| February 28,
2017
Vanguard Sector Bond
Index Funds
Vanguard
Short-Term Government Bond Index Fund
Vanguard Intermediate-Term Government Bond Index
Fund
Vanguard Long-Term
Government Bond Index Fund
Vanguard Short-Term Corporate Bond Index Fund
Vanguard Intermediate-Term Corporate Bond Index
Fund
Vanguard Long-Term
Corporate Bond Index Fund
Vanguard Mortgage-Backed Securities Index Fund
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance | 1 |
Chairman’s Perspective | 4 |
Short-Term Government Bond Index Fund. | 7 |
Intermediate-Term Government Bond Index Fund | 22 |
Long-Term Government Bond Index Fund. | 37 |
Short-Term Corporate Bond Index Fund. | 51 |
Intermediate-Term Corporate Bond Index Fund | 67 |
Long-Term Corporate Bond Index Fund | 83 |
Mortgage-Backed Securities Index Fund. | 100 |
About Your Fund’s Expenses. | 117 |
Glossary. | 120 |
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: No
matter what language you speak, Vanguard has one consistent message and set of
principles. Our primary
focus
is on you, our clients. We
conduct our business with integrity as a
faithful steward
of your assets. This message is
shown
translated into seven
languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• Bond prices moved lower during the six months ended February 28, 2017, as the markets grew more upbeat about the prospect of faster growth and higher inflation. That trend accelerated following the November election of a new administration that promised more spending on infrastructure, greater deregulation, and possible changes in the federal tax code.
• Although prices recovered a little ground toward the end of the period, returns of the funds in this report ranged from virtually flat for Vanguard Short-Term Corporate Bond Index Fund to about –11% for Vanguard Long-Term Government Bond Index Fund. The funds performed in line with their benchmarks but mostly lagged their peer groups.
• Treasuries saw the steepest price declines; corporate bond prices slid as well.
• By maturity, long bonds significantly underperformed shorter-term bonds. By quality, lower-rated investment-grade bonds did better than their higher-rated counterparts.
Total Returns: Six Months Ended February 28, 2017 | ||||
30-Day SEC | Income | Capital | Total | |
Yield | Returns | Returns | Returns | |
Vanguard Short-Term Government Bond Index Fund | ||||
ETF Shares | 1.12% | |||
Market Price | -0.13% | |||
Net Asset Value | -0.13 | |||
Admiral™ Shares | 1.12 | 0.43% | -0.57% | -0.14 |
Institutional Shares | 1.16 | 0.44 | -0.53 | -0.09 |
Bloomberg Barclays U.S. 1– 3 Year Government Float | ||||
Adjusted Index | -0.09 | |||
Short U.S. Government Funds Average | -0.11 | |||
Short U.S. Government Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Vanguard Intermediate-Term Government Bond Index Fund | ||||
ETF Shares | 1.91% | |||
Market Price | -2.49% | |||
Net Asset Value | -2.49 | |||
Admiral Shares | 1.90 | 0.75% | -3.22% | -2.47 |
Institutional Shares | 1.93 | 0.75 | -3.25 | -2.50 |
Bloomberg Barclays U.S. 3– 10 Year Government Float | ||||
Adjusted Index | -2.48 | |||
Intermediate U.S. Government Funds Average | -1.76 | |||
Intermediate U.S. Government Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
1
30-Day SEC | Income | Capital | Total | |
Yield | Returns | Returns | Returns | |
Vanguard Long-Term Government Bond Index Fund | ||||
ETF Shares | 2.89% | |||
Market Price | -11.19% | |||
Net Asset Value | -11.13 | |||
Admiral Shares | 2.90 | 1.15% | -12.28% | -11.13 |
Institutional Shares | 2.91 | 1.16 | -12.28 | -11.12 |
Bloomberg Barclays U.S. Long Government Float Adjusted | ||||
Index | -11.19 | |||
General U.S. Government Funds Average | -2.95 | |||
General U.S. Government Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Vanguard Short-Term Corporate Bond Index Fund | ||||
ETF Shares | 2.17% | |||
Market Price | -0.10% | |||
Net Asset Value | 0.01 | |||
Admiral Shares | 2.17 | 1.05% | -1.01% | 0.04 |
Institutional Shares | 2.19 | 1.05 | -1.04 | 0.01 |
Bloomberg Barclays U.S. 1– 5 Year Corporate Bond Index | 0.16 | |||
Short-Intermediate Investment-Grade Debt Funds Average | -0.14 | |||
Short-Intermediate Investment-Grade Debt Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Vanguard Intermediate-Term Corporate Bond Index Fund | ||||
ETF Shares | 3.35% | |||
Market Price | -1.83% | |||
Net Asset Value | -1.78 | |||
Admiral Shares | 3.35 | 1.56% | -3.36% | -1.80 |
Institutional Shares | 3.37 | 1.58 | -3.33 | -1.75 |
Bloomberg Barclays U.S. 5– 10 Year Corporate Bond Index | -1.58 | |||
Core Bond Funds Average | -1.71 | |||
Core Bond Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Vanguard Long-Term Corporate Bond Index Fund | ||||
ETF Shares | 4.42% | |||
Market Price | -3.77% | |||
Net Asset Value | -4.00 | |||
Admiral Shares | 4.42 | 2.03% | -6.01% | -3.98 |
Institutional Shares | 4.44 | 2.04 | -6.03 | -3.99 |
Bloomberg Barclays U.S. 10+ Year Corporate Bond Index | -3.94 | |||
Corporate Debt Funds BBB-Rated Average | -1.66 | |||
Corporate Debt Funds BBB-Rated Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
30-Day SEC | Income | Capital | Total | |
Yield | Returns | Returns | Returns | |
Vanguard Mortgage-Backed Securities Index Fund | ||||
ETF Shares | 2.08% | |||
Market Price | -1.24% | |||
Net Asset Value | -1.20 | |||
Admiral Shares | 2.07 | 0.85% | -2.02% | -1.17 |
Institutional Shares | 2.09 | 0.86 | -2.03 | -1.17 |
Bloomberg Barclays U.S. MBS Float Adjusted Index | -1.17 | |||
U.S. Mortgage Funds Average | -0.77 | |||
U.S. Mortgage Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Admiral Shares
carry lower expenses and are available to investors who meet certain
account-balance requirements. Institutional Shares are
available tocertain institutional investorswho
meetspecificadministrative,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 4p.m., Easterntime). Thenetasset valueisalso
determinedas oftheNYSEclosingtime. For moreinformationabout
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 theNAV.
Expense Ratios | ||||
Your Fund Compared With Its Peer Group | ||||
ETF | Admiral | Institutional | Peer Group | |
Shares | Shares | Shares | Average | |
Short-Term Government Bond Index Fund | 0.07% | 0.07% | 0.05% | 0.80% |
Intermediate-Term Government Bond Index | ||||
Fund | 0.07 | 0.07 | 0.05 | 0.91 |
Long-Term Government Bond Index Fund | 0.07 | 0.07 | 0.05 | 1.02 |
Short-Term Corporate Bond Index Fund | 0.07 | 0.07 | 0.05 | 0.77 |
Intermediate-Term Corporate Bond Index Fund | 0.07 | 0.07 | 0.05 | 0.78 |
Long-Term Corporate Bond Index Fund | 0.07 | 0.07 | 0.05 | 0.86 |
Mortgage-Backed Securities Index Fund | 0.07 | 0.07 | 0.05 | 0.86 |
The fund expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year.
For the six months ended February 28, 2017, the funds’
annualized expense ratios were: for the Short-Term Government Bond Index Fund,
0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.06% for
Institutional Shares; for the Intermediate-Term Government Bond Index
Fund,
0.07% for
ETFShares,0.07%forAdmiralShares,and0.05%forInstitutionalShares;
fortheLong-TermGovernmentBondIndexFund,0.07%
for ETFShares, 0.07%for Admiral Shares,and
0.05%forInstitutionalShares; for theShort-Term Corporate BondIndexFund, 0.07%
for ETF
Shares,
0.07%forAdmiralShares,and
0.05%forInstitutionalShares;fortheIntermediate-TermCorporateBondIndexFund,0.07%forETF
Shares, 0.07%for Admiral Shares,and 0.05%
forInstitutionalShares; fortheLong-Term Corporate Bond Index Fund, 0.07% for
ETFShares,
0.07% for Admiral
Shares, and 0.05% for Institutional Shares; and for the Mortgage-Backed
Securities Index Fund, 0.07% for ETF Shares,
0.07% for Admiral Shares, and 0.05% for Institutional Shares.
Peer-group expense ratios are derived from data provided by Lipper, a
Thomson
Reuters Company, and
capture information through year-end 2016.
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.
3
Chairman’s Perspective
Bill
McNabb
Chairman and Chief
Executive Officer
Dear Shareholder,
More than a decade ago, a Vanguard client asked us to help improve its defined contribution retirement plan. New hires were participating in the plan at lower rates than in previous years, and the client wanted to reverse this trend. Another priority was to help more participants invest their retirement savings in balanced portfolios.
The overall goal of this longtime client: Give employees a better chance to achieve financial security in retirement.
Today, that plan automatically enrolls employees at a 5% contribution rate, puts them in a low-cost target-date fund that takes on less risk as they near retirement, and offers a comprehensive suite of advice services. On top of that, employees get an employer contribution of 5% and are eligible for a company match.
Because of this combination of attractive features and generous employer contributions, nearly all new hires now participate in the plan, 81% of plan participants invest their retirement savings in balanced portfolios, and 87% of participants meet or exceed Vanguard’s recommended total retirement savings target. (Vanguard generally recommends that retirement investors save 12%–15% of pay, including company matches.)
4
Changing the retirement landscape Am I singling out an isolated Vanguard success story? Absolutely not.
Stories like these are becoming increasingly common with employer-based retirement plans, particularly among large and midsize companies. Solutions such as automatic enrollment, automatic contribution increases, and default investment in target-date funds are having a positive effect.
Insights from the relatively new discipline of behavioral finance have contributed to the advances. Simply put, retirement plans are making natural human inertia work for future retirees, rather than against them, by putting savings on autopilot as much as possible.
More than 60% of Vanguard participants are in plans with automatic enrollment, which has led to a big jump in participation. Today, more than four-fifths of eligible employees are saving for retirement, compared with only two-thirds ten years ago.
In addition, many plans have adopted automatic-escalation features, which increase plan contributions at regular intervals until a maximum level is reached or an employee opts out. Automatic increases are a crucial tool for boosting retirement savings rates.
The growing use of target-date funds is another enormous benefit. More than 70% of all participants in Vanguard plans invest at least part of their retirement savings in
Market Barometer | |||
Total Returns | |||
Periods Ended February 28, 2017 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 10.10% | 25.53% | 13.94% |
Russell 2000 Index (Small-caps) | 12.61 | 36.11 | 12.89 |
Russell 3000 Index (Broad U.S. market) | 10.29 | 26.29 | 13.85 |
FTSE All-World ex US Index (International) | 5.40 | 19.87 | 4.00 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | -2.19% | 1.42% | 2.24% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | -2.80 | 0.25 | 3.07 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.19 | 0.32 | 0.10 |
CPI | |||
Consumer Price Index | 1.14% | 2.74% | 1.36% |
5 |
these age-appropriate, diversified strategies. And nearly 50% of Vanguard participants are invested solely in a single target-date fund.
Consider a do-it-yourself autopilot
But what if you don’t have access to a world-class, employer-based retirement plan? Unfortunately, not everyone does, which is an important policy issue.
However, you can still put the features of these plans to work. For example, you can set up automatic contributions from your paycheck to an IRA. And you can adopt your own automatic escalation by investing any pay raises.
You can also take a page from top-quality retirement plans by considering a low-cost, globally diversified target-date fund. The beauty of this approach is that you don’t need to remember to rebalance your portfolio—the fund does it for you.
Of course, you can take a more active role in picking your own investments, and this can be a good choice for some. But keep in mind the lessons from successful employer-based plans: Busy workers, faced with a lot of competing priorities, are often best served by putting their retirement savings on autopilot.
Winning by default
In highlighting some recent successes in retirement savings, I don’t want to minimize the challenges we still face. We’re living in a slow-growth, uncertain world, and investment returns for both stocks and bonds could well be modest in the coming decade.
But I believe the innovations we’ve seen in the last ten years in many retirement plans—you might call it the “default revolution”—point the way toward a solution. And that even goes for people whoseemployers don’t haveaworld-class retirement plan.
As always, thank you for investing with Vanguard.
Sincerely,
F. William
McNabb III
Chairman and Chief
Executive Officer
March 14,
2017
6
Short-Term Government Bond Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral Institutional | ||
Shares | Shares | Shares | |
Ticker Symbol | VGSH | VSBSX | VSBIX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 1.12% | 1.12% | 1.16% |
Financial Attributes | |||
Bloomberg | |||
Barclays | |||
1–3 Year | Bloomberg | ||
Gov’t | Barclays | ||
Float Adj | Aggregate | ||
Fund | Index | FA Index | |
Number of Bonds | 146 | 384 | 10,166 |
Yield toMaturity | |||
(before expenses) | 1.2% | 1.2% | 2.5% |
Average Coupon | 1.3% | 1.5% | 3.0% |
Average Duration | 1.9 years | 2.0 years | 6.1 years |
Average Effective | |||
Maturity | 1.9 years | 2.0 years | 8.3 years |
Short-Term | |||
Reserves | 0.4% | — | — |
Sector Diversification (% of portfolio) | |
Treasury/Agency | 99.8% |
Other | 0.2 |
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.
Volatility Measures | ||
Bloomberg | ||
Barclays | ||
1–3 Year | Bloomberg | |
Gov’t | Barclays | |
Float Adj | Aggregate | |
Index | FA Index | |
R-Squared | 0.99 | 0.67 |
Beta | 1.03 | 0.22 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 7.1% |
1 - 3 Years | 92.9 |
Distribution by Credit Quality (% of portfolio) | |
U.S. Government | 99.8% |
Aaa | 0.2 |
Credit-quality
ratings are obtained from Barclays and are from
Moody's, Fitch, and S&P. When ratings from all three
agencies are
used, the median
rating is shown. When ratings from two of the
agenciesare used, the lowerrating foreach issueis shown.
"Not
Rated" is used to classify
securities for which a rating is not
available. For more information about these ratings, see
the
Glossary entry for Credit
Quality.
Investment Focus
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.06%
for Institutional
Shares.
7
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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
1 – 3 | ||
Year | ||
Gov’t | ||
ETF Shares Net Asset Value | Float Adj | |
Index | ||
Fiscal Year | Total Returns | Total Returns |
2010 | 1.69% | 1.83% |
2011 | 1.39 | 1.53 |
2012 | 0.40 | 0.50 |
2013 | 0.04 | 0.16 |
2014 | 0.70 | 0.80 |
2015 | 0.75 | 0.84 |
2016 | 0.98 | 1.06 |
2017 | -0.13 | -0.09 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 0.89% | 0.51% | 0.80% | |||
Net Asset Value | 0.79 | 0.49 | 0.79 | |||
Admiral Shares | 12/28/2009 | 0.78 | 0.49 | 0.55% | 0.31% | 0.86 |
Institutional Shares | 8/23/2010 | 0.83 | 0.52 | 0.57 | 0.08 | 0.65 |
See Financial Highlights for dividend and capital gains information.
Short-Term Government Bond Index Fund
Financial Statements
(unaudited)
Statement of Net
Assets
As of February 28,
2017
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).
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
U.S. Government and Agency Obligations (99.5%) | ||||
U.S. Government Securities (89.5%) | ||||
United States Treasury Note/Bond | 4.250% | 11/15/17 | 1,860 | 1,905 |
United States Treasury Note/Bond | 0.750% | 12/31/17 | 6,465 | 6,458 |
United States Treasury Note/Bond | 3.500% | 2/15/18 | 7,850 | 8,040 |
United States Treasury Note/Bond | 0.750% | 2/28/18 | 150 | 150 |
United States Treasury Note/Bond | 2.750% | 2/28/18 | 13,745 | 13,986 |
United States Treasury Note/Bond | 1.000% | 3/15/18 | 11,175 | 11,178 |
United States Treasury Note/Bond | 0.750% | 3/31/18 | 27,450 | 27,381 |
United States Treasury Note/Bond | 0.875% | 3/31/18 | 14,678 | 14,662 |
United States Treasury Note/Bond | 2.875% | 3/31/18 | 4,118 | 4,201 |
United States Treasury Note/Bond | 0.750% | 4/15/18 | 36,950 | 36,852 |
United States Treasury Note/Bond | 0.625% | 4/30/18 | 32,370 | 32,228 |
United States Treasury Note/Bond | 0.750% | 4/30/18 | 32,104 | 32,009 |
United States Treasury Note/Bond | 1.000% | 5/15/18 | 2,750 | 2,750 |
United States Treasury Note/Bond | 0.875% | 5/31/18 | 14,821 | 14,798 |
United States Treasury Note/Bond | 1.000% | 5/31/18 | 22,467 | 22,460 |
United States Treasury Note/Bond | 2.375% | 5/31/18 | 8,500 | 8,642 |
United States Treasury Note/Bond | 1.125% | 6/15/18 | 12,566 | 12,582 |
United States Treasury Note/Bond | 0.625% | 6/30/18 | 10,332 | 10,274 |
United States Treasury Note/Bond | 1.375% | 6/30/18 | 12,130 | 12,181 |
United States Treasury Note/Bond | 2.375% | 6/30/18 | 6,596 | 6,711 |
United States Treasury Note/Bond | 0.875% | 7/15/18 | 15,500 | 15,461 |
United States Treasury Note/Bond | 0.750% | 7/31/18 | 37,097 | 36,923 |
United States Treasury Note/Bond | 1.375% | 7/31/18 | 19,465 | 19,547 |
United States Treasury Note/Bond | 2.250% | 7/31/18 | 6,000 | 6,099 |
United States Treasury Note/Bond | 1.000% | 8/15/18 | 15,100 | 15,081 |
United States Treasury Note/Bond | 0.750% | 8/31/18 | 20,291 | 20,186 |
United States Treasury Note/Bond | 1.500% | 8/31/18 | 27,455 | 27,618 |
United States Treasury Note/Bond | 1.000% | 9/15/18 | 41,294 | 41,216 |
United States Treasury Note/Bond | 0.750% | 9/30/18 | 10,855 | 10,791 |
United States Treasury Note/Bond | 1.375% | 9/30/18 | 43,595 | 43,765 |
United States Treasury Note/Bond | 0.875% | 10/15/18 | 24,635 | 24,531 |
United States Treasury Note/Bond | 0.750% | 10/31/18 | 29,000 | 28,805 |
United States Treasury Note/Bond | 1.250% | 10/31/18 | 34,792 | 34,846 |
United States Treasury Note/Bond | 1.750% | 10/31/18 | 3,688 | 3,724 |
United States Treasury Note/Bond | 1.250% | 11/15/18 | 27,922 | 27,961 |
United States Treasury Note/Bond | 3.750% | 11/15/18 | 11,331 | 11,829 |
United States Treasury Note/Bond | 1.000% | 11/30/18 | 6,575 | 6,557 |
United States Treasury Note/Bond | 1.250% | 11/30/18 | 11,050 | 11,064 |
9
Short-Term Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Note/Bond | 1.375% | 11/30/18 | 6,000 | 6,021 |
United States Treasury Note/Bond | 1.250% | 12/15/18 | 32,854 | 32,890 |
United States Treasury Note/Bond | 1.250% | 12/31/18 | 23,845 | 23,867 |
United States Treasury Note/Bond | 1.375% | 12/31/18 | 10,000 | 10,030 |
United States Treasury Note/Bond | 1.500% | 12/31/18 | 36,063 | 36,260 |
United States Treasury Note/Bond | 1.125% | 1/15/19 | 36,472 | 36,409 |
United States Treasury Note/Bond | 1.125% | 1/31/19 | 21,000 | 20,961 |
United States Treasury Note/Bond | 1.250% | 1/31/19 | 10,000 | 10,005 |
United States Treasury Note/Bond | 1.500% | 1/31/19 | 26,750 | 26,888 |
United States Treasury Note/Bond | 0.750% | 2/15/19 | 36,478 | 36,136 |
United States Treasury Note/Bond | 2.750% | 2/15/19 | 11,000 | 11,320 |
United States Treasury Note/Bond | 1.125% | 2/28/19 | 10,000 | 9,980 |
United States Treasury Note/Bond | 1.375% | 2/28/19 | 10,000 | 10,025 |
United States Treasury Note/Bond | 1.500% | 2/28/19 | 13,000 | 13,065 |
United States Treasury Note/Bond | 1.000% | 3/15/19 | 10,406 | 10,352 |
United States Treasury Note/Bond | 1.500% | 3/31/19 | 5,500 | 5,525 |
United States Treasury Note/Bond | 1.625% | 3/31/19 | 33,760 | 34,008 |
United States Treasury Note/Bond | 0.875% | 4/15/19 | 12,980 | 12,873 |
United States Treasury Note/Bond | 1.250% | 4/30/19 | 5,000 | 4,995 |
United States Treasury Note/Bond | 1.625% | 4/30/19 | 33,935 | 34,174 |
United States Treasury Note/Bond | 0.875% | 5/15/19 | 42,949 | 42,560 |
United States Treasury Note/Bond | 3.125% | 5/15/19 | 13,500 | 14,032 |
United States Treasury Note/Bond | 1.125% | 5/31/19 | 5,000 | 4,979 |
United States Treasury Note/Bond | 1.500% | 5/31/19 | 15,000 | 15,066 |
United States Treasury Note/Bond | 0.875% | 6/15/19 | 14,000 | 13,858 |
United States Treasury Note/Bond | 1.000% | 6/30/19 | 13,000 | 12,900 |
United States Treasury Note/Bond | 1.625% | 6/30/19 | 37,885 | 38,134 |
United States Treasury Note/Bond | 0.750% | 7/15/19 | 22,950 | 22,634 |
United States Treasury Note/Bond | 0.875% | 7/31/19 | 2,500 | 2,472 |
United States Treasury Note/Bond | 1.625% | 7/31/19 | 33,645 | 33,855 |
United States Treasury Note/Bond | 0.750% | 8/15/19 | 45,630 | 44,967 |
United States Treasury Note/Bond | 3.625% | 8/15/19 | 15,000 | 15,820 |
United States Treasury Note/Bond | 1.000% | 8/31/19 | 7,850 | 7,778 |
United States Treasury Note/Bond | 1.625% | 8/31/19 | 24,400 | 24,549 |
United States Treasury Note/Bond | 0.875% | 9/15/19 | 18,315 | 18,083 |
United States Treasury Note/Bond | 1.000% | 9/30/19 | 12,000 | 11,880 |
United States Treasury Note/Bond | 1.750% | 9/30/19 | 22,635 | 22,840 |
United States Treasury Note/Bond | 1.000% | 10/15/19 | 17,000 | 16,819 |
United States Treasury Note/Bond | 1.250% | 10/31/19 | 9,100 | 9,060 |
United States Treasury Note/Bond | 1.500% | 10/31/19 | 34,520 | 34,585 |
United States Treasury Note/Bond | 1.000% | 11/15/19 | 15,625 | 15,444 |
United States Treasury Note/Bond | 3.375% | 11/15/19 | 15,000 | 15,778 |
United States Treasury Note/Bond | 1.000% | 11/30/19 | 34,270 | 33,874 |
United States Treasury Note/Bond | 1.500% | 11/30/19 | 17,010 | 17,034 |
United States Treasury Note/Bond | 1.375% | 12/15/19 | 39,990 | 39,902 |
United States Treasury Note/Bond | 1.125% | 12/31/19 | 10,000 | 9,906 |
United States Treasury Note/Bond | 1.625% | 12/31/19 | 19,200 | 19,284 |
United States Treasury Note/Bond | 1.375% | 1/15/20 | 42,040 | 41,928 |
United States Treasury Note/Bond | 1.250% | 1/31/20 | 15,000 | 14,902 |
United States Treasury Note/Bond | 1.375% | 1/31/20 | 5,070 | 5,054 |
United States Treasury Note/Bond | 1.375% | 2/15/20 | 41,339 | 41,203 |
United States Treasury Note/Bond | 3.625% | 2/15/20 | 15,000 | 15,928 |
United States Treasury Note/Bond | 1.250% | 2/29/20 | 15,000 | 14,888 |
United States Treasury Note/Bond | 1.375% | 2/29/20 | 25,000 | 24,898 |
1,768,130 |
10
Short-Term Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Agency Bonds and Notes (10.0%) | ||||
1 AID-Jordan | 1.945% | 6/23/19 | 200 | 202 |
1 AID-Ukraine | 1.844% | 5/16/19 | 200 | 202 |
2 Federal Farm Credit Banks | 0.750% | 4/18/18 | 2,000 | 1,994 |
2 Federal Farm Credit Banks | 1.100% | 6/1/18 | 100 | 100 |
2 Federal Farm Credit Banks | 5.150% | 11/15/19 | 300 | 329 |
2 Federal Home Loan Banks | 1.375% | 3/9/18 | 4,200 | 4,217 |
2 Federal Home Loan Banks | 0.875% | 3/19/18 | 3,920 | 3,916 |
2 Federal Home Loan Banks | 1.125% | 4/25/18 | 10,345 | 10,356 |
2 Federal Home Loan Banks | 0.875% | 6/29/18 | 5,000 | 4,985 |
2 Federal Home Loan Banks | 0.625% | 8/7/18 | 3,000 | 2,979 |
2 Federal Home Loan Banks | 0.875% | 10/1/18 | 8,500 | 8,457 |
2 Federal Home Loan Banks | 1.250% | 1/16/19 | 4,000 | 3,998 |
2 Federal Home Loan Banks | 1.500% | 3/8/19 | 1,000 | 1,003 |
2 Federal Home Loan Banks | 1.875% | 3/8/19 | 1,070 | 1,082 |
2 Federal Home Loan Banks | 1.125% | 6/21/19 | 9,875 | 9,816 |
2 Federal Home Loan Banks | 0.875% | 8/5/19 | 4,000 | 3,946 |
2 Federal Home Loan Banks | 1.000% | 9/26/19 | 1,500 | 1,482 |
2 Federal Home Loan Banks | 1.375% | 11/15/19 | 4,875 | 4,858 |
3 Federal Home Loan Mortgage Corp. | 0.875% | 3/7/18 | 14,770 | 14,755 |
3 Federal Home Loan Mortgage Corp. | 0.750% | 4/9/18 | 1,200 | 1,196 |
3 Federal Home Loan Mortgage Corp. | 4.875% | 6/13/18 | 500 | 524 |
3 Federal Home Loan Mortgage Corp. | 0.875% | 10/12/18 | 7,700 | 7,660 |
3 Federal Home Loan Mortgage Corp. | 3.750% | 3/27/19 | 11,775 | 12,351 |
3 Federal Home Loan Mortgage Corp. | 1.125% | 4/15/19 | 4,300 | 4,278 |
3 Federal Home Loan Mortgage Corp. | 1.750% | 5/30/19 | 400 | 403 |
3 Federal Home Loan Mortgage Corp. | 0.875% | 7/19/19 | 6,500 | 6,417 |
3 Federal Home Loan Mortgage Corp. | 1.250% | 8/1/19 | 3,450 | 3,435 |
3 Federal Home Loan Mortgage Corp. | 1.250% | 10/2/19 | 3,229 | 3,210 |
3 Federal Home Loan Mortgage Corp. | 1.500% | 1/17/20 | 2,000 | 1,997 |
3 Federal National Mortgage Assn. | 0.875% | 3/28/18 | 1,400 | 1,398 |
3 Federal National Mortgage Assn. | 0.875% | 5/21/18 | 6,280 | 6,267 |
3 Federal National Mortgage Assn. | 1.125% | 7/20/18 | 7,340 | 7,341 |
3 Federal National Mortgage Assn. | 1.875% | 9/18/18 | 3,292 | 3,327 |
3 Federal National Mortgage Assn. | 1.125% | 10/19/18 | 1,200 | 1,199 |
3 Federal National Mortgage Assn. | 1.625% | 11/27/18 | 2,100 | 2,114 |
3 Federal National Mortgage Assn. | 1.125% | 12/14/18 | 4,497 | 4,487 |
3 Federal National Mortgage Assn. | 1.375% | 1/28/19 | 1,000 | 1,002 |
3 Federal National Mortgage Assn. | 1.875% | 2/19/19 | 1,750 | 1,769 |
3 Federal National Mortgage Assn. | 1.000% | 2/26/19 | 9,510 | 9,451 |
3 Federal National Mortgage Assn. | 1.750% | 6/20/19 | 800 | 806 |
3 Federal National Mortgage Assn. | 0.875% | 8/2/19 | 8,500 | 8,386 |
3 Federal National Mortgage Assn. | 1.000% | 8/28/19 | 4,000 | 3,956 |
3 Federal National Mortgage Assn. | 1.750% | 9/12/19 | 5,350 | 5,387 |
3 Federal National Mortgage Assn. | 0.000% | 10/9/19 | 1,150 | 1,097 |
3 Federal National Mortgage Assn. | 1.000% | 10/24/19 | 6,000 | 5,923 |
3 Federal National Mortgage Assn. | 1.750% | 11/26/19 | 750 | 755 |
3 Federal National Mortgage Assn. | 1.625% | 1/21/20 | 7,840 | 7,857 |
3 Federal National Mortgage Assn. | 1.500% | 2/28/20 | 2,340 | 2,333 |
2 Financing Corp. | 9.800% | 4/6/18 | 200 | 219 |
2 Financing Corp. | 10.350% | 8/3/18 | 250 | 282 |
2 Financing Corp. | 9.700% | 4/5/19 | 50 | 58 |
NCUA Guaranteed Notes | 3.000% | 6/12/19 | 180 | 186 |
Private Export Funding Corp. | 1.875% | 7/15/18 | 50 | 50 |
11
Short-Term Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Private Export Funding Corp. | 4.375% | 3/15/19 | 700 | 741 |
Private Export Funding Corp. | 1.450% | 8/15/19 | 125 | 125 |
2 Tennessee Valley Authority | 1.750% | 10/15/18 | 625 | 630 |
197,294 | ||||
Total U.S. Government and Agency Obligations (Cost $1,972,270) | 1,965,424 | |||
Shares | ||||
Temporary Cash Investment (0.4%) | ||||
Money Market Fund (0.4%) | ||||
4 Vanguard Market Liquidity Fund (Cost $7,355) | 0.864% | 73,550 | 7,356 | |
Total Investments (99.9%) (Cost $1,979,625) | 1,972,780 | |||
Other Assets and Liabilities (0.1%) | ||||
Other Assets | 109,719 | |||
Liabilities | (108,345) | |||
1,374 | ||||
Net Assets (100%) | 1,974,154 | |||
Amount | ||||
($000) | ||||
Statement of Assets and Liabilities | ||||
Assets | ||||
Investments in Securities, at Value | ||||
Unaffiliated Issuers | 1,965,424 | |||
Affiliated Vanguard Funds | 7,356 | |||
Total Investments in Securities | 1,972,780 | |||
Investment in Vanguard | 138 | |||
Receivables for Investment Securities Sold | 103,252 | |||
Receivables for Accrued Income | 5,682 | |||
Receivables for Capital Shares Issued | 637 | |||
Other Assets | 10 | |||
Total Assets | 2,082,499 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 106,093 | |||
Payables for Capital Shares Redeemed | 1,516 | |||
Payables for Distributions | 152 | |||
Payables to Vanguard | 345 | |||
Other Liabilities | 239 | |||
Total Liabilities | 108,345 | |||
Net Assets | 1,974,154 |
12
Short-Term Government Bond Index Fund | |
At February 28, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,980,102 |
Undistributed Net Investment Income | 1,000 |
Accumulated Net Realized Losses | (103) |
Unrealized Appreciation (Depreciation) | (6,845) |
Net Assets | 1,974,154 |
ETF Shares—Net Assets | |
Applicable to 22,147,516 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 1,346,272 |
Net Asset Value Per Share—ETF Shares | $60.79 |
Admiral Shares—Net Assets | |
Applicable to 21,466,600 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 434,949 |
Net Asset Value Per Share—Admiral Shares | $20.26 |
Institutional Shares—Net Assets | |
Applicable to 7,579,021 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 192,933 |
Net Asset Value Per Share—Institutional Shares | $25.46 |
• See Note A in Notes toFinancial
Statements.
1 U.S.
government-guaranteed.
2 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.
3 Theissuer
wasplacedunder federalconservatorshipinSeptember 2008;sincethat time,its
dailyoperations have been managedbythe
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 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.
13
Short-Term Government Bond Index Fund | |
Statement of Operations | |
Six Months Ended | |
February 28, 2017 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 7,551 |
Total Income | 7,551 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 26 |
Management and Administrative—ETF Shares | 288 |
Management and Administrative—Admiral Shares | 103 |
Management and Administrative—Institutional Shares | 31 |
Marketing and Distribution—ETF Shares | 43 |
Marketing and Distribution—Admiral Shares | 21 |
Marketing and Distribution—Institutional Shares | 2 |
Custodian Fees | 6 |
Shareholders’ Reports—ETF Shares | 11 |
Shareholders’ Reports—Admiral Shares | 3 |
Shareholders’ Reports—Institutional Shares | 10 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 545 |
Net Investment Income | 7,006 |
Realized Net Gain (Loss) on Investment Securities Sold1 | 62 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (8,564) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,496) |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $27,000 and $1,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
14
Short-Term Government Bond Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 7,006 | 9,251 |
Realized Net Gain (Loss) | 62 | 1,013 |
Change in Unrealized Appreciation (Depreciation) | (8,564) | 1,216 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,496) | 11,480 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (4,232) | (5,809) |
Admiral Shares | (1,717) | (2,541) |
Institutional Shares | (773) | (547) |
Realized Capital Gain1 | ||
ETF Shares | (153) | (269) |
Admiral Shares | (62) | (106) |
Institutional Shares | (28) | (24) |
Total Distributions | (6,965) | (9,296) |
Capital Share Transactions | ||
ETF Shares | 443,690 | 271,434 |
Admiral Shares | 73,045 | 142,241 |
Institutional Shares | 102,247 | 24,698 |
Net Increase (Decrease) from Capital Share Transactions | 618,982 | 438,373 |
Total Increase (Decrease) | 610,521 | 440,557 |
Net Assets | ||
Beginning of Period | 1,363,633 | 923,076 |
End of Period2 | 1,974,154 | 1,363,633 |
1 Includes fiscal 2017 and 2016 short-term gain distributions totaling $38,000 and $200,000, respectively. Short-term gain distributions are | ||
treated as ordinary income dividends for tax purposes. | ||
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $1,000,000 and $716,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
15
Short-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $61.14 | $61.03 | $60.95 | $60.75 | $60.98 | $61.11 | |
Investment Operations | |||||||
Net Investment Income | .259 | .478 | .351 | .198 | .158 | .270 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.338) | .118 | .102 | .227 | (.134) | (.028) | |
Total from Investment Operations | (.079) | .596 | .453 | .425 | .024 | .242 | |
Distributions | |||||||
Dividends from Net Investment Income | (.261) | (.462) | (.340) | (.177) | (.158) | (.267) | |
Distributions from Realized Capital Gains | (.010) | (.024) | (.033) | (.048) | (.096) | (.105) | |
Total Distributions | (.271) | (.486) | (.373) | (.225) | (.254) | (.372) | |
Net Asset Value, End of Period | $60.79 | $61.14 | $61.03 | $60.95 | $60.75 | $60.98 | |
Total Return | -0.13% | 0.98% | 0.75% | 0.70% | 0.04% | 0.40% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $1,346 | $908 | $635 | $497 | $307 | $183 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 0.89% | 0.80% | 0.59% | 0.34% | 0.26% | 0.44% | |
Portfolio Turnover Rate1 | 67% | 73% | 64% | 64% | 73% | 72% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 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
Short-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $20.38 | $20.35 | $20.33 | $20.27 | $20.35 | $20.39 | |
Investment Operations | |||||||
Net Investment Income | .087 | .158 | .116 | .068 | .053 | .089 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.116) | .040 | .031 | .074 | (.048) | (.007) | |
Total from Investment Operations | (.029) | .198 | .147 | .142 | .005 | .082 | |
Distributions | |||||||
Dividends from Net Investment Income | (.088) | (.160) | (.116) | (.066) | (.053) | (.087) | |
Distributions from Realized Capital Gains | (.003) | (.008) | (.011) | (.016) | (.032) | (.035) | |
Total Distributions | (.091) | (.168) | (.127) | (.082) | (.085) | (.122) | |
Net Asset Value, End of Period | $20.26 | $20.38 | $20.35 | $20.33 | $20.27 | $20.35 | |
Total Return1 | -0.14% | 0.98% | 0.72% | 0.70% | 0.02% | 0.40% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $435 | $364 | $221 | $126 | $53 | $37 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 0.89% | 0.80% | 0.59% | 0.34% | 0.26% | 0.44% | |
Portfolio Turnover Rate2 | 67% | 73% | 64% | 64% | 73% | 72% | |
The expense ratio, net investment 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 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 and account service fees. | |||||||
2 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
Short-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $25.60 | $25.57 | $25.54 | $25.47 | $25.57 | $25.62 | |
Investment Operations | |||||||
Net Investment Income | .111 | .207 | .156 | .095 | .075 | .121 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.135) | .042 | .043 | .088 | (.059) | (.007) | |
Total from Investment Operations | (.024) | .249 | .199 | .183 | .016 | .114 | |
Distributions | |||||||
Dividends from Net Investment Income | (.112) | (.209) | (.155) | (.093) | (.075) | (.120) | |
Distributions from Realized Capital Gains | (.004) | (.010) | (.014) | (.020) | (.041) | (.044) | |
Total Distributions | (.116) | (.219) | (.169) | (.113) | (.116) | (.164) | |
Net Asset Value, End of Period | $25.46 | $25.60 | $25.57 | $25.54 | $25.47 | $25.57 | |
Total Return1 | -0.09% | 0.98% | 0.78% | 0.72% | 0.06% | 0.45% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $193 | $92 | $67 | $49 | $17 | $44 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.06% | 0.05% | 0.07% | 0.09% | 0.09% | 0.09% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 0.90% | 0.82% | 0.62% | 0.37% | 0.29% | 0.47% | |
Portfolio Turnover Rate2 | 67% | 73% | 64% | 64% | 73% | 72% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any | |||||||
applicable transaction fees. | |||||||
2 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.
18
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: ETF Shares, Admiral Shares, and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. 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, 2013–2016), and for the period ended February 28, 2017, 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. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
5. 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.
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
19
Short-Term Government Bond Index Fund
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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Assets and Liabilities.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $138,000, representing 0.01% of the fund’s net assets and 0.06% of Vanguard’s capitalization. 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. 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, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 1,965,424 | — |
Temporary Cash Investments | 7,356 | — | — |
Total | 7,356 | 1,965,424 | — |
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, 2017, the fund realized $36,000 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 losses to paid-in capital.
20
Short-Term Government Bond Index Fund
At February 28, 2017, the cost of investment securities for tax purposes was $1,979,625,000. Net unrealized depreciation of investment securities for tax purposes was $6,845,000, consisting of unrealized gains of $102,000 on securities that had risen in value since their purchase and $6,947,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2017, the fund purchased $1,185,962,000 of investment securities and sold $556,712,000 of investment securities, other than temporary cash investments. Purchases and sales include $464,108,000 and $24,036,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 468,078 | 7,700 | 439,524 | 7,197 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (24,388) | (400) | (168,090) | (2,750) |
Net Increase (Decrease)—ETF Shares | 443,690 | 7,300 | 271,434 | 4,447 |
Admiral Shares | ||||
Issued | 180,764 | 8,903 | 372,695 | 18,300 |
Issued in Lieu of Cash Distributions | 1,363 | 67 | 2,119 | 104 |
Redeemed | (109,082) | (5,375) | (232,573) | (11,408) |
Net Increase (Decrease)—Admiral Shares | 73,045 | 3,595 | 142,241 | 6,996 |
Institutional Shares | ||||
Issued | 103,948 | 4,064 | 37,398 | 1,458 |
Issued in Lieu of Cash Distributions | 491 | 19 | 360 | 14 |
Redeemed | (2,192) | (86) | (13,060) | (510) |
Net Increase (Decrease)—Institutional Shares | 102,247 | 3,997 | 24,698 | 962 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
21
Intermediate-Term Government Bond Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral Institutional | ||
Shares | Shares | Shares | |
Ticker Symbol | VGIT | VSIGX | VIIGX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 1.91% | 1.90% | 1.93% |
Financial Attributes | |||
Bloomberg | |||
Barclays | |||
3–10 Year | Bloomberg | ||
Gov’t | Barclays | ||
Float Adj | Aggregate | ||
Fund | Index | FA Index | |
Number of Bonds | 163 | 275 | 10,166 |
Yield to Maturity | |||
(before expenses) | 1.9% | 2.0% | 2.5% |
Average Coupon | 2.0% | 2.0% | 3.0% |
Average Duration | 5.1 years | 5.2 years | 6.1 years |
Average Effective | |||
Maturity | 5.4 years | 5.6 years | 8.3 years |
Short-Term | |||
Reserves | 0.5% | — | — |
Sector Diversification (% of portfolio) | |
Treasury/Agency | 99.3% |
Other | 0.7 |
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.
Volatility Measures | ||
Bloomberg | ||
Barclays | ||
3–10 Year | Bloomberg | |
Gov’t | Barclays | |
Float Adj | Aggregate | |
Index | FA Index | |
R-Squared | 1.00 | 0.87 |
Beta | 1.02 | 1.08 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 0.7% |
1 - 3 Years | 2.3 |
3 - 5 Years | 51.0 |
5 - 10 Years | 46.0 |
Distribution by Credit Quality (% of portfolio) | |
U.S. Government | 99.3% |
Aaa | 0.7 |
Credit-quality
ratings are obtained from Barclays and are from
Moody's, Fitch, and S&P. When ratings from all three
agencies are
used, the median
rating is shown. When ratings from two of the
agencies are used, the lower rating for each issue is shown.
"Not
Rated" is used to classify
securities for which a rating is not
available.Formoreinformationabouttheseratings,seethe
Glossary entry for Credit Quality.
Investment Focus
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional
Shares.
22
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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
3 – 10 | ||
Year | ||
Gov’t | ||
ETF Shares Net Asset Value | Float Adj | |
Index | ||
Fiscal Year | Total Returns | Total Returns |
2010 | 7.65% | 7.76% |
2011 | 5.30 | 5.53 |
2012 | 4.50 | 4.51 |
2013 | -3.18 | -2.99 |
2014 | 3.54 | 3.54 |
2015 | 2.67 | 2.86 |
2016 | 4.37 | 4.47 |
2017 | -2.49 | -2.48 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 1.10% | 1.34% | 2.98% | |||
Net Asset Value | 1.12 | 1.35 | 2.98 | |||
Admiral Shares | 8/4/2010 | 1.10 | 1.35 | 1.66% | 0.78% | 2.44 |
Institutional Shares | 3/19/2010 | 1.15 | 1.38 | 1.73 | 1.43 | 3.16 |
See Financial Highlights for dividend and capital gains information.
23
Intermediate-Term Government Bond Index Fund
Financial Statements
(unaudited)
Statement of Net
Assets
As of February 28,
2017
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).
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
U.S. Government and Agency Obligations (99.6%) | ||||
U.S. Government Securities (96.4%) | ||||
United States Treasury Note/Bond | 1.125% | 3/31/20 | 1,050 | 1,037 |
United States Treasury Note/Bond | 1.375% | 3/31/20 | 3,789 | 3,771 |
United States Treasury Note/Bond | 1.125% | 4/30/20 | 1,176 | 1,161 |
United States Treasury Note/Bond | 1.375% | 4/30/20 | 35,624 | 35,424 |
United States Treasury Note/Bond | 3.500% | 5/15/20 | 33,689 | 35,716 |
United States Treasury Note/Bond | 8.750% | 5/15/20 | 1,500 | 1,836 |
United States Treasury Note/Bond | 1.375% | 5/31/20 | 16,145 | 16,039 |
United States Treasury Note/Bond | 1.500% | 5/31/20 | 7,243 | 7,224 |
United States Treasury Note/Bond | 1.625% | 6/30/20 | 8,000 | 8,006 |
United States Treasury Note/Bond | 1.875% | 6/30/20 | 5,150 | 5,197 |
United States Treasury Note/Bond | 1.625% | 7/31/20 | 34,680 | 34,680 |
United States Treasury Note/Bond | 2.000% | 7/31/20 | 13,160 | 13,327 |
United States Treasury Note/Bond | 2.625% | 8/15/20 | 42,785 | 44,216 |
United States Treasury Note/Bond | 8.750% | 8/15/20 | 1,950 | 2,416 |
United States Treasury Note/Bond | 1.375% | 8/31/20 | 33,130 | 32,830 |
United States Treasury Note/Bond | 2.125% | 8/31/20 | 36,392 | 36,995 |
United States Treasury Note/Bond | 1.375% | 9/30/20 | 6,978 | 6,907 |
United States Treasury Note/Bond | 2.000% | 9/30/20 | 5,059 | 5,119 |
United States Treasury Note/Bond | 1.375% | 10/31/20 | 6,789 | 6,715 |
United States Treasury Note/Bond | 1.750% | 10/31/20 | 9,445 | 9,469 |
United States Treasury Note/Bond | 2.625% | 11/15/20 | 49,082 | 50,731 |
United States Treasury Note/Bond | 1.625% | 11/30/20 | 5,750 | 5,732 |
United States Treasury Note/Bond | 2.000% | 11/30/20 | 8,875 | 8,969 |
United States Treasury Note/Bond | 1.750% | 12/31/20 | 17,850 | 17,861 |
United States Treasury Note/Bond | 2.375% | 12/31/20 | 10,580 | 10,840 |
United States Treasury Note/Bond | 1.375% | 1/31/21 | 20,932 | 20,638 |
United States Treasury Note/Bond | 2.125% | 1/31/21 | 14,122 | 14,327 |
United States Treasury Note/Bond | 3.625% | 2/15/21 | 12,857 | 13,787 |
United States Treasury Note/Bond | 7.875% | 2/15/21 | 1,966 | 2,425 |
United States Treasury Note/Bond | 1.125% | 2/28/21 | 8,800 | 8,583 |
United States Treasury Note/Bond | 2.000% | 2/28/21 | 16,705 | 16,867 |
United States Treasury Note/Bond | 1.250% | 3/31/21 | 28,265 | 27,673 |
United States Treasury Note/Bond | 2.250% | 3/31/21 | 5,925 | 6,034 |
United States Treasury Note/Bond | 1.375% | 4/30/21 | 16,290 | 16,015 |
United States Treasury Note/Bond | 2.250% | 4/30/21 | 4,000 | 4,074 |
United States Treasury Note/Bond | 3.125% | 5/15/21 | 31,607 | 33,296 |
United States Treasury Note/Bond | 8.125% | 5/15/21 | 1,340 | 1,682 |
24
Intermediate-Term Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Note/Bond | 1.375% | 5/31/21 | 25,925 | 25,459 |
United States Treasury Note/Bond | 2.000% | 5/31/21 | 26,610 | 26,814 |
United States Treasury Note/Bond | 1.125% | 6/30/21 | 16,150 | 15,678 |
United States Treasury Note/Bond | 2.125% | 6/30/21 | 21,375 | 21,642 |
United States Treasury Note/Bond | 1.125% | 7/31/21 | 15,490 | 15,016 |
United States Treasury Note/Bond | 2.250% | 7/31/21 | 6,200 | 6,305 |
United States Treasury Note/Bond | 2.125% | 8/15/21 | 34,672 | 35,068 |
United States Treasury Note/Bond | 8.125% | 8/15/21 | 1,775 | 2,250 |
United States Treasury Note/Bond | 1.125% | 8/31/21 | 19,628 | 19,015 |
United States Treasury Note/Bond | 2.000% | 8/31/21 | 21,325 | 21,452 |
United States Treasury Note/Bond | 1.125% | 9/30/21 | 24,440 | 23,638 |
United States Treasury Note/Bond | 2.125% | 9/30/21 | 41,690 | 42,146 |
United States Treasury Note/Bond | 1.250% | 10/31/21 | 11,750 | 11,420 |
United States Treasury Note/Bond | 2.000% | 10/31/21 | 38,770 | 38,964 |
United States Treasury Note/Bond | 2.000% | 11/15/21 | 6,013 | 6,043 |
United States Treasury Note/Bond | 8.000% | 11/15/21 | 7,115 | 9,072 |
United States Treasury Note/Bond | 1.750% | 11/30/21 | 5,500 | 5,467 |
United States Treasury Note/Bond | 1.875% | 11/30/21 | 28,725 | 28,707 |
United States Treasury Note/Bond | 2.000% | 12/31/21 | 12,185 | 12,240 |
United States Treasury Note/Bond | 2.125% | 12/31/21 | 12,350 | 12,477 |
United States Treasury Note/Bond | 1.500% | 1/31/22 | 16,500 | 16,180 |
United States Treasury Note/Bond | 1.875% | 1/31/22 | 13,500 | 13,483 |
United States Treasury Note/Bond | 2.000% | 2/15/22 | 31,394 | 31,521 |
United States Treasury Note/Bond | 1.750% | 2/28/22 | 13,346 | 13,231 |
United States Treasury Note/Bond | 1.875% | 2/28/22 | 24,600 | 24,577 |
United States Treasury Note/Bond | 1.750% | 3/31/22 | 14,606 | 14,471 |
United States Treasury Note/Bond | 1.750% | 4/30/22 | 8,500 | 8,415 |
United States Treasury Note/Bond | 1.750% | 5/15/22 | 5,000 | 4,945 |
United States Treasury Note/Bond | 1.875% | 5/31/22 | 11,375 | 11,325 |
United States Treasury Note/Bond | 2.125% | 6/30/22 | 8,900 | 8,964 |
United States Treasury Note/Bond | 2.000% | 7/31/22 | 5,300 | 5,302 |
United States Treasury Note/Bond | 1.625% | 8/15/22 | 4,399 | 4,314 |
United States Treasury Note/Bond | 7.250% | 8/15/22 | 975 | 1,239 |
United States Treasury Note/Bond | 1.875% | 8/31/22 | 15,626 | 15,516 |
United States Treasury Note/Bond | 1.750% | 9/30/22 | 8,300 | 8,179 |
United States Treasury Note/Bond | 1.875% | 10/31/22 | 7,300 | 7,236 |
United States Treasury Note/Bond | 1.625% | 11/15/22 | 39,700 | 38,800 |
United States Treasury Note/Bond | 7.625% | 11/15/22 | 1,975 | 2,570 |
United States Treasury Note/Bond | 2.000% | 11/30/22 | 23,295 | 23,233 |
United States Treasury Note/Bond | 2.125% | 12/31/22 | 10,902 | 10,939 |
United States Treasury Note/Bond | 1.750% | 1/31/23 | 14,200 | 13,943 |
United States Treasury Note/Bond | 2.000% | 2/15/23 | 25,575 | 25,471 |
United States Treasury Note/Bond | 7.125% | 2/15/23 | 2,590 | 3,327 |
United States Treasury Note/Bond | 1.500% | 2/28/23 | 24,265 | 23,465 |
United States Treasury Note/Bond | 1.500% | 3/31/23 | 30,140 | 29,113 |
United States Treasury Note/Bond | 1.625% | 4/30/23 | 16,430 | 15,970 |
United States Treasury Note/Bond | 1.750% | 5/15/23 | 37,625 | 36,825 |
United States Treasury Note/Bond | 1.625% | 5/31/23 | 37,920 | 36,824 |
United States Treasury Note/Bond | 1.375% | 6/30/23 | 18,150 | 17,342 |
United States Treasury Note/Bond | 1.250% | 7/31/23 | 16,725 | 15,837 |
United States Treasury Note/Bond | 2.500% | 8/15/23 | 11,495 | 11,746 |
United States Treasury Note/Bond | 6.250% | 8/15/23 | 1,725 | 2,157 |
United States Treasury Note/Bond | 1.375% | 8/31/23 | 18,975 | 18,088 |
United States Treasury Note/Bond | 1.375% | 9/30/23 | 20,600 | 19,615 |
United States Treasury Note/Bond | 1.625% | 10/31/23 | 14,750 | 14,266 |
25
Intermediate-Term Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Note/Bond | 2.750% | 11/15/23 | 11,995 | 12,430 |
United States Treasury Note/Bond | 2.125% | 11/30/23 | 14,360 | 14,329 |
United States Treasury Note/Bond | 2.250% | 12/31/23 | 12,500 | 12,560 |
United States Treasury Note/Bond | 2.250% | 1/31/24 | 8,500 | 8,537 |
United States Treasury Note/Bond | 2.750% | 2/15/24 | 39,430 | 40,853 |
United States Treasury Note/Bond | 2.125% | 2/29/24 | 20,000 | 19,916 |
United States Treasury Note/Bond | 2.500% | 5/15/24 | 43,280 | 44,105 |
United States Treasury Note/Bond | 2.375% | 8/15/24 | 33,010 | 33,314 |
United States Treasury Note/Bond | 2.250% | 11/15/24 | 24,416 | 24,378 |
United States Treasury Note/Bond | 7.500% | 11/15/24 | 1,690 | 2,324 |
United States Treasury Note/Bond | 2.000% | 2/15/25 | 40,873 | 39,992 |
United States Treasury Note/Bond | 7.625% | 2/15/25 | 300 | 418 |
United States Treasury Note/Bond | 2.125% | 5/15/25 | 51,785 | 51,057 |
United States Treasury Note/Bond | 2.000% | 8/15/25 | 27,840 | 27,131 |
United States Treasury Note/Bond | 6.875% | 8/15/25 | 1,150 | 1,557 |
United States Treasury Note/Bond | 2.250% | 11/15/25 | 44,405 | 44,065 |
United States Treasury Note/Bond | 1.625% | 2/15/26 | 33,235 | 31,267 |
United States Treasury Note/Bond | 1.625% | 5/15/26 | 37,740 | 35,428 |
United States Treasury Note/Bond | 1.500% | 8/15/26 | 38,565 | 35,715 |
United States Treasury Note/Bond | 2.000% | 11/15/26 | 32,747 | 31,683 |
United States Treasury Note/Bond | 6.500% | 11/15/26 | 3,000 | 4,076 |
United States Treasury Note/Bond | 2.250% | 2/15/27 | 17,500 | 17,328 |
2,027,384 | ||||
Agency Bonds and Notes (3.2%) | ||||
1 AID-Iraq | 2.149% | 1/18/22 | 825 | 826 |
1 AID-Israel | 5.500% | 9/18/23 | 125 | 148 |
1 AID-Israel | 5.500% | 12/4/23 | 500 | 594 |
1 AID-Israel | 5.500% | 4/26/24 | 500 | 597 |
1 AID-Jordan | 2.503% | 10/30/20 | 175 | 180 |
1 AID-Jordan | 2.578% | 6/30/22 | 500 | 510 |
1 AID-Tunisia | 1.416% | 8/5/21 | 510 | 497 |
1 AID-Ukraine | 1.847% | 5/29/20 | 300 | 304 |
1 AID-Ukraine | 1.471% | 9/29/21 | 525 | 513 |
2 Federal Farm Credit Banks | 3.500% | 12/20/23 | 100 | 107 |
2 Federal Home Loan Banks | 1.875% | 3/13/20 | 150 | 151 |
2 Federal Home Loan Banks | 4.125% | 3/13/20 | 8,760 | 9,413 |
2 Federal Home Loan Banks | 3.375% | 6/12/20 | 125 | 132 |
2 Federal Home Loan Banks | 3.125% | 12/11/20 | 1,000 | 1,049 |
2 Federal Home Loan Banks | 5.250% | 12/11/20 | 250 | 282 |
2 Federal Home Loan Banks | 1.375% | 2/18/21 | 975 | 959 |
2 Federal Home Loan Banks | 5.625% | 6/11/21 | 400 | 461 |
2 Federal Home Loan Banks | 1.125% | 7/14/21 | 1,500 | 1,452 |
2 Federal Home Loan Banks | 1.875% | 11/29/21 | 4,200 | 4,181 |
2 Federal Home Loan Banks | 2.000% | 9/9/22 | 1,265 | 1,259 |
2 Federal Home Loan Banks | 2.125% | 3/10/23 | 475 | 474 |
2 Federal Home Loan Banks | 2.875% | 6/14/24 | 200 | 206 |
2 Federal Home Loan Banks | 2.875% | 9/13/24 | 1,000 | 1,028 |
3 Federal Home Loan Mortgage Corp. | 1.375% | 5/1/20 | 2,225 | 2,208 |
3 Federal Home Loan Mortgage Corp. | 1.125% | 8/12/21 | 1,000 | 966 |
3 Federal Home Loan Mortgage Corp. | 2.375% | 1/13/22 | 10,635 | 10,822 |
3 Federal National Mortgage Assn. | 1.625% | 1/21/20 | 20 | 20 |
3 Federal National Mortgage Assn. | 1.500% | 6/22/20 | 1,200 | 1,194 |
3 Federal National Mortgage Assn. | 1.500% | 11/30/20 | 1,000 | 990 |
3 Federal National Mortgage Assn. | 1.875% | 12/28/20 | 2,000 | 2,007 |
3 Federal National Mortgage Assn. | 1.375% | 2/26/21 | 3,285 | 3,232 |
26
Intermediate-Term Government Bond Index Fund | |||||
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
3 | Federal National Mortgage Assn. | 1.250% | 8/17/21 | 1,500 | 1,456 |
3 | Federal National Mortgage Assn. | 1.375% | 10/7/21 | 2,200 | 2,145 |
3 | Federal National Mortgage Assn. | 2.000% | 1/5/22 | 1,000 | 1,000 |
3 | Federal National Mortgage Assn. | 2.625% | 9/6/24 | 4,995 | 5,068 |
3 | Federal National Mortgage Assn. | 2.125% | 4/24/26 | 2,200 | 2,098 |
3 | Federal National Mortgage Assn. | 1.875% | 9/24/26 | 3,090 | 2,874 |
Private Export Funding Corp. | 2.250% | 3/15/20 | 150 | 152 | |
Private Export Funding Corp. | 2.300% | 9/15/20 | 1,075 | 1,089 | |
Private Export Funding Corp. | 2.050% | 11/15/22 | 175 | 173 | |
Private Export Funding Corp. | 3.550% | 1/15/24 | 75 | 80 | |
Private Export Funding Corp. | 2.450% | 7/15/24 | 205 | 203 | |
Private Export Funding Corp. | 3.250% | 6/15/25 | 75 | 78 | |
2 Tennessee Valley Authority | 3.875% | 2/15/21 | 225 | 243 | |
2 Tennessee Valley Authority | 1.875% | 8/15/22 | 125 | 123 | |
2 Tennessee Valley Authority | 2.875% | 9/15/24 | 400 | 410 | |
2 Tennessee Valley Authority | 6.750% | 11/1/25 | 1,225 | 1,604 | |
2 Tennessee Valley Authority | 2.875% | 2/1/27 | 750 | 752 | |
66,310 | |||||
Total U.S. Government and Agency Obligations (Cost $2,130,720) | 2,093,694 | ||||
Shares | |||||
Temporary Cash Investment (0.5%) | |||||
Money Market Fund (0.5%) | |||||
4 | Vanguard Market Liquidity Fund (Cost $11,339) | 0.864% | 113,379 | 11,339 | |
Total Investments (100.1%) (Cost $2,142,059) | 2,105,033 | ||||
Amount | |||||
($000) | |||||
Other Assets and Liabilities (-0.1%) | |||||
Other Assets | |||||
Investment in Vanguard | 148 | ||||
Receivables for Investment Securities Sold | 52,144 | ||||
Receivables for Accrued Income | 8,643 | ||||
Receivables for Capital Shares Issued | 15,418 | ||||
Total Other Assets | 76,353 | ||||
Liabilities | |||||
Payables for Investment Securities Purchased | (61,862) | ||||
Payables for Capital Shares Redeemed | (13,950) | ||||
Payables for Distributions | (206) | ||||
Payables to Vanguard | (375) | ||||
Other Liabilities | (1,648) | ||||
Total Liabilities | (78,041) | ||||
Net Assets (100%) | 2,103,345 |
27
Intermediate-Term Government Bond Index Fund | |
At February 28, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,140,648 |
Undistributed Net Investment Income | 1,219 |
Accumulated Net Realized Losses | (1,496) |
Unrealized Appreciation (Depreciation) | (37,026) |
Net Assets | 2,103,345 |
ETF Shares—Net Assets | |
Applicable to 16,251,191 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 1,045,136 |
Net Asset Value Per Share—ETF Shares | $64.31 |
Admiral Shares—Net Assets | |
Applicable to 31,863,462 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 691,304 |
Net Asset Value Per Share—Admiral Shares | $21.70 |
Institutional Shares—Net Assets | |
Applicable to 13,629,060 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 366,905 |
Net Asset Value Per Share—Institutional Shares | $26.92 |
• See Note A in Notes toFinancial
Statements.
1 U.S.
government-guaranteed.
2 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.
3 Theissuer
wasplacedunder federalconservatorshipinSeptember 2008;sincethat time,its
dailyoperations have been managedbythe
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 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.
28
Intermediate-Term Government Bond Index Fund | |
Statement of Operations | |
Six Months Ended | |
February 28, 2017 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 16,106 |
Total Income | 16,106 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 32 |
Management and Administrative—ETF Shares | 264 |
Management and Administrative—Admiral Shares | 203 |
Management and Administrative—Institutional Shares | 80 |
Marketing and Distribution—ETF Shares | 39 |
Marketing and Distribution—Admiral Shares | 38 |
Marketing and Distribution—Institutional Shares | 6 |
Custodian Fees | 6 |
Shareholders’ Reports—ETF Shares | 28 |
Shareholders’ Reports—Admiral Shares | 4 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 701 |
Net Investment Income | 15,405 |
Realized Net Gain (Loss) on Investment Securities Sold1 | 898 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (68,836) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (52,533) |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $14,000 and $2,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
29
Intermediate-Term Government Bond Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 15,405 | 21,805 |
Realized Net Gain (Loss) | 898 | 4,551 |
Change in Unrealized Appreciation (Depreciation) | (68,836) | 27,039 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (52,533) | 53,395 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (7,224) | (8,980) |
Admiral Shares | (5,468) | (8,458) |
Institutional Shares | (2,738) | (3,688) |
Realized Capital Gain1 | ||
ETF Shares | (1,196) | (180) |
Admiral Shares | (889) | (178) |
Institutional Shares | (450) | (92) |
Total Distributions | (17,965) | (21,576) |
Capital Share Transactions | ||
ETF Shares | 170,342 | 534,498 |
Admiral Shares | 5,636 | 339,752 |
Institutional Shares | 107,542 | 58,786 |
Net Increase (Decrease) from Capital Share Transactions | 283,520 | 933,036 |
Total Increase (Decrease) | 213,022 | 964,855 |
Net Assets | ||
Beginning of Period | 1,890,323 | 925,468 |
End of Period2 | 2,103,345 | 1,890,323 |
1 Includes fiscal 2017 and 2016 short-term gain distributions totaling $417,000 and $200,000, respectively. Short-term gain distributions are | ||
treated as ordinary income dividends for tax purposes. | ||
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $1,219,000 and $1,244,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
30
Intermediate-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $66.54 | $64.80 | $64.14 | $62.96 | $66.58 | $64.91 | |
Investment Operations | |||||||
Net Investment Income | .487 | 1.035 | 1.054 | .920 | .861 | 1.097 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (2.143) | 1.770 | .649 | 1.292 | (2.940) | 1.791 | |
Total from Investment Operations | (1.656) | 2.805 | 1.703 | 2.212 | (2.079) | 2.888 | |
Distributions | |||||||
Dividends from Net Investment Income | (.493) | (1.038) | (1.043) | (.843) | (.861) | (1.094) | |
Distributions from Realized Capital Gains | (.081) | (.027) | — | (.189) | (.680) | (.124) | |
Total Distributions | (.574) | (1.065) | (1.043) | (1.032) | (1.541) | (1.218) | |
Net Asset Value, End of Period | $64.31 | $66.54 | $64.80 | $64.14 | $62.96 | $66.58 | |
Total Return | -2.49% | 4.37% | 2.67% | 3.54% | -3.18% | 4.50% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $1,045 | $908 | $360 | $164 | $123 | $133 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.54% | 1.61% | 1.67% | 1.50% | 1.32% | 1.67% | |
Portfolio Turnover Rate1 | 33% | 37% | 35% | 43% | 54% | 51% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 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.
31
Intermediate-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $22.45 | $21.86 | $21.64 | $21.27 | $22.50 | $21.94 | |
Investment Operations | |||||||
Net Investment Income | .165 | .349 | .355 | .317 | .292 | .369 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.719) | .601 | .220 | .432 | (1.000) | .602 | |
Total from Investment Operations | (.554) | .950 | .575 | .749 | (.708) | .971 | |
Distributions | |||||||
Dividends from Net Investment Income | (.168) | (.351) | (.355) | (.315) | (.292) | (.369) | |
Distributions from Realized Capital Gains | (.028) | (.009) | — | (.064) | (.230) | (.042) | |
Total Distributions | (.196) | (.360) | (.355) | (.379) | (.522) | (.411) | |
Net Asset Value, End of Period | $21.70 | $22.45 | $21.86 | $21.64 | $21.27 | $22.50 | |
Total Return1 | -2.47% | 4.38% | 2.67% | 3.55% | -3.21% | 4.47% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $691 | $710 | $358 | $232 | $95 | $35 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.54% | 1.61% | 1.67% | 1.50% | 1.32% | 1.67% | |
Portfolio Turnover Rate2 | 33% | 37% | 35% | 43% | 54% | 51% | |
The expense ratio, net investment 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 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 and account service fees. | |||||||
2 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.
32
Intermediate-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $27.86 | $27.12 | $26.85 | $26.39 | $27.91 | $27.21 | |
Investment Operations | |||||||
Net Investment Income | .206 | .437 | .447 | .400 | .368 | .466 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.901) | .752 | .271 | .536 | (1.235) | .752 | |
Total from Investment Operations | (.695) | 1.189 | .718 | .936 | (.867) | 1.218 | |
Distributions | |||||||
Dividends from Net Investment Income | (.211) | (.438) | (.448) | (.397) | (.368) | (.465) | |
Distributions from Realized Capital Gains | (.034) | (.011) | — | (.079) | (.285) | (.053) | |
Total Distributions | (.245) | (.449) | (.448) | (.476) | (.653) | (.518) | |
Net Asset Value, End of Period | $26.92 | $27.86 | $27.12 | $26.85 | $26.39 | $27.91 | |
Total Return1 | -2.50% | 4.42% | 2.69% | 3.58% | -3.17% | 4.52% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $367 | $272 | $208 | $54 | $59 | $117 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.05% | 0.05% | 0.07% | 0.09% | 0.09% | 0.09% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.56% | 1.63% | 1.70% | 1.53% | 1.35% | 1.70% | |
Portfolio Turnover Rate2 | 33% | 37% | 35% | 43% | 54% | 51% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any | |||||||
applicable transaction fees. | |||||||
2 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.
33
Intermediate-Term Government Bond Index Fund
Notes to Financial
Statements
Vanguard Intermediate-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: ETF Shares, Admiral Shares, and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. 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, 2013–2016), and for the period ended February 28, 2017, 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. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
5. 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.
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
34
Intermediate-Term Government Bond Index Fund
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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $148,000, representing 0.01% of the fund’s net assets and 0.06% of Vanguard’s capitalization. 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. 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, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 2,093,694 | — |
Temporary Cash Investments | 11,339 | — | — |
Total | 11,339 | 2,093,694 | — |
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, 2017, the fund realized $1,590,000 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.
35
Intermediate-Term Government Bond Index Fund
At February 28, 2017, the cost of investment securities for tax purposes was $2,142,059,000.
Net unrealized depreciation of investment securities for tax purposes was $37,026,000, consisting of unrealized gains of $1,259,000 on securities that had risen in value since their purchase and $38,285,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2017, the fund purchased $742,070,000 of investment securities and sold $456,300,000 of investment securities, other than temporary cash investments. Purchases and sales include $293,958,000 and $125,510,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 297,204 | 4,550 | 609,814 | 9,250 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (126,862) | (1,950) | (75,316) | (1,150) |
Net Increase (Decrease)—ETF Shares | 170,342 | 2,600 | 534,498 | 8,100 |
Admiral Shares | ||||
Issued | 173,998 | 7,925 | 520,311 | 23,394 |
Issued in Lieu of Cash Distributions | 5,544 | 254 | 7,829 | 352 |
Redeemed | (173,906) | (7,963) | (188,388) | (8,485) |
Net Increase (Decrease)—Admiral Shares | 5,636 | 216 | 339,752 | 15,261 |
Institutional Shares | ||||
Issued | 132,307 | 4,792 | 225,833 | 8,188 |
Issued in Lieu of Cash Distributions | 2,757 | 102 | 3,524 | 128 |
Redeemed | (27,522) | (1,016) | (170,571) | (6,217) |
Net Increase (Decrease)—Institutional Shares | 107,542 | 3,878 | 58,786 | 2,099 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
36
Long-Term Government Bond Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral Institutional | ||
Shares | Shares | Shares | |
Ticker Symbol | VGLT | VLGSX | VLGIX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 2.89% | 2.90% | 2.91% |
Financial Attributes | |||
Bloomberg | |||
Barclays | Bloomberg | ||
Long Gov | Barclays | ||
Float Adj | Aggregate | ||
Fund | Index | FA Index | |
Number of Bonds | 70 | 81 | 10,166 |
Yield toMaturity | |||
(before expenses) | 2.9% | 2.9% | 2.5% |
Average Coupon | 3.5% | 3.5% | 3.0% |
Average Duration 17.1 years | 17.4 years | 6.1 years | |
Average Effective | |||
Maturity | 24.6 years | 24.9 years | 8.3 years |
Short-Term | |||
Reserves | 0.8% | — | — |
Sector Diversification (% of portfolio) | |
Treasury/Agency | 99.2% |
Other | 0.8 |
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 creditof the U.S.
government.
Volatility Measures | ||
Bloomberg | ||
Barclays | Bloomberg | |
Long Gov | Barclays | |
Float Adj | Aggregate | |
Index | FA Index | |
R-Squared | 0.99 | 0.87 |
Beta | 1.05 | 3.47 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 0.8% |
5 - 10 Years | 0.3 |
10 - 20 Years | 12.3 |
20 - 30 Years | 86.3 |
Over 30 Years | 0.3 |
Distribution by Credit Quality (% of portfolio) | |
U.S. Government | 99.2% |
Aaa | 0.8 |
Credit-quality ratings are obtained from Barclays and are from Moody's, Fitch, and S&P. When ratings from all three agencies are used, the median rating is shown. When ratings from two of the agencies are used, the lower rating for each issue is shown. "Not Rated" is used to classify securities for which a rating is not available.Formoreinformationabouttheseratings,seethe Glossary entry for Credit Quality.
Investment Focus
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional
Shares.
37
Long-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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
Long Gov | ||
Float Adj | ||
ETF Shares Net Asset Value | Index | |
Fiscal Year | Total Returns | Total Returns |
2010 | 16.21% | 16.12% |
2011 | 4.63 | 5.11 |
2012 | 19.06 | 18.68 |
2013 | -13.13 | -12.46 |
2014 | 14.65 | 14.15 |
2015 | 4.44 | 5.05 |
2016 | 16.96 | 16.59 |
2017 | -11.13 | -11.19 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 1.26% | 2.44% | 6.17% | |||
Net Asset Value | 1.33 | 2.45 | 6.17 | |||
Admiral Shares | 3/1/2010 | 1.30 | 2.45 | 3.14% | 3.49% | 6.63 |
Institutional Shares | 7/30/2010 | 1.38 | 2.48 | 3.11 | 2.41 | 5.52 |
See Financial Highlights for dividend and capital gains information.
38
Long-Term Government Bond Index Fund
Financial Statements
(unaudited)
Statement of Net
Assets
As of February 28,
2017
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).
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
U.S. Government and Agency Obligations (99.5%) | ||||
U.S. Government Securities (95.1%) | ||||
United States Treasury Note/Bond | 6.500% | 11/15/26 | 255 | 346 |
United States Treasury Note/Bond | 6.375% | 8/15/27 | 4,088 | 5,590 |
United States Treasury Note/Bond | 6.125% | 11/15/27 | 3,028 | 4,088 |
United States Treasury Note/Bond | 5.500% | 8/15/28 | 9,053 | 11,800 |
United States Treasury Note/Bond | 5.250% | 11/15/28 | 6,119 | 7,848 |
United States Treasury Note/Bond | 5.250% | 2/15/29 | 4,425 | 5,696 |
United States Treasury Note/Bond | 6.125% | 8/15/29 | 3,225 | 4,484 |
United States Treasury Note/Bond | 6.250% | 5/15/30 | 5,037 | 7,168 |
United States Treasury Note/Bond | 5.375% | 2/15/31 | 12,048 | 16,171 |
United States Treasury Note/Bond | 4.500% | 2/15/36 | 2,610 | 3,337 |
United States Treasury Note/Bond | 4.750% | 2/15/37 | 7,285 | 9,585 |
United States Treasury Note/Bond | 4.375% | 2/15/38 | 6,639 | 8,359 |
United States Treasury Note/Bond | 4.500% | 5/15/38 | 6,266 | 8,017 |
United States Treasury Note/Bond | 3.500% | 2/15/39 | 12,551 | 13,920 |
United States Treasury Note/Bond | 4.250% | 5/15/39 | 10,531 | 12,965 |
United States Treasury Note/Bond | 4.500% | 8/15/39 | 9,300 | 11,834 |
United States Treasury Note/Bond | 4.375% | 11/15/39 | 15,447 | 19,328 |
United States Treasury Note/Bond | 4.625% | 2/15/40 | 19,197 | 24,857 |
United States Treasury Note/Bond | 4.375% | 5/15/40 | 14,698 | 18,395 |
United States Treasury Note/Bond | 3.875% | 8/15/40 | 13,873 | 16,169 |
United States Treasury Note/Bond | 4.250% | 11/15/40 | 14,818 | 18,242 |
United States Treasury Note/Bond | 4.750% | 2/15/41 | 12,943 | 17,095 |
United States Treasury Note/Bond | 4.375% | 5/15/41 | 11,749 | 14,749 |
United States Treasury Note/Bond | 3.750% | 8/15/41 | 10,665 | 12,195 |
United States Treasury Note/Bond | 3.125% | 11/15/41 | 2,436 | 2,513 |
United States Treasury Note/Bond | 3.125% | 2/15/42 | 15,406 | 15,895 |
United States Treasury Note/Bond | 3.000% | 5/15/42 | 4,770 | 4,811 |
United States Treasury Note/Bond | 2.750% | 8/15/42 | 22,635 | 21,758 |
United States Treasury Note/Bond | 2.750% | 11/15/42 | 27,349 | 26,272 |
United States Treasury Note/Bond | 3.125% | 2/15/43 | 25,755 | 26,507 |
United States Treasury Note/Bond | 2.875% | 5/15/43 | 31,345 | 30,801 |
United States Treasury Note/Bond | 3.625% | 8/15/43 | 22,070 | 24,815 |
United States Treasury Note/Bond | 3.750% | 11/15/43 | 22,962 | 26,385 |
United States Treasury Note/Bond | 3.625% | 2/15/44 | 37,525 | 42,204 |
United States Treasury Note/Bond | 3.375% | 5/15/44 | 32,930 | 35,472 |
United States Treasury Note/Bond | 3.125% | 8/15/44 | 41,770 | 42,997 |
United States Treasury Note/Bond | 3.000% | 11/15/44 | 30,655 | 30,799 |
39
Long-Term Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Note/Bond | 2.500% | 2/15/45 | 25,460 | 23,109 |
United States Treasury Note/Bond | 3.000% | 5/15/45 | 28,980 | 29,102 |
United States Treasury Note/Bond | 2.875% | 8/15/45 | 31,195 | 30,561 |
United States Treasury Note/Bond | 3.000% | 11/15/45 | 33,734 | 33,871 |
United States Treasury Note/Bond | 2.500% | 2/15/46 | 45,910 | 41,577 |
United States Treasury Note/Bond | 2.500% | 5/15/46 | 28,835 | 26,105 |
United States Treasury Note/Bond | 2.250% | 8/15/46 | 20,570 | 17,603 |
United States Treasury Note/Bond | 2.875% | 11/15/46 | 28,075 | 27,544 |
United States Treasury Note/Bond | 3.000% | 2/15/47 | 11,970 | 12,052 |
844,991 | ||||
Agency Bonds and Notes (4.4%) | ||||
1 AID-Israel | 5.500% | 9/18/33 | 150 | 197 |
2 Federal Home Loan Banks | 5.500% | 7/15/36 | 1,550 | 2,052 |
3 Federal Home Loan Mortgage Corp. | 6.750% | 9/15/29 | 913 | 1,277 |
3 Federal Home Loan Mortgage Corp. | 6.750% | 3/15/31 | 2,990 | 4,262 |
3 Federal Home Loan Mortgage Corp. | 6.250% | 7/15/32 | 2,924 | 4,076 |
3 Federal National Mortgage Assn. | 6.250% | 5/15/29 | 700 | 939 |
3 Federal National Mortgage Assn. | 7.125% | 1/15/30 | 1,730 | 2,499 |
3 Federal National Mortgage Assn. | 7.250% | 5/15/30 | 3,575 | 5,240 |
3 Federal National Mortgage Assn. | 6.625% | 11/15/30 | 3,830 | 5,390 |
3 Federal National Mortgage Assn. | 5.625% | 7/15/37 | 675 | 911 |
3 Federal National Mortgage Assn. | 6.210% | 8/6/38 | 300 | 431 |
2 Tennessee Valley Authority | 7.125% | 5/1/30 | 650 | 931 |
2 Tennessee Valley Authority | 4.700% | 7/15/33 | 100 | 118 |
2 Tennessee Valley Authority | 4.650% | 6/15/35 | 575 | 674 |
2 Tennessee Valley Authority | 5.880% | 4/1/36 | 2,010 | 2,684 |
2 Tennessee Valley Authority | 6.150% | 1/15/38 | 165 | 228 |
2 Tennessee Valley Authority | 5.500% | 6/15/38 | 586 | 759 |
2 Tennessee Valley Authority | 5.250% | 9/15/39 | 2,392 | 3,026 |
2 Tennessee Valley Authority | 3.500% | 12/15/42 | 250 | 248 |
2 Tennessee Valley Authority | 4.875% | 1/15/48 | 245 | 288 |
2 Tennessee Valley Authority | 5.375% | 4/1/56 | 815 | 1,048 |
2 Tennessee Valley Authority | 4.625% | 9/15/60 | 850 | 970 |
2 Tennessee Valley Authority | 4.250% | 9/15/65 | 600 | 637 |
38,885 | ||||
Total U.S. Government and Agency Obligations (Cost $932,915) | 883,876 | |||
Shares | ||||
Temporary Cash Investment (0.9%) | ||||
Money Market Fund (0.9%) | ||||
4 Vanguard Market Liquidity Fund (Cost $7,356) | 0.864% | 73,555 | 7,356 | |
Total Investments (100.4%) (Cost $940,271) | 891,232 |
40
Long-Term Government Bond Index Fund | |
Amount | |
($000) | |
Other Assets and Liabilities (-0.4%) | |
Other Assets | |
Investment in Vanguard | 65 |
Receivables for Investment Securities Sold | 4,054 |
Receivables for Accrued Income | 4,849 |
Receivables for Capital Shares Issued | 1,194 |
Total Other Assets | 10,162 |
Liabilities | |
Payables for Investment Securities Purchased | (12,017) |
Payables for Capital Shares Redeemed | (681) |
Payables for Distributions | (68) |
Payables to Vanguard | (241) |
Other Liabilities | (291) |
Total Liabilities | (13,298) |
Net Assets (100%) | 888,096 |
At February 28, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 957,429 |
Undistributed Net Investment Income | 889 |
Accumulated Net Realized Losses | (21,183) |
Unrealized Appreciation (Depreciation) | (49,039) |
Net Assets | 888,096 |
ETF Shares—Net Assets | |
Applicable to 5,963,283 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 448,136 |
Net Asset Value Per Share—ETF Shares | $75.15 |
Admiral Shares—Net Assets | |
Applicable to 10,746,226 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 271,057 |
Net Asset Value Per Share—Admiral Shares | $25.22 |
Institutional Shares—Net Assets | |
Applicable to 5,276,084 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 168,903 |
Net Asset Value Per Share—Institutional Shares | $32.01 |
• See Note A in Notes toFinancial
Statements.
1 U.S.
government-guaranteed.
2 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.
3 Theissuer
wasplacedunder federalconservatorshipinSeptember 2008;sincethat time,its
dailyoperations have been managedbythe
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 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.
41
Long-Term Government Bond Index Fund | |
Statement of Operations | |
Six Months Ended | |
February 28, 2017 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 12,774 |
Total Income | 12,774 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 15 |
Management and Administrative—ETF Shares | 135 |
Management and Administrative—Admiral Shares | 88 |
Management and Administrative—Institutional Shares | 30 |
Marketing and Distribution—ETF Shares | 21 |
Marketing and Distribution—Admiral Shares | 16 |
Marketing and Distribution—Institutional Shares | 2 |
Custodian Fees | 4 |
Shareholders’ Reports—ETF Shares | 15 |
Shareholders’ Reports—Admiral Shares | 5 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 332 |
Net Investment Income | 12,442 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | (4,918) |
Futures Contracts | 51 |
Realized Net Gain (Loss) | (4,867) |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (132,786) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (125,211) |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $7,000 and $0, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
42
Long-Term Government Bond Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 12,442 | 20,744 |
Realized Net Gain (Loss) | (4,867) | 25,043 |
Change in Unrealized Appreciation (Depreciation) | (132,786) | 81,087 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (125,211) | 126,874 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (6,911) | (11,086) |
Admiral Shares | (3,991) | (5,615) |
Institutional Shares | (1,847) | (3,463) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (12,749) | (20,164) |
Capital Share Transactions | ||
ETF Shares | (56,803) | 266,095 |
Admiral Shares | (55,361) | 215,021 |
Institutional Shares | 48,102 | (33,186) |
Net Increase (Decrease) from Capital Share Transactions | (64,062) | 447,930 |
Total Increase (Decrease) | (202,022) | 554,640 |
Net Assets | ||
Beginning of Period | 1,090,118 | 535,478 |
End of Period1 | 888,096 | 1,090,118 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $889,000 and $1,196,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
43
Long-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $85.64 | $75.13 | $73.93 | $66.33 | $78.69 | $68.07 | |
Investment Operations | |||||||
Net Investment Income | .975 | 2.021 | 2.073 | 2.100 | 2.055 | 2.213 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (10.476) | 10.511 | 1.206 | 7.429 | (12.216) | 10.611 | |
Total from Investment Operations | (9.501) | 12.532 | 3.279 | 9.529 | (10.161) | 12.824 | |
Distributions | |||||||
Dividends from Net Investment Income | (.989) | (2.022) | (2.079) | (1.929) | (2.056) | (2.204) | |
Distributions from Realized Capital Gains | — | — | — | — | (.143) | — | |
Total Distributions | (.989) | (2.022) | (2.079) | (1.929) | (2.199) | (2.204) | |
Net Asset Value, End of Period | $75.15 | $85.64 | $75.13 | $73.93 | $66.33 | $78.69 | |
Total Return | -11.13% | 16.96% | 4.44% | 14.65% | -13.13% | 19.06% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $448 | $578 | $252 | $107 | $63 | $75 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.56% | 2.58% | 2.76% | 3.17% | 2.80% | 2.99% | |
Portfolio Turnover Rate1 | 28% | 18% | 24% | 23% | 54% | 46% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 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.
44
Long-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $28.75 | $25.21 | $24.81 | $22.32 | $26.48 | $22.91 | |
Investment Operations | |||||||
Net Investment Income | .328 | .679 | .698 | .711 | .693 | .746 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (3.524) | 3.540 | .399 | 2.491 | (4.112) | 3.567 | |
Total from Investment Operations | (3.196) | 4.219 | 1.097 | 3.202 | (3.419) | 4.313 | |
Distributions | |||||||
Dividends from Net Investment Income | (.334) | (.679) | (.697) | (.712) | (.693) | (.743) | |
Distributions from Realized Capital Gains | — | — | — | — | (.048) | — | |
Total Distributions | (.334) | (.679) | (.697) | (.712) | (.741) | (.743) | |
Net Asset Value, End of Period | $25.22 | $28.75 | $25.21 | $24.81 | $22.32 | $26.48 | |
Total Return1 | -11.13% | 16.97% | 4.40% | 14.63% | -13.13% | 19.05% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $271 | $374 | $130 | $44 | $6 | $5 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.56% | 2.58% | 2.76% | 3.17% | 2.80% | 2.99% | |
Portfolio Turnover Rate2 | 28% | 18% | 24% | 23% | 54% | 46% | |
The expense ratio, net investment 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 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 and account service fees. | |||||||
2 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.
45
Long-Term Government Bond Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $36.49 | $32.00 | $31.48 | $28.32 | $33.60 | $29.06 | |
Investment Operations | |||||||
Net Investment Income | .422 | .868 | .896 | .910 | .890 | .956 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (4.474) | 4.492 | .517 | 3.161 | (5.219) | 4.537 | |
Total from Investment Operations | (4.052) | 5.360 | 1.413 | 4.071 | (4.329) | 5.493 | |
Distributions | |||||||
Dividends from Net Investment Income | (.428) | (.870) | (.893) | (.911) | (.890) | (.953) | |
Distributions from Realized Capital Gains | — | — | — | — | (.061) | — | |
Total Distributions | (.428) | (.870) | (.893) | (.911) | (.951) | (.953) | |
Net Asset Value, End of Period | $32.01 | $36.49 | $32.00 | $31.48 | $28.32 | $33.60 | |
Total Return1 | -11.12% | 16.99% | 4.47% | 14.66% | -13.10% | 19.13% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $169 | $138 | $154 | $95 | $37 | $84 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.05% | 0.05% | 0.07% | 0.09% | 0.09% | 0.09% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.58% | 2.60% | 2.79% | 3.20% | 2.83% | 3.02% | |
Portfolio Turnover Rate2 | 28% | 18% | 24% | 23% | 54% | 46% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any | |||||||
applicable transaction fees. | |||||||
2 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.
46
Long-Term Government Bond Index Fund
Notes to Financial
Statements
Vanguard Long-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: ETF Shares, Admiral Shares, and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. 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.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets 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 futures gains (losses).
During the six months ended February 28, 2017, the fund’s average investments in long and short futures contracts each represented 0% of net assets, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at February 28, 2017.
3. 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, 2013–2016), and for the period ended February 28, 2017, and has concluded that no provision for federal income tax is required in the fund’s financial statements. 4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings,
47
Long-Term Government Bond Index Fund
if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
6. 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.
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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $65,000, representing 0.01% of the fund’s net assets and 0.03% of Vanguard’s capitalization. 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. 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).
48
Long-Term Government Bond Index Fund
The following table summarizes the market value of the fund’s investments as of February 28, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 883,876 | — |
Temporary Cash Investments | 7,356 | — | — |
Total | 7,356 | 883,876 | — |
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.
During the six months ended February 28, 2017, the fund realized $5,824,000 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 losses to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2016, the fund had available capital losses totaling $10,492,000 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 August 31, 2017; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2017, the cost of investment securities for tax purposes was $940,271,000. Net unrealized depreciation of investment securities for tax purposes was $49,039,000, consisting of unrealized gains of $942,000 on securities that had risen in value since their purchase and $49,981,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2017, the fund purchased $387,833,000 of investment securities and sold $447,682,000 of investment securities, other than temporary cash investments. Purchases and sales include $251,821,000 and $308,905,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
49
Long-Term Government Bond Index Fund
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 255,653 | 3,308 | 471,835 | 5,903 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (312,456) | (4,100) | (205,740) | (2,500) |
Net Increase (Decrease)—ETF Shares | (56,803) | (792) | 266,095 | 3,403 |
Admiral Shares | ||||
Issued | 88,018 | 3,365 | 306,304 | 11,244 |
Issued in Lieu of Cash Distributions | 3,625 | 140 | 5,157 | 190 |
Redeemed | (147,004) | (5,772) | (96,440) | (3,572) |
Net Increase (Decrease)—Admiral Shares | (55,361) | (2,267) | 215,021 | 7,862 |
Institutional Shares | ||||
Issued | 54,056 | 1,693 | 29,337 | 869 |
Issued in Lieu of Cash Distributions | 1,847 | 57 | 3,462 | 102 |
Redeemed | (7,801) | (243) | (65,985) | (2,007) |
Net Increase (Decrease)—Institutional Shares | 48,102 | 1,507 | (33,186) | (1,036) |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
50
Short-Term Corporate Bond Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral Institutional | ||
Shares | Shares | Shares | |
Ticker Symbol | VCSH | VSCSX | VSTBX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 2.17% | 2.17% | 2.19% |
Financial Attributes | |||
Bloomberg | |||
Barclays | Bloomberg | ||
1–5 Year | Barclays | ||
Corporate | Aggregate | ||
Fund | Index | FA Index | |
Number of Bonds | 2,132 | 2,175 | 10,166 |
Yield to Maturity | |||
(before expenses) | 2.2% | 2.2% | 2.5% |
Average Coupon | 3.4% | 3.5% | 3.0% |
Average Duration | 2.7 years | 2.8 years | 6.1 years |
Average Effective | |||
Maturity | 2.9 years | 2.9 years | 8.3 years |
Short-Term | |||
Reserves | 0.9% | — | — |
Sector Diversification (% of portfolio) | |
Finance | 40.7% |
Industrial | 53.6 |
Treasury/Agency | 0.2 |
Utilities | 5.0 |
Other | 0.5 |
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 creditof the U.S.
government.
Volatility Measures | ||
Bloomberg | ||
Barclays | Bloomberg | |
1–5 Year | Barclays | |
Corporate | Aggregate | |
Index | FA Index | |
R-Squared | 0.99 | 0.77 |
Beta | 0.99 | 0.44 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 3.5% |
1 - 3 Years | 50.4 |
3 - 5 Years | 45.9 |
5 - 10 Years | 0.2 |
Distribution by Credit Quality (% of portfolio) | |
U.S. Government | 0.2% |
Aaa | 1.7 |
Aa | 14.9 |
A | 39.7 |
Baa | 43.5 |
Credit-quality
ratings are obtained from Barclays and are from
Moody's, Fitch, and S&P. When ratings from all three
agencies are
used, the median
rating is shown. When ratings from two of the
agenciesare used, the lowerrating foreach issueis shown.
"Not
Rated" is used to classify
securities for which a rating is not
available. For more information about these ratings, see
the
Glossary entry for Credit
Quality.
Investment Focus
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional
Shares.
51
Short-Term Corporate 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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
1 – 5 | ||
Year | ||
ETF Shares Net Asset Value | Corporate | |
Index | ||
Fiscal Year | Total Returns | Total Returns |
2010 | 5.34% | 5.61% |
2011 | 2.94 | 3.45 |
2012 | 4.68 | 4.81 |
2013 | 1.03 | 1.29 |
2014 | 3.50 | 3.67 |
2015 | 0.96 | 1.03 |
2016 | 3.71 | 3.78 |
2017 | 0.01 | 0.16 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 2.57% | 2.51% | 3.01% | |||
Net Asset Value | 2.63 | 2.58 | 2.98 | |||
Admiral Shares | 11/18/2010 | 2.63 | 2.58 | 2.09% | 0.41% | 2.50 |
Institutional Shares | 11/19/2009 | 2.65 | 2.60 | 2.15 | 0.87 | 3.02 |
See Financial Highlights for dividend and capital gains information.
52
Short-Term Corporate Bond Index Fund
Financial Statements
(unaudited)
Statement of Net
Assets—Investments Summary
As of February 28, 2017
This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
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 complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. 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).
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
U.S. Government and Agency Obligations | |||||
U.S. Government Securities | |||||
United States Treasury | |||||
Note/Bond | 1.375% | 2/15/20 | 115,285 | 114,907 | 0.5% |
United States Treasury | |||||
Note/Bond | 1.875% | 2/28/22 | 63,890 | 63,830 | 0.3% |
1 United States Treasury | |||||
Note/Bond | 1.125% | 1/31/19 | 55,000 | 54,897 | 0.3% |
United States Treasury | |||||
Note/Bond | 1.125%–1.250% | 12/31/18–2/28/19 | 9,938 | 9,943 | 0.0% |
Total U.S. Government and Agency Obligations (Cost $243,742) | 243,577 | 1.1% | |||
Corporate Bonds | |||||
Finance | |||||
Banking | |||||
Associates Corp. of North America | 6.950% | 11/1/18 | 90 | 97 | 0.0% |
Bank of America Corp. | 6.875% | 4/25/18 | 57,756 | 61,057 | 0.3% |
Bank of America Corp. | 2.600% | 1/15/19 | 50,995 | 51,624 | 0.2% |
Bank of America Corp. | 2.650% | 4/1/19 | 38,072 | 38,570 | 0.2% |
Bank of America Corp. | 5.650% | 5/1/18 | 36,353 | 37,926 | 0.2% |
Bank of America Corp. | 5.700% | 1/24/22 | 32,766 | 36,759 | 0.2% |
Bank of America Corp. | 5.625% | 7/1/20 | 32,515 | 35,795 | 0.2% |
2 Bank of America Corp. | 1.950%–7.625% | 9/1/17–1/20/23 | 178,687 | 186,716 | 0.9% |
Bank of America NA | 1.650%–2.050% | 3/26/18–12/7/18 | 59,261 | 59,461 | 0.3% |
Bear Stearns Cos. LLC | 4.650% | 7/2/18 | 7,890 | 8,172 | 0.0% |
Citigroup Inc. | 2.900% | 12/8/21 | 37,871 | 37,934 | 0.2% |
Citigroup Inc. | 4.500% | 1/14/22 | 33,983 | 36,350 | 0.2% |
Citigroup Inc. | 1.700%–8.500% | 4/27/18–8/2/21 | 285,646 | 287,958 | 1.3% |
Goldman Sachs Group Inc. | 5.750% | 1/24/22 | 54,096 | 60,942 | 0.3% |
Goldman Sachs Group Inc. | 6.150% | 4/1/18 | 41,894 | 43,860 | 0.2% |
Goldman Sachs Group Inc. | 5.250% | 7/27/21 | 35,363 | 38,846 | 0.2% |
53
Short-Term Corporate Bond Index Fund | |||||
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
Goldman Sachs Group Inc. | 2.000%–7.500% | 7/19/18–4/26/22 | 310,274 | 319,003 | 1.5% |
HSBC Bank USA NA | 4.875% | 8/24/20 | 12,986 | 13,837 | 0.1% |
HSBC Holdings plc | 2.650% | 1/5/22 | 44,650 | 43,957 | 0.2% |
HSBC Holdings plc | 3.400% | 3/8/21 | 35,414 | 36,290 | 0.2% |
HSBC Holdings plc | 2.950%–5.100% | 4/5/21–1/14/22 | 62,257 | 65,530 | 0.3% |
HSBC USA Inc. | 1.700%–5.000% | 3/5/18–9/27/20 | 79,052 | 79,592 | 0.4% |
JPMorgan Chase & Co. | 2.250% | 1/23/20 | 50,728 | 50,927 | 0.2% |
JPMorgan Chase & Co. | 4.500% | 1/24/22 | 41,205 | 44,461 | 0.2% |
JPMorgan Chase & Co. | 2.295% | 8/15/21 | 37,130 | 36,685 | 0.2% |
JPMorgan Chase & Co. | 2.750% | 6/23/20 | 34,165 | 34,685 | 0.1% |
JPMorgan Chase & Co. | 1.625%–6.300% | 3/1/18–8/15/21 | 306,796 | 317,273 | 1.5% |
JPMorgan Chase Bank NA | 1.450%–1.650% | 9/21/18–9/23/19 | 14,107 | 14,063 | 0.1% |
Mitsubishi UFJ Financial | |||||
Group Inc. | 2.950% | 3/1/21 | 42,907 | 43,319 | 0.2% |
Morgan Stanley | 2.500% | 4/21/21 | 40,046 | 39,794 | 0.2% |
Morgan Stanley | 5.625% | 9/23/19 | 36,564 | 39,579 | 0.2% |
Morgan Stanley | 2.650% | 1/27/20 | 37,814 | 38,227 | 0.2% |
Morgan Stanley | 6.625% | 4/1/18 | 33,821 | 35,560 | 0.1% |
Morgan Stanley | 2.125%–7.300% | 4/25/18–11/17/21 | 282,714 | 294,401 | 1.4% |
UBS AG | 2.375% | 8/14/19 | 36,998 | 37,306 | 0.2% |
Wells Fargo & Co. | 2.100% | 7/26/21 | 42,875 | 41,986 | 0.2% |
Wells Fargo & Co. | 2.600% | 7/22/20 | 36,793 | 37,224 | 0.2% |
Wells Fargo & Co. | 2.125%–4.600% | 1/15/19–4/1/21 | 141,365 | 143,370 | 0.7% |
Wells Fargo Bank NA | 1.750%–2.150% | 11/28/18–12/6/19 | 57,095 | 57,192 | 0.3% |
3 Banking—Other † | 3,842,402 | 18.2% | |||
Brokerage † | 167,476 | 0.8% | |||
Finance Companies | |||||
GE Capital International Funding Co. | 2.342% | 11/15/20 | 77,649 | 78,234 | 0.4% |
HSBC Finance Corp. | 6.676% | 1/15/21 | 30,647 | 34,608 | 0.1% |
3 Finance Companies—Other † | 228,422 | 1.1% | |||
Insurance | |||||
Berkshire Hathaway Finance | |||||
Corp. | 1.300%–5.400% | 3/7/18–1/15/21 | 79,617 | 81,067 | 0.4% |
Berkshire Hathaway Inc. | 1.150%–3.750% | 8/15/18–1/31/22 | 36,565 | 37,188 | 0.2% |
Insurance—Other † | 621,261 | 2.9% | |||
Other Finance † | 60 | 0.0% | |||
Real Estate Investment Trusts † | 390,171 | 1.9% | |||
8,367,217 | 39.8% | ||||
Industrial | |||||
Basic Industry | |||||
Lubrizol Corp. | 8.875% | 2/1/19 | 4,466 | 5,065 | 0.0% |
3 Basic Industry—Other † | 567,474 | 2.7% | |||
Capital Goods | |||||
General Electric Capital | |||||
Corp. | 1.625%–6.000% | 4/2/18–10/17/21 | 147,880 | 159,381 | 0.8% |
Precision Castparts Corp. | 2.250% | 6/15/20 | 7,025 | 7,065 | 0.0% |
3 Capital Goods—Other † | 901,145 | 4.3% | |||
Communication | |||||
AT&T Inc. | 2.300%–5.875% | 5/15/18–3/1/22 | 227,839 | 236,352 | 1.1% |
Verizon Communications Inc. | 4.500% | 9/15/20 | 42,885 | 45,800 | 0.2% |
Verizon Communications Inc. | 3.650% | 9/14/18 | 34,231 | 35,252 | 0.2% |
3 Communication—Other † | 1,005,020 | 4.8% |
54
Short-Term Corporate Bond Index Fund | ||||||
Face | Market | Percentage | ||||
Maturity | Amount | Value• | of Net | |||
Coupon | Date | ($000) | ($000) | Assets | ||
Consumer Cyclical | ||||||
Ford Motor Co. | 6.500% | 8/1/18 | 850 | 903 | 0.0% | |
Ford Motor Credit Co. LLC | 1.897%–8.125% | 5/15/18–1/9/22 | 251,063 | 258,517 | 1.3% | |
Visa Inc. | 2.200% | 12/14/20 | 42,060 | 42,274 | 0.2% | |
Consumer Cyclical—Other † | 1,350,465 | 6.4% | ||||
Consumer Noncyclical | ||||||
Abbott Laboratories | 2.900% | 11/30/21 | 41,020 | 41,100 | 0.2% | |
AbbVie Inc. | 2.500% | 5/14/20 | 48,095 | 48,347 | 0.2% | |
Actavis Funding SCS | 3.000% | 3/12/20 | 36,178 | 36,797 | 0.2% | |
Anheuser-Busch Cos. LLC | 5.000% | 3/1/19 | 5,156 | 5,472 | 0.0% | |
Anheuser-Busch InBev Finance Inc. | 2.650% | 2/1/21 | 96,292 | 97,311 | 0.4% | |
Anheuser-Busch InBev Finance Inc. | 1.900% | 2/1/19 | 51,938 | 52,076 | 0.2% | |
Anheuser-Busch InBev Finance Inc. | 2.150% | 2/1/19 | 21,884 | 22,065 | 0.1% | |
Anheuser-Busch InBev | ||||||
Worldwide Inc. | 5.375% | 1/15/20 | 31,975 | 34,911 | 0.2% | |
Anheuser-Busch InBev | ||||||
Worldwide Inc. | 2.200%–7.750% | 7/15/18–1/15/22 | 63,819 | 69,582 | 0.3% | |
Medtronic Inc. | 2.500% | 3/15/20 | 36,476 | 37,001 | 0.2% | |
Novartis Securities Investment Ltd. | 5.125% | 2/10/19 | 34,778 | 37,096 | 0.2% | |
Shire Acquisitions Investments | ||||||
Ireland DAC | 1.900% | 9/23/19 | 39,200 | 38,883 | 0.2% | |
Shire Acquisitions Investments | ||||||
Ireland DAC | 2.400% | 9/23/21 | 38,263 | 37,400 | 0.2% | |
Teva Pharmaceutical Finance | ||||||
Netherlands III BV | 2.200% | 7/21/21 | 36,674 | 35,313 | 0.2% | |
3 Consumer Noncyclical—Other † | 2,435,372 | 11.6% | ||||
Energy † | 1,642,480 | 7.8% | ||||
Other Industrial † | 3,554 | 0.0% | ||||
Technology | ||||||
Apple Inc. | 1.000% | 5/3/18 | 44,198 | 44,066 | 0.2% | |
Apple Inc. | 2.250% | 2/23/21 | 39,475 | 39,617 | 0.2% | |
Apple Inc. | 1.100%–2.850% | 2/8/19–2/9/22 | 163,631 | 163,787 | 0.8% | |
3 Broadcom Corp. / Broadcom | ||||||
Cayman Finance Ltd. | 3.000% | 1/15/22 | 39,450 | 39,450 | 0.2% | |
3 Diamond 1 Finance Corp. / | ||||||
Diamond 2 Finance Corp. | 4.420% | 6/15/21 | 49,567 | 52,025 | 0.2% | |
3 Diamond 1 Finance Corp. / | ||||||
Diamond 2 Finance Corp. | 3.480% | 6/1/19 | 44,880 | 45,869 | 0.2% | |
Hewlett Packard Enterprise Co. | 3.600% | 10/15/20 | 36,776 | 37,719 | 0.2% | |
Microsoft Corp. | 1.000%–4.200% | 5/1/18–2/12/22 | 220,861 | 221,300 | 1.1% | |
Oracle Corp. | 1.900% | 9/15/21 | 49,990 | 49,039 | 0.2% | |
3 Technology—Other † | 1,009,786 | 4.8% | ||||
Transportation | ||||||
Burlington Northern Santa | ||||||
Fe LLC | 3.450%–5.750% | 3/15/18–9/15/21 | 29,848 | 31,477 | 0.1% | |
Transportation—Other † | 189,987 | 0.9% | ||||
11,213,595 | 53.3% | |||||
Utilities | ||||||
Electric | ||||||
Berkshire Hathaway Energy | ||||||
Co. | 2.000%–5.750% | 4/1/18–2/1/20 | 19,143 | 19,691 | 0.1% | |
MidAmerican Energy Co. | 2.400%–5.300% | 3/15/18–3/15/19 | 3,433 | 3,505 | 0.0% | |
Nevada Power Co. | 6.500%–7.125% | 5/15/18–3/15/19 | 19,743 | 21,428 | 0.1% |
55
Short-Term Corporate Bond Index Fund | |||||
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
PacifiCorp | 2.950%–5.650% | 7/15/18–2/1/22 | 19,258 | 20,220 | 0.1% |
3 Electric—Other † | 915,975 | 4.4% | |||
Natural Gas † | 70,901 | 0.3% | |||
Other Utility † | 3,127 | 0.0% | |||
1,054,847 | 5.0% | ||||
Total Corporate Bonds (Cost $20,613,648) | 20,635,659 | 98.1% | |||
Taxable Municipal Bonds (Cost $10,882) † | 10,828 | 0.1% | |||
Shares | |||||
Temporary Cash Investment | |||||
Money Market Fund | |||||
4 Vanguard Market Liquidity Fund | |||||
(Cost $200,109) | 0.864% | 2,000,887 | 200,109 | 0.9% | |
Total Investments (Cost $21,068,381) | 21,090,173 | 100.2% | |||
Amount | |||||
($000) | |||||
Other Assets and Liabilities | |||||
Other Assets | |||||
Investment in Vanguard | 1,410 | ||||
Receivables for Investment Securities Sold | 68,009 | ||||
Receivables for Accrued Income | 176,671 | ||||
Receivables for Capital Shares Issued | 46,897 | ||||
Other Assets | 2,806 | ||||
Total Other Assets | 295,793 | 1.4% | |||
Liabilities | |||||
Payables for Investment Securities Purchased | (335,467) | ||||
Payables for Capital Shares Redeemed | (3,663) | ||||
Payables for Distributions | (1,284) | ||||
Payables to Vanguard | (4,530) | ||||
Other Liabilities | (1,575) | ||||
Total Liabilities | (346,519) | (1.6%) | |||
Net Assets | 21,039,447 | 100.0% | |||
At February 28, 2017, net assets consisted of: | |||||
Amount | |||||
($000) | |||||
Paid-in Capital | 21,007,021 | ||||
Undistributed Net Investment Income | 31,947 | ||||
Accumulated Net Realized Losses | (21,313) | ||||
Unrealized Appreciation (Depreciation) | 21,792 | ||||
Net Assets | 21,039,447 |
56
Short-Term Corporate Bond Index Fund | |
Amount | |
($000) | |
ETF Shares—Net Assets | |
Applicable to 219,020,976 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 17,453,896 |
Net Asset Value Per Share—ETF Shares | $79.69 |
Admiral Shares—Net Assets | |
Applicable to 110,472,373 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 2,393,560 |
Net Asset Value Per Share—Admiral Shares | $21.67 |
Institutional Shares—Net Assets | |
Applicable to 44,945,963 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 1,191,991 |
Net Asset Value Per Share—Institutional Shares | $26.52 |
• See Note A in Notes toFinancial
Statements.
† Represents the
aggregate value, by category, of securities that are not among the 50 largest
holdings and, in total for any issuer, represent
1%
or less of net assets.
1
Securities with a value of $1,978,000 have been segregated as initial margin for
recently closed futures contracts.
2 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.
3 Certainofthe fund’s
securitiesareexemptfromregistration
underRule 144AoftheSecuritiesActof1933.Suchsecurities may
besoldin
transactions exempt
from registration, normally toqualified institutional buyers. At February
28,2017,the aggregate value of these
securities was $257,027,000, representing 1.2% of net
assets.
4 Affiliated money
market fund available only to Vanguard funds and certain trusts and accounts
managed by Vanguard. Rate shown is the
7-day yield.
See
accompanying Notes, which are an integral part of the Financial
Statements.
57
Short-Term Corporate Bond Index Fund | |
Statement of Operations | |
Six Months Ended | |
February 28, 2017 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 207,877 |
Total Income | 207,877 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 299 |
Management and Administrative—ETF Shares | 4,787 |
Management and Administrative—Admiral Shares | 594 |
Management and Administrative—Institutional Shares | 235 |
Marketing and Distribution—ETF Shares | 483 |
Marketing and Distribution—Admiral Shares | 112 |
Marketing and Distribution—Institutional Shares | 17 |
Custodian Fees | 60 |
Shareholders’ Reports—ETF Shares | 182 |
Shareholders’ Reports—Admiral Shares | 12 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 7 |
Total Expenses | 6,788 |
Net Investment Income | 201,089 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 4,538 |
Futures Contracts | 115 |
Realized Net Gain (Loss) | 4,653 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (190,861) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 14,881 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $350,000 and $6,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
58
Short-Term Corporate Bond Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 201,089 | 297,082 |
Realized Net Gain (Loss) | 4,653 | (18,790) |
Change in Unrealized Appreciation (Depreciation) | (190,861) | 239,761 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 14,881 | 518,053 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (159,545) | (238,185) |
Admiral Shares | (22,295) | (32,914) |
Institutional Shares | (11,497) | (18,203) |
Realized Capital Gain1 | ||
ETF Shares | — | (8,713) |
Admiral Shares | — | (1,082) |
Institutional Shares | — | (649) |
Total Distributions | (193,337) | (299,746) |
Capital Share Transactions | ||
ETF Shares | 3,481,161 | 3,563,464 |
Admiral Shares | 455,062 | 711,799 |
Institutional Shares | 182,124 | 261,911 |
Net Increase (Decrease) from Capital Share Transactions | 4,118,347 | 4,537,174 |
Total Increase (Decrease) | 3,939,891 | 4,755,481 |
Net Assets | ||
Beginning of Period | 17,099,556 | 12,344,075 |
End of Period2 | 21,039,447 | 17,099,556 |
1 Includes fiscal 2017 and 2016 short-term gain distributions totaling $0 and $614,000, respectively. Short-term gain distributions are treated | ||
as ordinary income dividends for tax purposes. | ||
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $31,947,000 and $24,195,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
59
Short-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $80.52 | $79.33 | $80.21 | $78.97 | $79.78 | $78.06 | |
Investment Operations | |||||||
Net Investment Income | .840 | 1.661 | 1.504 | 1.436 | 1.523 | 1.793 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.836) | 1.240 | (.743) | 1.305 | (.699) | 1.808 | |
Total from Investment Operations | .004 | 2.901 | .761 | 2.741 | .824 | 3.601 | |
Distributions | |||||||
Dividends from Net Investment Income | (.834) | (1.648) | (1.492) | (1.321) | (1.517) | (1.789) | |
Distributions from Realized Capital Gains | — | (.063) | (.149) | (.180) | (.117) | (.092) | |
Total Distributions | (.834) | (1.711) | (1.641) | (1.501) | (1.634) | (1.881) | |
Net Asset Value, End of Period | $79.69 | $80.52 | $79.33 | $80.21 | $78.97 | $79.78 | |
Total Return | 0.01% | 3.71% | 0.96% | 3.50% | 1.03% | 4.68% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $17,454 | $14,121 | $10,377 | $8,430 | $6,705 | $3,686 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.18% | 2.11% | 1.90% | 1.82% | 1.92% | 2.33% | |
Portfolio Turnover Rate1 | 59% | 57% | 62% | 56% | 61% | 65% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 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.
60
Short-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $21.89 | $21.57 | $21.81 | $21.51 | $21.73 | $21.26 | |
Investment Operations | |||||||
Net Investment Income | .230 | .451 | .409 | .395 | .414 | .488 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.222) | .337 | (.199) | .347 | (.189) | .494 | |
Total from Investment Operations | .008 | .788 | .210 | .742 | .225 | .982 | |
Distributions | |||||||
Dividends from Net Investment Income | (.228) | (.451) | (.410) | (.393) | (.413) | (.487) | |
Distributions from Realized Capital Gains | — | (.017) | (.040) | (.049) | (.032) | (.025) | |
Total Distributions | (.228) | (.468) | (.450) | (.442) | (.445) | (.512) | |
Net Asset Value, End of Period | $21.67 | $21.89 | $21.57 | $21.81 | $21.51 | $21.73 | |
Total Return1 | 0.04% | 3.70% | 0.97% | 3.47% | 1.03% | 4.69% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $2,394 | $1,959 | $1,222 | $821 | $76 | $25 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.18% | 2.11% | 1.90% | 1.82% | 1.92% | 2.33% | |
Portfolio Turnover Rate2 | 59% | 57% | 62% | 56% | 61% | 65% | |
The expense ratio, net investment 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 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 and account service fees. | |||||||
2 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.
61
Short-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $26.80 | $26.41 | $26.71 | $26.33 | $26.60 | $26.03 | |
Investment Operations | |||||||
Net Investment Income | .286 | .558 | .509 | .491 | .516 | .605 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.284) | .413 | (.249) | .437 | (.233) | .599 | |
Total from Investment Operations | .002 | .971 | .260 | .928 | .283 | 1.204 | |
Distributions | |||||||
Dividends from Net Investment Income | (.282) | (.560) | (.510) | (.488) | (.514) | (.603) | |
Distributions from Realized Capital Gains | — | (.021) | (.050) | (.060) | (.039) | (.031) | |
Total Distributions | (.282) | (.581) | (.560) | (.548) | (.553) | (.634) | |
Net Asset Value, End of Period | $26.52 | $26.80 | $26.41 | $26.71 | $26.33 | $26.60 | |
Total Return1 | 0.01% | 3.72% | 0.98% | 3.55% | 1.06% | 4.70% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $1,192 | $1,020 | $745 | $634 | $262 | $161 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.05% | 0.05% | 0.07% | 0.09% | 0.09% | 0.09% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 2.20% | 2.13% | 1.93% | 1.85% | 1.95% | 2.36% | |
Portfolio Turnover Rate2 | 59% | 57% | 62% | 56% | 61% | 65% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any | |||||||
applicable transaction fees. | |||||||
2 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.
62
Short-Term Corporate Bond Index Fund
Notes to Financial
Statements
Vanguard Short-Term Corporate Bond Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Certain of the fund’s investments are in corporate debt instruments; the issuers’ abilities to meet their obligations may be affected by economic developments in their respective industries. The fund offers three classes of shares: ETF Shares, Admiral Shares, and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. 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.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets 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 futures gains (losses).
During the six months ended February 28, 2017, 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 aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at February 28, 2017.
3. 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, 2013–2016), and for the period ended February 28, 2017, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
63
Short-Term Corporate Bond Index Fund
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
6. 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.
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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $1,410,000, representing 0.01% of the fund’s net assets and 0.56% of Vanguard’s capitalization. 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. 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).
64
Short-Term Corporate Bond Index Fund
The following table summarizes the market value of the fund’s investments as of February 28, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 243,577 | — |
Corporate Bonds | — | 20,635,659 | — |
Taxable Municipal Bonds | — | 10,828 | — |
Temporary Cash Investments | 200,109 | — | — |
Futures Contracts—Assets1 | 965 | — | — |
Total | 201,074 | 20,890,064 | — |
1 Represents variation margin on the last day of the reporting period for recently closed futures contracts. |
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.
During the six months ended February 28, 2017, the fund realized $312,000 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 losses to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2016, the fund had available capital losses totaling $22,947,000 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 August 31, 2017; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2017, the cost of investment securities for tax purposes was $21,071,043,000. Net unrealized appreciation of investment securities for tax purposes was $19,130,000, consisting of unrealized gains of $77,447,000 on securities that had risen in value since their purchase and $58,317,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2017, the fund purchased $6,894,840,000 of investment securities and sold $2,855,549,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $2,898,256,000 and $2,712,919,000, respectively. Total purchases and sales include $3,446,364,000 and $61,263,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capitalshares.
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 February 28, 2017, such purchases and sales were $1,684,486,000 and $102,951,000 respectively; these amounts are included in the purchases and sales of investment securities noted above.
65
Short-Term Corporate Bond Index Fund
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 3,544,668 | 44,442 | 3,706,576 | 46,374 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (63,507) | (800) | (143,112) | (1,800) |
Net Increase (Decrease)—ETF Shares | 3,481,161 | 43,642 | 3,563,464 | 44,574 |
Admiral Shares | ||||
Issued | 971,262 | 44,808 | 1,294,752 | 59,705 |
Issued in Lieu of Cash Distributions | 17,960 | 829 | 28,222 | 1,301 |
Redeemed | (534,160) | (24,655) | (611,175) | (28,178) |
Net Increase (Decrease)—Admiral Shares | 455,062 | 20,982 | 711,799 | 32,828 |
Institutional Shares | ||||
Issued | 276,705 | 10,451 | 395,051 | 14,846 |
Issued in Lieu of Cash Distributions | 8,993 | 339 | 15,170 | 571 |
Redeemed | (103,574) | (3,900) | (148,310) | (5,567) |
Net Increase (Decrease)—Institutional Shares | 182,124 | 6,890 | 261,911 | 9,850 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
66
Intermediate-Term Corporate Bond Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral | Institutional | |
Shares | Shares | Shares | |
Ticker Symbol | VCIT | VICSX | VICBX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 3.35% | 3.35% | 3.37% |
Financial Attributes | |||
Bloomberg | |||
Barclays | Bloomberg | ||
5–10 Year | Barclays | ||
Corporate | Aggregate | ||
Fund | Index | FA Index | |
Number of Bonds | 1,833 | 1,864 | 10,166 |
Yield to Maturity | |||
(before expenses) | 3.3% | 3.4% | 2.5% |
Average Coupon | 3.6% | 3.7% | 3.0% |
Average Duration | 6.3 years | 6.5 years | 6.1 years |
Average Effective | |||
Maturity | 7.3 years | 7.3 years | 8.3 years |
Short-Term | |||
Reserves | 1.2% | — | — |
Sector Diversification (% of portfolio) | |
Finance | 33.1% |
Industrial | 60.9 |
Utilities | 5.5 |
Other | 0.5 |
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 creditof the U.S.
government.
Volatility Measures | ||
Bloomberg | ||
Barclays | Bloomberg | |
5–10 Year | Barclays | |
Corporate | Aggregate | |
Index | FA Index | |
R-Squared | 0.99 | 0.89 |
Beta | 1.02 | 1.26 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 0.8% |
1 - 3 Years | 0.1 |
3 - 5 Years | 4.6 |
5 - 10 Years | 94.5 |
Distribution by Credit Quality (% of portfolio) | |
Aaa | 2.1% |
Aa | 7.6 |
A | 35.6 |
Baa | 54.6 |
Less Than Baa | 0.1 |
Credit-quality ratings are obtained from Barclays and are from Moody's, Fitch, and S&P. When ratings from all three agencies are used, the median rating is shown. When ratings from two of the agenciesare used, the lowerrating foreach issueis shown. "Not Rated" is used to classify securities for which a rating is not available. For more information about these ratings, see the Glossary entry for Credit Quality.
Investment Focus
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional
Shares.
67
Intermediate-Term Corporate 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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
5 – 10 | ||
Year | ||
ETF Shares Net Asset Value | Corporate | |
Index | ||
Fiscal Year | Total Returns | Total Returns |
2010 | 11.30% | 11.41% |
2011 | 5.65 | 6.19 |
2012 | 10.43 | 10.07 |
2013 | -1.64 | -1.27 |
2014 | 9.60 | 9.51 |
2015 | 0.32 | 0.39 |
2016 | 9.58 | 9.46 |
2017 | -1.78 | -1.58 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 5.27% | 4.40% | 5.80% | |||
Net Asset Value | 5.30 | 4.54 | 5.75 | |||
Admiral Shares | 3/2/2010 | 5.30 | 4.55 | 3.61% | 2.05% | 5.66 |
Fee-Adjusted Returns | 5.03 | 4.50 | 5.62 | |||
Institutional Shares | 11/19/2009 | 5.35 | 4.57 | 3.66 | 2.13 | 5.79 |
Fee-Adjusted Returns | 5.08 | 4.52 | 5.76 |
Vanguard
fundreturnsareadjustedtoreflectthe0.25%feeon purchasesof fundshares. Thefee does
notapplytothe ETFShares. The
Fiscal-YearTotalReturnstableisnotadjustedforfees.
See Financial Highlights for dividend and
capital gains information.
68
Intermediate-Term Corporate Bond Index Fund
Financial Statements
(unaudited)
Statement of Net
Assets—Investments Summary
As of February 28, 2017
This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
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 complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. 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).
Face | Market | Percentage | ||||
Maturity | Amount | Value• | of Net | |||
Coupon | Date | ($000) | ($000) | Assets | ||
U.S. Government and Agency Obligations | ||||||
U.S. Government Securities | ||||||
United States Treasury Note/Bond 2.250% | 2/15/27 | 65,915 | 65,266 | 0.5% | ||
U.S. Government Securities—Other † | 22,414 | 0.1% | ||||
Total U.S. Government and Agency Obligations (Cost $87,694) | 87,680 | 0.6% | ||||
Corporate Bonds | ||||||
Finance | ||||||
Banking | ||||||
Bank of America Corp. | 3.300% | 1/11/23 | 37,350 | 37,583 | 0.3% | |
Bank of America Corp. | 3.875% | 8/1/25 | 30,807 | 31,435 | 0.2% | |
Bank of America Corp. | 4.200% | 8/26/24 | 29,022 | 29,941 | 0.2% | |
Bank of America Corp. | 4.000% | 4/1/24 | 28,342 | 29,365 | 0.2% | |
Bank of America Corp. | 4.125% | 1/22/24 | 26,472 | 27,622 | 0.2% | |
Bank of America Corp. | 3.950% | 4/21/25 | 26,424 | 26,512 | 0.2% | |
1 | Bank of America Corp. | 2.503%–6.220% | 5/13/21–1/20/28 | 130,263 | 131,280 | 1.0% |
Bank One Corp. | 7.625% | 10/15/26 | 5,520 | 7,073 | 0.1% | |
Citigroup Inc. | 3.200% | 10/21/26 | 32,170 | 30,948 | 0.2% | |
1 | Citigroup Inc. | 3.300%–5.500% | 7/30/22–1/10/28 | 181,217 | 184,314 | 1.3% |
Credit Suisse AG | 3.625% | 9/9/24 | 29,700 | 30,157 | 0.2% | |
Goldman Sachs Group Inc. | 4.000% | 3/3/24 | 30,186 | 31,399 | 0.2% | |
Goldman Sachs Group Inc. | 3.500% | 11/16/26 | 29,050 | 28,529 | 0.2% | |
Goldman Sachs Group Inc. | 3.500% | 1/23/25 | 28,058 | 28,035 | 0.2% | |
Goldman Sachs Group Inc. | 3.000%–5.950% | 4/26/22–1/26/27 | 133,602 | 136,356 | 1.0% | |
HSBC Bank plc | 7.650% | 5/1/25 | 776 | 946 | 0.0% | |
HSBC Holdings plc | 4.300% | 3/8/26 | 28,745 | 30,031 | 0.2% | |
HSBC Holdings plc | 3.600%–5.100% | 4/5/21–11/23/26 | 109,724 | 111,834 | 0.8% | |
HSBC USA Inc. | 3.500% | 6/23/24 | 5,675 | 5,758 | 0.1% | |
JPMorgan Chase & Co. | 3.250% | 9/23/22 | 26,915 | 27,462 | 0.2% | |
JPMorgan Chase & Co. | 3.900% | 7/15/25 | 26,155 | 27,136 | 0.2% | |
1 | JPMorgan Chase & Co. | 2.700%–4.350% | 8/15/21–2/1/28 | 253,967 | 254,032 | 1.8% |
Mitsubishi UFJ Financial | ||||||
Group Inc. | 3.850% | 3/1/26 | 26,653 | 27,406 | 0.2% |
69
Intermediate-Term Corporate Bond Index Fund | |||||
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
Morgan Stanley | 3.875% | 4/29/24 | 31,583 | 32,647 | 0.3% |
Morgan Stanley | 4.000% | 7/23/25 | 31,504 | 32,497 | 0.3% |
Morgan Stanley | 3.875% | 1/27/26 | 30,850 | 31,393 | 0.2% |
Morgan Stanley | 3.700% | 10/23/24 | 28,334 | 28,936 | 0.2% |
Morgan Stanley | 3.125%–6.250% | 11/1/22–1/20/27 | 145,826 | 150,035 | 1.1% |
Wachovia Corp. | 6.605%–7.574% | 10/1/25–8/1/26 | 2,250 | 2,794 | 0.0% |
Wells Fargo & Co. | 3.000% | 10/23/26 | 30,810 | 29,493 | 0.2% |
Wells Fargo & Co. | 3.069% | 1/24/23 | 27,500 | 27,673 | 0.2% |
Wells Fargo & Co. | 3.550% | 9/29/25 | 26,768 | 26,982 | 0.2% |
Wells Fargo & Co. | 3.000% | 2/19/25 | 27,765 | 26,936 | 0.2% |
Wells Fargo & Co. | 3.000%–4.480% | 3/8/22–6/3/26 | 127,595 | 129,237 | 0.9% |
2 Banking—Other † | 1,150,209 | 8.3% | |||
Brokerage † | 197,596 | 1.4% | |||
Finance Companies † | 68,936 | 0.5% | |||
Insurance | |||||
Berkshire Hathaway Finance | |||||
Corp. | 3.000% | 5/15/22 | 6,811 | 6,982 | 0.1% |
Berkshire Hathaway Inc. | 2.750%–3.125% | 2/11/23–3/15/26 | 53,189 | 53,419 | 0.4% |
Insurance—Other † | 607,580 | 4.3% | |||
Other Finance † | 963 | 0.0% | |||
2 Real Estate Investment Trusts † | 677,384 | 4.9% | |||
4,556,846 | 32.9% | ||||
Industrial | |||||
2 Basic Industry † | 424,984 | 3.1% | |||
Capital Goods | |||||
Precision Castparts Corp. | 2.500%–3.250% | 1/15/23–6/15/25 | 19,604 | 19,529 | 0.1% |
2 Capital Goods—Other † | 624,982 | 4.5% | |||
Communication | |||||
AT&T Inc. | 3.400% | 5/15/25 | 32,451 | 31,339 | 0.2% |
AT&T Inc. | 3.000% | 6/30/22 | 29,840 | 29,629 | 0.2% |
AT&T Inc. | 3.600% | 2/17/23 | 29,038 | 29,310 | 0.2% |
AT&T Inc. | 3.950% | 1/15/25 | 26,825 | 26,984 | 0.2% |
AT&T Inc. | 2.625%–4.450% | 3/1/22–2/17/26 | 76,702 | 77,542 | 0.6% |
Charter Communications | |||||
Operating LLC / Charter | |||||
Communications | |||||
Operating Capital | 4.908% | 7/23/25 | 37,431 | 39,500 | 0.3% |
Charter Communications | |||||
Operating LLC / Charter | |||||
Communications | |||||
Operating Capital | 4.464% | 7/23/22 | 26,900 | 28,251 | 0.2% |
Pacific Bell Telephone Co. | 7.125% | 3/15/26 | 1,202 | 1,477 | 0.0% |
Verizon Communications | |||||
Inc. | 5.150% | 9/15/23 | 73,391 | 80,791 | 0.6% |
2 Verizon Communications | |||||
Inc. | 2.450%–4.150% | 3/15/22–8/15/26 | 92,982 | 91,163 | 0.6% |
2 Communication—Other † | 652,635 | 4.7% | |||
Consumer Cyclical | |||||
Visa Inc. | 3.150% | 12/14/25 | 36,950 | 37,484 | 0.3% |
Consumer Cyclical—Other † | 923,207 | 6.6% | |||
Consumer Noncyclical | |||||
Abbott Laboratories | 3.750% | 11/30/26 | 28,310 | 28,282 | 0.2% |
AbbVie Inc. | 3.600% | 5/14/25 | 33,395 | 33,273 | 0.2% |
AbbVie Inc. | 2.900% | 11/6/22 | 27,727 | 27,576 | 0.2% |
Actavis Funding SCS | 3.800% | 3/15/25 | 41,649 | 41,953 | 0.3% |
70
Intermediate-Term Corporate Bond Index Fund | |||||
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
Anheuser-Busch InBev | |||||
Finance Inc. | 3.650% | 2/1/26 | 96,869 | 98,481 | 0.7% |
Anheuser-Busch InBev | |||||
Finance Inc. | 3.300% | 2/1/23 | 52,129 | 53,126 | 0.4% |
Anheuser-Busch InBev | |||||
Finance Inc. | 2.625%–3.700% | 1/17/23–2/1/24 | 24,938 | 25,360 | 0.2% |
Anheuser-Busch InBev | |||||
Worldwide Inc. | 2.500% | 7/15/22 | 31,154 | 30,882 | 0.2% |
2 Anheuser-Busch North | |||||
American Holding Corp. | 3.750% | 1/15/22 | 750 | 790 | 0.0% |
Gilead Sciences Inc. | 3.650% | 3/1/26 | 26,418 | 26,780 | 0.2% |
Medtronic Inc. | 3.500% | 3/15/25 | 33,129 | 33,919 | 0.3% |
Shire Acquisitions Investments | |||||
Ireland DAC | 2.875% | 9/23/23 | 35,555 | 34,357 | 0.3% |
Teva Pharmaceutical Finance | |||||
Netherlands III BV | 3.150% | 10/1/26 | 30,891 | 28,581 | 0.2% |
Consumer Noncyclical—Other † | 1,778,181 | 12.8% | |||
2 Energy † | 1,368,920 | 9.9% | |||
Other Industrial † | 26,239 | 0.2% | |||
Technology | |||||
Apple Inc. | 2.400% | 5/3/23 | 52,988 | 52,135 | 0.4% |
Apple Inc. | 3.250% | 2/23/26 | 26,413 | 26,801 | 0.2% |
Apple Inc. | 2.450%–3.450% | 5/13/22–2/9/27 | 135,147 | 135,633 | 1.0% |
2 Broadcom Corp. / Broadcom | |||||
Cayman Finance Ltd. | 3.875% | 1/15/27 | 42,200 | 42,517 | 0.3% |
2 Diamond 1 Finance Corp. / | |||||
Diamond 2 Finance Corp. | 6.020% | 6/15/26 | 39,698 | 43,753 | 0.3% |
2 Diamond 1 Finance Corp. / | |||||
Diamond 2 Finance Corp. | 5.450% | 6/15/23 | 38,140 | 41,246 | 0.3% |
Microsoft Corp. | 3.300% | 2/6/27 | 33,200 | 33,844 | 0.3% |
Microsoft Corp. | 2.400% | 8/8/26 | 35,558 | 33,700 | 0.2% |
Microsoft Corp. | 2.000%–3.625% | 11/3/22–11/3/25 | 114,991 | 114,580 | 0.8% |
Oracle Corp. | 2.400%–3.625% | 5/15/22–7/15/26 | 140,227 | 139,621 | 1.0% |
2 Technology—Other † | 611,017 | 4.4% | |||
Transportation | |||||
1 BNSF Funding Trust I | 6.613% | 12/15/55 | 1,890 | 2,157 | 0.0% |
Burlington Northern Santa | |||||
Fe LLC | 3.000%–7.000% | 3/15/22–12/15/25 | 51,017 | 53,477 | 0.4% |
Transportation—Other † | 232,198 | 1.7% | |||
8,318,186 | 60.0% | ||||
Utilities | |||||
Electric | |||||
Berkshire Hathaway | |||||
Energy Co. | 3.500%–3.750% | 11/15/23–2/1/25 | 11,160 | 11,593 | 0.1% |
MidAmerican Energy Co. | 3.500%–3.700% | 9/15/23–10/15/24 | 4,823 | 5,002 | 0.0% |
PacifiCorp | 2.950%–3.600% | 6/1/23–7/1/25 | 8,910 | 9,105 | 0.1% |
Sierra Pacific Power Co. | 2.600%–3.375% | 8/15/23–5/1/26 | 5,300 | 5,141 | 0.1% |
2 Electric—Other † | 656,093 | 4.7% | |||
Natural Gas † | 45,459 | 0.3% | |||
Other Utility † | 10,819 | 0.1% | |||
743,212 | 5.4% | ||||
Total Corporate Bonds (Cost $13,559,676) | 13,618,244 | 98.3% | |||
Taxable Municipal Bonds (Cost $1,485) † | 1,507 | 0.0% |
71
Intermediate-Term Corporate Bond Index Fund | ||||
Market | Percentage | |||
Value• | of Net | |||
Coupon | Shares | ($000) | Assets | |
Temporary Cash Investment | ||||
Money Market Fund | ||||
3 Vanguard Market Liquidity Fund | ||||
(Cost $165,415) | 0.864% | 1,653,978 | 165,415 | 1.2% |
Total Investments (Cost $13,814,270) | 13,872,846 | 100.1% | ||
Amount | ||||
($000) | ||||
Other Assets and Liabilities | ||||
Other Assets | ||||
Investment in Vanguard | 944 | |||
Receivables for Investment Securities Sold | 74,303 | |||
Receivables for Accrued Income | 131,389 | |||
Receivables for Capital Shares Issued | 35,570 | |||
Other Assets | 494 | |||
Total Other Assets | 242,700 | 1.8% | ||
Liabilities | ||||
Payables for Investment Securities Purchased | (250,136) | |||
Payables for Capital Shares Redeemed | (903) | |||
Payables for Distributions | (786) | |||
Payables to Vanguard | (2,613) | |||
Other Liabilities | (6,319) | |||
Total Liabilities | (260,757) | (1.9%) | ||
Net Assets | 13,854,789 | 100.0% | ||
At February 28, 2017, net assets consisted of: | ||||
Amount | ||||
($000) | ||||
Paid-in Capital | 13,793,363 | |||
Undistributed Net Investment Income | 33,741 | |||
Accumulated Net Realized Losses | (30,891) | |||
Unrealized Appreciation (Depreciation) | 58,576 | |||
Net Assets | 13,854,789 |
72
Intermediate-Term Corporate Bond Index Fund | |
Amount | |
($000) | |
ETF Shares—Net Assets | |
Applicable to 146,111,528 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 12,635,182 |
Net Asset Value Per Share—ETF Shares | $86.48 |
Admiral Shares—Net Assets | |
Applicable to 33,709,176 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 784,483 |
Net Asset Value Per Share—Admiral Shares | $23.27 |
Institutional Shares—Net Assets | |
Applicable to 15,130,877 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 435,124 |
Net Asset Value Per Share—Institutional Shares | $28.76 |
• See Note A in Notes toFinancial
Statements.
† Represents the aggregate value, by category, of
securities that are not among the 50 largest holdings and, in total for any
issuer, represent
1% or less of
net assets.
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 Certainofthe
fund’s securitiesareexemptfromregistration underRule
144AoftheSecuritiesActof1933.Suchsecurities may besoldin
transactions exempt from registration, normally
toqualified institutional buyers. At February 28,2017,the aggregate value of
these
securities was
$292,961,000, representing 2.1% of net assets.
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.
73
Intermediate-Term Corporate Bond Index Fund | ||
Statement of Operations | ||
Six Months Ended | ||
February 28, 2017 | ||
($000) | ||
Investment Income | ||
Income | ||
Interest1 | 197,797 | |
Total Income | 197,797 | |
Expenses | ||
The Vanguard Group—Note B | ||
Investment Advisory Services | 189 | |
Management and Administrative—ETF Shares | 3,064 | |
Management and Administrative—Admiral Shares | 209 | |
Management and Administrative—Institutional Shares | 83 | |
Marketing and Distribution—ETF Shares | 415 | |
Marketing and Distribution—Admiral Shares | 38 | |
Marketing and Distribution—Institutional Shares | 6 | |
Custodian Fees | 44 | |
Shareholders’ Reports—ETF Shares | 178 | |
Shareholders’ Reports—Admiral Shares | 6 | |
Shareholders’ Reports—Institutional Shares | — | |
Trustees’ Fees and Expenses | 4 | |
Total Expenses | 4,236 | |
Net Investment Income | 193,561 | |
Realized Net Gain (Loss) | ||
Investment Securities Sold1 | 8,407 | |
Futures Contracts | (310) | |
Realized Net Gain (Loss) | 8,097 | |
Change in Unrealized Appreciation (Depreciation) | ||
Investment Securities | (389,022) | |
Futures Contracts | (22) | |
Change in Unrealized Appreciation (Depreciation) | (389,044) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (187,386) | |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $184,000 and $2,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
74
Intermediate-Term Corporate Bond Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 193,561 | 278,340 |
Realized Net Gain (Loss) | 8,097 | (13,790) |
Change in Unrealized Appreciation (Depreciation) | (389,044) | 535,211 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (187,386) | 799,761 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (168,340) | (237,627) |
Admiral Shares | (11,733) | (17,675) |
Institutional Shares | (6,307) | (11,793) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (186,380) | (267,095) |
Capital Share Transactions | ||
ETF Shares | 2,923,333 | 4,175,449 |
Admiral Shares | 108,944 | 245,617 |
Institutional Shares | 61,013 | 27,275 |
Net Increase (Decrease) from Capital Share Transactions | 3,093,290 | 4,448,341 |
Total Increase (Decrease) | 2,719,524 | 4,981,007 |
Net Assets | ||
Beginning of Period | 11,135,265 | 6,154,258 |
End of Period1 | 13,854,789 | 11,135,265 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $33,741,000 and $26,560,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
75
Intermediate-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $89.47 | $84.39 | $86.98 | $82.31 | $86.78 | $81.49 | |
Investment Operations | |||||||
Net Investment Income | 1.391 | 2.831 | 2.767 | 2.724 | 2.715 | 2.966 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (2.985) | 5.083 | (2.473) | 5.024 | (4.042) | 5.350 | |
Total from Investment Operations | (1.594) | 7.914 | .294 | 7.748 | (1.327) | 8.316 | |
Distributions | |||||||
Dividends from Net Investment Income | (1.396) | (2.834) | (2.754) | (2.496) | (2.713) | (2.963) | |
Distributions from Realized Capital Gains | — | — | (.130) | (.582) | (.430) | (.063) | |
Total Distributions | (1.396) | (2.834) | (2.884) | (3.078) | (3.143) | (3.026) | |
Net Asset Value, End of Period | $86.48 | $89.47 | $84.39 | $86.98 | $82.31 | $86.78 | |
Total Return | -1.78% | 9.58% | 0.32% | 9.60% | -1.64% | 10.43% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $12,635 | $10,048 | $5,393 | $4,010 | $3,161 | $2,751 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 3.31% | 3.34% | 3.25% | 3.25% | 3.16% | 3.62% | |
Portfolio Turnover Rate2 | 61% | 71% | 56% | 65% | 73% | 69% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Includes increases from purchase fees of $.01, $.01, $.02, $.02, $.00, and $.03. | |||||||
2 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.
76
Intermediate-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $24.08 | $22.71 | $23.40 | $22.20 | $23.40 | $21.98 | |
Investment Operations | |||||||
Net Investment Income | .376 | .764 | .745 | .736 | .732 | .800 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (.810) | 1.371 | (.654) | 1.355 | (1.085) | 1.437 | |
Total from Investment Operations | (.434) | 2.135 | .091 | 2.091 | (.353) | 2.237 | |
Distributions | |||||||
Dividends from Net Investment Income | (.376) | (.765) | (.746) | (.734) | (.731) | (.800) | |
Distributions from Realized Capital Gains | — | — | (.035) | (.157) | (.116) | (.017) | |
Total Distributions | (.376) | (.765) | (.781) | (.891) | (.847) | (.817) | |
Net Asset Value, End of Period | $23.27 | $24.08 | $22.71 | $23.40 | $22.20 | $23.40 | |
Total Return2 | -1.80% | 9.57% | 0.37% | 9.60% | -1.62% | 10.41% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $784 | $700 | $423 | $239 | $55 | $51 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 3.31% | 3.34% | 3.25% | 3.25% | 3.16% | 3.62% | |
Portfolio Turnover Rate3 | 61% | 71% | 56% | 65% | 73% | 69% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
SignalShares wererenamed Admiral Shares in October 2013. Prior periods’ Financial Highlightsare for the Signal class. | |||||||
1 Includes increases from purchase fees of $.00, $.00, $.00, $.01, $.00, and $.01. | |||||||
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 and account service fees. | |||||||
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.
77
Intermediate-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $29.75 | $28.06 | $28.92 | $27.44 | $28.93 | $27.17 | |
Investment Operations | |||||||
Net Investment Income | .468 | .949 | .931 | .919 | .913 | .999 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (.990) | 1.690 | (.816) | 1.671 | (1.347) | 1.780 | |
Total from Investment Operations | (.522) | 2.639 | .115 | 2.590 | (.434) | 2.779 | |
Distributions | |||||||
Dividends from Net Investment Income | (.468) | (.949) | (.932) | (.916) | (.913) | (.998) | |
Distributions from Realized Capital Gains | — | — | (.043) | (.194) | (.143) | (.021) | |
Total Distributions | (.468) | (.949) | (.975) | (1.110) | (1.056) | (1.019) | |
Net Asset Value, End of Period | $28.76 | $29.75 | $28.06 | $28.92 | $27.44 | $28.93 | |
Total Return2 | -1.75% | 9.58% | 0.37% | 9.62% | -1.61% | 10.46% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $435 | $387 | $338 | $307 | $164 | $185 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.05% | 0.05% | 0.07% | 0.09% | 0.09% | 0.09% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 3.33% | 3.36% | 3.28% | 3.28% | 3.19% | 3.65% | |
Portfolio Turnover Rate3 | 61% | 71% | 56% | 65% | 73% | 69% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Includes increases from purchase fees of $.00, $.00, $.01, $.01, $.00, and $.01. | |||||||
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 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.
78
Intermediate-Term Corporate Bond Index Fund
Notes to Financial
Statements
Vanguard Intermediate-Term Corporate Bond Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Certain of the fund’s investments are in corporate debt instruments; the issuers’ abilities to meet their obligations may be affected by economic developments in their respective industries. The fund offers three classes of shares: ETF Shares, Admiral Shares, and Institutional Shares. ETF shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. 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.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets 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 futures gains (losses).
During the six months ended February 28, 2017, the fund’s average investments in long and short futures contracts each represented less than 1% of net assets, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at February 28, 2017.
3. 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, 2013–2016), and for the period ended February 28, 2017, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
79
Intermediate-Term Corporate Bond Index Fund
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
6. 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 assessed on capital share transactions 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. 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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $944,000, representing 0.01% of the fund’s net assets and 0.38% of Vanguard’s capitalization. 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. 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).
80
Intermediate-Term Corporate Bond Index Fund
The following table summarizes the market value of the fund’s investments as of February 28, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 87,680 | — |
Corporate Bonds | — | 13,618,244 | — |
Taxable Municipal Bonds | — | 1,507 | — |
Temporary Cash Investments | 165,415 | — | — |
Futures Contracts—Assets1 | 494 | — | — |
Futures Contracts—Liabilities1 | (573) | — | — |
Total | 165,336 | 13,707,431 | — |
1 Represents variation margin on the last day of the reporting period for recently closed futures contracts. |
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.
During the six months ended February 28, 2017, the fund realized $5,320,000 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 losses to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2016, the fund had available capital losses totaling $28,978,000 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 August 31, 2017; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2017, the cost of investment securities for tax purposes was $13,818,892,000. Net unrealized appreciation of investment securities for tax purposes was $53,954,000, consisting of unrealized gains of $138,552,000 on securities that had risen in value since their purchase and $84,598,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2017, the fund purchased $4,997,829,000 of investment securities and sold $2,011,140,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $1,846,746,000 and $1,758,995,000, respectively. Total purchases and sales include $2,926,419,000 and $135,978,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capitalshares.
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 February 28, 2017, such purchases and sales were $474,722,000 and $1,680,345,000 respectively; these amounts are included in the purchases and sales of investment securities noted above.
81
Intermediate-Term Corporate Bond Index Fund
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued1 | 3,062,444 | 35,402 | 4,483,789 | 52,004 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (139,111) | (1,600) | (308,340) | (3,600) |
Net Increase (Decrease)—ETF Shares | 2,923,333 | 33,802 | 4,175,449 | 48,404 |
Admiral Shares | ||||
Issued1 | 244,706 | 10,478 | 366,221 | 15,690 |
Issued in Lieu of Cash Distributions | 9,891 | 424 | 15,255 | 654 |
Redeemed | (145,653) | (6,263) | (135,859) | (5,881) |
Net Increase (Decrease)—Admiral Shares | 108,944 | 4,639 | 245,617 | 10,463 |
Institutional Shares | ||||
Issued1 | 78,999 | 2,758 | 30,428 | 1,053 |
Issued in Lieu of Cash Distributions | 3,674 | 127 | 6,542 | 227 |
Redeemed | (21,660) | (760) | (9,695) | (336) |
Net Increase (Decrease)—Institutional Shares | 61,013 | 2,125 | 27,275 | 944 |
1 Includes purchase fees for fiscal 2017 and 2016 of $856,000 and $1,011,000, respectively (fund totals). |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
82
Long-Term Corporate Bond Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral | Institutional | |
Shares | Shares | Shares | |
Ticker Symbol | VCLT | VLTCX | VLCIX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 4.42% | 4.42% | 4.44% |
Financial Attributes | |||
Bloomberg | |||
Barclays | Bloomberg | ||
10+ Year | Barclays | ||
Corporate | Aggregate | ||
Fund | Bond Index | FA Index | |
Number of Bonds | 1,818 | 1,907 | 10,166 |
Yield toMaturity | |||
(before expenses) | 4.4% | 4.4% | 2.5% |
Average Coupon | 5.2% | 5.3% | 3.0% |
Average Duration 13.8 years | 13.9 years | 6.1 years | |
Average Effective | |||
Maturity | 23.5 years | 23.5 years | 8.3 years |
Short-Term | |||
Reserves | 1.1% | — | — |
Sector Diversification (% of portfolio) | |
Finance | 17.2% |
Industrial | 69.3 |
Utilities | 12.9 |
Other | 0.6 |
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 creditof the U.S.
government.
Volatility Measures | ||
Bloomberg | ||
Barclays | Bloomberg | |
10+ Year | Barclays | |
Corporate | Aggregate | |
Bond Index | FA Index | |
R-Squared | 0.99 | 0.80 |
Beta | 1.03 | 2.43 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 0.9% |
5 - 10 Years | 2.0 |
10 - 20 Years | 26.7 |
20 - 30 Years | 66.3 |
Over 30 Years | 4.1 |
Distribution by Credit Quality (% of portfolio) | |
Aaa | 3.9% |
Aa | 8.8 |
A | 39.8 |
Baa | 47.5 |
Credit-quality
ratings are obtained from Barclays and are from
Moody's, Fitch, and S&P. When ratings from all three
agencies are
used, the median
rating is shown. When ratings from two of the
agenciesare used, the lowerrating foreach issueis shown.
"Not
Rated" is used to classify
securities for which a rating is not
available. For more information about these ratings, see
the
Glossary entry for Credit
Quality.
Investment Focus
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional
Shares.
83
Long-Term Corporate 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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
10+ Year | ||
Corporate | ||
ETF Shares Net Asset Value | Bond Index | |
Fiscal Year | Total Returns | Total Returns |
2010 | 14.54% | 14.46% |
2011 | 4.19 | 5.18 |
2012 | 19.40 | 18.33 |
2013 | -6.55 | -6.09 |
2014 | 17.35 | 16.80 |
2015 | -3.64 | -3.48 |
2016 | 18.21 | 17.71 |
2017 | -4.00 | -3.94 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 10.72% | 5.19% | 7.53% | |||
Net Asset Value | 10.59 | 5.40 | 7.44 | |||
Admiral Shares | 1/19/2010 | 10.60 | 5.40 | 4.94% | 2.53% | 7.47 |
Fee-Adjusted Returns | 9.49 | 5.19 | 7.32 | |||
Institutional Shares | 11/19/2009 | 10.61 | 5.42 | 4.96 | 2.52 | 7.48 |
Fee-Adjusted Returns | 9.50 | 5.21 | 7.33 |
Vanguard
fundreturnsareadjustedtoreflectthe1.00%feeon purchasesof fundshares. Thefee does
notapplytothe ETFShares. The
Fiscal-YearTotalReturnstableisnotadjustedforfees.
See Financial Highlights for dividend and
capital gains information.
84
Long-Term Corporate Bond Index Fund
Financial Statements (unaudited)
Statement of Net Assets—Investments Summary
As of February 28, 2017
This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
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 complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. 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).
Face | Market | Percentage | ||||
Maturity | Amount | Value• | of Net | |||
Coupon | Date | ($000) | ($000) | Assets | ||
U.S. Government and Agency Obligations | ||||||
U.S. Government Securities | ||||||
United States Treasury Note/Bond 2.875% | 11/15/46 | 10,055 | 9,865 | 0.5% | ||
U.S. Government Securities—Other † | 460 | 0.0% | ||||
Total U.S. Government and Agency Obligations (Cost $10,313) | 10,325 | 0.5% | ||||
Corporate Bonds | ||||||
Finance | ||||||
Banking | ||||||
Bank of America Corp. | 5.000% | 1/21/44 | 4,080 | 4,511 | 0.2% | |
Bank of America Corp. | 6.110% | 1/29/37 | 3,450 | 4,119 | 0.2% | |
1 | Bank of America Corp. | 3.248%–7.750% | 10/21/27–1/20/48 | 13,833 | 15,415 | 0.7% |
Bank of America NA | 6.000% | 10/15/36 | 1,595 | 1,959 | 0.1% | |
Bank One Capital III | 8.750% | 9/1/30 | 845 | 1,193 | 0.1% | |
Bank One Corp. | 8.000% | 4/29/27 | 500 | 653 | 0.0% | |
Citigroup Inc. | 4.450% | 9/29/27 | 4,755 | 4,867 | 0.2% | |
Citigroup Inc. | 8.125% | 7/15/39 | 2,877 | 4,300 | 0.2% | |
Citigroup Inc. | 4.125%–6.675% | 6/10/25–5/18/46 | 13,750 | 15,385 | 0.7% | |
Goldman Sachs Capital I | 6.345% | 2/15/34 | 1,280 | 1,542 | 0.1% | |
Goldman Sachs Group Inc. | 6.750% | 10/1/37 | 7,410 | 9,284 | 0.4% | |
Goldman Sachs Group Inc. | 6.250% | 2/1/41 | 3,658 | 4,583 | 0.2% | |
Goldman Sachs Group Inc. | 4.750%–6.450% | 2/15/33–10/21/45 | 12,507 | 14,006 | 0.7% | |
HSBC Holdings plc | 6.500% | 9/15/37 | 3,780 | 4,678 | 0.2% | |
1 | JPMorgan Chase & Co. | 3.625%–6.400% | 10/1/27–2/22/48 | 19,203 | 22,030 | 1.1% |
Morgan Stanley | 4.300% | 1/27/45 | 4,846 | 4,892 | 0.2% | |
Morgan Stanley | 6.375% | 7/24/42 | 3,261 | 4,168 | 0.2% | |
Wachovia Bank NA | 5.850% | 2/1/37 | 1,145 | 1,377 | 0.1% | |
Wachovia Corp. | 5.500%–7.500% | 4/15/35–10/15/35 | 1,079 | 1,299 | 0.1% | |
Wells Fargo & Co. | 5.606% | 1/15/44 | 4,042 | 4,727 | 0.2% | |
Wells Fargo & Co. | 3.900%–5.375% | 7/22/27–12/7/46 | 20,338 | 21,240 | 1.0% | |
Wells Fargo Bank NA | 5.950%–6.600% | 8/26/36–1/15/38 | 2,520 | 3,202 | 0.2% | |
1 | Wells Fargo Capital X | 5.950% | 12/1/86 | 1,150 | 1,228 | 0.1% |
2 | Banking—Other † | 44,296 | 2.1% |
85
Long-Term Corporate Bond Index Fund | ||||||
Face | Market | Percentage | ||||
Maturity | Amount | Value• | of Net | |||
Coupon | Date | ($000) | ($000) | Assets | ||
Brokerage † | 6,516 | 0.3% | ||||
Finance Companies | ||||||
GE Capital International Funding Co. | 4.418% | 11/15/35 | 15,367 | 16,456 | 0.7% | |
Finance Companies—Other † | 1,055 | 0.1% | ||||
Insurance | ||||||
Berkshire Hathaway | ||||||
Finance Corp. | 4.300%–5.750% | 1/15/40–5/15/43 | 2,704 | 3,054 | 0.1% | |
Berkshire Hathaway Inc. | 4.500% | 2/11/43 | 1,490 | 1,617 | 0.1% | |
Insurance—Other † | 117,761 | 5.6% | ||||
Real Estate Investment Trusts † | 13,772 | 0.7% | ||||
355,185 | 16.9% | |||||
Industrial | ||||||
Basic Industry | ||||||
Lubrizol Corp. | 6.500% | 10/1/34 | 315 | 409 | 0.0% | |
Vale Overseas Ltd. | 6.875% | 11/21/36 | 4,220 | 4,610 | 0.2% | |
2 Basic Industry—Other † | 88,345 | 4.2% | ||||
Capital Goods | ||||||
General Electric | ||||||
Capital Corp. | 5.875% | 1/14/38 | 4,402 | 5,649 | 0.3% | |
General Electric | ||||||
Capital Corp. | 6.750% | 3/15/32 | 3,960 | 5,398 | 0.3% | |
General Electric | ||||||
Capital Corp. | 6.150%–6.875% | 8/7/37–1/10/39 | 3,958 | 5,520 | 0.3% | |
General Electric Co. | 4.125%–4.500% | 10/9/42–3/11/44 | 5,386 | 5,736 | 0.3% | |
Precision Castparts Corp. | 3.900%–4.375% | 6/15/35–6/15/45 | 1,815 | 1,879 | 0.1% | |
United Technologies Corp. | 4.500% | 6/1/42 | 4,880 | 5,232 | 0.2% | |
2 Capital Goods—Other † | 81,027 | 3.8% | ||||
Communication | ||||||
Ameritech Capital Funding Corp. | 6.550% | 1/15/28 | 385 | 434 | 0.0% | |
AT&T Corp. | 8.250% | 11/15/31 | 822 | 1,124 | 0.1% | |
AT&T Inc. | 4.500% | 3/9/48 | 5,575 | 5,032 | 0.2% | |
AT&T Inc. | 4.750% | 5/15/46 | 4,798 | 4,488 | 0.2% | |
AT&T Inc. | 4.350% | 6/15/45 | 4,849 | 4,280 | 0.2% | |
AT&T Inc. | 5.250% | 3/1/37 | 4,000 | 4,120 | 0.2% | |
AT&T Inc. | 4.250%–6.550% | 3/1/27–3/1/57 | 34,613 | 35,214 | 1.7% | |
AT&T Mobility LLC | 7.125% | 12/15/31 | 772 | 972 | 0.0% | |
Bellsouth Capital Funding Corp. | 7.875% | 2/15/30 | 498 | 616 | 0.0% | |
BellSouth LLC | 6.000%–6.875% | 10/15/31–11/15/34 | 1,093 | 1,218 | 0.1% | |
BellSouth | ||||||
Telecommunications LLC | 6.375% | 6/1/28 | 422 | 478 | 0.0% | |
British Telecommunications plc | 9.125% | 12/15/30 | 3,082 | 4,631 | 0.2% | |
Charter Communications Operating | ||||||
LLC / Charter Communications | ||||||
Operating Capital | 6.484% | 10/23/45 | 4,547 | 5,275 | 0.3% | |
Charter Communications Operating | ||||||
LLC / Charter Communications | ||||||
Operating Capital | 6.384%–6.834% | 10/23/35–10/23/55 | 3,375 | 3,869 | 0.2% | |
Comcast Corp. | 3.200%–7.050% | 1/15/33–7/15/46 | 27,513 | 30,803 | 1.5% | |
Deutsche Telekom | ||||||
International Finance BV | 8.750% | 6/15/30 | 4,564 | 6,706 | 0.3% | |
GTE Corp. | 6.940% | 4/15/28 | 732 | 924 | 0.0% | |
NBCUniversal Media LLC | 4.450%–6.400% | 4/30/40–1/15/43 | 3,820 | 4,655 | 0.2% | |
New Cingular Wireless | ||||||
Services Inc. | 8.750% | 3/1/31 | 970 | 1,367 | 0.1% |
86
Long-Term Corporate Bond Index Fund | |||||
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
Orange SA | 9.000% | 3/1/31 | 3,395 | 5,087 | 0.2% |
TCI Communications Inc. | 7.125% | 2/15/28 | 545 | 717 | 0.0% |
Time Warner Cable LLC | 4.500%–7.300% | 5/1/37–9/15/42 | 10,741 | 11,919 | 0.6% |
Time Warner Entertainment | |||||
Co. LP | 8.375% | 7/15/33 | 1,448 | 1,946 | 0.1% |
Verizon Communications | |||||
Inc. | 5.012% | 8/21/54 | 7,024 | 6,806 | 0.3% |
Verizon Communications | |||||
Inc. | 4.862% | 8/21/46 | 6,260 | 6,136 | 0.3% |
Verizon Communications | |||||
Inc. | 6.550% | 9/15/43 | 4,795 | 5,871 | 0.3% |
Verizon Communications | |||||
Inc. | 4.672% | 3/15/55 | 6,169 | 5,593 | 0.3% |
Verizon Communications | |||||
Inc. | 4.522% | 9/15/48 | 5,770 | 5,342 | 0.3% |
Verizon Communications | |||||
Inc. | 4.272% | 1/15/36 | 4,629 | 4,393 | 0.2% |
Verizon Communications | |||||
Inc. | 4.400% | 11/1/34 | 4,344 | 4,188 | 0.2% |
2 Verizon Communications | |||||
Inc. | 3.850%–7.750% | 12/1/30–4/15/49 | 18,198 | 18,891 | 0.9% |
2 Communication—Other † | 87,098 | 4.1% | |||
Consumer Cyclical | |||||
CVS Health Corp. | 5.125% | 7/20/45 | 5,225 | 5,825 | 0.3% |
Home Depot Inc. | 5.875% | 12/16/36 | 4,077 | 5,205 | 0.2% |
Visa Inc. | 4.300% | 12/14/45 | 4,667 | 5,012 | 0.2% |
Wal-Mart Stores Inc. | 6.500% | 8/15/37 | 3,875 | 5,232 | 0.3% |
Wal-Mart Stores Inc. | 5.250% | 9/1/35 | 4,037 | 4,791 | 0.2% |
Wal-Mart Stores Inc. | 4.000%–7.550% | 4/5/27–4/22/44 | 15,180 | 18,245 | 0.9% |
Consumer Cyclical—Other † | 91,836 | 4.4% | |||
Consumer Noncyclical | |||||
Abbott Laboratories | 4.900% | 11/30/46 | 4,350 | 4,495 | 0.2% |
Amgen Inc. | 4.663% | 6/15/51 | 4,696 | 4,729 | 0.2% |
Anheuser-Busch Cos. LLC | 5.750%–6.800% | 8/20/32–5/1/42 | 2,918 | 3,676 | 0.2% |
Anheuser-Busch InBev | |||||
Finance Inc. | 4.900% | 2/1/46 | 13,802 | 15,162 | 0.7% |
Anheuser-Busch InBev | |||||
Finance Inc. | 4.700% | 2/1/36 | 9,183 | 9,876 | 0.5% |
Anheuser-Busch InBev | |||||
Finance Inc. | 4.000%–4.625% | 1/17/43–2/1/44 | 2,090 | 2,082 | 0.1% |
Anheuser-Busch InBev | |||||
Worldwide Inc. | 3.750%–8.200% | 1/15/39–7/15/42 | 7,819 | 9,147 | 0.4% |
GlaxoSmithKline Capital Inc. | 6.375% | 5/15/38 | 3,820 | 5,055 | 0.2% |
Medtronic Inc. | 4.625% | 3/15/45 | 5,393 | 5,823 | 0.3% |
Pfizer Inc. | 7.200% | 3/15/39 | 2,905 | 4,186 | 0.2% |
Consumer Noncyclical—Other † | 287,415 | 13.7% | |||
Energy | |||||
ConocoPhillips | 6.500% | 2/1/39 | 3,680 | 4,650 | 0.3% |
El Paso Natural Gas Co. LLC | 8.375% | 6/15/32 | 297 | 379 | 0.0% |
Kinder Morgan Energy | |||||
Partners LP | 4.700%–7.750% | 3/15/31–9/1/44 | 11,818 | 13,018 | 0.6% |
Kinder Morgan Inc. | 5.300%–7.750% | 1/15/32–6/1/45 | 5,585 | 6,064 | 0.3% |
Tennessee Gas Pipeline | |||||
Co. LLC | 7.000%–7.625% | 3/15/27–4/1/37 | 2,071 | 2,497 | 0.1% |
2 Energy—Other † | 203,628 | 9.7% |
87
Long-Term Corporate Bond Index Fund | |||||
Face | Market | Percentage | |||
Maturity | Amount | Value• | of Net | ||
Coupon | Date | ($000) | ($000) | Assets | |
Other Industrial † | 11,283 | 0.5% | |||
Technology | |||||
Apple Inc. | 4.650% | 2/23/46 | 5,470 | 5,947 | 0.3% |
Apple Inc. | 3.850% | 5/4/43 | 4,295 | 4,123 | 0.2% |
Apple Inc. | 3.450%–4.500% | 2/23/36–2/9/47 | 12,724 | 12,635 | 0.6% |
Microsoft Corp. | 3.700% | 8/8/46 | 5,735 | 5,390 | 0.3% |
Microsoft Corp. | 4.250% | 2/6/47 | 4,950 | 5,128 | 0.2% |
Microsoft Corp. | 4.450% | 11/3/45 | 3,940 | 4,184 | 0.2% |
Microsoft Corp. | 3.450%–5.300% | 2/12/35–2/6/57 | 28,555 | 28,752 | 1.4% |
Oracle Corp. | 3.250%–6.500% | 5/15/30–5/15/55 | 21,983 | 23,717 | 1.1% |
2 Technology—Other † | 46,943 | 2.2% | |||
Transportation | |||||
Burlington Northern | |||||
Santa Fe LLC | 3.900%–7.950% | 8/15/30–8/1/46 | 14,068 | 15,762 | 0.7% |
Transportation—Other † | 60,381 | 2.9% | |||
1,426,271 | 67.8% | ||||
Utilities | |||||
Electric | |||||
Berkshire Hathaway | |||||
Energy Co. | 4.500%–8.480% | 9/15/28–2/1/45 | 6,296 | 7,741 | 0.4% |
Duke Energy Carolinas LLC | 3.750%–6.450% | 12/1/28–3/15/46 | 6,967 | 7,986 | 0.4% |
Duke Energy Corp. | 3.750%–4.800% | 12/15/45–9/1/46 | 2,910 | 2,780 | 0.1% |
Duke Energy Florida LLC | 3.400%–6.400% | 9/15/37–10/1/46 | 3,571 | 4,207 | 0.2% |
1 Duke Energy Florida | |||||
Project Finance LLC | 2.538%–3.112% | 9/1/29–9/1/36 | 1,725 | 1,632 | 0.1% |
Duke Energy Indiana LLC | 3.750%–6.450% | 10/15/35–5/15/46 | 2,787 | 3,288 | 0.2% |
Duke Energy Ohio Inc. | 3.700% | 6/15/46 | 530 | 503 | 0.0% |
Duke Energy Progress LLC | 3.700%–6.300% | 4/1/38–10/15/46 | 4,683 | 4,878 | 0.2% |
MidAmerican Energy Co. | 3.100%–6.750% | 5/1/27–8/1/47 | 4,360 | 5,111 | 0.2% |
MidAmerican Funding LLC | 6.927% | 3/1/29 | 250 | 331 | 0.0% |
Nevada Power Co. | 5.375%–6.750% | 4/1/36–5/15/41 | 2,146 | 2,754 | 0.1% |
Pacific Gas & Electric Co. | 6.050% | 3/1/34 | 4,195 | 5,313 | 0.3% |
PacifiCorp | 4.100%–7.700% | 11/15/31–2/1/42 | 4,580 | 5,900 | 0.3% |
Progress Energy Inc. | 6.000%–7.750% | 3/1/31–12/1/39 | 2,262 | 3,015 | 0.1% |
Sierra Pacific Power Co. | 6.750% | 7/1/37 | 655 | 870 | 0.0% |
2 Electric—Other † | 188,884 | 9.0% | |||
Natural Gas | |||||
Piedmont Natural | |||||
Gas Co. Inc. | 3.640%–4.650% | 9/18/34–11/1/46 | 1,095 | 1,082 | 0.1% |
Natural Gas—Other † | 15,581 | 0.7% | |||
Other Utility † | 3,802 | 0.2% | |||
265,658 | 12.6% | ||||
Total Corporate Bonds (Cost $2,033,289) | 2,047,114 | 97.3% | |||
Taxable Municipal Bonds (Cost $5,300) † | 5,295 | 0.2% | |||
Shares | |||||
Temporary Cash Investment | |||||
Money Market Fund | |||||
3 Vanguard Market Liquidity Fund | |||||
(Cost $22,268) | 0.864% | 222,655 | 22,268 | 1.1% | |
Total Investments (Cost $2,071,170) | 2,085,002 | 99.1% |
88
Long-Term Corporate Bond Index Fund | ||
Percentage | ||
Amount | of Net | |
($000) | Assets | |
Other Assets and Liabilities | ||
Other Assets | ||
Investment in Vanguard | 143 | |
Receivables for Investment Securities Sold | 12,805 | |
Receivables for Accrued Income | 26,467 | |
Receivables for Capital Shares Issued | 31,479 | |
Other Assets4 | 276 | |
Total Other Assets | 71,170 | 3.4% |
Liabilities | ||
Payables for Investment Securities Purchased | (50,493) | |
Payables for Capital Shares Redeemed | (51) | |
Payables for Distributions | (120) | |
Payables to Vanguard | (587) | |
Other Liabilities | (557) | |
Total Liabilities | (51,808) | (2.5%) |
Net Assets | 2,104,364 | 100.0% |
At February 28, 2017, net assets consisted of: | ||
Amount | ||
($000) | ||
Paid-in Capital | 2,122,117 | |
Undistributed Net Investment Income | 5,725 | |
Accumulated Net Realized Losses | (37,271) | |
Unrealized Appreciation (Depreciation) | ||
Investment Securities | 13,832 | |
Futures Contracts | (39) | |
Net Assets | 2,104,364 | |
ETF Shares—Net Assets | ||
Applicable to 16,803,591 outstanding $.001 par value shares of | ||
beneficial interest (unlimited authorization) | 1,522,404 | |
Net Asset Value Per Share—ETF Shares | $90.60 | |
Admiral Shares—Net Assets | ||
Applicable to 4,624,826 outstanding $.001 par value shares of | ||
beneficial interest (unlimited authorization) | 112,108 | |
Net Asset Value Per Share—Admiral Shares | $24.24 |
89
Long-Term Corporate Bond Index Fund | |
Amount | |
($000) | |
Institutional Shares—Net Assets | |
Applicable to 15,615,778 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 469,852 |
Net Asset Value Per Share—Institutional Shares | $30.09 |
• See Note A in Notes toFinancial
Statements.
† Represents the aggregate value, by category, of
securities that are not among the 50 largest holdings and, in total for any
issuer, represent
1% or less of
net assets.
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 Certainofthe
fund’s securitiesareexemptfromregistration underRule
144AoftheSecuritiesActof1933.Suchsecurities may besoldin
transactions exempt from registration, normally
toqualified institutional buyers. At February 28,2017,the aggregate value of
these
securities was
$19,731,000, representing 0.9% of net assets.
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.
4 Cash of $202,000 has been segregated as
initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial
Statements.
90
Long-Term Corporate Bond Index Fund | ||
Statement of Operations | ||
Six Months Ended | ||
February 28, 2017 | ||
($000) | ||
Investment Income | ||
Income | ||
Interest1 | 43,272 | |
Total Income | 43,272 | |
Expenses | ||
The Vanguard Group—Note B | ||
Investment Advisory Services | 32 | |
Management and Administrative—ETF Shares | 420 | |
Management and Administrative—Admiral Shares | 27 | |
Management and Administrative—Institutional Shares | 89 | |
Marketing and Distribution—ETF Shares | 59 | |
Marketing and Distribution—Admiral Shares | 5 | |
Marketing and Distribution—Institutional Shares | 5 | |
Custodian Fees | 15 | |
Shareholders’ Reports—ETF Shares | 21 | |
Shareholders’ Reports—Admiral Shares | 1 | |
Shareholders’ Reports—Institutional Shares | — | |
Trustees’ Fees and Expenses | 1 | |
Total Expenses | 675 | |
Net Investment Income | 42,597 | |
Realized Net Gain (Loss) | ||
Investment Securities Sold1 | 2,404 | |
Futures Contracts | (42) | |
Realized Net Gain (Loss) | 2,362 | |
Change in Unrealized Appreciation (Depreciation) | ||
Investment Securities | (127,969) | |
Futures Contracts | (44) | |
Change in Unrealized Appreciation (Depreciation) | (128,013) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (83,054) | |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $31,000 and $0, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
91
Long-Term Corporate Bond Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 42,597 | 69,102 |
Realized Net Gain (Loss) | 2,362 | (18,470) |
Change in Unrealized Appreciation (Depreciation) | (128,013) | 215,453 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (83,054) | 266,085 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (31,090) | (50,023) |
Admiral Shares | (2,095) | (3,526) |
Institutional Shares | (8,705) | (14,304) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (41,890) | (67,853) |
Capital Share Transactions | ||
ETF Shares | 123,203 | 375,872 |
Admiral Shares | 27,508 | 12,353 |
Institutional Shares | 110,600 | 46,986 |
Net Increase (Decrease) from Capital Share Transactions | 261,311 | 435,211 |
Total Increase (Decrease) | 136,367 | 633,443 |
Net Assets | ||
Beginning of Period | 1,967,997 | 1,334,554 |
End of Period1 | 2,104,364 | 1,967,997 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,725,000 and $5,018,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
92
Long-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $96.37 | $85.25 | $92.38 | $82.11 | $92.15 | $80.80 | |
Investment Operations | |||||||
Net Investment Income | 1.926 | 3.905 | 3.910 | 3.964 | 4.018 | 3.980 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (5.788) | 11.127 | (7.127) | 9.937 | (9.816) | 11.351 | |
Total from Investment Operations | (3.862) | 15.032 | (3.217) | 13.901 | (5.798) | 15.331 | |
Distributions | |||||||
Dividends from Net Investment Income | (1.908) | (3.912) | (3.913) | (3.631) | (4.018) | (3.981) | |
Distributions from Realized Capital Gains | — | — | — | — | (.224) | — | |
Total Distributions | (1.908) | (3.912) | (3.913) | (3.631) | (4.242) | (3.981) | |
Net Asset Value, End of Period | $90.60 | $96.37 | $85.25 | $92.38 | $82.11 | $92.15 | |
Total Return | -4.00% | 18.21% | -3.64% | 17.35% | -6.55% | 19.40% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $1,522 | $1,494 | $972 | $878 | $624 | $1,032 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 4.35% | 4.46% | 4.37% | 4.63% | 4.47% | 4.73% | |
Portfolio Turnover Rate2 | 49% | 59% | 64% | 54% | 57% | 71% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Includes increases from purchase fees of $.09, $.03, $.11, $.05, $.07, and $.02. | |||||||
2 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.
93
Long-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $25.79 | $22.80 | $24.71 | $22.04 | $24.74 | $21.69 | |
Investment Operations | |||||||
Net Investment Income | .518 | 1.047 | 1.048 | 1.066 | 1.078 | 1.068 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (1.550) | 2.991 | (1.911) | 2.669 | (2.640) | 3.051 | |
Total from Investment Operations | (1.032) | 4.038 | (.863) | 3.735 | (1.562) | 4.119 | |
Distributions | |||||||
Dividends from Net Investment Income | (.518) | (1.048) | (1.047) | (1.065) | (1.078) | (1.069) | |
Distributions from Realized Capital Gains | — | — | — | — | (.060) | — | |
Total Distributions | (.518) | (1.048) | (1.047) | (1.065) | (1.138) | (1.069) | |
Net Asset Value, End of Period | $24.24 | $25.79 | $22.80 | $24.71 | $22.04 | $24.74 | |
Total Return2 | -3.98% | 18.21% | -3.66% | 17.37% | -6.57% | 19.43% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $112 | $90 | $67 | $44 | $18 | $15 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 4.35% | 4.46% | 4.37% | 4.63% | 4.47% | 4.73% | |
Portfolio Turnover Rate3 | 49% | 59% | 64% | 54% | 57% | 71% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
SignalShares wererenamed Admiral Shares in October 2013. Prior periods’ Financial Highlightsare for the Signal class. | |||||||
1 Includes increases from purchase fees of $.02, $.01, $.02, $.01, $.01, and $.01. | |||||||
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 and account service fees. | |||||||
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.
94
Long-Term Corporate Bond Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $32.02 | $28.31 | $30.68 | $27.37 | $30.71 | $26.93 | |
Investment Operations | |||||||
Net Investment Income | .646 | 1.306 | 1.310 | 1.331 | 1.347 | 1.337 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (1.930) | 3.710 | (2.370) | 3.308 | (3.265) | 3.780 | |
Total from Investment Operations | (1.284) | 5.016 | (1.060) | 4.639 | (1.918) | 5.117 | |
Distributions | |||||||
Dividends from Net Investment Income | (.646) | (1.306) | (1.310) | (1.329) | (1.347) | (1.337) | |
Distributions from Realized Capital Gains | — | — | — | — | (.075) | — | |
Total Distributions | (.646) | (1.306) | (1.310) | (1.329) | (1.422) | (1.337) | |
Net Asset Value, End of Period | $30.09 | $32.02 | $28.31 | $30.68 | $27.37 | $30.71 | |
Total Return2 | -3.99% | 18.22% | -3.62% | 17.38% | -6.50% | 19.44% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $470 | $384 | $296 | $250 | $206 | $164 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.05% | 0.05% | 0.07% | 0.09% | 0.09% | 0.09% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 4.37% | 4.48% | 4.40% | 4.66% | 4.50% | 4.76% | |
Portfolio Turnover Rate3 | 49% | 59% | 64% | 54% | 57% | 71% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Includes increases from purchase fees of $.03, $.01, $.03, $.02, $.01, and $.00. | |||||||
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 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.
95
Long-Term Corporate Bond Index Fund
Notes to Financial Statements
Vanguard Long-Term Corporate Bond Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Certain of the fund’s investments are in corporate debt instruments; the issuers’ abilities to meet their obligations may be affected by economic developments in their respective industries. The fund offers three classes of shares: ETF Shares, Admiral Shares, and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. 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.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets 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 futures gains (losses).
During the six months ended February 28, 2017, the fund’s average investments in long and short futures contracts each represented less than 1% of net assets, based on the average of aggregate settlement values at each quarter-end during the period.
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (August 31, 2013–2016), and for the period ended February 28, 2017, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
96
Long-Term Corporate Bond Index Fund
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
6. 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 assessed on capital share transactions 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. 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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $143,000, representing 0.01% of the fund’s net assets and 0.06% of Vanguard’s capitalization. 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. 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).
97
Long-Term Corporate Bond Index Fund
The following table summarizes the market value of the fund’s investments as of February 28, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 10,325 | — |
Corporate Bonds | — | 2,043,672 | 3,442 |
Taxable Municipal Bonds | — | 5,295 | — |
Temporary Cash Investments | 22,268 | — | — |
Futures Contracts—Assets1 | 74 | — | — |
Futures Contracts—Liabilities1 | (92) | — | — |
Total | 22,250 | 2,059,292 | 3,442 |
1 Represents variation margin on the last day of the reporting period. |
D. At February 28, 2017, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
30-Year U.S. Treasury Bond | June 2017 | 80 | 12,133 | 1 |
Ultra 10-Year U.S. Treasury Note | June 2017 | 34 | 4,554 | (14) |
Ultra Long U.S. Treasury Bond | June 2017 | (16) | (2,589) | (26) |
(39) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
E. 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.
During the six months ended February 28, 2017, the fund realized $7,481,000 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 losses to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2016, the fund had available capital losses totaling $30,958,000 that may be carried forward indefinitely to offset future capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2017; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
98
Long-Term Corporate Bond Index Fund
At February 28, 2017, the cost of investment securities for tax purposes was $2,072,359,000. Net unrealized appreciation of investment securities for tax purposes was $12,643,000, consisting of unrealized gains of $41,828,000 on securities that had risen in value since their purchase and $29,185,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended February 28, 2017, the fund purchased $783,690,000 of investment securities and sold $553,027,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $245,815,000 and $236,172,000, respectively. Total purchases and sales include $410,247,000 and $304,087,000, 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 February 28, 2017, such purchases and sales were $134,998,000 and $194,701,000 respectively; these amounts are included in the purchases and sales of investment securities noted above.
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued1 | 435,381 | 4,802 | 587,866 | 6,602 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (312,178) | (3,500) | (211,994) | (2,500) |
Net Increase (Decrease)—ETF Shares | 123,203 | 1,302 | 375,872 | 4,102 |
Admiral Shares | ||||
Issued1 | 45,059 | 1,865 | 49,620 | 2,062 |
Issued in Lieu of Cash Distributions | 1,580 | 65 | 2,788 | 117 |
Redeemed | (19,131) | (795) | (40,055) | (1,605) |
Net Increase (Decrease)—Admiral Shares | 27,508 | 1,135 | 12,353 | 574 |
Institutional Shares | ||||
Issued1 | 118,571 | 3,892 | 43,967 | 1,424 |
Issued in Lieu of Cash Distributions | 8,584 | 286 | 14,304 | 485 |
Redeemed | (16,555) | (557) | (11,285) | (380) |
Net Increase (Decrease)—Institutional Shares | 110,600 | 3,621 | 46,986 | 1,529 |
1 Includes purchase fees for fiscal 2017 and 2016 of $2,066,000 and $724,000, respectively (fund totals). |
H. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
99
Mortgage-Backed Securities Index Fund
Fund
Profile
As of February 28,
2017
Share-Class Characteristics | |||
ETF | Admiral | Institutional | |
Shares | Shares | Shares | |
Ticker Symbol | VMBS | VMBSX | VMBIX |
Expense Ratio1 | 0.07% | 0.07% | 0.05% |
30-Day SEC Yield | 2.08% | 2.07% | 2.09% |
Financial Attributes | |||
Bloomberg | |||
Barclays | Bloomberg | ||
MBS | Barclays | ||
Float Adj | Aggregate | ||
Fund | Index | FA Index | |
Number of Bonds | 5442 | 340 | 10,166 |
Yield to Maturity | |||
(before expenses) | 2.8% | 2.8% | 2.5% |
Average Coupon | 3.6% | 3.6% | 3.0% |
Average Duration | 4.4 years | 4.6 years | 6.1 years |
Average Effective | |||
Maturity | 6.7 years | 7.0 years | 8.3 years |
Short-Term | |||
Reserves | 13.5% | — | — |
Sector Diversification (% of portfolio) | |
Government Mortgage-Backed | 100.0% |
The agency and
mortgage-backed securities sectors may include
issues from government-sponsored enterprises; such issues
are
generallynotbackedbythefullfaithandcreditofthe U.S.
government.
Volatility Measures | ||
Bloomberg | ||
Barclays | Bloomberg | |
MBS | Barclays | |
Float Adj | Aggregate | |
Index | FA Index | |
R-Squared | 0.99 | 0.78 |
Beta | 1.07 | 0.57 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 2.1% |
1 - 3 Years | 1.4 |
3 - 5 Years | 16.2 |
5 - 10 Years | 80.2 |
10 - 20 Years | 0.1 |
Distribution by Credit Quality (% of portfolio) | |
U.S. Government | 98.0% |
Aaa | 2.0 |
Credit-quality ratings are obtained from Barclays and are from Moody's, Fitch, and S&P. When ratings from all three agencies are used, the median rating is shown. When ratings from two of the agencies are used, the lower rating for each issue is shown. "Not Rated" is used to classify securities for which a rating is not available. For more information about these ratings, see the Glossary entry for Credit Quality.
Distribution by Coupon (% of portfolio) | |
0 - 5.0 | 95.8% |
More Than 5.0 - 5.5 | 2.4 |
More Than 5.5 - 6.0 | 1.5 |
More Than 6.0 - 6.5 | 0.3 |
1 The expense
ratios shown are from the prospectus dated December 22, 2016, and represent
estimated costs for the current fiscal year. For the six
months ended February 28, 2017, the annualized
expense ratios were 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional
Shares.
2 Issues are
mortgage pools grouped by coupon.
100
Mortgage-Backed Securities Index Fund
Investment Focus
101
Mortgage-Backed Securities 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.
Fiscal-Year Total Returns (%): November 19, 2009,Through February 28, 2017 | ||
Bloomberg | ||
Barclays | ||
MBS | ||
Float Adj | ||
ETF Shares Net Asset Value | Index | |
Fiscal Year | Total Returns | Total Returns |
2010 | 4.39% | 4.23% |
2011 | 5.14 | 5.11 |
2012 | 3.62 | 3.62 |
2013 | -2.36 | -2.03 |
2014 | 5.21 | 5.15 |
2015 | 2.49 | 2.51 |
2016 | 3.70 | 3.76 |
2017 | -1.20 | -1.17 |
Note: For 2017, performance data reflect the six months ended February 28, 2017. |
Average Annual
Total Returns: Periods Ended December 31, 2016
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.
Since Inception | ||||||
Inception Date | One Year | Five Years | Income | Capital | Total | |
ETF Shares | 11/19/2009 | |||||
Market Price | 1.29% | 1.92% | 2.83% | |||
Net Asset Value | 1.43 | 1.95 | 2.84 | |||
Admiral Shares | 12/3/2009 | 1.47 | 1.96 | 1.68% | 1.15% | 2.83 |
Institutional Shares | 10/31/2013 | 1.47 | — | 1.70 | 0.72 | 2.42 |
See Financial Highlights for dividend and capital gains information.
102
Mortgage-Backed Securities Index Fund
Financial Statements
(unaudited)
Statement of Net
Assets
As of February 28,
2017
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).
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
U.S. Government and Agency Obligations (99.3%) | |||||
Conventional Mortgage-Backed Securities (98.8%) | |||||
1,2 | Fannie Mae Pool | 2.000% | 11/1/27–11/1/31 | 6,603 | 6,443 |
1,2,3 Fannie Mae Pool | 2.500% | 11/1/26–10/1/46 | 145,301 | 145,993 | |
1,2,3 Fannie Mae Pool | 3.000% | 11/1/25–3/1/47 | 473,944 | 475,808 | |
1,2,3 Fannie Mae Pool | 3.500% | 10/1/20–4/1/47 | 451,120 | 464,564 | |
1,2,3 Fannie Mae Pool | 4.000% | 7/1/18–4/1/47 | 278,810 | 294,145 | |
1,2,3 Fannie Mae Pool | 4.500% | 2/1/18–3/1/47 | 123,020 | 132,641 | |
1,2,3 Fannie Mae Pool | 5.000% | 10/1/17–3/1/47 | 60,941 | 66,968 | |
1,2 | Fannie Mae Pool | 5.500% | 9/1/17–2/1/42 | 46,895 | 52,411 |
1,2 | Fannie Mae Pool | 6.000% | 3/1/18–5/1/41 | 32,051 | 36,434 |
1,2 | Fannie Mae Pool | 6.500% | 10/1/21–10/1/39 | 9,174 | 10,383 |
1,2 | Fannie Mae Pool | 7.000% | 12/1/22–10/1/37 | 872 | 1,007 |
1,2 | Fannie Mae Pool | 7.500% | 11/1/22 | 7 | 8 |
1,2 | Freddie Mac Gold Pool | 2.000% | 1/1/28–1/1/29 | 3,763 | 3,689 |
1,2,3 Freddie Mac Gold Pool | 2.500% | 8/1/22–10/1/46 | 102,758 | 103,202 | |
1,2,3 Freddie Mac Gold Pool | 3.000% | 1/1/26–3/1/47 | 329,797 | 330,735 | |
1,2,3 Freddie Mac Gold Pool | 3.500% | 9/1/25–4/1/47 | 275,303 | 283,486 | |
1,2,3 Freddie Mac Gold Pool | 4.000% | 7/1/18–4/1/47 | 159,337 | 168,078 | |
1,2,3 Freddie Mac Gold Pool | 4.500% | 1/1/18–3/1/47 | 69,577 | 74,849 | |
1,2 | Freddie Mac Gold Pool | 5.000% | 10/1/17–3/1/42 | 35,915 | 39,369 |
1,2 | Freddie Mac Gold Pool | 5.500% | 4/1/21–6/1/41 | 29,930 | 33,374 |
1,2 | Freddie Mac Gold Pool | 6.000% | 6/1/17–5/1/40 | 19,669 | 22,324 |
1,2 | Freddie Mac Gold Pool | 6.500% | 10/1/28–9/1/39 | 4,193 | 4,727 |
1,2 | Freddie Mac Gold Pool | 7.000% | 7/1/28–12/1/38 | 342 | 399 |
1,2 | Freddie Mac Gold Pool | 8.000% | 11/1/22 | 1 | 1 |
1 | Ginnie Mae I Pool | 3.000% | 1/15/26–3/15/45 | 20,228 | 20,546 |
1,3 | Ginnie Mae I Pool | 3.500% | 2/15/26–3/1/47 | 21,625 | 22,568 |
1,3 | Ginnie Mae I Pool | 4.000% | 7/15/24–3/1/47 | 35,020 | 37,169 |
1,3 | Ginnie Mae I Pool | 4.500% | 9/15/18–3/1/47 | 34,038 | 36,851 |
1 | Ginnie Mae I Pool | 5.000% | 1/15/18–4/15/41 | 21,503 | 23,765 |
1 | Ginnie Mae I Pool | 5.500% | 10/15/32–2/15/40 | 9,683 | 10,904 |
1 | Ginnie Mae I Pool | 6.000% | 4/15/28–5/15/41 | 3,998 | 4,571 |
1 | Ginnie Mae I Pool | 6.500% | 5/15/24–1/15/39 | 210 | 246 |
1 | Ginnie Mae I Pool | 7.000% | 10/15/27 | 6 | 7 |
1 | Ginnie Mae II Pool | 2.500% | 6/20/27–11/20/46 | 15,550 | 15,382 |
1,3 | Ginnie Mae II Pool | 3.000% | 10/20/26–4/1/47 | 314,829 | 319,426 |
1,3 | Ginnie Mae II Pool | 3.500% | 12/20/25–4/1/47 | 394,102 | 410,605 |
1,3 | Ginnie Mae II Pool | 4.000% | 9/20/25–4/1/47 | 174,677 | 185,326 |
103
Mortgage-Backed Securities Index Fund | |||||
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
1,3 | Ginnie Mae II Pool | 4.500% | 4/20/18–3/1/47 | 77,707 | 83,830 |
1 | Ginnie Mae II Pool | 5.000% | 6/20/33–3/1/47 | 34,818 | 37,987 |
1 | Ginnie Mae II Pool | 5.500% | 11/20/33–5/20/45 | 12,896 | 14,242 |
1 | Ginnie Mae II Pool | 6.000% | 3/20/31–9/20/41 | 5,796 | 6,528 |
1 | Ginnie Mae II Pool | 6.500% | 10/20/28–9/20/40 | 584 | 671 |
1 | Ginnie Mae II Pool | 7.000% | 4/20/38–11/20/38 | 107 | 129 |
3,981,791 | |||||
Nonconventional Mortgage-Backed Securities (0.5%) | |||||
1,2 | Fannie Mae Pool | 2.110% | 3/1/43 | 600 | 603 |
1,2 | Fannie Mae Pool | 2.177% | 6/1/42 | 1,522 | 1,582 |
1,2 | Fannie Mae Pool | 2.184% | 10/1/42 | 260 | 262 |
1,2 | Fannie Mae Pool | 2.186% | 6/1/43 | 368 | 372 |
1,2 | Fannie Mae Pool | 2.207% | 9/1/42 | 738 | 766 |
1,2 | Fannie Mae Pool | 2.259% | 7/1/43 | 1,007 | 1,005 |
1,2 | Fannie Mae Pool | 2.387% | 7/1/42 | 2,614 | 2,648 |
1,2 | Fannie Mae Pool | 2.430% | 5/1/43 | 1,171 | 1,180 |
1,2 | Fannie Mae Pool | 2.438% | 10/1/42 | 484 | 490 |
1,2,4 Fannie Mae Pool | 2.495% | 5/1/42 | 166 | 172 | |
1,2,4 Fannie Mae Pool | 2.551% | 9/1/37 | 29 | 31 | |
1,2,4 Fannie Mae Pool | 2.631% | 12/1/41 | 144 | 148 | |
1,2 | Fannie Mae Pool | 2.717% | 12/1/43 | 826 | 853 |
1,2 | Fannie Mae Pool | 2.753% | 3/1/42 | 345 | 359 |
1,2 | Fannie Mae Pool | 2.910% | 12/1/40 | 78 | 81 |
1,2,4 Fannie Mae Pool | 2.936% | 9/1/43 | 540 | 568 | |
1,2,4 Fannie Mae Pool | 2.950% | 3/1/41 | 264 | 282 | |
1,2,4 Fannie Mae Pool | 2.966% | 3/1/42 | 119 | 128 | |
1,2,4 Fannie Mae Pool | 3.003% | 5/1/41 | 61 | 64 | |
1,2,4 Fannie Mae Pool | 3.041% | 5/1/40 | 4 | 5 | |
1,2 | Fannie Mae Pool | 3.088% | 2/1/41 | 55 | 58 |
1,2,4 Fannie Mae Pool | 3.090% | 8/1/39 | 22 | 23 | |
1,2,4 Fannie Mae Pool | 3.092% | 10/1/40 | 81 | 85 | |
1,2,4 Fannie Mae Pool | 3.127% | 10/1/39 | 26 | 27 | |
1,2,4 Fannie Mae Pool | 3.158% | 5/1/42 | 52 | 54 | |
1,2,4 Fannie Mae Pool | 3.161% | 3/1/41 | 234 | 246 | |
1,2,4 Fannie Mae Pool | 3.193% | 2/1/42 | 183 | 195 | |
1,2,4 Fannie Mae Pool | 3.194% | 11/1/39 | 28 | 30 | |
1,2,4 Fannie Mae Pool | 3.257% | 12/1/39 | 270 | 282 | |
1,2,4 Fannie Mae Pool | 3.282% | 11/1/41 | 40 | 42 | |
1,2,4 Fannie Mae Pool | 3.286% | 10/1/40 | 15 | 16 | |
1,2,4 Fannie Mae Pool | 3.294% | 12/1/40 | 258 | 272 | |
1,2,4 Fannie Mae Pool | 3.305% | 11/1/41 | 106 | 113 | |
1,2,4 Fannie Mae Pool | 3.309% | 12/1/41 | 128 | 136 | |
1,2,4 Fannie Mae Pool | 3.315% | 11/1/40 | 9 | 10 | |
1,2,4 Fannie Mae Pool | 3.316% | 2/1/41 | 6 | 6 | |
1,2,4 Fannie Mae Pool | 3.334% | 12/1/40 | 12 | 13 | |
1,2 | Fannie Mae Pool | 3.344% | 8/1/42 | 163 | 165 |
1,2,4 Fannie Mae Pool | 3.396% | 1/1/42 | 234 | 246 | |
1,2,4 Fannie Mae Pool | 3.435% | 12/1/40 | 10 | 11 | |
1,2,4 Fannie Mae Pool | 3.446% | 1/1/40 | 3 | 4 | |
1,2 | Fannie Mae Pool | 3.566% | 7/1/41 | 247 | 261 |
1,2 | Fannie Mae Pool | 3.620% | 4/1/41 | 64 | 66 |
1,2 | Fannie Mae Pool | 3.771% | 6/1/41 | 137 | 146 |
1,2,4 Fannie Mae Pool | 3.785% | 9/1/40 | 263 | 279 | |
1,2,4 Fannie Mae Pool | 3.813% | 11/1/39 | 23 | 24 | |
1,2,4 Fannie Mae Pool | 4.006% | 8/1/39 | 65 | 67 |
104
Mortgage-Backed Securities Index Fund | |||||
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
1,2,4 Fannie Mae Pool | 4.433% | 10/1/37 | 110 | 114 | |
1,2 | Fannie Mae Pool | 5.188% | 3/1/38 | 6 | 6 |
1,2 | Fannie Mae Pool | 5.542% | 4/1/37 | 15 | 15 |
1,2 | Freddie Mac Non Gold Pool | 2.542% | 11/1/43 | 462 | 468 |
1,2 | Freddie Mac Non Gold Pool | 2.796% | 1/1/41 | 139 | 145 |
1,2,4 Freddie Mac Non Gold Pool | 3.035% | 2/1/41 | 10 | 11 | |
1,2 | Freddie Mac Non Gold Pool | 3.051% | 1/1/41 | 102 | 107 |
1,2,4 Freddie Mac Non Gold Pool | 3.059% | 2/1/41 | 164 | 174 | |
1,2,4 Freddie Mac Non Gold Pool | 3.074% | 5/1/40 | 2 | 2 | |
1,2,4 Freddie Mac Non Gold Pool | 3.075% | 10/1/37 | 14 | 15 | |
1,2,4 Freddie Mac Non Gold Pool | 3.130% | 6/1/41 | 119 | 124 | |
1,2,4 Freddie Mac Non Gold Pool | 3.131% | 6/1/40 | 47 | 49 | |
1,2,4 Freddie Mac Non Gold Pool | 3.137% | 2/1/37 | 19 | 20 | |
1,2,4 Freddie Mac Non Gold Pool | 3.231% | 6/1/37 | 425 | 452 | |
1,2 | Freddie Mac Non Gold Pool | 3.281% | 12/1/39 | 21 | 22 |
1,2,4 Freddie Mac Non Gold Pool | 3.364% | 12/1/40 | 38 | 39 | |
1,2 | Freddie Mac Non Gold Pool | 3.397% | 2/1/42 | 67 | 70 |
1,2 | Freddie Mac Non Gold Pool | 3.421% | 3/1/42 | 622 | 656 |
1,2 | Freddie Mac Non Gold Pool | 3.580% | 6/1/40 | 96 | 101 |
1,2 | Freddie Mac Non Gold Pool | 3.678% | 9/1/40 | 86 | 90 |
1,2 | Freddie Mac Non Gold Pool | 5.233% | 3/1/38 | 102 | 108 |
1,4 | Ginnie Mae II Pool | 2.000% | 1/20/41–2/20/41 | 585 | 605 |
1,4 | Ginnie Mae II Pool | 2.125% | 4/20/41 | 8 | 8 |
1,4 | Ginnie Mae II Pool | 2.250% | 11/20/40–12/20/42 | 634 | 652 |
1,4 | Ginnie Mae II Pool | 2.500% | 7/20/41–1/20/42 | 1,199 | 1,220 |
1,4 | Ginnie Mae II Pool | 2.625% | 5/20/41 | 12 | 12 |
1 | Ginnie Mae II Pool | 3.000% | 11/20/40 | 17 | 18 |
19,779 | |||||
Total U.S. Government and Agency Obligations (Cost $4,036,965) | 4,001,570 | ||||
Shares | |||||
Temporary Cash Investment (15.5%) | |||||
Money Market Fund (15.5%) | |||||
5 | Vanguard Market Liquidity Fund (Cost $625,537) | 0.864% | 6,255,057 | 625,568 | |
Total Investments (114.8%) (Cost $4,662,502) | 4,627,138 | ||||
Other Assets and Liabilities (-14.8%) | |||||
Other Assets | 147,354 | ||||
Liabilities | (745,371) | ||||
(598,017) | |||||
Net Assets (100%) | 4,029,121 |
105
Mortgage-Backed Securities Index Fund | |
Amount | |
($000) | |
Statement of Assets and Liabilities | |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers | 4,001,570 |
Affiliated Vanguard Funds | 625,568 |
Total Investments in Securities | 4,627,138 |
Investment in Vanguard | 260 |
Receivables for Investment Securities Sold | 66,987 |
Receivables for Accrued Income | 11,094 |
Receivables for Capital Shares Issued | 68,092 |
Other Assets | 921 |
Total Assets | 4,774,492 |
Liabilities | |
Payables for Investment Securities Purchased | 741,910 |
Payables for Capital Shares Redeemed | 1,233 |
Payables for Distributions | 432 |
Payables to Vanguard | 679 |
Other Liabilities | 1,117 |
Total Liabilities | 745,371 |
Net Assets | 4,029,121 |
At February 28, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,071,048 |
Undistributed Net Investment Income | 5,894 |
Accumulated Net Realized Losses | (12,457) |
Unrealized Appreciation (Depreciation) | (35,364) |
Net Assets | 4,029,121 |
ETF Shares—Net Assets | |
Applicable to 65,826,190 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 3,458,443 |
Net Asset Value Per Share—ETF Shares | $52.54 |
Admiral Shares—Net Assets | |
Applicable to 24,887,722 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 522,302 |
Net Asset Value Per Share—Admiral Shares | $20.99 |
106
Mortgage-Backed Securities Index Fund | |
Amount | |
($000) | |
Institutional Shares—Net Assets | |
Applicable to 1,701,157 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 48,376 |
Net Asset Value Per Share—Institutional Shares | $28.44 |
• See Note A in Notes toFinancial
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 Theissuer
wasplacedunder federalconservatorshipinSeptember 2008;sincethat time,its
dailyoperations have been managedbythe
Federal Housing Finance Agency and it receives capital from the U.S.
Treasury, as needed to maintain a positive net worth, in exchange
for
senior preferred
stock.
3 Includes securities
purchased on a when-issued or delayed-delivery basis for which the fund has not
taken delivery as of February 28, 2017.
4 Adjustable-rate security.
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.
See accompanying Notes, which are an integral
part of the Financial Statements.
107
Mortgage-Backed Securities Index Fund | |
Statement of Operations | |
Six Months Ended | |
February 28, 2017 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 32,846 |
Total Income | 32,846 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 57 |
Management and Administrative—ETF Shares | 701 |
Management and Administrative—Admiral Shares | 138 |
Management and Administrative—Institutional Shares | 10 |
Marketing and Distribution—ETF Shares | 120 |
Marketing and Distribution—Admiral Shares | 29 |
Marketing and Distribution—Institutional Shares | — |
Custodian Fees | 58 |
Shareholders’ Reports—ETF Shares | 194 |
Shareholders’ Reports—Admiral Shares | 6 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,314 |
Net Investment Income | 31,532 |
Realized Net Gain (Loss) on Investment Securities Sold1 | (12,149) |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (64,260) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (44,877) |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $2,252,000 and $52,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
108
Mortgage-Backed Securities Index Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
February 28, | August 31, | |
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 31,532 | 48,343 |
Realized Net Gain (Loss) | (12,149) | 16,405 |
Change in Unrealized Appreciation (Depreciation) | (64,260) | 28,093 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (44,877) | 92,841 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (24,738) | (36,243) |
Admiral Shares | (4,683) | (8,968) |
Institutional Shares | (405) | (814) |
Realized Capital Gain1 | ||
ETF Shares | (9,143) | (8,196) |
Admiral Shares | (1,699) | (2,007) |
Institutional Shares | (139) | (197) |
Total Distributions | (40,807) | (56,425) |
Capital Share Transactions | ||
ETF Shares | 692,323 | 1,357,217 |
Admiral Shares | (18,067) | 122,904 |
Institutional Shares | 2,887 | 2,429 |
Net Increase (Decrease) from Capital Share Transactions | 677,143 | 1,482,550 |
Total Increase (Decrease) | 591,459 | 1,518,966 |
Net Assets | ||
Beginning of Period | 3,437,662 | 1,918,696 |
End of Period2 | 4,029,121 | 3,437,662 |
1 Includes fiscal 2017 and 2016 short-term gain distributions totaling $10,880,000 and $10,400,000, respectively. Short-term gain distributions | ||
are treated as ordinary income dividends for tax purposes. | ||
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,894,000 and $4,188,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
109
Mortgage-Backed Securities Index Fund | |||||||
Financial Highlights | |||||||
ETF Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $53.79 | $53.05 | $52.65 | $50.85 | $52.63 | $51.90 | |
Investment Operations | |||||||
Net Investment Income | .450 | .967 | .748 | .887 | .292 | .875 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments1 | (1.097) | .968 | .554 | 1.741 | (1.524) | .976 | |
Total from Investment Operations | (.647) | 1.935 | 1.302 | 2.628 | (1.232) | 1.851 | |
Distributions | |||||||
Dividends from Net Investment Income | (.440) | (.955) | (.741) | (.828) | (.294) | (.868) | |
Distributions from Realized Capital Gains | (.163) | (.240) | (.161) | — | (.254) | (.253) | |
Total Distributions | (.603) | (1.195) | (.902) | (.828) | (.548) | (1.121) | |
Net Asset Value, End of Period | $52.54 | $53.79 | $53.05 | $52.65 | $50.85 | $52.63 | |
Total Return | -1.20% | 3.70% | 2.49% | 5.21% | -2.36% | 3.62% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $3,458 | $2,837 | $1,451 | $542 | $417 | $247 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.76% | 1.85% | 1.43% | 1.72% | 0.57% | 1.57% | |
Portfolio Turnover Rate2 | 345% | 380% | 713% | 514% | 840% | 529% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Includes increases from purchase fees of $.00, $.01, $.01, $.01, $.01, and $.02. | |||||||
2 Includes 131%, 175%, 331%, 294%, 371%, and 231% attributable to mortgage -dollar-roll activity. |
See accompanying Notes, which are an integral part of the Financial Statements.
110
Mortgage-Backed Securities Index Fund | |||||||
Financial Highlights | |||||||
Admiral Shares | |||||||
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | February 28, | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |
Net Asset Value, Beginning of Period | $21.49 | $21.20 | $21.05 | $20.35 | $21.06 | $20.76 | |
Investment Operations | |||||||
Net Investment Income | .181 | .388 | .298 | .356 | .118 | .344 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.434) | .387 | .214 | .699 | (.608) | .399 | |
Total from Investment Operations | (.253) | .775 | .512 | 1.055 | (.490) | .743 | |
Distributions | |||||||
Dividends from Net Investment Income | (.182) | (.389) | (.297) | (.355) | (.118) | (.342) | |
Distributions from Realized Capital Gains | (.065) | (.096) | (.065) | — | (.102) | (.101) | |
Total Distributions | (.247) | (.485) | (.362) | (.355) | (.220) | (.443) | |
Net Asset Value, End of Period | $20.99 | $21.49 | $21.20 | $21.05 | $20.35 | $21.06 | |
Total Return1 | -1.17% | 3.70% | 2.44% | 5.22% | -2.35% | 3.63% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $522 | $554 | $424 | $305 | $295 | $211 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.76% | 1.85% | 1.43% | 1.72% | 0.57% | 1.57% | |
Portfolio Turnover Rate2 | 345% | 380% | 713% | 514% | 840% | 529% | |
The expense ratio, net investment 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 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 and account service fees. | |||||||
2 Includes 131%, 175%, 331%, 294%, 371%, and 231% attributable to mortgage-dollar-roll activity. |
See accompanying Notes, which are an integral part of the Financial Statements.
111
Mortgage-Backed Securities Index Fund | |||||||
Financial Highlights | |||||||
Institutional Shares | |||||||
Six Months | Oct. 31, | Sept. 1, | May 9, | ||||
Ended | Year Ended | 2013 3 to | 2012, to | 2012 1 to | |||
For a Share Outstanding | February 28, | August 31, | Aug. 31, | Jan. 22, | Aug. 31, | ||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 20132 | 2012 | |
Net Asset Value, Beginning of Period | $29.12 | $28.73 | $28.52 | $28.04 | $28.34 | $28.10 | |
Investment Operations | |||||||
Net Investment Income | .248 | .532 | .412 | .390 | .042 | .137 | |
Net Realized and Unrealized Gain (Loss) | |||||||
on Investments | (.591) | .522 | .295 | .504 | (.146) | .218 | |
Total from Investment Operations | (.343) | 1.054 | .707 | .894 | (.104) | .355 | |
Distributions | |||||||
Dividends from Net Investment Income | (.249) | (.534) | (.410) | (.414) | (.049) | (.115) | |
Distributions from Realized Capital Gains | (.088) | (.130) | (.087) | — | (.137) | — | |
Total Distributions | (.337) | (.664) | (.497) | (.414) | (.186) | (.115) | |
Net Asset Value, End of Period | $28.44 | $29.12 | $28.73 | $28.52 | $28.052 | $28.34 | |
Total Return4 | -1.17% | 3.72% | 2.49% | 3.22% | -0.37% | 1.27% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $48 | $47 | $44 | $109 | $0 | $15 | |
Ratio of Total Expenses to | |||||||
Average Net Assets | 0.05% | 0.05% | 0.07% | 0.09%5 | 0.09%5 | 0.09%5 | |
Ratio of Net Investment Income to | |||||||
Average Net Assets | 1.78% | 1.87% | 1.46% | 1.75%5 | 0.35%5 | 1.60%5 | |
Portfolio Turnover Rate6 | 345% | 380% | 713% | 514% | 840% | 529% | |
The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. | |||||||
1 Commencement of operations. | |||||||
2 Net asset value as of January 22, 2013, at which date all shares were redeemed. | |||||||
3 Recommencement of operations. | |||||||
4 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any | |||||||
applicable transaction fees. | |||||||
5 Annualized. | |||||||
6 Includes 131%, 175%, 331%, 294%, 371%, and 231% attributable to mortgage-dollar-roll activity. |
See accompanying Notes, which are an integral part of the Financial Statements.
112
Mortgage-Backed Securities Index Fund
Notes to Financial Statements
Vanguard Mortgage-Backed Securities 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: ETF Shares, Admiral Shares, and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fairvalue.
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 master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements.
At February 28, 2017, counterparties had deposited in segregated accounts securities and cash with a value of $961,000 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 repurchased. The fund has also entered into mortgage-dollar-roll transactions in which the fund buys mortgage-backed securities
113
Mortgage-Backed Securities Index Fund
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. 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, 2013–2016), and for the period ended February 28, 2017, and has concluded that no provision for federal income tax is required in the fund’s financial statements. 5. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees 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 this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended.
7. 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.
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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Assets and Liabilities.
114
Mortgage-Backed Securities Index Fund
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $260,000, representing 0.01% of the fund’s net assets and 0.10% of Vanguard’s capitalization. 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. 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, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 4,001,570 | — |
Temporary Cash Investments | 625,568 | — | — |
Total | 625,568 | 4,001,570 | — |
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.
At February 28, 2017, the cost of investment securities for tax purposes was $4,662,541,000.
Net unrealized depreciation of investment securities for tax purposes was $35,403,000, consisting of unrealized gains of $3,699,000 on securities that had risen in value since their purchase and $39,102,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2017, the fund purchased $6,951,870,000 of investment securities and sold $6,266,481,000 of investment securities, other than temporary cash investments.
115
Mortgage-Backed Securities Index Fund
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
February 28, 2017 | August 31, 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued1 | 876,249 | 16,575 | 1,515,415 | 28,375 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (183,926) | (3,500) | (158,198) | (2,975) |
Net Increase (Decrease)—ETF Shares | 692,323 | 13,075 | 1,357,217 | 25,400 |
Admiral Shares | ||||
Issued1 | 106,089 | 5,014 | 257,546 | 12,060 |
Issued in Lieu of Cash Distributions | 3,454 | 164 | 5,214 | 245 |
Redeemed | (127,610) | (6,051) | (139,856) | (6,556) |
Net Increase (Decrease)—Admiral Shares | (18,067) | (873) | 122,904 | 5,749 |
Institutional Shares | ||||
Issued1 | 3,915 | 137 | 6,235 | 216 |
Issued in Lieu of Cash Distributions | 544 | 19 | 1,011 | 35 |
Redeemed | (1,572) | (55) | (4,817) | (167) |
Net Increase (Decrease)—Institutional Shares | 2,887 | 101 | 2,429 | 84 |
1 Includes purchase fees for fiscal 2017 and 2016 of $0 and $727,000, respectively (fund totals). |
At February 28, 2017, one shareholder was the record or beneficial owner of 29% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increaseinthe fund’s expense ratio.
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements.
116
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.
117
Six Months Ended February 28, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
8/31/2016 | 2/28/2017 | Period | |
Based on Actual Fund Return | |||
Short-Term Government Bond Index Fund | |||
ETF Shares | $1,000.00 | $998.70 | $0.35 |
Admiral Shares | 1,000.00 | 998.59 | 0.35 |
Institutional Shares | 1,000.00 | 999.07 | 0.30 |
Intermediate-Term Government Bond Index Fund | |||
ETF Shares | $1,000.00 | $975.07 | $0.34 |
Admiral Shares | 1,000.00 | 975.28 | 0.34 |
Institutional Shares | 1,000.00 | 975.03 | 0.24 |
Long-Term Government Bond Index Fund | |||
ETF Shares | $1,000.00 | $888.71 | $0.33 |
Admiral Shares | 1,000.00 | 888.66 | 0.33 |
Institutional Shares | 1,000.00 | 888.78 | 0.23 |
Short-Term Corporate Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,000.10 | $0.35 |
Admiral Shares | 1,000.00 | 1,000.41 | 0.35 |
Institutional Shares | 1,000.00 | 1,000.12 | 0.25 |
Intermediate-Term Corporate Bond Index Fund | |||
ETF Shares | $1,000.00 | $982.21 | $0.34 |
Admiral Shares | 1,000.00 | 982.03 | 0.34 |
Institutional Shares | 1,000.00 | 982.51 | 0.25 |
Long-Term Corporate Bond Index Fund | |||
ETF Shares | $1,000.00 | $960.01 | $0.34 |
Admiral Shares | 1,000.00 | 960.17 | 0.34 |
Institutional Shares | 1,000.00 | 960.08 | 0.24 |
Mortgage-Backed Securities Index Fund | |||
ETF Shares | $1,000.00 | $987.99 | $0.35 |
Admiral Shares | 1,000.00 | 988.27 | 0.35 |
Institutional Shares | 1,000.00 | 988.27 | 0.25 |
118
Six Months Ended February 28, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
8/31/2016 | 2/28/2017 | Period | |
Based on Hypothetical 5% Yearly Return | |||
Short-Term Government Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.50 | 0.30 |
Intermediate-Term Government Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.55 | 0.25 |
Long-Term Government Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.55 | 0.25 |
Short-Term Corporate Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.55 | 0.25 |
Intermediate-Term Corporate Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.55 | 0.25 |
Long-Term Corporate Bond Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.55 | 0.25 |
Mortgage-Backed Securities Index Fund | |||
ETF Shares | $1,000.00 | $1,024.45 | $0.35 |
Admiral Shares | 1,000.00 | 1,024.45 | 0.35 |
Institutional Shares | 1,000.00 | 1,024.55 | 0.25 |
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 Government Bond Index Fund, 0.07% for ETF Shares, 0.07% for Admiral
Shares, and 0.06% forInstitutional
Shares; for the Intermediate-Term Government Bond Index Fund, 0.07%
for ETF Shares, 0.07% for Admiral Shares, and 0.05% for
Institutional
Shares; for the
Long-Term Government Bond Index Fund, 0.07% for ETF Shares, 0.07% for Admiral
Shares, and 0.05% for Institutional Shares;
for theShort-Term Corporate BondIndexFund, 0.07%for ETFShares,
0.07%for AdmiralShares, and 0.05%forInstitutionalShares; forthe
Intermediate-TermCorporateBondIndexFund,0.07%for
ETFShares,0.07%forAdmiralShares,and0.05%forInstitutionalShares;forthe
Long-Term Corporate Bond Index Fund, 0.07% for
ETF Shares, 0.07% for Admiral Shares, and 0.05% for Institutional Shares; and
for the
Mortgage-Backed
Securities Index Fund, 0.07% for ETF Shares, 0.07% for Admiral Shares, and 0.05%
for Institutional 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).
119
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S.
Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Average Coupon. The average interest rate paid on the fixed income securities held by a fund. It is expressed as a percentage of face value.
Average Duration. An estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. To see how the value could change, multiply the average duration by the change in rates. If interest rates rise by 1 percentage point, the value of the bonds in a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the value would rise by 5%.
Average Effective Maturity. The average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date. The figure reflects the proportion of fund assets represented by each security; it also reflects any futures contracts held. In general, the longer the average effective maturity, the more a fund’s share price will fluctuate in response to changes in market interest rates.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Credit Quality. Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). U.S. Treasury, U.S. Agency, and U.S. Agency mortgage-backed securities appear under “U.S. Government.” Credit-quality ratings are obtained from Barclays and are from
Moody’s, Fitch, and S&P. When ratings from all three agencies are used, the median rating is shown. When ratings from two of the agencies are used, the lower rating for each issue is shown.
“Not Rated” is used to classify securities for which a rating is not available.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
120
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Yield to Maturity. The rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates.
121
Vanguard
Sector Bond Index Funds are not sponsored, endorsed, issued, sold, or promoted
by Barclays Risk Analytics and
Index Solutions Limited or any of its affiliates (“Barclays”). Barclays makes no representation or warranty, express or
implied,
to the owners or
purchasers of the Vanguard Sector Bond Index Funds or any member of the public
regarding the advisability
ofinvestinginsecuritiesgenerallyorintheVanguardSectorBondIndexFundsparticularlyortheabilityoftheBarclays
indexes to track general bond market
performance. Barclays has not passed on the legality or suitability of the
Vanguard
Sector Bond Index Funds
with respect to any person orentity. Barclays’ onlyrelationship to Vanguard and the Vanguard
Sector Bond Index Funds is the licensing of the
Barclays indexes, which are determined, composed, and calculated by
Barclays
without regard to
Vanguard or the Vanguard Sector Bond Index Funds or any owners or purchasers of
the Vanguard Sector
Bond Index
Funds. Barclays has no obligation to take the needs of Vanguard, the Vanguard
Sector Bond Index Funds, or the
owners of the Vanguard Sector Bond Index Funds into consideration in
determining, composing, or calculating the Barclays
indexes. Barclays is not responsible for and has
not participated in the determination of the timing of, prices at, or
quantities
of the Vanguard
Sector Bond Index Funds to be issued. Barclays has no obligation or liability in
connection with the
administration,marketing,ortradingoftheVanguardSectorBondIndex
Funds.
BARCLAYS SHALL
HAVENOLIABILITY TOTHIRDPARTIES FORTHEQUALITY, ACCURACY AND/ORCOMPLETENESS
OFTHE
INDEX OR ANY DATA INCLUDED
THEREIN OR FOR INTERRUPTIONS IN THE DELIVERY OF THE INDEX. BARCLAYS
MAKES
NOWARRANTY, EXPRESS OR
IMPLIED, ASTO RESULTSTO BEOBTAINED BY OWNERSOF THE VANGUARD SECTOR
BOND
INDEX FUNDS OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN
IN
CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. BARCLAYS RESERVES THE RIGHT
TO
CHANGE THE METHODS OF
CALCULATION OR PUBLICATION, OR TO CEASE THE CALCULATION OR PUBLICATION
OF
THE BLOOMBERG BARCLAYS
INDICES, AND BARCLAYS SHALL NOT BE LIABLE FOR ANY MISCALCULATION OF OR
ANY
INCORRECT, DELAYED OR
INTERRUPTED PUBLICATION WITH RESPECT TO ANY OF THE BLOOMBERG BARCLAYS
INDICES.
BARCLAYS MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES
OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY
DATA
INCLUDED THEREIN. BARCLAYS
SHALL NOT BE LIABLE FOR ANY DAMAGES, INCLUDING, WITHOUT LIMITATION,
ANY
INDIRECT OR CONSEQUENTIAL
DAMAGES RESULTING FROM THE USE OF THE INDEX OR ANY DATA INCLUDED
THEREIN.
© 2017 Barclays.
Used with Permission.
Source: Barclays Global Family of Indices. Copyright 2017, Barclays.
All rights reserved.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 195 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Lead Director of SPX FLOW, Inc. (multi-industry manufacturing); Director of the United Way of Rochester, the University of Rochester Medical Center, Monroe Community College Foundation, North Carolina A&T University, and Roberts Wesleyan College.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Arconic Inc. (diversified manufacturer), HP Inc. (printer and personal computer manufacturing), and Delphi Automotive plc (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/consumer products); Director of Skytop Lodge Corporation (hotels) and the Robert Wood Johnson Foundation; Member of the Advisory Board of the Institute for Women’s
Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), Oxfam America, and the Lumina
Foundation for Education; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee, the Board of Advisors for Spruceview Capital Partners, and the Investment Advisory Committee of Major League Baseball; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Board of Superintendence of the Institute for the Works of Religion.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Co-Managing Partner of HighVista Strategies LLC (private investment firm); Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Chairman of the Board of Trustees of Colby-Sawyer College; Member of the Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
Anne E. Robinson
Born 1970. Secretary Since September 2016. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Glenn W. Reed |
John T. Marcante | Karin A. Risi |
Chris D. McIsaac | |
Chairman Emeritus and Senior Advisor | |
John J. Brennan | |
Chairman, 1996–2009 | |
Chief Executive Officer and President, 1996–2008 | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974–1996 |
1.Mr.
McNabbisconsideredan “interested
person,” as
definedintheInvestmentCompany Actof1940,becauseheisan officerofthe Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard
Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600 |
Valley Forge, PA 19482-2600 |
This material may be used in conjunction | |
with the offering of shares of any Vanguard | |
fund only if preceded or accompanied by | |
the fund’s current prospectus. | |
All comparative mutual fund data are from Lipper, a | |
Thomson Reuters Company, or Morningstar, Inc., unless | |
otherwise noted. | |
You can obtain a free copy of Vanguard’s proxy voting | |
guidelines by visiting vanguard.com/proxyreporting or by | |
calling Vanguard at 800-662-2739. The guidelines are | |
also available from the SEC’s website, sec.gov. In | |
addition, you may obtain a free report on how your fund | |
voted the proxies for securities it owned during the 12 | |
months ended June 30. To get the report, visit either | |
vanguard.com/proxyreporting or sec.gov. | |
You can review and copy information about your fund at | |
the SEC’s Public Reference Room in Washington, D.C. To | |
find out more about this public service, call the SEC at | |
202-551-8090. Information about your fund is also | |
available on the SEC’s website, and you can receive | |
copies of this information, for a fee, by sending a | |
request in either of two ways: via email addressed to | |
[email protected] or via regular mail addressed to the | |
Public Reference Section, Securities and Exchange | |
Commission, Washington, DC 20549-1520. | |
© 2017 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q16422 042017 |