Semiannual Report | February 28, 2022
Vanguard U.S.
Growth Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 19 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended February 28, 2022 | |||
| Beginning Account Value 8/31/2021 | Ending Account Value 2/28/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| U.S. Growth Fund | |||
| Investor Shares | $1,000.00 | $801.70 | $1.61 |
| Admiral™ Shares | 1,000.00 | 802.00 | 1.16 |
| Based on Hypothetical 5% Yearly Return | |||
| U.S. Growth Fund | |||
| Investor Shares | $1,000.00 | $1,023.01 | $1.81 |
| Admiral Shares | 1,000.00 | 1,023.51 | 1.30 |
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 0.36% for Investor Shares and 0.26% for Admiral Shares. The dollar amounts shown
as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by
the number of days in the most recent 12-month period (181/365).
2
U.S. Growth Fund
Fund Allocation
As of February 28, 2022
| Communication Services | 12.1% |
| Consumer Discretionary | 20.9 |
| Consumer Staples | 2.4 |
| Energy | 0.1 |
| Financials | 3.6 |
| Health Care | 10.1 |
| Industrials | 3.9 |
| Information Technology | 46.1 |
| Materials | 0.2 |
| Real Estate | 0.6 |
| Utilities | 0.0 |
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 reporting period.
Global Industry
Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc.
(“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or
representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party
involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the
possibility of such damages.
3
U.S. Growth Fund
Financial Statements (unaudited)
Schedule of Investments
As of February 28, 2022
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.
4
U.S. Growth Fund
5
U.S. Growth Fund
6
U.S. Growth Fund
| Shares | Market Value• ($000) | ||
| Temporary Cash Investments (2.9%) | |||
| Money Market Fund (2.1%) | |||
| 3,4 | Vanguard Market Liquidity Fund, 0.138% | 9,083,154 | 908,224 |
| Face Amount ($000) | |||
| Repurchase Agreement (0.8%) | |||
| Bank of America Securities LLC 0.050%, 3/1/22 (Dated 2/28/22, Repurchase Value $320,500,000, collateralized by Ginnie Mae 2.500%, 11/20/51, with a value of $326,910,000) | 320,500 | 320,500 | |
| Total Temporary Cash Investments (Cost $1,228,595) | 1,228,724 | ||
| Total Investments (100.3%) (Cost $28,239,836) | 43,094,435 | ||
| Other Assets and Liabilities—Net (-0.3%) | (134,352) | ||
| Net Assets (100%) | 42,960,083 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $338,709,000. |
| 2 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2022, the aggregate value was $325,157,000, representing 0.8% of net assets. |
| 3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 4 | Collateral of $334,712,000 was received for securities on loan. |
| ADR—American Depositary Receipt. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| E-mini S&P 500 Index | March 2022 | 1,764 | 385,258 | (11,350) |
| E-mini S&P Mid-Cap 400 Index | March 2022 | 262 | 69,640 | (2,981) |
| (14,331) | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
7
U.S. Growth Fund
Statement of Assets and Liabilities
As of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $27,331,741) | 42,186,211 |
| Affiliated Issuers (Cost $908,095) | 908,224 |
| Total Investments in Securities | 43,094,435 |
| Investment in Vanguard | 1,520 |
| Cash Collateral Pledged—Futures Contracts | 22,317 |
| Receivables for Investment Securities Sold | 221,646 |
| Receivables for Accrued Income | 13,804 |
| Receivables for Capital Shares Issued | 22,534 |
| Total Assets | 43,376,256 |
| Liabilities | |
| Due to Custodian | 8,817 |
| Payables for Investment Securities Purchased | 31,072 |
| Collateral for Securities on Loan | 334,712 |
| Payables to Investment Advisor | 12,057 |
| Payables for Capital Shares Redeemed | 26,124 |
| Payables to Vanguard | 2,299 |
| Variation Margin Payable—Futures Contracts | 1,092 |
| Total Liabilities | 416,173 |
| Net Assets | 42,960,083 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 27,953,801 |
| Total Distributable Earnings (Loss) | 15,006,282 |
| Net Assets | 42,960,083 |
| Investor Shares—Net Assets | |
| Applicable to 176,636,691 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,543,519 |
| Net Asset Value Per Share—Investor Shares | $54.03 |
| Admiral Shares—Net Assets | |
| Applicable to 238,724,196 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 33,416,564 |
| Net Asset Value Per Share—Admiral Shares | $139.98 |
See accompanying
Notes, which are an integral part of the Financial Statements.
8
U.S. Growth Fund
Statement of Operations
| Six Months Ended February 28, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1 | 76,194 |
| Interest2 | 427 |
| Securities Lending—Net | 16,854 |
| Total Income | 93,475 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 32,958 |
| Performance Adjustment | 22 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 12,091 |
| Management and Administrative—Admiral Shares | 23,604 |
| Marketing and Distribution—Investor Shares | 588 |
| Marketing and Distribution—Admiral Shares | 1,111 |
| Custodian Fees | 87 |
| Shareholders’ Reports—Investor Shares | 101 |
| Shareholders’ Reports—Admiral Shares | 94 |
| Trustees’ Fees and Expenses | 13 |
| Other Expenses | 8 |
| Total Expenses | 70,677 |
| Net Investment Income | 22,798 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold2 | 586,837 |
| Futures Contracts | 34,486 |
| Foreign Currencies | (58) |
| Realized Net Gain (Loss) | 621,265 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities2 | (11,372,816) |
| Futures Contracts | (35,965) |
| Foreign Currencies | (21) |
| Change in Unrealized Appreciation (Depreciation) | (11,408,802) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (10,764,739) |
| 1 | Dividends are net of foreign withholding taxes of $599,000. |
| 2 | Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $410,000, $2,000, $27,000, and ($43,000), respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
9
U.S. Growth Fund
Statement of Changes in Net Assets
| Six Months Ended February 28, 2022 | Year Ended August 31, 2021 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 22,798 | 24,995 | |
| Realized Net Gain (Loss) | 621,265 | 6,798,229 | |
| Change in Unrealized Appreciation (Depreciation) | (11,408,802) | 4,759,426 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (10,764,739) | 11,582,650 | |
| Distributions | |||
| Investor Shares | (1,376,778) | (441,153) | |
| Admiral Shares | (4,883,415) | (1,285,189) | |
| Total Distributions | (6,260,193) | (1,726,342) | |
| Capital Share Transactions | |||
| Investor Shares | (96,119) | (1,442,718) | |
| Admiral Shares | 5,136,598 | 6,260,774 | |
| Net Increase (Decrease) from Capital Share Transactions | 5,040,479 | 4,818,056 | |
| Total Increase (Decrease) | (11,984,453) | 14,674,364 | |
| Net Assets | |||
| Beginning of Period | 54,944,536 | 40,270,172 | |
| End of Period | 42,960,083 | 54,944,536 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
10
U.S. Growth Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended February 28, 2022 | Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $76.41 | $62.28 | $41.02 | $43.31 | $35.62 | $30.32 |
| Investment Operations | ||||||
| Net Investment Income (Loss)1 | .003 | (.013) | .113 | .176 | .134 | .151 |
| Net Realized and Unrealized Gain (Loss) on Investments | (13.674) | 16.700 | 22.856 | .771 | 9.394 | 5.590 |
| Total from Investment Operations | (13.671) | 16.687 | 22.969 | .947 | 9.528 | 5.741 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.001) | (.019) | (.119) | (.132) | (.146) | (.121) |
| Distributions from Realized Capital Gains | (8.708) | (2.538) | (1.590) | (3.105) | (1.692) | (.320) |
| Total Distributions | (8.709) | (2.557) | (1.709) | (3.237) | (1.838) | (.441) |
| Net Asset Value, End of Period | $54.03 | $76.41 | $62.28 | $41.02 | $43.31 | $35.62 |
| Total Return2 | -19.83% | 27.52% | 58.01% | 3.70% | 27.64% | 19.24% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $9,544 | $13,405 | $12,410 | $8,819 | $4,582 | $4,113 |
| Ratio of Total Expenses to Average Net Assets3 | 0.36% | 0.38% | 0.38% | 0.39% | 0.42% | 0.43% |
| Ratio of Net Investment Income (Loss) to Average Net Assets | 0.01% | (0.02%) | 0.25% | 0.44% | 0.35% | 0.47% |
| Portfolio Turnover Rate | 11% | 41% | 38% | 41% | 33% | 27% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.03%, 0.02%, 0.01%, 0.01% and (0.01%). |
See accompanying
Notes, which are an integral part of the Financial Statements.
11
U.S. Growth Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended February 28, 2022 | Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $198.03 | $161.42 | $106.30 | $112.28 | $92.24 | $78.52 |
| Investment Operations | ||||||
| Net Investment Income1 | .099 | .138 | .410 | .572 | .476 | .502 |
| Net Realized and Unrealized Gain (Loss) on Investments | (35.438) | 43.277 | 59.231 | 1.963 | 24.323 | 14.480 |
| Total from Investment Operations | (35.339) | 43.415 | 59.641 | 2.535 | 24.799 | 14.982 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.135) | (.224) | (.401) | (.464) | (.375) | (.433) |
| Distributions from Realized Capital Gains | (22.576) | (6.581) | (4.120) | (8.051) | (4.384) | (.829) |
| Total Distributions | (22.711) | (6.805) | (4.521) | (8.515) | (4.759) | (1.262) |
| Net Asset Value, End of Period | $139.98 | $198.03 | $161.42 | $106.30 | $112.28 | $92.24 |
| Total Return2 | -19.80% | 27.64% | 58.17% | 3.80% | 27.78% | 19.42% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $33,417 | $41,539 | $27,860 | $17,060 | $6,249 | $3,791 |
| Ratio of Total Expenses to Average Net Assets3 | 0.26% | 0.28% | 0.28% | 0.28% | 0.30% | 0.30% |
| Ratio of Net Investment Income to Average Net Assets | 0.11% | 0.08% | 0.35% | 0.55% | 0.47% | 0.60% |
| Portfolio Turnover Rate | 11% | 41% | 38% | 41% | 33% | 27% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.03%, 0.02%, 0.01%, 0.01% and (0.01%). |
See accompanying
Notes, which are an integral part of the Financial Statements.
12
U.S. Growth Fund
Notes to Financial Statements
Vanguard U.S. Growth Fund is
registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different types of investors.
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 exchange, monitors the financial strength of its clearing brokers and
13
U.S. Growth Fund
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 six months ended
February 28, 2022, the fund’s average investments in long and short futures contracts represented 1% 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 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 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
14
U.S. Growth Fund
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 alternate 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 six months ended
February 28, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
9. Other: Dividend
income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. 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.
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. Deferred foreign capital gains tax, if
15
U.S. Growth Fund
any, is accrued daily based upon net
unrealized gains. 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 the
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 Wellington Management Company llp, Jennison Associates LLC, and Baillie Gifford Overseas Ltd., each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fees of Wellington Management Company llp and Jennison Associates LLC are subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding three years. The basic fee of Baillie Gifford Overseas Ltd. is subject to quarterly adjustments based on performance relative to 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 $950,000 for the six months ended February 28, 2022.
For the six months ended
February 28, 2022, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.13% of the fund’s average net assets, before a net increase of $22,000 (less than
0.01%) 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, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees 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 February 28, 2022, the fund had contributed to Vanguard capital in the amount of $1,520,000, 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. | 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.
16
U.S. Growth Fund
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 February 28, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 41,178,485 | 687,226 | — | 41,865,711 |
| Temporary Cash Investments | 908,224 | 320,500 | — | 1,228,724 |
| Total | 42,086,709 | 1,007,726 | — | 43,094,435 |
| Derivative Financial Instruments | ||||
| Liabilities | ||||
| Futures Contracts1 | 14,331 | — | — | 14,331 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | As of February 28, 2022, 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 | 28,505,570 |
| Gross Unrealized Appreciation | 17,803,376 |
| Gross Unrealized Depreciation | (3,228,842) |
| Net Unrealized Appreciation (Depreciation) | 14,574,534 |
| F. | During the six months ended February 28, 2022, the fund purchased $5,343,151,000 of investment securities and sold $6,753,774,000 of investment securities, other than temporary cash investments. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases were $0 and sales were $442,000, resulting in net realized loss of $30,000; these amounts, other than temporary cash investments, are
included in the purchases and sales of investment securities noted above.
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U.S. Growth Fund
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 | Year Ended August 31, 2021 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 681,136 | 10,195 | 2,627,798 | 40,047 | |
| Issued in Lieu of Cash Distributions | 1,326,962 | 20,374 | 426,494 | 6,567 | |
| Redeemed | (2,104,217) | (29,369) | (4,497,010) | (70,422) | |
| Net Increase (Decrease)—Investor Shares | (96,119) | 1,200 | (1,442,718) | (23,808) | |
| Admiral Shares | |||||
| Issued | 3,988,790 | 22,069 | 11,750,262 | 69,089 | |
| Issued in Lieu of Cash Distributions | 4,578,811 | 27,142 | 1,197,208 | 7,119 | |
| Redeemed | (3,431,003) | (20,253) | (6,686,696) | (39,036) | |
| Net Increase (Decrease)—Admiral Shares | 5,136,598 | 28,958 | 6,260,774 | 37,172 | |
| H. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management has determined that
no other events or transactions occurred subsequent to February 28, 2022, that would require recognition or disclosure in these financial statements.
18
Trustees Approve Advisory Arrangement
The board of trustees of
Vanguard U.S. Growth Fund has renewed the fund’s investment advisory arrangements with Jennison Associates LLC (Jennison), Wellington Management Company llp (Wellington Management), and Baillie Gifford Overseas Ltd. (Baillie Gifford). The board determined that renewing the fund’s advisory arrangements with these advisors
was in the best interests of the fund and its shareholders. The Vanguard Group Inc. (Vanguard), through its Quantitative Equity Group, is also an advisor to the fund.
The board based its decisions
upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about the fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisors.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of the
fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board considered the following:
Jennison. Jennison, founded in 1969, is an indirect, wholly owned subsidiary of Prudential Financial Inc. The Jennison team seeks to invest in exceptional companies with sustainable competitive
advantages that they believe can create long-term growth in economic value and generate superior returns for shareholders. A key to Jennison’s long-term success has been proprietary fundamental research
dedicated to building deep knowledge of industries and companies, and investing in companies with underappreciated structural growth. Jennison has managed a portion of the fund since 2014.
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. The advisor employs a traditional, bottom-up fundamental
research approach to identify companies with sustainable growth
19
advantages and reasonable valuations.
Wellington Management identifies companies that have demonstrated above-average growth in the past, followed by a thorough review of each company’s business model and an assessment of its valuation. The goal of
this review is to identify companies with high returns on capital, superior business management, and high-quality balance sheets. Wellington Management has managed a portion of the fund since 2010.
Baillie Gifford. Baillie Gifford—a unit of Baillie Gifford & Co., founded in 1908—is among the largest independently owned investment management firms in the United Kingdom. Baillie Gifford
aims to deliver outstanding investment performance by identifying exceptional growth companies in the United States and investing in them long enough that the advantages of their business models and strength of their
cultures become the dominant drivers of their stock prices. This long-term horizon allows the advisor to harness the asymmetry inherent in equity markets to capture the disproportionate impact of successful
investments in the portfolio. Baillie Gifford has managed a portion of the fund since 2014.
The board concluded that each
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term
performance, as applicable, of each advisor’s subportfolio, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the
performance was such that each advisory arrangement should continue.
Cost
The board concluded that the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory expense rate was also below the peer-group average.
The board did not consider the
profitability of Jennison, Wellington Management, or Baillie Gifford in determining whether to approve the advisory fees, because the advisors are independent of Vanguard, and the advisory fees are the result of
arm’s-length negotiations.
The benefit of economies of
scale
The board concluded that the fund’s
shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Jennison, Wellington Management, and Baillie Gifford. The breakpoints reduce the effective rate of the fees as the
fund’s assets managed by each advisor increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
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