Vanguard International Growth Fund · International Funds Average: ... flow, producing a bottom-up, stock-driven ... providing exposure to distinct yet

Vanguard International Growth Fund

Semiannual Report | February 28, 2018

Contents

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

See the Glossary for definitions of investment terms used in this report.About the cover: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For anincoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to putyou first––and light the way––as you strive to meet your financial goals. Our client focus and low costs,stemming from our unique ownership structure, assure that your interests are paramount.

Vanguard’s Principles for Investing Success

We want to give you the best chance of investment success. Theseprinciples, grounded in Vanguard’s research and experience, can put you onthe right path.

Goals. Create clear, appropriate investment goals.

Balance. Develop a suitable asset allocation using broadly diversified funds.

Cost. Minimize cost.

Discipline. Maintain perspective and long-term discipline.

A single theme unites these principles: Focus on the things you can control.We believe there is no wiser course for any investor.

Your Fund’s Performance at a Glance. . . . . . . . . . . . . . . . . . 1

CEO’s Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Advisors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Results of Proxy Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Fund Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Performance Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

About Your Fund’s Expenses. . . . . . . . . . . . . . . . . . . . . . . . 34

Trustees Approve Advisory Arrangements. . . . . . . . . . . . . .36

Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Your Fund’s Performance at a Glance

1

Total Returns: Six Months Ended February 28, 2018

TotalReturns

Vanguard International Growth Fund

Investor Shares 11.61%

Admiral™ Shares 11.70

MSCI All Country World Index ex USA 7.59

International Funds Average 6.51

International 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.

Expense RatiosYour Fund Compared With Its Peer Group

Investor

Shares

Admiral

Shares

Peer Group

Average

International Growth Fund 0.45% 0.32% 1.31%

The fund expense ratios shown are from the prospectus dated December 21, 2017, and represent estimated costs for the current fiscalyear. For the six months ended February 28, 2018, the fund’s annualized expense ratios were 0.45% for Investor Shares and 0.32% forAdmiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and capturesinformation through year-end 2017.

Peer group: International Funds.

• Vanguard International Growth Fund returned about 12% for the six months ended

February 28, 2018, well ahead of its benchmark index and peer group.

• The fund’s advisors added value in North America, the Pacific region, emerging

markets, and Europe. In North America, U.S. companies were the strongest

performers, while South Korea was the strongest performer in the Pacific region and

China led the way among emerging markets.

• Although the fund performed better than its index in emerging markets overall, its

limited exposure to Russia, Brazil, and South Africa modestly detracted from relative

performance.

• In terms of sectors, the fund’s performance relative to its benchmark index was mostly

positive. The advisors added value in 9 of 11 sectors, with information technology, health

care, and consumer discretionary turning in the strongest performances. Energy and

financials were the only two sectors that detracted from relative performance.

Dear Shareholder,

As I begin my tenure as Vanguard’s

fourth chief executive, I’ve been reflecting

on both the past and the future of the

company where I have spent my entire

professional career.

I feel extremely fortunate to have the

chance to lead a company filled with

people who come to work every day

passionate about Vanguard’s core

purpose: to take a stand for all investors,

to treat them fairly, and to give them the

best chance for investment success.

Making a real difference

When I joined Vanguard in 1991, I found a

mission-driven team focused on improving

lives—helping people retire more com-

fortably, put their children through college,

and achieve financial security. I found a

company with purpose in an industry ripe

for improvement.

It was clear, even early in my career,

that the cards were stacked against most

investors. Hidden fees, performance-

chasing, and poor advice were relentlessly

eroding investors’ dreams.

We knew Vanguard could be different

and, as a result, could make a real

difference. Over the past 25 years, for

example, Vanguard has lowered our funds’

asset-weighted average expense ratio

CEO’s Perspective

Tim Buckley

President and Chief Executive Officer

2

from 0.31% to 0.12%. And over the past

decade, 94% of our funds have beaten the

average annual return of their peers.1

Focused on your success

Vanguard is built for Vanguard investors—

as a client-owned company, we focus

solely on you, our fund shareholders.

Everything we do is designed to give our

clients the best chance for investment

success. In my role as CEO, I intend to

keep this priority front and center. We’re

proud of what we’ve achieved, but we’re

even more excited about what’s to come.

As I write this, we’ve experienced a

period of pronounced market volatility.

Strong economic growth and budding

signs of inflation have raised concerns

about a more aggressive Federal Reserve.

Although volatility can test investors’

nerves, we sometimes think of this as

“Vanguard weather”—a time when having

a disciplined, low-cost, and long-term

approach to investment management

serves investors well.

Market Barometer

Total Returns

Periods Ended February 28, 2018

Six One Five Years

Months Year (Annualized)

Stocks

Russell 1000 Index (Large-caps) 10.62% 16.70% 14.56%

Russell 2000 Index (Small-caps) 8.30 10.51 12.19

Russell 3000 Index (Broad U.S. market) 10.45 16.22 14.37

FTSE All-World ex US Index (International) 7.84 21.50 6.69

Bonds

Bloomberg Barclays U.S. Aggregate Bond Index

(Broad taxable market) -2.18% 0.51% 1.71%

Bloomberg Barclays Municipal Bond Index

(Broad tax-exempt market) -1.24 2.50 2.57

Citigroup Three-Month U.S. Treasury Bill Index 0.59 0.98 0.27

CPI

Consumer Price Index 1.41% 2.21% 1.41%

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

1 For the ten-year period through December 31, 2017, 9 of 9 Vanguard money market funds, 56 of 60 bond funds, 21 of 22 balanced funds, and 131 of 140 stock funds, or 217 of 231 Vanguard funds, outperformed their peer-group averages. Sources: Vanguard, based on data from Lipper, a Thomson Reuters Company.

3

Steady, time-tested guidance

Our guidance for investors, as always, is

to stay the course, tune out the hyperbolic

headlines, and focus on your goals and

what you can control, such as costs and

how much you save. This time-tested

advice has served our clients well over

the decades.

Regardless of how the markets perform

in the short term, I’m incredibly optimistic

about the future for our investors. We have

a dedicated team serving you, and we will

never stop striving to make Vanguard the

best place for you to invest through our

high-quality funds and services, advice

and guidance to help you meet your

financial goals, and an experience that

makes you feel good about entrusting

us with your hard-earned savings.

Thank you for your continued loyalty.

Sincerely,

Mortimer J. Buckley

President and Chief Executive Officer

March 19, 2018

4

5

Advisors’ Report

Vanguard International Growth Fund Investment Advisors

Fund Assets Managed

Investment Advisor % $ Million Investment Strategy

Baillie Gifford Overseas Ltd. 60 22,275 The advisor seeks stocks that can generate

above-average growth in earnings and cash

flow, producing a bottom-up, stock-driven

approach to country and asset allocation. An

in-depth view on each company is measured

against the consensus view, leading to

discrepancies and potential opportunities to add

value.

Schroder Investment

Management North America Inc.

39 14,442 Equity analysts located around the world and an

international team of global sector specialists

help to identify reasonably priced companies

with strong growth prospects and a sustainable

competitive advantage.

Cash Investments 1 379 These short-term reserves are invested by

Vanguard in equity index products to simulate

investment in stocks. Each advisor may also

maintain a modest cash position.

For the six months ended February 28,

2018, Vanguard International Growth Fund

returned 11.61% for Investor Shares

(11.70% for Admiral Shares), ahead of its

benchmark index and the average return

of peer funds. Your fund is managed by

two independent advisors, a strategy that

enhances the fund’s diversification by

providing exposure to distinct yet

complementary investment approaches.

It is not uncommon for advisors to have

different views about individual securities

or the broader investment environment.

The advisors, the amount and percentage

of fund assets each manages, and brief

descriptions of their investment strategies

are presented in the table below. The

advisors have also prepared a discussion

of the investment environment that

existed during the fiscal half year and of

how the portfolio’s positioning reflects

this assessment. These comments were

prepared on March 19, 2018.

Baillie Gifford Overseas Ltd.

Portfolio Managers:

James K. Anderson,

Head of Global Equities

Thomas Coutts,

Head of European Equities

Exceptional companies have always been

critical to investment returns, with a small

handful responsible for lifting stock

market results. We anticipate that this

6

concentration of returns will persist and

may even intensify. As investors, we aim

to identify and own substantial positions

in enough of the winners to generate

attractive returns for our clients. To

benefit fully, we must also avoid the

pitfalls of taking profits and rebalancing

into inferior opportunities. While many of

our holdings have risen substantially over

the period, we believe the potential for

further growth is great, so we have made

few changes to the portfolio.

How large can a successful company

become in the modern era? It is

increasingly apparent that the scale

advantages of large technology platforms

are intensifying, and are transferable

to adjacent business areas. It is highly

unusual for companies as large as Alibaba,

Amazon, and Tencent to report rapid and

accelerating growth. Their success

reflects the dynamics of a digitized and

interconnected global economy, and an

increasing advantage for companies that

can take a long-term view.

ASML, the Dutch supplier of lithography

equipment for the semiconductor industry,

is a good example of a company that thinks

in terms of decades rather than quarters.

Advancing Moore’s Law of computing

power is one of the most important

engineering challenges of our generation.

ASML continues to drive the technology

forward with its industry-leading chip-

making machines. It has fought its way

through the challenges of extreme

ultraviolet lithography and now believes

it has a clear path to develop this

technology until around 2030. This will

enable continued development in big data,

machine learning, the internet of things,

and artificial intelligence. Very few areas

of the economy will be unaffected by this

transformation.

The detractors over the period included

two long-term holdings, Inditex, the

Spanish clothing retailer, and Genmab,

a Danish biotechnology company. Inditex,

the owner of the Zara retail chain, has

faced some currency headwinds. We still

believe that this is a remarkable company

with a substantial opportunity to expand

its “fast fashion” model globally, both

offline and online. Genmab is engaged

in the development of antibody therapies

for cancer. It has one successful product,

Darzalex, on the market and others in

various stages of clinical trials. After a few

strong years, its share price has been

weaker in the past six months, but we

remain enthusiastic about the long-term

prospects for the company. We added to

both holdings over the period.

The only new purchases over the last six

months were Delivery Hero and Umicore.

Delivery Hero is a German food delivery

company that operates online takeaway

marketplaces in 42 countries in Europe, the

Middle East, Asia, and North Africa.

Umicore is a Belgian materials and

recycling company. We have also added to

Swedish bank Svenska Handelsbanken and

German meal box provider HelloFresh,

following its initial public offering in

November. These additions were partly

7

funded by the sale of holdings in NAVER,

the South Korean internet search platform,

and EXOR, the Italian holding company.

Schroder Investment Management North America Inc.

Portfolio Manager:

Simon Webber, CFA

International markets posted solid gains

over the six-month period, led by

generally supportive economic data and

improving corporate earnings growth.

Expectations of higher interest rates hurt

defensive sectors, while more cyclical

sectors led the market higher. The

information technology sector was

among the strongest-performing sectors

as a number of the largest companies

continued to post better-than-expected

earnings, accompanied by healthy

guidance. The energy sector also

performed well as oil prices were

supported by geopolitical tensions

and OPEC’s renewed commitment

to cutting production.

Our positions in information technology

particularly helped performance, as did

our zero-weight exposure to the poorly

performing utilities sector. Our holdings

in the consumer discretionary and health

care sectors were relative detractors.

Check Point Software was a notable

detractor amid softer revenue growth.

While Check Point continues to generate

a lot of cash and has strong products,

growth has slowed despite what

should be a healthy environment for

cybersecurity spending amid several

high-profile corporate attacks. We

attribute this to a number of factors,

including the competitive environment,

which remains difficult; the emergence

of “private label” security offerings from

public cloud service providers AWS and

Google Cloud; and a disappointing sales

force reorganization in the United States.

While the sales execution issues should

improve, the public cloud competition

could intensify, and we have reduced

the position to reflect the increased risk.

Umicore, a leading supplier of cathode

components for electric vehicle batteries,

was one of our strongest performers and

has been making significant investments

in capacity to bolster its long-term growth

and leadership position. The scale of the

investment in its cathode business will

consume most of its free cash flow over

the next three years, but as demand for

cathode materials is expected to remain

high over the next decade, we expect

Umicore’s capacity ramp-up to deliver

strong results over the long term.

We are moving into a new phase of the

business cycle where strong economic

growth increases the upside risks to

inflation and central banks become less

accommodative. We are generally

cautious toward companies that have

high debt or limited pricing power to

offset higher inflation.

8

After years of spending restraint,

improved corporate confidence and

higher manufacturing utilization warrant

a positive view on the capital spending

cycle. We retain active exposure in

areas likely to benefit, such as factory

automation, construction-related

products, and electrical infrastructure.

This view also supports our materials

exposure, which is focused more on

materials benefiting from structural

trends such as electrification of

automotive powertrains than on

traditional “bulk” commodities.

Consumer discretionary stocks are

well-represented in our portfolio.

The competitive landscape in content

and media consumption is changing

rapidly and represents a rich source

of opportunity—particularly for social

media, music, and gaming.

We believe that a period of disruption is

unfolding across many industries, and this

will be a powerful source of investment

performance. It remains critical for

businesses and investors to ensure

that they are on the right side of the

disruption. We are focused on identifying

businesses that are willing to invest for

the long term, for change, and to create

sustainable growth business models.

Results of Proxy Voting

At a special meeting of shareholders on November 15, 2017, fund shareholders approved the

following proposals:

Proposal 1—Elect trustees for the fund.*The individuals listed in the table below were elected as trustees for the fund. All trustees with the

exception of Ms. Mulligan, Ms. Raskin, and Mr. Buckley (each of whom already serves as a director

of The Vanguard Group, Inc.) served as trustees to the funds prior to the shareholder meeting.

Percentage

Trustee For Withheld For

Mortimer J. Buckley 1,040,401,220 33,553,324 96.9%

Emerson U. Fullwood 1,039,160,376 34,794,169 96.8%

Amy Gutmann 1,040,321,884 33,632,661 96.9%

JoAnn Heffernan Heisen 1,041,268,182 32,686,363 97.0%

F. Joseph Loughrey 1,040,201,842 33,752,703 96.9%

Mark Loughridge 1,039,909,454 34,045,090 96.8%

Scott C. Malpass 1,039,175,722 34,778,823 96.8%

F. William McNabb III 1,038,914,560 35,039,985 96.7%

Deanna Mulligan 1,041,175,691 32,778,854 96.9%

André F. Perold 1,028,804,958 45,149,587 95.8%

Sarah Bloom Raskin 1,040,743,960 33,210,585 96.9%

Peter F. Volanakis 1,039,529,631 34,424,914 96.8%

* Results are for all funds within the same trust.

Proposal 3—Approve a manager-of-managers arrangement with wholly owned subsidiaries of Vanguard.This arrangement enables Vanguard or the fund to enter into and materially amend investment

advisory arrangements with wholly owned subsidiaries of Vanguard, subject to the approval of the

fund’s board of trustees and any conditions imposed by the Securities and Exchange Commission

(SEC), while avoiding the costs and delays associated with obtaining future shareholder approval.

The ability of the fund to operate in this manner is contingent upon the SEC’s approval of a pending

application for an order of exemption.

Broker Percentage

Vanguard Fund For Abstain Against Non-Votes For

International Growth Fund 337,037,649 16,443,457 15,798,577 34,671,694 83.4%

9

Fund shareholders did not approve the following proposal:

Proposal 7—Institute transparent procedures to avoid holding investments in companies that, in

management’s judgment, substantially contribute to genocide or crimes against humanity, the

most egregious violations of human rights. Such procedures may include time-limited engagement

with problem companies if management believes that their behavior can be changed.

The trustees recommended a vote against the proposal for the following reasons: (1) Vanguard is

fully compliant with all applicable U.S. laws and regulations that prohibit the investment in any

company owned or controlled by the government of Sudan; (2) the addition of further investment

constraints is not in fund shareholders’ best interests if those constraints are unrelated to a fund’s

stated investment objective, policies, and strategies; and (3) divestment is an ineffective means to

implement social change, as it often puts the shares into the hands of another owner with no direct

impact to the company’s capitalization.

Broker Percentage

Vanguard Fund For Abstain Against Non-Votes For

International Growth Fund 76,468,418 31,267,796 261,543,469 34,671,694 18.9%

10

International Growth Fund

Fund ProfileAs of February 28, 2018

1 The expense ratios shown are from the prospectus dated December 21, 2017, and represent estimated costs for the current fiscal year.For the six months ended February 28, 2018, the annualized expense ratios were 0.45% for Investor Shares and 0.32% for Admiral Shares.

11

Volatility Measures

MSCI AC

World

Index

ex USA

R-Squared 0.89

Beta 1.11

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)

Alibaba Group Holding

Ltd.

Internet Software &

Services 5.2%

Tencent Holdings Ltd. Internet Software &

Services 4.8

ASML Holding NV Semiconductor

Equipment 3.6

Amazon.com Inc. Internet & Direct

Marketing Retail 3.3

Baidu Inc. Internet Software &

Services 3.3

AIA Group Ltd. Life & Health

Insurance 2.8

Industria de Diseno

Textil SA Apparel Retail 2.0

TAL Education Group Education Services 1.9

Celltrion Inc. Biotechnology 1.8

Illumina Inc. Life Sciences Tools

& Services 1.7

Top Ten 30.4%

The holdings listed exclude any temporary cash investments andequity index products.

47.4% Europe

22.7% Emerging Markets

18.9% Pacific

10.4% North America

0.6% Middle East

Allocation by Region (% of equity exposure)

Portfolio Characteristics

Fund

MSCI AC

World Index

ex USA

Number of Stocks 124 1,862

Median Market Cap $55.9B $36.7B

Price/Earnings Ratio 22.9x 14.8x

Price/Book Ratio 3.2x 1.7x

Return on Equity 15.6% 12.2%

Earnings Growth Rate 16.7% 9.1%

Dividend Yield 1.4% 2.8%

Turnover Rate

(Annualized) 15% —

Short-Term Reserves 0.0% —

Share-Class Characteristics

InvestorShares

AdmiralShares

Ticker Symbol VWIGX VWILX

Expense Ratio1 0.45% 0.32%

Sector Diversification (% of equity exposure)

Fund

MSCI ACWorld Index

ex USA

Consumer Discretionary 23.9% 11.5%

Consumer Staples 6.1 9.2

Energy 1.3 6.6

Financials 15.4 23.6

Health Care 9.4 7.6

Industrials 9.6 11.8

Information Technology 24.1 11.7

Materials 6.0 8.2

Other 0.6 0.0

Real Estate 0.0 3.1

Telecommunication Services 3.6 3.9

Utilities 0.0 2.8

Sector categories are based on the Global Industry ClassificationStandard (“GICS”), except for the “Other” category (if applicable),which includes securities that have not been provided a GICSclassification as of the effective reporting period.


12

Market Diversification (% of equity exposure)

Fund

MSCI ACWorldIndex

ex USA

Europe

Germany 10.2% 6.6%

United Kingdom 7.3 11.6

France 6.5 7.4

Sweden 5.1 1.8

Spain 3.8 2.2

Netherlands 3.7 2.5

Switzerland 3.0 5.4

Italy 3.0 1.7

Denmark 2.5 1.3

Belgium 1.3 0.8

Other 1.0 1.9

Subtotal 47.4% 43.2%

Pacific

Japan 12.3% 16.9%

Hong Kong 3.8 2.5

South Korea 2.0 3.7

Other 0.8 5.7


Emerging Markets

China 18.0% 7.7%

India 2.1 2.1

Taiwan 1.2 2.9

Other 1.4 8.8


North America

United States 9.0% 0.0%

Canada 1.4 6.1

Subtotal 10.4% 6.1%

Middle East

Israel 0.6% 0.3%

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 thanthe performance data cited. For performance data current to the most recent month-end, visitour 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.


Performance Summary

See Financial Highlights for dividend and capital gains information.

13

Fiscal-Year Total Returns (%): August 31, 2007, Through February 28, 2018

–12.83 –14.41

2008

–13.75 –14.95

2009

5.19

–2.67

2010

14.1010.34

2011

–1.14 –1.92

2012

17.5412.98

2013

18.26 17.75

2014

–10.46 –12.35

2015

8.95

2.92

2016

28.43

18.88

2017

11.617.59

2018

International Growth Fund Investor Shares

Spliced International Index

For a benchmark description, see the Glossary.

Note: For 2018, performance data reflect the six months ended February 28, 2018.

Average Annual Total Returns: Periods Ended December 31, 2017This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.Securities and Exchange Commission rules require that we provide this information.

InceptionDate

OneYear

FiveYears

TenYears

Investor Shares 9/30/1981 42.96% 10.88% 4.59%

Admiral Shares 8/13/2001 43.16 11.02 4.74

Market

Value•

Shares ($000)

Market

Value•

Shares ($000)

Common Stocks (98.2%)1

Australia (0.4%)

Brambles Ltd. 19,210,845 142,027

Belgium (1.3%) * Umicore SA 8,785,681 495,253

Brazil (0.6%)

Telefonica Brasil SA

Preference Shares 6,900,800 107,649

Raia Drogasil SA 4,326,949 103,599

211,248

Canada (1.4%)

Toronto-Dominion Bank 5,920,561 341,429* Nutrien Ltd. 3,573,661 175,592

517,021

China (17.6%) * Alibaba Group Holding

Ltd. ADR 10,430,571 1,941,546

Tencent Holdings Ltd. 32,265,800 1,765,214* Baidu Inc. ADR 4,801,703 1,211,662

TAL Education Group

ADR 18,485,132 697,999* Ctrip.com International

Ltd. ADR 9,001,376 413,883

New Oriental Education

& Technology Group

Inc. ADR 3,750,739 342,780

China Pacific Insurance

Group Co. Ltd. 31,290,000 152,214

6,525,298

Denmark (2.5%) * Genmab A/S 2,594,661 527,678

Novozymes A/S 2,821,811 145,025

Chr Hansen Holding A/S 1,658,818 137,783

Vestas Wind Systems

A/S 1,497,498 108,226

918,712

France (6.2%)

L’Oreal SA 2,749,942 591,294

Kering SA 1,108,608 520,237

Schneider Electric SE 4,831,845 418,771

Essilor International

Cie Generale

d’Optique SA 2,037,356 266,827

Vivendi SA 7,326,402 188,391

TOTAL SA 3,281,526 186,650

LVMH Moet Hennessy

Louis Vuitton SE 397,570 118,912

2,291,082

Germany (9.6%) *,2 Zalando SE 10,683,180 607,987

BASF SE 4,736,950 494,868

Bayerische Motoren

Werke AG 3,342,345 351,164

Bayer AG 2,386,501 278,496

SAP SE 2,355,195 245,788

Continental AG 776,572 212,196

Deutsche Telekom AG 12,368,193 198,716

HeidelbergCement AG 1,846,448 185,290*,2 Delivery Hero AG 3,461,555 151,100

adidas AG 647,010 143,355*,3 HelloFresh SE 8,076,894 131,946* Linde AG- Tender Line 560,638 124,405

Infineon Technologies

AG 4,380,041 118,536

GEA Group AG 1,804,242 85,288*,2 Rocket Internet SE 2,762,933 82,459* MorphoSys AG 664,989 66,185* AIXTRON SE 3,130,112 62,142* HelloFresh AG 2,476,051 36,567

3,576,488

Financial Statements (unaudited)

Statement of Net AssetsAs of February 28, 2018

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).


14


Market

Value•

Shares ($000)

Market

Value•

Shares ($000)

Hong Kong (3.8%)

AIA Group Ltd. 124,698,200 1,034,820

Jardine Matheson

Holdings Ltd. 3,108,325 202,508

Hong Kong Exchanges

& Clearing Ltd. 4,767,930 170,797

1,408,125

India (2.1%)

Housing Development

Finance Corp. Ltd. 11,680,736 322,501

HDFC Bank Ltd. 7,956,722 229,087

Zee Entertainment

Enterprises Ltd. 15,971,869 137,817* Idea Cellular Ltd. 45,357,324 57,966*,†,4,5 ANI Technologies 166,185 34,491

781,862

Indonesia (0.3%)

Bank Central Asia Tbk

PT 66,247,400 111,492

Israel (0.6%) * Check Point Software

Technologies Ltd. 2,122,720 220,529

Italy (3.0%)

Ferrari NV 4,824,304 597,837* Fiat Chrysler

Automobiles NV 13,737,294 289,968

Intesa Sanpaolo SPA

(Registered) 55,319,653 207,549

1,095,354

Japan (12.0%)

SMC Corp. 1,369,300 570,693

SoftBank Group Corp. 6,366,800 524,604

M3 Inc. 13,418,200 520,213

Nintendo Co. Ltd. 663,700 302,554

Nidec Corp. 1,569,800 250,682

Recruit Holdings Co.

Ltd. 9,699,600 234,560

Bridgestone Corp. 5,072,900 225,184

Kubota Corp. 11,587,900 209,692

Toyota Motor Corp. 2,810,700 189,394

Sekisui Chemical Co.

Ltd. 9,982,200 187,020

Shiseido Co. Ltd. 3,040,500 182,342

Keyence Corp. 291,600 176,593

ORIX Corp. 9,152,600 162,043

KDDI Corp. 6,190,900 152,032

Pigeon Corp. 3,300,800 133,277

Murata Manufacturing

Co. Ltd. 745,100 103,780

Suzuki Motor Corp. 1,795,300 102,415

SBI Holdings Inc. 4,470,400 102,156

Sumitomo Mitsui

Financial Group Inc. 1,710,600 73,935

Rakuten Inc. 4,621,300 42,019

4,445,188

Luxembourg (0.3%) *,†,4,5 Spotify Technology SA 26,474 127,075

Mexico (0.1%)

Grupo Financiero

Banorte SAB de CV 3,437,913 20,638

Netherlands (3.6%)

ASML Holding NV 6,909,881 1,347,594

Norway (0.8%)

Norsk Hydro ASA 22,115,159 148,592

DNB ASA 7,357,991 144,329

292,921

Other (0.2%) 6 Vanguard FTSE All-World

ex-US ETF 1,128,434 61,804

Portugal (0.2%)

Jeronimo Martins

SGPS SA 3,627,182 75,239

Singapore (0.3%)

Oversea-Chinese

Banking Corp. Ltd. 13,222,600 129,392

South Korea (2.0%) *,^ Celltrion Inc. 2,090,080 676,008

NAVER Corp. 110,437 81,786

757,794

Spain (3.8%)

Industria de Diseno

Textil SA 24,860,027 752,668

Banco Bilbao Vizcaya

Argentaria SA 71,553,514 595,302

Distribuidora

Internacional de

Alimentacion SA 12,745,795 60,691

1,408,661

Sweden (5.1%)

Svenska Handelsbanken

AB Class A 43,576,778 596,213

Atlas Copco AB

Class A 12,605,874 536,219

Kinnevik AB 10,340,628 377,399

Assa Abloy AB Class B 7,200,239 160,808

SKF AB 7,039,386 147,130^ Elekta AB Class B 6,427,670 58,615

1,876,384

15


Market

Value•

Shares ($000)

Market

Value•

Shares ($000)

Switzerland (3.0%)

Nestle SA 5,348,370 424,934

UBS Group AG 15,015,080 284,534

Lonza Group AG 673,697 170,687

Cie Financiere

Richemont SA 1,475,303 129,370

Roche Holding AG 414,493 95,740

1,105,265

Taiwan (1.2%)

Taiwan Semiconductor

Manufacturing Co.

Ltd. 54,222,000 450,237

Thailand (0.5%)

Kasikornbank PCL

(Foreign) 25,854,356 190,016

United Kingdom (7.0%)

Rolls-Royce Holdings

plc 38,179,418 439,158

Diageo plc 9,722,037 329,877

Vodafone Group plc 92,984,584 259,949

Royal Dutch Shell plc

Class A 8,156,158 258,770

Aviva plc 30,842,356 213,655

BHP Billiton plc 10,012,881 203,273

Burberry Group plc 9,613,354 201,736* Standard Chartered plc 16,490,296 182,829

AstraZeneca plc 2,631,669 172,250

Reckitt Benckiser

Group plc 2,052,151 162,893*,^ Ocado Group plc 12,833,540 97,325

Antofagasta plc 7,105,720 84,477

2,606,192

United States (8.7%) * Amazon.com Inc. 807,252 1,220,928* Illumina Inc. 2,734,956 623,625

MercadoLibre Inc. 1,574,407 610,823*,^ Tesla Inc. 1,518,380 520,895* Booking Holdings Inc. 69,082 140,516

Philip Morris

International Inc. 1,123,213 116,309

3,233,096

Total Common Stocks

(Cost $23,284,429) 36,421,987

Preferred Stocks (0.7%)

*,†,4,5 Internet Plus

Holdings Ltd.,

8.00% 18,638,108 102,510*,†,3,4,5 HOME 24AG 23,630 51,517*,†,3,4,5 You & Mr. Jones 44,800,000 39,514*,†,2,4,5 Flipkart G Series,

0.01% 284,847 34,113*,†,4,5 CureVac GmbH 12,600 32,817*,†,2,4,5 Flipkart H Series,

0.01% 114,190 16,242

Total Preferred Stocks

(Cost $264,821) 276,713

Temporary Cash Investments (2.5%)1

Money Market Fund (2.4%)7,8 Vanguard Market

Liquidity Fund,

1.601% 9,004,076 900,318

Face

Amount

($000)

U.S. Government and Agency Obligations (0.1%)

United States Treasury

Bill, 1.403%, 5/10/18 4,380 4,367

United States Treasury

Bill, 1.462%, 5/17/18 3,000 2,9909 United States Treasury

Bill, 1.602%, 5/24/18 5,000 4,9819 United States Treasury

Bill, 1.512%–1.541%,

6/28/18 11,200 11,138

23,476

Total Temporary Cash Investments

(Cost $923,874) 923,794

Total Investments (101.4%)

(Cost $24,473,124) 37,622,494

16


Amount

($000)

Amount

($000)

Other Assets and Liabilities (-1.4%)

Other Assets

Investment in Vanguard 2,015

Receivables for Investment

Securities Sold 35,394

Receivables for Accrued Income 39,194

Receivables for Capital Shares Issued 28,469

Variation Margin Receivable—

Futures Contracts 10,428

Unrealized Appreciation—

Forward Currency Contracts 42,999

Other Assets10 116,346

Total Other Assets 274,845

Liabilities

Payables for Investment Securities

Purchased (59,435)

Collateral for Securities on Loan (628,466)

Payables for Capital Shares Redeemed (19,352)

Payables to Investment Advisor (14,758)

Payables to Vanguard (40,381)

Variation Margin Payable—

Futures Contracts (12,481)

Unrealized Depreciation—

Forward Currency Contracts (26,492)

Total Liabilities (801,365)

Net Assets (100%) 37,095,974

At February 28, 2018, net assets consisted of:

Amount

($000)

Paid-in Capital 23,722,200

Overdistributed Net Investment

Income (55,860)

Accumulated Net Realized Gains 259,067

Unrealized Appreciation (Depreciation)

Investment Securities 13,149,370


Forward Currency Contracts 16,507

Foreign Currencies 2,203

Net Assets 37,095,974

Investor Shares—Net Assets

Applicable to 270,000,155 outstanding

$.001 par value shares of beneficial

interest (unlimited authorization) 8,480,797

Net Asset Value Per Share—

Investor Shares $31.41

Admiral Shares—Net Assets

Applicable to 286,286,051 outstanding

$.001 par value shares of beneficial

interest (unlimited authorization) 28,615,177

Net Asset Value Per Share—

Admiral Shares $99.95

• 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 $595,439,000.

† Perpetual security with no stated maturity date.

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 99.0% and 1.7%, respectively, of net assets.

2 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2018, the aggregate value of these securities was $891,901,000, representing 2.4% of net assets.

3 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.

4 Security value determined using significant unobservable inputs.

5 Restricted securities totaling $438,279,000, representing 1.2% of net assets. See Restricted Securities table for additional information.

6 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.

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

8 Includes $628,466,000 of collateral received for securities on loan.

9 Securities with a value of $14,725,000 have been segregated as initial margin for open futures contracts.

10 Cash of $5,320,000 has been segregated as collateral for open forward currency contracts.

ADR—American Depositary Receipt.

17


Restricted Securities as of Period End

Acquisition

Acquisition Cost

Security Name Date ($000)

Flipkart G Series December 2014 34,113

Spotify Technology SA April 2015 59,000

Flipkart H Series April 2015 16,243

HOME 24AG June 2015 66,827

You & Mr. Jones September 2015 44,800

CureVac GmbH October 2015 30,882

ANI Technologies December 2015 51,748

Internet Plus Holdings Ltd. December 2015 71,956

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

($000)

Value and

Number of Unrealized

Long (Short) Notional Appreciation

Expiration Contracts Amount (Depreciation)

Long Futures Contracts

Dow Jones EURO STOXX 50 Index March 2018 2,779 116,529 846

Topix Index March 2018 521 86,325 640

S&P ASX 200 Index March 2018 453 52,959 856

FTSE 100 Index March 2018 399 39,726 145

2,487

Unrealized appreciation (depreciation) on open futures contracts, except for Topix Index and S&P

ASX 200 Index, is required to be treated as realized gain (loss) for tax purposes. Unrealized

appreciation (depreciation) for Topix and S&P ASX 200 Index futures contracts is generally treated

the same for financial reporting and tax purposes.

Forward Currency Contracts

Unrealized

Contract Appreciation

Settlement Contract Amount (000) (Depreciation)

Counterparty Date Receive Deliver ($000)

BNP Paribas 3/13/2018 JPY 17,641,105 USD 160,033 5,473

BNP Paribas 3/21/2018 EUR 108,103 USD 128,862 3,255

Citibank, N.A. 3/20/2018 AUD 112,426 USD 88,848 (1,524)

Citibank, N.A. 3/13/2018 JPY 9,674,750 USD 88,283 2,484

Citibank, N.A. 3/21/2018 EUR 64,864 USD 79,926 (652)

18


Forward Currency Contracts (continued)

Unrealized




Goldman Sachs International 3/21/2018 EUR 65,831 USD 78,889 1,566

Barclays Bank plc 3/13/2018 JPY 7,703,940 USD 68,965 3,313

Goldman Sachs International 3/13/2018 JPY 7,486,083 USD 66,992 3,241

JPMorgan Chase Bank, N.A. 3/21/2018 EUR 52,479 USD 63,423 713

Citibank, N.A. 3/21/2018 EUR 49,650 USD 59,481 1,198

JPMorgan Chase Bank, N.A. 3/13/2018 JPY 6,188,455 USD 55,797 2,261

JPMorgan Chase Bank, N.A. 3/21/2018 EUR 36,379 USD 45,297 (835)

Goldman Sachs International 3/16/2018 EUR 34,643 USD 42,865 (544)

BNP Paribas 3/21/2018 EUR 34,099 USD 42,147 (471)

Bank of America, N.A. 3/21/2018 GBP 29,715 USD 39,845 1,108

Goldman Sachs International 3/20/2018 AUD 51,950 USD 39,836 515

Barclays Bank plc 3/20/2018 AUD 47,732 USD 37,371 (295)

Barclays Bank plc 3/8/2018 JPY 3,540,020 USD 32,085 1,114

Credit Suisse International 3/21/2018 GBP 22,103 USD 30,971 (509)

Goldman Sachs International 3/21/2018 EUR 22,225 USD 27,193 (31)

Citibank, N.A. 3/16/2018 EUR 21,010 USD 25,937 (270)

Deutsche Bank AG 3/16/2018 EUR 20,190 USD 24,781 (116)

Deutsche Bank AG 3/21/2018 EUR 19,132 USD 23,990 (608)

JPMorgan Chase Bank, N.A. 3/21/2018 GBP 17,604 USD 23,872 389

JPMorgan Chase Bank, N.A. 3/16/2018 EUR 18,566 USD 22,754 (74)

JPMorgan Chase Bank, N.A. 3/15/2018 AUD 26,861 USD 21,482 (619)

Citibank, N.A. 3/13/2018 JPY 2,276,970 USD 21,429 (67)

Deutsche Bank AG 3/20/2018 AUD 22,425 USD 17,592 (175)

JPMorgan Chase Bank, N.A. 3/16/2018 GBP 12,327 USD 17,383 (396)

BNP Paribas 3/20/2018 AUD 19,992 USD 15,925 (397)

UBS AG 3/21/2018 EUR 12,714 USD 15,643 (105)

Goldman Sachs International 3/20/2018 AUD 19,537 USD 15,496 (321)

JPMorgan Chase Bank, N.A. 3/8/2018 JPY 1,689,665 USD 15,478 368

Goldman Sachs International 3/8/2018 JPY 1,653,080 USD 14,926 577

Morgan Stanley Capital Services LLC 3/21/2018 GBP 10,139 USD 14,119 (145)

Citibank, N.A. 3/8/2018 JPY 1,530,900 USD 13,860 497

Credit Suisse International 3/21/2018 GBP 10,185 USD 13,767 269

JPMorgan Chase Bank, N.A. 3/20/2018 AUD 14,307 USD 11,177 (64)


Citibank, N.A. 3/15/2018 AUD 13,652 USD 11,007 (403)

BNP Paribas 3/21/2018 GBP 6,895 USD 9,718 (216)

Deutsche Bank AG 3/16/2018 GBP 6,505 USD 9,178 (215)

Citibank, N.A. 3/16/2018 GBP 6,511 USD 9,087 (115)

19



Unrealized




Goldman Sachs International 3/21/2018 GBP 6,116 USD 8,498 (68)

UBS AG 3/20/2018 AUD 10,535 USD 8,227 (44)

Barclays Bank plc 3/15/2018 AUD 9,649 USD 7,725 (230)

UBS AG 3/21/2018 GBP 5,722 USD 7,721 165

BNP Paribas 3/20/2018 AUD 9,533 USD 7,346 58

Deutsche Bank AG 3/21/2018 GBP 5,195 USD 7,005 154

Goldman Sachs International 3/16/2018 GBP 4,528 USD 6,327 (89)

Barclays Bank plc 3/21/2018 GBP 4,121 USD 5,722 (42)

Deutsche Bank AG 3/21/2018 GBP 3,990 USD 5,609 (111)

Citibank, N.A. 3/21/2018 GBP 3,870 USD 5,224 109

JPMorgan Chase Bank, N.A. 3/21/2018 GBP 3,628 USD 5,132 (132)

BNP Paribas 3/21/2018 GBP 3,771 USD 5,065 132

Barclays Bank plc 3/20/2018 AUD 5,113 USD 3,940 31


Barclays Bank plc 3/21/2018 GBP 2,422 USD 3,248 91

Bank of America, N.A. 3/13/2018 JPY 279,155 USD 2,473 146

Morgan Stanley Capital Services LLC 3/21/2018 GBP 607 USD 824 12

JPMorgan Chase Bank, N.A. 3/13/2018 USD 178,441 JPY 19,593,745 (5,386)

JPMorgan Chase Bank, N.A. 3/21/2018 USD 167,210 EUR 134,316 3,056

Goldman Sachs International 3/21/2018 USD 155,489 EUR 126,146 1,320

BNP Paribas 3/21/2018 USD 126,991 EUR 106,122 (2,707)

BNP Paribas 3/21/2018 USD 119,442 EUR 96,970 930

BNP Paribas 3/13/2018 USD 98,169 JPY 10,653,930 (1,784)

Morgan Stanley Capital Services LLC 3/13/2018 USD 90,096 JPY 10,114,400 (4,795)

BNP Paribas 3/13/2018 USD 86,569 JPY 9,225,760 14

Citibank, N.A. 3/20/2018 USD 75,199 AUD 92,685 3,209

Barclays Bank plc 3/20/2018 USD 66,068 AUD 82,989 1,608

BNP Paribas 3/21/2018 USD 60,798 GBP 42,968 1,579

BNP Paribas 3/20/2018 USD 58,375 AUD 74,680 370

Goldman Sachs International 3/20/2018 USD 53,378 AUD 68,259 359

Citibank, N.A. 3/21/2018 USD 52,962 GBP 38,376 73

Credit Suisse International 3/21/2018 USD 42,272 GBP 30,210 637

BNP Paribas 3/21/2018 USD 36,381 GBP 26,903 (696)

Citibank, N.A. 3/21/2018 USD 20,361 EUR 16,408 309

Barclays Bank plc 3/13/2018 USD 14,181 JPY 1,594,120 (775)

Barclays Bank plc 3/21/2018 USD 12,866 EUR 10,478 60

Goldman Sachs International 3/21/2018 USD 10,200 GBP 7,305 133

20


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


Unrealized




Deutsche Bank AG 3/20/2018 USD 6,595 AUD 8,358 103

BNP Paribas 3/20/2018 USD 6,579 AUD 8,594 (96)

Barclays Bank plc 3/21/2018 USD 1,656 GBP 1,222 (28)

16,507

AUD—Australian dollar.

EUR—Euro.

GBP—British pound.

JPY—Japanese yen.

USD—U.S. dollar.

Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain

(loss) for tax purposes.

At February 28, 2018, the counterparties had deposited in segregated accounts securities and cash

with a value of $22,675,000 in connection with open forward currency contracts.

21

Six Months Ended

February 28, 2018

($000)

Investment Income

Income

Dividends Received from Unaffiliated Issuers1 92,496

Dividends Received from Affiliated Issuers 859

Interest Received from Unaffiliated Issuers 144

Interest Received from Affiliated Issuers 3,128

Securities Lending—Net 5,212

Total Income 101,839

Expenses

Investment Advisory Fees—Note B

Basic Fee 24,214

Performance Adjustment 4,312

The Vanguard Group—Note C

Management and Administrative—Investor Shares 9,883

Management and Administrative—Admiral Shares 16,428

Marketing and Distribution—Investor Shares 550

Marketing and Distribution—Admiral Shares 717

Custodian Fees 2,562

Shareholders’ Reports and Proxy—Investor Shares 168

Shareholders’ Reports and Proxy—Admiral Shares 212

Trustees’ Fees and Expenses 29

Total Expenses 59,075

Net Investment Income 42,764

Realized Net Gain (Loss)

Investment Securities Sold—Unaffiliated Issuers 787,903

Investment Securities Sold—Affiliated Issuers (46)


Foreign Currencies and Forward Currency Contracts 7,157

Realized Net Gain (Loss) 803,889

Change in Unrealized Appreciation (Depreciation)

Investment Securities Sold—Unaffiliated Issuers 2,761,458

Investment Securities Sold—Affiliated Issuers 31,260


Foreign Currencies and Forward Currency Contracts 8,877

Change in Unrealized Appreciation (Depreciation) 2,804,976

Net Increase (Decrease) in Net Assets Resulting from Operations 3,651,629

1 Dividends are net of foreign withholding taxes of $9,664,000.

Statement of Operations



22

Statement of Changes in Net Assets



Six Months Ended Year Ended

February 28, August 31,

2018 2017

($000) ($000)

Increase (Decrease) in Net Assets

Operations

Net Investment Income 42,764 273,937

Realized Net Gain (Loss) 803,889 (73,896)

Change in Unrealized Appreciation (Depreciation) 2,804,976 6,375,095

Net Increase (Decrease) in Net Assets Resulting from Operations 3,651,629 6,575,136

Distributions

Net Investment Income

Investor Shares (66,639) (77,643)

Admiral Shares (217,469) (214,863)

Realized Capital Gain

Investor Shares — —

Admiral Shares — —

Total Distributions (284,108) (292,506)

Capital Share Transactions

Investor Shares (60,527) (656,313)

Admiral Shares 2,956,958 2,802,104

Net Increase (Decrease) from Capital Share Transactions 2,896,431 2,145,791

Total Increase (Decrease) 6,263,952 8,428,421

Net Assets

Beginning of Period 30,832,022 22,403,601

End of Period1 37,095,974 30,832,022

1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($55,860,000) and $187,387,000.

23

Investor Shares

Six Months

Ended

For a Share Outstanding February 28, Year Ended August 31,

Throughout Each Period 2018 2017 2016 2015 2014 2013

Net Asset Value, Beginning of Period $28.38 $22.38 $20.83 $23.79 $20.42 $17.69

Investment Operations

Net Investment Income .0241 .2401 .304 .308 .4712 .336

Net Realized and Unrealized Gain (Loss)

on Investments 3.259 6.028 1.539 (2.774) 3.235 2.741

Total from Investment Operations 3.283 6.268 1.843 (2.466) 3.706 3.077

Distributions

Dividends from Net Investment Income (.253) (.268) (.293) (.494) (.336) (.347)

Distributions from Realized Capital Gains — — — — — —

Total Distributions (.253) (.268) (.293) (.494) (.336) (.347)

Net Asset Value, End of Period $31.41 $28.38 $22.38 $20.83 $23.79 $20.42

Total Return3 11.61% 28.43% 8.95% -10.46% 18.26% 17.54%

Ratios/Supplemental Data

Net Assets, End of Period (Millions) $8,481 $7,731 $6,700 $7,172 $8,976 $9,056

Ratio of Total Expenses to

Average Net Assets4 0.45% 0.45% 0.46% 0.47% 0.47% 0.48%

Ratio of Net Investment Income to

Average Net Assets 0.15% 1.01% 1.47% 1.34% 2.08%2 1.71%

Portfolio Turnover Rate 15% 15% 29% 29% 21% 31%

The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized.

1 Calculated based on average shares outstanding.

2 Net investment income per share and the ratio of net investment income to average net assets include $.080 and 0.35%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February 2014.

3 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.

4 Includes performance-based investment advisory fee increases (decreases) of 0.03%, 0.03%, 0.04%, 0.03%, 0.03%, and 0.03%.

Financial Highlights



24

Admiral Shares

Six Months

Ended

For a Share Outstanding February 28, Year Ended August 31,

Throughout Each Period 2018 2017 2016 2015 2014 2013

Net Asset Value, Beginning of Period $90.24 $71.19 $66.28 $75.70 $64.98 $56.31

Investment Operations

Net Investment Income .1341 .8791 1.062 1.088 1.6132 1.157

Net Realized and Unrealized Gain (Loss)

on Investments 10.383 19.127 4.877 (8.821) 10.277 8.697

Total from Investment Operations 10.517 20.006 5.939 (7.733) 11.890 9.854

Distributions

Dividends from Net Investment Income (.807) (.956) (1.029) (1.687) (1.170) (1.184)

Distributions from Realized Capital Gains — — — — — —

Total Distributions (.807) (.956) (1.029) (1.687) (1.170) (1.184)

Net Asset Value, End of Period $99.95 $90.24 $71.19 $66.28 $75.70 $64.98

Total Return3 11.70% 28.57% 9.07% -10.32% 18.42% 17.66%

Ratios/Supplemental Data

Net Assets, End of Period (Millions) $28,615 $23,101 $15,704 $13,752 $14,415 $10,556

Ratio of Total Expenses to

Average Net Assets4 0.32% 0.32% 0.33% 0.34% 0.34% 0.35%

Ratio of Net Investment Income to

Average Net Assets 0.28% 1.14% 1.60% 1.47% 2.21%2 1.84%

Portfolio Turnover Rate 15% 15% 29% 29% 21% 31%

The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized.

1 Calculated based on average shares outstanding.

2 Net investment income per share and the ratio of net investment income to average net assets include $.255 and 0.35%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February 2014.

3 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.

4 Includes performance-based investment advisory fee increases (decreases) of 0.03%, 0.03%, 0.04%, 0.03%, 0.03%, and 0.03%.

Financial Highlights



25

Notes to Financial Statements


Vanguard International Growth Fund is registered under the Investment Company Act of 1940 as

an open-end investment company, or mutual fund. The fund invests in securities of foreign issuers,

which may subject it to investment risks not normally associated with investing in securities of U.S.

corporations. 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 are valued using the latest bid prices or using valuations based on a matrix

system (which considers such factors as security prices, yields, maturities, and ratings), both as

furnished by independent pricing services.

2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies

are translated into U.S. dollars using exchange rates obtained from an independent third party as

of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation

(depreciation) on investment securities include the effects of changes in exchange rates since the

securities were purchased, combined with the effects of changes in security prices. Fluctuations

in the value of other assets and liabilities resulting from changes in exchange rates are recorded as

unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which

time they are recorded as realized foreign currency gains (losses).

3. Futures and Forward Currency 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

26


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.

The fund enters into forward currency contracts to provide the appropriate currency exposure

related to any open futures contracts or to protect the value of securities and related receivables

and payables against changes in foreign exchange rates. The fund’s risks in using these contracts

include movement in the values of the foreign currencies relative to the U.S. dollar and the ability

of the counterparties to fulfill their obligations under the contracts. The fund mitigates its

counterparty risk by entering into forward currency contracts only with a diverse group of

prequalified counterparties, monitoring their financial strength, entering into master netting

arrangements with its counterparties, and requiring its counterparties to transfer collateral as

security for their performance. In the absence of a default, the collateral pledged or received by

the fund cannot be repledged, resold, or rehypothecated. The master netting arrangements provide

that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the

forward currency contracts, determine the net amount owed by either party in accordance with its

master netting arrangements, and sell or retain any collateral held up to the net amount owed to

the fund under the master netting arrangements. The forward currency contracts contain provisions

whereby a counterparty may terminate open contracts if the fund’s net assets decline below

a certain level, triggering a payment by the fund if the fund is in a net liability position at the time

of the termination. The payment amount would be reduced by any collateral the fund has pledged.

Any assets pledged as collateral for open contracts are noted in the Statement of Net Assets.

The value of collateral received or pledged is compared daily to the value of the forward currency

contracts exposure with each counterparty, and any difference, if in excess of a specified minimum

transfer amount, is adjusted and settled within two business days.

Futures contracts are valued at their quoted daily settlement prices. Forward currency contracts are

valued at their quoted daily prices obtained from an independent third party, adjusted for currency

risk based on the expiration date of each contract. The notional amounts of the contracts are not

recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in

the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized

appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains

(losses) on futures or forward currency contracts.

During the six months ended February 28, 2018, the fund’s average investments in long and short

futures contracts represented less than 1% and 0% of net assets, respectively, based on the

average of the notional amounts at each quarter-end during the period. The fund’s average

investment in forward currency contracts represented 4% of net assets, based on the average

of the notional amounts at each quarter-end during the period.

4. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment

company and distribute all of its taxable income. Management has analyzed the fund’s tax positions

taken for all open federal income tax years (August 31, 2014–2017), and for the period ended

February 28, 2018, and has concluded that no provision for federal income tax is required in the

fund’s financial statements.

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

27


6. Securities Lending: To earn additional income, the fund lends its securities to qualified

institutional borrowers. Security loans are subject to termination by the fund at any time, and

are required to be secured at all times by collateral in an amount at least equal to the market

value of securities loaned. Daily market fluctuations could cause the value of loaned securities

to be more or less than the value of the collateral received. When this occurs, the collateral is

adjusted and settled on the next business day. The fund further mitigates its counterparty risk

by entering into securities lending transactions only with a diverse group of prequalified

counterparties, monitoring their financial strength, and entering into master securities lending

agreements with its counterparties. The master securities lending agreements provide that, in the

event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that

borrower, determine the net amount owed, and sell or retain the collateral up to the net amount

owed to the fund; however, such actions may be subject to legal proceedings. While collateral

mitigates counterparty risk, in the event of a default, the fund may experience delays and costs

in recovering the securities loaned. The fund invests cash collateral received in Vanguard 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.

7. 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 February 28, 2018, or at any time during the period

then ended.

8. 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.

Withholding taxes on foreign dividends and capital gains have been provided for in accordance with

the fund’s understanding of the applicable countries’ tax rules and rates. The fund has filed tax

reclaims for previously withheld taxes on dividends earned in certain European Union countries.

These filings are subject to various administrative and judicial proceedings within these countries.

Such tax reclaims received during the year, if any, are included in dividend income. No other

28


amounts for additional tax reclaims are reflected in the financial statements due to the uncertainty

as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the

potential timing of payment.

Each class of shares has equal rights as to assets and earnings, except that each class separately

bears certain class-specific expenses related to maintenance of shareholder accounts (included in

Management and Administrative expenses), shareholder reporting, and the proxy. 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 Baillie Gifford Overseas Ltd. and Schroder Investment

Management North America Inc. 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 Baillie Gifford Overseas Ltd. and Schroder Investment Management North

America Inc. are subject to quarterly adjustments based on performance relative to the MSCI All

Country World Index ex USA for the preceding three years.

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

For the six months ended February 28, 2018, the aggregate investment advisory fee represented

an effective annual basic rate of 0.14% of the fund’s average net assets, before an increase of

$4,312,000 (0.03%) based on performance.

C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard

and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing,

distribution, and cash management services at Vanguard’s cost of operations (as defined by the

FSA). These costs of operations are allocated to the fund based on methods and guidelines

approved by the board of trustees. Vanguard does not require reimbursement in the current period

for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs);

the fund’s liability for these costs of operations is included in Payables to Vanguard on the

Statement of Net Assets. All other costs of operations payable to Vanguard are generally settled

twice a month.

Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in

Vanguard. At February 28, 2018, the fund had contributed to Vanguard capital in the amount of

$2,015,000, representing 0.01% of the fund’s net assets and 0.81% of Vanguard’s capitalization.

The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.

D. Various inputs may be used to determine the value of the fund’s investments. These inputs are

summarized in three broad levels for financial statement purposes. The inputs or methodologies

used to value securities are not necessarily an indication of the risk associated with investing in

those securities.

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

Level 2—Other significant observable inputs (including quoted prices for similar securities, interest

rates, prepayment speeds, credit risk, etc.).

Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine

the fair value of investments). Any investments valued with significant unobservable inputs are

noted on the Statement of Net Assets.

29


The following table summarizes the market value of the fund’s investments as of February 28,

2018, based on the inputs used to value them:

Level 1 Level 2 Level 3

Investments ($000) ($000) ($000)

Common Stocks—North and South America 3,982,003 — —

Common Stocks—Other 4,890,203 27,388,215 161,566

Preferred Stocks — — 276,713

Temporary Cash Investments 900,318 23,476 —

Futures Contracts—Assets1 10,428 — —

Futures Contracts—Liabilities1 (12,481) — —

Forward Currency Contracts—Assets — 42,999 —

Forward Currency Contracts—Liabilities — (26,492) —

Total 9,770,471 27,428,198 438,279

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

The determination of Level 3 fair value measurements is governed by documented policies and

procedures adopted by the board of trustees. The board has designated a pricing review

committee, as an agent of the board, to ensure the timely analysis and valuation of Level 3

securities held by the fund in accordance with established policies and procedures. The pricing

review committee employs various methods for calibrating valuation approaches, including a

regular review of key inputs and assumptions, transactional back-testing or disposition analysis,

and reviews of any related market activity. All valuation decisions made by the pricing review

committee are reported to the board on a quarterly basis for review and ratification. The board

reviews the adequacy of the fair value measurement policies and procedures in place on an

annual basis.

The following table summarizes changes in investments valued based on Level 3 inputs during the

six months ended February 28, 2018. Transfers into or out of Level 3 are recognized based on

values as of the date of transfer.

Investments in Investments in

Common Stocks Preferred Stocks

Amount Valued Based on Level 3 Inputs ($000) ($000)

Balance as of August 31, 2017 119,867 318,484

Sales — (9,127)

Net Realized Gain (Loss) — (301)

Transfers Out of Level 3 — (36,567)

Change in Unrealized Appreciation (Depreciation) 41,699 4,224

Balance as of February 28, 2018 161,566 276,713

Net change in unrealized appreciation (depreciation) from investments still held as of February 28, 2018, was $48,354,000.

30

31


The following table provides quantitative information about the significant unobservable inputs

used in fair value measurement as of February 28, 2018:

Security Type

Fair Value at

2/28/2018

($000) Valuation Technique

Unobservable Input

Amount or Range/

Weighted Avg.

Common Stocks 161,566 Recent Market

Transaction

Transaction Price $207.54–

4,800/3,819.60

Preferred Stocks 185,682 Recent Market

Transaction

Transaction Price $5.50–

2,603.49/497.62

51,517 Recent Market

Transaction

Scenario Probability 50%

Transaction Price $1265.85

39,514 Comparable Companies

& Valuation of Underlying

Holdings

EV/Revenue 2.18x

Liquidity Discount 10%

Significant increases or decreases in the significant unobservable inputs used in the fair value

measurement of the portfolio’s Level 3 securities, in isolation, could result in a significantly higher

or lower fair value measurement.

E. At February 28, 2018, the fair values of derivatives were reflected in the Statement of Net

Assets as follows:

Foreign

Equity Exchange

Contracts Contracts Total

Statement of Net Assets Caption ($000) ($000) ($000)

Variation Margin Receivable—Futures Contracts 10,428 — 10,428

Variation Margin Payable—Futures Contracts (12,481) — (12,481)

Unrealized Appreciation—Forward Currency Contracts — 42,999 42,999

Unrealized Depreciation—Forward Currency Contracts — (26,492) (26,492)

Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for

the six months ended February 28, 2018, were:

Foreign

Equity Exchange

Contracts Contracts Total

Realized Net Gain (Loss) on Derivatives ($000) ($000) ($000)

Futures Contracts 8,875 — 8,875

Forward Currency Contracts — 9,060 9,060

Realized Net Gain (Loss) on Derivatives 8,875 9,060 17,935

Change in Unrealized Appreciation (Depreciation) on Derivatives

Futures Contracts 3,381 — 3,381

Forward Currency Contracts — 6,910 6,910

Change in Unrealized Appreciation (Depreciation) on Derivatives 3,381 6,910 10,291


F. 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 gains or losses 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.

The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For

tax purposes, at August 31, 2017, the fund had available capital losses totaling $538,520,000 to

offset future net capital gains. Of this amount, $154,471,000 is subject to expiration on August 31,

2018. Capital losses of $384,049,000 realized beginning in fiscal 2012 may be carried forward

indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be

used before any expiring loss carryforwards. The fund will use these capital losses to offset net

taxable capital gains, if any, realized during the year ending August 31, 2018; should the fund realize

net capital losses for the year, the losses will be added to the loss carryforward balance above.

At February 28, 2018, the cost of investment securities for tax purposes was $24,492,492,000.

Net unrealized appreciation of investment securities for tax purposes was $13,130,002,000,

consisting of unrealized gains of $13,537,399,000 on securities that had risen in value since their

purchase and $407,397,000 in unrealized losses on securities that had fallen in value since their

purchase.

G. During the six months ended February 28, 2018, the fund purchased $5,286,970,000 of

investment securities and sold $2,485,506,000 of investment securities, other than temporary

cash investments.

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

Six Months Ended Year Ended

February 28, 2018 August 31, 2017

Amount Shares Amount Shares

($000) (000) ($000) (000)

Investor Shares

Issued 1,343,430 43,823 1,133,334 45,828

Issued in Lieu of Cash Distributions 64,011 2,138 75,179 3,578

Redeemed (1,467,968) (48,411) (1,864,826) (76,319)

Net Increase (Decrease)—Investor Shares (60,527) (2,450) (656,313) (26,913)

Admiral Shares

Issued 4,286,674 44,048 4,361,979 55,736

Issued in Lieu of Cash Distributions 199,775 2,098 197,992 2,966

Redeemed (1,529,491) (15,842) (1,757,867) (23,306)

Net Increase (Decrease)—Admiral Shares 2,956,958 30,304 2,802,104 35,396

32


I. Certain of the fund’s investments are in companies that are considered to be affiliated

companies of the fund because the fund owns more than 5% of the outstanding voting securities

of the company or the issuer is another member of The Vanguard Group. Transactions during the

period in securities of these companies were as follows:

Current Period Transactions

Aug. 31, Proceeds Net Change Feb. 28,

2017 from Realized in Net Capital Gain 2018

Market Purchases Securities Gain Unrealized Distributions Market

Value at Cost Sold (Loss) App. (Dep.) Income Received Value

($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)

HelloFresh SE NA1 93,241 — — 38,705 — — 131,946

Home 24AG 50,404 — — — 1,113 — — 51,517

Vanguard FTSE

All-World ex-US ETF 58,735 — — — 3,069 859 — 61,804

Vanguard Market

Liquidity Fund 830,790 NA2 NA2 (46) (159) 3,128 — 900,318

You & Mr. Jones 50,982 — — — (11,468) — — 39,514

Total 990,911 (46) 31,260 3,987 — 1,185,099

1 Not applicable—at August 31, 2017, the issuer was not an affiliated company of the fund.

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

J. Management has determined that no material events or transactions occurred subsequent to

February 28, 2018, that would require recognition or disclosure in these financial statements.

33

About Your Fund’s Expenses

34

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 ongoingcosts only and do not reflect transaction costs incurred by the fund for buying and sellingsecurities. Further, the expenses do not include any purchase, redemption, or account servicefees described in the fund prospectus. If such fees were applied to your account, your costswould 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.

35

Six Months Ended February 28, 2018


Beginning

Account Value

8/31/2017

Ending

Account Value

2/28/2018

Expenses

Paid During

Period

Based on Actual Fund Return

Investor Shares $1,000.00 $1,116.13 $2.36

Admiral Shares 1,000.00 1,116.98 1.68

Based on Hypothetical 5% Yearly Return

Investor Shares $1,000.00 $1,022.56 $2.26

Admiral Shares 1,000.00 1,023.21 1.61

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

The board of trustees of Vanguard International Growth Fund has renewed the fund’s investment

advisory arrangements with Baillie Gifford Overseas Ltd. (Baillie Gifford) and Schroder Investment

Management North America Inc. (Schroder Inc.), as well as the sub-advisory agreement with

Schroder Investment Management North America Ltd. (Schroder Ltd.). The board determined that

renewing the fund’s advisory arrangements was in the best interests of the fund and its

shareholders.

The board based its decision upon an evaluation of each advisor’s investment staff, portfolio

management process, and performance. This evaluation included information provided to the board

by Vanguard’s Portfolio Review Department, which is responsible for fund and advisory oversight

and product management. The Portfolio Review Department met regularly with the advisors and

made monthly presentations to the board during the fiscal year that directed the board’s focus to

relevant information and topics.

The board, or an investment committee made up of board members, also received information

throughout the year during advisor presentations. For each advisor presentation, the board was

provided with letters and reports that included information about, among other things, the advisory

firm and the advisor’s assessment of the investment environment, portfolio performance, and

portfolio characteristics.

In addition, the board received monthly reports, which included a Market and Economic Report,

a Fund Dashboard Monthly Summary, and a Fund Performance Report.

Prior to their meeting, the trustees were provided with a memo and materials that summarized the

information they received over the course of the year. They also considered the factors discussed

below, among others. However, no single factor determined whether the board approved the

arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.

Nature, extent, and quality of services

The board reviewed the quality of the fund’s investment management services over both the

short and long term, and took into account the organizational depth and stability of each advisor.

The board considered the following:

Baillie Gifford. Baillie Gifford—a unit of Baillie Gifford & Co., founded in 1908—is among the

largest independently owned investment management firms in the United Kingdom. Baillie Gifford

uses fundamental research to make long-term investments in companies that have above-average

growth potential resulting from sustainable competitive advantages, special cultures and

management, or competitive strength in underestimated technology shifts. Baillie Gifford believes

that equities’ asymmetrical return pattern means that alpha is generated by focusing on the upside

and the potential to earn exponential returns rather than being overly concerned with avoiding

losing investments. The advisor takes a bottom-up, stock-driven approach to sector and country

allocation. Baillie Gifford has advised a portion of the fund since 2003.

Schroder. Schroders plc, the parent company of Schroder Inc. and Schroder Ltd. (collectively,

Schroder), was founded in 1804 in London, England. Schroder specializes in global equity and fixed

income management and seeks to invest in securities of international companies where it has

identified a significant growth gap, which is defined as forward earnings growth that is not yet

recognized by the market. Schroder believes that market inefficiencies often drive material

differences between underlying company fundamentals and market estimates. The advisor also

Trustees Approve Advisory Arrangements

36

believes that in-depth fundamental research, incorporating a comprehensive macroeconomic

viewpoint and a robust framework of fundamental risk analysis, is the most reliable means of

finding those companies and identifying the growth gap. Schroder Inc. has advised the fund

since its inception in 1981, and its affiliate Schroder Ltd. has advised the fund since 2003.

The board concluded that each advisor’s experience, stability, depth, and performance, among

other factors, warranted continuation of the advisory arrangements.

Investment performance

The board considered the short- and long-term performance of the fund and each advisor, including

any periods of outperformance or underperformance compared with a relevant benchmark and

peer group. The board concluded that the performance was such that each advisory arrangement

should continue. Information about the fund’s most recent performance can be found in the

Performance Summary section of this report.

Cost

The board concluded that the fund’s expense ratio was well below the average expense ratio

charged by funds in its peer group and that the fund’s advisory fee rate was also well below the

peer-group average. Information about the fund’s expense ratio appears in the About Your Fund’s

Expenses section of this report as well as in the Financial Statements section, which also includes

information about the fund’s advisory fee rate.

The board did not consider the profitability of Baillie Gifford or Schroder in determining whether to

approve the advisory fees, because the firms are independent of Vanguard and the advisory fees

are the result of arm’s-length negotiations.

The benefit of economies of scale

The board concluded that the fund’s shareholders benefit from economies of scale because of

breakpoints in the advisory fee schedules for Baillie Gifford and Schroder. The breakpoints reduce

the effective rate of the fees as the fund’s assets managed by each advisor increase.

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

37

Glossary

38

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.

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.

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.

39

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.

Benchmark Information

Spliced International Index: MSCI EAFE Index through May 31, 2010; MSCI All Country World

Index ex USA thereafter.

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark

of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use

by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification

makes any express or implied warranties or representations with respect to such standard or classification (or the results

to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy,

completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification.

Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in

making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive,

consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

40

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

208 Vanguard funds.

Information for each trustee and executive officer of the fund appears below. The mailing address

of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the

trustees is in the Statement of Additional Information, which can be obtained, without charge,

by contacting Vanguard at 800-662-7447, or online at vanguard.com.

Interested Trustees1

F. William McNabb III

Born in 1957. Trustee since July 2009. Principal

occupation(s) during the past five years and

other experience: chairman of the board

(January 2010–present) of Vanguard and of each

of the investment companies served by Vanguard,

trustee (2009–present) of each of the investment

companies served by Vanguard, and director

(2008–present) of Vanguard. Chief executive officer

and president (2008–2017) of Vanguard and each

of the investment companies served by Vanguard,

managing director (1995–2008) of Vanguard,

and director (1997–2018) of Vanguard Marketing

Corporation. Director (2018–present) of

UnitedHealth Group.

Mortimer J. Buckley

Born in 1969. Trustee since January 2018. Principal

occupation(s) during the past five years and

other experience: chief executive officer

(January 2018–present) of Vanguard; chief executive

officer, president, and trustee (January 2018–present)

of each of the investment companies served by

Vanguard; president and director (2017–present) of

Vanguard; and president (February 2018–present) of

Vanguard Marketing Corporation. Chief investment

officer (2013–2017), managing director (2002–2017),

head of the Retail Investor Group (2006–2012), and

chief information officer (2001–2006) of Vanguard.

Chairman of the board (2011–2017) of the Children’s

Hospital of Philadelphia.

Independent Trustees

Emerson U. Fullwood


occupation(s) during the past five years and other

experience: executive chief staff and marketing officer

for North America and corporate vice president (retired

2008) of Xerox Corporation (document management

products and services). Former president of the

Worldwide Channels Group, Latin America, and

Worldwide Customer Service and executive chief

staff officer of Developing Markets of Xerox. Executive

in residence and 2009–2010 Distinguished Minett

Professor at the Rochester Institute of Technology.

Lead director of SPX FLOW, Inc. (multi-industry

manufacturing). Director of the University of Rochester

Medical Center, the Monroe Community College

Foundation, the United Way of Rochester, North

Carolina A&T University, and Roberts Wesleyan

College. Trustee of the University of Rochester.

Amy Gutmann

Born in 1949. Trustee since June 2006. Principal


experience: president (2004–present) of the University

of Pennsylvania. Christopher H. Browne Distinguished

Professor of Political Science, School of Arts and

Sciences, and professor of communication, Annenberg

School for Communication, with secondary faculty

appointments in the Department of Philosophy, School

of Arts and Sciences, and at the Graduate School of

Education, University of Pennsylvania. Trustee of the

National Constitution Center.

1 Mr. McNabb and Mr. Buckley are considered “interested persons,” as defined in the Investment Company Act of 1940, because they are officers of the Vanguard funds.

JoAnn Heffernan Heisen



experience: corporate vice president of Johnson &

Johnson (pharmaceuticals/medical devices/consumer

products) and member of its executive committee

(1997–2008). Chief global diversity officer (retired

2008), vice president and chief information officer

(1997–2006), controller (1995–1997), treasurer

(1991–1995), and assistant treasurer (1989–1991)

of Johnson & Johnson. 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 in 1949. Trustee since October 2009. Principal


experience: president and chief operating officer

(retired 2009) and vice chairman of the board

(2008–2009) of Cummins Inc. (industrial machinery).

Chairman of the board of Hillenbrand, Inc. (specialized

consumer services), Oxfam America, and the Lumina

Foundation for Education. Director of the V Foundation

for Cancer Research. Member of the advisory council

for the College of Arts and Letters and chair of the

advisory board to the Kellogg Institute for International

Studies, both at the University of Notre Dame.

Mark Loughridge

Born in 1953. Trustee since March 2012. Principal


experience: senior vice president and chief financial

officer (retired 2013) of IBM (information technology

services). Fiduciary member of IBM’s Retirement

Plan Committee (2004–2013), senior vice president

and general manager (2002–2004) of IBM Global

Financing, vice president and controller (1998–2002)

of IBM, and a variety of other prior management roles

at IBM. Member of the Council on Chicago Booth.

Scott C. Malpass

Born in 1962. Trustee since March 2012. Principal


experience: chief investment officer (1989–present)

and vice president (1996–present) of the University

of Notre Dame. Assistant professor of finance at the

Mendoza College of Business, University of Notre

Dame, and member of the Notre Dame 403(b)

Investment Committee. Chairman of the board of

TIFF Advisory Services, Inc. Member of the board

of Catholic Investment Services, Inc. (investment

advisors), the board of advisors for Spruceview

Capital Partners, and the board of superintendence

of the Institute for the Works of Religion.

Deanna Mulligan



experience: president (2010–present) and chief

executive officer (2011–present) of The Guardian

Life Insurance Company of America. Chief operating

officer (2010–2011) and executive vice president

(2008–2010) of Individual Life and Disability of

The Guardian Life Insurance Company of America.

Member of the board of The Guardian Life Insurance

Company of America, the American Council of Life

Insurers, the Partnership for New York City (business

leadership), and the Committee Encouraging Corporate

Philanthropy. Trustee of the Economic Club of New

York and the Bruce Museum (arts and science).

Member of the Advisory Council for the Stanford

Graduate School of Business.

André F. Perold

Born in 1952. Trustee since December 2004. Principal


experience: George Gund Professor of Finance and

Banking, Emeritus at the Harvard Business School

(retired 2011). Chief investment officer and co-

managing partner of HighVista Strategies LLC

(private investment firm). Overseer of the Museum

of Fine Arts Boston.

Sarah Bloom Raskin



experience: deputy secretary (2014–2017) of

the United States Department of the Treasury.

Governor (2010–2014) of the Federal Reserve Board.

Commissioner (2007–2010) of financial regulation

for the State of Maryland. Member of the board of

directors (2012–2014) of Neighborhood Reinvestment

Corporation. Director of i(x) Investments, LLC.

Peter F. Volanakis



experience: president and chief operating officer

(retired 2010) of Corning Incorporated (communications

equipment) and director of Corning Incorporated

(2000–2010) and Dow Corning (2001–2010).

Director (2012) of SPX Corporation (multi-industry

manufacturing). Overseer of the Amos Tuck School

of Business Administration, Dartmouth College

(2001–2013). Chairman of the board of trustees of

Colby-Sawyer College. Member of the Board of

Hypertherm Inc. (industrial cutting systems, software,

and consumables).

Executive Officers

Glenn Booraem

Born in 1967. Principal occupation(s) during the past

five years and other experience: principal of Vanguard.

Investment stewardship officer (2017–present),

treasurer (2015–2017), controller (2010–2015),

and assistant controller (2001–2010) of each of

the investment companies served by Vanguard.

Christine M. Buchanan


five years and other experience: principal of Vanguard

and global head of Fund Administration at Vanguard.

Treasurer (2017–present) of each of the investment

companies served by Vanguard. Partner (2005–2017)

at KPMG LLP (audit, tax, and advisory services).

Brian Dvorak



Chief compliance officer (2017–present) of Vanguard

and each of the investment companies served by

Vanguard. Assistant vice president (2017–present) of

Vanguard Marketing Corporation. Vice president and

director of Enterprise Risk Management (2011–2013)

at Oppenheimer Funds, Inc.

Thomas J. Higgins



Chief financial officer (2008–present) and treasurer

(1998–2008) of each of the investment companies

served by Vanguard.

Peter Mahoney



Controller (2015–present) of each of the investment

companies served by Vanguard. Head of International

Fund Services (2008–2014) at Vanguard.

Anne E. Robinson

Born in 1970. Principal occupation(s) during the

past five years and other experience: general

counsel (2016–present) of Vanguard. Secretary

(2016–present) of Vanguard and of each of the

investment companies served by Vanguard.

Managing director (2016–present) of Vanguard.

Director and senior vice president (2016–2018)

of Vanguard Marketing Corporation. Managing

director and general counsel of Global Cards and

Consumer Services (2014–2016) at Citigroup.

Counsel (2003–2014) at American Express.

Michael Rollings

Born in 1963. Principal occupation(s) during the

past five years and other experience: finance

director (2017–present) and treasurer (2017) of each

of the investment companies served by Vanguard.

Managing director (2016–present) of Vanguard. Chief

financial officer (2016–present) of Vanguard. Director

(2016–present) of Vanguard Marketing Corporation.

Executive vice president and chief financial officer

(2006–2016) of MassMutual Financial Group.

Vanguard Senior Management Team

Mortimer J. Buckley James M. Norris

Gregory Davis Thomas M. Rampulla

John James Karin A. Risi

Martha G. King Anne E. Robinson

John T. Marcante Michael Rollings

Chris D. McIsaac

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

P.O. Box 2600

Valley Forge, PA 19482-2600

Connect with Vanguard® > vanguard.com

Fund Information > 800-662-7447

Direct Investor Account Services > 800-662-2739

Institutional Investor Services > 800-523-1036

Text Telephone for PeopleWho Are Deaf or Hard of Hearing > 800-749-7273

This material may be used in conjunctionwith the offering of shares of any Vanguardfund only if preceded or accompanied bythe fund’s current prospectus.

All comparative mutual fund data are from Lipper, aThomson Reuters Company, or Morningstar, Inc., unlessotherwise noted.

You can obtain a free copy of Vanguard’s proxy votingguidelines by visiting vanguard.com/proxyreporting or bycalling Vanguard at 800-662-2739. The guidelines arealso available from the SEC’s website, sec.gov. Inaddition, you may obtain a free report on how your fundvoted the proxies for securities it owned during the 12months ended June 30. To get the report, visit eithervanguard.com/proxyreporting or sec.gov.

You can review and copy information about your fund atthe SEC’s Public Reference Room in Washington, D.C. Tofind out more about this public service, call the SEC at202-551-8090. Information about your fund is alsoavailable on the SEC’s website, and you can receivecopies of this information, for a fee, by sending arequest in either of two ways: via email addressed [email protected] or via regular mail addressed to thePublic Reference Section, Securities and ExchangeCommission, Washington, DC 20549-1520.

Source for Bloomberg Barclays indexes: BloombergIndex Services Limited. Copyright 2018, Bloomberg. Allrights reserved.

CFA® is a registered trademark owned by CFA Institute.

© 2018 The Vanguard Group, Inc.All rights reserved.Vanguard Marketing Corporation, Distributor.

Q812 042018

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