At July 31, 2015, counterparties had deposited in segregated accounts securities and cash with a value of $2,007,000 in connection with TBA transactions.
E. Capital gain distributions are determined on a tax basis and may differ from realized capital gains for financial reporting purposes Differences may be permanent or temporary Permanent differences
are reclassified among capital accounts in the financial statements to reflect their tax character.
Temporary differences arise when gains or losses are recognized in different periods for financial
statement and tax purposes. These differences will reverse at some time in the future. The fund’s
tax-basis capital gains and losses are determined only at the end of each fiscal year.
At July 31, 2015, the cost of investment securities for tax purposes was $5,427,367,000. Net
unrealized appreciation of investment securities for tax purposes was $11,666,000, consisting
of unrealized gains of $14,736,000 on securities that had risen in value since their purchase and
$3,070,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended July 31, 2015, the fund purchased $8,160,908,000 of investment
securities and sold $8,312,084,000 of investment securities, other than temporary cash investments.
G. The following table summarizes the fund’s options written during the six months ended
July 31, 2015.
Premiums
Number of Received
Options Written Contracts ($000)
Balance at January 31, 2015 1,345 503 Options Written 4,470 1,539 Options Expired (2,671) (902) Options Closed (2,523) (929) Options Exercised — — Balance at July 31, 2015 621 211
H. Capital share transactions for each class of shares were:
Six Months Ended Year Ended July 31, 2015 January 31, 2015 Amount Shares Amount Shares
($000) (000) ($000) (000) Investor Shares
Issued 77,886 7,223 174,390 16,219
Issued in Lieu of Cash Distributions 3,848 357 5,384 500 Redeemed (154,907) (14,371) (315,019) (29,298) Net Increase (Decrease)—Investor Shares (73,173) (6,791) (135,245) (12,579) Admiral Shares
Issued 541,920 50,267 1,149,586 106,916
Issued in Lieu of Cash Distributions 18,989 1,760 26,358 2,449 Redeemed (503,949) (46,752) (1,291,047) (120,040) Net Increase (Decrease)—Admiral Shares 56,960 5,275 (115,103) (10,675)
I. Management has determined that no material events or transactions occurred subsequent to
July 31, 2015, that would require recognition or disclosure in these financial statements.
Volatility Measures Barclays 5–10 Year Treasury Index Barclays Aggregate Bond Index R-Squared 0.98 0.89 Beta 0.77 1.12
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Fund Profile
As of July 31, 2015
1 The expense ratios shown are from the prospectus dated May 27, 2015, and represent estimated costs for the current fiscal year. For the six months ended July 31, 2015, the annualized expense ratios were 0.19% for Investor Shares and 0.09% for Admiral Shares.
Financial Attributes Fund Barclays 5–10 Year Treasury Index Barclays Aggregate Bond Index Number of Bonds 91 55 9,496 Yield to Maturity (before expenses) 1.7% 1.9% 2.4% Average Coupon 2.0% 2.4% 3.2% Average Duration 5.3 years 6.5 years 5.6 years Average Effective
Maturity 5.9 years 7.0 years 7.8 years Short-Term
Reserves -4.0% — —
The fund invested a portion of its cash reserves in equity and fixed income markets through the use of index futures contracts. After the effect of the futures investments, the fund's temporary cash portion was negative.
Share-Class Characteristics
Investor Shares
Admiral Shares Ticker Symbol VFITX VFIUX Expense Ratio1 0.20% 0.10% 30-Day SEC Yield 1.53% 1.63%
47
Distribution by Effective Maturity (% of portfolio) Under 1 Year -4.4% 1 - 3 Years 0.3 3 - 5 Years 48.7 5 - 7 Years 33.7 7 - 10 Years 21.7
Distribution by Credit Quality (% of portfolio)
U.S. Government 98.7%
Not Rated 1.3
Credit-quality ratings are obtained from Moody's and S&P, and the higher rating for each issue is shown. "Not Rated" is used to classify securities for which a rating is not available. Not rated securities include a fund's investment in Vanguard Market Liquidity Fund or Vanguard Municipal Cash Management Fund, each of which invests in high-quality money market instruments and may serve as a cash management vehicle for the Vanguard funds, trusts, and accounts. For more information about these ratings, see the Glossary entry for Credit Quality.
Investment Focus
Average Maturity Short
Treasury/ Agency Investment-Grade Corporate Below Investment-Grade Med. Long Credit Quality
Sector Diversification (% of portfolio)
Government Mortgage-Backed 4.6%
Treasury/Agency 95.4
The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government.
All of the returns in this report represent past performance, which is not a guarantee of future
results that may be achieved by the fund. (Current performance may be lower or higher than
the performance data cited. For performance data current to the most recent month-end, visit
our website at vanguard.com/performance.) Note, too, that both investment returns and principal
value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than
their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund
distributions or on the sale of fund shares.
Performance Summary
See Financial Highlights for dividend and capital gains information.
Fiscal-Year Total Returns (%): January 31, 2005, Through July 31, 2015
Investor Shares
Barclays 5–10 Year Treasury Index Fiscal Year Income Returns Capital Returns Total Returns Total Returns
2006 4.55% -3.14% 1.41% 1.05% 2007 4.69 -1.47 3.22 3.04 2008 4.98 8.70 13.68 14.13 2009 3.88 3.41 7.29 9.48 2010 3.10 -0.39 2.71 0.47 2011 2.70 2.89 5.59 6.69 2012 2.11 8.25 10.36 13.95 2013 1.34 -0.24 1.10 1.46 2014 1.47 -2.21 -0.74 -1.47 2015 1.74 3.64 5.38 7.66 2016 0.80 -1.87 -1.07 -1.66
Note: For 2016, performance data reflect the six months ended July 31, 2015.
48
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Ten Years Inception Date One Year Five Years Income Capital Total Investor Shares 10/28/1991 2.36% 2.92% 2.91% 1.60% 4.51%
Financial Statements (unaudited)
Statement of Net Assets
As of July 31, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at
the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual
and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with
the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms
N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s
Public Reference Room (see the back cover of this report for further information).
U.S. Government and Agency Obligations (104.1%) U.S. Government Securities (99.3%)
United States Treasury Note/Bond 0.625% 7/31/17 20,000 19,981 United States Treasury Note/Bond 1.375% 9/30/18 8,000 8,075 United States Treasury Note/Bond 1.250% 10/31/18 60,000 60,281 United States Treasury Note/Bond 1.375% 11/30/18 13,000 13,112 United States Treasury Note/Bond 1.375% 12/31/18 10,000 10,072
1 United States Treasury Note/Bond 1.500% 12/31/18 133,000 134,496
United States Treasury Note/Bond 1.250% 1/31/19 91,000 91,199 United States Treasury Note/Bond 1.500% 1/31/19 77,000 77,830 United States Treasury Note/Bond 2.750% 2/15/19 40,000 42,150 United States Treasury Note/Bond 1.375% 2/28/19 15,000 15,089 United States Treasury Note/Bond 1.500% 2/28/19 91,000 91,938 United States Treasury Note/Bond 1.500% 3/31/19 78,000 78,780 United States Treasury Note/Bond 1.625% 3/31/19 49,000 49,682 United States Treasury Note/Bond 1.625% 4/30/19 75,000 76,019 United States Treasury Note/Bond 1.125% 5/31/19 78,000 77,610 United States Treasury Note/Bond 1.500% 5/31/19 54,000 54,456 United States Treasury Note/Bond 1.625% 6/30/19 75,000 75,937 United States Treasury Note/Bond 0.875% 7/31/19 118,000 115,935 United States Treasury Note/Bond 1.625% 7/31/19 55,000 55,636 United States Treasury Note/Bond 3.625% 8/15/19 18,000 19,620 United States Treasury Note/Bond 1.000% 8/31/19 72,000 71,010 United States Treasury Note/Bond 1.625% 8/31/19 7,000 7,080 United States Treasury Note/Bond 1.000% 9/30/19 157,000 154,670 United States Treasury Note/Bond 1.750% 9/30/19 105,000 106,608 United States Treasury Note/Bond 1.250% 10/31/19 17,000 16,915 United States Treasury Note/Bond 1.500% 10/31/19 68,000 68,308 United States Treasury Note/Bond 3.375% 11/15/19 56,000 60,585 United States Treasury Note/Bond 1.000% 11/30/19 40,000 39,300 United States Treasury Note/Bond 1.500% 11/30/19 87,000 87,381 United States Treasury Note/Bond 1.125% 12/31/19 111,000 109,544 United States Treasury Note/Bond 1.625% 12/31/19 53,000 53,439 United States Treasury Note/Bond 1.250% 1/31/20 125,000 123,886 United States Treasury Note/Bond 1.375% 1/31/20 43,000 42,852 United States Treasury Note/Bond 3.625% 2/15/20 56,000 61,311 United States Treasury Note/Bond 1.250% 2/29/20 81,000 80,215 United States Treasury Note/Bond 1.375% 2/29/20 55,000 54,803
Face Market
Maturity Amount Value•
Coupon Date ($000) ($000)
United States Treasury Note/Bond 1.125% 3/31/20 101,000 99,327 United States Treasury Note/Bond 1.375% 3/31/20 109,000 108,489 United States Treasury Note/Bond 1.125% 4/30/20 43,000 42,234 United States Treasury Note/Bond 1.375% 4/30/20 12,000 11,929 United States Treasury Note/Bond 1.375% 5/31/20 8,000 7,942 United States Treasury Note/Bond 1.500% 5/31/20 64,000 63,980 United States Treasury Note/Bond 1.625% 6/30/20 60,850 61,135 United States Treasury Note/Bond 1.875% 6/30/20 6,000 6,096 United States Treasury Note/Bond 1.625% 7/31/20 52,000 52,228 United States Treasury Note/Bond 2.000% 7/31/20 13,000 13,274 United States Treasury Note/Bond 2.625% 8/15/20 70,500 74,058 United States Treasury Note/Bond 2.125% 8/31/20 48,000 49,275 United States Treasury Note/Bond 2.000% 9/30/20 13,500 13,766 United States Treasury Note/Bond 1.750% 10/31/20 80,000 80,500 United States Treasury Note/Bond 2.625% 11/15/20 219,000 229,814 United States Treasury Note/Bond 2.000% 11/30/20 12,500 12,727 United States Treasury Note/Bond 2.125% 1/31/21 32,000 32,730 United States Treasury Note/Bond 2.000% 2/28/21 41,300 41,952 United States Treasury Note/Bond 2.250% 3/31/21 16,000 16,455 United States Treasury Note/Bond 3.125% 5/15/21 15,000 16,139 United States Treasury Note/Bond 2.000% 5/31/21 48,000 48,675 United States Treasury Note/Bond 2.125% 6/30/21 39,000 39,786 United States Treasury Note/Bond 2.250% 7/31/21 50,000 51,320 United States Treasury Note/Bond 2.125% 8/15/21 122,500 124,816 United States Treasury Note/Bond 2.000% 8/31/21 4,000 4,046 United States Treasury Note/Bond 2.125% 9/30/21 39,500 40,228 United States Treasury Note/Bond 2.000% 10/31/21 51,000 51,526 United States Treasury Note/Bond 2.000% 11/15/21 97,000 97,954 United States Treasury Note/Bond 1.875% 11/30/21 55,000 55,120 United States Treasury Note/Bond 2.125% 12/31/21 67,500 68,618 United States Treasury Note/Bond 1.500% 1/31/22 65,000 63,537 United States Treasury Note/Bond 2.000% 2/15/22 65,000 65,569 United States Treasury Note/Bond 1.750% 2/28/22 14,000 13,891 United States Treasury Note/Bond 1.750% 3/31/22 38,000 37,668 United States Treasury Note/Bond 1.750% 4/30/22 90,000 89,156 United States Treasury Note/Bond 1.750% 5/15/22 59,000 58,401 United States Treasury Note/Bond 1.875% 5/31/22 63,000 62,892 United States Treasury Note/Bond 2.125% 6/30/22 138,000 139,875 United States Treasury Note/Bond 2.000% 7/31/22 65,000 65,325 United States Treasury Note/Bond 1.625% 8/15/22 41,000 40,155 United States Treasury Note/Bond 1.625% 11/15/22 62,000 60,527 United States Treasury Note/Bond 2.000% 2/15/23 101,000 100,969 United States Treasury Note/Bond 1.750% 5/15/23 100,100 97,973 United States Treasury Note/Bond 2.500% 8/15/23 70,400 72,710 United States Treasury Note/Bond 2.750% 11/15/23 52,500 55,224 United States Treasury Note/Bond 2.750% 2/15/24 102,000 107,100 United States Treasury Note/Bond 2.500% 5/15/24 117,000 120,437 United States Treasury Note/Bond 2.375% 8/15/24 120,500 122,646 United States Treasury Note/Bond 2.250% 11/15/24 112,500 113,238 United States Treasury Note/Bond 7.500% 11/15/24 5,000 7,281 United States Treasury Note/Bond 2.000% 2/15/25 142,500 140,229 United States Treasury Note/Bond 2.125% 5/15/25 135,100 134,361
5,691,108
Face Market
Maturity Amount Value•
Coupon Date ($000) ($000)
Conventional Mortgage-Backed Securities (4.8%)
2,3,4 Fannie Mae Pool 3.500% 9/1/45 175,500 181,643
2,3,4 Fannie Mae Pool 4.000% 9/1/45 90,000 95,498
2,3 Freddie Mac Gold Pool 7.000% 12/1/15–3/1/16 7 7
277,148
Total U.S. Government and Agency Obligations (Cost $5,899,213) 5,968,256
Shares
Temporary Cash Investment (1.2%) Money Market Fund (1.2%)
5 Vanguard Market Liquidity Fund
(Cost $71,687) 0.152% 71,686,833 71,687
Total Investments (105.3%) (Cost $5,970,900) 6,039,943
Expiration
Date Contracts
Liability for Options Written (0.0%)
Call Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $127.00 8/21/15 94 (84) Call Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $128.00 8/21/15 170 (69) Call Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $127.50 8/21/15 94 (57) Call Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $128.50 8/21/15 27 (7) Put Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $126.00 8/21/15 94 (16) Put Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $125.50 8/21/15 131 (12) Put Options on 10-year U.S. Treasury Note
Futures Contracts, Strike Price $125.00 8/21/15 94 (6) Total Liability for Options Written (Premiums received $239) (251) Other Assets and Liabilities (-5.3%)
Other Assets 451,696
Other Liabilities (757,854)
(306,158)
Net Assets (100%) 5,733,534
Face Market
Maturity Amount Value•
Coupon Date ($000) ($000)
Statement of Assets and Liabilities Assets
Investments in Securities, at Value
Unaffiliated Issuers 5,968,256
Affiliated Vanguard Funds 71,687
Total Investments in Securities 6,039,943
Receivables for Investment Securities Sold 421,082
Receivables for Accrued Income 25,945
Other Assets 4,669
Total Assets 6,491,639
Liabilities
Payables for Investment Securities Purchased 746,310
Option Contracts Written 251
Other Liabilities 11,544
Total Liabilities 758,105
Net Assets 5,733,534
At July 31, 2015, net assets consisted of:
Amount
($000)
Paid-in Capital 5,633,501
Undistributed Net Investment Income 12
Accumulated Net Realized Gains 32,117
Unrealized Appreciation (Depreciation)
Investment Securities 69,043
Futures Contracts (1,127)
Options on Futures Contracts (12)
Net Assets 5,733,534
Investor Shares—Net Assets
Applicable to 113,082,743 outstanding $.001 par value shares of
beneficial interest (unlimited authorization) 1,292,911
Net Asset Value Per Share—Investor Shares $11.43
Admiral Shares—Net Assets
Applicable to 388,392,094 outstanding $.001 par value shares of
beneficial interest (unlimited authorization) 4,440,623
Net Asset Value Per Share—Admiral Shares $11.43
Amount
($000)
• See Note A in Notes to Financial Statements.
1 Securities with a value of $1,416,000 have been segregated as initial margin for open futures contracts.
2 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
3 The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called.
4 Includes securities purchased on a when-issued or delayed-delivery basis for which the fund has not taken delivery as of July 31, 2015. 5 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the
7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements. 52
Six Months Ended July 31, 2015 ($000) Investment Income Income Interest1 51,785 Total Income 51,785 Expenses
The Vanguard Group—Note B
Investment Advisory Services 278
Management and Administrative—Investor Shares 1,022 Management and Administrative—Admiral Shares 1,341
Marketing and Distribution—Investor Shares 139
Marketing and Distribution—Admiral Shares 334
Custodian Fees 31
Shareholders’ Reports—Investor Shares 24
Shareholders’ Reports—Admiral Shares 17
Trustees’ Fees and Expenses 2
Total Expenses 3,188
Net Investment Income 48,597
Realized Net Gain (Loss)
Investment Securities Sold 38,919
Futures Contracts 744
Options on Futures Contracts 460
Realized Net Gain (Loss) 40,123
Change in Unrealized Appreciation (Depreciation)
Investment Securities (143,904)
Futures Contracts 734
Options on Futures Contracts 676
Change in Unrealized Appreciation (Depreciation) (142,494) Net Increase (Decrease) in Net Assets Resulting from Operations (53,774) 1 Interest income from an affiliated company of the fund was $22,000.
Statement of Operations
See accompanying Notes, which are an integral part of the Financial Statements.