Vanguard
Total Bond Market II Index Fund
Prospectus
April
28, 2023
Investor
Shares
Vanguard
Total Bond Market II Index Fund Investor Shares (VTBIX)
This prospectus contains financial data for the Fund through the fiscal year ended December 31, 2022.
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
(Fees paid directly from your investment)
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Sales Charge
(Load) Imposed on Purchases |
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Purchase
Fee |
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Sales Charge
(Load) Imposed on Reinvested Dividends |
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Redemption
Fee |
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Account
Service Fee Per Year
(for certain
fund account balances below $1,000,000) |
$ |
(Expenses that you pay each year as a percentage of the value of your investment)
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Management
Fees |
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12b-1
Distribution Fee |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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1
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1
Year |
3
Years |
5
Years |
10
Years |
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$ |
$ |
$ |
$ |
2
3
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Total
Return |
Quarter |
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- |
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4
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1
Year |
5
Years |
10
Years |
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Vanguard
Total Bond Market II Index Fund Investor Shares |
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Return Before
Taxes |
- |
- |
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Return After
Taxes on Distributions |
- |
- |
- |
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Return After
Taxes on Distributions and Sale of Fund Shares |
- |
- |
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Bloomberg
U.S. Aggregate Float Adjusted Index
(reflects no
deduction for fees, expenses, or taxes) |
- |
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Investment
Advisor
The Vanguard Group,
Inc. (Vanguard)
Portfolio
Manager
Joshua C. Barrickman, CFA,
Principal of Vanguard and co-head of Vanguard’s Fixed Income Indexing Americas.
He has managed the Fund since 2010.
5
Purchase
and Sale of Fund Shares
Investor Shares are
available only to Vanguard funds of funds and certain similar trusts and
accounts. There is no minimum investment amount required to open and maintain a
Fund account for Investor Shares. The minimum investment amount required to add
to an existing Fund account is generally $1.
Tax
Information
The Fund’s
distributions may be taxable as ordinary income or capital gain. If you are
investing through a tax-advantaged account, such as an IRA or an
employer-sponsored retirement or savings plan, special tax rules
apply.
Payments
to Financial Intermediaries
The Fund and its
investment advisor do not pay financial intermediaries for sales of Fund
shares.
6
Investing
in Index Funds
What
Is Indexing?
Indexing is an
investment strategy for tracking the performance of a specified market
benchmark, or “index.” An index is a group of securities whose overall
performance is used as a standard to measure the investment performance of a
particular market. There are many types of indexes. Some represent entire
markets—such as the U.S. stock market or the U.S. bond market. Other indexes
cover market segments—such as small-capitalization stocks or short-term bonds.
One cannot invest directly in an index.
The index sponsor
determines the securities to include in the index and the weighting of each
security in the index. Under normal circumstances, the index sponsor will
rebalance an index on a regular schedule. An index sponsor may carry out
additional ad hoc index rebalances or delay or cancel a scheduled rebalance.
Generally, the index sponsor does not provide any warranty, or accept any
liability, with respect to the quality, accuracy, or completeness of either the
target index or its related data. Errors made by the index sponsor may occur
from time to time and may not be identified by the index sponsor for a period of
time or at all. Vanguard does not provide any warranty or guarantee against such
errors. Therefore, the gains, losses, or costs associated with the index
sponsor’s errors will generally be borne by the index fund and its
shareholders.
An index fund seeks to hold all, or
a representative sample, of the securities that make up its target index. Index
funds attempt to mirror the performance of the target index, for better or
worse. However, an index fund generally does not perform exactly like its target index. For
example, index funds have operating expenses and transaction costs. Market
indexes do not, and therefore they will usually have a slight performance
advantage over funds that track them. The ability of an index fund to match its
performance to that of its target index can also be impacted by, among other
things, the timing and size of cash flows, asset valuation differences, and the
size of the fund. Market disruptions could also have an adverse effect on a
fund’s ability to adjust its exposure to the required levels in order to track
the index. The risk that a fund may not track the performance of its target
index may be heightened during times of increased market volatility or other
unusual market conditions.
Index funds
typically have the following characteristics:
• Variety
of investments. Depending on a
fund’s benchmark index, the fund may invest in the securities of a variety of
companies, industries, and/or governments or government agencies.
• Relative
performance consistency. Because they seek
to track market benchmarks, index funds usually do not perform dramatically
better or worse than their benchmarks.
• Low
cost.
Index funds are generally inexpensive to run compared with actively managed
funds. They have low or no research costs and typically keep trading
activity—and thus dealer markups and other transaction costs—to a minimum
compared with actively managed funds.
7
More
on the Fund
This prospectus
describes the principal risks you would face as a Fund shareholder. It is
important to keep in mind one of the main principles of investing: generally,
the higher the risk of losing money, the higher the potential reward. The
reverse, also, is generally true: the lower the risk, the lower the potential
reward. As you consider an investment in any mutual fund, you should take into
account your personal tolerance for fluctuations in the securities markets. Look
for this
symbol throughout
the prospectus. It is used to mark detailed information about the more
significant risks that you would confront as a Fund shareholder. To highlight
terms and concepts important to mutual fund investors, we have provided Plain
Talk® explanations along
the way. Reading the prospectus will help you decide whether the Fund is the
right investment for you. We suggest that you keep this prospectus for future
reference.
symbol throughout
the prospectus. It is used to mark detailed information about the more
significant risks that you would confront as a Fund shareholder. To highlight
terms and concepts important to mutual fund investors, we have provided Plain
Talk® explanations along
the way. Reading the prospectus will help you decide whether the Fund is the
right investment for you. We suggest that you keep this prospectus for future
reference.Share
Class Overview
This prospectus
offers the Fund's Investor Shares. A separate prospectus offers the Fund’s
Institutional Shares, which are generally for investors who invest a minimum of
$5 million.
Both share classes
offered by the Fund have the same investment objective, strategies, and
policies. However, different share classes have different expenses; as a result,
their investment returns will differ.
Vanguard Total Bond
Market II Index Fund has been established by Vanguard as an investment vehicle
for Vanguard funds of funds as well as certain similar trusts and accounts. The
Fund is not available to other investors. Vanguard reserves the right to change
the availability of the Fund at any time without prior notice to
shareholders.
|
Plain
Talk About Fund Expenses |
|
All mutual
funds have operating expenses. These expenses, which are
deducted
from a fund’s gross income, are expressed as a percentage of the
net assets
of the fund. Assuming that operating expenses remain as stated
in the
Fees and Expenses section, Vanguard Total Bond Market II Index Fund
Investor
Shares’ expense ratio would be 0.09%, or $0.90 per $1,000 of
average
net assets. The average expense ratio for core bond funds in 2022
was 0.66%,
or $6.60 per $1,000 of average net assets (derived from data
provided
by Lipper, a Thomson Reuters Company, which reports on the
mutual
fund industry). |
8
|
Plain
Talk About Costs of Investing |
|
Costs
are an important consideration in choosing a mutual fund. That is
because
you, as a shareholder, pay a proportionate share of the costs of
operating
a fund and any transaction costs incurred when the fund buys or
sells
securities. These costs can erode a substantial portion of the gross
income
or the capital appreciation a fund achieves. Even seemingly small
differences
in expenses can, over time, have a dramatic effect on a
fund’s
performance. |
The following
sections explain the principal investment strategies and policies that the Fund
uses in pursuit of its investment objective. The Fund's board of trustees, which
oversees the Fund's management, may change investment strategies or policies in
the interest of shareholders without a shareholder vote, unless those strategies
or policies are designated as fundamental. Under normal circumstances, the Fund
will invest at least 80% of its assets in the bonds that make up its target
index. The Fund may change its 80% policy only upon 60 days‘ notice to
shareholders.
Market
Exposure
The
Fund is subject to interest rate risk, which is the chance that bond prices will
decline because of rising interest rates.
Although fixed
income securities (commonly referred to as bonds) are often thought to be less
risky than stocks, there have been periods when bond prices have fallen
significantly because of rising interest rates. For instance, prices of
long-term bonds fell by almost 48% between December 1976 and September
1981.
To illustrate the
relationship between bond prices and interest rates, the following table shows
the effect of a 1% and a 2% change (both up and down) in interest rates on the
values of three noncallable bonds (i.e., bonds that cannot be redeemed by the
issuer) of different maturities, each with a face value of $1,000.
9
How
Interest Rate Changes Affect the Value of a $1,000 Bond1
|
Type
of Bond (Maturity) |
After
a 1%
Increase |
After
a 1%
Decrease |
After
a 2%
Increase |
After
a 2%
Decrease |
|
Short-Term
(2.5 years) |
$977 |
$1,024 |
$954 |
$1,049 |
|
Intermediate-Term
(10 years) |
922 |
1,086 |
851 |
1,180 |
|
Long-Term
(20 years) |
874 |
1,150 |
769 |
1,328 |
1 Assuming a
4% coupon rate.
These figures are
for illustration only; you should not regard them as an indication of future
performance of the bond market as a whole or the Fund in particular.
|
Plain
Talk About Bonds and Interest Rates |
|
As
a rule, when interest rates rise, bond prices fall. The opposite is also
true:
Bond
prices go up when interest rates fall. Why do bond prices and interest
rates
move in opposite directions? Let’s assume that you hold a bond
offering
a 4% yield. A year later, interest rates are on the rise and bonds of
comparable
quality and maturity are offered with a 5% yield. With
higher-yielding
bonds available, you would have trouble selling your 4% bond
for
the price you paid—you would probably have to lower your asking price.
On
the other hand, if interest rates were falling and 3% bonds were being
offered,
you should be able to sell your 4% bond for more than you
paid. |
|
How
mortgage-backed securities are different:
In general, declining interest
rates
will not lift the prices of mortgage-backed securities—such as those
guaranteed
by the Government National Mortgage Association—as much as
the
prices of comparable bonds. Why? Because when interest rates fall, the
bond
market tends to discount the prices of mortgage-backed securities for
prepayment
risk—the possibility that homeowners will refinance their
mortgages
at lower rates and cause the bonds to be paid off prior to
maturity.
In part to compensate for this prepayment possibility,
mortgage-backed
securities tend to offer higher yields than other bonds of
comparable
credit quality and maturity. In contrast, when interest rates rise,
prepayments
tend to slow down, subjecting mortgage-backed securities to
extension
risk—the possibility that homeowners will repay their mortgages
at
slower rates. This will lengthen the duration or average life of
mortgage-backed
securities held by a fund and delay the fund’s ability to
reinvest
proceeds at higher interest rates, making the fund more sensitive to
changes
in interest rates.
|
10
Changes in interest
rates can affect bond income as well as bond
prices.
The
Fund is subject to income risk, which is the chance that the Fund’s income will
decline because of falling interest rates. A fund's income declines when
interest rates fall because the fund then must invest new cash flow and cash
from maturing bonds in lower-yielding bonds. Income risk is generally high for
short-term bond funds and moderate for intermediate-term bond funds, so
investors should expect the Fund‘s monthly income to fluctuate
accordingly.
|
Plain
Talk About Bond Maturities |
|
A
bond is issued with a specific maturity date—the date when the issuer
must
pay back the bond’s principal (face value). Bond maturities range from
less
than 1 year to more than 30 years. Typically, the longer a bond’s
maturity,
the
more price risk you, as a bond investor, will face as interest rates
rise—but
also the higher the potential yield you could receive. Longer-term
bonds
are generally more suitable for investors willing to take a greater risk
of
price fluctuations to get higher and more stable interest income.
Shorter-term
bond investors should be willing to accept lower yields and
greater
income variability in return for less fluctuation in the value of their
investment.
The stated maturity of a bond may differ from the effective
maturity
of a bond, which takes into consideration that an action such as a
call
or refunding may cause bonds to be repaid before their stated
maturity
dates. |
Although falling
interest rates tend to strengthen bond prices, they can cause other problems for
bond fund investors—bond calls and prepayments.
The
Fund is subject to prepayment risk, which is the chance that during periods of
falling interest rates, homeowners will refinance their mortgages before their
maturity dates, resulting in prepayment of mortgage-backed securities held by
the Fund. The Fund would then lose any price appreciation above the mortgage’s
principal and would be forced to reinvest the unanticipated proceeds at lower
interest rates, resulting in a decline in the Fund’s income. Such prepayments
and subsequent reinvestments would also increase the Fund’s portfolio turnover
rate. Prepayment risk should be moderate for the Fund.
11
The
Fund is subject to extension risk, which is the chance that during periods of
rising interest rates, certain debt securities will be paid off substantially
more slowly than originally anticipated, and the value of those securities may
fall. This will lengthen the duration or average life of those securities held
by the Fund and delay the Fund’s ability to reinvest proceeds at higher interest
rates, making the Fund more sensitive to changes in interest rates. For funds
that invest in mortgage-backed securities, there is a chance that during periods
of rising interest rates, homeowners will repay their mortgages at slower
rates.
The
Fund is subject to call risk, which is the chance that during periods of falling
interest rates, issuers of callable bonds may call (redeem) securities with
higher coupon rates or interest rates before their maturity dates. The Fund
would then lose any price appreciation above the bond’s call price and would be
forced to reinvest the unanticipated proceeds at lower interest rates, resulting
in a decline in the Fund’s income. Such redemptions and subsequent reinvestments
would also increase the Fund’s portfolio turnover rate. Call risk should be low
for the Fund because it invests only a small portion of its assets in callable
bonds.
The
Fund is subject to credit risk, which is the chance that a bond issuer will fail
to pay interest or principal in a timely manner or that negative perceptions of
the issuer’s ability to make such payments will cause the price of that bond to
decline. Credit risk should be low for the Fund because it purchases only bonds
that are of investment-grade quality.
|
Plain
Talk About Credit Quality |
|
A
bond’s credit quality rating is an assessment of the issuer’s ability to
pay
interest
on the bond and, ultimately, to repay the principal. The lower the
credit
quality, the greater the perceived chance that the bond issuer will
default,
or fail to meet its payment obligations. All things being equal, the
lower
a bond’s credit quality, the higher its yield should be to compensate
investors
for assuming additional risk. |
To a limited
extent, the Fund is subject to event
risk,
which is the chance that corporate fixed income securities held by the Fund may
suffer a substantial decline in credit quality and market value because of a
restructuring of the companies that issued the securities or because of other
factors negatively affecting the issuers.
12
The
Fund is subject to liquidity risk, which is the chance that the Fund may not be
able to sell a security in a timely manner at a desired
price.
Corporate bonds are
traded among dealers and brokers that connect buyers with sellers. Liquidity in
the corporate bond market may be challenged depending on overall economic
conditions and credit tightening. There may be little trading in the secondary
market for particular bonds and other debt securities, which may make them more
difficult to value or sell.
Market disruptions
can adversely affect local and global markets as well as normal market
conditions and operations. Any such disruptions could have an adverse impact on
the value of the Fund's investments and Fund performance.
Security
Selection
Index
sampling strategy. Because it would
be very expensive and inefficient to buy and sell all securities held in
its target index—which is an indexing strategy called “replication”—the Fund
uses index “sampling” techniques to select securities. Using computer programs,
the Fund’s advisor generally selects a representative sample of securities that
approximates the full target index in terms of key risk factors and other
characteristics. These factors include duration, cash flow, quality, and
callability of the underlying bonds. In addition, the Fund keeps industry sector
and subsector exposure within tight boundaries relative to its target index.
Because the Fund does not hold all of the
securities included in its target index, some of the securities (and issuers)
that are held will likely be overweighted (or underweighted) compared with the
target index. The maximum overweight (or underweight) is constrained at the
issuer level with the goal of producing well-diversified credit exposure in the
portfolio.
The
Fund is subject to index sampling risk, which is the chance that the securities
selected for the Fund, in the aggregate, will not provide investment performance
matching that of the Fund's target index. Index sampling risk for the Fund is
expected to be low.
The number of bonds held by the
Fund and the number of bonds in the Fund’s target index were 9,892 and 13,133
respectively, as of December 31, 2022.
Types
of bonds. The Fund’s target
index is the Bloomberg U.S. Aggregate Float Adjusted Index. This Index measures
the performance of a wide spectrum of public, investment-grade, taxable, fixed
income securities in the United States—including government, corporate, and
international dollar-denominated bonds, as well as mortgage-backed and
asset-backed securities—all with maturities of more than 1 year.
13
As of December 31, 2022, the Fund
was composed of the following types of bonds:
|
Vanguard
Fund |
U.S.
Government/
Agency |
Corporate |
Asset-Backed/
Mortgage-
Backed |
International
Dollar-
Denominated |
Other |
Total |
|
Vanguard
Total
Bond Market
II
Index
Fund |
67% |
26.6% |
2.4% |
3.3% |
0.7% |
100% |
An explanation of
each type of bond follows:
• U.S.
government and agency bonds represent loans by
investors to the U.S. Treasury or a wide variety of government agencies and
instrumentalities. Securities issued by most U.S. government entities are
neither guaranteed by the U.S. Treasury nor backed by the full faith and credit
of the U.S. government. These entities include, among others, the Federal Home
Loan Banks (FHLBs), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC). Securities issued by the U.S.
Treasury and a small number of U.S. government agencies, such as the Government
National Mortgage Association (GNMA), are backed by the full faith and credit of
the U.S. government. The market values of U.S. government and agency securities
and U.S. Treasury securities are subject to fluctuation.
• Corporate
bonds
are IOUs issued by businesses that want to borrow money for some purpose—often
to develop a new product or service, to expand into a new market, or to buy
another company. As with other types of bonds, the issuer promises to repay the
principal on a specific date and to make interest payments in the meantime. The
amount of interest offered depends both on market conditions and on the
financial health of the corporation issuing the bonds; a company whose credit
rating is not strong will have to offer a higher interest rate to obtain buyers
for its bonds. For purposes of the preceding table, corporate bonds include
securities that are backed by a pool of underlying assets (asset-backed
securities) or commercial mortgages (commercial mortgage-backed bonds). The Fund
expects to purchase only investment-grade corporate bonds.
• Mortgage-backed
securities represent
interests in underlying pools of mortgages. Unlike ordinary bonds, which
generally pay a fixed rate of interest at regular intervals and then repay
principal upon maturity, mortgage-backed securities pass through both interest
and principal from underlying mortgages as part of their regular payments.
Because the mortgages underlying the securities can be prepaid at any time by
homeowners or by corporate borrowers, mortgage-backed securities are subject to
prepayment risk. These types of securities are issued by a number of government
agencies, including the GNMA, the FHLMC, and the FNMA. Mortgage-backed
securities issued by the GNMA
14
are guaranteed by
the full faith and credit of the U.S. government as to the timely payment of
principal and interest; those issued by other government agencies or private
corporations are not.
The Fund may also
invest in conventional mortgage-backed securities—which are packaged by private
corporations and are not guaranteed by the U.S. government—and enter into
mortgage-dollar-roll transactions. In a mortgage-dollar-roll transaction, a fund
sells mortgage-backed securities to a dealer and simultaneously agrees to
purchase similar securities in the future at a predetermined price. These
transactions simulate an investment in mortgage-backed securities and have the
potential to enhance a fund’s returns and reduce its administrative burdens,
compared with holding mortgage-backed securities directly. These transactions
may increase a fund’s portfolio turnover rate. Mortgage dollar rolls will be
used only to the extent that they are consistent with the Fund’s investment
objective and risk profile.
• Asset-backed
securities are bonds
that represent partial ownership in pools of consumer or commercial loans—most
often credit card, automobile, or trade receivables. Asset-backed securities,
which can be types of corporate fixed income obligations, are issued by entities
formed solely for that purpose, but their value ultimately depends on repayments
by underlying borrowers. A primary risk of asset-backed securities is that their
maturity is difficult to predict, being driven by borrowers’
prepayments.
• International
dollar-denominated bonds are bonds
denominated in U.S. dollars and issued by foreign governments and companies. To
the extent that the Fund owns foreign bonds, it is subject to country risk,
which is the chance that world events—such as political upheaval, financial
troubles, or natural disasters—will adversely affect the value and/or liquidity
of securities issued by companies in foreign countries. In addition, the prices
of foreign bonds and the prices of U.S. bonds have, at times, moved in opposite
directions. Because the bond’s value is designated in dollars rather than in the
currency of the issuer’s country, the investor is not exposed to currency risk;
rather, the issuer assumes that risk, usually to attract U.S. investors.
Although currency movements do not affect the value of international
dollar-denominated bonds directly, they could affect the value indirectly by
adversely affecting the issuer’s ability (or the market’s perception of the
issuer’s ability) to pay interest or repay principal.
15
|
Plain
Talk About U.S. Government-Sponsored Enterprises |
|
A
variety of U.S. government-sponsored enterprises (GSEs), such as the
Federal
Home Loan Mortgage Corporation (FHLMC), the Federal National
Mortgage
Association (FNMA), and the Federal Home Loan Banks (FHLBs),
issue
debt and mortgage-backed securities. Although GSEs may be chartered
or
sponsored by acts of Congress, they are not funded by congressional
appropriations.
In September of 2008, the U.S. Treasury placed FNMA and
FHLMC
under conservatorship and appointed the Federal Housing Finance
Agency
(FHFA) to manage their daily operations. In addition, the U.S. Treasury
entered
into purchase agreements with FNMA and FHLMC to provide them
with
capital in exchange for senior preferred stock. Generally, a GSE’s
securities
are neither issued nor guaranteed by the U.S. Treasury and are not
backed
by the full faith and credit of the U.S. government. In most cases,
these
securities are supported only by the credit of the GSE, standing alone. In
some
cases, a GSE’s securities may be supported by the ability of the GSE to
borrow
from the U.S. Treasury or may be supported by the U.S. government in
some
other way. Securities issued by the Government National Mortgage
Association
(GNMA), however, are backed by the full faith and credit of the
U.S.
government. |
Other
Investment Policies and Risks
The Fund will
invest at least 80% of its assets in bonds held in its target index. Up to 20%
of the Fund’s assets may be used to purchase nonpublic, investment-grade
securities, generally referred to as 144A securities, as well as smaller public
issues or medium-term notes not included in the index because of the small size
of the issue. The Fund's advisor expects that the vast majority of these
securities will have characteristics similar to those in the target index.
Subject to the same 20% limit, the Fund may also purchase other investments that
are outside of its target index or may hold bonds that, when acquired, were
included in the index but subsequently were removed. The Fund may also invest in
relatively conservative classes of collateralized mortgage obligations (CMOs),
which offer a high degree of cash-flow predictability and a low level of
vulnerability to mortgage prepayment risk. To reduce credit risk, these
less-risky classes of CMOs are purchased only if they are issued by agencies of
the U.S. government or issued by private companies that carry high-quality
investment-grade ratings.
16
The Fund reserves
the right to substitute a different index for the index it currently tracks if
the current index is discontinued, if the Fund's agreement with the sponsor of
its target index is terminated, or for any other reason determined in good faith
by the Fund’s board of trustees. In any such instance, the substitute index
would represent the same market segment as the current index.
The
Fund may invest in derivatives. In general, investments in derivatives may
involve risks different from, and possibly greater than, those of investments
directly in the underlying securities or assets.
The Fund may invest, to a limited
extent, in derivatives. Generally speaking, a
derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, a bond, or a currency), a physical asset (such as gold, oil, or wheat), a market index, or a reference rate. The Fund may invest in derivatives only if the expected risks and rewards of the derivatives are consistent with the investment objective, policies, strategies, and risks of the Fund as disclosed in this prospectus. In particular, derivatives will be used only when they may help the advisor to accomplish one or more of the following:
derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, a bond, or a currency), a physical asset (such as gold, oil, or wheat), a market index, or a reference rate. The Fund may invest in derivatives only if the expected risks and rewards of the derivatives are consistent with the investment objective, policies, strategies, and risks of the Fund as disclosed in this prospectus. In particular, derivatives will be used only when they may help the advisor to accomplish one or more of the following:
• Invest in eligible asset classes
with greater efficiency and lower cost than is possible through direct
investment.
• Add value when these instruments
are attractively priced.
• Adjust sensitivity to changes in
interest rates.
The Fund may invest a small portion
of its assets in fixed income futures, which are a type of derivative, and/or
shares of exchange-traded funds (ETFs). These fixed income futures and ETFs
typically provide returns similar to those of the bonds listed in the index, or
in a subset of the index, the Fund seeks to track. The Fund may purchase futures
or ETFs when doing so will reduce the Fund’s transaction costs, facilitate cash
management, mitigate risk, or have the potential to add value because the
instruments are favorably priced. Vanguard receives no additional revenue from
Fund assets invested in ETF Shares of other Vanguard funds. Fund assets invested
in ETF Shares of other Vanguard funds are excluded when allocating to the Fund
its share of the costs of Vanguard operations.
17
|
Plain
Talk About Derivatives |
|
Derivatives
can take many forms. Some forms of derivatives—such as
exchange-traded
futures and options on securities, commodities, or
indexes—have
been trading on regulated exchanges for decades. These
types of
derivatives are standardized contracts that can easily be bought and
sold and
whose market values are determined and published daily. On the
other
hand, non-exchange-traded derivatives—such as certain swap
agreements—tend
to be more specialized or complex and may be more
difficult
to accurately value. |
Cash
Management
The Fund's daily
cash balance may be invested in Vanguard Market Liquidity Fund and/or Vanguard
Municipal Cash Management Fund (each, a CMT Fund), which are low-cost money
market funds. When investing in a CMT Fund, the Fund bears its proportionate
share of the expenses of the CMT Fund in which it invests. Vanguard receives no
additional revenue from Fund assets invested in a CMT Fund.
Redemption
Requests
Methods used to
meet redemption requests.
Under normal
circumstances, the Fund typically expects to meet redemptions with positive cash
flows. When this is not an option, the Fund seeks to maintain its risk exposure
by selling a cross section of the Fund’s holdings to meet redemptions, while
also factoring in transaction costs. Additionally, since the Fund is only
available for limited purchase by certain institutional accounts for which
Vanguard or its affiliates has discretionary authority, the Fund’s portfolio
manager is typically aware of upcoming redemption requests. The Fund may work
with larger clients to implement their redemptions in a manner that is least
disruptive to the portfolio.
Under certain
circumstances, including under stressed market conditions, there are additional
tools that the Fund may use in order to meet redemptions, including advancing
the settlement of market trades with counterparties to match investor redemption
payments or delaying settlement of an investor’s transaction to match trade
settlement within regulatory requirements. The Fund may also suspend payment of
redemption proceeds for up to seven days. Additionally under these unusual
circumstances, the Fund may borrow money (subject to certain regulatory
conditions and if available under board-approved procedures) through an
interfund lending facility; through a bank line-of-credit, including a joint
committed credit facility; or through an uncommitted line-of-credit from
Vanguard in order to meet redemption requests.
18
Temporary
Investment Measures
The Fund may
temporarily depart from its normal investment policies and strategies when the
advisor believes that doing so is in the Fund's best interest, so long as the
strategy or policy employed is consistent with the Fund's investment objective.
For instance, the Fund may invest beyond its normal limits in derivatives or
exchange-traded funds that are consistent with the Fund's investment objective
when those instruments are more favorably priced or provide needed liquidity, as
might be the case when the Fund receives large cash flows that it cannot
prudently invest immediately.
Frequent
Trading or Market-Timing
Investors eligible
to purchase shares of the Fund seek to maintain target asset allocations, which
may require frequent rebalancing trades. Because the Fund is available only to
such investors, the costs imposed by frequent trading are appropriately borne by
the investors who cause them. For this reason, the board of trustees of the Fund
has determined that it is not necessary to adopt policies and procedures
designed to detect and deter frequent trading and market-timing in the Fund’s
shares. For information on frequent-trading limits of other Vanguard funds,
please see the appropriate fund’s prospectus.
A precautionary
note to investment companies: The Fund's shares are issued by a
registered investment company, and therefore the acquisition of such shares by
other investment companies and private funds is subject to the restrictions of
Section 12(d)(1) of the Investment Company Act of 1940 (the 1940 Act). SEC Rule
12d1-4 under the 1940 Act permits registered investment companies to invest in
other registered investment companies beyond the limits in Section 12(d)(1),
subject to certain conditions, including that funds with different investment
advisors must enter into a fund of funds investment agreement.
Turnover
Rate
Although the Fund
generally seeks to invest for the long term, it may sell securities regardless
of how long they have been held. Generally, an index fund sells securities in
response to redemption requests or to changes in the composition of its target
index or in an effort to manage the fund’s duration. The Financial
Highlights section of this
prospectus shows historical turnover rates for the Fund. A turnover rate of
100%, for example, would mean that the Fund had sold and replaced securities
valued at 100% of its net assets within a one-year period. Shorter-term bonds
will mature or be sold—and need to be replaced—more frequently than longer-term
bonds. As a result, shorter-term bond funds tend to have higher turnover rates
than longer-term bond funds. In general, the greater the turnover rate, the
greater the impact transaction costs
19
will have on a
fund’s return. Also, funds with high turnover rates may be more likely to
generate capital gains, including short-term capital gains, that must be
distributed to shareholders and will be taxable to shareholders investing
through a taxable account.
The
Fund and Vanguard
The Fund is a
member of The Vanguard Group, Inc. (Vanguard), a family of over 200 funds. All
of the funds that are members of Vanguard (other than funds of funds) share in
the expenses associated with administrative services and business operations,
such as personnel, office space, and equipment.
Vanguard Marketing
Corporation provides marketing services to the funds. Although fund shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund (other than a
fund of funds) or each share class of a fund (in the case of a fund with
multiple share classes) pays its allocated share of the Vanguard funds’
marketing costs.
|
Plain
Talk About Vanguard’s Unique Corporate Structure |
|
Vanguard
is owned jointly by the funds it oversees and thus indirectly by the
shareholders
in those funds. Most other mutual funds are operated by
management
companies that are owned by third parties—either public or
private
stockholders—and not by the funds they
serve. |
Investment
Advisor
The Vanguard Group, Inc., P.O. Box
2600, Valley Forge, PA 19482, which began operations in 1975, serves as advisor
to the Fund through its Fixed Income Group. As of December 31, 2022, Vanguard
served as advisor for approximately $6 trillion in assets. Vanguard provides
investment advisory services to the Fund pursuant to the Funds’ Service
Agreement and subject to the supervision and oversight of the trustees and
officers of the Fund.
For the fiscal year ended December
31, 2022, the advisory expenses represented an effective annual rate of less
than 0.01% of the Fund’s average net assets.
20
Under the terms of
an SEC exemption, the Fund's board of trustees may, without prior approval from
shareholders, change the terms of an advisory agreement with a third-party
investment advisor or hire a new third-party investment advisor—either as a
replacement for an existing advisor or as an additional advisor. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. As the Fund's sponsor and overall manager, Vanguard may provide
investment advisory services to the Fund at any time. Vanguard may also
recommend to the board of trustees that an advisor be hired, terminated, or
replaced or that the terms of an existing advisory agreement be revised. The
Fund has filed an application seeking a similar SEC exemption with respect to
investment advisors that are wholly owned subsidiaries of Vanguard. If the
exemption is granted, the Fund may rely on the new SEC relief.
For a discussion of
why the board of trustees approved the Fund's investment advisory arrangement,
see the most recent semiannual report to shareholders covering the fiscal period
ended June 30.
The manager
primarily responsible for the day-to-day management of the Fund is:
Joshua C.
Barrickman, CFA,
Principal of Vanguard and co-head of Vanguard’s Fixed Income Indexing Americas.
He has been with Vanguard since 1998, has worked in investment management since
1999, has managed investment portfolios since 2005, and has managed the Fund
since 2010. Education: B.S., Ohio Northern University; M.B.A., Lehigh
University.
The Fund's
Statement
of Additional Information provides
information about the portfolio manager’s compensation, other accounts under
management, and ownership of shares of the Fund.
Dividends,
Capital Gains, and Taxes
Fund
Distributions
The Fund
distributes to shareholders virtually all of its net income (interest less
expenses) as well as any net short-term or long-term capital gains realized from
the sale of its holdings. From time to time, the Fund may also make
distributions that are treated as a return of capital. Income dividends
generally are declared daily and distributed monthly; capital gains
distributions, if any, generally occur annually in December. In addition, the
Fund may occasionally make a supplemental distribution at some other time during
the year.
21
You can receive
distributions of income or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund. However, if you are
investing through an employer-sponsored retirement or savings plan, your
distributions will be automatically reinvested in additional Fund
shares.
|
Plain
Talk About Distributions |
|
As
a shareholder, you are entitled to your portion of a fund’s income from
interest
as well as capital gains from the fund’s sale of investments. Income
consists
of interest the fund earns from its money market and bond
investments.
Capital gains are realized whenever the fund sells securities for
higher
prices than it paid for them. These capital gains are either short-term
or
long-term, depending on whether the fund held the securities for one year
or
less or for more than one
year. |
Basic
Tax Points
Investors in
taxable accounts should be aware of the following basic federal income tax
points:
• Distributions are
taxable to you whether or not you reinvest these amounts in additional Fund
shares.
• Distributions
declared in December—if paid to you by the end of January—are taxable as if
received in December.
• Any income
dividend distribution or short-term capital gains distribution that you receive
is taxable to you as ordinary income.
• Any distribution
of net long-term capital gains is taxable to you as long-term capital gains, no
matter how long you have owned shares in the Fund.
• Capital gains
distributions may vary considerably from year to year as a result of the Fund's
normal investment activities and cash flows.
• Your cost basis
in the Fund will be decreased by the amount of any return of capital that you
receive. This, in turn, will affect the amount of any capital gain or loss that
you realize when selling or exchanging your Fund shares.
• Return of capital
distributions generally are not taxable to you until your cost basis has been
reduced to zero. If your cost basis is at zero, return of capital distributions
will be treated as capital gains.
• A sale or
exchange of Fund shares is a taxable event. This means that you may have a
capital gain to report as income, or a capital loss to report as a deduction,
when you complete your tax return.
22
• Vanguard (or your
intermediary) will send you a statement each year showing the tax status of all
of your distributions.
Individuals,
trusts, and estates whose income exceeds certain threshold amounts are subject
to a 3.8% Medicare contribution tax on “net investment income.” Net investment
income takes into account distributions paid by the Fund and capital gains from
any sale or exchange of Fund shares.
Income dividends
and capital gains distributions that you receive, as well as your gains or
losses from any sale or exchange of Fund shares, may be subject to state and
local income taxes. Depending on your state’s rules, however, any dividends
attributable to interest earned on direct
obligations of the
U.S. government may be exempt from state and local taxes. Vanguard will notify
you each year how much, if any, of your dividends may qualify for this
exemption.
This prospectus
provides general tax information only. If you are investing through a
tax-advantaged account, such as an IRA or an employer-sponsored retirement or
savings plan, special tax rules apply. Please consult your tax advisor for
detailed information about any tax consequences for you.
General
Information
Backup
withholding. By law, Vanguard
must withhold 24% of any taxable distributions or redemptions from your account
if you do not:
• Provide your
correct taxpayer identification number.
• Certify that the
taxpayer identification number is correct.
• Confirm that you
are not subject to backup withholding.
Similarly, Vanguard
(or your intermediary) must withhold taxes from your account if the IRS
instructs us to do so.
Foreign
investors. Vanguard funds
offered for sale in the United States (Vanguard U.S. funds), including the Fund
offered in this prospectus, are not widely available outside the United States.
Non-U.S. investors should be aware that U.S. withholding and estate taxes and
certain U.S. tax reporting requirements may apply to any investments in Vanguard
U.S. funds. Foreign investors should visit the non-U.S. investors page on our
website at vanguard.com for information on
Vanguard’s non-U.S. products.
Invalid
addresses. If an income
dividend distribution or capital gains distribution check mailed to your address
of record is returned as undeliverable, Vanguard will automatically reinvest the
distribution and all future distributions until you provide us with a valid
mailing address. Reinvestments will receive the net asset value calculated on
the date of the reinvestment.
23
Share
Price
Share price, also
known as net
asset value (NAV), is
calculated as of the close of regular trading on the New York Stock Exchange
(NYSE), generally 4 p.m., Eastern time, on each day that the NYSE is open for
business (a business day). In the rare event the NYSE experiences unanticipated
disruptions and is unavailable at the close of the trading day, NAVs will be
calculated as of the close of regular trading on the Nasdaq (or another
alternate exchange if the Nasdaq is unavailable, as determined at Vanguard’s
discretion), generally 4 p.m., Eastern time. Each share class has its own NAV,
which is computed by dividing the total assets, minus liabilities, allocated to
the share class by the number of Fund shares outstanding for that class. On U.S.
holidays or other days when the NYSE is closed, the NAV is not calculated, and
the Fund does not sell or redeem shares. However, on those days the value of the
Fund’s assets may be affected to the extent that the Fund holds securities that
change in value on those days (such as foreign securities that trade on foreign
markets that are open).
Debt securities
held by a Vanguard fund are valued based on information furnished by an
independent pricing service or market quotations. When a fund determines that
pricing-service information or market quotations either are not readily
available or do not accurately reflect the value of a security, the security is
priced at its fair
value
(the amount that the owner might reasonably expect to receive upon the current
sale of the security).
The values of any
foreign securities held by a fund are converted into U.S. dollars using an
exchange rate obtained from an independent third party as of the close of
regular trading on the NYSE. The values of any mutual fund shares, including
institutional money market fund shares, held by a fund are based on the NAVs of
the shares. The values of any ETF shares or closed-end fund shares held by a
fund are based on the market value of the shares.
A fund also may use
fair-value pricing on bond market holidays when the fund is open for business
(such as Columbus Day and Veterans Day). Fair-value prices are determined by
Vanguard according to procedures adopted by the board of trustees. When
fair-value pricing is employed, the prices of securities used by a fund to
calculate the NAV may differ from quoted or published prices for the same
securities.
The Fund has authorized certain
financial intermediaries and their designees and may, from time to time,
authorize certain funds of funds for which Vanguard serves as the investment
advisor (Vanguard Funds of
Funds), to accept orders to buy or sell
fund shares on its behalf. The Fund will be deemed to receive an order when
accepted by the financial intermediary, its designee, or one of the Vanguard
Funds of Funds, and the order will receive the NAV next computed by the Fund
after such acceptance.
Vanguard fund share prices are published daily on our website at vanguard.com/prices.
Vanguard fund share prices are published daily on our website at vanguard.com/prices.
24
Financial
Highlights
Financial
highlights information is intended to help you understand a fund’s performance
for the past five years (or, if shorter, its period of operations). Certain
information reflects financial results for a single fund share. Total return
represents the rate that an investor would have earned or lost each period on an
investment in a fund or share class (assuming reinvestment of all
distributions). This information has been obtained from the financial statements
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report, along with fund financial statements, is included
in a fund’s most recent annual report to shareholders. You may obtain a free
copy of a fund’s latest annual or semiannual report, which is available upon
request.
Vanguard
Total Bond Market II Index Fund Investor Shares
|
|
Year Ended December
31, | ||||
|
For a
Share Outstanding Throughout Each Period |
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$11.05 |
$11.46 |
$11.01 |
$10.42 |
$10.72 |
|
Investment
Operations |
|
|
|
|
|
|
Net
Investment Income1 |
.223 |
.194 |
.249 |
.299 |
.285 |
|
Net
Realized and Unrealized Gain (Loss) on
Investments |
(1.672) |
(.393) |
.551 |
.590 |
(.301) |
|
Total from
Investment Operations |
(1.449) |
(.199) |
.800 |
.889 |
(.016) |
|
Distributions |
|
|
|
|
|
|
Dividends
from Net Investment Income |
(.223) |
(.194) |
(.249) |
(.299) |
(.284) |
|
Distributions
from Realized Capital Gains |
(.008) |
(.017) |
(.101) |
— |
(.000)2 |
|
Total
Distributions |
(.231) |
(.211) |
(.350) |
(.299) |
(.284) |
|
Net
Asset Value, End of Period |
$9.37 |
$11.05 |
$11.46 |
$11.01 |
$10.42 |
|
Total
Return3 |
-13.19% |
-1.73% |
7.31% |
8.62% |
-0.10% |
|
Ratios/Supplemental
Data |
|
|
|
|
|
|
Net
Assets, End of Period (Millions) |
$115,524 |
$141,913 |
$129,026 |
$116,505 |
$91,653 |
|
Ratio of
Total Expenses to Average Net Assets |
0.09%4 |
0.09% |
0.09% |
0.09% |
0.09% |
|
Ratio of
Net Investment Income to Average Net
Assets |
2.25% |
1.74% |
2.17% |
2.76% |
2.74% |
|
Portfolio
Turnover Rate5 |
49% |
76% |
119% |
66% |
90% |
|
|
|
|
1 |
Calculated
based on average shares outstanding. |
|
2 |
Distribution
was less than $.001 per share. |
|
3 |
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. |
|
4 |
The
ratio of expenses to average net assets for the period net of reduction
from custody fee offset arrangements
was
0.09%. |
|
5 |
Includes
29%, 38%, 32%, 12%, and 22%, respectively, attributable to
mortgage-dollar-roll
activity. |
25
Investing
With Vanguard
Vanguard Total Bond Market II Index
Fund has been established by Vanguard as an investment vehicle for Vanguard
funds of funds as well as certain similar trusts and accounts. The Fund is not
available to other investors. Vanguard reserves the right to change the
availability of the Fund at any time without prior notice to shareholders.
Purchases, redemptions, and exchanges of shares issued by Vanguard Total Bond
Market II Index Fund are conducted by Vanguard or its affiliates on behalf of
the participating funds, trusts, and accounts.
Transactions will
be based on the next-determined net asset value (NAV) of the Fund’s Investor
Shares after Vanguard receives the request (or, in the case of new
contributions, the next-determined NAV after Vanguard receives the purchase
request). If the request is received before the close of trading on the NYSE
(generally 4 p.m., Eastern time), the investor will receive that day’s NAV and
trade date. Transaction requests received after that time will receive a trade
date of the first business day following the date of receipt. The trade date may
vary, depending on the method of payment for the transaction. NAVs are
calculated only on days that the NYSE is open for trading (a business day). In
the rare event the NYSE experiences unanticipated disruptions and is unavailable
at the close of the trading day, NAVs will be calculated as of the close of
regular trading on the Nasdaq (or another alternate exchange if the Nasdaq is
unavailable, as determined at Vanguard’s discretion), generally 4 p.m., Eastern
time. The time selected for NAV calculation in this rare event shall also serve
as the conclusion of the trading day.
If a redemption
request is received in good order, Vanguard typically expects that redemption
proceeds will be paid by the Fund within one business day of the trade date;
however, in certain circumstances, investors may experience a longer settlement
period at the time of the transaction.
Portfolio
Holdings
Please consult the
Fund's Statement
of Additional Information or our website for
a description of the policies and procedures that govern disclosure of the
Fund’s portfolio holdings.
Shareholder
Rights
The Fund's
Agreement and Declaration of Trust, as amended, requires a shareholder bringing
a derivative action on behalf of Vanguard Bond Index Funds (the Trust) that is
subject to a pre-suit demand to collectively hold at least 10% of the
outstanding shares of the Trust or at least 10% of the outstanding shares of the
series or class to which the demand relates and to undertake to reimburse the
Trust for the expense of any counsel or advisors used when considering the
merits of the demand in the event that the board of trustees determines not to
26
bring such action.
In each case, these requirements do not apply to claims arising under the
federal securities laws to the extent that any such federal securities laws,
rules, or regulations do not permit such application.
Additional
Information
The Fund's Bylaws
require, unless the Trust otherwise consents in writing, that the U.S. Federal
District Courts be the sole and exclusive forum for the resolution of complaints
under the Securities Act of 1933. This provision may limit a shareholder’s
ability to bring a claim in a different forum and may result in increased
shareholder costs in pursuing such a claim.
|
Vanguard
Fund |
Inception
Date |
Vanguard
Fund
Number |
CUSIP
Number |
|
Vanguard
Total Bond Market II Index Fund | |||
|
Investor
Shares |
1/26/2009 |
635 |
92203C105 |
CGS identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard & Poor’s Financial Services, LLC, and are not for use or dissemination in a manner that would serve as a substitute for any CUSIP service. The CUSIP Database, ©2023 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.
27
CFA® is a
registered trademark owned by CFA Institute.
”Bloomberg®” and Bloomberg U.S. Aggregate
Float Adjusted Index (the “Index” or “Bloomberg Index”) are service marks of
Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services
Limited (“BISL”), the administrator of the Index (collectively, “Bloomberg”),
and have been licensed for use for certain purposes by Vanguard.
Vanguard Total Bond Market II
Index Fund is not sponsored, endorsed, sold or promoted by Bloomberg. Bloomberg
does not make any representation or warranty, express or implied, to the owners
of or counterparties to Vanguard
Total Bond Market
II Index Fund or any member of the public regarding the advisability of
investing in securities generally or in Vanguard Total Bond Market II Index Fund
particularly. The only relationship of Bloomberg to Vanguard is the licensing of
certain trademarks, trade names and service marks and of the Bloomberg U.S.
Aggregate Float Adjusted Index, which is determined, composed and calculated by
BISL without regard to Vanguard or Vanguard Total Bond Market II Index Fund.
Bloomberg has no obligation to take the needs of Vanguard or the owners of
Vanguard
Total Bond Market
II Index Fund into consideration in determining, composing or calculating the
Bloomberg U.S. Aggregate Float Adjusted Index. Bloomberg is not responsible for
and has not participated in the determination of the timing of, prices at, or
quantities of Vanguard Total Bond Market II Index Fund to be issued. Bloomberg
shall not have any obligation or liability, including, without limitation, to
Vanguard Total Bond Market II Index Fund customers, in connection with the
administration, marketing or trading of Vanguard Total Bond Market II Index
Fund.
BLOOMBERG DOES NOT GUARANTEE
THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG U.S. AGGREGATE FLOAT
ADJUSTED INDEX OR ANY DATA RELATED THERETO AND SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. BLOOMBERG DOES NOT MAKE ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY VANGUARD, OWNERS
OF VANGUARD TOTAL BOND MARKET II INDEX FUND OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE BLOOMBERG U.S. AGGREGATE FLOAT ADJUSTED INDEX OR ANY DATA RELATED
THERETO. BLOOMBERG DOES NOT MAKE ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE BLOOMBERG U.S. AGGREGATE FLOAT ADJUSTED INDEX OR ANY
DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM
EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS, AND ITS AND THEIR RESPECTIVE
EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY
OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES—WHETHER DIRECT, INDIRECT,
CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE—ARISING IN CONNECTION WITH
VANGUARD TOTAL BOND MARKET II INDEX FUND OR BLOOMBERG U.S. AGGREGATE FLOAT
ADJUSTED INDEX OR ANY DATA OR VALUES RELATING THERETO—WHETHER ARISING FROM THEIR
NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY
THEREOF.
28
Glossary
of Investment Terms
Bond. A debt security
(IOU) issued by a corporation, a government, or a government agency in exchange
for the money the bondholder lends it. In most instances, the issuer agrees to
pay back the loan by a specific date and generally to make regular interest
payments until that date.
Capital
Gains Distributions. Payments to mutual
fund shareholders of gains realized on securities that a fund has sold at a
profit, minus any realized losses.
Coupon
Rate.
The interest rate paid by the issuer of a debt security until its maturity. It
is expressed as an annual percentage of the face value of the
security.
Dividend
Distributions. Payments to mutual
fund shareholders of income from interest or dividends generated by a fund's
investments.
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 it does not include the transaction costs of buying and selling
portfolio securities.
Face
Value.
The amount to be paid at a bond’s maturity; also known as the par value or
principal.
Fixed
Income Security. An investment,
such as a bond, representing a debt that must be repaid by a specified date, and
on which the borrower may pay a fixed, variable, or floating rate of
interest.
Float-Adjusted
Index.
An index that weights its constituent securities based on the value of the
constituent securities that are available for public trading, rather than the
value of all constituent securities. Some portion of an issuer’s securities may
be unavailable for public trading because, for example, those securities are
owned by company insiders on a restricted basis or by a government agency. By
excluding unavailable securities, float-adjusted indexes can produce a more
accurate picture of the returns actually experienced by investors in the
measured market.
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 generally measured from the inception
date.
29
Indexing. A low-cost
investment strategy in which a mutual fund attempts to track—rather than
outperform—a specified market benchmark, or “index.”
Investment-Grade
Bond.
A debt security whose credit quality is considered by independent bond rating
agencies, or through independent analysis conducted by a fund's advisor, to be
sufficient to ensure timely payment of principal and interest under current
economic circumstances. Debt securities rated in one of the four highest rating
categories are considered investment-grade. Other debt securities may be
considered by an advisor to be investment-grade.
Joint
Committed Credit Facility. The Fund
participates, along with other funds managed by Vanguard, in a committed credit
facility provided by a syndicate of lenders pursuant to a credit agreement that
may be renewed annually; each Vanguard fund is individually liable for its
borrowings, if any, under the credit facility. The amount and terms of the
committed credit facility are subject to approval by the Fund's board of
trustees and renegotiation with the lender syndicate on an annual
basis.
Mutual
Fund.
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over
time.
New
York Stock Exchange (NYSE). A stock exchange
based in New York City that is open for regular trading on business days, Monday
through Friday, from 9:30 a.m. to 4 p.m., Eastern time.
Principal. The face value of
a debt instrument or the amount of money put into an investment.
Return
of Capital. A return of
capital occurs when a fund's distributions exceed its earnings in a fiscal year.
A return of capital is a return of all or part of your original investment or
amounts paid in excess of your original investment in a fund. In general, a
return of capital reduces your cost basis in a fund's shares and is not taxable
to you until your cost basis has been reduced to zero.
Securities. Stocks, bonds,
money market instruments, and other investments.
Total
Return. A percentage
change, over a specified time period, in a mutual fund's net asset value,
assuming the reinvestment of all distributions of dividends and capital
gains.
30
Volatility. The fluctuations
in value of a mutual fund or other security. The greater a fund's volatility,
the wider the fluctuations in its returns.
Yield. Income (interest
or dividends) earned by an investment, expressed as a percentage of the
investment’s price.
31
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For
More Information
If you would
like more information about Vanguard Total Bond Market II Index Fund, the
following documents are available free upon request:
Annual/Semiannual
Reports to Shareholders
Additional
information about the Fund's investments is available in the Fund's annual and
semiannual reports to shareholders. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
Statement
of Additional Information (SAI)
The SAI
provides more detailed information about the Fund and is incorporated by
reference into (and thus legally a part of) this prospectus.
To receive a
free copy of the latest annual or semiannual report or the SAI, or to request
additional information about the Fund or other Vanguard funds, please visit
vanguard.com
or contact us
as follows:
If
you are an individual investor:
Telephone: 800-662-7447; Text telephone for people with hearing impairment: 800-749-7273
Telephone: 800-662-7447; Text telephone for people with hearing impairment: 800-749-7273
If
you are a client of Vanguard’s Institutional Division:
Telephone: 888-809-8102; Text telephone for people with hearing impairment: 800-749-7273
Telephone: 888-809-8102; Text telephone for people with hearing impairment: 800-749-7273
If you are a
current Vanguard shareholder and would like information about your account,
account transactions, and/or account statements, please call:
Client
Services Department
Telephone: 800-662-2739; Text telephone for people with hearing impairment: 800-749-7273
Telephone: 800-662-2739; Text telephone for people with hearing impairment: 800-749-7273
Information
Provided by the SEC
Reports and
other information about the Fund are available in the EDGAR database on the
SEC’s website at sec.gov, or you can receive copies of this information, for a
fee, by electronic request at the following email address:
[email protected].
Fund's
Investment Company Act file number: 811-04681
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Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.
P 635 042023
Vanguard Marketing Corporation, Distributor.
P 635 042023