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Form N-CSR VANGUARD MORGAN GROWTH For: Sep 30

November 28, 2016 2:35 PM EST

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: 811-01685

Name of Registrant: Vanguard Morgan Growth 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: September 30

Date of reporting period: October 1, 2015 – September 30, 2016

Item 1: Reports to Shareholders



Annual Report | September 30, 2016

Vanguard MorganGrowth Fund


 

A new format, unwavering commitment

As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.

Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.

In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.

We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.

At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.

Contents  
Your Fund’s Performance at a Glance. 1
Chairman’s Perspective. 3
Advisors’ Report. 6
Fund Profile. 11
Performance Summary. 12
Financial Statements. 14
Your Fund’s After-Tax Returns. 31
About Your Fund’s Expenses. 32
Glossary. 34

 

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

See the Glossary for definitions of investment terms used in this report.

About the cover: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown translated into seven languages, reflecting our expanding global presence.


 

Your Fund’s Performance at a Glance

• Vanguard Morgan Growth Fund returned more than 10% for the 12 months ended September 30, 2016. It trailed its benchmark index’s return of more than 13% but exceeded the nearly 9% average return of its peer group.

• In general, value stocks outpaced their growth counterparts.

• Although the fund’s industry sectors posted positive results, the advisors’ stock selection weighed on performance relative to the benchmark.

• Health care was the biggest relative detractor. The advisors’ pharmaceuticals holdings struggled most as they confronted regulatory and drug market challenges. Information technology and consumer discretionary, the fund’s two largest sectors, also underperformed.

• Energy, a relatively small holding, was the only sector to best the benchmark.

• Over the past ten years, the fund’s average annual return trailed that of its benchmark but outdistanced that of its peers.

Total Returns: Fiscal Year Ended September 30, 2016  
  Total
  Returns
Vanguard Morgan Growth Fund  
Investor Shares 10.48%
Admiral™ Shares 10.60
Russell 3000 Growth Index 13.64
Multi-Cap Growth Funds Average 8.91
Multi-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.  
Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements.  
 
 
Total Returns: Ten Years Ended September 30, 2016  
  Average
  Annual Return
Morgan Growth Fund Investor Shares 7.64%
Russell 3000 Growth Index 8.80
Multi-Cap Growth Funds Average 6.81
Multi-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.  

 

The figures shown represent past performance, which is not a guarantee of future results. (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.

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Expense Ratios      
Your Fund Compared With Its Peer Group      
  Investor Admiral Peer Group
  Shares Shares Average
Morgan Growth Fund 0.40% 0.27% 1.25%

 

The fund expense ratios shown are from the prospectus dated January 26, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended September 30, 2016, the fund’s expense ratios were 0.38% for Investor Shares and 0.28% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2015.

Peer group: Multi-Cap Growth Funds.

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Chairman’s Perspective


Bill McNabb
Chairman and Chief Executive Officer

Dear Shareholder,

If you think you’ve had reason to feel uneasy about the investment environment lately, you’re not imagining things. In just the past few months, we’ve seen economic uncertainty, intense political polarization, and super-low bond yields. Yet at the same time, the stock market kept pushing higher.

In this confusing and sometimes contradictory climate, you may be asking yourself a question that I hear often: How do I make sense of all this, keep investing, and still get a good night’s sleep?

As with any problem, there are multiple ways to go at it. But there’s one approach in particular that is simple, straightforward, and nearly foolproof: Save more money. Not only can saving more give you a greater sense of control over your investment plan, it can help compensate for long-term returns that, in our estimation, could fall short of historical averages.

I love the way one of our investment pros put it. Fran Kinniry this summer told The Wall Street Journal, “Investing is always a partnership between you and the markets.” He explained that the markets carried more than their fair share of the weight for a couple of decades, through the 1990s, providing outsized returns that made the investor’s half of the partnership relatively light work. “But now you are going to have to be the majority partner.”

Sobering? Sure. Hopeless? Definitely not.

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Over the 12 months since last September, U.S. stocks returned 15%, though the rise has not been a one-way ticket straight up. International markets have also posted strong returns, but lower than those of the broad U.S. market. The decision by United Kingdom voters in June to exit the European Union came as a surprise but caused market heartburn for only a few days.

In fixed income, yields remained extremely low—about 1.60% on the 10-year U.S. Treasury note at the end of September, after dipping below 1.40% over the summer. And bond yields in some international markets were negative.

Even this relatively small window of time illustrates a truism of the financial markets: There will always be segments that perform well and others that don’t. Saving more saves you from trying to control the uncontrollable—how economies and the markets perform. And it keeps you in control of one of the most vital parts of your investment program.

Although the “save more” logic is easy to grasp, it’s not always easy to follow. Bills, illness, the loss of a job—these can affect any of us.

But whatever our circumstances, figuring out how to save more is worth the effort. It requires that we make difficult decisions to forgo some consumption today to increase the likelihood of consuming (or consuming more) in the future. This is the very heart of investing. Sacrifices are never fun, so consider carrying them out systematically and in doses that you

Market Barometer      
    Average Annual Total Returns
    Periods Ended September 30, 2016
  One Three Five
  Year Years Years
Stocks      
Russell 1000 Index (Large-caps) 14.93% 10.78% 16.41%
Russell 2000 Index (Small-caps) 15.47 6.71 15.82
Russell 3000 Index (Broad U.S. market) 14.96 10.44 16.36
FTSE All-World ex US Index (International) 9.62 0.71 6.50
 
Bonds      
Bloomberg Barclays U.S. Aggregate Bond Index      
(Broad taxable market) 5.19% 4.03% 3.08%
Bloomberg Barclays Municipal Bond Index      
(Broad tax-exempt market) 5.58 5.54 4.48
Citigroup Three-Month U.S. Treasury Bill Index 0.20 0.06 0.06
 
CPI      
Consumer Price Index 1.46% 1.03% 1.25%

 

4


 

can be comfortable with—for instance, gradually getting up to the max in your IRA, or adding a percentage point or so to the amount you stash in your employer’s retirement plan. As a point of reference, we generally suggest that investors strive for a retirement savings rate of 12%–15%, including any employer contributions.

If you need more convincing about the wisdom of the “save more” course of action, it might be helpful to examine your alternatives. This list is by no means exhaustive, but it hits on a few of the big ones, and none are without risk.

• Reach for yield. With yields so low on many types of bonds, it’s tempting to find the corners of the fixed income market where payouts are juicier. But with the juice comes considerable risk. You need to be aware that you’d be taking on more risk—and how much more.

• Go all-in on a hot-performing asset class or fund. By now, you know better than that, right?

• Sit tight. This approach isn’t a terrible idea; it’s better than panicking and deciding to just “do something,” particularly if that means changing your approach in response to the market’s movements.

Here’s the inescapably challenging part of your partnership with the markets: In the short run, your “partner” is fickle, emotional, and wildly unpredictable. But in the long run, your partner is mostly rational and extremely helpful.

The best way to minimize your vulnerability to the market’s mood swings, and to maximize the benefit of your partner’s longer-term strengths, is to expect less and save more. Maybe the markets will deliver better-than-expected returns. Maybe they’ll be consistent with our more modest expectations. In either case, a higher savings rate can help put you in a better position to reach your goals.

As always, thank you for investing with Vanguard.

Sincerely,


F. William McNabb III
Chairman and Chief Executive Officer
October 18, 2016

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Advisors’ Report

For the fiscal year ended September 30, 2016, Vanguard Morgan Growth Fund returned 10.48% for Investor Shares and 10.60% for the lower-cost Admiral Shares. Your fund is managed by four independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It’s not uncommon for different advisors to have different views about individual securities or the broader investment environment.

The advisors, the percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the accompanying table. The advisors have also prepared a discussion of the investment environment that existed during the fiscal year and of how portfolio positioning reflects this assessment. (Please note that the Frontier Capital Management discussion refers to industry sectors as defined by Russell classifications, rather than by the Global Industry Classification Standard used elsewhere in this report.)

On a separate note, we want to congratulate Paul Marrkand of Wellington Management Company for completing a decade as a portfolio manager of the Morgan Growth Fund earlier this fiscal year. We thank him for serving our shareholders with distinction.

These comments were prepared on October 18, 2016.

Wellington Management Company LLP

Portfolio Manager: Paul E. Marrkand, CFA, Senior Managing Director

Our portion of the fund uses traditional methods of stock selection—fundamental research and analysis—to identify mid-and large-capitalization companies that we believe have above-average growth prospects. We seek to build a portfolio of diversified sources of return with a balance of growth, quality, and valuation attributes.

It was a strong period for U.S. and foreign equities as the S&P 500 Index returned 15.43% and the MSCI World Index returned 12.02%. Fixed income markets also moved up, and the Bloomberg Barclays U.S. Aggregate Bond Index returned 5.19%.

Successes

Our stock selection was strongest in the consumer discretionary, energy, and industrial sectors. An overweighted allocation to information technology also aided relative results as the sector contained two of the largest individual contributors: Linear Technology and Facebook. Not owning consumer discretionary benchmark index constituents Walt Disney and Nike helped as well.

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Shortfalls

Sector allocation, a residual of our bottom-up stock selection process, detracted from the portfolio’s relative return. A modest cash position in a strong equity market, underweighted allocations to materials and consumer staples, and an overweighted allocation to telecommunication services hurt most.

Security selection was another drag on relative performance, particularly in financials, information technology, and consumer staples. The largest detractors included Chipotle Mexican Grill and Advance Auto Parts in the consumer discretionary sector and Bristol-Myers Squibb in health care; we eliminated our positions in Chipotle and Advance Auto. An out-of-benchmark position in Check Point Software (information technology) also weighed on returns.

We remain optimistic about the portfolio’s favorable risk/reward profile and continue to purchase, at attractive valuations, capital-compounding companies with what we believe to be long-term competitive advantages that can maintain a free-cash-flow growth rate beyond that of the market. Through this bottom-up process, the portfolio ended the period most overweighted in information technology and energy and most underweighted in consumer discretionary and real estate.1

Jennison Associates LLC

Portfolio managers:

Kathleen A. McCarragher,
Managing Director

Blair A. Boyer,
Managing Director

Decelerating growth in China, the effect of lower energy prices on industrial sectors, and the United Kingdom’s vote to leave the European Union contributed to a volatile global landscape. Adding to this were fears of slowing growth in the United States and uncertainty about future Federal Reserve monetary tightening. Risk aversion affected how investors valued securities. Low-volatility, high-dividend-paying stocks were significant drivers of market returns: Dividend-paying and other “safety” stocks outperformed, and stocks of higher-growth companies generally did less well.

Successes

Amazon benefited from strong execution, margin expansion, and development of an important business opportunity in cloud infrastructure. The company continues to invest to drive unit growth in its core retail business and through the proliferation of digital commerce via the mobile market.

Facebook rose following impressive revenue and margins, accelerating advertising revenue growth, and solid

1 Effective September 1, 2016, S&P Dow Jones Indices and MSCI implemented a new real estate sector under the Global Industry Classification Standard (GICS); holdings in this sector were previously classified as financials. Our analysis attributes real estate to the financial sector for the period from October 1, 2015, through August 31, 2016, and to the new real estate sector thereafter.

7


 

user growth and engagement. As the company solidifies its dominant position, it increases its appeal to users and advertisers. Long-term growth drivers include Instagram, WhatsApp, and Messenger.

Alibaba advanced on strong revenue, earnings, user metrics, gross merchandise value, monetization revenue, and margins. We believe the company, with dominant positions in several Chinese markets, offers an attractive opportunity to invest in the long-term growth of Chinese e-commerce.

Shortfalls

We eliminated our position in online professional network LinkedIn after significant deceleration in its previously high growth rates.

Many biotechnology companies that sell innovative, high-priced drugs, including Alexion Pharmaceuticals, faced concerns about pricing. Alexion makes and develops drugs that target rare genetic and potentially life-threatening blood and metabolic disorders.

Global athletic footwear and apparel brand Under Armour declined amid the liquidation of a key wholesale partner, management changes, and heightened competition.

Frontier Capital Management Co., LLC

Portfolio Managers:

Stephen Knightly, CFA, President Christopher J. Scarpa, Vice President

Successes

Our performance was strongest in the information technology and consumer discretionary sectors. In technology, investments in video game firms and financial data processors did well. In consumer discretionary, our focus on improved fundamentals for lower-income consumers led to solid gains.

Shortfalls

Our results for the period were hindered largely by stock selection in the health care and consumer staples sectors. In health care, our portion of the portfolio incurred setbacks in biotechnology and specialty pharmaceuticals. In consumer staples, increased competitive pressures among health and nutrition companies dampened investments.

We were also hurt by our positioning within these sectors. We remain overweighted in health care because of its attractive innovation and secular growth characteristics. We continue to be underweighted in consumer staples because we consider the sector’s valuations to be extended and its growth relatively muted.

8


 

After three consecutive years of flat S&P 500 operating earnings, Wall Street is forecasting 14% earnings growth in 2017. Because expectations for a sharp acceleration seem overly optimistic, selectivity will be vital.

We continue to find attractive investments in gaming software, transaction processing, information services, health care, infrastructure materials, and wireless communications. Conversely, we have become more concerned about consumer fundamentals and valuations in safe-haven sectors such as REITs, utilities, and staples; we have positioned the portfolio accordingly.

Vanguard Quantitative Equity Group

Portfolio Managers: James P. Stetler, Principal Anatoly Shtekhman, CFA

Binbin Guo, Principal, Head of Equity Research and Portfolio Strategies

Growth around the globe remained subdued. The U.S. economy grew at an annual rate of 2.8% in the third quarter of 2016, and the IMF estimated global growth at 2.9% for the first half of the year. Brexit is still unfolding; the long-term arrangements between the United Kingdom and the European Union will be uncertain for some time.

Over the past 12 months, our investment process and resulting portfolio struggled to keep pace with the benchmark index. Our quantitative approach to stock selection focuses on five factors: valuation, quality, management decisions, sentiment, and growth. We use these factors to systematically identify stocks that, when combined in a diversified, risk-controlled portfolio, we believe will exhibit long-term outperformance.

Successes

One of the largest contributions to our relative return came from an overweighted position in real estate firm Communications Sales & Leasing.

Shortfalls

Unfortunately, over this period, the most successful firms had attributes that our model does not seek. Our selections in energy detracted the most from relative returns; overweighted positions in Tesoro and Plains GP Holdings did not perform as expected. We are disappointed with these results but not surprised, as all investment styles endure periods of underperformance. Through different market environments, we continue our commitment to identifying firms with attractive fundamentals that we believe the market will reward in the long term.

9


 

Vanguard Morgan Growth Fund Investment Advisors  
 
  Fund Assets Managed  
Investment Advisor % $ Million Investment Strategy
Wellington Management 47 5,291 Uses traditional methods of stock selection—
Company LLP     fundamental research and analysis—to identify
      companies that it believes have above-average growth
      prospects. Research focuses on mid- and large-cap
      companies, evaluating and ranking each stock on a
      consistent set of growth, quality, and valuation criteria.
      We seek to build a portfolio with diversified sources of
      return with a balance of growth, quality, and valuation
      attributes.
Jennison Associates LLC 22 2,430 Uses a research-driven, fundamental investment
      approach that relies on in-depth company knowledge
      gleaned through meetings with management,
      customers, and suppliers.
Frontier Capital Management Co., 15 1,654 Uses a research-driven, fundamental investment
LLC     approach that seeks companies with above-average
      growth prospects, reasonable valuations, and
      competitive advantages.
Vanguard Quantitative Equity 15 1,646 Employs a quantitative fundamental management
Group     approach, using models that assess valuation, growth
      prospects, management decisions, market sentiment,
      and earnings and balance-sheet quality of companies
      as compared with their peers.
Cash Investments 1 164 These short-term reserves are invested by Vanguard in
      equity index products to simulate investments in
      stocks. Each advisor also may maintain a modest cash
      position.

 

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Morgan Growth Fund

Fund Profile
As of September 30, 2016

Share-Class Characteristics    
  Investor   Admiral
  Shares   Shares
Ticker Symbol VMRGX   VMRAX
Expense Ratio1 0.40%   0.27%
30-Day SEC Yield 0.94%   0.89%
 
Portfolio Characteristics    
      DJ
      U.S.
    Russell Total
    3000 Market
    Growth FA
  Fund Index Index
Number of Stocks 309 1,753 3,850
Median Market Cap $48.3B $64.6B $51.8B
Price/Earnings Ratio 26.1x 25.5x 23.7x
Price/Book Ratio 5.0x 5.5x 2.8x
Return on Equity 20.9% 21.4% 16.6%
Earnings Growth      
Rate 14.0% 11.9% 7.6%
Dividend Yield 1.2% 1.5% 2.0%
Foreign Holdings 4.8% 0.0% 0.0%
Turnover Rate 51%
Short-Term      
Reserves 0.8%

 

Sector Diversification (% of equity exposure)

    Russell DJ
    3000 U.S. Total
    Growth Market
  Fund Index FA Index
Consumer      
Discretionary 19.9% 20.2% 12.8%
Consumer Staples 6.0 9.1 8.7
Energy 1.8 0.7 6.7
Financials 3.7 2.9 13.3
Health Care 16.2 17.3 14.2
Industrials 9.3 10.8 10.3
Information      
Technology 38.5 31.0 20.7
Materials 2.0 3.7 3.3
Real Estate 0.9 3.0 4.3
Telecommunication      
Services 1.5 1.2 2.4
Utilities 0.2 0.1 3.3

 

Volatility Measures    
  Russell DJ
  3000 U.S. Total
  Growth Market
  Index FA Index
R-Squared 0.98 0.92
Beta 1.02 1.04

 

These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.

Ten Largest Holdings (% of total net assets)

Alphabet Inc. Internet Software &  
  Services 4.3%
Apple Inc. Technology  
  Hardware, Storage &  
  Peripherals 4.1
Amazon.com Inc. Internet & Direct  
  Marketing Retail 3.4
Facebook Inc. Internet Software &  
  Services 3.1
Visa Inc. Data Processing &  
  Outsourced Services 2.0
Microsoft Corp. Systems Software 2.0
Home Depot Inc. Home Improvement  
  Retail 1.4
Amgen Inc. Biotechnology 1.3
PepsiCo Inc. Soft Drinks 1.2
Bristol-Myers Squibb Co. Pharmaceuticals 1.2
Top Ten   24.0%

 

The holdings listed exclude any temporary cash investments and equity index products.

Investment Focus


1 The expense ratios shown are from the prospectus dated January 26, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended September 30, 2016, the expense ratios were 0.38% for Investor Shares and 0.28% for Admiral Shares.

11


 

Morgan 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.


See Financial Highlights for dividend and capital gains information.

12


 

Morgan Growth Fund

Fiscal-Year Total Returns (%): September 30, 2006, Through September 30, 2016


Morgan Growth Fund Investor Shares

Russell 3000 Growth Index

13


 

Morgan Growth Fund

Financial Statements

Statement of Net Assets
As of September 30, 2016

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

      Market
      Value
    Shares ($000)
Common Stocks (98.8%)1    
Consumer Discretionary (19.5%)  
* Amazon.com Inc. 447,585 374,767
  Home Depot Inc. 1,187,862 152,854
  Comcast Corp. Class A 1,926,490 127,803
* Priceline Group Inc. 83,944 123,523
  Ross Stores Inc. 1,343,246 86,371
* Netflix Inc. 751,874 74,097
* O’Reilly Automotive Inc. 243,214 68,127
  Lowe’s Cos. Inc. 904,921 65,344
  Industria de Diseno    
  Textil SA ADR 3,407,336 62,865
  adidas AG 351,358 60,981
  NIKE Inc. Class B 1,158,184 60,978
  Omnicom Group Inc. 676,849 57,532
  Starbucks Corp. 948,386 51,346
  Marriott International Inc.    
  Class A 734,624 49,462
  Scripps Networks    
  Interactive Inc. Class A 777,036 49,334
  TJX Cos. Inc. 647,198 48,397
  Dollar General Corp. 662,875 46,395
* Michael Kors Holdings Ltd. 870,836 40,746
  Aramark 971,855 36,960
* Discovery    
  Communications Inc.    
  Class A 1,281,167 34,489
  McDonald’s Corp. 294,893 34,019
* Tesla Motors Inc. 165,922 33,853
  Las Vegas Sands Corp. 547,977 31,531
  Walt Disney Co. 294,703 27,366
  Wyndham Worldwide    
  Corp. 369,658 24,889
  Brunswick Corp. 508,631 24,811
* LKQ Corp. 668,781 23,715
  Dunkin’ Brands Group Inc. 405,606 21,124
  Viacom Inc. Class B 517,658 19,723

 

      Market
      Value
    Shares ($000)
* Ulta Salon Cosmetics &    
  Fragrance Inc. 74,558 17,743
* Dollar Tree Inc. 211,873 16,723
  Expedia Inc. 125,890 14,694
  Target Corp. 211,217 14,506
  Royal Caribbean Cruises    
  Ltd. 193,286 14,487
  Harman International    
  Industries Inc. 155,850 13,162
* Liberty Global plc Class A 300,822 10,282
* Sirius XM Holdings Inc. 2,443,582 10,190
^ Nordstrom Inc. 195,231 10,129
* IMAX Corp. 346,410 10,035
*,^ Shake Shack Inc. Class A 285,334 9,893
  Foot Locker Inc. 141,350 9,572
* Urban Outfitters Inc. 268,391 9,265
* Bright Horizons Family    
  Solutions Inc. 135,329 9,052
  Carnival Corp. 179,899 8,783
  Whirlpool Corp. 53,093 8,610
* Michaels Cos. Inc. 349,708 8,452
  Lear Corp. 69,324 8,403
  Advance Auto Parts Inc. 55,745 8,313
  DR Horton Inc. 227,073 6,858

 

*      Liberty SiriusXM Group
  Class A 201,174 6,836
* MGM Resorts International 255,859 6,660
  CBS Corp. Class B 120,971 6,622
* lululemon athletica Inc. 106,632 6,502
  PVH Corp. 42,289 4,673
  Domino’s Pizza Inc. 26,694 4,053
  Yum! Brands Inc. 26,832 2,437
* Liberty SiriusXM Group    
  Class C 51,985 1,737
* Discovery    
  Communications Inc. 47,938 1,261
  Leggett & Platt Inc. 27,312 1,245
* Hyatt Hotels Corp. Class A 23,851 1,174
      2,175,754

 

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Morgan Growth Fund    
 
 
 
      Market
      Value
    Shares ($000)
Consumer Staples (5.8%)    
  PepsiCo Inc. 1,282,291 139,475
  CVS Health Corp. 693,930 61,753
  Altria Group Inc. 969,001 61,270
  Costco Wholesale Corp. 363,940 55,504
  Colgate-Palmolive Co. 618,639 45,866
* Monster Beverage Corp. 301,473 44,259
  Hershey Co. 417,763 39,938
  Estee Lauder Cos. Inc.    
  Class A 361,739 32,036
  Wal-Mart Stores Inc. 393,548 28,383
  Mondelez International Inc.    
  Class A 565,686 24,834
  Tyson Foods Inc. Class A 173,439 12,951
  Kroger Co. 385,356 11,437
^ BRF SA ADR 666,888 11,377
  Ingredion Inc. 78,444 10,438
  Brown-Forman Corp.    
  Class B 205,639 9,755
  Walgreens Boots    
  Alliance Inc. 120,579 9,721
  Sysco Corp. 197,788 9,694
  Kimberly-Clark Corp. 75,072 9,469
* Blue Buffalo Pet Products    
  Inc. 386,474 9,183
  Mead Johnson Nutrition    
  Co. 103,121 8,148
^ Pilgrim’s Pride Corp. 356,730 7,534
* Sprouts Farmers Market    
  Inc. 241,071 4,978
* Edgewell Personal Care    
  Co. 45,476 3,616
      651,619
Energy (1.7%)    
* Concho Resources Inc. 308,351 42,352
  BP plc ADR 1,181,574 41,544
  Baker Hughes Inc. 793,712 40,059
  Chevron Corp. 311,378 32,047
* Carrizo Oil & Gas Inc. 405,164 16,458
* Newfield Exploration Co. 204,029 8,867
* Southwestern Energy Co. 357,932 4,954
  Energen Corp. 78,589 4,536
      190,817
Financials (3.5%)    
  Intercontinental    
  Exchange Inc. 202,954 54,668
  Aon plc 348,194 39,168
  Morgan Stanley 1,020,294 32,711
  Nasdaq Inc. 380,572 25,704
  FactSet Research    
  Systems Inc. 154,536 25,050
  Raymond James    
  Financial Inc. 408,328 23,769

 

      Market
      Value
    Shares ($000)
* E*TRADE Financial Corp. 686,598 19,994
* Berkshire Hathaway Inc.    
  Class B 136,760 19,758
  American International    
  Group Inc. 297,471 17,652
  Moody’s Corp. 136,965 14,830
  JPMorgan Chase & Co. 219,691 14,629
* Signature Bank 123,397 14,616
  Willis Towers Watson plc 107,800 14,313
  Bank of America Corp. 864,639 13,532
  Citigroup Inc. 260,558 12,306
  MSCI Inc. Class A 122,225 10,259
  Marsh & McLennan Cos.    
  Inc. 150,157 10,098
  Ameriprise Financial Inc. 87,803 8,760
  S&P Global Inc. 67,139 8,497
  WisdomTree Investments    
  Inc. 691,053 7,111
  Voya Financial Inc. 118,711 3,421
      390,846
Health Care (15.9%)    
  Amgen Inc. 865,791 144,423
  Bristol-Myers Squibb Co. 2,471,258 133,250
* Allergan plc 416,482 95,920
  CR Bard Inc. 369,157 82,794
* BioMarin Pharmaceutical    
  Inc. 887,532 82,114
  Gilead Sciences Inc. 965,583 76,397
* Celgene Corp. 606,484 63,396
  Johnson & Johnson 481,661 56,899
  Aetna Inc. 487,416 56,272
  Becton Dickinson and Co. 297,411 53,454
  Shire plc ADR 267,711 51,898
* Alexion Pharmaceuticals    
  Inc. 422,152 51,730
  Merck & Co. Inc. 720,069 44,939
  Cardinal Health Inc. 572,097 44,452
  Danaher Corp. 557,704 43,718
* HCA Holdings Inc. 529,818 40,070
  Cooper Cos. Inc. 216,654 38,837
  Medtronic plc 436,037 37,674
  Zoetis Inc. 640,383 33,306
* Biogen Inc. 99,025 30,998
* Illumina Inc. 166,567 30,259
* Varian Medical Systems    
  Inc. 287,261 28,591
* Incyte Corp. 291,999 27,533
* Align Technology Inc. 282,237 26,460
* Vertex Pharmaceuticals Inc. 282,623 24,648
  STERIS plc 333,897 24,408
* ICON plc 307,285 23,775
  Zimmer Biomet Holdings    
  Inc. 164,716 21,416

 

15


 

Morgan Growth Fund    
 
 
 
      Market
      Value
    Shares ($000)
* PAREXEL International    
  Corp. 298,903 20,759
* Edwards Lifesciences    
  Corp. 161,449 19,464
  Anthem Inc. 145,343 18,213
  Teleflex Inc. 105,993 17,812
^ AstraZeneca plc ADR 530,471 17,431
* Express Scripts Holding Co. 226,392 15,967
  McKesson Corp. 81,851 13,649
  Eli Lilly & Co. 167,280 13,426
  UnitedHealth Group Inc. 94,095 13,173
  Baxter International Inc. 237,071 11,285
* Mettler-Toledo    
  International Inc. 26,841 11,269
  AmerisourceBergen Corp.    
  Class A 134,472 10,863
* Laboratory Corp. of    
  America Holdings 78,284 10,762
* Hologic Inc. 276,450 10,735
* Quintiles Transnational    
  Holdings Inc. 131,945 10,695
* Cerner Corp. 171,688 10,602
  Novo Nordisk A/S ADR 241,676 10,051
* United Therapeutics Corp. 80,139 9,463
* Alkermes plc 197,028 9,266
  Agilent Technologies Inc. 192,298 9,055
* DexCom Inc. 100,566 8,816
  PerkinElmer Inc. 155,354 8,717
  Universal Health Services    
  Inc. Class B 68,509 8,442
* IDEXX Laboratories Inc. 50,148 5,653
* Charles River Laboratories    
  International Inc. 42,000 3,500
* Regeneron    
  Pharmaceuticals Inc. 8,591 3,454
  AbbVie Inc. 41,011 2,587
  Thermo Fisher Scientific    
  Inc. 15,107 2,403
  Abbott Laboratories 39,509 1,671
      1,778,814
Industrials (9.1%)    
  Honeywell International    
  Inc. 694,329 80,952
  Boeing Co. 585,176 77,091
* TransDigm Group Inc. 233,898 67,625
* IHS Markit Ltd. 1,463,480 54,954
  Rockwell Automation Inc. 421,843 51,608
  Equifax Inc. 315,847 42,507
  Cintas Corp. 365,827 41,192
  Nielsen Holdings plc 763,573 40,905
* Verisk Analytics Inc.    
  Class A 490,330 39,854

 

      Market
      Value
    Shares ($000)
  Cummins Inc. 302,180 38,724
  Emerson Electric Co. 693,675 37,812
  CH Robinson Worldwide    
  Inc. 476,883 33,601
  Parker-Hannifin Corp. 240,149 30,146
* HD Supply Holdings Inc. 852,975 27,278
  Waste Connections Inc. 363,999 27,191
  AO Smith Corp. 267,846 26,460
  Experian plc 1,292,088 25,888
  Fortive Corp. 437,358 22,261
  Wabtec Corp. 245,140 20,016
* Beacon Roofing Supply    
  Inc. 441,085 18,556
  JB Hunt Transport    
  Services Inc. 208,350 16,905
  KAR Auction Services Inc. 386,680 16,689
  Roper Technologies Inc. 89,665 16,361
  Delta Air Lines Inc. 354,335 13,947
  Woodward Inc. 202,267 12,638
  Stanley Black & Decker Inc. 86,526 10,641
* United Continental    
  Holdings Inc. 198,428 10,411
  Masco Corp. 301,598 10,348
* United Rentals Inc. 129,505 10,165
  Alaska Air Group Inc. 154,299 10,162
  Huntington Ingalls    
  Industries Inc. 61,912 9,499
* JetBlue Airways Corp. 545,583 9,406
  Owens Corning 176,093 9,402
* Spirit AeroSystems    
  Holdings Inc. Class A 210,880 9,393
  Lennox International Inc. 55,261 8,678
  Ingersoll-Rand plc 111,779 7,594
* Johnson Controls    
  International plc 160,055 7,447
  Southwest Airlines Co. 173,982 6,766
* Hertz Global Holdings Inc. 123,958 4,978
  Union Pacific Corp. 40,537 3,954
  United Parcel Service Inc.    
  Class B 35,029 3,831
  Northrop Grumman Corp. 12,729 2,723
  3M Co. 14,509 2,557
  Lockheed Martin Corp. 8,956 2,147
  Allison Transmission    
  Holdings Inc. 43,000 1,233
* Copart Inc. 14,200 761
      1,023,257
Information Technology (37.9%)  
  Apple Inc. 4,091,119 462,501
* Alphabet Inc. Class C 469,085 364,615
* Facebook Inc. Class A 2,723,505 349,344
  Visa Inc. Class A 2,733,195 226,035

 

16


 

Morgan Growth Fund    
 
 
 
      Market
      Value
    Shares ($000)
  Microsoft Corp. 3,897,751 224,510
* Alibaba Group Holding    
  Ltd. ADR 1,240,724 131,256
  Oracle Corp. 3,312,398 130,111
* Alphabet Inc. Class A 143,069 115,036
* salesforce.com Inc. 1,531,576 109,247
  Mastercard Inc. 909,748 92,585
  Texas Instruments Inc. 1,288,232 90,408
* Electronic Arts Inc. 1,044,201 89,175
* Vantiv Inc. Class A 1,409,199 79,296
  Tencent Holdings Ltd. 2,597,653 71,976
* Red Hat Inc. 888,068 71,783
  Linear Technology Corp. 1,194,921 70,847
* eBay Inc. 2,056,514 67,659
  Global Payments Inc. 866,639 66,523
  QUALCOMM Inc. 961,630 65,872
* Check Point Software    
  Technologies Ltd. 839,496 65,153
* Adobe Systems Inc. 579,294 62,877
  Jack Henry & Associates    
  Inc. 689,027 58,946
* Workday Inc. Class A 641,804 58,847
* PayPal Holdings Inc. 1,388,844 56,901
  Maxim Integrated    
  Products Inc. 1,398,343 55,836
  Paychex Inc. 952,087 55,097
* Fiserv Inc. 496,302 49,367
* Alliance Data Systems    
  Corp. 227,106 48,721
* Gartner Inc. 530,826 46,952
  CDK Global Inc. 765,262 43,895
* F5 Networks Inc. 334,619 41,707
  Cisco Systems Inc. 1,314,626 41,700
* Cadence Design    
  Systems Inc. 1,607,629 41,043
* Euronet Worldwide Inc. 453,367 37,099
  Activision Blizzard Inc. 830,678 36,799
  Intuit Inc. 322,069 35,431
* Palo Alto Networks Inc. 219,481 34,970
* Yandex NV Class A 1,656,637 34,872
  Amdocs Ltd. 556,788 32,210
* Baidu Inc. ADR 163,365 29,744
*,^ Mobileye NV 638,952 27,200
* Splunk Inc. 450,132 26,414
* Cirrus Logic Inc. 495,612 26,342
* Fortinet Inc. 695,976 25,702
* Qorvo Inc. 419,996 23,411
  Lam Research Corp. 245,497 23,251
  Accenture plc Class A 177,388 21,671
  Xilinx Inc. 305,758 16,615
  Amphenol Corp. Class A 249,076 16,170
* NXP Semiconductors NV 148,869 15,186
  Applied Materials Inc. 481,296 14,511

 

      Market
      Value
    Shares ($000)
* First Solar Inc. 361,388 14,271
* Universal Display Corp. 251,019 13,934
  Sabre Corp. 469,113 13,220
* Genpact Ltd. 486,180 11,644
* Citrix Systems Inc. 127,658 10,879
  Broadridge Financial    
  Solutions Inc. 151,437 10,266
  CDW Corp. 224,251 10,255
*,^ VMware Inc. Class A 133,837 9,817
* Teradata Corp. 312,997 9,703
* First Data Corp. Class A 723,719 9,524
* Flex Ltd. 697,129 9,495
  Fair Isaac Corp. 64,836 8,078
  NVIDIA Corp. 99,416 6,812
* GoDaddy Inc. Class A 149,281 5,155
* Synopsys Inc. 71,826 4,263
  MercadoLibre Inc. 13,970 2,584
  Broadcom Ltd. 12,989 2,241
* Black Knight Financial    
  Services Inc. Class A 28,868 1,181
      4,236,741
Materials (1.9%)    
  Sherwin-Williams Co. 222,901 61,668
^ Rio Tinto plc ADR 1,014,663 33,890
  Nucor Corp. 600,114 29,676
  Eagle Materials Inc. 294,082 22,732
  Martin Marietta Materials    
  Inc. 95,777 17,155
* Berry Plastics Group Inc. 368,463 16,157
* Crown Holdings Inc. 188,446 10,758
  Steel Dynamics Inc. 355,126 8,874
  Packaging Corp. of    
  America 76,163 6,189
  Freeport-McMoRan Inc. 361,956 3,931
  WR Grace & Co. 50,004 3,690
      214,720
Other (1.1%)    
^,2 Vanguard Growth ETF 1,044,900 117,332
 
Real Estate (0.8%)    
  Public Storage 186,519 41,620
  Macerich Co. 124,739 10,087
  Communications Sales &    
  Leasing Inc. 317,596 9,976
  Brixmor Property Group    
  Inc. 344,939 9,586
  Regency Centers Corp. 80,095 6,206
  Crown Castle International    
  Corp. 48,505 4,570
  Equity LifeStyle Properties    
  Inc. 43,506 3,358
  Simon Property Group Inc. 12,203 2,526
      87,929

 

17


 

Morgan Growth Fund    
 
 
 
      Market
      Value
    Shares ($000)
Telecommunication Services (1.4%)  
  Verizon Communications    
  Inc. 1,555,660 80,863
* SBA Communications    
  Corp. Class A 527,233 59,135
  Cogent Communications    
  Holdings Inc. 398,207 14,658
* T-Mobile US Inc. 157,147 7,342
      161,998
Utilities (0.2%)    
  NextEra Energy Inc. 179,932 22,009
Total Common Stocks    
(Cost $7,946,747)   11,051,836
Temporary Cash Investments (1.7%)1  
Money Market Fund (1.5%)    
3,4 Vanguard Market    
  Liquidity Fund,    
  0.640% 1,678,059 167,822
 
    Face  
    Amount  
    ($000)  
Repurchase Agreement (0.1%)  
  Bank of America Securities,  
  LLC 0.490%, 10/3/16    
  (Dated 9/30/16,    
  Repurchase Value    
  $7,000,000,    
  collateralized by    
  Federal National    
  Mortgage Assn.    
  2.090%, 8/1/44,    
  with a value of    
  $7,140,000) 7,000 7,000

 

U.      S. Government and Agency Obligations (0.1%)
5      Federal Home Loan Bank
Discount Notes, 0.365%,    
10/5/16 11,000 11,000
5,6 Federal Home Loan Bank    
Discount Notes, 0.340%,    
11/16/16 300 300
    11,300
Total Temporary Cash Investments  
(Cost $186,114)   186,122
Total Investments (100.5%)    
(Cost $8,132,861)   11,237,958

 

  Amount
  ($000)
Other Assets and Liabilities (-0.5%)  
Other Assets  
Investment in Vanguard 862

 

Receivables for Investment Securities Sold 81,563

Receivables for Accrued Income 4,320
Receivables for Capital Shares Issued 5,559
Other Assets 2,669
Total Other Assets 94,973
Liabilities  
Payables for Investment Securities  
Purchased (73,644)
Collateral for Securities on Loan (35,750)
Payable for Capital Shares Redeemed (13,306)
Payables to Investment Advisor (4,009)
Payables to Vanguard (18,717)
Other Liabilities (2,232)
Total Liabilities (147,658)
Net Assets (100%) 11,185,273

 

18


 

Morgan Growth Fund

At September 30, 2016, net assets consisted of:
  Amount
  ($000)
Paid-in Capital 7,651,483
Undistributed Net Investment Income 45,916
Accumulated Net Realized Gains 382,514
Unrealized Appreciation (Depreciation)  
Investment Securities 3,105,097
Futures Contracts 263
Net Assets 11,185,273
 
 
Investor Shares—Net Assets  
Applicable to 157,824,985 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 4,063,050
Net Asset Value Per Share—  
Investor Shares $25.74
 
 
Admiral Shares—Net Assets  
Applicable to 89,254,107 outstanding  
$.001 par value shares of beneficial  
interest (unlimited authorization) 7,122,223
Net Asset Value Per Share—  
Admiral Shares $79.80

 

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 $34,865,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 99.3% and 1.2%, respectively, of net
assets.
2 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the
7-day yield.
4 Includes $35,750,000 of collateral received for securities on loan.
5 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full
faith and credit of the U.S. government.
6 Securities with a value of $300,000 and cash of $2,300,000 have been segregated as initial margin for open futures contracts.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.

19


 

Morgan Growth Fund  
 
 
Statement of Operations  
 
  Year Ended
  September 30, 2016
  ($000)
Investment Income  
Income  
Dividends1,2 130,581
Interest2 1,217
Securities Lending—Net 2,031
Total Income 133,829
Expenses  
Investment Advisory Fees—Note B  
Basic Fee 17,578
Performance Adjustment 615
The Vanguard Group—Note C  
Management and Administrative—Investor Shares 8,265
Management and Administrative—Admiral Shares 7,739
Marketing and Distribution—Investor Shares 740
Marketing and Distribution—Admiral Shares 583
Custodian Fees 194
Auditing Fees 45
Shareholders’ Reports—Investor Shares 55
Shareholders’ Reports—Admiral Shares 48
Trustees’ Fees and Expenses 16
Total Expenses 35,878
Expenses Paid Indirectly (226)
Net Expenses 35,652
Net Investment Income 98,177
Realized Net Gain (Loss)  
Investment Securities Sold2 516,835
Futures Contracts (20,076)
Foreign Currencies 473
Realized Net Gain (Loss) 497,232
Change in Unrealized Appreciation (Depreciation)  
Investment Securities 513,262
Futures Contracts 2,671
Change in Unrealized Appreciation (Depreciation) 515,933
Net Increase (Decrease) in Net Assets Resulting from Operations 1,111,342

 

1 Dividends are net of foreign withholding taxes of $331,000.

2 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $1,496,000, $886,000, and $14,000, respectively.

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

20


 

Morgan Growth Fund    
 
 
Statement of Changes in Net Assets    
 
  Year Ended September 30,
  2016 2015
  ($000) ($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 98,177 100,389
Realized Net Gain (Loss) 497,232 953,860
Change in Unrealized Appreciation (Depreciation) 515,933 (527,102)
Net Increase (Decrease) in Net Assets Resulting from Operations 1,111,342 527,147
Distributions    
Net Investment Income    
Investor Shares (28,118) (31,623)
Admiral Shares (58,129) (53,891)
Realized Capital Gain1    
Investor Shares (316,049) (467,717)
Admiral Shares (539,822) (648,615)
Total Distributions (942,118) (1,201,846)
Capital Share Transactions    
Investor Shares (81,629) (250,796)
Admiral Shares 214,073 978,782
Net Increase (Decrease) from Capital Share Transactions 132,444 727,986
Total Increase (Decrease) 301,668 53,287
Net Assets    
Beginning of Period 10,883,605 10,830,318
End of Period2 11,185,273 10,883,605

 

1 Includes fiscal 2016 and 2015 short-term gain distributions totaling $6,527,000 and $135,145,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $45,916,000 and $43,316,000.

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

21


 

Morgan Growth Fund          
 
 
Financial Highlights          
 
 
Investor Shares          
 
For a Share Outstanding     Year Ended September 30,
Throughout Each Period 2016 2015 2014 2013 2012
Net Asset Value, Beginning of Period $25.29 $27.07 $24.26 $20.31 $16.06
Investment Operations          
Net Investment Income .207 .219 .187 .230 .141
Net Realized and Unrealized Gain (Loss)          
on Investments 2.385 1.017 3.785 3.925 4.209
Total from Investment Operations 2.592 1.236 3.972 4.155 4.350
Distributions          
Dividends from Net Investment Income (.175) (.191) (.172) (. 205) (.100)
Distributions from Realized Capital Gains (1.967) (2.825) (.990)
Total Distributions (2.142) (3.016) (1.162) (.205) (.100)
Net Asset Value, End of Period $25.74 $25.29 $27.07 $24.26 $20.31
 
Total Return1 10.48% 4.76% 16.85% 20.69% 27.18%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $4,063 $4,077 $4,580 $4,922 $5,283
Ratio of Total Expenses to          
Average Net Assets2 0.38% 0.40% 0.40% 0.39% 0.40%
Ratio of Net Investment Income to          
Average Net Assets 0.81% 0.80% 0.72% 1.06% 0.74%
Portfolio Turnover Rate 51% 41% 52% 53% 49%

 

1 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.

2 Includes performance-based investment advisory fee increases (decreases) of 0.01%, (0.01%), (0.04%), (0.05%), and (0.04%).

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

22


 

Morgan Growth Fund          
 
 
Financial Highlights          
 
 
Admiral Shares          
 
For a Share Outstanding     Year Ended September 30,
Throughout Each Period 2016 2015 2014 2013 2012
Net Asset Value, Beginning of Period $78.42 $83.97 $75.26 $63.02 $49.84
Investment Operations          
Net Investment Income .726 . 804 .719 . 831 . 535
Net Realized and Unrealized Gain (Loss)          
on Investments 7.402 3.123 11.722 12.144 13.036
Total from Investment Operations 8.128 3.927 12.441 12.975 13.571
Distributions          
Dividends from Net Investment Income (. 656) (.727) (. 664) (.735) (. 391)
Distributions from Realized Capital Gains (6.092) (8.750) (3.067)
Total Distributions (6.748) (9.477) (3.731) (.735) (.391)
Net Asset Value, End of Period $79.80 $78.42 $83.97 $75.26 $63.02
 
Total Return1 10.60% 4.88% 17.03% 20.86% 27.35%
 
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $7,122 $6,806 $6,250 $5,019 $3,725
Ratio of Total Expenses to          
Average Net Assets2 0.28% 0.27% 0.26% 0.25% 0.26%
Ratio of Net Investment Income to          
Average Net Assets 0.91% 0.93% 0.86% 1.20% 0.88%
Portfolio Turnover Rate 51% 41% 52% 53% 49%

 

1 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.

2 Includes performance-based investment advisory fee increases (decreases) of 0.01%, (0.01%), (0.04%), (0.05%), and (0.04%).

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

23


 

Morgan Growth Fund

Notes to Financial Statements

Vanguard Morgan 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. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.

A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.

1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been 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 acquired over 60 days to maturity 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. Other temporary cash investments are valued at amortized cost, which approximates market value.

2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).

3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.

24


 

Morgan Growth Fund

Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

During the year ended September 30, 2016, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.

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. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2013–2016), and has concluded that no provision for federal income tax is required in the fund’s financial statements.

6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

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 on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.

25


 

Morgan Growth Fund

8. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.

The fund had no borrowings outstanding at September 30, 2016, or at any time during the period then ended.

9. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.

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

B. The investment advisory firms Wellington Management Company LLP, Jennison Associates LLC, and Frontier Capital Management Co., 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 fee of Wellington Management Company LLP is subject to quarterly adjustments based on performance relative to the Russell 3000 Growth Index for the preceding three years. The basic fee of Jennison Associates LLC is subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding three years. The basic fee of Frontier Capital Management Co., LLC, is subject to quarterly adjustments based on performance relative to the Russell Midcap Growth Index for the preceding three years. Until January 2016, a portion of the fund was managed by Kalmar Investment Advisers. The basic fee paid to Kalmar Investment Advisers was subject to quarterly adjustments based on performance relative to the Russell Midcap Growth 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 $1,205,000 for the year ended September 30, 2016.

For the year ended September 30, 2016, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.16% of the fund’s average net assets, before a net increase of $615,000 (0.01%) based on performance.

26


 

Morgan Growth Fund

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. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.

Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At September 30, 2016, the fund had contributed to Vanguard capital in the amount of $862,000, representing 0.01% of the fund’s net assets and 0.34% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.

D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the year ended September 30, 2016, these arrangements reduced the fund’s expenses by $226,000 (an annual rate of 0.00% of average net assets).

E. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

Level 1—Quoted prices in active markets for identical securities.

Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).

The following table summarizes the market value of the fund’s investments as of September 30, 2016, based on the inputs used to value them:

  Level 1 Level 2 Level 3
Investments ($000) ($000) ($000)
Common Stocks 10,892,991 158,845
Temporary Cash Investments 167,822 18,300
Futures Contracts—Assets1 370
Futures Contracts—Liabilities1 (30)
Total 11,061,153 177,145
1 Represents variation margin on the last day of the reporting period.      

 

27


 

Morgan Growth Fund

F. At September 30, 2016, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:

        ($000)
      Aggregate  
    Number of Settlement Unrealized
    Long (Short) Value Appreciation
Futures Contracts Expiration Contracts Long (Short) (Depreciation)
E-mini S&P 500 Index December 2016 525 56,711 263

 

Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.

G. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

During the year ended September 30, 2016, the fund realized net foreign currency gains of $473,000, which increased distributable net income for tax purposes; accordingly, such gains have been reclassified from accumulated net realized gains to undistributed net investment income.

The fund used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from net investment income and realized capital gains. Accordingly, the fund has reclassified $9,803,000 from undistributed net investment income, and $54,735,000 from accumulated net realized gains, to paid-in capital.

For tax purposes, at September 30, 2016, the fund had $64,019,000 of ordinary income and $384,732,000 of long-term capital gains available for distribution.

At September 30, 2016, the cost of investment securities for tax purposes was $8,134,597,000. Net unrealized appreciation of investment securities for tax purposes was $3,103,361,000, consisting of unrealized gains of $3,220,421,000 on securities that had risen in value since their purchase and $117,060,000 in unrealized losses on securities that had fallen in value since their purchase.

H. During the year ended September 30, 2016, the fund purchased $5,539,936,000 of investment securities and sold $5,986,463,000 of investment securities, other than temporary cash investments.

28


 

Morgan Growth Fund

I. Capital share transactions for each class of shares were:      
      Year Ended September 30,
    2016   2015
  Amount Shares Amount Shares
  ($000) (000) ($000) (000)
Investor Shares        
Issued 442,809 17,724 404,548 15,134
Issued in Lieu of Cash Distributions 338,254 13,492 489,705 19,699
Redeemed (862,692) (34,608) (1,145,049) (42,799)
Net Increase (Decrease)—Investor Shares (81,629) (3,392) (250,796) (7,966)
Admiral Shares        
Issued 992,705 12,715 1,287,786 15,507
Issued in Lieu of Cash Distributions 554,245 7,138 648,115 8,415
Redeemed (1,332,877) (17,390) (957,119) (11,566)
Net Increase (Decrease)—Admiral Shares 214,073 2,463 978,782 12,356

 

J. Management has determined that no material events or transactions occurred subsequent to September 30, 2016, that would require recognition or disclosure in these financial statements.

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Vanguard Morgan Growth Fund:

In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Morgan Growth Fund (the “Fund”) at September 30, 2016, 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 then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2016 by correspondence with the custodians and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 10, 2016

Special 2016 tax information (unaudited) for Vanguard Morgan Growth Fund

This information for the fiscal year ended September 30, 2016, is included pursuant to provisions of the Internal Revenue Code.

The fund distributed $904,079,000 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 $92,774,000 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.

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Your Fund’s After-Tax Returns

This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.

Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2016. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)

The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.

Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.

Average Annual Total Returns: Morgan Growth Fund Investor Shares

Periods Ended September 30, 2016

  One Five Ten
  Year Years Years
Returns Before Taxes 10.48% 15.73% 7.64%
Returns After Taxes on Distributions 8.41 14.34 6.73
Returns After Taxes on Distributions and Sale of Fund Shares 7.56 12.56 6.09

 

31


 

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.

32


 

Six Months Ended September 30, 2016      
  Beginning Ending Expenses
  Account Value Account Value Paid During
Morgan Growth Fund 3/31/2016 9/30/2016 Period
Based on Actual Fund Return      
Investor Shares $1,000.00 $1,052.76 $1.95
Admiral Shares 1,000.00 1,053.33 1.49
Based on Hypothetical 5% Yearly Return      
Investor Shares $1,000.00 $1,023.10 $1.92
Admiral Shares 1,000.00 1,023.55 1.47

 

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 0.38% 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 (183/366).

33


 

Glossary

30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.

Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.

Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.

Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.

Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.

Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.

Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.

Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.

Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.

Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.

34


 

Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.

R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.

Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.

Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.

Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.

35


 

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 on an at-cost basis.

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 198 Vanguard funds.

The following table provides information for each trustee and executive officer of the fund. 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.

InterestedTrustee1

F. William McNabb III

Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).

IndependentTrustees

Emerson U. Fullwood

Born 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); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Lead Director of SPX FLOW, Inc. (multi-industry manufacturing); Director of the United Way of Rochester, the University of Rochester Medical Center, Monroe Community College Foundation, North Carolina A&T University, and Roberts Wesleyan College.

Rajiv L. Gupta

Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International plc (diversified manufacturing and services), HP Inc. (printer and personal computer manufacturing), and Delphi Automotive plc (automotive components); Senior Advisor at New Mountain Capital.

Amy Gutmann

Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President 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; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.

JoAnn Heffernan Heisen

Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/consumer products); Director of Skytop Lodge Corporation (hotels) and the Robert Wood Johnson Foundation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.


 

F. Joseph Loughrey

Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.

Mark Loughridge

Born 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) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.

Scott C. Malpass

Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee, the Board of Advisors for Spruceview Capital Partners, and the Investment Advisory Committee of Major League Baseball; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors).

André F. Perold

Born 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 Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.

Peter F. Volanakis

Born 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); Chairman of the Board of Trustees of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center.

Executive Officers

Glenn Booraem

Born 1967. Treasurer Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Controller of each of the investment companies served by The Vanguard Group (2010–2015); Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).

Thomas J. Higgins

Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).

Peter Mahoney

Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).

Anne E. Robinson

Born 1970. Secretary Since September 2016. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).

Vanguard Senior Management Team

Mortimer J. Buckley Kathleen C. Gubanich Martha G. King John T. Marcante Chris D. McIsaac

James M. Norris Thomas M. Rampulla Glenn W. Reed Karin A. Risi Michael Rollings

 

Chairman Emeritus and Senior Advisor John J. Brennan

Chairman, 1996–2009

Chief Executive Officer and President, 1996–2008

Founder

John C. Bogle
Chairman and Chief Executive Officer, 1974–1996

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

2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.


 

 

P.O. Box 2600
Valley Forge, PA 19482-2600

 

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with the offering of shares of any Vanguard  
fund only if preceded or accompanied by  
the fund’s current prospectus.  
 
All comparative mutual fund data are from Lipper, a  
Thomson Reuters Company, or Morningstar, Inc., unless  
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You can obtain a free copy of Vanguard’s proxy voting  
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calling Vanguard at 800-662-2739. The guidelines are  
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addition, you may obtain a free report on how your fund  
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months ended June 30. To get the report, visit either  
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You can review and copy information about your fund at  
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  All rights reserved.
  Vanguard Marketing Corporation, Distributor.
 
  Q260 112016

 


Item 2: Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was amended during the reporting period covered by this report to make certain technical, non-material changes.

Item 3: Audit Committee Financial Expert. All members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts and to be independent: Rajiv L. Gupta, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, and Peter F. Volanakis.

Item 4: Principal Accountant Fees and Services.

(a) Audit Fees.

Audit Fees of the Registrant

Fiscal Year Ended September 30, 2016: $45,000
Fiscal Year Ended September 30, 2015: $37,000

Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.

Fiscal Year Ended September 30, 2016: $9,629,849
Fiscal Year Ended September 30, 2015: $7,000,200

Includes fees billed in connection with audits of the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc. and Vanguard Marketing Corporation.

(b) Audit-Related Fees.

Fiscal Year Ended September 30, 2016: $2,717,627
Fiscal Year Ended September 30, 2015: $2,899,096

Includes fees billed in connection with assurance and related services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.

(c) Tax Fees.

Fiscal Year Ended September 30, 2016: $254,050
Fiscal Year Ended September 30, 2015: $353,389

Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.

(d) All Other Fees.

Fiscal Year Ended September 30, 2016: $214,225
Fiscal Year Ended September 30, 2015: $202,313

Includes fees billed for services related to tax reported information provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.


 

(e) (1) Pre-Approval Policies. The policy of the Registrant’s Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and non-audit services provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.

     In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant’s independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.

     The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., or other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant.

     (2) No percentage of the principal accountant’s fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant’s engagement were not performed by persons other than full-time, permanent employees of the principal accountant.

(g) Aggregate Non-Audit Fees.

Fiscal Year Ended September 30, 2016: $468,275
Fiscal Year Ended September 30, 2015: $555,702

Includes fees billed for non-audit services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.

(h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant’s independence.

Item 5: Audit Committee of Listed Registrants.

Not Applicable.

Item 6: Investments.

Not Applicable.

Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not Applicable.

Item 8: Portfolio Managers of Closed-End Management Investment Companies.

Not Applicable.


 

Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not Applicable.

Item 10: Submission of Matters to a Vote of Security Holders.

Not Applicable.

Item 11: Controls and Procedures.

     (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.

     (b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


 

Item 12: Exhibits.

(a) Code of Ethics.
(b) Certifications.

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  VANGUARD MORGAN GROWTH FUND
 
By: /s/ F. WILLIAM MCNABB III*
  F. WILLIAM MCNABB III
  CHIEF EXECUTIVE OFFICER
 
Date: November 17, 2016

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

  VANGUARD MORGAN GROWTH FUND
 
By: /s/ F. WILLIAM MCNABB III*
  F. WILLIAM MCNABB III
  CHIEF EXECUTIVE OFFICER
 
Date: November 17, 2016

 

  VANGUARD MORGAN GROWTH FUND
 
By: /s/ THOMAS J. HIGGINS*
  THOMAS J. HIGGINS
  CHIEF FINANCIAL OFFICER
 
Date: November 17, 2016

 

* By: /s/ Anne E. Robinson

Anne E. Robinson, pursuant to a Power of Attorney filed on October 4, 2016 see file Number 33-32548, Incorporated by Reference.


CERTIFICATIONS

I, F. William McNabb III, certify that:

1. I have reviewed this report on Form N-CSR of Vanguard Morgan Growth Fund;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 17, 2016 /s/ F. William McNabb III
  F. William McNabb III
  Chief Executive Officer

 


 

CERTIFICATIONS

I, Thomas J. Higgins, certify that:

1. I have reviewed this report on Form N-CSR of Vanguard Morgan Growth Fund;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 17, 2016 /s/ Thomas J Higgins
  Thomas J. Higgins
  Chief Financial Officer

 


Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Name of Issuer: Vanguard Morgan Growth Fund

In connection with the Report on Form N-CSR of the above-named issuer that is accompanied by this
certification, the undersigned hereby certifies, to his knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Date: November 17, 2016 /s/ F. William McNabb III
  F. William McNabb III
  Chief Executive Officer

 


 

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Name of Issuer: Vanguard Morgan Growth Fund

     In connection with the Report on Form N-CSR of the above-named issuer that is accompanied by this certification, the undersigned hereby certifies, to his knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Date: November 17, 2016 /s/ Thomas J Higgins
  Thomas J. Higgins
  Chief Financial Officer

 


THE VANGUARD FUNDS’ CODE OF ETHICS

FOR

SENIOR EXECUTIVE AND FINANCIAL OFFICERS

I. Introduction

     The Board of Trustees of each registered investment company that is managed, sponsored, and distributed by The Vanguard Group, Inc. (“VGI”) (each a “Vanguard Fund” and collectively the “Vanguard Funds”) has adopted this code of ethics (the “Code”) as required by Section 406 of the Sarbanes-Oxley Act. The Code applies to the individuals in positions listed on Exhibit A (the “Covered Officers”). All Covered Officers, along with employees of The Vanguard Group, Inc., are subject to separate and distinct obligations from this Code under a Code of Ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940 (“17j-1 Code of Ethics”), policies to prevent the misuse of non-public information, and other internal compliance guidelines and policies that may be in effect from time to time.

This Code is designed to promote:

  • Honest and ethical conduct, including the ethical handling of conflicts of interest;
  • Full, fair, accurate, timely, and understandable disclosure in reports and documents that a Vanguard Fund files with, or submits to, the U.S. Securities and Exchange Commission (“SEC”), and in other public communications made by the Vanguard Funds or VGI;
  • Compliance with applicable laws, governmental rules, and regulations;
  • Prompt internal reporting to those identified in the Code of violations of the Code; and
  • Accountability for adherence to the Code.
II.      Actual or Apparent Conflicts of Interest
  A.      Covered Officers should conduct all activities in accordance with the following
   principles:     
   1.      Clients’ interests come first. In the course of fulfilling their duties and responsibilities to Vanguard clients, Covered Officers must at all times place the interests of Vanguard clients first. In particular, Covered Officers must avoid serving their own personal interests ahead of the interests of Vanguard clients.
   2.      Conflicts of interest must be avoided. Covered Officers must avoid any situation involving an actual or potential conflict of interest or possible impropriety with respect to their duties and responsibilities to Vanguard clients. Covered Officers must disclose any situation that may present the potential for a conflict of interest to Vanguard’s Compliance Department, consistent with the 17j-1 Code of Ethics.

III.14b.1

July 21, 2016


 

3.      Compromising situations must be avoided. Covered Officers must not take advantage of their position of trust and responsibility. Covered Officers must avoid any situation that might compromise or call into question their exercise of full independent judgment in the best interests of Vanguard clients.

All activities of Covered Officers should be guided by and adhere to these fiduciary standards regardless of whether the activity is specifically described in this Code.

B.      Restricted Activities
  1.      Prohibition on secondary employment. Covered Officers are prohibited from accepting or serving in any form of secondary employment. Secondary employment that does not create a potential conflict of interest may be approved by the General Counsel of VGI.
  2.      Prohibition on service as director or public official. Unless approved by the General Counsel of VGI, Covered Officers are prohibited from serving on the board of directors of any publicly traded company or in an official capacity for any federal, state, or local government (or governmental agency or instrumentality).
  3.      Prohibition on misuse of Vanguard time or property. Covered Officers are prohibited from making use of time, equipment, services, personnel or property of any Vanguard entity for any purposes other than the performance of their duties and responsibilities in connection with the Vanguard Funds or other Vanguard-related entities.
III.      Disclosure and Compliance
  A.      Each Covered Officer should be familiar with the disclosure requirements generally applicable to the Vanguard Funds.
  B.      Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Vanguard Funds to others, including to the Vanguard Funds’ directors and auditors, or to government regulators and self-regulatory organizations.
  C.      Each Covered Officer should, to the extent appropriate within the Covered Officer’s area of responsibility, consult with other officers and employees of VGI and advisers to a Vanguard Fund with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the fund files with, or submits to, the SEC and in other public communications made by a Vanguard Fund.
  D.      It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, regulations, and the 17j-1 Code of Ethics.

III.14b.2

July 21, 2016


 

IV.      Reporting and Accountability
  A.      Each Covered Officer must:
   1.      Upon adoption or amendment of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing that he or she has received, read, and understands the Code;
   2.      Affirm at least annually in writing that he or she has complied with the requirements of the Code;
   3.      Not retaliate against any other Covered Officer or any employee of VGI for reports of potential violations of the Code that are made in good faith; and
   4.      Notify the General Counsel of VGI promptly if the Covered Officer knows of any violations of this Code.
  B.      The Vanguard Funds will use the following procedures in investigating and enforcing
   this      Code:
   1.      The General Counsel of VGI is responsible for applying this Code to specific situations and has the authority to interpret this Code in any particular situation. The General Counsel will report on an as-needed basis to the Board of Trustees regarding activities subject to the Code.
   2.      The General Counsel will take all appropriate action to investigate any potential violations of the Code that are reported to him or her.
   3.      If, after investigation, the General Counsel believes that no material violation of the Code has occurred, the General Counsel is not required to take any further action.
   4.      Any matter that the General Counsel believes is a material violation of the Code will be reported to the Chief Compliance Officer and the Board of Trustees of the Vanguard Funds.
   5.      If the Board of Trustees of the Vanguard Funds concurs that a material violation of the Code has occurred, the Board will consider appropriate action. Appropriate action may include reassignment, suspension, or dismissal of the applicable Covered Officer(s), or any other sanctions the Board deems appropriate. Appropriate action may also include review of, and appropriate modifications to, applicable policies and procedures.
   6.      Any changes to or waiver of this Code will, to the extent required, be disclosed as provided by SEC rules.

III.14b.3

July 21, 2016


 

Other Policies and Procedures

     This Code shall be the sole code of conduct adopted by the Vanguard Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Vanguard Funds, VGI, or other service providers govern or purport to govern the behavior or activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code.

     VGI’s and the Vanguard Funds’ 17j-1 Code of Ethics, policies to prevent the misuse of non-public information, and other internal compliance guidelines and policies that may be in effect from time to time are separate requirements applying to the Covered Officers and others, and are not part of this Code.

VI. Amendments

     This Code may not be materially amended except by the approval of a majority vote of the independent trustees of the Vanguard Funds’ Board of Trustees. Non-material, technical, and administrative revisions of the Code do not have to be approved by the Board of Trustees. Amendments must be in writing and communicated promptly to the Covered Officers, who shall affirm receipt of the amended Code in accordance with Section IV. A. 1.

VII. Confidentiality

     All reports and records prepared or maintained pursuant to this Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Vanguard Funds’ Board of Trustees, VGI’s General Counsel and the Chief Compliance Officer of VGI and the Vanguard Funds.

Last Reviewed: July 21, 2016

III.14b.4

July 21, 2016


 

EXHIBIT A

TO THE VANGUARD FUNDS’ CODE OF ETHICS

FOR

SENIOR EXECUTIVE AND FINANCIAL OFFICERS

Covered Officers:

Chairman, President and Chief Executive Officer of The Vanguard Group, Inc. and the Vanguard
Funds

Managing Director of Strategy of The Vanguard Group, Inc.

Managing Director of Finance and Chief Financial Officer of The Vanguard Group, Inc.

Controller of The Vanguard Group, Inc.

Director of Domestic Finance of The Vanguard Group, Inc.

Director of International Finance of The Vanguard Group, Inc.

Assistant Controller(s) of The Vanguard Group, Inc.

Director of Enterprise Financial Planning & Analysis of The Vanguard Group, Inc.

Chief Audit Executive and Head of Internal Audit, The Vanguard Group, Inc.

Chief Financial Officer of the Vanguard Funds

Treasurer of the Vanguard Funds

Controller of the Vanguard Funds

Assistant Treasurer(s) of the Vanguard Funds

III.14b.5

July 21, 2016



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