N-CSR 1 tm2032384d4_ncsr.htm N-CSR

 

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, 2019—August 31, 2020

 

 

 

 

Item 1: Reports to Shareholders

 

 

 

 

 

 

 

 

Annual Report  |  August 31, 2020

 

 

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
 
Your Fund’s Performance at a Glance 1
 
Advisors’ Report 2
 
About Your Fund’s Expenses 8
 
Performance Summary 10
 
Financial Statements 12
 
Liquidity Risk Management 31

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

 

 

Your Fund’s Performance at a Glance

 

●    Vanguard U.S. Growth Fund returned 58.01% for Investor Shares and 58.17% for Admiral Shares for the 12 months ended August 31, 2020. The fund outperformed its benchmark, which returned 44.34%.

 

●    Growth stocks outperformed value stocks and large-capitalization stocks outperformed mid- and small-cap stocks. The U.S. stock market rebounded more strongly than both developed markets outside the United States and emerging markets.

 

●    Amid some easing in trade tensions and continuing accommodative monetary policies across much of the world, a number of stock market indexes climbed to record highs in February. Stocks plummeted worldwide during the early stages of the coronavirus in March, but the unprecedented scale of the response from policymakers, the start of trials for vaccines and treatments, and the easing of some pandemic-related restrictions helped lift investor sentiment.

 

●    Ten of the fund’s 11 industry sectors contributed positively to performance. Consumer discretionary and information technology stocks helped performance the most. Financials was the fund’s only detractor.

 

 

 

Market Barometer

 

    Average Annual Total Returns
    Periods Ended August 31, 2020
  One Year Three Years Five Years
Stocks      
Russell 1000 Index (Large-caps) 22.50% 14.58% 14.31%
Russell 2000 Index (Small-caps) 6.02 5.03 7.65
Russell 3000 Index (Broad U.S. market) 21.44 13.95 13.86
FTSE All-World ex US Index (International) 8.78 2.92 6.00
Bonds      
Bloomberg Barclays U.S. Aggregate Bond Index      
(Broad taxable market) 6.47% 5.09% 4.33%
Bloomberg Barclays Municipal Bond Index      
(Broad tax-exempt market) 3.24 4.09 3.99
FTSE Three-Month U.S. Treasury Bill Index 1.18 1.67 1.15
CPI      
Consumer Price Index 1.31% 1.92% 1.75%

 

1

 

 

Advisors’ Report

 

For the 12 months ended August 31, 2020, Vanguard U.S. Growth Fund returned 58.01% for Investor Shares and 58.17% for Admiral Shares. It outperformed its benchmark, the Russell 1000 Growth Index, which returned 44.34%. Your fund is managed by five advisors. The use of multiple independent advisors enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.

 

The table on page 7 presents the advisors, the percentage and amount of fund assets that each manages, and brief descriptions of their investment strategies. Each advisor has also prepared a discussion of the investment environment during the fiscal year and of how the portfolio’s positioning reflects this assessment. These reports were prepared on September 16, 2020.

 

 

Jennison Associates LLC

 

Portfolio Managers:

 

Kathleen A. McCarragher, Managing Director

 

Blair A. Boyer, Managing Director

 

Markets were extremely volatile over the period because of the coronavirus pandemic and U.S.-China trade discord. Stocks peaked in February, then dropped dramatically as the COVID-19 outbreak spread around the globe, disrupting markets and life everywhere. Markets rebounded rapidly in the period’s final months, but the pandemic’s economic damage continued.

 

In consumer discretionary, our portfolio benefited from our position in Tesla, which surged on growing demand, solid production, increased capacity, and strong execution. Amazon also aided performance as it continued to benefit from economies of scale and its platform-based business model.

 

In information technology, our portfolio benefited from the following holdings:

 

●    Apple, which saw rapid growth in service subscriptions and favorable prospects for upcoming product cycles.

 

●    Shopify, which benefited from its cloud-based infrastructure tools that increasingly address the growing demand for omni-channel e-commerce.

 

●    NVIDIA, which took advantage of its graphics semiconductor expertise in key high-growth markets, including gaming, automotive, high-performance computing, and cloud and enterprise.

 

In communication services, our portfolio benefited from our position in Netflix, which enhanced its long-term competitive position with the industry’s largest commitment to exclusive, original content. We also benefited from exposure to Facebook, which continues to attract advertisers.

 

Our health care positions advanced but lagged the benchmark in this sector. Medical device makers Boston Scientific

 

2

 

 

and Edwards Lifesciences performed weakly because of concerns that elective procedures could be postponed because of the pandemic. We eliminated the position in Edwards as a result.

 

In industrials, we eliminated our position in Boeing, as the 737 jet recertification process took longer than anticipated and COVID-19-restricted air travel compromised the financial health of airlines. We also closed positions in commercial aircraft manufacturers Airbus and Safran.

 

We believe our portfolio holds fundamentally strong companies with solid long-term growth prospects. Many holdings stand to benefit from the digital transformation of the global economy. This transformation is accelerating, as social distancing and shelter-in-place directives necessitated by the pandemic have underscored the value, utility, and resilience of e-commerce, digitally enabled payment, cloud computing, and streaming business models.

 

 

Wellington Management Company LLP

 

Portfolio Manager:

 

Andrew J. Shilling, CFA, Senior Managing Director

 

Our investment approach is intended to produce a portfolio that seeks to outperform growth benchmarks and, in the longer term, the broader market. We employ proprietary fundamental research and a rigorous valuation discipline to invest in large-capitalization companies that have attractive growth characteristics. Because we believe that investors often underestimate the potential for growth, our approach identifies companies with a clear competitive advantage that will enable them to sustain above-average growth over the long term.

 

For the 12-month period ended August 31, 2020, U.S. equities, as measured by the Standard & Poor’s 500 Index, gained 21.94%. Growth stocks outperformed value stocks and large-capitalization companies outpaced their smaller-cap counterparts.

 

Notable contributors to performance included DocuSign, an electronic signature solutions company, and Advanced Micro Devices, a graphics chip provider. Boeing, the multinational aerospace company, was another notable contributor. We eliminated our position in January in favor of other investments.

 

Detractors included not owning Tesla, a manufacturer of fully electric vehicles and energy storage systems; an underweight allocation to Apple, a leader in mobile devices and digital content distribution; and an overweight position in FleetCor Technologies, a provider of fuel cards and payment services to commercial truck fleets.

 

Our portfolio’s biggest sector overweights were in information technology, industrials, and financials. Our largest underweights were in health care, consumer discretionary, and communication services.

 

3

 

 

We remain true to our process, seeking to invest in companies with competitive advantages, strong balance sheets, experienced and proven management, and the ability to sustain above-average growth.

 

 

Baillie Gifford Overseas Ltd.

 

Portfolio Managers:

 

Tom Slater, Investment Manager, Partner

 

Gary Robinson, Investment Manager, Partner

 

The 12 months under review saw the greatest economic and social adjustments that most of us have seen in our lifetimes. COVID-19 has forced governments to shut down large parts of their economies and restrict the movement of whole populations, and launch huge stimulus packages in response to the economic fallout.

 

Stock markets have responded to the acceleration of trends that had been under way before the pandemic. These include the shift to online and the reimagination of enterprise in the cloud.

 

Several of the portfolio’s online retailers, such as e-commerce platforms Amazon and Shopify and the home furnishings retailer Wayfair, were significant contributors to performance amid unprecedented demand for their services. But the single largest contributor was Tesla. Tesla’s operations proved to be more robust than many expected. With its cars rolling off production lines in volume, this company is beginning to manufacture its peerless electric vehicles at scale. It was alone among global carmakers in increasing sales after COVID-19 emerged.

 

Not all holdings fared so well. Two innovative medical equipment manufacturers, Novocure and Glaukos, faced temporary sales disruption, which weighed on their share prices.

 

The pandemic has made us question long-standing traditions and has accelerated the adoption of new service and business models. There are many reasons to be optimistic about truly disruptive growth companies and few of the reasons have much to do with valuation or viruses. We enter the next 12 months with a robust pipeline of investment ideas, and we are excited to find out which of these will earn a place in the portfolio.

 

 

Vanguard Quantitative Equity Group

 

Portfolio Managers:

 

James P. Stetler

 

Binbin Guo, Principal, Head of Alpha Equity Investments

 

Amid some easing in trade tensions and continuing accommodative monetary policies across much of the world, a number of stock market indexes climbed to record highs in February. Then, as the

 

4

 

 

coronavirus began to spread outside of China, lockdowns, the shuttering of nonessential businesses, and travel restrictions in many countries led to a swift, sharp downturn in global economic activity, especially in the services sector, and a spike in unemployment.

 

Initially, stocks plummeted worldwide, but the unprecedented scale of the response from policymakers, the start of trials for COVID-19 vaccines and treatments, and the easing of some pandemic-related restrictions helped lift investor sentiment. The U.S. stock market rebounded more strongly than both developed markets outside the United States and emerging markets. Large-capitalization stocks outperformed their mid- and small-cap counterparts, and growth outpaced value.

 

Although it’s important to understand how overall performance is affected by such macro factors, our approach to investing focuses on specific fundamentals, not technical analysis of stock price movements. We believe that attractive stocks exhibit five key characteristics: high quality—healthy balance sheets and steady cash-flow generation; effective management decisions—sound investment policies that favor internal over external funding; consistent earnings growth— ability to grow earnings year after year; strong market sentiment—market confirmation of our view; and reasonable valuation—shares that are not overpriced.

 

Using these five themes, we generate a daily composite stock ranking. We then monitor our portfolio based on those rankings and adjust when appropriate to maximize expected returns while minimizing exposure to risks that our research indicates don’t improve returns (such as industry selection and other risks relative to our benchmark).

 

Over the 12-month period ended August 31, 2020, our quality and sentiment models contributed to our relative performance while our valuation, management decisions, and growth models detracted.

 

Our strongest sector results were in information technology, primarily because of strong stock selection in IT services companies. Our portfolio also benefited from our positions in energy and materials; the latter was helped by our underweight to construction services companies. Stock selection in consumer discretionary, financials, and industrials detracted the most.

 

At the stock level, top contributors included overweight positions in IT companies— Advanced Micro Devices, Square, and Fortinet—as well as an overweight to Bristol-Myers Squibb in the health care sector. An underweight to NVIDIA in the information technology sector was the biggest detractor. Overweights to industrial companies SpiritAero Systems and Delta Air Lines and to consumer discretionary companies Norwegian Cruise Line and H&R Block also detracted.

 

5

 

 

Jackson Square Partners, LLC

 

Portfolio Managers:

 

Jeffrey S. Van Harte, CFA,
Chairman and Chief Investment Officer

 

Christopher J. Bonavico, CFA,
Equity Analyst

 

Christopher M. Ericksen, CFA,
Equity Analyst

 

Daniel J. Prislin, CFA,
Equity Analyst

 

The global pandemic and the significant market volatility that came with it dominated headlines throughout much of the period. We took advantage of the sharp COVID-19-related sell-off to purchase a handful of companies that we had admired but that had previously not fit our valuation discipline. We believe all these companies possess exceptional competitive moats across a wide range of industries.

 

Performance was driven by our stock selection. Our largest relative contributor to performance during the period was a cloud communications platform, Twilio. We believe that instant digital communication with customers and employees across any medium in any geography is a hugely complex problem that businesses increasingly need to solve. As the leading communications-as-a-service platform, Twilio is well positioned to be the primary beneficiary of that trend. The addressable market is worth tens of billions of procurement dollars and is essentially untapped by Twilio’s still negligible penetration. We believe that penetration will expand meaningfully and drive consistently high revenue growth for many years.

 

Constellation Brands, which produces and markets beer, wine, and spirits, was a detractor during the period. Investors became concerned about the company’s debt profile on its balance sheet as well as several unexpected anti-business initiatives from the Mexican government that hurt Constellation. We sold our position in favor of more attractive opportunities.

 

We remain committed to our long-held investment philosophy to own what we view as strong secular-growth companies with solid business models that have the potential to deliver shareholder value in a variety of market environments.

 

6

 

 

 

Vanguard U.S. Growth Fund Investment Advisors

 

  Fund Assets Managed    
Investment Advisor % $ Million   Investment Strategy
Jennison Associates LLC 27 10,969   Uses a research-driven, fundamental investment
        approach that relies on in-depth company knowledge
        gleaned through meetings with management,
        customers, and suppliers.
Wellington Management 26 10,318   Employs proprietary fundamental research and a
Company LLP       rigorous valuation discipline in an effort to invest in
        high-quality, large-cap, sustainable-growth
        companies. The investment approach is based on the
        belief that stock prices often overreact to short-term
        trends and that bottom-up, intensive research
        focused on longer-term fundamentals can be used to
        identify stocks that will outperform the market over
        time.
Baillie Gifford Overseas Ltd. 18 7,409   Uses an active, bottom-up approach to identify
        exceptional growth companies and own them for
        long periods. Such companies have special cultures,
        address large market opportunities, and enjoy
        sustainable competitive advantages. This approach is
        based on the belief that these factors drive long-term
        returns, and a long investment horizon enables the
        inherent asymmetry of equity market returns to be
        captured.
Vanguard Quantitative Equity 14 5,461   Employs a quantitative fundamental management
Group       approach, using models that assess valuation, market
        sentiment, earnings quality and growth, and
        management decisions of companies versus their
        peers.
Jackson Square Partners, LLC 13 5,346   Uses a bottom-up approach, seeking companies that
        have large end-market potential, dominant business
        models, and strong free cash flow generation that is
        attractively priced compared with the intrinsic value
        of the securities.
Cash Investments 2 767   These short-term reserves are invested by Vanguard
        in equity index products to simulate investment in
        stocks. Each advisor may also maintain a modest
        cash position.

 

7

 

 

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.

 

8

 

 

Six Months Ended August 31, 2020

 

  Beginning Ending Expenses
  Account Value Account Value Paid During
U.S. Growth Fund 2/29/2020 8/31/2020 Period
Based on Actual Fund Return      
Investor Shares $1,000.00 $1,471.64 $2.42
Admiral™ Shares 1,000.00 1,472.41 1.80
Based on Hypothetical 5% Yearly Return      
Investor Shares $1,000.00 $1,023.18 $1.98
Admiral Shares 1,000.00 1,023.68 1.48

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 0.39% for Investor Shares and 0.29% 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 (184/366).

 

9

 

 

U.S. Growth Fund

 

Performance Summary

 

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

 

Cumulative Performance: August 31, 2010, Through August 31, 2020

Initial Investment of $10,000

 

 

       Average Annual Total Returns   
       Periods Ended August 31, 2020   
                Final Value
       One  Five  Ten  of a $10,000
       Year  Years  Years  Investment
    U.S. Growth Fund Investor Shares  58.01%  21.67%  19.97%  $61,744
    Russell 1000 Growth Index  44.34  20.66  19.02  57,034
   

Dow Jones U.S. Total Stock Market Float Adjusted Index

  21.20  13.77  14.88  40,053

 

            Final Value
   One  Five  Ten  of a $50,000
   Year  Years  Years  Investment
U.S. Growth Fund Admiral Shares  58.17%  21.81%  20.12%  $312,799
Russell 1000 Growth Index  44.34  20.66  19.02  285,172

Dow Jones U.S. Total Stock Market Float Adjusted Index

  21.20  13.77  14.88  200,263

 

 

See Financial Highlights for dividend and capital gains information.

 

10

 

 

U.S. Growth Fund

 

Fund Allocation

As of August 31, 2020

 

Communication Services   12.0%
Consumer Discretionary   21.8 
Consumer Staples   1.5 
Financials   3.8 
Health Care   10.0 
Industrials   5.1 
Information Technology   44.0 
Materials   0.6 
Other   0.0 
Real Estate   1.1 
Utilities   0.1 

The table reflects the fund’s investments, except for short-term investments and derivatives. 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 report-ing 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.

 

11

 

 

U.S. Growth Fund

 

 

Financial Statements

 

Schedule of Investments

As of August 31, 2020

 

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.

 

            Market  
            Value  
        Shares   ($000 )
Common Stocks (97.4%)          
Communication Services (11.8%)           
*   Facebook Inc. Class A   3,544,092   1,039,128  
*   Alphabet Inc. Class C   595,632   973,370  
*   Netflix Inc.   1,740,854   921,887  
*   Alphabet Inc. Class A   329,417   536,795  
*   Match Group Inc.   3,289,027   367,319  
*   Charter Communications Inc. Class A   394,234   242,694  
*   Roku Inc.   851,641   147,743  
    Tencent Holdings Ltd.   2,050,810   140,108  
    Spotify Technology SA   466,084   131,510  
*   Zillow Group Inc. Class A   852,459   72,698  
   ZoomInfo Technologies Inc. Class A     1,152,019     44,721   
    Activision Blizzard Inc.   410,907   34,319  
*   Zynga Inc. Class A   3,258,114   29,518  
*   Take-Two Interactive Software Inc.   129,734   22,209  
*   Eventbrite Inc. Class A   1,257,484   13,518  
*   Electronic Arts Inc.   86,377   12,047  
            4,729,584  
Consumer Discretionary (21.6%)          
*   Amazon.com Inc.   940,903   3,247,019  
*   Tesla Inc.   4,387,110   2,186,185  
*   Wayfair Inc.   1,558,945   462,321  
    Home Depot Inc.   1,437,696   409,801  
    NIKE Inc. Class B   3,011,719   336,981  
    Lululemon Athletica Inc.   846,968   318,180  
    MercadoLibre Inc.   176,178   205,880  
*   Alibaba Group Holding Ltd. ADR   713,427   204,775  
*   Chegg Inc.   2,656,015   195,855  
*   Carvana Co. Class A   674,273   145,616  
    Starbucks Corp.   1,415,347   119,554  
    Kering SA   189,825   116,471  
*   Chewy Inc.   1,861,186   113,663  
    TJX Cos. Inc.   1,854,910   101,630  
*   O’Reilly Automotive Inc.   182,826   85,129  
*   Vroom Inc.   1,140,785   78,292  
*   Burlington Stores Inc.   310,721   61,190  
*   Stitch Fix Inc. Class A   1,712,098   41,347  
    eBay Inc.   707,919   38,780  
    Dollar General Corp.   144,920   29,256  
    Best Buy Co. Inc.   240,457   26,669  
    Lowe’s Cos. Inc.   156,383   25,755  
    Yum! Brands Inc.   232,580   22,293  
    Tractor Supply Co.   136,025   20,245  
*   NVR Inc.   4,593   19,145  
    Target Corp.   124,390   18,809  
    Hanesbrands Inc.   1,088,458   16,643  
*   Etsy Inc.   88,691   10,616  
    H&R Block Inc.   703,682   10,203  
*   Booking Holdings Inc.   4,906   9,373  
    Yum China Holdings Inc.   103,331   5,963  
    Domino’s Pizza Inc.   11,298   4,620  
*   frontdoor Inc.   96,850   4,220  
*   Planet Fitness Inc. Class A   64,325   3,910  
*   LKQ Corp.   108,809   3,454  
    Service Corp. International   70,011   3,196  
    Polaris Inc.   30,346   3,066  
*   Peloton Interactive Inc. Class A   39,424   3,023  
            8,709,128  
Consumer Staples (1.3%)           
    Constellation Brands Inc. Class A   822,724   151,776  
*   Monster Beverage Corp.   1,351,946   113,374  
    Altria Group Inc.   854,617   37,381  
    Clorox Co.   143,986   32,181  
    Procter & Gamble Co.   220,141   30,452  
    Campbell Soup Co.   528,741   27,817  
    Hershey Co.   159,512   23,710  
    Costco Wholesale Corp.   55,139   19,170  
    PepsiCo Inc.   130,176   18,232  
    Sysco Corp.   189,598   11,402  
*   Sprouts Farmers Market Inc.   438,574   10,241  
    Kellogg Co.   135,435   9,604  
    Coca-Cola Co.   167,007   8,272  
*   Herbalife Nutrition Ltd.   72,909   3,583  
    Casey’s General Stores Inc.   19,572   3,481   
*   Pilgrim’s Pride Corp.   110,934   1,775  
            502,451  

 

 

12

 

 

U.S. Growth Fund

 

            Market  
            Value  
        Shares   ($000 )
Financials (3.5%)          
    S&P Global Inc.   634,996   232,675  
    MarketAxess Holdings Inc.   364,687   177,216  
    Progressive Corp.   1,823,782   173,332  
    KKR & Co. Inc.   4,629,398   165,825  
    First Republic Bank   1,041,848   117,635  
    American Express Co.   973,068   98,854  
    Goldman Sachs Group Inc.   469,586   96,204  
    Marsh & McLennan Cos. Inc.   641,211   73,682  
*   Markel Corp.   62,216   67,618  
*,^   Lemonade Inc.   941,310   55,255  
    Blackstone Group LP Class A   950,138   50,310  
    Interactive Brokers Group Inc.   925,104   49,049  
    LPL Financial Holdings Inc.   211,836   17,405  
    Lazard Ltd. Class A   316,079   10,010  
    Synchrony Financial   310,554   7,705  
    Virtu Financial Inc. Class A   205,897   5,318  
    Cboe Global Markets Inc.   43,929   4,032  
    Intercontinental Exchange Inc.   30,470   3,237  
    Ameriprise Financial Inc.   5,252   824  
            1,406,186  
Health Care (9.5%)          
*   Illumina Inc.   1,054,195   376,580  
*   Intuitive Surgical Inc.   376,068   274,846  
*   ABIOMED Inc.   890,289   273,871  
*   IQVIA Holdings Inc.   1,396,751   228,718  
    UnitedHealth Group Inc.   671,671   209,931  
    AstraZeneca plc ADR   3,172,440   177,657  
*   Edwards Lifesciences Corp.   1,838,540   157,820  
    Thermo Fisher Scientific Inc.   337,114   144,615  
    Danaher Corp.   699,575   144,441  
*   Teladoc Health Inc.   648,979   139,978  
*   Vertex Pharmaceuticals Inc.   485,601   135,541  
    Zoetis Inc.   823,108   131,780  
    Boston Scientific Corp.   2,960,659   121,446  
*   Penumbra Inc.   552,490   115,553  
*   Mettler-Toledo International Inc.   103,356   100,336  
*   Novocure Ltd.   1,183,144   97,905  
*   Alnylam Pharmaceuticals Inc.   656,115   87,027  
    Merck & Co. Inc.   1,005,853   85,769  
*   Moderna Inc.   1,091,784   70,846  
    Eli Lilly and Co.   442,297   65,633  
*   Sarepta Therapeutics Inc.   429,088   62,827  
*   Glaukos Corp.   1,208,555   57,805  
*   Denali Therapeutics Inc.   1,735,333   55,357  
*   Biogen Inc.   181,472   52,199  
*   Seattle Genetics Inc.   295,504   46,790  
    AbbVie Inc.   466,914   44,716  
    Johnson & Johnson   277,791   42,616  
*   Veeva Systems Inc. Class A   114,670   32,368  
    Cigna Corp.   179,222   31,789  
    Humana Inc.   75,755   31,451  
    HCA Healthcare Inc.   226,521   30,743  
*   PRA Health Sciences Inc.   218,981   23,411  
*   DexCom Inc.   52,018   22,129  
    McKesson Corp.   141,229   21,670  
    AmerisourceBergen Corp. Class A   222,868   21,625  
*   Charles River Laboratories International Inc.   94,728   20,741  
*   Henry Schein Inc.   278,428   18,499  
    Amgen Inc.   70,662   17,900  
*   DaVita Inc.   153,435   13,312  
    Cardinal Health Inc.   196,697   9,984  
*   Quidel Corp.   43,459   7,647  
*   Avantor Inc.   304,772   6,879  
    Bruker Corp.   144,057   6,053  
*   Align Technology Inc.   19,352   5,747  
    Abbott Laboratories   44,954   4,921  
    West Pharmaceutical Services Inc.   16,426   4,664  
*   Incyte Corp.   31,042   2,991  
    PerkinElmer Inc.   22,881   2,694  
    Becton Dickinson and Co.   7,983   1,938  
            3,841,759  
Industrials (4.8%)          
*   Uber Technologies Inc.     12,281,627   413,031   
    Waste Management Inc.   1,483,001   169,062  
    TransUnion   1,796,960   155,832  
    IHS Markit Ltd.   1,667,295   133,250  
*   CoStar Group Inc.   147,876   125,488  
    Lockheed Martin Corp.   285,784   111,530  
    Equifax Inc.   648,486   109,121  
    Northrop Grumman Corp.   317,848   108,898  
*   Copart Inc.   1,046,876   108,163  
    Watsco Inc.   441,208   108,092  
    Canadian National Railway Co.   788,182   82,428  
    JB Hunt Transport Services Inc.   339,978   47,780  
    HEICO Corp. Class A   491,360   43,918  
    United Parcel Service Inc. Class B   247,777   40,541  
    Rockwell Automation Inc.   106,981   24,662  
    IDEX Corp.   128,986   23,247  
    Landstar System Inc.   143,894   19,151  

 

13

 

 

U.S. Growth Fund

 

 

            Market  
            Value  
        Shares   ($000 )
*   Lyft Inc. Class A   564,278   16,742  
    Nielsen Holdings plc   1,067,597   16,313  
    Illinois Tool Works Inc.   65,385   12,917  
    Expeditors International of Washington Inc.   134,083   11,852  
    WW Grainger Inc.   31,729   11,595  
    CoreLogic Inc.   159,093   10,564  
      Allison Transmission Holdings Inc.     225,525     8,090   
      Armstrong World Industries Inc.     100,970     7,446   
    Fastenal Co.   55,060   2,690  
*   Generac Holdings Inc.   14,013   2,662  
    Hubbell Inc. Class B   17,254   2,500  
    KAR Auction Services Inc.   137,710   2,388  
            1,929,953  
Information Technology (43.4%)          
    Microsoft Corp.   11,052,827   2,492,744  
    Apple Inc.   18,292,572   2,360,474  
    Mastercard Inc. Class A   3,260,174   1,167,762  
*   Shopify Inc. Class A   975,961   1,040,784  
    Visa Inc. Class A   4,276,842   906,648  
*   Adobe Inc.   1,614,133   828,680  
*   PayPal Holdings Inc.   3,878,829   791,824  
*   salesforce.com Inc.   2,874,808   783,816  
    NVIDIA Corp.   1,320,827   706,616  
*   ServiceNow Inc.   1,350,946   651,183  
*   Workday Inc. Class A   2,054,464   492,476  
*   Coupa Software Inc.   1,300,663   426,279  
*   Trade Desk Inc. Class A   776,203   373,587  
*   Twilio Inc. Class A   1,285,462   346,766  
*   Autodesk Inc.   1,410,550   346,572  
*   Advanced Micro Devices Inc.   3,341,121   303,441  
*   Zoom Video Communications Inc. Class A   741,620   241,101  
1   Adyen NV   132,144   222,751  
*   Square Inc.   1,200,770   191,595  
*   Paycom Software Inc.   590,158   176,729  
*   FleetCor Technologies Inc.   700,235   176,074  
    SS&C Technologies Holdings Inc.   2,616,573   166,728  
*   Slack Technologies Inc. Class A   4,852,648   159,361  
    Fidelity National Information Services Inc.   1,054,151   159,019  
    Microchip Technology Inc.   1,309,484   143,650  
*   Atlassian Corp. plc Class A   703,980   134,995  
    Global Payments Inc.   730,877   129,088  
*   Splunk Inc.   585,877   128,500  
*   DocuSign Inc. Class A   521,186   116,224  
*   Wix.com Ltd.   389,917   114,881  
    RingCentral Inc. Class A   364,370   105,948  
    Crowdstrike Holdings Inc. Class A   828,990   104,229  
    CDW Corp.   861,255   97,882  
*   Tyler Technologies Inc.   187,563   64,767  
*   Cloudflare Inc. Class A   1,643,811   62,892  
*   Datadog Inc. Class A   721,575   60,288  
    Accenture plc Class A   246,436   59,127  
    Oracle Corp.   977,651   55,941  
*,^   Appian Corp. Class A   858,444   52,571  
    Texas Instruments Inc.   363,784   51,712  
    QUALCOMM Inc.   398,510   47,463  
*   Yext Inc.   2,268,597   45,054  
*   Cadence Design Systems Inc.   359,800   39,905  
*   Synopsys Inc.   175,900   38,927  
    Booz Allen Hamilton Holding Corp. Class A   367,692   32,379  
*   Fortinet Inc.   233,684   30,847  
*   Manhattan Associates Inc.   313,387   30,477  
    Teradyne Inc.   347,868   29,558  
    Lam Research Corp.   82,908   27,885  
    Monolithic Power Systems Inc.   96,915   25,889  
*   Ceridian HCM Holding Inc.   303,641   24,146  
    Jabil Inc.   524,083   17,897  
*   GoDaddy Inc. Class A   203,862   17,059  
    HP Inc.   732,129   14,313  
*   Dell Technologies Inc.   201,128   13,291  
*   Teradata Corp.   538,096   13,103  
*   Fair Isaac Corp.   27,044   11,380  
    Citrix Systems Inc.   68,961   10,013  
    Broadcom Inc.   27,225   9,451  
*   Dropbox Inc. Class A   308,238   6,525  
    NortonLifeLock Inc.   225,814   5,311  
*   SolarEdge Technologies Inc.   18,575   4,108  
    Intuit Inc.   7,914   2,733  
            17,493,419  

Materials (0.5%)

         
    Ball Corp.   1,793,671   144,157  
*   Element Solutions Inc.   1,967,114   21,147  
    Scotts Miracle-Gro Co.   94,590   15,941  
*   Crown Holdings Inc.   33,438   2,570  
    Sealed Air Corp.   56,882   2,235  
            186,050  

Other (0.0%)

         
*,§,2   The We Company Class A PP   19,046   96  
               
Real Estate (1.0%)      
*   Redfin Corp.   2,750,655   130,849  
    American Tower Corp.   470,185   117,146  

 

14

 

 

U.S. Growth Fund          
           
            Market  
            Value  
        Shares   ($000 ) 
    Equinix Inc.   120,411   95,098  
    Iron Mountain Inc.   925,257   27,841  
    American Homes 4 Rent Class A   632,747   18,122  
    SBA Communications Corp. Class A   17,763   5,437  
            394,493  
Utilities (0.0%)          
    NRG Energy Inc.   115,956   3,990  
Total Common Stocks          
(Cost $17,748,805)       39,197,109  
Preferred Stocks (0.0%)          
*,§,2,3 Airbnb Inc., 8.000%   128,123   9,718  
*,§,2,3 The We Company Pfd. D1 PP   260,418   2,039  
*,§,2,3 The We Company Pfd. D2 PP   204,614   1,602  
Total Preferred Stocks          
(Cost $19,671)       13,359  
Temporary Cash Investments (2.8%)      
Money Market Fund (2.6%)          
 4,5   Vanguard Market Liquidity Fund, 0.147%   10,242,475   1,024,247  
               
        Face      
        Amount      
        ($000 )    
Repurchase Agreement (0.1%)      
    Bank of America Securities, LLC 0.090%, 9/1/20 (Dated 8/31/20, Repurchase Value $42,800,000,collateralized by Government National Mortgage Assn. 3.000%, 11/20/49, with a value of $43,656,000)   42,800   42,800  
U.S. Government and Agency Obligations (0.1%)  
6    United States Cash Management Bill, 0.210%, 9/15/20   5,000   5,000  
6   United States Cash Management Bill, 0.116%, 9/29/20   4,710   4,710  
6   United States Cash Management Bill, 0.140%, 10/13/20   23,500   23,498  
6   United States Cash Management Bill, 0.165%, 11/3/20   2,590   2,589  
6   United States Cash Management Bill, 0.145%–0.146%, 12/15/20   13,300   13,296  
6   United States Treasury Bill, 0.109%, 12/31/20   7,200   7,197  
            56,290  
Total Temporary Cash Investments      
(Cost $1,123,140)       1,123,337  
Total Investments (100.2%)          
(Cost $18,891,616)   40,333,805  
Other Assets and Liabilities—Net (-0.2%)   (63,633 )

Net Assets (100%) 40,270,172  

 

Cost is in $000.

 

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 $100,381,000.
§Security value determined using significant unobservable inputs.
1Security 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 August 31, 2020, the value of this security represented 0.6% of net assets.
2Restricted securities totaling $13,455,000, representing 0.0% of net assets. See Restricted Securities table for additional information.
3Perpetual security with no stated maturity date.
4Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
5Collateral of $101,840,000 was received for securities on loan.
6Securities with a value of $55,520,000 have been segregated as initial margin for open futures contracts.

ADR—American Depositary Receipt.

PP—Private Placement.

 

15

 

 

U.S. Growth Fund

 

 

Restricted Securities as of Period End

 

        Acquisition
      Acquisition Cost
Security Name     Date ($000)
The We Company Pfd. D1 PP   December 2014 4,336
The We Company Pfd. D2 PP   December 2014 3,407
The We Company Class A PP   December 2014 317
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 September 2020 4,156 727,071 42,916
E-mini S&P Mid-Cap 400 Index September 2020 262 50,456 4,509
          47,425

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

16

 

 

U.S. Growth Fund

 

 

Statement of Assets and Liabilities 

As of August 31, 2020

 

($000s, except shares and per-share amounts) Amount
Assets  
Investments in Securities, at Value  
Unaffiliated Issuers (Cost $17,867,562) 39,309,558
Affiliated Issuers (Cost $1,024,054) 1,024,247
Total Investments in Securities 40,333,805
Investment in Vanguard 1,530
Cash Collateral Pledged—Futures Contracts 61
Receivables for Investment Securities Sold 91,890
Receivables for Accrued Income 17,815
Receivables for Capital Shares Issued 60,467
Variation Margin Receivable—Futures Contracts 74
Total Assets 40,505,642
Liabilities  
Due to Custodian 123
Payables for Investment Securities Purchased 29,537
Collateral for Securities on Loan 101,840
Payables to Investment Advisor 13,276
Payables for Capital Shares Redeemed 85,882
Payables to Vanguard 3,015
Variation Margin Payable—Futures Contracts 1,797
Total Liabilities 235,470
Net Assets 40,270,172
   
   
At August 31, 2020, net assets consisted of:  
   
Paid-in Capital 17,577,126
Total Distributable Earnings (Loss) 22,693,046
Net Assets 40,270,172
   
Investor Shares—Net Assets  
Applicable to 199,244,583 outstanding $.001 par value shares of beneficial interest (unlimited authorization)  12,409,800
Net Asset Value Per Share—Investor Shares $62.28
   
Admiral Shares—Net Assets  
Applicable to 172,594,437 outstanding $.001 par value shares of  
beneficial interest (unlimited authorization) 27,860,372
Net Asset Value Per Share—Admiral Shares $161.42

 

 

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

 

17

 

 

U.S. Growth Fund

 

 

Statement of Operations

 

 

  Year Ended
  August 31, 2020
  ($000)
Investment Income  
Income  
Dividends—Unaffiliated Issuers1 165,954
Dividends—Affiliated Issuers 371
Interest—Unaffiliated Issuers 967
Interest—Affiliated Issuers 8,734
Securities Lending—Net 4,954
Total Income 180,980
Expenses  
Investment Advisory Fees—Note B  
Basic Fee 39,631
Performance Adjustment 6,030
The Vanguard Group—Note C  
Management and Administrative—Investor Shares 20,412
Management and Administrative—Admiral Shares 22,967
Marketing and Distribution—Investor Shares 723
Marketing and Distribution—Admiral Shares 855
Custodian Fees 211
Auditing Fees 36
Shareholders’ Reports—Investor Shares 200
Shareholders’ Reports—Admiral Shares 116
Trustees’ Fees and Expenses 46
Total Expenses 91,227
Expenses Paid Indirectly (494)
Net Expenses 90,733
Net Investment Income 90,247
Realized Net Gain (Loss)  
Investment Securities Sold—Unaffiliated Issuers 1,342,892
Investment Securities Sold—Affiliated Issuers 15,064
Futures Contracts 69,852
Foreign Currencies (423)
Realized Net Gain (Loss) 1,427,385
Change in Unrealized Appreciation (Depreciation)  
Investment Securities Sold—Unaffiliated Issuers 12,975,849
Investment Securities Sold—Affiliated Issuers (5,467)
Futures Contracts 45,349
Foreign Currencies 82
Change in Unrealized Appreciation (Depreciation) 13,015,813
Net Increase (Decrease) in Net Assets Resulting from Operations 14,533,445

 

1Dividends are net of foreign withholding taxes of $444,000.

 

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

 

18

 

 

U.S. Growth Fund

 

 

Statement of Changes in Net Assets

 

 

  Year Ended August 31,
  2020 2019
  ($000) ($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 90,247 84,993
Realized Net Gain (Loss) 1,427,385 1,097,123
Change in Unrealized Appreciation (Depreciation) 13,015,813 (357,242)
Net Increase (Decrease) in Net Assets Resulting from Operations 14,533,445 824,874
Distributions1    
Investor Shares (357,080) (342,379)
Admiral Shares (704,493) (477,858)
Total Distributions (1,061,573) (820,237)
Capital Share Transactions    
Investor Shares (747,873) 4,292,730
Admiral Shares 1,666,649 10,751,352
Net Increase (Decrease) from Capital Share Transactions 918,776 15,044,082
Total Increase (Decrease) 14,390,648 15,048,719
Net Assets    
Beginning of Period 25,879,524 10,830,805
End of Period 40,270,172 25,879,524

 

1 Certain prior period numbers have been reclassified to conform with current period presentation.

 

 

 

 

 

 

 

 

 

 

 

 

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

 

19

 

 

U.S. Growth Fund

 

 

Financial Highlights

 

 

Investor Shares

 

For a Share Outstanding           Year Ended August 31,  
Throughout Each Period   2020   2019   2018   2017   2016  
Net Asset Value, Beginning of Period   $41.02   $43.31   $35.62   $30.32   $30.89  
Investment Operations                      
Net Investment Income   .113 1 .176 1 .134 1 .151 1 .151  
Net Realized and Unrealized Gain (Loss) on Investments   22.856   .771   9.394   5.590   1.944  
Total from Investment Operations   22.969   .947   9.528   5.741   2.095  
Distributions                      
Dividends from Net Investment Income   (.119 ) (.132 ) (.146 ) (.121 ) (.147 )
Distributions from Realized Capital Gains   (1.590 ) (3.105 ) (1.692 ) (.320 ) (2.518 )
Total Distributions   (1.709 ) (3.237 ) (1.838 ) (.441 ) (2.665 )
Net Asset Value, End of Period   $62.28   $41.02   $43.31   $35.62   $30.32  
                       
Total Return2   58.01%   3.70%   27.64%   19.24%   6.89%  
                       
Ratios/Supplemental Data                      
Net Assets, End of Period (Millions)   $12,410   $8,819   $4,582   $4,113   $3,794  
Ratio of Total Expenses to Average Net Assets3   0.38%   0.39%   0.42%   0.43%   0.46%  
Ratio of Net Investment Income to Average Net Assets   0.25%   0.44%   0.35%   0.47%   0.50%  
Portfolio Turnover Rate   38%   41%   33%   27%   32%  

 

1Calculated based on average shares outstanding.

2Total 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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

20

 

 

U.S. Growth Fund

 

 

Financial Highlights

 

 

Admiral Shares

 

For a Share Outstanding           Year Ended August 31,  
Throughout Each Period   2020   2019   2018   2017   2016  
Net Asset Value, Beginning of Period   $106.30   $112.28   $92.24   $78.52   $80.01  
Investment Operations                      
Net Investment Income   .410 1 .572 1 .476 1 .502 1 .506  
Net Realized and Unrealized Gain (Loss) on Investments   59.231   1.963   24.323   14.480   5.018  
Total from Investment Operations   59.641   2.535   24.799   14.982   5.524  
Distributions                      
Dividends from Net Investment Income   (.401 ) (.464 ) (.375 ) (.433 ) (.499 )
Distributions from Realized Capital Gains   (4.120 ) (8.051 ) (4.384 ) (.829 ) (6.515 )
Total Distributions   (4.521 ) (8.515 ) (4.759 ) (1.262 ) (7.014 )
Net Asset Value, End of Period   $161.42   $106.30   $112.28   $92.24   $78.52  
                       
Total Return2   58.17%   3.80%   27.78%   19.42%   7.03%  
                       
Ratios/Supplemental Data                      
Net Assets, End of Period (Millions)   $27,860   $17,060   $6,249   $3,791   $3,066  
Ratio of Total Expenses to Average Net Assets3   0.28%   0.28%   0.30%   0.30%   0.32%  
Ratio of Net Investment Income to Average Net Assets   0.35%   0.55%   0.47%   0.60%   0.64%  
Portfolio Turnover Rate   38%   41%   33%   27%   32%  

 

1Calculated based on average shares outstanding.

2Total 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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

21

 

 

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.

 

Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.

 

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

 

22

 

 

U.S. Growth Fund

 

 

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. Any securities pledged as initial margin for open contracts are noted in the Schedule of Investments.

 

Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. 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 gains (losses) on futures contracts.

 

During the year ended August 31, 2020, the fund’s average investments in long and short futures contracts represented 2% 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 prequalified 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. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for 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 at the fiscal year-end 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

 

23

 

 

U.S. Growth Fund

 

 

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 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. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. 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 Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.

 

In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.

 

For the year ended August 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.

 

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 are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. 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.

 

24

 

 

U.S. Growth Fund

 

 

Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the fund’s understanding of the applicable countries’ tax rules and rates. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these countries. Such tax reclaims received during the year, if any, are included in dividend income. No other amounts for additional tax reclaims are reflected in the financial statements due to their uncertainty as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment.

 

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 Jennison Associates LLC, Wellington Management Company LLP, Baillie Gifford Overseas Ltd., and Jackson Square Partners, 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 Jennison Associates LLC, Wellington Management Company LLP, and Jackson Square Partners, 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 the S&P 500 Index for the preceding three years.

 

Vanguard provides investment advisory services to a portion of the fund as described below; the fund paid Vanguard advisory fees of $1,288,000 for the year ended August 31, 2020.

 

For the year ended August 31, 2020, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.14% of the fund’s average net assets, before an increase of $6,030,000 (0.02%) 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 investment advisory, 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 and 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 August 31, 2020, the fund had contributed to Vanguard capital in the amount of $1,530,000, representing less than 0.01% of the fund’s net assets and 0.61% of Vanguard’s capital received pursuant to the FSA. 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 year ended

 

25

 

 

U.S. Growth Fund

 

 

August 31, 2020, these arrangements reduced the fund’s management and administrative expenses by $488,000 and custodian fees by $6,000. The total expense reduction represented an effective annual rate of less than 0.01% of the fund’s average net assets.

 

E. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 and derivatives valued with significant unobservable inputs are noted on the Schedule of Investments.

 

The following table summarizes the market value of the fund’s investments and derivatives as of August 31, 2020, based on the inputs used to value them:

 

  Level 1 Level 2 Level 3 Total
  ($000) ($000) ($000) ($000)
Investments        
Assets        
Common Stocks 38,717,683 479,330 96 39,197,109
Preferred Stocks 13,359 13,359
Temporary Cash Investments 1,024,247 99,090 1,123,337
Total 39,741,930 578,420 13,455 40,333,805
Derivative Financial Instruments        
Assets        
Futures Contracts1 74 74
Liabilities        
Futures Contracts1 1,797 1,797

 

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

 

F. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, permanent differences primarily attributable to the accounting for foreign currency transactions and distributions in connection with fund share redemptions were reclassified between the following accounts:

 

  Amount
  ($000)
Paid-in Capital 91,901
Total Distributable Earnings (Loss) (91,901)

 

26

 

 

U.S. Growth Fund

 

 

Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the deferral of losses from wash sales; and the recognition of unrealized gains or losses from certain derivative contracts. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:

 

  Amount
  ($000)
Undistributed Ordinary Income 60,368
Undistributed Long-Term Gains 1,192,031
Capital Loss Carryforwards
Qualified Late-Year Losses
Net Unrealized Gains (Losses) 21,440,647

 

The tax character of distributions paid was as follows:

 

    Year Ended August 31,
    2020 2019
    Amount Amount
  ($000) ($000)
Ordinary Income* 146,931 127,237
Long-Term Capital Gains 914,642 693,000
Total 1,061,573 820,237

 

* Includes short-term capital gains, if any.

 

As of August 31, 2020, 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 18,893,166
Gross Unrealized Appreciation 21,634,880
Gross Unrealized Depreciation (194,241)
Net Unrealized Appreciation (Depreciation) 21,440,639

 

G. During the year ended August 31, 2020, the fund purchased $10,580,444,000 of investment securities and sold $10,610,228,000 of investment securities, other than temporary cash investments.

 

27

 

 

U.S. Growth Fund

 

 

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

 

          Year Ended August 31,
    2020       2019
  Amount Shares     Amount Shares
  ($000) (000) ($000) (000)
Investor Shares            
Issued 2,060,722 44,973   975,070 24,941
Issued in Connection with Acquisition of Vanguard Morgan Growth Fund 4,276,013 107,224
Issued in Lieu of Cash Distributions 347,590 8,288   333,194 9,768
Redeemed (3,156,185) (69,011 ) (1,291,547) (32,733)
Net Increase (Decrease)—Investor Shares (747,873) (15,750 ) 4,292,730 109,200
Admiral Shares            
Issued 5,160,714 42,335   2,236,862 21,975
Issued in Connection with Acquisition of Vanguard Morgan Growth Fund 10,459,067 101,244
Issued in Lieu of Cash Distributions 662,481 6,099   449,504 5,088
Redeemed (4,156,546) (36,332 ) (2,394,081) (23,467)
Net Increase (Decrease)—Admiral Shares 1,666,649 12,102   10,751,352 104,840

 

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       Aug. 31,
  2019   from Net Change in   Capital Gain 2020
  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 95,486 105,127 15,249 (5,608) 371
Vanguard Market Liquidity Fund 989,536 NA1 NA1 (185) 141 8,734 1,024,247
Total 1,085,022     15,064 (5,467) 9,105 1,024,247

 

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

 

J. Management has determined that no events or transactions occurred subsequent to August 31, 2020, that would require recognition or disclosure in these financial statements.

 

28

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees of Vanguard World Fund and Shareholders of Vanguard U.S. Growth Fund

 

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vanguard U.S. Growth Fund (one of the funds constituting Vanguard World Fund, referred to hereafter as the “Fund”) as of August 31, 2020, the related statement of operations for the year ended August 31, 2020, the statement of changes in net assets for each of the two years in the period ended August 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended August 31, 2020 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of August 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended August 31, 2020 and the financial highlights for each of the five years in the period ended August 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of August 31, 2020 by correspondence with the custodians and brokers and by agreement to the underlying ownership records of the transfer agent; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

  

/s/PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

October 19, 2020

 

We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.

 

29

 

 

  

Special 2020 tax information (unaudited) for Vanguard U.S. Growth Fund

 

This information for the fiscal year ended August 31, 2020, is included pursuant to provisions of the Internal Revenue Code.

 

The fund distributed $1,000,436,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.

 

For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the fund are qualified short-term capital gains.

 

The fund distributed $131,069,000 of qualified dividend income to shareholders during the fiscal year.

 

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

 

 

30

 

 

Liquidity Risk Management

  

Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.

 

Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.

 

The board of trustees of Vanguard World Fund approved the appointment of liquidity risk management program administrators responsible for administering Vanguard U.S. Growth Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.

  

31

 

 

This page intentionally left blank.

 

 

 

  

This page intentionally left blank.

 

 

 

 

This page intentionally left blank.

 

 

 

 

The People Who Govern Your Fund

  

The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them.

 

A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 212 Vanguard funds.

 

Information for each trustee and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.

  

Interested Trustee1

 

Mortimer J. Buckley

Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chairman of the board (2019–present) of Vanguard and of each of the investment companies served by Vanguard; chief executive officer (2018– present) of Vanguard; chief executive officer, president, and trustee (2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) and trustee (2009–2017) of the Children’s Hospital of Philadelphia; and trustee (2018–present) and vice chair (2019–present) of The Shipley School.

 

Independent Trustees

 

Emerson U. Fullwood

Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Director of SPX FLOW, Inc. (multi-industry manufac-turing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.

 

Amy Gutmann

Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania.

 

F. Joseph Loughrey

Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services) and the Lumina Foundation. Director of the V Foundation. Member of the advisory

 

1 Mr. Buckley is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.

 

 

 

 

council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame.

 

Mark Loughridge

Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.

 

Scott C. Malpass

Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (retired June 2020) and vice president (retired June 2020) of the University of Notre Dame. Assistant professor of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee (retired June 2020). Member of the board of Catholic Investment Services, Inc. (investment advisors) and the board of superintendence of the Institute for the Works of Religion.

 

Deanna Mulligan

Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chief executive officer (2011–present) of The Guardian Life Insurance Company of America. President (2010–2019), chief operating officer (2010–2011), and executive vice president (2008–2010) of Individual Life and Disability of The Guardian Life Insurance Company of America. Member of the board of The Guardian Life Insurance Company of America, the American Council of Life Insurers, and the Economic Club of New York. Trustee of the Partnership for New York City (business leadership), Chief Executives for Corporate Purpose, NewYork-Presbyterian Hospital, Catalyst, and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.

 

André F. Perold

Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies (private investment firm). Member of the board of advisors and member of the investment committee of the Museum of Fine Arts Boston. Member of the board (2018–present) of RIT Capital Partners (investment firm). Member of the investment committee of Partners Health Care System.

 

Sarah Bloom Raskin

Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Member of the board of directors (2012–2014) of Neighborhood Reinvestment Corporation. Director (2017–present) of i(x) Investments, LLC; director (2017–present) of Reserve Trust. Rubenstein Fellow (2017–present) of Duke University; trustee (2017–present) of Amherst College, and trustee (2019–present) of the Folger Shakespeare Library.

 

Peter F. Volanakis

Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the board of Hypertherm Inc. (industrial cutting systems, software, and consumables).

 

 

 

 

Executive Officers

 

John Bendl

Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2019–present) of each of the investment companies served by Vanguard. Chief accounting officer, treasurer, and controller of Vanguard (2017–present). Partner (2003–2016) at KPMG (audit, tax, and advisory services).

 

Glenn Booraem

Born in 1967. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (2017–present), treasurer (2015–2017), controller (2010–2015), and assistant controller (2001–2010) of each of the investment companies served by Vanguard.

 

Christine M. Buchanan

Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG (audit, tax, and advisory services).

 

David Cermak

Born in 1960. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present) of each of the investment companies served by Vanguard. Managing director and head (2017–present) of Vanguard Investments Singapore. Managing director and head (2017–2019) of Vanguard Investments Hong Kong. Representative director and head (2014–2017) of Vanguard Investments Japan.

 

Thomas J. Higgins

Born in 1957. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present), chief financial officer (2008–2019), and treasurer (1998–2008) of each of the investment companies served by Vanguard.

 

Peter Mahoney

Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.

 

Anne E. Robinson

Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.

 

Michael Rollings

Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.

 

John E. Schadl

Born in 1972. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2019–present) of Vanguard and of each of the investment companies served by Vanguard. Assistant vice president (2019–present) of Vanguard Marketing Corporation.

 

Vanguard Senior Management Team

 

Joseph Brennan Chris D. McIsaac
Mortimer J. Buckley James M. Norris
Gregory Davis Thomas M. Rampulla
John James Karin A. Risi
Martha G. King Anne E. Robinson
John T. Marcante Michael Rollings

  

 

 

 

   

 

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 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, www.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 www.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 2020, Bloomberg. All rights reserved.

 

CFA® is a registered trademark owned by CFA Institute.

 

  © 2020 The Vanguard Group, Inc.
  All rights reserved.
  Vanguard Marketing Corporation, Distributor.
   
  Q230 102020

 

 

 

 

 

 

 

 

Annual Report | August 31, 2020

 

 

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
 
 
Your Fund’s Performance at a Glance 1
 
Advisors’ Report 2
 
About Your Fund’s Expenses 6
 
Performance Summary 8
 
Financial Statements 10
 
Liquidity Risk Management 29

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

 

 

Your Fund’s Performance at a Glance

 

•    For the 12 months ended August 31, 2020, Vanguard International Growth Fund returned 53.60% for Investor Shares and 53.81% for Admiral Shares. The fund significantly outperformed its benchmark.

 

•    A number of stock market indexes across the globe hit record highs in February then fell sharply as the coronavirus spread beyond China, leading many countries to close nonessential businesses, impose lockdowns, and restrict travel. Markets rose later in the fiscal year as policymakers implemented strong responses to the economic crisis, treatments for the virus improved, vaccine trials began, and countries started to ease some pandemic-related restrictions.

 

•    The fund outperformed its benchmark in every major global economic region in which it was invested. Stock selection was particularly strong in Europe, North America, and emerging markets.

 

•    The fund also outpaced its benchmark in most industry sectors. Stock selection in the consumer discretionary sector, particularly in internet and direct marketing retail companies, provided the biggest boost as consumers increasingly turned to online shopping and electronic payment systems. The fund also benefited from strong selection in communication services, health care, and information technology.

 

 

 

Market Barometer 

    Average Annual Total Returns   
    Periods Ended August 31, 2020  
    One Year   Three Years   Five Years  
Stocks              
Russell 1000 Index (Large-caps)   22.50%   14.58%   14.31%  
Russell 2000 Index (Small-caps)   6.02   5.03   7.65  
Russell 3000 Index (Broad U.S. market)   21.44   13.95   13.86  
FTSE All-World ex US Index (International)   8.78   2.92   6.00  
               
Bonds              
Bloomberg Barclays U.S. Aggregate Bond Index              
(Broad taxable market)   6.47%   5.09%   4.33%  
Bloomberg Barclays Municipal Bond Index              
(Broad tax-exempt market)   3.24   4.09   3.99  
FTSE Three-Month U.S. Treasury Bill Index   1.18   1.67   1.15  
               
CPI              
Consumer Price Index   1.31%   1.92%   1.75%  

 

 

 

1

 

 

Advisors’ Report

 

For the 12 months ended August 31, 2020, Vanguard International Growth Fund returned 53.60% for Investor Shares and 53.81% for Admiral Shares, besting the 8.31% return of its benchmark index. Your fund is managed by two independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for advisors to have different views about individual securities or the broader investment environment.

 

The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the fiscal year and of how the portfolio’s positioning reflects this assessment. These comments were prepared on September 18, 2020.

 

Baillie Gifford Overseas Ltd.

 

Portfolio Managers:

 

James K. Anderson, Head of Global Equities

 

Thomas Coutts, Head of International Growth

 

Conviction and long-termism: Two of the key tenets that are essential to good returns. They should also ensure that

 

 

 

 

Vanguard International Growth Fund Investment Advisors

 

    Fund Assets Managed    
Investment Advisor   % $ Million   Investment Strategy
Baillie Gifford Overseas Ltd. 66 37,667 The advisor seeks stocks that can generate
          above-average growth in earnings and cash
          flow, producing a bottom-up, stock-driven
          approach to country and asset allocation. An
          in-depth view on each company is measured
          against the consensus view, leading to
          discrepancies and potential opportunities to add
          value.
Schroder Investment
Management North America Inc.
32 18,009 Equity analysts located around the world and an
        international team of global sector specialists
          help to identify reasonably priced companies
          with strong growth prospects and a sustainable
          competitive advantage.
Cash Investments 2 888 These short-term reserves are invested by
          Vanguard in equity index products to simulate
          investment in stocks. Each advisor may also
          maintain a modest cash position.

 

 

2

 

 

capital is allocated to companies that have the vision to tackle some of the biggest problems in our world and support those companies on the inevitable bumpy market ride to success.

 

The events that have unfolded since our last letter a year ago could never have been imagined or modeled. Although COVID-19 has brought great sadness and economic loss, it has accelerated change in the corporate world. It has also brought into sharp relief the sectors that have been resistant to change. Our long-term approach and desire to own outliers has already helped the portfolio invest in some developing future trends. Despite strong share price performance from many companies within the fund, the long-term prospects continue to look exciting.

 

The portfolio has continually evolved, and you should expect that to continue. The holdings today are almost unrecognizable from ten years ago, and we have been investing increasingly in disruptive growth companies. We are now seeing an acceleration in many of these disruptive trends, ranging from online food delivery to music streaming and e-commerce.

 

Strong contributors to recent performance included Chinese super app Meituan-Dianping, which has the lion’s share of the food delivery market, among other segments, in China. In a country with densely populated cities and efficient delivery mechanisms, the company has grown considerably since we first held it as an unlisted security in 2015. To convey some sense of the scale of the opportunity, U.S. company Grubhub delivers 650,000 meals per day, while Meituan averages nearly 25 million.

 

Another standout performer was new purchase Wix, the Israeli website building platform, which offers a customizable experience to small and medium-size enterprises looking for professional, easy-to-build websites. The pandemic is accelerating digitization of business, and for Wix, the virus lockdown served to increase demand from freelance workers who have been keen to create an online presence. Recent events may well have permanently removed any objections customers had to doing business online.

 

Japanese medical platform M3 was also a strong contributor. Nearly half of all doctors globally are using M3’s platform, which is seeing significant growth in both domestic and overseas markets.

 

There weren’t many detractors, but the pandemic weighed heavily on aerospace engine producer Rolls-Royce as the outlook for global travel remains bleak.

 

As the pace of change creates new opportunities for business models, so it enriches our opportunity set. Areas of the economy previously resistant to change, including health care, education, and fintech, are now opening up and being adopted more rapidly. Among several new purchases and sales, we have pivoted away from core banking holdings BBVA and Svenska Handelsbanken and instead

 

 

3

 

 

taken positions in Australian payments business Afterpay and Dutch payment services company Adyen.

 

In the health care sector, we sold Elekta, a Swedish radiotherapy equipment maker, and Celltrion, a South Korean producer of biosimilar drugs, as our conviction in the upside weakened. We added Argenx, a Belgian manufacturer of antibody-based drugs, and also added to our existing private holding in CureVac as it became a listed entity.

 

 

Schroder Investment Management North America Inc.

 

Portfolio Manager:

 

Simon Webber, CFA

 

International equities gained over the fiscal year despite the dramatic sell-off in the early months of 2020 as the economic impact of the COVID-19 pandemic became apparent. The strength of the subsequent recovery was supported by unprecedented levels of peacetime monetary and fiscal stimulus measures by central banks and governments throughout the world.

 

Companies exposed to travel, retailing, banking, and energy were particularly hard hit by the effects of lockdowns, while businesses that are able to provide digital and online services flourished. The pandemic has accelerated many of the underlying structural changes that were already underway, increasing the rewards to companies that are well-invested in their digital operations.

 

Stock selection supported strong relative performance throughout the year, with the largest contributions from the information technology, industrial, and health care sectors. It is clear that electrification and the shift to renewable energy continues to accelerate, and our exposure to environmental technologies through Vestas Wind Systems and Schneider Electric was very supportive as investors wake up to this megatrend.

 

Our exposure to disruptive e-commerce platform stocks, such as Alibaba and Meituan Dianping in China and Mercado Libre in Latin America, also helped. The lockdown forced new consumers to use these platforms, and many of them are unlikely go back to historical offline consumption patterns.

 

Mercado Libre is Latin America’s leading e-commerce platform and remains well-positioned to benefit from increased penetration. We also believe that the company’s payment platform is emerging as a powerful business both on and off its shopping platform and is an unappreciated driver of future earnings.

 

U.K. hotel operator Whitbread performed poorly, as it was forced to close hotels for several months. Although the severity of the downturn is unprecedented for hotel

 

 

4

 

 

operators, we are confident that Whitbread, having strengthened the balance sheet, will now be in an improved competitive position.

 

The market dislocation in the spring gave us the opportunity to build new positions in a number of consumer companies, including Danish jewelery company Pandora, Swiss chocolate company Lindt, and U.K. retailer Next. Next has a well-established online presence, and this strong investment in its digital operations is helping it weather the crisis significantly better than many of its peers. We expect a large retrenchment in capacity from competitor retailers that will allow Next to gain market share.

 

Looking forward, the lifting of pandemic restrictions and the large fiscal and monetary support programs globally mean we are now in an economic recovery phase. Many people still look to the past for how quickly industries will recover. However, we believe that there have been permanent changes in the way people will work, consume, and socialize. This will mean that some industries and companies will build back faster, while others will never recover.

 

One example of this is the positive experience with working flexibly that many companies and employees have had. We expect this to have a major impact on where people choose to live and how much they invest in their homes as a place of work as well as shelter.

 

Many governments have also discovered a clear alignment between the need for investment programs to stimulate growth and their ambition to accelerate the transition away from fossil fuels. The European Union, in particular, has focused its recovery plan on expanding the use of renewable energy, upgrading building stock, and accelerating the transition to electric vehicles. We have attempted to position the portfolio well for all of these trends, and we are optimistic that this period of change and innovation will remain a robust environment for fundamental active management.

 

 

5

 

 

 

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.

  

6

 

 

Six Months Ended August 31, 2020

 

  Beginning Ending Expenses
  Account Value Account Value Paid During
International Growth Fund 2/29/2020 8/31/2020 Period
Based on Actual Fund Return      
Investor Shares $1,000.00 $1,401.89 $2.66
Admiral™ Shares 1,000.00 1,403.00 1.99
Based on Hypothetical 5% Yearly Return      
Investor Shares $1,000.00 $1,022.92 $2.24
Admiral Shares 1,000.00 1,023.48 1.68

 

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 0.44% for Investor Shares and 0.33% 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 (184/366).

   

7

 

 

International Growth Fund

 

Performance Summary

 

 

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

 

Cumulative Performance: August 31, 2010, Through August 31, 2020

Initial Investment of $10,000

 

 

 

 

    Average Annual Total Returns  
    Periods Ended August 31, 2020  
          Final Value
    One Five Ten of a $10,000
    Year Years Years Investment
International Growth Fund Investor Shares 53.60% 17.88% 12.32% $31,948
MSCI All Country World Index ex USA 8.31 5.75 5.26 16,691