | 282% |
| 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 8%, 27%, 4%, 57%, 5%, and 37%, 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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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 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
12
Short-Term Treasury Fund
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, 2023, 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 virtually 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.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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
13
Short-Term Treasury Fund
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, 2023, 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. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2023, the fund had contributed to Vanguard capital in the amount of $227,000, 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.
14
Short-Term Treasury 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $17,000 (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, 2023, 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 | — | 6,645,512 | — | 6,645,512 |
| Temporary Cash Investments | 65,486 | — | — | 65,486 |
| Total | 65,486 | 6,645,512 | — | 6,710,998 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 7,397 | — | — | 7,397 |
| Liabilities | ||||
| Futures Contracts1 | 3,396 | — | — | 3,396 |
| 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, 2023, 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 | 6,914,380 |
| Gross Unrealized Appreciation | 7,998 |
| Gross Unrealized Depreciation | (207,379) |
| Net Unrealized Appreciation (Depreciation) | (199,381) |
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, 2023, the fund had available capital losses totaling $317,409,000 that
15
Short-Term Treasury Fund
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, 2024; 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, 2023, the fund purchased $10,322,150,000 of investment securities and sold $10,267,822,000 of investment securities, other than temporary cash investments. |
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 114,660 | 11,566 | 246,805 | 24,453 | |
| Issued in Lieu of Cash Distributions | 9,580 | 969 | 10,550 | 1,046 | |
| Redeemed | (141,577) | (14,268) | (241,726) | (23,778) | |
| Net Increase (Decrease)—Investor Shares | (17,337) | (1,733) | 15,629 | 1,721 | |
| Admiral Shares | |||||
| Issued | 1,074,550 | 108,337 | 2,281,386 | 225,040 | |
| Issued in Lieu of Cash Distributions | 102,580 | 10,381 | 120,863 | 11,976 | |
| Redeemed | (1,208,552) | (122,117) | (2,732,610) | (269,877) | |
| Net Increase (Decrease)—Admiral Shares | (31,422) | (3,399) | (330,361) | (32,861) | |
| H. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
16
Short-Term Treasury Fund
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
17
Short-Term Federal Fund
Fund Allocation
As of July 31, 2023
| Agency Bonds and Notes | 56.3% |
| Government Mortgage-Backed Securities | 18.3 |
| U.S. Government Securities | 25.4 |
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.
18
Short-Term Federal Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2023
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 (104.7%) | ||||||
| U.S. Government Securities (26.7%) | ||||||
| 1 | United States Treasury Note/Bond | 3.000% | 7/31/24 | 300,000 | 293,063 | |
| 2 | United States Treasury Note/Bond | 2.375% | 8/15/24 | 575,000 | 557,660 | |
| United States Treasury Note/Bond | 0.375% | 9/15/24 | 52,000 | 49,205 | ||
| United States Treasury Note/Bond | 3.000% | 7/15/25 | 83,000 | 80,030 | ||
| United States Treasury Note/Bond | 1.250% | 11/30/26 | 60,000 | 54,150 | ||
| 2 | United States Treasury Note/Bond | 2.750% | 7/31/27 | 230,000 | 216,847 | |
| United States Treasury Note/Bond | 4.125% | 9/30/27 | 99,200 | 98,549 | ||
| United States Treasury Note/Bond | 3.500% | 4/30/28 | 12,100 | 11,737 | ||
| 1,361,241 | ||||||
| Agency Bonds and Notes (58.9%) | ||||||
| 3 | AID-Israel | 0.000% | 11/1/24 | 6,905 | 6,445 | |
| 4 | Fannie Mae Interest Strip | 0.000% | 11/15/25 | 8,000 | 7,159 | |
| 4 | Fannie Mae Principal Strip | 0.000% | 11/15/30 | 7,000 | 5,044 | |
| 4 | Federal Farm Credit Banks Funding Corp. | 0.680% | 3/9/26 | 275,000 | 246,821 | |
| 4 | Federal Farm Credit Banks Funding Corp. | 4.820% | 6/23/26 | 109,000 | 108,318 | |
| 4 | Federal Home Loan Banks | 0.830% | 2/10/27 | 136,475 | 119,298 | |
| 4 | Federal Home Loan Banks | 0.850% | 2/17/27 | 100,000 | 87,427 | |
| 4 | Federal Home Loan Banks | 1.020% | 2/24/27 | 10,570 | 9,293 | |
| 4 | Federal Home Loan Banks | 0.900% | 2/26/27 | 105,695 | 92,508 | |
| 4 | Federal Home Loan Banks | 0.920% | 2/26/27 | 25,900 | 22,685 | |
| 4 | Federal Home Loan Banks | 1.115% | 2/26/27 | 49,145 | 43,352 | |
| 4 | Federal Home Loan Banks | 4.000% | 6/30/28 | 35,000 | 34,473 | |
| 4 | Federal Home Loan Mortgage Corp. | 5.150% | 1/24/25 | 250,000 | 248,221 | |
| 4 | Federal Home Loan Mortgage Corp. | 5.150% | 2/14/25 | 250,000 | 248,082 | |
| 4 | Federal Home Loan Mortgage Corp. | 5.450% | 2/28/25 | 250,000 | 249,060 | |
| 4 | Federal Home Loan Mortgage Corp. | 4.320% | 3/21/25 | 150,000 | 147,397 | |
| 4 | Federal Home Loan Mortgage Corp. | 0.680% | 8/6/25 | 73,100 | 66,914 | |
| 4 | Federal Home Loan Mortgage Corp. | 4.050% | 8/28/25 | 125,000 | 122,033 | |
| 4 | Federal Home Loan Mortgage Corp. | 4.160% | 8/28/25 | 52,950 | 51,715 | |
| 4 | Federal Home Loan Mortgage Corp. | 0.640% | 11/24/25 | 174,650 | 158,071 | |
| 4 | Federal Home Loan Mortgage Corp. | 0.700% | 12/30/25 | 194,850 | 176,039 | |
| 4 | Federal National Mortgage Assn. | 0.650% | 12/17/25 | 138,500 | 125,064 | |
| 4 | Federal National Mortgage Assn. | 0.650% | 12/17/25 | 180,495 | 162,985 | |
| 4 | Freddie Mac Principal Strips | 0.000% | 3/15/31 | 19,983 | 14,174 | |
| Private Export Funding Corp. | 3.550% | 1/15/24 | 8,700 | 8,609 | ||
| Private Export Funding Corp. | 1.400% | 7/15/28 | 26,000 | 22,482 | ||
| Resolution Funding Corp. Interest Strip | 0.000% | 1/15/30 | 4,155 | 3,114 | ||
19
Short-Term Federal Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Resolution Funding Corp. Principal Strip | 0.000% | 1/15/30 | 394,377 | 295,602 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 4/15/30 | 171,307 | 126,886 | ||
| 3,009,271 | ||||||
| Conventional Mortgage-Backed Securities (12.2%) | ||||||
| 4,5 | Freddie Mac Gold Pool | 2.000% | 9/1/28–6/1/30 | 1,949 | 1,739 | |
| 4,5,6 | UMBS Pool | 2.000% | 10/1/27–8/17/38 | 161,887 | 143,222 | |
| 4,5,6 | UMBS Pool | 3.500% | 1/1/33–9/1/34 | 50,116 | 48,060 | |
| 4,5 | UMBS Pool | 3.000% | 12/1/34 | 163 | 152 | |
| 4,5,6 | UMBS Pool | 2.500% | 2/1/35–8/14/53 | 110,869 | 99,210 | |
| 4,5,6 | UMBS Pool | 1.500% | 8/17/38 | 140,000 | 120,641 | |
| 4,5,6 | UMBS Pool | 4.500% | 8/17/38–5/1/53 | 57,608 | 55,818 | |
| 4,5 | UMBS Pool | 5.500% | 10/1/52–6/1/53 | 85,556 | 85,080 | |
| 4,5,6 | UMBS Pool | 6.500% | 8/14/53–9/14/53 | 70,500 | 71,832 | |
| 625,754 | ||||||
| Nonconventional Mortgage-Backed Securities (6.9%) | ||||||
| 4,5 | Fannie Mae REMICS | 3.000% | 6/25/48–2/25/52 | 134,272 | 100,174 | |
| 4,5 | Fannie Mae REMICS | 4.500% | 8/25/49 | 2,706 | 2,609 | |
| 4,5 | Fannie Mae REMICS | 1.500% | 12/25/51 | 19,540 | 10,607 | |
| 4,5 | Freddie Mac REMICS | 4.500% | 10/25/44–1/25/47 | 7,883 | 7,611 | |
| 4,5 | Freddie Mac REMICS | 2.500% | 9/25/48–12/25/48 | 20,040 | 17,269 | |
| 4,5 | Freddie Mac REMICS | 3.000% | 11/25/48–2/25/52 | 134,873 | 102,100 | |
| 4,5 | Freddie Mac REMICS | 2.000% | 12/25/51 | 177 | 95 | |
| 5 | Ginnie Mae REMICS | 3.000% | 11/20/50–12/20/51 | 96,654 | 67,168 | |
| 5 | Ginnie Mae REMICS | 1.500% | 2/20/51–12/20/51 | 35,413 | 29,099 | |
| 5 | Ginnie Mae REMICS | 2.500% | 9/20/51 | 3,285 | 2,290 | |
| 5 | Ginnie Mae REMICS | 2.000% | 11/20/51 | 17,983 | 11,384 | |
| 5 | Ginnie Mae REMICS | 3.500% | 11/20/51 | 565 | 431 | |
| 350,837 | ||||||
| Total U.S. Government and Agency Obligations (Cost $5,690,823) | 5,347,103 | |||||
20
Short-Term Federal Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (1.9%) | ||||||
| Money Market Fund (1.9%) | ||||||
| 7 | Vanguard Market Liquidity Fund (Cost $94,133) | 5.274% | 941,588 | 94,140 | ||
| Total Investments (106.6%) (Cost $5,784,956) | 5,441,243 | |||||
| Other Assets and Liabilities—Net (-6.6%) | (335,543) | |||||
| Net Assets (100%) | 5,105,700 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $20,921,000 have been segregated as initial margin for open futures contracts. |
| 2 | Securities with a value of $697,000 have been segregated as collateral for certain open To Be Announced (TBA) transactions. |
| 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, 2023. |
| 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. |
| 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 2023 | 4,120 | 836,489 | (5,858) |
| 5-Year U.S. Treasury Note | September 2023 | 1,299 | 138,760 | (1,070) |
| (6,928) | ||||
| Short Futures Contracts | ||||
| 10-Year U.S. Treasury Note | September 2023 | (4,662) | (519,376) | 9,044 |
| Long U.S. Treasury Bond | September 2023 | (154) | (19,163) | 330 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (1,105) | (129,268) | 3,114 |
| Ultra Long U.S. Treasury Bond | September 2023 | (1,367) | (180,743) | 3,350 |
| 15,838 | ||||
| 8,910 | ||||
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, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $5,690,823) | 5,347,103 |
| Affiliated Issuers (Cost $94,133) | 94,140 |
| Total Investments in Securities | 5,441,243 |
| Investment in Vanguard | 174 |
| Cash | 373 |
| Receivables for Investment Securities Sold | 112,947 |
| Receivables for Accrued Income | 33,287 |
| Receivables for Capital Shares Issued | 12,193 |
| Other Assets | 111 |
| Total Assets | 5,600,328 |
| Liabilities | |
| Payables for Investment Securities Purchased | 483,778 |
| Payables for Capital Shares Redeemed | 7,976 |
| Payables for Distributions | 2,201 |
| Payables to Vanguard | 242 |
| Variation Margin Payable—Futures Contracts | 431 |
| Total Liabilities | 494,628 |
| Net Assets | 5,105,700 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 5,751,940 |
| Total Distributable Earnings (Loss) | (646,240) |
| Net Assets | 5,105,700 |
| Investor Shares—Net Assets | |
| Applicable to 43,892,638 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 437,387 |
| Net Asset Value Per Share—Investor Shares | $9.96 |
| Admiral Shares—Net Assets | |
| Applicable to 468,475,015 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 4,668,313 |
| Net Asset Value Per Share—Admiral Shares | $9.96 |
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, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 91,566 |
| Total Income | 91,566 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 298 |
| Management and Administrative—Investor Shares | 400 |
| Management and Administrative—Admiral Shares | 1,915 |
| Marketing and Distribution—Investor Shares | 20 |
| Marketing and Distribution—Admiral Shares | 154 |
| Custodian Fees | 23 |
| Shareholders’ Reports—Investor Shares | 11 |
| Shareholders’ Reports—Admiral Shares | 39 |
| Trustees’ Fees and Expenses | 1 |
| Other Expenses | 8 |
| Total Expenses | 2,869 |
| Expenses Paid Indirectly | (10) |
| Net Expenses | 2,859 |
| Net Investment Income | 88,707 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (85,502) |
| Futures Contracts | (10,135) |
| Realized Net Gain (Loss) | (95,637) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (26,519) |
| Futures Contracts | 25,158 |
| Change in Unrealized Appreciation (Depreciation) | (1,361) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (8,291) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $4,046,000, $5,000, and ($4,000), 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, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 88,707 | 123,862 | |
| Realized Net Gain (Loss) | (95,637) | (195,098) | |
| Change in Unrealized Appreciation (Depreciation) | (1,361) | (208,194) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (8,291) | (279,430) | |
| Distributions | |||
| Investor Shares | (7,464) | (9,215) | |
| Admiral Shares | (80,669) | (114,891) | |
| Total Distributions | (88,133) | (124,106) | |
| Capital Share Transactions | |||
| Investor Shares | (33,562) | (103,279) | |
| Admiral Shares | (296,539) | (1,830,715) | |
| Net Increase (Decrease) from Capital Share Transactions | (330,101) | (1,933,994) | |
| Total Increase (Decrease) | (426,525) | (2,337,530) | |
| Net Assets | |||
| Beginning of Period | 5,532,225 | 7,869,755 | |
| End of Period | 5,105,700 | 5,532,225 | |
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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.15 | $10.70 | $11.02 | $10.79 | $10.57 | $10.55 |
| Investment Operations | ||||||
| Net Investment Income1 | .164 | .182 | .054 | .125 | .246 | .208 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.191) | (.545) | (.215) | .274 | .221 | .021 |
| Total from Investment Operations | (.027) | (.363) | (.161) | .399 | .467 | .229 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.163) | (.187) | (.053) | (.127) | (.247) | (.209) |
| Distributions from Realized Capital Gains | — | — | (.106) | (.042) | — | — |
| Total Distributions | (.163) | (.187) | (.159) | (.169) | (.247) | (.209) |
| Net Asset Value, End of Period | $9.96 | $10.15 | $10.70 | $11.02 | $10.79 | $10.57 |
| Total Return2 | -0.27% | -3.39% | -1.48% | 3.71% | 4.46% | 2.20% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $437 | $479 | $612 | $767 | $623 | $622 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 3.28% | 1.76% | 0.50% | 1.14% | 2.30% | 1.98% |
| Portfolio Turnover Rate4 | 169% | 442% | 424% | 663% | 499% | 327% |
| 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 47%, 86%, 87%, 180%, 32%, and 90%, 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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.15 | $10.70 | $11.02 | $10.79 | $10.57 | $10.55 |
| Investment Operations | ||||||
| Net Investment Income1 | .169 | .189 | .065 | .130 | .257 | .219 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.192) | (.542) | (.215) | .280 | .220 | .020 |
| Total from Investment Operations | (.023) | (.353) | (.150) | .410 | .477 | .239 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.167) | (.197) | (.064) | (.138) | (.257) | (.219) |
| Distributions from Realized Capital Gains | — | — | (.106) | (.042) | — | — |
| Total Distributions | (.167) | (.197) | (.170) | (.180) | (.257) | (.219) |
| Net Asset Value, End of Period | $9.96 | $10.15 | $10.70 | $11.02 | $10.79 | $10.57 |
| Total Return2 | -0.22% | -3.29% | -1.38% | 3.81% | 4.56% | 2.30% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $4,668 | $5,053 | $7,258 | $7,280 | $4,371 | $3,963 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.38% | 1.84% | 0.59% | 1.19% | 2.40% | 2.08% |
| Portfolio Turnover Rate4 | 169% | 442% | 424% | 663% | 499% | 327% |
| 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 47%, 86%, 87%, 180%, 32%, and 90%, 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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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, 2023,
counterparties had deposited in segregated accounts cash of $354,000 in connection with TBA transactions.
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
27
Short-Term Federal Fund
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, 2023, the fund’s average investments in long and short futures contracts represented 17% and 17% 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 virtually 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.
28
Short-Term Federal Fund
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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, 2023, 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. |
29
Short-Term Federal 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, 2023, the fund had contributed to Vanguard capital in the amount of $174,000, representing less than 0.01% of the fund’s net
assets and 0.07% 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $10,000 (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, 2023, 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 | — | 5,347,103 | — | 5,347,103 |
| Temporary Cash Investments | 94,140 | — | — | 94,140 |
| Total | 94,140 | 5,347,103 | — | 5,441,243 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 15,838 | — | — | 15,838 |
| Liabilities | ||||
| Futures Contracts1 | 6,928 | — | — | 6,928 |
| 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, 2023, 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 | 5,787,558 |
| Gross Unrealized Appreciation | 16,471 |
| Gross Unrealized Depreciation | (353,876) |
| Net Unrealized Appreciation (Depreciation) | (337,405) |
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, 2023, the fund had available capital losses totaling $232,855,000 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, 2024; 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, 2023, the fund purchased $9,286,636,000 of investment securities and sold $9,587,815,000 of investment securities, other than temporary cash investments. |
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 41,616 | 4,140 | 105,918 | 10,330 | |
| Issued in Lieu of Cash Distributions | 6,646 | 662 | 8,218 | 807 | |
| Redeemed | (81,824) | (8,147) | (217,415) | (21,103) | |
| Net Increase (Decrease)—Investor Shares | (33,562) | (3,345) | (103,279) | (9,966) | |
| Admiral Shares | |||||
| Issued | 697,835 | 69,515 | 2,647,414 | 255,182 | |
| Issued in Lieu of Cash Distributions | 68,158 | 6,794 | 98,482 | 9,653 | |
| Redeemed | (1,062,532) | (105,813) | (4,576,611) | (444,960) | |
| Net Increase (Decrease)—Admiral Shares | (296,539) | (29,504) | (1,830,715) | (180,125) | |
| H. | 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. |
31
Short-Term Federal Fund
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
32
Intermediate-Term Treasury Fund
Fund Allocation
As of July 31, 2023
| Agency Bonds and Notes | 3.4% |
| Government Mortgage-Backed Securities | 10.7 |
| U.S. Government Securities | 85.9 |
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.
33
Intermediate-Term Treasury Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2023
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 (101.4%) | ||||||
| U.S. Government Securities (87.1%) | ||||||
| United States Treasury Note/Bond | 1.500% | 8/15/26 | 93,000 | 85,124 | ||
| United States Treasury Note/Bond | 0.750% | 8/31/26 | 166,900 | 149,141 | ||
| United States Treasury Note/Bond | 1.375% | 8/31/26 | 126,000 | 114,798 | ||
| United States Treasury Note/Bond | 0.875% | 9/30/26 | 99,100 | 88,787 | ||
| United States Treasury Note/Bond | 1.625% | 9/30/26 | 29,000 | 26,594 | ||
| United States Treasury Note/Bond | 1.125% | 10/31/26 | 77,462 | 69,764 | ||
| United States Treasury Note/Bond | 1.625% | 10/31/26 | 15,000 | 13,730 | ||
| United States Treasury Note/Bond | 1.250% | 11/30/26 | 155,000 | 139,887 | ||
| United States Treasury Note/Bond | 1.250% | 12/31/26 | 156,700 | 141,226 | ||
| United States Treasury Note/Bond | 2.500% | 3/31/27 | 20,000 | 18,750 | ||
| United States Treasury Note/Bond | 0.500% | 4/30/27 | 30,000 | 26,044 | ||
| United States Treasury Note/Bond | 0.500% | 5/31/27 | 25,000 | 21,648 | ||
| United States Treasury Note/Bond | 2.625% | 5/31/27 | 13,500 | 12,686 | ||
| United States Treasury Note/Bond | 0.500% | 6/30/27 | 125,000 | 107,969 | ||
| United States Treasury Note/Bond | 3.250% | 6/30/27 | 50,000 | 48,086 | ||
| United States Treasury Note/Bond | 0.375% | 7/31/27 | 115,000 | 98,523 | ||
| United States Treasury Note/Bond | 0.375% | 9/30/27 | 120,000 | 102,263 | ||
| United States Treasury Note/Bond | 0.500% | 10/31/27 | 100,000 | 85,453 | ||
| United States Treasury Note/Bond | 0.625% | 11/30/27 | 60,000 | 51,431 | ||
| United States Treasury Note/Bond | 0.625% | 12/31/27 | 39,000 | 33,351 | ||
| United States Treasury Note/Bond | 1.125% | 2/29/28 | 3,440 | 2,998 | ||
| United States Treasury Note/Bond | 1.250% | 4/30/28 | 83,700 | 73,107 | ||
| United States Treasury Note/Bond | 1.250% | 5/31/28 | 52,500 | 45,765 | ||
| United States Treasury Note/Bond | 1.250% | 6/30/28 | 36,600 | 31,848 | ||
| United States Treasury Note/Bond | 1.000% | 7/31/28 | 57,500 | 49,297 | ||
| United States Treasury Note/Bond | 2.875% | 8/15/28 | 8,700 | 8,183 | ||
| United States Treasury Note/Bond | 5.500% | 8/15/28 | 10,000 | 10,559 | ||
| United States Treasury Note/Bond | 1.125% | 8/31/28 | 110,150 | 94,867 | ||
| United States Treasury Note/Bond | 1.250% | 9/30/28 | 137,500 | 118,916 | ||
| United States Treasury Note/Bond | 1.375% | 10/31/28 | 121,130 | 105,232 | ||
| United States Treasury Note/Bond | 3.125% | 11/15/28 | 111,100 | 105,614 | ||
| United States Treasury Note/Bond | 5.250% | 11/15/28 | 24,000 | 25,125 | ||
| United States Treasury Note/Bond | 1.500% | 11/30/28 | 167,089 | 145,916 | ||
| United States Treasury Note/Bond | 1.375% | 12/31/28 | 24,300 | 21,054 | ||
| United States Treasury Note/Bond | 1.750% | 1/31/29 | 131,600 | 116,137 | ||
| United States Treasury Note/Bond | 2.625% | 2/15/29 | 119,200 | 110,148 | ||
| United States Treasury Note/Bond | 1.875% | 2/28/29 | 120,891 | 107,253 | ||
34
Intermediate-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United States Treasury Note/Bond | 2.375% | 3/31/29 | 151,050 | 137,503 | ||
| United States Treasury Note/Bond | 2.875% | 4/30/29 | 108,400 | 101,320 | ||
| United States Treasury Note/Bond | 2.375% | 5/15/29 | 98,700 | 89,755 | ||
| United States Treasury Note/Bond | 2.750% | 5/31/29 | 126,900 | 117,739 | ||
| United States Treasury Note/Bond | 3.250% | 6/30/29 | 106,500 | 101,491 | ||
| United States Treasury Note/Bond | 2.625% | 7/31/29 | 114,800 | 105,616 | ||
| United States Treasury Note/Bond | 3.125% | 8/31/29 | 107,500 | 101,688 | ||
| United States Treasury Note/Bond | 3.875% | 9/30/29 | 99,200 | 97,759 | ||
| United States Treasury Note/Bond | 4.000% | 10/31/29 | 92,300 | 91,608 | ||
| United States Treasury Note/Bond | 3.875% | 11/30/29 | 91,500 | 90,213 | ||
| United States Treasury Note/Bond | 3.875% | 12/31/29 | 50,000 | 49,297 | ||
| United States Treasury Note/Bond | 3.500% | 1/31/30 | 80,000 | 77,212 | ||
| United States Treasury Note/Bond | 4.000% | 2/28/30 | 101,800 | 101,164 | ||
| United States Treasury Note/Bond | 3.500% | 4/30/30 | 29,200 | 28,187 | ||
| United States Treasury Note/Bond | 0.625% | 5/15/30 | 102,000 | 81,377 | ||
| United States Treasury Note/Bond | 3.750% | 6/30/30 | 39,700 | 38,918 | ||
| United States Treasury Note/Bond | 4.000% | 7/31/30 | 21,500 | 21,413 | ||
| 1 | United States Treasury Note/Bond | 0.625% | 8/15/30 | 85,300 | 67,614 | |
| United States Treasury Note/Bond | 1.625% | 5/15/31 | 65,800 | 55,539 | ||
| United States Treasury Note/Bond | 1.250% | 8/15/31 | 117,600 | 95,789 | ||
| United States Treasury Note/Bond | 1.375% | 11/15/31 | 96,000 | 78,525 | ||
| United States Treasury Note/Bond | 1.875% | 2/15/32 | 88,900 | 75,482 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/32 | 107,000 | 98,273 | ||
| United States Treasury Note/Bond | 2.750% | 8/15/32 | 156,800 | 142,345 | ||
| United States Treasury Note/Bond | 4.125% | 11/15/32 | 160,300 | 162,128 | ||
| United States Treasury Note/Bond | 3.500% | 2/15/33 | 97,200 | 93,677 | ||
| 4,908,906 | ||||||
| Agency Bonds and Notes (3.5%) | ||||||
| 2 | AID-Israel | 0.000% | 11/1/24 | 50,000 | 46,668 | |
| 3 | Fannie Mae Principal Strip | 0.000% | 11/15/30 | 6,000 | 4,323 | |
| 3 | Federal Home Loan Mortgage Corp. | 1.500% | 7/27/32 | 18,340 | 14,043 | |
| 3 | Freddie Mac Principal Strips | 0.000% | 3/15/31 | 26,475 | 18,779 | |
| Private Export Funding Corp. | 3.550% | 1/15/24 | 10,300 | 10,193 | ||
| Private Export Funding Corp. | 1.400% | 7/15/28 | 22,000 | 19,024 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 1/15/30 | 15,000 | 11,243 | ||
| Resolution Funding Corp. Principal Strip | 0.000% | 4/15/30 | 98,000 | 72,588 | ||
| 196,861 | ||||||
| Conventional Mortgage-Backed Securities (9.5%) | ||||||
| 3,4,5 | UMBS Pool | 2.500% | 11/25/47–8/14/53 | 101,722 | 86,798 | |
| 3,4 | UMBS Pool | 5.500% | 10/1/52–6/1/53 | 98,067 | 97,591 | |
| 3,4 | UMBS Pool | 6.000% | 10/1/52–7/1/53 | 54,305 | 54,904 | |
| 3,4 | UMBS Pool | 4.500% | 11/1/52–5/1/53 | 62,955 | 60,371 | |
| 3,4,5 | UMBS Pool | 6.500% | 8/14/53–9/14/53 | 231,500 | 235,876 | |
| 535,540 | ||||||
| Nonconventional Mortgage-Backed Securities (1.3%) | ||||||
| 3,4 | Freddie Mac REMICS | 2.500% | 9/25/48–12/25/48 | 46,806 | 40,544 | |
| 3,4 | Freddie Mac REMICS | 2.000% | 5/25/51 | 17,785 | 14,834 | |
| 4 | Ginnie Mae REMICS | 1.100% | 1/20/51 | 24,467 | 18,445 | |
| 73,823 | ||||||
| Total U.S. Government and Agency Obligations (Cost $5,897,615) | 5,715,130 | |||||
35
Intermediate-Term Treasury Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (0.8%) | ||||||
| Money Market Fund (0.8%) | ||||||
| 6 | Vanguard Market Liquidity Fund (Cost $42,950) | 5.274% | 429,564 | 42,948 | ||
| Total Investments (102.2%) (Cost $5,940,565) | 5,758,078 | |||||
| Other Assets and Liabilities—Net (-2.2%) | (122,056) | |||||
| Net Assets (100%) | 5,636,022 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $7,030,000 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 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2023. |
| 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. |
| 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 2023 | 338 | 68,625 | (34) |
| 5-Year U.S. Treasury Note | September 2023 | 1,504 | 160,658 | (788) |
| 10-Year U.S. Treasury Note | September 2023 | 682 | 75,979 | (19) |
| Ultra 10-Year U.S. Treasury Note | September 2023 | 1,409 | 164,831 | (1,943) |
| (2,784) | ||||
| Short Futures Contracts | ||||
| Long U.S. Treasury Bond | September 2023 | (103) | (12,817) | (27) |
| Ultra Long U.S. Treasury Bond | September 2023 | (327) | (43,236) | 871 |
| 844 | ||||
| (1,940) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
36
Intermediate-Term Treasury Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $5,897,615) | 5,715,130 |
| Affiliated Issuers (Cost $42,950) | 42,948 |
| Total Investments in Securities | 5,758,078 |
| Investment in Vanguard | 189 |
| Cash | 981 |
| Receivables for Investment Securities Sold | 554,257 |
| Receivables for Accrued Income | 30,182 |
| Receivables for Capital Shares Issued | 5,551 |
| Variation Margin Receivable—Futures Contracts | 235 |
| Other Assets | 67 |
| Total Assets | 6,349,540 |
| Liabilities | |
| Payables for Investment Securities Purchased | 704,933 |
| Payables for Capital Shares Redeemed | 6,383 |
| Payables for Distributions | 1,930 |
| Payables to Vanguard | 272 |
| Total Liabilities | 713,518 |
| Net Assets | 5,636,022 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 6,534,346 |
| Total Distributable Earnings (Loss) | (898,324) |
| Net Assets | 5,636,022 |
| Investor Shares—Net Assets | |
| Applicable to 57,106,108 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 562,521 |
| Net Asset Value Per Share—Investor Shares | $9.85 |
| Admiral Shares—Net Assets | |
| Applicable to 515,052,297 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 5,073,501 |
| Net Asset Value Per Share—Admiral Shares | $9.85 |
See accompanying
Notes, which are an integral part of the Financial Statements.
37
Intermediate-Term Treasury Fund
Statement of Operations
| Six Months Ended July 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 100,719 |
| Total Income | 100,719 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 313 |
| Management and Administrative—Investor Shares | 512 |
| Management and Administrative—Admiral Shares | 1,984 |
| Marketing and Distribution—Investor Shares | 22 |
| Marketing and Distribution—Admiral Shares | 160 |
| Custodian Fees | 14 |
| Shareholders’ Reports—Investor Shares | 13 |
| Shareholders’ Reports—Admiral Shares | 36 |
| Trustees’ Fees and Expenses | 1 |
| Other Expenses | 7 |
| Total Expenses | 3,062 |
| Expenses Paid Indirectly | (11) |
| Net Expenses | 3,051 |
| Net Investment Income | 97,668 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (181,061) |
| Futures Contracts | 3,241 |
| Realized Net Gain (Loss) | (177,820) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | 4,216 |
| Futures Contracts | 225 |
| Change in Unrealized Appreciation (Depreciation) | 4,441 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (75,711) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $1,749,000, $31,000, and ($18,000), respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
38
Intermediate-Term Treasury Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 97,668 | 117,580 | |
| Realized Net Gain (Loss) | (177,820) | (481,878) | |
| Change in Unrealized Appreciation (Depreciation) | 4,441 | (43,258) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (75,711) | (407,556) | |
| Distributions | |||
| Investor Shares | (9,999) | (13,002) | |
| Admiral Shares | (87,602) | (104,545) | |
| Total Distributions | (97,601) | (117,547) | |
| Capital Share Transactions | |||
| Investor Shares | (24,904) | (89,101) | |
| Admiral Shares | 372,972 | (35,077) | |
| Net Increase (Decrease) from Capital Share Transactions | 348,068 | (124,178) | |
| Total Increase (Decrease) | 174,756 | (649,281) | |
| Net Assets | |||
| Beginning of Period | 5,461,266 | 6,110,547 | |
| End of Period | 5,636,022 | 5,461,266 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
39
Intermediate-Term Treasury Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.16 | $11.12 | $11.65 | $11.57 | $10.96 | $10.88 |
| Investment Operations | ||||||
| Net Investment Income1 | .171 | .208 | .107 | .129 | .255 | .260 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.310) | (.959) | (.511) | .507 | .611 | .081 |
| Total from Investment Operations | (.139) | (.751) | (.404) | .636 | .866 | .341 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.171) | (.209) | (.107) | (.127) | (.256) | (.261) |
| Distributions from Realized Capital Gains | — | — | (.019) | (.429) | — | — |
| Total Distributions | (.171) | (.209) | (.126) | (.556) | (.256) | (.261) |
| Net Asset Value, End of Period | $9.85 | $10.16 | $11.12 | $11.65 | $11.57 | $10.96 |
| Total Return2 | -1.38% | -6.75% | -3.49% | 5.50% | 7.98% | 3.20% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $563 | $605 | $757 | $953 | $917 | $837 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 3.45% | 2.00% | 0.93% | 1.07% | 2.27% | 2.42% |
| Portfolio Turnover Rate4 | 116% | 175% | 181% | 309% | 214% | 231% |
| 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 10%, 12%, 3%, 37%, 5%, and 35%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
40
Intermediate-Term Treasury Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.16 | $11.12 | $11.65 | $11.57 | $10.96 | $10.88 |
| Investment Operations | ||||||
| Net Investment Income1 | .176 | .219 | .118 | .139 | .267 | .272 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.310) | (.959) | (.511) | .509 | .610 | .080 |
| Total from Investment Operations | (.134) | (.740) | (.393) | .648 | .877 | .352 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.176) | (.220) | (.118) | (.139) | (.267) | (.272) |
| Distributions from Realized Capital Gains | — | — | (.019) | (.429) | — | — |
| Total Distributions | (.176) | (.220) | (.137) | (.568) | (.267) | (.272) |
| Net Asset Value, End of Period | $9.85 | $10.16 | $11.12 | $11.65 | $11.57 | $10.96 |
| Total Return2 | -1.33% | -6.66% | -3.39% | 5.60% | 8.09% | 3.30% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,074 | $4,856 | $5,353 | $6,237 | $5,452 | $4,976 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.55% | 2.12% | 1.03% | 1.16% | 2.37% | 2.52% |
| Portfolio Turnover Rate4 | 116% | 175% | 181% | 309% | 214% | 231% |
| 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 10%, 12%, 3%, 37%, 5%, and 35%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
41
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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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, 2023,
counterparties had deposited in segregated accounts cash of $206,000 in connection with TBA transactions.
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
42
Intermediate-Term Treasury Fund
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, 2023, the fund’s average investments in long and short futures contracts represented 12% and 2% 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 virtually 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.
43
Intermediate-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 $4.3 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, 2023, 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. |
44
Intermediate-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, 2023, the fund had contributed to Vanguard capital in the amount of $189,000, representing less than 0.01% of the fund’s net
assets and 0.08% 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $11,000 (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, 2023, 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 | — | 5,715,130 | — | 5,715,130 |
| Temporary Cash Investments | 42,948 | — | — | 42,948 |
| Total | 42,948 | 5,715,130 | — | 5,758,078 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 871 | — | — | 871 |
| Liabilities | ||||
| Futures Contracts1 | 2,811 | — | — | 2,811 |
| 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. |
45
Intermediate-Term Treasury Fund
| E. | As of July 31, 2023, 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 | 5,968,923 |
| Gross Unrealized Appreciation | 3,002 |
| Gross Unrealized Depreciation | (215,787) |
| Net Unrealized Appreciation (Depreciation) | (212,785) |
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, 2023, the fund had available capital losses totaling $517,841,000 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, 2024; 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, 2023, the fund purchased $6,742,099,000 of investment securities and sold $6,323,068,000 of investment securities, other than temporary cash investments. |
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 51,007 | 5,082 | 113,533 | 11,014 | |
| Issued in Lieu of Cash Distributions | 8,999 | 899 | 11,764 | 1,145 | |
| Redeemed | (84,910) | (8,456) | (214,398) | (20,652) | |
| Net Increase (Decrease)—Investor Shares | (24,904) | (2,475) | (89,101) | (8,493) | |
| Admiral Shares | |||||
| Issued | 847,596 | 84,643 | 1,596,237 | 154,834 | |
| Issued in Lieu of Cash Distributions | 76,614 | 7,658 | 89,471 | 8,721 | |
| Redeemed | (551,238) | (55,098) | (1,720,785) | (167,012) | |
| Net Increase (Decrease)—Admiral Shares | 372,972 | 37,203 | (35,077) | (3,457) | |
| H. | 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. |
46
Intermediate-Term Treasury Fund
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
47
Long-Term Treasury Fund
Fund Allocation
As of July 31, 2023
| Agency Bonds and Notes | 6.0% |
| Government Mortgage-Backed Securities | 9.2 |
| U.S. Government Securities | 84.8 |
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.
48
Long-Term Treasury Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2023
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 (101.6%) | ||||||
| U.S. Government Securities (86.2%) | ||||||
| United States Treasury Note/Bond | 4.500% | 5/15/38 | 3,000 | 3,174 | ||
| United States Treasury Note/Bond | 4.250% | 5/15/39 | 7,700 | 7,909 | ||
| United States Treasury Note/Bond | 4.500% | 8/15/39 | 10,000 | 10,563 | ||
| United States Treasury Note/Bond | 4.375% | 11/15/39 | 600 | 623 | ||
| United States Treasury Note/Bond | 4.625% | 2/15/40 | 29,000 | 31,030 | ||
| United States Treasury Note/Bond | 1.125% | 5/15/40 | 58,650 | 37,188 | ||
| United States Treasury Note/Bond | 4.375% | 5/15/40 | 1,500 | 1,556 | ||
| 1 | United States Treasury Note/Bond | 1.125% | 8/15/40 | 85,300 | 53,566 | |
| United States Treasury Note/Bond | 3.875% | 8/15/40 | 9,791 | 9,529 | ||
| United States Treasury Note/Bond | 1.375% | 11/15/40 | 46,900 | 30,676 | ||
| United States Treasury Note/Bond | 4.250% | 11/15/40 | 31,000 | 31,620 | ||
| United States Treasury Note/Bond | 1.875% | 2/15/41 | 82,800 | 58,892 | ||
| United States Treasury Note/Bond | 4.750% | 2/15/41 | 41,400 | 44,848 | ||
| United States Treasury Note/Bond | 2.250% | 5/15/41 | 99,700 | 75,227 | ||
| United States Treasury Note/Bond | 4.375% | 5/15/41 | 15,363 | 15,855 | ||
| United States Treasury Note/Bond | 1.750% | 8/15/41 | 108,390 | 74,721 | ||
| United States Treasury Note/Bond | 3.750% | 8/15/41 | 4,770 | 4,520 | ||
| United States Treasury Note/Bond | 2.000% | 11/15/41 | 113,200 | 81,203 | ||
| United States Treasury Note/Bond | 3.125% | 11/15/41 | 21,900 | 18,937 | ||
| United States Treasury Note/Bond | 2.375% | 2/15/42 | 43,500 | 33,182 | ||
| United States Treasury Note/Bond | 3.125% | 2/15/42 | 38,500 | 33,182 | ||
| United States Treasury Note/Bond | 3.000% | 5/15/42 | 33,800 | 28,466 | ||
| United States Treasury Note/Bond | 3.250% | 5/15/42 | 66,780 | 58,401 | ||
| United States Treasury Note/Bond | 2.750% | 8/15/42 | 37,000 | 29,872 | ||
| United States Treasury Note/Bond | 3.375% | 8/15/42 | 66,000 | 58,709 | ||
| United States Treasury Note/Bond | 2.750% | 11/15/42 | 73,000 | 58,811 | ||
| United States Treasury Note/Bond | 4.000% | 11/15/42 | 57,900 | 56,398 | ||
| United States Treasury Note/Bond | 3.125% | 2/15/43 | 44,111 | 37,618 | ||
| United States Treasury Note/Bond | 3.875% | 2/15/43 | 53,000 | 50,648 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/43 | 60,046 | 49,097 | ||
| United States Treasury Note/Bond | 3.875% | 5/15/43 | 10,000 | 9,561 | ||
| United States Treasury Note/Bond | 3.750% | 11/15/43 | 27,557 | 25,740 | ||
| United States Treasury Note/Bond | 3.625% | 2/15/44 | 25,000 | 22,906 | ||
| United States Treasury Note/Bond | 3.375% | 5/15/44 | 29,500 | 25,988 | ||
| United States Treasury Note/Bond | 3.125% | 8/15/44 | 59,449 | 50,262 | ||
| United States Treasury Note/Bond | 3.000% | 11/15/44 | 64,651 | 53,458 | ||
| United States Treasury Note/Bond | 2.500% | 2/15/45 | 56,900 | 43,013 | ||
49
Long-Term Treasury Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| United States Treasury Note/Bond | 3.000% | 5/15/45 | 40,205 | 33,151 | ||
| United States Treasury Note/Bond | 2.875% | 8/15/45 | 48,963 | 39,438 | ||
| United States Treasury Note/Bond | 3.000% | 11/15/45 | 32,100 | 26,402 | ||
| United States Treasury Note/Bond | 2.500% | 2/15/46 | 9,295 | 6,973 | ||
| United States Treasury Note/Bond | 2.500% | 5/15/46 | 810 | 607 | ||
| United States Treasury Note/Bond | 2.250% | 8/15/46 | 45,600 | 32,433 | ||
| United States Treasury Note/Bond | 2.875% | 11/15/46 | 19,969 | 16,031 | ||
| United States Treasury Note/Bond | 3.000% | 2/15/47 | 44,998 | 36,919 | ||
| United States Treasury Note/Bond | 3.000% | 5/15/47 | 2,636 | 2,162 | ||
| United States Treasury Note/Bond | 2.750% | 8/15/47 | 25,230 | 19,746 | ||
| United States Treasury Note/Bond | 2.750% | 11/15/47 | 22,690 | 17,755 | ||
| United States Treasury Note/Bond | 3.125% | 5/15/48 | 13,000 | 10,912 | ||
| United States Treasury Note/Bond | 3.000% | 8/15/48 | 16,533 | 13,562 | ||
| United States Treasury Note/Bond | 3.375% | 11/15/48 | 3,561 | 3,131 | ||
| United States Treasury Note/Bond | 3.000% | 2/15/49 | 37,920 | 31,177 | ||
| 2 | United States Treasury Note/Bond | 2.875% | 5/15/49 | 104,761 | 84,218 | |
| United States Treasury Note/Bond | 2.375% | 11/15/49 | 36,400 | 26,407 | ||
| United States Treasury Note/Bond | 2.000% | 2/15/50 | 89,000 | 59,255 | ||
| United States Treasury Note/Bond | 1.250% | 5/15/50 | 87,200 | 47,524 | ||
| United States Treasury Note/Bond | 1.375% | 8/15/50 | 113,297 | 63,818 | ||
| United States Treasury Note/Bond | 1.625% | 11/15/50 | 97,012 | 58,419 | ||
| United States Treasury Note/Bond | 1.875% | 2/15/51 | 126,600 | 81,301 | ||
| United States Treasury Note/Bond | 2.375% | 5/15/51 | 84,800 | 61,202 | ||
| United States Treasury Note/Bond | 2.000% | 8/15/51 | 119,000 | 78,670 | ||
| United States Treasury Note/Bond | 1.875% | 11/15/51 | 88,700 | 56,726 | ||
| United States Treasury Note/Bond | 2.250% | 2/15/52 | 113,000 | 79,224 | ||
| United States Treasury Note/Bond | 2.875% | 5/15/52 | 89,000 | 71,645 | ||
| United States Treasury Note/Bond | 3.000% | 8/15/52 | 73,500 | 60,718 | ||
| United States Treasury Note/Bond | 4.000% | 11/15/52 | 83,800 | 83,735 | ||
| United States Treasury Note/Bond | 3.625% | 2/15/53 | 106,700 | 99,531 | ||
| 2,619,741 | ||||||
| Agency Bonds and Notes (6.1%) | ||||||
| 3 | Fannie Mae Principal Strip | 0.000% | 8/6/38 | 36,000 | 18,031 | |
| Federal Farm Credit Banks Funding Corp. | 3.820% | 6/15/37 | 25,000 | 22,874 | ||
| Federal Farm Credit Banks Funding Corp. | 4.000% | 9/8/37 | 25,000 | 23,261 | ||
| 3 | Federal Home Loan Mortgage Corp. | 0.000% | 12/14/29 | 20,000 | 15,066 | |
| 3 | Federal Home Loan Mortgage Corp. | 0.000% | 11/15/38 | 14,465 | 7,154 | |
| 3 | Federal National Mortgage Assn. | 0.000% | 11/15/30 | 49,591 | 35,733 | |
| 3 | Freddie Mac Principal Strips | 0.000% | 3/15/31 | 68,687 | 48,720 | |
| Resolution Funding Corp. Principal Strip | 0.000% | 1/15/30 | 20,000 | 14,991 | ||
| 185,830 | ||||||
| Conventional Mortgage-Backed Securities (9.0%) | ||||||
| 3,4 | UMBS Pool | 2.500% | 2/1/52–5/1/53 | 36,562 | 30,820 | |
| 3,4 | UMBS Pool | 6.000% | 10/1/52–7/1/53 | 29,373 | 29,696 | |
| 3,4 | UMBS Pool | 4.500% | 11/1/52–5/1/53 | 33,886 | 32,497 | |
| 3,4 | UMBS Pool | 5.500% | 2/1/53–6/1/53 | 52,473 | 52,202 | |
| 3,4,5 | UMBS Pool | 6.500% | 8/14/53–9/14/53 | 127,500 | 129,910 | |
| 275,125 | ||||||
| Nonconventional Mortgage-Backed Securities (0.3%) | ||||||
| 4 | Ginnie Mae REMICS | 1.100% | 1/20/51 | 13,175 | 9,932 | |
| Total U.S. Government and Agency Obligations (Cost $3,677,053) | 3,090,628 | |||||
50
Long-Term Treasury Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (0.4%) | ||||||
| Money Market Fund (0.4%) | ||||||
| 6 | Vanguard Market Liquidity Fund (Cost $11,240) | 5.274% | 112,420 | 11,240 | ||
| Total Investments (102.0%) (Cost $3,688,293) | 3,101,868 | |||||
| Other Assets and Liabilities—Net (-2.0%) | (61,998) | |||||
| Net Assets (100%) | 3,039,870 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $12,000 have been segregated as collateral for certain open To Be Announced (TBA) transactions. |
| 2 | Securities with a value of $13,105,000 have been segregated as initial margin for open futures contracts. |
| 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 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2023. |
| 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. |
| 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 2023 | 326 | 66,188 | (44) |
| 5-Year U.S. Treasury Note | September 2023 | 817 | 87,272 | (754) |
| Ultra Long U.S. Treasury Bond | September 2023 | 2,031 | 268,536 | (6,417) |
| (7,215) | ||||
| Short Futures Contracts | ||||
| 10-Year U.S. Treasury Note | September 2023 | (1,163) | (129,565) | 857 |
| Long U.S. Treasury Bond | September 2023 | (93) | (11,573) | 190 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (222) | (25,971) | 530 |
| 1,577 | ||||
| (5,638) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
51
Long-Term Treasury Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $3,677,053) | 3,090,628 |
| Affiliated Issuers (Cost $11,240) | 11,240 |
| Total Investments in Securities | 3,101,868 |
| Investment in Vanguard | 104 |
| Cash | 1,026 |
| Receivables for Investment Securities Sold | 274,585 |
| Receivables for Accrued Income | 31,332 |
| Receivables for Capital Shares Issued | 2,836 |
| Variation Margin Receivable—Futures Contracts | 579 |
| Other Assets | 39 |
| Total Assets | 3,412,369 |
| Liabilities | |
| Payables for Investment Securities Purchased | 369,396 |
| Payables for Capital Shares Redeemed | 1,915 |
| Payables for Distributions | 1,030 |
| Payables to Vanguard | 158 |
| Total Liabilities | 372,499 |
| Net Assets | 3,039,870 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 4,166,191 |
| Total Distributable Earnings (Loss) | (1,126,321) |
| Net Assets | 3,039,870 |
| Investor Shares—Net Assets | |
| Applicable to 61,589,787 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 540,144 |
| Net Asset Value Per Share—Investor Shares | $8.77 |
| Admiral Shares—Net Assets | |
| Applicable to 285,030,635 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 2,499,726 |
| Net Asset Value Per Share—Admiral Shares | $8.77 |
See accompanying
Notes, which are an integral part of the Financial Statements.
52
Long-Term Treasury Fund
Statement of Operations
| Six Months Ended July 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 51,003 |
| Total Income | 51,003 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 172 |
| Management and Administrative—Investor Shares | 477 |
| Management and Administrative—Admiral Shares | 990 |
| Marketing and Distribution—Investor Shares | 23 |
| Marketing and Distribution—Admiral Shares | 77 |
| Custodian Fees | 6 |
| Shareholders’ Reports—Investor Shares | 26 |
| Shareholders’ Reports—Admiral Shares | 16 |
| Trustees’ Fees and Expenses | 1 |
| Other Expenses | 7 |
| Total Expenses | 1,795 |
| Expenses Paid Indirectly | (8) |
| Net Expenses | 1,787 |
| Net Investment Income | 49,216 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (114,072) |
| Futures Contracts | (2,571) |
| Realized Net Gain (Loss) | (116,643) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (76,758) |
| Futures Contracts | (6,840) |
| Change in Unrealized Appreciation (Depreciation) | (83,598) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (151,025) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $547,000, $4,000, 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.
53
Long-Term Treasury Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 49,216 | 81,317 | |
| Realized Net Gain (Loss) | (116,643) | (286,651) | |
| Change in Unrealized Appreciation (Depreciation) | (83,598) | (579,884) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (151,025) | (785,218) | |
| Distributions | |||
| Investor Shares | (8,885) | (15,599) | |
| Admiral Shares | (40,314) | (65,502) | |
| Total Distributions | (49,199) | (81,101) | |
| Capital Share Transactions | |||
| Investor Shares | 3,147 | 897 | |
| Admiral Shares | 199,318 | 198,905 | |
| Net Increase (Decrease) from Capital Share Transactions | 202,465 | 199,802 | |
| Total Increase (Decrease) | 2,241 | (666,517) | |
| Net Assets | |||
| Beginning of Period | 3,037,629 | 3,704,146 | |
| End of Period | 3,039,870 | 3,037,629 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
54
Long-Term Treasury Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $9.36 | $12.29 | $13.55 | $14.05 | $11.86 | $11.96 |
| Investment Operations | ||||||
| Net Investment Income1 | .143 | .261 | .239 | .273 | .331 | .334 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.590) | (2.931) | (.923) | .677 | 2.226 | (.100) |
| Total from Investment Operations | (.447) | (2.670) | (.684) | .950 | 2.557 | .234 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.143) | (.260) | (.239) | (.273) | (.331) | (.334) |
| Distributions from Realized Capital Gains | — | — | (.337) | (1.177) | (.036) | — |
| Total Distributions | (.143) | (.260) | (.576) | (1.450) | (.367) | (.334) |
| Net Asset Value, End of Period | $8.77 | $9.36 | $12.29 | $13.55 | $14.05 | $11.86 |
| Total Return2 | -4.81% | -21.78% | -4.92% | 6.41% | 21.84% | 2.05% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $540 | $574 | $750 | $931 | $971 | $794 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 3.18% | 2.62% | 1.90% | 1.79% | 2.55% | 2.89% |
| Portfolio Turnover Rate4 | 67% | 107% | 106% | 172% | 96%5 | 122% |
| 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%, 17%, 2%, 26%, 4%, and 34%, 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.
55
Long-Term Treasury Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $9.36 | $12.29 | $13.55 | $14.05 | $11.86 | $11.96 |
| Investment Operations | ||||||
| Net Investment Income1 | .147 | .271 | .252 | .288 | .344 | .346 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.590) | (2.931) | (.923) | .677 | 2.226 | (.100) |
| Total from Investment Operations | (.443) | (2.660) | (.671) | .965 | 2.570 | .246 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.147) | (.270) | (.252) | (.288) | (.344) | (.346) |
| Distributions from Realized Capital Gains | — | — | (.337) | (1.177) | (.036) | — |
| Total Distributions | (.147) | (.270) | (.589) | (1.465) | (.380) | (.346) |
| Net Asset Value, End of Period | $8.77 | $9.36 | $12.29 | $13.55 | $14.05 | $11.86 |
| Total Return2 | -4.77% | -21.70% | -4.82% | 6.51% | 21.96% | 2.16% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $2,500 | $2,464 | $2,954 | $3,292 | $3,071 | $2,532 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.28% | 2.73% | 2.00% | 1.89% | 2.65% | 2.99% |
| Portfolio Turnover Rate4 | 67% | 107% | 106% | 172% | 96%5 | 122% |
| 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%, 17%, 2%, 26%, 4%, and 34%, 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.
56
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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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 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
57
Long-Term Treasury Fund
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, 2023, the fund’s average investments in long and short futures contracts represented 10% 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 virtually 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.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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
58
Long-Term Treasury Fund
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, 2023, 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. 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, 2023, the fund had contributed to Vanguard capital in the amount of $104,000, representing less than 0.01% of the fund’s net
assets and 0.04% of Vanguard’s capital
59
Long-Term Treasury Fund
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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $8,000 (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, 2023, 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 | — | 3,090,628 | — | 3,090,628 |
| Temporary Cash Investments | 11,240 | — | — | 11,240 |
| Total | 11,240 | 3,090,628 | — | 3,101,868 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 1,577 | — | — | 1,577 |
| Liabilities | ||||
| Futures Contracts1 | 7,215 | — | — | 7,215 |
| 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, 2023, 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 | 3,725,935 |
| Gross Unrealized Appreciation | 1,708 |
| Gross Unrealized Depreciation | (631,413) |
| Net Unrealized Appreciation (Depreciation) | (629,705) |
60
Long-Term Treasury Fund
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, 2023, the fund had available capital losses totaling $365,955,000 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, 2024; 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, 2023, the fund purchased $2,221,688,000 of investment securities and sold $2,069,090,000 of investment securities, other than temporary cash investments. |
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 81,450 | 8,905 | 158,597 | 16,242 | |
| Issued in Lieu of Cash Distributions | 8,219 | 909 | 14,592 | 1,500 | |
| Redeemed | (86,522) | (9,545) | (172,292) | (17,446) | |
| Net Increase (Decrease)—Investor Shares | 3,147 | 269 | 897 | 296 | |
| Admiral Shares | |||||
| Issued | 446,654 | 49,376 | 762,171 | 79,384 | |
| Issued in Lieu of Cash Distributions | 35,241 | 3,899 | 57,321 | 5,902 | |
| Redeemed | (282,577) | (31,402) | (620,587) | (62,587) | |
| Net Increase (Decrease)—Admiral Shares | 199,318 | 21,873 | 198,905 | 22,699 | |
| H. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can,
61
Long-Term Treasury Fund
therefore, increase volatility. Additional
information regarding the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| I. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
62
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 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.
63
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.
64
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, 2022, through December 31, 2022 (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.
65
This page intentionally left blank.
Connect with
Vanguard®>vanguard.com
Semiannual Report | July 31, 2023
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 | 42 |
Long-Term Investment-Grade Fund | 78 |
Trustees Approve Advisory Arrangements | 109 |
Liquidity Risk Management | 111 |
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, 2023 | |||
| Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Short-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $1,007.70 | $1.00 |
| Admiral™ Shares | 1,000.00 | 1,008.20 | 0.50 |
| Institutional Shares | 1,000.00 | 1,008.40 | 0.35 |
| Intermediate-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $997.70 | $0.99 |
| Admiral Shares | 1,000.00 | 998.20 | 0.50 |
| Long-Term Investment-Grade Fund | |||
| Investor Shares | $1,000.00 | $975.30 | $1.08 |
| Admiral Shares | 1,000.00 | 975.70 | 0.59 |
1
| Six Months Ended July 31, 2023 | |||
| Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | 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, 2023
| Asset-Backed/Commercial Mortgage-Backed Securities | 3.3% |
| Corporate Bonds - Communications | 6.2 |
| Corporate Bonds - Consumer Discretionary | 5.9 |
| Corporate Bonds - Consumer Staples | 5.7 |
| Corporate Bonds - Energy | 5.8 |
| Corporate Bonds - Financials | 29.4 |
| Corporate Bonds - Health Care | 9.7 |
| Corporate Bonds - Industrials | 6.2 |
| Corporate Bonds - Materials | 2.4 |
| Corporate Bonds - Real Estate | 4.2 |
| Corporate Bonds - Technology | 5.0 |
| Corporate Bonds - Utilities | 5.4 |
| Floating Rate Loan Interests | 0.3 |
| Sovereign Bonds | 1.4 |
| Taxable Municipal Bonds | 0.1 |
| U.S. Government and Agency Obligations | 9.0 |
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, 2023
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
Short-Term Investment-Grade Fund
5
Short-Term Investment-Grade Fund
6
Short-Term Investment-Grade Fund
7
Short-Term Investment-Grade Fund
8
Short-Term Investment-Grade Fund
9
Short-Term Investment-Grade Fund
10
Short-Term Investment-Grade Fund
11
Short-Term Investment-Grade Fund
12
Short-Term Investment-Grade Fund
13
Short-Term Investment-Grade Fund
14
Short-Term Investment-Grade Fund
15
Short-Term Investment-Grade Fund
16
Short-Term Investment-Grade Fund
17
Short-Term Investment-Grade Fund
18
Short-Term Investment-Grade Fund
19
Short-Term Investment-Grade Fund
20
Short-Term Investment-Grade Fund
21
Short-Term Investment-Grade Fund
22
Short-Term Investment-Grade Fund
23
Short-Term Investment-Grade Fund
24
Short-Term Investment-Grade Fund
25
Short-Term Investment-Grade Fund
| Coupon | Shares | Market Value• ($000) | ||||
| Temporary Cash Investments (0.3%) | ||||||
| Money Market Fund (0.3%) | ||||||
| 15 | Vanguard Market Liquidity Fund (Cost $164,838) | 5.274% | 1,648,708 | 164,838 | ||
| Total Investments (99.9%) (Cost $59,818,203) | 56,992,893 | |||||
| Other Assets and Liabilities—Net (0.1%) | 81,060 | |||||
| Net Assets (100%) | 57,073,953 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $84,246,000 have been segregated as initial margin for open centrally cleared swap contracts. |
| 2 | Securities with a value of $30,469,000 have been segregated as initial margin for open futures contracts. |
| 3 | Securities with a value of $135,000 have been segregated as collateral for open forward currency contracts and over-the-counter swap 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 | 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, 2023, the aggregate value was $3,505,559,000, representing 6.1% of net assets. |
| 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 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. |
| 8 | Face amount denominated in British pounds. |
| 9 | Face amount denominated in euro. |
| 10 | Guaranteed by the Republic of Azerbaijan. |
| 11 | Face amount denominated in Australian dollars. |
| 12 | Non-income-producing security—security in default. |
| 13 | Security value determined using significant unobservable inputs. |
| 14 | Scheduled principal and interest payments are guaranteed by National Public Finance Guarantee Corp. |
| 15 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 3M—3-month. | |
| 6M—6-month. | |
| DAC—Designated Activity Company. | |
| LIBOR—London Interbank Offered Rate. | |
| REIT—Real Estate Investment Trust. | |
| REMIC—Real Estate Mortgage Investment Conduits. | |
| SOFR—Secured Overnight Financing Rate. | |
| SOFR30A—30 Day Average Secured Overnight Financing Rate. | |
| TSFR1M—CME Term Secured Overnight Financing Rate 1-Month. | |
| TSFR3M—CME Term Secured Overnight Financing Rate 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 2023 | 6,171 | 1,252,906 | (7,718) |
| 5-Year U.S. Treasury Note | September 2023 | 3,081 | 329,113 | (203) |
| Ultra Long U.S. Treasury Bond | September 2023 | 12 | 1,587 | (30) |
| (7,951) | ||||
26
Short-Term Investment-Grade Fund
| Futures Contracts (continued) | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Short Futures Contracts | ||||
| 10-Year Japanese Government Bond | September 2023 | (373) | (384,890) | 3,402 |
| 10-Year U.S. Treasury Note | September 2023 | (2,438) | (271,608) | 151 |
| AUD 3-Year Treasury Bond | September 2023 | (851) | (60,596) | 112 |
| Euro-Bobl | September 2023 | (4,367) | (556,448) | 6,901 |
| Euro-Schatz | September 2023 | (1,001) | (115,618) | 753 |
| Long Gilt | September 2023 | (449) | (55,392) | (47) |
| Long U.S. Treasury Bond | September 2023 | (39) | (4,853) | 78 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (464) | (54,281) | 1,290 |
| 12,640 | ||||
| 4,689 | ||||
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| UBS AG | 9/20/23 | EUR | 5,425 | USD | 6,050 | — | (70) |
| JPMorgan Chase Bank, N.A. | 9/20/23 | GBP | 31,843 | USD | 40,471 | 404 | — |
| Royal Bank of Canada | 9/20/23 | GBP | 2,288 | USD | 2,972 | — | (35) |
| Morgan Stanley Capital Services Inc. | 9/20/23 | JPY | 553,882 | USD | 3,968 | — | (43) |
| Standard Chartered Bank | 9/20/23 | JPY | 315,675 | USD | 2,238 | — | (1) |
| BNP Paribas | 9/20/23 | USD | 238,485 | AUD | 346,118 | 5,581 | — |
| State Street Bank & Trust Co. | 9/20/23 | USD | 1,062,108 | EUR | 943,570 | 22,025 | — |
| BNP Paribas | 9/20/23 | USD | 18,308 | EUR | 16,243 | 404 | — |
| Bank of Montreal | 9/20/23 | USD | 3,437 | EUR | 3,055 | 70 | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 320,492 | GBP | 249,685 | — | (11) |
| State Street Bank & Trust Co. | 9/20/23 | USD | 1,821 | GBP | 1,412 | 9 | — |
| Bank of Montreal | 9/20/23 | USD | 3,347 | JPY | 467,408 | 34 | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 2,631 | JPY | 366,374 | 35 | — |
| Bank of Montreal | 9/20/23 | USD | 1,577 | JPY | 224,066 | — | (11) |
| 28,562 | (171) | ||||||
| AUD—Australian dollar. |
| EUR—euro. |
| GBP—British pound. |
| JPY—Japanese yen. |
| USD—U.S. dollar. |
27
Short-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-HY-S40-V1 | 6/21/28 | USD | 106,460 | 5.000 | 4,442 | 967 |
| CDX-NA-IG-S40-V1 | 6/21/28 | USD | 2,829,049 | 1.000 | 48,929 | 26,228 |
| 53,371 | 27,195 | |||||
| Credit Protection Purchased | ||||||
| iTraxx Europe-S39-V1 | 6/21/28 | EUR | 52,400 | (1.000) | (898) | (218) |
| 52,473 | 26,977 | |||||
| 1 Periodic premium received/paid quarterly. |
| EUR—euro. |
| USD—U.S. dollar. |
| Over-the-Counter Credit Default Swaps | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000)1 | Periodic Premium Received (Paid) (%) | 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 | (62) | 11 | — | (73) |
| American Express Co./A2 | 12/23/25 | GSI | 3,270 | 1.000 | 64 | 52 | 12 | — |
| American International Group Inc./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 43 | 22 | 21 | — |
| AT&T Inc./Baa2 | 12/21/23 | BARC | 179,110 | 1.000 | 523 | 418 | 105 | — |
| AT&T Inc./Baa2 | 12/21/23 | BARC | 44,560 | 1.000 | 130 | 104 | 26 | — |
| Boeing Co./Baa2 | 6/21/24 | GSI | 24,365 | 1.000 | 168 | 105 | 63 | — |
| Boeing Co./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 41 | (9) | 50 | — |
| Chubb INA Holdings Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 68 | 58 | 10 | — |
| Comcast Corp./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 55 | 46 | 9 | — |
| CVS Health Corp./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 57 | 37 | 20 | — |
| Dominion Energy Inc./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 53 | 46 | 7 | — |
| Dow Chemical Co./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 43 | 30 | 13 | — |
| Enbridge Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 39 | 27 | 12 | — |
| General Electric Co./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 43 | 9 | 34 | — |
| General Motors Co./Baa3 | 12/23/25 | GSI | 3,270 | 1.000 | 11 | (2) | 13 | — |
| International Business Machines Corp./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 59 | 48 | 11 | — |
| Kroger Co./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 53 | 37 | 16 | — |
| Lincoln National Corp./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | (47) | 21 | — | (68) |
| Lowe's Cos. Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 61 | 48 | 13 | — |
| Marathon Petroleum Corp./Baa2 | 12/23/25 | GSI | 3,270 | 1.000 | 49 | 14 | 35 | — |
28
Short-Term Investment-Grade Fund
| Over-the-Counter Credit Default Swaps (continued) | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000)1 | Periodic Premium Received (Paid) (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Marsh & McLennan Cos. Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 69 | 56 | 13 | — |
| Metlife Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 31 | 35 | — | (4) |
| Mondelez International Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 59 | 43 | 16 | — |
| People’s Republic of China/A1 | 6/21/24 | GSI | 20,715 | 1.000 | 169 | 85 | 84 | — |
| Prudential Financial Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 32 | 35 | — | (3) |
| Republic of Chile/A2 | 6/21/28 | BNPSW | 8,470 | 1.000 | 148 | (33) | 181 | — |
| Republic of Chile/A2 | 6/21/28 | MSCS | 15,220 | 1.000 | 267 | (150) | 417 | — |
| Simon Property Group LP/A3 | 12/23/25 | GSI | 3,270 | 1.000 | 43 | 22 | 21 | — |
| UnitedHealth Group Inc./A3 | 12/23/25 | GSI | 3,270 | 1.000 | 61 | 51 | 10 | — |
| Verizon Communications Inc./Baa1 | 12/23/25 | GSI | 3,270 | 1.000 | 21 | 35 | — | (14) |
| 2,351 | 1,301 | 1,212 | (162) | |||||
| Credit Protection Purchased | ||||||||
| Boeing Co. | 12/21/24 | JPMC | 9,690 | (1.000) | (89) | 228 | — | (317) |
| 2,262 | 1,529 | 1,212 | (479) | |||||
| 1 | Periodic premium received/paid quarterly. |
| BARC—Barclays Bank plc. | |
| BNPSW—BNP Paribas. | |
| 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, 2023, the
counterparties had deposited in segregated accounts securities with a value of $30,354,000 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.
29
Short-Term Investment-Grade Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $59,653,365) | 56,828,055 |
| Affiliated Issuers (Cost $164,838) | 164,838 |
| Total Investments in Securities | 56,992,893 |
| Investment in Vanguard | 1,936 |
| Cash | 4,013 |
| Foreign Currency, at Value (Cost $13,432) | 13,390 |
| Receivables for Investment Securities Sold | 537,747 |
| Receivables for Accrued Income | 505,633 |
| Receivables for Capital Shares Issued | 38,052 |
| Swap Premiums Paid | 1,723 |
| Variation Margin Receivable—Futures Contracts | 4,512 |
| Unrealized Appreciation—Forward Currency Contracts | 28,562 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 1,212 |
| Other Assets | 680 |
| Total Assets | 58,130,353 |
| Liabilities | |
| Payables for Investment Securities Purchased | 934,504 |
| Payables for Capital Shares Redeemed | 93,598 |
| Payables for Distributions | 24,803 |
| Payables to Vanguard | 2,631 |
| Swap Premiums Received | 194 |
| Unrealized Depreciation—Forward Currency Contracts | 171 |
| Variation Margin Payable—Centrally Cleared Swap Contracts | 20 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 479 |
| Total Liabilities | 1,056,400 |
| Net Assets | 57,073,953 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 62,432,436 |
| Total Distributable Earnings (Loss) | (5,358,483) |
| Net Assets | 57,073,953 |
| Investor Shares—Net Assets | |
| Applicable to 636,114,639 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 6,374,660 |
| Net Asset Value Per Share—Investor Shares | $10.02 |
| Admiral Shares—Net Assets | |
| Applicable to 3,938,789,278 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 39,471,577 |
| Net Asset Value Per Share—Admiral Shares | $10.02 |
| Institutional Shares—Net Assets | |
| Applicable to 1,120,391,560 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 11,227,716 |
| Net Asset Value Per Share—Institutional Shares | $10.02 |
See accompanying
Notes, which are an integral part of the Financial Statements.
30
Short-Term Investment-Grade Fund
See
accompanying Notes, which are an integral part of the Financial Statements.
31
Short-Term Investment-Grade Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.09 | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 |
| Investment Operations | ||||||
| Net Investment Income1 | .142 | .194 | .161 | .233 | .297 | .283 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.065) | (.534) | (.341) | .225 | .304 | (.069) |
| Total from Investment Operations | .077 | (.340) | (.180) | .458 | .601 | .214 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.147) | (.200) | (.171) | (.238) | (.301) | (.284) |
| Distributions from Realized Capital Gains | — | — | (.039) | — | — | — |
| Total Distributions | (.147) | (.200) | (.210) | (.238) | (.301) | (.284) |
| Net Asset Value, End of Period | $10.02 | $10.09 | $10.63 | $11.02 | $10.80 | $10.50 |
| Total Return2 | 0.77% | -3.18% | -1.66% | 4.29% | 5.79% | 2.07% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $6,375 | $6,532 | $8,400 | $8,617 | $8,179 | $7,846 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 2.86% | 1.92% | 1.47% | 2.14% | 2.78% | 2.71% |
| Portfolio Turnover Rate4 | 43% | 77% | 65% | 89% | 76% | 71% |
| 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%, 11%, 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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.09 | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 |
| Investment Operations | ||||||
| Net Investment Income1 | .147 | .204 | .171 | .244 | .308 | .294 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.065) | (.534) | (.341) | .225 | .304 | (.070) |
| Total from Investment Operations | .082 | (.330) | (.170) | .469 | .612 | .224 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.152) | (.210) | (.181) | (.249) | (.312) | (.294) |
| Distributions from Realized Capital Gains | — | — | (.039) | — | — | — |
| Total Distributions | (.152) | (.210) | (.220) | (.249) | (.312) | (.294) |
| Net Asset Value, End of Period | $10.02 | $10.09 | $10.63 | $11.02 | $10.80 | $10.50 |
| Total Return2 | 0.82% | -3.09% | -1.56% | 4.39% | 5.90% | 2.17% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $39,472 | $41,848 | $54,200 | $51,282 | $44,211 | $40,218 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.96% | 2.01% | 1.57% | 2.23% | 2.88% | 2.81% |
| Portfolio Turnover Rate4 | 43% | 77% | 65% | 89% | 76% | 71% |
| 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%, 11%, 3%, 13%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
32
Short-Term Investment-Grade Fund
Financial Highlights
| Institutional Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $10.09 | $10.63 | $11.02 | $10.80 | $10.50 | $10.57 |
| Investment Operations | ||||||
| Net Investment Income1 | .149 | .207 | .175 | .246 | .311 | .297 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.065) | (.534) | (.341) | .226 | .304 | (.070) |
| Total from Investment Operations | .084 | (.327) | (.166) | .472 | .615 | .227 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.154) | (.213) | (.185) | (.252) | (.315) | (.297) |
| Distributions from Realized Capital Gains | — | — | (.039) | — | — | — |
| Total Distributions | (.154) | (.213) | (.224) | (.252) | (.315) | (.297) |
| Net Asset Value, End of Period | $10.02 | $10.09 | $10.63 | $11.02 | $10.80 | $10.50 |
| Total Return | 0.84% | -3.06% | -1.53% | 4.42% | 5.93% | 2.20% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $11,228 | $11,531 | $14,101 | $14,267 | $10,830 | $10,100 |
| Ratio of Total Expenses to Average Net Assets | 0.07%2 | 0.07%2 | 0.07% | 0.07% | 0.07% | 0.07% |
| Ratio of Net Investment Income to Average Net Assets | 2.99% | 2.05% | 1.60% | 2.25% | 2.91% | 2.84% |
| Portfolio Turnover Rate3 | 43% | 77% | 65% | 89% | 76% | 71% |
| 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 3%, 11%, 3%, 13%, 1%, and 1%, respectively, attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
33
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.
| 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 valuation designee 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.
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.
34
Short-Term Investment-Grade Fund
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 exercise price of the swaption exceeds the value of the underlying investment, 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 exercise
price of the swaption exceeds the value of the underlying investment, 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, 2023, the fund’s average value of investments in swaptions purchased and swaptions written 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
35
Short-Term Investment-Grade Fund
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, 2023, the fund’s average investments in long and short futures contracts represented 3% 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, 2023, 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 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
36
Short-Term Investment-Grade Fund
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, 2023, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 3% and less than 1% of net assets, respectively, based on the average of the
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 virtually 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 $4.3 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
37
Short-Term Investment-Grade Fund
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, 2023, 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, 2023, the fund had contributed to Vanguard capital in the amount of $1,936,000, representing less than 0.01% of the fund’s
net assets and 0.77% 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $166,000 (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.
38
Short-Term Investment-Grade Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2023, 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 | — | 5,117,669 | — | 5,117,669 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 1,856,031 | — | 1,856,031 |
| Corporate Bonds | — | 48,848,316 | 37 | 48,848,353 |
| Floating Rate Loan Interests | — | 169,810 | — | 169,810 |
| Sovereign Bonds | — | 798,451 | — | 798,451 |
| Taxable Municipal Bonds | — | 37,741 | — | 37,741 |
| Temporary Cash Investments | 164,838 | — | — | 164,838 |
| Total | 164,838 | 56,828,018 | 37 | 56,992,893 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 12,687 | — | — | 12,687 |
| Forward Currency Contracts | — | 28,562 | — | 28,562 |
| Swap Contracts | 27,1951 | 1,212 | — | 28,407 |
| Total | 39,882 | 29,774 | — | 69,656 |
| Liabilities | ||||
| Futures Contracts1 | 7,998 | — | — | 7,998 |
| Forward Currency Contracts | — | 171 | — | 171 |
| Swap Contracts | 2181 | 479 | — | 697 |
| Total | 8,216 | 650 | — | 8,866 |
| 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, 2023, 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 | — | — | 1,723 | 1,723 |
| Unrealized Appreciation—Futures Contracts1 | 12,687 | — | — | 12,687 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | — | 27,195 | 27,195 |
| Unrealized Appreciation—Forward Currency Contracts | — | 28,562 | — | 28,562 |
| Unrealized Appreciation— Over-the-Counter Swap Contracts | — | — | 1,212 | 1,212 |
| Total Assets | 12,687 | 28,562 | 30,130 | 71,379 |
| Swap Premiums Received | — | — | 194 | 194 |
| Unrealized Depreciation—Futures Contracts1 | 7,998 | — | — | 7,998 |
| Unrealized Depreciation—Centrally Cleared Swap Contracts1 | — | — | 218 | 218 |
| Unrealized Depreciation—Forward Currency Contracts | — | 171 | — | 171 |
| Unrealized Depreciation— Over-the-Counter Swap Contracts | — | — | 479 | 479 |
| Total Liabilities | 7,998 | 171 | 891 | 9,060 |
| 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. |
39
Short-Term Investment-Grade Fund
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2023, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (12,852) | — | — | (12,852) |
| Options Purchased | (5,669) | — | (568) | (6,237) |
| Swap Contracts | — | — | 12,701 | 12,701 |
| Forward Currency Contracts | — | (15,701) | — | (15,701) |
| Realized Net Gain (Loss) on Derivatives | (18,521) | (15,701) | 12,133 | (22,089) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | (1,797) | — | — | (1,797) |
| Options Purchased | 5,669 | — | 166 | 5,835 |
| Swap Contracts | — | — | 24,224 | 24,224 |
| Forward Currency Contracts | — | 24,364 | — | 24,364 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 3,872 | 24,364 | 24,390 | 52,626 |
| F. | As of July 31, 2023, 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 | 59,722,896 |
| Gross Unrealized Appreciation | 227,416 |
| Gross Unrealized Depreciation | (2,895,100) |
| Net Unrealized Appreciation (Depreciation) | (2,667,684) |
| G. | During the six months ended July 31, 2023, the fund purchased $12,994,183,000 of investment securities and sold $12,671,261,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $12,012,425,000 and $15,348,067,000, respectively. |
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 338,079 | 33,727 | 664,217 | 65,470 | |
| Issued in Lieu of Cash Distributions | 87,904 | 8,767 | 129,822 | 12,868 | |
| Redeemed | (542,395) | (54,055) | (2,245,367) | (221,029) | |
| Net Increase (Decrease)—Investor Shares | (116,412) | (11,561) | (1,451,328) | (142,691) | |
| Admiral Shares | |||||
| Issued | 3,461,381 | 345,265 | 10,354,155 | 1,021,772 | |
| Issued in Lieu of Cash Distributions | 492,893 | 49,160 | 766,035 | 75,924 | |
| Redeemed | (6,065,685) | (604,966) | (20,691,028) | (2,048,397) | |
| Net Increase (Decrease)—Admiral Shares | (2,111,411) | (210,541) | (9,570,838) | (950,701) | |
| Institutional Shares | |||||
| Issued | 1,454,526 | 145,002 | 2,932,351 | 288,413 | |
| Issued in Lieu of Cash Distributions | 161,680 | 16,125 | 248,275 | 24,614 | |
| Redeemed | (1,844,065) | (184,096) | (5,005,004) | (496,496) | |
| Net Increase (Decrease)—Institutional Shares | (227,859) | (22,969) | (1,824,378) | (183,469) | |
40
Short-Term Investment-Grade Fund
| I. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| J. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
41
Intermediate-Term Investment-Grade Fund
Fund Allocation
As of July 31, 2023
| Asset-Backed/Commercial Mortgage-Backed Securities | 0.7% |
| Corporate Bonds - Communications | 7.5 |
| Corporate Bonds - Consumer Discretionary | 3.8 |
| Corporate Bonds - Consumer Staples | 6.5 |
| Corporate Bonds - Energy | 6.5 |
| Corporate Bonds - Financials | 29.6 |
| Corporate Bonds - Health Care | 9.6 |
| Corporate Bonds - Industrials | 5.2 |
| Corporate Bonds - Materials | 2.4 |
| Corporate Bonds - Real Estate | 4.9 |
| Corporate Bonds - Technology | 5.8 |
| Corporate Bonds - Utilities | 6.7 |
| Floating Rate Loan Interests | 0.1 |
| Sovereign Bonds | 2.0 |
| Taxable Municipal Bonds | 0.3 |
| U.S. Government and Agency Obligations | 8.4 |
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.
42
Intermediate-Term Investment-Grade Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2023
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.
43
Intermediate-Term Investment-Grade Fund
44
Intermediate-Term Investment-Grade Fund
45
Intermediate-Term Investment-Grade Fund
46
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
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 2023 | 758 | 80,970 | (155) |
| 10-Year U.S. Treasury Note | September 2023 | 6,254 | 696,735 | (7,184) |
| Euro-Schatz | September 2023 | 29 | 3,350 | (24) |
| Ultra 10-Year U.S. Treasury Note | September 2023 | 4,956 | 579,775 | (2,811) |
| (10,174) | ||||
63
Intermediate-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 2023 | (1,024) | (207,904) | 555 |
| 10-Year Japanese Government Bond | September 2023 | (201) | (207,407) | 1,833 |
| AUD 3-Year Treasury Bond | September 2023 | (1,179) | (83,951) | 155 |
| AUD 10-Year Treasury Bond | September 2023 | (400) | (31,129) | 347 |
| Euro-Bobl | September 2023 | (1,106) | (140,928) | 1,357 |
| Euro-Bund | September 2023 | (1,399) | (204,581) | 2,952 |
| Euro-Buxl | September 2023 | (156) | (23,083) | 439 |
| Long Gilt | September 2023 | (178) | (21,960) | (16) |
| Long U.S. Treasury Bond | September 2023 | (647) | (80,511) | 1,411 |
| Ultra Long U.S. Treasury Bond | September 2023 | (1,714) | (226,623) | 4,068 |
| 13,101 | ||||
| 2,927 | ||||
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| State Street Bank & Trust Co. | 9/20/23 | AUD | 2,318 | USD | 1,575 | — | (15) |
| JPMorgan Chase Bank, N.A. | 9/20/23 | EUR | 8,736 | USD | 9,626 | 4 | — |
| Royal Bank of Canada | 9/20/23 | EUR | 4,040 | USD | 4,456 | — | (3) |
| Wells Fargo Bank N.A. | 9/20/23 | EUR | 2,562 | USD | 2,888 | — | (63) |
| Morgan Stanley Capital Services Inc. | 9/20/23 | EUR | 2,212 | USD | 2,481 | — | (42) |
| HSBC Bank plc | 9/20/23 | GBP | 20,200 | USD | 25,991 | — | (61) |
| HSBC Bank plc | 9/20/23 | GBP | 4,266 | USD | 5,475 | — | — |
| Standard Chartered Bank | 9/20/23 | GBP | 1,596 | USD | 2,046 | 2 | — |
| JPMorgan Chase Bank, N.A. | 9/20/23 | JPY | 177,254 | USD | 1,266 | — | (9) |
| Standard Chartered Bank | 9/20/23 | JPY | 170,663 | USD | 1,210 | — | (1) |
| Morgan Stanley Capital Services Inc. | 9/20/23 | JPY | 114,457 | USD | 824 | — | (13) |
| BNP Paribas | 9/20/23 | USD | 188,815 | AUD | 274,031 | 4,419 | — |
| Bank of New York | 9/20/23 | USD | 3,122 | AUD | 4,668 | — | (19) |
| State Street Bank & Trust Co. | 9/20/23 | USD | 455,956 | EUR | 404,852 | 9,693 | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 14,080 | EUR | 12,753 | 23 | — |
| HSBC Bank plc | 9/20/23 | USD | 4,145 | EUR | 3,735 | 27 | — |
| UBS AG | 9/20/23 | USD | 3,236 | EUR | 2,912 | 26 | — |
| Citibank, N.A. | 9/20/23 | USD | 2,116 | EUR | 1,896 | 26 | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 78,030 | GBP | 60,790 | — | (3) |
| State Street Bank & Trust Co. | 9/20/23 | USD | 2,865 | GBP | 2,221 | 14 | — |
| Bank of New York | 9/20/23 | USD | 2,745 | GBP | 2,155 | — | (21) |
| State Street Bank & Trust Co. | 9/20/23 | USD | 1,152 | GBP | 905 | — | (10) |
| Bank of Montreal | 9/20/23 | USD | 1,906 | JPY | 266,239 | 20 | — |
64
Intermediate-Term Investment-Grade Fund
| Forward Currency Contracts (continued) | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 1,342 | JPY | 186,826 | 18 | — |
| Bank of Montreal | 9/20/23 | USD | 790 | JPY | 112,080 | — | (5) |
| 14,272 | (265) | ||||||
| AUD—Australian 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 Sold | ||||||
| CDX-NA-HY-S40-V1 | 6/21/28 | USD | 157,910 | 5.000 | 6,589 | 1,448 |
| CDX-NA-IG-S40-V1 | 6/21/28 | USD | 670,184 | 1.000 | 11,591 | 7,896 |
| 18,180 | 9,344 | |||||
| Credit Protection Purchased | ||||||
| iTraxx Europe-S39-V1 | 6/21/28 | EUR | 42,200 | (1.000) | (724) | (176) |
| 17,456 | 9,168 | |||||
| 1 Periodic premium received/paid quarterly. |
| EUR—euro. |
| USD—U.S. dollar. |
| Over-the-Counter Credit Default Swaps | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000)1 | Periodic Premium Received (Paid) (%) | 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 | (30) | 6 | — | (36) |
| American Express Co./A2 | 12/23/25 | GSI | 1,630 | 1.000 | 32 | 26 | 6 | — |
| American International Group Inc./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 21 | 11 | 10 | — |
| Berkshire Hathaway Inc./Aa2 | 12/21/24 | BARC | 19,400 | 1.000 | 266 | 160 | 106 | — |
| Berkshire Hathaway Inc./Aa2 | 12/21/24 | JPMC | 9,400 | 1.000 | 129 | 75 | 54 | — |
| Boeing Co./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 20 | (5) | 25 | — |
| Chubb INA Holdings Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 34 | 29 | 5 | — |
| Comcast Corp./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 28 | 23 | 5 | — |
| CVS Health Corp./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 28 | 18 | 10 | — |
| Dominion Energy Inc./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 27 | 23 | 4 | — |
| Dow Chemical Co./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 22 | 15 | 7 | — |
| Enbridge Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 19 | 13 | 6 | — |
| General Electric Co./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 21 | 4 | 17 | — |
65
Intermediate-Term Investment-Grade Fund
| Over-the-Counter Credit Default Swaps (continued) | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000)1 | Periodic Premium Received (Paid) (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| General Motors Co./Baa3 | 12/23/25 | GSI | 1,630 | 1.000 | 5 | (1) | 6 | — |
| International Business Machines Corp./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 30 | 24 | 6 | — |
| Kroger Co./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 26 | 18 | 8 | — |
| Lincoln National Corp./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | (24) | 10 | — | (34) |
| Lowe's Cos. Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 30 | 24 | 6 | — |
| Marathon Petroleum Corp./Baa2 | 12/23/25 | GSI | 1,630 | 1.000 | 24 | 7 | 17 | — |
| Marsh & McLennan Cos. Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 34 | 28 | 6 | — |
| Metlife Inc./A3 | 6/21/24 | BARC | 24,300 | 1.000 | 144 | 4 | 140 | — |
| Metlife Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 16 | 18 | — | (2) |
| Mondelez International Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 29 | 21 | 8 | — |
| Prudential Financial Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 17 | 18 | — | (1) |
| Republic of Chile/A2 | 6/21/28 | BNPSW | 16,690 | 1.000 | 292 | (65) | 357 | — |
| Republic of Chile/A2 | 6/21/28 | MSCS | 46,815 | 1.000 | 819 | (462) | 1,281 | — |
| Republic of Peru/Baa1 | 6/21/28 | GSI | 2,612 | 1.000 | 36 | (21) | 57 | — |
| Republic of South Africa/Ba2 | 6/21/28 | BANA | 7,250 | 1.000 | (383) | (535) | 152 | — |
| Simon Property Group LP/A3 | 12/23/25 | GSI | 1,630 | 1.000 | 22 | 11 | 11 | — |
| UnitedHealth Group Inc./A3 | 12/23/25 | GSI | 1,630 | 1.000 | 30 | 25 | 5 | — |
| Verizon Communications Inc./Baa1 | 12/23/25 | GSI | 1,630 | 1.000 | 11 | 18 | — | (7) |
| 1,775 | (460) | 2,315 | (80) | |||||
| Credit Protection Purchased | ||||||||
| Bouygues SA | 6/21/28 | JPMC | 23,300 | (1.000) | (670) | (475) | — | (195) |
| 1,105 | (935) | 2,315 | (275) | |||||
| 1 | Periodic premium received/paid quarterly. |
| BANA—Bank of America, N.A. | |
| BARC—Barclays Bank plc. | |
| BNPSW—BNP Paribas. | |
| 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, 2023, the
counterparties had deposited in segregated accounts securities with a value of $15,933,000 and cash of $520,000 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.
66
Intermediate-Term Investment-Grade Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $33,327,696) | 30,628,373 |
| Affiliated Issuers (Cost $258,323) | 258,323 |
| Total Investments in Securities | 30,886,696 |
| Investment in Vanguard | 1,058 |
| Cash | 162 |
| Foreign Currency, at Value (Cost $5,691) | 5,688 |
| Receivables for Investment Securities Sold | 154,475 |
| Receivables for Accrued Income | 323,720 |
| Receivables for Capital Shares Issued | 25,114 |
| Swap Premiums Paid | 629 |
| Variation Margin Receivable—Futures Contracts | 3,441 |
| Unrealized Appreciation—Forward Currency Contracts | 14,272 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 2,315 |
| Other Assets | 100 |
| Total Assets | 31,417,670 |
| Liabilities | |
| Payables for Investment Securities Purchased | 316,435 |
| Payables for Capital Shares Redeemed | 61,261 |
| Payables for Distributions | 14,981 |
| Payables to Vanguard | 1,424 |
| Swap Premiums Received | 1,564 |
| Unrealized Depreciation—Forward Currency Contracts | 265 |
| Variation Margin Payable—Centrally Cleared Swap Contracts | 3 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 275 |
| Total Liabilities | 396,208 |
| Net Assets | 31,021,462 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 36,340,757 |
| Total Distributable Earnings (Loss) | (5,319,295) |
| Net Assets | 31,021,462 |
| Investor Shares—Net Assets | |
| Applicable to 172,852,018 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 1,458,129 |
| Net Asset Value Per Share—Investor Shares | $8.44 |
| Admiral Shares—Net Assets | |
| Applicable to 3,504,548,363 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 29,563,333 |
| Net Asset Value Per Share—Admiral Shares | $8.44 |
See accompanying
Notes, which are an integral part of the Financial Statements.
67
Intermediate-Term Investment-Grade Fund
See
accompanying Notes, which are an integral part of the Financial Statements.
68
Intermediate-Term Investment-Grade Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $8.62 | $9.67 | $10.39 | $10.23 | $9.52 | $9.61 |
| Investment Operations | ||||||
| Net Investment Income1 | .157 | .253 | .218 | .252 | .300 | .300 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.177) | (1.039) | (.550) | .500 | .711 | (.087) |
| Total from Investment Operations | (.020) | (.786) | (.332) | .752 | 1.011 | .213 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.160) | (.264) | (.224) | (.257) | (.301) | (.303) |
| Distributions from Realized Capital Gains | — | — | (.164) | (.335) | — | — |
| Total Distributions | (.160) | (.264) | (.388) | (.592) | (.301) | (.303) |
| Net Asset Value, End of Period | $8.44 | $8.62 | $9.67 | $10.39 | $10.23 | $9.52 |
| Total Return2 | -0.23% | -8.09% | -3.27% | 7.49% | 10.76% | 2.31% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $1,458 | $1,521 | $1,895 | $2,305 | $2,459 | $2,115 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 3.73% | 2.91% | 2.16% | 2.41% | 3.03% | 3.20% |
| Portfolio Turnover Rate4 | 42% | 93% | 82% | 113%5 | 114% | 73% |
| 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%, 11%, 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. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $8.62 | $9.67 | $10.39 | $10.23 | $9.52 | $9.61 |
| Investment Operations | ||||||
| Net Investment Income1 | .161 | .262 | .228 | .261 | .309 | .310 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.177) | (1.040) | (.550) | .501 | .712 | (.087) |
| Total from Investment Operations | (.016) | (.778) | (.322) | .762 | 1.021 | .223 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.164) | (.272) | (.234) | (.267) | (.311) | (.313) |
| Distributions from Realized Capital Gains | — | — | (.164) | (.335) | — | — |
| Total Distributions | (.164) | (.272) | (.398) | (.602) | (.311) | (.313) |
| Net Asset Value, End of Period | $8.44 | $8.62 | $9.67 | $10.39 | $10.23 | $9.52 |
| Total Return2 | -0.18% | -8.00% | -3.17% | 7.59% | 10.87% | 2.41% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $29,563 | $29,569 | $34,013 | $35,093 | $31,146 | $27,011 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.83% | 3.02% | 2.25% | 2.50% | 3.13% | 3.30% |
| Portfolio Turnover Rate4 | 42% | 93% | 82% | 113%5 | 114% | 73% |
| 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%, 11%, 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.
69
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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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.
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.
70
Intermediate-Term Investment-Grade Fund
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 exercise price of the swaption exceeds the value of the underlying investment, 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 exercise
price of the swaption exceeds the value of the underlying investment, 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, 2023, the fund’s average value of investments in swaptions purchased and swaptions written 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
71
Intermediate-Term Investment-Grade Fund
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, 2023, the fund’s average investments in long and short futures contracts represented 5% and 4% 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, 2023, 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 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
72
Intermediate-Term Investment-Grade Fund
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, 2023, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 3% and less than 1% of net assets, respectively, based on the average of the
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 virtually 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 $4.3 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
73
Intermediate-Term Investment-Grade Fund
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, 2023, 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, 2023, the fund had contributed to Vanguard capital in the amount of $1,058,000, representing less than 0.01% of the fund’s
net assets and 0.42% 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $58,000 (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.
74
Intermediate-Term Investment-Grade Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2023, 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 | — | 2,570,561 | — | 2,570,561 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 227,279 | — | 227,279 |
| Corporate Bonds | — | 27,111,999 | 3 | 27,112,002 |
| Floating Rate Loan Interests | — | 28,996 | — | 28,996 |
| Sovereign Bonds | — | 598,975 | — | 598,975 |
| Taxable Municipal Bonds | — | 90,560 | — | 90,560 |
| Temporary Cash Investments | 258,323 | — | — | 258,323 |
| Total | 258,323 | 30,628,370 | 3 | 30,886,696 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 13,117 | — | — | 13,117 |
| Forward Currency Contracts | — | 14,272 | — | 14,272 |
| Swap Contracts | 9,3441 | 2,315 | — | 11,659 |
| Total | 22,461 | 16,587 | — | 39,048 |
| Liabilities | ||||
| Futures Contracts1 | 10,190 | — | — | 10,190 |
| Forward Currency Contracts | — | 265 | — | 265 |
| Swap Contracts | 1761 | 275 | — | 451 |
| Total | 10,366 | 540 | — | 10,906 |
| 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, 2023, 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 | — | — | 629 | 629 |
| Unrealized Appreciation—Futures Contracts1 | 13,117 | — | — | 13,117 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | — | 9,344 | 9,344 |
| Unrealized Appreciation—Forward Currency Contracts | — | 14,272 | — | 14,272 |
| Unrealized Appreciation— Over-the-Counter Swap Contracts | — | — | 2,315 | 2,315 |
| Total Assets | 13,117 | 14,272 | 12,288 | 39,677 |
| Swap Premiums Received | — | — | 1,564 | 1,564 |
| Unrealized Depreciation—Futures Contracts1 | 10,190 | — | — | 10,190 |
| Unrealized Depreciation—Centrally Cleared Swap Contracts1 | — | — | 176 | 176 |
| Unrealized Depreciation—Forward Currency Contracts | — | 265 | — | 265 |
| Unrealized Depreciation— Over-the-Counter Swap Contracts | — | — | 275 | 275 |
| Total Liabilities | 10,190 | 265 | 2,015 | 12,470 |
| 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. |
75
Intermediate-Term Investment-Grade Fund
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2023, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (30,473) | — | — | (30,473) |
| Options Purchased | (2,880) | — | (586) | (3,466) |
| Swap Contracts | — | — | 22,833 | 22,833 |
| Forward Currency Contracts | — | (1,726) | — | (1,726) |
| Realized Net Gain (Loss) on Derivatives | (33,353) | (1,726) | 22,247 | (12,832) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | (1,606) | — | — | (1,606) |
| Options Purchased | 2,880 | — | 171 | 3,051 |
| Swap Contracts | — | — | 879 | 879 |
| Forward Currency Contracts | — | 11,350 | — | 11,350 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 1,274 | 11,350 | 1,050 | 13,674 |
| F. | As of July 31, 2023, 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 | 33,598,284 |
| Gross Unrealized Appreciation | 141,693 |
| Gross Unrealized Depreciation | (2,826,074) |
| Net Unrealized Appreciation (Depreciation) | (2,684,381) |
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, 2023, the fund had available capital losses totaling $1,887,648,000 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, 2024; 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, 2023, the fund purchased $7,612,951,000 of investment securities and sold $7,217,537,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $5,330,952,000 and $5,688,353,000, 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, 2023, such purchases were $692,000 and sales were $0; 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, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 114,242 | 13,488 | 242,343 | 28,167 | |
| Issued in Lieu of Cash Distributions | 24,543 | 2,896 | 42,584 | 4,941 | |
| Redeemed | (169,334) | (19,970) | (457,992) | (52,676) | |
| Net Increase (Decrease)—Investor Shares | (30,549) | (3,586) | (173,065) | (19,568) | |
76
Intermediate-Term Investment-Grade Fund
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Admiral Shares | |||||
| Issued | 3,069,057 | 362,081 | 6,368,494 | 736,413 | |
| Issued in Lieu of Cash Distributions | 490,744 | 57,909 | 795,930 | 92,412 | |
| Redeemed | (2,911,107) | (344,368) | (7,975,393) | (917,389) | |
| Net Increase (Decrease)—Admiral Shares | 648,694 | 75,622 | (810,969) | (88,564) | |
| I. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| J. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
77
Long-Term Investment-Grade Fund
Fund Allocation
As of July 31, 2023
| Asset-Backed/Commercial Mortgage-Backed Securities | 0.3% |
| Corporate Bonds - Communications | 6.2 |
| Corporate Bonds - Consumer Discretionary | 5.7 |
| Corporate Bonds - Consumer Staples | 5.4 |
| Corporate Bonds - Energy | 5.6 |
| Corporate Bonds - Financials | 16.6 |
| Corporate Bonds - Health Care | 11.3 |
| Corporate Bonds - Industrials | 4.5 |
| Corporate Bonds - Materials | 0.9 |
| Corporate Bonds - Real Estate | 0.5 |
| Corporate Bonds - Technology | 10.3 |
| Corporate Bonds - Utilities | 15.9 |
| Floating Rate Loan Interests | 0.0 |
| Sovereign Bonds | 1.3 |
| Taxable Municipal Bonds | 9.6 |
| U.S. Government and Agency Obligations | 5.9 |
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.
78
Long-Term Investment-Grade Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2023
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.
79
Long-Term Investment-Grade Fund
80
Long-Term Investment-Grade Fund
81
Long-Term Investment-Grade Fund
82
Long-Term Investment-Grade Fund
83
Long-Term Investment-Grade Fund
84
Long-Term Investment-Grade Fund
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
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 | ||||
| Long U.S. Treasury Bond | September 2023 | 321 | 39,944 | (684) |
| Ultra 10-Year U.S. Treasury Note | September 2023 | 2,693 | 315,039 | (7,634) |
| Ultra Long U.S. Treasury Bond | September 2023 | 1,313 | 173,603 | (4,840) |
| (13,158) | ||||
95
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 2023 | (54) | (10,964) | 28 |
| 5-Year U.S. Treasury Note | September 2023 | (336) | (35,892) | 337 |
| 10-Year Japanese Government Bond | September 2023 | (17) | (17,542) | 155 |
| 10-Year U.S. Treasury Note | September 2023 | (1,767) | (196,855) | 2,609 |
| Euro-Bund | September 2023 | (33) | (4,826) | 50 |
| Euro-Buxl | September 2023 | (38) | (5,623) | 125 |
| Long Gilt | September 2023 | (48) | (5,922) | — |
| Long U.S. Treasury Bond | September 2023 | (633) | (78,769) | 1,765 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (42) | (4,913) | — |
| 5,069 | ||||
| (8,089) | ||||
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| HSBC Bank plc | 9/20/23 | GBP | 1,511 | USD | 1,944 | — | (4) |
| JPMorgan Chase Bank, N.A. | 9/20/23 | GBP | 391 | USD | 500 | 2 | — |
| Toronto-Dominion Bank | 9/20/23 | GBP | 198 | USD | 254 | — | — |
| Toronto-Dominion Bank | 9/20/23 | JPY | 15,604 | USD | 111 | — | (1) |
| Standard Chartered Bank | 9/20/23 | JPY | 14,270 | USD | 101 | — | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | JPY | 9,702 | USD | 70 | — | (1) |
| BNP Paribas | 9/20/23 | USD | 176 | AUD | 255 | 4 | — |
| State Street Bank & Trust Co. | 9/20/23 | USD | 13,283 | EUR | 11,797 | 279 | — |
| HSBC Bank plc | 9/20/23 | USD | 224 | EUR | 202 | 1 | — |
| Bank of Montreal | 9/20/23 | USD | 226 | EUR | 201 | 5 | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 6,559 | GBP | 5,110 | — | — |
| State Street Bank & Trust Co. | 9/20/23 | USD | 435 | GBP | 340 | — | (1) |
| Wells Fargo Bank N.A. | 9/20/23 | USD | 219 | GBP | 170 | 1 | — |
| State Street Bank & Trust Co. | 9/20/23 | USD | 202 | GBP | 155 | 3 | — |
| Bank of New York | 9/20/23 | USD | 192 | GBP | 151 | — | (2) |
| JPMorgan Chase Bank, N.A. | 9/20/23 | USD | 17 | GBP | 13 | — | — |
| Bank of Montreal | 9/20/23 | USD | 183 | JPY | 25,521 | 2 | — |
| Morgan Stanley Capital Services Inc. | 9/20/23 | USD | 92 | JPY | 12,801 | 1 | — |
| State Street Bank & Trust Co. | 9/20/23 | USD | 71 | JPY | 10,030 | — | — |
| 298 | (9) | ||||||
| AUD—Australian dollar. |
| EUR—euro. |
| GBP—British pound. |
| JPY—Japanese yen. |
| USD—U.S. dollar. |
96
Long-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-HY-S40-V1 | 6/21/28 | USD | 4,970 | 5.000 | 207 | 45 |
| CDX-NA-IG-S40-V1 | 6/21/28 | USD | 1,836,150 | 1.000 | 31,757 | 16,451 |
| 31,964 | 16,496 | |||||
| 1 Periodic premium received/paid quarterly. |
| USD—U.S. dollar. |
| Over-the-Counter Credit Default Swaps | ||||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000)1 | Periodic Premium Received (Paid) (%) | Value ($000) | Remaining Up-Front Premium Paid (Received) ($000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) |
| Credit Protection Sold/Moody's Rating | ||||||||
| Republic of Chile/A2 | 6/21/28 | GSI | 8,300 | 1.000 | 145 | (59) | 204 | — |
| 1 | Periodic premium received/paid quarterly. |
| GSI—Goldman Sachs International. |
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.
97
Long-Term Investment-Grade Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $18,310,894) | 15,785,596 |
| Affiliated Issuers (Cost $48,407) | 48,406 |
| Total Investments in Securities | 15,834,002 |
| Investment in Vanguard | 552 |
| Cash | 2,180 |
| Foreign Currency, at Value (Cost $543) | 543 |
| Receivables for Investment Securities Sold | 6,380 |
| Receivables for Accrued Income | 202,529 |
| Receivables for Capital Shares Issued | 8,136 |
| Variation Margin Receivable—Futures Contracts | 564 |
| Unrealized Appreciation—Forward Currency Contracts | 298 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 204 |
| Other Assets | 54 |
| Total Assets | 16,055,442 |
| Liabilities | |
| Payables for Investment Securities Purchased | 8,428 |
| Payables to Investment Advisor | 590 |
| Payables for Capital Shares Redeemed | 20,640 |
| Payables for Distributions | 7,347 |
| Payables to Vanguard | 870 |
| Swap Premiums Received | 59 |
| Unrealized Depreciation—Forward Currency Contracts | 9 |
| Variation Margin Payable—Centrally Cleared Swap Contracts | 1,412 |
| Total Liabilities | 39,355 |
| Net Assets | 16,016,087 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 19,541,089 |
| Total Distributable Earnings (Loss) | (3,525,002) |
| Net Assets | 16,016,087 |
| Investor Shares—Net Assets | |
| Applicable to 486,012,981 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 3,856,156 |
| Net Asset Value Per Share—Investor Shares | $7.93 |
| Admiral Shares—Net Assets | |
| Applicable to 1,532,583,079 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 12,159,931 |
| Net Asset Value Per Share—Admiral Shares | $7.93 |
See accompanying
Notes, which are an integral part of the Financial Statements.
98
Long-Term Investment-Grade Fund
See
accompanying Notes, which are an integral part of the Financial Statements.
99
Long-Term Investment-Grade Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $8.32 | $10.33 | $11.42 | $11.48 | $9.79 | $10.40 |
| Investment Operations | ||||||
| Net Investment Income1 | .180 | .339 | .323 | .349 | .381 | .397 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.386) | (2.001) | (.836) | .399 | 1.854 | (.560) |
| Total from Investment Operations | (.206) | (1.662) | (.513) | .748 | 2.235 | (.163) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.184) | (.348) | (.340) | (.368) | (.399) | (.413) |
| Distributions from Realized Capital Gains | — | — | (.237) | (.440) | (.146) | (.034) |
| Total Distributions | (.184) | (.348) | (.577) | (.808) | (.545) | (.447) |
| Net Asset Value, End of Period | $7.93 | $8.32 | $10.33 | $11.42 | $11.48 | $9.79 |
| Total Return2 | -2.47% | -16.05% | -4.64% | 6.54% | 23.31% | -1.45% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $3,856 | $3,884 | $4,840 | $5,070 | $4,942 | $4,098 |
| Ratio of Total Expenses to Average Net Assets | 0.22% | 0.21% | 0.22% | 0.22% | 0.22% | 0.22% |
| Ratio of Net Investment Income to Average Net Assets | 4.53% | 3.98% | 2.94% | 2.97% | 3.57% | 4.08% |
| Portfolio Turnover Rate | 17% | 26% | 24% | 30% | 34%3 | 32%3 |
| 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.
100
Long-Term Investment-Grade Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $8.32 | $10.33 | $11.42 | $11.48 | $9.79 | $10.40 |
| Investment Operations | ||||||
| Net Investment Income1 | .184 | .348 | .334 | .361 | .392 | .407 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.386) | (2.001) | (.836) | .399 | 1.853 | (.560) |
| Total from Investment Operations | (.202) | (1.653) | (.502) | .760 | 2.245 | (.153) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.188) | (.357) | (.351) | (.380) | (.409) | (.423) |
| Distributions from Realized Capital Gains | — | — | (.237) | (.440) | (.146) | (.034) |
| Total Distributions | (.188) | (.357) | (.588) | (.820) | (.555) | (.457) |
| Net Asset Value, End of Period | $7.93 | $8.32 | $10.33 | $11.42 | $11.48 | $9.79 |
| Total Return2 | -2.43% | -15.97% | -4.54% | 6.64% | 23.43% | -1.35% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $12,160 | $12,475 | $14,769 | $15,455 | $15,335 | $12,820 |
| 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 | 4.63% | 4.08% | 3.04% | 3.07% | 3.67% | 4.18% |
| Portfolio Turnover Rate | 17% | 26% | 24% | 30% | 34%3 | 32%3 |
| 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.
101
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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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 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.
102
Long-Term Investment-Grade Fund
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. 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, 2023, the fund’s average investments in long and short futures contracts represented 2% and 2% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
7. 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.
103
Long-Term Investment-Grade Fund
During the six months ended
July 31, 2023, 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.
8. 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 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, 2023, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 12% and less than 1% of net assets, respectively, based on the average of the
notional amounts at each quarter-end during the period.
104
Long-Term Investment-Grade Fund
9. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually 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.
10. 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.
11. Credit Facilities
and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
12. 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 $145,000 for the six months ended July 31, 2023.
For the six months ended July
31, 2023, 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, |
105
Long-Term Investment-Grade Fund
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, 2023, the fund had contributed to Vanguard capital in the amount of $552,000, representing less than 0.01% of the fund’s net
assets and 0.22% 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.
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2023, 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 | — | 922,628 | — | 922,628 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 38,584 | — | 38,584 |
| Corporate Bonds | — | 12,870,179 | — | 12,870,179 |
| Floating Rate Loan Interests | — | 1,071 | — | 1,071 |
| Sovereign Bonds | — | 200,396 | — | 200,396 |
| Taxable Municipal Bonds | — | 1,487,638 | — | 1,487,638 |
| Temporary Cash Investments | 48,406 | 265,100 | — | 313,506 |
| Total | 48,406 | 15,785,596 | — | 15,834,002 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 5,069 | — | — | 5,069 |
| Forward Currency Contracts | — | 298 | — | 298 |
| Swap Contracts | 16,4961 | 204 | — | 16,700 |
| Total | 21,565 | 502 | — | 22,067 |
| Liabilities | ||||
| Futures Contracts1 | 13,158 | — | — | 13,158 |
| Forward Currency Contracts | — | 9 | — | 9 |
| Total | 13,158 | 9 | — | 13,167 |
| 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, 2023, 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) |
| Unrealized Appreciation—Futures Contracts1 | 5,069 | — | — | 5,069 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts1 | — | — | 16,496 | 16,496 |
106
Long-Term Investment-Grade Fund
| Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) | |
| Unrealized Appreciation—Forward Currency Contracts | — | 298 | — | 298 |
| Unrealized Appreciation— Over-the-Counter Swap Contracts | — | — | 204 | 204 |
| Total Assets | 5,069 | 298 | 16,700 | 22,067 |
| Swap Premiums Received | — | — | 59 | 59 |
| Unrealized Depreciation—Futures Contracts1 | 13,158 | — | — | 13,158 |
| Unrealized Depreciation—Forward Currency Contracts | — | 9 | — | 9 |
| Total Liabilities | 13,158 | 9 | 59 | 13,226 |
| 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, 2023, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (11,432) | — | — | (11,432) |
| Swap Contracts | — | — | 24,081 | 24,081 |
| Forward Currency Contracts | — | (469) | — | (469) |
| Realized Net Gain (Loss) on Derivatives | (11,432) | (469) | 24,081 | 12,180 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | (9,575) | — | — | (9,575) |
| Swap Contracts | — | — | (6,221) | (6,221) |
| Forward Currency Contracts | — | 267 | — | 267 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | (9,575) | 267 | (6,221) | (15,529) |
| F. | As of July 31, 2023, 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 | 18,371,535 |
| Gross Unrealized Appreciation | 148,514 |
| Gross Unrealized Depreciation | (2,677,206) |
| Net Unrealized Appreciation (Depreciation) | (2,528,692) |
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, 2023, the fund had available capital losses totaling $672,271,000 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, 2024; 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, 2023, the fund purchased $2,314,307,000 of investment securities and sold $1,766,365,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $676,270,000 and $909,673,000, 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, 2023, such purchases were $0 and sales were $692,000, resulting in net realized gain (loss) of $0; these amounts, other than temporary cash investments, are
included in the purchases and sales of investment securities noted above.
107
Long-Term Investment-Grade Fund
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 180,832 | 22,723 | 259,888 | 29,766 | |
| Issued in Lieu of Cash Distributions | 84,628 | 10,562 | 156,937 | 18,689 | |
| Redeemed | (112,428) | (14,045) | (433,593) | (50,028) | |
| Net Increase (Decrease)—Investor Shares | 153,032 | 19,240 | (16,768) | (1,573) | |
| Admiral Shares | |||||
| Issued | 1,152,216 | 144,055 | 2,561,188 | 296,703 | |
| Issued in Lieu of Cash Distributions | 244,497 | 30,512 | 444,560 | 53,034 | |
| Redeemed | (1,125,188) | (141,187) | (2,369,069) | (279,594) | |
| Net Increase (Decrease)—Admiral Shares | 271,525 | 33,380 | 636,679 | 70,143 | |
| I. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| J. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
108
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Short-Term
Investment-Grade Fund and Vanguard Intermediate-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 has also renewed Vanguard Long-Term Investment-Grade Fund’s investment advisory arrangements with Wellington Management Company llp (Wellington Management) and Vanguard, through its Fixed Income Group. 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 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:
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.
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.
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
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.
109
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.
110
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, 2022, through December 31, 2022 (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.
111
This page intentionally left blank.
Connect with
Vanguard®>vanguard.com
Semiannual Report | July 31, 2023
Vanguard
Ultra-Short-Term Bond Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 34 |
Liquidity Risk Management | 36 |
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, 2023 | |||
| Ultra-Short-Term Bond Fund | Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | Expenses Paid During Period |
| Based on Actual Fund Return | |||
| Investor Shares | $1,000.00 | $1,019.80 | $1.00 |
| Admiral™ Shares | 1,000.00 | 1,020.30 | 0.50 |
| 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, 2023
| Asset-Backed/Commercial Mortgage-Backed Securities | 17.0% |
| Corporate Bonds | 71.0 |
| Short-Term Reserves | 0.6 |
| Sovereign Bonds | 1.5 |
| Treasury/Agency | 9.0 |
| Commercial Paper | 0.9 |
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, 2023
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) | |||
| Asset-Backed/Commercial Mortgage-Backed Securities (16.9%) | ||||||
| 1 | Ally Auto Receivables Trust Class A2 Series 2022-2 | 4.620% | 10/15/25 | 25,172 | 25,085 | |
| 1 | Ally Auto Receivables Trust Class A2 Series 2022-3 | 5.290% | 6/16/25 | 13,466 | 13,432 | |
| 1 | Ally Auto Receivables Trust Class A3 Series 2023-1 | 5.460% | 5/15/28 | 12,590 | 12,598 | |
| 1 | American Express Credit Account Class A Series 2022-2 | 3.390% | 5/15/27 | 37,312 | 36,071 | |
| 1 | American Express Credit Account Master Trust Class A Series 2022-3 | 3.750% | 8/15/27 | 34,644 | 33,607 | |
| 1 | AmeriCredit Automobile Receivables Trust Class A2A Series 2022-2 | 4.200% | 12/18/25 | 20,463 | 20,305 | |
| 1 | AmeriCredit Automobile Receivables Trust Class A3 Series 2020-3 | 0.530% | 6/18/25 | 503 | 502 | |
| 1 | AmeriCredit Automobile Receivables Trust Class A3 Series 2021-1 | 0.370% | 8/18/25 | 2,374 | 2,359 | |
| 1 | AmeriCredit Automobile Receivables Trust Class A3 Series 2021-2 | 0.340% | 12/18/26 | 4,486 | 4,386 | |
| 1 | AmeriCredit Automobile Receivables Trust Class A3 Series 2023-1 | 5.620% | 11/18/27 | 11,150 | 11,092 | |
| 1 | AmeriCredit Automobile Receivables Trust Class C Series 2020-2 | 1.480% | 2/18/26 | 2,520 | 2,439 | |
| 1,2 | ARI Fleet Lease Trust Class A2 Series 2021-A | 0.370% | 3/15/30 | 1,728 | 1,712 | |
| 1,2 | ARI Fleet Lease Trust Class A2 Series 2022-A | 3.120% | 1/15/31 | 2,218 | 2,176 | |
| 1,2 | ARI Fleet Lease Trust Class A2 Series 2023-A | 5.410% | 2/17/32 | 9,240 | 9,137 | |
| 1,2 | ARI Fleet Lease Trust Class A3 Series 2022-A | 3.430% | 1/15/31 | 1,950 | 1,865 | |
| 1 | BA Credit Card Trust Class A1 Series 2022-A1 | 3.530% | 11/15/27 | 45,485 | 44,076 | |
| 1 | BA Credit Card Trust Class A2 Series 2022-A2 | 5.000% | 4/15/28 | 11,426 | 11,384 | |
| 1,2 | Bank of America Auto Trust Class A3 Series 2023-1A | 5.530% | 2/15/28 | 17,200 | 17,227 | |
| 1 | BMW Vehicle Lease Trust Class A3 Series 2023-1 | 5.160% | 11/25/25 | 7,750 | 7,704 | |
| 1 | BMW Vehicle Owner Trust Class A3 Series 2023-A | 5.470% | 2/25/28 | 10,030 | 10,083 | |
| 1 | BMW Vehicle Owner Trust Class A4 Series 2020-A | 0.620% | 4/26/27 | 4,230 | 4,125 | |
| 1,2,3 | Brass No. 10 plc Class A1 Series 10A | 0.669% | 4/16/69 | 5,157 | 4,915 | |
| 1 | Capital One Multi-Asset Execution Trust Class A Series 2022-A3 | 4.950% | 10/15/27 | 5,150 | 5,121 | |
| 1 | Capital One Multi-Asset Execution Trust Class A3 Series 2021-A3 | 1.040% | 11/15/26 | 4,900 | 4,634 | |
4
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Capital One Prime Auto Receivables Trust Class A2 Series 2023-1 | 5.200% | 5/15/26 | 22,450 | 22,361 | |
| 1 | Capital One Prime Auto Receivables Trust Class A2a Series 2022-2 | 3.740% | 9/15/25 | 6,923 | 6,867 | |
| 1 | CarMax Auto Owner Trust Class A2 Series 2022-1 | 0.910% | 2/18/25 | 2,373 | 2,366 | |
| 1 | CarMax Auto Owner Trust Class A2A Series 2023-1 | 5.230% | 1/15/26 | 11,420 | 11,383 | |
| 1 | Carmax Auto Owner Trust Class A2A Series 2023-3 | 5.720% | 11/16/26 | 18,680 | 18,661 | |
| 1 | CarMax Auto Owner Trust Class A3 Series 2020-3 | 0.620% | 3/17/25 | 4,625 | 4,592 | |
| 1 | CarMax Auto Owner Trust Class A3 Series 2022-2 | 3.490% | 2/16/27 | 3,680 | 3,589 | |
| 1 | Carmax Auto Owner Trust Class A3 Series 2023-2 | 5.050% | 1/18/28 | 20,260 | 20,103 | |
| 1 | CarMax Auto Owner Trust Class A4 Series 2020-3 | 0.770% | 3/16/26 | 4,660 | 4,513 | |
| 1 | Carvana Auto Receivables Trust Class A3 Series 2022-P1 | 3.350% | 2/10/27 | 5,700 | 5,504 | |
| 1,2 | Chase Auto Owner Trust Class A2 Series 2022-AA | 3.860% | 10/27/25 | 8,204 | 8,146 | |
| 1,2 | Chesapeake Funding II LLC Class A1 Series 2020-1A | 0.870% | 8/15/32 | 3,595 | 3,574 | |
| 1,2 | Chesapeake Funding II LLC Class A1 Series 2023-1A | 5.650% | 5/15/35 | 9,714 | 9,630 | |
| 1,2 | Citizens Auto Receivables Trust Class A3 Series 2023-1 | 5.840% | 1/18/28 | 16,760 | 16,712 | |
| 1 | CNH Equipment Trust Class A2 Series 2021-C | 0.330% | 1/15/25 | 686 | 685 | |
| 1 | CNH Equipment Trust Class A2 Series 2022-B | 3.940% | 12/15/25 | 4,687 | 4,651 | |
| 1 | CNH Equipment Trust Class A2 Series 2022-C | 5.420% | 7/15/26 | 23,624 | 23,558 | |
| 1 | CNH Equipment Trust Class A2 Series 2023-A | 5.340% | 9/15/26 | 4,260 | 4,239 | |
| 1 | CNH Equipment Trust Class A3 Series 2020-A | 1.160% | 6/16/25 | 914 | 904 | |
| 1 | CNH Equipment Trust Class A3 Series 2022-A | 2.940% | 7/15/27 | 11,425 | 10,944 | |
| 1 | CNH Equipment Trust Class A4 Series 2020-A | 1.510% | 4/15/27 | 2,250 | 2,196 | |
| 1 | COMM Mortgage Trust Class A2 Series 2014-CR14 | 3.147% | 2/10/47 | 26 | 26 | |
| 1 | COMM Mortgage Trust Class ASB Series 2014-CCRE16 | 3.653% | 4/10/47 | 522 | 519 | |
| 1 | Daimler Trucks Retail Trust Class A2 Series 2022-1 | 5.070% | 9/16/24 | 6,893 | 6,870 | |
| 1,2 | Dell Equipment Finance Trust Class A2 Series 2022-2 | 4.030% | 7/22/27 | 10,097 | 10,008 | |
| 1,2 | Dell Equipment Finance Trust Class A3 Series 2023-1 | 5.650% | 9/22/28 | 25,160 | 25,214 | |
| 1,2 | Dell Equipment Finance Trust Class A3 Series 2023-2 | 5.650% | 1/22/29 | 4,710 | 4,696 | |
| 1 | Discover Card Execution Note Trust Class A Series 2022-A4 | 5.030% | 10/15/27 | 17,500 | 17,437 | |
| 1 | Discover Card Execution Note Trust Class A3 Series 2022-A3 | 3.560% | 7/15/27 | 23,220 | 22,502 | |
| 1,2 | DLLAA LLC Class A2 Series 2023-1A | 5.930% | 7/20/26 | 7,700 | 7,710 | |
| 1,2 | DLLAD LLC Class A2 Series 2023-1A | 5.190% | 4/20/26 | 8,020 | 7,960 | |
| 1,2 | DLLMT LLC Class A2 Series 2023-1A | 5.780% | 11/20/25 | 15,820 | 15,721 | |
| 1,2 | DLLST LLC Class A3 Series 2022-1A | 3.400% | 1/21/25 | 11,000 | 10,833 | |
| 1,2 | DLLST LLC Class A4 Series 2022-1A | 3.690% | 9/20/28 | 2,810 | 2,715 | |
| 1,2 | Donlen Fleet Lease Funding 2 LLC Class A2 Series 2021-2 | 0.560% | 12/11/34 | 3,765 | 3,668 | |
5
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Drive Auto Receivables Trust Class C Series 2020-2 | 2.280% | 8/17/26 | 153 | 153 | |
| 1 | Drive Auto Receivables Trust Class D Series 2019-4 | 2.700% | 2/16/27 | 1,099 | 1,087 | |
| 1 | Drive Auto Receivables Trust Class D Series 2020-1 | 2.700% | 5/17/27 | 1,517 | 1,487 | |
| 1,2 | DT Auto Owner Trust Class A Series 2021-4 | 0.560% | 9/15/25 | 967 | 963 | |
| 1,2 | DT Auto Owner Trust Class A Series 2022-2A | 2.880% | 6/15/26 | 2,805 | 2,776 | |
| 1,2 | Enterprise Fleet Financing LLC Class A2 Series 2020-2 | 0.610% | 7/20/26 | 3,238 | 3,193 | |
| 1,2 | Enterprise Fleet Financing LLC Class A2 Series 2021-1 | 0.440% | 12/21/26 | 1,931 | 1,896 | |
| 1,2 | Enterprise Fleet Financing LLC Class A2 Series 2021-2 | 0.480% | 5/20/27 | 7,639 | 7,381 | |
| 1,2 | Enterprise Fleet Financing LLC Class A2 Series 2021-3 | 0.770% | 8/20/27 | 6,678 | 6,429 | |
| 1,2 | Enterprise Fleet Financing LLC Class A2 Series 2023-1 | 5.510% | 1/22/29 | 10,000 | 9,908 | |
| 1,2 | Enterprise Fleet Financing LLC Class A2 Series 2023-2 | 5.560% | 4/22/30 | 11,720 | 11,667 | |
| 1 | Exeter Automobile Receivables Trust Class A3 Series 2022-2A | 2.800% | 11/17/25 | 6,608 | 6,582 | |
| 1,2,3,4 | Fannie Mae Connecticut Avenue Securities Class 2M1 Series 2021-R02, SOFR30A + 0.900% | 5.969% | 11/25/41 | 12,692 | 12,658 | |
| 1,2,3,4 | Fannie Mae Connecticut Avenue Securities Trust Class 1M1 Series 2021-R01, SOFR30A + 0.750% | 5.819% | 10/25/41 | 4,743 | 4,726 | |
| 1,2,3,4 | Fannie Mae Connecticut Avenue Securities Trust Class 1M1 Series 2023-R06, SOFR30A + 1.700% | 6.769% | 7/25/43 | 4,030 | 4,040 | |
| 1,2 | Flagship Credit Auto Trust Class A Series 2021-2 | 0.370% | 12/15/26 | 2,141 | 2,125 | |
| 1,2 | Flagship Credit Auto Trust Class A Series 2021-3 | 0.360% | 7/15/27 | 8,969 | 8,755 | |
| 1,2 | Flagship Credit Auto Trust Class A Series 2021-4 | 0.810% | 7/17/26 | 5,941 | 5,798 | |
| 1 | Ford Credit Auto Lease Trust Class A4 Series 2022-A | 3.370% | 7/15/25 | 2,630 | 2,577 | |
| 1 | Ford Credit Auto Lease Trust Class C Series 2022-A | 4.180% | 10/15/25 | 8,350 | 8,106 | |
| 1,2 | Ford Credit Auto Owner Trust Class A Series 2019-1 | 3.520% | 7/15/30 | 30,270 | 29,971 | |
| 1,2 | Ford Credit Auto Owner Trust Class A Series 2020-1 | 2.040% | 8/15/31 | 25,274 | 23,890 | |
| 1 | Ford Credit Auto Owner Trust Class A2A Series 2022-B | 3.440% | 2/15/25 | 9,447 | 9,392 | |
| 1 | Ford Credit Auto Owner Trust Class A2A Series 2022-C | 4.520% | 4/15/25 | 10,548 | 10,505 | |
| 1 | Ford Credit Auto Owner Trust Class A2A Series 2022-D | 5.370% | 8/15/25 | 11,927 | 11,898 | |
| 1 | Ford Credit Auto Owner Trust Class A3 Series 2020-B | 0.560% | 10/15/24 | 548 | 547 | |
| 1 | Ford Credit Auto Owner Trust Class A3 Series 2023-A | 4.650% | 2/15/28 | 9,420 | 9,302 | |
| 1 | Ford Credit Auto Owner Trust Class A3 Series 2023-B | 5.230% | 5/15/28 | 13,290 | 13,228 | |
| 1 | Ford Credit Auto Owner Trust Class A4 Series 2020-A | 1.350% | 7/15/25 | 2,312 | 2,282 | |
| 1 | Ford Credit Floorplan Master Owner Trust A Class C Series 2020-1 | 1.420% | 9/15/25 | 4,790 | 4,764 | |
6
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Ford Credit Floorplan Master Owner Trust Class A Series 2019-4 | 2.440% | 9/15/26 | 2,590 | 2,496 | |
| 1 | Ford Credit Floorplan Master Owner Trust Class A Series 2020-1B | 0.980% | 9/15/25 | 5,200 | 5,170 | |
| 1 | Ford Credit Floorplan Master Owner Trust Class A1 Series 2020-1 | 0.700% | 9/15/25 | 52,100 | 51,814 | |
| 1 | Ford Credit Floorplan Master Owner Trust Class D Series 2020-1 | 2.120% | 9/15/25 | 6,730 | 6,692 | |
| 1,2,3,4 | Freddie Mac STACR REMICS Trust Class M1 Series 2021-DNA6, SOFR30A + 0.800% | 5.869% | 10/25/41 | 13,957 | 13,918 | |
| 1,2 | GLS Auto Receivables Issuer Trust Class A Series 2021-4A | 0.840% | 7/15/25 | 1,657 | 1,652 | |
| 1,2 | GLS Auto Receivables Trust Class A Series 2022-1A | 1.980% | 8/15/25 | 2,667 | 2,650 | |
| 1 | GM Financial Automobile Leasing Trust Class A3 Series 2023-1 | 5.160% | 4/20/26 | 12,500 | 12,427 | |
| 1 | GM Financial Automobile Leasing Trust Class A3 Series 2023-2 | 5.050% | 7/20/26 | 9,320 | 9,246 | |
| 1 | GM Financial Automobile Leasing Trust Class A4 Series 2022-2 | 3.540% | 5/20/26 | 7,470 | 7,302 | |
| 1 | GM Financial Automobile Leasing Trust Class A4 Series 2023-2 | 5.090% | 5/20/27 | 2,600 | 2,572 | |
| 1 | GM Financial Automobile Leasing Trust Class B Series 2022-2 | 4.020% | 5/20/26 | 5,250 | 5,097 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class A2 Series 2022-1 | 0.760% | 2/18/25 | 2,207 | 2,200 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class A2a Series 2022-4 | 4.600% | 11/17/25 | 28,091 | 27,944 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class A2A Series 2023-1 | 5.190% | 3/16/26 | 12,770 | 12,727 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class A3 Series 2020-2 | 1.490% | 12/16/24 | 870 | 866 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class A3 Series 2023-3 | 5.450% | 6/16/28 | 4,770 | 4,782 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class A4 Series 2020-2 | 1.740% | 8/18/25 | 9,000 | 8,854 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class B Series 2020-3 | 0.810% | 1/16/26 | 2,100 | 2,000 | |
| 1 | GM Financial Consumer Automobile Receivables Trust Class C Series 2020-3 | 1.370% | 1/16/26 | 900 | 863 | |
| 1,2 | GMF Floorplan Owner Revolving Trust Class A Series 2020-1 | 0.680% | 8/15/25 | 10,940 | 10,923 | |
| 1,2 | GMF Floorplan Owner Revolving Trust Class A Series 2020-2 | 0.690% | 10/15/25 | 29,460 | 29,180 | |
| 1,2 | GMF Floorplan Owner Revolving Trust Class B Series 2020-1 | 1.030% | 8/15/25 | 1,670 | 1,667 | |
| 1,2 | GMF Floorplan Owner Revolving Trust Class C Series 2020-1 | 1.480% | 8/15/25 | 1,360 | 1,357 | |
| 1 | Harley-Davidson Motorcycle Trust Class A2A Series 2023-A | 5.320% | 6/15/26 | 9,750 | 9,703 | |
| 1 | Harley-Davidson Motorcycle Trust Class A3 Series 2021-A | 0.370% | 4/15/26 | 3,624 | 3,546 | |
| 1 | Harley-Davidson Motorcycle Trust Class A3 Series 2022-A | 3.060% | 2/15/27 | 5,660 | 5,520 | |
| 1 | Hershey Co. | 4.930% | 11/15/27 | 9,880 | 9,784 | |
| 1,2 | Hertz Vehicle Financing III LLC Class A Series 2022-3A | 3.370% | 3/25/25 | 14,780 | 14,615 | |
| 1,2 | Hertz Vehicle Financing III LLC Class C Series 2022-3A | 4.350% | 3/25/25 | 2,760 | 2,724 | |
7
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Honda Auto Receivables Owner Trust Class A2 Series 2022-2 | 3.810% | 3/18/25 | 6,914 | 6,869 | |
| 1 | Honda Auto Receivables Owner Trust Class A3 Series 2023-1 | 5.040% | 4/21/27 | 12,250 | 12,182 | |
| 1 | Honda Auto Receivables Owner Trust Class A4 Series 2020-2 | 1.090% | 10/15/26 | 4,730 | 4,689 | |
| 1 | Honda Auto Receivables Owner Trust Class A4 Series 2020-3 | 0.460% | 4/19/27 | 10,740 | 10,485 | |
| 1,2 | HPEFS Equipment Trust Class A2 Series 2022-1A | 1.020% | 5/21/29 | 2,653 | 2,642 | |
| 1,2 | HPEFS Equipment Trust Class A3 Series 2021-2A | 0.360% | 9/20/28 | 3,064 | 3,048 | |
| 1,2 | Hyundai Auto Lease Securitization Trust Class A3 Series 2021-B | 0.330% | 6/17/24 | 726 | 725 | |
| 1,2 | Hyundai Auto Lease Securitization Trust Class A3 Series 2023-B | 5.150% | 6/15/26 | 14,720 | 14,615 | |
| 1,2 | Hyundai Auto Lease Securitization Trust Class A4 Series 2022-B | 3.500% | 4/15/26 | 22,270 | 21,737 | |
| 1,2 | Hyundai Auto Lease Securitization Trust Class A4 Series 2022-C | 4.480% | 8/17/26 | 16,042 | 15,791 | |
| 1,2 | Hyundai Auto Lease Securitization Trust Class A4 Series 2023-B | 5.170% | 4/15/27 | 10,460 | 10,297 | |
| 1 | Hyundai Auto Receivables Trust Class A2 Series 2022-B | 3.640% | 5/15/25 | 7,312 | 7,262 | |
| 1 | Hyundai Auto Receivables Trust Class A2A Series 2020-C | 5.350% | 11/17/25 | 23,984 | 23,907 | |
| 1 | Hyundai Auto Receivables Trust Class A3 Series 2020-B | 0.480% | 12/16/24 | 953 | 950 | |
| 1 | Hyundai Auto Receivables Trust Class A3 Series 2023-A | 4.580% | 4/15/27 | 4,900 | 4,832 | |
| 1 | Hyundai Auto Receivables Trust Class A3 Series 2023-B | 5.480% | 4/17/28 | 9,040 | 9,060 | |
| 1 | Hyundai Auto Receivables Trust Class A4 Series 2019-B | 2.000% | 4/15/25 | 565 | 564 | |
| 1 | Hyundai Auto Receivables Trust Class A4 Series 2020-A | 1.720% | 6/15/26 | 9,260 | 9,063 | |
| 1 | Hyundai Auto Receivables Trust Class A4 Series 2020-B | 0.620% | 12/15/25 | 8,020 | 7,851 | |
| 1 | John Deere Owner Trust Class A2 Series 2022-B | 3.730% | 6/16/25 | 8,255 | 8,197 | |
| 1 | John Deere Owner Trust Class A2 Series 2023-A | 5.280% | 3/16/26 | 21,250 | 21,160 | |
| 1 | John Deere Owner Trust Class A2 Series 2023-B | 5.590% | 6/15/26 | 7,460 | 7,452 | |
| 1 | John Deere Owner Trust Class A3 Series 2020-B | 0.510% | 11/15/24 | 1,021 | 1,014 | |
| 1 | John Deere Owner Trust Class A3 Series 2023-A | 5.010% | 11/15/27 | 12,750 | 12,637 | |
| 1 | John Deere Owner Trust Class A4 Series 2020-B | 0.720% | 6/15/27 | 3,820 | 3,737 | |
| 1,2 | JPMorgan Chase Bank NA - CACLN Class B Series 2021-1 | 0.875% | 9/25/28 | 5,138 | 4,979 | |
| 1,2 | JPMorgan Chase Bank NA - CACLN Class B Series 2021-2 | 0.889% | 12/26/28 | 3,288 | 3,180 | |
| 1,2 | JPMorgan Chase Bank NA - CACLN Class B Series 2021-3 | 0.760% | 2/26/29 | 7,476 | 7,134 | |
| 1,2 | JPMorgan Chase Bank NA - CACLN Class C Series 2020-2 | 1.139% | 2/25/28 | 300 | 296 | |
| 1,2 | JPMorgan Chase Bank NA - CACLN Class C Series 2021-1 | 1.024% | 9/25/28 | 3,186 | 3,084 | |
| 1,2 | JPMorgan Chase Bank NA Class B Series 2020-1 | 0.991% | 1/25/28 | 529 | 526 | |
| 1,2 | JPMorgan Chase Bank NA Class C Series 2020-1 | 1.389% | 1/25/28 | 55 | 55 | |
| 1,2 | JPMorgan Chase Bank NA Class D Series 2020-1 | 1.886% | 1/25/28 | 43 | 43 | |
| 1,2 | Kubota Credit Owner Trust Class A2 Series 2022-2A | 4.070% | 6/17/25 | 12,790 | 12,683 | |
8
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1,2 | Kubota Credit Owner Trust Class A2 Series 2023-1A | 5.400% | 2/17/26 | 8,700 | 8,607 | |
| 1,2 | Kubota Credit Owner Trust Class A2 Series 2023-2A | 5.610% | 7/15/26 | 13,190 | 13,172 | |
| 1,2 | Kubota Credit Owner Trust Class A3 Series 2020-2 | 0.590% | 10/15/24 | 4,006 | 3,963 | |
| 1,2 | Kubota Credit Owner Trust Class A4 Series 2020-2 | 0.730% | 6/15/26 | 4,810 | 4,661 | |
| 1 | Mercedes-Benz Auto Lease Trust Class A3 2023-A | 4.740% | 1/15/27 | 32,340 | 31,958 | |
| 1 | Mercedes-Benz Auto Lease Trust Class A3 Series 2021-B | 0.400% | 11/15/24 | 11,507 | 11,359 | |
| 1 | Mercedes-Benz Auto Receivables Trust Class A2 Series 2022-1 | 5.260% | 10/15/25 | 30,896 | 30,835 | |
| 1 | Mercedes-Benz Auto Receivables Trust Class A2 Series 2023-1 | 5.090% | 1/15/26 | 13,331 | 13,283 | |
| 1,2 | MMAF Equipment Finance LLC Class A2 Series 2020-A | 0.740% | 4/9/24 | 18 | 18 | |
| 1 | Nissan Auto Lease Trust Class A3 Series 2023-B | 5.690% | 7/15/26 | 5,540 | 5,550 | |
| 1 | Nissan Auto Receivables Owner Trust Class A2 Series 2022-B | 4.500% | 8/15/25 | 15,149 | 15,064 | |
| 1 | Nissan Auto Receivables Owner Trust Class A3 Series 2020-A | 1.380% | 12/16/24 | 2,188 | 2,176 | |
| 1 | Nissan Auto Receivables Owner Trust Class A3 Series 2023-A | 4.910% | 11/15/27 | 27,790 | 27,572 | |
| 1 | Nissan Auto Receivables Owner Trust Class A4 Series 2020-A | 1.700% | 5/17/27 | 6,830 | 6,624 | |
| 1 | Nissan Auto Receivables Owner Trust Class A4 Series 2020-B | 0.710% | 2/16/27 | 6,296 | 6,203 | |
| 1,2,3 | Pepper Residential Securities Trust No. 22 Class A1U Series 22A, SOFR + 1.114% | 6.319% | 6/20/60 | 513 | 513 | |
| 1,2,3 | Pepper Residential Securities Trust No. 24 Class A1U Series 24A, SOFR + 1.014% | 6.199% | 11/18/60 | 621 | 620 | |
| 1,2 | Porsche Financial Auto Securitization Trust Class A3 Series 2023-1A | 4.810% | 9/22/28 | 11,900 | 11,788 | |
| 1,2,3 | RESIMAC Bastille Trust Class A1B Series 2021-2NCA, SOFR + 0.740% | 5.808% | 2/3/53 | 7,857 | 7,778 | |
| 1,2 | RESIMAC Premier Class A1B Series 2020-1 | 1.274% | 2/7/52 | 1,112 | 1,112 | |
| 1,2 | Santander Bank NA - SBCLN Class B Series 2021-1A | 1.833% | 12/15/31 | 5,447 | 5,256 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2022-2 | 2.980% | 10/15/26 | 5,664 | 5,599 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2022-3 | 3.400% | 12/15/26 | 812 | 802 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2022-4 | 4.140% | 2/16/27 | 19,480 | 19,245 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2022-5 | 4.110% | 8/17/26 | 9,780 | 9,697 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2022-6 | 4.490% | 11/16/26 | 1,440 | 1,427 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2023-1 | 4.880% | 4/15/27 | 15,610 | 15,435 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2023-2 | 5.210% | 7/15/27 | 12,910 | 12,758 | |
| 1 | Santander Drive Auto Receivables Trust Class A3 Series 2023-3 | 5.610% | 10/15/27 | 8,270 | 8,250 | |
| 1 | Santander Drive Auto Receivables Trust Class B Series 2022-2 | 3.440% | 9/15/27 | 10,000 | 9,704 | |
9
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Santander Drive Auto Receivables Trust Class C Series 2021-1 | 0.750% | 2/17/26 | 1,646 | 1,637 | |
| 1,2 | Santander Retail Auto Lease Trust Class A3 Series 2021-B | 0.510% | 8/20/24 | 12,487 | 12,341 | |
| 1,2 | Santander Retail Auto Lease Trust Class A3 Series 2021-C | 0.500% | 3/20/25 | 6,907 | 6,842 | |
| 1,2 | Santander Retail Auto Lease Trust Class A4 Series 2020-B | 0.650% | 12/20/24 | 9,950 | 9,888 | |
| 1,2 | Santander Retail Auto Lease Trust Class A4 Series 2022-B | 3.330% | 10/20/26 | 4,050 | 3,910 | |
| 1,2 | Santander Retail Auto Lease Trust Class B Series 2022-B | 3.850% | 3/22/27 | 4,790 | 4,621 | |
| 1,2 | SFS Auto Receivables Securitization Trust Class A2A Series 2023-1A | 5.890% | 3/22/27 | 9,850 | 9,836 | |
| 1,2 | Tesla Auto Lease Trust Class A2 Series 2021-B | 0.360% | 9/22/25 | 4,850 | 4,808 | |
| 1,2 | Tesla Auto Lease Trust Class A3 Series 2023-A | 5.889% | 6/22/26 | 18,980 | 18,952 | |
| 1,2 | Tesla Auto Lease Trust Class A4 Series 2023-A | 5.940% | 7/20/27 | 4,750 | 4,749 | |
| 1 | Toyota Auto Receivables Owner Trust Class A2 Series 2023-A | 5.050% | 1/15/26 | 12,000 | 11,951 | |
| 1 | Toyota Auto Receivables Owner Trust Class A2A Series 2022-C | 3.830% | 8/15/25 | 10,087 | 10,005 | |
| 1 | Toyota Auto Receivables Owner Trust Class A2A Series 2022-D | 5.270% | 1/15/26 | 15,235 | 15,185 | |
| 1 | Toyota Auto Receivables Owner Trust Class A3 Series 2023-B | 4.710% | 2/15/28 | 11,900 | 11,778 | |
| 1 | Toyota Auto Receivables Owner Trust Class A4 Series 2020-B | 1.660% | 9/15/25 | 4,460 | 4,382 | |
| 1 | Toyota Auto Receivables Owner Trust Class A4 Series 2020-C | 0.570% | 10/15/25 | 7,530 | 7,320 | |
| 1,2 | Toyota Lease Owner Trust Crass A3 Series 2023-A | 4.930% | 4/20/26 | 22,000 | 21,808 | |
| 1,2 | USAA Auto Owner Trust Class A2 Series 2022-A | 4.600% | 2/18/25 | 17,780 | 17,736 | |
| 1 | Verizon Master Trust Class A Series 2021-2 | 0.990% | 4/20/28 | 17,470 | 16,516 | |
| 1 | Verizon Master Trust Class A Series 2022-6 | 3.670% | 1/22/29 | 16,180 | 15,658 | |
| 1 | Verizon Master Trust Class A Series 2023-2 | 4.890% | 4/13/28 | 19,120 | 18,951 | |
| 1 | Verizon Master Trust Class A1A Series 2022-5 | 3.720% | 7/20/27 | 4,010 | 3,973 | |
| 1 | Verizon Owner Trust Class B Series 2020-B | 0.680% | 2/20/25 | 13,620 | 13,467 | |
| 1 | Verizon Owner Trust Class C Series 2020-B | 0.830% | 2/20/25 | 21,010 | 20,760 | |
| 1 | Volkswagen Auto Lease Trust Class A2 Series 2022-A | 3.020% | 10/21/24 | 8,926 | 8,873 | |
| 1 | Volkswagen Auto Loan Enhanced Trust Class A2A Series 2023-1 | 5.500% | 12/21/26 | 19,250 | 19,189 | |
| 1 | Volkswagen Auto Loan Enhanced Trust Class A4 Series 2020-1 | 1.260% | 8/20/26 | 3,590 | 3,531 | |
| 1,2 | Volvo Financial Equipment LLC Class A3 Series 2020-1A | 0.510% | 10/15/24 | 3,779 | 3,753 | |
| 1,2 | Volvo Financial Equipment LLC Class A4 Series 2020-1A | 0.600% | 3/15/28 | 4,700 | 4,538 | |
| 1,2 | Westlake Automobile Receivables Trust Class A3 Series 2021-3A | 0.950% | 6/16/25 | 19,983 | 19,853 | |
| 1,2 | Westlake Automobile Receivables Trust Class A3 Series 2022-1A | 2.420% | 7/15/25 | 28,100 | 27,765 | |
| 1,2 | Wheels Fleet Lease Funding 1 LLC Class A Series 2022-1A | 2.470% | 10/18/36 | 2,458 | 2,402 | |
| 1,2 | Wheels SPV 2 LLC Class A3 Series 2020-1A | 0.620% | 8/20/29 | 3,108 | 3,041 | |
| 1 | World Omni Auto Receivables Trust Ciass A3 Series 2023-B | 4.660% | 5/15/28 | 9,200 | 9,080 | |
10
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | World Omni Auto Receivables Trust Class A2 Series 2022-C | 3.730% | 3/16/26 | 5,988 | 5,924 | |
| 1 | World Omni Auto Receivables Trust Class A2A Series 2022-D | 5.510% | 3/16/26 | 28,484 | 28,455 | |
| 1 | World Omni Auto Receivables Trust Class A2A Series 2023-A | 5.180% | 7/15/26 | 11,780 | 11,735 | |
| 1 | World Omni Auto Receivables Trust Class A3 Series 2020-A | 1.100% | 4/15/25 | 118 | 118 | |
| 1 | World Omni Automobile Lease Securitization Class A3 Series 2023-A | 5.070% | 9/15/26 | 13,270 | 13,160 | |
| 1 | World Omni Automobile Lease Securitization Trust Class A4 Series 2022-A | 3.340% | 6/15/27 | 1,200 | 1,171 | |
| 1 | World Omni Automobile Lease Securitization Trust Class A4 Series 2023-A | 5.040% | 7/17/28 | 10,150 | 10,070 | |
| 1 | World Omni Automobile Lease Securitization Trust Class B Series 2022-A | 3.670% | 6/15/27 | 3,890 | 3,772 | |
| Total Asset-Backed/Commercial Mortgage-Backed Securities (Cost $2,100,401) | 2,082,748 | |||||
| Corporate Bonds (70.7%) | ||||||
| Communications (3.8%) | ||||||
| British Telecommunications plc | 4.500% | 12/4/23 | 8,059 | 8,011 | ||
| Charter Communications Operating LLC / Charter Communications Operating Capital | 4.908% | 7/23/25 | 62,520 | 61,542 | ||
| Discovery Communications LLC | 3.800% | 3/13/24 | 8,000 | 7,890 | ||
| Fox Corp. | 4.030% | 1/25/24 | 68,452 | 67,781 | ||
| 2 | Netflix Inc. | 3.625% | 6/15/25 | 14,643 | 14,160 | |
| 2 | NTT Finance Corp. | 0.583% | 3/1/24 | 83,588 | 81,043 | |
| Omnicom Group Inc. / Omnicom Capital Inc. | 3.650% | 11/1/24 | 7,200 | 7,040 | ||
| Sprint Corp. | 7.625% | 2/15/25 | 9,425 | 9,640 | ||
| Sprint LLC | 7.875% | 9/15/23 | 52,105 | 52,206 | ||
| Take-Two Interactive Software Inc. | 3.300% | 3/28/24 | 1,632 | 1,604 | ||
| Take-Two Interactive Software Inc. | 3.550% | 4/14/25 | 19,050 | 18,399 | ||
| Verizon Communications Inc. | 0.750% | 3/22/24 | 3,521 | 3,406 | ||
| Vodafone Group plc | 3.750% | 1/16/24 | 68,869 | 68,207 | ||
| Walt Disney Co. | 3.700% | 9/15/24 | 8,130 | 7,975 | ||
| Warnermedia Holdings Inc. | 3.428% | 3/15/24 | 37,540 | 36,970 | ||
| Warnermedia Holdings Inc. | 3.638% | 3/15/25 | 26,509 | 25,636 | ||
| 471,510 | ||||||
| Consumer Discretionary (5.8%) | ||||||
| Amazon.com Inc. | 2.800% | 8/22/24 | 10,400 | 10,123 | ||
| 5 | Amazon.com Inc. | 4.700% | 11/29/24 | 70,000 | 69,589 | |
| American Honda Finance Corp. | 2.900% | 2/16/24 | 2,697 | 2,656 | ||
| American Honda Finance Corp. | 4.600% | 4/17/25 | 110,000 | 109,054 | ||
| American Honda Finance Corp. | 5.000% | 5/23/25 | 43,000 | 42,784 | ||
| AutoZone Inc. | 3.250% | 4/15/25 | 2,610 | 2,512 | ||
| 2 | BMW US Capital LLC | 3.900% | 4/9/25 | 35,000 | 34,214 | |
| 2 | ERAC USA Finance LLC | 2.700% | 11/1/23 | 83,131 | 82,439 | |
| General Motors Co. | 6.125% | 10/1/25 | 14,090 | 14,245 | ||
| General Motors Financial Co. Inc. | 5.100% | 1/17/24 | 1,526 | 1,521 | ||
| General Motors Financial Co. Inc. | 2.900% | 2/26/25 | 23,041 | 22,043 | ||
| General Motors Financial Co. Inc. | 3.800% | 4/7/25 | 35,920 | 34,870 | ||
| Lennar Corp. | 4.875% | 12/15/23 | 8,327 | 8,295 | ||
| 2 | Mercedes-Benz Finance North America LLC | 3.650% | 2/22/24 | 23,810 | 23,515 | |
| 2 | Mercedes-Benz Finance North America LLC | 4.950% | 3/30/25 | 26,710 | 26,543 | |
| 2 | Mercedes-Benz Finance North America LLC | 5.375% | 8/1/25 | 46,665 | 46,572 | |
| Toyota Motor Credit Corp. | 2.500% | 3/22/24 | 46,595 | 45,638 | ||
11
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Toyota Motor Credit Corp. | 4.400% | 9/20/24 | 30,228 | 29,899 | ||
| Toyota Motor Credit Corp. | 4.800% | 1/10/25 | 12,115 | 12,049 | ||
| 2 | Volkswagen Group of America Finance LLC | 0.875% | 11/22/23 | 92,478 | 91,077 | |
| 709,638 | ||||||
| Consumer Staples (5.3%) | ||||||
| 2 | 7-Eleven Inc. | 0.800% | 2/10/24 | 73,354 | 71,301 | |
| Altria Group Inc. | 4.000% | 1/31/24 | 67,408 | 66,697 | ||
| Altria Group Inc. | 3.800% | 2/14/24 | 1,623 | 1,603 | ||
| BAT Capital Corp. | 3.222% | 8/15/24 | 7,800 | 7,590 | ||
| BAT Capital Corp. | 2.789% | 9/6/24 | 3,577 | 3,458 | ||
| 2 | BAT International Finance plc | 3.950% | 6/15/25 | 30,137 | 29,219 | |
| Coca-Cola Co. | 1.750% | 9/6/24 | 17,370 | 16,744 | ||
| Conagra Brands Inc. | 0.500% | 8/11/23 | 17,500 | 17,476 | ||
| Constellation Brands Inc. | 3.600% | 5/9/24 | 14,000 | 13,758 | ||
| Costco Wholesale Corp. | 2.750% | 5/18/24 | 20,178 | 19,746 | ||
| 2 | Danone SA | 2.589% | 11/2/23 | 30,000 | 29,745 | |
| Diageo Capital plc | 2.125% | 10/24/24 | 7,700 | 7,395 | ||
| Haleon UK Capital plc | 3.125% | 3/24/25 | 4,250 | 4,083 | ||
| Haleon US Capital LLC | 3.024% | 3/24/24 | 22,450 | 22,007 | ||
| Hershey Co. | 2.050% | 11/15/24 | 11,539 | 11,099 | ||
| 2 | Kenvue Inc. | 5.500% | 3/22/25 | 38,290 | 38,472 | |
| Keurig Dr Pepper Inc. | 3.130% | 12/15/23 | 11,200 | 11,103 | ||
| Keurig Dr Pepper Inc. | 0.750% | 3/15/24 | 59,858 | 58,031 | ||
| 2 | Mars Inc. | 2.700% | 4/1/25 | 8,730 | 8,360 | |
| Mondelez International Inc. | 2.125% | 3/17/24 | 8,475 | 8,284 | ||
| Mondelez International Inc. | 1.500% | 5/4/25 | 12,544 | 11,735 | ||
| PepsiCo Inc. | 3.500% | 7/17/25 | 50,515 | 49,093 | ||
| Philip Morris International Inc. | 2.875% | 5/1/24 | 1,281 | 1,255 | ||
| Philip Morris International Inc. | 5.125% | 11/15/24 | 95,809 | 95,499 | ||
| Philip Morris International Inc. | 5.000% | 11/17/25 | 11,400 | 11,376 | ||
| Reynolds American Inc. | 4.850% | 9/15/23 | 2,837 | 2,832 | ||
| Reynolds American Inc. | 4.450% | 6/12/25 | 1,000 | 980 | ||
| Unilever Capital Corp. | 2.600% | 5/5/24 | 13,600 | 13,295 | ||
| Walmart Inc. | 2.850% | 7/8/24 | 24,791 | 24,209 | ||
| 656,445 | ||||||
| Energy (3.8%) | ||||||
| Baker Hughes Holdings LLC / Baker Hughes Co-Obligor Inc. | 1.231% | 12/15/23 | 10,227 | 10,059 | ||
| Canadian Natural Resources Ltd. | 3.800% | 4/15/24 | 4,100 | 4,038 | ||
| Cheniere Corpus Christi Holdings LLC | 5.875% | 3/31/25 | 8,120 | 8,122 | ||
| Enbridge Inc. | 4.000% | 10/1/23 | 4,232 | 4,214 | ||
| Enbridge Inc. | 0.550% | 10/4/23 | 40,528 | 40,150 | ||
| Energy Transfer LP | 4.200% | 9/15/23 | 23,114 | 23,058 | ||
| Energy Transfer LP | 5.875% | 1/15/24 | 31,556 | 31,525 | ||
| Energy Transfer LP | 4.900% | 2/1/24 | 8,314 | 8,258 | ||
| Energy Transfer LP | 4.500% | 4/15/24 | 1,149 | 1,138 | ||
| Energy Transfer LP | 3.900% | 5/15/24 | 3,000 | 2,948 | ||
| Energy Transfer LP | 4.050% | 3/15/25 | 5,000 | 4,876 | ||
| EOG Resources Inc. | 3.150% | 4/1/25 | 2,400 | 2,321 | ||
| Equinor ASA | 2.650% | 1/15/24 | 11,544 | 11,388 | ||
| Equinor ASA | 3.250% | 11/10/24 | 8,000 | 7,784 | ||
| Exxon Mobil Corp. | 2.019% | 8/16/24 | 7,983 | 7,708 | ||
| Kinder Morgan Energy Partners LP | 4.150% | 2/1/24 | 11,031 | 10,932 | ||
| Kinder Morgan Energy Partners LP | 4.300% | 5/1/24 | 8,460 | 8,358 | ||
| 2 | Kinder Morgan Inc. | 5.625% | 11/15/23 | 18,337 | 18,314 | |
12
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Kinder Morgan Inc. | 4.300% | 6/1/25 | 7,001 | 6,852 | ||
| Marathon Petroleum Corp. | 4.700% | 5/1/25 | 11,010 | 10,874 | ||
| MPLX LP | 4.875% | 6/1/25 | 40,052 | 39,521 | ||
| Ovintiv Inc. | 5.650% | 5/15/25 | 16,715 | 16,692 | ||
| Phillips 66 | 0.900% | 2/15/24 | 34,862 | 33,939 | ||
| Plains All American Pipeline LP / PAA Finance Corp. | 4.650% | 10/15/25 | 38,420 | 37,511 | ||
| Sabine Pass Liquefaction LLC | 5.750% | 5/15/24 | 70 | 70 | ||
| Sabine Pass Liquefaction LLC | 5.625% | 3/1/25 | 2,046 | 2,042 | ||
| Saudi Arabian Oil Co. | 1.250% | 11/24/23 | 966 | 952 | ||
| Shell International Finance BV | 2.000% | 11/7/24 | 11,823 | 11,351 | ||
| Spectra Energy Partners LP | 4.750% | 3/15/24 | 1,129 | 1,121 | ||
| TotalEnergies Capital International SA | 3.700% | 1/15/24 | 2,144 | 2,125 | ||
| TransCanada PipeLines Ltd. | 3.750% | 10/16/23 | 12,021 | 11,968 | ||
| TransCanada PipeLines Ltd. | 1.000% | 10/12/24 | 8,747 | 8,274 | ||
| Western Midstream Operating LP | 3.100% | 2/1/25 | 11,950 | 11,432 | ||
| Western Midstream Operating LP | 3.950% | 6/1/25 | 1,775 | 1,714 | ||
| Williams Cos. Inc. | 4.500% | 11/15/23 | 30,204 | 30,079 | ||
| Williams Cos. Inc. | 4.300% | 3/4/24 | 24,974 | 24,730 | ||
| Williams Cos. Inc. | 3.900% | 1/15/25 | 6,190 | 6,040 | ||
| 462,478 | ||||||
| Financials (30.4%) | ||||||
| AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 4.500% | 9/15/23 | 5,788 | 5,776 | ||
| AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 4.875% | 1/16/24 | 2,400 | 2,386 | ||
| AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 6.500% | 7/15/25 | 14,686 | 14,803 | ||
| 3 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust, SOFR + 0.680% | 5.936% | 9/29/23 | 37,100 | 37,072 | |
| Affiliated Managers Group Inc. | 4.250% | 2/15/24 | 9,420 | 9,322 | ||
| Air Lease Corp. | 3.000% | 9/15/23 | 4,243 | 4,227 | ||
| Ally Financial Inc. | 1.450% | 10/2/23 | 91,708 | 90,871 | ||
| American Express Co. | 2.500% | 7/30/24 | 42,012 | 40,687 | ||
| American Express Co. | 3.950% | 8/1/25 | 8,500 | 8,254 | ||
| American Express Co. | 4.990% | 5/1/26 | 103,773 | 102,638 | ||
| American International Group Inc. | 2.500% | 6/30/25 | 13,371 | 12,701 | ||
| 2 | ANZ New Zealand International Ltd. | 3.400% | 3/19/24 | 17,345 | 17,071 | |
| Aon plc | 4.000% | 11/27/23 | 37,277 | 37,055 | ||
| 2 | Athene Global Funding | 1.200% | 10/13/23 | 26,054 | 25,761 | |
| 2 | Athene Global Funding | 0.950% | 1/8/24 | 52,152 | 50,909 | |
| 2 | Athene Global Funding | 2.514% | 3/8/24 | 2,250 | 2,191 | |
| 2 | Australia & New Zealand Banking Group Ltd. | 4.829% | 2/3/25 | 25,000 | 24,771 | |
| Australia & New Zealand Banking Group Ltd. | 5.375% | 7/3/25 | 28,240 | 28,264 | ||
| 3,6 | Australia & New Zealand Banking Group Ltd., 3M Australian Bank Bill Rate + 1.030% | 5.080% | 12/6/23 | 10,479 | 7,054 | |
| 3,6 | Australia & New Zealand Banking Group Ltd., 3M Australian Bank Bill Rate + 2.000% | 6.350% | 7/26/29 | 25,894 | 17,511 | |
| Banco Santander SA | 2.706% | 6/27/24 | 50,600 | 49,116 | ||
| Banco Santander SA | 5.742% | 6/30/24 | 20,000 | 19,927 | ||
| Banco Santander SA | 2.746% | 5/28/25 | 11,200 | 10,595 | ||
| Bank of America Corp. | 3.458% | 3/15/25 | 28,149 | 27,697 | ||
| Bank of America Corp. | 3.950% | 4/21/25 | 15,169 | 14,713 | ||
| Bank of America Corp. | 3.093% | 10/1/25 | 3,700 | 3,582 | ||
| Bank of America Corp. | 3.366% | 1/23/26 | 20,000 | 19,302 | ||
| Bank of America Corp. | 2.015% | 2/13/26 | 15,600 | 14,726 | ||
13
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Bank of America Corp. | 3.384% | 4/2/26 | 21,960 | 21,136 | ||
| Bank of America Corp. | 4.827% | 7/22/26 | 16,090 | 15,904 | ||
| Bank of Montreal | 4.250% | 9/14/24 | 20,509 | 20,208 | ||
| Bank of Montreal | 5.200% | 12/12/24 | 22,200 | 22,088 | ||
| Bank of New York Mellon | 5.224% | 11/21/25 | 4,050 | 4,029 | ||
| Bank of New York Mellon | 5.148% | 5/22/26 | 31,600 | 31,512 | ||
| Bank of New York Mellon Corp. | 3.650% | 2/4/24 | 2,040 | 2,016 | ||
| Bank of New York Mellon Corp. | 2.100% | 10/24/24 | 8,308 | 7,980 | ||
| Bank of New York Mellon Corp. | 1.600% | 4/24/25 | 3,340 | 3,135 | ||
| Bank of New York Mellon Corp. | 4.414% | 7/24/26 | 2,440 | 2,396 | ||
| Bank of Nova Scotia | 3.400% | 2/11/24 | 7,143 | 7,051 | ||
| Bank of Nova Scotia | 0.700% | 4/15/24 | 2,200 | 2,123 | ||
| Bank of Nova Scotia | 5.250% | 12/6/24 | 21,828 | 21,725 | ||
| Bank of Nova Scotia | 5.450% | 6/12/25 | 120,500 | 120,165 | ||
| 2 | Banque Federative du Credit Mutuel SA | 0.650% | 2/27/24 | 12,267 | 11,901 | |
| Barclays plc | 2.852% | 5/7/26 | 11,000 | 10,389 | ||
| BlackRock Inc. | 3.500% | 3/18/24 | 7,500 | 7,401 | ||
| 2 | BNP Paribas SA | 3.800% | 1/10/24 | 18,597 | 18,413 | |
| 2 | BPCE SA | 5.700% | 10/22/23 | 12,210 | 12,172 | |
| Canadian Imperial Bank of Commerce | 3.100% | 4/2/24 | 4,521 | 4,436 | ||
| Canadian Imperial Bank of Commerce | 5.144% | 4/28/25 | 82,000 | 81,558 | ||
| Capital One Financial Corp. | 3.900% | 1/29/24 | 2,927 | 2,895 | ||
| Citigroup Inc. | 3.700% | 1/12/26 | 7,870 | 7,566 | ||
| Citigroup Inc. | 2.014% | 1/25/26 | 9,450 | 8,922 | ||
| Citigroup Inc. | 3.290% | 3/17/26 | 19,058 | 18,305 | ||
| Citigroup Inc. | 3.106% | 4/8/26 | 10,212 | 9,778 | ||
| 2 | Cooperatieve Rabobank UA | 2.625% | 7/22/24 | 9,990 | 9,691 | |
| Cooperatieve Rabobank UA | 3.875% | 8/22/24 | 14,065 | 13,813 | ||
| Cooperatieve Rabobank UA | 5.000% | 1/13/25 | 39,700 | 39,450 | ||
| Cooperatieve Rabobank UA | 3.375% | 5/21/25 | 3,515 | 3,390 | ||
| Cooperatieve Rabobank UA | 5.500% | 7/18/25 | 52,360 | 52,470 | ||
| 2 | Corebridge Global Funding | 0.400% | 9/13/23 | 82,858 | 82,167 | |
| 2 | Corebridge Global Funding | 0.450% | 12/8/23 | 15,000 | 14,709 | |
| Credit Suisse AG | 4.750% | 8/9/24 | 9,497 | 9,333 | ||
| Credit Suisse AG | 3.625% | 9/9/24 | 28,880 | 28,022 | ||
| Credit Suisse AG | 2.950% | 4/9/25 | 19,800 | 18,760 | ||
| Discover Bank | 4.200% | 8/8/23 | 41,311 | 41,292 | ||
| 2 | DNB Bank ASA | 2.968% | 3/28/25 | 50,000 | 49,007 | |
| Fifth Third Bancorp | 4.300% | 1/16/24 | 919 | 910 | ||
| 2 | Five Corners Funding Trust | 4.419% | 11/15/23 | 34,381 | 34,200 | |
| Franklin Resources Inc. | 2.850% | 3/30/25 | 4,895 | 4,686 | ||
| 2 | GA Global Funding Trust | 1.250% | 12/8/23 | 912 | 893 | |
| 2 | GA Global Funding Trust | 1.000% | 4/8/24 | 45,015 | 43,211 | |
| Goldman Sachs Group Inc. | 3.625% | 2/20/24 | 10,819 | 10,686 | ||
| Goldman Sachs Group Inc. | 0.925% | 10/21/24 | 54,900 | 54,228 | ||
| Goldman Sachs Group Inc. | 5.700% | 11/1/24 | 40,177 | 40,141 | ||
| HSBC Holdings plc | 0.732% | 8/17/24 | 28,760 | 28,681 | ||
| HSBC Holdings plc | 1.162% | 11/22/24 | 26,200 | 25,752 | ||
| HSBC Holdings plc | 2.999% | 3/10/26 | 31,360 | 29,934 | ||
| HSBC Holdings plc | 1.645% | 4/18/26 | 20,000 | 18,567 | ||
| HSBC Holdings plc | 4.292% | 9/12/26 | 8,650 | 8,357 | ||
| HSBC USA Inc. | 3.750% | 5/24/24 | 2,460 | 2,418 | ||
| HSBC USA Inc. | 5.625% | 3/17/25 | 27,695 | 27,698 | ||
| Huntington Bancshares Inc. | 4.000% | 5/15/25 | 16,995 | 16,384 | ||
| Huntington National Bank | 3.550% | 10/6/23 | 25,260 | 25,099 | ||
14
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Invesco Finance plc | 4.000% | 1/30/24 | 65,350 | 64,688 | ||
| Jackson Financial Inc. | 1.125% | 11/22/23 | 15,474 | 15,229 | ||
| 2 | Jackson National Life Global Funding | 3.250% | 1/30/24 | 982 | 968 | |
| JPMorgan Chase & Co. | 3.875% | 9/10/24 | 1,911 | 1,873 | ||
| JPMorgan Chase & Co. | 4.023% | 12/5/24 | 50,000 | 49,673 | ||
| JPMorgan Chase & Co. | 3.845% | 6/14/25 | 19,462 | 19,103 | ||
| JPMorgan Chase & Co. | 2.595% | 2/24/26 | 1,860 | 1,776 | ||
| JPMorgan Chase & Co. | 2.005% | 3/13/26 | 20,163 | 19,025 | ||
| JPMorgan Chase & Co. | 2.083% | 4/22/26 | 6,484 | 6,104 | ||
| Legg Mason Inc. | 3.950% | 7/15/24 | 10,000 | 9,804 | ||
| Lloyds Banking Group plc | 4.050% | 8/16/23 | 69,479 | 69,416 | ||
| 6 | Lloyds Banking Group plc | 3.900% | 11/23/23 | 8,880 | 5,934 | |
| 2 | Macquarie Group Ltd. | 6.207% | 11/22/24 | 62,000 | 61,998 | |
| Marsh & McLennan Cos. Inc. | 4.050% | 10/15/23 | 5,058 | 5,011 | ||
| Marsh & McLennan Cos. Inc. | 3.875% | 3/15/24 | 22,940 | 22,669 | ||
| Marsh & McLennan Cos. Inc. | 3.500% | 6/3/24 | 24,356 | 23,945 | ||
| 2 | Metropolitan Life Global Funding I | 0.400% | 1/7/24 | 21,712 | 21,223 | |
| 2 | Metropolitan Life Global Funding I | 3.600% | 1/11/24 | 18,956 | 18,774 | |
| Mitsubishi UFJ Financial Group Inc. | 3.407% | 3/7/24 | 6,200 | 6,112 | ||
| Mitsubishi UFJ Financial Group Inc. | 0.848% | 9/15/24 | 10,000 | 9,931 | ||
| Mitsubishi UFJ Financial Group Inc. | 2.193% | 2/25/25 | 8,801 | 8,334 | ||
| Mitsubishi UFJ Financial Group Inc. | 3.777% | 3/2/25 | 13,364 | 12,975 | ||
| Mitsubishi UFJ Financial Group Inc. | 5.719% | 2/20/26 | 55,720 | 55,556 | ||
| Mitsubishi UFJ Financial Group Inc. | 3.837% | 4/17/26 | 225 | 217 | ||
| Mitsubishi UFJ Financial Group Inc. | 5.541% | 4/17/26 | 16,233 | 16,165 | ||
| Mizuho Financial Group Inc. | 2.226% | 5/25/26 | 6,370 | 5,941 | ||
| Morgan Stanley | 2.630% | 2/18/26 | 23,380 | 22,260 | ||
| Morgan Stanley | 2.188% | 4/28/26 | 3,531 | 3,323 | ||
| Morgan Stanley Bank NA | 5.479% | 7/16/25 | 47,610 | 47,696 | ||
| 3 | Morgan Stanley, SOFR + 0.466% | 5.592% | 11/10/23 | 2,918 | 2,917 | |
| Nasdaq Inc. | 5.650% | 6/28/25 | 37,000 | 37,078 | ||
| National Australia Bank Ltd. | 5.200% | 5/13/25 | 58,300 | 58,160 | ||
| National Bank of Canada | 5.250% | 1/17/25 | 36,650 | 36,525 | ||
| 2 | National Securities Clearing Corp. | 5.150% | 5/30/25 | 28,370 | 28,370 | |
| NatWest Group plc | 3.875% | 9/12/23 | 11,111 | 11,080 | ||
| 2 | New York Life Global Funding | 2.900% | 1/17/24 | 437 | 431 | |
| 2 | New York Life Global Funding | 0.550% | 4/26/24 | 350 | 337 | |
| 2 | Nordea Bank Abp | 4.750% | 9/22/25 | 2,691 | 2,641 | |
| ORIX Corp. | 4.050% | 1/16/24 | 2,596 | 2,573 | ||
| ORIX Corp. | 3.250% | 12/4/24 | 1,163 | 1,120 | ||
| 2 | Penske Truck Leasing Co. LP / PTL Finance Corp. | 4.125% | 8/1/23 | 4,472 | 4,472 | |
| 2 | Penske Truck Leasing Co. LP / PTL Finance Corp. | 3.900% | 2/1/24 | 747 | 738 | |
| 2 | Penske Truck Leasing Co. LP / PTL Finance Corp. | 4.000% | 7/15/25 | 11,875 | 11,425 | |
| PNC Bank NA | 3.250% | 6/1/25 | 21,565 | 20,642 | ||
| PNC Financial Services Group Inc. | 3.900% | 4/29/24 | 6,978 | 6,863 | ||
| PNC Financial Services Group Inc. | 2.200% | 11/1/24 | 2,000 | 1,915 | ||
| PNC Financial Services Group Inc. | 5.671% | 10/28/25 | 5,695 | 5,670 | ||
| PNC Financial Services Group Inc. | 5.812% | 6/12/26 | 52,510 | 52,577 | ||
| 2 | Pricoa Global Funding I | 3.450% | 9/1/23 | 10,536 | 10,514 | |
| 2 | Principal Life Global Funding II | 0.500% | 1/8/24 | 33,765 | 32,979 | |
| 2 | Protective Life Global Funding | 0.631% | 10/13/23 | 4,426 | 4,380 | |
| Protective Life Global Funding | 0.631% | 10/13/23 | 12,200 | 12,073 | ||
| 2 | Protective Life Global Funding | 0.473% | 1/12/24 | 11,902 | 11,617 | |
| Reinsurance Group of America Inc. | 4.700% | 9/15/23 | 1,454 | 1,451 | ||
| 2 | Reliance Standard Life Global Funding II | 3.850% | 9/19/23 | 44,405 | 44,217 | |
15
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Royal Bank of Canada | 3.970% | 7/26/24 | 102,133 | 100,390 | ||
| Royal Bank of Canada | 4.950% | 4/25/25 | 46,899 | 46,408 | ||
| 2 | Santander UK plc | 5.000% | 11/7/23 | 11,303 | 11,237 | |
| Santander UK plc | 4.000% | 3/13/24 | 24,100 | 23,802 | ||
| Santander UK plc | 1.089% | 3/15/25 | 5,000 | 4,817 | ||
| State Bank of India | 4.500% | 9/28/23 | 6,550 | 6,542 | ||
| State Street Corp. | 3.300% | 12/16/24 | 2,715 | 2,637 | ||
| State Street Corp. | 2.354% | 11/1/25 | 20,980 | 20,111 | ||
| State Street Corp. | 4.857% | 1/26/26 | 7,610 | 7,520 | ||
| State Street Corp. | 5.104% | 5/18/26 | 120,000 | 119,076 | ||
| Sumitomo Mitsui Banking Corp. | 3.950% | 1/10/24 | 1,910 | 1,893 | ||
| Sumitomo Mitsui Financial Group Inc. | 2.696% | 7/16/24 | 10,755 | 10,440 | ||
| Sumitomo Mitsui Financial Group Inc. | 2.348% | 1/15/25 | 21,102 | 20,094 | ||
| Sumitomo Mitsui Financial Group Inc. | 1.474% | 7/8/25 | 20,315 | 18,747 | ||
| 2 | Sumitomo Mitsui Trust Bank Ltd. | 0.850% | 3/25/24 | 31,878 | 30,837 | |
| Toronto-Dominion Bank | 4.285% | 9/13/24 | 54,323 | 53,511 | ||
| Toronto-Dominion Bank | 3.766% | 6/6/25 | 23,438 | 22,744 | ||
| Toronto-Dominion Bank | 1.150% | 6/12/25 | 11,872 | 10,988 | ||
| Toronto-Dominion Bank | 0.750% | 9/11/25 | 36,240 | 32,922 | ||
| Truist Bank | 1.500% | 3/10/25 | 16,505 | 15,373 | ||
| Truist Financial Corp. | 3.700% | 6/5/25 | 11,930 | 11,502 | ||
| Truist Financial Corp. | 1.200% | 8/5/25 | 780 | 713 | ||
| Truist Financial Corp. | 4.260% | 7/28/26 | 4,579 | 4,435 | ||
| 2 | UBS AG | 0.450% | 2/9/24 | 23,620 | 22,902 | |
| 2 | UBS AG | 1.375% | 1/13/25 | 21,570 | 20,270 | |
| US Bancorp | 3.375% | 2/5/24 | 13,583 | 13,418 | ||
| US Bancorp | 1.450% | 5/12/25 | 6,647 | 6,217 | ||
| US Bancorp | 5.727% | 10/21/26 | 28,000 | 28,102 | ||
| US Bank NA | 2.050% | 1/21/25 | 29,270 | 27,770 | ||
| Wells Fargo & Co. | 3.750% | 1/24/24 | 19,919 | 19,718 | ||
| Wells Fargo & Co. | 3.550% | 9/29/25 | 5,439 | 5,232 | ||
| Wells Fargo & Co. | 2.406% | 10/30/25 | 28,415 | 27,215 | ||
| Wells Fargo & Co. | 3.908% | 4/25/26 | 15,000 | 14,517 | ||
| Wells Fargo & Co. | 2.188% | 4/30/26 | 48,375 | 45,522 | ||
| Wells Fargo & Co. | 4.540% | 8/15/26 | 7,672 | 7,505 | ||
| Willis North America Inc. | 3.600% | 5/15/24 | 10,566 | 10,341 | ||
| 3,742,091 | ||||||
| Health Care (6.5%) | ||||||
| AbbVie Inc. | 2.600% | 11/21/24 | 25,632 | 24,680 | ||
| AbbVie Inc. | 3.600% | 5/14/25 | 7,803 | 7,563 | ||
| Aetna Inc. | 3.500% | 11/15/24 | 976 | 952 | ||
| AmerisourceBergen Corp. | 3.400% | 5/15/24 | 22,674 | 22,248 | ||
| Amgen Inc. | 3.625% | 5/22/24 | 21,412 | 21,051 | ||
| Amgen Inc. | 5.250% | 3/2/25 | 11,945 | 11,913 | ||
| Amgen Inc. | 3.125% | 5/1/25 | 29,803 | 28,642 | ||
| Astrazeneca Finance LLC | 0.700% | 5/28/24 | 22,765 | 21,877 | ||
| Baxter International Inc. | 0.868% | 12/1/23 | 1,567 | 1,541 | ||
| 3 | Baxter International Inc., SOFR + 0.260% | 5.441% | 12/1/23 | 42,000 | 41,902 | |
| 2 | Bayer US Finance II LLC | 3.875% | 12/15/23 | 60,013 | 59,602 | |
| 2 | Bayer US Finance II LLC | 4.250% | 12/15/25 | 15,538 | 15,069 | |
| Becton Dickinson & Co. | 3.363% | 6/6/24 | 6,452 | 6,324 | ||
| Cardinal Health Inc. | 3.079% | 6/15/24 | 16,250 | 15,863 | ||
| Cigna Group | 0.613% | 3/15/24 | 10,215 | 9,886 | ||
| GE HealthCare Technologies Inc. | 5.550% | 11/15/24 | 53,133 | 53,075 | ||
| GE HealthCare Technologies Inc. | 5.600% | 11/15/25 | 4,280 | 4,294 | ||
16
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Gilead Sciences Inc. | 3.700% | 4/1/24 | 1,770 | 1,747 | ||
| GlaxoSmithKline Capital plc | 3.000% | 6/1/24 | 10,672 | 10,448 | ||
| HCA Inc. | 5.375% | 2/1/25 | 28,500 | 28,333 | ||
| Novartis Capital Corp. | 3.400% | 5/6/24 | 9,898 | 9,738 | ||
| Novartis Capital Corp. | 1.750% | 2/14/25 | 7,955 | 7,566 | ||
| Pfizer Investment Enterprises Pte Ltd. | 4.650% | 5/19/25 | 150,000 | 148,705 | ||
| Quest Diagnostics Inc. | 3.500% | 3/30/25 | 48,375 | 46,836 | ||
| Revvity Inc. | 0.550% | 9/15/23 | 67,895 | 67,458 | ||
| Royalty Pharma plc | 0.750% | 9/2/23 | 42,701 | 42,484 | ||
| Stryker Corp. | 0.600% | 12/1/23 | 25,000 | 24,578 | ||
| Stryker Corp. | 1.150% | 6/15/25 | 7,034 | 6,517 | ||
| Takeda Pharmaceutical Co. Ltd. | 4.400% | 11/26/23 | 58,925 | 58,621 | ||
| Thermo Fisher Scientific Inc. | 1.215% | 10/18/24 | 1,364 | 1,295 | ||
| Wyeth LLC | 6.450% | 2/1/24 | 4,863 | 4,878 | ||
| 805,686 | ||||||
| Industrials (4.0%) | ||||||
| 6 | Aurizon Network Pty Ltd. | 4.000% | 6/21/24 | 29,340 | 19,486 | |
| 2 | BAE Systems Holdings Inc. | 3.800% | 10/7/24 | 12,060 | 11,774 | |
| Boeing Co. | 1.433% | 2/4/24 | 3,211 | 3,136 | ||
| Boeing Co. | 4.875% | 5/1/25 | 74,689 | 73,785 | ||
| Burlington Northern Santa Fe LLC | 3.400% | 9/1/24 | 8,130 | 7,955 | ||
| Canadian Pacific Railway Co. | 1.350% | 12/2/24 | 24,420 | 23,074 | ||
| Canadian Pacific Railway Co. | 2.900% | 2/1/25 | 33,100 | 31,863 | ||
| Caterpillar Financial Services Corp. | 0.600% | 9/13/24 | 6,947 | 6,582 | ||
| Caterpillar Financial Services Corp. | 4.900% | 1/17/25 | 19,364 | 19,326 | ||
| Caterpillar Inc. | 3.400% | 5/15/24 | 15,763 | 15,534 | ||
| CNH Industrial Capital LLC | 4.200% | 1/15/24 | 1,981 | 1,964 | ||
| CNH Industrial Capital LLC | 5.450% | 10/14/25 | 10,580 | 10,562 | ||
| CNH Industrial NV | 4.500% | 8/15/23 | 1,414 | 1,413 | ||
| 2 | Daimler Trucks Finance North America LLC | 1.125% | 12/14/23 | 12,235 | 12,013 | |
| 2 | Daimler Trucks Finance North America LLC | 5.200% | 1/17/25 | 25,600 | 25,453 | |
| Honeywell International Inc. | 2.300% | 8/15/24 | 24,000 | 23,253 | ||
| Huntington Ingalls Industries Inc. | 0.670% | 8/16/23 | 30,454 | 30,390 | ||
| John Deere Capital Corp. | 4.550% | 10/11/24 | 7,439 | 7,388 | ||
| John Deere Capital Corp. | 1.250% | 1/10/25 | 11,250 | 10,639 | ||
| John Deere Capital Corp. | 4.950% | 6/6/25 | 14,750 | 14,748 | ||
| Norfolk Southern Corp. | 3.850% | 1/15/24 | 3,104 | 3,072 | ||
| Parker-Hannifin Corp. | 3.650% | 6/15/24 | 12,280 | 12,048 | ||
| RTX Corp. | 3.200% | 3/15/24 | 67,924 | 66,804 | ||
| Ryder System Inc. | 3.875% | 12/1/23 | 19,951 | 19,799 | ||
| Ryder System Inc. | 3.650% | 3/18/24 | 8,616 | 8,498 | ||
| Ryder System Inc. | 2.500% | 9/1/24 | 3,740 | 3,608 | ||
| Ryder System Inc. | 4.625% | 6/1/25 | 9,462 | 9,290 | ||
| Ryder System Inc. | 3.350% | 9/1/25 | 10,709 | 10,240 | ||
| 2 | Siemens Financieringsmaatschappij NV | 3.125% | 3/16/24 | 5,097 | 5,019 | |
| 1,7 | US Airways Series 2001-1C Pass Through Trust | 7.346% | 9/20/23 | 16 | 16 | |
| 488,732 | ||||||
| Materials (2.0%) | ||||||
| Berry Global Inc. | 0.950% | 2/15/24 | 5,500 | 5,347 | ||
| Carlisle Cos. Inc. | 0.550% | 9/1/23 | 25,470 | 25,354 | ||
| Celanese US Holdings LLC | 3.500% | 5/8/24 | 2,930 | 2,869 | ||
| Celanese US Holdings LLC | 5.900% | 7/5/24 | 7,735 | 7,721 | ||
| DuPont de Nemours Inc. | 4.493% | 11/15/25 | 39,419 | 38,703 | ||
| Eastman Chemical Co. | 3.800% | 3/15/25 | 12,068 | 11,733 | ||
| 2 | Georgia-Pacific LLC | 0.625% | 5/15/24 | 11,962 | 11,501 | |
17
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 2 | Georgia-Pacific LLC | 3.600% | 3/1/25 | 9,050 | 8,763 | |
| Indonesia Asahan Aluminium PT / Mineral Industri Indonesia Persero PT | 5.710% | 11/15/23 | 35,874 | 35,836 | ||
| LyondellBasell Industries NV | 5.750% | 4/15/24 | 14,198 | 14,161 | ||
| Mosaic Co. | 4.250% | 11/15/23 | 79,586 | 79,112 | ||
| 241,100 | ||||||
| Real Estate (3.5%) | ||||||
| American Tower Corp. | 0.600% | 1/15/24 | 6,660 | 6,501 | ||
| American Tower Corp. | 5.000% | 2/15/24 | 2,870 | 2,854 | ||
| American Tower Corp. | 2.950% | 1/15/25 | 15,592 | 14,991 | ||
| American Tower Corp. | 4.000% | 6/1/25 | 7,726 | 7,509 | ||
| AvalonBay Communities Inc. | 4.200% | 12/15/23 | 25,272 | 25,103 | ||
| AvalonBay Communities Inc. | 3.450% | 6/1/25 | 4,595 | 4,445 | ||
| Boston Properties LP | 3.125% | 9/1/23 | 68,350 | 68,068 | ||
| Boston Properties LP | 3.800% | 2/1/24 | 7,850 | 7,718 | ||
| ERP Operating LP | 3.375% | 6/1/25 | 6,628 | 6,397 | ||
| Essex Portfolio LP | 3.875% | 5/1/24 | 1,050 | 1,032 | ||
| Essex Portfolio LP | 3.500% | 4/1/25 | 5,681 | 5,489 | ||
| Federal Realty OP LP | 3.950% | 1/15/24 | 45,198 | 44,681 | ||
| 6 | General Property Trust Co. | 3.591% | 11/7/23 | 25,770 | 17,297 | |
| 6 | General Property Trust Co. | 3.673% | 9/19/24 | 2,420 | 1,598 | |
| Healthpeak OP LLC | 4.000% | 6/1/25 | 1,020 | 988 | ||
| Kilroy Realty LP | 3.450% | 12/15/24 | 19,433 | 18,669 | ||
| Mid-America Apartments LP | 4.300% | 10/15/23 | 35,900 | 35,738 | ||
| Mid-America Apartments LP | 4.000% | 11/15/25 | 3,457 | 3,363 | ||
| NNN REIT Inc. | 3.900% | 6/15/24 | 16,746 | 16,414 | ||
| Omega Healthcare Investors Inc. | 4.375% | 8/1/23 | 6,246 | 6,246 | ||
| Realty Income Corp. | 4.600% | 2/6/24 | 40,935 | 40,630 | ||
| Realty Income Corp. | 4.625% | 11/1/25 | 13,903 | 13,705 | ||
| 6 | Shopping Centres Australasia Property Retail Trust | 3.900% | 6/7/24 | 8,560 | 5,682 | |
| Simon Property Group LP | 3.750% | 2/1/24 | 29,723 | 29,412 | ||
| 6 | Stockland Trust Co. | 3.300% | 3/22/24 | 7,780 | 5,165 | |
| Ventas Realty LP | 3.500% | 4/15/24 | 10,040 | 9,850 | ||
| Ventas Realty LP | 3.750% | 5/1/24 | 5,000 | 4,908 | ||
| Welltower OP LLC | 4.500% | 1/15/24 | 29,751 | 29,483 | ||
| Welltower OP LLC | 3.625% | 3/15/24 | 1,495 | 1,471 | ||
| 435,407 | ||||||
| Technology (1.9%) | ||||||
| Apple Inc. | 1.800% | 9/11/24 | 11,976 | 11,564 | ||
| Broadcom Corp. / Broadcom Cayman Finance Ltd. | 3.625% | 1/15/24 | 17,246 | 17,063 | ||
| Broadcom Inc. | 3.625% | 10/15/24 | 36,183 | 35,263 | ||
| Fiserv Inc. | 3.800% | 10/1/23 | 31,592 | 31,447 | ||
| Hewlett Packard Enterprise Co. | 5.900% | 10/1/24 | 64,110 | 64,183 | ||
| HP Inc. | 2.200% | 6/17/25 | 5,100 | 4,804 | ||
| Oracle Corp. | 3.400% | 7/8/24 | 1,622 | 1,588 | ||
| Oracle Corp. | 2.500% | 4/1/25 | 52,576 | 50,143 | ||
| Salesforce Inc. | 0.625% | 7/15/24 | 19,996 | 19,101 | ||
| 235,156 | ||||||
| Utilities (3.7%) | ||||||
| Abu Dhabi National Energy Co. PJSC | 3.875% | 5/6/24 | 10,100 | 9,950 | ||
| American Electric Power Co. Inc. | 5.699% | 8/15/25 | 17,790 | 17,777 | ||
| Appalachian Power Co. | 3.400% | 6/1/25 | 920 | 884 | ||
| 6 | Ausgrid Finance Pty Ltd. | 3.750% | 10/30/24 | 15,700 | 10,368 | |
18
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Berkshire Hathaway Energy Co. | 4.050% | 4/15/25 | 68,123 | 66,708 | ||
| Consolidated Edison Inc. | 0.650% | 12/1/23 | 9,357 | 9,202 | ||
| 6 | DBNGP Finance Co. Pty Ltd. | 4.225% | 5/28/25 | 8,520 | 5,578 | |
| 3 | Dominion Energy Inc., 3M USD LIBOR + 0.530% | 6.082% | 9/15/23 | 6,090 | 6,090 | |
| DTE Electric Co. | 3.650% | 3/15/24 | 20,720 | 20,447 | ||
| DTE Energy Co. | 1.050% | 6/1/25 | 800 | 737 | ||
| Duke Energy Corp. | 3.950% | 10/15/23 | 12,095 | 12,044 | ||
| Duke Energy Corp. | 3.750% | 4/15/24 | 22,900 | 22,585 | ||
| Eastern Energy Gas Holdings LLC | 3.550% | 11/1/23 | 25,493 | 25,327 | ||
| 6 | Energy Partnership Gas Co. Ltd. | 3.642% | 12/11/24 | 12,190 | 7,989 | |
| Eversource Energy | 3.800% | 12/1/23 | 278 | 276 | ||
| 3 | Eversource Energy, SOFR + 0.250% | 5.379% | 8/15/23 | 32,600 | 32,587 | |
| 6 | Network Finance Co. Pty Ltd. | 3.500% | 12/6/24 | 3,990 | 2,625 | |
| NextEra Energy Capital Holdings Inc. | 4.255% | 9/1/24 | 29,862 | 29,414 | ||
| NextEra Energy Capital Holdings Inc. | 6.051% | 3/1/25 | 5,650 | 5,695 | ||
| 3 | NextEra Energy Capital Holdings Inc., SOFR + 0.400% | 5.494% | 11/3/23 | 37,700 | 37,687 | |
| NiSource Inc. | 0.950% | 8/15/25 | 9,498 | 8,702 | ||
| Public Service Enterprise Group Inc. | 0.800% | 8/15/25 | 3,900 | 3,549 | ||
| Southern California Edison Co. | 0.700% | 8/1/23 | 2,150 | 2,150 | ||
| Southern California Edison Co. | 3.500% | 10/1/23 | 38,368 | 38,229 | ||
| Southern Co. | 0.600% | 2/26/24 | 1,296 | 1,258 | ||
| 6 | United Energy Distribution Pty Ltd. | 3.500% | 9/12/23 | 25,140 | 16,861 | |
| 3,6 | Victoria Power Networks Finance Pty Ltd., 3M Australian Bank Bill Rate + 0.500% | 4.416% | 8/23/24 | 11,900 | 7,963 | |
| Virginia Electric and Power Co. | 3.150% | 1/15/26 | 7,680 | 7,322 | ||
| WEC Energy Group Inc. | 0.550% | 9/15/23 | 40,000 | 39,712 | ||
| 449,716 | ||||||
| Total Corporate Bonds (Cost $8,750,705) | 8,697,959 | |||||
| Sovereign Bonds (1.5%) | ||||||
| 8 | Korea Monetary Stabilization Bond | 3.310% | 9/9/23 | 181,000,000 | 141,942 | |
| Republic of Hungary | 5.375% | 3/25/24 | 24,838 | 24,765 | ||
| Republic of Panama | 4.000% | 9/22/24 | 845 | 826 | ||
| Romania | 4.375% | 8/22/23 | 13,860 | 13,840 | ||
| Total Sovereign Bonds (Cost $169,713) | 181,373 | |||||
| Shares | ||||||
| Temporary Cash Investments (10.5%) | ||||||
| Money Market Fund (0.6%) | ||||||
| 9 | Vanguard Market Liquidity Fund | 5.274% | 728,419 | 72,828 | ||
| Maturity Date | Face Amount ($000) | |||||
| Commercial Paper (0.9%) | ||||||
| AT&T Inc. | 5.960% | 2/21/24 | 61,000 | 58,939 | ||
| CDP Financial Inc. | 5.497% | 4/15/24 | 59,730 | 57,303 | ||
| 116,242 | ||||||
19
Ultra-Short-Term Bond Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| U.S. Government and Agency Obligations (9.0%) | ||||||
| United States Treasury Bill | 5.232%–5.413% | 6/13/24 | 212,635 | 203,048 | ||
| United States Treasury Bill | 5.456% | 7/11/24 | 947,000 | 900,625 | ||
| 1,103,673 | ||||||
| Total Temporary Cash Investments (Cost $1,293,147) | 1,292,743 | |||||
| Total Investments (99.6%) (Cost $12,313,966) | 12,254,823 | |||||
| Other Assets and Liabilities—Net (0.4%) | 49,509 | |||||
| Net Assets (100%) | 12,304,332 | |||||
| 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 | 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, 2023, the aggregate value was $2,195,212,000, representing 17.8% of net assets. |
| 3 | 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. |
| 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 | Securities with a value of $5,089,000 have been segregated as initial margin for open futures contracts. |
| 6 | Face amount denominated in Australian dollars. |
| 7 | Security value determined using significant unobservable inputs. |
| 8 | Face amount denominated in Korean won. |
| 9 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 3M—3-month. | |
| DAC—Designated Activity Company. | |
| LIBOR—London Interbank Offered Rate. | |
| REIT—Real Estate Investment Trust. | |
| REMICS—Real Estate Mortgage Investment Conduits. | |
| SOFR—Secured Overnight Financing Rate. | |
| SOFR30A—30 Day Average Secured Overnight Financing Rate. | |
| 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 2023 | 125 | 25,379 | (3) |
20
Ultra-Short-Term Bond Fund
| Futures Contracts (continued) | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Short Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2023 | (818) | (87,379) | 1,224 |
| AUD 3-Year Treasury Bond | September 2023 | (200) | (14,241) | 27 |
| 1,251 | ||||
| 1,248 | ||||
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| Bank of New York | 9/20/23 | AUD | 41,679 | USD | 28,424 | — | (378) |
| State Street Bank & Trust Co. | 9/20/23 | AUD | 1,249 | USD | 849 | — | (8) |
| BNP Paribas | 9/20/23 | USD | 144,595 | AUD | 209,853 | 3,384 | — |
| Bank of New York | 9/20/23 | USD | 13,401 | AUD | 19,457 | 309 | — |
| JPMorgan Chase Bank, N.A. | 9/20/23 | USD | 5,085 | AUD | 7,601 | — | (29) |
| JPMorgan Chase Bank, N.A. | 9/20/23 | USD | 645 | GBP | 502 | — | — |
| JPMorgan Chase Bank, N.A. | 9/20/23 | USD | 142,095 | KRW | 180,000,000 | 466 | — |
| 4,159 | (415) | ||||||
| AUD—Australian dollar. |
| GBP—British pound. |
| KRW—Korean won. |
| USD—U.S. dollar. |
At July 31, 2023, the
counterparties had deposited in segregated accounts securities with a value of $5,508,000 in connection with open forward currency contracts.
See accompanying
Notes, which are an integral part of the Financial Statements.
21
Ultra-Short-Term Bond Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $12,241,139) | 12,181,995 |
| Affiliated Issuers (Cost $72,827) | 72,828 |
| Total Investments in Securities | 12,254,823 |
| Investment in Vanguard | 425 |
| Foreign Currency, at Value (Cost $1,505) | 1,506 |
| Receivables for Investment Securities Sold | 94,049 |
| Receivables for Accrued Income | 78,402 |
| Receivables for Capital Shares Issued | 12,951 |
| Unrealized Appreciation—Forward Currency Contracts | 4,159 |
| Total Assets | 12,446,315 |
| Liabilities | |
| Due to Custodian | 388 |
| Payables for Investment Securities Purchased | 117,207 |
| Payables for Capital Shares Redeemed | 15,500 |
| Payables for Distributions | 7,714 |
| Payables to Vanguard | 560 |
| Variation Margin Payable—Futures Contracts | 199 |
| Unrealized Depreciation—Forward Currency Contracts | 415 |
| Total Liabilities | 141,983 |
| Net Assets | 12,304,332 |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 12,623,313 |
| Total Distributable Earnings (Loss) | (318,981) |
| Net Assets | 12,304,332 |
| Investor Shares—Net Assets | |
| Applicable to 36,111,046 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 357,434 |
| Net Asset Value Per Share—Investor Shares | $9.90 |
| Admiral Shares—Net Assets | |
| Applicable to 603,407,721 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 11,946,898 |
| Net Asset Value Per Share—Admiral Shares | $19.80 |
See accompanying
Notes, which are an integral part of the Financial Statements.
22
Ultra-Short-Term Bond Fund
Statement of Operations
| Six Months Ended July 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 250,162 |
| Total Income | 250,162 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 719 |
| Management and Administrative—Investor Shares | 380 |
| Management and Administrative—Admiral Shares | 5,127 |
| Marketing and Distribution—Investor Shares | 21 |
| Marketing and Distribution—Admiral Shares | 401 |
| Custodian Fees | 49 |
| Shareholders’ Reports—Investor Shares | 9 |
| Shareholders’ Reports—Admiral Shares | 39 |
| Trustees’ Fees and Expenses | 3 |
| Other Expenses | 11 |
| Total Expenses | 6,759 |
| Expenses Paid Indirectly | (46) |
| Net Expenses | 6,713 |
| Net Investment Income | 243,449 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (49,666) |
| Futures Contracts | (617) |
| Forward Currency Contracts | (4,826) |
| Foreign Currencies | 871 |
| Realized Net Gain (Loss) | (54,238) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | 50,914 |
| Futures Contracts | 698 |
| Forward Currency Contracts | 23,484 |
| Foreign Currencies | (405) |
| Change in Unrealized Appreciation (Depreciation) | 74,691 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 263,902 |
| 1 | Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $2,771,000, $16,000, less than $1,000, 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.
23
Ultra-Short-Term Bond Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 243,449 | 249,047 | |
| Realized Net Gain (Loss) | (54,238) | (215,866) | |
| Change in Unrealized Appreciation (Depreciation) | 74,691 | (1,986) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 263,902 | 31,195 | |
| Distributions | |||
| Investor Shares | (7,888) | (7,678) | |
| Admiral Shares | (237,972) | (242,810) | |
| Total Distributions | (245,860) | (250,488) | |
| Capital Share Transactions | |||
| Investor Shares | (146,448) | (167,644) | |
| Admiral Shares | (1,558,996) | (5,774,177) | |
| Net Increase (Decrease) from Capital Share Transactions | (1,705,444) | (5,941,821) | |
| Total Increase (Decrease) | (1,687,402) | (6,161,114) | |
| Net Assets | |||
| Beginning of Period | 13,991,734 | 20,152,848 | |
| End of Period | 12,304,332 | 13,991,734 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
24
Ultra-Short-Term Bond Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $9.89 | $9.99 | $10.08 | $10.04 | $9.98 | $9.97 |
| Investment Operations | ||||||
| Net Investment Income1 | .177 | .141 | .047 | .127 | .252 | .227 |
| Net Realized and Unrealized Gain (Loss) on Investments | .017 | (.093) | (.086) | .053 | .065 | .003 |
| Total from Investment Operations | .194 | .048 | (.039) | .180 | .317 | .230 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.184) | (.148) | (.050) | (.140) | (.257) | (.220) |
| Distributions from Realized Capital Gains | — | — | (.001) | — | — | — |
| Total Distributions | (.184) | (.148) | (.051) | (.140) | (.257) | (.220) |
| Net Asset Value, End of Period | $9.90 | $9.89 | $9.99 | $10.08 | $10.04 | $9.98 |
| Total Return2 | 1.98% | 0.49% | -0.39% | 1.81% | 3.21% | 2.34% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $357 | $503 | $677 | $728 | $471 | $309 |
| Ratio of Total Expenses to Average Net Assets | 0.20%3 | 0.20%3 | 0.20% | 0.20% | 0.20% | 0.20% |
| Ratio of Net Investment Income to Average Net Assets | 3.61% | 1.42% | 0.47% | 1.27% | 2.53% | 2.28% |
| Portfolio Turnover Rate | 42% | 61% | 57%4 | 60%4 | 70% | 61% |
| 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% attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
25
Ultra-Short-Term Bond Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $19.78 | $19.99 | $20.15 | $20.08 | $19.96 | $19.94 |
| Investment Operations | ||||||
| Net Investment Income1 | .369 | .294 | .113 | .263 | .527 | .473 |
| Net Realized and Unrealized Gain (Loss) on Investments | .029 | (.188) | (.152) | .107 | .126 | .008 |
| Total from Investment Operations | .398 | .106 | (.039) | .370 | .653 | .481 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.378) | (.316) | (.119) | (.300) | (.533) | (.461) |
| Distributions from Realized Capital Gains | — | — | (.002) | — | — | — |
| Total Distributions | (.378) | (.316) | (.121) | (.300) | (.533) | (.461) |
| Net Asset Value, End of Period | $19.80 | $19.78 | $19.99 | $20.15 | $20.08 | $19.96 |
| Total Return2 | 2.03% | 0.54% | -0.20% | 1.86% | 3.31% | 2.44% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $11,947 | $13,489 | $19,476 | $16,060 | $6,443 | $5,244 |
| Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.10%3 | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.75% | 1.49% | 0.56% | 1.31% | 2.63% | 2.38% |
| Portfolio Turnover Rate | 42% | 61% | 57%4 | 60%4 | 70% | 61% |
| 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% attributable to mortgage-dollar-roll activity. |
See accompanying
Notes, which are an integral part of the Financial Statements.
26
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.
| 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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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.
27
Ultra-Short-Term Bond Fund
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, 2023, the fund’s average investments in long and short futures contracts represented 7% 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 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
28
Ultra-Short-Term Bond Fund
(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, 2023, 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. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually 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 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.
8. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
29
Ultra-Short-Term Bond Fund
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 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, 2023, the fund had contributed to Vanguard capital in the amount of $425,000, representing less than 0.01% of the fund’s net
assets and 0.17% 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $46,000 (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.
30
Ultra-Short-Term Bond Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of July 31, 2023, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 2,082,748 | — | 2,082,748 |
| Corporate Bonds | — | 8,697,943 | 16 | 8,697,959 |
| Sovereign Bonds | — | 181,373 | — | 181,373 |
| Temporary Cash Investments | 72,828 | 1,219,915 | — | 1,292,743 |
| Total | 72,828 | 12,181,979 | 16 | 12,254,823 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 1,251 | — | — | 1,251 |
| Forward Currency Contracts | — | 4,159 | — | 4,159 |
| Total | 1,251 | 4,159 | — | 5,410 |
| Liabilities | ||||
| Futures Contracts1 | 3 | — | — | 3 |
| Forward Currency Contracts | — | 415 | — | 415 |
| Total | 3 | 415 | — | 418 |
| 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, 2023, 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 | 1,251 | — | 1,251 |
| Unrealized Appreciation—Forward Currency Contracts | — | 4,159 | 4,159 |
| Total Assets | 1,251 | 4,159 | 5,410 |
| Unrealized Depreciation—Futures Contracts1 | 3 | — | 3 |
| Unrealized Depreciation—Forward Currency Contracts | — | 415 | 415 |
| Total Liabilities | 3 | 415 | 418 |
| 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. |
31
Ultra-Short-Term Bond Fund
Realized net gain (loss) and
the change in unrealized appreciation (depreciation) on derivatives for the six months ended July 31, 2023, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
| Futures Contracts | (617) | — | (617) |
| Forward Currency Contracts | — | (4,826) | (4,826) |
| Realized Net Gain (Loss) on Derivatives | (617) | (4,826) | (5,443) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
| Futures Contracts | 698 | — | 698 |
| Forward Currency Contracts | — | 23,484 | 23,484 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 698 | 23,484 | 24,182 |
| F. | As of July 31, 2023, 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 | 12,329,333 |
| Gross Unrealized Appreciation | 6,270 |
| Gross Unrealized Depreciation | (75,788) |
| Net Unrealized Appreciation (Depreciation) | (69,518) |
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, 2023, the fund had available capital losses totaling $214,341,000 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, 2024; 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, 2023, the fund purchased $4,389,236,000 of investment securities and sold $5,305,326,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $4,030,000 and $12,168,000, respectively. |
32
Ultra-Short-Term Bond Fund
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 90,312 | 9,124 | 332,662 | 33,704 | |
| Issued in Lieu of Cash Distributions | 7,210 | 729 | 7,063 | 716 | |
| Redeemed | (243,970) | (24,617) | (507,369) | (51,293) | |
| Net Increase (Decrease)—Investor Shares | (146,448) | (14,764) | (167,644) | (16,873) | |
| Admiral Shares | |||||
| Issued | 2,193,175 | 110,764 | 8,320,891 | 420,395 | |
| Issued in Lieu of Cash Distributions | 196,815 | 9,951 | 200,018 | 10,135 | |
| Redeemed | (3,948,986) | (199,388) | (14,295,086) | (722,648) | |
| Net Increase (Decrease)—Admiral Shares | (1,558,996) | (78,673) | (5,774,177) | (292,118) | |
| I. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| J. | Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
33
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 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 performance of the
fund since its inception in 2015, 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 expenses were also below the peer-group average.
34
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.
35
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, 2022, through December 31, 2022 (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.
36
This page intentionally left blank.
Connect with
Vanguard®>vanguard.com
Semiannual Report | July 31, 2023
Vanguard
High-Yield Corporate Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 38 |
Liquidity Risk Management | 40 |
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, 2023 | |||
| Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| High-Yield Corporate Fund | |||
| Investor Shares | $1,000.00 | $1,019.70 | $1.10 |
| Admiral™ Shares | 1,000.00 | 1,020.20 | 0.60 |
| Based on Hypothetical 5% Yearly Return | |||
| 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 fund’s annualized six-month expense ratios for that period are 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
High-Yield Corporate Fund
Fund Allocation
As of July 31, 2023
| Corporate Bonds - Communications | 15.3% |
| Corporate Bonds - Consumer Discretionary | 17.9 |
| Corporate Bonds - Consumer Staples | 3.4 |
| Corporate Bonds - Energy | 11.8 |
| Corporate Bonds - Financials | 6.0 |
| Corporate Bonds - Health Care | 8.5 |
| Corporate Bonds - Industrials | 9.4 |
| Corporate Bonds - Materials | 8.5 |
| Corporate Bonds - Real Estate | 1.6 |
| Corporate Bonds - Technology | 7.6 |
| Corporate Bonds - Utilities | 2.3 |
| Floating Rate Loan Interests | 3.2 |
| U.S. Government and Agency Obligations | 4.5 |
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, 2023
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 (4.2%) | ||||||
| U.S. Government Securities (4.2%) | ||||||
| United States Treasury Note/Bond | 2.500% | 5/15/24 | 155,325 | 151,830 | ||
| United States Treasury Note/Bond | 3.000% | 6/30/24 | 20,000 | 19,569 | ||
| United States Treasury Note/Bond | 1.750% | 7/31/24 | 10,000 | 9,648 | ||
| United States Treasury Note/Bond | 3.000% | 7/31/24 | 25,532 | 24,942 | ||
| United States Treasury Note/Bond | 4.250% | 12/31/24 | 39,000 | 38,476 | ||
| United States Treasury Note/Bond | 1.750% | 3/15/25 | 50,000 | 47,398 | ||
| 1,2 | United States Treasury Note/Bond | 3.500% | 9/15/25 | 23,200 | 22,569 | |
| 1 | United States Treasury Note/Bond | 3.750% | 4/15/26 | 368,832 | 360,879 | |
| United States Treasury Note/Bond | 3.625% | 5/15/26 | 75,742 | 73,896 | ||
| United States Treasury Note/Bond | 4.500% | 7/15/26 | 14,594 | 14,589 | ||
| United States Treasury Note/Bond | 2.750% | 7/31/27 | 15,000 | 14,142 | ||
| United States Treasury Note/Bond | 1.250% | 4/30/28 | 7,502 | 6,553 | ||
| 2 | United States Treasury Note/Bond | 1.250% | 6/30/28 | 86,924 | 75,637 | |
| United States Treasury Note/Bond | 1.125% | 8/31/28 | 32,483 | 27,976 | ||
| United States Treasury Note/Bond | 4.000% | 2/28/30 | 10,719 | 10,652 | ||
| United States Treasury Note/Bond | 3.500% | 4/30/30 | 43,312 | 41,810 | ||
| United States Treasury Note/Bond | 3.750% | 6/30/30 | 2,714 | 2,661 | ||
| United States Treasury Note/Bond | 3.500% | 2/15/33 | 19,446 | 18,741 | ||
| United States Treasury Note/Bond | 3.375% | 5/15/33 | 7,493 | 7,147 | ||
| United States Treasury Note/Bond | 4.500% | 5/15/38 | 5,173 | 5,474 | ||
| United States Treasury Note/Bond | 3.250% | 5/15/42 | 1,017 | 889 | ||
| United States Treasury Note/Bond | 3.375% | 8/15/42 | 2,454 | 2,183 | ||
| United States Treasury Note/Bond | 3.875% | 2/15/43 | 1,236 | 1,181 | ||
| United States Treasury Note/Bond | 3.875% | 5/15/43 | 200 | 191 | ||
| United States Treasury Note/Bond | 3.125% | 5/15/48 | 1,711 | 1,436 | ||
| United States Treasury Note/Bond | 3.375% | 11/15/48 | 382 | 336 | ||
| United States Treasury Note/Bond | 3.625% | 5/15/53 | 115 | 108 | ||
| Total U.S. Government and Agency Obligations (Cost $1,003,320) | 980,913 | |||||
| Corporate Bonds (87.4%) | ||||||
| Communications (14.5%) | ||||||
| 3,4 | Altice France SA | 2.125% | 2/15/25 | 6,940 | 6,683 | |
| 3 | Altice France SA | 8.125% | 2/1/27 | 8,872 | 7,256 | |
| 3 | Altice France SA | 5.500% | 1/15/28 | 15,740 | 11,570 | |
| 3 | Altice France SA | 5.125% | 7/15/29 | 96,845 | 67,904 | |
| 3 | Banijay Entertainment SASU | 5.375% | 3/1/25 | 23,092 | 22,671 | |
| Belo Corp. | 7.750% | 6/1/27 | 24,745 | 24,544 | ||
4
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Belo Corp. | 7.250% | 9/15/27 | 11,942 | 11,718 | ||
| 3 | Cable One Inc. | 4.000% | 11/15/30 | 4,461 | 3,524 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.500% | 5/1/26 | 47,125 | 45,986 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.125% | 5/1/27 | 51,977 | 48,762 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.000% | 2/1/28 | 8,150 | 7,534 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 5.375% | 6/1/29 | 26,345 | 24,102 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 6.375% | 9/1/29 | 40,000 | 38,245 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.500% | 8/15/30 | 94,670 | 80,087 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.250% | 2/1/31 | 96,315 | 79,071 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 7.375% | 3/1/31 | 48,650 | 48,297 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.750% | 2/1/32 | 4,325 | 3,583 | |
| CCO Holdings LLC / CCO Holdings Capital Corp. | 4.500% | 5/1/32 | 136,793 | 111,512 | ||
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.500% | 6/1/33 | 16,820 | 13,322 | |
| 3 | CCO Holdings LLC / CCO Holdings Capital Corp. | 4.250% | 1/15/34 | 27,600 | 21,189 | |
| 3 | CSC Holdings LLC | 5.500% | 4/15/27 | 19,220 | 16,471 | |
| 3 | CSC Holdings LLC | 6.500% | 2/1/29 | 11,610 | 9,863 | |
| 3 | CSC Holdings LLC | 5.750% | 1/15/30 | 3,350 | 1,736 | |
| 3 | CSC Holdings LLC | 4.125% | 12/1/30 | 74,628 | 53,956 | |
| 3 | CSC Holdings LLC | 4.625% | 12/1/30 | 5,275 | 2,661 | |
| 3 | CSC Holdings LLC | 3.375% | 2/15/31 | 71,240 | 49,189 | |
| 3 | CSC Holdings LLC | 4.500% | 11/15/31 | 99,190 | 71,142 | |
| 3 | CSC Holdings LLC | 5.000% | 11/15/31 | 26,470 | 13,399 | |
| 3 | Directv Financing LLC / Directv Financing Co-Obligor Inc. | 5.875% | 8/15/27 | 22,140 | 19,985 | |
| DISH DBS Corp. | 5.875% | 11/15/24 | 34,150 | 31,162 | ||
| DISH DBS Corp. | 7.750% | 7/1/26 | 14,585 | 9,434 | ||
| 3 | DISH DBS Corp. | 5.250% | 12/1/26 | 2,920 | 2,394 | |
| DISH DBS Corp. | 7.375% | 7/1/28 | 45,390 | 25,512 | ||
| 3 | DISH DBS Corp. | 5.750% | 12/1/28 | 40,625 | 31,344 | |
| DISH DBS Corp. | 5.125% | 6/1/29 | 14,684 | 7,403 | ||
| 3 | DISH Network Corp. | 11.750% | 11/15/27 | 44,270 | 44,562 | |
| Embarq Corp. | 7.995% | 6/1/36 | 11,475 | 6,507 | ||
| 3 | Frontier Communications Holdings LLC | 5.875% | 10/15/27 | 16,240 | 14,845 | |
| 3 | Frontier Communications Holdings LLC | 5.000% | 5/1/28 | 126,099 | 106,896 | |
| 3 | Frontier Communications Holdings LLC | 6.750% | 5/1/29 | 13,467 | 10,415 | |
| Frontier Communications Holdings LLC | 5.875% | 11/1/29 | 42,213 | 30,944 | ||
| 3 | Frontier Communications Holdings LLC | 8.750% | 5/15/30 | 1,460 | 1,407 | |
| 3 | Frontier Communications Holdings LLC | 8.625% | 3/15/31 | 28,915 | 27,703 | |
| 3 | Go Daddy Operating Co. LLC / GD Finance Co. Inc. | 3.500% | 3/1/29 | 72,140 | 62,080 | |
| 3 | Iliad Holding SASU | 6.500% | 10/15/26 | 20,325 | 19,455 | |
| 3 | Iliad Holding SASU | 7.000% | 10/15/28 | 19,075 | 17,908 | |
| Lamar Media Corp. | 3.750% | 2/15/28 | 30,000 | 27,468 | ||
| Lamar Media Corp. | 4.875% | 1/15/29 | 2,920 | 2,734 | ||
| Lamar Media Corp. | 4.000% | 2/15/30 | 75,500 | 66,489 | ||
| Lamar Media Corp. | 3.625% | 1/15/31 | 59,108 | 50,221 | ||
| 3 | Level 3 Financing Inc. | 3.400% | 3/1/27 | 2,695 | 2,378 | |
| 3 | Level 3 Financing Inc. | 3.625% | 1/15/29 | 19,482 | 12,864 | |
| 3 | Level 3 Financing Inc. | 3.875% | 11/15/29 | 12,300 | 10,487 | |
| 3 | Level 3 Financing Inc. | 10.500% | 5/15/30 | 21,660 | 22,438 | |
| 3,4 | Lorca Telecom Bondco SA | 4.000% | 9/18/27 | 55,975 | 57,561 | |
| 3 | Lumen Technologies Inc. | 4.000% | 2/15/27 | 7,040 | 4,625 | |
| 3 | Match Group Holdings II LLC | 4.625% | 6/1/28 | 5,480 | 5,075 | |
| 3 | Match Group Holdings II LLC | 4.125% | 8/1/30 | 14,026 | 12,082 | |
| 3 | Match Group Holdings II LLC | 3.625% | 10/1/31 | 12,425 | 10,232 | |
| 3 | News Corp. | 3.875% | 5/15/29 | 25,192 | 22,225 | |
| 3 | Nexstar Media Inc. | 4.750% | 11/1/28 | 12,325 | 10,869 | |
5
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 6.250% | 6/15/25 | 32,550 | 32,379 | |
| 3 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 5.000% | 8/15/27 | 21,296 | 19,607 | |
| 3 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 4.250% | 1/15/29 | 10,100 | 8,552 | |
| 3 | Outfront Media Capital LLC / Outfront Media Capital Corp. | 4.625% | 3/15/30 | 86,818 | 72,592 | |
| 5 | Paramount Global Inc. | 6.250% | 2/28/57 | 33,146 | 25,943 | |
| 5 | Paramount Global Inc. | 6.375% | 3/30/62 | 33,700 | 27,792 | |
| 3 | ROBLOX Corp. | 3.875% | 5/1/30 | 83,290 | 70,442 | |
| 3 | Scripps Escrow II Inc. | 3.875% | 1/15/29 | 50,685 | 42,126 | |
| 3 | Scripps Escrow II Inc. | 5.375% | 1/15/31 | 14,680 | 11,180 | |
| 3 | Scripps Escrow Inc. | 5.875% | 7/15/27 | 22,080 | 18,445 | |
| 3 | Sirius XM Radio Inc. | 3.125% | 9/1/26 | 12,245 | 11,031 | |
| 3 | Sirius XM Radio Inc. | 4.000% | 7/15/28 | 35,170 | 30,607 | |
| 3 | Sirius XM Radio Inc. | 4.125% | 7/1/30 | 75,495 | 62,167 | |
| 3 | Sirius XM Radio Inc. | 3.875% | 9/1/31 | 53,360 | 41,775 | |
| Sprint LLC | 7.875% | 9/15/23 | 86,490 | 86,657 | ||
| Sprint LLC | 7.125% | 6/15/24 | 35,947 | 36,282 | ||
| TEGNA Inc. | 4.625% | 3/15/28 | 14,555 | 13,105 | ||
| TEGNA Inc. | 5.000% | 9/15/29 | 48,200 | 42,948 | ||
| Telecom Italia Capital SA | 6.375% | 11/15/33 | 6,520 | 5,499 | ||
| Telecom Italia Capital SA | 6.000% | 9/30/34 | 22,450 | 18,140 | ||
| Telecom Italia Capital SA | 7.721% | 6/4/38 | 22,295 | 19,803 | ||
| 3 | Telecom Italia SpA | 5.303% | 5/30/24 | 6,555 | 6,417 | |
| 3 | Telenet Finance Luxembourg Notes Sarl | 5.500% | 3/1/28 | 58,600 | 53,795 | |
| 3,4 | TMNL Holding BV | 3.750% | 1/15/29 | 33,365 | 32,641 | |
| 3 | Uber Technologies Inc. | 7.500% | 5/15/25 | 22,695 | 23,012 | |
| 3 | Uber Technologies Inc. | 8.000% | 11/1/26 | 14,270 | 14,552 | |
| 3 | Uber Technologies Inc. | 7.500% | 9/15/27 | 12,020 | 12,269 | |
| 3 | Uber Technologies Inc. | 6.250% | 1/15/28 | 10,000 | 9,975 | |
| 3 | Uber Technologies Inc. | 4.500% | 8/15/29 | 48,425 | 44,750 | |
| 3,6 | Univision Communications Inc. | 8.000% | 8/15/28 | 9,420 | 9,490 | |
| 3 | Univision Communications Inc. | 7.375% | 6/30/30 | 315 | 307 | |
| 3 | UPC Broadband Finco BV | 4.875% | 7/15/31 | 67,944 | 57,197 | |
| 3 | UPC Holding BV | 5.500% | 1/15/28 | 87,652 | 78,459 | |
| 3 | Videotron Ltd. | 5.375% | 6/15/24 | 7,848 | 7,782 | |
| 7 | Videotron Ltd. | 5.625% | 6/15/25 | 9,725 | 7,281 | |
| 3 | Videotron Ltd. | 5.125% | 4/15/27 | 28,240 | 27,330 | |
| 3,7 | Videotron Ltd. | 3.625% | 6/15/28 | 97,435 | 64,034 | |
| 3 | Videotron Ltd. | 3.625% | 6/15/29 | 77,456 | 67,392 | |
| 3 | Virgin Media Secured Finance plc | 5.500% | 5/15/29 | 43,280 | 39,986 | |
| 3 | Virgin Media Secured Finance plc | 4.500% | 8/15/30 | 42,595 | 36,527 | |
| 3,8 | Virgin Media Vendor Financing Notes III DAC | 4.875% | 7/15/28 | 37,010 | 38,636 | |
| 3 | Virgin Media Vendor Financing Notes IV DAC | 5.000% | 7/15/28 | 38,325 | 33,679 | |
| 3 | Vmed O2 UK Financing I plc | 4.250% | 1/31/31 | 94,695 | 78,602 | |
| 3 | VZ Secured Financing BV | 5.000% | 1/15/32 | 58,570 | 47,601 | |
| 3,4 | WMG Acquisition Corp. | 2.750% | 7/15/28 | 18,490 | 18,654 | |
| 3 | WMG Acquisition Corp. | 3.875% | 7/15/30 | 58,405 | 51,158 | |
| 3 | WMG Acquisition Corp. | 3.000% | 2/15/31 | 62,070 | 50,765 | |
| 3 | Zayo Group Holdings Inc. | 4.000% | 3/1/27 | 2,425 | 1,734 | |
| 3 | Ziggo BV | 4.875% | 1/15/30 | 66,840 | 56,529 | |
| 3,351,307 | ||||||
| Consumer Discretionary (16.9%) | ||||||
| 3 | 1011778 BC ULC / New Red Finance Inc. | 3.875% | 1/15/28 | 44,747 | 40,953 | |
| 3 | 1011778 BC ULC / New Red Finance Inc. | 4.375% | 1/15/28 | 8,000 | 7,388 | |
| 3 | 1011778 BC ULC / New Red Finance Inc. | 3.500% | 2/15/29 | 45,540 | 40,058 | |
| 3 | 1011778 BC ULC / New Red Finance Inc. | 4.000% | 10/15/30 | 133,629 | 114,637 | |
6
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Adient Global Holdings Ltd. | 4.875% | 8/15/26 | 14,507 | 13,916 | |
| 3 | American Builders & Contractors Supply Co. Inc. | 4.000% | 1/15/28 | 30,213 | 27,690 | |
| 3 | American Builders & Contractors Supply Co. Inc. | 3.875% | 11/15/29 | 56,370 | 48,958 | |
| Asbury Automotive Group Inc. | 4.500% | 3/1/28 | 22,880 | 20,965 | ||
| 3 | Asbury Automotive Group Inc. | 4.625% | 11/15/29 | 21,780 | 19,313 | |
| Asbury Automotive Group Inc. | 4.750% | 3/1/30 | 11,463 | 10,121 | ||
| 3 | Asbury Automotive Group Inc. | 5.000% | 2/15/32 | 26,865 | 23,434 | |
| 3 | Ashton Woods USA LLC / Ashton Woods Finance Co. | 6.625% | 1/15/28 | 3,335 | 3,209 | |
| 3 | Ashton Woods USA LLC / Ashton Woods Finance Co. | 4.625% | 8/1/29 | 5,580 | 4,828 | |
| 3 | Ashton Woods USA LLC / Ashton Woods Finance Co. | 4.625% | 4/1/30 | 34,479 | 29,521 | |
| Bath & Body Works Inc. | 6.694% | 1/15/27 | 17,487 | 17,549 | ||
| Bath & Body Works Inc. | 5.250% | 2/1/28 | 1,550 | 1,478 | ||
| 3 | Bath & Body Works Inc. | 6.625% | 10/1/30 | 37,375 | 36,100 | |
| Bath & Body Works Inc. | 6.875% | 11/1/35 | 5,565 | 5,162 | ||
| Bath & Body Works Inc. | 6.750% | 7/1/36 | 700 | 637 | ||
| 3 | Beacon Roofing Supply Inc. | 4.125% | 5/15/29 | 15,200 | 13,441 | |
| 3 | Beacon Roofing Supply Inc. | 6.500% | 8/1/30 | 14,745 | 14,781 | |
| Boyd Gaming Corp. | 4.750% | 12/1/27 | 121,735 | 114,826 | ||
| 3 | Boyd Gaming Corp. | 4.750% | 6/15/31 | 6,005 | 5,376 | |
| 3 | Boyne USA Inc. | 4.750% | 5/15/29 | 4,445 | 4,054 | |
| 3 | Builders FirstSource Inc. | 5.000% | 3/1/30 | 5,000 | 4,678 | |
| 3 | Builders FirstSource Inc. | 4.250% | 2/1/32 | 28,500 | 24,745 | |
| 3 | Caesars Entertainment Inc. | 6.250% | 7/1/25 | 120,550 | 119,777 | |
| 3 | Caesars Entertainment Inc. | 8.125% | 7/1/27 | 74,280 | 76,267 | |
| 3 | Caesars Entertainment Inc. | 4.625% | 10/15/29 | 41,390 | 36,433 | |
| 3 | Caesars Entertainment Inc. | 7.000% | 2/15/30 | 102,010 | 103,030 | |
| 3 | Caesars Resort Collection LLC / CRC Finco Inc. | 5.750% | 7/1/25 | 64,437 | 65,043 | |
| 3 | Camelot Return Merger Sub Inc. | 8.750% | 8/1/28 | 8,770 | 8,579 | |
| 3 | Carnival Corp. | 7.625% | 3/1/26 | 7,330 | 7,228 | |
| 3 | Carnival Corp. | 5.750% | 3/1/27 | 23,970 | 22,167 | |
| 3 | Carnival Corp. | 9.875% | 8/1/27 | 10,645 | 11,108 | |
| 3 | Carnival Corp. | 4.000% | 8/1/28 | 105,830 | 94,001 | |
| 3 | Carnival Corp. | 6.000% | 5/1/29 | 146,540 | 131,601 | |
| 3 | Carnival Corp. | 10.500% | 6/1/30 | 41,275 | 43,664 | |
| 3 | Carnival Holdings Bermuda Ltd. | 10.375% | 5/1/28 | 13,530 | 14,744 | |
| 3 | CDI Escrow Issuer Inc. | 5.750% | 4/1/30 | 34,716 | 32,247 | |
| Cedar Fair LP | 5.250% | 7/15/29 | 54,526 | 48,880 | ||
| 3 | Cedar Fair LP / Canada's Wonderland Co. / Magnum Management Corp. / Millennium Op | 5.500% | 5/1/25 | 10,480 | 10,364 | |
| Cedar Fair LP / Canada's Wonderland Co. / Magnum Management Corp. / Millennium Op | 5.375% | 4/15/27 | 28,965 | 27,346 | ||
| Century Communities Inc. | 6.750% | 6/1/27 | 9,993 | 10,030 | ||
| 3 | Century Communities Inc. | 3.875% | 8/15/29 | 34,362 | 29,885 | |
| 3 | Churchill Downs Inc. | 5.500% | 4/1/27 | 4,267 | 4,126 | |
| 3 | Churchill Downs Inc. | 4.750% | 1/15/28 | 11,690 | 10,801 | |
| 3 | Churchill Downs Inc. | 6.750% | 5/1/31 | 4,860 | 4,750 | |
| 3 | Cinemark USA Inc. | 8.750% | 5/1/25 | 2,082 | 2,112 | |
| 3 | Cinemark USA Inc. | 5.875% | 3/15/26 | 7,325 | 6,935 | |
| 3 | Cinemark USA Inc. | 5.250% | 7/15/28 | 33,730 | 29,637 | |
| 3,4 | Cirsa Finance International Sarl | 4.500% | 3/15/27 | 7,990 | 8,094 | |
| 3 | Clarios Global LP / Clarios US Finance Co. | 6.250% | 5/15/26 | 30,723 | 30,707 | |
| 3 | Clarios Global LP / Clarios US Finance Co. | 8.500% | 5/15/27 | 31,417 | 31,810 | |
| 3 | Clarios Global LP / Clarios US Finance Co. | 6.750% | 5/15/28 | 30,163 | 30,351 | |
| Dana Inc. | 5.625% | 6/15/28 | 3,718 | 3,537 | ||
| Dana Inc. | 4.500% | 2/15/32 | 3,215 | 2,690 | ||
| Ford Motor Co. | 4.346% | 12/8/26 | 17,205 | 16,776 | ||
7
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Ford Motor Co. | 9.625% | 4/22/30 | 2,271 | 2,653 | ||
| Ford Motor Co. | 3.250% | 2/12/32 | 111,665 | 88,236 | ||
| Ford Motor Co. | 4.750% | 1/15/43 | 24,775 | 19,388 | ||
| Ford Motor Co. | 5.291% | 12/8/46 | 8,515 | 7,022 | ||
| Ford Motor Credit Co. LLC | 4.375% | 8/6/23 | 210 | 210 | ||
| Ford Motor Credit Co. LLC | 3.370% | 11/17/23 | 16,305 | 16,148 | ||
| Ford Motor Credit Co. LLC | 3.810% | 1/9/24 | 5,000 | 4,938 | ||
| Ford Motor Credit Co. LLC | 5.584% | 3/18/24 | 5,000 | 4,968 | ||
| Ford Motor Credit Co. LLC | 4.134% | 8/4/25 | 9,450 | 9,028 | ||
| Ford Motor Credit Co. LLC | 3.375% | 11/13/25 | 16,070 | 15,026 | ||
| Ford Motor Credit Co. LLC | 4.389% | 1/8/26 | 4,800 | 4,559 | ||
| Ford Motor Credit Co. LLC | 2.700% | 8/10/26 | 100,560 | 90,133 | ||
| Ford Motor Credit Co. LLC | 4.950% | 5/28/27 | 18,065 | 17,150 | ||
| Ford Motor Credit Co. LLC | 3.815% | 11/2/27 | 6,000 | 5,388 | ||
| Ford Motor Credit Co. LLC | 2.900% | 2/16/28 | 2,880 | 2,477 | ||
| Ford Motor Credit Co. LLC | 6.800% | 5/12/28 | 48,232 | 48,671 | ||
| Ford Motor Credit Co. LLC | 7.350% | 3/6/30 | 11,730 | 12,142 | ||
| Ford Motor Credit Co. LLC | 7.200% | 6/10/30 | 17,948 | 18,439 | ||
| Ford Motor Credit Co. LLC | 3.625% | 6/17/31 | 1,830 | 1,513 | ||
| 3 | Gap Inc. | 3.625% | 10/1/29 | 21,580 | 16,080 | |
| 3 | Gap Inc. | 3.875% | 10/1/31 | 19,660 | 14,058 | |
| Goodyear Tire & Rubber Co. | 5.000% | 7/15/29 | 19,915 | 18,361 | ||
| Goodyear Tire & Rubber Co. | 5.250% | 7/15/31 | 16,230 | 14,472 | ||
| Griffon Corp. | 5.750% | 3/1/28 | 11,490 | 10,810 | ||
| 3 | Hanesbrands Inc. | 4.875% | 5/15/26 | 93,794 | 88,161 | |
| 3 | Hanesbrands Inc. | 9.000% | 2/15/31 | 21,155 | 21,639 | |
| 3 | Hilton Domestic Operating Co. Inc. | 5.750% | 5/1/28 | 9,746 | 9,603 | |
| 3 | Hilton Domestic Operating Co. Inc. | 3.750% | 5/1/29 | 13,415 | 11,962 | |
| 3 | Hilton Domestic Operating Co. Inc. | 4.000% | 5/1/31 | 1,945 | 1,697 | |
| 3 | Hilton Domestic Operating Co. Inc. | 3.625% | 2/15/32 | 15,280 | 12,813 | |
| KB Home | 4.800% | 11/15/29 | 15,825 | 14,634 | ||
| KB Home | 7.250% | 7/15/30 | 5,000 | 5,103 | ||
| KB Home | 4.000% | 6/15/31 | 38,745 | 33,659 | ||
| 3 | KFC Holding Co. / Pizza Hut Holdings LLC / Taco Bell of America LLC | 4.750% | 6/1/27 | 29,785 | 28,775 | |
| 3 | Lithia Motors Inc. | 4.625% | 12/15/27 | 66,275 | 61,669 | |
| 3 | Lithia Motors Inc. | 3.875% | 6/1/29 | 7,615 | 6,558 | |
| 3 | Lithia Motors Inc. | 4.375% | 1/15/31 | 22,880 | 19,669 | |
| 3 | Live Nation Entertainment Inc. | 4.875% | 11/1/24 | 14,775 | 14,572 | |
| 3 | Live Nation Entertainment Inc. | 3.750% | 1/15/28 | 6,085 | 5,479 | |
| 3 | Mattel Inc. | 3.375% | 4/1/26 | 33,225 | 30,895 | |
| 3 | Mattel Inc. | 5.875% | 12/15/27 | 48,989 | 48,088 | |
| 3 | Melco Resorts Finance Ltd. | 4.875% | 6/6/25 | 16,555 | 15,840 | |
| 3 | Melco Resorts Finance Ltd. | 5.250% | 4/26/26 | 5,370 | 5,052 | |
| 3 | Melco Resorts Finance Ltd. | 5.375% | 12/4/29 | 26,050 | 22,188 | |
| MGM Resorts International | 6.750% | 5/1/25 | 10,080 | 10,121 | ||
| MGM Resorts International | 5.750% | 6/15/25 | 55,431 | 54,756 | ||
| 3 | Michaels Cos. Inc. | 5.250% | 5/1/28 | 45,085 | 38,323 | |
| 3 | Michaels Cos. Inc. | 7.875% | 5/1/29 | 23,475 | 16,731 | |
| 3 | NCL Corp Ltd. | 8.375% | 2/1/28 | 41,980 | 43,791 | |
| 3 | NCL Corp. Ltd. | 7.750% | 2/15/29 | 20,930 | 20,039 | |
| Newell Brands Inc. | 4.700% | 4/1/26 | 4,166 | 3,969 | ||
| Newell Brands Inc. | 6.375% | 9/15/27 | 15,093 | 14,832 | ||
| Newell Brands Inc. | 6.625% | 9/15/29 | 16,832 | 16,854 | ||
| 3 | Nissan Motor Co. Ltd. | 4.810% | 9/17/30 | 6,218 | 5,600 | |
8
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Ontario Gaming GTA LP | 8.000% | 8/1/30 | 8,960 | 9,054 | |
| 3 | Openlane Inc. | 5.125% | 6/1/25 | 10,007 | 9,748 | |
| 3 | PetSmart Inc. / PetSmart Finance Corp. | 4.750% | 2/15/28 | 55,391 | 50,762 | |
| 3 | PetSmart Inc. / PetSmart Finance Corp. | 7.750% | 2/15/29 | 16,145 | 15,755 | |
| 3 | Royal Caribbean Cruises Ltd. | 4.250% | 7/1/26 | 11,360 | 10,566 | |
| 3 | Royal Caribbean Cruises Ltd. | 5.500% | 8/31/26 | 96,080 | 92,261 | |
| 3 | Royal Caribbean Cruises Ltd. | 5.375% | 7/15/27 | 19,070 | 18,134 | |
| 3 | Royal Caribbean Cruises Ltd. | 11.625% | 8/15/27 | 26,350 | 28,758 | |
| 3 | Royal Caribbean Cruises Ltd. | 5.500% | 4/1/28 | 33,440 | 31,519 | |
| 3 | Royal Caribbean Cruises Ltd. | 8.250% | 1/15/29 | 49,872 | 52,085 | |
| 3 | Royal Caribbean Cruises Ltd. | 9.250% | 1/15/29 | 5,030 | 5,355 | |
| 3 | Royal Caribbean Cruises Ltd. | 7.250% | 1/15/30 | 5,210 | 5,274 | |
| Sands China Ltd. | 5.625% | 8/8/25 | 25,700 | 25,341 | ||
| Sands China Ltd. | 5.900% | 8/8/28 | 42,780 | 41,577 | ||
| Sands China Ltd. | 4.875% | 6/18/30 | 22,315 | 20,312 | ||
| Sands China Ltd. | 3.750% | 8/8/31 | 17,210 | 14,150 | ||
| 3 | Scientific Games International Inc. | 7.000% | 5/15/28 | 20,020 | 19,942 | |
| Service Corp. International | 4.625% | 12/15/27 | 20,770 | 19,710 | ||
| Service Corp. International | 5.125% | 6/1/29 | 44,190 | 42,051 | ||
| Service Corp. International | 3.375% | 8/15/30 | 26,810 | 22,354 | ||
| Service Corp. International | 4.000% | 5/15/31 | 65,605 | 55,920 | ||
| 3 | Speedway Motorsports LLC / Speedway Funding II Inc. | 4.875% | 11/1/27 | 33,461 | 31,285 | |
| 3 | Taylor Morrison Communities Inc. | 5.875% | 6/15/27 | 5,967 | 5,880 | |
| 3 | Taylor Morrison Communities Inc. | 5.125% | 8/1/30 | 23,777 | 22,198 | |
| 3 | Tempur Sealy International Inc. | 3.875% | 10/15/31 | 19,802 | 16,081 | |
| Under Armour Inc. | 3.250% | 6/15/26 | 42,005 | 38,528 | ||
| 3 | Viking Cruises Ltd. | 9.125% | 7/15/31 | 24,270 | 24,910 | |
| 3 | William Carter Co. | 5.625% | 3/15/27 | 12,968 | 12,681 | |
| 3 | WW International Inc. | 4.500% | 4/15/29 | 4,741 | 3,367 | |
| 3 | Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 5.500% | 3/1/25 | 91,076 | 89,268 | |
| 3 | Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 5.250% | 5/15/27 | 30,990 | 29,408 | |
| 3 | Wynn Macau Ltd. | 5.500% | 1/15/26 | 15,750 | 14,872 | |
| 3 | Wynn Macau Ltd. | 5.125% | 12/15/29 | 51,536 | 43,498 | |
| 3 | Wynn Resorts Finance LLC / Wynn Resorts Capital Corp. | 5.125% | 10/1/29 | 2,872 | 2,602 | |
| 3 | Wynn Resorts Finance LLC / Wynn Resorts Capital Corp. | 7.125% | 2/15/31 | 38,525 | 38,522 | |
| 3 | Yum! Brands Inc. | 4.750% | 1/15/30 | 39,610 | 37,036 | |
| Yum! Brands Inc. | 3.625% | 3/15/31 | 64,357 | 55,072 | ||
| Yum! Brands Inc. | 4.625% | 1/31/32 | 18,090 | 16,386 | ||
| 3,919,702 | ||||||
| Consumer Staples (3.2%) | ||||||
| 3 | Albertsons Cos. Inc. / Safeway Inc. / New Albertsons LP / Albertsons LLC | 6.500% | 2/15/28 | 12,300 | 12,255 | |
| B&G Foods Inc. | 5.250% | 4/1/25 | 49,587 | 47,167 | ||
| B&G Foods Inc. | 5.250% | 9/15/27 | 47,340 | 40,792 | ||
| 3 | Coty Inc. | 5.000% | 4/15/26 | 2,475 | 2,386 | |
| 3 | Coty Inc./HFC Prestige Products Inc./HFC Prestige International US LLC | 6.625% | 7/15/30 | 25,020 | 25,238 | |
| 3,4 | Darling Global Finance BV | 3.625% | 5/15/26 | 12,945 | 13,914 | |
| 3 | Darling Ingredients Inc. | 5.250% | 4/15/27 | 12,745 | 12,380 | |
| 3 | Darling Ingredients Inc. | 6.000% | 6/15/30 | 13,430 | 13,239 | |
| 3 | Energizer Holdings Inc. | 4.750% | 6/15/28 | 58,571 | 52,558 | |
| 3 | Energizer Holdings Inc. | 4.375% | 3/31/29 | 76,351 | 66,280 | |
| 3 | Lamb Weston Holdings Inc. | 4.125% | 1/31/30 | 1,763 | 1,556 | |
| 3 | Performance Food Group Inc. | 6.875% | 5/1/25 | 10,425 | 10,446 | |
| 3 | Performance Food Group Inc. | 5.500% | 10/15/27 | 96,710 | 93,620 | |
9
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Performance Food Group Inc. | 4.250% | 8/1/29 | 90,104 | 79,906 | |
| 3 | Post Holdings Inc. | 5.750% | 3/1/27 | 8,810 | 8,629 | |
| 3 | Post Holdings Inc. | 5.625% | 1/15/28 | 86,750 | 83,904 | |
| 3 | Post Holdings Inc. | 5.500% | 12/15/29 | 36,090 | 33,510 | |
| 3 | Post Holdings Inc. | 4.625% | 4/15/30 | 73,894 | 65,137 | |
| 3 | Post Holdings Inc. | 4.500% | 9/15/31 | 48,465 | 41,288 | |
| 3 | United Natural Foods Inc. | 6.750% | 10/15/28 | 25,600 | 21,346 | |
| 3 | US Foods Inc. | 4.625% | 6/1/30 | 18,913 | 17,009 | |
| 742,560 | ||||||
| Energy (11.2%) | ||||||
| Apache Corp. | 4.875% | 11/15/27 | 33,110 | 30,953 | ||
| Apache Corp. | 4.375% | 10/15/28 | 2,625 | 2,429 | ||
| Apache Corp. | 4.250% | 1/15/30 | 23,875 | 21,684 | ||
| Apache Corp. | 5.100% | 9/1/40 | 14,658 | 12,445 | ||
| Apache Corp. | 5.250% | 2/1/42 | 10,349 | 8,699 | ||
| Apache Corp. | 4.250% | 1/15/44 | 1,011 | 702 | ||
| Apache Corp. | 5.350% | 7/1/49 | 20,237 | 16,755 | ||
| 3 | Baytex Energy Corp. | 8.500% | 4/30/30 | 9,625 | 9,756 | |
| 3 | Blue Racer Midstream LLC / Blue Racer Finance Corp. | 7.625% | 12/15/25 | 9,330 | 9,396 | |
| 3 | Blue Racer Midstream LLC / Blue Racer Finance Corp. | 6.625% | 7/15/26 | 11,960 | 11,764 | |
| Buckeye Partners LP | 4.350% | 10/15/24 | 4,850 | 4,734 | ||
| 3 | Buckeye Partners LP | 4.125% | 3/1/25 | 50,184 | 48,379 | |
| Buckeye Partners LP | 3.950% | 12/1/26 | 21,628 | 19,864 | ||
| Buckeye Partners LP | 4.125% | 12/1/27 | 23,220 | 21,059 | ||
| 3 | Buckeye Partners LP | 4.500% | 3/1/28 | 88,628 | 79,923 | |
| Cheniere Energy Partners LP | 4.500% | 10/1/29 | 11,104 | 10,324 | ||
| Cheniere Energy Partners LP | 4.000% | 3/1/31 | 7,900 | 7,028 | ||
| 3 | Chesapeake Energy Corp. | 5.875% | 2/1/29 | 17,045 | 16,300 | |
| 3 | Chesapeake Energy Corp. | 6.750% | 4/15/29 | 21,240 | 21,132 | |
| 3 | Civitas Resources Inc. | 8.750% | 7/1/31 | 20,060 | 20,761 | |
| 3 | CNX Resources Corp. | 6.000% | 1/15/29 | 6,825 | 6,385 | |
| 3 | CNX Resources Corp. | 7.375% | 1/15/31 | 16,440 | 16,306 | |
| Continental Resources Inc. | 4.375% | 1/15/28 | 21,625 | 20,477 | ||
| 3 | Continental Resources Inc. | 5.750% | 1/15/31 | 30,055 | 29,075 | |
| Continental Resources Inc. | 4.900% | 6/1/44 | 66,669 | 52,769 | ||
| 3 | CrownRock LP / CrownRock Finance Inc. | 5.625% | 10/15/25 | 14,908 | 14,717 | |
| 3 | DT Midstream Inc. | 4.125% | 6/15/29 | 95,524 | 84,708 | |
| 3 | DT Midstream Inc. | 4.375% | 6/15/31 | 121,695 | 105,861 | |
| 3 | Earthstone Energy Holdings LLC | 8.000% | 4/15/27 | 30,495 | 30,319 | |
| 3 | Earthstone Energy Holdings LLC | 9.875% | 7/15/31 | 19,580 | 20,248 | |
| 3 | Enerflex Ltd. | 9.000% | 10/15/27 | 35,885 | 36,072 | |
| 3 | EnLink Midstream LLC | 5.625% | 1/15/28 | 27,875 | 27,259 | |
| EnLink Midstream LLC | 5.375% | 6/1/29 | 28,150 | 26,757 | ||
| 3 | EnLink Midstream LLC | 6.500% | 9/1/30 | 27,820 | 28,010 | |
| EnLink Midstream Partners LP | 4.150% | 6/1/25 | 27,661 | 26,631 | ||
| EnLink Midstream Partners LP | 4.850% | 7/15/26 | 27,144 | 26,369 | ||
| EnLink Midstream Partners LP | 5.050% | 4/1/45 | 34,405 | 27,185 | ||
| EnLink Midstream Partners LP | 5.450% | 6/1/47 | 25,380 | 20,888 | ||
| EQM Midstream Partners LP | 4.000% | 8/1/24 | 8,934 | 8,741 | ||
| 3 | EQM Midstream Partners LP | 6.000% | 7/1/25 | 62,191 | 61,774 | |
| EQM Midstream Partners LP | 4.125% | 12/1/26 | 11,328 | 10,647 | ||
| 3 | EQM Midstream Partners LP | 7.500% | 6/1/27 | 3,760 | 3,818 | |
| 3 | EQM Midstream Partners LP | 6.500% | 7/1/27 | 61,070 | 60,768 | |
| EQM Midstream Partners LP | 5.500% | 7/15/28 | 30,727 | 29,614 | ||
| 3 | EQM Midstream Partners LP | 4.500% | 1/15/29 | 34,140 | 31,187 | |
10
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | EQM Midstream Partners LP | 7.500% | 6/1/30 | 3,860 | 3,980 | |
| 3 | EQM Midstream Partners LP | 4.750% | 1/15/31 | 90,662 | 80,879 | |
| Genesis Energy LP / Genesis Energy Finance Corp. | 6.500% | 10/1/25 | 4,116 | 4,079 | ||
| 3 | Hess Midstream Operations LP | 4.250% | 2/15/30 | 2,225 | 1,956 | |
| 3 | Matador Resources Co. | 6.875% | 4/15/28 | 37,900 | 37,724 | |
| 3 | Noble Finance II LLC | 8.000% | 4/15/30 | 69,580 | 71,670 | |
| Occidental Petroleum Corp. | 5.550% | 3/15/26 | 7,040 | 7,001 | ||
| Occidental Petroleum Corp. | 3.400% | 4/15/26 | 3,625 | 3,398 | ||
| Occidental Petroleum Corp. | 3.200% | 8/15/26 | 3,125 | 2,858 | ||
| Occidental Petroleum Corp. | 3.000% | 2/15/27 | 9,320 | 8,372 | ||
| Occidental Petroleum Corp. | 6.375% | 9/1/28 | 16,503 | 16,938 | ||
| Occidental Petroleum Corp. | 6.625% | 9/1/30 | 10,274 | 10,774 | ||
| Occidental Petroleum Corp. | 6.125% | 1/1/31 | 44,979 | 46,034 | ||
| Occidental Petroleum Corp. | 6.450% | 9/15/36 | 7,160 | 7,515 | ||
| Occidental Petroleum Corp. | 4.400% | 4/15/46 | 8,420 | 6,684 | ||
| Ovintiv Inc. | 7.200% | 11/1/31 | 2,757 | 2,904 | ||
| Ovintiv Inc. | 7.375% | 11/1/31 | 26,708 | 28,852 | ||
| Ovintiv Inc. | 6.500% | 8/15/34 | 10,685 | 10,946 | ||
| Ovintiv Inc. | 6.500% | 2/1/38 | 14,250 | 14,285 | ||
| 3 | Permian Resources Operating LLC | 5.375% | 1/15/26 | 2,655 | 2,552 | |
| 3 | Permian Resources Operating LLC | 7.750% | 2/15/26 | 2,540 | 2,569 | |
| 3 | Permian Resources Operating LLC | 6.875% | 4/1/27 | 10,465 | 10,394 | |
| 3 | Permian Resources Operating LLC | 5.875% | 7/1/29 | 64,319 | 61,338 | |
| Range Resources Corp. | 8.250% | 1/15/29 | 14,335 | 14,917 | ||
| 3 | Range Resources Corp. | 4.750% | 2/15/30 | 56,221 | 51,727 | |
| 3 | Rockies Express Pipeline LLC | 4.950% | 7/15/29 | 4,050 | 3,719 | |
| 3 | Rockies Express Pipeline LLC | 4.800% | 5/15/30 | 3,250 | 2,889 | |
| 3 | Rockies Express Pipeline LLC | 7.500% | 7/15/38 | 4,100 | 3,782 | |
| 3 | Seadrill Finance Ltd. | 8.375% | 8/1/30 | 4,810 | 4,909 | |
| SM Energy Co. | 6.750% | 9/15/26 | 23,350 | 22,972 | ||
| SM Energy Co. | 6.625% | 1/15/27 | 1,295 | 1,281 | ||
| SM Energy Co. | 6.500% | 7/15/28 | 14,800 | 14,469 | ||
| Southwestern Energy Co. | 5.375% | 2/1/29 | 25,600 | 24,186 | ||
| Southwestern Energy Co. | 5.375% | 3/15/30 | 71,313 | 66,714 | ||
| Southwestern Energy Co. | 4.750% | 2/1/32 | 36,707 | 32,638 | ||
| Sunoco LP / Sunoco Finance Corp. | 6.000% | 4/15/27 | 70,255 | 69,600 | ||
| Sunoco LP / Sunoco Finance Corp. | 5.875% | 3/15/28 | 11,360 | 11,055 | ||
| Sunoco LP / Sunoco Finance Corp. | 4.500% | 5/15/29 | 32,920 | 29,606 | ||
| Sunoco LP / Sunoco Finance Corp. | 4.500% | 4/30/30 | 51,930 | 46,147 | ||
| Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 6.875% | 1/15/29 | 12,795 | 13,039 | ||
| Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 4.875% | 2/1/31 | 30,250 | 28,141 | ||
| 3 | Transocean Inc. | 11.500% | 1/30/27 | 2,870 | 3,011 | |
| 3 | Transocean Inc. | 8.750% | 2/15/30 | 77,843 | 80,793 | |
| 3 | Transocean Titan Financing Ltd. | 8.375% | 2/1/28 | 12,422 | 12,881 | |
| 3 | Valaris Ltd. | 8.375% | 4/30/30 | 27,762 | 28,396 | |
| 3 | Venture Global Calcasieu Pass LLC | 3.875% | 8/15/29 | 62,200 | 53,908 | |
| 3 | Venture Global Calcasieu Pass LLC | 6.250% | 1/15/30 | 23,783 | 23,264 | |
| 3 | Venture Global Calcasieu Pass LLC | 4.125% | 8/15/31 | 66,555 | 56,466 | |
| 3 | Venture Global Calcasieu Pass LLC | 3.875% | 11/1/33 | 49,140 | 39,829 | |
| 3 | Venture Global LNG Inc. | 8.125% | 6/1/28 | 10,045 | 10,212 | |
| 3 | Venture Global LNG Inc. | 8.375% | 6/1/31 | 52,540 | 53,324 | |
| 3 | Weatherford International Ltd. | 8.625% | 4/30/30 | 55,350 | 56,710 | |
| Western Midstream Operating LP | 3.950% | 6/1/25 | 4,070 | 3,931 | ||
| Western Midstream Operating LP | 4.650% | 7/1/26 | 24,081 | 23,389 | ||
11
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Western Midstream Operating LP | 4.750% | 8/15/28 | 4,715 | 4,521 | ||
| Western Midstream Operating LP | 4.050% | 2/1/30 | 2,205 | 2,004 | ||
| Western Midstream Operating LP | 5.450% | 4/1/44 | 13,155 | 11,505 | ||
| Western Midstream Operating LP | 5.300% | 3/1/48 | 25,628 | 21,969 | ||
| Western Midstream Operating LP | 5.250% | 2/1/50 | 34,013 | 28,904 | ||
| 2,581,182 | ||||||
| Financials (5.6%) | ||||||
| 3 | Acrisure LLC / Acrisure Finance Inc. | 4.250% | 2/15/29 | 85,650 | 73,736 | |
| 3,5 | AerCap Global Aviation Trust | 6.500% | 6/15/45 | 125,005 | 122,496 | |
| 3 | Alliant Holdings Intermediate LLC / Alliant Holdings Co. | 6.750% | 4/15/28 | 38,525 | 38,323 | |
| 3 | AmWINS Group Inc. | 4.875% | 6/30/29 | 6,822 | 6,247 | |
| 3 | Avolon Holdings Funding Ltd. | 5.250% | 5/15/24 | 50,695 | 50,024 | |
| 3 | Burford Capital Global Finance LLC | 6.875% | 4/15/30 | 15,520 | 14,186 | |
| 3 | Compass Group Diversified Holdings LLC | 5.250% | 4/15/29 | 13,305 | 12,110 | |
| 3 | Enact Holdings Inc. | 6.500% | 8/15/25 | 45,900 | 45,416 | |
| 3 | FirstCash Inc. | 4.625% | 9/1/28 | 18,915 | 16,912 | |
| 3 | FirstCash Inc. | 5.625% | 1/1/30 | 14,515 | 13,403 | |
| 3 | GGAM Finance Ltd. | 7.750% | 5/15/26 | 14,975 | 15,111 | |
| 3 | GGAM Finance Ltd. | 8.000% | 6/15/28 | 22,475 | 22,893 | |
| 3 | goeasy Ltd. | 4.375% | 5/1/26 | 29,748 | 27,237 | |
| 3 | HUB International Ltd. | 7.000% | 5/1/26 | 5,900 | 5,888 | |
| 3 | HUB International Ltd. | 5.625% | 12/1/29 | 19,965 | 17,809 | |
| 3 | HUB International Ltd. | 7.250% | 6/15/30 | 74,650 | 76,187 | |
| 3 | Intesa Sanpaolo SpA | 5.017% | 6/26/24 | 27,090 | 26,439 | |
| 3 | Intesa Sanpaolo SpA | 5.710% | 1/15/26 | 53,100 | 51,259 | |
| 3 | Ladder Capital Finance Holdings LLLP / Ladder Capital Finance Corp. | 4.250% | 2/1/27 | 14,704 | 13,236 | |
| 3 | Ladder Capital Finance Holdings LLLP / Ladder Capital Finance Corp. | 4.750% | 6/15/29 | 21,410 | 18,042 | |
| MGIC Investment Corp. | 5.250% | 8/15/28 | 14,730 | 14,015 | ||
| 3 | Nationstar Mortgage Holdings Inc. | 5.500% | 8/15/28 | 22,500 | 20,398 | |
| 3 | Nationstar Mortgage Holdings Inc. | 5.125% | 12/15/30 | 82,619 | 69,923 | |
| 3 | Nationstar Mortgage Holdings Inc. | 5.750% | 11/15/31 | 17,750 | 15,101 | |
| Navient Corp. | 7.250% | 9/25/23 | 5,589 | 5,591 | ||
| Navient Corp. | 6.125% | 3/25/24 | 6,200 | 6,160 | ||
| Navient Corp. | 5.875% | 10/25/24 | 3,725 | 3,690 | ||
| Navient Corp. | 6.750% | 6/15/26 | 910 | 887 | ||
| Navient Corp. | 4.875% | 3/15/28 | 9,301 | 8,128 | ||
| Navient Corp. | 5.500% | 3/15/29 | 53,540 | 46,134 | ||
| Navient Corp. | 9.375% | 7/25/30 | 8,885 | 8,945 | ||
| Navient Corp. | 5.625% | 8/1/33 | 6,576 | 5,037 | ||
| OneMain Finance Corp. | 8.250% | 10/1/23 | 12,466 | 12,500 | ||
| OneMain Finance Corp. | 6.125% | 3/15/24 | 27,155 | 27,074 | ||
| OneMain Finance Corp. | 7.125% | 3/15/26 | 99,246 | 98,283 | ||
| OneMain Finance Corp. | 3.500% | 1/15/27 | 20,735 | 17,974 | ||
| OneMain Finance Corp. | 3.875% | 9/15/28 | 36,560 | 30,093 | ||
| OneMain Finance Corp. | 9.000% | 1/15/29 | 29,099 | 29,567 | ||
| OneMain Finance Corp. | 4.000% | 9/15/30 | 28,880 | 22,721 | ||
| 3 | Park Aerospace Holdings Ltd. | 5.500% | 2/15/24 | 4,970 | 4,935 | |
| 3 | PennyMac Financial Services Inc. | 5.375% | 10/15/25 | 38,913 | 37,192 | |
| 3 | PennyMac Financial Services Inc. | 4.250% | 2/15/29 | 30,140 | 24,900 | |
| 3 | PennyMac Financial Services Inc. | 5.750% | 9/15/31 | 3,885 | 3,287 | |
| Radian Group Inc. | 4.500% | 10/1/24 | 45,300 | 44,150 | ||
| Radian Group Inc. | 6.625% | 3/15/25 | 3,250 | 3,243 | ||
| Radian Group Inc. | 4.875% | 3/15/27 | 22,275 | 21,270 | ||
12
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Rocket Mortgage LLC / Rocket Mortgage Co-Issuer Inc. | 2.875% | 10/15/26 | 1,945 | 1,733 | |
| 3 | Rocket Mortgage LLC / Rocket Mortgage Co-Issuer Inc. | 3.625% | 3/1/29 | 4,870 | 4,147 | |
| 3 | Rocket Mortgage LLC / Rocket Mortgage Co-Issuer Inc. | 3.875% | 3/1/31 | 12,180 | 10,026 | |
| 3 | Rocket Mortgage LLC / Rocket Mortgage Co-Issuer Inc. | 4.000% | 10/15/33 | 975 | 778 | |
| 3 | United Wholesale Mortgage LLC | 5.500% | 11/15/25 | 17,200 | 16,540 | |
| 3 | United Wholesale Mortgage LLC | 5.750% | 6/15/27 | 24,350 | 22,778 | |
| 3 | United Wholesale Mortgage LLC | 5.500% | 4/15/29 | 3,800 | 3,341 | |
| 1,307,495 | ||||||
| Health Care (8.0%) | ||||||
| 3 | Acadia Healthcare Co. Inc. | 5.500% | 7/1/28 | 26,060 | 24,960 | |
| 3 | Acadia Healthcare Co. Inc. | 5.000% | 4/15/29 | 23,232 | 21,560 | |
| 3,4 | Avantor Funding Inc. | 2.625% | 11/1/25 | 77,060 | 80,995 | |
| 3 | Avantor Funding Inc. | 4.625% | 7/15/28 | 58,690 | 54,469 | |
| 3 | Avantor Funding Inc. | 3.875% | 11/1/29 | 4,230 | 3,702 | |
| 3 | Bausch Health Cos. Inc. | 5.500% | 11/1/25 | 19,675 | 17,702 | |
| 3 | Catalent Pharma Solutions Inc. | 5.000% | 7/15/27 | 24,770 | 23,212 | |
| 3,4 | Catalent Pharma Solutions Inc. | 2.375% | 3/1/28 | 45,735 | 42,170 | |
| 3 | Catalent Pharma Solutions Inc. | 3.125% | 2/15/29 | 19,369 | 16,173 | |
| 3 | Catalent Pharma Solutions Inc. | 3.500% | 4/1/30 | 46,530 | 38,882 | |
| Centene Corp. | 4.625% | 12/15/29 | 10,890 | 10,121 | ||
| 3 | Charles River Laboratories International Inc. | 4.250% | 5/1/28 | 22,589 | 20,865 | |
| 3 | Charles River Laboratories International Inc. | 3.750% | 3/15/29 | 16,385 | 14,501 | |
| 3 | Charles River Laboratories International Inc. | 4.000% | 3/15/31 | 24,970 | 21,761 | |
| 3 | CHS/Community Health Systems Inc. | 8.000% | 3/15/26 | 4,540 | 4,460 | |
| 3 | CHS/Community Health Systems Inc. | 5.625% | 3/15/27 | 78,775 | 70,252 | |
| 3 | CHS/Community Health Systems Inc. | 8.000% | 12/15/27 | 2,925 | 2,859 | |
| 3 | CHS/Community Health Systems Inc. | 6.000% | 1/15/29 | 13,260 | 11,457 | |
| 3 | CHS/Community Health Systems Inc. | 5.250% | 5/15/30 | 29,280 | 23,423 | |
| 3 | CHS/Community Health Systems Inc. | 4.750% | 2/15/31 | 10,695 | 8,107 | |
| 3 | DaVita Inc. | 3.750% | 2/15/31 | 31,580 | 25,239 | |
| 3 | Fortrea Holdings Inc. | 7.500% | 7/1/30 | 11,113 | 11,364 | |
| 3 | Grifols Escrow Issuer SA | 4.750% | 10/15/28 | 14,355 | 12,642 | |
| 3,4 | Grifols SA | 2.250% | 11/15/27 | 42,955 | 42,650 | |
| HCA Inc. | 5.875% | 2/15/26 | 2,245 | 2,251 | ||
| HCA Inc. | 5.875% | 2/1/29 | 24,195 | 24,405 | ||
| HCA Inc. | 3.500% | 9/1/30 | 41,155 | 36,182 | ||
| 3 | Hologic Inc. | 3.250% | 2/15/29 | 45,365 | 39,706 | |
| 3 | IQVIA Inc. | 5.000% | 10/15/26 | 46,310 | 45,008 | |
| 3 | IQVIA Inc. | 5.000% | 5/15/27 | 95,232 | 91,906 | |
| 3,4 | IQVIA Inc. | 2.250% | 1/15/28 | 36,995 | 36,467 | |
| 3,4 | IQVIA Inc. | 2.875% | 6/15/28 | 61,595 | 62,072 | |
| 3 | IQVIA Inc. | 6.500% | 5/15/30 | 25,630 | 25,882 | |
| 3 | Jazz Securities DAC | 4.375% | 1/15/29 | 22,850 | 20,327 | |
| 3 | Medline Borrower LP | 3.875% | 4/1/29 | 165,193 | 144,751 | |
| 3 | Medline Borrower LP | 5.250% | 10/1/29 | 84,324 | 74,875 | |
| 3 | Organon & Co. / Organon Foreign Debt Co.-Issuer BV | 4.125% | 4/30/28 | 103,261 | 92,549 | |
| 3 | Organon & Co. / Organon Foreign Debt Co.-Issuer BV | 5.125% | 4/30/31 | 58,065 | 49,210 | |
| 3 | Owens & Minor Inc. | 4.500% | 3/31/29 | 16,645 | 14,339 | |
| 3 | Owens & Minor Inc. | 6.625% | 4/1/30 | 53,987 | 49,486 | |
| 3 | Prestige Brands Inc. | 5.125% | 1/15/28 | 18,350 | 17,529 | |
| 3 | Prestige Brands Inc. | 3.750% | 4/1/31 | 5,398 | 4,533 | |
| 3 | Teleflex Inc. | 4.250% | 6/1/28 | 34,312 | 31,746 | |
| Tenet Healthcare Corp. | 4.875% | 1/1/26 | 13,025 | 12,609 | ||
| Tenet Healthcare Corp. | 5.125% | 11/1/27 | 8,670 | 8,234 | ||
| Tenet Healthcare Corp. | 4.625% | 6/15/28 | 14,205 | 13,149 | ||
13
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Tenet Healthcare Corp. | 6.125% | 10/1/28 | 39,180 | 37,333 | ||
| Tenet Healthcare Corp. | 4.250% | 6/1/29 | 10,405 | 9,325 | ||
| Tenet Healthcare Corp. | 4.375% | 1/15/30 | 27,970 | 24,959 | ||
| Tenet Healthcare Corp. | 6.125% | 6/15/30 | 63,975 | 62,205 | ||
| 3 | Tenet Healthcare Corp. | 6.750% | 5/15/31 | 67,840 | 67,640 | |
| Teva Pharmaceutical Finance Netherlands III BV | 3.150% | 10/1/26 | 58,280 | 52,708 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 4.750% | 5/9/27 | 8,850 | 8,216 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 6.750% | 3/1/28 | 43,910 | 43,461 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 5.125% | 5/9/29 | 15,195 | 13,934 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 7.875% | 9/15/29 | 13,128 | 13,669 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 8.125% | 9/15/31 | 22,096 | 23,408 | ||
| Teva Pharmaceutical Finance Netherlands III BV | 4.100% | 10/1/46 | 6,145 | 4,046 | ||
| 1,861,646 | ||||||
| Industrials (8.9%) | ||||||
| 3 | Air Canada | 3.875% | 8/15/26 | 45,780 | 42,541 | |
| 3 | Allison Transmission Inc. | 5.875% | 6/1/29 | 2,340 | 2,271 | |
| 3 | Allison Transmission Inc. | 3.750% | 1/30/31 | 1,461 | 1,236 | |
| 3 | American Airlines Inc. | 7.250% | 2/15/28 | 10,312 | 10,232 | |
| 3 | American Airlines Inc. / AAdvantage Loyalty IP Ltd. | 5.500% | 4/20/26 | 27,243 | 26,844 | |
| 3,9 | American Airlines Inc. / AAdvantage Loyalty IP Ltd. | 5.750% | 4/20/29 | 32,172 | 31,185 | |
| 3 | Aramark Services Inc. | 5.000% | 4/1/25 | 65,662 | 64,799 | |
| 3 | Aramark Services Inc. | 6.375% | 5/1/25 | 43,915 | 43,985 | |
| 3 | Aramark Services Inc. | 5.000% | 2/1/28 | 44,167 | 41,739 | |
| 3 | BWX Technologies Inc. | 4.125% | 6/30/28 | 29,906 | 27,401 | |
| 3 | BWX Technologies Inc. | 4.125% | 4/15/29 | 49,453 | 44,818 | |
| 3 | Chart Industries Inc. | 7.500% | 1/1/30 | 6,290 | 6,453 | |
| 3 | Chart Industries Inc. | 9.500% | 1/1/31 | 8,690 | 9,372 | |
| 3 | Clean Harbors Inc. | 4.875% | 7/15/27 | 48,605 | 46,625 | |
| 3 | Clean Harbors Inc. | 5.125% | 7/15/29 | 25,851 | 24,746 | |
| 3 | Clean Harbors Inc. | 6.375% | 2/1/31 | 20,716 | 20,844 | |
| 3 | Covanta Holding Corp. | 4.875% | 12/1/29 | 37,100 | 32,970 | |
| Delta Air Lines Inc. | 3.750% | 10/28/29 | 7,545 | 6,830 | ||
| 3 | Emerald Debt Merger Sub LLC | 6.625% | 12/15/30 | 121,477 | 120,901 | |
| 3 | First Student Bidco Inc. / First Transit Parent Inc. | 4.000% | 7/31/29 | 83,972 | 71,278 | |
| 3 | Garda World Security Corp. | 7.750% | 2/15/28 | 3,670 | 3,649 | |
| 3 | Gates Global LLC / Gates Corp. | 6.250% | 1/15/26 | 23,814 | 23,668 | |
| 3 | Hawaiian Brand Intellectual Property Ltd. / HawaiianMiles Loyalty Ltd. | 5.750% | 1/20/26 | 86,335 | 81,530 | |
| 3 | Herc Holdings Inc. | 5.500% | 7/15/27 | 153,422 | 147,386 | |
| 4 | Loxam SAS | 2.875% | 4/15/26 | 19,380 | 19,723 | |
| 4 | Loxam SAS | 3.750% | 7/15/26 | 14,790 | 15,379 | |
| 3 | Moog Inc. | 4.250% | 12/15/27 | 6,260 | 5,800 | |
| 3 | Mueller Water Products Inc. | 4.000% | 6/15/29 | 6,225 | 5,563 | |
| 3,4 | Q-Park Holding I BV | 1.500% | 3/1/25 | 27,330 | 28,911 | |
| 3,4 | Q-Park Holding I BV | 2.000% | 3/1/27 | 26,765 | 25,923 | |
| 3 | Ritchie Bros Holdings Inc. | 6.750% | 3/15/28 | 5,325 | 5,397 | |
| 3 | Ritchie Bros Holdings Inc. | 7.750% | 3/15/31 | 5,252 | 5,491 | |
| 3 | Rolls-Royce plc | 3.625% | 10/14/25 | 24,995 | 23,662 | |
| 3 | Rolls-Royce plc | 5.750% | 10/15/27 | 39,450 | 38,841 | |
| 3 | Sensata Technologies BV | 5.625% | 11/1/24 | 13,135 | 13,060 | |
| 3 | Sensata Technologies BV | 5.000% | 10/1/25 | 52,750 | 51,414 | |
| 3 | Sensata Technologies Inc. | 4.375% | 2/15/30 | 12,765 | 11,363 | |
| 3 | Sensata Technologies Inc. | 3.750% | 2/15/31 | 43,118 | 36,410 | |
| 3 | Spirit AeroSystems Inc. | 7.500% | 4/15/25 | 29,438 | 29,452 | |
| Spirit AeroSystems Inc. | 3.850% | 6/15/26 | 3,185 | 2,986 | ||
14
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Spirit AeroSystems Inc. | 4.600% | 6/15/28 | 10,164 | 8,654 | ||
| 3 | Spirit AeroSystems Inc. | 9.375% | 11/30/29 | 58,606 | 62,792 | |
| 3,4 | TK Elevator Midco GmbH | 4.375% | 7/15/27 | 20,249 | 20,222 | |
| 3 | TK Elevator US Newco Inc. | 5.250% | 7/15/27 | 35,331 | 33,046 | |
| 3 | TopBuild Corp. | 4.125% | 2/15/32 | 9,025 | 7,750 | |
| 3 | TransDigm Inc. | 6.250% | 3/15/26 | 81,630 | 81,247 | |
| TransDigm Inc. | 5.500% | 11/15/27 | 16,970 | 16,070 | ||
| 3 | TransDigm Inc. | 6.750% | 8/15/28 | 98,530 | 99,007 | |
| TransDigm Inc. | 4.625% | 1/15/29 | 90,841 | 81,084 | ||
| TransDigm Inc. | 4.875% | 5/1/29 | 21,053 | 18,949 | ||
| 3 | Triumph Group Inc. | 9.000% | 3/15/28 | 17,387 | 17,880 | |
| 9 | United Airlines Class A Series 2020-1 Pass Through Trust | 5.875% | 10/15/27 | 19,748 | 19,613 | |
| 3 | United Airlines Inc. | 4.375% | 4/15/26 | 38,846 | 36,794 | |
| 3 | United Airlines Inc. | 4.625% | 4/15/29 | 50,975 | 46,213 | |
| United Rentals North America Inc. | 5.500% | 5/15/27 | 27,616 | 27,156 | ||
| United Rentals North America Inc. | 4.875% | 1/15/28 | 66,256 | 63,164 | ||
| United Rentals North America Inc. | 5.250% | 1/15/30 | 15,110 | 14,392 | ||
| United Rentals North America Inc. | 4.000% | 7/15/30 | 50,560 | 44,709 | ||
| United Rentals North America Inc. | 3.875% | 2/15/31 | 46,504 | 40,061 | ||
| United Rentals North America Inc. | 3.750% | 1/15/32 | 56,825 | 48,110 | ||
| 3 | WESCO Distribution Inc. | 7.125% | 6/15/25 | 15,830 | 16,010 | |
| 3 | Williams Scotsman International Inc. | 4.625% | 8/15/28 | 12,035 | 11,108 | |
| 2,066,709 | ||||||
| Materials (8.1%) | ||||||
| 3 | Advanced Drainage Systems Inc. | 5.000% | 9/30/27 | 2,435 | 2,331 | |
| 3 | Advanced Drainage Systems Inc. | 6.375% | 6/15/30 | 18,336 | 18,239 | |
| 3 | Ardagh Metal Packaging Finance USA LLC / Ardagh Metal Packaging Finance plc | 3.250% | 9/1/28 | 26,400 | 22,841 | |
| 3 | Ardagh Metal Packaging Finance USA LLC / Ardagh Metal Packaging Finance plc | 4.000% | 9/1/29 | 19,652 | 16,074 | |
| 3 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 5.250% | 4/30/25 | 6,300 | 6,186 | |
| 3 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 4.125% | 8/15/26 | 41,525 | 38,907 | |
| 3 | Ardagh Packaging Finance plc / Ardagh Holdings USA Inc. | 5.250% | 8/15/27 | 52,682 | 45,434 | |
| 3 | Ardagh Packaging Finance PLC / Ardagh Holdings USA Inc. | 5.250% | 8/15/27 | 13,308 | 11,413 | |
| 3,6 | Arsenal AIC Parent LLC | 8.000% | 10/1/30 | 21,765 | 22,200 | |
| 3 | ASP Unifrax Holdings Inc. | 5.250% | 9/30/28 | 3,330 | 2,476 | |
| 3 | Avient Corp. | 7.125% | 8/1/30 | 57,080 | 57,548 | |
| 3 | Axalta Coating Systems LLC | 3.375% | 2/15/29 | 54,059 | 46,616 | |
| Ball Corp. | 5.250% | 7/1/25 | 12,680 | 12,569 | ||
| Ball Corp. | 4.875% | 3/15/26 | 25,000 | 24,435 | ||
| 4 | Ball Corp. | 1.500% | 3/15/27 | 68,205 | 67,360 | |
| Ball Corp. | 6.875% | 3/15/28 | 25,010 | 25,570 | ||
| Ball Corp. | 6.000% | 6/15/29 | 34,070 | 34,070 | ||
| Ball Corp. | 2.875% | 8/15/30 | 9,615 | 7,933 | ||
| Ball Corp. | 3.125% | 9/15/31 | 975 | 802 | ||
| 3 | Berry Global Inc. | 4.500% | 2/15/26 | 52,154 | 49,842 | |
| 3 | Berry Global Inc. | 4.875% | 7/15/26 | 22,330 | 21,606 | |
| 3 | Berry Global Inc. | 5.625% | 7/15/27 | 8,560 | 8,396 | |
| 3 | Canpack SA / Canpack US LLC | 3.125% | 11/1/25 | 8,385 | 7,789 | |
| 3 | Canpack SA / Canpack US LLC | 3.875% | 11/15/29 | 7,690 | 6,232 | |
| Chemours Co. | 5.375% | 5/15/27 | 25,240 | 23,998 | ||
| 3 | Chemours Co. | 5.750% | 11/15/28 | 23,065 | 21,289 | |
| 3 | Chemours Co. | 4.625% | 11/15/29 | 38,721 | 32,807 | |
| 3 | Cleveland-Cliffs Inc. | 6.750% | 3/15/26 | 24,153 | 24,307 | |
| 3 | Clydesdale Acquisition Holdings Inc. | 6.625% | 4/15/29 | 24,725 | 23,657 | |
15
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Commercial Metals Co. | 4.125% | 1/15/30 | 8,740 | 7,847 | ||
| Commercial Metals Co. | 3.875% | 2/15/31 | 2,885 | 2,500 | ||
| Commercial Metals Co. | 4.375% | 3/15/32 | 19,045 | 16,601 | ||
| 3 | Constellium SE | 5.875% | 2/15/26 | 10,026 | 9,906 | |
| 3 | Constellium SE | 5.625% | 6/15/28 | 22,629 | 21,599 | |
| 3 | Constellium SE | 3.750% | 4/15/29 | 36,000 | 31,326 | |
| Crown Americas LLC | 5.250% | 4/1/30 | 25,415 | 24,190 | ||
| Crown Americas LLC / Crown Americas Capital Corp. V | 4.250% | 9/30/26 | 10,184 | 9,652 | ||
| Crown Americas LLC / Crown Americas Capital Corp. VI | 4.750% | 2/1/26 | 12,455 | 12,050 | ||
| 3,4 | Crown European Holdings SA | 2.875% | 2/1/26 | 31,200 | 33,129 | |
| 3 | Element Solutions Inc. | 3.875% | 9/1/28 | 37,481 | 33,132 | |
| 3 | FMG Resources August 2006 Pty Ltd. | 5.875% | 4/15/30 | 21,375 | 20,506 | |
| 3 | FMG Resources August 2006 Pty Ltd. | 4.375% | 4/1/31 | 44,053 | 37,886 | |
| 3 | FMG Resources August 2006 Pty Ltd. | 6.125% | 4/15/32 | 21,227 | 20,387 | |
| Graphic Packaging International LLC | 4.125% | 8/15/24 | 18,940 | 18,559 | ||
| 3 | Graphic Packaging International LLC | 4.750% | 7/15/27 | 7,870 | 7,572 | |
| 3 | Graphic Packaging International LLC | 3.500% | 3/15/28 | 71,362 | 64,220 | |
| 3 | Graphic Packaging International LLC | 3.500% | 3/1/29 | 10,705 | 9,353 | |
| 3 | Graphic Packaging International LLC | 3.750% | 2/1/30 | 15,803 | 13,729 | |
| 3 | Hudbay Minerals Inc. | 6.125% | 4/1/29 | 30,156 | 28,852 | |
| 3 | Ingevity Corp. | 3.875% | 11/1/28 | 1,890 | 1,637 | |
| 3 | Kaiser Aluminum Corp. | 4.625% | 3/1/28 | 11,598 | 10,402 | |
| 3 | Kaiser Aluminum Corp. | 4.500% | 6/1/31 | 11,879 | 9,735 | |
| 3 | NOVA Chemicals Corp. | 5.250% | 6/1/27 | 26,509 | 23,868 | |
| 3 | Novelis Corp. | 3.250% | 11/15/26 | 40,425 | 36,745 | |
| 3 | Novelis Corp. | 4.750% | 1/30/30 | 53,965 | 48,456 | |
| 3 | Novelis Corp. | 3.875% | 8/15/31 | 47,047 | 39,375 | |
| 3 | OCI NV | 4.625% | 10/15/25 | 22,514 | 21,822 | |
| Olin Corp. | 5.125% | 9/15/27 | 5,575 | 5,329 | ||
| Olin Corp. | 5.625% | 8/1/29 | 5,250 | 5,083 | ||
| 3 | Olympus Water US Holding Corp. | 7.125% | 10/1/27 | 11,505 | 10,526 | |
| 3 | Olympus Water US Holding Corp. | 4.250% | 10/1/28 | 27,538 | 22,139 | |
| 3 | Olympus Water US Holding Corp. | 9.750% | 11/15/28 | 41,620 | 40,258 | |
| 3 | Olympus Water US Holding Corp. | 6.250% | 10/1/29 | 4,875 | 3,600 | |
| 3 | Owens-Brockway Glass Container Inc. | 6.375% | 8/15/25 | 42,000 | 42,069 | |
| 3 | Owens-Brockway Glass Container Inc. | 6.625% | 5/13/27 | 26,440 | 26,341 | |
| 3 | Owens-Brockway Glass Container Inc. | 7.250% | 5/15/31 | 14,265 | 14,508 | |
| 3 | Pactiv Evergreen Group Issuer Inc./Pactiv Evergreen Group Issuer LLC | 4.000% | 10/15/27 | 15,475 | 13,947 | |
| 3 | Pactiv Evergreen Group Issuer Inc./Pactiv Evergreen Group Issuer LLC | 4.375% | 10/15/28 | 4,765 | 4,227 | |
| 3 | Sealed Air Corp. | 4.000% | 12/1/27 | 6,025 | 5,550 | |
| 3 | Sealed Air Corp. | 6.125% | 2/1/28 | 4,970 | 4,956 | |
| 3 | Sealed Air Corp. | 5.000% | 4/15/29 | 1,775 | 1,658 | |
| 3 | Sealed Air Corp. | 6.875% | 7/15/33 | 3,745 | 3,908 | |
| Silgan Holdings Inc. | 4.125% | 2/1/28 | 8,800 | 8,048 | ||
| 4 | Silgan Holdings Inc. | 2.250% | 6/1/28 | 43,070 | 40,628 | |
| 3 | SPCM SA | 3.125% | 3/15/27 | 16,730 | 15,011 | |
| 3 | Standard Industries Inc. | 5.000% | 2/15/27 | 14,735 | 14,093 | |
| 3 | Standard Industries Inc. | 4.750% | 1/15/28 | 31,779 | 29,552 | |
| 3 | Standard Industries Inc. | 4.375% | 7/15/30 | 53,906 | 46,851 | |
| 3 | Standard Industries Inc. | 3.375% | 1/15/31 | 72,685 | 58,655 | |
| 3,4 | Trivium Packaging Finance BV | 3.750% | 8/15/26 | 16,095 | 16,240 | |
| 3 | Trivium Packaging Finance BV | 5.500% | 8/15/26 | 62,555 | 59,420 | |
| 3 | Trivium Packaging Finance BV | 8.500% | 8/15/27 | 1,178 | 1,135 | |
| 3 | Tronox Inc. | 4.625% | 3/15/29 | 44,100 | 36,540 | |
16
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | Windsor Holdings III LLC | 8.500% | 6/15/30 | 29,775 | 29,941 | |
| 3 | WR Grace Holdings LLC | 5.625% | 8/15/29 | 11,196 | 9,454 | |
| 3 | WR Grace Holdings LLC | 7.375% | 3/1/31 | 9,080 | 9,084 | |
| 1,876,714 | ||||||
| Real Estate (1.6%) | ||||||
| 3 | Iron Mountain Inc. | 4.875% | 9/15/27 | 36,420 | 34,132 | |
| 3 | Iron Mountain Inc. | 5.250% | 3/15/28 | 910 | 855 | |
| 3 | Iron Mountain Inc. | 7.000% | 2/15/29 | 37,900 | 38,049 | |
| 3 | Iron Mountain Inc. | 4.875% | 9/15/29 | 58,106 | 52,440 | |
| 3 | Iron Mountain Inc. | 5.250% | 7/15/30 | 29,500 | 26,702 | |
| 3 | Iron Mountain Inc. | 4.500% | 2/15/31 | 11,180 | 9,628 | |
| 3 | Iron Mountain Inc. | 5.625% | 7/15/32 | 7,825 | 7,054 | |
| 3 | Iron Mountain Information Management Services Inc. | 5.000% | 7/15/32 | 429 | 371 | |
| MPT Operating Partnership LP / MPT Finance Corp. | 5.000% | 10/15/27 | 3,640 | 3,192 | ||
| MPT Operating Partnership LP / MPT Finance Corp. | 4.625% | 8/1/29 | 25,640 | 20,433 | ||
| MPT Operating Partnership LP / MPT Finance Corp. | 3.500% | 3/15/31 | 17,340 | 12,487 | ||
| SBA Communications Corp. | 3.875% | 2/15/27 | 11,065 | 10,192 | ||
| SBA Communications Corp. | 3.125% | 2/1/29 | 10,805 | 9,110 | ||
| Service Properties Trust | 7.500% | 9/15/25 | 2,983 | 2,949 | ||
| Service Properties Trust | 5.250% | 2/15/26 | 4,125 | 3,766 | ||
| Service Properties Trust | 4.750% | 10/1/26 | 9,592 | 8,387 | ||
| Service Properties Trust | 5.500% | 12/15/27 | 15,224 | 13,363 | ||
| 3 | VICI Properties LP / VICI Note Co. Inc. | 5.625% | 5/1/24 | 1,900 | 1,891 | |
| 3 | VICI Properties LP / VICI Note Co. Inc. | 4.250% | 12/1/26 | 87,348 | 82,402 | |
| 3 | VICI Properties LP / VICI Note Co. Inc. | 3.750% | 2/15/27 | 9,724 | 8,994 | |
| 3 | VICI Properties LP / VICI Note Co. Inc. | 4.625% | 12/1/29 | 14,375 | 13,147 | |
| 359,544 | ||||||
| Technology (7.2%) | ||||||
| 3 | Black Knight InfoServ LLC | 3.625% | 9/1/28 | 51,266 | 46,897 | |
| Block Inc. | 2.750% | 6/1/26 | 53,443 | 48,875 | ||
| Block Inc. | 3.500% | 6/1/31 | 9,160 | 7,674 | ||
| 3 | Booz Allen Hamilton Inc. | 3.875% | 9/1/28 | 9,295 | 8,413 | |
| 3 | Booz Allen Hamilton Inc. | 4.000% | 7/1/29 | 9,610 | 8,688 | |
| CDW LLC / CDW Finance Corp. | 4.250% | 4/1/28 | 31,874 | 29,554 | ||
| CDW LLC / CDW Finance Corp. | 3.250% | 2/15/29 | 44,384 | 38,680 | ||
| 3 | Cloud Software Group Inc. | 6.500% | 3/31/29 | 10,940 | 9,853 | |
| 3 | Cloud Software Grp Inc. | 9.000% | 9/30/29 | 10,335 | 9,262 | |
| 3 | Coherent Corp. | 5.000% | 12/15/29 | 61,155 | 55,063 | |
| 3 | CommScope Inc. | 8.250% | 3/1/27 | 1,960 | 1,486 | |
| 3 | CommScope Inc. | 7.125% | 7/1/28 | 11,145 | 7,418 | |
| 3 | CommScope Technologies LLC | 6.000% | 6/15/25 | 3,405 | 3,090 | |
| 3 | CommScope Technologies LLC | 5.000% | 3/15/27 | 6,790 | 4,532 | |
| 3 | Entegris Escrow Corp. | 4.750% | 4/15/29 | 39,570 | 36,937 | |
| 3 | Entegris Escrow Corp. | 5.950% | 6/15/30 | 11,175 | 10,711 | |
| 3 | Entegris Inc. | 4.375% | 4/15/28 | 67,185 | 61,519 | |
| 3 | Entegris Inc. | 3.625% | 5/1/29 | 27,465 | 23,951 | |
| 3 | Fair Isaac Corp. | 4.000% | 6/15/28 | 32,367 | 29,708 | |
| 3 | Gartner Inc. | 3.625% | 6/15/29 | 12,435 | 10,982 | |
| 3 | Gartner Inc. | 3.750% | 10/1/30 | 38,129 | 33,264 | |
| 3 | Gen Digital Inc. | 5.000% | 4/15/25 | 107,805 | 106,292 | |
| 3 | Imola Merger Corp. | 4.750% | 5/15/29 | 230,775 | 202,653 | |
| 3 | McAfee Corp. | 7.375% | 2/15/30 | 59,647 | 51,553 | |
| 3 | Minerva Merger Sub Inc. | 6.500% | 2/15/30 | 74,058 | 62,785 | |
| 3 | MSCI Inc. | 4.000% | 11/15/29 | 24,320 | 22,145 | |
| 3 | MSCI Inc. | 3.625% | 9/1/30 | 6,790 | 5,970 | |
17
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 3 | MSCI Inc. | 3.625% | 11/1/31 | 840 | 726 | |
| Nokia of America Corp. | 6.500% | 1/15/28 | 56,315 | 54,497 | ||
| Nokia of America Corp. | 6.450% | 3/15/29 | 88,747 | 84,272 | ||
| Nokia OYJ | 4.375% | 6/12/27 | 13,480 | 12,737 | ||
| Nokia OYJ | 6.625% | 5/15/39 | 46,739 | 45,352 | ||
| 3 | Open Text Corp. | 3.875% | 2/15/28 | 61,342 | 54,591 | |
| 3 | Open Text Corp. | 3.875% | 12/1/29 | 39,970 | 33,806 | |
| 3 | Open Text Holdings Inc. | 4.125% | 2/15/30 | 63,245 | 54,312 | |
| 3 | Open Text Holdings Inc. | 4.125% | 12/1/31 | 28,055 | 23,286 | |
| 3 | Presidio Holdings Inc. | 4.875% | 2/1/27 | 83,750 | 79,159 | |
| 3 | Presidio Holdings Inc. | 8.250% | 2/1/28 | 10,000 | 9,701 | |
| 3 | PTC Inc. | 3.625% | 2/15/25 | 15,330 | 14,808 | |
| 3 | PTC Inc. | 4.000% | 2/15/28 | 12,620 | 11,644 | |
| 3 | Seagate HDD Cayman | 8.250% | 12/15/29 | 5,380 | 5,635 | |
| 3 | Seagate HDD Cayman | 8.500% | 7/15/31 | 8,955 | 9,377 | |
| 3 | SS&C Technologies Inc. | 5.500% | 9/30/27 | 147,721 | 142,730 | |
| Western Digital Corp. | 4.750% | 2/15/26 | 21,250 | 20,302 | ||
| Xerox Corp. | 4.800% | 3/1/35 | 2,625 | 1,810 | ||
| 3 | Xerox Holdings Corp. | 5.000% | 8/15/25 | 3,195 | 3,067 | |
| 3 | Xerox Holdings Corp. | 5.500% | 8/15/28 | 81,060 | 71,133 | |
| 1,670,900 | ||||||
| Utilities (2.2%) | ||||||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.500% | 5/20/25 | 31,676 | 30,702 | ||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.875% | 8/20/26 | 57,552 | 54,208 | ||
| AmeriGas Partners LP / AmeriGas Finance Corp. | 5.750% | 5/20/27 | 34,064 | 31,112 | ||
| 3 | AmeriGas Partners LP / AmeriGas Finance Corp. | 9.375% | 6/1/28 | 35,790 | 36,539 | |
| 3 | Calpine Corp. | 4.500% | 2/15/28 | 14,600 | 13,412 | |
| 3 | Calpine Corp. | 5.125% | 3/15/28 | 17,300 | 15,688 | |
| 3 | Calpine Corp. | 4.625% | 2/1/29 | 6,270 | 5,403 | |
| 3 | Clearway Energy Operating LLC | 4.750% | 3/15/28 | 18,731 | 17,364 | |
| 3 | Clearway Energy Operating LLC | 3.750% | 2/15/31 | 87,235 | 72,278 | |
| 3 | Clearway Energy Operating LLC | 3.750% | 1/15/32 | 16,020 | 13,112 | |
| FirstEnergy Corp. | 4.150% | 7/15/27 | 17,185 | 16,265 | ||
| 3 | NextEra Energy Operating Partners LP | 4.250% | 7/15/24 | 33,229 | 32,607 | |
| 3 | NextEra Energy Operating Partners LP | 4.250% | 9/15/24 | 3,532 | 3,374 | |
| 3 | NextEra Energy Operating Partners LP | 3.875% | 10/15/26 | 104,720 | 97,546 | |
| 3 | NextEra Energy Operating Partners LP | 4.500% | 9/15/27 | 19,651 | 18,386 | |
| 3 | Suburban Propane Partners LP / Suburban Energy Finance Corp. | 5.000% | 6/1/31 | 12,970 | 11,145 | |
| TransAlta Corp. | 7.750% | 11/15/29 | 2,750 | 2,848 | ||
| 3 | Vistra Operations Co. LLC | 5.625% | 2/15/27 | 5,725 | 5,536 | |
| 3 | Vistra Operations Co. LLC | 4.375% | 5/1/29 | 23,069 | 20,366 | |
| 497,891 | ||||||
| Total Corporate Bonds (Cost $21,611,517) | 20,235,650 | |||||
| Floating Rate Loan Interests (3.1%) | ||||||
| 5 | Alterra Mountain Co. Term Loan B, TSFR1M + 3.750% | 9.169% | 5/31/30 | 2,860 | 2,853 | |
| 5,6 | American Airlines Inc. Term Loan, TSFR3M + 4.750% | 10.338% | 4/20/28 | 31,491 | 32,580 | |
| 10 | Arsenal AIC PARENT LLC | —% | 10/1/30 | 8,630 | 8,608 | |
| 5 | Asurion LLC Term Loan B-11, TSFR1M + 4.250% | 9.669% | 8/19/28 | 6,793 | 6,511 | |
| 5 | Asurion LLC Term Loan B-7, SOFR30A + 3.000% | 8.538% | 11/3/24 | 19,633 | 19,600 | |
| 5 | Athenahealth Inc. Term Loan B, TSFR1M + 3.500% | 8.805% | 2/15/29 | 28,039 | 27,182 | |
| 5 | Axalta Coating Systems US Holdings Inc. Term Loan B-4, TSFR3M + 3.000% | 8.242% | 12/20/29 | 13,432 | 13,454 | |
| 5 | Belron Finance US LLC Term Loan, TSFR3M + 2.750% | 8.160% | 4/18/29 | 5,255 | 5,252 | |
18
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 5 | Bombardier Recreational Products Inc. Term Loan B, TSFR1M + 3.500% | 8.819% | 12/13/29 | 14,352 | 14,359 | |
| 5 | Brown Group Holding LLC Term Loan B, TSFR1M + 2.500% | 7.805% | 6/7/28 | 20,673 | 20,483 | |
| 5 | Chemours Co. Term Loan B, TSFR1M + 1.750% | 7.169% | 4/3/25 | 1,889 | 1,882 | |
| 5 | Clarios Global LP Term Loan, TSFR1M + 3.750% | 9.069% | 5/6/30 | 29,422 | 29,392 | |
| 5 | Cloud Software Group Inc. Term Loan B, TSFR3M + 4.500% | 9.842% | 3/30/29 | 33,205 | 31,778 | |
| 5 | CommScope Inc. Term Loan B, TSFR1M + 3.250% | 8.555% | 4/6/26 | 21,125 | 19,616 | |
| 5 | DirecTV Financing LLC Term Loan, TSFR1M + 5.000% | 10.433% | 8/2/27 | 27,013 | 26,828 | |
| Dun & Bradstreet Corp. Term Loan B, TSFR1M + 3.000% | 8.416% | 2/6/26 | 53,264 | 53,264 | ||
| 5 | First Student Bidco Inc. Term Loan B, TSFR3M + 3.000% | 8.501% | 7/21/28 | 17,414 | 16,940 | |
| 5 | First Student Bidco Inc. Term Loan C, TSFR3M + 3.000% | 8.501% | 7/21/28 | 6,514 | 6,337 | |
| 5 | Fortrea Holdings Inc. Term Loan B TSFR3M + 3.750% | 8.992% | 7/1/30 | 2,258 | 2,259 | |
| 5,6 | HUB International Ltd. Term Loan B, TSFR1M + 4.250% | 9.584% | 6/20/30 | 33,161 | 33,277 | |
| 5 | IRB Holding Corp. Term Loan B, TSFR1M + 3.000% | 8.419% | 12/15/27 | 44,729 | 44,473 | |
| 5 | McAfee LLC Term Loan B, TSFR1M + 3.750% | 8.963% | 3/1/29 | 36,042 | 34,789 | |
| 5 | Medline Borrower LP Term Loan B, TSFR1M + 3.250% | 8.683% | 10/23/28 | 60,784 | 60,124 | |
| 5 | Mileage Plus Holdings LLC Term Loan B, 3M USD LIBOR + 5.250% | 10.764% | 6/21/27 | 26,791 | 27,914 | |
| 5 | NorthRiver Midstream Finance LP Term Loan B, TSFR1M + 3.250% | 8.780% | 10/1/25 | 22,574 | 22,522 | |
| 5 | Open Text Corp. Term Loan B, TSFR1M +3.500% | 8.919% | 1/31/30 | 4,836 | 4,840 | |
| 5 | Peraton Corp. Term Loan B, TSFR1M + 3.750% | 9.169% | 2/1/28 | 16,518 | 16,366 | |
| 5,6 | PetSmart LLC Term Loan B, TSFR1M + 3.750% | 9.169% | 2/11/28 | 5,000 | 4,992 | |
| 5 | SBA Senior Finance II LLC Term Loan B, TSFR1M + 1.750% | 7.170% | 4/11/25 | 28,427 | 28,392 | |
| 5 | SkyMiles IP Ltd. Term Loan B, TSFR3M + 3.750% | 9.076% | 10/20/27 | 48,191 | 50,064 | |
| 5 | Spirit AeroSystems Inc. Term Loan, TSFR3M + 4.500% | 9.869% | 1/15/27 | 955 | 956 | |
| 5 | SS&C Technologies Inc. Term Loan B-5, TSFR1M + 1.750% | 7.183% | 4/16/25 | 21,817 | 21,800 | |
| 5 | Trans Union LLC Term Loan B-6, TSFR1M + 2.250% | 7.683% | 12/1/28 | 13,705 | 13,679 | |
| 5 | TransDigm Inc. Term Loan H, TSFR3M + 3.250% | 8.492% | 2/22/27 | 920 | 915 | |
| 5 | TransDigm Inc. Term Loan I, TSFR3M + 3.250% | 8.492% | 8/24/28 | 5,687 | 5,690 | |
| 5 | Zayo Group Holdings Inc. Term Loan, TSFR1M + 3.000% | 8.433% | 3/9/27 | 5,360 | 4,074 | |
| Total Floating Rate Loan Interests (Cost $710,436) | 714,045 | |||||
| Shares | ||||||
| Temporary Cash Investments (5.2%) | ||||||
| Money Market Fund (1.2%) | ||||||
| 11 | Vanguard Market Liquidity Fund | 5.274% | 2,711,912 | 271,137 | ||
| Maturity Date | Face Amount ($000) | |||||
| Repurchase Agreements (2.7%) | ||||||
| Bank of America Securities LLC (Dated 7/31/23, Repurchase Value $158,823,000, collateralized by U.S. Treasury Note/Bond 1.375%–4.500%, 11/30/24–10/31/28, with a value of $161,976,000) | 5.300% | 8/1/23 | 158,800 | 158,800 | ||
| Credit Agricole Securities (Dated 7/31/23, Repurchase Value $114,217,000, collateralized by U.S. Treasury Note/Bond 4.125%, 6/15/26, with a value of $116,484,000) | 5.280% | 8/1/23 | 114,200 | 114,200 | ||
19
High-Yield Corporate Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| JP Morgan Securities LLC (Dated 7/31/23, Repurchase Value $14,002,000, collateralized by U.S. Treasury Note/Bond 0.375%–3.500%, 9/15/25–2/15/49, with a value of $14,280,000) | 5.290% | 8/1/23 | 14,000 | 14,000 | ||
| JP Morgan Securities LLC (Dated 7/31/23, Repurchase Value $59,709,000, collateralized by U.S. Treasury Inflation Indexed Note/Bond 0.375%, 7/15/27, with a value of $60,894,000) | 5.280% | 8/1/23 | 59,700 | 59,700 | ||
| RBC Capital Markets LLC (Dated 7/31/23, Repurchase Value $139,020,000, collateralized by U.S. Treasury Bill 0.000%, 10/19/23–6/13/24, and U.S. Treasury Note/Bond 1.750%, 6/30/24, with a value of $141,780,000) | 5.300% | 8/1/23 | 139,000 | 139,000 | ||
| TD Securities (USA) LLC (Dated 7/31/23, Repurchase Value $139,821,000, collateralized by Ginnie Mae 3.000%–5.000%, 1/20/51–9/20/52, with a value of $142,596,000) | 5.300% | 8/1/23 | 139,800 | 139,800 | ||
| 625,500 | ||||||
| U.S. Government and Agency Obligations (1.3%) | ||||||
| 12 | United States Treasury Bill | 0.010% | 10/26/23 | 156,025 | 154,061 | |
| United States Treasury Bill | 0.010% | 1/11/24 | 154,075 | 150,402 | ||
| 304,463 | ||||||
| Total Temporary Cash Investments (Cost $1,201,236) | 1,201,100 | |||||
| Total Investments (99.9%) (Cost $24,526,509) | 23,131,708 | |||||
| Other Assets and Liabilities—Net (0.1%) | 14,179 | |||||
| Net Assets (100%) | 23,145,887 | |||||
| Cost is in $000. | ||||||
| • | See Note A in Notes to Financial Statements. |
| 1 | Securities with a value of $61,461,000 have been segregated as initial margin for open centrally cleared swap contracts. |
| 2 | Securities with a value of $5,351,000 have been segregated as initial margin for open futures 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, 2023, the aggregate value was $15,070,605,000, representing 65.1% of net assets. |
| 4 | Face amount denominated in euro. |
| 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 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2023. |
| 7 | Face amount denominated in Canadian dollars. |
| 8 | Face amount denominated in British pounds. |
| 9 | 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. |
| 10 | Represents an unsettled loan as of July 31, 2023. The coupon rate is not known until the settlement date. |
| 11 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 12 | Securities with a value of $721,000 have been segregated as collateral for open forward currency contracts. |
| 3M—3-month. | |
| DAC—Designated Activity Company. | |
| LIBOR—London Interbank Offered Rate. | |
| SOFR30A—30 Day Average Secured Overnight Financing Rate. | |
| TSFR1M—CME Term Secured Overnight Financing Rate 1-Month. | |
| TSFR3M—CME Term Secured Overnight Financing Rate 3-Month. | |
| USD—U.S. dollar. |
20
High-Yield Corporate Fund
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. | 3,453 | 3,354 | — | (99) |
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 2023 | 1,829 | 371,344 | (4,122) |
| 5-Year U.S. Treasury Note | September 2023 | 2,131 | 227,634 | (1,856) |
| 10-Year U.S. Treasury Note | September 2023 | 355 | 39,549 | (495) |
| Long U.S. Treasury Bond | September 2023 | 330 | 41,064 | (833) |
| Ultra 10-Year U.S. Treasury Note | September 2023 | 262 | 30,650 | (470) |
| Ultra Long U.S. Treasury Bond | September 2023 | 50 | 6,611 | (139) |
| (7,915) | ||||
| Short Futures Contracts | ||||
| 2-Year U.S. Treasury Note | September 2023 | (149) | (30,252) | 35 |
| 10-Year U.S. Treasury Note | September 2023 | (2,694) | (300,128) | 4,609 |
| Long U.S. Treasury Bond | September 2023 | (40) | (4,978) | 123 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (73) | (8,540) | 118 |
| Ultra Long U.S. Treasury Bond | September 2023 | (6) | (793) | 15 |
| 4,900 | ||||
| (3,015) | ||||
| Forward Currency Contracts | |||||||
| Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
| Counterparty | Receive | Deliver | |||||
| UBS AG | 8/31/23 | USD | 81,191 | CAD | 107,251 | — | (178) |
| Deutsche Bank AG | 8/31/23 | USD | 675,927 | EUR | 609,659 | 4,515 | — |
| JPMorgan Chase Bank, N.A. | 8/31/23 | USD | 2,961 | EUR | 2,685 | 4 | — |
| Barclays Bank plc | 8/31/23 | USD | 48,733 | GBP | 37,919 | 63 | — |
| 4,582 | (178) | ||||||
| CAD—Canadian dollar. |
| EUR—euro. |
| GBP—British pound. |
| USD—U.S. dollar. |
21
High-Yield Corporate Fund
At July 31, 2023, the
counterparties had deposited in segregated accounts securities with a value of $492,000 in connection with open forward currency contracts.
| 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-S40-V1 | 6/21/28 | USD | 664,480 | 5.000 | 27,726 | 23,585 |
| 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.
22
High-Yield Corporate Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $24,255,370) | 22,860,571 |
| Affiliated Issuers (Cost $271,139) | 271,137 |
| Total Investments in Securities | 23,131,708 |
| Investment in Vanguard | 778 |
| Cash | 2,328 |
| Foreign Currency, at Value (Cost $7,791) | 7,764 |
| Receivables for Investment Securities Sold | 24,261 |
| Receivables for Accrued Income | 309,773 |
| Receivables for Capital Shares Issued | 20,351 |
| Variation Margin Receivable—Futures Contracts | 144 |
| Unrealized Appreciation—Forward Currency Contracts | 4,582 |
| Total Assets | 23,501,689 |
| Liabilities | |
| Payables for Investment Securities Purchased | 281,356 |
| Payables to Investment Advisor | 1,210 |
| Payables for Capital Shares Redeemed | 46,308 |
| Payables for Distributions | 24,034 |
| Payables to Vanguard | 1,139 |
| Unrealized Depreciation—Floating Rate Loan Commitments | 99 |
| Unrealized Depreciation—Forward Currency Contracts | 178 |
| Variation Margin Payable—Centrally Cleared Swap Contracts | 1,478 |
| Total Liabilities | 355,802 |
| Net Assets | 23,145,887 |
23
High-Yield Corporate Fund
| Statement of Assets and Liabilities (continued) | |
| At July 31, 2023, net assets consisted of: | |
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Paid-in Capital | 26,362,570 |
| Total Distributable Earnings (Loss) | (3,216,683) |
| Net Assets | 23,145,887 |
| Investor Shares—Net Assets | |
| Applicable to 558,190,328 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 2,929,655 |
| Net Asset Value Per Share—Investor Shares | $5.25 |
| Admiral Shares—Net Assets | |
| Applicable to 3,851,820,916 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 20,216,232 |
| Net Asset Value Per Share—Admiral Shares | $5.25 |
See accompanying
Notes, which are an integral part of the Financial Statements.
24
High-Yield Corporate Fund
Statement of Operations
| Six Months Ended July 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 670,236 |
| Total Income | 670,236 |
| Expenses | |
| Investment Advisory Fees—Note B | 3,694 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 2,601 |
| Management and Administrative—Admiral Shares | 8,082 |
| Marketing and Distribution—Investor Shares | 113 |
| Marketing and Distribution—Admiral Shares | 644 |
| Custodian Fees | 65 |
| Shareholders’ Reports—Investor Shares | 45 |
| Shareholders’ Reports—Admiral Shares | 106 |
| Trustees’ Fees and Expenses | 6 |
| Other Expenses | 9 |
| Total Expenses | 15,365 |
| Expenses Paid Indirectly | (53) |
| Net Expenses | 15,312 |
| Net Investment Income | 654,924 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (436,037) |
| Futures Contracts | (4,581) |
| Swap Contracts | 39,589 |
| Forward Currency Contracts | (4,349) |
| Foreign Currencies | 519 |
| Realized Net Gain (Loss) | (404,859) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | 220,383 |
| Floating Rate Loan Commitments | 225 |
| Futures Contracts | (1,277) |
| Swap Contracts | (12,118) |
| Forward Currency Contracts | 1,469 |
| Foreign Currencies | (315) |
| Change in Unrealized Appreciation (Depreciation) | 208,367 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 458,432 |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $4,441,000, ($12,000), and ($12,000), respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
25
High-Yield Corporate Fund
Statement of Changes in Net Assets
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 654,924 | 1,244,219 | |
| Realized Net Gain (Loss) | (404,859) | (787,055) | |
| Change in Unrealized Appreciation (Depreciation) | 208,367 | (1,539,235) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 458,432 | (1,082,071) | |
| Distributions | |||
| Investor Shares | (85,783) | (157,825) | |
| Admiral Shares | (594,328) | (1,120,494) | |
| Total Distributions | (680,111) | (1,278,319) | |
| Capital Share Transactions | |||
| Investor Shares | (82,297) | (281,664) | |
| Admiral Shares | (163,561) | (2,367,257) | |
| Net Increase (Decrease) from Capital Share Transactions | (245,858) | (2,648,921) | |
| Total Increase (Decrease) | (467,537) | (5,009,311) | |
| Net Assets | |||
| Beginning of Period | 23,613,424 | 28,622,735 | |
| End of Period | 23,145,887 | 23,613,424 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
26
High-Yield Corporate Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $5.30 | $5.77 | $5.96 | $5.94 | $5.67 | $5.91 |
| Investment Operations | ||||||
| Net Investment Income1 | .146 | .261 | .238 | .259 | .302 | .317 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.044) | (.462) | (.185) | .034 | .278 | (.230) |
| Total from Investment Operations | .102 | (.201) | .053 | .293 | .580 | .087 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.152) | (.269) | (.243) | (.273) | (.310) | (.327) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.152) | (.269) | (.243) | (.273) | (.310) | (.327) |
| Net Asset Value, End of Period | $5.25 | $5.30 | $5.77 | $5.96 | $5.94 | $5.67 |
| Total Return2 | 1.97% | -3.37% | 0.84% | 5.22% | 10.45% | 1.61% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $2,930 | $3,041 | $3,612 | $3,877 | $4,102 | $3,557 |
| Ratio of Total Expenses to Average Net Assets | 0.22%3 | 0.23%3 | 0.23% | 0.23% | 0.23% | 0.23% |
| Ratio of Net Investment Income to Average Net Assets | 5.65% | 4.90% | 4.00% | 4.51% | 5.16% | 5.55% |
| Portfolio Turnover Rate | 20% | 36% | 31% | 38% | 28% | 21% |
| 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 0.22% and 0.23%, respectively. |
See accompanying
Notes, which are an integral part of the Financial Statements.
27
High-Yield Corporate Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $5.30 | $5.77 | $5.96 | $5.94 | $5.67 | $5.91 |
| Investment Operations | ||||||
| Net Investment Income1 | .149 | .266 | .244 | .265 | .308 | .323 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.045) | (.462) | (.185) | .033 | .278 | (.230) |
| Total from Investment Operations | .104 | (.196) | .059 | .298 | .586 | .093 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.154) | (.274) | (.249) | (.278) | (.316) | (.333) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.154) | (.274) | (.249) | (.278) | (.316) | (.333) |
| Net Asset Value, End of Period | $5.25 | $5.30 | $5.77 | $5.96 | $5.94 | $5.67 |
| Total Return2 | 2.02% | -3.27% | 0.94% | 5.32% | 10.55% | 1.71% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $20,216 | $20,573 | $25,011 | $24,798 | $22,701 | $19,285 |
| Ratio of Total Expenses to Average Net Assets | 0.12%3 | 0.13%3 | 0.13% | 0.13% | 0.13% | 0.13% |
| Ratio of Net Investment Income to Average Net Assets | 5.75% | 5.00% | 4.10% | 4.60% | 5.26% | 5.65% |
| Portfolio Turnover Rate | 20% | 36% | 31% | 38% | 28% | 21% |
| 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% and 0.13%, respectively. |
See accompanying
Notes, which are an integral part of the Financial Statements.
28
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.
| 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
valuation designee to represent fair value and subject to oversight by the board of trustees.
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 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
29
High-Yield Corporate Fund
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 Liabilitiesas 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, 2023, the fund’s average investments in long and short futures contracts represented 2% and 1% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
6. 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
30
High-Yield Corporate Fund
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, 2023, 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.
7. 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 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
31
High-Yield Corporate Fund
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, 2023, the fund’s average amounts of investments in credit protection sold and credit protection purchased represented 2% and 0% of net assets, respectively, based on the average of the notional amounts
at each quarter-end during the period.
8. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually 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.
9. 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.
10. Credit Facilities
and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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
32
High-Yield Corporate Fund
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, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
11. 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 $1,265,000 for the six months ended July 31, 2023.
For the six months
ended July 31, 2023, the aggregate investment advisory fee paid to all advisors represented an effective annual rate of 0.03% 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. |
33
High-Yield Corporate 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, 2023, the fund had contributed to Vanguard capital in the amount of $778,000, representing less than 0.01% of the fund’s net
assets and 0.31% 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, 2023, custodian fee offset arrangements reduced the fund’s expenses by $53,000 (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. |
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.
34
High-Yield Corporate Fund
The following table summarizes
the market value of the fund’s investments, other financial instruments, and derivatives as of July 31, 2023, 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 | — | 980,913 | — | 980,913 |
| Corporate Bonds | — | 20,235,650 | — | 20,235,650 |
| Floating Rate Loan Interests | — | 714,045 | — | 714,045 |
| Temporary Cash Investments | 271,137 | 929,963 | — | 1,201,100 |
| Total | 271,137 | 22,860,571 | — | 23,131,708 |
| Other Financial Instruments | ||||
| Liabilities | ||||
| Floating Rate Loan Commitments | — | 99 | — | 99 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 4,900 | — | — | 4,900 |
| Forward Currency Contracts | — | 4,582 | — | 4,582 |
| Swap Contracts | 23,5851 | — | — | 23,585 |
| Total | 28,485 | 4,582 | — | 33,067 |
| Liabilities | ||||
| Futures Contracts1 | 7,915 | — | — | 7,915 |
| Forward Currency Contracts | — | 178 | — | 178 |
| Total | 7,915 | 178 | — | 8,093 |
| 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. | At July 31, 2023, 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) |
| Unrealized Appreciation—Futures Contracts1 | 4,900 | — | — | 4,900 |
| Unrealized Appreciation—Centrally Cleared Swap Contracts | — | — | 23,585 | 23,585 |
| Unrealized Appreciation—Forward Currency Contracts | — | 4,582 | — | 4,582 |
| Total Assets | 4,900 | 4,582 | 23,585 | 33,067 |
| Unrealized Depreciation—Futures Contracts1 | 7,915 | — | — | 7,915 |
35
High-Yield Corporate Fund
| Statement of Assets and Liabilities | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Unrealized Depreciation—Forward Currency Contracts | — | 178 | — | 178 |
| Total Liabilities | 7,915 | 178 | — | 8,093 |
| 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, 2023, were:
| Realized Net Gain (Loss) on Derivatives | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Credit Contracts ($000) | Total ($000) |
| Futures Contracts | (4,581) | — | — | (4,581) |
| Swap Contracts | — | — | 39,589 | 39,589 |
| Forward Currency Contracts | — | (4,349) | — | (4,349) |
| Realized Net Gain (Loss) on Derivatives | (4,581) | (4,349) | 39,589 | 30,659 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | ||||
| Futures Contracts | (1,277) | — | — | (1,277) |
| Swap Contracts | — | — | (12,118) | (12,118) |
| Forward Currency Contracts | — | 1,469 | — | 1,469 |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | (1,277) | 1,469 | (12,118) | (11,926) |
| G. | As of July 31, 2023, 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 | 24,485,630 |
| Gross Unrealized Appreciation | 211,099 |
| Gross Unrealized Depreciation | (1,540,146) |
| Net Unrealized Appreciation (Depreciation) | (1,329,047) |
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, 2023, the fund had available capital losses totaling $1,464,166,000 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, 2024; should the fund realize net
capital losses for the year, the losses will be added to the loss carryforward balance above.
36
High-Yield Corporate Fund
| H. | During the six months ended July 31, 2023, the fund purchased $3,114,558,000 of investment securities and sold $3,196,435,000 of investment securities, other than U.S. government securities andtemporary cash investments.Purchases and sales of U.S. government securities were $1,307,115,000 and $1,695,066,000, respectively. |
| I. | Capital share transactions for each class of shares were: |
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 212,413 | 40,709 | 497,489 | 93,790 | |
| Issued in Lieu of Cash Distributions | 72,658 | 13,915 | 133,453 | 25,232 | |
| Redeemed | (367,368) | (70,430) | (912,606) | (171,056) | |
| Net Increase (Decrease)—Investor Shares | (82,297) | (15,806) | (281,664) | (52,034) | |
| Admiral Shares | |||||
| Issued | 1,527,660 | 292,759 | 4,440,999 | 830,126 | |
| Issued in Lieu of Cash Distributions | 462,420 | 88,559 | 868,371 | 164,160 | |
| Redeemed | (2,153,641) | (413,210) | (7,676,627) | (1,445,674) | |
| Net Increase (Decrease)—Admiral Shares | (163,561) | (31,892) | (2,367,257) | (451,388) | |
| J. | 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. |
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund’s use of derivative(s) and the specific risks associated is described under significant accounting policies.
| K. | Management has determined that no other events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements. |
37
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard High-Yield
Corporate Fund has renewed the fund’s investment advisory arrangements with Wellington Management Company llp (Wellington Management) and The Vanguard Group, Inc. (Vanguard), through its Fixed Income Group. The board determined that renewing the fund’s advisory arrangements
was in the best interests of the fund and its 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 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 advisors.
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 the
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:
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 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
tradeoff 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 fund since
its inception in 1978.
Vanguard. 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. Vanguard has managed a portion of the fund since 2022.
38
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
performance of the fund and each advisor, 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 the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory expense 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 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
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 managed by Wellington Management increase.
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 managed by Vanguard increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
39
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, 2022, through December 31, 2022 (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.
40
This page intentionally left blank.
Connect with
Vanguard®>vanguard.com
Semiannual Report | July 31, 2023
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, 2023 | |||
| Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| GNMA Fund | |||
| Investor Shares | $1,000.00 | $988.20 | $1.04 |
| Admiral™ Shares | 1,000.00 | 988.70 | 0.54 |
| 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, 2023
| 0 - 5 Years | 0.6% |
| 5 - 10 Years | 1.7 |
| 10 - 15 Years | 2.0 |
| 15 - 20 Years | 12.3 |
| 20 - 25 Years | 22.8 |
| Over 25 Years | 60.6 |
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, 2023
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 (98.1%) | ||||||
| Conventional Mortgage-Backed Securities (91.1%) | ||||||
| 1,2 | Fannie Mae Pool | 2.120% | 5/1/31 | 20,825 | 17,423 | |
| 1,2 | Fannie Mae Pool | 2.250% | 4/1/33 | 27,145 | 22,265 | |
| 1,2 | Fannie Mae Pool | 2.690% | 3/1/37 | 7,984 | 6,552 | |
| 1,2 | Fannie Mae Pool | 2.950% | 6/1/31 | 1,922 | 1,716 | |
| 1,2 | Fannie Mae Pool | 2.960% | 6/1/31 | 2,298 | 2,061 | |
| 1,2 | Fannie Mae Pool | 3.010% | 8/1/34 | 2,045 | 1,761 | |
| 1,2 | Fannie Mae Pool | 3.050% | 7/1/31 | 1,970 | 1,770 | |
| 1,2 | Fannie Mae Pool | 3.240% | 3/1/28 | 5,852 | 5,489 | |
| 1,2 | Fannie Mae Pool | 3.260% | 12/1/37 | 4,175 | 3,536 | |
| 1,2 | Fannie Mae Pool | 3.410% | 5/1/32 | 4,100 | 3,737 | |
| 1,2 | Fannie Mae Pool | 3.420% | 4/1/31 | 1,331 | 1,228 | |
| 1,2 | Fannie Mae Pool | 3.460% | 9/1/29 | 6,191 | 5,799 | |
| 1,2 | Fannie Mae Pool | 3.520% | 11/1/32 | 21,125 | 19,355 | |
| 1,2 | Fannie Mae Pool | 4.125% | 6/1/28 | 28,792 | 27,994 | |
| 1,2 | Fannie Mae Pool | 4.370% | 5/1/28 | 18,127 | 17,827 | |
| 1,2,3,4 | Fannie Mae Pool | 4.500% | 8/1/33 | 15,961 | 15,951 | |
| 1,2 | Fannie Mae Pool | 4.510% | 5/1/33 | 23,076 | 22,859 | |
| 1,2 | Fannie Mae Pool | 4.625% | 6/1/28 | 16,874 | 16,782 | |
| 1,2 | Freddie Mac Gold Pool | 3.000% | 6/1/43–1/1/47 | 10,329 | 9,198 | |
| 1,2 | Freddie Mac Gold Pool | 3.500% | 11/1/47–8/1/48 | 1,515 | 1,394 | |
| 1,2 | Freddie Mac Gold Pool | 4.000% | 9/1/30–4/1/44 | 1,819 | 1,746 | |
| 1,2 | Freddie Mac Gold Pool | 4.500% | 4/1/34–11/1/45 | 20,302 | 19,865 | |
| 1,2 | Freddie Mac Gold Pool | 5.000% | 1/1/38–4/1/44 | 7,175 | 7,271 | |
| 1 | Ginnie Mae I Pool | 2.500% | 11/15/42–12/15/46 | 47,748 | 41,820 | |
| 1 | Ginnie Mae I Pool | 3.000% | 1/15/26–3/15/46 | 388,149 | 347,363 | |
| 1 | Ginnie Mae I Pool | 3.250% | 8/15/42 | 8,747 | 8,013 | |
| 1 | Ginnie Mae I Pool | 3.500% | 7/15/39–6/15/48 | 313,616 | 290,428 | |
| 1 | Ginnie Mae I Pool | 3.750% | 7/15/42 | 1,022 | 963 | |
| 1 | Ginnie Mae I Pool | 3.875% | 10/15/40–6/15/42 | 14,560 | 13,832 | |
| 1 | Ginnie Mae I Pool | 4.000% | 8/15/24–7/15/46 | 427,674 | 403,042 | |
| 1 | Ginnie Mae I Pool | 4.500% | 4/15/33–4/15/44 | 219,320 | 215,025 | |
| 1 | Ginnie Mae I Pool | 5.000% | 1/15/30–7/15/52 | 216,737 | 215,890 | |
| 1 | Ginnie Mae I Pool | 5.500% | 1/15/24–9/15/45 | 159,717 | 162,439 | |
| 1 | Ginnie Mae I Pool | 6.000% | 2/15/24–3/15/40 | 65,365 | 66,253 | |
| 1 | Ginnie Mae I Pool | 6.500% | 10/15/23–7/15/40 | 56,988 | 57,667 | |
| 1 | Ginnie Mae I Pool | 7.000% | 11/15/31–11/15/36 | 8,564 | 8,732 | |
| 1 | Ginnie Mae I Pool | 7.250% | 1/15/27 | 5 | 5 | |
| 1 | Ginnie Mae I Pool | 7.500% | 10/15/31 | 4,631 | 4,757 | |
| 1 | Ginnie Mae I Pool | 8.000% | 8/15/31 | 1,569 | 1,640 | |
4
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Ginnie Mae I Pool | 8.500% | 11/15/26–6/15/28 | 7 | 8 | |
| 1 | Ginnie Mae II Pool | 1.500% | 4/20/44–4/20/52 | 140,595 | 112,105 | |
| 1,4,5 | Ginnie Mae II Pool | 2.000% | 10/20/43–8/15/53 | 3,035,212 | 2,542,277 | |
| 1,4,5 | Ginnie Mae II Pool | 2.500% | 11/20/42–8/15/53 | 3,552,169 | 3,067,581 | |
| 1,4,5 | Ginnie Mae II Pool | 3.000% | 4/20/31–8/15/53 | 2,940,019 | 2,640,119 | |
| 1,4,5,6 | Ginnie Mae II Pool | 3.500% | 10/20/40–8/15/53 | 1,912,506 | 1,785,182 | |
| 1,4 | Ginnie Mae II Pool | 4.000% | 4/20/39–8/15/53 | 456,439 | 445,277 | |
| 1,4 | Ginnie Mae II Pool | 4.500% | 12/20/32–8/15/53 | 608,948 | 592,118 | |
| 1,4 | Ginnie Mae II Pool | 5.000% | 10/20/32–8/15/53 | 997,089 | 978,692 | |
| 1,4 | Ginnie Mae II Pool | 5.500% | 1/20/34–8/15/53 | 103,424 | 103,141 | |
| 1 | Ginnie Mae II Pool | 6.000% | 4/20/28–10/20/38 | 1,226 | 1,254 | |
| 1 | Ginnie Mae II Pool | 6.500% | 5/20/37–3/20/41 | 454 | 479 | |
| 1 | Ginnie Mae II Pool | 7.500% | 8/20/25 | 15 | 15 | |
| 1,2,4 | UMBS Pool | 2.000% | 11/1/46–8/25/53 | 4,853 | 3,933 | |
| 1,2,4 | UMBS Pool | 2.500% | 7/1/27–8/25/53 | 3,665 | 4,225 | |
| 1,2 | UMBS Pool | 3.000% | 12/1/25–6/1/49 | 19,123 | 18,251 | |
| 1,2,4 | UMBS Pool | 3.500% | 9/1/46–8/25/53 | 3,996 | 4,062 | |
| 1,2 | UMBS Pool | 4.000% | 5/1/46–6/1/46 | 1,974 | 1,877 | |
| 1,2,4 | UMBS Pool | 4.500% | 12/1/40–8/25/53 | 3,213 | 3,099 | |
| 1,2 | UMBS Pool | 5.000% | 9/1/35 | 3,986 | 3,949 | |
| 1,2,4 | UMBS Pool | 5.500% | 6/1/53–8/25/53 | 163,689 | 162,711 | |
| 1,2 | UMBS Pool | 6.000% | 12/1/52 | 47,695 | 48,539 | |
| 1,2 | UMBS Pool | 6.500% | 2/1/29–5/1/40 | 864 | 895 | |
| 14,591,237 | ||||||
| Nonconventional Mortgage-Backed Securities (7.0%) | ||||||
| 1,2,7 | Fannie Mae Pool, 12M USD LIBOR + 1.560% | 4.347% | 8/1/43 | 1,862 | 1,860 | |
| 1,2,7 | Fannie Mae Pool, 12M USD LIBOR + 1.580% | 3.971% | 9/1/44 | 2,803 | 2,804 | |
| 1,2 | Fannie Mae REMICS | 1.500% | 11/25/50–1/25/51 | 27,418 | 13,712 | |
| 1,2 | Fannie Mae REMICS | 2.000% | 9/25/42 | 3,469 | 3,098 | |
| 1,2 | Fannie Mae REMICS | 2.500% | 10/25/42 | 2,831 | 2,588 | |
| 1,2 | Fannie Mae REMICS | 3.000% | 4/25/40–7/25/49 | 64,981 | 57,196 | |
| 1,2 | Fannie Mae REMICS | 3.500% | 7/25/44–4/25/59 | 69,067 | 60,196 | |
| 1,2 | Fannie Mae REMICS | 6.000% | 10/25/28–9/25/32 | 1,319 | 1,320 | |
| 1,2 | Freddie Mac Non Gold Pool | 2.949% | 10/1/44 | 1,829 | 1,756 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.600% | 3.850% | 10/1/44 | 4,527 | 4,588 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.615% | 4.148% | 9/1/44 | 2,256 | 2,286 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.620% | 3.870% | 9/1/43 | 2,093 | 2,142 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.620% | 3.893% | 10/1/44 | 2,534 | 2,565 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.620% | 4.016% | 7/1/44 | 1,225 | 1,244 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.630% | 4.065% | 4/1/44 | 2,415 | 2,415 | |
| 1,2,7 | Freddie Mac Non Gold Pool, 12M USD LIBOR + 1.638% | 4.591% | 8/1/43 | 2,492 | 2,445 | |
| 1,2 | Freddie Mac REMICS | 2.000% | 4/15/42 | 3,761 | 3,363 | |
| 1,2 | Freddie Mac REMICS | 2.500% | 3/25/52 | 5,369 | 3,626 | |
| 1,2 | Freddie Mac REMICS | 3.000% | 8/15/42–3/15/43 | 77,163 | 69,205 | |
| 1,2 | Freddie Mac REMICS | 3.500% | 8/15/45–1/25/46 | 19,029 | 17,320 | |
| 1,2 | Freddie Mac REMICS | 4.000% | 6/15/54 | 3,885 | 3,156 | |
| 1,2 | Freddie Mac REMICS | 6.000% | 4/15/28–11/15/32 | 3,724 | 3,741 | |
| 1 | Ginnie Mae REMICS | 1.000% | 8/20/50–6/20/51 | 32,355 | 24,822 | |
| 1 | Ginnie Mae REMICS | 1.500% | 4/16/50–9/20/50 | 67,317 | 53,299 | |
5
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| 1 | Ginnie Mae REMICS | 1.650% | 11/20/45 | 32,135 | 28,480 | |
| 1 | Ginnie Mae REMICS | 1.750% | 7/20/44 | 16,048 | 13,255 | |
| 1 | Ginnie Mae REMICS | 2.000% | 7/20/42–1/20/52 | 75,030 | 64,230 | |
| 1 | Ginnie Mae REMICS | 2.250% | 3/16/45 | 6,469 | 5,775 | |
| 1 | Ginnie Mae REMICS | 2.375% | 4/20/44 | 5,283 | 4,748 | |
| 1 | Ginnie Mae REMICS | 2.500% | 12/16/39–2/20/52 | 172,903 | 145,592 | |
| 1 | Ginnie Mae REMICS | 2.650% | 11/17/48 | 2,662 | 2,548 | |
| 1 | Ginnie Mae REMICS | 3.000% | 6/20/39–3/20/52 | 391,046 | 340,291 | |
| 1 | Ginnie Mae REMICS | 3.250% | 8/20/44–2/20/49 | 12,772 | 10,748 | |
| 1 | Ginnie Mae REMICS | 3.500% | 7/20/43–1/20/52 | 83,093 | 75,335 | |
| 1 | Ginnie Mae REMICS | 3.675% | 10/20/48 | 11,443 | 10,306 | |
| 1 | Ginnie Mae REMICS | 3.750% | 12/16/39 | 2,272 | 1,965 | |
| 1 | Ginnie Mae REMICS | 4.000% | 9/20/44–12/20/48 | 54,998 | 51,448 | |
| 1 | Ginnie Mae REMICS | 4.500% | 6/20/39–4/16/41 | 19,066 | 18,442 | |
| 1 | Ginnie Mae REMICS | 5.000% | 6/16/37 | 5,126 | 5,026 | |
| 1 | Ginnie Mae REMICS | 5.500% | 8/16/36 | 4,536 | 4,567 | |
| 1,7 | Ginnie Mae REMICS, TSFR1M + 0.314% | 5.569% | 2/20/37 | 1,217 | 1,198 | |
| 1,124,701 | ||||||
| Total U.S. Government and Agency Obligations (Cost $17,291,593) | 15,715,938 | |||||
| Asset-Backed/Commercial Mortgage-Backed Securities (1.2%) | ||||||
| 1 | Seasoned Credit Risk Transfer Trust Series 2018-3 | 3.500% | 8/25/57 | 10,113 | 8,163 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2018-4 | 3.500% | 3/25/58 | 10,636 | 8,876 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2019-1 | 3.500% | 7/25/58 | 14,650 | 11,824 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2019-3 | 3.500% | 10/25/58 | 108,564 | 97,045 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2019-3 | 3.500% | 10/25/58 | 13,657 | 12,057 | |
| 1 | Seasoned Credit Risk Transfer Trust Series 2020-1 | 2.500% | 8/25/59 | 68,603 | 57,710 | |
| Total Asset-Backed/Commercial Mortgage-Backed Securities (Cost $237,986) | 195,675 | |||||
| Shares | ||||||
| Temporary Cash Investments (4.7%) | ||||||
| Money Market Fund (0.7%) | ||||||
| 8 | Vanguard Market Liquidity Fund | 5.274% | 1,089,407 | 108,919 | ||
| Maturity Date | Face Amount ($000) | |||||
| Repurchase Agreements (4.0%) | ||||||
| Bank of America Securities LLC (Dated 7/31/23, Repurchase Value $38,906,000, collateralized by U.S. Treasury Note/Bond 1.750%, 12/31/24, with a value of $39,678,000) | 5.300% | 8/1/23 | 38,900 | 38,900 | ||
6
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| Bank of Nova Scotia (Dated 7/31/23, Repurchase Value $34,005,000, collateralized by U.S. Treasury Bill 0.000%, 10/12/23, and U.S. Treasury Note/Bond 0.125%–3.625%, 9/30/23–2/15/44, with a value of $34,685,000) | 5.270% | 8/1/23 | 34,000 | 34,000 | ||
| Barclays Capital Inc. (Dated 7/31/23, Repurchase Value $75,611,000, collateralized by U.S. Treasury Note/Bond 0.500%–2.875%, 3/31/25–5/15/32, with a value of $77,112,000) | 5.300% | 8/1/23 | 75,600 | 75,600 | ||
| Citigroup Global Markets Inc. (Dated 7/31/23, Repurchase Value $30,004,000, collateralized by U.S. Treasury Note/Bond 0.250%–4.625%, 2/28/25–10/31/25, with a value of $30,600,000) | 5.270% | 8/1/23 | 30,000 | 30,000 | ||
| Credit Agricole Securities (USA) Inc. (Dated 7/31/23, Repurchase Value $29,804,000, collateralized by Treasury Inflation Indexed Note/Bond 0.125%–1.125%, 4/15/27–1/15/33, with a value of $30,396,000) | 5.280% | 8/1/23 | 29,800 | 29,800 | ||
| HSBC Bank USA (Dated 7/31/23, Repurchase Value $58,809,000, collateralized by Treasury Inflation Indexed Note/Bond 0.125%–0.500%, 4/15/24–4/15/27, and U.S. Treasury Note/Bond 2.375%–4.000%, 2/29/24–7/31/30, with a value of $59,976,000) | 5.270% | 8/1/23 | 58,800 | 58,800 | ||
| HSBC Bank USA (Dated 7/31/23, Repurchase Value $75,511,000, collateralized by Fannie Mae 2.500%–5.000%, 2/1/35–11/1/52, with a value of $77,010,000) | 5.300% | 8/1/23 | 75,500 | 75,500 | ||
| JP Morgan Securities LLC (Dated 7/31/23, Repurchase Value $14,002,000, collateralized by U.S. Treasury Note/Bond 1.125%, 2/29/28, with a value of $14,280,000) | 5.290% | 8/1/23 | 14,000 | 14,000 | ||
| Natixis SA (Dated 7/31/23, Repurchase Value $81,712,000, collateralized by Treasury Inflation Indexed Note/Bond 0.250%–1.375%, 2/15/44–2/15/50, U.S. Treasury Bill 0.000%, 10/12/23–11/9/23, and U.S. Treasury Note/Bond 0.500%–6.000%, 8/15/25–2/15/53, with a value of $83,334,000) | 5.280% | 8/1/23 | 81,700 | 81,700 | ||
| Societe Generale (Dated 7/31/23, Repurchase Value $34,005,000, collateralized by U.S. Treasury Bill 0.000%, 11/14/23–6/13/24, with a value of $34,680,000) | 5.280% | 8/1/23 | 34,000 | 34,000 | ||
7
GNMA Fund
| Coupon | Maturity Date | Face Amount ($000) | Market Value• ($000) | |||
| TD Securities (USA) LLC (Dated 7/31/23, Repurchase Value $78,912,000, collateralized by Ginnie Mae 3.000%, 9/20/51, with a value of $80,478,000) | 5.300% | 8/1/23 | 78,900 | 78,900 | ||
| Wells Fargo & Co. (Dated 7/31/23, Repurchase Value $85,013,000, collateralized by Fannie Mae 5.500%, 6/1/53, with a value of $86,700,000) | 5.310% | 8/1/23 | 85,000 | 85,000 | ||
| 636,200 | ||||||
| Total Temporary Cash Investments (Cost $745,137) | 745,119 | |||||
| Total Investments (104.0%) (Cost $18,274,716) | 16,656,732 | |||||
| Other Assets and Liabilities—Net (-4.0%) | (638,810) | |||||
| Net Assets (100%) | 16,017,922 | |||||
| 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 | Security value determined using significant unobservable inputs. |
| 4 | Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2023. |
| 5 | Securities with a value of $9,768,000 have been segregated as collateral for certain open To Be Announced (TBA) transactions. |
| 6 | Securities with a value of $14,116,000 have been segregated as initial margin for open futures contracts. |
| 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 | 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. | |
| LIBOR—London Interbank Offered Rate. | |
| REMICS—Real Estate Mortgage Investment Conduits. | |
| TSFR1M—CME Term Secured Overnight Financing Rate 1-Month. | |
| 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 | ||||
| 2-Year U.S. Treasury Note | September 2023 | 4,025 | 817,201 | (10,522) |
| 10-Year U.S. Treasury Note | September 2023 | 889 | 99,040 | (550) |
| (11,072) | ||||
| Short Futures Contracts | ||||
| 5-Year U.S. Treasury Note | September 2023 | (2,010) | (214,709) | 246 |
| Long U.S. Treasury Bond | September 2023 | (1,238) | (154,054) | 3,335 |
| Ultra 10-Year U.S. Treasury Note | September 2023 | (1,852) | (216,655) | 5,139 |
| 8,720 | ||||
| (2,352) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
9
GNMA Fund
Statement of Assets and Liabilities
As of July 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $18,165,779) | 16,547,813 |
| Affiliated Issuers (Cost $108,937) | 108,919 |
| Total Investments in Securities | 16,656,732 |
| Investment in Vanguard | 546 |
| Receivables for Investment Securities Sold | 1,053,809 |
| Receivables for Accrued Income | 44,146 |
| Receivables for Capital Shares Issued | 3,522 |
| Other Assets | 615 |
| Total Assets | 17,759,370 |
| Liabilities | |
| Due to Custodian | 256 |
| Payables for Investment Securities Purchased | 1,714,069 |
| Payables for Capital Shares Redeemed | 17,638 |
| Payables for Distributions | 7,944 |
| Payables to Investment Advisor | 429 |
| Payables to Vanguard | 927 |
| Variation Margin Payable—Futures Contracts | 185 |
| Total Liabilities | 1,741,448 |
| Net Assets | 16,017,922 |
10
GNMA Fund
| Statement of Assets and Liabilities (continued) | |
| At July 31, 2023, net assets consisted of: | |
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Paid-in Capital | 18,855,597 |
| Total Distributable Earnings (Loss) | (2,837,675) |
| Net Assets | 16,017,922 |
| Investor Shares—Net Assets | |
| Applicable to 551,611,652 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 5,065,447 |
| Net Asset Value Per Share—Investor Shares | $9.18 |
| Admiral Shares—Net Assets | |
| Applicable to 1,192,687,616 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 10,952,475 |
| Net Asset Value Per Share—Admiral Shares | $9.18 |
See accompanying Notes, which are an
integral part of the Financial Statements.
11
GNMA Fund
Statement of Operations
| Six Months Ended July 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Interest1 | 279,913 |
| Total Income | 279,913 |
| Expenses | |
| Investment Advisory Fees—Note B | 865 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 4,824 |
| Management and Administrative—Admiral Shares | 5,121 |
| Marketing and Distribution—Investor Shares | 145 |
| Marketing and Distribution—Admiral Shares | 283 |
| Custodian Fees | 212 |
| Shareholders’ Reports—Investor Shares | 62 |
| Shareholders’ Reports—Admiral Shares | 54 |
| Trustees’ Fees and Expenses | 4 |
| Other Expenses | 8 |
| Total Expenses | 11,578 |
| Expenses Paid Indirectly | (53) |
| Net Expenses | 11,525 |
| Net Investment Income | 268,388 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | (48,516) |
| Futures Contracts | 9,121 |
| Realized Net Gain (Loss) | (39,395) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (421,083) |
| Futures Contracts | (1,165) |
| Change in Unrealized Appreciation (Depreciation) | (422,248) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (193,255) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $2,624,000, $0, and ($11,000), 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, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 268,388 | 457,158 | |
| Realized Net Gain (Loss) | (39,395) | (744,685) | |
| Change in Unrealized Appreciation (Depreciation) | (422,248) | (1,248,827) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (193,255) | (1,536,354) | |
| Distributions | |||
| Investor Shares | (82,318) | (134,234) | |
| Admiral Shares | (185,934) | (319,199) | |
| Total Distributions | (268,252) | (453,433) | |
| Capital Share Transactions | |||
| Investor Shares | (60,762) | (847,109) | |
| Admiral Shares | (414,587) | (2,506,168) | |
| Net Increase (Decrease) from Capital Share Transactions | (475,349) | (3,353,277) | |
| Total Increase (Decrease) | (936,856) | (5,343,064) | |
| Net Assets | |||
| Beginning of Period | 16,954,778 | 22,297,842 | |
| End of Period | 16,017,922 | 16,954,778 | |
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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $9.44 | $10.41 | $10.73 | $10.58 | $10.31 | $10.32 |
| Investment Operations | ||||||
| Net Investment Income1 | .149 | .230 | .085 | .178 | .285 | .298 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.260) | (.969) | (.321) | .157 | .272 | (.011) |
| Total from Investment Operations | (.111) | (.739) | (.236) | .335 | .557 | .287 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.149) | (.231) | (.084) | (.176) | (.287) | (.297) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | — | — | (.009) | — | — |
| Total Distributions | (.149) | (.231) | (.084) | (.185) | (.287) | (.297) |
| Net Asset Value, End of Period | $9.18 | $9.44 | $10.41 | $10.73 | $10.58 | $10.31 |
| Total Return2 | -1.18% | -7.09% | -2.21% | 3.17% | 5.46% | 2.85% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,065 | $5,270 | $6,711 | $7,719 | $7,365 | $6,715 |
| Ratio of Total Expenses to Average Net Assets | 0.21%3 | 0.21%3 | 0.21% | 0.21% | 0.21% | 0.21% |
| Ratio of Net Investment Income to Average Net Assets | 3.24% | 2.40% | 0.80% | 1.66% | 2.71% | 2.93% |
| Portfolio Turnover Rate4 | 160% | 478% | 800% | 638% | 616% | 415% |
| 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 88%, 206%, 298%, 182%, 198%, and 200%, 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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $9.44 | $10.41 | $10.73 | $10.58 | $10.31 | $10.32 |
| Investment Operations | ||||||
| Net Investment Income1 | .154 | .239 | .098 | .184 | .295 | .309 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.260) | (.969) | (.323) | .161 | .272 | (.012) |
| Total from Investment Operations | (.106) | (.730) | (.225) | .345 | .567 | .297 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.154) | (.240) | (.095) | (.185) | (.297) | (.307) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | — | — | (.010) | — | — |
| Total Distributions | (.154) | (.240) | (.095) | (.195) | (.297) | (.307) |
| Net Asset Value, End of Period | $9.18 | $9.44 | $10.41 | $10.73 | $10.58 | $10.31 |
| Total Return2 | -1.13% | -7.00% | -2.11% | 3.28% | 5.57% | 2.95% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $10,952 | $11,685 | $15,587 | $19,602 | $17,356 | $14,706 |
| Ratio of Total Expenses to Average Net Assets | 0.11%3 | 0.11%3 | 0.11% | 0.11% | 0.11% | 0.11% |
| Ratio of Net Investment Income to Average Net Assets | 3.34% | 2.49% | 0.92% | 1.72% | 2.81% | 3.03% |
| Portfolio Turnover Rate4 | 160% | 478% | 800% | 638% | 616% | 415% |
| 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 88%, 206%, 298%, 182%, 198%, and 200%, 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.
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 valuation designee to represent fair value and subject to oversight by the board of trustees.
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, 2023,
counterparties had deposited in segregated accounts securities with a value of $2,763,000 and cash of $1,211,000 in connection with TBA transactions.
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
16
GNMA Fund
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.
During the six months ended
July 31, 2023, the fund’s average investments in long and short futures contracts represented 6% and 3% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
17
GNMA Fund
6. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually 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 $4.3 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, 2023, 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 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.
18
GNMA 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. 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, 2023, 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, 2023, the fund had contributed to Vanguard capital in the amount of $546,000, representing less than 0.01% of the fund’s net
assets and 0.22% 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,
2023, custodian fee offset arrangements reduced the fund’s expenses by $53,000 (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, 2023, 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 | — | 15,699,987 | 15,951 | 15,715,938 |
| Asset-Backed/Commercial Mortgage-Backed Securities | — | 195,675 | — | 195,675 |
| Temporary Cash Investments | 108,919 | 636,200 | — | 745,119 |
| Total | 108,919 | 16,531,862 | 15,951 | 16,656,732 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 8,720 | — | — | 8,720 |
| Liabilities | ||||
| Futures Contracts1 | 11,072 | — | — | 11,072 |
| 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, 2023, 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 | 18,275,789 |
| Gross Unrealized Appreciation | 33,515 |
| Gross Unrealized Depreciation | (1,654,924) |
| Net Unrealized Appreciation (Depreciation) | (1,621,409) |
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, 2023, the fund had available capital losses totaling $1,186,693,000 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, 2024; 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, 2023, the fund purchased $25,939,922,000 of investment securities and sold $26,335,758,000 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, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 128,117 | 13,785 | 286,688 | 29,390 | |
| Issued in Lieu of Cash Distributions | 78,391 | 8,459 | 127,545 | 13,438 | |
| Redeemed | (267,270) | (28,759) | (1,261,342) | (129,326) | |
| Net Increase (Decrease)—Investor Shares | (60,762) | (6,515) | (847,109) | (86,498) | |
| Admiral Shares | |||||
| Issued | 616,542 | 66,417 | 1,210,417 | 126,390 | |
| Issued in Lieu of Cash Distributions | 143,186 | 15,451 | 247,028 | 26,013 | |
| Redeemed | (1,174,315) | (126,811) | (3,963,613) | (411,886) | |
| Net Increase (Decrease)—Admiral Shares | (414,587) | (44,943) | (2,506,168) | (259,483) | |
I. 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.
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
Credit risk is the risk that a
counterparty to a transaction or an issuer of a financial instrument will fail to pay interest and principal when due, or that perceptions of the issuer’s ability to make such payments will cause the price of an
investment to decline. Investment in debt securities will generally increase credit risk.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund's use of derivative(s) and the specific risks associated is described under significant accounting policies.
J. Management has determined that no events or transactions occurred subsequent to July 31, 2023, 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 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, 2022, through December 31, 2022 (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, 2023
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 Real Estate Index Fund, in addition to its own expenses, bears its proportionate share of the costs for the
Subsidiary. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets. 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. For the Real Estate Index Fund, the costs were calculated using the expense ratio and the acquired fund fees and expenses.
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.
1
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, 2023 | |||
| Beginning Account Value 1/31/2023 | Ending Account Value 7/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Real Estate Index Fund | |||
| Investor Shares | $1,000.00 | $955.80 | $1.31 |
| ETF Shares | 1,000.00 | 956.00 | 0.63 |
| Admiral™ Shares | 1,000.00 | 956.40 | 0.63 |
| Institutional Shares | 1,000.00 | 956.60 | 0.53 |
| Real Estate II Index Fund | $1,000.00 | $956.90 | $0.39 |
| Based on Hypothetical 5% Yearly Return | |||
| Real Estate Index Fund | |||
| Investor Shares | $1,000.00 | $1,023.46 | $1.35 |
| ETF Shares | 1,000.00 | 1,024.15 | 0.65 |
| Admiral Shares | 1,000.00 | 1,024.15 | 0.65 |
| Institutional Shares | 1,000.00 | 1,024.25 | 0.55 |
| Real Estate II Index Fund | $1,000.00 | $1,024.40 | $0.40 |
The calculations for
the Real Estate Index Fund are based on expenses incurred combined with acquired fund fees and expenses for the most recent six-month period. The fund’s combined, annualized six-month expense figures for that
period are: 0.27% for Investor Shares, 0.13% for ETF Shares, 0.13% for Admiral Shares, and 0.11% for Institutional Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense
figure 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).
The calculations for
the Real Estate II Index Fund are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 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, 2023
| Data Center REITs | 8.3% |
| Diversified Real Estate Activities | 0.2 |
| Diversified REITs | 2.1 |
| Health Care REITs | 8.1 |
| Hotel & Resort REITs | 2.7 |
| Industrial REITs | 12.7 |
| Multi-Family Residential REITs | 9.2 |
| Office REITs | 4.7 |
| Other Specialized REITs | 5.9 |
| Real Estate Development | 0.3 |
| Real Estate Operating Companies | 0.3 |
| Real Estate Services | 6.9 |
| Retail REITs | 12.6 |
| Self-Storage REITs | 6.6 |
| Single-Family Residential REITs | 4.7 |
| Telecom Tower REITs | 12.1 |
| Timber REITs | 2.6 |
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, 2023
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 (1.2%) | ||||||
| Money Market Fund (1.2%) | ||||||
| 6,7 | Vanguard Market Liquidity Fund, 5.274% (Cost $748,640) | 7,488,214 | 748,672 | |||
| Total Investments (100.5%) (Cost $64,742,664) | 64,532,477 | |||||
| Other Assets and Liabilities—Net (-0.5%) | (300,258) | |||||
| Net Assets (100%) | 64,232,219 | |||||
| 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 $302,594,000. |
| 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 $318,355,000 was received for securities on loan. |
| 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 | 8/31/23 | BANA | 37,223 | (5.272) | 1,979 | — |
| Digital Realty Trust Inc. | 8/31/23 | BANA | 42,701 | (5.272) | 3,857 | — |
| Digital Realty Trust Inc. | 1/31/24 | GSI | 29,553 | (5.301) | 1,547 | — |
| Equity Residential | 8/31/23 | BANA | 39,582 | (5.272) | 218 | — |
| Redfin Corp. | 1/31/24 | GSI | 5,796 | (5.251) | — | (564) |
| Simon Property Group Inc. | 1/31/24 | GSI | 48,660 | (5.301) | 1,089 | — |
| VICI Properties Inc. Class A | 8/31/23 | BANA | 169,722 | (5.672) | 1,629 | — |
| Welltower Inc. | 8/31/23 | BANA | 60,668 | (5.272) | 697 | — |
| 11,016 | (564) | |||||
| 1 | Based on USD Overnight Bank Funding Rate as of the most recent reset date. Floating interest payment received/paid monthly. |
| BANA—Bank of America, N.A. | |
| GSI—Goldman Sachs International. |
At July 31, 2023, the
counterparties had deposited in segregated accounts securities with a value of $9,080,000 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, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $56,454,915) | 55,678,031 |
| Affiliated Issuers (Cost $748,640) | 748,672 |
| Vanguard Real Estate II Index Fund (Cost $7,539,109) | 8,105,774 |
| Total Investments in Securities | 64,532,477 |
| Investment in Vanguard | 1,834 |
| Cash | 7,946 |
| Receivables for Accrued Income | 31,640 |
| Receivables for Capital Shares Issued | 21,660 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 11,016 |
| Total Assets | 64,606,573 |
| Liabilities | |
| Payables for Investment Securities Purchased | 21,487 |
| Collateral for Securities on Loan | 318,355 |
| Payables for Capital Shares Redeemed | 30,788 |
| Payables to Vanguard | 3,160 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 564 |
| Total Liabilities | 374,354 |
| Net Assets | 64,232,219 |
| 1 Includes $302,594,000 of securities on loan. | |
9
Real Estate Index Fund
| Statement of Assets and Liabilities (continued) | |
| At July 31, 2023, net assets consisted of: | |
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Paid-in Capital | 67,350,617 |
| Total Distributable Earnings (Loss) | (3,118,398) |
| Net Assets | 64,232,219 |
| Investor Shares—Net Assets | |
| Applicable to 3,427,358 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 97,115 |
| Net Asset Value Per Share—Investor Shares | $28.34 |
| ETF Shares—Net Assets | |
| Applicable to 394,822,280 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 33,663,918 |
| Net Asset Value Per Share—ETF Shares | $85.26 |
| Admiral Shares—Net Assets | |
| Applicable to 169,437,432 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 20,474,793 |
| Net Asset Value Per Share—Admiral Shares | $120.84 |
| Institutional Shares—Net Assets | |
| Applicable to 534,490,081 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,996,393 |
| Net Asset Value Per Share—Institutional Shares | $18.70 |
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, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends—Unaffiliated Issuers | 851,077 |
| Dividends—Vanguard Real Estate II Index Fund | 161,605 |
| Interest—Affiliated Issuers | 8,377 |
| Securities Lending—Net | 760 |
| Total Income | 1,021,819 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 674 |
| Management and Administrative—Investor Shares | 120 |
| Management and Administrative—ETF Shares | 16,838 |
| Management and Administrative—Admiral Shares | 10,574 |
| Management and Administrative—Institutional Shares | 4,250 |
| Marketing and Distribution—Investor Shares | 4 |
| Marketing and Distribution—ETF Shares | 838 |
| Marketing and Distribution—Admiral Shares | 552 |
| Marketing and Distribution—Institutional Shares | 180 |
| Custodian Fees | 44 |
| Shareholders’ Reports—Investor Shares | — |
| Shareholders’ Reports—ETF Shares | 655 |
| Shareholders’ Reports—Admiral Shares | 179 |
| Shareholders’ Reports—Institutional Shares | 73 |
| Trustees’ Fees and Expenses | 17 |
| Other Expenses | 30 |
| Total Expenses | 35,028 |
| Net Investment Income | 986,791 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received—Unaffiliated Issuers | 168,393 |
| Capital Gain Distributions Received—Vanguard Real Estate II Index Fund | — |
| Investment Securities Sold—Unaffiliated Issuers1 | (94,554) |
| Investment Securities Sold—Affiliated Issuers | 24 |
| Investment Securities Sold—Vanguard Real Estate II Index Fund | — |
| Futures Contracts | 99 |
| Swap Contracts | 21,755 |
| Realized Net Gain (Loss) | 95,717 |
11
Real Estate Index Fund
| Statement of Operations (continued) | |
| Six Months Ended July 31, 2023 | |
| ($000) | |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities—Unaffiliated Issuers | (3,716,698) |
| Investment Securities—Affiliated Issuers | (46) |
| Investment Securities—Vanguard Real Estate II Index Fund | (527,018) |
| Swap Contracts | (20,545) |
| Change in Unrealized Appreciation (Depreciation) | (4,264,307) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (3,181,799) |
| 1 | Includes $874,579,000 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, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 986,791 | 1,757,360 | |
| Realized Net Gain (Loss) | 95,717 | 2,948,495 | |
| Change in Unrealized Appreciation (Depreciation) | (4,264,307) | (14,507,077) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (3,181,799) | (9,801,222) | |
| Distributions | |||
| Net Investment Income and/or Realized Capital Gains | |||
| Investor Shares | (2,008) | (3,184) | |
| ETF Shares | (663,421) | (893,338) | |
| Admiral Shares | (408,596) | (518,210) | |
| Institutional Shares | (199,226) | (253,055) | |
| Return of Capital | |||
| Investor Shares | — | (1,590) | |
| ETF Shares | — | (446,081) | |
| Admiral Shares | — | (258,764) | |
| Institutional Shares | — | (126,361) | |
| Total Distributions | (1,273,251) | (2,500,583) | |
| Capital Share Transactions | |||
| Investor Shares | (21,777) | (41,427) | |
| ETF Shares | (767,399) | (3,046,898) | |
| Admiral Shares | (237,649) | 34,532 | |
| Institutional Shares | 41,028 | 306,763 | |
| Net Increase (Decrease) from Capital Share Transactions | (985,797) | (2,747,030) | |
| Total Increase (Decrease) | (5,440,847) | (15,048,835) | |
| Net Assets | |||
| Beginning of Period | 69,673,066 | 84,721,901 | |
| End of Period | 64,232,219 | 69,673,066 | |
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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $30.26 | $35.37 | $28.23 | $31.21 | $27.69 | $26.40 |
| Investment Operations | ||||||
| Net Investment Income1 | .397 | .684 | .602 | .586 | .719 | .787 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.774) | (4.766) | 7.475 | (2.498) | 3.801 | 1.639 |
| Total from Investment Operations | (1.377) | (4.082) | 8.077 | (1.912) | 4.520 | 2.426 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.543) | (.686) | (.620) | (.624) | (.752) | (.851) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | (.342) | (.317) | (.444) | (.248) | (.285) |
| Total Distributions | (.543) | (1.028) | (.937) | (1.068) | (1.000) | (1.136) |
| Net Asset Value, End of Period | $28.34 | $30.26 | $35.37 | $28.23 | $31.21 | $27.69 |
| Total Return2 | -4.42% | -11.39% | 28.73% | -5.88% | 16.59% | 9.53% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $97 | $127 | $196 | $188 | $243 | $1,871 |
| Ratio of Total Expenses to Average Net Assets | 0.26% | 0.26%3 | 0.26% | 0.26% | 0.26% | 0.25% |
| Acquired Fund Fees and Expenses4 | 0.01% | — | — | — | — | — |
| Ratio of Net Investment Income to Average Net Assets | 2.78% | 2.18% | 1.77% | 2.18% | 2.48% | 3.02% |
| Portfolio Turnover Rate5 | 6% | 7% | 7% | 8% | 6% | 24% |
| The expense ratio, acquired fund fees and expenses, 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 | For the fiscal year ended January 31, 2023, and for each prior period, the acquired fund fees and expenses were less than 0.01%. |
| 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, 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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $91.06 | $106.44 | $84.96 | $93.93 | $83.36 | $79.47 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.299 | 2.240 | 1.960 | 1.889 | 2.335 | 2.487 |
| Net Realized and Unrealized Gain (Loss) on Investments | (5.401) | (14.394) | 22.486 | (7.525) | 11.379 | 4.934 |
| Total from Investment Operations | (4.102) | (12.154) | 24.446 | (5.636) | 13.714 | 7.421 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.698) | (2.152) | (1.943) | (1.947) | (2.364) | (2.646) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | (1.074) | (1.023) | (1.387) | (.780) | (.885) |
| Total Distributions | (1.698) | (3.226) | (2.966) | (3.334) | (3.144) | (3.531) |
| Net Asset Value, End of Period | $85.26 | $91.06 | $106.44 | $84.96 | $93.93 | $83.36 |
| Total Return | -4.40% | -11.25% | 28.88% | -5.80% | 16.70% | 9.70% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $33,664 | $36,825 | $46,673 | $32,064 | $37,682 | $30,857 |
| Ratio of Total Expenses to Average Net Assets | 0.12% | 0.12%2 | 0.12% | 0.12% | 0.12% | 0.12% |
| Acquired Fund Fees and Expenses3 | 0.01% | — | — | — | — | — |
| Ratio of Net Investment Income to Average Net Assets | 3.04% | 2.38% | 1.90% | 2.33% | 2.60% | 3.15% |
| Portfolio Turnover Rate4 | 6% | 7% | 7% | 8% | 6% | 24% |
| The expense ratio, acquired fund fees and expenses, 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 | For the fiscal year ended January 31, 2023, and for each prior period, the acquired fund fees and expenses were less than 0.01%. |
| 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.
15
Real Estate Index Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $129.05 | $150.85 | $120.40 | $133.12 | $118.14 | $112.63 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.866 | 3.201 | 2.761 | 2.677 | 3.315 | 3.507 |
| Net Realized and Unrealized Gain (Loss) on Investments | (7.669) | (20.428) | 31.890 | (10.672) | 16.121 | 7.008 |
| Total from Investment Operations | (5.803) | (17.227) | 34.651 | (7.995) | 19.436 | 10.515 |
| Distributions | ||||||
| Dividends from Net Investment Income | (2.407) | (3.050) | (2.770) | (2.759) | (3.350) | (3.751) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | (1.523) | (1.431) | (1.966) | (1.106) | (1.254) |
| Total Distributions | (2.407) | (4.573) | (4.201) | (4.725) | (4.456) | (5.005) |
| Net Asset Value, End of Period | $120.84 | $129.05 | $150.85 | $120.40 | $133.12 | $118.14 |
| Total Return2 | -4.36% | -11.26% | 28.91% | -5.74% | 16.73% | 9.69% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $20,475 | $22,110 | $25,764 | $19,702 | $23,274 | $18,223 |
| Ratio of Total Expenses to Average Net Assets | 0.12% | 0.12%3 | 0.12% | 0.12% | 0.12% | 0.11% |
| Acquired Fund Fees and Expenses4 | 0.01% | — | — | — | — | — |
| Ratio of Net Investment Income to Average Net Assets | 3.09% | 2.41% | 1.90% | 2.33% | 2.60% | 3.16% |
| Portfolio Turnover Rate5 | 6% | 7% | 7% | 8% | 6% | 24% |
| The expense ratio, acquired fund fees and expenses, 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 | For the fiscal year ended January 31, 2023, and for each prior period, the acquired fund fees and expenses were less than 0.01%. |
| 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, 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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $19.97 | $23.35 | $18.64 | $20.60 | $18.28 | $17.43 |
| Investment Operations | ||||||
| Net Investment Income1 | .294 | .500 | .432 | .421 | .518 | .543 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.190) | (3.168) | 4.933 | (1.646) | 2.496 | 1.085 |
| Total from Investment Operations | (.896) | (2.668) | 5.365 | (1.225) | 3.014 | 1.628 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.374) | (.475) | (.432) | (.429) | (.522) | (.583) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Return of Capital | — | (.237) | (.223) | (.306) | (.172) | (.195) |
| Total Distributions | (.374) | (.712) | (.655) | (.735) | (.694) | (.778) |
| Net Asset Value, End of Period | $18.70 | $19.97 | $23.35 | $18.64 | $20.60 | $18.28 |
| Total Return | -4.34% | -11.27% | 28.91% | -5.68% | 16.77% | 9.70% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $9,996 | $10,610 | $12,089 | $9,478 | $10,027 | $8,206 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10%2 | 0.10% | 0.10% | 0.10% | 0.09% |
| Acquired Fund Fees and Expenses3 | 0.01% | — | — | — | — | — |
| Ratio of Net Investment Income to Average Net Assets | 3.14% | 2.43% | 1.92% | 2.37% | 2.63% | 3.18% |
| Portfolio Turnover Rate4 | 6% | 7% | 7% | 8% | 6% | 24% |
| The expense ratio, acquired fund fees and expenses, 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 | For the fiscal year ended January 31, 2023, and for each prior period, the acquired fund fees and expenses were less than 0.01%. |
| 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.
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 (“the Subsidiary”) is the wholly owned subsidiary in which the fund has invested a portion of its assets. Expenses of the Subsidiary are reflected
in the Acquired Fund Fees and Expenses in the Financial Highlights. For additional financial information about the Subsidiary, refer to the accompanying financial statements.
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 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 valuation designee to represent fair value and subject to oversight by the board of trustees. Investments in affiliated Vanguard funds are valued at that fund's net asset value. 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.
2. Futures Contracts:
The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for
liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks 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
18
Real Estate Index Fund
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, 2023, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end
during the period. The fund had no open futures contracts at July 31, 2023.
3. Swap Contracts: The
fund has entered into equity swap contracts to earn the total return on selected reference stocks or indexes 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 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, 2023, the fund’s average amounts of investments in total return swaps represented 1% of net assets, based on the average of notional amounts at each quarter-end during the period.
19
Real Estate Index Fund
4. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually 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.
5. 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.
6. 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 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.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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.
20
Real Estate Index 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, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. 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 REITs, and management’s estimates of such amounts for REIT 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. 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, 2023, the fund had contributed to Vanguard capital in the amount of $1,834,000, representing less than 0.01% of the fund’s
net assets and 0.73% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
21
Real Estate Index Fund
C. 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, 2023, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 63,783,796 | — | 9 | 63,783,805 |
| Temporary Cash Investments | 748,672 | — | — | 748,672 |
| Total | 64,532,468 | — | 9 | 64,532,477 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 11,016 | — | 11,016 |
| Liabilities | ||||
| Swap Contracts | — | 564 | — | 564 |
D. As of July 31, 2023, 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 | 65,047,486 |
| Gross Unrealized Appreciation | 8,039,695 |
| Gross Unrealized Depreciation | (8,544,252) |
| Net Unrealized Appreciation (Depreciation) | (504,557) |
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, 2023, the fund had available capital losses totaling $2,572,771,000 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, 2024; should the fund realize net
capital losses for the year, the losses will be added to the loss carryforward balance above.
22
Real Estate Index Fund
E. During the six months ended July 31, 2023, the fund purchased $6,038,552,000 of investment securities and sold $7,031,479,000 of investment securities, other
than temporary cash investments. Purchases and sales include $2,344,402,000 and $3,478,267,000, 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, 2023, such purchases were $0 and sales were $36,121,000, resulting in net realized loss of $6,561,000; 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, 2023 | Year Ended January 31, 2023 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 4,597 | 165 | 12,156 | 378 | |
| Issued in Lieu of Cash Distributions | 2,008 | 76 | 4,774 | 163 | |
| Redeemed | (28,382) | (1,019) | (58,357) | (1,875) | |
| Net Increase (Decrease)—Investor Shares | (21,777) | (778) | (41,427) | (1,334) | |
| ETF Shares | |||||
| Issued | 2,713,573 | 32,493 | 6,166,911 | 65,225 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (3,480,972) | (42,100) | (9,213,809) | (99,300) | |
| Net Increase (Decrease)—ETF Shares | (767,399) | (9,607) | (3,046,898) | (34,075) | |
| Admiral Shares | |||||
| Issued | 1,090,760 | 9,213 | 2,666,411 | 20,054 | |
| Issued in Lieu of Cash Distributions | 359,906 | 3,188 | 682,639 | 5,494 | |
| Redeemed | (1,688,315) | (14,296) | (3,314,518) | (25,007) | |
| Net Increase (Decrease)—Admiral Shares | (237,649) | (1,895) | 34,532 | 541 | |
| Institutional Shares | |||||
| Issued | 842,292 | 46,430 | 2,009,244 | 97,409 | |
| Issued in Lieu of Cash Distributions | 188,354 | 10,777 | 357,630 | 18,606 | |
| Redeemed | (989,618) | (53,934) | (2,060,111) | (102,593) | |
| Net Increase (Decrease)—Institutional Shares | 41,028 | 3,273 | 306,763 | 13,422 | |
23
Real Estate Index Fund
G. Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:
| Current Period Transactions | ||||||||
| Jan. 31, 2023 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, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 399,890 | NA2 | NA2 | 24 | (46) | 8,377 | — | 748,672 |
| Vanguard Real Estate II Index Fund | 8,471,187 | 161,605 | — | — | (527,018) | 161,605 | — | 8,105,774 |
| Total | 8,871,077 | 161,605 | — | 24 | (527,064) | 169,982 | — | 8,854,446 |
| 1 | Does not include adjustments related to return of capital. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
H. 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.
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund's use of derivative(s) and the specific risks associated is described under significant accounting policies.
I. Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements.
24
Real Estate II Index Fund
Fund Allocation
As of July 31, 2023
| Data Center REITs | 8.4% |
| Diversified Real Estate Activities | 0.2 |
| Diversified REITs | 2.1 |
| Health Care REITs | 8.1 |
| Hotel & Resort REITs | 2.6 |
| Industrial REITs | 12.5 |
| Multi-Family Residential REITs | 9.2 |
| Office REITs | 4.7 |
| Other Specialized REITs | 6.1 |
| Real Estate Development | 0.3 |
| Real Estate Operating Companies | 0.4 |
| Real Estate Services | 6.9 |
| Retail REITs | 12.6 |
| Self-Storage REITs | 6.5 |
| Single-Family Residential REITs | 4.8 |
| Telecom Tower REITs | 12.0 |
| Timber REITs | 2.6 |
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, 2023
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. | 1/31/24 | GSI | 8,148 | (5.251) | — | (58) |
| Park Hotels & Resorts Inc. | 1/31/24 | GSI | 5,224 | (5.251) | 218 | — |
| 218 | (58) | |||||
| 1 | Based on USD Overnight Bank Funding Rate as of the most recent reset date. Floating interest payment received/paid monthly. |
| GSI—Goldman Sachs International. |
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, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $7,669,600) | 8,348,627 |
| Affiliated Issuers (Cost $71,479) | 71,476 |
| Total Investments in Securities | 8,420,103 |
| Investment in Vanguard | 278 |
| Cash | 2,092 |
| Receivables for Accrued Income | 4,484 |
| Receivables for Capital Shares Issued | 93 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 218 |
| Total Assets | 8,427,268 |
| Liabilities | |
| Payables for Investment Securities Purchased | 3,712 |
| Collateral for Securities on Loan | 59,444 |
| Payables for Capital Shares Redeemed | 6 |
| Payables to Vanguard | 295 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 58 |
| Total Liabilities | 63,515 |
| Net Assets | 8,363,753 |
| 1 Includes $55,810,000 of securities on loan. | |
| At July 31, 2023, net assets consisted of: | |
| Paid-in Capital | 7,798,161 |
| Total Distributable Earnings (Loss) | 565,592 |
| Net Assets | 8,363,753 |
| Net Assets | |
| Applicable to 408,622,376 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 8,363,753 |
| Net Asset Value Per Share | $20.47 |
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, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends | 124,070 |
| Interest1 | 134 |
| Securities Lending—Net | 110 |
| Total Income | 124,314 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 82 |
| Management and Administrative | 2,957 |
| Marketing and Distribution | 71 |
| Custodian Fees | 83 |
| Shareholders’ Reports | 9 |
| Trustees’ Fees and Expenses | 2 |
| Other Expenses | 8 |
| Total Expenses | 3,212 |
| Net Investment Income | 121,102 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received | 24,390 |
| Investment Securities Sold1 | (78,412) |
| Futures Contracts | 14 |
| Swap Contracts | (422) |
| Realized Net Gain (Loss) | (54,430) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities1 | (441,731) |
| Swap Contracts | 160 |
| Change in Unrealized Appreciation (Depreciation) | (441,571) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (374,899) |
| 1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $134,000, ($4,000), and ($5,000), 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, 2023 | Year Ended January 31, 2023 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 121,102 | 211,725 | |
| Realized Net Gain (Loss) | (54,430) | 70,280 | |
| Change in Unrealized Appreciation (Depreciation) | (441,571) | (1,336,365) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (374,899) | (1,054,360) | |
| Distributions | |||
| Net Investment Income and/or Realized Capital Gains | (166,659) | (291,773) | |
| Return of Capital | — | (48,996) | |
| Total Distributions | (166,659) | (340,769) | |
| Capital Share Transactions | |||
| Issued | 53,498 | 203,267 | |
| Issued in Lieu of Cash Distributions | 166,659 | 340,769 | |
| Redeemed | (4,681) | (1,113) | |
| Net Increase (Decrease) from Capital Share Transactions | 215,476 | 542,923 | |
| Total Increase (Decrease) | (326,082) | (852,206) | |
| Net Assets | |||
| Beginning of Period | 8,689,835 | 9,542,041 | |
| End of Period | 8,363,753 | 8,689,835 | |
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, 2023 | Year Ended January 31, | ||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||
| Net Asset Value, Beginning of Period | $21.86 | $25.69 | $20.50 | $22.64 | $20.10 | $19.17 |
| Investment Operations | ||||||
| Net Investment Income1 | .300 | .558 | .484 | .471 | .571 | .611 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.275) | (3.493) | 5.427 | (1.808) | 2.752 | 1.176 |
| Total from Investment Operations | (.975) | (2.935) | 5.911 | (1.337) | 3.323 | 1.787 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.415) | (.528) | (.477) | (.465) | (.590) | (.626) |
| Distributions from Realized Capital Gains | — | (.238) | (.034) | — | — | — |
| Return of Capital | — | (.129) | (.210) | (.338) | (.193) | (.231) |
| Total Distributions | (.415) | (.895) | (.721) | (.803) | (.783) | (.857) |
| Net Asset Value, End of Period | $20.47 | $21.86 | $25.69 | $20.50 | $22.64 | $20.10 |
| Total Return | -4.31% | -11.23% | 28.96% | -5.70% | 16.78% | 9.68% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $8,364 | $8,690 | $9,542 | $7,400 | $7,848 | $6,719 |
| Ratio of Total Expenses to Average Net Assets | 0.08% | 0.08%2 | 0.08% | 0.08% | 0.08% | 0.08% |
| Ratio of Net Investment Income to Average Net Assets | 2.93% | 2.47% | 1.95% | 2.41% | 2.63% | 3.22% |
| Portfolio Turnover Rate | 5% | 5%3 | 6% | 4% | 3% | 23% |
| 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 0.08%. |
| 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. |
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, 2023, the Real Estate Index Fund was the record and beneficial owner of 96.9% 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.
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 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 valuation designee to represent fair value and subject to oversight by the board of trustees. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
2. Futures Contracts:
The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for
liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks 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, 2023, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end
during the period. The fund had no open futures contracts at July 31, 2023.
34
Real Estate II Index Fund
3. Swap Contracts: The
fund has entered into equity swap contracts to earn the total return on selected reference stocks or indexes 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 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, 2023, 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.
4. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually 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.
35
Real Estate II Index Fund
5. 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.
6. 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 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.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 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
36
Real Estate II Index Fund
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, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. 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 REITs, and management’s estimates of such amounts for REIT 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.
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2023, the fund had contributed to Vanguard capital in the amount of $278,000, 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. 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.
37
Real Estate II Index Fund
The following table summarizes
the market value of the fund's investments and derivatives as of July 31, 2023, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 8,348,627 | — | — | 8,348,627 |
| Temporary Cash Investments | 71,476 | — | — | 71,476 |
| Total | 8,420,103 | — | — | 8,420,103 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 218 | — | 218 |
| Liabilities | ||||
| Swap Contracts | — | 58 | — | 58 |
D. As of July 31, 2023, 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 | 7,791,542 |
| Gross Unrealized Appreciation | 1,641,298 |
| Gross Unrealized Depreciation | (1,012,577) |
| Net Unrealized Appreciation (Depreciation) | 628,721 |
E. During the six months ended July 31, 2023, the fund purchased $586,052,000 of investment securities and sold $374,306,000 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, 2023, such purchases were $31,616,000 and sales were $739,000, resulting in net realized loss of $426,000; these amounts, other than temporary cash investments,
are included in the purchases and sales of investment securities noted above.
38
Real Estate II Index Fund
F. Capital shares issued and redeemed were:
| Six Months Ended July 31, 2023 | Year Ended January 31, 2023 | ||
| Shares (000) | Shares (000) | ||
| Issued | 2,645 | 9,838 | |
| Issued in Lieu of Cash Distributions | 8,728 | 16,244 | |
| Redeemed | (232) | (52) | |
| Net Increase (Decrease) in Shares Outstanding | 11,141 | 26,030 |
G. 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.
To the extent the fund’s
investment portfolio reflects concentration in a particular market, industry, sector, country or asset class, the fund may be adversely affected by the performance of these concentrations and may be subject to
increased price volatility and other risks.
The use of derivatives may
expose the fund to various risks. Derivatives can be highly volatile, and any initial investment is generally small relative to the notional amount so that transactions may be leveraged in terms of market exposure. A
relatively small market movement may have a potentially larger impact on derivatives than on standard securities. Leveraged derivatives positions can, therefore, increase volatility. Additional information regarding
the fund's use of derivative(s) and the specific risks associated is described under significant accounting policies.
H. Management has determined that no events or transactions occurred subsequent to July 31, 2023, that would require recognition or disclosure in these financial statements.
39
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 each 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 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; 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 the 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 the 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.
40
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.
41
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 Specialized Funds and Vanguard Fixed Income Securities 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, 2022, through December 31, 2022 (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.
42
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 21, 2023
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 21, 2023
| VANGUARD FIXED INCOME SECURITIES FUNDS | ||
| BY: | /s/ CHRISTINE BUCHANAN* | |
| CHRISTINE BUCHANAN | ||
| CHIEF FINANCIAL OFFICER |
Date: September 21, 2023
| * By: | /s/ Anne E. Robinson |
Anne E. Robinson, pursuant to a Power of Attorney filed on July 21, 2023 (see File Number 33-53683) and to a Power of Attorney filed on March 29, 2023 (see File Number 2-11444), Incorporated by Reference.