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Semiannual Report | March 31, 2021 |
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Vanguard Short-Term
Inflation-Protected
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Contents |
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About Your Fund’s Expenses |
1 |
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Financial Statements |
4 |
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Trustees Approve Advisory Arrangement |
18 |
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Liquidity Risk Management |
20 |
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
1
Six Months Ended March 31, 2021
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Beginning |
Ending |
Expenses |
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|
Account Value |
Account Value |
Paid During |
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Short-Term Inflation-Protected Securities Index Fund |
9/30/2020 |
3/31/2021 |
Period |
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Based on Actual Fund Return |
|
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Investor Shares |
$1,000.00 |
$1,023.40 |
$0.71 |
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ETF Shares |
1,000.00 |
1,023.87 |
0.25 |
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Admiral™ Shares |
1,000.00 |
1,024.18 |
0.30 |
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Institutional Shares |
1,000.00 |
1,023.86 |
0.20 |
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Based on Hypothetical 5% Yearly Return |
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Investor Shares |
$1,000.00 |
$1,024.23 |
$0.71 |
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ETF Shares |
1,000.00 |
1,024.68 |
0.25 |
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Admiral Shares |
1,000.00 |
1,024.63 |
0.30 |
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Institutional Shares |
1,000.00 |
1,024.73 |
0.20 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.14% for Investor Shares, 0.05% for ETF Shares, 0.06% for Admiral Shares, and 0.04% 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 (182/365).
2
Short-Term Inflation-Protected Securities Index Fund
Distribution by Stated Maturity
As of March 31, 2021
| Under 1 Year | 15.3 | % | |
| 1 - 2 Years | 17.7 | ||
| 2 - 3 Years | 18.9 | ||
| 3 - 4 Years | 24.7 | ||
| 4 - 5 Years | 23.4 |
The table reflects the fund’s investments, except for short-term investments. The fund invests in derivatives (such as futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
3
Short-Term Inflation-Protected Securities Index Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2021
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
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Face |
Market | |||||||
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Maturity |
Amount |
Value• | ||||||
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Coupon |
Date |
($000) |
($000) | |||||
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U.S. Government and Agency Obligations (99.4%) |
||||||||
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U.S. Government Securities (99.4%) |
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United States Treasury Inflation Indexed Bonds |
0.125% |
4/15/21 |
2,180,387 |
2,411,356 | ||||
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United States Treasury Inflation Indexed Bonds |
0.625% |
7/15/21 |
1,651,617 |
1,947,132 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
1/15/22 |
2,047,578 |
2,417,468 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
4/15/22 |
2,249,825 |
2,486,072 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
7/15/22 |
2,063,566 |
2,439,743 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
1/15/23 |
2,470,160 |
2,934,933 | ||||
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United States Treasury Inflation Indexed Bonds |
0.625% |
4/15/23 |
2,264,300 |
2,535,046 | ||||
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United States Treasury Inflation Indexed Bonds |
0.375% |
7/15/23 |
2,459,978 |
2,958,203 | ||||
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United States Treasury Inflation Indexed Bonds |
0.625% |
1/15/24 |
2,370,719 |
2,882,028 | ||||
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United States Treasury Inflation Indexed Bonds |
0.500% |
4/15/24 |
1,459,808 |
1,641,342 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
7/15/24 |
2,222,177 |
2,647,358 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
10/15/24 |
1,976,765 |
2,180,433 | ||||
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United States Treasury Inflation Indexed Bonds |
0.250% |
1/15/25 |
2,254,670 |
2,704,825 | ||||
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United States Treasury Inflation Indexed Bonds |
2.375% |
1/15/25 |
1,108,321 |
1,801,441 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
4/15/25 |
1,699,702 |
1,863,570 | ||||
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United States Treasury Inflation Indexed Bonds |
0.375% |
7/15/25 |
2,169,283 |
2,636,226 | ||||
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United States Treasury Inflation Indexed Bonds |
0.125% |
10/15/25 |
2,055,338 |
2,258,223 | ||||
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United States Treasury Inflation Indexed Bonds |
0.625% |
1/15/26 |
1,876,748 |
2,298,177 | ||||
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United States Treasury Inflation Indexed Bonds |
2.000% |
1/15/26 |
838,880 |
1,306,502 | ||||
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Total U.S. Government and Agency Obligations (Cost $42,635,150) |
44,350,078 |
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Shares |
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Temporary Cash Investment (0.6%) |
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Money Market Fund (0.6%) |
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1 Vanguard Market Liquidity Fund (Cost $235,016) |
0.081% |
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2,350,249 |
235,025 | ||||
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Total Investments (100.0%) (Cost $42,870,166) |
44,585,103 | |||||||
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Other Assets and Liabilities—Net (0.0%) |
21,334 | |||||||
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Net Assets (100%) |
44,606,437 | |||||||
Cost is in $000.
| • | See Note A in Notes to Financial Statements. |
| 1 | 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.
4
Short-Term Inflation-Protected Securities Index Fund
Statement of Assets and Liabilities
As of March 31, 2021
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($000s, except shares and per-share amounts) |
Amount |
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Assets |
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Investments in Securities, at Value |
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Unaffiliated Issuers (Cost $42,635,150) |
44,350,078 |
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Affiliated Issuers (Cost $235,016) |
235,025 |
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Total Investments in Securities |
44,585,103 |
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Investment in Vanguard |
1,593 |
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Cash |
1,400 |
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Receivables for Accrued Income |
45,529 |
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Receivables for Capital Shares Issued |
462,527 |
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Total Assets |
45,096,152 |
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Liabilities |
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Payables for Investment Securities Purchased |
428,321 |
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Payables for Capital Shares Redeemed |
60,751 |
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Payables to Vanguard |
643 |
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Total Liabilities |
489,715 |
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Net Assets |
44,606,437 |
5
Short-Term Inflation-Protected Securities Index Fund
Statement of Assets and Liabilities (continued)
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At March 31, 2021, net assets consisted of: |
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($000s, except shares and per-share amounts) |
Amount |
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Paid-in Capital |
42,976,496 |
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Total Distributable Earnings (Loss) |
1,629,941 |
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Net Assets |
44,606,437 |
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Investor Shares—Net Assets |
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Applicable to 322,623,008 outstanding $.001 par value shares of |
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beneficial interest (unlimited authorization) |
8,324,563 |
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Net Asset Value Per Share—Investor Shares |
$25.80 |
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ETF Shares—Net Assets |
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Applicable to 237,248,565 outstanding $.001 par value shares of |
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beneficial interest (unlimited authorization) |
12,216,448 |
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Net Asset Value Per Share—ETF Shares |
$51.49 |
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Admiral Shares—Net Assets |
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Applicable to 409,614,394 outstanding $.001 par value shares of |
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beneficial interest (unlimited authorization) |
10,582,667 |
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Net Asset Value Per Share—Admiral Shares |
$25.84 |
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Institutional Shares—Net Assets |
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Applicable to 521,498,915 outstanding $.001 par value shares of |
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beneficial interest (unlimited authorization) |
13,482,759 |
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Net Asset Value Per Share—Institutional Shares |
$25.85 |
See accompanying Notes, which are an integral part of the Financial Statements.
6
Short-Term Inflation-Protected Securities Index Fund
Statement of Operations
|
Six Months Ended | |
|
|
March 31, 2021 |
|
|
($000) |
|
Investment Income |
|
|
Income |
|
|
Interest1 |
347,585 |
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Total Income |
347,585 |
|
Expenses |
|
|
The Vanguard Group—Note B |
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Investment Advisory Services |
452 |
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Management and Administrative—Investor Shares |
5,463 |
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Management and Administrative—ETF Shares |
2,211 |
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Management and Administrative—Admiral Shares |
2,374 |
|
Management and Administrative—Institutional Shares |
2,120 |
|
Marketing and Distribution—Investor Shares |
315 |
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Marketing and Distribution—ETF Shares |
221 |
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Marketing and Distribution—Admiral Shares |
226 |
|
Marketing and Distribution—Institutional Shares |
186 |
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Custodian Fees |
82 |
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Shareholders’ Reports—Investor Shares |
— |
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Shareholders’ Reports—ETF Shares |
7 |
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Shareholders’ Reports—Admiral Shares |
29 |
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Shareholders’ Reports—Institutional Shares |
7 |
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Trustees’ Fees and Expenses |
5 |
|
Total Expenses |
13,698 |
|
Net Investment Income |
333,887 |
|
Realized Net Gain (Loss) |
|
|
Investment Securities Sold1,2 |
13,130 |
|
Futures Contracts |
846 |
|
Realized Net Gain (Loss) |
13,976 |
|
Change in Unrealized Appreciation (Depreciation) of Investment Securities1 |
605,858 |
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Net Increase (Decrease) in Net Assets Resulting from Operations |
953,721 |
|
1 |
Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $235,000, $0, and $0, respectively. Purchases and sales are for temporary cash investment purposes. |
|
2 |
Includes $7,495,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Short-Term Inflation-Protected Securities Index Fund
Statement of Changes in Net Assets
|
Six Months Ended |
Year Ended | ||
|
March 31, |
September 30, | ||
|
2021 |
2020 | ||
|
($000) |
($000) | ||
|
Increase (Decrease) in Net Assets |
|
|
|
|
Operations |
|
|
|
|
Net Investment Income |
333,887 |
399,307 | |
|
Realized Net Gain (Loss) |
13,976 |
(22,092) | |
|
Change in Unrealized Appreciation (Depreciation) |
605,858 |
1,120,319 | |
|
Net Increase (Decrease) in Net Assets Resulting from Operations |
953,721 |
1,497,534 | |
|
Distributions |
|
|
|
|
Investor Shares |
(66,736) |
(89,472) | |
|
ETF Shares |
(137,340) |
(50,954) | |
|
Admiral Shares |
(76,798) |
(99,255) | |
|
Institutional Shares |
(103,648) |
(139,828) | |
|
Total Distributions |
(384,522) |
(379,509) | |
|
Capital Share Transactions |
|
|
|
|
Investor Shares |
131,330 |
815,588 | |
|
ETF Shares |
2,892,449 |
2,047,806 | |
|
Admiral Shares |
1,900,997 |
952,458 | |
|
Institutional Shares |
1,411,171 |
1,568,293 | |
|
Net Increase (Decrease) from Capital Share Transactions |
6,335,947 |
5,384,145 | |
|
Total Increase (Decrease) |
6,905,146 |
6,502,170 | |
|
Net Assets |
|
|
|
|
Beginning of Period |
37,701,291 |
31,199,121 | |
|
End of Period |
44,606,437 |
37,701,291 | |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Short-Term Inflation-Protected Securities Index Fund
Financial Highlights
Investor Shares
|
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Six Months |
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Ended |
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Year Ended September 30, | ||
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For a Share Outstanding |
March 31, |
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Throughout Each Period |
2021 |
2020 |
2019 |
2018 |
2017 |
2016 |
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Net Asset Value, Beginning of Period |
$25.41 |
$24.57 |
$24.23 |
$24.77 |
$24.83 |
$24.23 |
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Investment Operations |
|
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|
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Net Investment Income1 |
.198 |
.272 |
.483 |
.669 |
.312 |
.080 |
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Net Realized and Unrealized Gain (Loss) on Investments |
.395 |
.862 |
.324 |
(.448) |
(.237) |
.520 |
|
Total from Investment Operations |
.593 |
1.134 |
.807 |
.221 |
.075 |
.600 |
|
Distributions |
|
|
|
|
|
|
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Dividends from Net Investment Income |
(.203) |
(.294) |
(.467) |
(.761) |
(.135) |
— |
|
Distributions from Realized Capital Gains |
— |
— |
— |
— |
— |
— |
|
Total Distributions |
(.203) |
(.294) |
(.467) |
(.761) |
(.135) |
— |
|
Net Asset Value, End of Period |
$25.80 |
$25.41 |
$24.57 |
$24.23 |
$24.77 |
$24.83 |
|
Total Return2 |
2.34% |
4.64% |
3.36% |
0.91% |
0.31% |
2.48% |
|
Ratios/Supplemental Data |
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Net Assets, End of Period (Millions) |
$8,325 |
$8,063 |
$7,014 |
$6,679 |
$5,904 |
$5,088 |
|
Ratio of Total Expenses to Average Net Assets |
0.14% |
0.14% |
0.14% |
0.14% |
0.15% |
0.16% |
|
Ratio of Net Investment Income to Average Net Assets |
1.55% |
1.09% |
1.98% |
2.73% |
1.26% |
0.42% |
|
Portfolio Turnover Rate3 |
10% |
37% |
26% |
25% |
27% |
28% |
|
1 |
Calculated based on average shares outstanding. |
|
2 |
Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
|
3 |
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.
9
Short-Term Inflation-Protected Securities Index Fund
Financial Highlights
ETF Shares
|
|
Six Months |
|
|
| ||
|
|
Ended |
|
|
Year Ended September 30, | ||
|
For a Share Outstanding |
March 31, |
|
| |||
|
Throughout Each Period |
2021 |
2020 |
2019 |
2018 |
2017 |
2016 |
|
Net Asset Value, Beginning of Period |
$50.99 |
$49.03 |
$48.34 |
$49.41 |
$49.59 |
$48.36 |
|
Investment Operations |
|
|
|
|
|
|
|
Net Investment Income1 |
.431 |
.634 |
1.003 |
1.358 |
.671 |
.251 |
|
Net Realized and Unrealized Gain (Loss) on Investments |
.496 |
1.677 |
.652 |
(.869) |
(.477) |
.979 |
|
Total from Investment Operations |
.927 |
2.311 |
1.655 |
.489 |
.194 |
1.230 |
|
Distributions |
|
|
|
|
|
|
|
Dividends from Net Investment Income |
(.427) |
(.351) |
(.965) |
(1.559) |
(.374) |
— |
|
Distributions from Realized Capital Gains |
— |
— |
— |
— |
— |
— |
|
Total Distributions |
(.427) |
(.351) |
(.965) |
(1.559) |
(.374) |
— |
|
Net Asset Value, End of Period |
$51.49 |
$50.99 |
$49.03 |
$48.34 |
$49.41 |
$49.59 |
|
Total Return |
2.39% |
4.74% |
3.46% |
1.01% |
0.40% |
2.54% |
|
Ratios/Supplemental Data |
|
|
|
|
|
|
|
Net Assets, End of Period (Millions) |
$12,216 |
$9,217 |
$6,884 |
$5,453 |
$3,881 |
$2,478 |
|
Ratio of Total Expenses to Average Net Assets |
0.05% |
0.05% |
0.05% |
0.06% |
0.06% |
0.07% |
|
Ratio of Net Investment Income to Average Net Assets |
1.69% |
1.27% |
2.07% |
2.81% |
1.35% |
0.51% |
|
Portfolio Turnover Rate2 |
10% |
37% |
26% |
25% |
27% |
28% |
|
1 |
Calculated based on average shares outstanding. |
|
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.
10
Short-Term Inflation-Protected Securities Index Fund
Financial Highlights
Admiral Shares
|
|
Six Months |
|
|
| ||
|
|
Ended |
|
|
Year Ended September 30, | ||
|
For a Share Outstanding |
March 31, |
|
| |||
|
Throughout Each Period |
2021 |
2020 |
2019 |
2018 |
2017 |
2016 |
|
Net Asset Value, Beginning of Period |
$25.44 |
$24.60 |
$24.25 |
$24.79 |
$24.88 |
$24.27 |
|
Investment Operations |
|
|
|
|
|
|
|
Net Investment Income1 |
.215 |
.294 |
.500 |
.692 |
.338 |
.149 |
|
Net Realized and Unrealized Gain (Loss) on Investments |
.398 |
.860 |
.332 |
(.450) |
(.241) |
.461 |
|
Total from Investment Operations |
.613 |
1.154 |
.832 |
.242 |
.097 |
.610 |
|
Distributions |
|
|
|
|
|
|
|
Dividends from Net Investment Income |
(.213) |
(.314) |
(.482) |
(.782) |
(.187) |
— |
|
Distributions from Realized Capital Gains |
— |
— |
— |
— |
— |
— |
|
Total Distributions |
(.213) |
(.314) |
(.482) |
(.782) |
(.187) |
— |
|
Net Asset Value, End of Period |
$25.84 |
$25.44 |
$24.60 |
$24.25 |
$24.79 |
$24.88 |
|
Total Return2 |
2.42% |
4.72% |
3.46% |
1.00% |
0.40% |
2.51% |
|
Ratios/Supplemental Data |
|
|
|
|
|
|
|
Net Assets, End of Period (Millions) |
$10,583 |
$8,541 |
$7,333 |
$6,525 |
$5,078 |
$3,373 |
|
Ratio of Total Expenses to Average Net Assets |
0.06% |
0.06% |
0.06% |
0.06% |
0.06% |
0.07% |
|
Ratio of Net Investment Income to Average Net Assets |
1.68% |
1.18% |
2.06% |
2.81% |
1.35% |
0.51% |
|
Portfolio Turnover Rate3 |
10% |
37% |
26% |
25% |
27% |
28% |
|
1 |
Calculated based on average shares outstanding. |
|
2 |
Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
|
3 |
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.
11
Short-Term Inflation-Protected Securities Index Fund
Financial Highlights
Institutional Shares
|
|
Six Months |
|
|
| ||
|
|
Ended |
|
|
Year Ended September 30, | ||
|
For a Share Outstanding |
March 31, |
|
| |||
|
Throughout Each Period |
2021 |
2020 |
2019 |
2018 |
2017 |
2016 |
|
Net Asset Value, Beginning of Period |
$25.46 |
$24.62 |
$24.27 |
$24.81 |
$24.90 |
$24.28 |
|
Investment Operations |
|
|
|
|
|
|
|
Net Investment Income1 |
.215 |
.306 |
.517 |
.696 |
.333 |
.139 |
|
Net Realized and Unrealized Gain (Loss) on Investments |
.390 |
.853 |
.319 |
(.449) |
(.225) |
.481 |
|
Total from Investment Operations |
.605 |
1.159 |
.836 |
.247 |
.108 |
.620 |
|
Distributions |
|
|
|
|
|
|
|
Dividends from Net Investment Income |
(.215) |
(.319) |
(.486) |
(.787) |
(.198) |
— |
|
Distributions from Realized Capital Gains |
— |
— |
— |
— |
— |
— |
|
Total Distributions |
(.215) |
(.319) |
(.486) |
(.787) |
(.198) |
— |
|
Net Asset Value, End of Period |
$25.85 |
$25.46 |
$24.62 |
$24.27 |
$24.81 |
$24.90 |
|
Total Return |
2.39% |
4.73% |
3.48% |
1.02% |
0.44% |
2.55% |
|
Ratios/Supplemental Data |
|
|
|
|
|
|
|
Net Assets, End of Period (Millions) |
$13,483 |
$11,880 |
$9,967 |
$8,067 |
$6,986 |
$5,500 |
|
Ratio of Total Expenses to Average Net Assets |
0.04% |
0.04% |
0.04% |
0.04% |
0.04% |
0.04% |
|
Ratio of Net Investment Income to Average Net Assets |
1.68% |
1.22% |
2.08% |
2.83% |
1.37% |
0.54% |
|
Portfolio Turnover Rate2 |
10% |
37% |
26% |
25% |
27% |
28% |
|
1 |
Calculated based on average shares outstanding. |
|
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.
12
Short-Term Inflation-Protected Securities Index Fund
Notes to Financial Statements
Vanguard Short-Term Inflation-Protected Securities Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers four classes of shares: Investor Shares, ETF Shares, Admiral Shares, and Institutional Shares. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. 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. Any securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures contracts.
During the six months ended March 31, 2021, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period. The fund had no open futures contracts at March 31, 2021.
13
Short-Term Inflation-Protected Securities Index Fund
3. Federal Income Taxes: The fund intends to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility; 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March 31, 2021, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Inflation adjustments to the face amount of inflation-indexed securities are included in interest income. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution
14
Short-Term Inflation-Protected Securities 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 and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At March 31, 2021, the fund had contributed to Vanguard capital in the amount of $1,593,000, representing less than 0.01% of the fund’s net assets and 0.64% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
The following table summarizes the market value of the fund’s investments as of March 31, 2021, based on the inputs used to value them:
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
($000) |
($000) |
($000) |
($000) |
|
Investments |
|
|
|
|
|
Assets |
|
|
|
|
|
U.S. Government and Agency Obligations |
— |
44,350,078 |
— |
44,350,078 |
|
Temporary Cash Investments |
235,025 |
— |
— |
235,025 |
|
Total |
235,025 |
44,350,078 |
— |
44,585,103 |
D. As of March 31, 2021, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
|
|
Amount |
|
|
($000) |
|
Tax Cost |
42,871,911 |
|
Gross Unrealized Appreciation |
1,739,806 |
|
Gross Unrealized Depreciation |
(26,614) |
|
Net Unrealized Appreciation (Depreciation) |
1,713,192 |
15
Short-Term Inflation-Protected Securities Index Fund
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at September 30, 2020, the fund had available capital losses totaling $176,382,000 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 September 30, 2021; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
E. During the six months ended March 31, 2021, the fund purchased $9,771,944,000 of investment securities and sold $4,066,850,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,350,102,000 and $181,374,000, 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 | |||||||
|
March 31, 2021 |
September 30, 2020 | |||||||
|
Amount |
Shares |
Amount |
Shares | |||||
|
($000) |
(000) |
($000) |
(000) | |||||
| Investor Shares | ||||||||
| Issued | 452,025 | 17,730 | 1,738,945 | 69,825 | ||||
| Issued in Lieu of Cash Distributions | 66,736 | 2,608 | 89,472 | 3,587 | ||||
| Redeemed | (387,431) | (15,031) |
(1,012,829)1 |
(41,545)1 | ||||
| Net Increase (Decrease)—Investor Shares | 131,330 | 5,307 | 815,588 | 31,867 | ||||
| ETF Shares | ||||||||
| Issued | 3,086,299 | 60,264 | 3,304,061 | 66,032 | ||||
| Issued in Lieu of Cash Distributions | — | — | — | — | ||||
| Redeemed | (193,850) | (3,800) | (1,256,255) | (25,650) | ||||
| Net Increase (Decrease)—ETF Shares | 2,892,449 | 56,464 | 2,047,806 | 40,382 | ||||
| Admiral Shares | ||||||||
| Issued | 2,547,450 | 99,126 |
3,192,9271 |
128,0471 | ||||
| Issued in Lieu of Cash Distributions | 69,503 | 2,712 | 88,789 | 3,552 | ||||
| Redeemed | (715,956) | (27,924) | (2,329,258) | (93,982) | ||||
| Net Increase (Decrease)—Admiral Shares | 1,900,997 | 73,914 | 952,458 | 37,617 | ||||
| Institutional Shares | ||||||||
| Issued | 2,282,711 | 88,933 | 3,394,284 | 135,886 | ||||
| Issued in Lieu of Cash Distributions | 102,432 | 3,994 | 137,605 | 5,499 | ||||
| Redeemed | (973,972) | (38,077) | (1,963,596) | (79,604) | ||||
| Net Increase (Decrease)—Institutional Shares | 1,411,171 | 54,850 | 1,568,293 | 61,781 | ||||
|
1 |
In November 2018, the fund announced changes to the availability and minimum investment criteria of the Investor and Admiral share classes. As a result, all of the outstanding Investor Shares automatically converted to Admiral Shares beginning in April 2019, with the exception of those held by Vanguard funds and certain other institutional investors. Investor Shares—Redeemed and Admiral Shares—Issued include 2,000 and 2,000 shares, respectively, in the amount of $61,000 from the conversion during the year ended September 30, 2020. |
16
Short-Term Inflation-Protected Securities Index Fund
At March 31, 2021, several Vanguard funds and trusts managed by Vanguard or its affiliates were each a record or beneficial owner of the fund, and had combined ownership of 48% of the fund’s net assets. If any of these shareholders were to redeem their investment in the fund, the redemption might result in an increase in the fund’s expense ratio, cause the fund to incur higher transaction costs, or lead to the realization of taxable capital gains.
G. Management has determined that no events or transactions occurred subsequent to March 31, 2021, that would require recognition or disclosure in these financial statements.
17
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Short-Term Inflation-Protected Securities Index Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Fixed Income Group. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the investment management services provided to the fund since its inception in 2012; it also took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than four decades. The Fixed Income Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the performance of the fund, including any periods of outperformance or underperformance compared with its target index and peer group. The board concluded that the performance was such that the advisory arrangement should continue.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory expenses were also well below the peer-group average.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
18
The benefit of economies of scale
The board concluded that the fund’s arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
19
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Malvern Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Short-Term Inflation-Protected Securities Index Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2020, through December 31, 2020 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
20
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Connect with Vanguard® > vanguard.com
Fund Information > 800-662-7447
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Text Telephone for People Who Are Deaf or Hard of Hearing > 800-749-7273
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.
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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to [email protected].
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© 2021
The Vanguard Group, Inc. U.S. Patent Nos. 6,879,964; 7,337,138; 7,720,749;
7,925,573; 8,090,646; 8,417,623; and 8,626,636.
Q19672 052021 |