N-CSRS 1 a19-6275_1ncsrs.htm N-CSRS

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT

OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-01027

 

 

Name of Registrant:

 

Vanguard World Fund

Address of Registrant:

 

P.O. Box 2600

 

 

Valley Forge, PA 19482

 

 

 

Name and address of agent for service:

 

Anne E. Robinson, Esquire

 

 

P.O. Box 876

 

 

Valley Forge, PA 19482

 

Registrant’s telephone number, including area code: (610) 669-1000

 

Date of fiscal year end:  August 31

 

Date of reporting period: September 1, 2018—February 28, 2019

 


 

Item 1: Reports to Shareholders

 


 

 

 

 

Semiannual Report  |  February 28, 2019

 

 

Vanguard U.S. Growth Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.

 

 


 

Important information about access to shareholder reports

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.

 

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.

 

You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.

 

 

Contents

 

 

 

About Your Fund’s Expenses

1

Financial Statements

4

Trustees Approve Advisory Arrangements

20

 


 

About Your Fund’s Expenses

 

 

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

 

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

 

The accompanying table illustrates your fund’s costs in two ways:

 

·   Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

 

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

 

·   Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”

 

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

 

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

 

1


 

Six Months Ended February 28, 2019

 

U.S. Growth Fund

 

Beginning
Account Value
8/31/2018

 

Ending
Account Value
2/28/2019

 

Expenses
Paid During
Period

Based on Actual Fund Return

 

 

 

 

 

 

Investor Shares

 

$1,000.00

 

$969.77

 

$2.00

Admiral™ Shares

 

1,000.00

 

970.23

 

1.47

Based on Hypothetical 5% Yearly Return

 

 

 

 

 

 

Investor Shares

 

$1,000.00

 

$1,022.76

 

$2.06

Admiral Shares

 

1,000.00

 

1,023.31

 

1.51

 

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.41% for Investor Shares and 0.30% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (181/365).

 

2


 

U.S. Growth Fund

 

 

Sector Diversification

As of February 28, 2019

 

 

 

 

 

Communication Services

 

14.8

%

Consumer Discretionary

 

18.5

 

Consumer Staples

 

2.7

 

Energy

 

0.2

 

Financials

 

9.3

 

Health Care

 

12.8

 

Industrials

 

6.7

 

Information Technology

 

31.6

 

Materials

 

0.4

 

Other

 

0.9

 

Real Estate

 

2.0

 

Utilities

 

0.1

 

 

The table reflects the fund’s equity exposure, based on its investments in stocks and stock index futures. Any holdings in short-term reserves are excluded. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

 

3


 

U.S. Growth Fund

 

 

Financial Statements (unaudited)

 

 

Statement of Net Assets

As of February 28, 2019

 

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov.

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

Common Stocks (94.2%)1

 

 

 

 

Communication Services (14.2%)

 

 

 

 

*

Alphabet Inc. Class C

 

316,218

 

354,139

*

Netflix Inc.

 

549,659

 

196,833

*

Facebook Inc. Class A

 

1,155,368

 

186,534

*

Alphabet Inc. Class A

 

124,620

 

140,391

*

Liberty Global plc

 

5,099,846

 

129,485

*

Charter Communications Inc. Class A

 

362,076

 

124,884

*

TripAdvisor Inc.

 

2,144,824

 

114,040

*

Take-Two Interactive Software Inc.

 

1,289,225

 

112,498

 

Activision Blizzard Inc.

 

823,080

 

34,685

 

Spotify Technology SA

 

216,016

 

30,272

*

Liberty Global plc Class A

 

915,119

 

24,113

 

Tencent Holdings Ltd. ADR

 

529,451

 

22,666

 

Tencent Holdings Ltd.

 

514,429

 

22,029

*,^

Eventbrite Inc. Class A

 

444,931

 

13,161

 

 

 

 

 

1,505,730

Consumer Discretionary (17.8%)

 

 

 

 

*

Amazon.com Inc.

 

281,803

 

462,109

 

Dollar General Corp.

 

1,317,497

 

156,071

*

Dollar Tree Inc.

 

1,603,953

 

154,509

*

Wayfair Inc.

 

931,789

 

154,379

 

Hasbro Inc.

 

1,729,298

 

146,817

*

Alibaba Group Holding Ltd. ADR

 

728,990

 

133,427

*

Tesla Inc.

 

396,085

 

126,700

 

Home Depot Inc.

 

578,447

 

107,094

*

GrubHub Inc.

 

952,931

 

77,740

 

Hilton Worldwide Holdings Inc.

 

643,000

 

53,433

*

O’Reilly Automotive Inc.

 

112,687

 

41,915

*

Booking Holdings Inc.

 

22,233

 

37,730

*

Under Armour Inc. Class A

 

1,652,024

 

37,253

*

Roku Inc.

 

517,201

 

34,285

*

Chegg Inc.

 

821,694

 

32,564

 

Ross Stores Inc.

 

328,556

 

31,157

*,^

Stitch Fix Inc. Class A

 

997,431

 

27,749

 

TJX Cos. Inc.

 

386,120

 

19,804

 

eBay Inc.

 

441,192

 

16,390

 

NIKE Inc. Class B

 

186,211

 

15,964

 

Kering SA

 

21,462

 

11,709

 

Marriott International Inc. Class A

 

55,515

 

6,954

*

Under Armour Inc. Class C

 

2,622

 

53

 

 

 

 

 

1,885,806

Consumer Staples (2.5%)

 

 

 

 

 

Constellation Brands Inc. Class A

 

1,043,686

 

176,550

*

Monster Beverage Corp.

 

903,903

 

57,696

 

Costco Wholesale Corp.

 

81,408

 

17,807

 

Estee Lauder Cos. Inc. Class A

 

75,192

 

11,801

 

 

 

 

 

263,854

Financials (8.7%)

 

 

 

 

 

KKR & Co. Inc. Class A

 

7,847,310

 

174,446

 

Charles Schwab Corp.

 

2,661,641

 

122,462

 

MarketAxess Holdings Inc.

 

463,650

 

113,075

 

CME Group Inc.

 

520,223

 

94,634

 

First Republic Bank

 

618,801

 

64,962

*

Markel Corp.

 

55,866

 

56,138

 

Progressive Corp.

 

731,739

 

53,344

 

S&P Global Inc.

 

217,343

 

43,549

 

Intercontinental Exchange Inc.

 

543,734

 

41,949

 

MSCI Inc. Class A

 

224,011

 

41,379

 

Marsh & McLennan Cos. Inc.

 

387,196

 

36,017

 

TD Ameritrade Holding Corp.

 

568,473

 

32,022

 

4


 

U.S. Growth Fund

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

 

Interactive Brokers Group Inc.

 

528,845

 

29,208

 

JPMorgan Chase & Co.

 

63,643

 

6,642

 

Goldman Sachs Group Inc.

 

30,200

 

5,940

 

 

 

 

 

915,767

Health Care (12.1%)

 

 

 

 

*

IQVIA Holdings Inc.

 

1,557,058

 

218,144

 

UnitedHealth Group Inc.

 

830,767

 

201,228

*

Illumina Inc.

 

620,253

 

193,997

*

Biogen Inc.

 

343,457

 

112,657

*

ABIOMED Inc.

 

250,712

 

83,863

*

Edwards Lifesciences Corp.

 

447,943

 

75,832

 

Thermo Fisher Scientific Inc.

 

164,830

 

42,785

*

Novocure Ltd.

 

724,772

 

38,928

*

Penumbra Inc.

 

277,416

 

37,082

*

Glaukos Corp.

 

442,104

 

32,791

*

Vertex Pharmaceuticals Inc.

 

159,032

 

30,017

*,^

Elanco Animal Health Inc.

 

955,690

 

28,900

*

Alnylam Pharmaceuticals Inc.

 

314,309

 

26,716

 

Danaher Corp.

 

168,050

 

21,346

*,^

Denali Therapeutics Inc.

 

922,497

 

20,074

*

DexCom Inc.

 

142,465

 

19,850

*

Agios Pharmaceuticals Inc.

 

240,430

 

15,597

 

AstraZeneca plc ADR

 

347,626

 

14,454

 

Intuitive Surgical Inc.

 

24,410

 

13,367

^

Moderna Inc.

 

577,080

 

13,042

 

Alexion Pharmaceuticals Inc.

 

96,137

 

13,010

 

BioMarin Pharmaceutical Inc.

 

133,733

 

12,472

 

Merck & Co. Inc.

 

128,278

 

10,428

 

Centene Corp.

 

17,610

 

1,072

 

 

 

 

 

1,277,652

Industrials (6.3%)

 

 

 

 

 

United Technologies Corp.

 

808,544

 

101,610

 

TransUnion

 

1,009,957

 

65,203

 

Lockheed Martin Corp.

 

200,919

 

62,166

*

CoStar Group Inc.

 

131,632

 

60,225

*

IHS Markit Ltd.

 

1,048,055

 

55,725

 

Equifax Inc.

 

392,987

 

43,036

 

Northrop Grumman Corp.

 

142,760

 

41,395

 

Watsco Inc.

 

260,960

 

37,549

 

AMETEK Inc.

 

425,314

 

33,846

 

Fortive Corp.

 

353,336

 

28,822

 

Boeing Co.

 

55,357

 

24,355

 

HEICO Corp. Class A

 

280,275

 

22,419

^

Wabtec Corp.

 

285,637

 

20,926

*

NOW Inc.

 

1,247,523

 

18,002

 

Fortune Brands Home & Security Inc.

 

306,679

 

14,451

 

Safran SA

 

79,856

 

10,886

 

Union Pacific Corp.

 

62,696

 

10,514

 

Canadian National Railway Co.

 

108,848

 

9,348

 

Airbus SE

 

17,500

 

2,254

 

 

 

 

 

662,732

Information Technology (30.4%)

 

 

 

 

 

Microsoft Corp.

 

5,649,863

 

632,954

 

Mastercard Inc. Class A

 

1,628,765

 

366,098

 

Visa Inc. Class A

 

1,747,469

 

258,835

*

PayPal Holdings Inc.

 

2,487,397

 

243,939

*

Autodesk Inc.

 

1,346,205

 

219,445

 

Apple Inc.

 

766,879

 

132,785

*

Arista Networks Inc.

 

438,279

 

125,019

 

Applied Materials Inc.

 

3,221,356

 

123,507

*

Adobe Inc.

 

386,096

 

101,350

*

ServiceNow Inc.

 

414,655

 

99,285

*

salesforce.com Inc.

 

601,750

 

98,476

*

FleetCor Technologies Inc.

 

377,329

 

88,023

*

Workday Inc. Class A

 

420,368

 

83,203

*

Trade Desk Inc. Class A

 

338,376

 

66,843

 

SS&C Technologies Holdings Inc.

 

977,984

 

60,224

*

2U Inc.

 

783,487

 

57,743

 

Global Payments Inc.

 

439,364

 

57,284

*

Shopify Inc. Class A

 

286,881

 

54,264

^

Microchip Technology Inc.

 

591,229

 

51,360

 

CDW Corp.

 

524,300

 

49,227

*

Tableau Software Inc. Class A

 

349,951

 

46,159

*

Advanced Micro Devices Inc.

 

1,538,375

 

36,198

*

Ellie Mae Inc.

 

309,488

 

30,791

*

New Relic Inc.

 

279,320

 

29,538

*

Gartner Inc.

 

180,886

 

25,740

 

NVIDIA Corp.

 

164,556

 

25,384

*

DocuSign Inc. Class A

 

391,125

 

21,571

^

Square Inc.

 

145,851

 

11,849

 

Broadcom Inc.

 

32,292

 

8,892

2

Adyen NV

 

9,336

 

6,991

 

Red Hat Inc.

 

35,696

 

6,518

*

Yext Inc.

 

24,309

 

452

 

 

 

 

 

3,219,947

Materials (0.3%)

 

 

 

 

 

Sherwin-Williams Co.

 

64,725

 

28,039

 

5


 

U.S. Growth Fund

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

Other (0.0%)

 

 

 

 

*,§,3

WeWork Class A PP

 

19,046

 

1,295

 

 

 

 

 

 

Real Estate (1.9%)

 

 

 

 

 

Crown Castle International Corp.

 

619,914

 

73,615

 

American Tower Corp.

 

390,716

 

68,825

 

Equinix Inc.

 

76,200

 

32,271

*,^

Redfin Corp.

 

1,199,275

 

23,949

 

 

 

 

198,660

Total Common Stocks

(Cost $6,782,437)

 

 

 

9,959,482

Preferred Stocks (0.9%)

 

 

 

 

*,§,3,4

Uber Technologies PP, 8.00%

 

999,588

 

43,432

*,§,3,4

WeWork Pfd. D1 PP

 

260,418

 

17,708

*,§,3,4

Airbnb Inc., 8.00%

 

128,123

 

14,040

*,§,3,4

WeWork Pfd. D2 PP

 

204,614

 

13,914

*,§,3,4

Pinterest Prf G PP, 8.00%

 

1,596,475

 

8,190

Total Preferred Stocks

(Cost $46,639)

 

 

 

97,284

Temporary Cash Investments (5.4%)1

 

 

 

 

Money Market Fund (5.0%)

 

 

 

 

5,6

Vanguard Market Liquidity Fund, 2.563%

 

5,326,449

 

532,698

 

 

 

 

 

 

 

Face

 

 

 

 

Amount

 

 

 

 

($000

)

 

Repurchase Agreement (0.2%)

 

 

 

 

 

Bank of America Securities, LLC 2.570%, 3/1/19 (Dated 2/28/19, Repurchase Value $24,802,000, collateralized by Government National Mortgage Assn. 5.000%, 1/20/49, with a value of $25,296,000)

 

24,800

 

24,800

 

 

 

 

 

U.S. Government and Agency Obligations (0.2%)

 

 

 

 

7

United States Treasury Bill, 2.439%, 4/11/19

 

15,000

 

14,959

Total Temporary Cash Investments

(Cost $572,391)

 

 

 

572,457

Total Investments (100.5%)

(Cost $7,401,467)

 

 

 

10,629,223

Other Assets and Liabilities (-0.5%)

 

 

 

 

Other Assets

 

 

 

100,863

Liabilities5

 

 

 

(156,420)

 

 

 

 

(55,557)

Net Assets (100%)

 

 

 

10,573,666

 

6


 

U.S. Growth Fund

 

 

 

Amount

 

 

($000)

Statement of Assets and Liabilities

 

 

Assets

 

 

Investments in Securities, at Value

 

 

Unaffiliated Issuers

 

10,096,525

Affiliated Issuers

 

532,698

Total Investments in Securities

 

10,629,223

Investment in Vanguard

 

524

Receivables for Investment Securities Sold

 

36,946

Receivables for Accrued Income

 

7,210

Receivables for Capital Shares Issued

 

51,880

Other Assets

 

4,303

Total Assets

 

10,730,086

Liabilities

 

 

Payables for Investment Securities Purchased

 

50,309

Collateral for Securities on Loan

 

83,544

Payables to Investment Advisor

 

4,481

Payables for Capital Shares Redeemed

 

7,695

Payables to Vanguard

 

9,309

Variation Margin Payable—Futures Contracts

 

1,080

Other Liabilities

 

2

Total Liabilities

 

156,420

Net Assets

 

10,573,666

 

 

At February 28, 2019, net assets consisted of:

 

 

 

Amount

 

 

($000)

Paid-in Capital

 

6,861,497

Total Distributable Earnings (Loss)

 

3,712,169

Net Assets

 

10,573,666

 

 

 

Investor Shares—Net Assets

 

 

Applicable to 114,375,626 outstanding $.001 par value shares of beneficial interest (unlimited authorization)

 

4,387,668

Net Asset Value Per Share—Investor Shares

 

$38.36

 

 

 

Admiral Shares—Net Assets

 

 

Applicable to 62,256,159 outstanding $.001 par value shares of beneficial interest (unlimited authorization)

 

6,185,998

Net Asset Value Per Share—Admiral Shares

 

$99.36

 

· See Note A in Notes to Financial Statements.

* Non-income-producing security.

^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $81,240,000.

§ Security value determined using significant unobservable inputs.

1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 97.3% and 2.3%, respectively, of net assets.

2 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2019, the value of this security represented 0.1% of net assets.

3 Restricted securities totaling $98,579,000, representing 0.9% of net assets. See Restricted Securities table for additional information.

4 Perpetual security with no stated maturity date.

5 Includes $83,544,000 of collateral received for securities on loan.

6 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.

7 Securities with a value of $12,316,000 have been segregated as initial margin for open futures contracts.

ADR—American Depositary Receipt.

PP—Private Placement.

 

7


 

U.S. Growth Fund

 

 

Restricted Securities as of Period End

 

Security Name

 

Acquisition
Date

 

Acquisition  
Cost  
($000)

Uber Technologies PP

 

June 2014

 

15,507

WeWork Pfd. D1 PP

 

December 2014

 

4,336

WeWork Pfd. D2 PP

 

December 2014

 

3,407

WeWork Class A PP

 

December 2014

 

317

Pinterest Prf G PP

 

March 2015

 

11,461

Airbnb Inc.

 

June 2015

 

11,928

 

 

 

Derivative Financial Instruments Outstanding as of Period End

 

Futures Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($000)

 

 

 

 

 

 

 

 

 

Value and

 

 

 

 

Number of

 

 

 

Unrealized

 

 

 

 

Long (Short)

 

Notional

 

Appreciation

 

 

Expiration

 

Contracts

 

Amount

 

(Depreciation)

Long Futures Contracts

 

 

 

 

 

 

 

 

E-mini S&P 500 Index

 

March 2019

 

1,975

 

274,989

 

13,684

E-mini S&P Mid-Cap 400 Index

 

March 2019

 

262

 

50,063

 

4,584

 

 

 

 

 

 

 

 

18,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

8


 

U.S. Growth Fund

 

 

Statement of Operations

 

 

 

 

Six Months Ended

February 28, 2019

 

 

($000)

Investment Income

 

 

Income

 

 

Dividends—Unaffiliated Issuers1

 

36,182

Dividends—Affiliated Issuers

 

3

Interest—Unaffiliated Issuers

 

641

Interest—Affiliated Issuers

 

4,268

Securities Lending—Net

 

412

Total Income

 

41,506

Expenses

 

 

Investment Advisory Fees—Note B

 

 

Basic Fee

 

8,414

Performance Adjustment

 

160

The Vanguard Group—Note C

 

 

Management and Administrative—Investor Shares

 

4,734

Management and Administrative—Admiral Shares

 

3,548

Marketing and Distribution—Investor Shares

 

240

Marketing and Distribution—Admiral Shares

 

148

Custodian Fees

 

38

Auditing Fees

 

5

Shareholders’ Reports—Investor Shares

 

41

Shareholders’ Reports—Admiral Shares

 

17

Trustees’ Fees and Expenses

 

6

Total Expenses

 

17,351

Expenses Paid Indirectly

 

(155)

Net Expenses

 

17,196

Net Investment Income

 

24,310

Realized Net Gain (Loss)

 

 

Investment Securities Sold—Unaffiliated Issuers

 

722,365

Investment Securities Sold—Affiliated Issuers

 

313

Futures Contracts

 

(46,549)

Foreign Currencies

 

(8)

Realized Net Gain (Loss)

 

676,121

Change in Unrealized Appreciation (Depreciation)

 

 

Investment Securities—Unaffiliated Issuers

 

(1,043,966)

Investment Securities—Affiliated Issuers

 

(370)

Futures Contracts

 

7,841

Foreign Currencies

 

(1)

Change in Unrealized Appreciation (Depreciation)

 

(1,036,496)

Net Increase (Decrease) in Net Assets Resulting from Operations

 

(336,065)

 

1   Dividends are net of foreign withholding taxes of $16,000.

 

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

 

9


 

U.S. Growth Fund

 

 

Statement of Changes in Net Assets

 

 

 

Six Months Ended

 

Year Ended

 

 

February 28,

 

August 31,

 

 

2019

 

2018

 

 

($000)

 

($000)

Increase (Decrease) in Net Assets

 

 

 

 

Operations

 

 

 

 

Net Investment Income

 

24,310

 

37,599

Realized Net Gain (Loss)

 

676,121

 

712,534

Change in Unrealized Appreciation (Depreciation)

 

(1,036,496)

 

1,487,575

Net Increase (Decrease) in Net Assets Resulting from Operations

 

(336,065)

 

2,237,708

Distributions

 

 

 

 

Net Investment Income

 

 

 

 

Investor Shares

 

(14,003)

 

(15,531)

Admiral Shares

 

(26,012)

 

(16,499)

Realized Capital Gain1

 

 

 

 

Investor Shares

 

(328,376)

 

(180,528)

Admiral Shares

 

(451,846)

 

(192,765)

Total Distributions

 

(820,237)

 

(405,323)

Capital Share Transactions

 

 

 

 

Investor Shares

 

288,873

 

(383,169)

Admiral Shares

 

610,290

 

1,477,489

Net Increase (Decrease) from Capital Share Transactions

 

899,163

 

1,094,320

Total Increase (Decrease)

 

(257,139)

 

2,926,705

Net Assets

 

 

 

 

Beginning of Period

 

10,830,805

 

7,904,100

End of Period

 

10,573,666

 

10,830,805

 

1   Includes fiscal 2019 and 2018 short-term gain distributions totaling $87,222,000 and $24,991,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

10


 

U.S. Growth Fund

 

 

Financial Highlights

 

 

Investor Shares

 

 

 

Six Months

 

 

 

 

 

 

 

 

 

 

 

 

Ended

 

 

 

 

 

 

 

 

 

 

For a Share Outstanding
Throughout Each Period

 

February 28,

 

 

 

 

 

Year Ended August 31,

 

2019

 

2018

 

2017

 

2016

 

2015

 

2014

Net Asset Value, Beginning of Period

 

$43.31

 

$35.62

 

$30.32

 

$30.89

 

$31.03

 

$24.67

Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

.0811

 

.1341

 

.1511

 

.151

 

.169

 

.168

Net Realized and Unrealized Gain (Loss) on Investments

 

(1.794)

 

9.394

 

5.590

 

1.944

 

2.168

 

6.303

Total from Investment Operations

 

(1.713)

 

9.528

 

5.741

 

2.095

 

2.337

 

6.471

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(.132)

 

(.146)

 

(.121)

 

(.147)

 

(.194)

 

(.111)

Distributions from Realized Capital Gains

 

(3.105)

 

(1.692)

 

(.320)

 

(2.518)

 

(2.283)

 

Total Distributions

 

(3.237)

 

(1.838)

 

(.441)

 

(2.665)

 

(2.477)

 

(.111)

Net Asset Value, End of Period

 

$38.36

 

$43.31

 

$35.62

 

$30.32

 

$30.89

 

$31.03

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return2

 

-3.02%

 

27.64%

 

19.24%

 

6.89%

 

7.96%

 

26.29%

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (Millions)

 

$4,388

 

$4,582

 

$4,113

 

$3,794

 

$3,975

 

$4,038

Ratio of Total Expenses to Average Net Assets3

 

0.41%

 

0.42%

 

0.43%

 

0.46%

 

0.47%

 

0.44%

Ratio of Net Investment Income to Average Net Assets

 

0.42%

 

0.35%

 

0.47%

 

0.50%

 

0.53%

 

0.59%

Portfolio Turnover Rate

 

43%

 

33%

 

27%

 

32%

 

38%

 

36%

 

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

 

3   Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.01%, (0.01%), 0.02%, 0.03%, and (0.01%).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

11


 

U.S. Growth Fund

 

 

Financial Highlights

 

 

Admiral Shares

 

 

 

Six Months

 

 

 

 

Ended

 

 

For a Share Outstanding

Throughout Each Period

 

February 28,

 

Year Ended August 31,

 

2019

 

2018

 

2017

 

2016

 

2015

 

2014

Net Asset Value, Beginning of Period

 

$112.28

 

$92.24

 

$78.52

 

$80.01

 

$80.37

 

$63.91

Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

.2651

 

.4761

 

.5021

 

.506

 

.563

 

.557

Net Realized and Unrealized Gain (Loss) on Investments

 

(4.670)

 

24.323

 

14.480

 

5.018

 

5.607

 

16.293

Total from Investment Operations

 

(4.405)

 

24.799

 

14.982

 

5.524

 

6.170

 

16.850

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(.464)

 

(.375)

 

(.433)

 

(.499)

 

(.623)

 

(.390)

Distributions from Realized Capital Gains

 

(8.051)

 

(4.384)

 

(.829)

 

(6.515)

 

(5.907)

 

Total Distributions

 

(8.515)

 

(4.759)

 

(1.262)

 

(7.014)

 

(6.530)

 

(.390)

Net Asset Value, End of Period

 

$99.36

 

$112.28

 

$92.24

 

$78.52

 

$80.01

 

$80.37

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return2

 

-2.98%

 

27.78%

 

19.42%

 

7.03%

 

8.12%

 

26.44%

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (Millions)

 

$6,186

 

$6,249

 

$3,791

 

$3,066

 

$2,421

 

$1,868

Ratio of Total Expenses to Average Net Assets3

 

0.30%

 

0.30%

 

0.30%

 

0.32%

 

0.33%

 

0.30%

Ratio of Net Investment Income to Average Net Assets

 

0.53%

 

0.47%

 

0.60%

 

0.64%

 

0.67%

 

0.73%

Portfolio Turnover Rate

 

43%

 

33%

 

27%

 

32%

 

38%

 

36%

 

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

 

3   Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.01%, 0.02%, 0.03%, and (0.01%).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

12


 

U.S. Growth Fund

 

 

Notes to Financial Statements

 

 

Vanguard U.S. Growth 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: Investor Shares and Admiral Shares. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.

 

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 affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. 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. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).

 

3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. 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

 

13


 

U.S. Growth Fund

 

 

 

 

requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Statement of Net Assets.

 

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 Assets and Liabilities 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, 2019, the fund’s average investments in long and short futures contracts represented 3% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.

 

4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of pre-qualified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.

 

5. 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, 2015–2018), and for the period ended February 28, 2019, and has concluded that no provision for federal income tax is required in the fund’s financial statements.

 

6. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.

 

7. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans

 

14


 

U.S. Growth Fund

 

 

 

 

with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. 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.

 

8. 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. Subsequent to the report date, the credit agreement was amended to increase total commitments under the facility from $3.1 billion to $4.3 billion. No other term changes were significant.

 

The fund had no borrowings outstanding at February 28, 2019, or at any time during the period then ended.

 

9. 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.

 

Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.

 

B.  The investment advisory firms Wellington Management Company LLP, Jackson Square Partners, LLC, Baillie Gifford Overseas Ltd., and Jennison Associates LLC each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fees of Wellington Management Company LLP, Jackson Square Partners, LLC, and Jennison Associates LLC are subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding three years. The basic fee of Baillie Gifford Overseas Ltd. is subject to quarterly adjustments based on performance relative to

 

15


 

U.S. Growth Fund

 

 

 

 

the S&P 500 Index for the preceding three years. Until November 2018, a portion of the portfolio was managed by William Blair Investment Management, LLC. The basic fee paid to William Blair Investment Management, LLC, was subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding five years.

 

Vanguard manages the cash reserves of the fund as described below.

 

For the six months ended February 28, 2019, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.17% of the fund’s average net assets, before an increase of $160,000 (0.00%) based on performance.

 

C.  In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution, and cash management 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 February 28, 2019, the fund had contributed to Vanguard capital in the amount of $524,000, representing 0.01% of the fund’s net assets and 0.21% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.

 

D.  The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. The fund’s custodian bank has also agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended February 28, 2019, these arrangements reduced the fund’s management and administrative expenses by $152,000 and custodian fees by $3,000. The total expense reduction represented an effective annual rate of 0.00% of the fund’s average net assets.

 

E.  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.

 

16


 

U.S. Growth Fund

 

 

 

 

The following table summarizes the market value of the fund’s investments as of February 28, 2019, based on the inputs used to value them:

 

 

 

Level 1 

 

Level 2 

 

Level 3

Investments

 

($000)

 

($000)

 

($000)

Common Stocks

 

9,904,317

 

53,870

 

1,295

Preferred Stocks

 

 

 

97,284

Temporary Cash Investments

 

532,698

 

39,759

 

Futures Contracts—Liabilities1

 

(1,080)

 

 

Total

 

10,435,935

 

93,629

 

98,579

 

1 Represents variation margin on the last day of the reporting period.

 

The determination of Level 3 fair value measurements is governed by documented policies and procedures adopted by the board of trustees. The board has designated a pricing review committee, as an agent of the board, to ensure the timely analysis and valuation of Level 3 securities held by the fund in accordance with established policies and procedures. The pricing review committee employs various methods for calibrating valuation approaches, including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity. All valuation decisions made by the pricing review committee are reported to the board on a quarterly basis for review and ratification. The board reviews the adequacy of the fair value measurement policies and procedures in place on an annual basis.

 

The following table summarizes changes in investments valued based on Level 3 inputs during the six months ended February 28, 2019. Transfers, if any, into or out of Level 3 are recognized based on values as of the date of transfer.

 

 

 

Investments

 

Investments

 

 

in Common

 

in Preferred

 

 

Stocks

 

Stocks

Amount Valued Based on Level 3 Inputs

 

($000)

 

($000)

Balance as of August 31, 2018

 

1,189

 

97,204

Purchases

 

 

Sales

 

 

Net Realized Gain (Loss)

 

 

Change in Unrealized Appreciation (Depreciation)

 

106

 

80

Balance as of February 28, 2019

 

1,295

 

97,284

 

Net change in unrealized appreciation (depreciation) from investments still held as of February 28, 2019, was $186,000.

 

17


 

U.S. Growth Fund

 

 

 

 

 

The following table provides quantitiative information about the significant unobservable inputs used in fair value measurement as of February 28, 2019:

 

 

 

Fair Value

 

 

 

 

 

 

 

 

at 2/28/2019

 

 

 

 

 

Amount or Range/

Security Type

 

($000)

 

Valuation Technique

 

Unobservable Input

 

Weighted Avg.

Common Stocks

 

1,295

 

Target Event

 

Weighted Average

 

75% at $54.00

 

 

 

 

 

 

Price/Weighted IPO

 

25% at $110.00

 

 

 

 

 

 

Probability

 

 

Preferred Stocks

 

43,432

 

Last Bid Price

 

Average Secondary

 

$43.45

 

 

 

 

 

 

Market Bids

 

 

 

 

31,622

 

Target Event

 

Weighted Average

 

75% at $54.00

 

 

 

 

 

 

Price/Weighted IPO

 

25% at $110.00

 

 

 

 

 

 

Probability

 

 

 

 

14,040

 

Comparable Companies

 

Enterprise Value/

 

5.5x-6.5x

 

 

 

 

Approach

 

Forward Revenue

 

 

 

 

 

 

 

 

Multiples

 

 

 

 

 

 

 

 

Liquidity Discount

 

10%

 

 

 

 

 

 

Weighted IPO

 

40%/60%

 

 

 

 

 

 

Probability

 

 

 

 

8,190

 

Comparable Companies

 

Enterprise Value/

 

5.5x

 

 

 

 

Approach

 

Forward Revenue

 

 

 

 

 

 

 

 

Multiple

 

 

 

 

 

 

 

 

Liquidity Discount

 

10%

 

 

 

 

 

 

IPO Probability

 

100%

 

Significant increases or decreases in the significant unobservable inputs used in the fair value measurement of the portfolio’s Level 3 securities, in isolation, could result in a significantly higher or lower fair value measurement at February 28, 2019.

 

F.  As of February 28, 2019, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:

 

 

 

Amount

 

 

($000)

Tax Cost

 

7,401,467

Gross Unrealized Appreciation

 

3,481,508

Gross Unrealized Depreciation

 

(253,752)

Net Unrealized Appreciation (Depreciation)

 

3,227,756

 

G. During the six months ended February 28, 2019, the fund purchased $2,743,425,000 of investment securities and sold $2,771,819,000 of investment securities, other than temporary cash investments.

 

18


 

U.S. Growth Fund

 

 

 

 

 

The fund purchased securities from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six months ended February 28, 2019, such purchases and sales were $51,233,000 and $344,872,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.

 

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

 

 

 

Six Months Ended

 

Year Ended

 

 

February 28, 2019

 

August 31, 2018

 

 

Amount

 

Shares

 

Amount

 

Shares

 

 

($000)

 

(000)

 

($000)

 

(000)

Investor Shares

 

 

 

 

 

 

 

 

Issued

 

456,148

 

12,030

 

885,293

 

22,516

Issued in Lieu of Cash Distributions

 

333,194

 

9,768

 

192,107

 

5,198

Redeemed

 

(500,469)

 

(13,217)

 

(1,460,569)

 

(37,385)

Net Increase (Decrease)—Investor Shares

 

288,873

 

8,581

 

(383,169)

 

(9,671)

Admiral Shares

 

 

 

 

 

 

 

 

Issued

 

836,020

 

8,463

 

2,260,647

 

22,186

Issued in Lieu of Cash Distributions

 

449,504

 

5,088

 

199,346

 

2,082

Redeemed

 

(675,234)

 

(6,947)

 

(982,504)

 

(9,715)

Net Increase (Decrease)—Admiral Shares

 

610,290

 

6,604

 

1,477,489

 

14,553

 

 

I.   Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:

 

 

 

 

 

Current Period Transactions

 

 

 

 

Aug. 31,

 

 

 

Proceeds

 

Realized

 

 

 

 

 

 

 

Feb. 28,

 

 

2018

 

 

 

from

 

Net

 

Change in

 

 

 

Capital Gain

 

2019

 

 

Market

 

Purchases

 

Securities

 

Gain

 

Unrealized

 

 

 

Distributions

 

Market

 

 

Value

 

at Cost

 

Sold

 

(Loss)

 

App. (Dep.)

 

Income

 

Received

 

Value

 

 

($000)

 

($000)

 

($000)

 

($000)

 

($000)

 

($000)

 

($000

)

($000)

Vanguard Growth ETF

 

498

 

 

465

 

309

 

(342)

 

3

 

 

Vanguard Market Liquidity Fund

 

379,919

 

NA1

 

NA1

 

4

 

(28)

 

4,268

 

 

532,698

Total

 

380,417

 

 

 

 

 

313

 

(370)

 

4,271

 

 

532,698

 

1 Not applicable —purchases and sales are for temporary cash investment purposes.

 

J.  On April 5, 2019, the fund acquired all of the net assets of Vanguard Morgan Growth Fund pursuant to a plan of reorganization approved by the funds’ board of trustees in November 2018. The purpose of the transaction was to combine two funds with comparable investment objectives. The acquisition was accomplished by a tax-free exchange of Vanguard U.S. Growth Fund’s capital shares for shares of Vanguard Morgan Growth Fund.

 

Management has determined that no other events or transactions occurred subsequent to February 28, 2019, that would require recognition or disclosure in these financial statements.

 

19


 

Trustees Approve Advisory Arrangements

 

 

The board of trustees of Vanguard U.S. Growth Fund has renewed the fund’s investment advisory arrangements with Baillie Gifford Overseas Ltd. (Baillie Gifford), Jackson Square Partners, LLC (Jackson Square), Jennison Associates LLC (Jennison), and Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders. Please note that in December, the fund’s trustees modified its investment advisory arrangement. William Blair Investment Management, LLC, no longer serves as one of the fund’s advisors.

 

The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.

 

The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.

 

In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.

 

Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.

 

Nature, extent, and quality of services

The board reviewed the quality of the fund’s investment management services over both the short and long term and took into account the organizational depth and stability of each advisor. The board considered the following:

 

Baillie Gifford. Baillie Gifford—a unit of Baillie Gifford & Co., founded in 1908—is among the largest independently owned investment management firms in the United Kingdom. Baillie Gifford aims to deliver outstanding investment performance by identifying exceptional growth companies in the United States and investing in them long enough for the advantages of their business models and strength of their cultures to become the dominant drivers of their stock prices. This long-term horizon allows the advisor to harness the asymmetry inherent in equity markets to capture the disproportionate impact of successful investments in the portfolio. Baillie Gifford has managed a portion of the fund since 2014.

 

Jackson Square. Founded in 2014, Jackson Square invests primarily in common stocks of large-capitalization, growth-oriented companies that it believes have long-term capital appreciation potential and are expected to grow faster than the U.S. economy. Jackson Square uses a bottom-up approach, seeking companies that have large-end market potential, dominant business models,

 

20


 

and strong free cash flow generation that is attractively priced compared to the intrinsic value of the securities. Jackson Square was founded by the same investment team that has managed a portion of the fund since 2010, previously as a part of Delaware Investments.

 

Jennison. Jennison, founded in 1969, is an indirect, wholly owned subsidiary of Prudential Financial Inc. Jennison uses internal fundamental research and a highly interactive stock selection process to identify companies that exhibit above-average growth in units, revenues, earnings, and cash flows. When analyzing a company for purchase or sale, Jennison focuses on the duration of the company’s growth opportunity and seeks to capture inflection points in its growth trajectory. Jennison has managed a portion of the fund since 2014.

 

Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. The advisor employs a traditional, bottom-up fundamental research approach to identify companies with sustainable growth advantages and reasonable valuations. Wellington Management identifies companies that have demonstrated above-average growth in the past and follows up with a thorough review of each company’s business model and an assessment of its valuation. The goal of this review is to identify companies with high returns on capital, superior business management, and high-quality balance sheets. Wellington Management has managed a portion of the fund since 2010.

 

The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.

 

Investment performance

The board considered the short- and long-term performance of each advisor’s subportfolio, including any periods of outperformance or underperformance compared with a relevant benchmark and peer group. The board concluded that the performance was such that each advisory arrangement should continue.

 

Cost

The board concluded that the fund’s expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average.

 

The board did not consider the profitability of Baillie Gifford, Jackson Square, Jennison, or Wellington Management in determining whether to approve the advisory fees, because the advisors are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.

 

The benefit of economies of scale

The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Baillie Gifford, Jackson Square, Jennison, and Wellington Management. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.

 

The board will consider whether to renew the advisory arrangements again after a one-year period.

 

21


 

 

 

 

 

 

 

P.O. Box 2600

 

Valley Forge, PA 19482-2600

 

 

Connect with Vanguard® > vanguard.com

 

 

Fund Information > 800-662-7447

 

Direct Investor Account Services > 800-662-2739

 

Institutional Investor Services > 800-523-1036

 

Text Telephone for People

 

Who Are Deaf or Hard of Hearing > 800-749-7273

 

This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.

 

All comparative mutual fund data are from Lipper, a Thomson Reuters Company, or Morningstar, Inc., unless otherwise noted.

 

You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or sec.gov.

 

You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.

 

Source for Bloomberg Barclays indexes: Bloomberg Index Services Limited. Copyright 2019, Bloomberg. All rights reserved.

 

CFA® is a registered trademark owned by CFA Institute.

 

 

 

 

 

 

© 2019 The Vanguard Group, Inc.

All rights reserved.

Vanguard Marketing Corporation, Distributor.

 

Q232 042019

 


 

 

 

 

 

Semiannual Report  |  February 28, 2019

 

 

Vanguard International Growth Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.

 

 

 


 

Important information about access to shareholder reports

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.

 

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.

 

You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.

 

 

 

Contents

 

About Your Fund’s Expenses

1

 

 

Financial Statements

4

 

 

Trustees Approve Advisory Arrangements

22

 


 

About Your Fund’s Expenses

 

 

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

 

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

 

The accompanying table illustrates your fund’s costs in two ways:

 

·             Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

 

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

 

·             Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”

 

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

 

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

 

1


 

Six Months Ended February 28, 2019

 

 

 

Beginning

 

Ending

 

Expenses

 

 

Account Value

 

Account Value

 

Paid During

International Growth Fund

 

8/31/2018

 

2/28/2019

 

Period

Based on Actual Fund Return

 

 

 

 

 

 

Investor Shares

 

$1,000.00

 

$949.44

 

$2.18

Admiral™ Shares

 

1,000.00

 

950.04

 

1.55

Based on Hypothetical 5% Yearly Return

 

 

 

 

 

 

Investor Shares

 

$1,000.00

 

$1,022.56

 

$2.26

Admiral Shares

 

1,000.00

 

1,023.21

 

1.61

 

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.45% for Investor Shares and 0.32% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (181/365).

 

2


 

International Growth Fund

 

 

Sector Diversification

As of February 28, 2019

 

Communication Services

 

12.7

%

Consumer Discretionary

 

32.0

 

Consumer Staples

 

6.0

 

Energy

 

1.5

 

Financials

 

15.0

 

Health Care

 

10.1

 

Industrials

 

9.7

 

Information Technology

 

8.1

 

Materials

 

4.1

 

Other

 

0.8

 

 

The table reflects the fund’s equity exposure, based on its investments in stocks and stock index futures. Any holdings in short-term reserves are excluded. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

 

3


 

International Growth Fund

 

 

Financial Statements (unaudited)

 

 

Statement of Net Assets

As of February 28, 2019

 

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov.

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

Common Stocks (98.3%)1

 

 

 

 

Australia (0.5%)

 

 

 

 

 

Brambles Ltd.

 

20,161,054

 

168,301

 

 

 

 

 

 

Austria (0.4%)

 

 

 

 

 

Erste Group Bank AG

 

3,447,596

 

130,019

 

 

 

 

 

 

Belgium (1.1%)

 

 

 

 

 

Umicore SA

 

8,779,863

 

379,060

 

 

 

 

 

 

Brazil (0.8%)

 

 

 

 

 

B3 SA - Brasil Bolsa Balcao

 

13,303,825

 

116,138

 

Raia Drogasil SA

 

4,999,559

 

87,063

 

Telefonica Brasil SA Preference Shares

 

5,582,011

 

69,535

 

 

 

 

 

272,736

Canada (1.1%)

 

 

 

 

 

Nutrien Ltd.

 

3,575,914

 

194,645

 

Toronto-Dominion Bank

 

3,057,005

 

175,296

 

 

 

 

 

369,941

China (18.9%)

 

 

 

 

*

Alibaba Group Holding Ltd. ADR

 

10,636,558

 

1,946,809

 

Tencent Holdings Ltd.

 

41,822,300

 

1,790,967

*

Baidu Inc. ADR

 

4,633,984

 

753,208

*

TAL Education Group ADR

 

18,485,132

 

658,071

 

Ping An Insurance Group Co. of China Ltd.

 

37,534,500

 

396,790

*

Ctrip.com International Ltd. ADR

 

9,001,376

 

307,217

*,^

NIO Inc. ADR

 

17,591,617

 

168,352

*,^

iQIYI Inc. ADR

 

5,046,134

 

137,053

*,2

Meituan Dianping

 

18,638,108

 

130,138

 

China Pacific Insurance Group Co. Ltd.

 

33,827,200

 

127,275

*,^

Meituan Dianping Class B

 

13,982,022

 

108,423

 

China Mengniu Dairy Co. Ltd.

 

32,708,000

 

101,008

 

 

 

 

 

6,625,311

Denmark (2.9%)

 

 

 

 

*

Genmab A/S

 

2,594,661

 

447,800

 

Vestas Wind Systems A/S

 

2,043,797

 

170,277

 

Chr Hansen Holding A/S

 

1,658,818

 

168,842

 

Ambu A/S Class B

 

5,449,774

 

127,628

 

Novozymes A/S

 

2,401,809

 

109,065

 

 

 

 

 

1,023,612

France (7.0%)

 

 

 

 

 

Kering SA

 

1,368,726

 

746,737

 

L’Oreal SA

 

2,310,130

 

582,644

 

Schneider Electric SE

 

5,076,412

 

394,471

 

TOTAL SA

 

5,193,328

 

295,601

 

EssilorLuxottica SA

 

2,005,073

 

242,666

 

Vivendi SA

 

7,164,431

 

209,220

 

 

 

 

 

2,471,339

Germany (5.9%)

 

 

 

 

*,^,3

Zalando SE

 

10,466,867

 

386,067

 

Bayerische Motoren Werke AG

 

3,268,453

 

276,287

*,3

Delivery Hero SE

 

6,275,610

 

243,348

 

Infineon Technologies AG

 

8,669,188

 

190,527

 

adidas AG

 

716,713

 

173,983

 

BASF SE

 

2,275,881

 

173,236

 

Continental AG

 

815,675

 

133,597

 

SAP SE

 

1,238,958

 

132,603

*,^,4

HelloFresh SE

 

10,552,945

 

114,968

 

GEA Group AG

 

3,320,563

 

79,431

*

MorphoSys AG

 

664,989

 

68,341

*,3

Rocket Internet SE

 

2,762,933

 

64,982

*

AIXTRON SE

 

3,130,112

 

27,981

*,4

Home24 SE

 

1,862,256

 

15,351

 

 

 

 

 

2,080,702

 

4


 

International Growth Fund

 

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

Hong Kong (4.7%)

 

 

 

 

 

AIA Group Ltd.

 

127,277,600

 

1,270,273

 

Jardine Matheson Holdings Ltd.

 

3,099,000

 

212,243

 

Hong Kong Exchanges & Clearing Ltd.

 

4,767,930

 

164,347

 

 

 

 

 

1,646,863

India (2.2%)

 

 

 

 

 

Housing Development Finance Corp. Ltd.

 

11,680,736

 

302,612

 

HDFC Bank Ltd.

 

7,780,817

 

227,806

 

Zee Entertainment Enterprises Ltd.

 

27,208,888

 

178,576

*,§,2

ANI Technologies

 

166,185

 

49,650

 

 

 

 

 

758,644

Indonesia (0.4%)

 

 

 

 

 

Bank Central Asia Tbk PT

 

64,782,900

 

126,760

 

 

 

 

 

 

Israel (0.3%)

 

 

 

 

*

Check Point Software Technologies Ltd.

 

978,890

 

119,718

 

 

 

 

 

 

Italy (2.3%)

 

 

 

 

 

Ferrari NV

 

4,745,012

 

610,512

*

Fiat Chrysler Automobiles NV

 

13,737,294

 

203,011

 

 

 

 

 

813,523

Japan (11.0%)

 

 

 

 

 

SoftBank Group Corp.

 

6,053,300

 

561,712

 

SMC Corp.

 

1,548,600

 

541,735

 

M3 Inc.

 

26,545,800

 

439,118

 

Nidec Corp.

 

2,080,800

 

252,360

 

Bridgestone Corp.

 

6,324,500

 

250,523

 

Recruit Holdings Co. Ltd.

 

8,709,100

 

244,161

 

Nintendo Co. Ltd.

 

713,800

 

195,752

 

Takeda Pharmaceutical Co. Ltd.

 

4,689,100

 

188,703

 

Keyence Corp.

 

285,200

 

166,775

 

Sekisui Chemical Co. Ltd.

 

9,761,500

 

153,571

 

Pigeon Corp.

 

3,300,800

 

134,768

 

Kubota Corp.

 

9,695,100

 

130,759

 

Toyota Motor Corp.

 

2,137,700

 

129,178

 

Murata Manufacturing Co. Ltd.

 

728,600

 

113,651

 

ORIX Corp.

 

6,873,900

 

99,524

 

Suzuki Motor Corp.

 

1,855,100

 

95,258

 

SBI Holdings Inc.

 

4,470,400

 

94,528

 

KDDI Corp.

 

2,856,800

 

69,048

 

 

 

 

 

3,861,124

Netherlands (3.8%)

 

 

 

 

 

ASML Holding NV

 

7,358,719

 

1,346,194

 

 

 

 

 

 

Norway (0.8%)

 

 

 

 

 

DNB ASA

 

7,488,359

 

143,431

 

Norsk Hydro ASA

 

30,534,386

 

126,025

 

 

 

 

 

269,456

Other (0.2%)

 

 

 

 

5

Vanguard FTSE All-World ex-US ETF

 

1,128,434

 

56,230

 

 

 

 

 

 

Singapore (0.4%)

 

 

 

 

 

Oversea-Chinese Banking Corp. Ltd.

 

18,606,300

 

151,799

 

 

 

 

 

 

South Korea (2.0%)

 

 

 

 

*,^

Celltrion Inc.

 

1,695,817

 

307,636

 

Samsung Electronics Co. Ltd.

 

5,161,446

 

206,570

 

Samsung SDI Co. Ltd.

 

546,742

 

115,256

 

NAVER Corp.

 

539,978

 

63,800

 

 

 

 

 

693,262

Spain (3.2%)