N-CSR 1 index_final.htm VANGUARD INDEX FUNDS index_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: 811-02652

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, 2012 – December 31, 2012

Item 1: Reports to Shareholders


 

 

Annual Report | December 31, 2012
Vanguard 500 Index Fund

 



 

> For the 12 months ended December 31, 2012, Vanguard 500 Index Fund returned about 16%, notching its best yearly performance since 2009.

> The period was marked by strong returns from financial stocks and lackluster results from utility stocks.

> For the decade ended December 31, the fund closely tracked its target index and exceeded the average annual return of peer funds.

Contents  
Your Fund’s Total Returns. 1
Chairman’s Letter. 2
Fund Profile. 7
Performance Summary. 9
Financial Statements. 11
Your Fund’s After-Tax Returns. 29
About Your Fund’s Expenses. 30
Glossary. 32

 

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Our cover photograph shows rigging on the HMSSurprise, a replica of an 18th-century Royal Navy frigate. It was featured in the 2003 movie Master and Commander: The Far Side of the World, which was based on Patrick O’Brian’s sea novels, set amid the Napoleonic Wars. Vanguard was named for another ship of that era, the HMSVanguard, which was the flagship of British Admiral Horatio Nelson at the Battle of the Nile.


 

Your Fund’s Total Returns  
 
 
 
 
Fiscal Year Ended December 31, 2012  
 
  Total
  Returns
Vanguard 500 Index Fund  
Investor Shares 15.82%
Admiral™ Shares 15.96
Signal® Shares 15.97
ETF Shares  
Market Price 16.01
Net Asset Value 15.98
S&P 500 Index 16.00
Large-Cap Core Funds Average 14.94
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; 7,720,749; 7,925,573; 8,090,646.

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, 2011, Through December 31, 2012        
      Distributions Per Share
  Starting Ending Income Capital
  Share Price Share Price Dividends Gains
Vanguard 500 Index Fund        
Investor Shares $115.80 $131.37 $2.699 $0.000
Admiral Shares 115.80 131.37 2.856 0.000
Signal Shares 95.65 108.52 2.359 0.000
ETF Shares 57.46 65.19 1.418 0.000

 

1


 


Chairman’s Letter

Dear Shareholder,

Vanguard 500 Index Fund returned about 16% for the 12 months ended December 31, 2012, posting its best fiscal-year result since 2009. The fund closely tracked its target, the Standard & Poor’s 500 Index, and outperformed the average return of peer funds.

A rebound in financials—the worst-performing sector in 2011—helped drive the index’s advance. All ten industry sectors had positive returns for the year; utility stocks had the smallest gain.

If you own the fund in a taxable account, you may wish to review the information on after-tax returns presented later in this report.

With help from central banks, stocks posted strong results
Stocks around the world recorded double-digit gains for the 12 months ended December 31, with international stocks faring even better than their U.S. counterparts.

European stocks shook off investors’ concerns to deliver some of the best results, rising about 19%. The rally came as European central bankers moved to address worries about the finances of governments and banks. Still, Vanguard economists expect Europe to remain a trouble spot, with occasional spikes in market volatility, as fiscal tightening persists in the face of weak economic growth.

2


 

In the United States, the Federal Reserve continued buying bonds and mortgage-backed securities to try to stimulate growth. The Fed’s actions seemed to buoy both stock and bond returns.

Attention to the nation’s considerable budget challenges intensified as 2012 drew to a close. The focus on the “fiscal cliff” led to nervousness in the markets before policymakers reached a limited tax-rate agreement on the cusp of the new year. The compromise legislation, which President Barack Obama signed into law on January 2, addressed some immediate concerns, but a credible long-term deficit-reduction strategy had yet to be crafted to resolve the nation’s fiscal imbalance and open the way for growth.

Bond returns were solid, but challenges lie ahead
The broad U.S. taxable bond market returned about 4% for the 12 months. Municipal bonds performed especially well, returning more than 6%.

As bond prices rose, the yield of the 10-year U.S. Treasury note slipped to a record low in July, closing below 1.5%. (Bond yields and prices move in opposite directions.) By the end of the period, the yield had climbed, but it remained exceptionally low by historical standards.

Although bonds can provide critical diversification benefits to a portfolio, their return prospects look much less promising

Market Barometer      
 
    Average Annual Total Returns
  Periods Ended December 31, 2012
  One Three Five
  Year Years Years
Stocks      
Russell 1000 Index (Large-caps) 16.42% 11.12% 1.92%
Russell 2000 Index (Small-caps) 16.35 12.25 3.56
Russell 3000 Index (Broad U.S. market) 16.42 11.20 2.04
MSCI All Country World Index ex USA (International) 16.83 3.87 -2.89
 
Bonds      
Barclays U.S. Aggregate Bond Index (Broad taxable market) 4.21% 6.19% 5.95%
Barclays Municipal Bond Index (Broad tax-exempt market) 6.78 6.57 5.91
Citigroup Three-Month U.S. Treasury Bill Index 0.07 0.08 0.44
 
CPI      
Consumer Price Index 1.74% 2.06% 1.80%

 

3


 

than the results achieved in recent years As yields have tumbled, the opportunity for future bond price appreciation has greatly diminished. (You can read more about our expectations for bond and stock returns in Vanguard’s Economic and Investment Outlook, available at vanguard.com/research.)

As it has since late 2008, the Fed held its target for short-term interest rates between 0% and 0.25%, which kept a tight lid on returns from money market funds and savings accounts.

Financial, tech stocks rallied; utility, energy stocks lagged
As I mentioned earlier, financial stocks were among the best performers for the year as banks, brokerages, and finance companies put some more distance between their balance sheets and the financial crisis. Bank stocks seemed to get a further lift as the U.S. housing recovery gathered strength—a development that benefited shares of home improvement retailers and home builders as well.

The benchmark’s largest sector, information technology, also boosted returns significantly as the “ripple effect” of the growing popularity of smartphones and tablet computers spread from computer hardware manufacturers to software and internet companies. IT services and communication equipment firms also benefited from consumer and corporate demand.

Expense Ratios          
Your Fund Compared With Its Peer Group          
 
  Investor Admiral Signal ETF Peer Group
  Shares Shares Shares Shares Average
500 Index Fund 0.17% 0.05% 0.05% 0.05% 1.19%

The fund expense ratios shown are from the prospectus dated April 26, 2012, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2012, the fund’s expense ratios were 0.17% for Investor Shares, 0.05% for Admiral Shares, 0.05% for Signal Shares, and 0.05% for ETF Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2011.

Peer group: Large-Cap Core Funds.

4


 

Weak spots included energy and utility stocks. Economic sluggishness has restrained power and energy demand, while the abundance of natural gas has put pressure on oil and gas prices.

Your fund has delivered solid long-term results
For the ten-year period ended December 31, Investor Shares of the 500 Index Fund produced an average annual return of just under 7%. By historical standards, the results don’t appear especially impressive—until, that is, you consider the challenges of the past decade. Over the ten years, investors endured some traumatic events, including the aftermath of the bursting of the technology bubble in the early 2000s and the more recent financial crisis and global recession. The fund emerged from that turbulence with a ten-year average return that was more than a percentage point better than the average return of peer funds.

Through the market’s ups and downs, the fund met its goal of closely tracking the S&P 500 Index. This success reflects the skill of the advisor, Vanguard Equity Investment Group. The group relies on its proven portfolio management strategies in seeking to produce benchmark-tracking returns regardless of external market conditions. At the same time, the fund’s low costs help you keep your share of the market’s returns.

Total Returns  
Ten Years Ended December 31, 2012  
  Average
  Annual Return
500 Index Fund Investor Shares 6.99%
S&P 500 Index 7.10
Large-Cap Core Funds Average 5.64
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


 

Gus Sauter united traditional values with pioneering investment acumen
When I was interviewing for a job at Vanguard in the mid-1980s, Jack Brennan, who would go on to become our chairman and chief executive officer and is now chairman emeritus, described Vanguard as “a company with the intellectual rigor of Wall Street but with Midwestern values.”

I’m reminded of that when I think about Gus Sauter’s 25-year career at Vanguard. Gus retired as our chief investment officer at the end of December, having set the highest of standards for both intellectual achievement and devotion to doing the right thing for clients, colleagues, and community.

Gus played a pivotal role in transforming indexing from a novelty to an investing mainstay, a change that has benefited all investors. In addition, he developed our active quantitative equity strategies, oversaw the growth of our industry-leading expertise in fixed income, and ultimately helped Vanguard to become a global investment manager responsible for $2 trillion in client assets.

As for the Midwestern values, Gus—a native of Ohio, incidentally—served our clients with a dedication to thrift, candor, and common sense that has helped make Vanguard what it is. His colleagues knew that in any situation they could count on him to keep a level-headed, long-term outlook. Just two weeks after he started at Vanguard, he helped guide us through the stock market crash of 1987. Some 20 years later, he helped us navigate the financial crisis of 2008–2009.

An important aspect of Gus’s legacy is the team of world-class investment professionals that he cultivated at Vanguard. That team is now led by Tim Buckley, who oversaw our services for individual investors before becoming chief investment officer. I am confident that Tim will not only carry on Gus’s legacy, but also—as Gus himself put it—take Vanguard investment management to the next level.

As always, thank you for investing with Vanguard.

Sincerely,


F. William McNabb III
Chairman and Chief Executive Officer
January 14, 2013

6


 

500 Index Fund        
 
 
Fund Profile        
As of December 31, 2012        
 
Share-Class Characteristics        
  Investor Admiral Signal ETF
  Shares Shares Shares Shares
Ticker Symbol VFINX VFIAX VIFSX VOO
Expense Ratio1 0.17% 0.05% 0.05% 0.05%
30-Day SEC Yield 2.12% 2.24% 2.24% 2.24%

 

Portfolio Characteristics    
      DJ U.S.
      Total
    S&P 500 Market
  Fund Index FA Index
Number of Stocks 504 500 3,604
Median Market Cap $56.4B $56.4B $35.1B
Price/Earnings Ratio 15.9x 15.9x 16.8x
Price/Book Ratio 2.1x 2.1x 2.1x
Return on Equity 18.7% 18.7% 17.1%
Earnings Growth Rate 9.7% 9.7% 9.7%
Dividend Yield 2.3% 2.3% 2.1%
Foreign Holdings 0.0% 0.0% 0.0%
Turnover Rate 3%
Short-Term Reserves -0.1%

 

Volatility Measures    
    DJ
    U.S.
    Total
    Market
  S&P 500 FA
  Index Index
R-Squared 1.00 1.00
Beta 1.00 0.96

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)

Apple Inc. Computer Hardware 3.9%
Exxon Mobil Corp. Integrated Oil & Gas 3.1
General Electric Co. Industrial  
  Conglomerates 1.7
Chevron Corp. Integrated Oil & Gas 1.7
International Business IT Consulting &  
Machines Corp. Other Services 1.6
Microsoft Corp. Systems Software 1.6
Johnson & Johnson Pharmaceuticals 1.5
AT&T Inc. Integrated  
  Telecommunication  
  Services 1.5
Google Inc. Class A Internet Software &  
  Services 1.5
Procter & Gamble Co. Household Products 1.5
Top Ten   19.6%

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

1 The expense ratios shown are from the prospectus dated April 26, 2012, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2012, the expense ratios were 0.17% for Investor Shares, 0.05% for Admiral Shares, 0.05% for Signal Shares, and 0.05% for ETF Shares.

7


 

500 Index Fund

Sector Diversification (% of equity exposure)

      DJ U.S.
      Total
    S&P 500 Market FA
  Fund Index Index
Consumer Discretionary 11.5% 11.5% 12.3%
Consumer Staples 10.6 10.6 9.3
Energy 11.0 11.0 10.2
Financials 15.6 15.6 16.9
Health Care 12.0 12.0 11.7
Industrials 10.1 10.1 11.1
Information Technology 19.1 19.1 18.3
Materials 3.6 3.6 4.0
Telecommunication      
Services 3.1 3.1 2.7
Utilities 3.4 3.4 3.5

 

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, 2002, Through December 31, 2012
Initial Investment of $10,000


    Average Annual Total Returns  
  Periods Ended December 31, 2012  
        Final Value
  One Five Ten of a $10,000
  Year Years Years Investment
500 Index Fund Investor Shares 15.82% 1.57% 6.99% $19,644
S&P 500 Index 16.00 1.66 7.10 19,858
Large-Cap Core Funds Average 14.94 0.50 5.64 17,317
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 7.95 21,484

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 15.96% 1.68% 7.09% $19,832
S&P 500 Index 16.00 1.66 7.10 19,858
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 7.95 21,484

 

See Financial Highlights for dividend and capital gains information.

9


 

500 Index Fund        
 
 
    Average Annual Total Returns  
  Periods Ended December 31, 2012  
      Since Final Value
  One Five Inception of a $10,000
  Year Years (9/29/2006) Investment
500 Index Fund Signal Shares 15.97% 1.68% 3.27% $12,231
S&P 500 Index 16.00 1.66 3.26 12,223
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 3.80 12,629

"Since Inception" performance is calculated from the Signal Shares’ inception date for both the fund and its comparative standards.

 

    Since Final Value
  One Inception of a $10,000
  Year (9/7/2010) Investment
500 Index Fund      
ETF Shares Net Asset Value 15.98% 14.65% $13,722
S&P 500 Index 16.00 14.68 13,730
Dow Jones U.S. Total Stock Market      
Float-Adjusted Index 16.38 14.92 13,799
"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, 2012  
    Since
  One Inception
  Year (9/7/2010)
500 Index Fund ETF Shares Market Price 16.01% 37.25%
500 Index Fund ETF Shares Net Asset Value 15.98 37.22
S&P 500 Index 16.00 37.30
"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, 2002, Through December 31, 2012


10


 

500 Index Fund

Financial Statements

Statement of Net Assets
As of December 31, 2012

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 (11.5%)  
  Comcast Corp. Class A 23,371,305 873,619
  Home Depot Inc. 13,884,567 858,760
* Amazon.com Inc. 3,365,029 845,093
  McDonald’s Corp. 9,323,106 822,391
  Walt Disney Co. 16,456,337 819,361
  News Corp. Class A 18,723,602 478,201
  Ford Motor Co. 35,404,911 458,494
  Time Warner Inc. 8,792,635 420,552
  Lowe’s Cos. Inc. 10,443,752 370,962
  Starbucks Corp. 6,905,084 370,251
  Target Corp. 6,043,276 357,581
  NIKE Inc. Class B 6,777,792 349,734
* priceline.com Inc. 463,040 287,640
  TJX Cos. Inc. 6,771,748 287,461
* DIRECTV 5,609,963 281,396
  Yum! Brands Inc. 4,195,468 278,579
  Time Warner Cable Inc. 2,802,225 272,348
  Viacom Inc. Class B 4,290,051 226,257
  CBS Corp. Class B 5,487,091 208,784
  Johnson Controls Inc. 6,349,551 194,931
  Carnival Corp. 4,140,087 152,231
  Coach Inc. 2,634,163 146,222
  Macy’s Inc. 3,670,347 143,217
  McGraw-Hill Cos. Inc. 2,578,553 140,970
* Discovery    
  Communications    
  Inc. Class A 2,217,896 140,792
  VF Corp. 818,604 123,585
  Omnicom Group Inc. 2,454,037 122,604
* AutoZone Inc. 343,075 121,596
* Bed Bath & Beyond Inc. 2,129,072 119,036
  Mattel Inc. 3,187,418 116,723
  Ross Stores Inc. 2,065,683 111,857
* Dollar General Corp. 2,438,984 107,535
  Limited Brands Inc. 2,223,318 104,629
  Starwood Hotels &    
  Resorts Worldwide Inc. 1,820,284 104,412

 

      Market
      Value
    Shares ($000)
  Harley-Davidson Inc. 2,101,728 102,648
* O’Reilly Automotive Inc. 1,064,683 95,204
  Genuine Parts Co. 1,440,992 91,618
* Chipotle Mexican Grill Inc.    
  Class A 292,556 87,024
  Gap Inc. 2,761,353 85,712
* Dollar Tree Inc. 2,110,495 85,602
  Ralph Lauren Corp.    
  Class A 569,380 85,361
  Marriott International    
  Inc. Class A 2,286,211 85,207
  Kohl’s Corp. 1,965,610 84,482
  Wynn Resorts Ltd. 738,026 83,021
* CarMax Inc. 2,125,429 79,789
* BorgWarner Inc. 1,087,127 77,860
* Delphi Automotive plc 2,028,866 77,604
  Nordstrom Inc. 1,412,530 75,570
  Whirlpool Corp. 723,108 73,576
  Staples Inc. 6,259,574 71,359
  Wyndham Worldwide    
  Corp. 1,302,882 69,326
  PetSmart Inc. 998,275 68,222
  Tiffany & Co. 1,106,857 63,467
  Newell Rubbermaid Inc. 2,671,357 59,491
^ Lennar Corp. Class A 1,524,746 58,962
* PulteGroup Inc. 3,157,689 57,344
  Family Dollar Stores Inc. 889,278 56,389
  Darden Restaurants Inc. 1,194,009 53,814
  Expedia Inc. 863,923 53,088
  DR Horton Inc. 2,592,461 51,279
*,^ Netflix Inc. 515,682 47,845
  Comcast Corp. 1,304,720 46,905
  H&R Block Inc. 2,518,627 46,771
  Scripps Networks    
  Interactive Inc. Class A 806,818 46,731
* Fossil Inc. 501,468 46,687
  Interpublic Group    
  of Cos. Inc. 4,004,863 44,134
* TripAdvisor Inc. 1,017,515 42,695
^ Garmin Ltd. 1,013,566 41,374

 

11


 

500 Index Fund    
 
 
 
      Market
      Value
    Shares ($000)
* Urban Outfitters Inc. 1,015,885 39,985
  Hasbro Inc. 1,074,326 38,568
  Gannett Co. Inc. 2,133,157 38,418
  Leggett & Platt Inc. 1,311,498 35,699
  Abercrombie & Fitch Co. 738,518 35,427
  International Game    
  Technology 2,470,212 35,003
* Goodyear Tire &    
  Rubber Co. 2,273,845 31,402
  Cablevision Systems    
  Corp. Class A 2,003,044 29,925
  Best Buy Co. Inc. 2,479,223 29,379
^ GameStop Corp. Class A 1,124,770 28,220
  Harman International    
  Industries Inc. 629,583 28,105
^ JC Penney Co. Inc. 1,325,448 26,125
* Apollo Group Inc.    
  Class A 930,403 19,464
* Big Lots Inc. 538,378 15,322
  Washington Post Co.    
  Class B 41,833 15,278
* AutoNation Inc. 362,442 14,389
      13,574,674
Consumer Staples (10.6%)    
  Procter & Gamble Co. 25,390,926 1,723,790
  Coca-Cola Co. 35,819,434 1,298,454
  Philip Morris    
  International Inc. 15,513,194 1,297,524
  Wal-Mart Stores Inc. 15,532,380 1,059,774
  PepsiCo Inc. 14,364,443 982,959
  Altria Group Inc. 18,805,454 590,867
  CVS Caremark Corp. 11,576,971 559,747
  Colgate-Palmolive Co. 4,124,241 431,148
  Mondelez International    
  Inc. Class A 16,502,187 420,311
  Costco Wholesale Corp. 4,015,528 396,614
  Kimberly-Clark Corp. 3,633,474 306,774
  Walgreen Co. 7,977,479 295,246
  Kraft Foods Group Inc. 5,501,020 250,131
  General Mills Inc. 5,991,484 242,116
  Sysco Corp. 5,458,160 172,805
  HJ Heinz Co. 2,977,508 171,743
  Archer-Daniels-Midland    
  Co. 6,115,194 167,495
  Whole Foods Market Inc. 1,602,070 146,317
  Lorillard Inc. 1,201,925 140,229
  Estee Lauder Cos. Inc.    
  Class A 2,229,099 133,434
  Kellogg Co. 2,296,337 128,250
  Reynolds American Inc. 3,011,466 124,765
  Mead Johnson    
  Nutrition Co. 1,885,861 124,259
  Kroger Co. 4,772,863 124,190
  ConAgra Foods Inc. 3,785,657 111,677
  Hershey Co. 1,389,084 100,320

 

      Market
      Value
    Shares ($000)
  Beam Inc. 1,478,033 90,293
  Brown-Forman Corp.    
  Class B 1,407,875 89,048
  Clorox Co. 1,211,924 88,737
  JM Smucker Co. 1,007,477 86,885
  Dr Pepper Snapple    
  Group Inc. 1,933,076 85,403
  Coca-Cola Enterprises Inc. 2,506,383 79,528
  McCormick & Co. Inc. 1,230,887 78,198
* Monster Beverage Corp. 1,384,837 73,230
  Molson Coors Brewing Co.  
  Class B 1,447,542 61,940
  Campbell Soup Co. 1,663,937 58,055
  Avon Products Inc. 4,014,108 57,643
  Tyson Foods Inc. Class A 2,664,616 51,694
* Constellation Brands Inc.    
  Class A 1,405,946 49,756
^ Safeway Inc. 2,224,317 40,238
  Hormel Foods Corp. 1,244,593 38,844
* Dean Foods Co. 1,719,365 28,387
      12,558,818
Energy (11.0%)    
  Exxon Mobil Corp. 42,339,589 3,664,491
  Chevron Corp. 18,175,001 1,965,445
  Schlumberger Ltd. 12,328,128 854,216
  ConocoPhillips 11,272,404 653,687
  Occidental Petroleum    
  Corp. 7,523,451 576,372
  Anadarko Petroleum    
  Corp. 4,640,701 344,850
  Phillips 66 5,811,152 308,572
  EOG Resources Inc. 2,515,340 303,828
  Halliburton Co. 8,617,290 298,934
  Apache Corp. 3,633,416 285,223
  National Oilwell Varco Inc. 3,964,214 270,954
  Kinder Morgan Inc. 5,872,240 207,466
  Williams Cos. Inc. 6,257,038 204,855
  Marathon Oil Corp. 6,559,640 201,119
  Marathon Petroleum    
  Corp. 3,149,530 198,420
  Devon Energy Corp. 3,497,475 182,009
  Valero Energy Corp. 5,139,984 175,376
  Spectra Energy Corp. 6,182,607 169,280
  Noble Energy Inc. 1,651,789 168,053
  Baker Hughes Inc. 4,082,362 166,724
  Hess Corp. 2,759,155 146,125
* Cameron International    
  Corp. 2,291,757 129,393
  Ensco plc Class A 2,156,985 127,866
  Pioneer Natural    
  Resources Co. 1,144,735 122,017
* Southwestern Energy    
  Co. 3,245,910 108,446
  Murphy Oil Corp. 1,714,960 102,126
  Cabot Oil & Gas Corp. 1,949,186 96,952

 

12


 

500 Index Fund    
 
 
 
      Market
      Value
    Shares ($000)
  Range Resources Corp. 1,510,677 94,916
* FMC Technologies Inc. 2,208,217 94,578
  EQT Corp. 1,389,755 81,968
  Noble Corp. 2,347,485 81,739
  Chesapeake Energy Corp. 4,815,645 80,036
  CONSOL Energy Inc. 2,115,740 67,915
  Peabody Energy Corp. 2,492,966 66,338
* Denbury Resources Inc. 3,594,592 58,232
  Tesoro Corp. 1,304,408 57,459
  Helmerich & Payne Inc. 981,566 54,978
  QEP Resources Inc. 1,653,650 50,056
  Diamond Offshore    
  Drilling Inc. 645,305 43,855
* Nabors Industries Ltd. 2,695,729 38,953
* Rowan Cos. plc Class A 1,152,893 36,051
* Newfield Exploration Co. 1,255,221 33,615
* WPX Energy Inc. 1,848,916 27,512
      13,001,000
Financials (15.6%)    
  Wells Fargo & Co. 45,463,670 1,553,948
  JPMorgan Chase & Co. 35,300,939 1,552,182
* Berkshire Hathaway    
  Inc. Class B 15,410,188 1,382,294
  Bank of America Corp. 100,088,234 1,161,023
  Citigroup Inc. 27,232,134 1,077,303
  US Bancorp 17,461,388 557,717
  Goldman Sachs    
  Group Inc. 4,102,102 523,264
  American Express Co. 9,040,821 519,666
* American International    
  Group Inc. 13,709,139 483,933
  Simon Property    
  Group Inc. 2,872,573 454,125
  MetLife Inc. 10,131,460 333,730
  Capital One Financial    
  Corp. 5,401,507 312,909
  PNC Financial Services    
  Group Inc. 4,910,976 286,359
  American Tower    
  Corporation 3,671,202 283,674
  Bank of New York    
  Mellon Corp. 10,851,589 278,886
  Travelers Cos. Inc. 3,542,082 254,392
  ACE Ltd. 3,155,410 251,802
  Morgan Stanley 12,833,293 245,372
  BlackRock Inc. 1,164,981 240,813
  Aflac Inc. 4,354,136 231,292
  Prudential Financial Inc. 4,308,580 229,777
  State Street Corp. 4,316,075 202,899
  Public Storage 1,338,853 194,080
  HCP Inc. 4,197,788 189,656
  BB&T Corp. 6,496,699 189,119
  Chubb Corp. 2,432,325 183,203
  Discover Financial    
  Services 4,687,227 180,693
  Allstate Corp. 4,473,663 179,707

 

      Market
      Value
    Shares ($000)
  Ventas Inc. 2,744,361 177,615
  Marsh & McLennan    
  Cos. Inc. 5,054,973 174,245
  Equity Residential 2,987,506 169,302
  Aon plc 2,959,041 164,523
  Franklin Resources Inc. 1,281,322 161,062
  Prologis Inc. 4,279,807 156,170
  T. Rowe Price Group Inc. 2,366,532 154,132
  Boston Properties Inc. 1,400,805 148,219
  Health Care REIT Inc. 2,411,300 147,789
  Charles Schwab Corp. 10,182,422 146,220
  CME Group Inc. 2,847,974 144,421
  AvalonBay Communities    
  Inc. 1,062,035 144,001
  SunTrust Banks Inc. 5,003,350 141,845
  Weyerhaeuser Co. 5,028,350 139,889
* Berkshire Hathaway Inc.    
  Class A 1,019 136,607
  Fifth Third Bancorp 8,333,421 126,585
  Vornado Realty Trust 1,573,486 126,005
  Ameriprise Financial Inc. 1,911,868 119,740
  Loews Corp. 2,888,449 117,704
  M&T Bank Corp. 1,129,601 111,232
  Progressive Corp. 5,168,200 109,049
  Invesco Ltd. 4,124,608 107,611
  Host Hotels & Resorts    
  Inc. 6,732,292 105,495
  Northern Trust Corp. 2,027,112 101,680
  Regions Financial Corp. 13,125,541 93,454
  Hartford Financial    
  Services Group Inc. 4,052,872 90,946
  Moody’s Corp. 1,801,396 90,646
* IntercontinentalExchange    
  Inc. 675,473 83,630
  SLM Corp. 4,292,467 73,530
  Kimco Realty Corp. 3,786,331 73,152
  Principal Financial    
  Group Inc. 2,563,150 73,101
  KeyCorp 8,672,519 73,023
  NYSE Euronext 2,257,122 71,190
  XL Group plc Class A 2,792,230 69,973
  Plum Creek Timber    
  Co. Inc. 1,500,836 66,592
  Lincoln National Corp. 2,554,542 66,163
* CBRE Group Inc.    
  Class A 2,801,037 55,741
  Comerica Inc. 1,767,149 53,615
  Cincinnati Financial Corp. 1,359,305 53,230
  Unum Group 2,554,238 53,179
  Huntington Bancshares    
  Inc. 7,947,077 50,782
  Torchmark Corp. 881,296 45,536
  Leucadia National Corp. 1,839,248 43,756
  People’s United Financial    
  Inc. 3,227,177 39,017
  Zions Bancorporation 1,709,809 36,590

 

13


 

500 Index Fund    
 
 
 
      Market
      Value
    Shares ($000)
  Apartment Investment &    
  Management Co.    
  Class A 1,351,096 36,561
  Hudson City Bancorp Inc. 4,413,038 35,878
* Genworth Financial Inc.    
  Class A 4,565,701 34,288
  Legg Mason Inc. 1,088,107 27,986
  NASDAQ OMX Group Inc. 1,086,985 27,185
  Assurant Inc. 731,978 25,400
  First Horizon National    
  Corp. 2,298,456 22,778
* E*TRADE Financial    
  Corp. 2,394,434 21,430
^ Federated Investors Inc.    
  Class B 216 4
      18,453,315
Health Care (12.0%)    
  Johnson & Johnson 25,734,830 1,804,012
  Pfizer Inc. 68,371,173 1,714,749
  Merck & Co. Inc. 28,230,929 1,155,774
  Abbott Laboratories 14,678,434 961,437
  Amgen Inc. 7,125,769 615,096
* Gilead Sciences Inc. 7,035,586 516,764
  UnitedHealth Group Inc. 9,485,726 514,506
  Bristol-Myers Squibb Co. 15,328,511 499,556
  Eli Lilly & Co. 9,482,964 467,700
* Express Scripts    
  Holding Co. 7,581,126 409,381
  Medtronic Inc. 9,391,550 385,241
  Baxter International Inc. 5,101,542 340,069
* Biogen Idec Inc. 2,197,031 322,238
* Celgene Corp. 3,927,809 309,197
  Allergan Inc. 2,855,713 261,955
  Covidien plc 4,395,821 253,815
  Thermo Fisher Scientific    
  Inc. 3,344,821 213,333
  McKesson Corp. 2,191,827 212,519
* Intuitive Surgical Inc. 369,226 181,057
  WellPoint Inc. 2,819,659 171,774
* Alexion Pharmaceuticals    
  Inc. 1,804,001 169,233
  Stryker Corp. 2,683,084 147,087
  Aetna Inc. 3,106,789 143,844
  Becton Dickinson and Co. 1,828,789 142,993
  Cigna Corp. 2,654,582 141,914
  Agilent Technologies Inc. 3,235,392 132,457
  Cardinal Health Inc. 3,156,260 129,975
  Zimmer Holdings Inc. 1,611,679 107,434
* Cerner Corp. 1,354,611 105,172
* Mylan Inc. 3,785,614 104,029
  St. Jude Medical Inc. 2,862,658 103,456
* Watson Pharmaceuticals    
  Inc. 1,186,708 102,057
  Humana Inc. 1,469,748 100,869
* Edwards Lifesciences    
  Corp. 1,072,046 96,666

 

      Market
      Value
    Shares ($000)
  AmerisourceBergen Corp.    
  Class A 2,187,356 94,450
* DaVita HealthCare    
  Partners Inc. 778,594 86,058
  Quest Diagnostics Inc. 1,476,691 86,047
  Perrigo Co. 819,741 85,278
* Life Technologies Corp. 1,598,206 78,440
* Forest Laboratories Inc. 2,174,508 76,804
* Laboratory Corp. of    
  America Holdings 878,718 76,115
* Boston Scientific Corp. 12,753,623 73,078
* Varian Medical Systems    
  Inc. 1,016,156 71,375
* Waters Corp. 807,666 70,364
  CR Bard Inc. 711,027 69,496
* CareFusion Corp. 2,061,285 58,911
  Coventry Health Care Inc. 1,249,300 56,006
  DENTSPLY International 1,317,676 52,193
* Hospira Inc. 1,533,896 47,919
  PerkinElmer Inc. 1,065,429 33,817
  Tenet Healthcare Corp. 988,329 32,091
  Patterson Cos. Inc. 776,392 26,576
      14,212,377
Industrials (10.1%)    
  General Electric Co. 97,379,213 2,043,990
  United Technologies Corp. 7,830,274 642,161
  Union Pacific Corp. 4,368,103 549,158
  3M Co. 5,911,359 548,870
  Caterpillar Inc. 6,072,525 543,977
  United Parcel Service    
  Inc. Class B 6,644,295 489,884
  Boeing Co. 6,302,171 474,932
  Honeywell International    
  Inc. 7,274,411 461,707
  Emerson Electric Co. 6,724,335 356,121
  Deere & Co. 3,636,958 314,306
  Danaher Corp. 5,403,079 302,032
  Precision Castparts Corp. 1,351,448 255,991
  FedEx Corp. 2,712,454 248,786
  Illinois Tool Works Inc. 3,959,214 240,760
  Eaton Corp. plc 4,287,845 232,401
  Lockheed Martin Corp. 2,493,955 230,167
  General Dynamics Corp. 3,081,840 213,479
  CSX Corp. 9,577,140 188,957
  Norfolk Southern Corp. 2,934,654 181,479
  Cummins Inc. 1,641,277 177,832
  Raytheon Co. 3,063,028 176,308
  Northrop Grumman Corp. 2,279,017 154,016
  PACCAR Inc. 3,278,040 148,200
  Waste Management Inc. 4,049,061 136,615
  Tyco International Ltd. 4,326,120 126,539
  Ingersoll-Rand plc 2,600,378 124,714
  Parker Hannifin Corp. 1,385,732 117,870
  Fastenal Co. 2,504,852 116,952
  Stanley Black & Decker Inc.1,567,864 115,975
  WW Grainger Inc. 555,166 112,349

 

14


 

500 Index Fund    
 
 
 
      Market
      Value
    Shares ($000)
  Dover Corp. 1,662,858 109,266
  Rockwell Automation Inc. 1,294,027 108,685
  Roper Industries Inc. 913,947 101,887
  ADT Corp. 2,159,378 100,389
  Pentair Ltd. 1,953,390 96,009
  CH Robinson Worldwide    
  Inc. 1,497,272 94,658
  Fluor Corp. 1,546,659 90,851
  Republic Services Inc.    
  Class A 2,777,871 81,475
  Expeditors International of    
  Washington Inc. 1,941,147 76,772
  Rockwell Collins Inc. 1,302,410 75,761
* Stericycle Inc. 797,772 74,408
  Southwest Airlines Co. 6,854,945 70,195
  Flowserve Corp. 464,277 68,156
  L-3 Communications    
  Holdings Inc. 873,672 66,941
  Textron Inc. 2,617,772 64,895
  Joy Global Inc. 983,420 62,722
  Pall Corp. 1,031,840 62,179
  Equifax Inc. 1,110,359 60,093
  Masco Corp. 3,315,366 55,234
* Quanta Services Inc. 1,979,022 54,007
* Jacobs Engineering    
  Group Inc. 1,207,580 51,407
  Iron Mountain Inc. 1,548,628 48,085
  Xylem Inc. 1,724,850 46,743
  Snap-on Inc. 540,586 42,701
  Robert Half International    
  Inc. 1,306,498 41,573
  Cintas Corp. 985,529 40,308
  Dun & Bradstreet Corp. 413,662 32,534
  Avery Dennison Corp. 924,460 32,282
  Ryder System Inc. 475,374 23,735
^ Pitney Bowes Inc. 1,867,107 19,866
      11,980,345
Information Technology (19.0%)  
  Apple Inc. 8,735,602 4,656,338
  International Business    
  Machines Corp. 9,863,306 1,889,316
  Microsoft Corp. 70,342,148 1,880,246
* Google Inc. Class A 2,471,648 1,753,313
  Oracle Corp. 34,905,860 1,163,063
  QUALCOMM Inc. 15,824,066 981,409
  Cisco Systems Inc. 49,303,087 968,806
  Intel Corp. 46,208,436 953,280
  Visa Inc. Class A 4,840,999 733,799
* eBay Inc. 10,814,511 551,756
* EMC Corp. 19,562,719 494,937
  Mastercard Inc. Class A 992,378 487,536
  Accenture plc Class A 5,929,360 394,303
  Texas Instruments Inc. 10,407,804 322,018
  Hewlett-Packard Co. 18,257,641 260,171

 

      Market
      Value
    Shares ($000)
  Automatic Data    
  Processing Inc. 4,508,051 257,004
* Cognizant Technology    
  Solutions Corp. Class A 2,787,509 206,415
* Salesforce.com Inc. 1,213,056 203,915
* Yahoo! Inc. 9,664,330 192,320
* Adobe Systems Inc. 4,596,887 173,211
  Corning Inc. 13,722,839 173,182
  Broadcom Corp. Class A 4,818,077 160,008
  Intuit Inc. 2,584,020 153,749
  TE Connectivity Ltd. 3,923,825 145,652
  Motorola Solutions Inc. 2,604,584 145,023
  Dell Inc. 13,550,484 137,266
  Applied Materials Inc. 11,120,887 127,223
* Symantec Corp. 6,445,854 121,247
  Analog Devices Inc. 2,799,403 117,743
* Citrix Systems Inc. 1,734,418 114,038
* NetApp Inc. 3,328,177 111,660
  Altera Corp. 2,977,854 102,557
* Fiserv Inc. 1,239,848 97,985
* SanDisk Corp. 2,245,782 97,826
* Teradata Corp. 1,570,748 97,214
  Amphenol Corp. Class A 1,489,380 96,363
  Seagate Technology plc 3,120,898 95,125
* Red Hat Inc. 1,795,785 95,105
* Juniper Networks Inc. 4,789,267 94,205
  Paychex Inc. 3,004,821 93,570
  Xilinx Inc. 2,423,713 87,011
  Western Digital Corp. 2,036,534 86,532
  Fidelity National    
  Information Services Inc. 2,314,940 80,583
  Xerox Corp. 11,738,135 80,054
  Western Union Co. 5,541,566 75,421
  KLA-Tencor Corp. 1,546,758 73,873
* Autodesk Inc. 2,087,183 73,782
  Linear Technology Corp. 2,149,357 73,723
  NVIDIA Corp. 5,804,083 71,332
* F5 Networks Inc. 734,209 71,328
  CA Inc. 3,114,343 68,453
* Akamai Technologies Inc. 1,648,438 67,438
* Micron Technology Inc. 9,451,710 60,018
  Microchip Technology Inc. 1,807,584 58,909
  Computer Sciences Corp. 1,443,156 57,798
* Lam Research Corp. 1,591,486 57,500
* VeriSign Inc. 1,441,388 55,955
* BMC Software Inc. 1,323,413 52,487
  Harris Corp. 1,054,312 51,619
* Electronic Arts Inc. 2,832,731 41,160
* LSI Corp. 5,137,408 36,373
  Molex Inc. 1,278,456 34,940
  Jabil Circuit Inc. 1,736,372 33,495
  Total System Services Inc. 1,491,558 31,949
  FLIR Systems Inc. 1,392,571 31,068
  SAIC Inc. 2,633,923 29,816
* Teradyne Inc. 1,743,721 29,452

 

15


 

500 Index Fund    
 
 
 
      Market
      Value
    Shares ($000)
* JDS Uniphase Corp. 2,171,581 29,403
*,^ First Solar Inc. 558,482 17,246
* Advanced Micro    
  Devices Inc. 5,628,113 13,508
  Molex Inc. Class A 4,051 90
      22,532,213
Materials (3.6%)    
  Monsanto Co. 4,964,357 469,876
  EI du Pont de Nemours    
  & Co. 8,658,993 389,395
  Dow Chemical Co. 11,136,063 359,918
  Praxair Inc. 2,759,062 301,979
  Freeport-McMoRan    
  Copper & Gold Inc. 8,815,368 301,486
  Newmont Mining Corp. 4,609,727 214,076
  LyondellBasell Industries    
  NV Class A 3,525,048 201,245
  PPG Industries Inc. 1,423,944 192,731
  Ecolab Inc. 2,447,832 175,999
  Air Products & Chemicals    
  Inc. 1,976,424 166,059
  International Paper Co. 4,077,688 162,455
  Mosaic Co. 2,569,019 145,484
  Nucor Corp. 2,950,602 127,407
  Sherwin-Williams Co. 794,914 122,274
  CF Industries Holdings Inc. 584,018 118,649
  Eastman Chemical Co. 1,424,585 96,943
  Alcoa Inc. 9,913,210 86,047
  Sigma-Aldrich Corp. 1,117,648 82,237
  FMC Corp. 1,276,166 74,681
  Ball Corp. 1,429,030 63,949
  Vulcan Materials Co. 1,203,709 62,653
  Airgas Inc. 652,864 59,600
  MeadWestvaco Corp. 1,622,857 51,720
  Cliffs Natural Resources    
  Inc. 1,322,903 51,011
  International Flavors &    
  Fragrances Inc. 757,234 50,386
* Owens-Illinois Inc. 1,527,323 32,486
  Bemis Co. Inc. 958,765 32,080
  United States Steel Corp. 1,339,322 31,970
  Sealed Air Corp. 1,805,565 31,615
  Allegheny Technologies Inc. 996,098 30,241
  Titanium Metals Corp. 703 12
      4,286,664
Telecommunication Services (3.0%)  
  AT&T Inc. 52,746,254 1,778,076
  Verizon    
  Communications Inc. 26,502,277 1,146,753
  CenturyLink Inc. 5,796,799 226,771
* Crown Castle    
  International Corp. 2,722,200 196,434
* Sprint Nextel Corp. 27,899,813 158,192
  Windstream Corp. 5,460,100 45,210

 

    Market
    Value
  Shares ($000)
^ Frontier    
Communications Corp. 9,269,071 39,672
* MetroPCS    
Communications    
Inc. 2,940,386 29,227
    3,620,335
Utilities (3.4%)    
Duke Energy Corp. 6,539,658 417,230
Southern Co. 8,116,949 347,487
Dominion Resources Inc. 5,335,793 276,394
NextEra Energy Inc. 3,929,829 271,905
Exelon Corp. 7,932,766 235,920
American Electric    
Power Co. Inc. 4,505,908 192,312
FirstEnergy Corp. 3,883,402 162,171
PG&E Corp. 3,992,690 160,426
PPL Corp. 5,401,504 154,645
Consolidated Edison Inc. 2,719,478 151,040
Sempra Energy 2,088,495 148,158
Public Service Enterprise    
Group Inc. 4,697,652 143,748
Edison International 3,025,274 136,712
Xcel Energy Inc. 4,529,651 120,987
Northeast Utilities 2,916,298 113,969
Entergy Corp. 1,650,957 105,248
DTE Energy Co. 1,598,379 95,983
ONEOK Inc. 1,900,635 81,252
Wisconsin Energy Corp. 2,137,066 78,751
CenterPoint Energy Inc. 3,970,432 76,431
NiSource Inc. 2,877,240 71,614
Ameren Corp. 2,253,735 69,235
NRG Energy Inc. 2,993,590 68,823
AES Corp. 5,735,602 61,371
CMS Energy Corp. 2,451,265 59,762
SCANA Corp. 1,224,188 55,872
Pinnacle West Capital    
Corp. 1,018,462 51,921
AGL Resources Inc. 1,093,437 43,705
Pepco Holdings Inc. 2,130,301 41,775
Integrys Energy Group Inc. 723,247 37,768
TECO Energy Inc. 1,889,824 31,673
    4,064,288
Total Common Stocks    
(Cost $79,082,994) 118,284,029
Temporary Cash Investments (0.2%)1  
Money Market Fund (0.2%)    
2,3 Vanguard Market    
Liquidity Fund,    
0.162% 220,010,111 220,010

 

16


 

500 Index Fund    
 
 
 
    Face Market
    Amount Value
    ($000) ($000)
U.S. Government and Agency Obligations (0.0%)
4 Fannie Mae Discount    
  Notes, 0.097%, 3/27/13 5,000 4,998
5,6 Federal Home Loan Bank    
  Discount Notes,    
  0.130%, 2/1/13 3,000 3,000
5,6 Federal Home Loan Bank    
  Discount Notes,    
  0.130%, 3/1/13 9,150 9,148
      17,146
Total Temporary Cash Investments  
(Cost $237,156)   237,156
Total Investments (100.0%)    
(Cost $79,320,150)   118,521,185
Other Assets and Liabilities (0.0%)  
Other Assets5   547,555
Liabilities3   (565,355)
      (17,800)
Net Assets (100%)   118,503,385

 

At December 31, 2012, net assets consisted of:
  Amount
  ($000)
Paid-in Capital 82,589,527
Overdistributed Net  
Investment Income (131,485)
Accumulated Net Realized Losses (3,156,321)
Unrealized Appreciation (Depreciation)  
Investment Securities 39,201,035
Futures Contracts 629
Net Assets 118,503,385

 

  Amount
  ($000)
Investor Shares—Net Assets  
Applicable to 188,935,616 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 24,821,367
Net Asset Value Per Share—  
Investor Shares $131.37
 
 
Admiral Shares—Net Assets  
Applicable to 454,808,552 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 59,749,291
Net Asset Value Per Share—  
Admiral Shares $131.37
 
 
Signal Shares—Net Assets  
Applicable to 251,613,250 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 27,304,388
Net Asset Value Per Share—  
Signal Shares $108.52
 
 
ETF Shares—Net Assets  
Applicable to 101,681,367 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 6,628,339
Net Asset Value Per Share—  
ETF Shares $65.19

 

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 $76,675,000.
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 0.0%, 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 $79,188,000 of collateral received for securities on loan.
4 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
5 Securities with a value of $12,148,000 and cash of $5,000,000 have been segregated as initial margin for open futures contracts.
6 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full faith and credit of the U.S. government.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.

17


 

500 Index Fund  
 
 
Statement of Operations  
 
  Year Ended
  December 31, 2012
  ($000)
Investment Income  
Income  
Dividends 2,592,659
Interest1 816
Security Lending 7,098
Total Income 2,600,573
Expenses  
The Vanguard Group—Note B  
Investment Advisory Services 6,537
Management and Administrative—Investor Shares 36,186
Management and Administrative—Admiral Shares 15,377
Management and Administrative—Signal Shares 4,486
Management and Administrative—ETF Shares 953
Marketing and Distribution—Investor Shares 6,403
Marketing and Distribution—Admiral Shares 8,973
Marketing and Distribution—Signal Shares 6,137
Marketing and Distribution—ETF Shares 1,003
Custodian Fees 1,102
Auditing Fees 34
Shareholders’ Reports—Investor Shares 479
Shareholders’ Reports—Admiral Shares 259
Shareholders’ Reports—Signal Shares 109
Shareholders’ Reports—ETF Shares 37
Trustees’ Fees and Expenses 114
Total Expenses 88,189
Net Investment Income 2,512,384
Realized Net Gain (Loss)  
Investment Securities Sold 2,389,263
Futures Contracts 95,885
Realized Net Gain (Loss) 2,485,148
Change in Unrealized Appreciation (Depreciation)  
Investment Securities 11,205,626
Futures Contracts (3,390)
Change in Unrealized Appreciation (Depreciation) 11,202,236
Net Increase (Decrease) in Net Assets Resulting from Operations 16,199,768
1 Interest income from an affiliated company of the fund was $774,000.

 

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

18


 

500 Index Fund    
 
 
Statement of Changes in Net Assets    
 
  Year Ended December 31,
  2012 2011
  ($000) ($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 2,512,384 2,082,425
Realized Net Gain (Loss) 2,485,148 (74,741)
Change in Unrealized Appreciation (Depreciation) 11,202,236 90,802
Net Increase (Decrease) in Net Assets Resulting from Operations 16,199,768 2,098,486
Distributions    
Net Investment Income    
Investor Shares (545,412) (552,815)
Admiral Shares (1,282,737) (1,061,949)
Signal Shares (564,477) (433,611)
ETF Shares (114,084) (32,365)
Realized Capital Gain    
Investor Shares
Admiral Shares
Signal Shares
ETF Shares
Total Distributions (2,506,710) (2,080,740)
Capital Share Transactions    
Investor Shares (4,504,796) (6,033,406)
Admiral Shares 863,165 456,850
Signal Shares 2,758,859 2,699,645
ETF Shares 3,843,275 2,128,573
Net Increase (Decrease) from Capital Share Transactions 2,960,503 (748,338)
Total Increase (Decrease) 16,653,561 (730,592)
Net Assets    
Beginning of Period 101,849,824 102,580,416
End of Period1 118,503,385 101,849,824

1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($131,485,000) and ($137,159,000).

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

19


 

500 Index Fund          
 
 
Financial Highlights          
 
 
Investor Shares          
 
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $115.80 $115.82 $102.67 $83.09 $135.15
Investment Operations          
Net Investment Income 2.709 2.246 2.020 2.131 2.443
Net Realized and Unrealized Gain (Loss)          
on Investments 15.560 (.020) 13.096 19.553 (51.998)
Total from Investment Operations 18.269 2.226 15.116 21.684 (49.555)
Distributions          
Dividends from Net Investment Income (2.699) (2.246) (1.966) (2.104) (2.505)
Distributions from Realized Capital Gains
Total Distributions (2.699) (2.246) (1.966) (2.104) (2.505)
Net Asset Value, End of Period $131.37 $115.80 $115.82 $102.67 $83.09
 
Total Return1 15.82% 1.97% 14.91% 26.49% -37.02%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $24,821 $25,967 $31,904 $48,313 $38,778
Ratio of Total Expenses to Average Net Assets 0.17% 0.17% 0.17% 0.18% 0.16%
Ratio of Net Investment Income to          
Average Net Assets 2.13% 1.92% 1.94% 2.42% 2.16%
Portfolio Turnover Rate2 3% 4% 5% 12% 6%

 

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.

20


 

500 Index Fund          
 
 
Financial Highlights          
 
 
Admiral Shares          
 
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $115.80 $115.83 $102.67 $83.09 $135.15
Investment Operations          
Net Investment Income 2.866 2.391 2.152 2.227 2.534
Net Realized and Unrealized Gain (Loss)          
on Investments 15.560 (.031) 13.092 19.556 (52.000)
Total from Investment Operations 18.426 2.360 15.244 21.783 (49.466)
Distributions          
Dividends from Net Investment Income (2.856) (2.390) (2.084) (2.203) (2.594)
Distributions from Realized Capital Gains
Total Distributions (2.856) (2.390) (2.084) (2.203) (2.594)
Net Asset Value, End of Period $131.37 $115.80 $115.83 $102.67 $83.09
 
Total Return1 15.96% 2.08% 15.05% 26.62% -36.97%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $59,749 $51,925 $51,438 $28,380 $23,009
Ratio of Total Expenses to Average Net Assets 0.05% 0.05% 0.06% 0.07% 0.08%
Ratio of Net Investment Income to          
Average Net Assets 2.25% 2.04% 2.05% 2.53% 2.24%
Portfolio Turnover Rate2 3% 4% 5% 12% 6%

 

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


 

500 Index Fund          
 
 
Financial Highlights          
 
 
Signal Shares          
 
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $95.65 $95.68 $84.81 $68.64 $111.64
Investment Operations          
Net Investment Income 2.368 1.975 1.780 1.839 2.092
Net Realized and Unrealized Gain (Loss)          
on Investments 12.861 (.030) 10.813 16.151 (42.952)
Total from Investment Operations 15.229 1.945 12.593 17.990 (40.860)
Distributions          
Dividends from Net Investment Income (2.359) (1.975) (1.723) (1.820) (2.140)
Distributions from Realized Capital Gains
Total Distributions (2.359) (1.975) (1.723) (1.820) (2.140)
Net Asset Value, End of Period $108.52 $95.65 $95.68 $84.81 $68.64
 
Total Return 15.97% 2.08% 15.05% 26.61% -36.97%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $27,304 $21,592 $18,977 $16,590 $13,099
Ratio of Total Expenses to Average Net Assets 0.05% 0.05% 0.06% 0.07% 0.08%
Ratio of Net Investment Income to          
Average Net Assets 2.25% 2.04% 2.05% 2.53% 2.24%
Portfolio Turnover Rate1 3% 4% 5% 12% 6%

 

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      
 
 
ETF Shares      
      Sept. 7,
  Year Ended 20101 to
  December 31, Dec. 31,
For a Share Outstanding Throughout Each Period 2012 2011 2010
Net Asset Value, Beginning of Period $57.46 $57.47 $50.08
Investment Operations      
Net Investment Income 1.423 1.186 .363
Net Realized and Unrealized Gain (Loss) on Investments 7.725 (.010) 7.569
Total from Investment Operations 9.148 1.176 7.932
Distributions      
Dividends from Net Investment Income (1.418) (1.186) (.542)
Distributions from Realized Capital Gains
Total Distributions (1.418) (1.186) (.542)
Net Asset Value, End of Period $65.19 $57.46 $57.47
 
Total Return 15.98% 2.09% 15.89%
 
Ratios/Supplemental Data      
Net Assets, End of Period (Millions) $6,628 $2,366 $261
Ratio of Total Expenses to Average Net Assets 0.05% 0.05% 0.06%2
Ratio of Net Investment Income to Average Net Assets 2.25% 2.04% 2.05%2
Portfolio Turnover Rate3 3% 4% 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.

23


 

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 are listed for trading on NYSE Arca; 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).

During the year ended December 31, 2012, the fund’s average investment in futures contracts represented less than 1% of net assets, based on quarterly average aggregate settlement values.

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, 2009–2012), 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.

24


 

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, 2012, the fund had contributed capital of $16,101,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 6.44% 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 market value of the fund’s investments as of December 31, 2012, based on the inputs used to value them:

  Level 1 Level 2 Level 3
Investments ($000) ($000) ($000)
Common Stocks 118,284,029
Temporary Cash Investments 220,010 17,146
Futures Contracts—Assets1 6,155
Total 118,510,194 17,146
1 Represents variation margin on the last day of the reporting period.

 

25


 

500 Index Fund

D. At December 31, 2012, 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)
S&P 500 Index March 2013 584 207,335 739
E-mini S&P 500 Index March 2013 490 34,792 (110)

 

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, 2012, the fund realized $1,827,661,000 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, 2012, the fund had $18,950,000 of ordinary income available for distribution. At December 31, 2012, the fund had available capital losses totaling $3,151,728,000 to offset future net capital gains. Of this amount $2,057,911,000 is subject to expiration dates; $293,941,000 may be used to offset future net capital gains through December 31, 2014, and $1,763,970,000 through December 31, 2016. Capital losses of $1,093,817,000 realized beginning in fiscal 2011 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards.

At December 31, 2012, the cost of investment securities for tax purposes was $79,320,502,000. Net unrealized appreciation of investment securities for tax purposes was $39,200,683,000, consisting of unrealized gains of $47,354,816,000 on securities that had risen in value since their purchase and $8,154,133,000 in unrealized losses on securities that had fallen in value since their purchase.

F. During the year ended December 31, 2012, the fund purchased $9,967,290,000 of investment securities and sold $6,867,873,000 of investment securities, other than temporary cash investments. Purchases and sales include $4,325,614,000 and $2,948,499,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.

26


 

500 Index Fund

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

      Year Ended December 31,
    2012   2011
  Amount Shares Amount Shares
  ($000) (000) ($000) (000)
Investor Shares        
Issued 3,469,946 27,336 4,337,212 36,996
Issued in Lieu of Cash Distributions 524,604 4,049 535,654 4,690
Redeemed (8,499,346) (66,693) (10,906,272) (92,902)
Net Increase (Decrease)—Investor Shares (4,504,796) (35,308) (6,033,406) (51,216)
Admiral Shares        
Issued 5,809,353 45,236 5,212,677 44,787
Issued in Lieu of Cash Distributions 1,167,640 9,003 967,995 8,483
Redeemed (6,113,828) (47,856) (5,723,822) (48,940)
Net Increase (Decrease)—Admiral Shares 863,165 6,383 456,850 4,330
Signal Shares        
Issued 8,315,286 78,877 8,023,642 82,491
Issued in Lieu of Cash Distributions 507,129 4,731 393,984 4,184
Redeemed (6,063,556) (57,737) (5,717,981) (59,284)
Net Increase (Decrease)—Signal Shares 2,758,859 25,871 2,699,645 27,391
ETF Shares        
Issued 4,386,285 69,013 2,492,605 43,323
Issued in Lieu of Cash Distributions
Redeemed (543,010) (8,500) (364,032) (6,700)
Net Increase (Decrease)—ETF Shares 3,843,275 60,513 2,128,573 36,623

 

H. In preparing the financial statements as of December 31, 2012, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.

27


 

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, 2012, 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, 2012 by correspondence with the custodian and broker and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania

February 11, 2013

                          
Special 2012 tax information (unaudited) for Vanguard 500 Index Fund

 

This information for the fiscal year ended December 31, 2012, is included pursuant to provisions of the Internal Revenue Code.

The fund distributed $2,506,710,000 of qualified dividend income to shareholders during the fiscal year.

For corporate shareholders, 98.3% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.

28


 

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, 2012      
  One Five Ten
  Year Years Years
Returns Before Taxes 15.82% 1.57% 6.99%
Returns After Taxes on Distributions 15.47 1.25 6.68
Returns After Taxes on Distributions and Sale of Fund Shares 10.75 1.28 6.11

 

29


 

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 any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not 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.

30


 

Six Months Ended December 31, 2012      
  Beginning Ending Expenses
  Account Value Account Value Paid During
500 Index Fund 6/30/2012 12/31/2012 Period
Based on Actual Fund Return      
Investor Shares $1,000.00 $1,058.64 $0.88
Admiral Shares 1,000.00 1,059.28 0.26
Signal Shares 1,000.00 1,059.30 0.26
ETF Shares 1,000.00 1,059.36 0.26
 
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
ETF 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, 0.05% for Signal Shares, and 0.05% for ETF 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.

31


 

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 (for bonds), its actual income (for asset-backed securities), 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. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.

Foreign Holdings. The percentage of a fund represented by securities 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.

32


 

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 180 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.

InterestedTrustee1 and Delphi Automotive LLP (automotive components);
  Senior Advisor at New Mountain Capital; Trustee of
F. William McNabb III The Conference Board.
Born 1957. Trustee Since July 2009. Chairman of the  
Board. Principal Occupation(s) During the Past Five Amy Gutmann
Years: Chairman of the Board of The Vanguard Group, Born 1949. Trustee Since June 2006. Principal
Inc., and of each of the investment companies served Occupation(s) During the Past Five Years: President
by The Vanguard Group, since January 2010; Director of the University of Pennsylvania; Christopher H.
of The Vanguard Group since 2008; Chief Executive Browne Distinguished Professor of Political Science
Officer and President of The Vanguard Group and of in the School of Arts and Sciences with secondary
each of the investment companies served by The appointments at the Annenberg School for
Vanguard Group since 2008; Director of Vanguard Communication and the Graduate School of Education
Marketing Corporation; Managing Director of The of the University of Pennsylvania; Member of the
Vanguard Group (1995–2008). National Commission on the Humanities and Social
  Sciences; Trustee of Carnegie Corporation of New
  York and of the National Constitution Center; Chair
IndependentTrustees of the U. S. Presidential Commission for the Study
  of Bioethical Issues.
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal JoAnn Heffernan Heisen
Occupation(s) During the Past Five Years: Executive Born 1950. Trustee Since July 1998. Principal
  Occupation(s) During the Past Five Years: Corporate
Chief Staff and Marketing Officer for North America Vice President and Chief Global Diversity Officer
and Corporate Vice President (retired 2008) of Xerox (retired 2008) and Member of the Executive
Corporation (document management products and Committee (1997–2008) of Johnson & Johnson
services); Executive in Residence and 2010 (pharmaceuticals/medical devices/consumer
Distinguished Minett Professor at the Rochester products); Director of Skytop Lodge Corporation
Institute of Technology; Director of SPX Corporation (hotels), the University Medical Center at Princeton,
(multi-industry manufacturing), the United Way of the Robert Wood Johnson Foundation, and the Center
Rochester, Amerigroup Corporation (managed health for Talent Innovation; Member of the Advisory Board
care), the University of Rochester Medical Center, of the Maxwell School of Citizenship and Public Affairs
Monroe Community College Foundation, and North at Syracuse University.
Carolina A&T University.
  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 (retired 2009) of Cummins
Chairman and Chief Executive Officer (retired 2009) Inc. (industrial machinery); Director of SKF AB
and President (2006–2008) of Rohm and Haas Co. (industrial machinery), Hillenbrand, Inc. (specialized
(chemicals); Director of Tyco International, Ltd. consumer services), the Lumina Foundation for
(diversified manufacturing and services), Hewlett-
Packard Co. (electronic computer manufacturing),

 


 

Education, and Oxfam America; Chairman of the Executive Officers  
Advisory Council for the College of Arts and Letters    
and Member of the Advisory Board to the Kellogg Glenn Booraem  
Institute for International Studies at the University Born 1967. Controller Since July 2010. Principal
of Notre Dame. Occupation(s) During the Past Five Years: Principal
  of The Vanguard Group, Inc.; Controller of each of
Mark Loughridge the investment companies served by The Vanguard
Born 1953. Trustee Since March 2012. Principal Group; Assistant Controller of each of the investment
Occupation(s) During the Past Five Years: Senior Vice companies served by The Vanguard Group (2001–2010).
President and Chief Financial Officer at IBM (information    
technology services); Fiduciary Member of IBM’s Thomas J. Higgins  
Retirement Plan Committee. Born 1957. Chief Financial Officer Since September
  2008. Principal Occupation(s) During the Past Five
Scott C. Malpass Years: Principal of The Vanguard Group, Inc.; Chief
Born 1962. Trustee Since March 2012. Principal Financial Officer of each of the investment companies
Occupation(s) During the Past Five Years: Chief served by The Vanguard Group; Treasurer of each of
Investment Officer and Vice President at the University the investment companies served by The Vanguard
of Notre Dame; Assistant Professor of Finance at the Group (1998–2008).  
Mendoza College of Business at Notre Dame; Member    
of the Notre Dame 403(b) Investment Committee; Kathryn J. Hyatt  
Director of TIFF Advisory Services, Inc. (investment Born 1955. Treasurer Since November 2008. Principal
advisor); Member of the Investment Advisory Occupation(s) During the Past Five Years: Principal of
Committees of the Financial Industry Regulatory The Vanguard Group, Inc.; Treasurer of each of the
Authority (FINRA) and of Major League Baseball. investment companies served by The Vanguard
  Group; Assistant Treasurer of each of the investment
André F. Perold companies served by The Vanguard Group (1988–2008).
Born 1952. Trustee Since December 2004. Principal    
Occupation(s) During the Past Five Years: George Heidi Stam  
Gund Professor of Finance and Banking at the Harvard Born 1956. Secretary Since July 2005. Principal
Business School (retired 2011); Chief Investment Occupation(s) During the Past Five Years: Managing
Officer and Managing Partner of HighVista Strategies Director of The Vanguard Group, Inc.; General Counsel
LLC (private investment firm); Director of Rand of The Vanguard Group; Secretary of The Vanguard
Merchant Bank; Overseer of the Museum of Fine Group and of each of the investment companies
Arts Boston. served by The Vanguard Group; Director and Senior
  Vice President of Vanguard Marketing Corporation.
Alfred M. Rankin, Jr.    
Born 1941. Trustee Since January 1993. Principal Vanguard Senior ManagementTeam  
Occupation(s) During the Past Five Years: Chairman,    
President, and Chief Executive Officer of NACCO Mortimer J. Buckley Michael S. Miller
Industries, Inc. (forklift trucks/housewares/lignite); Kathleen C. Gubanich James M. Norris
Director of Goodrich Corporation (industrial products/ Paul A. Heller Glenn W. Reed
aircraft systems and services) and the National Martha G. King George U. Sauter
Association of Manufacturers; Chairman of the Board Chris D. McIsaac  
of the Federal Reserve Bank of Cleveland and of    
University Hospitals of Cleveland; Advisory Chairman Chairman Emeritus and Senior Advisor  
of the Board of The Cleveland Museum of Art.    
  John J. Brennan  
Peter F. Volanakis Chairman, 1996–2009  
Born 1955. Trustee Since July 2009. Principal Chief Executive Officer and President, 1996–2008  
Occupation(s) During the Past Five Years: President    
and Chief Operating Officer (retired 2010) of Corning Founder  
Incorporated (communications equipment); Director John C. Bogle  
of SPX Corporation (multi-industry manufacturing); Chairman and Chief Executive Officer, 1974–1996  
Overseer of the Amos Tuck School of Business  
Administration at Dartmouth College; Advisor to the    
Norris Cotton Cancer Center.

 

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.


 

 

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

 

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  © 2013 The Vanguard Group, Inc.
  All rights reserved.
  Vanguard Marketing Corporation, Distributor.
 
  Q400 022013

 


 

 

 
Annual Report | December 31, 2012
 
Vanguard U.S. Stock Index Funds
Small-Capitalization Portfolios
 
 
 
Vanguard Small-Cap Index Fund
Vanguard Small-Cap Growth Index Fund
Vanguard Small-Cap Value Index Fund

 



 

> For the 12 months ended December 31, 2012, returns for Investor Shares of Vanguard’s small-capitalization index funds ranged from 17.52% for the Small-Cap Growth Index Fund to 18.56% for the Small-Cap Value Index Fund.

> All three small-cap funds closely tracked their benchmark indexes; each fund outpaced the average return of its peer group.

> The small-cap index funds outperformed their large-cap brethren for the year.

Contents  
Your Fund’s Total Returns. 1
Chairman’s Letter. 4
Small-Cap Index Fund. 10
Small-Cap Growth Index Fund. 32
Small-Cap Value Index Fund. 51
Your Fund’s After-Tax Returns. 72
About Your Fund’s Expenses. 73
Glossary. 76

 


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.
About the cover: Our cover photograph shows rigging on the HMSSurprise, a replica of an 18th-century Royal Navy frigate. It was featured in the 2003 movie Master and Commander: The Far Side of the World, which was based on Patrick O’Brian’s sea novels, set amid the Napoleonic Wars. Vanguard was named for another ship of that era, the HMSVanguard, which was the flagship of British Admiral Horatio Nelson at the Battle of the Nile.


 

Your Fund’s Total Returns  
 
 
 
 
Fiscal Year Ended December 31, 2012  
 
  Total
  Returns
Vanguard Small-Cap Index Fund  
Investor Shares 18.04%
Admiral™ Shares 18.24
Signal® Shares 18.25
Institutional Shares 18.26
Institutional Plus Shares 18.29
ETF Shares  
Market Price 18.34
Net Asset Value 18.22
MSCI US Small Cap 1750 Index 18.20
Small-Cap Core Funds Average 14.70
Small-Cap Core Funds Average: Derived from data provided by Lipper Inc.  
Vanguard Small-Cap Growth Index Fund  
Investor Shares 17.52%
Admiral Shares 17.66
Institutional Shares 17.68
ETF Shares  
Market Price 17.68
Net Asset Value 17.67
MSCI US Small Cap Growth Index 17.57
Small-Cap Growth Funds Average 13.07
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 Shares, Institutional Shares, 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; 7,720,749; 7,925,573; 8,090,646.

1


 

Your Fund’s Total Returns  
 
 
 
 
Fiscal Year Ended December 31, 2012  
 
  Total
  Returns
Vanguard Small-Cap Value Index Fund  
Investor Shares 18.56%
Admiral Shares 18.77
Institutional Shares 18.78
ETF Shares  
Market Price 18.84
Net Asset Value 18.78
MSCI US Small Cap Value Index 18.80
Small-Cap Value Funds Average 16.29

 

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 Shares, Institutional Shares, 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; 7,720,749; 7,925,573; 8,090,646.

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, 2011, Through December 31, 2012        
      Distributions Per Share
  Starting Ending Income Capital
  Share Price Share Price Dividends Gains
Vanguard Small-Cap Index Fund        
Investor Shares $33.38 $38.74 $0.662 $0.000
Admiral Shares 33.39 38.76 0.719 0.000
Signal Shares 30.08 34.92 0.649 0.000
Institutional Shares 33.39 38.76 0.726 0.000
Institutional Plus Shares 96.37 111.87 2.120 0.000
ETF Shares 69.70 80.89 1.504 0.000
Vanguard Small-Cap Growth Index Fund        
Investor Shares $21.49 $25.03 $0.224 $0.000
Admiral Shares 26.88 31.30 0.326 0.000
Institutional Shares 21.53 25.07 0.265 0.000
ETF Shares 76.45 89.03 0.923 0.000
Vanguard Small-Cap Value Index Fund        
Investor Shares $15.04 $17.40 $0.432 $0.000
Admiral Shares 26.96 31.20 0.819 0.000
Institutional Shares 15.07 17.44 0.460 0.000
ETF Shares 62.73 72.60 1.903 0.000

 

3


 

 

 

 

Chairman’s Letter

Dear Shareholder,

After recording negative returns for 2011, Vanguard’s three small-capitalization index funds rebounded in 2012. A strengthening U.S. housing market contributed to this advance.

For the 12 months ended December 31, 2012, Vanguard Small-Cap Value Index Fund returned 18.56%, surpassing the 17.52% return of Vanguard Small-Cap Growth Index Fund. Vanguard Small-Cap Index Fund, which includes both growth and value stocks, returned 18.04%. (All returns are for the funds’ Investor Shares.)

Each of the small-cap index funds closely tracked the performance of its respective index, and also surpassed the average return of its respective peer group.

If you hold any of these funds in a taxable account, you may wish to review the discussion of after-tax returns that appears later in this report.

With help from central banks, stocks posted strong results
Stocks around the world recorded double-digit gains for the 12 months ended December 31, with international stocks faring even better than their U.S. counterparts.

European stocks shook off investors’ concerns to deliver some of the best results, rising about 19% compared with about 16% for U.S. stocks. The rally came as European central bankers moved to address worries about the

4


 

finances of governments and banks. Still, Vanguard economists expect Europe to remain a trouble spot, with occasional spikes in market volatility, as fiscal tightening persists in the face of weak economic growth.

In the United States, the Federal Reserve continued buying bonds and mortgage-backed securities to try to stimulate growth. The Fed’s actions seemed to buoy both stock and bond returns.

Attention to the nation’s considerable budget challenges intensified as 2012 drew to a close. The focus on the “fiscal cliff” led to nervousness in the markets before policymakers reached a limited tax-rate agreement on the cusp of the new year. The compromise legislation, which President Barack Obama signed into law on January 2, addressed some immediate concerns, but a credible long-term deficit-reduction strategy has yet to be crafted to resolve the nation’s fiscal imbalance and open the way for growth.

Bond returns were solid, but challenges lie ahead
The broad U.S. taxable bond market returned about 4% for the 12 months. Municipal bonds performed especially well, returning more than 6%.

As bond prices rose, the yield of the 10-year U.S. Treasury note slipped to a record low in July, closing below 1.5%. (Bond yields and prices move in opposite

Market Barometer      
 
    Average Annual Total Returns
  Periods Ended December 31, 2012
  One Three Five
  Year Years Years
Stocks      
Russell 1000 Index (Large-caps) 16.42% 11.12% 1.92%
Russell 2000 Index (Small-caps) 16.35 12.25 3.56
Russell 3000 Index (Broad U.S. market) 16.42 11.20 2.04
MSCI All Country World Index ex USA (International) 16.83 3.87 -2.89
 
Bonds      
Barclays U.S. Aggregate Bond Index (Broad taxable market) 4.21% 6.19% 5.95%
Barclays Municipal Bond Index (Broad tax-exempt market) 6.78 6.57 5.91
Citigroup Three-Month U.S. Treasury Bill Index 0.07 0.08 0.44
 
CPI      
Consumer Price Index 1.74% 2.06% 1.80%

 

5


 

directions.) By the end of the period, the yield had climbed, but it remained exceptionally low by historical standards.

Although bonds can provide critical diversification benefits to a portfolio, their return prospects look much less promising than in recent years. As yields have tumbled, the opportunity for future bond price appreciation has greatly diminished. (You can read more about our expectations for bond and stock returns in Vanguard’s Economic and Investment Outlook, available at vanguard.com/research.)

As it has since late 2008, the Fed held its target for short-term interest rates between 0% and 0.25%, which kept a tight lid on returns from money market funds and savings accounts.

The financial sector helped small-cap value stocks excel
Although it was a good year for stocks of all sizes, small-caps outperformed their larger counterparts. The Small-Cap Value Index Fund, which has an outsized allocation to financials, performed best. The fund gained about 40% of its return for the year from the sector. Financial stocks surged as the U.S. housing recovery gained traction.

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 0.24% 0.10% 0.10% 0.08% 0.06% 0.10% 1.37%
Small-Cap Growth Index Fund 0.24 0.10 0.08 0.10 1.51
Small-Cap Value Index Fund 0.35 0.21 0.19 0.21 1.45

 

The fund expense ratios shown are from the prospectus dated April 26, 2012, as supplemented, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2012, the funds’ expense ratios were: for the Small-Cap Index Fund, 0.24% for Investor Shares, 0.10% for Admiral Shares, 0.10% for Signal Shares, 0.08% for Institutional Shares, 0.06% for Institutional Plus Shares, and 0.10% for ETF Shares; for the Small-Cap Growth Index Fund, 0.24% for Investor Shares, 0.10% for Admiral Shares, 0.08% for Institutional Shares, and 0.10% for ETF Shares; and for the Small-Cap Value Index Fund, 0.24% for Investor Shares, 0.10% for Admiral Shares, 0.08% for Institutional Shares, and 0.10% for ETF Shares. The peer-group expense ratios are derived from data provided by Lipper Inc. and capture information through year-end 2011.

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


 

Real estate investment trusts (REITs) performed particularly well; property owners increased rents as the market improved, which translated to additional revenue and profit. In addition, investors searching for income were drawn to the relatively high yields of REITs.

Industrials also posted strong contributions to the Small-Cap Value Index Fund. With construction activity picking up, industrial machinery, construction equipment, and specialized vehicle manufacturers all turned in strong returns.

The Small-Cap Index Fund also benefited from the financial and industrial sectors, but to a lesser extent, since the two sectors combined represented a less substantial proportion of its portfolio.

The performance of the Small-Cap Growth Index Fund was driven mainly by health care and information technology. Health care stocks, including biotech firms, health care equipment suppliers, and service providers, accounted for more than 20% of the fund’s total return. Information technology companies, including software application and IT service providers, also

Total Returns  
Ten Years Ended December 31, 2012  
  Average
  Annual Return
Small-Cap Index Fund Investor Shares 10.83%
Spliced Small-Cap Index 11.02
Small-Cap Core Funds Average 9.05
For a benchmark description, see the Glossary.  
Small-Cap Core Funds Average: Derived from data provided by Lipper Inc.  
 
Small-Cap Growth Index Fund Investor Shares 11.02%
Spliced Small-Cap Growth Index 10.97
Small-Cap Growth Funds Average 8.20
For a benchmark description, see the Glossary.  
Small-Cap Growth Funds Average: Derived from data provided by Lipper Inc.  
 
Small-Cap Value Index Fund Investor Shares 9.61%
Spliced Small-Cap Value Index 9.58
Small-Cap Value Funds Average 9.20
For a benchmark description, see the Glossary.  
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


 

stood out. Because the fund’s target benchmark only focuses on growth-oriented stocks, the fund held less of some of the best-performing sectors, including financials, in its portfolio.

For all three funds, the energy sector detracted the most from returns. Energy stocks struggled partly because of weak global demand and lower commodity prices.

The funds have produced a solid long-term record
For the decade ended December 31, Vanguard’s three small-cap index funds recorded average annual returns ranging from 11.02% for the Small-Cap Growth Index Fund to 9.61% for the Small-Cap Value Index Fund. Each fund’s average annual return for the ten-year period has exceeded that of its peer group.

In addition, each of the funds has tracked its index closely, even though the benchmarks’ returns reflect no operating or transaction costs. The funds’ success in this regard is a tribute to the skill of their investment advisor, Vanguard Equity Investment Group, whose sophisticated portfolio construction and management techniques reflect more than 30 years of indexing experience. The advisor has been aided in this task by each fund’s low expenses.

Funds will seek to track new benchmark indexes
In early October, we announced that the three funds discussed in this report would adopt new target benchmarks as part of a broader transition affecting 22 of our index funds. This transition, which we plan to complete by the middle of the year, is expected to produce significant long-term savings for Vanguard clients. As of January 31, we had already completed the transition for Vanguard Small-Cap Index Fund.

The new benchmarks for the three funds are supplied by the University of Chicago’s Center for Research in Security Prices (CRSP). CRSP is one of 11 research centers at the University of Chicago Booth School of Business. In 1960, the research organization pioneered the development of U.S. stock market data that are widely used in academic and investment research today.

Gus Sauter united traditional values with pioneering investment acumen
When I was interviewing for a job at Vanguard in the mid-1980s, Jack Brennan, who would go on to become our chairman and chief executive officer and is now chairman emeritus, described Vanguard as “a company with the intellectual rigor of Wall Street but with Midwestern values.”

I’m reminded of that when I think about Gus Sauter’s 25-year career at Vanguard. Gus retired as our chief investment officer at the end of December, having set the highest of standards for both intellectual achievement and devotion to doing the right thing for clients, colleagues, and community.

Gus played a pivotal role in transforming indexing from a novelty to an investing mainstay, a change that has benefited all investors. In addition, he developed our active quantitative equity strategies, oversaw the growth of our industry-leading expertise in fixed income, and ultimately

8


 

helped Vanguard to become a global investment manager responsible for $2 trillion in client assets.

As for the Midwestern values, Gus—a native of Ohio, incidentally—served our clients with a dedication to thrift, candor, and common sense that has helped make Vanguard what it is. His colleagues knew that in any situation they could count on him to keep a level-headed, long-term outlook. Just two weeks after he started at Vanguard, he helped guide us through the stock market crash of 1987. Some 20 years later, he helped us navigate the financial crisis of 2008–2009.

An important aspect of Gus’s legacy is the team of world-class investment professionals that he cultivated at Vanguard. That team is now led by

Tim Buckley, who oversaw our services for individual investors before becoming chief investment officer. I am confident that Tim will not only carry on Gus’s legacy, but also—as Gus himself put it—take Vanguard investment management to the next level.

As always, thank you for investing with Vanguard.

Sincerely,


F. William McNabb III
Chairman and Chief Executive Officer
January 31, 2013

A note on expense ratios
The Expense Ratios table in each report’s Chairman’s Letter displays fund expense
ratios from the most recent prospectus. These figures include the funds’ actual
operating expenses. For some funds, the figures also include “acquired fund fees
and expenses,” which result from the funds’ holdings in business development
companies (BDCs).
 
Although the Securities and Exchange Commission requires that BDC costs be
included in a fund’s expense ratio, these fees are not incurred by the fund. They
have no impact on a fund’s total return or on its tracking error relative to an index.
A footnote to the Expense Ratios table reports an annualized calculation of the fund’s
actual expenses for the period, a more relevant tally of the operating costs incurred
by shareholders.

 

9


 

Small-Cap Index Fund          
 
 
Fund Profile            
As of December 31, 2012            
 
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 0.24% 0.10% 0.10% 0.08% 0.06% 0.10%
30-Day SEC Yield 1.30% 1.44% 1.44% 1.46% 1.48% 1.44%

 

Portfolio Characteristics    
      DJ U.S.
    MSCI US Total
    Small Cap Market
  Fund 1750 Index FA Index
Number of Stocks 1,754 1,738 3,604
Median Market Cap $1.7B $1.7B $35.1B
Price/Earnings Ratio 22.9x 22.9x 16.8x
Price/Book Ratio 1.8x 1.8x 2.1x
Return on Equity 8.9% 8.9% 17.1%
Earnings Growth Rate 5.2% 5.2% 9.7%
Dividend Yield 1.5% 1.5% 2.1%
Foreign Holdings 0.0% 0.0% 0.0%
Turnover Rate 14%
Short-Term Reserves -0.2%

 

Volatility Measures    
  MSCI US  
  Small Cap DJ U.S. Total
  1750 Index Market FA 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)
NCR Corp. Computer Hardware 0.2%
MEDNAX Inc. Health Care Services 0.2
Apartment Investment &    
Management Co. Residential REITs 0.2
BRE Properties Inc. Residential REITs 0.2
American Capital Ltd. Asset Management  
  & Custody Banks 0.2
RPM International Inc. Specialty Chemicals 0.2
Lincoln Electric Holdings    
Inc. Industrial Machinery 0.2
tw telecom inc Class A Alternative Carriers 0.2
Extra Space Storage Inc. Specialized REITs 0.2
Packaging Corp. of    
America Paper Packaging 0.2
Top Ten   2.0%

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

Investment Focus


1 The expense ratios shown are from the prospectus dated April 26, 2012, as supplemented, and represent estimated costs for the current fiscal year. For the fiscal year ended December 31, 2012, the expense ratios were 0.24% for Investor Shares, 0.10% for Admiral Shares, 0.10% for Signal Shares, 0.08% for Institutional Shares, 0.06% for Institutional Plus Shares, and 0.10% for ETF Shares.

10


 

Small-Cap Index Fund

Sector Diversification (% of equity exposure)
      DJ U.S.
    MSCI US Total
    Small Cap Market FA
  Fund 1750 Index Index
Consumer Discretionary 13.4% 13.4% 12.3%
Consumer Staples 3.1 3.1 9.3
Energy 5.4 5.4 10.2
Financials 23.5 23.5 16.9
Health Care 11.3 11.3 11.7
Industrials 16.9 16.9 11.1
Information Technology 16.6 16.6 18.3
Materials 5.5 5.5 4.0
Telecommunication      
Services 0.9 0.9 2.7
Utilities 3.4 3.4 3.5

 

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, 2002, Through December 31, 2012
Initial Investment of $10,000


    Average Annual Total Returns  
  Periods Ended December 31, 2012  
 
        Final Value
  One Five Ten of a $10,000
  Year Years Years Investment
 
Small-Cap Index Fund Investor        
Shares 18.04% 4.98% 10.83% $27,962
 
Spliced Small-Cap Index 18.20 5.00 11.02 28,455
 
Small-Cap Core Funds Average 14.70 2.92 9.05 23,774
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 7.95 21,484

For a benchmark description, see the Glossary.

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 18.24% 5.12% 10.96% $28,294
Spliced Small-Cap Index 18.20 5.00 11.02 28,455
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 7.95 21,484

 

See Financial Highlights for dividend and capital gains information.

12


 

Small-Cap Index Fund        
 
 
 
    Average Annual Total Returns  
  Periods Ended December 31, 2012  
      Since Final Value
  One Five Inception of a $10,000
  Year Years (12/15/2006) Investment
Small-Cap Index Fund Signal Shares 18.25% 5.12% 4.29% $12,893
MSCI US Small Cap 1750 Index 18.20 5.00 4.18 12,811
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 2.64 11,708
"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 18.26% 5.17% 11.01% $14,215,082
Spliced Small-Cap Index 18.20 5.00 11.02 14,227,439
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 7.95 10,742,011

 

    Since Final Value
  One Inception of a $100,000,000
  Year (12/17/2010) Investment
Small-Cap Index Fund Institutional Plus      
Shares 18.29% 7.60% $116,103,771
MSCI US Small Cap 1750 Index 18.20 7.50 115,885,917
Dow Jones U.S. Total Stock Market      
Float-Adjusted Index 16.38 8.91 118,996,068
"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 18.22% 5.13% 6.88% $18,117
MSCI US Small Cap 1750 Index 18.20 5.00 6.80 17,992
Dow Jones U.S. Total Stock Market        
Float-Adjusted Index 16.38 2.21 5.11 15,611
"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, 2012  
 
      Since
  One Five Inception
  Year Years (1/26/2004)
Small-Cap Index Fund ETF Shares      
Market Price 18.34% 28.42% 81.24%
Small-Cap Index Fund ETF Shares Net      
Asset Value 18.22 28.39 81.17
MSCI US Small Cap 1750 Index 18.20 27.63 79.92

"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.

Fiscal-Year Total Returns (%): December 31, 2002, Through December 31, 2012


Small-Cap Index Fund Investor Shares
Spliced Small-Cap Index

 

For a benchmark description, see the Glossary.

14


 

Small-Cap Index Fund

Financial Statements

Statement of Net Assets—Investments Summary
As of December 31, 2012

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      
* Hanesbrands Inc. 1,620,338 58,041 0.2%
GNC Holdings Inc. Class A 1,650,102 54,915 0.2%
* Penn National Gaming Inc. 1,081,913 53,133 0.2%
Chico’s FAS Inc. 2,758,553 50,923 0.2%
Consumer Discretionary—Other †   3,471,895 12.5%
    3,688,907 13.3%
Consumer Staples      
* Dean Foods Co. 3,070,860 50,700 0.2%
Consumer Staples—Other †   791,055 2.8%
    841,755 3.0%
Energy      
* Cheniere Energy Inc. 3,025,301 56,815 0.2%
Energy—Other †   1,437,134 5.2%
    1,493,949 5.4%
Financials      
Apartment Investment & Management Co. Class A 2,418,441 65,443 0.2%
BRE Properties Inc. 1,276,182 64,868 0.2%
* American Capital Ltd. 5,394,298 64,732 0.2%
Extra Space Storage Inc. 1,728,853 62,913 0.2%
Kilroy Realty Corp. 1,228,557 58,197 0.2%
National Retail Properties Inc. 1,796,102 56,038 0.2%
* Signature Bank 766,948 54,714 0.2%
Tanger Factory Outlet Centers 1,560,186 53,358 0.2%
CBL & Associates Properties Inc. 2,500,586 53,037 0.2%
Two Harbors Investment Corp. 4,638,880 51,399 0.2%
Douglas Emmett Inc. 2,204,158 51,357 0.2%
Home Properties Inc. 829,227 50,840 0.2%
Financials—Other †   5,786,306 20.9%
    6,473,202 23.3%

 

15


 

Small-Cap Index Fund      
 
 
 
    Market Percentage
    Value of Net
  Shares ($000) Assets
Health Care      
* MEDNAX Inc. 826,093 65,691 0.2%
PerkinElmer Inc. 1,895,435 60,161 0.2%
* Sirona Dental Systems Inc. 916,012 59,046 0.2%
Tenet Healthcare Corp. 1,731,350 56,217 0.2%
* Ariad Pharmaceuticals Inc. 2,761,582 52,967 0.2%
Health Care—Other †   2,821,272 10.2%
    3,115,354 11.2%
Industrials      
Lincoln Electric Holdings Inc. 1,319,286 64,223 0.2%
Carlisle Cos. Inc. 1,039,528 61,083 0.2%
* United Rentals Inc. 1,309,379 59,603 0.2%
Corrections Corp. of America 1,662,500 58,969 0.2%
* Genesee & Wyoming Inc. Class A 735,417 55,951 0.2%
Valmont Industries Inc. 397,460 54,273 0.2%
Triumph Group Inc. 829,704 54,180 0.2%
Kennametal Inc. 1,331,176 53,247 0.2%
Graco Inc. 1,005,502 51,773 0.2%
* Kirby Corp. 835,630 51,717 0.2%
* Terex Corp. 1,836,340 51,620 0.2%
* Clean Harbors Inc. 930,966 51,212 0.2%
* Shaw Group Inc. 1,096,770 51,120 0.2%
Industrials—Other †   3,941,398 14.2%
    4,660,369 16.8%
Information Technology      
* NCR Corp. 2,641,185 67,297 0.2%
* Cadence Design Systems Inc. 4,567,675 61,709 0.2%
Jack Henry & Associates Inc. 1,360,015 53,394 0.2%
* Teradyne Inc. 3,113,659 52,590 0.2%
* Concur Technologies Inc. 777,177 52,475 0.2%
* JDS Uniphase Corp. 3,853,989 52,183 0.2%
* SolarWinds Inc. 986,154 51,724 0.2%
Information Technology—Other †   4,169,231 15.0%
    4,560,603 16.4%
Materials      
RPM International Inc. 2,193,182 64,392 0.3%
Packaging Corp. of America 1,630,813 62,737 0.2%
Materials—Other †   1,393,014 5.0%
    1,520,143 5.5%
Telecommunication Services      
* tw telecom inc Class A 2,511,218 63,961 0.2%
Telecommunication Services—Other †   189,762 0.7%
    253,723 0.9%
Utilities      
Westar Energy Inc. 2,098,944 60,072 0.2%
Questar Corp. 2,919,539 57,690 0.2%
Atmos Energy Corp. 1,498,461 52,626 0.2%
Great Plains Energy Inc. 2,549,626 51,783 0.2%
Utilities—Other †   707,553 2.6%
    929,724 3.4%
Total Common Stocks (Cost $25,180,208)   27,537,729 99.2%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 0.162% 500,527,357 500,527 1.8%
 
4U.S. Government and Agency Obligations †     12,797 0.0%
Total Temporary Cash Investments (Cost $513,324)     513,324 1.8%1
5Total Investments (Cost $25,693,532)     28,051,053 101.0%
Other Assets and Liabilities        
Other Assets4     215,380 0.8%
Liabilities3     (502,410) (1.8%)
      (287,030) (1.0%)
Net Assets     27,764,023 100.0%

 

At December 31, 2012, net assets consisted of:  
  Amount
  ($000)
Paid-in Capital 26,466,277
Overdistributed Net Investment Income (28,016)
Accumulated Net Realized Losses (1,032,246)
Unrealized Appreciation (Depreciation)  
Investment Securities 2,357,521
Futures Contracts 487
Net Assets 27,764,023
 
Investor Shares—Net Assets  
Applicable to 98,409,581 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 3,812,704
Net Asset Value Per Share—Investor Shares $38.74
 
Admiral Shares—Net Assets  
Applicable to 168,759,262 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 6,541,215
Net Asset Value Per Share—Admiral Shares $38.76
 
Signal Shares—Net Assets  
Applicable to 123,957,980 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 4,328,613
Net Asset Value Per Share—Signal Shares $34.92

 

17


 

Small-Cap Index Fund  
 
 
 
  Amount
  ($000)
Institutional Shares—Net Assets  
Applicable to 153,641,671 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 5,954,686
Net Asset Value Per Share—Institutional Shares $38.76
 
Institutional Plus Shares—Net Assets  
Applicable to 21,770,703 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 2,435,486
Net Asset Value Per Share—Institutional Plus Shares $111.87
 
ETF Shares—Net Assets  
Applicable to 57,993,997 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 4,691,319
Net Asset Value Per Share—ETF Shares $80.89

 

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 1.0%, 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 $344,655,000 of collateral received for securities on loan.
4 Securities with a value of $10,398,000 and cash of $6,000,000 have been segregated as initial margin for open futures contracts.
5 The total value of securities on loan is $327,337,000.
See accompanying Notes, which are an integral part of the Financial Statements.

18


 

Small-Cap Index Fund  
 
 
Statement of Operations  
 
 
  Year Ended
  December 31, 2012
  ($000)
Investment Income  
Income  
Dividends 495,821
Interest1 212
Security Lending 35,678
Total Income 531,711
Expenses  
The Vanguard Group—Note B  
Investment Advisory Services 1,592
Management and Administrative—Investor Shares 7,925
Management and Administrative—Admiral Shares 4,585
Management and Administrative—Signal Shares 2,428
Management and Administrative—Institutional Shares 2,362
Management and Administrative—Institutional Plus Shares 735
Management and Administrative—ETF Shares 2,559
Marketing and Distribution—Investor Shares 1,145
Marketing and Distribution—Admiral Shares 956
Marketing and Distribution—Signal Shares 1,002
Marketing and Distribution—Institutional Shares 1,521
Marketing and Distribution—Institutional Plus Shares 378
Marketing and Distribution—ETF Shares 1,166
Custodian Fees 491
Auditing Fees 37
Shareholders’ Reports—Investor Shares 126
Shareholders’ Reports—Admiral Shares 48
Shareholders’ Reports—Signal Shares 39
Shareholders’ Reports—Institutional Shares 83
Shareholders’ Reports—Institutional Plus Shares 12
Shareholders’ Reports—ETF Shares 190
Trustees’ Fees and Expenses 25
Total Expenses 29,405
Net Investment Income 502,306
Realized Net Gain (Loss)  
Investment Securities Sold 1,141,044
Futures Contracts 6,022
Realized Net Gain (Loss) 1,147,066
Change in Unrealized Appreciation (Depreciation)  
Investment Securities 2,560,234
Futures Contracts (643)
Change in Unrealized Appreciation (Depreciation) 2,559,591
Net Increase (Decrease) in Net Assets Resulting from Operations 4,208,963

1 Interest income from an affiliated company of the fund was $198,000.
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,
  2012 2011
  ($000) ($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 502,306 310,855
Realized Net Gain (Loss) 1,147,066 3,587,345
Change in Unrealized Appreciation (Depreciation) 2,559,591 (4,521,752)
Net Increase (Decrease) in Net Assets Resulting from Operations 4,208,963 (623,552)
Distributions    
Net Investment Income    
Investor Shares (65,627) (46,565)
Admiral Shares (119,456) (74,629)
Signal Shares (79,055) (42,148)
Institutional Shares (108,272) (66,542)
Institutional Plus Shares (45,220) (27,129)
ETF Shares (87,168) (50,321)
Realized Capital Gain    
Investor Shares
Admiral Shares
Signal Shares
Institutional Shares
Institutional Plus Shares
ETF Shares
Total Distributions (504,798) (307,334)
Capital Share Transactions    
Investor Shares (706,073) (1,211,610)
Admiral Shares 130,540 187,981
Signal Shares 730,889 932,295
Institutional Shares 272,583 (608,115)
Institutional Plus Shares 284,008 1,583,718
ETF Shares 406,197 (1,030,372)
Net Increase (Decrease) from Capital Share Transactions 1,118,144 (146,103)
Total Increase (Decrease) 4,822,309 (1,076,989)
Net Assets    
Beginning of Period 22,941,714 24,018,703
End of Period1 27,764,023 22,941,714

1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($28,016,000) and ($25,675,000).

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 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $33.38 $34.75 $27.49 $20.40 $32.58
Investment Operations          
Net Investment Income .659 .402 .355 .272 .398
Net Realized and Unrealized Gain (Loss)          
on Investments 5.363 (1.375) 7.266 7.094 (12.174)
Total from Investment Operations 6.022 (.973) 7.621 7.366 (11.776)
Distributions          
Dividends from Net Investment Income (.662) (.397) (.361) (.276) (.404)
Distributions from Realized Capital Gains
Total Distributions (.662) (.397) (.361) (.276) (.404)
Net Asset Value, End of Period $38.74 $33.38 $34.75 $27.49 $20.40
 
Total Return1 18.04% -2.80% 27.72% 36.12% -36.07%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $3,813 $3,925 $5,270 $5,913 $4,050
Ratio of Total Expenses to          
Average Net Assets 0.24% 0.24% 0.26% 0.28% 0.23%
Ratio of Net Investment Income to          
Average Net Assets 1.82% 1.15% 1.24% 1.30% 1.49%
Portfolio Turnover Rate2 14% 17% 12% 14% 14%

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 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $33.39 $34.78 $27.50 $20.40 $32.59
Investment Operations          
Net Investment Income .717 .461 .384 .303 .426
Net Realized and Unrealized Gain (Loss)          
on Investments 5.372 (1.395) 7.286 7.105 (12.185)
Total from Investment Operations 6.089 (.934) 7.670 7.408 (11.759)
Distributions          
Dividends from Net Investment Income (.719) (.456) (.390) (.308) (.431)
Distributions from Realized Capital Gains
Total Distributions (.719) (.456) (.390) (.308) (.431)
Net Asset Value, End of Period $38.76 $33.39 $34.78 $27.50 $20.40
 
Total Return1 18.24% -2.69% 27.89% 36.33% -36.00%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $6,541 $5,525 $5,554 $1,992 $1,444
Ratio of Total Expenses to          
Average Net Assets 0.10% 0.10% 0.12% 0.14% 0.12%
Ratio of Net Investment Income to          
Average Net Assets 1.96% 1.29% 1.38% 1.44% 1.60%
Portfolio Turnover Rate2 14% 17% 12% 14% 14%

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.

22


 

Small-Cap Index Fund          
 
 
Financial Highlights          
 
 
Signal Shares          
 
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $30.08 $31.33 $24.79 $18.39 $29.38
Investment Operations          
Net Investment Income .648 .417 .359 .274 .385
Net Realized and Unrealized Gain (Loss)          
on Investments 4.841 (1.254) 6.545 6.405 (10.985)
Total from Investment Operations 5.489 (.837) 6.904 6.679 (10.600)
Distributions          
Dividends from Net Investment Income (.649) (.413) (.364) (.279) (.390)
Distributions from Realized Capital Gains
Total Distributions (.649) (.413) (.364) (.279) (.390)
Net Asset Value, End of Period $34.92 $30.08 $31.33 $24.79 $18.39
 
Total Return 18.25% -2.68% 27.85% 36.34% -36.00%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $4,329 $3,075 $2,300 $1,763 $1,172
Ratio of Total Expenses to          
Average Net Assets 0.10% 0.10% 0.12% 0.14% 0.12%
Ratio of Net Investment Income to          
Average Net Assets 1.96% 1.29% 1.38% 1.44% 1.60%
Portfolio Turnover Rate1 14% 17% 12% 14% 14%

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.

23


 

Small-Cap Index Fund          
 
 
Financial Highlights          
 
 
Institutional Shares          
 
 
For a Share Outstanding     Year Ended December 31,
Throughout Each Period 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $33.39 $34.77 $27.50 $20.40 $32.60
Investment Operations          
Net Investment Income .724 .467 .410 .316 .441
Net Realized and Unrealized Gain (Loss)          
on Investments 5.372 (1.385) 7.276 7.106 (12.196)
Total from Investment Operations 6.096 (.918) 7.686 7.422 (11.755)
Distributions          
Dividends from Net Investment Income (.726) (.462) (.416) (.322) (.445)
Distributions from Realized Capital Gains
Total Distributions (.726) (.462) (.416) (.322) (.445)
Net Asset Value, End of Period $38.76 $33.39 $34.77 $27.50 $20.40
 
Total Return 18.26% -2.65% 27.95% 36.40% -35.98%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $5,955 $4,894 $5,711 $4,162 $2,545
Ratio of Total Expenses to          
Average Net Assets 0.08% 0.08% 0.08% 0.08% 0.07%
Ratio of Net Investment Income to          
Average Net Assets 1.98% 1.31% 1.42% 1.50% 1.65%
Portfolio Turnover Rate1 14% 17% 12% 14% 14%

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,
  Year Ended 20101 to
  December 31, Dec. 31,
For a Share Outstanding Throughout Each Period 2012 2011 2010
Net Asset Value, Beginning of Period $96.37 $100.38 $100.73
Investment Operations      
Net Investment Income 2.114 1.373 .0642
Net Realized and Unrealized Gain (Loss) on Investments 15.506 (4.023) .767
Total from Investment Operations 17.620 (2.650) .831
Distributions      
Dividends from Net Investment Income (2.120) (1.360) (1.181)
Distributions from Realized Capital Gains
Total Distributions (2.120) (1.360) (1.181)
Net Asset Value, End of Period $111.87 $96.37 $100.38
 
Total Return 18.29% -2.65% 0.82%
 
Ratios/Supplemental Data      
Net Assets, End of Period (Millions) $2,435 $1,840 $341
Ratio of Total Expenses to Average Net Assets 0.06% 0.06% 0.06%3
Ratio of Net Investment Income to Average Net Assets 2.00% 1.33% 1.44%3
Portfolio Turnover Rate4 14% 17% 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 2012 2011 2010 2009 2008
Net Asset Value, Beginning of Period $69.70 $72.58 $57.41 $42.60 $68.07
Investment Operations          
Net Investment Income 1.500 .957 .833 .646 .910
Net Realized and Unrealized Gain (Loss)          
on Investments 11.194 (2.891) 15.183 14.822 (25.462)
Total from Investment Operations 12.694 (1.934) 16.016 15.468 (24.552)
Distributions          
Dividends from Net Investment Income (1.504) (.946) (.846) (.658) (.918)
Distributions from Realized Capital Gains
Total Distributions (1.504) (.946) (.846) (.658) (.918)
Net Asset Value, End of Period $80.89 $69.70 $72.58 $57.41 $42.60
 
Total Return 18.22% -2.68% 27.89% 36.31% -35.99%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $4,691 $3,683 $4,843 $3,460 $1,224
Ratio of Total Expenses to          
Average Net Assets 0.10% 0.10% 0.12% 0.14% 0.10%
Ratio of Net Investment Income to          
Average Net Assets 1.96% 1.29% 1.38% 1.44% 1.62%
Portfolio Turnover Rate1 14% 17% 12% 14% 14%

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.

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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. ETF Shares are listed for trading on NYSE Arca; 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).

During the year ended December 31, 2012, the fund’s average investment in futures contracts represented less than 1% of net assets, based on quarterly average aggregate settlement values.

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, 2009–2012), 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, 2012, the fund had contributed capital of $3,691,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 1.48% of Vanguard’s capitalization. The fund’s trustees and officers are also directors 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 market value of the fund’s investments as of December 31, 2012, based on the inputs used to value them:

  Level 1 Level 2 Level 3
Investments ($000) ($000) ($000)
Common Stocks 27,537,446 283
Temporary Cash Investments 500,527 12,797
Futures Contracts—Assets1 4,496
Futures Contracts—Liabilities1 (31)
Total 28,042,438 12,797 283
1 Represents variation margin on the last day of the reporting period.  

 

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Small-Cap Index Fund

D. At December 31, 2012, 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 2013 2,678 226,719 487

 

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.

Certain of the fund’s investments are in securities considered to be “passive foreign investment companies,” for which any unrealized appreciation and/or realized gains are required to be included in distributable net income for tax purposes. During the year ended December 31, 2012, the fund realized gains on the sale of passive foreign investment companies of $151,000, which have been included in current and prior periods’ taxable income; accordingly, such gains have been reclassified from accumulated net realized losses to overdistributed net investment income. Passive foreign investment companies held at December 31, 2012, had unrealized appreciation of $1,092,000.

During the year ended December 31, 2012, the fund realized $952,215,000 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, 2012, the fund had $4,836,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $279,085,000 to offset taxable capital gains realized during the year ended December 31, 2012. At December 31, 2012, the fund had available capital losses totaling $1,031,716,000 to offset future net capital gains. Of this amount, $946,157,000 is subject to expiration dates; $342,008,000 may be used to offset future net capital gains through December 31, 2017, and $604,149,000 through December 31, 2018. Capital losses of $85,559,000 realized beginning in fiscal 2011 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards.

At December 31, 2012, the cost of investment securities for tax purposes was $25,694,638,000. Net unrealized appreciation of investment securities for tax purposes was $2,356,415,000, consisting of unrealized gains of $5,240,176,000 on securities that had risen in value since their purchase and $2,883,761,000 in unrealized losses on securities that had fallen in value since their purchase.

29


 

Small-Cap Index Fund

F. During the year ended December 31, 2012, the fund purchased $6,884,070,000 of investment securities and sold $5,883,846,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,766,764,000 and $2,327,562,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.

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

      Year Ended December 31,
    2012   2011
  Amount Shares Amount Shares
  ($000) (000) ($000) (000)
Investor Shares        
Issued 696,904 18,945 1,154,504 33,129
Issued in Lieu of Cash Distributions 63,466 1,641 45,183 1,348
Redeemed (1,466,443) (39,768) (2,411,297) (68,538)
Net Increase (Decrease) —Investor Shares (706,073) (19,182) (1,211,610) (34,061)
Admiral Shares        
Issued