Vanguard Russell 2000 Index Funds

Transcription

1 Semiannual Report Vanguard Russell 2000 Index Funds Vanguard Russell 2000 Index Fund Vanguard Russell 2000 Index Fund Vanguard Russell 2000 Growth Index Fund

2 Vanguard s Principles for Investing Success We want to give you the best chance of investment success. These principles, grounded in Vanguard s research and experience, can put you on the right path. Goals. Create clear, appropriate investment goals. Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost. Discipline. Maintain perspective and long-term discipline. A single theme unites these principles: Focus on the things you can control. We believe there is no wiser course for any investor. Contents Your Fund s Performance at a Glance CEO s Perspective Results of Proxy Voting Russell 2000 Index Fund Russell 2000 Index Fund Russell 2000 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: Nautical images have been part of Vanguard s rich heritage since its start in For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first and light the way as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.

3 Your Fund s Performance at a Glance Growth stocks generally outpaced their value-oriented counterparts and largecapitalization stocks beat small-caps for the six months ended. The broad trends were reflected in the performance of the three Vanguard Russell 2000 Index Funds. Results ranged from about 5% for Vanguard Russell 2000 Index Fund to more than 11% for Vanguard Russell 2000 Growth Index Fund. Vanguard Russell 2000 Index Fund, which includes both growth and value stocks, returned more than 8%. All three funds closely tracked their target indexes. The Index Fund exceeded the average return of its small-cap peer group. The and Growth Index Funds trailed their peers. The consumer discretionary and health care sectors were among the top contributors to all three funds. Utilities was the only sector to post negative returns. Total Returns: Six Months Ended Total Returns Vanguard Russell 2000 Index Fund ETF Price 8.31% Net Asset 8.32 Institutional 8.36 Russell 2000 Index 8.30 Small-Cap Core Funds Average 7.60 Small-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Vanguard Russell 2000 Index Fund ETF Price 5.11% Net Asset 5.07 Institutional 5.12 Russell 2000 Index 5.09 Small-Cap Funds Average 6.63 Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. 1

4 Total Returns Vanguard Russell 2000 Growth Index Fund ETF Price 11.24% Net Asset Institutional Russell 2000 Growth Index Small-Cap Growth Funds Average Small-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Institutional are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF 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, 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 ' 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 ' market price was above or below the NAV. Expense Ratios Your Fund Compared With Its Peer Group ETF Institutional Peer Group Average Russell 2000 Index Fund 0.15% 0.08% 1.20% Russell 2000 Index Fund Russell 2000 Growth Index Fund The fund expense ratios shown are from the prospectus dated December 21, 2017, and represent estimated costs for the current fiscal year. For the six months ended, the funds annualized expense ratios were: for the Russell 2000 Index Fund, 0.15% for ETF and 0.08% for Institutional ; for the Russell 2000 Index Fund, 0.20% for ETF and 0.08% for Institutional ; and for the Russell 2000 Growth Index Fund, 0.20% for ETF and 0.08% for Institutional. The 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 2000 Index Fund, Small-Cap Core Funds; for the Russell 2000 Index Fund, Small-Cap Funds; and for the Russell 2000 Growth Index Fund, Small-Cap Growth Funds. 2

5 CEO s Perspective Dear Shareholder, As I begin my tenure as Vanguard s fourth chief executive, I ve been reflecting on both the past and the future of the company where I have spent my entire professional career. Tim Buckley President and Chief Executive Officer I feel extremely fortunate to have the chance to lead a company filled with people who come to work every day passionate about Vanguard s core purpose: to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success. Making a real difference When I joined Vanguard in 1991, I found a mission-driven team focused on improving lives helping people retire more comfortably, put their children through college, and achieve financial security. I found a company with purpose in an industry ripe for improvement. It was clear, even early in my career, that the cards were stacked against most investors. Hidden fees, performancechasing, and poor advice were relentlessly eroding investors dreams. We knew Vanguard could be different and, as a result, could make a real difference. Over the past 25 years, for example, Vanguard has lowered our funds asset-weighted average expense ratio 3

6 from 0.31% to 0.12%. And over the past decade, 94% of our funds have beaten the average annual return of their peers. 1 Focused on your success Vanguard is built for Vanguard investors as a client-owned company, we focus solely on you, our fund shareholders. Everything we do is designed to give our clients the best chance for investment success. In my role as CEO, I intend to keep this priority front and center. We re proud of what we ve achieved, but we re even more excited about what s to come. As I write this, we ve experienced a period of pronounced market volatility. Strong economic growth and budding signs of inflation have raised concerns about a more aggressive Federal Reserve. Although volatility can test investors nerves, we sometimes think of this as Vanguard weather a time when having a disciplined, low-cost, and long-term approach to investment management serves investors well. Barometer Total Returns Periods Ended Six One Five Years Months Year (Annualized) Stocks Russell 1000 Index (Large-caps) 10.62% 16.70% 14.56% 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) -2.18% 0.51% 1.71% Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) Citigroup Three-Month U.S. Treasury Bill Index CPI Consumer Price Index 1.41% 2.21% 1.41% The performance data shown represent past performance, which is not a guarantee of future results. 1 For the ten-year period through December 31, 2017, 9 of 9 Vanguard money market funds, 56 of 60 bond funds, 21 of 22 balanced funds, and 131 of 140 stock funds, or 217 of 231 Vanguard funds, outperformed their peer-group averages. Sources: Vanguard, based on data from Lipper, a Thomson Reuters Company. 4

7 Steady, time-tested guidance Our guidance for investors, as always, is to stay the course, tune out the hyperbolic headlines, and focus on your goals and what you can control, such as costs and how much you save. This time-tested advice has served our clients well over the decades. Regardless of how the markets perform in the short term, I m incredibly optimistic about the future for our investors. We have a dedicated team serving you, and we will never stop striving to make Vanguard the best place for you to invest through our high-quality funds and services, advice and guidance to help you meet your financial goals, and an experience that makes you feel good about entrusting us with your hard-earned savings. Thank you for your continued loyalty. Sincerely, Mortimer J. Buckley President and Chief Executive Officer March 19,

8 Results of Proxy Voting At a special meeting of shareholders on November 15, 2017, fund shareholders approved the following proposals: Proposal 1 Elect trustees for the fund.* The individuals listed in the table below were elected as trustees for the fund. All trustees with the exception of Ms. Mulligan, Ms. Raskin, and Mr. Buckley (each of whom already serves as a director of The Vanguard Group, Inc.) served as trustees to the funds prior to the shareholder meeting. Percentage Trustee For Withheld For Mortimer J. Buckley 797,579,784 15,541, % Emerson U. Fullwood 796,911,377 16,209, % Amy Gutmann 796,611,379 16,509, % JoAnn Heffernan Heisen 795,715,738 17,405, % F. Joseph Loughrey 796,955,260 16,165, % Mark Loughridge 797,027,324 16,093, % Scott C. Malpass 797,191,317 15,929, % F. William McNabb III 794,211,732 18,909, % Deanna Mulligan 797,691,084 15,429, % André F. Perold 793,048,517 20,072, % Sarah Bloom Raskin 797,096,185 16,024, % Peter F. Volanakis 796,849,973 16,270, % *Results are for all funds within the same trust. Proposal 2 Approve a manager-of-managers arrangement with third-party investment advisors. This arrangement enables the fund to enter into and materially amend investment advisory arrangements with third-party investment advisors, subject to the approval of the fund s board of trustees and certain conditions imposed by the Securities and Exchange Commission, while avoiding the costs and delays associated with obtaining future shareholder approval. Broker Percentage Vanguard Fund For Abstain Against Non-Votes For Russell 2000 Growth Index Fund 1,490,456 50,123 27, , % Russell 2000 Index Fund 5,346, , ,843 1,700, % Russell 2000 Index Fund 1,123,237 56,468 21, , % 6

9 Proposal 3 Approve a manager-of-managers arrangement with wholly owned subsidiaries of Vanguard. This arrangement enables Vanguard or the fund to enter into and materially amend investment advisory arrangements with wholly owned subsidiaries of Vanguard, subject to the approval of the fund s board of trustees and any conditions imposed by the Securities and Exchange Commission (SEC), while avoiding the costs and delays associated with obtaining future shareholder approval. The ability of the fund to operate in this manner is contingent upon the SEC s approval of a pending application for an order of exemption. Broker Percentage Vanguard Fund For Abstain Against Non-Votes For Russell 2000 Growth Index Fund 1,490,126 51,641 26, , % Russell 2000 Index Fund 5,366, , ,182 1,700, % Russell 2000 Index Fund 1,128,621 53,429 19, , % 7

10 Russell 2000 Index Fund Fund Profile As of Share-Class Characteristics Portfolio Characteristics ETF Institutional Ticker Symbol VTWO VRTIX Expense Ratio % 0.08% 30-Day SEC Yield 1.11% 1.18% DJ Fund Russell 2000 Index U.S. Total FA Index Number of Stocks 2,000 1,959 3,746 Median Cap $2.1B $2.1B $68.2B Price/Earnings Ratio 19.4x 19.4x 21.7x Price/Book Ratio 2.2x 2.2x 3.0x Return on Equity 7.9% 7.9% 15.0% Earnings Growth Rate 9.8% 9.9% 8.5% Dividend Yield 1.3% 1.3% 1.7% Foreign Holdings 0.0% 0.0% 0.0% Turnover Rate (Annualized) 12% Short-Term Reserves -0.3% Sector Diversification (% of equity exposure) DJ Russell U.S. Total Fund 2000 Index FA Index Consumer Discretionary 13.8% 13.8% 14.2% Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Technology Utilities Sector categories are based on the Russell Global Sectors ( RGS ), except for the Other category (if applicable), which includes securities that have not been provided a RGS classification as of the effective reporting period. Volatility Measures Russell 2000 Index DJ U.S. Total 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) Nektar Therapeutics Biotechnology 0.6% Bluebird Bio Inc. Biotechnology 0.5 GrubHub Inc. Computer Services Software & Systems 0.4 Sage Therapeutics Inc. Biotechnology 0.3 Knight-Swift Transportation Holdings Inc. Truckers 0.3 MKS Instruments Inc. Production Technology Equipment 0.3 Curtiss-Wright Corp. Aerospace 0.3 Aspen Technology Inc. Computer Services Software & Systems 0.3 EPAM Systems Inc. Computer Services Software & Systems 0.3 Catalent Inc. Pharmaceuticals 0.3 Top Ten 3.6% The holdings listed exclude any temporary cash investments and equity index products. Investment Focus Style Cap Large Medium Small Blend Growth 1 The expense ratios shown are from the prospectus dated December 21, 2017, and represent estimated costs for the current fiscal year. For the six months ended, the annualized expense ratios were 0.15% for ETF and 0.08% for Institutional. 8

11 Russell 2000 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 Russell 2000 Index Fund ETF Net Asset Russell 2000 Index Note: For 2018, performance data reflect the six months ended. Average Annual Total Returns: Periods Ended December 31, 2017 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 9/20/2010 One Year Five Years Since Inception Price 14.68% 14.14% 13.61% Net Asset Institutional 12/22/ See Financial Highlights for dividend and capital gains information. 9

12 Russell 2000 Index Fund Financial Statements (unaudited) Statement of Net Assets Investments Summary As of 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). Percentage of Net Assets Common Stocks Consumer Discretionary * Grand Canyon Education Inc. 47,046 4, % * Cimpress NV 25,111 4, % * 2U Inc. 48,380 4, % Consumer Discretionary Other 271, % 284, % Consumer Staples Snyder s-lance Inc. 86,510 4, % Consumer Staples Other 41, % 45, % Energy 70, % Financial Services * MGIC Investment Corp. 371,919 5, % Fair Isaac Corp. 29,886 5, % Sterling Bancorp 213,716 4, % Umpqua Holdings Corp. 222,942 4, % Wintrust Financial Corp. 56,106 4, % * Texas Capital Bancshares Inc. 50,013 4, % Radian Group Inc. 217,280 4, % Hancock Holding Co. 84,470 4, % Primerica Inc. 44,530 4, % Stifel Financial Corp. 66,978 4, % IBERIABANK Corp. 50,719 4, % Chemical Financial Corp. 71,360 3, % Financial Services Other 454, % 509, % 10

13 Russell 2000 Index Fund Percentage of Net Assets Health Care * Nektar Therapeutics Class A 148,757 12, % * Bluebird Bio Inc. 49,070 9, % * Sage Therapeutics Inc. 41,242 6, % * Catalent Inc. 134,465 5, % * Exact Sciences Corp. 118,084 5, % * Encompass Health Corp. 98,825 5, % * Insulet Corp. 58,371 4, % * LivaNova plc 48,711 4, % Cantel Medical Corp. 36,742 4, % * PRA Health Sciences Inc. 49,770 4, % Chemed Corp. 15,798 4, % * Masimo Corp. 44,995 3, % Health Care Other 264, % 335, % Materials & Processing Louisiana-Pacific Corp. 145,844 4, % 1 Materials & Processing Other 144, % 149, % 1,2Other % Producer Durables Knight-Swift Transportation Holdings Inc. 126,238 6, % Curtiss-Wright Corp. 44,454 6, % Littelfuse Inc. 24,212 5, % EMCOR Group Inc. 59,083 4, % MAXIMUS Inc. 64,475 4, % Producer Durables Other 264, % 289, % Technology *,^ GrubHub Inc. 86,180 8, % MKS Instruments Inc. 54,040 6, % * Aspen Technology Inc. 73,325 5, % * EPAM Systems Inc. 50,028 5, % Blackbaud Inc. 47,795 4, % *,^ Paycom Software Inc. 49,391 4, % Entegris Inc. 142,449 4, % * Proofpoint Inc. 43,889 4, % Monolithic Power Systems Inc. 39,996 4, % * Zendesk Inc. 100,140 4, % * RingCentral Inc. Class A 65,283 4, % * Integrated Device Technology Inc. 134,477 4, % * Silicon Laboratories Inc. 42,089 3, % * Nutanix Inc. 107,647 3, % Technology Other 227, % 297, % Utilities WGL Holdings Inc. 51,330 4, % IDACORP Inc. 50,629 4, % Utilities Other 75, % 83, % Total Common Stocks (Cost $1,905,374) 2,064, % 3 11

14 Russell 2000 Index Fund Percentage of Net Coupon Assets Temporary Cash Investments Money Fund 4,5 Vanguard Liquidity Fund 1.601% 363,301 36, % 6U.S. Government and Agency Obligations % Total Temporary Cash Investments (Cost $36,777) 36, % 3 Total Investments (Cost $1,942,151) 2,101, % Amount Other Assets and Liabilities Other Assets Investment in Vanguard 111 Receivables for Investment Securities Sold 1,804 Receivables for Accrued Income 1,272 Receivables for Capital Issued 7,451 Other Assets 426 Total Other Assets 11, % Liabilities Payables for Investment Securities Purchased (1,947) Collateral for Securities on Loan (32,403) Payables for Capital Redeemed (750) Payables to Vanguard (405) Variation Margin Payable Futures Contracts (96) Total Liabilities (35,601) (1.7%) Net Assets 2,076, % At, net assets consisted of: Amount Paid-in Capital 1,950,680 Undistributed Net Investment Income 878 Accumulated Net Realized Losses (34,003) Unrealized Appreciation (Depreciation) Investment Securities 159,216 Futures Contracts 59 Net Assets 2,076,830 12

15 Russell 2000 Index Fund Amount ETF Net Assets Applicable to 10,825,000 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 1,305,967 Net Asset Per Share ETF $ Institutional Net Assets Applicable to 3,340,185 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 770,863 Net Asset Per Share Institutional $ 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. ^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $29,899, Certain of the fund s securities are valued using significant unobservable inputs. 2 Other represents securities that are not classified by the fund s benchmark index. 3 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 1.2%, respectively, of net assets. 4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 5 Includes $32,403,000 of collateral received for securities on loan. 6 Securities with a value of $448,000 have been segregated as initial margin for open futures contracts. Derivative Financial Instruments Outstanding as of Period End Futures Contracts and Number of Unrealized Long (Short) Notional Appreciation Expiration Contracts Amount (Depreciation) Long Futures Contracts E-mini Russell 2000 Index March , Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes. See accompanying Notes, which are an integral part of the Financial Statements. 13

16 Russell 2000 Index Fund Statement of Operations Six Months Ended Investment Income Income Dividends 10,261 Interest 1 44 Securities Lending Net 1,151 Total Income 11,456 Expenses The Vanguard Group Note B Investment Advisory Services 237 Management and Administrative ETF 584 Management and Administrative Institutional 117 ing and Distribution ETF 38 ing and Distribution Institutional 8 Custodian Fees 139 Shareholders Reports and Proxy ETF 48 Shareholders Reports and Proxy Institutional 5 Trustees Fees and Expenses 1 Total Expenses 1,177 Net Investment Income 10,279 Realized Net Gain (Loss) Investment Securities Sold 1 90,221 Futures Contracts 874 Realized Net Gain (Loss) 91,095 Change in Unrealized Appreciation (Depreciation) Investment Securities 1 35,411 Futures Contracts 51 Change in Unrealized Appreciation (Depreciation) 35,462 Net Increase (Decrease) in Net Assets Resulting from Operations 136,836 1 Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $38,000, ($1,000), and ($7,000), respectively. Purchases and sales are for temporary cash investment purposes. See accompanying Notes, which are an integral part of the Financial Statements. 14

17 Russell 2000 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 10,279 20,174 Realized Net Gain (Loss) 91,095 44,973 Change in Unrealized Appreciation (Depreciation) 35, ,697 Net Increase (Decrease) in Net Assets Resulting from Operations 136, ,844 Distributions Net Investment Income ETF (8,785) (12,026) Institutional (4,849) (7,759) Realized Capital Gain ETF Institutional Total Distributions (13,634) (19,785) Capital Share Transactions ETF 140, ,534 Institutional 154,112 27,481 Net Increase (Decrease) from Capital Share Transactions 294, ,015 Total Increase (Decrease) 417, ,074 Net Assets Beginning of Period 1,659,328 1,177,254 End of Period 1 2,076,830 1,659,328 1 Net Assets End of Period includes undistributed (overdistributed) net investment income of $878,000 and $4,232,000. See accompanying Notes, which are an integral part of the Financial Statements. 15

18 Russell 2000 Index Fund Financial Highlights ETF Six Months Ended For a Share Outstanding February 28, Year Ended August 31, Throughout Each Period Net Asset, Beginning of Period $ $98.98 $92.71 $93.72 $80.46 $64.74 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (1.163) Total from Investment Operations Distributions Dividends from Net Investment Income (.891) (1.468) (1.569) (1.071) (.957) (1.045) Distributions from Realized Capital Gains Total Distributions (.891) (1.468) (1.569) (1.071) (.957) (1.045) Net Asset, End of Period $ $ $98.98 $92.71 $93.72 $80.46 Total Return 8.32% 14.94% 8.62% 0.03% 17.69% 26.23% Ratios/Supplemental Data Net Assets, End of Period (Millions) $1,306 $1,083 $698 $554 $375 $257 Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% Ratio of Net Investment Income to Average Net Assets 1.08% 1.34% 1.52% 1.28% 1.23% 1.71% Portfolio Turnover Rate 2 12% 23% 19% 17% 16% 32% The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding. 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. 16

19 Russell 2000 Index Fund Financial Highlights Institutional Six Months Ended For a Share Outstanding February 28, Year Ended August 31, Throughout Each Period Net Asset, Beginning of Period $ $ $ $ $ $ Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (2.212) Total from Investment Operations Distributions Dividends from Net Investment Income (1.775) (2.931) (3.199) (2.131) (1.906) (2.054) Distributions from Realized Capital Gains Total Distributions (1.775) (2.931) (3.199) (2.131) (1.906) (2.054) Net Asset, End of Period $ $ $ $ $ $ Total Return 8.36% 15.03% 8.69% 0.11% 17.78% 26.33% Ratios/Supplemental Data Net Assets, End of Period (Millions) $771 $576 $479 $528 $320 $278 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 1.15% 1.41% 1.59% 1.35% 1.30% 1.78% Portfolio Turnover Rate 2 12% 23% 19% 17% 16% 32% The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding. 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. 17

20 Russell 2000 Index Fund Notes to Financial Statements Vanguard Russell 2000 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 and Institutional. ETF are listed for trading on Nasdaq; they can be purchased and sold through a broker. Institutional 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 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, 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 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 notional 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 six months ended, 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 the notional amounts at each quarter-end during the period. 18

21 Russell 2000 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, 2018, 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 event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard 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, 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 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. 19

22 Russell 2000 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), shareholder reporting, and the proxy. ing 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. All other costs of operations payable to Vanguard are generally settled twice a month. Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At, the fund had contributed to Vanguard capital in the amount of $111,000, representing 0.01% of the fund s net assets and 0.04% 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). Any investments valued with significant unobservable inputs are noted on the Statement of Net Assets. The following table summarizes the market value of the fund s investments as of February 28, 2018, based on the inputs used to value them: Level 1 Level 2 Level 3 Investments Common Stocks 2,064, Temporary Cash Investments 36, Futures Contracts Liabilities 1 (96) Total 2,100, Represents variation margin on the last day of the reporting period. D. 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 20

23 Russell 2000 Index Fund 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, the fund realized $82,364,000 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, 2017, the fund had available capital losses totaling $42,725,000 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, 2018; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above. At, the cost of investment securities for tax purposes was $1,942,448,000. Net unrealized appreciation of investment securities for tax purposes was $158,919,000, consisting of unrealized gains of $339,819,000 on securities that had risen in value since their purchase and $180,900,000 in unrealized losses on securities that had fallen in value since their purchase. E. During the six months ended, the fund purchased $626,124,000 of investment securities and sold $340,448,000 of investment securities, other than temporary cash investments. Purchases and sales include $363,173,000 and $227,964,000, respectively, in connection with in-kind purchases and redemptions of the fund s capital shares. F. Capital share transactions for each class of shares were: Six Months Ended Year Ended August 31, 2017 Amount Amount (000) (000) ETF Issued 369,919 3, ,730 3,800 Issued in Lieu of Cash Distributions Redeemed (229,731) (1,900) (131,196) (1,200) Net Increase (Decrease) ETF 140,188 1, ,534 2,600 Institutional Issued 206, , Issued in Lieu of Cash Distributions 4, , Redeemed (57,280) (246) (142,484) (689) Net Increase (Decrease) Institutional 154, , G. Management has determined that no material events or transactions occurred subsequent to, that would require recognition or disclosure in these financial statements. 21

24 Russell 2000 Index Fund Fund Profile As of Share-Class Characteristics Portfolio Characteristics ETF Institutional Ticker Symbol VTWV VRTVX Expense Ratio % 0.08% 30-Day SEC Yield 1.70% 1.82% Fund Russell 2000 Index DJ U.S. Total FA Index Number of Stocks 1,394 1,373 3,746 Median Cap $1.7B $1.7B $68.2B Price/Earnings Ratio 16.6x 16.7x 21.7x Price/Book Ratio 1.4x 1.4x 3.0x Return on Equity 7.4% 7.4% 15.0% Earnings Growth Rate 6.9% 6.9% 8.5% Dividend Yield 1.9% 1.9% 1.7% Foreign Holdings 0.0% 0.0% 0.0% Turnover Rate (Annualized) 9% Short-Term Reserves -0.1% Sector Diversification (% of equity exposure) Russell DJ 2000 U.S. Total Fund Index FA Index Consumer Discretionary 11.7% 11.7% 14.2% Consumer Staples Energy Financial Services Health Care Materials & Processing Producer Durables Technology Utilities Sector categories are based on the Russell Global Sectors ( RGS ), except for the Other category (if applicable), which includes securities that have not been provided a RGS classification as of the effective reporting period. Volatility Measures Russell 2000 Index DJ U.S. Total 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) Bluebird Bio Inc. Biotechnology 0.6% MGIC Investment Corp. Consumer Lending 0.5 Sterling Bancorp Banks: Savings/Thrifts & Mortgage Lending 0.5 Umpqua Holdings Corp. Banks: Diversified 0.5 Wintrust Financial Corp. Banks: Diversified 0.5 Radian Group Inc. Insurance: Property-Casualty 0.5 Hancock Holding Co. Banks: Diversified 0.4 LivaNova plc Medical Equipment 0.4 WGL Holdings Inc. Utilities: Gas Distributors 0.4 Snyder's-Lance Inc. Foods 0.4 Top Ten 4.7% The holdings listed exclude any temporary cash investments and equity index products. Investment Focus Style Cap Large Medium Small Blend Growth 1 The expense ratios shown are from the prospectus dated December 21, 2017, and represent estimated costs for the current fiscal year. For the six months ended, the annualized expense ratios were 0.20% for ETF and 0.08% for Institutional. 22

25 Russell 2000 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 Russell 2000 Index Fund ETF Net Asset Russell 2000 Index Note: For 2018, performance data reflect the six months ended. Average Annual Total Returns: Periods Ended December 31, 2017 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 9/20/2010 One Year Five Years Since Inception Price 7.74% 12.84% 12.52% Net Asset Institutional 7/13/ See Financial Highlights for dividend and capital gains information. 23

26 Russell 2000 Index Fund Financial Statements (unaudited) Statement of Net Assets Investments Summary As of 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). Percentage of Net Assets Common Stocks Consumer Discretionary American Eagle Outfitters Inc. 54,792 1, % ILG Inc. 32, % Aaron s Inc. 21, % Consumer Discretionary Other 35, % 38, % Consumer Staples Snyder s-lance Inc. 29,220 1, % Consumer Staples Other 5, % 7, % Energy * PDC Energy Inc. 22,374 1, % Energy Other 18, % 20, % Financial Services * MGIC Investment Corp. 125,852 1, % Sterling Bancorp 72,528 1, % Umpqua Holdings Corp. 75,440 1, % Wintrust Financial Corp. 18,877 1, % Radian Group Inc. 73,590 1, % Hancock Holding Co. 28,648 1, % Stifel Financial Corp. 22,592 1, % IBERIABANK Corp. 17,232 1, % Chemical Financial Corp. 24,075 1, % CNO Financial Group Inc. 57,506 1, % United Bankshares Inc. 33,968 1, % Investors Bancorp Inc. 88,581 1, % Cousins Properties Inc. 142,740 1, % RLJ Lodging Trust 57,570 1, % 24

27 Russell 2000 Index Fund Percentage of Net Assets UMB Financial Corp. 15,381 1, % Selective Insurance Group Inc. 19,540 1, % Healthcare Realty Trust Inc. 41,823 1, % Sunstone Hotel Investors Inc. 76,633 1, % Valley National Bancorp 88,183 1, % Cathay General Bancorp 25,930 1, % Fulton Financial Corp. 58,304 1, % Washington Federal Inc. 29,795 1, % MB Financial Inc. 25,207 1, % First Citizens Banc Inc. Class A 2,515 1, % Gramercy Property Trust 46,542 1, % South State Corp. 11, % Financial Services Other 101, % 134, % Health Care * Bluebird Bio Inc. 10,044 2, % * LivaNova plc 16,434 1, % Health Care Other 18, % 22, % Materials & Processing * Allegheny Technologies Inc. 42,578 1, % Belden Inc. 14,253 1, % * Rexnord Corp. 35,277 1, % 1 Materials & Processing Other 17, % 20, % 1,2Other % Producer Durables * KLX Inc. 17,540 1, % * Darling Ingredients Inc. 55,692 1, % Producer Durables Other 37, % 39, % Technology * Cree Inc. 33,107 1, % * CACI International Inc. Class A 8,287 1, % * ViaSat Inc. 17,073 1, % * Tech Data Corp. 10,963 1, % Technology Other 20, % 24, % Utilities WGL Holdings Inc. 17,565 1, % IDACORP Inc. 17,223 1, % Portland General Electric Co. 30,482 1, % ALLETE Inc. 17,409 1, % ONE Gas Inc. 17,817 1, % Spire Inc. 16,065 1, % Avista Corp. 22,043 1, % New Jersey Resources Corp. 26,934 1, % Utilities Other 11, % 21, % Total Common Stocks (Cost $294,305) 328, % 3 25

28 Russell 2000 Index Fund Percentage of Net Coupon Assets Temporary Cash Investments Money Fund 4,5 Vanguard Liquidity Fund 1.601% 43,456 4, % 6U.S. Government and Agency Obligations % Total Temporary Cash Investments (Cost $4,544) 4, % 3 7Total Investments (Cost $298,849) 332, % Amount Other Assets and Liabilities Other Assets Investment in Vanguard 18 Receivables for Accrued Income 265 Receivables for Capital Issued 164 Other Assets 7 Total Other Assets % Liabilities Payables for Investment Securities Purchased (14) Collateral for Securities on Loan (2,218) Payables to Vanguard (75) Variation Margin Payable-Futures Contracts (45) Total Liabilities (2,352) (0.7%) Net Assets 331, % At, net assets consisted of: Amount Paid-in Capital 311,871 Undistributed Net Investment Income 31 Accumulated Net Realized Losses (14,873) Unrealized Appreciation (Depreciation) Investment Securities 34,115 Futures Contracts (78) Net Assets 331,066 26