N-CSR 1 indexfunds_final.htm VANGUARD INDEX FUNDS indexfunds_final.htm - Generated by SEC Publisher for SEC Filing

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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-2652

Name of registrant: Vanguard Index 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: December 31

Date of reporting period: January 1, 2010 – December 31, 2010

Item 1: Reports to Shareholders


 

 

Vanguard 500 Index Fund
Annual Report
December 31, 2010

 



 

> Despite a volatile year for the financial markets, U.S. stocks ended 2010 with double-digit gains.

> For the fiscal year ended December 31, 2010, Investor, Admiral, and Signal Shares of Vanguard 500 Index Fund returned about 15%, closely tracking its benchmark index. The fund’s ETF Shares returned just under 16% for the period since their inception in September.

> All ten sectors posted positive results for the period, with consumer discretionary and industrials leading the way.

Contents  
Your Fund’s Total Returns. 1
Chairman’s Letter. 2
Fund Profile. 7
Performance Summary. 9
Financial Statements. 12
Your Fund’s After-Tax Returns. 30
About Your Fund’s Expenses. 31
Glossary. 33

 

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

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

Cover photograph: Jean Maher.


 

Your Fund’s Total Returns

Fiscal Year Ended December 31, 2010  
  Total
  Returns
Vanguard 500 Index Fund  
Investor Shares 14.91%
Admiral™ Shares 15.05
Signal® Shares 15.05
ETF Shares (Inception: 9/7/2010)  
Market Price 15.96
Net Asset Value 15.89
S&P 500 Index 15.06
Large-Cap Core Funds Average 12.86
Large-Cap Core Funds Average: Derived from data provided by Lipper Inc.  

 

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. Signal Shares are available to certain institutional shareholders who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2; 7,337,138.

For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was above or below the NAV.

Your Fund’s Performance at a Glance        
December 31, 2009 , Through December 31, 2010        
      Distributions Per Share
  Starting Ending Income Capital
  Share Price Share Price Dividends Gains
Vanguard 500 Index Fund        
Investor Shares $102.67 $115.82 $1.966 $0.000
Admiral Shares 102.67 115.83 2.084 0.000
Signal Shares 84.81 95.68 1.723 0.000
ETF Shares (Inception: 9/7/2010) 50.08 57.47 0.542 0.000

 

1


 

 

Chairman’s Letter

Dear Shareholder,

Global financial markets took a roller-coaster ride during 2010. Still, despite many ups and downs, Vanguard 500 Index Fund returned about 15% for the period, closely tracking its benchmark, the Standard & Poor’s 500 Index. The fund outperformed the average return of its large-capitalization core fund peers, which stood at about 13% for the year.

In September, Vanguard launched a suite of index mutual funds and exchange-traded funds based on the S&P domestic stock benchmarks. Vanguard S&P 500 ETF, which offers exchange-traded shares of Vanguard’s 500 Index Fund, is among the new offerings. The ETF Shares returned just under 16% for the brief period since their inception.

Please note that on October 6, Vanguard broadened the availability of our lower-cost Admiral Shares. We reduced the Admiral minimums on most of our broad-market index funds to $10,000 from $100,000, as part of our ongoing efforts to lower the cost of investing for our clients.

Although Vanguard 500 Index Fund posted impressive results for the year, it made no capital gains distributions—a benefit to shareholders in taxable accounts. You may wish to review the fund’s after-tax returns that appear later in this report.



 

Stocks rallied as the forecast seemed to brighten
After a series of false starts, hesitations, and retreats, global stock markets finished 2010 with powerful gains. As the prospect of a double-dip recession faded, the broad U.S. stock market clambered higher, shrugging off high unemployment and distress in Europe’s debt markets to return 17.70%. Small- and mid-capitalization stocks did even better.

Outside the United States, gains were more muted, in part because Europe’s sovereign debt challenges continued to reverberate through local stock markets. Emerging markets were the best performers. Asia’s developed markets performed weakly, though the strength of the yen, the Australian dollar, and other regional currencies bolstered returns for U.S.-based investors.

The fixed income market reprised a familiar theme
Although U.S. Treasury securities rallied through the summer, total return tables were dominated by riskier bonds for the full 12 months, a pattern we also saw in 2009. Low interest rates and a sense that the economic recovery was gathering momentum prompted investors to seek higher yields in both high-quality and below-investment-grade corporate bonds. The broad U.S. bond market returned 6.54%. Late in the year, yields bounced

Market Barometer      
 
    Average Annual Total Returns
    Periods Ended December 31, 2010
  One Three Five
  Year Years Years
Stocks      
Russell 1000 Index (Large-caps) 16.10% -2.37% 2.59%
Russell 2000 Index (Small-caps) 26.86 2.22 4.47
Dow Jones U.S. Total Stock Market Index 17.70 -1.56 3.17
MSCI All Country World Index ex USA (International) 11.60 -4.58 5.29
 
Bonds      
Barclays Capital U.S. Aggregate Bond Index (Broad      
taxable market) 6.54% 5.90% 5.80%
Barclays Capital Municipal Bond Index (Broad      
tax-exempt market) 2.38 4.08 4.09
Citigroup Three-Month U.S. Treasury Bill Index 0.13 0.69 2.29
 
CPI      
Consumer Price Index 1.50% 1.43% 2.18%

 

3


 

off summer lows, putting pressure on bond prices. The dynamic was especially pronounced among municipal bonds.

As it has since December 2008, the Federal Reserve Board held its target for short-term interest rates near 0%, keeping the returns available from money market instruments such as the 3-month Treasury bill in the same neighborhood.

Gains in all sectors boosted fund returns
During 2010, the S&P 500 Index, a barometer of the market’s larger stocks, hit some rough spots, but it managed to post an impressive return of about 15% for the year. Your fund’s advisor, Vanguard Quantitative Equity Group, closely tracked the index’s performance, consistent with its long tradition of superior index fund management. The market’s recovery was broad-based, and all ten market sectors posted gains for the year.

The consumer discretionary sector was the index’s top performer for the period, gaining almost 28%. Improved consumer sentiment helped boost consumer stocks across the board, including holdings in media conglomerates, hotels, and restaurants. Retailers benefited from a better-than-expected back-to-school season and signs that shoppers were opening their wallets as the holidays approached.

Expense Ratios          
Your Fund Compared With Its Peer Group          
 
  Investor Admiral Signal ETF Peer Group
  Shares Shares Shares Shares Average
500 Index Fund 0.18% 0.07% 0.07% 0.06% 1.27%

 

The fund expense ratios shown are from the prospectus dated September 7, 2010, for the ETF share class and April 29, 2010, for the Investor, Admiral, and Signal share classes and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2010, the fund’s expense ratios were 0.17% for Investor Shares, 0.06% for Admiral Shares, 0.06% for Signal Shares, and 0.06% (annualized) for ETF Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2009.

Peer group: Large-Cap Core Funds.

4


 

Stocks in the industrials sector also helped, returning almost 27% for the year. Equipment and machinery companies rose on high demand from emerging markets, most notably China, India, and Latin American countries.

Your fund benefited from double-digit gains in the energy and financial sectors. In energy, an increase in oil prices boosted gas companies while insurance companies, commercial banks, and real estate investment trusts led the way in financials. Returns from stocks in the information technology and consumer staples sectors also helped returns.

Long-term performance has been competitive
For the decade ended December 31, Investor Shares of 500 Index Fund generated an average annual return of 1.31%. These results were in line with those of the fund’s unmanaged benchmark, the S&P 500 Index, which has no transaction costs or operating expenses. The fund outperformed the –0.09% average annual result posted by its large-cap core fund peers for the same period. The peer group is mostly made up of actively managed funds, whose higher expenses are a drag on performance.

Total Returns  
Ten Years Ended December 31, 2010  
  Average
  Annual Return
500 Index Fund Investor Shares 1.31%
S&P 500 Index 1.41
Large-Cap Core Funds Average -0.09
Large-Cap Core Funds Average: Derived from data provided by Lipper Inc.  

 

The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.

5


 

Though the fund’s ten-year return is clearly unimpressive, keep in mind the time period that it represents. The 500 Index Fund’s performance reflects a decade that included double-digit negative stock market returns in 2001 and 2002 as the late-1990s tech stock bubble deflated and the trauma of the 2008–2009 financial crisis.

The fund’s advisor, Vanguard Quantitative Equity Group, succeeded in tracking its benchmark index—cold comfort, perhaps, but an important measure of the kind of indexing skill that puts you in position to maximize your share of the market’s returns in better times. The advisor is helped in this task by the fund’s low expenses, which are far below the average for its peer group.

Focus on your goals rather than the market’s swings
Over the past few years, investors have been forced to endure an unusually bumpy ride in the U.S. stock market. While these times have, without a doubt, been nerve-racking, they have also been a good reminder that in can be unwise to let market swings influence your long-term investment strategy. Changes have been swift and unpredictable, potentially imposing penalties on investors who use past performance as a guide to the future.

Vanguard encourages you to create a long-term investment plan that includes a mix of stocks, bonds, and short-term investments appropriate for your goals and risk tolerance. Once your plan is in place, it’s important to stick with that plan, regardless of market conditions.

Such a well-balanced portfolio can help cushion some of the market’s volatility while allowing you to participate in its long-term potential for growth. Vanguard 500 Index Fund can play an important role in your long-term investment plan by providing broad, low-cost exposure to the large-cap segment of the stock market.

Thank you for entrusting your assets to Vanguard.

Sincerely,


F. William McNabb III
Chairman and Chief Executive Officer
January 11, 2011

6


 

500 Index Fund

Fund Profile
As of December 31, 2010

Share-Class Characteristics        
  Investor Admiral Signal ETF
  Shares Shares Shares Shares
Ticker Symbol VFINX VFIAX VIFSX VOO
Expense Ratio1 0.18% 0.07% 0.07% 0.06%
30-Day SEC Yield 1.46% 1.58% 1.59% 1.57%

 

Portfolio Characteristics    
      DJ
      U.S. Total
    S&P 500 Market
  Fund Index Index
Number of Stocks 504 500 3,893
Median Market Cap $47.3B $47.3B $29.6B
Price/Earnings Ratio 17.1x 17.1x 18.3x
Price/Book Ratio 2.2x 2.2x 2.2x
Return on Equity 20.2% 20.2% 18.8%
Earnings Growth Rate 6.3% 6.3% 6.2%
Dividend Yield 1.9% 1.9% 1.7%
Foreign Holdings 0.0% 0.0% 0.0%
Turnover Rate 5%
Short-Term Reserves 0.0%

 

Volatility Measures    
    DJ
    U.S. Total
  S&P 500 Market
  Index Index
R-Squared 1.00 1.00
Beta 1.00 0.97

 

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

Ten Largest Holdings (% of total net assets)
Exxon Mobil Corp. Integrated Oil &  
  Gas 3.2%
Apple Inc. Computer  
  Hardware 2.6
Microsoft Corp. Systems Software 1.8
General Electric Co. Industrial  
  Conglomerates 1.7
Chevron Corp. Integrated Oil &  
  Gas 1.6
International Business IT Consulting &  
Machines Corp. Other Services 1.6
Procter & Gamble Co. Household  
  Products 1.6
AT&T Inc. Integrated  
  Telecommunication  
  Services 1.5
Johnson & Johnson Pharmaceuticals 1.5
JPMorgan Chase & Co. Diversified Financial  
  Services 1.4
Top Ten   18.5%

 

The holdings listed exclude any temporary cash investments and equity index products.

1 The fund expense ratios shown are from the prospectus dated September 7, 2010, for the ETF share class and April 29, 2010, for the Investor, Admiral, and Signal share classes and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2010, the fund’s expense ratios were 0.17% for Investor Shares, 0.06% for Admiral Shares, 0.06% for Signal Shares, and 0.06% (annualized) for ETF Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2009.

7


 

500 Index Fund

Sector Diversification (% of equity exposure)
      DJ
      U.S. Total
    S&P 500 Market
  Fund Index Index
Consumer      
Discretionary 10.6% 10.6% 11.9%
Consumer Staples 10.6 10.6 9.5
Energy 12.0 12.0 10.6
Financials 16.1 16.1 16.6
Health Care 10.9 10.9 10.7
Industrials 11.0 11.0 11.4
Information      
Technology 18.7 18.7 18.9
Materials 3.7 3.7 4.5
Telecommunication      
Services 3.1 3.1 2.7
Utilities 3.3 3.3 3.2

 

Investment Focus


8


 

500 Index 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 vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Cumulative Performance: December 31, 2000, Through December 31, 2010
Initial Investment of $10,000


    Average Annual Total Returns  
    Periods Ended December 31, 2010  
          Final Value
    One Five Ten of a $10,000
    Year Years Years Investment
  500 Index Fund Investor Shares 14.91% 2.21% 1.31% $11,393
••••••• Dow Jones U.S. Total Stock Market        
  Index 17.70 3.17 2.64 12,981
– – – – S&P 500 Index 15.06 2.29 1.41 11,507
  Large-Cap Core Funds Average 12.86 1.37 -0.09 9,911
Large-Cap Core Funds Average: Derived from data provided by Lipper Inc.      

 

        Final Value
  One Five Ten of a $10,000
  Year Years Years Investment
500 Index Fund Admiral Shares 15.05% 2.31% 1.40% $11,488
Dow Jones U.S. Total Stock Market        
Index 17.70 3.17 2.64 12,981
S&P 500 Index 15.06 2.29 1.41 11,507

 

See Financial Highlights for dividend and capital gains information.

9


 

500 Index Fund

  Average Annual Total Returns  
  Periods Ended December 31, 2010  
    Since Final Value
  One Inception of a $10,000
  Year (9/29/2006) Investment
500 Index Fund Signal Shares 15.05% 0.77% $10,331
Dow Jones U.S. Total Stock Market      
Index 17.70 1.88 10,825
S&P 500 Index 15.06 0.74 10,319
"Since Inception" performance is calculated from the Signal Shares’ inception date for both the fund and its comparative standards.

 

  Since Final Value
  Inception of a $10,000
  (9/7/2010) Investment
500 Index Fund    
ETF Shares Net Asset Value 15.89% $11,589
Dow Jones U.S. Total Stock Market Index 17.45 11,745
S&P 500 Index 15.91 11,591
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.

 

Cumulative Returns of ETF Shares: September 7, 2010, Through December 31, 2010

  Since
  Inception
  (9/7/2010)
500 Index Fund  
ETF Shares Market Price 15.96%
500 Index Fund  
ETF Shares Net Asset Value 15.89
S&P 500 Index 15.91
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standard.  

 

10


 

500 Index Fund

Fiscal-Year Total Returns (%): December 31, 2000, Through December 31, 2010


11


 

500 Index Fund

Financial Statements

Statement of Net Assets
As of December 31, 2010

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

      Market
      Value
    Shares ($000)
Common Stocks (99.8%)1    
Consumer Discretionary (10.6%)  
  McDonald’s Corp. 9,459,937 726,145
  Walt Disney Co. 16,954,999 635,982
* Amazon.com Inc. 3,174,814 571,467
* Ford Motor Co. 33,547,329 563,260
  Comcast Corp. Class A 23,677,792 520,201
  Home Depot Inc. 14,673,834 514,465
  Target Corp. 6,340,038 381,226
  Time Warner Inc. 9,932,446 319,527
  Lowe’s Cos. Inc. 12,356,287 309,896
* DIRECTV Class A 7,464,925 298,074
  News Corp. Class A 20,447,473 297,715
  NIKE Inc. Class B 3,422,993 292,392
  Johnson Controls Inc. 6,038,103 230,656
  Viacom Inc. Class B 5,412,813 214,402
  Starbucks Corp. 6,635,528 213,199
  Time Warner Cable Inc. 3,185,057 210,309
  Yum! Brands Inc. 4,195,475 205,788
  Carnival Corp. 3,855,936 177,797
* priceline.com Inc. 439,577 175,633
  TJX Cos. Inc. 3,543,747 157,307
  Staples Inc. 6,475,094 147,438
  Coach Inc. 2,653,593 146,770
* Kohl’s Corp. 2,617,802 142,251
  Omnicom Group Inc. 2,697,075 123,526
  CBS Corp. Class B 6,096,200 116,133
* Bed Bath & Beyond Inc. 2,319,838 114,020
  Marriott International Inc.    
  Class A 2,576,314 107,020
* Discovery    
  Communications Inc.    
  Class A 2,545,491 106,147
  Starwood Hotels &    
  Resorts Worldwide Inc. 1,706,919 103,747
  Best Buy Co. Inc. 2,956,388 101,375
  McGraw-Hill Cos. Inc. 2,748,597 100,076
  Stanley Black &    
  Decker Inc. 1,485,518 99,337

 

      Market
      Value
    Shares ($000)
  Macy’s Inc. 3,791,396 95,922
  Gap Inc. 3,933,958 87,098
  Fortune Brands Inc. 1,365,969 82,300
  Mattel Inc. 3,212,564 81,695
* O’Reilly Automotive Inc. 1,255,799 75,875
  Harley-Davidson Inc. 2,110,934 73,186
  Limited Brands Inc. 2,367,881 72,765
  Cablevision    
  Systems Corp.    
  Class A 2,148,936 72,720
  Genuine Parts Co. 1,410,330 72,406
  Tiffany & Co. 1,131,556 70,462
  Wynn Resorts Ltd. 676,835 70,283
  JC Penney Co. Inc. 2,116,769 68,393
  Ross Stores Inc. 1,079,735 68,293
* NetFlix Inc. 388,300 68,224
  VF Corp. 777,858 67,036
* AutoZone Inc. 243,711 66,433
  Polo Ralph Lauren Corp.    
  Class A 578,677 64,187
* CarMax Inc. 2,013,047 64,176
  Nordstrom Inc. 1,506,921 63,863
  Whirlpool Corp. 680,535 60,452
  Darden Restaurants Inc. 1,239,136 57,545
  Hasbro Inc. 1,219,277 57,525
  Family Dollar Stores Inc. 1,128,499 56,098
  Newell Rubbermaid Inc. 2,601,488 47,295
  International Game    
  Technology 2,672,232 47,272
  Wyndham    
  Worldwide Corp. 1,566,300 46,926
* Interpublic Group    
  of Cos. Inc. 4,383,034 46,548
  Expedia Inc. 1,810,482 45,425
  Abercrombie & Fitch Co. 786,363 45,318
* Apollo Group Inc. Class A 1,137,913 44,936
  Scripps Networks    
  Interactive Inc. Class A 806,295 41,726
* Urban Outfitters Inc. 1,154,249 41,334

 

12


 

500 Index Fund

      Market
      Value
    Shares ($000)
  H&R Block Inc. 2,761,524 32,890
  Gannett Co. Inc. 2,139,141 32,280
* GameStop Corp. Class A 1,358,175 31,075
  DR Horton Inc. 2,517,882 30,038
  Leggett & Platt Inc. 1,312,106 29,864
*,^ Sears Holdings Corp. 394,754 29,113
* Harman International    
  Industries Inc. 623,087 28,849
  Comcast Corp. Class A    
  Special Shares 1,304,720 27,151
  DeVry Inc. 559,191 26,830
  Lennar Corp. Class A 1,428,407 26,783
* Goodyear Tire &    
  Rubber Co. 2,174,197 25,764
* Pulte Group Inc. 3,017,356 22,691
^ Washington Post Co.    
  Class B 49,258 21,649
* Big Lots Inc. 678,862 20,678
  RadioShack Corp. 1,022,969 18,915
*,^ AutoNation Inc. 571,082 16,104
  Meredith Corp. 326,797 11,323
      10,878,995
Consumer Staples (10.6%)    
  Procter & Gamble Co. 25,064,074 1,612,372
  Coca-Cola Co. 20,791,536 1,367,459
  Philip Morris    
  International Inc. 16,246,024 950,880
  Wal-Mart Stores Inc. 17,541,723 946,025
  PepsiCo Inc. 14,190,648 927,075
  Kraft Foods Inc. 15,640,416 492,829
  Altria Group Inc. 18,694,179 460,251
  CVS Caremark Corp. 12,166,475 423,028
  Colgate-Palmolive Co. 4,321,860 347,348
  Walgreen Co. 8,289,121 322,944
  Costco Wholesale Corp. 3,870,960 279,522
  Kimberly-Clark Corp. 3,651,184 230,171
  General Mills Inc. 5,732,930 204,035
  Archer-Daniels-    
  Midland Co. 5,720,373 172,069
  Sysco Corp. 5,238,555 154,013
  HJ Heinz Co. 2,871,752 142,037
  Kroger Co. 5,709,871 127,673
  Kellogg Co. 2,274,734 116,193
  Mead Johnson    
  Nutrition Co. 1,831,553 114,014
  Avon Products Inc. 3,842,483 111,663
  Lorillard Inc. 1,339,406 109,912
  Sara Lee Corp. 5,723,430 100,217
  Reynolds American Inc. 3,027,616 98,761
  ConAgra Foods Inc. 3,936,807 88,893
  Estee Lauder Cos. Inc.    
  Class A 1,016,606 82,040
  Clorox Co. 1,248,354 78,996
  Coca-Cola    
  Enterprises Inc. 3,033,032 75,917

 

      Market
      Value
    Shares ($000)
  Safeway Inc. 3,337,614 75,063
  Dr Pepper Snapple    
  Group Inc. 2,033,106 71,484
  Molson Coors    
  Brewing Co. Class B 1,416,289 71,083
  JM Smucker Co. 1,069,815 70,233
* Whole Foods Market Inc. 1,317,885 66,672
  Hershey Co. 1,384,758 65,291
  Brown-Forman Corp.    
  Class B 930,366 64,772
  Campbell Soup Co. 1,714,481 59,578
  McCormick & Co. Inc. 1,190,129 55,377
  Tyson Foods Inc. Class A 2,667,834 45,940
* Constellation Brands Inc.    
  Class A 1,599,722 35,434
  Hormel Foods Corp. 620,827 31,824
  SUPERVALU Inc. 1,906,853 18,363
* Dean Foods Co. 1,635,278 14,456
      10,881,907
Energy (12.0%)    
  Exxon Mobil Corp. 45,151,393 3,301,470
  Chevron Corp. 18,019,339 1,644,265
  Schlumberger Ltd. 12,216,661 1,020,091
  ConocoPhillips 13,155,376 895,881
  Occidental    
  Petroleum Corp. 7,275,848 713,761
  Apache Corp. 3,421,893 407,992
  Anadarko    
  Petroleum Corp. 4,437,396 337,952
  Halliburton Co. 8,143,800 332,511
  Devon Energy Corp. 3,867,095 303,606
  National Oilwell    
  Varco Inc. 3,757,278 252,677
  Marathon Oil Corp. 6,356,301 235,374
  Baker Hughes Inc. 3,861,440 220,759
  EOG Resources Inc. 2,274,347 207,898
  Hess Corp. 2,686,215 205,603
  Peabody Energy Corp. 2,414,172 154,459
  Chesapeake Energy Corp. 5,854,808 151,698
  Spectra Energy Corp. 5,803,821 145,038
  Noble Energy Inc. 1,567,686 134,946
  Williams Cos. Inc. 5,235,656 129,425
  Murphy Oil Corp. 1,722,310 128,398
  Valero Energy Corp. 5,069,469 117,206
* Southwestern Energy Co. 3,104,758 116,211
* Cameron    
  International Corp. 2,171,709 110,171
  Consol Energy Inc. 2,022,032 98,554
* FMC Technologies Inc. 1,071,751 95,289
  Pioneer Natural    
  Resources Co. 1,039,399 90,241
  El Paso Corp. 6,304,161 86,745
* Newfield Exploration Co. 1,198,582 86,430
* Denbury Resources Inc. 3,578,220 68,308
  Range Resources Corp. 1,434,498 64,524

 

13


 

500 Index Fund

      Market
      Value
    Shares ($000)
* Nabors Industries Ltd. 2,557,823 60,007
  EQT Corp. 1,336,914 59,947
  QEP Resources Inc. 1,572,169 57,085
  Massey Energy Co. 915,457 49,114
  Helmerich & Payne Inc. 948,793 45,998
  Sunoco Inc. 1,080,804 43,567
  Diamond Offshore    
  Drilling Inc. 623,126 41,668
* Rowan Cos. Inc. 1,131,006 39,483
  Cabot Oil & Gas Corp. 930,689 35,227
* Tesoro Corp. 1,284,595 23,816
      12,313,395
Financials (16.0%)    
  JPMorgan Chase & Co. 35,002,987 1,484,827
  Wells Fargo & Co. 46,997,545 1,456,454
* Citigroup Inc. 260,116,299 1,230,350
  Bank of America Corp. 90,302,687 1,204,638
* Berkshire Hathaway Inc.    
  Class B 13,965,597 1,118,784
  Goldman Sachs    
  Group Inc. 4,577,596 769,769
  US Bancorp 17,176,275 463,244
  American Express Co. 9,377,134 402,467
  Morgan Stanley 13,546,004 368,587
  MetLife Inc. 8,114,708 360,618
  Bank of New York    
  Mellon Corp. 11,106,776 335,425
  PNC Financial Services    
  Group Inc. 4,707,789 285,857
  Simon Property    
  Group Inc. 2,622,476 260,910
  Prudential Financial Inc. 4,345,686 255,135
  Aflac Inc. 4,219,501 238,106
  Travelers Cos. Inc. 4,110,103 228,974
  State Street Corp. 4,494,953 208,296
  CME Group Inc. 600,028 193,059
  ACE Ltd. 3,038,763 189,163
  Capital One    
  Financial Corp. 4,091,029 174,114
  BB&T Corp. 6,211,338 163,296
  Chubb Corp. 2,730,199 162,829
  Allstate Corp. 4,818,582 153,616
  Charles Schwab Corp. 8,879,179 151,923
  T Rowe Price Group Inc. 2,295,914 148,178
  Franklin Resources Inc. 1,303,582 144,971
  AON Corp. 2,953,791 135,904
  Marsh &    
  McLennan Cos. Inc. 4,865,649 133,027
  Equity Residential 2,546,758 132,304
  SunTrust Banks Inc. 4,476,317 132,096
  Ameriprise Financial Inc. 2,220,025 127,762
  Public Storage 1,250,483 126,824
* Berkshire Hathaway Inc.    
  Class A 1,019 122,739
  Vornado Realty Trust 1,455,532 121,290

 

      Market
      Value
    Shares ($000)
  Northern Trust Corp. 2,168,374 120,150
  HCP Inc. 3,261,943 120,007
  Progressive Corp. 5,940,519 118,038
  Loews Corp. 2,832,109 110,197
  Boston Properties Inc. 1,254,393 108,003
  Host Hotels &    
  Resorts Inc. 5,962,179 106,544
  Hartford Financial    
  Services Group Inc. 3,980,067 105,432
  Fifth Third Bancorp 7,129,254 104,657
  Invesco Ltd. 4,136,819 99,532
  Principal Financial    
  Group Inc. 2,868,100 93,385
  M&T Bank Corp. 1,068,799 93,039
  Weyerhaeuser Co. 4,798,333 90,832
  Discover Financial    
  Services 4,875,722 90,347
  AvalonBay    
  Communities Inc. 763,535 85,936
  Lincoln National Corp. 2,839,106 78,956
  Regions Financial Corp. 11,258,045 78,806
* Intercontinental-    
  Exchange Inc. 654,847 78,025
  Ventas Inc. 1,407,955 73,890
  ProLogis 5,094,388 73,563
*,^ American International    
  Group Inc. 1,253,591 72,232
  NYSE Euronext 2,336,672 70,053
  KeyCorp 7,882,659 69,762
  Unum Group 2,839,272 68,767
  Comerica Inc. 1,580,014 66,740
  Kimco Realty Corp. 3,638,645 65,641
  XL Group plc Class A 2,897,214 63,217
  Health Care REIT Inc. 1,299,224 61,895
  Hudson City Bancorp Inc. 4,720,955 60,145
* Genworth Financial Inc.    
  Class A 4,387,527 57,652
* SLM Corp. 4,354,187 54,819
  Plum Creek    
  Timber Co. Inc. 1,448,676 54,253
* CB Richard Ellis    
  Group Inc. Class A 2,601,559 53,280
  Huntington    
  Bancshares Inc. 7,727,278 53,086
  Leucadia National Corp. 1,766,721 51,553
  Legg Mason Inc. 1,369,604 49,676
  Moody’s Corp. 1,827,392 48,499
  People’s United    
  Financial Inc. 3,302,882 46,273
  Cincinnati Financial Corp. 1,458,060 46,206
  Torchmark Corp. 716,567 42,808
  Zions Bancorporation 1,592,992 38,598
  Assurant Inc. 954,965 36,785
  Marshall & Ilsley Corp. 4,727,572 32,715
* NASDAQ OMX Group Inc.  1,335,302 31,660

 

14


 

500 Index Fund

      Market
      Value
    Shares ($000)
* E*Trade Financial Corp. 1,779,987 28,480
* First Horizon    
  National Corp. 2,340,508 27,571
  Apartment Investment &    
  Management Co. 1,049,257 27,113
^ Federated Investors Inc.    
  Class B 821,945 21,510
  Janus Capital Group Inc. 1,648,043 21,375
      16,437,239
Health Care (10.9%)    
  Johnson & Johnson 24,590,028 1,520,893
  Pfizer Inc. 71,721,344 1,255,841
  Merck & Co. Inc. 27,586,186 994,206
  Abbott Laboratories 13,841,151 663,130
* Amgen Inc. 8,459,790 464,442
  Bristol-Myers Squibb Co. 15,326,207 405,838
  Medtronic Inc. 9,669,069 358,626
  UnitedHealth Group Inc. 9,848,653 355,635
  Eli Lilly & Co. 9,085,953 318,372
  Baxter International Inc. 5,217,583 264,114
* Gilead Sciences Inc. 7,269,182 263,435
* Express Scripts Inc. 4,719,046 255,064
* Celgene Corp. 4,213,978 249,215
* Medco Health    
  Solutions Inc. 3,799,905 232,820
* WellPoint Inc. 3,524,164 200,384
* Thermo Fisher    
  Scientific Inc. 3,558,800 197,015
  Allergan Inc. 2,753,317 189,070
  Becton Dickinson and Co. 2,058,929 174,021
* Genzyme Corp. 2,318,858 165,103
  Stryker Corp. 3,057,836 164,206
  McKesson Corp. 2,265,727 159,462
* Biogen Idec Inc. 2,133,608 143,058
* St. Jude Medical Inc. 3,069,497 131,221
* Agilent Technologies Inc. 3,101,147 128,481
  Cardinal Health Inc. 3,124,360 119,694
  Aetna Inc. 3,582,194 109,293
* Boston Scientific Corp. 13,609,604 103,025
* Zimmer Holdings Inc. 1,767,644 94,887
* Life Technologies Corp. 1,671,713 92,780
* Intuitive Surgical Inc. 351,792 90,674
  CIGNA Corp. 2,425,550 88,921
  AmerisourceBergen Corp.    
  Class A 2,474,072 84,415
* Hospira Inc. 1,495,825 83,302
* Humana Inc. 1,506,861 82,486
* Mylan Inc. 3,896,471 82,332
* Forest Laboratories Inc. 2,557,085 81,776
* Laboratory Corp. of    
  America Holdings 910,512 80,052
  CR Bard Inc. 831,709 76,326
* Varian Medical    
  Systems Inc. 1,065,233 73,799
  Quest Diagnostics Inc. 1,266,241 68,339

 

      Market
      Value
    Shares ($000)
* Waters Corp. 817,570 63,533
* DaVita Inc. 871,162 60,537
* Cerner Corp. 638,747 60,515
* Watson    
  Pharmaceuticals Inc. 1,121,821 57,942
* CareFusion Corp. 1,995,861 51,294
  DENTSPLY    
  International Inc. 1,272,001 43,464
* Cephalon Inc. 674,075 41,604
* Coventry Health Care Inc. 1,329,962 35,111
* Tenet Healthcare Corp. 4,345,961 29,074
  PerkinElmer Inc. 1,056,775 27,286
  Patterson Cos. Inc. 866,854 26,552
      11,162,665
Industrials (11.0%)    
  General Electric Co. 95,402,952 1,744,920
  United    
  Technologies Corp. 8,268,115 650,866
  United Parcel Service Inc.    
  Class B 8,854,817 642,683
  3M Co. 6,400,742 552,384
  Caterpillar Inc. 5,683,085 532,278
  Boeing Co. 6,568,328 428,649
  Union Pacific Corp. 4,415,518 409,142
  Emerson Electric Co. 6,739,116 385,275
  Honeywell    
  International Inc. 6,985,465 371,347
  Deere & Co. 3,795,162 315,188
  FedEx Corp. 2,817,175 262,025
  General Dynamics Corp. 3,382,202 240,001
  Illinois Tool Works Inc. 4,440,393 237,117
  Danaher Corp. 4,801,323 226,478
  CSX Corp. 3,350,298 216,463
  Norfolk Southern Corp. 3,253,447 204,382
  Cummins Inc. 1,771,031 194,831
  PACCAR Inc. 3,265,366 187,497
  Lockheed Martin Corp. 2,643,972 184,840
  Tyco International Ltd. 4,382,240 181,600
  Precision Castparts Corp. 1,276,858 177,751
  Northrop Grumman Corp. 2,614,273 169,353
  Waste Management Inc. 4,260,041 157,068
  Eaton Corp. 1,506,775 152,953
  Raytheon Co. 3,203,319 148,442
  Ingersoll-Rand plc 2,900,941 136,605
  Parker Hannifin Corp. 1,444,427 124,654
  CH Robinson    
  Worldwide Inc. 1,486,353 119,191
  Fluor Corp. 1,600,726 106,064
  Expeditors International    
  of Washington Inc. 1,901,209 103,806
  Goodrich Corp. 1,122,504 98,859
  Dover Corp. 1,672,295 97,746
  Rockwell Automation Inc. 1,269,364 91,026
  Southwest Airlines Co. 6,688,695 86,819
  ITT Corp. 1,643,705 85,654

 

15


 

500 Index Fund

      Market
      Value
    Shares ($000)
  Republic Services Inc.    
  Class A 2,752,091 82,177
  Rockwell Collins Inc. 1,404,252 81,812
  Fastenal Co. 1,319,885 79,074
  WW Grainger Inc. 519,320 71,723
  L-3 Communications    
  Holdings Inc. 1,013,333 71,430
  Roper Industries Inc. 847,542 64,778
* Stericycle Inc. 765,643 61,956
  Flowserve Corp. 499,811 59,587
  Textron Inc. 2,460,981 58,178
* Jacobs Engineering    
  Group Inc. 1,128,835 51,757
  Pall Corp. 1,031,099 51,122
  Iron Mountain Inc. 1,791,494 44,805
  Pitney Bowes Inc. 1,820,343 44,016
  Avery Dennison Corp. 966,460 40,920
  Masco Corp. 3,213,601 40,684
  Robert Half    
  International Inc. 1,319,794 40,386
  Equifax Inc. 1,104,609 39,324
* Quanta Services Inc. 1,929,131 38,428
  Dun & Bradstreet Corp. 446,906 36,687
  RR Donnelley & Sons Co. 1,848,616 32,295
  Cintas Corp. 1,134,150 31,711
  Snap-On Inc. 521,063 29,482
  Ryder System Inc. 464,174 24,434
* Raytheon Co.    
  Warrants Exp.    
  6/16/2011 60,569 528
      11,201,251
Information Technology (18.6%)  
* Apple Inc. 8,213,640 2,649,392
  Microsoft Corp. 67,413,857 1,882,195
  International Business    
  Machines Corp. 11,124,091 1,632,572
* Google Inc. Class A 2,233,355 1,326,546
  Oracle Corp. 34,659,880 1,084,854
  Intel Corp. 49,945,508 1,050,354
* Cisco Systems Inc. 49,629,978 1,004,014
  Hewlett-Packard Co. 20,305,284 854,852
  QUALCOMM Inc. 14,484,961 716,861
* EMC Corp. 18,448,503 422,471
  Texas Instruments Inc. 10,513,157 341,678
  Visa Inc. Class A 4,363,103 307,075
* eBay Inc. 10,272,542 285,885
  Corning Inc. 13,993,584 270,356
  Automatic Data    
  Processing Inc. 4,416,022 204,374
* Dell Inc. 15,036,298 203,742
* Cognizant Technology    
  Solutions Corp. Class A 2,717,216 199,145
  Mastercard Inc. Class A 867,170 194,341
* Yahoo! Inc. 11,670,998 194,089

 

      Market
      Value
    Shares ($000)
* Motorola Inc. 21,035,391 190,791
* NetApp Inc. 3,235,944 177,847
  Broadcom Corp. Class A 4,077,531 177,576
* Juniper Networks Inc. 4,684,487 172,951
  Applied Materials Inc. 11,962,515 168,073
  Xerox Corp. 12,420,158 143,080
* Adobe Systems Inc. 4,554,676 140,193
* Salesforce.com Inc. 1,058,834 139,766
* Intuit Inc. 2,502,880 123,392
* Symantec Corp. 6,949,998 116,343
* Citrix Systems Inc. 1,681,186 115,010
  Western Union Co. 5,872,081 109,045
* SanDisk Corp. 2,099,527 104,682
  Analog Devices Inc. 2,673,891 100,725
  Altera Corp. 2,798,351 99,565
* F5 Networks Inc. 723,761 94,205
  Paychex Inc. 2,881,824 89,077
  CA Inc. 3,435,319 83,959
  Amphenol Corp. Class A 1,563,235 82,508
* NVIDIA Corp. 5,201,603 80,105
* Fiserv Inc. 1,331,393 77,966
* Red Hat Inc. 1,706,229 77,889
* Autodesk Inc. 2,035,790 77,767
* Akamai Technologies Inc. 1,632,444 76,807
* BMC Software Inc. 1,590,617 74,982
  Linear Technology Corp. 2,017,919 69,800
* Western Digital Corp. 2,057,302 69,743
  Computer Sciences Corp. 1,382,978 68,596
  Xilinx Inc. 2,319,737 67,226
  Fidelity    
  National Information    
  Services Inc. 2,371,003 64,942
* McAfee Inc. 1,379,992 63,907
*,^ First Solar Inc. 484,083 62,999
* Teradata Corp. 1,499,521 61,720
* Micron Technology Inc. 7,670,273 61,516
  KLA-Tencor Corp. 1,495,595 57,790
^ Microchip    
  Technology Inc. 1,672,471 57,215
  Harris Corp. 1,148,302 52,018
  VeriSign Inc. 1,539,664 50,301
* Electronic Arts Inc. 2,970,606 48,659
* FLIR Systems Inc. 1,419,685 42,236
* Advanced Micro    
  Devices Inc. 5,126,555 41,935
* SAIC Inc. 2,631,977 41,743
  Jabil Circuit Inc. 1,758,941 35,337
* LSI Corp. 5,531,836 33,136
  National    
  Semiconductor Corp. 2,147,111 29,544
* JDS Uniphase Corp. 1,997,860 28,929
  Molex Inc. 1,235,629 28,074
* Monster Worldwide Inc. 1,166,779 27,571
* Novellus Systems Inc. 809,142 26,151

 

16


 

500 Index Fund

      Market
      Value
    Shares ($000)
* Lexmark International Inc.    
  Class A 703,990 24,513
* MEMC Electronic    
  Materials Inc. 2,037,588 22,943
* Compuware Corp. 1,965,190 22,934
* Teradyne Inc. 1,624,522 22,808
  Total System    
  Services Inc. 1,464,590 22,525
  Tellabs Inc. 3,310,200 22,443
* Novell Inc. 3,147,497 18,633
* QLogic Corp. 947,624 16,129
  Molex Inc. Class A 4,051 76
      19,083,192
Materials (3.7%)    
  Freeport-McMoRan    
  Copper & Gold Inc. 4,216,153 506,318
  EI du Pont de    
  Nemours & Co. 8,173,850 407,712
  Dow Chemical Co. 10,392,874 354,813
  Monsanto Co. 4,802,679 334,459
  Newmont Mining Corp. 4,414,756 271,198
  Praxair Inc. 2,743,219 261,895
  Air Products &    
  Chemicals Inc. 1,918,453 174,483
  Alcoa Inc. 9,145,404 140,748
  Nucor Corp. 2,826,742 123,868
  PPG Industries Inc. 1,459,486 122,699
  International Paper Co. 3,916,589 106,688
  Ecolab Inc. 2,078,295 104,788
  Cliffs Natural    
  Resources Inc. 1,212,719 94,604
  CF Industries    
  Holdings Inc. 636,821 86,066
^ United States Steel Corp. 1,287,215 75,199
  Sigma-Aldrich Corp. 1,085,924 72,279
  Sherwin-Williams Co. 803,078 67,258
  Eastman Chemical Co. 646,674 54,372
  Ball Corp. 790,660 53,804
  FMC Corp. 649,794 51,912
  Vulcan Materials Co. 1,149,392 50,987
  Allegheny    
  Technologies Inc. 883,702 48,763
* Owens-Illinois Inc. 1,466,095 45,009
  Airgas Inc. 669,809 41,836
  International Flavors &    
  Fragrances Inc. 715,779 39,790
  MeadWestvaco Corp. 1,506,128 39,400
  Sealed Air Corp. 1,430,131 36,397
  Bemis Co. Inc. 970,743 31,705
  AK Steel Holding Corp. 987,750 16,170
* Titanium Metals Corp. 809,096 13,900
      3,829,120

 

      Market
      Value
    Shares ($000)
Telecommunication Services (3.1%)  
  AT&T Inc. 52,918,393 1,554,742
  Verizon    
  Communications Inc. 25,310,951 905,626
* American Tower Corp.    
  Class A 3,573,175 184,519
  CenturyLink Inc. 2,714,999 125,352
  Qwest Communications    
  International Inc. 15,603,046 118,739
* Sprint Nextel Corp. 26,743,813 113,126
  Frontier    
  Communications Corp. 8,898,169 86,579
  Windstream Corp. 4,333,896 60,415
* MetroPCS    
  Communications Inc. 2,347,974 29,655
      3,178,753
Utilities (3.3%)    
  Southern Co. 7,509,218 287,077
  Exelon Corp. 5,922,076 246,595
  Dominion Resources Inc. 5,197,681 222,045
  Duke Energy Corp. 11,859,557 211,219
  NextEra Energy Inc. 3,723,265 193,573
  PG&E Corp. 3,510,371 167,936
  American Electric    
  Power Co. Inc. 4,300,116 154,718
  Public Service Enterprise    
  Group Inc. 4,529,797 144,093
  Consolidated Edison Inc. 2,601,282 128,946
  Entergy Corp. 1,619,694 114,723
  Progress Energy Inc. 2,622,727 114,036
  PPL Corp. 4,327,008 113,887
  Sempra Energy 2,149,205 112,790
  Edison International 2,917,072 112,599
  FirstEnergy Corp. 2,729,233 101,036
  Xcel Energy Inc. 4,119,394 97,012
* AES Corp. 5,926,782 72,188
  DTE Energy Co. 1,514,057 68,617
  Wisconsin Energy Corp. 1,047,839 61,676
  Ameren Corp. 2,146,989 60,524
  CenterPoint Energy Inc. 3,788,574 59,556
  Constellation Energy    
  Group Inc. 1,788,702 54,788
  Oneok Inc. 954,281 52,934
  Northeast Utilities 1,579,727 50,362
  NiSource Inc. 2,491,331 43,897
* NRG Energy Inc. 2,212,871 43,239
  SCANA Corp. 1,013,525 41,149
  CMS Energy Corp. 2,191,738 40,766
  Pinnacle West    
  Capital Corp. 973,702 40,360
  Allegheny Energy Inc. 1,521,335 36,877
  Pepco Holdings Inc. 2,014,400 36,763
  TECO Energy Inc. 1,923,406 34,237

 

17


 

500 Index Fund

      Market
      Value
    Shares ($000)
  Integrys Energy    
  Group Inc. 696,164 33,771
  Nicor Inc. 408,014 20,368
      3,374,357
Total Common Stocks    
(Cost $74,435,238)   102,340,874
Temporary Cash Investments (0.4%)1  
Money Market Fund (0.4%)    
2,3 Vanguard Market    
  Liquidity Fund,    
  0.211% 373,300,225 373,300
 
    Face  
    Amount  
    ($000)
U.S. Government and Agency Obligations (0.0%)
4 Fannie Mae    
  Discount Notes,    
  0.240%, 6/22/11 5,000 4,994
4,5 Freddie Mac    
  Discount Notes,    
  0.240%, 3/14/11 15,000 14,994
4,5 Freddie Mac    
  Discount Notes,    
  0.185%, 3/28/11 5,000 4,997
      24,985
Total Temporary Cash Investments  
(Cost $398,285)   398,285
Total Investments (100.2%)    
(Cost $74,833,523)   102,739,159
Other Assets and Liabilities (-0.2%)  
Other Assets   1,551,047
Liabilities3   (1,709,790)
      (158,743)
Net Assets (100%)   102,580,416

 

At December 31, 2010, net assets consisted of:
  Amount
  ($000)
Paid-in Capital 77,333,798
Overdistributed Net Investment Income (138,844)
Accumulated Net Realized Losses (2,523,164)
Unrealized Appreciation (Depreciation)  
Investment Securities 27,905,636
Futures Contracts 2,990
Net Assets 102,580,416
 
Investor Shares—Net Assets  
Applicable to 275,459,252 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 31,904,010
Net Asset Value Per Share—  
Investor Shares $115.82
 
Admiral Shares—Net Assets  
Applicable to 444,094,927 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 51,437,695
Net Asset Value Per Share—  
Admiral Shares $115.83
 
Signal Shares—Net Assets  
Applicable to 198,351,097 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 18,977,465
Net Asset Value Per Share—  
Signal Shares $95.68
 
ETF Shares—Net Assets  
Applicable to 4,545,526 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 261,246
Net Asset Value Per Share—  
ETF Shares $57.47

 

See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $146,631,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 100.0% and 0.2%, respectively, of net assets.
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 Includes $151,347,000 of collateral received for securities on loan.
4 The issuer operates under a congressional charter; its securities are not backed by the full faith and credit of the U.S. government.
5 Securities with a value of $17,992,000 have been segregated as initial margin for open futures contracts.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.

18


 

500 Index Fund

Statement of Operations  
 
  Year Ended
  December 31, 2010
  ($000)
Investment Income  
Income  
Dividends 1,986,510
Interest1 380
Security Lending 6,573
Total Income 1,993,463
Expenses  
The Vanguard Group—Note B  
Investment Advisory Services 4,950
Management and Administrative—Investor Shares 62,893
Management and Administrative—Admiral Shares 10,828
Management and Administrative—Signal Shares 4,123
Management and Administrative—ETF Shares 21
Marketing and Distribution—Investor Shares 11,771
Marketing and Distribution—Admiral Shares 5,380
Marketing and Distribution—Signal Shares 4,641
Marketing and Distribution—ETF Shares 1
Custodian Fees 1,059
Auditing Fees 33
Shareholders’ Reports—Investor Shares 1,173
Shareholders’ Reports—Admiral Shares 92
Shareholders’ Reports—Signal Shares 115
Shareholders’ Reports—ETF Shares
Trustees’ Fees and Expenses 156
Total Expenses 107,236
Net Investment Income 1,886,227
Realized Net Gain (Loss)  
Investment Securities Sold 1,286,947
Futures Contracts 9,311
Realized Net Gain (Loss) 1,296,258
Change in Unrealized Appreciation (Depreciation)  
Investment Securities 10,283,344
Futures Contracts 2,794
Change in Unrealized Appreciation (Depreciation) 10,286,138
Net Increase (Decrease) in Net Assets Resulting from Operations 13,468,623
1 Interest income from an affiliated company of the fund was $287,000.  

 

See accompanying Notes, which are an integral part of the Financial Statements.

19


 

500 Index Fund

Statement of Changes in Net Assets    
 
  Year Ended December 31,
  2010 2009
  ($000) ($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 1,886,227 1,976,600
Realized Net Gain (Loss) 1,296,258 5,105,226
Change in Unrealized Appreciation (Depreciation) 10,286,138 12,793,273
Net Increase (Decrease) in Net Assets Resulting from Operations 13,468,623 19,875,099
Distributions    
Net Investment Income    
Investor Shares (821,569) (992,312)
Admiral Shares (666,060) (603,880)
Signal Shares (332,468) (359,090)
ETF Shares (1,184)
Realized Capital Gain    
Investor Shares
Admiral Shares
Signal Shares
ETF Shares
Total Distributions (1,821,281) (1,955,282)
Capital Share Transactions    
Investor Shares (21,636,466) 204,042
Admiral Shares 18,712,213 59,911
Signal Shares 325,876 213,059
ETF Shares 248,592
Net Increase (Decrease) from Capital Share Transactions (2,349,785) 477,012
Total Increase (Decrease) 9,297,557 18,396,829
Net Assets    
Beginning of Period 93,282,859 74,886,030
End of Period1 102,580,416 93,282,859
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($138,844,000) and ($203,790,000).

 

See accompanying Notes, which are an integral part of the Financial Statements.

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500 Index Fund

Financial Highlights

Investor Shares          
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $102.67 $83.09 $135.15 $130.59 $114.92
Investment Operations          
Net Investment Income 2.020 2.131 2.443 2.470 2.110
Net Realized and Unrealized Gain (Loss)          
on Investments 13.096 19.553 (51.998) 4.580 15.700
Total from Investment Operations 15.116 21.684 (49.555) 7.050 17.810
Distributions          
Dividends from Net Investment Income (1.966) (2.104) (2.505) (2.490) (2.140)
Distributions from Realized Capital Gains
Total Distributions (1.966) (2.104) (2.505) (2.490) (2.140)
Net Asset Value, End of Period $115.82 $102.67 $83.09 $135.15 $130.59
 
Total Return1 14.91% 26.49% -37.02% 5.39% 15.64%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $31,904 $48,313 $38,778 $63,327 $72,013
Ratio of Total Expenses to          
Average Net Assets 0.17% 0.18% 0.16% 0.15% 0.18%
Ratio of Net Investment Income to          
Average Net Assets 1.94% 2.42% 2.16% 1.81% 1.74%
Portfolio Turnover Rate2 5% 12% 6% 5% 5%

 

1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

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500 Index Fund

Financial Highlights

Admiral Shares          
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $102.67 $83.09 $135.15 $130.59 $114.92
Investment Operations          
Net Investment Income 2.152 2.227 2.534 2.583 2.222
Net Realized and Unrealized Gain (Loss)          
on Investments 13.092 19.556 (52.000) 4.576 15.700
Total from Investment Operations 15.244 21.783 (49.466) 7.159 17.922
Distributions          
Dividends from Net Investment Income (2.084) (2.203) (2.594) (2.599) (2.252)
Distributions from Realized Capital Gains
Total Distributions (2.084) (2.203) (2.594) (2.599) (2.252)
Net Asset Value, End of Period $115.83 $102.67 $83.09 $135.15 $130.59
 
Total Return 15.05% 26.62% -36.97% 5.47% 15.75%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $51,438 $28,380 $23,009 $37,113 $46,467
Ratio of Total Expenses to          
Average Net Assets 0.06% 0.07% 0.08% 0.07% 0.09%
Ratio of Net Investment Income to          
Average Net Assets 2.05% 2.53% 2.24% 1.89% 1.83%
Portfolio Turnover Rate1 5% 12% 6% 5% 5%

 

1 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

22


 

500 Index Fund

Financial Highlights

Signal Shares          
          Sept. 29,
          20061 to
For a Share Outstanding Year Ended December 31, Dec. 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $84.81 $68.64 $111.64 $107.86 $101.61
Investment Operations          
Net Investment Income 1.780 1.839 2.092 2.119 .502
Net Realized and Unrealized Gain (Loss)          
on Investments 10.813 16.151 (42.952) 3.794 6.287
Total from Investment Operations 12.593 17.990 (40.860) 5.913 6.789
Distributions          
Dividends from Net Investment Income (1.723) (1.820) (2.140) (2.133) (.539)
Distributions from Realized Capital Gains
Total Distributions (1.723) (1.820) (2.140) (2.133) (.539)
Net Asset Value, End of Period $95.68 $84.81 $68.64 $111.64 $107.86
 
Total Return 15.05% 26.61% -36.97% 5.47% 6.68%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $18,977 $16,590 $13,099 $21,433 $713
Ratio of Total Expenses to          
Average Net Assets 0.06% 0.07% 0.08% 0.07% 0.09%2
Ratio of Net Investment Income to          
Average Net Assets 2.05% 2.53% 2.24% 1.89% 1.83%2
Portfolio Turnover Rate3 5% 12% 6% 5% 5%

 

1 Inception.
2 Annualized.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

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500 Index Fund

Financial Highlights

ETF Shares  
  September 7, 20101 to
For a Share Outstanding Throughout the Period December 31, 2010
Net Asset Value, Beginning of Period $50.08
Investment Operations  
Net Investment Income .363
Net Realized and Unrealized Gain (Loss) on Investments 7.569
Total from Investment Operations 7.932
Distributions  
Dividends from Net Investment Income (.542)
Distributions from Realized Capital Gains
Total Distributions (.542)
Net Asset Value, End of Period $57.47
 
Total Return 15.89%
 
Ratios/Supplemental Data  
Net Assets, End of Period (Millions) $261
Ratio of Total Expenses to Average Net Assets 0.06%2
Ratio of Net Investment Income to Average Net Assets 2.05%2
Portfolio Turnover Rate3 5%

 

1 Inception.
2 Annualized.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

24


 

500 Index Fund

Notes to Financial Statements

Vanguard 500 Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers four classes of shares: Investor Shares, Admiral Shares, Signal Shares, and ETF Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares and Signal Shares are designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares were first issued on September 7, 2010, and first offered to the public on September 9, 2010. ETF Shares are listed for trading on the NYSE Arca, Inc.; they can be purchased and sold through a broker.

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: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. 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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. 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.

2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.

Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the Statement of Net Assets. 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 taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (December 31, 2007–2010), and has concluded that no provision for federal income tax is required in the fund’s financial statements.

4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

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500 Index Fund

5. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents fees charged to borrowers plus income earned on investing cash collateral, less expenses associated with the loan.

6. Other: Dividend income is recorded on the ex-dividend date. 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) 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 December 31, 2010, the fund had contributed capital of $16,883,000 to Vanguard (included in Other Assets), representing 0.02% of the fund’s net assets and 6.75% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

Level 1Quoted prices in active markets for identical securities.
Level 2Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).

The following table summarizes the fund’s investments as of December 31, 2010, based on the inputs used to value them:

  Level 1 Level 2 Level 3
Investments ($000) ($000) ($000)
Common Stocks 102,340,874
Temporary Cash Investments 373,300 24,985
Futures Contracts—Liabilities1 (283)
Total 102,713,891 24,985
1 Represents variation margin on the last day of the reporting period.      

 

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500 Index Fund

D. At December 31, 2010, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:

        ($000)
    Number of Aggregate Unrealized
    Long (Short) Settlement Appreciation
Futures Contracts Expiration Contracts Value (Depreciation)
E-mini S&P 500 Index March 2011 2,000 125,300 770
S&P 500 Index March 2011 354 110,891 2,220

 

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

E. 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.

During the year ended December 31, 2010, the fund realized $967,491,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital.

For tax purposes, at December 31, 2010, the fund had $8,777,000 of ordinary income available for distribution. The fund had available capital loss carryforwards totaling $2,057,911,000 to offset future net capital gains of $293,941,000 through December 31, 2014, and $1,763,970,000 through December 31, 2016. In addition, the fund realized losses of $317,773,000 during the period from November 1, 2010, through December 31, 2010, which are deferred and will be treated as realized for tax purposes in fiscal 2011.

At December 31, 2010, the cost of investment securities for tax purposes was $74,974,401,000.

Net unrealized appreciation of investment securities for tax purposes was $27,764,758,000, consisting of unrealized gains of $37,123,583,000 on securities that had risen in value since their purchase and $9,358,825,000 in unrealized losses on securities that had fallen in value since their purchase.

F. During the year ended December 31, 2010, the fund purchased $4,653,528,000 of investment securities and sold $7,170,928,000 of investment securities, other than temporary cash investments.

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500 Index Fund

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

      Year Ended December 31,
    2010   2009
  Amount Shares Amount Shares
  ($000) (000) ($000) (000)
Investor Shares        
Issued 6,152,449 58,515 6,999,037 82,421
Issued in Lieu of Cash Distributions 796,796 7,579 961,778 10,704
Redeemed (28,585,711) (261,206) (7,756,773) (89,256)
Net Increase (Decrease)—Investor Shares (21,636,466) (195,112) 204,042 3,869
Admiral Shares        
Issued 21,802,511 197,021 3,155,584 36,520
Issued in Lieu of Cash Distributions 591,430 5,509 527,723 5,866
Redeemed (3,681,728) (34,849) (3,623,396) (42,890)
Net Increase (Decrease)—Admiral Shares 18,712,213 167,681 59,911 (504)
Signal Shares        
Issued 4,491,022 50,934 3,948,201 56,496
Issued in Lieu of Cash Distributions 301,194 3,437 323,718 4,362
Redeemed (4,466,340) (51,633) (4,058,860) (56,083)
Net Increase (Decrease)—Signal Shares 325,876 2,738 213,059 4,775
ETF Shares1        
Issued 251,293 4,596
Issued in Lieu of Cash Distributions
Redeemed (2,701) (50)
Net Increase (Decrease)—ETF Shares 248,592 4,546
1 Inception was September 7, 2010, for ETF Shares.        

 

H. In preparing the financial statements as of December 31, 2010, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.

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Report of Independent Registered Public Accounting Firm

To the Trustees of Vanguard Index Funds and the Shareholders of Vanguard 500 Index Fund:

In our opinion, the accompanying statement 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 500 Index Fund (constituting a separate portfolio of Vanguard Index Funds, hereafter referred to as the “Fund”) at December 31, 2010, the results of its operations for the year then ended, the changes in its 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 Fund’s 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 December 31, 2010 by correspondence with the custodian and broker and by agreement to the underlying ownership records of Vanguard Market Liquidity Fund, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania

February 8, 2011

 

Special 2010 tax information (unaudited) for Vanguard 500 Index Fund

 

This information for the fiscal year ended December 31, 2010, is included pursuant to provisions of the Internal Revenue Code.

The fund distributed $1,821,281,000 of qualified dividend income to shareholders during the fiscal year.

For corporate shareholders, 100% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.

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Your Fund’s After-Tax Returns

This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.

Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income . (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.) The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.

Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.

Average Annual Total Returns: 500 Index Fund Investor Shares    
Periods Ended December 31, 2010      
  One Five Ten
  Year Years Years
Returns Before Taxes 14.91% 2.21% 1.31%
Returns After Taxes on Distributions 14.60 1.90 0.97
Returns After Taxes on Distributions and Sale of Fund Shares 10.06 1.86 1.02

 

30


 

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 accompanying table illustrates 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.“

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.

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include the account service fee described in the prospectus. If such a 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, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

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Six Months Ended December 31, 2010      
  Beginning Ending Expenses
  Account Value Account Value Paid During
500 Index Fund 6/30/2010 12/31/2010 Period
Based on Actual Fund Return      
Investor Shares $1,000.00 $1,231.79 $0.96
Admiral Shares 1,000.00 1,232.61 0.28
Signal Shares 1,000.00 1,232.64 0.28
Based on Hypothetical 5% Yearly Return      
Investor Shares $1,000.00 $1,024.35 $0.87
Admiral Shares 1,000.00 1,024.95 0.26
Signal Shares 1,000.00 1,024.95 0.26

 

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.17% for Investor Shares, 0.05% for Admiral Shares, and 0.05% for Signal 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. The table does not include data for share classes of funds with fewer than six months of history.

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Glossary

30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (in the case of bonds) or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.

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%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). 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.

Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.

Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.

Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.

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.

Foreign Holdings. The percentage of a fund represented by stocks or depositary receipts of companies based outside the United States.

Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.

Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.

Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.

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Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.

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. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.

Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.

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

Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.

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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’s 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. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 179 Vanguard funds.

The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.

Interested Trustee1 Amy Gutmann
  Born 1949. Trustee Since June 2006. Principal
F. William McNabb III Occupation(s) During the Past Five Years: President
Born 1957. Trustee Since July 2009. Chairman of the of the University of Pennsylvania; Christopher H.
Board. Principal Occupation(s) During the Past Five Browne Distinguished Professor of Political Science
Years: Chairman of the Board of The Vanguard Group, in the School of Arts and Sciences with secondary
Inc., and of each of the investment companies served appointments at the Annenberg School for Commu-
by The Vanguard Group, since January 2010; Director nication and the Graduate School of Education
of The Vanguard Group since 2008; Chief Executive of the University of Pennsylvania; Director of
Officer and President of The Vanguard Group and of Carnegie Corporation of New York, Schuylkill River
each of the investment companies served by The Development Corporation, and Greater Philadelphia
Vanguard Group since 2008; Director of Vanguard Chamber of Commerce; Trustee of the National
Marketing Corporation; Managing Director of The Constitution Center; Chair of the Presidential
Vanguard Group (1995–2008) . Commission for the Study of Bioethical Issues.
 
  JoAnn Heffernan Heisen
Independent Trustees Born 1950. Trustee Since July 1998. Principal
  Occupation(s) During the Past Five Years: Corporate
Emerson U. Fullwood Vice President and Chief Global Diversity Officer
Born 1948. Trustee Since January 2008. Principal since 2006 (retired 2008) and Member of the
Occupation(s) During the Past Five Years: Executive Executive Committee (retired 2008) of Johnson &
Chief Staff and Marketing Officer for North America Johnson (pharmaceuticals/consumer products); Vice
and Corporate Vice President (retired 2008) of Xerox President and Chief Information Officer of Johnson &
Corporation (document management products and Johnson (1997–2005); Director of the University
services); Director of SPX Corporation (multi-industry Medical Center at Princeton and Women’s Research
manufacturing), the United Way of Rochester, and Education Institute; Member of the Advisory
Amerigroup Corporation (managed health care), Board of the Maxwell School of Citizenship and Public
the University of Rochester Medical Center, and Affairs at Syracuse University.
Monroe Community College Foundation.  
  F. Joseph Loughrey
Rajiv L. Gupta Born 1949. Trustee Since October 2009. Principal
Born 1945. Trustee Since December 2001.2 Occupation(s) During the Past Five Years: President
Principal Occupation(s) During the Past Five Years: and Chief Operating Officer since 2005 (retired 2009)
Chairman and Chief Executive Officer (retired 2009) and Vice Chairman of the Board (2008–2009) of
and President (2006–2008) of Rohm and Haas Co. Cummins Inc. (industrial machinery); Director of
(chemicals); Director of Tyco International, Ltd. SKF AB (industrial machinery), Hillenbrand, Inc.
(diversified manufacturing and services) and Hewlett- (specialized consumer services), Sauer-Danfoss Inc.
Packard Co. (electronic computer manufacturing); (machinery), the Lumina Foundation for Education,
Trustee of The Conference Board; Member of the and Oxfam America; Chairman of the Advisory
Board of Managers of Delphi Automotive LLP Council for the College of Arts and Letters at the
(automotive components) . University of Notre Dame.

 


 

André F. Perold Kathryn J. Hyatt  
Born 1952. Trustee Since December 2004. Principal Born 1955. Treasurer Since November 2008. Principal
Occupation(s) During the Past Five Years: George Occupation(s) During the Past Five Years: Principal
Gund Professor of Finance and Banking at the Harvard of The Vanguard Group, Inc.; Treasurer of each of
Business School; Chair of the Investment Committee the investment companies served by The Vanguard
of HighVista Strategies LLC (private investment firm) . Group since 2008; Assistant Treasurer of each of the
  investment companies served by The Vanguard Group
Alfred M. Rankin, Jr. (1988–2008) .  
Born 1941. Trustee Since January 1993. Principal    
Occupation(s) During the Past Five Years: Chairman, Heidi Stam  
President, and Chief Executive Officer of NACCO Born 1956. Secretary Since July 2005. Principal
Industries, Inc. (forklift trucks/housewares/lignite); Occupation(s) During the Past Five Years: Managing
Director of Goodrich Corporation (industrial products/ Director of The Vanguard Group, Inc., since 2006;
aircraft systems and services); Chairman of the General Counsel of The Vanguard Group since 2005;
Federal Reserve Bank of Cleveland; Trustee of The Secretary of The Vanguard Group and of each of the
Cleveland Museum of Art. investment companies served by The Vanguard Group
  since 2005; Director and Senior Vice President of
Peter F. Volanakis Vanguard Marketing Corporation since 2005;
Born 1955. Trustee Since July 2009. Principal Principal of The Vanguard Group (1997–2006).
Occupation(s) During the Past Five Years: President    
since 2007 and Chief Operating Officer since 2005    
of Corning Incorporated (communications equipment); Vanguard Senior Management Team
President of Corning Technologies (2001–2005);    
Director of Corning Incorporated and Dow Corning; R. Gregory Barton Michael S. Miller
Trustee of the Corning Incorporated Foundation and Mortimer J. Buckley James M. Norris
the Corning Museum of Glass; Overseer of the Kathleen C. Gubanich Glenn W. Reed
Amos Tuck School of Business Administration at Paul A. Heller George U. Sauter
Dartmouth College.    
 
  Chairman Emeritus and Senior Advisor
Executive Officers    
  John J. Brennan  
Glenn Booraem Chairman, 1996–2009  
Born 1967. Controller Since July 2010. Principal Chief Executive Officer and President, 1996–2008
Occupation(s) During the Past Five Years: Principal    
of The Vanguard Group, Inc.; Controller of each of    
the investment companies served by The Vanguard Founder  
Group since 2010; Assistant Controller of each of    
the investment companies served by The Vanguard John C. Bogle  
Group (2001–2010) . Chairman and Chief Executive Officer, 1974–1996
 
Thomas J. Higgins    
Born 1957. Chief Financial Officer Since September    
2008. Principal Occupation(s) During the Past Five    
Years: Principal of The Vanguard Group, Inc.; Chief    
Financial Officer of each of the investment companies    
served by The Vanguard Group since 2008; Treasurer    
of each of the investment companies served by The    
Vanguard Group (1998–2008) .    

 

1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.


 

 

 
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  Q400 022011

 


 

 

Vanguard U.S. Stock Index Funds
Small-Capitalization Portfolios
Annual Report
December 31, 2010
 
 
 
 
Vanguard Small-Cap Index Fund
Vanguard Small-Cap Growth Index Fund
Vanguard Small-Cap Value Index Fund

 



 

> For the year ended December 31, 2010, Vanguard’s three small-capitalization index funds posted strong gains of about 25% to 31%.

> Small-company growth stocks outperformed small-company value stocks.

> Information technology stocks led the advance across the small-cap segment, while financial firms were the standouts in the narrower small-cap value arena.

 

Contents  
Your Fund’s Total Returns. 1
Chairman’s Letter. 4
Small-Cap Index Fund. 10
Small-Cap Growth Index Fund. 31
Small-Cap Value Index Fund. 47
Your Fund’s After-Tax Returns. 65
About Your Fund’s Expenses. 66
Glossary. 69

 


Small-Cap Index Fund
Small-Cap Growth Index Fund
Small-Cap Value Index Fund

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

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

Cover photograph: Jean Maher.


 

Your Fund’s Total Returns

Fiscal Year Ended December 31, 2010  
  Total
  Returns
Vanguard Small-Cap Index Fund  
Investor Shares 27.72%
Admiral™ Shares 27.89
Signal® Shares 27.85
Institutional Shares 27.95
Institutional Plus Shares (Inception: 12/17/2010) 0.82
ETF Shares  
Market Price 28.10
Net Asset Value 27.89
MSCI US Small Cap 1750 Index 27.82
Small-Cap Core Funds Average 25.21
Small-Cap Core Funds Average: Derived from data provided by Lipper Inc.  
Vanguard Small-Cap Growth Index Fund  
Investor Shares 30.69%
Institutional Shares 30.96
ETF Shares  
Market Price 31.11
Net Asset Value 30.87
MSCI US Small Cap Growth Index 30.71
Small-Cap Growth Funds Average 27.32
Small-Cap Growth Funds Average: Derived from data provided by Lipper Inc.  

 

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. Signal, Institutional, and Institutional Plus Shares are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2; 7,337,138.

1


 

Your Fund’s Total Returns

Fiscal Year Ended December 31, 2010  
  Total
  Returns
Vanguard Small-Cap Value Index Fund  
Investor Shares 24.82%
Institutional Shares 24.97
ETF Shares  
Market Price 25.13
Net Asset Value 24.97
MSCI US Small Cap Value Index 25.01
Small-Cap Value Funds Average 25.96
Small-Cap Value Funds Average: Derived from data provided by Lipper Inc.  

 

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. Signal, Institutional, and Institutional Plus Shares are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2; 7,337,138.

For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was above or below the NAV.

2


 

Your Fund’s Performance at a Glance

December 31, 2009 , Through December 31, 2010        
      Distributions Per Share
  Starting Ending Income Capital
  Share Price Share Price Dividends Gains
Vanguard Small-Cap Index Fund        
Investor Shares $27.49 $34.75 $0.361 $0.000
Admiral Shares 27.50 34.78 0.390 0.000
Signal Shares 24.79 31.33 0.364 0.000
Institutional Shares 27.50 34.77 0.416 0.000
Institutional Plus Shares (Inception: 100.73 100.38 1.181 0.000
12/17/2010)        
ETF Shares 57.41 72.58 0.846 0.000
Vanguard Small-Cap Growth Index Fund        
Investor Shares $16.83 $21.92 $0.076 $0.000
Institutional Shares 16.85 21.96 0.108 0.000
ETF Shares 59.86 77.98 0.361 0.000
Vanguard Small-Cap Value Index Fund        
Investor Shares $13.06 $16.01 $0.291 $0.000
Institutional Shares 13.09 16.04 0.318 0.000
ETF Shares 54.49 66.80 1.299 0.000

 

3


 


Chairman’s Letter

Dear Shareholder,

Small-capitalization stocks turned in a strong showing for the second consecutive year. The three Vanguard small-cap index funds again closely tracked their respective target indexes; each logged total returns of about 25% or higher for 2010.

Of the three funds, Vanguard Small-Cap Growth Index Fund was the best performer, returning about 31%; Vanguard Small-Cap Value Index Fund, the worst performer, returned “only” about 25% for the year. The broader-based Vanguard Small-Cap Index Fund, which covers both the growth and value segments of the small-cap market, fell in between, with a return of about 28%.

Although outperforming funds that invest in similar stocks is not the objective of these three funds, the Small-Cap and Small-Cap Growth Index Funds did outperform their peer-group averages in 2010. The Small-Cap Value Index Fund trailed its comparable industry average by about one percentage point.

Please note that on October 6, Vanguard broadened the availability of our lower-cost Admiral Shares. We reduced the Admiral minimums on most of our broad-market index funds, including Small-Cap Index Fund, to $10,000 from $100,000, as part of our ongoing efforts to lower the cost of investing for our clients. (Admiral minimums were also lowered for many of our actively managed funds.)

4


 

Also, in December we launched Institutional Plus Shares for the Small-Cap Index Fund. These shares require a minimum initial investment of $100 million.

Stocks rallied as the forecast
seemed to brighten
After a series of false starts, hesitations,

and retreats, global stock markets finished 2010 with powerful gains. As the prospect of a double-dip recession faded, the broad U.S. stock market clambered higher, shrugging off high unemployment and distress in Europe’s debt markets to return 17.70%. Small- and mid-capitalization stocks did even better.

Outside the United States, gains were more muted, in part because Europe’s sovereign debt challenges continued to reverberate through local stock markets. Emerging markets were the best performers. Asia’s developed markets performed poorly, though the strength of the yen, the Australian dollar, and other regional currencies bolstered returns for U.S.-based investors.

The fixed income market
reprised a familiar theme
Although U.S. Treasury securities rallied

through the summer, total return tables were dominated by riskier bonds for the full 12 months, a pattern we also saw in 2009. Low interest rates and a sense that the economic recovery was gathering

Market Barometer      
 
    Average Annual Total Returns
    Periods Ended December 31, 2010
  One Three Five
  Year Years Years
Stocks      
Russell 1000 Index (Large-caps) 16.10% -2.37% 2.59%
Russell 2000 Index (Small-caps) 26.86 2.22 4.47
Dow Jones U.S. Total Stock Market Index 17.70 -1.56 3.17
MSCI All Country World Index ex USA (International) 11.60 -4.58 5.29
 
Bonds      
Barclays Capital U.S. Aggregate Bond Index (Broad      
taxable market) 6.54% 5.90% 5.80%
Barclays Capital Municipal Bond Index (Broad      
tax-exempt market) 2.38 4.08 4.09
Citigroup Three-Month U.S. Treasury Bill Index 0.13 0.69 2.29
 
CPI      
Consumer Price Index 1.50% 1.43% 2.18%

 

5


 

momentum prompted investors to seek higher yields in both high-quality and below-investment-grade corporate bonds. The broad U.S. bond market returned 6.54%. Late in the year, yields bounced off summer lows, putting pressure on bond prices. The dynamic was especially pronounced among municipal bonds.

As it has since December 2008, the Federal Reserve held its target for short-term interest rates near 0%, keeping the returns available from money market instruments such as the 3-month Treasury bill in the same neighborhood.

IT stocks again led small-caps to strong gains
As the economic recovery gained some modest momentum, smaller-company stocks continued to outperform larger companies in 2010, just as they did in 2009. And once again, every sector across the small-cap arena registered gains.

Small-cap information technology companies represented the largest contributor to Small-Cap Index Fund’s advance as consumers and businesses stepped up computer-related purchases and investors remained optimistic about continued growth in the sector. IT stocks also did the best of any sector in Small-Cap Growth Index Fund. Software firms, which comprise one of the largest IT subsectors, were the best performers.

Expense Ratios              
Your Fund Compared With Its Peer Group            
              Peer
  Investor Admiral Signal  Institutional Institutional ETF Group
  Shares Shares Shares Shares  Plus Shares Shares Average
Small-Cap Index Fund 0.28% 0.14% 0.14% 0.08% 0.06% 0.14% 1.50%
Small-Cap Growth Index Fund 0.28 0.08 0.14 1.64
Small-Cap Value Index Fund 0.28 0.08 0.14 1.53

 

The fund expense ratios shown are from the prospectus dated December 13, 2010, for the Institutional and Institutional Plus share classes and April 29, 2010, for the Investor, Admiral, Signal, and ETF share classes, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2010, the funds’ expense ratios were: for the Small-Cap Index Fund, 0.26% for Investor Shares, 0.12% for Admiral Shares, 0.12% for Signal Shares, 0.08% for Institutional Shares, and 0.12% for ETF Shares; for the Small-Cap Growth Index Fund, 0.26% for Investor Shares, 0.08% for Institutional Shares, and 0.12% for ETF Shares; and for the Small-Cap Value Index Fund, 0.26% for Investor Shares, 0.08% for Institutional Shares, and 0.12% for ETF Shares. For the fiscal period ended December 31, 2010, the annualized expense ratio for the Small-Cap Index Fund Institutional Plus Shares was 0.06%. The peer-group expense ratios are derived from data provided by Lipper Inc. and capture information through year-end 2009.

Peer groups: For the Small-Cap Index Fund, Small-Cap Core Funds; for the Small-Cap Growth Index Fund, Small-Cap Growth Funds; for the Small-Cap Value Index Fund, Small-Cap Value Funds.

6


 

Unsurprisingly, given that the economy is recovering from a recession, traditionally cyclical sectors such as industrials did well, with manufacturing, transportation, and shipping companies advancing. Another cyclical bellwether, the consumer discretionary sector, also advanced sharply as consumers felt more confident in opening their wallets.

Financial firms, the largest small-cap sector, posted healthy gains, although they were not as robust as those made in the aforementioned industries. Real estate investment trusts, insurance companies, banks, and the like continued to make progress in repairing their balance sheets.

Total Returns  
Ten Years Ended December 31, 2010  
  Average
  Annual Return
Small-Cap Index Fund Investor Shares 7.23%
Spliced Small-Cap Index 7.12
Small-Cap Core Funds Average 6.44
Spliced Small-Cap Index: Russell 2000 Index through May 16, 2003; MSCI US Small Cap 1750 Index thereafter.  
Small-Cap Core Funds Average: Derived from data provided by Lipper Inc.  

 

Small-Cap Growth Index Fund Investor Shares 7.52%
Spliced Small-Cap Growth Index 7.42
Small-Cap Growth Funds Average 2.34
Spliced Small-Cap Growth Index: S&P SmallCap 600/Barra Growth Index through May 16, 2003; MSCI US Small Cap Growth Index thereafter.
Small-Cap Growth Funds Average: Derived from data provided by Lipper Inc.  

 

Small-Cap Value Index Fund Investor Shares 7.95%
Spliced Small-Cap Value Index 7.80
Small-Cap Value Funds Average 8.48
Spliced Small-Cap Value Index: S&P SmallCap 600/Barra Value Index through May 16, 2003; MSCI US Small Cap Value Index thereafter.
Small-Cap Value Funds Average: Derived from data provided by Lipper Inc.  

 

The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.

7


 

Energy, a relatively small sector in the small-cap arena, showed the sharpest rise. Increasing demand and prices powered energy-related stocks to gains that, in all three funds, exceeded 35%.

A look at a decade of returns provides an important perspective
While the investment community tends to focus on short-term performance, we’ve always believed the long-term view is far more important. Looking at returns over longer periods can filter out short-term market trends, giving a truer picture of a fund’s performance.

For the decade ended December 31, 2010, each of the funds captured the performance of its respective benchmark, producing a solid single-digit return.

The funds’ longer-term track records are a credit to the funds’ advisor, Vanguard Quantitative Equity Group, and its team of experienced professionals. The group relies on its time-tested portfolio management strategies to help keep the funds closely aligned with their benchmarks in both up and down markets. As a result, the three funds have successfully tracked the returns from the small-cap market, whether those returns are for the entire small-cap segment or for a subset of it.

When measured against industry averages for small-cap funds, two of the three funds have outperformed for the ten years.

Small-Cap Value Index Fund’s 10-year figure trails that of the industry by about half a percentage point.

It’s worth noting that for the ten-year period all three funds far outperformed the broad U.S. stock market (as measured by the Dow Jones U.S. Total Stock Market Index), which posted average annual returns of less than 3%. Compared with mid- and large-cap stocks, small-cap stocks have been relatively stellar performers over the past 10 years. Given the fact that larger-company stocks have often outperformed small-caps during different periods, small-cap investors would be wise not to count on a repeat performance over the next decade. No one knows whether it will be large-cap stocks’ turn to take the lead in the years ahead, but we encourage our clients to maintain reasonable expectations, especially after a particular investment category has outperformed.

Our small-cap funds can serve as a useful building block
Although the past year did not experience the severe swings of 2008 or 2009, periods of instability still buffeted investors as the global marketplace continued to reverberate with aftershocks from the financial crisis. During times of volatility, it helps to remember that adopting a long-term perspective and maintaining a diversified portfolio can help make month-to-month price swings seem less threatening.

8


 

In practice, this means building a cost-efficient portfolio that includes a steady mix of stocks, bonds, and short-term reserves, one that can provide some protection against market losses while allowing you to participate in the long-term potential for accumulating returns in each asset class. So while our small-cap index funds offer a convenient way to seek to capture the returns across this sometimes-volatile market segment, we consider the funds best suited to be part of a broad-based, diversified investment program.

Thank you for investing with Vanguard.

Sincerely,


F. William McNabb III
Chairman and Chief Executive Officer
January 12, 2011

9


 

Small-Cap Index Fund

Fund Profile
As of December 31, 2010

Share-Class Characteristics            
  Investor Admiral Signal Institutional Institutional ETF
  Shares Shares Shares Shares Plus Shares Shares
Ticker Symbol NAESX VSMAX VSISX VSCIX VSCPX VB
Expense Ratio1 0.28% 0.14% 0.14% 0.08% 0.06% 0.14%
30-Day SEC Yield 0.98% 1.12% 1.12% 1.16% 1.12%

 

Portfolio Characteristics    
      DJ
    MSCI US U.S. Total
    Small Cap Market
  Fund  1750 Index Index
Number of Stocks 1,737 1,733 3,893
Median Market Cap $1.6B $1.6B $29.6B
Price/Earnings Ratio 26.6x 26.8x 18.3x
Price/Book Ratio 2.0x 2.0x 2.2x
Return on Equity 10.3% 10.3% 18.8%
Earnings Growth Rate 3.8% 4.0% 6.2%
Dividend Yield 1.1% 1.1% 1.7%
Foreign Holdings 0.0% 0.0% 0.0%
Turnover Rate 12%
Short-Term Reserves 0.2%

 

Volatility Measures    
    DJ
  MSCI US U.S. Total
  Small Cap Market
  1750 Index Index
R-Squared 1.00 0.95
Beta 1.00 1.23

 

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

Ten Largest Holdings (% of total net assets)
Riverbed Technology Communications  
Inc. Equipment 0.3%
Gentex Corp. Auto Parts &  
  Equipment 0.3
Informatica Corp. Application  
  Software 0.3
WABCO Holdings Inc. Construction &  
  Farm Machinery &  
  Heavy Trucks 0.2
Signet Jewelers Ltd. Specialty Stores 0.2
SM Energy Co. Oil & Gas  
  Exploration &  
  Production 0.2
Del Monte Foods Co. Packaged Foods &  
  Meats 0.2
Camden Property Trust Residential REITs 0.2
Gardner Denver Inc. Industrial  
  Machinery 0.2
BE Aerospace Inc. Aerospace &  
  Defense 0.2
Top Ten   2.3%

 

The holdings listed exclude any temporary cash investments and equity index products.

1 The expense ratios shown are from the prospectus dated December 13, 2010, for the Institutional and Institutional Plus Shares and April 29, 2010, for the Investor, Admiral, Signal, and ETF Shares, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2010, the expense ratios were 0.26% for Investor Shares, 0.12% for Admiral Shares, 0.12% for Signal Shares, 0.08% for Institutional Shares, and 0.12% for ETF Shares. For the fiscal period ended December 31, 2010, the annualized expense ratio for the Small-Cap Index Fund Institutional Plus Shares was 0.06%.

10


 

Small-Cap Index Fund

Sector Diversification (% of equity exposure)
      DJ
    MSCI US U.S. Total
    Small Cap Market
  Fund 1750 Index Index
Consumer      
Discretionary 14.2% 14.2% 11.9%
Consumer Staples 2.7 2.7 9.5
Energy 6.2 6.2 10.6
Financials 20.2 20.1 16.6
Health Care 10.9 11.0 10.7
Industrials 16.3 16.3 11.4
Information      
Technology 18.6 18.6 18.9
Materials 6.3 6.3 4.5
Telecommunication      
Services 1.0 1.0 2.7
Utilities 3.6 3.6 3.2

 

Investment Focus


11


 

Small-Cap Index 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 vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

Cumulative Performance: December 31, 2000, Through December 31, 2010
Initial Investment of $10,000


 
    Average Annual Total Returns  
    Periods Ended December 31, 2010  
          Final Value
    One Five Ten of a $10,000
    Year Years Years Investment
  Small-Cap Index Fund Investor Shares 27.72% 5.39% 7.23% $20,096
••••••• Dow Jones U.S. Total Stock Market        
  Index 17.70 3.17 2.64 12,981
– – – – Spliced Small-Cap Index 27.82 5.40 7.12 19,893
  Small-Cap Core Funds Average 25.21 3.42 6.44 18,661
Spliced Small-Cap Index: Russell 2000 Index through May 16, 2003; MSCI US Small Cap 1750 Index thereafter.  
Small-Cap Core Funds Average: Derived from data provided by Lipper Inc.      

 

 

        Final Value
  One Five Ten of a $10,000
  Year Years Years Investment
Small-Cap Index Fund Admiral        
Shares 27.89% 5.51% 7.34% $20,310
Dow Jones U.S. Total Stock Market        
Index 17.70 3.17 2.64 12,981
Spliced Small-Cap Index 27.82 5.40 7.12 19,893

 

See Financial Highlights for dividend and capital gains information.

12


 

Small-Cap Index Fund

  Average Annual Total Returns  
  Periods Ended December 31, 2010  
    Since Final Value
  One Inception of a $10,000
  Year (12/15/2006) Investment
Small-Cap Index Fund Signal Shares 27.85% 2.85% $11,203
Dow Jones U.S. Total Stock Market      
Index 17.70 0.06 10,024
MSCI US Small Cap 1750 Index 27.82 2.72 11,146
"Since Inception" performance is calculated from the Signal Shares’ inception date for both the fund and its comparative standards.

 

 

        Final Value
  One Five Ten of a $5,000,000
  Year Years Years Investment
Small-Cap Index Fund Institutional Shares 27.95% 5.56% 7.41% $10,215,022
Dow Jones U.S. Total Stock Market        
Index 17.70 3.17 2.64 6,490,386
Spliced Small-Cap Index 27.82 5.40 7.12 9,946,586

 

 

  Since Final Value
  Inception of a $100,000,000
  (12/17/2010) Investment
Small-Cap Index Fund Institutional    
Plus Shares 0.82% $100,820,324
Dow Jones U.S. Total Stock Market    
Index 1.18 101,176,262
MSCI US Small Cap 1750 Index 0.82 100,819,415
"Since Inception" performance is calculated from the Institutional Plus Shares’ inception date for both the fund and its comparative standards.

 

 

      Since Final Value
  One Five Inception of a $10,000
  Year Years (1/26/2004) Investment
Small-Cap Index Fund        
ETF Shares Net Asset Value 27.89% 5.52% 6.77% $15,745
Dow Jones U.S. Total Stock Market Index 17.70 3.17 4.30 13,390
MSCI US Small Cap 1750 Index 27.82 5.40 6.68 15,653
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.

 

13


 

Small-Cap Index Fund

Cumulative Returns of ETF Shares: January 26, 2004, Through December 31, 2010  
      Since
  One Five Inception
  Year Years (1/26/2004)
Small-Cap Index Fund      
ETF Shares Market Price 28.10% 31.23% 57.57%
Small-Cap Index Fund      
ETF Shares Net Asset Value 27.89 30.85 57.45
MSCI US Small Cap 1750 Index 27.82 30.08 56.53
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standard.  

 

Fiscal-Year Total Returns (%): December 31, 2000, Through December 31, 2010


14


 

Small-Cap Index Fund

Financial Statements

Statement of Net Assets—Investments Summary
As of December 31, 2010

This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. 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).

    Market Percentage
    Value of Net
  Shares ($000) Assets
Common Stocks      
Consumer Discretionary      
Gentex Corp. 2,084,852 61,628 0.3%
* Signet Jewelers Ltd. 1,276,324 55,392 0.2%
Tractor Supply Co. 1,082,354 52,483 0.2%
Williams-Sonoma Inc. 1,450,339 51,763 0.2%
* Lululemon Athletica Inc. 686,272 46,955 0.2%
* Deckers Outdoor Corp. 575,925 45,924 0.2%
Sotheby’s 997,873 44,904 0.2%
* Panera Bread Co. Class A 442,779 44,814 0.2%
Consumer Discretionary—Other †   3,008,500 12.5%
    3,412,363 14.2%
Consumer Staples      
Del Monte Foods Co. 2,898,982 54,501 0.2%
Corn Products International Inc. 1,121,113 51,571 0.2%
Consumer Staples—Other †   549,681 2.3%
    655,753 2.7%
Energy      
SM Energy Co. 939,777 55,381 0.2%
* Atlas Energy Inc. 1,167,396 51,330 0.2%
* Oil States International Inc. 748,886 47,996 0.2%
* Brigham Exploration Co. 1,736,477 47,302 0.2%
Energy—Other †   1,272,433 5.3%
    1,474,442 6.1%
Financials      
Camden Property Trust 997,373 53,838 0.2%
* E*Trade Financial Corp. 3,288,077 52,609 0.2%
Essex Property Trust Inc. 451,670 51,590 0.2%
Ares Capital Corp. 3,016,241 49,708 0.2%
* Popular Inc. 15,230,904 47,825 0.2%
Senior Housing Properties Trust 2,085,056 45,746 0.2%

 

15


 

Small-Cap Index Fund

    Market Percentage
    Value of Net
  Shares ($000) Assets
Arthur J Gallagher & Co. 1,567,490 45,583 0.2%
Apartment Investment & Management Co. 1,743,864 45,061 0.2%
Waddell & Reed Financial Inc. Class A 1,272,215 44,896 0.2%
Financials—Other †   4,389,751 18.3%
    4,826,607 20.1%
Health Care      
* Allscripts Healthcare Solutions Inc. 2,648,261 51,032 0.2%
* United Therapeutics Corp. 798,665 50,492 0.2%
* Tenet Healthcare Corp. 7,229,199 48,363 0.2%
* Mednax Inc. 709,422 47,737 0.2%
PerkinElmer Inc. 1,756,870 45,362 0.2%
Health Care—Other †   2,383,912 9.9%
    2,626,898 10.9%
Industrials      
* WABCO Holdings Inc. 959,295 58,450 0.3%
Gardner Denver Inc. 779,311 53,632 0.2%
* BE Aerospace Inc. 1,447,865 53,614 0.2%
* TransDigm Group Inc. 698,054 50,267 0.2%
Snap-On Inc. 865,556 48,973 0.2%
Kennametal Inc. 1,220,061 48,144 0.2%
* Oshkosh Corp. 1,347,957 47,502 0.2%
IDEX Corp. 1,213,657 47,478 0.2%
Hubbell Inc. Class B 785,925 47,258 0.2%
Waste Connections Inc. 1,641,132 45,180 0.2%
Industrials—Other †   3,408,602 14.2%
    3,909,100 16.3%
Information Technology      
* Riverbed Technology Inc. 1,836,127 64,577 0.3%
* Informatica Corp. 1,378,085 60,677 0.3%
Solera Holdings Inc. 1,043,148 53,534 0.2%
* MICROS Systems Inc. 1,193,509 52,347 0.2%
* Polycom Inc. 1,269,583 49,488 0.2%
* VeriFone Systems Inc. 1,272,954 49,085 0.2%
* TIBCO Software Inc. 2,442,201 48,136 0.2%
* JDS Uniphase Corp. 3,300,928 47,797 0.2%
Information Technology—Other †   4,040,533 16.8%
    4,466,174 18.6%
Materials      
Domtar Corp. 638,104 48,445 0.2%
Aptargroup Inc. 1,004,430 47,781 0.2%
Materials—Other †   1,412,481 5.9%
    1,508,707 6.3%
 
Telecommunication Services   231,641 1.0%
 
Utilities      
ITC Holdings Corp. 749,338 46,444 0.2%
Questar Corp. 2,613,933 45,508 0.2%
Utilities—Other †   764,497 3.2%
    856,449 3.6%
Total Common Stocks (Cost $19,647,521)   23,968,134 99.8%1

 

16


 

Small-Cap Index Fund

      Market Percentage
      Value of Net
  Coupon Shares ($000) Assets
Temporary Cash Investments        
Money Market Fund        
2,3 Vanguard Market Liquidity Fund 0.211% 477,032,000 477,032 2.0%
 
4U.S. Government and Agency Obligations †     9,597 0.0%
Total Temporary Cash Investments (Cost $486,629)     486,629 2.0%1
5Total Investments (Cost $20,134,150)     24,454,763 101.8%
Other Assets and Liabilities        
Other Assets     188,837 0.8%
Liabilities3     (624,897) (2.6%)
      (436,060) (1.8%)
Net Assets     24,018,703 100.0%

 

At December 31, 2010, net assets consisted of:  
  Amount
  ($000)
Paid-in Capital 22,384,623
Overdistributed Net Investment Income (29,196)
Accumulated Net Realized Losses (2,656,893)
Unrealized Appreciation (Depreciation)  
Investment Securities 4,320,613
Futures Contracts (444)
Net Assets 24,018,703
 
Investor Shares—Net Assets  
Applicable to 151,652,371 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 5,269,621
Net Asset Value Per Share—Investor Shares $34.75
 
Admiral Shares—Net Assets  
Applicable to 159,690,134 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 5,553,519
Net Asset Value Per Share—Admiral Shares $34.78
 
Signal Shares—Net Assets  
Applicable to 73,389,395 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 2,299,623
Net Asset Value Per Share—Signal Shares $31.33

 

17


 

Small-Cap Index Fund

  Amount
  ($000)
Institutional Shares—Net Assets  
Applicable to 164,253,154 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 5,711,443
Net Asset Value Per Share—Institutional Shares $34.77
 
Institutional Plus Shares—Net Assets  
Applicable to 3,400,816 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 341,360
Net Asset Value Per Share—Institutional Plus Shares $100.38
 
ETF Shares—Net Assets  
Applicable to 66,731,974 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 4,843,137
Net Asset Value Per Share—ETF Shares $72.58

 

See Note A in Notes to Financial Statements.
* Non-income-producing security.
† Represents the aggregate value, by category, of securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 100.0% and 1.8%, respectively, of net assets.
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 Includes $385,068,000 of collateral received for securities on loan.
4 Securities with a value of $9,098,000 have been segregated as initial margin for open futures contracts.
5 The total value of securities on loan is $359,723,000.
See accompanying Notes, which are an integral part of the Financial Statements.

18


 

Small-Cap Index Fund

Statement of Operations  
 
 
  Year Ended
  December 31, 2010
  ($000)
Investment Income  
Income  
Dividends 269,046
Interest1 229
Security Lending 23,913
Total Income 293,188
Expenses  
The Vanguard Group—Note B  
Investment Advisory Services 1,002
Management and Administrative—Investor Shares 13,917
Management and Administrative—Admiral Shares 2,479
Management and Administrative—Signal Shares 1,587
Management and Administrative—Institutional Shares 1,948
Management and Administrative—Institutional Plus Shares 7
Management and Administrative—ETF Shares 2,904
Marketing and Distribution—Investor Shares 1,723
Marketing and Distribution—Admiral Shares 405
Marketing and Distribution—Signal Shares 546
Marketing and Distribution—Institutional Shares 1,310
Marketing and Distribution—Institutional Plus Shares
Marketing and Distribution—ETF Shares 1,023
Custodian Fees 821
Auditing Fees 33
Shareholders’ Reports—Investor Shares 206
Shareholders’ Reports—Admiral Shares 17
Shareholders’ Reports—Signal Shares 25
Shareholders’ Reports—Institutional Shares 119
Shareholders’ Reports—Institutional Plus Shares
Shareholders’ Reports—ETF Shares 225
Trustees’ Fees and Expenses 30
Total Expenses 30,327
Net Investment Income 262,861
Realized Net Gain (Loss)  
Investment Securities Sold 933,213
Futures Contracts 9,286
Realized Net Gain (Loss) 942,499
Change in Unrealized Appreciation (Depreciation)  
Investment Securities 3,700,124
Futures Contracts (558)
Change in Unrealized Appreciation (Depreciation) 3,699,566
Net Increase (Decrease) in Net Assets Resulting from Operations 4,904,926
1 Interest income from an affiliated company of the fund was $209,000.  
See accompanying Notes, which are an integral part of the Financial Statements.  

 

19


 

Small-Cap Index Fund

Statement of Changes in Net Assets    
 
  Year Ended December 31,
  2010 2009
  ($000) ($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 262,861 178,324
Realized Net Gain (Loss) 942,499 (433,963)
Change in Unrealized Appreciation (Depreciation) 3,699,566 4,479,579
Net Increase (Decrease) in Net Assets Resulting from Operations 4,904,926 4,223,940
Distributions    
Net Investment Income    
Investor Shares (54,888) (58,993)
Admiral Shares (60,927) (22,117)
Signal Shares (26,640) (19,496)
Institutional Shares (66,672) (48,371)
Institutional Plus Shares (3,937)
ETF Shares (56,141) (36,024)
Realized Capital Gain    
Investor Shares
Admiral Shares
Signal Shares
Institutional Shares
Institutional Plus Shares
ETF Shares
Total Distributions (269,205) (185,001)
Capital Share Transactions    
Investor Shares (2,074,399) 372,313
Admiral Shares 2,843,790 40,938
Signal Shares 72,423 128,306
Institutional Shares 387,352 603,547
Institutional Plus Shares 342,580
ETF Shares 520,315 1,671,490
Net Increase (Decrease) from Capital Share Transactions 2,092,061 2,816,594
Total Increase (Decrease) 6,727,782 6,855,533
Net Assets    
Beginning of Period 17,290,921 10,435,388
End of Period1 24,018,703 17,290,921
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($29,196,000) and ($22,852,000).

 

See accompanying Notes, which are an integral part of the Financial Statements.

20


 

Small-Cap Index Fund

Financial Highlights          
 
Investor Shares          
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $27.49 $20.40 $32.58 $32.62 $28.52
Investment Operations          
Net Investment Income .355 .272 .398 .413 .357
Net Realized and Unrealized Gain (Loss)          
on Investments 7.266 7.094 (12.174) (.041) 4.101
Total from Investment Operations 7.621 7.366 (11.776) .372 4.458
Distributions          
Dividends from Net Investment Income (.361) (.276) (.404) (.412) (.358)
Distributions from Realized Capital Gains
Total Distributions (.361) (.276) (.404) (.412) (.358)
Net Asset Value, End of Period $34.75 $27.49 $20.40 $32.58 $32.62
 
Total Return1 27.72% 36.12% -36.07% 1.16% 15.64%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $5,270 $5,913 $4,050 $6,214 $6,808
Ratio of Total Expenses to          
Average Net Assets 0.26% 0.28% 0.23% 0.22% 0.23%
Ratio of Net Investment Income to          
Average Net Assets 1.24% 1.30% 1.49% 1.23% 1.18%
Portfolio Turnover Rate2 12% 14% 14% 16% 13%

 

1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.

2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

21


 

Small-Cap Index Fund

Financial Highlights          
 
Admiral Shares          
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $27.50 $20.40 $32.59 $32.64 $28.53
Investment Operations          
Net Investment Income .384 .303 .426 .440 .395
Net Realized and Unrealized Gain (Loss)          
on Investments 7.286 7.105 (12.185) (.040) 4.101
Total from Investment Operations 7.670 7.408 (11.759) .400 4.496
Distributions          
Dividends from Net Investment Income (.390) (.308) (.431) (.450) (.386)
Distributions from Realized Capital Gains
Total Distributions (.390) (.308) (.431) (.450) (.386)
Net Asset Value, End of Period $34.78 $27.50 $20.40 $32.59 $32.64
 
Total Return 27.89% 36.33% -36.00% 1.24% 15.77%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $5,554 $1,992 $1,444 $2,325 $3,078
Ratio of Total Expenses to          
Average Net Assets 0.12% 0.14% 0.12% 0.11% 0.13%
Ratio of Net Investment Income to          
Average Net Assets 1.38% 1.44% 1.60% 1.34% 1.28%
Portfolio Turnover Rate1 12% 14% 14% 16% 13%

 

1 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

22


 

Small-Cap Index Fund

Financial Highlights          
 
Signal Shares          
          Dec. 15,
          20061 to
For a Share Outstanding   Year Ended December 31, Dec. 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $24.79 $18.39 $29.38 $29.42 $29.98
Investment Operations          
Net Investment Income .359 .274 .385 .406 .004
Net Realized and Unrealized Gain (Loss)          
on Investments 6.545 6.405 (10.985) (.042) (.251)
Total from Investment Operations 6.904 6.679 (10.600) .364 (.247)
Distributions          
Dividends from Net Investment Income (.364) (.279) (.390) (.404) (.313)
Distributions from Realized Capital Gains
Total Distributions (.364) (.279) (.390) (.404) (.313)
Net Asset Value, End of Period $31.33 $24.79 $18.39 $29.38 $29.42
 
Total Return 27.85% 36.34% -36.00% 1.25% -0.82%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $2,300 $1,763 $1,172 $1,625 $157
Ratio of Total Expenses to          
Average Net Assets 0.12% 0.14% 0.12% 0.11% 0.13%2
Ratio of Net Investment Income to          
Average Net Assets 1.38% 1.44% 1.60% 1.34% 1.28%2
Portfolio Turnover Rate3 12% 14% 14% 16% 13%

 

1 Inception.
2 Annualized.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

23


 

Small-Cap Index Fund

Financial Highlights          
 
Institutional Shares          
 
For a Share Outstanding     Year Ended December 31,
Throughout The Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $27.50 $20.40 $32.60 $32.65 $28.54
Investment Operations          
Net Investment Income .410 .316 .441 .457 .411
Net Realized and Unrealized Gain (Loss)          
on Investments 7.276 7.106 (12.196) (.041) 4.101
Total from Investment Operations 7.686 7.422 (11.755) .416 4.512
Distributions          
Dividends from Net Investment Income (.416) (.322) (.445) (.466) (.402)
Distributions from Realized Capital Gains
Total Distributions (.416) (.322) (.445) (.466) (.402)
Net Asset Value, End of Period $34.77 $27.50 $20.40 $32.60 $32.65
 
Total Return 27.95% 36.40% -35.98% 1.29% 15.82%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $5,711 $4,162 $2,545 $3,585 $3,107
Ratio of Total Expenses to          
Average Net Assets 0.08% 0.08% 0.07% 0.07% 0.08%
Ratio of Net Investment Income to          
Average Net Assets 1.42% 1.50% 1.65% 1.38% 1.33%
Portfolio Turnover Rate1 12% 14% 14% 16% 13%

 

1 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

24


 

Small-Cap Index Fund

Financial Highlights  
 
Institutional Plus Shares  
  Dec. 17,
  20101 to
For a Share Outstanding Dec. 31,
Throughout The Period 2010
Net Asset Value, Beginning of Period $100.73
Investment Operations  
Net Investment Income .0642
Net Realized and Unrealized Gain (Loss) on Investments .767
Total from Investment Operations .831
Distributions  
Dividends from Net Investment Income (1.181)
Distributions from Realized Capital Gains
Total Distributions (1.181)
Net Asset Value, End of Period $100.38
 
Total Return 0.82%
 
Ratios/Supplemental Data  
Net Assets, End of Period (Millions) $341
Ratio of Total Expenses to Average Net Assets 0.06%3
Ratio of Net Investment Income to Average Net Assets 1.44%3
Portfolio Turnover Rate4 12%

 

1 Inception.
2 Calculated based on average shares outstanding.
3 Annualized.
4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

See accompanying Notes, which are an integral part of the Financial Statements.

25


 

Small-Cap Index Fund

Financial Highlights          
 
ETF Shares          
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2010 2009 2008 2007 2006
Net Asset Value, Beginning of Period $57.41 $42.60 $68.07 $68.16 $59.59
Investment Operations          
Net Investment Income .833 .646 .910 .959 .836
Net Realized and Unrealized Gain (Loss)          
on Investments 15.183 14.822 (25.462) (.093) 8.569
Total from Investment Operations 16.016 15.468 (24.552) .866 9.405
Distributions          
Dividends from Net Investment Income (.846) (.658) (.918) (.956) (.835)
Distributions from Realized Capital Gains
Total Distributions (.846) (.658) (.918) (.956) (.835)
Net Asset Value, End of Period $72.58 $57.41 $42.60 $68.07 $68.16
 
Total Return 27.89% 36.31% -35.99% 1.27% 15.79%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $4,843 $3,460 $1,224 $1,121 $670
Ratio of Total Expenses to          
Average Net Assets 0.12% 0.14% 0.10% 0.10% 0.10%
Ratio of Net Investment Income to          
Average Net Assets 1.38% 1.44% 1.62% 1.35% 1.31%
Portfolio Turnover Rate1 12% 14% 14% 16% 13%

 

1 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.

 

26

 


 

Small-Cap Index Fund

Notes to Financial Statements

Vanguard Small-Cap Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers six classes of shares: Investor Shares, Admiral Shares, Signal Shares, Institutional Shares, Institutional Plus Shares, and ETF Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares, Signal Shares, Institutional Shares, and Institutional Plus Shares are designed for investors who meet certain administrative, service, and account-size criteria. Institutional Plus Shares were first issued on December 17, 2010. ETF Shares are listed for trading on the NYSE Arca, Inc.; they can be purchased and sold through a broker.

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: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. 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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. 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.

2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.

Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the Statement of Net Assets. 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 taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (December 31, 2007–2010), and has concluded that no provision for federal income tax is required in the fund’s financial statements.

4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

27


 

Small-Cap Index Fund

5. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents fees charged to borrowers plus income earned on investing cash collateral, less expenses associated with the loan.

6. Other: Dividend income is recorded on the ex-dividend date. 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) 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 December 31, 2010, the fund had contributed capital of $3,862,000 to Vanguard (included in Other Assets), representing 0.02% of the fund’s net assets and 1.54% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

Level 1Quoted prices in active markets for identical securities.
Level 2Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).

The following table summarizes the fund’s investments as of December 31, 2010, based on the inputs
used to value them:

  Level 1 Level 2 Level 3
Investments ($000) ($000) ($000)
Common Stocks 23,968,134
Temporary Cash Investments 477,032 9,597
Futures Contracts----Assets1 138
Futures Contracts—Liabilities1 (570)
Total 24,444,734 9,597
1 Represents variation margin on the last day of the reporting period.      

 

28


 

Small-Cap Index Fund

D. At December 31, 2010, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:

        ($000)
      Aggregate  
    Number of Settlement Unrealized
    Long (Short) Value Appreciation
Futures Contracts Expiration Contracts Long (Short) (Depreciation)
E-mini Russell 2000 Index March 2011 696 54,448 (444)

 

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

 

E. 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 are primarily attributed to tax deferral of losses on wash sales and 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.

During the year ended December 31, 2010, the fund realized $1,388,743 ,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital.

For tax purposes, at December 31, 2010, the fund had $332,000 of ordinary income available for distribution. The fund had available capital loss carryforwards totaling $2,405,922,000 to offset future net capital gains of $326,341,000 through December 31, 2011, $23,049,000 through December 31, 2015, $481,807,000 through December 31, 2016, $970,576,000 through December 31, 2017, and $604,149,000 through December 31, 2018. In addition, the fund realized losses of $104,033,000 during the period from November 1, 2010, through December 31, 2010, which are deferred and will be treated as realized for tax purposes in fiscal 2011.

At December 31, 2010, the cost of investment securities for tax purposes was $20,281,503,000. Net unrealized appreciation of investment securities for tax purposes was $4,173,260,000, consisting of unrealized gains of $5,615,865,000 on securities that had risen in value since their purchase and $1,442,605,000 in unrealized losses on securities that had fallen in value since their purchase.

F. During the year ended December 31, 2010, the fund purchased $7,298,774,000 of investment securities and sold $5,183,605,000 of investment securities, other than temporary cash investments.

29


 

Small-Cap Index Fund

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

      Year Ended December 31,
    2010   2009
  Amount Shares Amount Shares
  ($000) (000) ($000) (000)
Investor Shares        
Issued 1,807,733 59,832 1,292,322 58,916
Issued in Lieu of Cash Distributions 53,356 1,533 56,593 2,071
Redeemed (3,935,488) (124,812) (976,602) (44,417)
Net Increase (Decrease)—Investor Shares (2,074,399) (63,447) 372,313 16,570
Admiral Shares        
Issued 3,132,693 97,007 290,764 13,073
Issued in Lieu of Cash Distributions 55,406 1,588 19,054 699
Redeemed (344,309) (11,363) (268,880) (12,110)
Net Increase (Decrease)—Admiral Shares 2,843,790 87,232 40,938 1,662
Signal Shares        
Issued 800,486 28,955 550,957 27,652
Issued in Lieu of Cash Distributions 23,162 738 16,939 691
Redeemed (751,225) (27,451) (439,590) (20,897)
Net Increase (Decrease)—Signal Shares 72,423 2,242 128,306 7,446
Institutional Shares        
Issued 1,689,975 55,195 1,294,155 57,320
Issued in Lieu of Cash Distributions 63,621 1,826 45,986 1,686
Redeemed (1,366,244) (44,082) (736,594) (32,428)
Net Increase (Decrease)—Institutional Shares 387,352 12,939 603,547 26,578
Institutional Plus Shares1        
Issued 349,865 3,473
Issued in Lieu of Cash Distributions 3,937 39
Redeemed (11,222) (111)
Net Increase (Decrease)—Institutional Plus Shares 342,580 3,401
ETF Shares        
Issued 3,323,756 52,160 2,815,775 56,037
Issued in Lieu of Cash Distributions
Redeemed (2,803,441) (45,700) (1,144,285) (24,500)
Net Increase (Decrease)—ETF Shares 520,315 6,460 1,671,490 31,537
1 Inception was December 17, 2010, for Institutional Plus Shares.        

 

H. In preparing the financial statements as of December 31, 2010, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.

30


 

Small-Cap Growth Index Fund

Fund Profile
As of December 31, 2010

Share-Class Characteristics  
 
  Investor Institutional ETF
  Shares Shares Shares
Ticker Symbol VISGX VSGIX VBK
Expense Ratio1 0.28% 0.08% 0.14%
30-Day SEC Yield 0.22% 0.40% 0.36%

 

 

Portfolio Characteristics    
      DJ
    MSCI US U.S. Total
    Small Cap Market
  Fund Growth Index
Number of Stocks 1,000 995 3,893
Median Market Cap $1.7B $1.7B $29.6B
Price/Earnings Ratio 32.9x 32.9x 18.3x
Price/Book Ratio 3.1x 3.1x 2.2x
Return on Equity 12.2% 12.2% 18.8%
Earnings Growth Rate 8.5% 8.5% 6.2%
Dividend Yield 0.3% 0.3% 1.7%
Foreign Holdings 0.0% 0.0% 0.0%
Turnover Rate 34%
Short-Term Reserves 0.3%

 

 

Sector Diversification (% of equity exposure)
      DJ
    MSCI US U.S. Total
    Small Cap Market
  Fund Growth Index
Consumer      
Discretionary 17.2% 17.2% 11.9%
Consumer Staples 1.7 1.7 9.5
Energy 7.4 7.4 10.6
Financials 5.7 5.6 16.6
Health Care 16.0 16.1 10.7
Industrials 17.8 17.8 11.4
Information      
Technology 27.2 27.2 18.9
Materials 5.1 5.1 4.5
Telecommunication      
Services 1.3 1.3 2.7
Utilities 0.6 0.6 3.2

 

 

Volatility Measures    
    DJ
  MSCI US U.S. Total
  Small Cap Market
  Growth Index
R-Squared 1.00 0.93
Beta 1.00 1.23

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

 

 

Ten Largest Holdings (% of total net assets)
Riverbed Technology Communications  
Inc. Equipment 0.5%
Gentex Corp. Auto Parts &  
  Equipment 0.5
Informatica Corp. Application  
  Software 0.5
Signet Jewelers Ltd. Specialty Stores 0.5
Gardner Denver Inc. Industrial  
  Machinery 0.4
Solera Holdings Inc. Application  
  Software 0.4
E*Trade Financial Corp. Investment Banking  
  & Brokerage 0.4
Tractor Supply Co. Specialty Stores 0.4
MICROS Systems Inc. Systems Software 0.4
Atlas Energy Inc. Oil & Gas  
  Exploration &  
  Production 0.4
Top Ten   4.4%

The holdings listed exclude any temporary cash investments and equity index products.

 

Investment Focus


1 The expense ratios shown are from the prospectus dated December 13, 2010, for the Institutional Shares and April 29, 2010, for the Investor and ETF Shares, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2010, the expense ratios were 0.26% for Investor Shares, 0.08% for Institutional Shares, and 0.12% for ETF Shares.

31


 

Small-Cap Growth Index 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 vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

Cumulative Performance: December 31, 2000, Through December 31, 2010
Initial Investment of $10,000


 
    Average Annual Total Returns  
    Periods Ended December 31, 2010  
          Final Value
    One Five Ten of a $10,000
    Year Years Years Investment
  Small-Cap Growth Index Fund Investor        
  Shares 30.69% 6.42% 7.52% $20,640
••••••• Dow Jones U.S. Total Stock Market        
  Index 17.70 3.17 2.64 12,981
– – – – Spliced Small-Cap Growth Index 30.71 6.44 7.42 20,466
  Small-Cap Growth Funds Average 27.32 3.70 2.34 12,606
Spliced Small-Cap Growth Index: S&P SmallCap 600/Barra Growth Index through May 16, 2003; MSCI US Small Cap Growth Index thereafter.
Small-Cap Growth Funds Average: Derived from data provided by Lipper Inc.      

 

 

        Final Value
  One Five Ten of a $5,000,000
  Year Years Years Investment
Small-Cap Growth Index Fund        
Institutional Shares 30.96% 6.60% 7.69% $10,489,496
Dow Jones U.S. Total Stock Market        
Index 17.70 3.17 2.64 6,490,386
Spliced Small-Cap Growth Index 30.71 6.44 7.42 10,233,210

 

See Financial Highlights for dividend and capital gains information.

32


 

Small-Cap Growth Index Fund

  Average Annual Total Returns  
  Periods Ended December 31, 2010  
      Since Final Value
  One Five Inception of a $10,000
  Year Years (1/26/2004) Investment
Small-Cap Growth Index Fund        
ETF Shares Net Asset Value 30.87% 6.55% 6.92% $15,896
Dow Jones U.S. Total Stock Market Index 17.70 3.17 4.30 13,390
MSCI US Small Cap Growth Index 30.71 6.44 6.83 15,806
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.

 

 

Cumulative Returns of ETF Shares: January 26, 2004, Through December 31, 2010  
      Since
  One Five Inception
  Year Years (1/26/2004)
Small-Cap Growth Index Fund      
ETF Shares Market Price 31.11% 37.59% 59.10%
Small-Cap Growth Index Fund      
ETF Shares Net Asset Value 30.87 37.30 58.96
MSCI US Small Cap Growth Index 30.71 36.59 58.06
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standard.  

 

Fiscal-Year Total Returns (%): December 31, 2000, Through December 31, 2010


33


 

Small-Cap Growth Index Fund

Financial Statements

Statement of Net Assets—Investments Summary
As of December 31, 2010

This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. 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).

      Market Percentage
      Value of Net
    Shares ($000) Assets
Common Stocks      
Consumer Discretionary      
  Gentex Corp. 1,297,526 38,355 0.5%
* Signet Jewelers Ltd. 794,357 34,475 0.4%
  Tractor Supply Co. 673,859 32,675 0.4%
*,^ Lululemon Athletica Inc. 427,210 29,230 0.4%
* Deckers Outdoor Corp. 358,547 28,591 0.4%
  Sotheby’s 621,357 27,961 0.4%
* Panera Bread Co. Class A 275,568 27,890 0.4%
* Tempur-Pedic International Inc. 614,600 24,621 0.3%
* WMS Industries Inc. 538,621 24,367 0.3%
* J Crew Group Inc. 562,190 24,253 0.3%
  Consumer Discretionary—Other †   1,009,840 13.3%
      1,302,258 17.1%
 
Consumer Staples †   128,707 1.7%
 
Energy      
* Atlas Energy Inc. 726,879 31,961 0.4%
* Brigham Exploration Co. 1,081,130 29,450 0.4%
* Superior Energy Services Inc. 730,540 25,562 0.4%
  Energy—Other †   472,887 6.2%
      559,860 7.4%
Financials      
* E*Trade Financial Corp. 2,046,254 32,740 0.4%
  Taubman Centers Inc. 506,946 25,591 0.4%
  East West Bancorp Inc. 1,303,345 25,480 0.3%
  Financials—Other †   338,537 4.5%
      422,348 5.6%

 

34


 

Small-Cap Growth Index Fund

      Market Percentage
      Value of Net
    Shares ($000) Assets
Health Care      
* Allscripts Healthcare Solutions Inc. 1,647,905 31,755 0.4%
* United Therapeutics Corp. 497,230 31,435 0.4%
* Tenet Healthcare Corp. 4,498,387 30,094 0.4%
* BioMarin Pharmaceutical Inc. 946,255 25,483 0.4%
* Salix Pharmaceuticals Ltd. 536,034 25,172 0.3%
  Health Care—Other †   1,070,177 14.1%
      1,214,116 16.0%
Industrials      
  Gardner Denver Inc. 484,954 33,375 0.4%
* TransDigm Group Inc. 434,586 31,295 0.4%
* Oshkosh Corp. 839,354 29,579 0.4%
  IDEX Corp. 755,272 29,546 0.4%
  Waste Connections Inc. 1,021,183 28,113 0.4%
  Nordson Corp. 283,328 26,032 0.4%
* Corrections Corp. of America 1,024,320 25,669 0.3%
  Wabtec Corp. 444,338 23,501 0.3%
* Thomas & Betts Corp. 484,636 23,408 0.3%
  Industrials—Other †   1,093,319 14.4%
      1,343,837 17.7%
Information Technology      
* Riverbed Technology Inc. 1,142,768 40,191 0.5%
* Informatica Corp. 858,000 37,778 0.5%
  Solera Holdings Inc. 649,144 33,314 0.4%
* MICROS Systems Inc. 742,671 32,574 0.4%
* Polycom Inc. 790,575 30,817 0.4%
* VeriFone Systems Inc. 792,213 30,548 0.4%
* TIBCO Software Inc. 1,519,762 29,954 0.4%
* JDS Uniphase Corp. 2,054,355 29,747 0.4%
* CommScope Inc. 878,117 27,415 0.4%
*,^ Rackspace Hosting Inc. 869,040 27,297 0.4%
* Monster Worldwide Inc. 1,143,343 27,017 0.4%
* WebMD Health Corp. 511,523 26,118 0.3%
* Varian Semiconductor Equipment Associates Inc. 693,601 25,642 0.3%
* Parametric Technology Corp. 1,069,470 24,095 0.3%
* Atheros Communications Inc. 656,730 23,590 0.3%
* Gartner Inc. 706,933 23,470 0.3%
  Information Technology—Other †   1,584,796 20.9%
      2,054,363 27.0%
Materials      
* Hecla Mining Co. 2,374,092