N-CSR 1 fixedincomefinal.htm NCSR FORM

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT COMPANY


Investment Company Act file number: 811-2368

Name of Registrant: Vanguard Fixed Income Securities Funds

Address of Registrant: P.O. Box 2600
Valley Forge, PA 19482

Name and address of agent for service: Heidi Stam, Esquire
P.O. Box 876
Valley Forge, PA 19482

Registrant’s telephone number, including area code: (610) 669-1000


Date of fiscal year end: January 31

Date of reporting period: February 1, 2005 – January 31, 2006

Item 1: Reports to Shareholders







Vanguard® U.S. Government Bond Funds

> Annual Report


January 31, 2006




Vanguard Short-Term Treasury Fund

Vanguard Short-Term Federal Fund

Vanguard Inflation-Protected Securities Fund

Vanguard Intermediate-Term Treasury Fund

Vanguard GNMA Fund

Vanguard Long-Term Treasury Fund







> For the fiscal year ended January 31, 2006, the Vanguard U.S. Government Bond Funds captured the returns of their market segments in an unusual rate environment.

> Four of the six funds outperformed their peer-group averages. The Intermediate-Term Treasury and Long-Term Treasury Funds trailed the average returns for their competitors, which include a number of funds that follow somewhat different strategies.

> The funds’ yields ended the period higher than they started.



Contents  
Your Fund's Total Returns
Chairman's Letter
Advisors' Reports 8,11
Short-Term Treasury Fund 12 
Short-Term Federal Fund 25 
Inflation-Protected Securities Fund 39 
Intermediate-Term Treasury Fund 52 
GNMA Fund 64 
Long-Term Treasury Fund 75 
About Your Fund's Expenses 88 
Glossary 91 


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 cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.




 
 
Your Fund's Total Returns


Fiscal Year Ended January 31, 2006
Total
Return
Vanguard Short-Term Treasury Fund  
   Investor Shares 1.9%
   AdmiralShares1 2.0   
Lehman 1-5 Year Treasury Index 1.5   
Average Short Treasury Fund2 1.6   

Vanguard Short-Term Federal Fund
   
   Investor Shares 2.0%
   Admiral Shares 2.1   
Lehman 1-5 Year Government Index 1.6   
Average 1-5 Year Government Fund2 1.3   

Vanguard Inflation-Protected Securities Fund
 
   Investor Shares 2.8%
   Admiral Shares3 1.0   
Institutional Shares4 2.8   
Lehman Treasury Inflation Notes Index 2.8   
Average Treasury Inflation Protected Securities Fund2 2.0   

Vanguard Intermediate-Term Treasury Fund
 
   Investor Shares 1.4%
   Admiral Shares 1.6   
Lehman 5-10 Year Treasury Index 1.1   
Average General Treasury Fund2 3.2   

Vanguard GNMA Fund
 
   Investor Shares 2.9%
   Admiral Shares 3.0   
Lehman GNMA Index 3.0   
Average GNMA Fund2 2.0   

Vanguard Long-Term Treasury Fund
   
   Investor Shares 3.0%
   Admiral Shares 3.1   
Lehman Long Treasury Index 2.9   
Average General Treasury Fund2 3.2   


1 A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
2 Derived from data provided by Lipper Inc.
3 Return since inception on June 10, 2005.
4 This class of shares also carries low expenses and is available for a minimum investment of $5 million.

1




Chairman’s Letter

Dear Shareholder,

Short-term interest rates rose sharply for a second straight year, while long-term rates increased modestly. These rate dynamics put pressure on bond prices, restraining total returns (change in share price plus reinvested income) for the Vanguard U.S. Government Bond Funds’ 2006 fiscal year.

Returns ranged from a low of 1.4% for the Intermediate-Term Treasury Fund’s Investor Shares to a high of 3.1% for the Long-Term Treasury Fund’s Admiral Shares. All the funds produced returns consistent with their market segments, and four of the six funds outperformed their peer-group averages. The table on page 1 presents the total returns of the funds and their comparative standards.

The funds’ yields followed market interest rates upward, with the greatest increase at the short end of the maturity spectrum. The yield of the Short-Term Treasury Fund increased by 1.29 percentage points to 4.22%; that of the Long-Term Treasury Fund rose a barely perceptible 0.02 percentage point to 4.45%. (Yields are for the Investor Shares). The funds’ starting and ending 30-day SEC yields, as well as their income and capital returns for the 12-month period, appear in the table on page 4.

The Fed’s rate hikes reverberated through the bond market

The broad U.S. bond market registered modest returns as the Federal Reserve Board hiked its target for short-term

2




interest rates to 4.50% by the fiscal year-end, for a total increase of 2.25 percentage points in nine separate actions over the 12 months. Rate increases were sharpest—and the attendant price declines most pronounced—among short-term bonds, which generated weak total returns. Longer-term bonds held up better, as rate increases—and price declines—were more modest.

U.S. stock prices climbed; economic signals were mixed

During the 12 months ended January 31, 2006, U.S. stocks produced strong returns. The market’s smaller companies performed best—a pattern that has prevailed for much of the past five years—but large-capitalization stocks also registered double-digit returns.

International stocks surged, particularly those from emerging markets and a seemingly revitalized Japan.

In contrast with the stock market’s clear-cut positives, the economy was a collection of inconsistencies. Stubbornly high energy prices, tighter monetary policy, and hints of deceleration in the housing market struck a cautionary note. Robust profit growth and steady job creation sounded an optimistic counterpoint.

The yield curve’s unusual path made for a challenging period

In a typical rate-tightening cycle, investors push longer-term interest rates upward as the Federal Reserve raises its target for short-term rates. These actions preserve

 
Market Barometer
Average Annual Total Returns
Periods Ended January 31, 2006

  One Year Three Years Five Years
Bonds      
Lehman Aggregate Bond Index (Broad taxable market) 1.8% 3.6% 5.5%
Lehman Municipal Bond Index 2.8    4.6    5.4   
Citigroup 3-Month Treasury Bill Index 3.2    1.8    2.2   

Stocks
     
Russell 1000 Index (Large-caps) 12.1% 17.4% 1.0%
Russell 2000 Index (Small-caps) 18.9    26.9    9.0   
Dow Jones Wilshire 5000 Index (Entire market) 13.1    18.8    2.1   
MSCI All Country World Index ex USA (International) 27.5    30.6    7.8   

CPI
     
Consumer Price Index 4.0% 3.0% 2.5%

3




the positive slope of the interest-rate yield curve, which is consistent with the expectation that it’s riskier to make a long-term loan than a short-term loan, and that investors should be compensated for this added risk.

In the current cycle, however, there has been little change in long-term rates, resulting in a pronounced flattening of the yield curve as short-term rates continued to climb. By the fiscal year-end, in fact, rates on some intermediate-term issues exceeded those of longer-term maturities. In this unusual rate environment, the U.S. Government Bond Funds’ advisors have succeeded in capturing or exceeding the returns of their market segments.

The Short-Term Treasury and Short-Term Federal Funds’ Investor Shares returned 1.9% and 2.0%, respectively, as their income returns more than compensated for declines in their share prices.

The Inflation-Protected Securities Fund performed well relative to Treasuries because of a higher-than-expected increase in inflation. The boost came largely from the impact of rising energy prices. The fund’s 5.5% income return was the highest among the six U.S. Government Bond Funds. Its share price declined modestly in line with interest rate trends, resulting in a 12-month total return of 2.8%.



Yields and Returns
  SEC 30-Day Yields
on January 31,

Components of Total Returns:
Fiscal Year Ended January 31, 2006

Bond Fund (Investor Shares) 2005  2006  Capital  Income Total
Short-Term Treasury 2.93% 4.22% -1.3%  3.2% 1.9%
Short-Term Federal 3.32    4.41    -1.3    3.3    2.0   
Inflation-Protected Securities 1.321    1.831    -2.7    5.5    2.8   
Intermediate-Term Treasury 3.71    4.33    -3.1    4.5    1.4   
GNMA 4.43    4.83    -1.8    4.7    2.9   
Long-Term Treasury 4.43    4.45    -1.9    4.9    3.0   



1 Yields of inflation-protected securities tend to be lower than those of other bonds because the former do not incorporate market expectations about inflation. The principal amounts—and thus the interest payments—of inflation-protected securities are adjusted over time to reflect inflation.

4




The Intermediate-Term Treasury Fund outpaced its index but lagged the average return of its peer group, which includes funds that tend to invest in a broader range of maturities. The advisor, Vanguard Fixed Income Group, positioned the fund to take advantage of the flattening yield curve, focusing investments in the short- and long-term ends of the fund’s maturity spectrum.

The GNMA Fund’s return was in line with its index and nearly a percentage point ahead of the average return of its peer group. The mortgage sector performed well in a strong housing market; gains among government-backed mortgages were even more attractive. The fund’s 4.7% income return and –1.8% capital return produced a 12-month total return of 2.9%.

The performance of the Long-Term Treasury Fund was similar to that of the GNMA Fund—a combination of healthy income return and a modest share-price decline.



Total Returns
Ten Years Ended January 31, 20061
Bond Fund (Investor Shares)
Average
Annual Return

Final Value of a $10,000
Initial Investment

Short-Term Treasury 4.9% $16,081 
   Lehman 1-5 Year Treasury Index 5.0    16,252 
   Average Short Treasury Fund 4.2    15,054 
Short-Term Federal 5.0% $16,301 
   Lehman 1-5 Year Government Index 5.1    16,397 
   Average 1-5 Year Government Fund 4.3    15,205 
Inflation-Protected Securities 8.8% $15,987 
   Lehman Treasury Inflation Notes Index 8.9    16,138 
   Average Treasury Inflation Protected Securities 8.5    15,798 
Intermediate-Term Treasury 5.9% $17,783 
   Lehman 5-10 Year Treasury Index 6.0    17,887 
   Average General Treasury Fund 5.7    17,336 
GNMA 6.0% $17,981 
   Lehman GNMA Index 6.2    18,171 
   Average GNMA Fund 5.2    16,575 
Long-Term Treasury 7.0% $19,675 
     Lehman Long Treasury Index 7.3    20,149 
     Average General Treasury Fund 5.7    17,336 


1 For the Inflation-Protected Securities Fund, returns are since the fund's inception on June 29, 2000.

5




The funds have outperformed peer averages over time

Without exception, Vanguard’s U.S. Government Bond Funds have exceeded the average returns of their peer groups over the past decade. The funds also have captured most of the returns produced by their benchmark indexes, which are hypothetical constructs that incur no operating or trading costs. These feats are a tribute to the talents of Wellington Management Company, LLP, which manages the GNMA Fund, and of Vanguard Fixed Income Group, which oversees the five other funds. The strong performance also reflects Vanguard’s low investment costs, which permit our shareholders to retain a larger share of their investment gains. (For a cost comparison, see the first table on page 7.)

The table on page 5 displays the annualized returns of each fund’s Investor Shares and its comparative standards during the past ten years (or since the fund’s inception), as well as the growth of a hypothetical $10,000 investment in each.

Diversification and balance can help you stay on an even keel

Investors can be frustrated by the seeming complexity and unpredictability of the stock and bond markets, since these markets don’t always move the way we expect them to. Because no one is able to foretell the future with any accuracy, investors are left to ponder what their next move should be amid the flurry of daily market headlines seeking to gain their attention.

At Vanguard, we encourage investors to tune out the market noise and remain focused on their objective—whether it is investing for retirement, college savings, or some other goal. If you hold a well-thought-out portfolio of stocks, bonds, and cash investments that is diversified appropriately for your goals and circumstances, you should be comfortable staying the course through good and bad markets. Vanguard U.S. Government Bond Funds are a smart choice for those seeking high credit quality, low cost, and solid long-term performance.

Thank you for entrusting your assets to Vanguard.

Sincerely,


John J. Brennan
Chairman and Chief Executive Officer
February 15, 2006

6




Expense Ratios:1
Your fund compared with its peer group

Bond Fund Investor
Shares
Admiral
Shares
Institutional
Shares
Peer
Group
Short-Term Treasury 0.26% 0.10% —    0.56%
Short-Term Federal 0.20    0.10    —    0.99   
Inflation-Protected Securities 0.20    0.11    0.08% 0.97   
Intermediate-Term Treasury 0.26    0.10    —    0.58   
GNMA 0.21    0.11    —    1.04   
Long-Term Treasury 0.26    0.10    —    0.58   


Your Fund's Performance at a Glance:
January 31, 2005-January 31, 2006

           
Distributions Per Share
Bond Fund
Starting
Share Price
Ending
Share Price
Income
Dividends
Capital
Gains
Short-Term Treasury            
   Investor Shares $10.45  $10.31  $0.331  $0.000 
   Admiral Shares 10.45  10.31  0.348  0.000 
Short-Term Federal
   Investor Shares $10.39  $10.25  $0.340  $0.000 
   Admiral Shares 10.39  10.25  0.350  0.000 
Inflation-Protected Securities            
   Investor Shares $12.57  $12.18  $0.681  $0.052 
   Admiral Shares 25.002  23.91  1.315  0.026 
Institutional Shares 10.06  9.74  0.556  0.041 
Intermediate-Term Treasury            
   Investor Shares $11.28  $10.85  $0.509  $0.076 
   Admiral Shares 11.28  10.85  0.526  0.076 
GNMA            
   Investor Shares $10.48  $10.29  $0.483  $0.000 
   Admiral Shares 10.48  10.29  0.492  0.000 
Long-Term Treasury            
   Investor Shares $11.76  $11.40  $0.563  $0.142 
   Admiral Shares 11.76  11.40  0.581  0.142 



1 Fund expense ratios reflect the fiscal year ended January 31, 2006. Peer groups are: for the Short-Term Treasury Fund, the Average Short Treasury Fund; for the Short-Term Federal Fund, the Average 1–5 Year Government Fund; for the Inflation-Protected Securities Fund, the Average Treasury Inflation Protected Securities Fund; for the Intermediate-Term Treasury Fund, the Average General Treasury Fund; for the GNMA Fund, the Average GNMA Fund; for the Long-Term Treasury Fund, the Average General Treasury Fund. Peer-group expense ratios are derived from data provided by Lipper Inc. and capture information through year-end 2005.
2 Share price at inception on June 10,2005.

7




Advisor’s Report

For the Short-, Intermediate-, and Long-Term Treasury Funds; the Inflation-Protected Securities Fund; and the Short-Term Federal Fund

During the fiscal year ended January 31, 2006, the Vanguard U.S. Government Bond Funds produced returns ranging from a low of 1.4% (Intermediate-Term Treasury Fund Investor Shares) to a high of 3.1% (Long-Term Treasury Fund Admiral Shares). The funds bettered or matched the returns of their benchmark indexes.

The investment environment

During the year, the U.S. economy enjoyed respectable growth. Output increased by 3.1% during calendar 2005. Surging energy prices produced a sharp rise in the Consumer Price Index, but the core inflation rate, which excludes food and energy, and the Federal Reserve’s preferred inflation gauge (the PCE, or Personal Consumption Expenditure, deflator) suggested that inflation remained under control.

Although the economic backdrop was unremarkable, the bond market’s interest rate dynamics made for a challenging investment environment. The Treasury yield curve flattened significantly over the fiscal year. The spread between the yields of 2- and 30-year Treasuries narrowed from 131 basis points (1.31 percentage point) at the start of the period to just 16 basis points at the close. This spread peaked at more than 350 basis points in 2003.

Signs of flattening were visible along the entire yield curve:

• The yield on 2-year Treasuries rose by 125 basis points to close the period at 4.52%, only 2 basis points above the federal funds target rate.

• Rates on 5-year Treasuries rose by 76 basis points to close at 4.45%—below the yield of the 2-year note.

• Yields of 10-year Treasuries rose only 39 basis points and finished the period even with the 2-years at 4.52%.

• The yields of 30-year bonds had the smallest increase, rising just 10 basis points to end the fiscal year at 4.68%.

The flattening suggests that the Federal Reserve is close to the end of its policy-tightening cycle. Further tightening—which we do expect—will invert the yield curve. Indeed, in early February the Treasury auctioned its first 30-year bond in over four years, and pent-up demand drove the new bond’s yield below that of the current 2-year Treasury.

Treasury inflation-protected securities (TIPS) outperformed their conventional counterparts during the calendar year because of a sharper-than-expected 3.4% increase in the Consumer Price Index. This acceleration in the inflation rate, driven largely by energy prices, was greater than the inflation expectations embedded in TIPS prices at the start of the period.

8




The management of the funds

In the Short- and Intermediate-Term Treasury Funds, we maintained a “flattening bias” for much of the year, focusing each fund’s investments toward the short and long ends of its maturity range. The emphasis on short-duration securities offered some protection from declining prices as the Fed continued to boost interest rates. At the same time, our holdings at the long ends of the funds’ maturity ranges, where prices were relatively stable, allowed us to capture higher yields.

In late December, with 2-year Treasuries yielding more than 5-year Treasuries, we removed the flattening bias in the Short-Term Treasury Fund. The spread between 5- and 10-year Treasuries also narrowed late in the fiscal year, providing an opportunity to reduce the flattening bias in the Intermediate-Term Treasury Fund.

The Short-Term Federal Fund, like its Treasury counterpart, benefited from a shorter-than-usual duration. We also enhanced the fund’s performance by increasing its holdings in agency debt, both callable and noncallable. The supply of agency bonds diminished in the period as both Fannie Mae and Freddie Mac reduced issuance, a consequence of regulatory actions that constrained their business models. Demand for agency issues did not drop, however, and the combination of reduced supply and strong demand helped agency securities to outperform Treasuries and mortgage-backed securities as short-term rates moved higher.

In the Inflation-Protected Securities Fund, we were able to enhance returns by employing trading strategies that took advantage of supply premiums created by auctions of new TIPS and by making modest adjustments in the fund’s exposure to the changes in inflation expectations. Differences between the fund and its benchmark in the distribution of issues of different maturities detracted somewhat from the fund’s performance.

Our investment outlook

Given our expectation that the Federal Reserve will decide it still has some tightening left to accomplish, we are maintaining our bearish positioning in the Short-Term Treasury and Short-Term Federal Funds, where the impact of higher short-term rates is felt the most. Once it appears that the Fed is finished with this round of rate-boosting and short-term securities look more fairly valued, we will reassess that bias.

For the Intermediate-Term and Long-Term Treasury Funds, we are keeping the portfolio durations neutral in the expectation that continued demand for longer-maturity Treasuries, particularly from foreign investors and domestic pension-fund managers, will prevent interest rates from accelerating significantly upward.

9




This positioning could change if interest rates should rise overseas, causing foreigners to sell U.S. fixed income assets.

At the end of the fiscal year, the break-even inflation rate—the rate at which TIPS and conventional Treasuries should be equally attractive to investors—was 2.5% for 10-year TIPS and 2.8% for 30-year TIPS. In our view, these levels fairly reflect expected inflation and the inflation risk premium, which means that TIPS should not be expected to outperform conventional Treasuries unless inflation rises sharply.

John W. Hollyer, Principal
Kenneth E. Volpert, Principal
David R. Glocke, Principal
Ronald M. Reardon, Principal
Vanguard Fixed Income Group

February 17, 2006

10




Advisor’s Report

For the GNMA Fund

During the 12 months ended January 31, Vanguard GNMA Fund returned 2.9% for Investor Shares and 3.0% for Admiral Shares. These results were in line with the performance of the Lehman GNMA Index and superior to the average return of competing funds.

The investment environment

The fixed income market during the past 12 months was dominated by an astonishing flattening of the Treasury yield curve. The Federal Reserve raised short-term interest rates aggressively, but the yields of intermediate- and long-term securities rose less dramatically. The yield of the longest-term Treasury security, the 30-year bond, was virtually unchanged over the course of the year.

The mortgage sector performed well during the period, and GNMAs were the best-performing slice of the mortgage market. Higher interest rates caused a sharp decline in the pace of mortgage refinancing. With that threat largely removed, investors became more interested in the higher yields offered by GNMAs.

As GNMAs led the market for mortgage-backed securities, the fund did well by having 100% of its assets invested in GNMA securities. While the difference in performance between the GNMA sector and other areas of the mortgage-backed securities market was not dramatic, it was sufficient to give the fund an advantage over the broader mortgage-backed market.

Although the past 12 months were a good period for the fund relative to the vast majority of fixed income funds, it is also true that the fund’s absolute return remained low by historical standards. This lower level of return simply reflects the low level of interest rates, both among mortgage-backed securities and among fixed income investments generally.

The fund’s positioning

The fund continues to be fully invested in GNMA securities, and we do not envision a change in that stance in the near future. It is also our view that the general level of interest rates is likely to remain flat or climb only slightly in the next several months. For this reason, we are concentrating new purchases in GNMA securities priced slightly above par value. These securities offer a bit more yield than those priced below par value, and they are no longer threatened by the negative effects of mortgage refinancing that occur during periods of falling interest rates.

Paul D. Kaplan, Senior Vice
President and Partner
Thomas L. Pappas, CFA, Senior Vice
President and Partner
Wellington Management Company, LLP

February 15, 2006

11




Short-Term Treasury Fund

Fund Profile
As of January 31, 2006



Financial Attributes

Fund Comparative
Index1
Broad
Index2
Number of Issues 30  63  6,453 
Yield    —  — 
   Investor Shares 4.2%      
   Admiral Shares 4.4%      
Yield to Maturity 4.6%3  4.5% 5.2%
Average Coupon 4.1% 3.9% 5.2%
Average Effective
Maturity
2.1 years  2.6 years  7.1 years 
Average Quality4 Aaa  Aaa  Aa1 
Average Duration 2.0 years  2.4 years  4.5 years 
Expense Ratio    —  — 
   Investor Shares 0.26%      
   Admiral Shares 0.10%      
Short-Term Reserves 0% —  — 


Volatility Measures

Fund Comparative
Index1
Fund Broad
Index2

R-Squared 0.98  1.00  0.88  1.00 

Beta 0.77  1.00  0.40  1.00 



Sector Diversification5 (% of portfolio)

   

Treasury/Agency 100%



Distribution by Maturity (% of portfolio)

   

Under 1 Year 8%

1-3 Years 63   

3-5 Years 31   

Over 5 Years -26   



Distribution by Credit Quality4 (% of portfolio)


   
Aaa 100%



Investment Focus



1 Lehman 1-5 Year Treasury Index.
2 Lehman Aggregate Bond Index.
3 Before expenses.
4 Moody's Investors Service.
5 Agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are not backed by the full faith and credit of
   the U.S. government.
6 Reflects a short futures position being used for duration-management purposes.
See page 91 for a glossary of investment terms.

12




Short-Term Treasury Fund



Performance Summary



All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: January 31, 1996-January 31, 2006
Initial Investment of $10,000




Average Annual Total Returns
Periods Ended January 31, 2006

Final Value
of a $10,000
One Year Five Years Ten Years Investment

Short-Term Treasury Fund Investor Shares 1.86% 3.92% 4.87% $16,081 

Lehman Aggregate Bond Index 1.80    5.53    6.10    18,070   

Lehman 1-5 Year Treasury Index 1.46    3.86    4.98    16,252   

Average Short Treasury Fund1 1.56    2.99    4.18    15,054   



One Year Since
Inception2
Final Value
of a $100,000
Investment

Short-Term Treasury Fund Admiral Shares 2.02% 4.07% $121,922 

Lehman Aggregate Bond Index 1.80    5.60    131,086   

Lehman 1-5 Year Treasury Index 1.46    3.89    120,858   



1 Derived from data provided by Lipper Inc.
2 February 13, 2001.
   Note: See Financial Highlights tables on pages 20 and 21 for dividend and capital gains information.

13




Short-Term Treasury Fund



Fiscal-Year Total Returns (%): January 31, 1996-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year

Capital
Return

Income
Return

Total
Return

Total
Return

1997 -1.9% 5.8% 3.9% 4.1%

1998 1.1    6.0    7.1    7.9   

1999 1.2    5.5    6.7    6.9   

2000 -4.0    5.2    1.2    1.3   

2001 4.1    6.3    10.4    10.5   

2002 1.9    5.0    6.9    7.4   

2003 3.4    4.0    7.4    7.2   

2004 0.2    2.5    2.7    2.6   

2005 -1.8    2.7    0.9    1.0   

2006 -1.3    3.2    1.9    1.5   



Average Annual Total Returns: Periods Ended December 31, 2005

This table presents average annual total 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 Capital Income Total

Investor Shares 10/28/1991  1.77% 4.16% 0.31% 4.63% 4.94%

Admiral Shares 2/13/2001  1.92    4.112    —    —    —   



1 Lehman 1–5 Year Treasury Index.
2 Return since inception.

14




Short-Term Treasury Fund



Financial Statements

Statement of Net Assets
As of January 31, 2006

The fund provides a complete list of its holdings 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 www.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).


  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
U.S. Government and Agency Obligations (99.0%)        
U.S. Government Securities (89.9%)    
   U.S. Treasury Note 2.625% 11/15/06  130,000  128,050 
   U.S. Treasury Note 3.750% 3/31/07  229,000  226,818 
   U.S. Treasury Note 3.500% 5/31/07  360,000  355,050 
   U.S. Treasury Note 4.000% 8/31/07  223,000  221,189 
   U.S. Treasury Note 4.250% 10/31/07  295,000  293,572 
   U.S. Treasury Note 4.250% 11/30/07  624,000  620,880 
   U.S. Treasury Note 4.375% 12/31/07  45,000  44,874 
   U.S. Treasury Note 2.625% 5/15/08  220,000  211,064 
   U.S. Treasury Note 3.875% 5/15/09  75,000  73,582 
   U.S. Treasury Note 4.000% 6/15/09  412,875  406,554 
   U.S. Treasury Note 3.500% 2/15/10  25,000  24,074 
1 U.S. Treasury Note 6.500% 2/15/10  75,000  80,425 
   U.S. Treasury Note 4.000% 4/15/10  313,500  307,377 
   U.S. Treasury Note 3.875% 7/15/10  3,000  2,925 
             2,996,434 
Agency Bonds and Notes (8.9%)           
2 Federal Home Loan Bank 5.375% 2/15/06  20,000  20,006 
3 Overseas Private Investment Corp.
   (U.S. Government Guaranteed)
5.760% 6/15/06  2,667  2,667 
3 Overseas Private Investment Corp.
   (U.S. Government Guaranteed)
5.100% 6/30/07  6,857  6,855 
3 Overseas Private Investment Corp.
   (U.S. Government Guaranteed)
7.450% 12/15/10  13,636  14,447 
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
5.530% 4/30/06  25,000  25,055 
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
7.650% 5/15/06  55,000  55,459 
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
3.400% 2/15/08  45,000  43,782 

15




Short-Term Treasury Fund



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
6.670% 9/15/09  17,000  18,027 
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
7.200% 1/15/10  7,100  7,706 
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
7.250% 6/15/10  64,080  70,081 
   Private Export Funding Corp.
   (U.S. Government Guaranteed)
6.070% 4/30/11  29,000  30,614 
             294,699 
   Mortgage-Backed Securities (0.2%)           
   2,3 Federal Home Loan Mortgage Corp. 5.500% 4/1/16-5/1/16  1,476  1,490 
   2,3 Federal Home Loan Mortgage Corp. 6.000% 8/1/06  1,383  1,388 
   2,3 Federal Home Loan Mortgage Corp. 7.000% 9/1/15-1/1/16  1,244  1,294 
   2,3 Federal National Mortgage Assn 6.000% 4/1/06-9/1/06  710  712 
   2,3 Federal National Mortgage Assn 7.000% 11/1/15-3/1/16  3,027  3,156 
             8,040 
   Total U.S. Government and Agency Obligations
   (Cost $3,326,790)
        3,299,173 

    
     Shares    
   Temporary Cash Investment (0.1%)           
   4 Vanguard Yorktown Liquidity Fund, 4.393%
   (Cost $5,020)
     5,019,852  5,020 
   Total Investments (99.1%)
   (Cost $3,331,810)
        3,304,193 
   Other Assets and Liabilities (0.9%)           
   Other Assets—Note B         36,107 
   Liabilities         (7,551)
             28,556 
   Net Assets (100%)         3,332,749 

16




Short-Term Treasury Fund



At January 31, 2006, net assets consisted of:5

 
Amount
($000)
Paid-in Capital 3,391,256 
Undistributed Net Investment Income — 
Accumulated Net Realized Losses (31,050)
Unrealized Appreciation (Depreciation)   
Investment Securities (27,617)
Futures Contracts 160 
Net Assets 3,332,749 

 
  
Investor Shares-Net Assets   
Applicable to 132,808,113 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
1,368,996 
Net Asset Value Per Share-Investor Shares $10.31 

 
  
Admiral Shares-Net Assets   
Applicable to 190,506,282 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
1,963,753 
Net Asset Value Per Share-Admiral Shares $10.31 




• See Note A in Notes to Financial Statements.
1 Securities with a value of $2,413,000 have been segregated as initial margin for open futures contracts.
2 The issuer operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. If needed, access to
    additional funding from the U.S. Treasury (beyond the issuer’s line of credit) would require congressional action.
3 The average maturity is shorter than the final maturity shown due to scheduled interim principal payments and prepayments.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
5 See Note C in Notes to Financial Statements for the tax-basis components of net assets.



17




Short-Term Treasury Fund



Statement of Operations

Year Ended
January 31, 2006

  ($000)

Investment Income   

Income   

Interest1 115,007 

Total Income 115,007 

Expenses   

The Vanguard Group-Note B   

   Investment Advisory Services 366 

   Management and Administrative   

      Investor Shares 3,426 

      Admiral Shares 1,103 

   Marketing and Distribution   

      Investor Shares 451 

      Admiral Shares 423 

Custodian Fees 44 

Auditing Fees 21 

Shareholders' Reports

      Investor Shares 42 

      Admiral Shares

Trustees' Fees and Expenses

Total Expenses 5,883 

Net Investment Income 109,124 

Realized Net Gain (Loss)   

Investment Securities Sold (25,351)

Futures Contracts 2,452 

Realized Net Gain (Loss) (22,899)

Change in Unrealized Appreciation (Depreciation)   

Investment Securities (22,411)

Futures Contracts 141 

Change in Unrealized Appreciation (Depreciation) (22,270)

Net Increase (Decrease) in Net Assets Resulting from Operations 63,955 



1 Interest income from an affiliated company of the fund was $6,161,000.

18




Short-Term Treasury Fund



Statement of Changes in Net Assets

 
Year Ended January 31,
2006
($000)
2005
($000)

Increase (Decrease) in Net Assets      

Operations      

Net Investment Income 109,124  97,888 

Realized Net Gain (Loss) (22,899) (4,717)

Change in Unrealized Appreciation (Depreciation) (22,270) (60,101)

Net Increase (Decrease) in Net Assets Resulting from Operations 63,955  33,070 

Distributions      

Net Investment Income      

   Investor Shares (50,814) (51,653)

   Admiral Shares (58,310) (46,235)

Realized Capital Gain      

   Investor Shares —  — 

   Admiral Shares —  — 

Total Distributions (109,124) (97,888)

Capital Share Transactions—Note E      

   Investor Shares (462,799) (139,870)

   Admiral Shares 381,823  (21,768)

Net Increase (Decrease) from Capital Share Transactions (80,976) (161,638)

Total Increase (Decrease) (126,145) (226,456)

Net Assets      

Beginning of Period 3,458,894  3,685,350 

End of Period 3,332,749  3,458,894 

19




Short-Term Treasury Fund



Financial Highlights

Investor Shares

Year Ended January 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 
Net Asset Value, Beginning of Period $10.45  $10.64  $10.79  $10.54  $10.35 
Investment Operations               
Net Investment Income .331  .279  .271  .405  .508 
Net Realized and Unrealized Gain (Loss)
on Investments
(.140) (.190) .020  .361  .195 
Total from Investment Operations .191  .089  .291  .766  .703 
Distributions               
Dividends from Net Investment Income (.331) (.279) (.271) (.405) (.508)
Distributions from Realized Capital Gains —  —  (.170) (.111) (.005)
Total Distributions (.331) (.279) (.441) (.516) (.513)
Net Asset Value, End of Period $10.31  $10.45  $10.64  $10.79  $10.54 

Total Return
1.86% 0.85% 2.74% 7.41% 6.93%

Ratios/Supplemental Data
              
Net Assets, End of Period (Millions) $1,369  $1,854  $2,028  $2,200  $1,407 
Ratio of Total Expenses to
Average Net Assets
0.26% 0.24% 0.26% 0.28% 0.29%
Ratio of Net Investment Income to
Average Net Assets
3.19% 2.65% 2.52% 3.70% 4.82%
Portfolio Turnover Rate 93% 108% 125% 165% 102%

20




Short-Term Treasury Fund



Admiral Shares

         
Year Ended January 31,
Feb. 13,
20011 to
Jan. 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 
Net Asset Value, Beginning of Period $10.45  $10.64  $10.79  $10.54  $10.34 
Investment Operations               
Net Investment Income .348  .292  .285  .419  .502 
Net Realized and Unrealized Gain (Loss)
on Investments
(.140) (.190) .020  .361  .205 
Total from Investment Operations .208  .102  .305  .780  .707 
Distributions               
Dividends from Net Investment Income (.348) (.292) (.285) (.419) (.502)
Distributions from Realized Capital Gains —  —  (.170) (.111) (.005)
Total Distributions (.348) (.292) (.455) (.530) (.507)
Net Asset Value, End of Period $10.31  $10.45  $10.64  $10.79  $10.54 

Total Return
2.02% 0.97% 2.88% 7.55% 6.97%

Ratios/Supplemental Data
              
Net Assets, End of Period (Millions) $1,964  $1,605  $1,657  $1,933  $1,257 
Ratio of Total Expenses to
Average Net Assets
0.10% 0.12% 0.13% 0.15% 0.15%2 
Ratio of Net Investment Income to
Average Net Assets
3.35% 2.77% 2.65% 3.83% 4.73%2 
Portfolio Turnover Rate 93% 108% 125% 165% 102%


1 Inception.
2 Annualized.
   See accompanying Notes, which are an integral part of the Financial Statements.

21




Short-Term Treasury Fund



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 files reports with the SEC under the company name Vanguard Fixed Income Securities Funds. 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, servicing, tenure, and account-size criteria.

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

1. Security Valuation: 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. Investments in Vanguard YorktownTM 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 materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2. Futures Contracts: The fund may use U.S. Agency, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, and minimizing transaction costs. The fund may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The fund may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector. Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market.

Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements.

4. 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.

5. Other: Interest income includes income distributions received from Vanguard Yorktown 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.

22




Short-Term Treasury Fund



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 Group furnishes at cost investment advisory, corporate management, administrative, shareholder account maintenance, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2006, the fund had contributed capital of $390,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.39% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C. 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.

For tax purposes, at January 31, 2006, the fund had available realized losses of $30,890,000 to offset future net capital gains of $3,475,000 through January 31, 2013, $11,999,000 through January 31, 2014, and $15,416,000 through January 31, 2015.

At January 31, 2006, net unrealized depreciation of investment securities for tax purposes was $27,617,000, consisting of unrealized gains of $1,272,000 on securities that had risen in value since their purchase and $28,889,000 in unrealized losses on securities that had fallen in value since their purchase.

At January 31, 2006, the aggregate settlement value of open futures contracts expiring in March 2006 and the related unrealized appreciation (depreciation) were:



($000)
Futures Contracts Number of
Long (Short)
Contracts
Aggregate
Settlement
Value
Unrealized
Appreciation
(Depreciation)

5-Year Treasury Note (865) 91,460  160 



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

D. During the year ended January 31, 2006, the fund purchased $3,427,446,000 of investment securities and sold $2,635,258,000 of investment securities, other than temporary cash investments.

23




Short-Term Treasury Fund



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



Year Ended January 31,
2006
2005
Amount
($000)
Shares
(000)
Amount
($000)
Shares
(000)

Investor Shares            

Issued 375,186  36,160  579,668  54,942 

Issued in Lieu of Cash Distributions 45,030  4,344  45,921  4,358 

Redeemed (883,015) (85,100) (765,459) (72,606)

Net Increase (Decrease)-Investor Shares (462,799) (44,596) (139,870) (13,306)

Admiral Shares            

Issued 868,308  83,753  627,914  59,484 

Issued in Lieu of Cash Distributions 50,476  4,872  38,883  3,690 

Redeemed (536,961) (51,774) (688,565) (65,301)

Net Increase (Decrease)-Admiral Shares 381,823  36,851  (21,768) (2,127)

24




Short-Term Federal Fund

Fund Profile
As of January 31, 2006

Financial Attributes

 
Fund Comparative
Index1
Broad
Index2
Number of Issues 45  586  6,453 
Yield    —  — 
  Investor Shares 4.4%      
  Admiral Shares 4.5%      
Yield to Maturity 4.8%3  4.6% 5.2%
Average Coupon 4.7% 4.1% 5.2%
Average Effective
Maturity
2.3 years  2.6 years  7.1 years 
Average Quality4 Aaa  Aaa  Aa1 
Average Duration 2.0 years  2.3 years  4.5 years 
Expense Ratio    —  — 
  Investor Shares 0.20%      
  Admiral Shares 0.10%      
Short-Term Reserves 2% —  — 


Volatility Measures

Fund Comparative
Index1
Fund Broad
Index2
R-Squared 0.98  1.00  0.92  1.00 
Beta 0.81  1.00  0.42  1.00 


Sector Diversification5 (% of portfolio)


Government Mortgage-Backed 14%

Treasury/Agency 84   

Short-Term Reserves 2   



Distribution by Maturity (% of portfolio)


Under 1 Year 9%

1-3 Years 56   

3-5 Years 33   

Over 5 Years 2   



Distribution by Credit Quality4 (% of portfolio)


Aaa 100%



Investment Focus

1 Lehman 1-5 Year Government Index.
2 Lehman Aggregate Bond Index.
3 Before expenses.
4 Moody's Investors Service.
5 Agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are not backed by the full faith and credit of
    the U.S. government.
   See page 91 for a glossary of investment terms.

25




Short-Term Federal Fund

Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: January 31, 1996-January 31, 2006
Initial Investment of $10,000



Average Annual Total Returns
Periods Ended January 31, 2006

Final Value
of a $10,000
One Year Five Years Ten Years Investment

Short-Term Federal Fund Investor Shares 1.96% 3.95% 5.01% $16,301 

Lehman Aggregate Bond Index 1.80    5.53    6.10    18,070   

Lehman 1-5 Year Government Index 1.63    4.00    5.07    16,397   

Average 1-5 Year Government Fund1 1.33    3.26    4.28    15,205   



One Year Since
Inception2
Final Value
of a $100,000
Investment

Short-Term Federal Fund Admiral Shares 2.06% 4.00% $121,527 

Lehman Aggregate Bond Index 1.80    5.57    130,909 

Lehman 1-5 Year Government Index 1.63    4.01    121,563 




1 Derived from data provided by Lipper Inc.
2 February 12, 2001.
   Note: See Financial Highlights tables on pages 34 and 35 for dividend and capital gains information.

26


Short-Term Federal Fund



Fiscal-Year Total Returns (%): January 31, 1996-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year
Capital
Return
Income
Return
Total
Return
Total
Return

1997 -1.7% 6.2% 4.5% 4.1%

1998 0.8    6.3    7.1    7.9   

1999 0.7    5.9    6.6    6.9   

2000 -4.0    5.6    1.6    1.3   

2001 4.4    6.5    10.9    10.8   

2002 2.1    5.4    7.5    7.5   

2003 2.9    4.1    7.0    7.2   

2004 -0.5    3.0    2.5    2.6   

2005 -1.8    2.8    1.0    1.2   

2006 -1.3    3.3    2.0    1.6   



Average Annual Total Returns: Periods Ended December 31, 2005

This table presents average annual total 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 Capital Income Total

Investor Shares 12/31/1987 1.80% 4.23% 0.17% 4.90% 5.07%

Admiral Shares 2/12/200 1.89    4.032    —    —    —   



1 Lehman 1–5 Year Government Index.
2 Return since inception.

27


Short-Term Federal Fund



Financial Statements

Statement of Net Assets
As of January 31, 2006

The fund provides a complete list of its holdings 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 www.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).

  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
U.S. Government and Agency Obligations (96.9%)        
U.S. Government Securities (7.4%)    
     U.S. Treasury Note 3.875% 5/15/09  15,000  14,716 
     U.S. Treasury Note 3.625% 7/15/09  187,400  182,247 
               196,963 
Agency Bonds and Notes (75.6%)           
1 Federal Home Loan Bank 4.875% 2/15/07  10,000  10,006 
1 Federal Home Loan Bank 3.625% 2/16/07  80,000  78,950 
1 Federal Home Loan Bank 3.375% 2/15/08  50,000  48,582 
1 Federal Home Loan Bank 3.875% 2/13/09  20,000  19,479 
1 Federal Home Loan Bank 4.250% 5/15/09  32,000  31,433 
1 Federal Home Loan Bank 4.625% 2/18/11  50,000  49,563 
1 Federal Home Loan Mortgage Corp. 4.875% 3/15/07  150,000  150,143 
1 Federal Home Loan Mortgage Corp. 2.875% 5/15/07  100,000  97,651 
1 Federal Home Loan Mortgage Corp. 3.750% 8/3/07  50,000  49,238 
1 Federal Home Loan Mortgage Corp. 5.750% 3/15/09  21,500  22,092 
1 Federal Home Loan Mortgage Corp. 7.000% 3/15/10  50,000  54,042 
1 Federal Home Loan Mortgage Corp. 4.750% 10/4/10  25,000  24,657 
1 Federal Home Loan Mortgage Corp. 5.000% 10/18/10  50,000  49,575 
1 Federal National Mortgage Assn 3.550% 1/12/07  50,000  49,380 
1 Federal National Mortgage Assn 3.625% 3/15/07  100,000  98,714 
1,2 Federal National Mortgage Assn 5.250% 4/15/07  269,500  270,877 
1 Federal National Mortgage Assn 3.800% 1/18/08  100,000  98,023 
1 Federal National Mortgage Assn 5.750% 2/15/08  96,000  97,727 
1 Federal National Mortgage Assn 6.000% 5/15/08  37,000  37,963 
1 Federal National Mortgage Assn 3.250% 8/15/08  50,000  48,205 
1 Federal National Mortgage Assn 4.000% 1/26/09  50,000  48,739 
1 Federal National Mortgage Assn 7.250% 1/15/10  100,000  108,681 
1 Federal National Mortgage Assn 4.625% 6/1/10  100,000  98,521 
1 Federal National Mortgage Assn 7.125% 6/15/10  157,975  172,082 

28


Short-Term Federal Fund



       
 
Coupon
Maturity
Date

Face
Amount
($000)

Market
Value•
($000)

3 Overseas Private Investment Corp.
     (U.S. Government Guaranteed)
2.360% 8/15/07  33,000  32,637 
     Overseas Private Investment Corp.
     (U.S. Government Guaranteed)
0.000%4 9/20/07  13,000  13,160 
     Overseas Private Investment Corp.
     (U.S. Government Guaranteed)
0.000%4 9/20/07  8,000  8,098 
3 Overseas Private Investment Corp.
     (U.S. Government Guaranteed)
2.890% 12/15/07  40,480  39,690 
3 Overseas Private Investment Corp.
     (U.S. Government Guaranteed)
2.410% 6/15/09  9,470  9,200 
     Private Export Funding Corp.
     (U.S. Government Guaranteed)
5.340% 3/15/06  13,000  13,011 
     Private Export Funding Corp.
     (U.S. Government Guaranteed)
5.530% 4/30/06  56,750  56,874 
     Private Export Funding Corp.
     (U.S. Government Guaranteed)
7.650% 5/15/06  20,000  20,167 
     Private Export Funding Corp.
     (U.S. Government Guaranteed)
6.670% 9/15/09  17,000  18,027 
               2,025,187 
Mortgage-Backed Securities (13.9%)           
Conventional Mortgage-Backed Securities (7.5%)           
1,3 Federal Home Loan Mortgage Corp. 5.500% 2/1/16-11/1/17  43,609  43,916 
1,3 Federal Home Loan Mortgage Corp. 6.500% 9/1/11  2,811  2,851 
1,3 Federal Home Loan Mortgage Corp. 7.500% 2/1/08  579  591 
1,3 Federal National Mortgage Assn 5.000% 8/1/20-12/1/20  49,275  48,659 
1,3 Federal National Mortgage Assn 5.500% 3/1/21  60,000  60,345 
1,3 Federal National Mortgage Assn 6.000% 4/1/17  13,807  14,115 
1,3 Federal National Mortgage Assn 6.500% 10/1/10-9/1/16  24,715  25,383 
1,3 Federal National Mortgage Assn 7.500% 3/1/15-8/1/15  1,590  1,659 
1,3 Federal National Mortgage Assn 8.000% 10/1/14-9/1/15  5,168  5,455 
              
Non-Conventional Mortgage-Backed Securities (6.4%)      
1,3 Federal Home Loan Mortgage Corp. 3.694% 8/1/33  7,954  7,753 
1,3 Federal National Mortgage Assn 3.471% 10/1/33  12,517  12,174 
1,3 Federal National Mortgage Assn 3.594% 8/1/33  9,928  9,687 
1,3 Federal National Mortgage Assn 3.711% 9/1/33  30,040  29,338 
1,3 Federal National Mortgage Assn 3.723% 7/1/33  6,866  6,716 
1,3 Federal National Mortgage Assn 3.726% 6/1/33  13,296  13,019 
1,3 Federal National Mortgage Assn 3.728% 8/1/33  3,853  3,766 
1,3 Federal National Mortgage Assn 3.779% 8/1/33  14,015  13,699 
1,3 Federal National Mortgage Assn 3.798% 9/1/33  14,098  13,797 

29


Short-Term Federal Fund



       
 
Coupon
Maturity
Date

Face
Amount
($000)

Market
Value•
($000)

1,3 Federal National Mortgage Assn 3.827% 7/1/33  14,381  14,095 
1,3 Federal National Mortgage Assn 4.289% 8/1/34  9,972  9,798 
1,3 Federal National Mortgage Assn 4.305% 6/1/34  37,224  36,610 
          373,426 
Total U.S. Government and Agency Obligations
(Cost $2,643,810)
        2,595,576 

 
     Shares    
Temporary Cash Investment (4.6%)           
5 Vanguard Yorktown Liquidity Fund, 4.393%
(Cost $123,820)
     123,820,117  123,820 
Total Investments (101.5%)
(Cost $2,767,630)
        2,719,396 
Other Assets and Liabilities (-1.5%)           
Other Assets—Note B         32,480 
Payables for Investment Securities Purchased         (60,572)
Other Liabilities         (11,977)
          (40,069)
Net Assets (100%)         2,679,327 

30


Short-Term Federal Fund



At January 31, 2006, net assets consisted of:6

  Amount
($000)
Paid-in Capital 2,750,490 
Undistributed Net Investment Income — 
Accumulated Net Realized Losses (23,277)
Unrealized Appreciation (Depreciation)   
Investment Securities (48,234)
Futures Contracts 348 
Net Assets 2,679,327 

 
  
Investor Shares-Net Assets   
Applicable to 164,550,418 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
1,685,870 
Net Asset Value Per Share-Investor Shares $10.25 

 
  
Admiral Shares-Net Assets   
Applicable to 96,966,989 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
993,457 
Net Asset Value Per Share-Admiral Shares $10.25 


• See Note A in Notes to Financial Statements.
1 The issuer operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. If needed, access to additional
    funding from the U.S. Treasury (beyond the issuer’s line of credit) would require congressional action.
2 Securities with a value of $603,000 have been segregated as initial margin for open futures contracts.
3 The average maturity is shorter than the final maturity shown due to scheduled interim principal payments and prepayments.
4 Zero-coupon security redeemable at a price above par. Yield to maturity is 3.248%.
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.
6 See Note C in Notes to Financial Statements for the tax-basis components of net assets.

31


Short-Term Federal Fund



Statement of Operations

Year Ended
January 31, 2006

  ($000)
Investment Income   
Income   
Interest1 102,181 
Total Income 102,181 
Expenses   
The Vanguard Group—Note B   
   Investment Advisory Services 325 
   Management and Administrative   
      Investor Shares 3,204 
      Admiral Shares 562 
   Marketing and Distribution   
      Investor Shares 581 
      Admiral Shares 223 
Custodian Fees 33 
Auditing Fees 22 
Shareholders' Reports   
      Investor Shares 43 
      Admiral Shares
Trustees' Fees and Expenses
Total Expenses 4,998 
Net Investment Income 97,183 
Realized Net Gain (Loss)   
Investment Securities Sold (20,287)
Futures Contracts 178 
Realized Net Gain (Loss) (20,109)
Change in Unrealized Appreciation (Depreciation)   
Investment Securities (22,433)
Futures Contracts 342 
Change in Unrealized Appreciation (Depreciation) (22,091)
Net Increase (Decrease) in Net Assets Resulting from Operations 54,983 


1 Interest income from an affiliated company of the fund was $5,273,000.

32


Short-Term Federal Fund



Statement of Changes in Net Assets



Year Ended January 31,
 
2006
($000)

2005
($000)

Increase (Decrease) in Net Assets      
Operations      
Net Investment Income 97,183  89,720 
Realized Net Gain (Loss) (20,109) 3,417 
Change in Unrealized Appreciation (Depreciation) (22,091) (61,370)
Net Increase (Decrease) in Net Assets Resulting from Operations 54,983  31,767 
Distributions      
Net Investment Income      
   Investor Shares (67,763) (69,885)
   Admiral Shares (29,420) (19,835)
Realized Capital Gain1
   Investor Shares —  (4,933)
   Admiral Shares —  (1,384)
Total Distributions (97,183) (96,037)
Capital Share Transactions—Note E      
   Investor Shares (686,463) (150,842)
   Admiral Shares 315,253  42,329 
Net Increase (Decrease) from Capital Share Transactions (371,210) (108,513)
Total Increase (Decrease) (413,410) (172,783)
Net Assets      
Beginning of Period 3,092,737  3,265,520 
End of Period 2,679,327  3,092,737 


1 Includes fiscal 2005 short-term gain distributions totaling $1,538,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

33


Short-Term Federal Fund



Financial Highlights

Investor Shares

Year Ended January 31,
For a Share Outstanding Throughout Each Period 2006 2005 2004 2003 2002
Net Asset Value, Beginning of Period $10.39  $10.60  $10.67  $10.50  $10.28 
Investment Operations               
Net Investment Income .340  .291  .304  .423  .533 
Net Realized and Unrealized Gain (Loss)
on Investments
(.140) (.189) (.046) .302  .220 
Total from Investment Operations .200  .102  .258  .725  .753 
Distributions
Dividends from Net Investment Income (.340) (.291) (.311) (.424) (.533)
Distributions from Realized Capital Gains (.021) (.017) (.131)
Total Distributions (.340) (.312) (.328) (.555) (.533)

Net Asset Value, End of Period
$10.25  $10.39  $10.60  $10.67  $10.5

Total Return
1.96% 0.98% 2.45% 7.03% 7.48%
Ratios/Supplemental Data               
Net Assets, End of Period (Millions) $1,686  $2,403  $2,604  $2,902  $1,821 
Ratio of Total Expenses to
Average Net Assets
0.20% 0.20% 0.22% 0.26% 0.31%
Ratio of Net Investment Income to
Average Net Assets
3.29% 2.77% 2.86% 3.90% 5.07%
Portfolio Turnover Rate 51% 49% 81% 136% 80%

34


Short-Term Federal Fund



Admiral Shares

Year Ended January 31,
Feb. 12,
20011 to
Jan. 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 
Net Asset Value, Beginning of Period $10.39  $10.60  $10.67  $10.50  $10.28 
Investment Operations               
Net Investment Income .350  .300  .310  .428  .519 
Net Realized and Unrealized Gain (Loss)
on Investments (.140) (.189) (.046) .302  .220 
Total from Investment Operations .210  .111  .264  .730  .739 
Distributions
Dividends from Net Investment Income (.350) (.300) (.317) (.429) (.519)
Distributions from Realized Capital Gains —  (.021) (.017) (.131) — 
Total Distributions (.350) (.321) (.334) (.560) (.519)
Net Asset Value, End of Period $10.25  $10.39  $10.60  $10.67  $10.50 

Total Return
2.06% 1.06% 2.51% 7.08% 7.34%

Ratios/Supplemental Data
              
Net Assets, End of Period (Millions) $993  $690  $662  $669  $380 
Ratio of Total Expenses to
Average Net Assets
0.10% 0.12% 0.17% 0.22% 0.24%2 
Ratio of Net Investment Income to
Average Net Assets
3.39% 2.86% 2.91% 3.94% 4.96%2 
Portfolio Turnover Rate 51% 49% 81% 136% 80%


1 Inception.
2 Annualized.
    See accompanying Notes, which are an integral part of the Financial Statements.

35


Short-Term Federal Fund



Notes to Financial Statements

Vanguard Short-Term Federal Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard Fixed Income Securities Funds. 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, servicing, tenure, and account-size criteria.

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

1.     Security Valuation: 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. Investments in Vanguard Yorktown 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 materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2.     Futures Contracts: The fund may use U.S. Agency, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, and minimizing transaction costs. The fund may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The fund may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector. Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

3.     Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements.

4.     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.

5.     Other: Interest income includes income distributions received from Vanguard Yorktown 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.

36


Short-Term Federal Fund



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 Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The cost of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2006, the fund had contributed capital of $324,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.32% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C.     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.

For tax purposes, at January 31, 2006, the fund had available realized losses of $22,969,000 to offset future net capital gains of $20,018,000 through January 31, 2014, and $2,951,000 through January 31, 2015.

At January 31, 2006, net unrealized depreciation of investment securities for tax purposes was $48,234,000, consisting of unrealized gains of $1,191,000 on securities that had risen in value since their purchase and $49,425,000 in unrealized losses on securities that had fallen in value since their purchase.

At January 31, 2006, the aggregate settlement value of open futures contracts expiring in March 2006 and the related unrealized appreciation (depreciation) were:



($000)
Futures Contracts Number of
Long (Short)
Contracts
Aggregate
Settlement
Value
Unrealized
Appreciation
(Depreciation)

5-Year Treasury Note (400) 42,294  348 



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

D.     During the year ended January 31, 2006, the fund purchased $1,236,655,000 of investment securities and sold $1,876,629,000 of investment securities, other than temporary cash investments.

37


Short-Term Federal Fund



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



 
Year Ended January 31,
2006
2005
Amount
($000)
Shares
(000)
Amount
($000)
Shares
(000)

Investor Shares            

Issued 377,351  36,599  622,627  59,257 

Issued in Lieu of Cash Distributions 59,828  5,808  65,802  6,278 

Redeemed (1,123,642) (109,090) (839,271) (79,999)

Net Increase (Decrease)—Investor Shares (686,463) (66,683) (150,842) (14,464)

Admiral Shares            

Issued 612,561  59,450  336,464  32,009 

Issued in Lieu of Cash Distributions 22,483  2,185  16,141  1,540 

Redeemed (319,791) (31,072) (310,276) (29,608)

Net Increase (Decrease)—Admiral Shares 315,253  30,563  42,329  3,941 



38




Inflation-Protected Securities Fund

Fund Profile
As of January 31, 2006

Financial Attributes

  Fund Comparative
Index1
Broad
Index2
Number of Issues 17  17  6,453 
Yield3   —  — 
Investor Shares 1.8%      
Admiral Shares 1.9%      
Institutional Shares 2.0%      
Average Coupon 2.5% 2.6% 5.2%
Average Effective
Maturity
10.6 years 10.8 years  7.1 years 
Average Quality4 Aaa  Aaa  Aa1 
Average Duration 6.2 years 6.2 years  4.5 years 
Expense Ratio   —  — 
Investor Shares 0.20%      
Admiral Shares 0.11%5      
Institutional Shares 0.08%      
Short-Term Reserves 0% —  — 


Volatility Measures

Fund Comparative
Index1
Fund Broad
Index2

R-Squared 1.00  1.00  0.76  1.00 

Beta 0.97  1.00  1.38  1.00 



Sector Diversification (% of portfolio)


Treasury 100%



Distribution by Maturity (% of portfolio)


1-5 Years 26%

5-10 Years 44   

10-20 Years 17   

20-30 Years 13   

Distribution by Credit Quality4 (% of portfolio)


Aaa 100%



Investment Focus




1 Lehman Treasury Inflation Notes Index.
2 Lehman Aggregate Bond Index.
3 Yields of inflation-protected securities tend to be lower than those of other bonds because the former do not incorporate market expectations about inflation.
    The principal amounts--and thus the interest payments--of inflation-protected securities are adjusted over time to reflect inflation.
4 Moody's Investors Service.
5 Annualized.
   See page 91 for a glossary of investment terms.

39


Inflation-Protected Securities Fund



Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: June 29, 2000-January 31, 2006
Initial Investment of $10,000




Average Annual Total Returns
Periods Ended January 31, 2006

Final Value of
One Year Five Years Since
Inception1
a $10,000
Investment

Inflation-Protected Securities Fund        
Investor Shares 2.76% 8.15% 8.76% $15,987 

Lehman Aggregate Bond Index 1.80    5.53    6.61    14,299 

Lehman Treasury Inflation Notes Index 2.82    8.29    8.94    16,138 

Average Treasury Inflation Protected
Securities Fund2
2.00    7.81    8.52    15,798 


Since
Inception1
Final Value of
a $100,000
Investment

Inflation-Protected Securities Fund Admiral Shares 1.02% $101,016 

Lehman Aggregate Bond Index 0.58    100,583 

Lehman Treasury Inflation Notes Index 0.99    100,992 


One Year Since
Inception1
Final Value of
a $5,000,000
Investment

Inflation-Protected Securities Fund      
Institutional Shares 2.79% 5.03% $5,552,604 

Lehman Aggregate Bond Index 1.80    3.30    5,359,121 

Lehman Treasury Inflation Notes Index 2.82    5.11    5,562,397 


1 Inception dates are: for Investor Shares, June 29, 2000; for Admiral Shares, June 10, 2005; and for Institutional Shares, December 12, 2003.
2 Derived from data provided by Lipper Inc.
    Note: See Financial Highlights tables on pages 46–48 for dividend and capital gains information.

40


Inflation-Protected Securities Fund



Fiscal-Year Total Returns (%): June 29, 2000-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year
Capital
Return
Income
Return
Total
Return
Total
Return

2001 5.3% 2.8% 8.1% 8.3%

2002 1.9    4.3    6.2    6.3   

2003 12.1    4.5    16.6    16.8   

2004 4.8    3.9    8.7    8.8   

2005 2.2    4.8    7.0    7.2   

2006 -2.7    5.5    2.8    2.8   



Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.



Since Inception
Inception Date One Year Five Years Capital Income Total

Investor Shares 6/29/2000  2.59% 8.53% 4.16% 4.70% 8.86%

Admiral Shares 6/10/2005  0.892    —    —    —    —   

Institutional Shares 12/12/2003  2.78    5.192    —    —    —   



1 Lehman Treasury Inflation Notes Index.
2 Return since inception.

41


Inflation-Protected Securities Fund



Financial Statements

Statement of Net Assets
As of January 31, 2006

The fund provides a complete list of its holdings 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 www.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).



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
U.S. Government Securities (99.6%)        
U.S. Treasury Inflation-Indexed Bond 2.375% 1/15/25  1,313,430  1,456,025 
U.S. Treasury Inflation-Indexed Bond 2.000% 1/15/26  225,000  223,867 
U.S. Treasury Inflation-Indexed Bond 3.625% 4/15/28  429,575  680,046 
U.S. Treasury Inflation-Indexed Bond 3.875% 4/15/29  284,400  463,044 
U.S. Treasury Inflation-Indexed Bond 3.375% 4/15/32  71,100  103,416 
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/09  456,120  581,428 
U.S. Treasury Inflation-Indexed Note 4.250% 1/15/10  456,350  584,630 
U.S. Treasury Inflation-Indexed Note 0.875% 4/15/10  1,022,700  1,022,394 
U.S. Treasury Inflation-Indexed Note 3.500% 1/15/11  337,325  412,062 
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/12  344,255  414,523 
U.S. Treasury Inflation-Indexed Note 3.000% 7/15/12  537,500  629,014 
U.S. Treasury Inflation-Indexed Note 1.875% 7/15/13  612,800  655,588 
U.S. Treasury Inflation-Indexed Note 2.000% 1/15/14  791,300  847,282 
U.S. Treasury Inflation-Indexed Note 2.000% 7/15/14  838,070  880,324 
U.S. Treasury Inflation-Indexed Note 1.625% 1/15/15  877,465  880,949 
U.S. Treasury Inflation-Indexed Note 1.875% 7/15/15  65,625  66,032 
Total U.S. Government Securities
(Cost $9,775,398)
        9,900,624 
       Shares    
Temporary Cash Investment (0.3%)           
1 Vanguard Market Liquidity Fund, 4.405%
(Cost $30,258)
     30,257,676  30,258 
Total Investments (99.9%)
(Cost $9,805,656)
        9,930,882 
Other Assets and Liabilities (0.1%)
Other Assets—Note B         108,883 
Liabilities         (101,194)
          7,689 
Net Assets (100%)         $9,938,571 

42


Inflation-Protected Securities Fund



At January 31, 2006, net assets consisted of:2

 
Amount
($000)
Paid-in Capital 9,879,862 
Overdistributed Net Investment Income (61,142)
Overdistributed Net Realized Gains (5,375)
Unrealized Appreciation 125,226 
Net Assets 9,938,571 

 
  
Investor Shares-Net Assets   
Applicable to 511,361,440 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
6,226,517 
Net Asset Value Per Share-Investor Shares $12.18 

 
  
    
Admiral Shares-Net Assets   
Applicable to 103,447,743 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
2,473,790 
Net Asset Value Per Share-Admiral Shares $23.91 

 
  
Institutional Shares-Net Assets   
Applicable to 127,123,442 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
1,238,264 
Net Asset Value Per Share-Institutional Shares $9.74 


• See Note A in Notes to Financial Statements.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
2 See Note C in Notes to Financial Statements for the tax-basis components of net assets.

43


Inflation-Protected Securities Fund



Statement of Operations

Year Ended
January 31, 2006

($000)
Investment Income   
Income   
Interest1 465,319 
Total Income 465,319 
Expenses   
The Vanguard Group-Note B   
   Investment Advisory Services 890 
   Management and Administrative   
      Investor Shares 11,340 
      Admiral Shares 1,018 
      Institutional Shares 422 
   Marketing and Distribution   
      Investor Shares 2,026 
      Admiral Shares 125 
      Institutional Shares 184 
Custodian Fees 47 
Auditing Fees 21 
Shareholders' Reports   
      Investor Shares 151 
      Admiral Shares
      Institutional Shares — 
Trustees' Fees and Expenses 10 
Total Expenses 16,236 
Net Investment Income 449,083 
Realized Net Gain (Loss)   
Investment Securities Sold (5,319)
Futures Contracts 30,150 
Realized Net Gain (Loss) 24,831 
Change in Unrealized Appreciation (Depreciation)   
Investment Securities (225,135)
Futures Contracts 1,123 
Change in Unrealized Appreciation (Depreciation) (224,012)
Net Increase (Decrease) in Net Assets Resulting from Operations 249,902 


1 Interest income from an affiliated company of the fund was $3,228,000.

44


Inflation-Protected Securities Fund



Statement of Changes in Net Assets

Year Ended January 31,
  2006
($000)
2005
($000)
Increase (Decrease) in Net Assets      
Operations      
Net Investment Income 449,083  322,913 
Realized Net Gain (Loss) 24,831  67,405 
Change in Unrealized Appreciation (Depreciation) (224,012) 51,625 
Net Increase (Decrease) in Net Assets Resulting from Operations 249,902  441,943 
Distributions      
Net Investment Income      
   Investor Shares (383,801) (286,876)
   Admiral Shares (83,112) — 
   Institutional Shares (53,825) (18,906)
Realized Capital Gain1      
   Investor Shares (31,317) (36,155)
   Admiral Shares (2,538) — 
   Institutional Shares (3,153) (2,718)
Total Distributions (557,746) (344,655)
Capital Share Transactions-Note E      
   Investor Shares (1,076,240) 2,271,977 
   Admiral Shares 2,523,957  — 
   Institutional Shares 667,971  394,338 
Net Increase (Decrease) from Capital Share Transactions 2,115,688  2,666,315 
Total Increase (Decrease) 1,807,844  2,763,603 
Net Assets      
Beginning of Period 8,130,727  5,367,124 
End of Period2 $9,938,571  $8,130,727 


1 Includes fiscal 2006 and 2005 short-term gain distributions totaling $10,927,000 and $3,588,000, respectively. Short-term gain distributions are treated
    as ordinary income dividends for tax purposes.
2 Including undistributed (overdistributed) net investment income of ($61,142,000) and $10,513,000.

45


Inflation-Protected Securities Fund



Financial Highlights


Investor Shares

Year Ended January 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 
Net Asset Value, Beginning of Period $12.57  $12.36  $11.91  $10.68  $10.55 
Investment Operations               
Net Investment Income .573  .596  .41  .47  .425 
Net Realized and Unrealized Gain (Loss)
on Investments
(.230) .244  .61  1.28  .220 
Total from Investment Operations .343  .840  1.02  1.75  .645 
Distributions               
Dividends from Net Investment Income (.681) (.565) (.45) (.46) (.445)
Distributions from Realized Capital Gains (.052) (.065) (.12) (.06) (.070)
Total Distributions (.733) (.630) (.57) (.52) (.515)
Net Asset Value, End of Period $12.18  $12.57  $12.36  $11.91  $10.68 

Total Return
2.76% 6.96% 8.69% 16.64% 6.17%

Ratios/Supplemental Data
              
Net Assets, End of Period (Millions) $6,227  $7,530  $5,164  $3,143  $899 
Ratio of Total Expenses to
Average Net Assets
0.20% 0.17% 0.18% 0.22% 0.25%
Ratio of Net Investment Income to
Average Net Assets
4.83% 4.83% 3.46% 4.55% 3.92%
Portfolio Turnover Rate 47% 73% 63% 108% 75%

46


Inflation-Protected Securities Fund



Admiral Shares

For a Share Outstanding Throughout The Period June 10,
20051 to
Jan. 31,
2006
Net Asset Value, Beginning of Period $25.00 
Investment Operations   
Net Investment Income .683 
Net Realized and Unrealized Gain (Loss) on Investments (.432)
Total from Investment Operations .251 
Distributions   
Dividends from Net Investment Income (1.315)
Distributions from Realized Capital Gains (.026)
Total Distributions (1.341)
Net Asset Value, End of Period $23.91 

Total Return
1.02%

Ratios/Supplemental Data
Net Assets, End of Period (Millions) $2,474 
Ratio of Total Expenses to Average Net Assets 0.11%2 
Ratio of Net Investment Income to Average Net Assets 4.92%2 
Portfolio Turnover Rate 47%


1 Inception.
2 Annualized.

47


Inflation-Protected Securities Fund



Institutional Shares

Year Ended January 31,
Dec. 12,
20031 to
Jan. 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004 
Net Asset Value, Beginning of Period $10.06  $9.88  $10.00 
Investment Operations         
Net Investment Income .471  .483  — 
Net Realized and Unrealized Gain (Loss) on Investments (.194) .207  .080 
Total from Investment Operations .277  .690  .080 
Distributions         
Dividends from Net Investment Income (.556) (.458) (.104)
Distributions from Realized Capital Gains (.041) (.052) (.096)
Total Distributions (.597) (.510) (.200)
Net Asset Value, End of Period $9.74  $10.06  $9.88 

Total Return
2.79% 7.15% 0.83%

Ratios/Supplemental Data
        
Net Assets, End of Period (Millions) $1,238  $601  $204 
Ratio of Total Expenses to Average Net Assets 0.08% 0.11% 0.12%2 
Ratio of Net Investment Income to Average Net Assets 4.95% 4.93% 3 
Portfolio Turnover Rate 47% 73% 63%


1 Inception.
2 Annualized.
3 Negative inflation adjustments and premium amortization completely offset coupon income for the period from December 12, 2003, to January 31, 2004.
    See accompanying Notes, which are an integral part of the Financial Statements.

48


Inflation-Protected Securities Fund



Notes to Financial Statements

Vanguard Inflation-Protected Securities Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard Fixed Income Securities Funds. The fund offers three classes of shares, Investor Shares, Admiral Shares, and Institutional Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares were first issued on June 10, 2005, and are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria. Institutional Shares are designed for investors who meet certain administrative and servicing criteria and invest a minimum of $5,000,000.

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

1.     Security Valuation: 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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2.     Futures Contracts: The fund may use U.S. Agency, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, and minimizing transaction costs. The fund may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The fund may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector. Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of future contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market.

Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

3.     Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements.

4.     Distributions: Quarterly income dividends and annual distributions from realized capital gains, if any, are recorded on the ex-dividend date.

5.     Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund, and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Inflation adjustments to the face amount of inflation-indexed securities are included in interest income. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Inflation

49


Inflation-Protected Securities Fund



adjustments to the face amount of inflation-indexed securities are included in interest income. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.

Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution 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 Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2006, the fund had contributed capital of $1,155,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 1.15% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C.     Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

The fund 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 $13,011,000 from accumulated net realized gains to paid-in capital.

The fund changed its tax year-end from January 31 to December 31, effective December 31, 2005. For tax purposes, at December 31, 2005, the fund had $4,877,000 of ordinary income available for distribution. The fund had available realized losses of $7,752,000 to offset future net capital gains through December 31, 2014.

At January 31, 2006, net unrealized appreciation of investment securities for tax purposes was $123,924,000, consisting of unrealized gains of $199,772,000 on securities that had risen in value since their purchase and $75,848,000 in unrealized losses on securities that had fallen in value since their purchase.

D.     During the year ended January 31, 2006, the fund purchased $6,073,497,000 of investment securities and sold $4,287,675,000 of investment securities other than temporary cash investments.

50


Inflation-Protected Securities Fund



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



 
Year Ended January 31,
2006
2005
Amount
($000)
Shares
(000)
Amount
($000)
Shares
(000)

Investor Shares            

Issued 2,933,569  234,944  3,779,246  302,089 

Issued in Lieu of Cash Distributions 376,510  30,429  297,140  23,947 

Redeemed (4,386,319) (353,004) (1,804,409) (144,934)

Net Increase (Decrease)-Investor Shares (1,076,240) (87,631) 2,271,977  181,102 

Admiral Shares            

Issued 2,704,821  110,911  —  — 

Issued in Lieu of Cash Distributions 78,003  3,244  —  — 

Redeemed (258,867) (10,707) —  — 

Net Increase (Decrease)-Admiral Shares 2,523,957  103,448  —  — 

Institutional Shares            

Issued 763,120  76,901  407,738  40,524 

Issued in Lieu of Cash Distributions 52,363  5,312  20,403  2,054 

Redeemed (147,512) (14,875) (33,803) (3,389)

Net Increase (Decrease)-Institutional Shares 667,971  67,338  394,338  39,189 



51


Intermediate-Term Treasury Fund

Fund Profile
As of January 31, 2006

Financial Attributes

  Fund Comparative
Index1
Broad
Index2
Number of Issues 38  27  6,453 
Yield    —  — 
Investor Shares 4.3%      
Admiral Shares 4.5%      
Yield to Maturity 4.6%3  4.9% 5.2%
Average Coupon 6.7% 5.2% 5.2%
Average Effective
Maturity
6.9 years  7.8 years  7.1 years 
Average Quality4 Aaa  Aaa  Aa1 
Average Duration 5.2 years  6.0 years  4.5 years 
Expense Ratio    —  — 
Investor Shares 0.26%      
Admiral Shares 0.10%      
Short-Term Reserves 0% —  — 


Volatility Measures

 
Fund Comparative
Index1
Fund Broad
Index2

R-Squared 1.00  1.00  0.97  1.00 

Beta 0.80  1.00  1.20  1.00 



Sector Diversification5 (% of portfolio)


Treasury/Agency 100%



Distribution by Maturity (% of portfolio)


1-5 Years 44%

5-10 Years 22   

10-20 Years 34   



Distribution by Credit Quality4 (% of portfolio)


Aaa 100%



Investment Focus


1 Lehman 5-10 Year Treasury Index.
2 Lehman Aggregate Bond Index.
3 Before expenses.
4 Moody's Investors Service.
5 Agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are
    not backed by the full faith and credit of the U.S. government.
   See page 91 for a glossary of investment terms.

52


Intermediate-Term Treasury Fund



Performance Summary



All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: January 31, 1996-January 31, 2006
Initial Investment of $10,000



Average Annual Total Returns
Periods Ended January 31, 2006

Final Value
of a $10,000
One Year Five Years Ten Years Investment

Intermediate-Term Treasury Fund        
Investor Shares 1.41% 5.51% 5.93% $17,783 

Lehman Aggregate Bond Index 1.80    5.53    6.10    18,070 

Lehman 5-10 Year Treasury Index 1.05    5.49    5.99    17,887 

Average General Treasury Fund1 3.20    5.51    5.66    17,336 



One Year Since
Inception2
Final Value
of a $100,000
Investment

Intermediate-Term Treasury Fund Admiral Shares 1.56% 5.65% $131,411 

Lehman Aggregate Bond Index 1.80    5.57    130,909 

Lehman 5-10 Year Treasury Index 1.05    5.49    130,381 



1 Derived from data provided by Lipper Inc.
2 February 12, 2001.
   Note: See Financial Highlights tables on pages 60 and 61 for dividend and capital gains information.

53


Intermediate-Term Treasury Fund



Fiscal-Year Total Returns (%): January 31, 1996-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year
Capital
Return
Income
Return
Total
Return
Total
Return

1997 -4.9% 6.2% 1.3% 1.3%

1998 4.1    6.7    10.8    11.7   

1999 3.3    6.1    9.4    10.0   

2000 -10.1    5.5    -4.6    -5.0   

2001 9.1    7.0    16.1    15.8   

2002 0.8    5.8    6.6    6.8   

2003 7.6    5.5    13.1    12.6   

2004 -0.5    4.2    3.7    3.7   

2005 -1.3    4.4    3.1    3.6   

2006 -3.1    4.5    1.4    1.1   



Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total 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 Capital Income Total

Investor Shares 10/28/1991  2.32% 5.86% 0.44% 5.59% 6.03%

Admiral Shares 2/12/2001  2.47    5.822    —    —    —   



1 Lehman 5–10 Year Treasury Index.
2 Return since inception.

54


Intermediate-Term Treasury Fund



Financial Statements



Statement of Net Assets
As of January 31, 2006



The fund provides a complete list of its holdings 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 www.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).



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
U.S. Government and Agency Obligations (98.1%)            
U.S. Government Securities (79.2%)            
        U.S. Treasury Bond 10.375% 11/15/12  207,800  228,256 
        U.S. Treasury Bond 9.250% 2/15/16  148,500  203,654 
        U.S. Treasury Bond 7.250% 5/15/16  60,000  72,872 
        U.S. Treasury Bond 8.750% 5/15/17  204,000  276,963 
        U.S. Treasury Bond 8.875% 8/15/17  208,150  285,946 
        U.S. Treasury Bond 9.125% 5/15/18  70,000  98,897 
        U.S. Treasury Bond 8.875% 2/15/19  138,500  194,507 
        U.S. Treasury Bond 8.125% 8/15/19  75,000  100,477 
        U.S. Treasury Bond 8.500% 2/15/20  32,000  44,330 
        U.S. Treasury Note 4.375% 12/31/07  40,000  39,887 
        U.S. Treasury Note 4.000% 6/15/09  196,550  193,541 
        U.S. Treasury Note 6.000% 8/15/09  179,650  188,437 
        U.S. Treasury Note 6.500% 2/15/10  469,650  503,624 
        U.S. Treasury Note 4.875% 2/15/12  156,000  158,925 
        U.S. Treasury Note 4.375% 8/15/12  294,000  291,474 
        U.S. Treasury Note 3.875% 2/15/13  154,000  147,937 
                   3,029,727 
Agency Bonds and Notes (18.8%)            
        Agency for International Development-Egypt
        (U.S. Government Guaranteed)
4.450% 9/15/15  40,000  38,854 
1      Export Funding Trust
        (U.S. Government Guaranteed)
8.200% 12/29/06  1,489  1,516 
1,2    Federal National Mortgage Assn 7.300% 5/25/10  30,000  32,571 
1,2    Federal National Mortgage Assn 5.763% 12/25/11  20,000  20,648 
1      Guaranteed Trade Trust
        (U.S. Government Guaranteed)
7.390% 6/26/06  375  379 
1      Guaranteed Trade Trust
        (U.S. Government Guaranteed)
7.800% 8/15/06  1,730  1,746 
1      Guaranteed Trade Trust
        (U.S. Government Guaranteed)
8.170% 1/15/07  1,083  1,103 

55


Intermediate-Term Treasury Fund



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
1,3      Guaranteed Trade Trust
        (U.S. Government Guaranteed)
6.690% 1/15/09  16,699  17,126 
1      Overseas Private Investment Corp.
        (U.S. Government Guaranteed)
7.600% 12/15/12  24,097  26,233 
1      Overseas Private Investment Corp.
        (U.S. Government Guaranteed)
7.050% 11/15/13  30,000  32,111 
        Private Export Funding Corp.
        (U.S. Government Guaranteed)
7.110% 4/15/07  33,420  34,302 
        Private Export Funding Corp.
        (U.S. Government Guaranteed)
6.490% 7/15/07  14,000  14,325 
        Private Export Funding Corp.
        (U.S. Government Guaranteed)
5.750% 1/15/08  60,000  61,034 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
5.870% 7/31/08  123,100  126,106 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
7.200% 1/15/10  12,900  14,000 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
7.250% 6/15/10  135,920  148,649 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
6.070% 4/30/11  51,000  53,839 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
5.685% 5/15/12  10,000  10,429 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
4.974% 8/15/13  19,960  20,216 
         Private Export Funding Corp.
        (U.S. Government Guaranteed)
4.950% 11/15/15  65,000  64,999 
                   720,186 
Mortgage-Backed Securities (0.1%)  
2,3    Federal Home Loan Mortgage Corp. 5.500% 4/1/16-5/1/16  3,929  3,962 
2,3    Federal Home Loan Mortgage Corp. 7.000% 5/1/15-3/1/16  1,319  1,374 
                   5,336 
Total U.S. Government and Agency Obligations
(Cost $3,742,481)
         3,755,249 
                Shares    
Temporary Cash Investment (0.4%)      
4 Vanguard Yorktown Liquidity Fund, 4.393%
(Cost $14,570)
  14,569,629 14,570
Total Investments (98.5%)
(Cost $3,757,051)
    3,769,819

56


Intermediate-Term Treasury Fund



 
Market
Value•
($000)

Other Assets and Liabilities (1.5%)  

Other Assets-Note B 142,248 

Liabilities (84,233)

  58,015 

Net Assets (100%) $3,827,834 



 
At January 31, 2006, net assets consisted of:5
Amount
($000)

Paid-in Capital 3,825,807 

Undistributed Net Investment Income — 

Accumulated Net Realized Losses (10,741)

Unrealized Appreciation 12,768 

Net Assets 3,827,834 


 
  

Investor Shares-Net Assets   

Applicable to 159,822,239 outstanding $.001 par value
shares of beneficial interest (unlimited authorization) 1,734,521 

Net Asset Value Per Share-Investor Shares $10.85 


 
  

Admiral Shares-Net Assets   

Applicable to 192,882,097 outstanding $.001 par value
shares of beneficial interest (unlimited authorization) 2,093,313 

Net Asset Value Per Share-Admiral Shares $10.85 

• See Note A in Notes to Financial Statements.
1 The average maturity is shorter than the final maturity shown due to scheduled interim principal payments and prepayments.
2 The issuer operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. If needed, access to additional
    funding from the U.S. Treasury (beyond the issuer’s line of credit) would require congressional action.
3 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally
    to qualified institutional buyers. At January 31, 2006, the value of this security represented 0.4% of net assets.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
5 See Note C in Notes to Financial Statements for the tax-basis components of net assets.

57


Intermediate-Term Treasury Fund



Statement of Operations



Year Ended
January 31, 2006

($000)

Investment Income  

Income

Interest1 186,738 

Total Income 186,738 

Expenses

The Vanguard Group-Note B

   Investment Advisory Services 420 

   Management and Administrative

      Investor Shares 4,280 

      Admiral Shares 1,268 

   Marketing and Distribution

      Investor Shares 487 

      Admiral Shares 386 

Custodian Fees 57 

Auditing Fees 21 

Shareholders' Reports
     Investor Shares 72 

     Admiral Shares

Trustees' Fees and Expenses

Total Expenses 7,000 

Net Investment Income 179,738 

Realized Net Gain (Loss)

Investment Securities Sold 11,717 

Futures Contracts 3,854 

Realized Net Gain (Loss) 15,571 

Change in Unrealized Appreciation (Depreciation)

Investment Securities (136,558)

Futures Contracts 118 

Change in Unrealized Appreciation (Depreciation) (136,440)

Net Increase (Decrease) in Net Assets Resulting from Operations 58,869 



1 Interest income from an affiliated company of the fund was $1,818,000.

58


Intermediate-Term Treasury Fund



Statement of Changes in Net Assets



Year Ended January 31,
2006
($000)
2005
($000)

Increase (Decrease) in Net Assets      

Operations      

Net Investment Income 179,738  173,813 

Realized Net Gain (Loss) 15,571  8,822 

Change in Unrealized Appreciation (Depreciation) (136,440) (65,322)

Net Increase (Decrease) in Net Assets Resulting from Operations 58,869  117,313 

Distributions      

Net Investment Income      

   Investor Shares (90,535) (97,111)

   Admiral Shares (89,203) (76,702)

Realized Capital Gain1

   Investor Shares (12,758) (3,058)

   Admiral Shares (13,672) (2,341)

Total Distributions (206,168) (179,212)

Capital Share Transactions—Note E
   Investor Shares (360,618) (57,729)

   Admiral Shares 502,026  (1,528)

Net Increase (Decrease) from Capital Share Transactions 141,408  (59,257)

Total Increase (Decrease) (5,891) (121,156)

Net Assets

Beginning of Period 3,833,725  3,954,881 

End of Period 3,827,834  3,833,725 



1 Includes fiscal 2006 and 2005 short-term gain distributions totaling $0 and $21,689,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

59


Intermediate-Term Treasury Fund



Financial Highlights



Investor Shares

Year Ended January 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 
Net Asset Value, Beginning of Period $11.28  $11.45  $11.69  $11.03  $10.94 
Investment Operations               
Net Investment Income .509  .504  .483  .571  .620 
Net Realized and Unrealized Gain (Loss)
on Investments
(.354) (.154) (.058) .838  .090 
Total from Investment Operations .155  .350  .425  1.409  .710 
Distributions               
Dividends from Net Investment Income (.509) (.504) (.483) (.571) (.620)
Distributions from Realized Capital Gains (.076) (.016) (.182) (.178) — 
Total Distributions (.585) (.520) (.665) (.749) (.620)
Net Asset Value, End of Period $10.85  $11.28  $11.45  $11.69  $11.03 

Total Return
1.41% 3.14% 3.71% 13.07% 6.62%

Ratios/Supplemental Data
              
Net Assets, End of Period (Millions) $1,735  $2,169  $2,261  $2,680  $1,976 
Ratio of Total Expenses to
Average Net Assets
0.26% 0.24% 0.26% 0.28% 0.29%
Ratio of Net Investment Income to
Average Net Assets
4.59% 4.45% 4.14% 4.93% 5.60%
Portfolio Turnover Rate 66% 61% 34% 110% 33%


60


Intermediate-Term Treasury Fund



Admiral Shares

Year Ended January 31,
Feb. 12,
20011 to
Jan. 31,
For a Share Outstanding Throughout Each Period 2006 2005 2004 2003 2002
Net Asset Value, Beginning of Period $11.28  $11.45  $11.69  $11.03  $10.94 
Investment Operations               
Net Investment Income .526  .518  .498  .586  .614 
Net Realized and Unrealized Gain (Loss)
on Investments
(.354) (.154) (.058) .838  .090 
Total from Investment Operations .172  .364  .440  1.424  .704 
Distributions               
Dividends from Net Investment Income (.526) (.518) (.498) (.586) (.614)
Distributions from Realized Capital Gains (.076) (.016) (.182) (.178) — 
Total Distributions (.602) (.534) (.680) (.764) (.614)
Net Asset Value, End of Period $10.85  $11.28  $11.45  $11.69  $11.03 

Total Return
1.56% 3.27% 3.85% 13.22% 6.57%

Ratios/Supplemental Data
              
Net Assets, End of Period (Millions) $2,093  $1,665  $1,694  $1,979  $1,732 
Ratio of Total Expenses to
Average Net Assets
0.10% 0.12% 0.13% 0.15% 0.15%2 
Ratio of Net Investment Income to
Average Net Assets
4.75% 4.58% 4.27% 5.10% 5.65%2 
Portfolio Turnover Rate 66% 61% 34% 110% 33%


1 Inception.
2 Annualized.
   See accompanying Notes, which are an integral part of the Financial Statements.

61


Intermediate-Term Treasury Fund



Notes to Financial Statements

Vanguard Intermediate-Term Treasury Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard Fixed Income Securities Funds. 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, servicing, tenure, and account-size criteria.

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

1.     Security Valuation: 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. Investments in Vanguard Yorktown 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 materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2.     Futures Contracts: The fund may use U.S. Agency, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, and minimizing transaction costs. The fund may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The fund may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector.

Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

3.     Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements.

4.     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.

5.     Other: Interest income includes income distributions received from Vanguard Yorktown 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

62


Intermediate-Term Treasury Fund



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 Group furnishes at cost investment advisory, corporate management, administrative, shareholder account maintenance, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2006, the fund had contributed capital of $457,000 to Vanguard (included in Other Assets), representing 0.01% the fund’s net assets and 0.46% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C.     Capital gain distributions are determined on a tax basis and may differ from realized capital gains 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 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 $1,550,000 from accumulated net realized gains to paid-in capital.

Capital gains required to be distributed in December 2005 included net gains realized through October 31, 2005. Subsequently, the fund realized capital losses of $8,531,000, which are available to offset future net capital gains through January 31, 2015.

At January 31, 2006, net unrealized appreciation of investment securities for tax purposes was $10,497,000, consisting of unrealized gains of $42,134,000 on securities that had risen in value since their purchase and $31,637,000 in unrealized losses on securities that had fallen in value since their purchase.

D.     During the year ended January 31, 2006, the fund purchased $2,722,056,000 of investment securities and sold $2,417,295,000 of investment securities, other than temporary cash investments.

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



 
Year Ended January 31,
2006
2005
Amount
($000)
Shares
(000)
Amount
($000)
Shares
(000)

Investor Shares            

Issued 415,983  37,551  457,574  40,419 

Issued in Lieu of Cash Distributions 85,503  7,735  83,196  7,357 

Redeemed (862,104) (77,777) (598,499) (52,976)

Net Increase (Decrease)-Investor Shares (360,618) (32,491) (57,729) (5,200)

Admiral Shares            

Issued 846,572  76,396  368,411  32,464 

Issued in Lieu of Cash Distributions 83,357  7,554  64,130  5,671 

Redeemed (427,903) (38,742) (434,069) (38,414)

Net Increase (Decrease)-Admiral Shares 502,026  45,208  (1,528) (279)

63


GNMA Fund

Fund Profile
As of January 31, 2006

Financial Attributes

  Fund Comparative
Index1
Broad
Index2
Number of Issues 253  106  6,453 
Yield    —  — 
   Investor Shares 4.8%      
   Admiral Shares 4.9%      
Yield to Maturity 5.4%4  5.4% 5.2%
Average Coupon 5.6% 5.7% 5.2%
Average Effective
Maturity
6.2 years  6.5 years  7.1 years 
Average Quality5 Aaa  Aaa  Aa1 
Average Duration 3.4 years  3.3 years  4.5 years 
Expense Ratio    —  — 
   Investor Shares 0.21%      
   Admiral Shares 0.11%      
Short-Term Reserves 2% —  — 


Volatility Measures

  Fund Comparative
Index1
Fund Broad
Index2
R-Squared 0.94  1.00  0.90  1.00 
Beta 1.27  1.00  0.72  1.00 


Distribution by Coupon (% of portfolio)

   
Below 6% 67%
6%-7% 29   
7%-8% 3   
Above 8% 1   


Investment Focus

1 Lehman GNMA Index.
2 Lehman Aggregate Bond Index.
3 Issues are mortgage pools grouped by coupon.
4 Before expenses.
5 Moody’s Investors Service.
   See page 91 for a glossary of investment terms.

64


GNMA Fund



Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: January 31, 1996–January 31, 2006
Initial Investment of $10,000



Average Annual Total Returns
Periods Ended January 31, 2006

Final Value
of a $10,000
One Year Five Years Ten Years Investment

GNMA Fund Investor Shares 2.88% 5.20% 6.04% $17,981 

Lehman Aggregate Bond Index 1.80    5.53    6.10    18,070 

Lehman GNMA Index 2.96    5.16    6.15    18,171 

Average GNMA Fund1 1.98    4.32    5.18    16,575 



One Year Since
Inception2
Final Value
of a $100,000
Investment

GNMA Fund Admiral Shares 2.97% 5.32% $129,372 

Lehman Aggregate Bond Index 1.80    5.57    130,909 

Lehman GNMA Index 2.96    5.22    128,726 



1 Derived from data provided by Lipper Inc.
2 February 12, 2001.
   Note: See Financial Highlights tables on pages 71 and 72 for dividend and capital gains information.

65


GNMA Fund



Fiscal-Year Total Returns (%): January 31, 1996-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year
Capital
Return
Income
Return
Total
Return
Total
Return

1997 -2.1% 7.3% 5.2% 5.6%

1998 2.5    7.4    9.9    9.7   

1999 0.0    6.8    6.8    6.7   

2000 -7.3    6.4    -0.9    0.3   

2001 6.6    7.5    14.1    13.9   

2002 0.9    6.5    7.4    7.6   

2003 2.9    5.8    8.7    7.9   

2004 -1.9    4.8    2.9    3.1   

2005 -0.4    4.7    4.3    4.4   

2006 -1.8    4.7    2.9    3.0   



Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total 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 Capital Income Total

Investor Shares 6/27/1980  3.33% 5.48% -0.09%  6.18% 6.09%

Admiral Shares 2/12/2001  3.42    5.352    —    —    —   



1 Lehman GNMA Index.
2 Return since inception.

66


GNMA Fund



Financial Statements



Statement of Net Assets
As of January 31, 2006



The fund provides a complete list of its holdings 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 www.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).



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
Government National
Mortgage Association Obligations (98.2%)
           
1 Government National Mortgage Assn 4.500% 5/15/33-9/15/33  75,514  72,701 
1 Government National Mortgage Assn 5.000% 1/15/30-12/15/35  4,508,622  4,451,817 
1 Government National Mortgage Assn 5.500% 3/15/13-1/15/36  11,291,799  11,354,597 
1 Government National Mortgage Assn 6.000% 10/15/16-1/15/36  5,370,029  5,519,764 
1 Government National Mortgage Assn 6.500% 6/15/08-5/15/35  1,355,199  1,419,068 
1 Government National Mortgage Assn 7.000% 4/15/07-9/15/32  525,810  552,460 
1 Government National Mortgage Assn 7.250% 12/15/26-2/15/27  295  313 
1 Government National Mortgage Assn 7.500% 3/15/06-10/15/31  210,199  221,541 
1 Government National Mortgage Assn 7.750% 2/15/27  270  287 
1 Government National Mortgage Assn 8.000% 8/15/06-8/15/31  94,030  100,167 
1 Government National Mortgage Assn 8.250% 4/15/08-7/15/08  247  270 
1 Government National Mortgage Assn 8.500% 8/15/08-6/15/28  22,233  23,823 
1 Government National Mortgage Assn 9.000% 9/15/08-2/15/23  17,586  19,006 
1 Government National Mortgage Assn 9.250% 9/15/16-7/15/17  71  78 
1 Government National Mortgage Assn 9.500% 7/15/09-7/15/22  8,658  9,464 
1 Government National Mortgage Assn 10.000% 7/20/14-8/20/18  108  122 
1 Government National Mortgage Assn 11.000% 7/15/10-2/20/16  45  53 
1 Government National Mortgage Assn 11.250% 9/20/15-2/20/16  48  54 
1 Government National Mortgage Assn 11.500% 5/15/13-11/20/15  79  89 
1 Government National Mortgage Assn 12.000% 1/15/13-1/20/16  142  164 
1 Government National Mortgage Assn 12.500% 12/20/13-7/20/15  56  69 
1 Government National Mortgage Assn 13.000% 1/15/11-1/20/15  75  87 
1 Government National Mortgage Assn 13.500% 5/15/10-12/15/14  29  36 
1 Government National Mortgage Assn 14.000% 6/15/11  22  25 
1 Government National Mortgage Assn 15.000% 5/15/12  17  19 
Total Government National Mortgage
Association Obligations (Cost $23,779,423)
         23,746,074 

67


GNMA Fund



Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)

Temporary Cash Investment (1.6%)        

Repurchase Agreement

Bank of America
(Dated 1/31/06, Repurchase Value $382,547,000,
collateralized by Federal National Mortgage Assn.,
5.500%, 9/1/19-10/1/33)
(Cost $382,500) 4.460% 2/1/06  382,500  382,500 

Total Investments (99.8%)
(Cost $24,161,923)          24,128,574 

Other Assets and Liabilities (0.2%)
Other Assets—Note C          138,863 

Liabilities          (81,399)

           57,464 

Net Assets (100%)          24,186,038 



At January 31, 2006, net assets consisted of:2

Amount
($000)
Paid-in Capital 24,335,226 
Undistributed Net Investment Income — 
Accumulated Net Realized Losses (115,839)
Unrealized Depreciation (33,349)
Net Assets 24,186,038 

 
  
Investor Shares-Net Assets
Applicable to 1,351,095,077 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
13,905,301 
Net Asset Value Per Share-Investor Shares $10.29 

 
  
Admiral Shares-Net Assets   
Applicable to 998,917,722 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
10,280,737 
Net Asset Value Per Share-Admiral Shares $10.29 


• See Note A in Notes to Financial Statements.
1 The average maturity is shorter than the final maturity shown due to scheduled interim principal payments and prepayments.
2 See Note D in Notes to Financial Statements for the tax-basis components of net assets.

68


GNMA Fund



Statement of Operations



 
Year Ended
January 31, 2006

($000)

Investment Income   

Income   

Interest 1,184,479 

Total Income 1,184,479 

Expenses   

Investment Advisory Fees—Note B 2,367 

The Vanguard Group—Note C   

   Management and Administrative   

      Investor Shares 26,583 

      Admiral Shares 5,754 

   Marketing and Distribution   

      Investor Shares 3,797 

      Admiral Shares 1,328 

Custodian Fees 2,662 

Auditing Fees 20 

Shareholders' Reports   

   Investor Shares 370 

   Admiral Shares 28 

Trustees' Fees and Expenses 27 

Total Expenses 42,936 

Net Investment Income 1,141,543 

Realized Net Gain (Loss) on Investment Securities Sold (4,018)

Change in Unrealized Appreciation (Depreciation) of Investment Securities (451,918)

Net Increase (Decrease) in Net Assets Resulting from Operations 685,607 

69


GNMA Fund



Statement of Changes in Net Assets



 
Year Ended January 31,
2006
($000)
2005
($000)

Increase (Decrease) in Net Assets      

Operations      

Net Investment Income 1,141,543  1,107,287 

Realized Net Gain (Loss) (4,018) (27,462)

Change in Unrealized Appreciation (Depreciation) (451,918) (78,843)

Net Increase (Decrease) in Net Assets Resulting from Operations 685,607  1,000,982 

Distributions      

Net Investment Income      

   Investor Shares (774,361) (864,721)

   Admiral Shares (367,182) (242,566)

Realized Capital Gain      

   Investor Shares —  — 

   Admiral Shares —  — 

Total Distributions (1,141,543) (1,107,287)

Capital Share Transactions—Note F      

   Investor Shares (4,717,264) (216,437)

   Admiral Shares 5,050,560  51,309 

Net Increase (Decrease) from Capital Share Transactions 333,296  (165,128)

Total Increase (Decrease) (122,640) (271,433)

Net Assets      

Beginning of Period 24,308,678  24,580,111 

End of Period 24,186,038  24,308,678 

70


GNMA Fund



Financial Highlights



Investor Shares

Year Ended January 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 

Net Asset Value, Beginning of Period $10.48  $10.52  $10.72  $10.44  $10.35 

Investment Operations               

Net Investment Income .483  .480  .502  .588  .650 

Net Realized and Unrealized Gain (Loss)
on Investments (.190) (.040) (.200) .300  .090 

Total from Investment Operations .293  .440  .302  .888  .740 

Distributions               

Dividends from Net Investment Income (.483) (.480) (.502) (.588) (.650)

Distributions from Realized Capital Gains —  —  —  (.020) — 

Total Distributions (.483) (.480) (.502) (.608) (.650)

Net Asset Value, End of Period $10.29  $10.48  $10.52  $10.72  $10.44 


Total Return
2.88% 4.31% 2.89% 8.73% 7.35%


Ratios/Supplemental Data
              

Net Assets, End of Period (Millions) $13,905  $18,946  $19,245  $22,113  $15,839 

Ratio of Total Expenses to
Average Net Assets 0.21% 0.20% 0.20% 0.22% 0.25%

Ratio of Net Investment Income to
Average Net Assets 4.67% 4.61% 4.73% 5.51% 6.24%

Portfolio Turnover Rate 38% 53% 64% 65% 37%

71


GNMA Fund



Admiral Shares

Year Ended January 31,
Feb. 12,
20011 to
Jan. 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 

Net Asset Value, Beginning of Period $10.48  $10.52  $10.72  $10.44  $10.32 

Investment Operations               

Net Investment Income .492  .487  .509  .593  .631 

Net Realized and Unrealized Gain (Loss)
on Investments (.190) (.040) (.200) .300  .120 

Total from Investment Operations .302  .447  .309  .893  .751 

Distributions               

Dividends from Net Investment Income (.492) (.487) (.509) (.593) (.631)

Distributions from Realized Capital Gains —  —  —  (.020) — 

Total Distributions (.492) (.487) (.509) (.613) (.631)

Net Asset Value, End of Period $10.29  $10.48  $10.52  $10.72  $10.44 


Total Return
2.97% 4.38% 2.96% 8.78% 7.47%

Ratios/Supplemental Data               

Net Assets, End of Period (Millions) $10,281  $5,363  $5,335  $6,031  $3,605 

Ratio of Total Expenses to
Average Net Assets 0.11% 0.13% 0.13% 0.17% 0.19%2 

Ratio of Net Investment Income to
Average Net Assets 4.77% 4.68% 4.80% 5.54% 6.17%2 

Portfolio Turnover Rate 38% 53% 64% 65% 37%



1 Inception.
2 Annualized.
   See accompanying Notes, which are an integral part of the Financial Statements.

72


GNMA Fund



Notes to Financial Statements

Vanguard GNMA Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard Fixed Income Securities Funds. 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, servicing, tenure, and account-size criteria.

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

1.     Security Valuation: 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. 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 materially 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.     Repurchase Agreements: The fund invests in repurchase agreements. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings.

3.     Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements.

4.     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.

5.     Other: Interest income 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.     Wellington Management Company, LLP, provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. For the year ended January 31, 2006, the investment advisory fee represented an effective annual rate of 0.01% of the fund’s average net assets.

73


GNMA Fund



C.     The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2006, the fund had contributed capital of $2,832,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 2.83% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

D.     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.

For tax purposes, at January 31, 2006, the fund had available realized losses of $67,638,000 to offset future net capital gains of $29,714,000 through January 31, 2012, $26,020,000 through January 31, 2013, and $11,904,000 through January 31, 2015.

At January 31, 2006, net unrealized depreciation of investment securities for tax purposes was $33,349,000, consisting of unrealized gains of $164,057,000 on securities that had risen in value since their purchase and $197,406,000 in unrealized losses on securities that had fallen in value since their purchase.

E.     During the year ended January 31, 2006, the fund purchased $9,431,229,000 of investment securities and sold $8,939,351,000 of investment securities other than temporary cash investments.

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



 
Year Ended January 31,
2006
2005
Amount
($000)
Shares
(000)
Amount
($000)
Shares
(000)

Investor Shares            

Issued 2,860,589  275,896  3,483,812  334,053 

Issued in Lieu of Cash Distributions 633,258  61,218  699,968  67,212 

Redeemed (8,211,111) (793,206) (4,400,217) (423,363)

Net Increase (Decrease)-Investor Shares (4,717,264) (456,092) (216,437) (22,098)

Admiral Shares            

Issued 6,571,301  634,556  1,411,973  135,426 

Issued in Lieu of Cash Distributions 247,706  24,002  156,970  15,071 

Redeemed (1,768,447) (171,212) (1,517,634) (146,027)

Net Increase (Decrease)-Admiral Shares 5,050,560  487,346  51,309  4,470 

74


GNMA Fund



Long-Term Treasury Fund

Fund Profile
As of January 31, 2006



Financial Attributes

  Fund Comparative
Index1
Broad
Index2
Number of Issues 24  35  6,453 
Yield    —  — 
   Investor Shares 4.5%      
   Admiral Shares 4.6%      
Yield to Maturity 4.7%3  4.7% 5.2%
Average Coupon 7.1% 7.2% 5.2%
Average Effective
Maturity
17.0 years  17.0 years  7.1 years 
Average Quality4 Aaa  Aaa  Aa1 
Average Duration 10.1 years  10.4 years  4.5 years 
Expense Ratio    —  — 
   Investor Shares 0.26%      
   Admiral Shares 0.10%      
Short-Term Reserves 2% —  — 


Volatility Measures

Fund Comparative
Index1
Fund Broad
Index2
R-Squared 1.00  1.00  0.95  1.00 
Beta 0.97  1.00  2.30  1.00 


Sector Diversification5 (% of portfolio)

   
Treasury/Agency 98%
Short-Term Reserves 2   


Distribution by Maturity (% of portfolio)

   
Under 1 Year 2%
1-5 Years 0   
5-10 Years -46   
10-20 Years 64   
20-30 Years 38   


Distribution by Credit Quality4 (% of portfolio)

   
Aaa 100%


Investment Focus



1 Lehman Long Treasury Index.
2 Lehman Aggregate Bond Index.
3 Before expenses.
4 Moody's Investors Service.
5 Agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are not backed by the full faith and credit of
    the U.S. government.
6 Reflects a short futures position being used for duration-management purposes.
   See page 91 for a glossary of investment terms.

75


Long-Term Treasury Fund



Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: January 31, 1996-January 31, 2006
Initial Investment of $10,000



Average Annual Total Returns
Periods Ended January 31, 2006

Final Value
of a $10,000
One Year Five Years Ten Years Investment

Long-Term Treasury Fund Investor Shares 2.98% 7.12% 7.00% $19,675 

Lehman Aggregate Bond Index 1.80    5.53    6.10    18,070 

Lehman Long Treasury Index 2.93    7.19    7.26    20,149 

Average General Treasury Fund1 3.20    5.51    5.66    17,336 



One Year Since
Inception2
Final Value
of a $100,000
Investment

Long-Term Treasury Fund Admiral Shares 3.14% 7.21% $141,330 

Lehman Aggregate Bond Index 1.80    5.57    130,909 

Lehman Long Treasury Index 2.93    7.16    140,986 



1 Derived from data provided by Lipper Inc.
2 February 12, 2001.
   Note: See Financial Highlights tables on pages 82 and 83 for dividend and capital gains information.

76


Long-Term Treasury Fund



Fiscal-Year Total Returns (%): January 31, 1996-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year
Capital
Return
Income
Return
Total
Return
Total
Return

1997 -8.2% 6.4% -1.8% -1.6%

1998 9.7    7.1    16.8    18.3   

1999 5.8    6.2    12.0    12.3   

2000 -13.7    5.3    -8.4    -8.3   

2001 11.7    6.9    18.6    18.8   

2002 -0.4    5.7    5.3    5.4   

2003 9.0    5.8    14.8    14.9   

2004 0.0    4.9    4.9    4.6   

2005 2.7    5.3    8.0    8.6   

2006 -1.9    4.9    3.0    2.9   



Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total 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 Capital Income Total

Investor Shares 5/19/1986  6.61% 7.37% 1.25% 5.84% 7.09%

Admiral Shares 2/12/2001  6.77    7.542    —    —    —   



1 Lehman Long Treasury Index.
2 Return since inception.

77


Long-Term Treasury Fund



Financial Statements

Statement of Net Assets
As of January 31, 2006

The fund provides a complete list of its holdings 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 www.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).



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
U.S. Government and Agency Obligations (96.3%)           
U.S. Government Securities (93.4%)           
U.S. Treasury Bond 8.875% 2/15/19  42,000  58,984 
U.S. Treasury Bond 8.125% 8/15/19  201,673  270,179 
U.S. Treasury Bond 8.500% 2/15/20  71,500  99,050 
U.S. Treasury Bond 8.750% 8/15/20  29,000  41,198 
U.S. Treasury Bond 7.875% 2/15/21  241,581  322,813 
U.S. Treasury Bond 8.125% 5/15/21  92,875  126,978 
U.S. Treasury Bond 8.125% 8/15/21  32,000  43,865 
U.S. Treasury Bond 8.000% 11/15/21  23,000  31,298 
U.S. Treasury Bond 7.125% 2/15/23  83,000  105,929 
U.S. Treasury Bond 6.250% 8/15/23  101,500  119,548 
U.S. Treasury Bond 7.500% 11/15/24  4,000  5,361 
U.S. Treasury Bond 7.625% 2/15/25  10,000  13,584 
U.S. Treasury Bond 6.875% 8/15/25  52,000  65,999 
U.S. Treasury Bond 6.000% 2/15/26  45,000  52,270 
U.S. Treasury Bond 6.750% 8/15/26  49,000  61,801 
U.S. Treasury Bond 6.500% 11/15/26  31,050  38,211 
U.S. Treasury Bond 6.625% 2/15/27  50,000  62,453 
U.S. Treasury Bond 6.375% 8/15/27  110,650  134,907 
U.S. Treasury Bond 6.125% 11/15/27  75,000  89,039 
U.S. Treasury Bond 5.500% 8/15/28  26,600  29,405 
U.S. Treasury Bond 5.250% 11/15/28  15,000  16,085 
U.S. Treasury Bond 5.250% 2/15/29  13,000  13,945 
1 U.S. Treasury Bond 6.125% 8/15/29  232,500  278,381 
          2,081,283 

78


Long-Term Treasury Fund



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
Agency Bonds and Notes (2.9%)            
Private Export Funding Corp.
(U.S. Government Guaranteed)
4.950% 11/15/15  65,000  64,999 
           64,999 
Total U.S. Government and Agency Obligations
(Cost $1,967,272)
         2,146,282 

 
      Shares    
Temporary Cash Investment (0.7%)            
2 Vanguard Yorktown Liquidity Fund, 4.393%
(Cost $14,768)
      14,767,939  14,768 
Total Investments (97.0%)
(Cost $1,982,040)
         2,161,050 
Other Assets and Liabilities (3.0%)
Receivables for Accrued Income          50,733 
Other Assets-Note B          21,368 
Liabilities          (5,823)
           66,278 
Net Assets (100%)          2,227,328 


At January 31, 2006, net assets consisted of:3

 
Amount
($000)
Paid-in Capital 2,052,191 
Undistributed Net Investment Income — 
Overdistributed Net Realized Gains (4,273)
Unrealized Appreciation   
Investment Securities 179,010 
Futures Contracts 400 
Net Assets 2,227,328 

 
  
Investor Shares-Net Assets   
Applicable to 124,432,530 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
1,418,535 
Net Asset Value Per Share-Investor Shares $11.40 

 
  
Admiral Shares-Net Assets   
Applicable to 70,946,287 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
808,793 
Net Asset Value Per Share-Admiral Shares $11.40 


• See Note A in Notes to Financial Statements.
1 Securities with a value of $2,395,000 have been segregated as initial margin for open futures contracts.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
3 See Note C in Notes to Financial Statements for the tax-basis components of net assets.

79


Long-Term Treasury Fund



Statement of Operations



 
Year Ended
January 31, 2006

($000)

Investment Income   

Income   

Interest1 105,848 

Total Income 105,848 

Expenses   

The Vanguard Group—Note B   

   Investment Advisory Services 223 

   Management and Administrative   

      Investor Shares 3,255 

      Admiral Shares 410 

   Marketing and Distribution   

      Investor Shares 316 

      Admiral Shares 99 

Custodian Fees 32 

Auditing Fees 21 

Shareholders' Reports   

   Investor Shares 53 

   Admiral Shares

Trustees' Fees and Expenses

Total Expenses 4,413 

Net Investment Income 101,435 

Realized Net Gain (Loss)   

Investment Securities Sold 19,139 

Futures Contracts 4,596 

Realized Net Gain (Loss) 23,735 

Change in Unrealized Appreciation (Depreciation)   

Investment Securities (67,025)

Futures Contracts 505 

Change in Unrealized Appreciation (Depreciation) (66,520)

Net Increase (Decrease) in Net Assets Resulting from Operations 58,650 



1 Interest income from an affiliated company of the fund was $881,000.

80


Long-Term Treasury Fund



Statement of Changes in Net Assets



 
Year Ended January 31,
2006
($000)
2005
($000)

Increase (Decrease) in Net Assets      

Operations      

Net Investment Income 101,435  93,696 

Realized Net Gain (Loss) 23,734  19,071 

Change in Unrealized Appreciation (Depreciation) (66,520) 29,977 

Net Increase (Decrease) in Net Assets Resulting from Operations 58,649  142,744 

Distributions      

Net Investment Income      

   Investor Shares (71,190) (71,546)

   Admiral Shares (30,245) (22,150)

Realized Capital Gain1      

   Investor Shares (17,580) (9,220)

   Admiral Shares (8,412) (2,689)

Total Distributions (127,427) (105,605)

Capital Share Transactions—Note E      

   Investor Shares (27,619) (9,462)

   Admiral Shares 397,423  (22,982)

Net Increase (Decrease) from Capital Share Transactions 369,804  (32,444)

Total Increase (Decrease) 301,026  4,695 

Net Assets      

Beginning of Period 1,926,302  1,921,607 

End of Period 2,227,328  1,926,302 



1 Includes fiscal 2006 and 2005 short-term gain distributions totaling $6,728,000 and $0, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

81


Long-Term Treasury Fund



Financial Highlights

Investor Shares

Year Ended January 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 

Net Asset Value, Beginning of Period $11.76  $11.52  $11.66  $10.84  $10.88 

Investment Operations               

Net Investment Income .563  .574  .562  .585  .601 

Net Realized and Unrealized Gain (Loss)
on Investments (.218) .314  (.001) .973  (.040)

Total from Investment Operations .345  .888  .561  1.558  .561 

Distributions               

Dividends from Net Investment Income (.563) (.574) (.562) (.585) (.601)

Distributions from Realized Capital Gains (.142) (.074) (.139) (.153) — 

Total Distributions (.705) (.648) (.701) (.738) (.601)

Net Asset Value, End of Period $11.40  $11.76  $11.52  $11.66  $10.84 


Total Return
2.98% 8.01% 4.94% 14.77% 5.26%


Ratios/Supplemental Data
              

Net Assets, End of Period (Millions) $1,419  $1,490  $1,471  $1,677  $1,363 
Ratio of Total Expenses to
Average Net Assets 0.26% 0.24% 0.26% 0.28% 0.29%

Ratio of Net Investment Income to
Average Net Assets 4.82% 5.02% 4.81% 5.19% 5.52%

Portfolio Turnover Rate 25% 38% 64% 100% 64%

82


Long-Term Treasury Fund



Admiral Shares

Year Ended January 31,
Feb. 12,
20011 to
Jan. 31,
For a Share Outstanding Throughout Each Period 2006  2005  2004  2003  2002 

Net Asset Value, Beginning of Period $11.76  $11.52  $11.66  $10.84  $10.92 

Investment Operations               

Net Investment Income .581  .588  .577  .599  .597 

Net Realized and Unrealized Gain (Loss)
on Investments (.218) .314  (.001) .973  (.080)

Total from Investment Operations .363  .902  .576  1.572  .517 

Distributions               

Dividends from Net Investment Income (.581) (.588) (.577) (.599) (.597)

Distributions from Realized Capital Gains (.142) (.074) (.139) (.153) — 

Total Distributions (.723) (.662) (.716) (.752) (.597)

Net Asset Value, End of Period $11.40  $11.76  $11.52  $11.66  $10.84 


Total Return
3.14% 8.15% 5.07% 14.92% 4.93%


Ratios/Supplemental Data

Net Assets, End of Period (Millions) $809  $436  $450  $536  $532 

Ratio of Total Expenses to
Average Net Assets 0.10% 0.12% 0.13% 0.15% 0.15%2 

Ratio of Net Investment Income to
Average Net Assets 4.99% 5.15% 4.94% 5.34% 5.60%2 

Portfolio Turnover Rate 25% 38% 64% 100% 64%



1 Inception.
2 Annualized.
   See accompanying Notes, which are an integral part of the Financial Statements.

83


Long-Term Treasury Fund



Notes to Financial Statements



Vanguard Long-Term Treasury Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard Fixed Income Securities Funds. 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, servicing, tenure, and account-size criteria.

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

1.     Security Valuation: 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. Investments in Vanguard Yorktown 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 materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.

2.     Futures Contracts: The fund may use U.S. Agency, U.S. Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of enhancing returns, managing interest rate risk, maintaining liquidity, and minimizing transaction costs. The fund may purchase or sell futures contracts instead of bonds to take advantage of pricing differentials between the futures contracts and the underlying bonds. The fund may also seek to take advantage of price differences among bond market sectors by simultaneously buying futures (or bonds) of one market sector and selling futures (or bonds) of another sector. Futures contracts may also be used to simulate a fully invested position in the underlying bonds while maintaining a cash balance for liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market.

Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

3.     Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements.

4.     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.

5.     Other: Interest income includes income distributions received from Vanguard Yorktown 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.

84


Long-Term Treasury Fund



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 Group furnishes at cost investment advisory, corporate management, administrative, shareholder account maintenance, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2006, the fund had contributed capital of $255,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.25% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C.     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 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 $1,248,000 from accumulated net realized gains to paid-in capital.

For tax purposes, at January 31, 2006, the fund had $10,499,000 of long-term capital gains available for distribution.

The fund had realized losses totaling $14,340,000 through January 31, 2006, which are deferred for tax purposes and reduce the amount of unrealized appreciation on investment securities for tax purposes.

At January 31, 2006, net unrealized appreciation of investment securities for tax purposes was $164,670,000, consisting of unrealized gains of $166,541,000 on securities that had risen in value since their purchase and $1,871,000 in unrealized losses on securities that had fallen in value since their purchase.

At January 31, 2006, the aggregate settlement value of open futures contracts expiring in March 2006 and the related unrealized appreciation (depreciation) were:



($000)
Futures Contracts Number of
Long (Short)
Contracts
Aggregate
Settlement
Value
Unrealized
Appreciation
(Depreciation)

5-Year Treasury Note (1,480) 156,487  400 



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

85


Long-Term Treasury Fund



D.     During the year ended January 31, 2006, the fund purchased $846,088,000 of investment securities and sold $514,831,000 of investment securities, other than temporary cash investments.

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



 
Year Ended January 31,
2006
2005
Amount
($000)
Shares
(000)
Amount
($000)
Shares
(000)

Investor Shares            

Issued 446,492  38,184  247,414  21,558 

Issued in Lieu of Cash Distributions 78,866  6,781  70,348  6,145 

Redeemed (552,978) (47,279) (327,224) (28,738)

Net Increase (Decrease)-Investor Shares (27,620) (2,314) (9,462) (1,035)

Admiral Shares            

Issued 483,848  41,340  77,557  6,821 

Issued in Lieu of Cash Distributions 29,714  2,560  18,729  1,636 

Redeemed (116,139) (10,018) (119,268) (10,485)

Net Increase (Decrease)-Admiral Shares 397,423  33,882  (22,982) (2,028)

86




Report of Independent Registered Public Accounting Firm



To the Trustees of Vanguard Fixed Income Securities Funds and the Shareholders of Vanguard Short-Term Treasury Fund, Vanguard Short-Term Federal Fund, Vanguard Inflation-Protected Securities Fund, Vanguard Intermediate-Term Treasury Fund, Vanguard GNMA Fund and Vanguard Long-Term Treasury Fund:

In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Short-Term Treasury Fund, Vanguard Short-Term Federal Fund, Vanguard Inflation-Protected Securities Fund, Vanguard Intermediate-Term Treasury Fund, Vanguard GNMA Fund and Vanguard Long-Term Treasury Fund (separate funds of Vanguard Fixed Income Securities Funds, hereafter referred to as the “Funds”) at January 31, 2006, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at January 31, 2006 by correspondence with the custodians and broker and by agreement to the underlying ownership records for Vanguard Market Liquidity Fund and Vanguard Yorktown Liquidity Fund, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania

March 13, 2006






Special 2005 tax information (unaudited) for Vanguard U.S. Government Bond Funds

This information for the fiscal year ended January 31, 2006, is included pursuant to provisions of the Internal Revenue Code.

The Inflation-Protected Securities, Intermediate-Term Treasury, and Long-Term Treasury Funds distributed $39,092,000, $27,979,000, and $20,318,000, respectively, as capital gain dividends (from net long-term capital gains) to shareholders during the fiscal year.

87




About Your Fund’s Expenses



As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund. A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

The table below and on page 89 illustrate your fund’s costs in two ways:

• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”



Six Months Ended January 31, 2006

U.S. Government Bond Funds Beginning
Account Value
7/31/2005
Ending
Account Value
1/31/2006
Expenses
Paid During
Period1
Based on Actual Fund Return         
Short-Term Treasury-Investor Shares $1,000.00  $1,012.72  $1.32 
Short-Term Treasury-Admiral Shares 1,000.00  1,013.62  0.46 
Short-Term Federal-Investor Shares $1,000.00  $1,013.75  $1.02 
Short-Term Federal-Admiral Shares 1,000.00  1,014.27  0.46 
Inflation-Protected Securities-Investor Shares $1,000.00  $1,022.39  $1.02 
Inflation-Protected Securities-Admiral Shares 1,000.00  1,022.21  0.56 
Inflation-Protected Securities-Institutional Shares 1,000.00  1,022.89  0.41 
Intermediate-Term Treasury-Investor Shares $1,000.00  $1,007.48  $1.37 
Intermediate-Term Treasury-Admiral Shares 1,000.00  1,008.39  0.46 
GNMA-Investor Shares $1,000.00  $1,018.01  $1.07 
GNMA-Admiral Shares 1,000.00  1,018.54  0.51 
Long-Term Treasury-Investor Shares $1,000.00  $1,002.36  $1.36 
Long-Term Treasury-Admiral Shares 1,000.00  1,003.27  0.45 


1 The calculations are based on expenses incurred in the most recent six-month period. The funds' annualized six-month expense ratios for that period are: for the Short-Term Treasury Fund, 0.26% for Investor Shares and 0.09% for Admiral Shares; for the Short-Term Federal Fund, 0.20% for Investor Shares and 0.09% for Admiral Shares; for the Inflation-Protected Securities Fund, 0.20% for Investor Shares, 0.11% for Admiral Shares, and 0.08% for Institutional Shares; for the Intermediate-Term Treasury Fund, 0.27% for Investor Shares and 0.09% for Admiral Shares; for the GNMA Fund, 0.21% for Investor Shares and 0.10% for Admiral Shares; and for the Long-Term Treasury Fund, 0.27% for Investor Shares and 0.09% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.

88




• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.



Six Months Ended January 31, 2006

U.S. Government Bond Funds Beginning
Account Value
7/31/2005
Ending
Account Value
1/31/2006
Expenses
Paid During
Period
Based on Hypothetical 5% Yearly Return         
Short-Term Treasury-Investor Shares $1,000.00  $1,023.89  $1.33 
Short-Term Treasury-Admiral Shares 1,000.00  1,024.75  0.46 
Short-Term Federal-Investor Shares $1,000.00  $1,024.20  $1.02 
Short-Term Federal-Admiral Shares 1,000.00  1,024.75  0.46 
Inflation-Protected Securities-Investor Shares $1,000.00  $1,024.20  $1.02 
Inflation-Protected Securities-Admiral Shares 1,000.00  1,024.65  0.56 
Inflation-Protected Securities-Institutional Shares 1,000.00  1,024.80  0.41 
Intermediate-Term Treasury-Investor Shares $1,000.00  $1,023.84  $1.38 
Intermediate-Term Treasury-Admiral Shares 1,000.00  1,024.75  0.46 
GNMA-Investor Shares $1,000.00  $1,024.15  $1.07 
GNMA-Admiral Shares 1,000.00  1,024.70  0.51 
Long-Term Treasury-Investor Shares $1,000.00  $1,023.84  $1.38 
Long-Term Treasury-Admiral Shares 1,000.00  1,024.75  0.46 


Note that the expenses shown in the tables are meant to highlight and help you compare ongoing costs only and do not reflect any transactional costs or account maintenance fees. They do not include your fund’s low-balance fee, which is described in the prospectus. If this fee were applied to your account, your costs would be higher. Your fund does not charge transaction fees, such as purchase or redemption fees, nor does it carry a “sales load.”

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

You can find more information about the fund’s expenses in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate fund prospectus.

89




Vanguard’s Policies for Managing Changes to Investment Advisory Arrangements

The boards of trustees of the Vanguard funds and Vanguard have adopted practical and cost-effective policies for managing the funds’ arrangements with their unaffiliated investment advisors, as permitted by an order from the U.S. Securities and Exchange Commission (SEC).

Background

In 1993, Vanguard was among the first mutual fund companies to streamline the process of changing a fund’s investment advisory arrangements. In essence, the SEC order enabled the boards of the Vanguard funds to enter into new or revised advisory arrangements without the delay and expense of a shareholder vote. This ability, which is subject to a number of SEC conditions designed to protect shareholder interests, has saved the Vanguard funds and their shareholders several million dollars in proxy costs since 1993. It has also enabled the funds’ trustees to quickly implement advisory changes in the best interest of shareholders.

Over the past 12 years, as the SEC gained experience in this area, it has granted more flexible conditions to other fund companies. Consequently, Vanguard received the SEC’s permission to update its policies concerning its arrangements with outside investment advisors.

Our updated policies

Vanguard is adopting several additional practical and cost-effective policies in managing the Vanguard funds’ investment advisory arrangements:

Statement of Additional Information (SAI). Vanguard funds that employ an unaffiliated investment advisor will now show advisory fee information on an aggregate basis in their SAIs. (A fund’s SAI provides more detailed information than its prospectus and is available to investors online at Vanguard.com® or upon request.) Previously, separate fee schedules were presented for each unaffiliated advisor. Each fund’s SAI will also include the amount paid by the fund for any investment advisory services provided on an at-cost basis by The Vanguard Group. Reporting advisory fees in this manner is the same approach used by other fund companies that have received similar SEC exemptive orders.

Shareholder notification. Like other fund companies, Vanguard will have up to 90 days after a fund enters into a new advisory agreement to notify shareholders of the change. Previously, shareholders were notified at least 30 days before any such change, if possible. In practice, Vanguard expects to continue notifying shareholders of advisory changes as soon as is practical, taking into account opportunities to reduce postage expenses by enclosing notices with previously scheduled mailings.

Redemption fees. Some Vanguard funds charge a redemption fee, which typically applies to shares redeemed within a certain period following purchase. Previously, redemption fees were required to be waived for 90 days after giving notice of a fund advisory change. The SEC has not generally applied this requirement to other fund companies and has now eliminated it for Vanguard. (Redemption fees—which are paid to the fund, not to Vanguard—are designed to ensure that short-term investors pay their fair share of a fund’s transaction costs.)

90




Glossary



Average Coupon. The average interest rate paid on the fixed income securities held by a fund. It is expressed as a percentage of face value.

Average Duration. An estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. To see how the value could change, multiply the average duration by the change in rates. If interest rates rise by 1 percentage point, the value of the bonds in a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the value would rise by 5%.

Average Effective Maturity. The average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date. The figure reflects the proportion of fund assets represented by each security; it also reflects any futures contracts held. In general, the longer the average effective maturity, the more a fund’s share price will fluctuate in response to changes in market interest rates.

Average Quality. An indicator of credit risk, this figure is the average of the ratings assigned to a fund’s fixed income holdings by credit-rating agencies. The agencies make their judgment after appraising an issuer’s ability to meet its obligations. Quality is graded on a scale, with Aaa or AAA indicating the most creditworthy bond issuers. U.S. Treasury securities are considered to have the highest credit quality.

Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. A fund’s beta should be reviewed in conjunction with its R-squared (see definition below). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.

Distribution by Coupon. A breakdown of the securities in a fund according to coupon rate—the interest rate that an issuer promises to pay, expressed as an annual percentage of face value. Securities with unusually high coupon rates may be subject to call risk, the possibility that they will be redeemed (or “called”) early by the issuer.

Expense Ratio. The percentage of a fund’s average net assets used to pay its annual administrative and advisory expenses. These expenses directly reduce returns to investors.

R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0.

Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.

Yield. A snapshot of a fund’s interest income. The yield, expressed as a percentage of the fund’s net asset value, is based on income earned over the past 30 days (7 days for money market funds) and is annualized, or projected forward for the coming year.

Yield to Maturity. The rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates.

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The People Who Govern Your Fund

The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.

A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals.

Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of the funds. Among board members’ responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers.

Each trustee serves a fund until its termination; or until the trustee’s retirement, resignation, or death; or otherwise as specified in the fund’s organizational documents. Any trustee may be removed at a shareholders’ meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.



Chairman of the Board, Chief Executive Officer, and Trustee

John J. Brennan1
Born 1954
Trustee since May 1987;
Chairman of the Board and
Chief Executive Officer
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Chairman of the Board, Chief Executive Officer, and Director/ Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group.
 
IndependentTrustees
 
Charles D. Ellis
Born 1937
Trustee since January 2001
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Applecore Partners (pro bono ventures in education); Senior Advisor to Greenwich Associates (international business strategy consulting); Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research.
 
Rajiv L. Gupta
Born 1945
Trustee since December 20012
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Board Member of the American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) (since 2005); Trustee of Drexel University and of the Chemical Heritage Foundation.
 
JoAnn Heffernan Heisen
Born 1950
Trustee since July 1998
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Corporate Vice President and Chief Global Diversity Officer (since January 2006), Vice President and Chief Information Officer (1997–2005), and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/consumer products); Director of the University Medical Center at Princeton and Women’s Research and Education Institute.
 
 




 
André F. Perold
Born 1952
Trustee since December 2004
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Harvard Business School (since 2000); Senior Associate Dean, Director of Faculty Recruiting, and Chair of Finance Faculty, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm) (since 2003); Director of registered investment companies advised by Merrill Lynch Investment Managers and affiliates (1985–2004), Genbel Securities Limited (South African financial services firm) (1999–2003), Gensec Bank (1999–2003), Sanlam, Ltd. (South African insurance company) (2001–2003), and Stockback, Inc. (credit card firm) (2000–2002).
 
Alfred M. Rankin, Jr.
Born 1941
Trustee since January 1993
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998.
 
J. Lawrence Wilson
Born 1936
Trustee since April 1985
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco Corp. (packaging products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation.
 
Executive Officers1
 
Heidi Stam
Born 1956
Secretary since July 2005
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group since November 1997; General Counsel of The Vanguard Group since July 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since July 2005.
 
Thomas J. Higgins
Born 1957
Treasurer since July 1998
133 Vanguard Funds Overseen
Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group.
 
Vanguard Senior Management Team
 
R. Gregory Barton
Mortimer J. Buckley
James H. Gately
Kathleen C. Gubanich
F. William McNabb, III
Michael S. Miller
Ralph K. Packard
George U. Sauter
 
Founder
 
John C. Bogle
Chairman and Chief Executive Officer, 1974-1996

1 Officers of the funds are “interested persons” as defined in the Investment Company Act of 1940.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
  More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group.




 
P.O. Box 2600
Valley Forge, PA 19482-2600

Connect with Vanguard > www.vanguard.com

Fund Information > 800-662-7447 Vanguard, Vanguard.com, Admiral, Connect with
  Vanguard, and the ship logo are trademarks of
Direct Investor Account Services > 800-662-2739 The Vanguard Group, Inc.
   
Institutional Investor Services > 800-523-1036  
  All other marks are the exclusive property of their
Text Telephone > 800-952-3335 respective owners.
   
  All comparative mutual fund data are from Lipper Inc.
  or Morningstar, Inc., unless otherwise noted.
   
   
This material may be used in conjunction You can obtain a free copy of Vanguard's proxy voting
with the offering of shares of any Vanguard guidelines by visiting our website, www.vanguard.com,
fund only if preceded or accompanied by and searching for "proxy voting guidelines," or by calling
the fund's current prospectus Vanguard at 800-662-2739. They are also available from
SEC's website, www.sec.gov. In addition, you may
obtain a free report on how your fund voted the proxies for
securities it owned during the 12 months ended June 30.
To get the report, visit either www.vanguard.com or
www.sec.gov.
 
 
You can review and copy information about your fund
at the SEC's Public Reference Room in Washington, D.C.
To find out more about this public service, call the SEC
at 202-551-8090. Information about your fund is also
available on the SEC's website, and you can receive
  copies of this information, for a fee, by sending a request
  in either of two ways: via e-mail addressed to
  publicinfo@sec.gov or via regular mail addressed to the
  Public Reference Section, Securities and Exchange
  Commission, Washington, DC 20549-0102.
   
   
   
  © 2006 The Vanguard Group, Inc.
  All rights reserved.
  Vanguard Marketing Corporation, Distributor.
   
  Q320 032006







Vanguard® Corporate Bond Funds

> Annual Report


January 31, 2006




Vanguard Short-Term Investment-Grade Fund

Vanguard Intermediate-Term Investment-Grade Fund

Vanguard Long-Term Investment-Grade Fund

Vanguard High-Yield Corporate Fund







> During the 12 months ended January 31, 2006, the four Vanguard corporate bond funds posted returns that ranged from 1.3% to 4.0%.

> With the exception of the High-Yield Corporate Fund, the funds matched or surpassed their index benchmarks.

> Bonds with the shortest maturities posted the highest returns among investment-grade securities.



Contents  
Your Fund's Total Returns
Chairman's Letter
Advisors' Reports 8,10
Short-Term Investment-Grade Fund 12 
Intermediate-Term Investment-Grade Fund 46 
Long-Term Investment-Grade Fund 73 
High-Yield Corporate Fund 92 
About Your Fund's Expenses 115 
Glossary 118 


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 cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.




Your Fund’s Total Returns



Fiscal Year Ended January 31, 2006



  Total
Return
Vanguard Short-Term Investment-Grade Fund  
   Investor Shares 2.4%
   AdmiralShares1 2.5   
   Institutional Shares2 2.6   
Lehman 1-5 Year U.S. Credit Index 1.5   
Average 1-5 Year Investment Grade Debt Fund3 1.6   

Vanguard Intermediate-Term Investment-Grade Fund
   
   Investor Shares 1.4%
   Admiral Shares 1.5   
Lehman 5-10 Year U.S. Credit Index 0.6   
Average Intermediate Investment Grade Debt Fund3 1.4   

Vanguard Long-Term Investment-Grade Fund
 
   Investor Shares 1.3%
   Admiral Shares 1.4   
Lehman Long Credit A or Better Index 1.3   
Average Corporate A-Rated Debt Fund3 1.3   

Vanguard High-Yield Corporate Fund
   
   Investor Shares 3.9%
   Admiral Shares 4.0   
Lehman High Yield Index 4.5   
Average High-Current-Yield Fund3 4.0   


1 A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
2 This class of shares also carries low expenses and is available for a minimum investment of $50 million.
3 Derived from data provided by Lipper Inc.

1




Chairman’s Letter

Dear Shareholder,

The four Vanguard Corporate Bond Funds posted modest returns in the fiscal year ended January 31, 2006. Although the funds’ share prices fell, the income each generated was sufficient to overcome the price declines.

As the table on page 1 shows, the funds’ total returns ranged from 1.3% for the Investor Shares of the Long-Term Investment-Grade Fund to 4.0% for the Admiral Shares of the High-Yield Corporate Fund. (Total return consists of the change in share price plus reinvested income and capital gains distributions.) The Short-Term Investment-Grade Fund handily outpaced the average return of its peer group; the three other funds performed in line with peer averages. All except the High-Yield Corporate Fund matched or exceeded the returns of their benchmark indexes.

The table on page 7 shows share prices at the start and end of the period for each of the funds, as well as distributions made during the year. The table on page 4 shows the income and capital components of each fund’s return; it also shows the funds’ yields, which rose noticeably during the period.

The Fed’s rate hikes reverberated through the bond market

The broad U.S. bond market registered modest returns as the Federal Reserve Board hiked its target for short-term

2




interest rates to 4.50% by the fiscal year-end, for a total increase of 2.25 percentage points in nine separate actions over the 12 months. Rate increases were sharpest—and the attendant price declines most pronounced—among short-term Treasury bonds, which generated weak total returns. Longer-term Treasury bonds held up better, with rate increases—and price declines—that were more modest.

While stock prices rallied, economic signals were mixed

U.S. stocks produced strong returns for the period. The market’s smaller companies performed best—a pattern that has prevailed for much of the past five years—but large-capitalization stocks also registered double-digit returns. International stocks surged, particularly those from emerging markets and a seemingly revitalized Japan.

In contrast with the stock market’s clear-cut positives, the economy was a collection of inconsistencies. Stubbornly high energy prices, tighter monetary policy, and hints of deceleration in the housing market struck a cautionary note. Robust profit growth and steady job creation sounded an optimistic counterpoint.

A combination of market factors held the funds’ returns in check

Two factors combined to hold down returns from the investment-grade corporate bond market during the 12 months ended January 31. The first was the Fed’s series of increases in short-term interest rates, which led to rising rates across the maturity spectrum. The second was the widening of the spread between yields of Treasury securities and those of investment-grade corporate issues of like maturity. In other words, corporate yields rose more than

Market Barometer



Average Annual Total Returns
Periods Ended January 31, 2006

One Year Three Years Five Years

Bonds      

Lehman Aggregate Bond Index (Broad taxable market) 1.8% 3.6% 5.5%

Lehman Municipal Bond Index 2.8    4.6    5.4   

Citigroup 3-Month Treasury Bill Index 3.2    1.8    2.2   


Stocks
     

Russell 1000 Index (Large-caps) 12.1% 17.4% 1.0%

Russell 2000 Index (Small-caps) 18.9    26.9    9.0   

Dow Jones Wilshire 5000 Index (Entire market) 13.1    18.8    2.1   

MSCI All Country World Index ex USA (International) 27.5    30.6    7.8   


CPI
     

Consumer Price Index 4.0% 3.0% 2.5%

3




Treasury yields, a result of investors’ growing concern about a number of issues, including corporate profitability and competitiveness as well as oil prices.

Amid these challenges, two of the investment-grade funds produced returns in line with those of their peers while one, the Short-Term Investment-Grade Fund, significantly outperformed its peer fund. Each fund’s share price fell during the fiscal year; however, each produced income that more than offset the decline. The funds’ investment advisors—Vanguard Fixed Income Group for the Short- and Intermediate-Term Funds and Wellington Management Company for the Long-Term Fund—adopted defensive postures, keeping each fund’s duration (a measure of interest-rate sensitivity) at the short end of its typical range. This positioning helped blunt the impact of rising rates on the funds’ share prices.

The High-Yield Corporate Fund faced a somewhat different challenge over the period. By mandate, the fund maintains somewhat higher credit quality than many other mutual funds in the “junk bond” market. Wellington Management Company therefore kept a relatively large portion of the fund’s assets in the “upper tier” of the below-investment-grade market during the period. This cautious positioning enables the fund to avoid much of the payment uncertainty and price volatility of the most speculative issues. At times during the fiscal year, however, these riskier bonds offered better performance than others in the junk market, which explains the fund’s underperformance of its benchmark.

Yields and Returns



SEC 30-Day Annualized
Yields on January 31,

Components of Total Returns
Year Ended January 31, 2006

Bond Fund 2005 2006 Capital
Return
Income
Return
Total
Return

Short-Term Investment-Grade           

   Investor Shares 3.34% 4.53% -1.22%  3.66% 2.44%

   Admiral Shares 3.42    4.66    -1.22    3.77    2.55   

   Institutional Shares 3.45    4.67    -1.22    3.80    2.58   

Intermediate-Term Investment-Grade           

   Investor Shares 4.32% 5.03% -3.30%  4.66% 1.36%

   Admiral Shares 4.42    5.14    -3.30    4.77    1.47   

Long-Term Investment-Grade           

   Investor Shares 5.14% 5.43% -4.00%  5.27% 1.27%

   Admiral Shares 5.25    5.57    -4.00    5.40    1.40   

High-Yield Corporate           

   Investor Shares 5.99% 6.78% -3.13%  7.02% 3.89%

   Admiral Shares 6.10    6.93    -3.13    7.17    4.04   

4




For more details on the funds’ holdings and performance, please see the Advisors’ Reports, which begin on page 8.

The funds’ long-term records continue to be outstanding

It is never prudent to judge a long-term investment on one year of performance. Short-term fluctuations can affect absolute and relative performance from year to year. Long-term performance is a better barometer of how well funds meet their mandates.

As you can see in the table on page 6, all four Vanguard funds have outperformed their respective peer-group averages by significant margins over the past decade. For example, consider a hypothetical $10,000 initial investment in the Intermediate-Term Investment-Grade Fund. This investment would have grown to $17,958—or more than $1,300 more than the result of a similar investment in the average competitor.

The investment advisors have extensive experience in security selection and portfolio positioning in a variety of market environments. Vanguard’s low costs have also helped by allowing more of the funds’ gains to be returned to shareholders, where they rightfully belong. Each fund’s expense ratio (operating costs as a percentage of net asset value) is a fraction of the average for its peer group. (For a comparison of the funds’ costs with the averages for their competitors, see the table below.) Costs are especially significant for bond funds, whose returns tend to be concentrated within a narrower range than those of stock funds.



Expense Ratios:1
Your fund compared with its peer group



Investor
Shares
Admiral
Shares
Institutional
Shares
Peer
Group
Short-Term Investment-Grade Fund 0.21% 0.10% 0.07% 0.96%
Intermediate-Term Investment-Grade Fund 0.21    0.10    —    0.99   
Long-Term Investment-Grade Fund 0.25    0.12    —    1.13   
High-Yield Corporate Fund 0.25    0.12    —    1.27   


1 Fund expense ratios reflect the fiscal year ended January 31, 2006. Peer groups are: for the Short-Term Investment-Grade Fund, the Average 1–5 Year Investment-Grade Debt Fund; for the Intermediate-Term Investment-Grade Debt Fund, the Average Intermediate Investment-Grade Debt Fund; for the Long-Term Investment-Grade Fund, the Average Corporate A-Rated Fund; and for the High-Yield Corporate Fund, the Average High-Current-Yield Fund. Peer-group expense ratios are derived from data provided by Lipper Inc. and capture information through year-end 2005.

5




Diversification and balance can help you stay on an even keel

Many investors are frustrated by the seeming complexity and unpredictability of the stock and bond markets. These markets don’t always move the way we expect them to. In the absence of reliable forecasts, many investors are left to ponder what their next move should be amid the flurry of daily market activity that the media pundits insist is important for their portfolios.

At Vanguard, we counsel investors to resist the temptation to change, to tune out the market noise, and to maintain focus on their objectives—whether it is building assets for retirement, saving for college, or some other goal. If you hold a well-thought-out portfolio of stock funds, bond funds, and short-term investments that is diversified appropriately for your goals and circumstances, you should be comfortable staying the course through good and bad markets. Your choice of one or more of the Vanguard Corporate Bond Funds can provide you with exposure to income-producing securities that can help you meet your portfolio’s diversification needs.

Thank you for entrusting your assets to Vanguard.

Sincerely,



John J. Brennan
Chairman and Chief Executive Officer
February 14, 2006



Total Returns



Ten Years Ended December 31, 2005
Average
Annual Return

Final Value of a $10,000
Initial Investment

Bond Fund Investor Shares Vanguard
Fund
Average
Competing
Fund
Vanguard
Fund
Average
Competing
Fund

Short-Term Investment-Grade 5.1% 4.5% $16,423  $15,482 

Intermediate-Term Investment-Grade 6.0  5.2  17,958  16,636 

Long-Term Investment-Grade 7.0  5.2  19,671  16,605 

High-Yield Corporate 6.0  5.4  17,952  16,946 

6




Your Fund’s Performance at a Glance:
January 31, 2005-January 31, 2006



Distributions Per Share
Starting
Share Price
Ending
Share Price
Income
Dividends
Capital
Gains

Short-Term Investment-Grade Fund            

   Investor Shares $10.63  $10.50  $0.384  $0.000 

   Admiral Shares 10.63  10.50  0.395  0.000 

   Institutional Shares 10.63  10.50  0.399  0.000 

Intermediate-Term Investment-Grade Fund            

   Investor Shares $10.08  $9.73  $0.466  $0.018 

   Admiral Shares 10.08  9.73  0.477  0.018 

Long-Term Investment-Grade Fund            

   Investor Shares $9.76  $9.37  $0.515  $0.000 

   Admiral Shares 9.76  9.37  0.527  0.000 

High-Yield Corporate Fund            

   Investor Shares $6.39  $6.19  $0.437  $0.000 

   Admiral Shares 6.39  6.19  0.445  0.000 

7




Advisor’s Report

For the Short- and Intermediate-Term Investment-Grade Funds

During the fiscal year ended January 31, 2006, the returns of the different share classes of the Short-Term Investment-Grade Fund clustered around 2.5%. The Investor Shares of the Intermediate-Term Investment-Grade Fund returned 1.4%, and the fund’s Admiral Shares returned 1.5%. Both funds outperformed their benchmarks.

The investment environment

During the fiscal year, the U.S. economy enjoyed respectable growth. Output increased by 3.1% during calendar 2005. Surging energy prices produced a sharp rise in the Consumer Price Index, but the core inflation rate, which excludes food and energy, and the Federal Reserve Board’s preferred inflation gauge (the PCE, or personal consumption expenditure, deflator) suggested that inflation remained under control.

The U.S. Bond market

Although the economic backdrop was unremarkable, the bond market’s interest rate dynamics made for a challenging investment environment. The Treasury yield curve flattened significantly over the fiscal year. The spread between the yields of 2- and 30-year Treasuries narrowed from 131 basis points (1.31 percentage points) at the start of the period to just 16 basis points at the close. This spread peaked at more than 350 basis points in 2003.

Signs of flattening were visible along the entire yield curve:

• The yield of 2-year Treasuries rose by 125 basis points to close the period at 4.52%, only 2 basis points above the federal funds target rate.

• The yield of 5-year Treasuries rose by 76 basis points to close at 4.45%—below the yield of the 2-year note.

• The yield of 10-year Treasuries rose only 39 basis points and finished the period even with that of the 2-year notes, at 4.52%.

• The yield of 30-year Treasury bonds had the smallest increase, advancing just 9 basis points to end the fiscal year at 4.68%.

Corporate bonds trailed most other segments of the fixed income market. The spreads between Treasury and corporate yields increased as investors grew concerned about leveraged buyouts and other strategies designed to benefit equity holders. Lower-quality investment-grade bonds were the weakest performers, primarily because of the automotive sector. For example, bonds rated BBB, the lowest investment-grade rating, underperformed those rated AA by 134 basis points. The automotive sector, which dominates the BBB portion of the index, underperformed AA-rated bonds by –1,073

8




basis points as the major automakers were downgraded to below-investment-grade status. Crossover credits—from those companies that had split credit ratings between investment-grade and sub-investment-grade—and high-yield securities outperformed Treasuries.

In addition to the automotive sector, the packaging, supermarket, and entertainment sectors were some of the weakest performers. Sector leaders were airlines, tobacco, property and casualty insurers, and sovereign bonds.

The management of the funds

During the past fiscal year, the Short- and Intermediate-Term Investment-Grade Funds outperformed their benchmarks and bested or matched their peer-group averages. The funds benefited from their relatively short durations, and from portfolio positioning that took advantage of the flattening of the yield curve.

The portfolios’ short durations offered some protection from declining prices as the Fed continued to boost interest rates. We also positioned ourselves for the rise in short-term rates by purchasing floating-rate securities. We took advantage of the yield curve’s flattening by underweighting the shortest-maturity securities—those most affected by the Fed’s rate hikes—while also holding securities at the long end of the funds’ typical maturity ranges. In the flattening environment, the prices of longer-term securities were relatively stable, allowing the funds to benefit from their higher yields.

Also contributing to the funds’ performance were strong credit selection among high-yield securities and our avoidance of supermarket securities and the weakest performers in the auto sector.

Although the yield curve’s flattening suggests that the Fed is close to the end of its efforts to tighten monetary policy, we expect additional interest rate hikes. This is reflected in the Short-Term Investment-Grade Fund’s bearish duration. We kept the Intermediate-Term Investment-Grade Fund’s duration in the bearish range for the first half of the fiscal year, but we’ve since moved the portfolio into the neutral range, consistent with our expectation that intermediate- and longer-term rates will remain relatively stable.

Robert F. Auwaerter, Principal
Vanguard Fixed Income Group
February 22, 2006

9




Advisor’s Report

For the Long-Term Investment-Grade and High-Yield Corporate Funds

During the fiscal year ended January 31, 2006, the Investor Shares of the Long-Term Investment-Grade Fund returned 1.3%, while those of the High-Yield Corporate Fund returned 3.9%. The funds’ Admiral Shares returned 1.4% and 4.0%, respectively.

The investment environment

The Long-Term Investment-Grade and High-Yield Corporate Funds invest almost exclusively in the U.S. corporate bond market. Each offers credit and duration risk commensurate with the market segment in which it invests. The performance of both portfolios is affected by the direction of interest rates and the overall health of the domestic economy, which influences business conditions for issuers of corporate bonds.

As Ben Bernanke takes over from Alan Greenspan as chairman of the Federal Reserve, the Fed appears to be in the final phase of its effort to raise interest rates. The yield curve is mostly flat, and the direction of the economy is still positive. Consumers stoked the economy over the past four years, but businesses now need to provide the major stimulus.

The decline in the difference between yields of short-maturity Treasury securities and longer-dated Treasuries over the past year illustrates investors’ uncertainty about the direction of the economy. On January 31, 2005, the 3-month Treasury bill yielded 2.5% and the 30-year Treasury bond yielded 4.6%. One year later, the 3-month bill yielded 4.5% and the 30-year bond 4.7%. The stability of the long bond’s yield indicates that investors both believe in the Fed’s commitment to containing inflation and expect economic growth to be slower than in the past.

The level of additional yield offered by corporate bonds over Treasuries generally depends on the economy, liquidity conditions, and the willingness of creditors to take on risk. While economic growth remained strong over the past 12 months, appetite for credit risk declined marginally as the Fed withdrew liquidity and corporate managements embraced certain shareholder-friendly measures, such as aggressive stock-repurchase programs and special dividend distributions. The shift in focus from repairing balance sheets to enriching shareholders led to a slower pace of ratings upgrades.

From a historical perspective, risk premiums are still reasonably narrow for investment-grade and high-yield bonds. We feel that the risks in the investment-grade and high-yield credit markets are still balanced, and we therefore do not anticipate any major change in direction for spreads over the next six months. However, we believe that risk premiums will increase as the effects of the Fed’s interest rate hikes take hold.

Long-Term Investment-Grade Fund

Successes: The fund’s return was very close to that of its benchmark—the Lehman Long Credit A or Better Index—over the past 12 months, despite the fund’s having expenses and the

10




benchmark none. The fund benefited from having a shorter duration than the index as long interest rates rose slightly during the period. The fund also benefited from its holdings in agency debentures, which outperformed corporate issues.

Shortfalls: In comparison with the index, the fund’s performance was hurt by its underweightings in the brokerage and banking industries. Our security selection also detracted from results in these areas.

Positioning: The fund has solid holdings in long-term investment-grade bonds with excellent call protection. The major risk, given the fund’s long duration and maturity, is rising long-term interest rates. While we expect long rates to rise during the year, we are maintaining the duration in line with that of the benchmark because we are uncertain whether near-term economic weakness and technical pressures will push rates lower.

The fund generally purchases bonds of large, well-established companies with stable operating histories. We do not own emerging-market debt or foreign bonds denominated in non-U.S. currencies.

High-Yield Corporate Fund

Successes: Although the fund’s return lagged the 4.5% result for its benchmark—the Lehman High Yield Index—there were pockets of strength in the portfolio, particularly holdings in the cable, paper, and health care industries.

Shortfalls: The fund underperformed its benchmark primarily because of weak credit decisions in the auto sector. Results from holdings in the wireline and wireless industries also hurt performance. The fund experienced one default during the year.

Positioning: The fund is consistent in its investment objective and strategy. Within the lower-quality portion of the corporate bond market, the fund follows a relatively high-quality bias by focusing on the “upper tier” of the credit spectrum. We attempt to find companies with more consistent or stable businesses and with more predictable cash flows than those at the lowest-rated end of the “junk” market.

While our exposure to issues rated BBB remained stable during the year, we reduced our B-rated holdings in favor of higher-quality BB issues. We made this small shift, raising quality at the margin, because of the unbalanced risk of lower-rated bonds with expensive valuations.

We still believe that corporate bonds have an asymmetrical payoff—meaning that their prices can decline more readily than they can appreciate. Our strategy is to diversify the portfolio’s holdings among issuers and industries as we seek to mitigate the risk of capital erosion and the effects of credit mistakes. We avoid non-cash-paying securities, and equity-linked securities such as convertibles because of their potential volatility.

Earl E. McEvoy, Senior Vice President and
Portfolio Manager
Wellington Management Company, LLP
February 16, 2006

11




Short-Term Investment-Grade Fund

Fund Profile
As of January 31, 2006

Financial Attributes

Fund Comparative
Index1
Broad
Index2
Number of Issues 704  1,111  6,453 
Yield
Investor Shares 4.5%  
Admiral Shares 4.7%  
Institutional Shares 4.7%  
Yield to Maturity 5.4%3  5.1% 5.2%
Average Coupon 4.7% 5.3% 5.2%
Average Effective
Maturity
2.7 years 3.0 years 7.1 years
Average Quality4 Aa2  A1  Aa1 
Average Duration 1.9 years 2.7 years 4.5 years
Expense Ratio
Investor Shares 0.21%  
Admiral Shares 0.10%  
Institutional Shares 0.07%  
Short-Term Reserves 1% —  — 


Volatility Measures

  Fund Comparative
Index1
Fund Broad
Index2
R-Squared 0.96  1.00  0.86  1.00 
Beta 0.63  1.00  0.38  1.00 


Sector Diversification5 (% of portfolio)

   
Asset-Backed/Commercial Mortgage-Backed 17%
Finance 33   
Foreign 1   
Government Mortgage-Backed 5   
Industrial 25   
Treasury/Agency 13   
Utilities 5   
Short-Term Reserves 1%


Distribution by Credit Quality4 (% of portfolio)

   
Aaa 39%
Aa 23   
A 22   
Baa 14   
Ba 2   


Distribution by Maturity (% of portfolio)

   
Under 1 Year 23%
1-3 Years 50 
3-5 Years 18 
Over 5 Years


Investment Focus



1 Lehman 1–5 Year U.S. Credit Index.
2 Lehman Aggregate Bond Index.
3 Before expenses.
4 Moody’s Investors Service.
5 Sector percentages include market exposure obtained through futures and swap contracts. The agency and mortgage-backed securities sectors may include
    issues from government-sponsored enterprises; such issues are not backed by the full faith and credit of the U.S. government.
   See page 118 for a glossary of investment terms.

12


Short-Term Investment-Grade Fund



Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) 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.

Cumulative Performance: January 31, 1996–January 31, 2006
Initial Investment of $10,000



Average Annual Total Returns
Periods Ended January 31, 2006

Final Value
of a $10,000
One Year Five Years Ten Years Investment

Short-Term Investment-Grade Fund Investor Shares 2.44% 4.07% 5.09% $16,423 

Lehman Aggregate Bond Index 1.80    5.53    6.10    18,070 

Lehman 1-5 Year U.S. Credit Index 1.52    5.16    5.74    17,472 

Average 1-5 Year Investment Grade Fund1 1.57    3.48    4.47    15,482 



One Year Since
Inception2
Final Value
of a $100,000
Investment

Short-Term Investment-Grade Fund Admiral Shares 2.55% 4.19% $122,595 

Lehman Aggregate Bond Index 1.80    5.57    130,909 

Lehman 1-5 Year U.S. Credit Index 1.52    5.19    128,564 



One Year Five Years Since
Inception2
Final Value of
a $50,000,000
Investment

Short-Term Investment-Grade Fund Institutional Shares 2.58% 4.19% 5.12% $75,813,520 

Lehman Aggregate Bond Index 1.80    5.53    6.17    82,393,220 

Lehman 1-5 Year U.S. Credit Index 1.52    5.16    5.72    79,494,398 



1 Derived from data provided by Lipper Inc.
2 Inception dates are February 12, 2001, for the Admiral Shares and September 30, 1997, for the Institutional Shares.
   Note: See Financial Highlights tables on pages 38–40 for dividend and capital gains information.

13


Short-Term Investment-Grade Fund



Fiscal-Year Total Returns (%): January 31, 1996-January 31, 2006

Investor Shares
Lehman1
Fiscal
Year
Capital
Return
Income
Return
Total
Return
Total
Return

1997 -1.7%  6.2% 4.5% 4.6%

1998 1.1  6.4  7.5  8.0 

1999 -0.1  6.3  6.2  7.1 

2000 -3.4  6.2  2.8  1.5 

2001 2.6  7.1  9.7  10.7 

2002 0.6  6.3  6.9  8.3 

2003 -0.4  5.4  5.0  8.7 

2004 0.3  4.0  4.3  5.6 

2005 -1.7  3.4  1.7  1.9 

2006 -1.2  3.6  2.4  1.5 



Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total 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 Capital Income Total

Investor Shares 10/29/1982  2.20% 4.35% -0.37%  5.51% 5.14%

Admiral Shares 2/12/2001  2.30    4.212    —    —    —   

Institutional Shares 9/30/1997  2.34    4.48    -0.332    5.472    5.142   



1 Lehman 1–5 Year U.S. Credit Index.
2 Return since inception.

14


Short-Term Investment-Grade Fund



Financial Statements

Statement of Net Assets
As of January 31, 2006

The fund provides a complete list of its holdings 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 www.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).



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
U.S. Government and Agency Obligations (11.8%)        
U.S. Government Securities (6.2%)
U.S. Treasury Note 2.750% 8/15/07  335,865  326,995 
U.S. Treasury Note 4.250% 10/31/07  150,000  149,274 
U.S. Treasury Note 4.250% 11/30/07  100,000  99,500 
U.S. Treasury Note 3.000% 2/15/08  92,500  89,754 
U.S. Treasury Note 3.750% 5/15/08  19,550  19,235 
U.S. Treasury Note 4.125% 8/15/08  11,380  11,293 
U.S. Treasury Note 3.125% 10/15/08  80,000  77,238 
U.S. Treasury Note 4.375% 11/15/08  7,325  7,303 
U.S. Treasury Note 3.250% 1/15/09  105,000  101,424 
U.S. Treasury Note 3.375% 10/15/09  33,795  32,517 
U.S. Treasury Note 4.000% 4/15/10  60,000  58,828 
U.S. Treasury Note 3.625% 6/15/10  8,033  7,759 
U.S. Treasury Note 3.875% 9/15/10  27,675  26,953 
U.S. Treasury Note 4.250% 10/15/10  22,890  22,643 
U.S. Treasury Note 4.250% 1/15/11  15,300  15,157 
U.S. Treasury Note 4.250% 8/15/15  27,250  26,628 
U.S. Treasury Note 4.500% 11/15/15  17,205  17,165 
          1,089,666 
Mortgage-Backed Securities (5.6%)           
Conventional Mortgage-Backed Securities (0.6%)           
1,2 Federal Home Loan Mortgage Corp. 6.000% 3/1/17  3,684  3,758 
1,2 Federal Home Loan Mortgage Corp. 6.000% 4/1/17  1,365  1,393 
1,2 Federal Home Loan Mortgage Corp. 6.000% 4/1/17  5,329  5,436 
1,2 Federal Home Loan Mortgage Corp. 6.000% 4/1/17  13,659  13,933 
1,2 Federal Home Loan Mortgage Corp. 7.000% 1/1/09  902  920 
1,2 Federal National Mortgage Assn 6.000% 12/1/16  10,615  10,852 
1,2 Federal National Mortgage Assn 6.000% 3/1/17  9,313  9,520 
1,2 Federal National Mortgage Assn 6.000% 5/1/17  11,034  11,276 

15


Short-Term Investment-Grade Fund



  Coupon Maturity
Date
Face
Amount
($000)
Market
Value•
($000)
1,2 Federal National Mortgage Assn 6.500%