4. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute virtually all of its income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
6. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
7. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes and are subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility, which
are allocated to the funds based on a method approved by the fund’s board of
trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at
an agreed-upon spread plus the higher of the federal funds effective rate, the
overnight bank funding rate, or the Daily Simple Secured Overnight Financing
Rate inclusive of an additional agreed-upon spread. However, borrowings under
the uncommitted credit facility may bear interest based upon an alternate rate
agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended March 31, 2026, the fund did not utilize the credit
facilities or the Interfund Lending Program.
8. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. 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),
shareholder reporting, and proxy fees. 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.
|
Vanguard
provides investment advisory services to the fund through its wholly owned
subsidiary Vanguard Portfolio Management, LLC. |
| C.
|
In
accordance with the terms of a Funds' Service Agreement (the “FSA”)
between Vanguard and the fund, Vanguard furnishes to the fund investment
advisory, corporate management, administrative, marketing, and
distribution services at Vanguard’s cost of operations (as defined by the
FSA). These costs of operations are allocated to the fund based on methods
and guidelines approved by the board of trustees and are generally settled
twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At March 31, 2026, the fund had contributed to Vanguard
capital in the amount of $669,000, representing less than 0.01% of the fund’s
net assets and 0.27% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| D.
|
Various
inputs may be used to determine the value of the fund’s investments and
derivatives. These inputs are summarized in three broad levels for
financial statement purposes. The inputs or methodologies used to value
securities are not necessarily an indication of the risk associated with
investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
