Semiannual Report | February 28, 2014

Vanguard Sector Bond Index Funds

Vanguard’s Principles for Investing Success

We want to give you the best chance of investment success. These principles,
grounded in Vanguard’s research and experience, can put you on the right path.

Goals. Create clear, appropriate investment goals.

Balance. Develop a suitable asset allocation using broadly diversified funds.

Cost. Minimize cost.

Discipline. Maintain perspective and long-term discipline.

A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: The ship’s wheel represents leadership and guidance, essential qualities in navigating difficult seas.
This one is a replica based on an 18th-century British vessel. The HMSVanguard, another ship of that era, served as the
flagship for British Admiral Horatio Nelson when he defeated a French fleet at the Battle of the Nile.

Your Fund’s Total Returns

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. Institutional Shares are
available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares
shown are traded on the Nasdaq exchange and are available only through brokers. The table provides ETF returns based on both the Nasdaq
market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.

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Your Fund’s Total Returns

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. Institutional Shares are
available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares
shown are traded on the Nasdaq exchange and are available only through brokers. The table provides ETF returns based on both the Nasdaq
market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.

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Your Fund’s Total Returns

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. Institutional Shares are
available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares
shown are traded on the Nasdaq exchange and are available only through brokers. The table provides ETF returns based on both the Nasdaq
market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock
Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about
how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price
and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was
above or below the NAV.

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Chairman’s Letter

Dear Shareholder,

To the surprise of many investors, bond yields in the United States unexpectedly reversed course during the six months ended February 28, 2014. The upward trend that began last May after the Federal Reserve signaled a pending dial-back of its stimulative bond purchases gave way to a drop in January and February. Amid soft U.S. economic data, turmoil in emerging markets, and slowing growth in China, yields ended the period lower than where they started.

Because bond yields and prices move in opposite directions, the Vanguard Sector Bond Index Funds got a boost from price appreciation; lower-rated and longer-dated securities gained the most. Returns for the government funds ranged from 0.52% for the short-term fund to 4.02% for the long-term fund. The range for the comparable corporate funds was 2.51% to 7.80%. The Mortgage-Backed Securities Index Fund returned 2.92%. (All returns and yields cited are for ETF Shares, based on net asset value.)

The returns of all seven funds were in line with those of their expense-free target indexes and nearly matched or in most cases exceeded the average returns for their peer groups, which include actively managed funds.

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Five of the seven Sector Bond Index Funds posted 30-day SEC yields as of February 28 that were lower than six months earlier. The yield of the Intermediate-Term Government Bond Index Fund inched up 2 basis points, and the typically more volatile yield of the Mortgage-Backed Securities Index Fund climbed 84 basis points. (A basis point is one-hundredth of a percentage point.)

Before moving on to discuss the markets, I want to mention some changes regarding the funds. In October, we decided to eliminate the 0.25% purchase fee for the Short-Term Corporate Bond Index Fund and reduce the purchase fee from 0.50% to 0.25% for the Intermediate-Term Corporate Bond Index Fund. We also announced plans to streamline Vanguard’s share-class offerings by renaming Signal Shares of all seven funds Admiral Shares.

Separately, as we announced previously, Robert F. Auwaerter, principal and head of Vanguard Fixed Income Group, intends to retire on April 2. At the conclusion of this letter, I’ll have more to say about Bob’s important contributions to Vanguard during his 32-year career, and I’ll introduce his successor, Gregory Davis.

Bonds staged a rebound after last year’s swoon

After slumping notably in 2013 as investors worried about the direction of interest rates, bonds seemed to regain their appeal. The broad U.S. taxable bond market returned 2.84% for the half year.

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Municipal bonds, which had declined sharply in the fiscal year ended August 31, rebounded with a gain of 5.71%. The market was roiled last summer by Detroit’s bankruptcy and fresh coverage of Puerto Rico’s fiscal woes, but as the headlines receded, investors seemed to take a more comprehensive view of state and local finances. Our chief investment officer, Tim Buckley, noted recently that, on the whole, “municipalities out there are actually doing a lot better than they were a few years ago.”

International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned 4.93%.

Money market and savings account returns remained capped by the Fed’s target of 0%–0.25% for short-term interest rates.

A set of positive factors combined to boost U.S. stocks

Favorable corporate earnings, generally positive economic news, improved investor sentiment, and still-accommodative

The fund expense ratios shown are from the prospectus dated December 20, 2013, and represent estimated costs for the current fiscal year.
For the six months ended February 28, 2014, the funds’ annualized expense ratios were: for the Short-Term Government Bond Index Fund,
0.12% for Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares; for the Intermediate-Term Government Bond Index Fund,
0.12% for Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares; for the Long-Term Government Bond Index Fund, 0.12%
for Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares; for the Short-Term Corporate Bond Index Fund, 0.12% for
Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares; for the Intermediate-Term Corporate Bond Index Fund, 0.12% for
Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares; for the Long-Term Corporate Bond Index Fund, 0.12% for Admiral
Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares; and for the Mortgage-Backed Securities Index Fund, 0.12% for Admiral
Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares. Peer-group expense ratios are derived from data provided by Lipper, a
Thomson Reuters Company, and capture information through 2013.

Peer groups: For the Short-Term Government Bond Index Fund, Short U.S. Government Funds; for the Intermediate-Term Government Bond
Index Fund, Intermediate U.S. Government Funds; for the Long-Term Government Bond Index Fund, General U.S. Government Funds; for the
Short-Term Corporate Bond Index Fund, Short-Intermediate Investment-Grade Debt Funds; for the Intermediate-Term Corporate Bond Index
Fund, Core Bond Funds; for the Long-Term Corporate Bond Index Fund, Corporate BBB-Rated Debt Funds; for the Mortgage-Backed Securities
Index Fund, U.S. Mortgage Funds.

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monetary policy all helped the broad U.S. stock market post a six-month return of about 16%.

International stocks, in aggregate, returned about 12%. Most of the strength came from the developed markets of Europe; those of the Pacific region managed single-digit returns, as did emerging markets.

Government bonds had an especially rough ride

Speculation about the timing and potential impact of the Fed’s upcoming moves weighed on the bond market as 2013 came to a close. The prospect that the central bank would start trimming its monthly purchases—of about $40 billion of mortgage bonds and about $45 billion of Treasuries—pushed up yields for higher-rated and longer-dated bonds in particular.

Yields began falling in the new year, however, even as the Fed’s cutbacks began. Demand for less risky assets such as bonds grew as concerns resurfaced about the pace of growth in the United States and China and signs of economic and political instability in some emerging markets. Despite climbing early on, yields ended the period lower.

The government bond funds proved especially sensitive to the swing in yields. All three posted negative returns for December because of declining bond prices and then strong results for January when that trend reversed. The long-term government fund experienced particular volatility over those two months, returning –2.31% for December and 6.16% for January. This was a reminder, if one were needed, of the markets’ unpredictability and the importance of investors staying the course.

The Mortgage-Backed Securities Index Fund followed a similar trajectory. Its returns were negative in November and December in anticipation of the Fed tapering. Those declines were subsequently more than offset by advances in January and February as investors’ appetite for safer assets returned.

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The corporate bond funds experienced less turbulence and produced higher returns than their government counterparts. A more substantial cushion provided by earned income helped, as did the draw of corporate America’s solid profits and healthy balance sheets.

Bob Auwaerter’s retirement marks the end of a remarkable era

In mid-September 2008, about two weeks after I succeeded Jack Brennan as Vanguard’s chief executive officer, Lehman Brothers went bankrupt, igniting the nation’s worst financial crisis in 70 years.

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It was, to put it mildly, an extremely challenging time. Through it all, I was able to depend on Bob Auwaerter’s strong command of the Fixed Income Group, which persevered under these treacherous conditions. Although that was a difficult period for Vanguard and the industry, it was far from the only time I was grateful to have Bob at the helm of our bond group.

Bob, who joined Vanguard in 1981, was an original member of the three-person Fixed Income Group, headed by Ian MacKinnon. Over the years, he held various leadership roles in the department, and he eventually succeeded Ian as its head in 2003. He earned a reputation at Vanguard and within the industry as an extremely dedicated, honest, and insightful decision-maker and leader.

The Fixed Income Group that Bob helped start had total initial assets of about $1.3 billion in seven funds. He tracked his positions in the two funds he managed on index cards stored in a small metal box. Thirty-two years later, the 120-person group oversees $750 billion, which constitutes nearly one-third of Vanguard’s assets under management.

On behalf of our clients, I thank Bob for more than three decades of exemplary service and wish him the best in his retirement.

We’re fortunate that Greg Davis will become the head of the Fixed Income Group. Greg currently is chief investment officer for the Asia-Pacific region and a director of Vanguard Investments Australia. He joined Vanguard in 1999 and has also served as head of bond indexing and a senior portfolio manager in the Fixed Income Group. Greg is an eminently qualified successor and has a strong commitment to the Vanguard way of investing. I couldn’t be more confident in his ability to lead the Fixed Income Group and its deep and talented team.

As always, thank you for investing with Vanguard.

Sincerely,

F. William McNabb III
Chairman and Chief Executive Officer
March 14, 2014

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Short-Term Government Bond Index Fund

Fund Profile
As of February 28, 2014

The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are
generally not backed by the full faith and credit of the U.S. government.

Investment Focus

1 The expense ratios shown are from the prospectus dated December 20, 2013, and represent estimated costs for the current fiscal year. For the six
months ended February 28, 2014, the annualized expense ratios were 0.12% for Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF
Shares.

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Short-Term Government Bond Index Fund

Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Average Annual Total Returns: Periods Ended December 31, 2013
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.

See Financial Highlights for dividend and capital gains information.

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Short-Term Government Bond Index Fund

Financial Statements (unaudited)

Statement of Net Assets
As of February 28, 2014

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

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Short-Term Government Bond Index Fund

See Note A in Notes to Financial Statements.
1 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the
full faith and credit of the U.S. government.
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 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the
7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.

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Short-Term Government Bond Index Fund

Statement of Operations

See accompanying Notes, which are an integral part of the Financial Statements.

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Short-Term Government Bond Index Fund

Statement of Changes in Net Assets

1 Signal Shares were renamed Admiral Shares in October 2013. The prior period’s distributions and capital share transactions are for the
Signal class.
2 Includes fiscal 2014 and 2013 short-term gain distributions totaling $76,000 and $163,000, respectively. Short-term gain distributions are
treated as ordinary income dividends for tax purposes.
3 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $92,000 and ($1,000).

See accompanying Notes, which are an integral part of the Financial Statements.

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Short-Term Government Bond Index Fund

Financial Highlights

The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
Signal Shares were renamed Admiral Shares in October 2013. Prior periods’ Financial Highlights are for the Signal class.
1 Inception.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide
information about any applicable transaction or account service fees.
3 Annualized.
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.

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Short-Term Government Bond Index Fund

Financial Highlights

The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Inception.
2 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any
applicable transaction fees.
3 Annualized.
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.

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Short-Term Government Bond Index Fund

Financial Highlights

The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Inception.
2 Annualized.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

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Short-Term Government Bond Index Fund

Notes to Financial Statements

Vanguard Short-Term Government Bond Index 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: Admiral Shares, Institutional Shares, and ETF Shares. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Effective in October 2013, Signal Shares were renamed Admiral Shares.

A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. 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 acquired over 60 days to maturity, 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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (August 31, 2010–2013), and for the period ended February 28, 2014, and has concluded that no provision for federal income tax is required in the fund’s financial statements.

3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

4. Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. 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. Fees, if any, assessed on purchases of capital shares are credited to paid-in capital.

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. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At February 28, 2014, the fund had contributed capital of $57,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.02% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

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Short-Term Government Bond Index Fund

C. Various inputs may be used to determine the value of the fund’s investments. 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).

The following table summarizes the market value of the fund’s investments as of February 28, 2014, based on the inputs used to value them:

D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.

During the six months ended February 28, 2014, the fund realized $60,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.

At February 28, 2014, the cost of investment securities for tax purposes was $506,828,000.

Net unrealized appreciation of investment securities for tax purposes was $866,000, consisting of unrealized gains of $876,000 on securities that had risen in value since their purchase and $10,000 in unrealized losses on securities that had fallen in value since their purchase.

E. During the six months ended February 28, 2014, the fund purchased $309,588,000 of investment securities and sold $184,993,000 of investment securities, other than temporary cash investments. Purchases and sales include $126,985,000 and $45,300,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.

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Short-Term Government Bond Index Fund

F. Capital share transactions for each class of shares were:

G. Management has determined that no material events or transactions occurred subsequent to February 28, 2014, that would require recognition or disclosure in these financial statements.

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Intermediate-Term Government Bond Index Fund

Fund Profile
As of February 28, 2014

The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are
generally not backed by the full faith and credit of the U.S. government.

Investment Focus

1 The expense ratios shown are from the prospectus dated December 20, 2013, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2014, the annualized expense ratios were 0.12% for Admiral Shares, 0.09% for Institutional Shares, and 0.12% for ETF Shares.

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Intermediate-Term Government Bond Index Fund

Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Average Annual Total Returns: Periods Ended December 31, 2013
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.

See Financial Highlights for dividend and capital gains information.

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Intermediate-Term Government Bond Index Fund

Financial Statements (unaudited)

Statement of Net Assets
As of February 28, 2014

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

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