Vanguard U.S. Government Bond Funds

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Vanguard U.S. Government Bond Funds

Vanguard Short-Term Treasury Fund

Vanguard Short-Term Federal Fund Vanguard Intermediate-Term Treasury Fund Vanguard GNMA Fund

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Contents

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

See the Glossary for definitions of investment terms used in this report.

About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.

On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.

Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.

As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.

Your Fund’s Total Returns. . . 1

Chairman’s Letter. . . 4

Advisors’ Report. . . 11

Short-Term Treasury Fund. . . 16

Short-Term Federal Fund. . . 33

Intermediate-Term Treasury Fund. . . 50

GNMA Fund. . . 66

Long-Term Treasury Fund. . . 85

About Your Fund’s Expenses. . . 102

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1 Fiscal Year Ended January 31, 2015

30-Day SEC Yield Income Returns Capital Returns Total Returns Vanguard Short-Term Treasury Fund

Investor Shares 0.47% 0.51% 0.50% 1.01%

Admiral™ Shares 0.57 0.61 0.50 1.11

Barclays U.S. 1–5 Year Treasury Bond Index 1.75

Short-Term U.S. Treasury Funds Average 0.90

Short-Term U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Vanguard Short-Term Federal Fund

Investor Shares 0.59% 0.62% 0.74% 1.36%

Admiral Shares 0.69 0.73 0.74 1.47

Barclays U.S. 1–5 Year Government Bond Index 1.75

Short-Intermediate U.S. Government Funds

Average 1.85

Short-Intermediate U.S. Government Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Vanguard Intermediate-Term Treasury Fund

Investor Shares 1.26% 1.74% 3.64% 5.38%

Admiral Shares 1.36 1.84 3.64 5.48

General U.S. Treasury Funds Average 13.38

General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Vanguard GNMA Fund

Investor Shares 2.22% 2.66% 2.63% 5.29%

Admiral Shares 2.32 2.76 2.63 5.39

Barclays U.S. GNMA Bond Index 4.56

GNMA Funds Average 3.56

GNMA Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

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2

Fiscal Year Ended January 31, 2015

30-Day SEC Yield Income Returns Capital Returns Total Returns Vanguard Long-Term Treasury Fund

Investor Shares 2.13% 3.80% 24.67% 28.47%

Admiral Shares 2.23 3.93 24.67 28.60

Barclays U.S. Long Treasury Bond Index 28.66

General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements.

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3 January 31, 2014, Through January 31, 2015

Distributions Per Share Starting Share Price Ending Share Price Income Dividends Capital Gains Vanguard Short-Term Treasury Fund

Investor Shares $10.71 $10.75 $0.055 $0.013

Admiral Shares 10.71 10.75 0.066 0.013

Vanguard Short-Term Federal Fund

Investor Shares $10.74 $10.82 $0.066 $0.000

Admiral Shares 10.74 10.82 0.077 0.000

Vanguard Intermediate-Term Treasury Fund

Investor Shares $11.29 $11.66 $0.188 $0.040

Admiral Shares 11.29 11.66 0.199 0.040

Vanguard GNMA Fund

Investor Shares $10.61 $10.88 $0.274 $0.009

Admiral Shares 10.61 10.88 0.285 0.009

Vanguard Long-Term Treasury Fund

Investor Shares $11.55 $14.19 $0.372 $0.193

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Chairman’s Letter

4

Many investors had expected yields to continue climbing across the board in 2014, but that’s not what happened.

The Federal Reserve’s winding down of its stimulative bond-buying program and subsequent bracing of the markets for a rise in interest rates did push short-term yields higher over the 12 months ended January 31, 2015. But intermediate- and long-term yields fell as prospects for the global economy grew more clouded, geopolitical tensions flared, and any upswing in inflation appeared more distant.

Because bond yields and prices move in opposite directions, the environment was positive overall for the bond market, with a strong recovery playing out among longer-dated securities. Vanguard Long-Term Treasury Fund returned 28.47%, the lion’s share of that from appreciation in bond prices. (All returns and yields cited in this letter are for the funds’ Investor Shares.) Price appreciation played a smaller role in the returns of the three U.S. government bond funds focused on shorter-dated securities. Their returns ranged from 5.38% for Vanguard Intermediate-Term Treasury Fund to 1.01% for Vanguard Short-Term Treasury Fund.

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Market Barometer

Average Annual Total Returns Periods Ended January 31, 2015 One Year Three Years Five Years Bonds

Barclays U.S. Aggregate Bond Index (Broad taxable

market) 6.61% 3.07% 4.57%

Barclays Municipal Bond Index (Broad tax-exempt market) 8.86 4.12 5.42 Citigroup Three-Month U.S. Treasury Bill Index 0.03 0.04 0.06

Stocks

Russell 1000 Index (Large-caps) 13.76% 17.62% 15.84% Russell 2000 Index (Small-caps) 4.41 15.27 15.66 Russell 3000 Index (Broad U.S. market) 12.99 17.43 15.83 FTSE All-World ex US Index (International) 1.31 6.97 5.82

CPI

Consumer Price Index -0.09% 1.03% 1.52%

5

while the three shorter-term fundslagged; the Long-TermTreasuryFund performed more orless on par withitsindex. The Short-TermTreasury, Long-TermTreasury,

and GNMAFunds came inahead of the

average of their peers, but Vanguard

Short-TermFederalFundand the

Intermediate-TermTreasuryFund fell behind.

As the yield curve flattened, the 30-day

SEC yield for the Short-TermTreasury Fund climbed13 basis points over the fiscalyear, to 0.47%. (A basis point is one-hundredth of a percentage point.) By contrast, that yield fell for the four other funds, byaslittle as 4 basis points to asmuchas124. The broadU.S. taxable bondmarket returned 6.61% for the 12 months.

Monetarystimulus effortsabroadadded to the allure of yieldsin the United States,

andvolatilityin equitymarketssent

nervousinvestorsinsearch of safer havens. Although the spreadinyields

betweeninvestment-grade corporate bondsandTreasuries widened, corporates’

greaterincome helped themreturn close to 9%.

Municipal bondsalso returnedalmost 9%,

helped bygreaterdemandandreduced supplyas wellas the broader bond market’sadvance.

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6

Expense Ratios

Your Fund Compared With Its Peer Group

Investor Shares Admiral Shares Peer Group Average Short-Term Treasury Fund 0.20% 0.10% 0.57%

Short-Term Federal Fund 0.20 0.10 0.97

Intermediate-Term Treasury Fund 0.20 0.10 0.51

GNMA Fund 0.21 0.11 0.95

Long-Term Treasury Fund 0.20 0.10 0.51

The fund expense ratios shown are from the prospectus dated May 28, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended January 31, 2015, the funds’ expense ratios were: for the Short-Term Treasury Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares; for the Short-Term Federal Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares; for the Intermediate-Term Treasury Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares; for the GNMA Fund, 0.21% for Investor Shares and 0.11% for Admiral Shares; and for the Long-Term Treasury Fund, 0.20% for Investor Shares and 0.10% for Admiral Shares. Peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end 2014.

Peer groups: For the Short-Term Treasury Fund, Short-Term U.S. Treasury Funds; for the Short-Term Federal Fund, Short-Intermediate U.S. Government Funds; for the Intermediate-Term Treasury Fund, General U.S. Treasury Funds; for the GNMA Fund, GNMA Funds; and for the Long-Term Treasury Fund, General U.S. Treasury Funds.

ex USD) returnedroughly –6%; they

performed poorlyinlarge part because of the strength of the U.S. dollar.

The Fed’s target of 0%–0.25% for short-terminterest rates continued to

holddownreturns formoneymarket fundsandsavingsaccounts.

U.S. stocks posted strong results

despite facing many challenges

Volatility pickedup toward the end of the period, and flat resultsin December turned negative inJanuary. Nonetheless, the broadU.S. stock market returnedabout

13% for the 12 months. Mostlyrobust

domestic equities overcome worriesabout

loftystock valuations, plunging oil prices,

and economic weaknessabroad.

The Bank of Japan, European CentralBank,

and People’sBank of Chinaall embarked

onaggressive stimulusactions. Although

that wasa positive forinternational equity markets, their performance wasdampened

bynumerousgeopolitical challengesand

the strongU.S. dollar. Internationalstocks returnedabout 1% indollar terms; emergingmarketsstocks outpaced those of the developedmarkets of the Pacific

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Total Returns

Ten Years Ended January 31, 2015

Average Annual Return

Short-Term Treasury Fund Investor Shares 2.80%

Short-Term U.S. Treasury Funds Average 2.35

Short-Term U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

Short-Term Federal Fund Investor Shares 3.19%

Barclays U.S. 1–5 Year Government Bond Index 3.22

Short-Intermediate U.S. Government Funds Average 2.80

Short-Intermediate U.S. Government Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

Intermediate-Term Treasury Fund Investor Shares 4.91%

General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

GNMA Fund Investor Shares 4.82%

Barclays U.S. GNMA Bond Index 4.83

GNMA Funds Average 4.20

GNMA Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

Long-Term Treasury Fund Investor Shares 7.97%

Barclays U.S. Long Treasury Bond Index 8.15

General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

The figures shown represent past performance, which is not a guarantee of future results. (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.

Afterstumblingat the beginning of 2014, the U.S. economyshowedsigns of gaining

traction. The improvement was enough for

the Fed to endits bond-buying programin

October. But it wasn’t enough for the central bank to beginraisinginterest rates,

price of oil plummeted.

The combination of moderate growth, continued easymonetary policy, andlow

inflationhelpedspurinvestorappetite for

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8

bondsgiven their comparativelyhigher yieldsand the strongdollar.

Withyieldsat the long end of the Treasury

curve fallingmost steeply, the Long-Term TreasuryFundreturnedmore than 28%,

roughlyinline withits benchmark and wellahead of its peer-group average.

The Short-TermTreasury, Short-Term Federal, andIntermediate-TermTreasury Funds, whichsaw lessyieldmovement, producedreturnsranging from just over 1% to more than 5%. The shorter-than -benchmark durations of all three funds

contributed to theirsubparrelative returns. Of the three, only Short-TermTreasury

outpacedits peer-group average.

funds’ assetsingovernment mortgag e-backedsecurities. The hope is that, over

the longhaul, these securities will provide

adiversification benefit as wellassome

incrementalincome overTreasuries. However, they weighed on performance this time around.

The Short-TermFederalFund’s overweight

allocation to agencydebt helpeditsrelative performance.

The GNMAFundreturned 5.29%, outpacing bothits benchmark andits peer-group average. The fund primarily investsin Government NationalMortgage

Association pass-through certificates, which come withagovernment guarantee.

Yields

30-Day SEC Yields on January31, January31,

BondFund (Investor Shares) 2014 2015

Short-TermTreasury 0.34% 0.47%

Short-TermFederal 0.63 0.59

Intermediate-TermTreasury 1.59 1.26

GNMA 2.67 2.22

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9 advisor, WellingtonManagement

Company, succeededin boostingrelative

where it saw more value. Selectionamong

GNMAsecurities wasa positive as well.

Income remains an important contributor to returns over the long term Some investorshave beenunsettled by the wide swingsin bond pricesinrecent years. Price movementsdrove the totalreturn for the U.S. bondmarket into negative territory in 2013and contributed to the strongreboundin 2014.

Over the longhaul, however, income tends to be a biggerdriver of bond performance. That was true even over the past decade, whenyieldsmovedsignificantlylower. The chart below, whichincludes the annualizedreturns for the five bond fundsin thisreport over the last tenyears, shows that income contributed from 69% to 80% of the totalreturn for three of those funds. Even for the intermediate- andlong-term funds, whichare more susceptible to price changes, income accounted for 62% and 52%, respectively, of the totalreturn. So keep inmind that while price swingsmaymake headlines, income isstill the bigger part of the story for patient bondinvestors who resist the urge to jump inand out of the market.

Income and price contributions to bond returns

Annualized ten-yearreturns forInvestor Shares of five Vanguard fundsas of January31, 2015

T e n -y e ar annuali ze d r et urn Short-Term TreasuryFund Short-Term FederalFund Intermediate-Term TreasuryFund Long-Term TreasuryFund

Note: Figures may not add up precisely because of rounding. Source: Vanguard. Income component Price component 0 2 4 6 8 10% GNMAFund 2.80% 1.93 0.88 2.27 0.93 3.19% 3.05 1.87 4.91% 4.13 3.84 7.97% 3.87 0.94 4.82%

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10

Advisors’ Report that follows thisletter.

The funds maintained low costs

over a decade of ups and downs

Costsare a key factorindetermininghow

much of a fund’sreturninvestorsactually get to keep. We’ve workedhardat keeping

our fund costslow; ourmost recent data show that the annual expense ratios for

the government bond fundsdiscussedin

thisreport were allunder 22 basis points

forInvestor Shares (androughlyhalf that forAdmiral Shares). At that rate, you would

payless than $2.20 peryearin fund

expenses ona $1,000 investment—well

below the average for the funds’ peers. (See the expense ratio table on page 6.)

Low costs, along with the skill of the

advisors, helpedmost of ourgovernment bond funds performroughlyinline with

their expense-free benchmarks over the

decade endedJanuary31, 2015. Most also outpaced the average return of their peers.

Although volatility is inevitable,

you don’t have to “inherit” it

InJanuary, TimBuckley, Vanguard’s chief investment officer, andIanswered

questions from clientsas part of alive webcast. It wasagreat opportunity to

hear what you’re thinking, offerinsights,

andreinforce some of Vanguard’s key

principles.

Not surprisingly, afterJanuary’ssharp fluctuationsin the markets, volatility came

up asa concern. The broadstock market

movedsharplyloweras pricesrallied. Ourresponse? TimandI bothstressed

that how youreact—ordon’t react—to

such jolts candetermine how you ultimately fare asaninvestor. That’s why

one of those key principleshighlights the

need to maintain perspective andlong -termdiscipline. (You canreadVanguard’s Principles for Investing Successat

vanguard.com/research.)

Timnoted that the best course for long-terminvestorsissimply to ignore

dailymarket moves. He pointed out that

investors “inherit” what would otherwise be fleetingvolatility when theysellin response to amarket downturn. AsTim put it, the only way to trulyhave alossis to act andrealize that loss.

Those are wise words to keep inmind

whenmarkets turnstormyagain.

Asalways, thank you forinvesting withVanguard.

Sincerely,

F. WilliamMcNabb III

Chairmanand Chief Executive Officer February11, 2015

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11

For the Short-, Intermediate-, and

Long-Term Treasury Funds and the

Short-Term Federal Fund

For the 12 months endedJanuary31, 2015, returns for the U.S. Government

BondFundsmanaged byVanguard’sFixed Income Group spanneda wide range, from 1.01% forInvestor Shares of the Shor

t-TermTreasuryFund to 28.60% forAdmiral

Shares of the Long-TermTreasuryFund.

The Long-TermTreasuryFundnearly matched the return of its benchmark, while the other fundslagged theirs. Compared

with the average return of their peers, the Short- andLong-TermTreasuryFunds

outperformedand the Short-TermFederal andIntermediate-TermTreasuryFunds fell behind.

The investment environment The U.S. economygrew about 2.4%

in 2014, thanksin part to an expansion

in corporate hiringandinvestment.

The unemployment rate declineda full percentage point to 5.7% over the

12 months endedJanuary31, andinflation moderated on the heels of adrop in

commodity prices. The Federal Reserve

remained convinced that amid-2015

interest rate hike was possible, largely

because of the labormarket improvement.

It concludeditsasset purchase program of U.S. Treasuriesandmortgage-backed securitiesin October.

Evenas the U.S. economy expanded, the global economyslowed, settingup

divergent monetary policiesamong the central banks of developed countries.

Yields of U.S. Treasury Bonds

January31, January31, Maturity 2014 2015 2 years 0.35% 0.52% 3years 0.70 0.83 5 years 1.51 1.27 10 years 2.70 1.75 30 years 3.64 2.32 Source: Vanguard.

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12

loosened, helping the U.S. dollarappreciate bymore than15%. The strongerdollar,

decliningheadline inflation, andanimproving U.S. fiscaldeficit kept alid onlong-term interest rates.

Global central banks’ relaxation of their monetary policies culminatedinJanuary

when the European CentralBank

announceda quantitative easing program, with purchases to begininMarch. G10

sovereignratesdeclinedsharply over the

latterhalf of 2014, makingU.S. interest

ratesmore attractive for foreigninvestors.

Asaresult of these purchasesandslowing inflation, U.S. Treasuryyield curve spreads narrowed. Long-terminterest rates fell significantly, andshort-maturityratesrose onlymodestly. (See the yield table on page 11.)

Management of the funds

For the fiscalyear, the fundshadshorter durations than their benchmark indexes.

Thisstrategy, designed to protect the funds fromrisinginterest rates, dragged on performance asratesgenerallydeclined

throughout the period.

Overweight allocations to mortgag e-backedsecuritiesalso hurt the funds when

these securities failed to keep pace with Treasuriesasrates fellsharplyinJanuary. We maintained our position, however, as mortgage-backedsecuritiesare expected

to outperform over the longrun.

duration positionsand ones that sought to capture yield-curve-spread changes overvarious time frames.

The Short-TermFederalFundalso focused

onrelative value within the agencyand mortgage-backedsecuritiessectors, where selection boosted performance.

The outlook

In the yearahead, the Fedislikely to raise

its emergencyrate level of near 0% byat

least 25 basis points. The timingandscope of increases, however, willstilldepend onseveral factors. These include the pace of expansionin the economy, gainsin

employment and wages, andstabilityin

the core personal consumer expenditure price index—the Fed’s preferredinflation measure. The forces that heldlong-term interest rateslowerlast yearare expected

to factoragainst arapidrise in 2015.

Thisscenario could be derailed, however,

if there were asharp reaccelerationin headline inflation, inflation expectations, or both, whichmost likely would pushup

long-terminterest rates. In theirannual

outlook, our economistshighlightedan

expectation fora backdrop for price

increasessimilar to those of recent years, withinflation of 1% to 3% likely over the

medium term. We anticipate, therefore,

areturn to alow but positive headline

inflationrate late in 2015 andaslow,

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13

for the Fed; the markets, muchas theydid in 2013, may experience more interest rate

volatility. Bondreturnsare likely to remain low forsome time, but higheryields generallyshould prove welcome, allowing

the funds to reinvest income at higherrates.

Management of your fundsremainsrobust.

The recent changes to the portfolio

managersat the helm of the Short-Term,

Intermediate-Term, andLong-Term TreasuryFundsand the Short-TermFederal Fund, as wellas to seniorleadership in the

FixedIncome Group, reflect arotation of

assignments withinVanguard. Ourinves

t-ment philosophy, strategy, and overall

portfolio processhave not changed, and

we remain focused on producing

competitive returns.

Gregory Davis, CFA, Principaland

Head of FixedIncome Group Gemma Wright-Casparius, Principal and Portfolio Manager

Brian Quigley, Portfolio Manager VanguardFixedIncome Group

February18, 2015

Investor Shares of Vanguard GNMAFund returned 5.29% andAdmiral Shares returned 5.39% for the12 months ended January31, 2015. The fund outpacedits

benchmark index as wellas the average

return of its peers.

Investment environment

The U.S. economy began 2014 ona weak

note as bad weatherhinderedgrowthin

the first quarter. But it quicklyrebounded and went on to post, in the third quarter,

itsstrongest improvement inmore thana decade. Job growth continuedat asteady

pace, and the unemployment rate fell to a six-yearlow. Consumer confidence inched higher, buoyedasgasoline prices began

fallingin the secondhalf of the year. The

housingrecovery progressedin fitsand starts, andhome pricesmoderatedafter

postingastronggainin 2013.

The Federal Reserve ended the quantitative easing program begunin 2008, reflecting its confidence in the recoveryat home

despite the globalslowdown. In December,

it took anotherstep towardnormalizing

policy byreplacinga pledge to keep borrowing costslow fora “considerable time” withanassurance that it would be “patient” about the timing of an eventual interest rate increase.

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14

kept central banksaccommodative. The

U.S. Treasury curve flattened. Longer-term interest ratesdeclined, aided bydemand

forsafe-havenassetsand the outlook for low inflation, andshorter-datedTreasury yieldsrose inanticipation of tighterFed monetary policy. The outperformance of

U.S. bonds compared with theirglobal

counterpartsled to risingvolatility, and the U.S. dollarindex hit an eight-year

highin December.

Asagroup, agencymortgage-backed securities (MBS) posted totalreturns of 5.38%. Thislagged the performance of

duration-equivalent Treasuries by 0.54 percentage point for the fiscalyear, as measured by the BarclaysMBS Fixed Rate Index.

Overall, the mortgage market managed to weatheranumber of potential challenges.

The Fed completeditsMBS purchase programin October but will continue to

reinvest prepayments fromits existing holdings. In 2014, the U.S. government

announced programsaimedat streamlining MBS issuance andincreasing the availability

of mortgage credit to homeowners.

This couldresult inincreasingsupply or

prepayment speeds or both. However, the market took most of these changes

interest rates fell, homeownerrefinancing ratesdidn’t drop quite asmuch, which kept alid on prepaymentsandgross supply. Net supplyalso underwhelmed

throughmuch of the year, probably

because of astill-constrainedmortgage credit environment.

Volatilityremainedgenerallylow. It did,

however, pick up late last yearas the

drop in oil prices, geopolitical concerns,

and the timing of the Fed’snext move

introducedmore uncertainty. InJanuary, the U.S. government surprised the market byannouncing that the Federal Housing Administration wouldreduce annual mortgage insurance premiums for both FHA purchase andrefinance mortgages. GNMAmortgagesunderperformed the broaderagencymortgage market during

the periodas theygrappled withincreased

production, diminished bank demand, and

the expectation of faster prepayments.

January’sannouncement of the reduced mortgage insurance premiums was

especiallyhard on GNMAMBS, because the changesare likely to make GNMA mortgages easier to refinance. Adjusting

forduration, performance was weakest in low-coupon GNMAs, including those with 3.0%, 3.5%, and 4.0% coupons.

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15

the period. It was positioned withan underweight to GNMAMBS in favor of out-of-benchmark allocations to Federal NationalMortgage Association (Fannie

Mae) andFederal Home LoanMortgage Corporation (Freddie Mac) MBS, as well

asFannie Mae multifamily Delegated Underwritingand Servicingsecurities (DUS).

These allocations benefited performance

as conventionalloans outperformed

GNMAs.

Our GNMAholdings were under weighted inlower-coupon (3.0% and3.5%)

mortgages, which bore the brunt of

investors’ faster prepayment expectations.

Aslight overweighting of older, seasoned,

higher-couponmortgagesalso helped.

Fund shortfalls

The fund’sallocation to agency collateralized mortgage obligationsdetractedmodestly

fromrelative returns.

Fund positioning

We remain tactically cautiousabout the

MBS sector. Spreadsare tight at present, but they could come under pressure

shouldvolatilityincrease substantially from

longer term, however, because increases in the supply of Treasuriesshouldsupport

mortgages. Inaddition, the attractiveness

of the U.S. rate structure compared with

those of otherdevelopedmarketsshould drive demand frominternational buyers. Given ourslight underweighting to the

MBS sector, we are replacingsome lost

income withassets withmore attractive convexity profiles, suchasFannie Mae DUS bonds, whichshould perform better

if volatilityrises. We also see conventional MBS ashaving bettervalue than GNMAs,

and we have out-of-benchmark allocations

to Fannie Mae andFreddie Mac mortgages.

MichaelF. Garrett

SeniorManaging Directorand

FixedIncome Portfolio Manager

WellingtonManagement CompanyLLP February18, 2015

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Financial Attributes Fund Barclays 1–5 Year Treasury Index Barclays Aggregate Bond Index Number of Bonds 118 154 9,079 Yield to Maturity (before expenses) 0.6% 0.7% 1.9% Average Coupon 1.4% 1.6% 3.3% Average Duration 2.3 years 2.6 years 5.4 years Average Effective

Maturity 2.5 years 2.7 years 7.6 years

Short-Term Reserves -4.7% — — Volatility Measures Barclays 1–5 Year Treasury Index Barclays Aggregate Bond Index R-Squared 0.94 0.71 Beta 0.66 0.22

These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.

Fund Profile

As of January 31, 2015 Share-Class Characteristics Investor Shares Admiral Shares

Ticker Symbol VFISX VFIRX

Expense Ratio1 _0.20% _0.10%

30-Day SEC Yield 0.47% 0.57%

1 The expense ratios shown are from the prospectus dated May 28, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended January 31, 2015, the expense ratios were 0.20% for Investor Shares and 0.10% for Admiral Shares.

16

Distribution by Effective Maturity (% of portfolio)

Under 1 Year -5.2%

1 - 3 Years 79.0

3 - 5 Years 25.3

5 - 7 Years 0.9

Distribution by Credit Quality (% of portfolio)

U.S. Government 99.8%

Not Rated 0.2

Credit-quality ratings are from Moody's and S&P. The higher rating for each issue is shown. "Not Rated" is used to classify securities for which a rating is not available. For more information about these ratings, see the Glossary entry for Credit Quality.

Investment Focus

Average Maturity Short Treasury/ Agency Investment-Grade Corporate Below Investment-Grade Med. Long Credit Quality

Sector Diversification (% of portfolio)

Government Mortgage-Backed 5.0% Treasury/Agency 95.0 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.

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.

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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.

17

Cumulative Performance: January 31, 2005, Through January 31, 2015

Initial Investment of $10,000 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 $18,000 8,000 13,184

Average Annual Total Returns Periods Ended January 31, 2015

One Year Five Years Ten Years Final Value of a $10,000 Investment Short-Term Treasury Fund Investor

Shares 1.01% 1.17% 2.80% $13,184

• • • • • • • • Barclays U.S. 1–5 Year Treasury Bond

Index 1.75 1.77 3.19 13,693

– – – – Short-Term U.S. Treasury Funds

Average 0.90 0.84 2.35 12,613

________ _{Barclays U.S. Aggregate Bond Index} _6.61 _4.57 _4.86 _16,074

Short-Term U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

One Year Five Years Ten Years Final Value of a $50,000 Investment

Short-Term Treasury Fund Admiral Shares 1.11% 1.27% 2.92% $66,689

Barclays U.S. 1–5 Year Treasury Bond Index 1.75 1.77 3.19 68,465

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18

Fiscal-Year Total Returns (%): January 31, 2005, Through January 31, 2015

Investor Shares

Barclays 1–5 Year Treasury Index Fiscal Year Income Returns Capital Returns Total Returns Total Returns

2006 3.20% -1.34% 1.86% 1.46% 2007 4.30 -0.48 3.82 3.83 2008 4.58 5.26 9.84 10.35 2009 2.70 1.79 4.49 5.84 2010 1.60 0.90 2.50 1.95 2011 1.09 0.83 1.92 2.94 2012 0.68 1.56 2.24 3.38 2013 0.41 -0.02 0.39 0.45 2014 0.36 -0.08 0.28 0.38 2015 0.51 0.50 1.01 1.75

Average Annual Total Returns: Periods Ended December 31, 2014

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 0.71% 1.24% 1.94% 0.80% 2.74%

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Financial Statements

Statement of Net Assets

As of January 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 (104.9%) U.S. Government Securities (99.6%)

United States Treasury Note/Bond 0.250% 2/29/16 140,000 140,066 United States Treasury Note/Bond 0.250% 4/15/16 83,000 83,026 United States Treasury Note/Bond 0.375% 4/30/16 213,000 213,332 United States Treasury Note/Bond 2.000% 4/30/16 132,000 134,826 United States Treasury Note/Bond 2.625% 4/30/16 67,000 68,947 United States Treasury Note/Bond 0.250% 5/15/16 139,000 138,978 United States Treasury Note/Bond 0.375% 5/31/16 130,000 130,183 United States Treasury Note/Bond 1.750% 5/31/16 53,000 54,019 United States Treasury Note/Bond 3.250% 5/31/16 44,000 45,726 United States Treasury Note/Bond 0.500% 6/15/16 130,000 130,406 United States Treasury Note/Bond 0.500% 6/30/16 93,000 93,276 United States Treasury Note/Bond 1.500% 6/30/16 16,000 16,270 United States Treasury Note/Bond 3.250% 6/30/16 25,000 26,039 United States Treasury Note/Bond 0.625% 7/15/16 100,000 100,453 United States Treasury Note/Bond 0.500% 7/31/16 66,000 66,185 United States Treasury Note/Bond 1.500% 7/31/16 72,000 73,260 United States Treasury Note/Bond 0.625% 8/15/16 56,000 56,254 United States Treasury Note/Bond 4.875% 8/15/16 37,000 39,579 United States Treasury Note/Bond 0.500% 8/31/16 68,000 68,170 United States Treasury Note/Bond 1.000% 8/31/16 120,000 121,237 United States Treasury Note/Bond 3.000% 8/31/16 51,000 53,128 United States Treasury Note/Bond 0.875% 9/15/16 77,000 77,638 United States Treasury Note/Bond 0.500% 9/30/16 82,000 82,180 United States Treasury Note/Bond 1.000% 9/30/16 91,000 91,966 United States Treasury Note/Bond 3.000% 9/30/16 54,000 56,337 United States Treasury Note/Bond 0.625% 10/15/16 68,000 68,276 United States Treasury Note/Bond 0.375% 10/31/16 55,000 54,983 United States Treasury Note/Bond 1.000% 10/31/16 86,000 86,913 United States Treasury Note/Bond 3.125% 10/31/16 76,000 79,586 United States Treasury Note/Bond 0.625% 11/15/16 139,000 139,543 United States Treasury Note/Bond 4.625% 11/15/16 63,000 67,715 United States Treasury Note/Bond 7.500% 11/15/16 20,000 22,503 United States Treasury Note/Bond 0.500% 11/30/16 160,000 160,250 United States Treasury Note/Bond 0.875% 11/30/16 115,000 115,952 United States Treasury Note/Bond 0.625% 12/15/16 140,000 140,525 United States Treasury Note/Bond 0.625% 12/31/16 75,000 75,258 United States Treasury Note/Bond 0.875% 12/31/16 140,000 141,137

Face Market

Maturity Amount Value•

Coupon Date ($000) ($000)

(22)

United States Treasury Note/Bond 3.250% 12/31/16 51,000 53,701 United States Treasury Note/Bond 0.750% 1/15/17 125,000 125,742 United States Treasury Note/Bond 0.500% 1/31/17 90,000 90,070 United States Treasury Note/Bond 0.875% 1/31/17 110,000 110,893 United States Treasury Note/Bond 0.625% 2/15/17 127,000 127,357 United States Treasury Note/Bond 0.875% 2/28/17 80,000 80,625 United States Treasury Note/Bond 3.000% 2/28/17 50,000 52,578 United States Treasury Note/Bond 0.750% 3/15/17 15,000 15,082 United States Treasury Note/Bond 1.000% 3/31/17 48,000 48,495 United States Treasury Note/Bond 3.250% 3/31/17 9,000 9,526 United States Treasury Note/Bond 0.875% 4/30/17 155,000 156,138 United States Treasury Note/Bond 0.875% 5/15/17 45,000 45,330 United States Treasury Note/Bond 0.625% 5/31/17 55,000 55,086 United States Treasury Note/Bond 0.875% 6/15/17 76,000 76,523 United States Treasury Note/Bond 0.750% 6/30/17 75,000 75,304 United States Treasury Note/Bond 2.500% 6/30/17 40,000 41,838 United States Treasury Note/Bond 0.875% 7/15/17 62,000 62,427 United States Treasury Note/Bond 0.500% 7/31/17 50,000 49,852 United States Treasury Note/Bond 2.375% 7/31/17 61,000 63,650 United States Treasury Note/Bond 0.875% 8/15/17 67,000 67,387 United States Treasury Note/Bond 4.750% 8/15/17 12,000 13,241 United States Treasury Note/Bond 0.625% 8/31/17 16,000 15,985 United States Treasury Note/Bond 1.875% 8/31/17 11,500 11,856 United States Treasury Note/Bond 1.000% 9/15/17 72,000 72,608 United States Treasury Note/Bond 0.625% 9/30/17 54,000 53,907 United States Treasury Note/Bond 1.875% 9/30/17 60,000 61,865 United States Treasury Note/Bond 0.875% 10/15/17 67,000 67,324 United States Treasury Note/Bond 0.750% 10/31/17 63,000 63,069 United States Treasury Note/Bond 1.875% 10/31/17 25,000 25,781 United States Treasury Note/Bond 0.625% 11/30/17 96,000 95,715 United States Treasury Note/Bond 1.000% 12/15/17 91,000 91,697 United States Treasury Note/Bond 0.750% 12/31/17 94,000 93,985 United States Treasury Note/Bond 2.750% 12/31/17 87,000 91,976 United States Treasury Note/Bond 0.875% 1/31/18 145,000 145,431 United States Treasury Note/Bond 3.500% 2/15/18 9,000 9,726 United States Treasury Note/Bond 0.750% 2/28/18 30,000 29,948 United States Treasury Note/Bond 2.750% 2/28/18 52,000 55,047 United States Treasury Note/Bond 0.750% 3/31/18 55,000 54,845 United States Treasury Note/Bond 2.875% 3/31/18 50,000 53,172 United States Treasury Note/Bond 0.625% 4/30/18 101,000 100,274 United States Treasury Note/Bond 3.875% 5/15/18 19,000 20,864 United States Treasury Note/Bond 1.000% 5/31/18 93,000 93,349 United States Treasury Note/Bond 2.375% 5/31/18 10,000 10,489 United States Treasury Note/Bond 1.375% 6/30/18 9,817 9,975 United States Treasury Note/Bond 2.375% 6/30/18 13,000 13,642 United States Treasury Note/Bond 1.375% 7/31/18 12,000 12,189 United States Treasury Note/Bond 2.250% 7/31/18 7,000 7,319 United States Treasury Note/Bond 1.500% 8/31/18 35,000 35,689

1 United States Treasury Note/Bond 1.250% 10/31/18 56,000 56,560 United States Treasury Note/Bond 1.750% 10/31/18 9,000 9,256 United States Treasury Note/Bond 1.250% 11/30/18 28,000 28,263 United States Treasury Note/Bond 1.375% 11/30/18 11,000 11,160 United States Treasury Note/Bond 1.375% 12/31/18 13,000 13,177 United States Treasury Note/Bond 1.500% 12/31/18 37,000 37,694 United States Treasury Note/Bond 1.500% 1/31/19 23,000 23,424

Face Market

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United States Treasury Note/Bond 1.375% 2/28/19 18,000 18,233 United States Treasury Note/Bond 1.500% 2/28/19 28,000 28,521 United States Treasury Note/Bond 1.625% 3/31/19 27,500 28,145 United States Treasury Note/Bond 1.625% 4/30/19 26,200 26,818 United States Treasury Note/Bond 3.125% 5/15/19 30,000 32,559 United States Treasury Note/Bond 1.125% 5/31/19 55,000 55,112 United States Treasury Note/Bond 1.500% 5/31/19 23,600 24,013 United States Treasury Note/Bond 1.000% 6/30/19 10,100 10,059 United States Treasury Note/Bond 1.625% 6/30/19 27,000 27,624 United States Treasury Note/Bond 0.875% 7/31/19 38,000 37,596 United States Treasury Note/Bond 1.625% 7/31/19 26,000 26,585 United States Treasury Note/Bond 1.625% 8/31/19 19,000 19,428 United States Treasury Note/Bond 1.000% 9/30/19 36,000 35,758 United States Treasury Note/Bond 1.750% 9/30/19 29,000 29,802 United States Treasury Note/Bond 1.250% 10/31/19 14,000 14,074 United States Treasury Note/Bond 1.500% 10/31/19 16,500 16,765 United States Treasury Note/Bond 1.000% 11/30/19 17,000 16,870 United States Treasury Note/Bond 1.500% 11/30/19 43,000 43,685 United States Treasury Note/Bond 1.625% 12/31/19 63,000 64,378 United States Treasury Note/Bond 1.250% 1/31/20 60,000 60,225

6,928,478

Conventional Mortgage-Backed Securities (5.3%)

2,3,4_{Fannie Mae}_P_ool _3.500_% ₃_/₁_/4_{5 115,000 121,163}

2,3,4 Fannie Mae Pool 4.000% 3/1/45 115,000 122,906

2,3,4_{Fannie Mae}_P_ool ₄_.500_% ₃_/₁_/4_{5 115,000 12}₄_,613

2,3 Fannie Mae Pool 7.000% 11/1/15–3/1/16 54 56

2,3_{Freddie Mac Gold}_P_ool _6.000_% ₅_/₁_/₁₈_–_4/₁_/₂₈_{192 21}₈ 2,3 Freddie Mac Gold Pool 7.000% 9/1/15–1/1/16 21 21

368,977

Total U.S. Government and Agency Obligations (Cost $7,250,283) 7,297,455

Shares

Temporary Cash Investment (0.2%) Money Market Fund (0.2%)

5 Vanguard Market Liquidity Fund (Cost $16,130) 0.133% 16,129,820 16,130

Expiration

Date Contracts

Options on Futures Purchased (0.0%)

Call Options on 10-year U.S. Treasury Note

Futures Contracts, Strike Price $133.00 2/20/15 57 10 Put Options on 5-year U.S. Treasury Note

Futures Contracts, Strike Price $118.75 2/20/15 1,007 15

Total Options on Futures Purchased (Cost $743) 25 Total Investments (105.1%) (Cost $7,267,156) 7,313,610 Liability for Options Written (0.0%)

Futures Contracts, Strike Price $119.75 2/20/15 336 (554) Call Options on 10-year U.S. Treasury Note

Futures Contracts, Strike Price $130.00 2/20/15 115 (149)

Face Market

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Market Expiration Value•

Date Contracts ($000)

Futures Contracts, Strike Price $131.00 2/20/15 115 (83) Call Options on 10-year U.S. Treasury Note

Futures Contracts, Strike Price $132.00 2/20/15 57 (20) Put Options on 5-year U.S. Treasury Note

Futures Contracts, Strike Price $117.75 2/20/15 1,007 (8) Put Options on 10-year U.S. Treasury Note

Futures Contracts, Strike Price $128.00 2/20/15 172 (11) Put Options on 10-year U.S. Treasury Note

Futures Contracts, Strike Price $129.00 2/20/15 58 (10)

Total Liability for Options Written (Premiums received $697) (835) Other Assets and Liabilities (-5.1%)

Other Assets 649,188

Other Liabilities (1,002,782)

(353,594)

Net Assets (100%) 6,959,181

Amount

($000)

Statement of Assets and Liabilities Assets

Investments in Securities, at Value

Unaffiliated Issuers 7,297,455

Option Contracts Purchased 25

Affiliated Vanguard Funds 16,130

Total Investments in Securities 7,313,610

Receivables for Investment Securities Sold 601,811

Receivables for Accrued Income 19,937

Receivables for Capital Shares Issued 11,396

Other Assets 16,044

Total Assets 7,962,798

Liabilities

Payables for Investment Securities Purchased 979,536

Option Contracts Written 835

Other Liabilities 23,246

Total Liabilities 1,003,617

Net Assets 6,959,181

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Paid-in Capital 6,916,034

Undistributed Net Investment Income —

Accumulated Net Realized Losses (743)

Unrealized Appreciation (Depreciation)

Investment Securities 47,172

Futures Contracts (2,426)

Options on Futures Contracts (856)

Net Assets 6,959,181

Investor Shares—Net Assets

Applicable to 97,104,241 outstanding $.001 par value shares of

beneficial interest (unlimited authorization) 1,044,025 Net Asset Value Per Share—Investor Shares $10.75

Admiral Shares—Net Assets

Applicable to 550,164,527 outstanding $.001 par value shares of

beneficial interest (unlimited authorization) 5,915,156 Net Asset Value Per Share—Admiral Shares $10.75 At January 31, 2015, net assets consisted of:

Amount

($000)

• See Note A in Notes to Financial Statements.

1 Securities with a value of $2,646,000 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 January 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.

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Year Ended January 31, 2015 ($000) Investment Income Income Interest1 ₄₈_,112 Total Income 48,112 Expenses

The Vanguard Group—Note B

Investment Advisory Services 710

Management and Administrative—Investor Shares 1,759

Management and Administrative—Admiral Shares 3,768

Marketing and Distribution—Investor Shares 222

Marketing and Distribution—Admiral Shares 1,101

Custodian Fees 70

Auditing Fees 32

Shareholders’Reports—Investor Shares 79

Shareholders’Reports—Admiral Shares 75

Trustees’ Fees and Expenses 6

Total Expenses 7,822

Net Investment Income 40,290

Realized Net Gain (Loss)

Investment Securities Sold 16,946

Realized Net Gain (Loss) 6,339

Change in Unrealized Appreciation (Depreciation)

Investment Securities 34,731

Change in Unrealized Appreciation (Depreciation) 32,196 Net Increase (Decrease) in Net Assets Resulting from Operations 78,825

1 Interest income from an affiliated company of the fund was $48,000.

Statement of Operations

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Statement of Changes in Net Assets

Year Ended January 31,

2015 2014

($000) ($000)

Increase (Decrease) in Net Assets Operations

Net Investment Income 40,290 28,143

Realized Net Gain (Loss) 6,339 10,658

Change in Unrealized Appreciation (Depreciation) 32,196 (15,903) Net Increase (Decrease) in Net Assets Resulting from Operations 78,825 22,898

Distributions

Net Investment Income

Investor Shares (5,632) (4,697)

Admiral Shares (34,658) (23,446)

Realized Capital Gain1

Admiral Shares (6,943) (5,521)

Total Distributions (48,554) (34,873)

Capital Share Transactions

Admiral Shares 528,979 490,529

Net Increase (Decrease)from Capital Share Transactions 417,461 196,641

Total Increase (Decrease) 447,732 184,666

Net Assets

Beginning of Period 6,511,449 6,326,783 End of Period 6,959,181 6,511,449

1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $1,283,000 and $1,224,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

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Investor Shares

For a Share Outstanding Year Ended January 31,

Throughout Each Period 2015 2014 2013 2012 2011

Net Asset Value, Beginning of Period $10.71 $10.73 $10.81 $10.70 $10.81

Investment Operations

Net Investment Income .055 .039 .044 .071 .116

Net Realized and Unrealized Gain (Loss)

on Investments .053 (.009) (.002) .167 .089

Total from Investment Operations .108 .030 .042 .238 .205

Distributions

Dividends from Net Investment Income (.055) (.039) (.044) (.071) (.116) Distributions from Realized Capital Gains (.013) (.011) (.078) (.057) (.199) Total Distributions (.068) (.050) (.122) (.128) (.315)

Net Asset Value, End of Period $10.75 $10.71 $10.73 $10.81 $10.70

Total Return1_1.01%_0.28%_0.39%_2.24%_1.92%

Ratios/Supplemental Data

Net Assets, End ofPeriod (Millions) $1,044 $1,151 $1,448 $1,765 $1,874 Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.22% Ratio of Net Investment Income to

Average Net Assets 0.52% 0.37% 0.41% 0.66% 1.07% Portfolio Turnover Rate 87%2 ₈₀_% ₁₇₆_%2₃₀₂_%2₁₂_4%

1 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.

2 Includes 22%, 63%, and 120% attributable to mortgage-dollar-roll activity in 2015, 2013, and 2012, respectively.

Financial Highlights

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Admiral Shares

For a Share Outstanding Year Ended January 31,

Throughout Each Period 2015 2014 2013 2012 2011

Net Asset Value, Beginning of Period $10.71 $10.73 $10.81 $10.70 $10.81

Investment Operations

Net Investment Income .066 .050 .055 .082 .129

Net Realized and Unrealized Gain (Loss)

on Investments .053 (.009) (.002) .167 .089

Total from Investment Operations .119 .041 .053 .249 .218

Distributions

Dividends from Net Investment Income (.066) (.050) (.055) (.082) (.129) Distributions from Realized Capital Gains (.013) (.011) (.078) (.057) (.199) Total Distributions (.079) (.061) (.133) (.139) (.328)

Net Asset Value, End of Period $10.75 $10.71 $10.73 $10.81 $10.70

Total Return 1.11% 0.38% 0.49% 2.34% 2.05%

Ratios/Supplemental Data

Net Assets, End ofPeriod (Millions) $5,915 $5,360 $4,879 $4,779 $4,690 Ratio of Total Expenses to Average Net Assets 0.10% 0.10% 0.10% 0.10% 0.10% Ratio of Net Investment Income to

Average Net Assets 0.62% 0.47% 0.51% 0.76% 1.19% Portfolio Turnover Rate 87%1 ₈₀_% ₁₇₆_%1₃₀₂_%1₁₂_4%

1 Includes 22%, 63%, and 120% attributable to mortgage-dollar-roll activity in 2015, 2013, and 2012, respectively.

Financial Highlights

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Notes to Financial Statements

Vanguard Short-Term Treasury Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.

A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.

1. Security Valuation: Securities are valued as of the close of trading on the NewYork Stock Exchange (generally 4p.m., Eastern time) on the valuation date. Bonds, and temporary cash investments acquired over 60 days to maturity, are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted average coupon, weighted average maturity, credit enhancements, and collateral. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2. Futures and Options: The fund uses futures contracts and options on 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 offutures contracts are imperfect correlation between changes in market values ofbonds held by the fund and the prices offutures contracts, and the possibility of an illiquid market. The primary risk associated with purchasing options is that interest rates move in such a way that the option is out-of-the-money, the position is worthless at expiration, and the fund loses the premium paid. The primary risk associated with writing options is that interest rates move in such a way that the option is in-the-money, the counterparty exercises the option, and the fund loses an amount equal to the market value of the option written less the premium received. Counterparty risk involving futures and exchange-traded options is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures and options on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.

Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of 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 futures gains (losses).

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During the year ended January 31, 2015, the fund’s average investments in long and short futures contracts represented 2% and 3% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.

Options on futures contracts are also valued at their quoted daily settlement prices. The premium paid for a purchased option is recorded in the Statement of Assets and Liabilities as an asset that is subsequently adjusted daily to the current market value of the option purchased. The premium received for a written option is recorded in the Statement of Assets and Liabilities as an asset with an equal liability that is subsequently adjusted daily to the current market value of the option written. Fluctuations in the value of the options are recorded in the Statement of Operations as unrealized appreciation (depreciation) until expired, closed, or exercised, at which time realized gains (losses) are recognized.

During the year ended January 31, 2015, the fund’s average value of options purchased and options written each represented less than 1% of net assets, based on the average market values at each quarter-end during the period.

3. To Be Announced (TBA) Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity)for settlement at a future date. The fund may be a seller of TBA transactions to reduce its exposure to the mortgage-backed securities market or in order to sell mortgage-backed securities it owns under delayed-delivery arrangements. When the fund is a buyer of TBA transactions, it maintains cash or short-term investments in an amount sufficient to meet the purchase price at the settlement date of the TBA transaction. The primary risk associated with TBA transactions is that a counterparty may default on its obligations. The fund mitigates its counterparty riskby, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and monitoring its exposure to each counterparty. The fund may also enter into a Master Securities Forward Transaction Agreement (MSFTA)with certain counterparties and require them to transfer collateral as security for their performance. Under an MSFTA, upon a counterparty default (including bankruptcy), the fund may terminate any TBA transactions with that counterparty, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements.

At January 31, 2015, counterparties had deposited in segregated accounts securities and cash with a value of $1,043,000 in connection with TBA transactions.

4. Mortgage Dollar Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open mortgage dollar rolls are included in Receivables for Investment Securities Sold or Payables for Investment Securities Purchased in the Statement of Assets and Liabilities.

5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s taxpositions taken for all open federal income tax years (January 31, 2012–2015), and has concluded that no provision for federal income tax is required in the fund’s financial statements.

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6. Distributions: Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.

7. Credit Facility: The fund and certain other funds managed by The Vanguard Groupparticipate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.

The fund had no borrowings outstanding at January 31, 2015, or at any time during the period then ended.

8. Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.

B. The Vanguard Groupfurnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At January 31, 2015, the fund had contributed capital of $650,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.26% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers 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).

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The following table summarizes the market value of the fund’s investments as of January 31, 2015, based on the inputs used to value them:

Level 1 Level 2 Level 3

Investments ($000) ($000) ($000)

U.S. Government and Agency Obligations — 7,297,455 —

Temporary Cash Investments 16,130 — —

Options on Futures Purchased 25 — —

Liability for Options Written (835) — —

Futures Contracts—Assets1 ₄₅₃ _— _—

Futures Contracts—Liabilities1 ₍₆₃₂₎ _— _—

Total 15,141 7,297,455 —

1 Represents variation margin on the last day of the reporting period.

D. At January 31, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation)were:

($000)

Aggregate

Number of Settlement Unrealized

Long (Short) Value Appreciation

Futures Contracts Expiration Contracts Long (Short) (Depreciation) 2-Year U.S. Treasury Note March 2015 (1,317) (289,432) (587) 10-Year U.S. Treasury Note March 2015 496 64,914 338 30-Year U.S. Treasury Bond March 2015 (161) (24,356) (1,518) 5-Year U.S. Treasury Note March 2015 (116) (14,076) (104) Ultra Long U.S. Treasury Bond March 2015 (43) (7,694) (555) (2,426)

Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss)for taxpurposes.

E. Capital gain distributions are determined on a taxbasis 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 taxpurposes. These differences will reverse at some time in the future.

The fund used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from realized capital gains. Accordingly, the fund has reclassified $759,000 from accumulated net realized losses to paid-in capital.

The fund had available capital losses totaling $2,928,000 that may be carried forward indefinitely to offset future net capital gains.

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At January 31, 2015, the cost of investment securities for taxpurposes was $7,266,951,000. Net unrealized appreciation of investment securities for taxpurposes was $46,634,000, consisting of unrealized gains of $46,787,000 on securities that had risen in value since their purchase and $153,000 in unrealized losses on securities that had fallen in value since their purchase. F. During the year ended January 31, 2015, the fund purchased $6,664,562,000 of investment securities and sold $5,880,861,000 of investment securities, other than temporary cash investments. The following table summarizes the fund’s options written during the year ended January 31, 2015.

Premiums

Number of Received

Options Written Contracts ($000)

Balance at January 31, 2014 830 267 Options written 7,842 2,932 Options expired (2,393) (770) Options closed (4,072) (1,624) Options exercised (347) (108) Balance at January 31, 2015 1,860 697

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

Year Ended January 31,

2015 2014

Amount Shares Amount Shares

($000) (000) ($000) (000)

Investor Shares

Issued 246,674 23,046 321,386 30,008

Issued in Lieu of Cash Distributions 6,416 599 5,396 504 Redeemed (364,608) (34,066) (620,670) (57,964) Net Increase (Decrease)—Investor Shares (111,518) (10,421) (293,888) (27,452)

Admiral Shares

Issued 1,900,156 177,556 2,112,804 197,333

Issued in Lieu of Cash Distributions 34,796 3,251 25,544 2,385 Redeemed (1,405,973) (131,339) (1,647,819) (153,935) Net Increase (Decrease)—Admiral Shares 528,979 49,468 490,529 45,783

H. Management has determined that no material events or transactions occurred subsequent to January 31, 2015, that would require recognition or disclosure in these financial statements.

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Financial Attributes Fund Barclays 1–5 Year Gov’t Index Barclays Aggregate Bond Index Number of Bonds 94 639 9,079 Yield to Maturity (before expenses) 0.8% 0.7% 1.9% Average Coupon 1.6% 1.7% 3.3% Average Duration 2.2 years 2.6 years 5.4 years Average Effective

Maturity 2.5 years 2.7 years 7.6 years

Short-Term Reserves -10.7% — — Volatility Measures Barclays 1–5 Year Gov’t Index Barclays Aggregate Bond Index R-Squared 0.90 0.80 Beta 0.83 0.30

These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.

Fund Profile

As of January 31, 2015 Share-Class Characteristics Investor Shares Admiral Shares Ticker Symbol VSGBX VSGDX Expense Ratio1 _0.20% _0.10%

30-Day SEC Yield 0.59% 0.69%

1 The expense ratios shown are from the prospectus dated May 28, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended January 31, 2015, the expense ratios were 0.20% for Investor Shares and 0.10% for Admiral Shares.

33 Distribution by Effective Maturity

(% of portfolio)

Under 1 Year 5.0%

1 - 3 Years 66.2

3 - 5 Years 28.2

5 - 7 Years 0.6

Distribution by Credit Quality (% of portfolio)

U.S. Government 95.4%

Not Rated 4.6

Credit-quality ratings are from Moody's and S&P. The higher rating for each issue is shown. "Not Rated" is used to classify securities for which a rating is not available. For more information about these ratings, see the Glossary entry for Credit Quality.

Investment Focus

Average Maturity Short Treasury/ Agency Investment-Grade Corporate Below Investment-Grade Med. Long Credit Quality

Sector Diversification (% of portfolio)

Government Mortgage-Backed 14.4% Treasury/Agency 85.6 The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government.

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.

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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.

34

Cumulative Performance: January 31, 2005, Through January 31, 2015

Initial Investment of $10,000 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 $18,000 8,000 13,695

Average Annual Total Returns Periods Ended January 31, 2015

One Year Five Years Ten Years Final Value of a $10,000 Investment Short-Term Federal Fund Investor

Shares 1.36% 1.58% 3.19% $13,695

• • • • • • • • Barclays U.S. 1–5 Year Government

Bond Index 1.75 1.74 3.22 13,724

– – – – Short-Intermediate U.S. Government

Funds Average 1.85 1.65 2.80 13,176

________ _{Barclays U.S. Aggregate Bond Index} _6.61 _4.57 _4.86 _16,074

Short-Intermediate U.S. Government Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

One Year Five Years Ten Years Final Value of a $50,000 Investment

Short-Term Federal Fund Admiral Shares 1.47% 1.69% 3.30% $69,174

Barclays U.S. 1–5 Year Government Bond

Index 1.75 1.74 3.22 68,622