Vanguard Russell 1000 Index Funds

Transcription

1 Semiannual Report February 28, 2017 Vanguard Russell 1000 Index Funds Vanguard Russell 1000 Index Fund Vanguard Russell 1000 Value Index Fund Vanguard Russell 1000 Growth Index Fund

2 A new format, unwavering commitment As you begin reading this report, you ll notice that we ve made some improvements to the opening sections based on feedback from you, our clients. Page 1 starts with a new Your Fund s Performance at a Glance, a concise, handy summary of how your fund performed during the period. In the renamed Chairman s Perspective, Bill McNabb will focus on enduring principles and investment insights. We ve modified some tables, and eliminated some redundancy, but we haven t removed any information. At Vanguard, we re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us. Contents Your Fund s Performance at a Glance Chairman s Perspective Russell 1000 Index Fund Russell 1000 Value Index Fund Russell 1000 Growth Index Fund About Your Fund s Expenses Glossary 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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown translated into seven languages, reflecting our expanding global presence.

3 Your Fund s Performance at a Glance For the six months ended February 28, 2017, results for the three funds reviewed in this report ranged from about 11% for Vanguard Russell 1000 Value Index Fund to about 9% for Vanguard Russell 1000 Growth Index Fund. Vanguard Russell 1000 Index Fund, which includes both growth and value stocks, returned slightly more than 10%. The Russell 1000 Index Fund and the Russell 1000 Growth Index Fund exceeded the average return of their peers. The Russell 1000 Value Index Fund slightly trailed the average performance of its peer group. The Value Index Fund benefited from a rally in financial services stocks in the wake of the Federal Reserve s interest rate hike. The technology sector contributed the most to the Russell 1000 Growth Index Fund. Both sectors drove the Russell 1000 Index Fund s performance. Utilities and consumer-oriented stocks contributed the least to all three funds. All of the funds closely tracked their target indexes. Total Returns: Six Months Ended February 28, 2017 Total Returns Vanguard Russell 1000 Index Fund ETF Shares Market Price 10.03% Net Asset Value Institutional Shares Russell 1000 Index Large-Cap Core Funds Average 9.23 Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Vanguard Russell 1000 Value Index Fund ETF Shares Market Price 10.99% Net Asset Value Institutional Shares Russell 1000 Value Index Large-Cap Value Funds Average Large-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. 1

4 Total Returns Vanguard Russell 1000 Growth Index Fund ETF Shares Market Price 9.07% Net Asset Value 9.09 Institutional Shares 9.11 Russell 1000 Growth Index 9.15 Large-Cap Growth Funds Average 7.44 Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Institutional 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 Nasdaq exchange and are available only through brokers. The table provides ETF returns based on both the Nasdaq market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. 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. Expense Ratios Your Fund Compared With Its Peer Group ETF Shares Institutional Shares Peer Group Average Russell 1000 Index Fund 0.12% 0.08% 1.07% Russell 1000 Value Index Fund Russell 1000 Growth Index Fund The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2017, the funds annualized expense ratios were: for the Russell 1000 Index Fund, 0.12% for ETF Shares and 0.08% for Institutional Shares; for the Russell 1000 Value Index Fund, 0.13% for ETF Shares and 0.08% for Institutional Shares; and for the Russell 1000 Growth Index Fund, 0.12% for ETF Shares and 0.08% for Institutional Shares. Peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end Peer groups: For the Russell 1000 Index Fund, Large-Cap Core Funds; for the Russell 1000 Value Index Fund, Large-Cap Value Funds; and for the Russell 1000 Growth Index Fund, Large-Cap Growth Funds. 2

5 Chairman s Perspective Dear Shareholder, Bill McNabb Chairman and Chief Executive Officer More than a decade ago, a Vanguard client asked us to help improve its defined contribution retirement plan. New hires were participating in the plan at lower rates than in previous years, and the client wanted to reverse this trend. Another priority was to help more participants invest their retirement savings in balanced portfolios. The overall goal of this longtime client: Give employees a better chance to achieve financial security in retirement. Today, that plan automatically enrolls employees at a 5% contribution rate, puts them in a low-cost target-date fund that takes on less risk as they near retirement, and offers a comprehensive suite of advice services. On top of that, employees get an employer contribution of 5% and are eligible for a company match. Because of this combination of attractive features and generous employer contributions, nearly all new hires now participate in the plan, 81% of plan participants invest their retirement savings in balanced portfolios, and 87% of participants meet or exceed Vanguard s recommended total retirement savings target. (Vanguard generally recommends that retirement investors save 12% 15% of pay, including company matches.) 3

6 Changing the retirement landscape Am I singling out an isolated Vanguard success story? Absolutely not. Stories like these are becoming increasingly common with employerbased retirement plans, particularly among large and midsize companies. Solutions such as automatic enrollment, automatic contribution increases, and default investment in target-date funds are having a positive effect. Insights from the relatively new discipline of behavioral finance have contributed to the advances. Simply put, retirement plans are making natural human inertia work for future retirees, rather than against them, by putting savings on autopilot as much as possible. More than 60% of Vanguard participants are in plans with automatic enrollment, which has led to a big jump in participation. Today, more than four-fifths of eligible employees are saving for retirement, compared with only two-thirds ten years ago. In addition, many plans have adopted automatic-escalation features, which increase plan contributions at regular intervals until a maximum level is reached or an employee opts out. Automatic increases are a crucial tool for boosting retirement savings rates. The growing use of target-date funds is another enormous benefit. More than 70% of all participants in Vanguard plans invest at least part of their retirement savings in Market Barometer Total Returns Periods Ended February 28, 2017 Six One Five Years Months Year (Annualized) Stocks Russell 1000 Index (Large-caps) 10.10% 25.53% 13.94% Russell 2000 Index (Small-caps) Russell 3000 Index (Broad U.S. market) FTSE All-World ex US Index (International) Bonds Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) -2.19% 1.42% 2.24% Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) Citigroup Three-Month U.S. Treasury Bill Index CPI Consumer Price Index 1.14% 2.74% 1.36% 4

7 these age-appropriate, diversified strategies. And nearly 50% of Vanguard participants are invested solely in a single target-date fund. Consider a do-it-yourself autopilot But what if you don t have access to a world-class, employer-based retirement plan? Unfortunately, not everyone does, which is an important policy issue. However, you can still put the features of these plans to work. For example, you can set up automatic contributions from your paycheck to an IRA. And you can adopt your own automatic escalation by investing any pay raises. You can also take a page from top-quality retirement plans by considering a low-cost, globally diversified target-date fund. The beauty of this approach is that you don t need to remember to rebalance your portfolio the fund does it for you. Of course, you can take a more active role in picking your own investments, and this can be a good choice for some. But keep in mind the lessons from successful employer-based plans: Busy workers, faced with a lot of competing priorities, are often best served by putting their retirement savings on autopilot. Winning by default In highlighting some recent successes in retirement savings, I don t want to minimize the challenges we still face. We re living in a slow-growth, uncertain world, and investment returns for both stocks and bonds could well be modest in the coming decade. But I believe the innovations we ve seen in the last ten years in many retirement plans you might call it the default revolution point the way toward a solution. And that even goes for people whose employers don t have a world-class retirement plan. As always, thank you for investing with Vanguard. Sincerely, F. William McNabb III Chairman and Chief Executive Officer March 14,

8 Russell 1000 Index Fund Fund Profile As of February 28, 2017 Share-Class Characteristics ETF Shares Institutional Shares Ticker Symbol VONE VRNIX Expense Ratio1 0.12% 0.08% 30-Day SEC Yield 1.85% 1.89% Portfolio Characteristics DJ U.S. Fund Russell 1000 Index Total Market FA Index Number of Stocks 1,004 1,001 3,807 Median Market Cap $76.1B $76.1B $57.6B Price/Earnings Ratio 24.1x 24.1x 24.8x Price/Book Ratio 3.0x 3.0x 3.0x Return on Equity 17.2% 17.0% 16.4% Earnings Growth Rate 7.4% 7.7% 7.6% Dividend Yield 2.0% 2.0% 1.9% Foreign Holdings 0.0% 0.0% 0.0% Turnover Rate (Annualized) 6% Short-Term Reserves 0.0% Sector Diversification (% of equity exposure) DJ U.S. Total Fund Russell 1000 Index Market FA Index Consumer Discretionary 13.8% 13.8% 13.7% Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Technology Utilities Volatility Measures Russell 1000 Index DJ U.S. Total Market FA Index R-Squared Beta 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 Technology 3.3% Alphabet Inc. Computer Services Software & Systems 2.2 Microsoft Corp. Computer Services Software & Systems 2.1 Exxon Mobil Corp. Oil: Integrated 1.5 Johnson & Johnson Pharmaceuticals 1.5 JPMorgan Chase & Co. Diversified Financial Services 1.5 Amazon.com Inc. Diversified Retail 1.4 Berkshire Hathaway Inc. Insurance: Multi-Line 1.4 Facebook Inc. Computer Services Software & Systems 1.3 General Electric Co. Diversified Manufacturing Operations 1.2 Top Ten 17.4% The holdings listed exclude any temporary cash investments and equity index products. Investment Focus Style Market Cap Large Medium Small Value Blend Growth 6 1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2017, the annualized expense ratios were 0.12% for ETF Shares and 0.08% for Institutional Shares.

9 Russell 1000 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. Fiscal-Year Total Returns (%): September 20, 2010, Through February 28, Russell 1000 Index Fund ETF Shares Net Asset Value Russell 1000 Index Note: For 2017, performance data reflect the six months ended February 28, Average Annual Total Returns: Periods Ended December 31, 2016 This table presents returns through the latest calendar quarter rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information. Inception Date ETF Shares 9/20/2010 One Year Five Years Since Inception Market Price 11.78% 14.53% 13.56% Net Asset Value Institutional Shares 10/15/ See Financial Highlights for dividend and capital gains information. 7

10 Russell 1000 Index Fund Financial Statements (unaudited) Statement of Net Assets Investments Summary As of February 28, 2017 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 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 Assets Common Stocks Consumer Discretionary * Amazon.com Inc. 43,245 36, % Home Depot Inc. 138,327 20, % Comcast Corp. Class A 535,461 20, % Walt Disney Co. 180,254 19, % Wal-Mart Stores Inc. 168,130 11, % McDonald s Corp. 92,294 11, % Consumer Discretionary Other 227, % 348, % Consumer Staples Procter & Gamble Co. 284,693 25, % Philip Morris International Inc. 172,183 18, % Coca-Cola Co. 432,975 18, % PepsiCo Inc. 160,510 17, % Altria Group Inc. 217,700 16, % Consumer Staples Other 102, % 199, % Energy Exxon Mobil Corp. 463,727 37, % Chevron Corp. 209,097 23, % Schlumberger Ltd. 154,546 12, % Energy Other 87, % 160, % Financial Services JPMorgan Chase & Co. 404,722 36, % * Berkshire Hathaway Inc. Class B 210,212 36, % Wells Fargo & Co. 507,830 29, % Bank of America Corp. 1,142,676 28, % Visa Inc. Class A 211,829 18, % Citigroup Inc. 308,693 18, % 8

11 Russell 1000 Index Fund Market Percentage Value of Net Shares Assets Mastercard Inc. Class A 107,025 11, % Goldman Sachs Group Inc. 42,903 10, % US Bancorp 180,405 9, % Financial Services Other 328, % 527, % Health Care Johnson & Johnson 305,439 37, % Pfizer Inc. 666,711 22, % Merck & Co. Inc. 307,926 20, % UnitedHealth Group Inc. 104,254 17, % Amgen Inc. 83,548 14, % Medtronic plc 156,004 12, % AbbVie Inc. 180,039 11, % * Celgene Corp. 85,476 10, % Bristol-Myers Squibb Co. 185,723 10, % Gilead Sciences Inc. 147,455 10, % Health Care Other 168, % 335, % Materials & Processing 90, % 1Other % Producer Durables General Electric Co. 1,022,702 30, % 3M Co. 65,377 12, % Boeing Co. 66,338 11, % Honeywell International Inc. 84,636 10, % Union Pacific Corp. 93,613 10, % United Technologies Corp. 86,248 9, % Producer Durables Other 187, % 272, % Technology Apple Inc. 609,353 83, % Microsoft Corp. 842,335 53, % * Facebook Inc. Class A 249,535 33, % * Alphabet Inc. Class A 32,604 27, % * Alphabet Inc. Class C 33,014 27, % Cisco Systems Inc. 559,430 19, % Intel Corp. 525,621 19, % International Business Machines Corp. 97,721 17, % Oracle Corp. 328,950 14, % Technology Other 154, % 449, % Utilities AT&T Inc. 684,814 28, % Verizon Communications Inc. 453,670 22, % Utilities Other 85, % 136, % Total Common Stocks (Cost $2,055,386) 2,521, % 2 9

12 Russell 1000 Index Fund Market Percentage Value of Net Coupon Shares Assets Temporary Cash Investments Money Market Fund 3,4 Vanguard Market Liquidity Fund 0.864% 81,919 8, % 5U.S. Government and Agency Obligations % Total Temporary Cash Investments (Cost $8,891) 8, % 2 6Total Investments (Cost $2,064,277) 2,530, % Amount Other Assets and Liabilities Other Assets Investment in Vanguard 177 Receivables for Investment Securities Sold 5,715 Receivables for Accrued Income 5,013 Receivables for Capital Shares Issued 282 Other Assets 156 Total Other Assets 11, % Liabilities Payables for Investment Securities Purchased (9,768) Collateral for Securities on Loan (3,496) Payables for Capital Shares Redeemed (20) Payables to Vanguard (617) Other Liabilities (12) Total Liabilities (13,913) (0.5%) Net Assets 2,528, % 10

13 Russell 1000 Index Fund At February 28, 2017, net assets consisted of: Amount Paid-in Capital 2,095,047 Undistributed Net Investment Income 6,538 Accumulated Net Realized Losses (40,091) Unrealized Appreciation (Depreciation) Investment Securities 466,567 Futures Contracts 213 Net Assets 2,528,274 ETF Shares Net Assets Applicable to 6,175,000 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 670,975 Net Asset Value Per Share ETF Shares $ Institutional Shares Net Assets Applicable to 8,823,197 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 1,857,299 Net Asset Value Per Share Institutional Shares $ 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 Other represents securities that are not classified by the fund s benchmark index. 2 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 99.9% and 0.2%, respectively, of net assets. 3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 4 Includes $3,496,000 of collateral received for securities on loan. 5 Securities with a value of $300,000 have been segregated as initial margin for open futures contracts. 6 The total value of securities on loan is $3,243,000. See accompanying Notes, which are an integral part of the Financial Statements. 11

14 Russell 1000 Index Fund Statement of Operations Six Months Ended February 28, 2017 Investment Income Income Dividends 23,476 Interest 1 38 Securities Lending Net 78 Total Income 23,592 Expenses The Vanguard Group Note B Investment Advisory Services 167 Management and Administrative ETF Shares 324 Management and Administrative Institutional Shares 498 Marketing and Distribution ETF Shares 28 Marketing and Distribution Institutional Shares 22 Custodian Fees 65 Shareholders Reports ETF Shares 8 Shareholders Reports Institutional Shares 1 Trustees Fees and Expenses 1 Total Expenses 1,114 Net Investment Income 22,478 Realized Net Gain (Loss) Investment Securities Sold 1 64,025 Futures Contracts 876 Realized Net Gain (Loss) 64,901 Change in Unrealized Appreciation (Depreciation) Investment Securities 145,801 Futures Contracts (94) Change in Unrealized Appreciation (Depreciation) 145,707 Net Increase (Decrease) in Net Assets Resulting from Operations 233,086 1 Interest income and realized net gain (loss) from an affiliated company of the fund were $36,000 and ($1,000), respectively. See accompanying Notes, which are an integral part of the Financial Statements. 12

15 Russell 1000 Index Fund Statement of Changes in Net Assets Six Months Ended Year Ended February 28, August 31, Increase (Decrease) in Net Assets Operations Net Investment Income 22,478 40,787 Realized Net Gain (Loss) 64,901 11,430 Change in Unrealized Appreciation (Depreciation) 145, ,142 Net Increase (Decrease) in Net Assets Resulting from Operations 233, ,359 Distributions Net Investment Income ETF Shares (7,541) (11,541) Institutional Shares (17,419) (26,919) Realized Capital Gain ETF Shares Institutional Shares Total Distributions (24,960) (38,460) Capital Share Transactions ETF Shares (68,381) 110,695 Institutional Shares 160, ,442 Net Increase (Decrease) from Capital Share Transactions 92, ,137 Total Increase (Decrease) 300, ,036 Net Assets Beginning of Period 2,228,002 1,764,966 End of Period 1 2,528,274 2,228,002 1 Net Assets End of Period includes undistributed (overdistributed) net investment income of $6,538,000 and $9,020,000. See accompanying Notes, which are an integral part of the Financial Statements. 13

16 Russell 1000 Index Fund Financial Highlights ETF Shares Six Months Ended For a Share Outstanding February 28, Year Ended August 31, Throughout Each Period Net Asset Value, Beginning of Period $99.81 $91.37 $92.70 $75.40 $64.29 $55.94 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (1.355) Total from Investment Operations Distributions Dividends from Net Investment Income (1.085) (1.835) (1.654) (1.525) (1.402) (1.133) Distributions from Realized Capital Gains Total Distributions (1.085) (1.835) (1.654) (1.525) (1.402) (1.133) Net Asset Value, End of Period $ $99.81 $91.37 $92.70 $75.40 $64.29 Total Return 10.04% 11.41% 0.29% 25.18% 19.70% 17.19% Ratios/Supplemental Data Net Assets, End of Period (Millions) $671 $679 $514 $380 $219 $148 Ratio of Total Expenses to Average Net Assets 0.12% 0.12% 0.12% 0.12% 0.12% 0.12% Ratio of Net Investment Income to Average Net Assets 1.93% 2.05% 1.84% 1.85% 2.09% 2.06% Portfolio Turnover Rate 1 6% 9% 4% 7% 11% 36% The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. 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. 14 See accompanying Notes, which are an integral part of the Financial Statements.

17 Russell 1000 Index Fund Financial Highlights Institutional Shares Six Months Ended For a Share Outstanding February 28, Year Ended August 31, Throughout Each Period Net Asset Value, Beginning of Period $ $ $ $ $ $ Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (2.641) Total from Investment Operations Distributions Dividends from Net Investment Income (2.138) (3.621) (3.278) (3.005) (2.764) (2.234) Distributions from Realized Capital Gains Total Distributions (2.138) (3.621) (3.278) (3.005) (2.764) (2.234) Net Asset Value, End of Period $ $ $ $ $ $ Total Return 10.06% 11.47% 0.33% 25.24% 19.73% 17.25% Ratios/Supplemental Data Net Assets, End of Period (Millions) $1,857 $1,549 $1,251 $944 $677 $334 Ratio of Total Expenses to Average Net Assets 0.08% 0.08% 0.08% 0.08% 0.08% 0.08% Ratio of Net Investment Income to Average Net Assets 1.97% 2.09% 1.88% 1.89% 2.13% 2.10% Portfolio Turnover Rate 1 6% 9% 4% 7% 11% 36% The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. 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. 15

18 Russell 1000 Index Fund Notes to Financial Statements Vanguard Russell 1000 Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Institutional Shares. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker. Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. 1. Security Valuation: Securities are valued as of the close of trading on the 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 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. 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of 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 six months ended February 28, 2017, the fund s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. 16

19 Russell 1000 Index Fund 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 (August 31, ), and for the period ended February 28, 2017, 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. 5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities. 6. Credit Facility: The fund and certain other funds managed by The Vanguard Group ( Vanguard ) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund s board of trustees and included in Management and Administrative expenses on the fund s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread. The fund had no borrowings outstanding at February 28, 2017, or at any time during the period then ended. 7. 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. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. 17

20 Russell 1000 Index Fund Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets. B. In accordance with the terms of a Funds Service Agreement (the FSA ) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets. Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At February 28, 2017, the fund had contributed to Vanguard capital in the amount of $177,000, representing 0.01% of the fund s net assets and 0.07% of Vanguard s capitalization. The fund s trustees and officers are also directors and employees, respectively, of Vanguard. C. Various inputs may be used to determine the value of the fund s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. Level 1 Quoted prices in active markets for identical securities. Level 2 Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 Significant unobservable inputs (including the fund s own assumptions used to determine the fair value of investments). The following table summarizes the market value of the fund s investments as of February 28, 2017, based on the inputs used to value them: Level 1 Level 2 Level 3 Investments Common Stocks 2,521,953 Temporary Cash Investments 8, Futures Contracts Liabilities 1 (12) Total 2,530, Represents variation margin on the last day of the reporting period. 18

21 Russell 1000 Index Fund D. At February 28, 2017, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were: Aggregate Number of Settlement Unrealized Long (Short) Value Appreciation Futures Contracts Expiration Contracts Long (Short) (Depreciation) E-mini S&P 500 Index March , 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 six months ended February 28, 2017, the fund realized $60,163,000 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. The fund s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2016, the fund had available capital losses totaling $44,523,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2017; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above. At February 28, 2017, the cost of investment securities for tax purposes was $2,064,277,000. Net unrealized appreciation of investment securities for tax purposes was $466,567,000, consisting of unrealized gains of $508,283,000 on securities that had risen in value since their purchase and $41,716,000 in unrealized losses on securities that had fallen in value since their purchase. F. During the six months ended February 28, 2017, the fund purchased $309,675,000 of investment securities and sold $216,210,000 of investment securities, other than temporary cash investments. Purchases and sales include $25,143,000 and $143,819,000, respectively, in connection with in-kind purchases and redemptions of the fund s capital shares. 19

22 Russell 1000 Index Fund G. Capital share transactions for each class of shares were: Six Months Ended Year Ended February 28, 2017 August 31, 2016 Amount Shares Amount Shares (000) (000) ETF Shares Issued 75, ,860 2,950 Issued in Lieu of Cash Distributions Redeemed (143,906) (1,375) (167,165) (1,775) Net Increase (Decrease) ETF Shares (68,381) (625) 110,695 1,175 Institutional Shares Issued 284,389 1, ,141 1,450 Issued in Lieu of Cash Distributions 15, , Redeemed (139,661) (709) (117,237) (643) Net Increase (Decrease) Institutional Shares 160, , H. Management has determined that no material events or transactions occurred subsequent to February 28, 2017, that would require recognition or disclosure in these financial statements. 20

23 Russell 1000 Value Index Fund Fund Profile As of February 28, 2017 Share-Class Characteristics ETF Shares Institutional Shares Ticker Symbol VONV VRVIX Expense Ratio1 0.12% 0.08% 30-Day SEC Yield 2.29% 2.33% Portfolio Characteristics DJ Fund Russell 1000 Value Index U.S. Total Market FA Index Number of Stocks ,807 Median Market Cap $62.0B $62.0B $57.6B Price/Earnings Ratio 23.5x 23.5x 24.8x Price/Book Ratio 2.1x 2.1x 3.0x Return on Equity 12.1% 12.1% 16.4% Earnings Growth Rate 3.9% 3.9% 7.6% Dividend Yield 2.4% 2.4% 1.9% Foreign Holdings 0.0% 0.0% 0.0% Turnover Rate (Annualized) 10% Short-Term Reserves -0.2% Sector Diversification (% of equity exposure) DJ U.S. Fund Russell 1000 Value Index Total Market FA Index Consumer Discretionary 5.5% 5.5% 13.7% Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Technology Utilities Volatility Measures Russell 1000 Value Index DJ U.S. Total Market FA Index R-Squared Beta These measures show the degree and timing of the fund s fluctuations compared with the indexes over 36 months. Ten Largest Holdings (% of total net assets) Exxon Mobil Corp. Oil: Integrated 3.0% JPMorgan Chase & Co. Diversified Financial Services 2.9 Berkshire Hathaway Inc. Insurance: Multi-Line 2.8 Johnson & Johnson Pharmaceuticals 2.4 Wells Fargo & Co. Banks: Diversified 2.3 AT&T Inc. Utilities: Telecommunications 2.3 Bank of America Corp. Banks: Diversified 2.2 Procter & Gamble Co. Personal Care 2.0 General Electric Co. Diversified Manufacturing Operations 1.9 Chevron Corp. Oil: Integrated 1.9 Top Ten 23.7% The holdings listed exclude any temporary cash investments and equity index products. Investment Focus Style Market Cap Large Medium Small Value Blend Growth 1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2017, the annualized expense ratios were 0.13% for ETF Shares and 0.08% for Institutional Shares. 21

24 Russell 1000 Value 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. Fiscal-Year Total Returns (%): September 20, 2010, Through February 28, Russell 1000 Value Index Fund ETF Shares Net Asset Value Russell 1000 Value Index Note: For 2017, performance data reflect the six months ended February 28, Average Annual Total Returns: Periods Ended December 31, 2016 This table presents returns through the latest calendar quarter rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information. Inception Date ETF Shares 9/20/2010 One Year Five Years Since Inception Market Price 17.08% 14.65% 13.20% Net Asset Value Institutional Shares 12/10/ See Financial Highlights for dividend and capital gains information. 22

25 Russell 1000 Value Index Fund Financial Statements (unaudited) Statement of Net Assets Investments Summary As of February 28, 2017 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 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 Assets Common Stocks Consumer Discretionary Wal-Mart Stores Inc. 340,879 24, % General Motors Co. 315,898 11, % Ford Motor Co. 875,037 10, % Consumer Discretionary Other 95, % 142, % Consumer Staples Procter & Gamble Co. 577,408 52, % Philip Morris International Inc. 312,217 34, % Mondelez International Inc. Class A 336,765 14, % Walgreens Boots Alliance Inc. 153,809 13, % Colgate-Palmolive Co. 160,357 11, % Consumer Staples Other 62, % 189, % Energy Exxon Mobil Corp. 940,846 76, % Chevron Corp. 424,203 47, % Schlumberger Ltd. 314,089 25, % ConocoPhillips 279,778 13, % Occidental Petroleum Corp. 171,920 11, % Energy Other 139, % 313, % Financial Services JPMorgan Chase & Co. 820,923 74, % * Berkshire Hathaway Inc. Class B 426,426 73, % Wells Fargo & Co. 1,030,558 59, % Bank of America Corp. 2,317,243 57, % Citigroup Inc. 625,191 37, % Goldman Sachs Group Inc. 86,861 21, % US Bancorp 365,352 20, % 23

26 Russell 1000 Value Index Fund Market Percentage Value of Net Shares Assets Morgan Stanley 321,877 14, % American International Group Inc. 229,519 14, % American Express Co. 182,270 14, % Chubb Ltd. 103,901 14, % PNC Financial Services Group Inc. 112,471 14, % Bank of New York Mellon Corp. 235,968 11, % Prudential Financial Inc. 99,628 11, % MetLife Inc. 209,668 10, % BlackRock Inc. 28,184 10, % Financial Services Other 359, % 819, % Health Care Johnson & Johnson 512,625 62, % Pfizer Inc. 1,260,597 43, % Merck & Co. Inc. 625,033 41, % Medtronic plc 315,912 25, % Abbott Laboratories 347,670 15, % Health Care Other 88, % 276, % Materials & Processing Dow Chemical Co. 252,735 15, % Materials & Processing Other 65, % 81, % 1Other % Producer Durables General Electric Co. 1,671,753 49, % United Technologies Corp. 174,883 19, % Union Pacific Corp. 160,193 17, % Caterpillar Inc. 125,816 12, % Producer Durables Other 158, % 257, % Technology Cisco Systems Inc. 1,134,529 38, % Intel Corp. 970,131 35, % Oracle Corp. 601,115 25, % QUALCOMM Inc. 262,587 14, % Apple Inc. 103,754 14, % International Business Machines Corp. 62,037 11, % Technology Other 102, % 241, % Utilities AT&T Inc. 1,389,871 58, % Verizon Communications Inc. 459,879 22, % NextEra Energy Inc. 103,939 13, % Duke Energy Corp. 155,315 12, % Southern Co. 211,604 10, % Utilities Other 132, % 250, % Total Common Stocks (Cost $2,247,041) 2,572, % 2 24

27 Russell 1000 Value Index Fund Market Percentage Value of Net Coupon Shares Assets Temporary Cash Investments Money Market Fund 3,4 Vanguard Market Liquidity Fund 0.864% 20,014 2, % 5U.S. Government and Agency Obligations % Total Temporary Cash Investments (Cost $2,301) 2, % 2 6Total Investments (Cost $2,249,342) 2,575, % Amount Other Assets and Liabilities Other Assets Investment in Vanguard 175 Receivables for Investment Securities Sold 5,275 Receivables for Accrued Income 6,468 Receivables for Capital Shares Issued 1,351 Total Other Assets 13, % Liabilities Payables for Investment Securities Purchased (6,934) Collateral for Securities on Loan (2,000) Payables for Capital Shares Redeemed (22) Payables to Vanguard (625) Other Liabilities (79) Total Liabilities (9,660) (0.4%) Net Assets 2,578, % 25

28 Russell 1000 Value Index Fund At February 28, 2017, net assets consisted of: Amount Paid-in Capital 2,276,727 Undistributed Net Investment Income 7,444 Accumulated Net Realized Losses (31,420) Unrealized Appreciation (Depreciation) Investment Securities 325,822 Futures Contracts 200 Net Assets 2,578,773 ETF Shares Net Assets Applicable to 9,900,000 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 1,009,015 Net Asset Value Per Share ETF Shares $ Institutional Shares Net Assets Applicable to 7,887,555 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 1,569,758 Net Asset Value Per Share Institutional Shares $ 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 Other represents securities that are not classified by the fund s benchmark index. 2 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 99.9% and 0.0%, respectively, of net assets. 3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 4 Includes $2,000,000 of collateral received for securities on loan. 5 Securities with a value of $299,000 have been segregated as initial margin for open futures contracts. 6 The total value of securities on loan is $1,873,000. See accompanying Notes, which are an integral part of the Financial Statements.