Annual Report | October 31, 2016

Vanguard International Explorer™ Fund

A new format, unwavering commitment As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients. Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period. In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights. We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information. At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.

Contents Your Fund’s Performance at a Glance. . . . . . . . . . . . . . . . . . 1 Chairman’s Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Advisors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Fund Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Performance Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Your Fund’s After-Tax Returns. . . . . . . . . . . . . . . . . . . . . . . 33 About Your Fund’s Expenses. . . . . . . . . . . . . . . . . . . . . . . . 34 Trustees Approve Advisory Arrangements. . . . . . . . . . . . . .36 Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus. See the Glossary for definitions of investment terms used in this report. About the cover: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown translated into seven languages, reflecting our expanding global presence.

Your Fund’s Performance at a Glance • For the 12 months ended October 31, 2016, Vanguard International Explorer Fund returned –0.06%. Its benchmark returned 1.88%; the average return of its peers was 1.39%. • The fund’s two advisors analyze small-capitalization companies to identify those they believe will grow faster than the overall market. • Their bottom-up approach produced above-benchmark returns in some markets, including China, South Korea, France, and Sweden, but lagged overall in the Pacific and Europe. In particular, stock selection in Japan, Australia, Italy, and the United Kingdom dampened relative performance. • By sector, the fund outperformed in information technology, consumer discretionary, and utilities, but underperformed in others, notably financials and materials. • For the ten years ended October 31, 2016, the fund produced an average annual return of 3.56%. Its composite index returned 3.61% and the average return of its peers was 3.68%.

Total Returns: Fiscal Year Ended October 31, 2016 Total Returns Vanguard International Explorer Fund

-0.06%

S&P EPAC SmallCap Index

1.88

International Small-Cap Funds Average

1.39

International Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

Total Returns: Ten Years Ended October 31, 2016 Average Annual Return International Explorer Fund

3.56%

S&P EPAC SmallCap Index

3.61

International Small-Cap Funds Average

3.68

International Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.

1

Expense Ratios Your Fund Compared With Its Peer Group

International Explorer Fund

Fund

Peer Group Average

0.42%

1.59%

The fund expense ratio shown is from the prospectus dated February 25, 2016, and represents estimated costs for the current fiscal year. For the fiscal year ended October 31, 2016, the fund’s expense ratio was 0.41%. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2015. Peer group: International Small-Cap Funds.

2

Chairman’s Perspective Dear Shareholder, Over the three years ended August 31, 2016, investors poured more than $1 trillion into index funds. Indexing now accounts for nearly a third of all mutual fund assets—more than double what it did a decade ago and eight times its share two decades ago.1

Bill McNabb Chairman and Chief Executive Officer

By contrast, active management’s commercial struggles have reflected its disappointing investment performance. Over the decade ended December 31, 2015, 82% of actively managed stock funds and 81% of active bond funds have either underperformed their benchmarks or shut down. This subpar performance has fueled the explosion of asset growth in indexing among individual, retirement, and nonprofit investors. So what might the trend mean for the future of actively managed funds? Our research and experience indicate that active management can survive—and even succeed—but only if it’s offered at much lower expense. High costs, which limit a manager’s ability to deliver benchmark-beating returns to clients, are the biggest reason why active has lagged. Industrywide as of December 31, 2015, the average expense ratio for all active stock funds is 1.14%, compared with 0.76% for stock index

1 Sources: Wall Street Journal; Morningstar, Inc.; and Investment Company Institute, 2016. 3

funds. And the expense advantage is even wider for bonds; the average expense ratio for an active bond fund is 0.93%, compared with 0.43% for bond index funds. But even these big differences understate the real gap. These days, it’s not hard to find an index fund that charges maybe 0.05% or 0.10%. So even if you have identified active managers who are skilled at selecting stocks and bonds, to match the return of a comparable (much cheaper) index fund would require significant outperformance. Think about it. Any fund that charges 1.00% in expenses—not even the high end of the range—will find it extraordinarily difficult to overcome the index fund’s head start.

Active management also has taken a hit from a regulatory environment that has been favorable to low-cost strategies. The U.S. Department of Labor several years ago mandated greater disclosure of retirement plan fees. And its new fiduciary rule, which is set to take effect in April, requires financial advisors to demonstrate that their recommendations are aligned with their clients’ best interest. Both changes encourage the use of lower-cost investments, including index funds.

The future of active management In light of all this, people have been asking me whether active management is “dead.” My response is both yes and no. High-cost active management is dead, and rightly so. It has never been a winning proposition

Market Barometer Average Annual Total Returns Periods Ended October 31, 2016 One Year

Three Years

Five Years

Stocks Russell 1000 Index (Large-caps)

4.26%

8.48%

13.51%

Russell 2000 Index (Small-caps)

4.11

4.12

11.51

Russell 3000 Index (Broad U.S. market)

4.24

8.13

13.35

FTSE All-World ex US Index (International)

0.64

-0.94

4.09

4.37%

3.48%

2.90%

Bonds Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market)

4.06

4.89

4.34

Citigroup Three-Month U.S. Treasury Bill Index

0.22

0.07

0.07

1.64%

1.15%

1.32%

CPI Consumer Price Index

4

for investors. Low-cost active funds, though, can potentially play an important role for investors who seek to outperform the market. Paying less for your funds is the only sure-fire way to improve your odds of achieving success in active management. But even if you have found an active manager with low costs, the odds of outperforming the market are still long. You have to be able to identify talented stock and bond portfolio managers with long time horizons and clear investment strategies. Look for managers with consistent track records and the discipline to stick closely to their investment strategy.

Know what you own and why Despite the well-deserved reputation of indexing and the challenges for active managers, there’s still a place for traditional active strategies that are lowcost, diversified, and highly disciplined, and are run by talented managers who focus on the long term. Vanguard has always applied these principles to our active strategies, and investors have benefited as a majority of our active funds outperformed their benchmarks and bested their peers’ average annual return over the ten years ended September 30, 2016.

Worried about the election’s impact on your portfolio?

These findings hold true regardless of the market’s initial reaction. Whether there’s a swoon or bounce immediately after an election, investors shouldn’t extrapolate that performance to the long term. As you can see in the accompanying chart, data going back to 1853 show that stock market returns are virtually identical no matter which party controls the White House. Although headlines out of Washington at any given time may still cause concern, investors

shouldn’t overreact to short-term events. Instead, it’s best to maintain a balanced and diversified portfolio and stay focused on your long-term goals. Average annual stock market returns based on party control of the White House (1853–2015) Year-end stock market returns (nominal)

The 2016 presidential election season was one of the most intense and unpredictable in U.S. history. In its aftermath, investors may be left with lingering questions about what the outcome will mean for their portfolios. The answer, based on Vanguard research into decades of historical data, is that presidential elections typically have no long-term effect on market performance.

11%

0 Democrat

Republican

Sources: Global Financial Data, 1853–1926; Morningstar, Inc., and Ibbotson Associates thereafter through 2015.

5

But it’s crucial for investors to be patient. Even active managers with the best track records frequently underperform their benchmarks when their investment styles are out of favor. Such periods, though temporary, can persist. So it’s important when entrusting your assets to an active strategy to be in it for the long haul.

Keeping these considerations in mind can potentially boost your chances of success in identifying active strategies that may be able to help you reach your goals. As always, thank you for investing with Vanguard. Sincerely,

Make sure you know what you’re buying and what the risks are. Active strategies are becoming more complex, so it’s important to clearly understand what the investments in your portfolio are designed to accomplish and why you want to hold them. Otherwise, you run the risk of selecting strategies that don’t fit your needs or objectives.

6

F. William McNabb III Chairman and Chief Executive Officer November 9, 2016

Advisors’ Report For the fiscal year ended October 31, 2016, Vanguard International Explorer Fund returned –0.06%. Your fund is managed by two independent advisors, a strategy that enhances its diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment. The 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 year and of how their portfolio positioning reflected that assessment. These comments were prepared on November 10, 2016.

November 4, 2016, marked the fund’s 20th anniversary. We would like to thank Schroder Investment Management for being an advisor to the fund since its launch.

Schroder Investment Management North America Inc. Portfolio Manager: Matthew F. Dobbs, Head of Global Small Companies International small-capitalization equities made limited progress over the year, with the S&P EPAC SmallCap Index returning 1.9% in U.S. dollars. Overall returns may have been modest for the year, but international small caps have again

Vanguard International Explorer Fund Investment Advisors Fund Assets Managed Investment Advisor

%

$ Million

Schroder Investment Management North America Inc.

69

1,961

The advisor employs a fundamental investment approach that considers macroeconomic factors while focusing primarily on company-specific factors, including a company’s potential for long-term growth, financial condition, quality of management, and sensitivity to cyclical factors. The advisor also considers the relative value of a company’s securities compared with those of other companies and the market as a whole.

Wellington Management Company LLP

28

801

The advisor employs a traditional, bottom-up approach that is opportunistic in nature, relying on global and regional research resources to identify both growth-oriented and neglected or misunderstood companies.

3

67

These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor also may maintain a modest cash position.

Cash Investments

Investment Strategy

7

outperformed their larger peers, which returned –2.7% as measured by the S&P EPAC Large/Midcap Index. The small-cap “effect” has been most prominent in continental Europe, where smaller-company outperformance in the financial and health care sectors has been particularly influential; and in Japan, where the more domestic focus of smaller companies has benefited them relative to large caps during a period of strength in the Japanese yen. Among the worst returns were in the United Kingdom, where the vote to leave the European Union on June 23 hit more domestically focused smaller companies particularly hard. The rout was led by key small-cap sectors such as house builders, real estate, retail, and consumer services. This reflected acute investor concerns over the outlook for revenues, the impact on input costs (costs for items used to produce goods and services) from a dramatically weaker pound sterling, and the potential for restrictive immigration policies. It has been a mixed period regarding relative performance. Stock selection in Japan has been the main challenge. It was not helped by our underweighting of the market, which has been the strongest major-market performer over the year. We have struggled to find attractive value among domestic defensives and the high-yielding real estate investment trust sector, but given a strong currency and a hunt for yield amid the negative interest rate policy pursued by the Bank of Japan,

8

these areas have outperformed strongly. Meanwhile, stock selection in consumer discretionary (auto parts companies such as Unipres and Eagle Industries), information technology (OBIC, Kakaku. com), and materials (Kumiai Chemical) lagged. The impact was only partly offset by strong showings among some of our domestically oriented industrial holdings such as Aica Kogyo, Trusco Nakayama, and Fukushima Industries. Our continental European holdings also disappointed, almost entirely because of our financials in Italy, most notably Anima Holding, BPER, and Banca Sistema. This more than counteracted good selection among information technology stocks, most notably Logitech, Ubisoft, and Lectra. Selection in Asian markets outside Japan (in both developed and emerging markets) has generally been strong. A number of consumer names in Hong Kong and China have been notably strong, including New Oriental Education and Shenzhou International, along with South Korean auto parts stocks Mando and Hanon Systems. Selection in information technology also added value because of strong returns from SINA.com, the Chinese internet stock, and Chroma ATE in Taiwan. The year has closed with perhaps more than the usual litany of uncertainties, including political developments in Europe, continued fragility in a number of emerging markets, and signs that the efficacy of monetary policy tools is fading. The constraints of high debt levels and poor demographics (and not just in developed

economies) suggest that overall global growth will continue to be as muted as it has been over the last seven years. Long-term investors will have to work harder to identify areas of superior growth, and in that context we remain confident that selective exposure to smaller companies is strategically important. We will continue to work hard to identify companies offering sustainable growth and superior returns.

Wellington Management Company LLP Portfolio Manager: Simon H. Thomas, Senior Managing Director and Equity Portfolio Manager Global equities rose over the 12-month period. The year had a volatile start as Chinese stocks plunged in early January, sparking a global risk-off trade that caused central banks to increase monetary easing efforts around the world. Toward the end of the second quarter, after a lengthy and, at times, acrimonious campaign, the British electorate voted to leave the European Union. Risk appetite has fluctuated considerably over the period as governments have had to grapple with a slow-growth, low-inflation environment. The U.S. Federal Reserve’s signaling of a second rate hike at its December meeting, coupled with a “hard” Brexit scenario, U.S. election uncertainty, and potential monetary shifts by the European Central Bank, caused global equities to pull back toward the end of the period.

Stock selection within the financial, materials, and industrial sectors weighed on the performance of our portfolio. (Effective September 1, a real estate sector was added, composed of holdings that previously were classified as financials. The index returns and attribution analysis of the real estate sector are for the period starting September 1 and ending October 31.) This weight on performance was partially offset by strong stock selection within consumer staples, energy, and information technology. Allocation among sectors, which is largely a result of our bottom-up stock selection process, weighed on performance as well, largely driven by our overweight allocation to the consumer discretionary sector. At the regional level, selection within Europe, specifically the United Kingdom, and Japan detracted most from relative results. From an allocation perspective, our overweight to Japan aided relative performance. The largest detractors from relative performance during the period included Anima, B&M European Value Retail, and N Brown Group. Anima, an Italian asset manager, performed poorly as the environment for financials in Italy became more challenging because of low interest rates and the overall health of the Italian banking sector. Despite this short-term volatility, we have maintained our position in the company as we believe it will be a longterm beneficiary of the increasing Italian savings rate, and the continued shift of retirement assets to asset managers.

9

B&M European Value Retail, one of the leading value retailers of general merchandise in the United Kingdom, traded down after the Brexit vote in June. This is a company that we are really excited about and believe was oversold post-Brexit, given the company’s underlying fundamentals. It has a first-class management team that will likely benefit from a slower U.K. economy, as consumers have tightened their belts. We still held the stock as of the end of the period. N Brown Group, a U.K.-based internet and catalogue home shopping company offering clothes and accessories, faced a much more challenging business environment after the Brexit vote. Many of its input goods are U.S.-dollar-based, which became a challenge given the depreciating pound sterling. We exited our position following the Brexit vote. Top contributors to relative performance included Kyudenko, Nippon Shinyaku, and Gategroup. Kyudenko is a Japanese electrical engineering company that owns a sizable solar asset portfolio. The company continues to benefit from a healthy construction cycle in Japan, as well as the appreciation of value in its solar assets. Shares remain inexpensive, and the company has a net cash position on its balance sheet. We continue to hold the position based

10

on our positive outlook for the company. Nippon Shinyaku is a Japan-based pharmaceutical company. We continue to be optimistic about the company’s new pulmonary hypertension drug, Selexipag, which has been approved in the United States, and is expected to be approved in Europe in the near future. We maintained our position as the company continues to execute and maintains a strong drug pipeline. Switzerland-based Gategroup is a leading provider of catering, hospitality, and logistics services to the travel industry. In July, the company was acquired by HNA Group, a Chinese travel and logistics conglomerate. We supported the acquisition given that shares were at an all-time high and sold our position into strength. Relative to the benchmark, at the end of the period we were most overweight the consumer discretionary and health care sectors. We were most underweight the new real estate sector and information technology. On a regional basis, Japan was our greatest overweight position relative to the benchmark. We were most underweight Asia excluding Japan, though we continue to look for high-quality companies that have been neglected by the market and thus offer attractive investment opportunities.

International Explorer Fund Fund Profile

As of October 31, 2016

Volatility Measures

Portfolio Characteristics

Fund Number of Stocks

S&P EPAC SmallCap Index

MSCI AC World Index ex USA

298

3,907

1,844

Median Market Cap

$1.7B

$1.6B

$29.6B

Price/Earnings Ratio

20.9x

19.9x

20.9x

Price/Book Ratio

1.9x

1.5x

1.6x

Return on Equity

12.0%

10.5%

14.9%

Earnings Growth Rate

15.0%

10.1%

6.9%

2.2%

2.3%

3.0%

Turnover Rate

37%

—

—

Ticker Symbol

VINEX

—

—

Dividend Yield

Expense Ratio1 Short-Term Reserves

0.42%

—

—

2.3%

—

—

Sector Diversification (% of equity exposure)

Fund Consumer Discretionary Consumer Staples Energy Financials Health Care

S&P EPAC SmallCap Index

20.2%

16.0%

5.0

6.2

MSCI AC World Index ex USA

S&P EPAC SmallCap Index

MSCI AC World Index ex USA

R-Squared

0.94

0.76

Beta

0.94

0.80

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) Anima Holding SPA

Asset Management & Custody Banks

1.3%

Rubis SCA

Gas Utilities

1.2

BRAAS Monier Building Construction Group SA Materials

1.2

Nippon Shinyaku Co. Ltd.

Pharmaceuticals

1.1

Cerved Information Solutions SPA

Specialized Finance

1.1

Logitech International SA Technology Hardware, Storage & Peripherals

1.1

Smurfit Kappa Group plc Paper Packaging

1.0

SPIE SA

Construction & Engineering

11.5%

Ubisoft Entertainment SA

Home Entertainment Software

1.0

10.4

OC Oerlikon Corp. AG

Industrial Machinery

1.0

1.1

2.2

6.8

11.0

12.4

22.5

8.1

8.5

8.2

Industrials

26.2

22.2

11.7

Information Technology

11.7

11.0

9.5

1.0

11.0%

Top Ten

The holdings listed exclude any temporary cash investments and equity index products. Allocation by Region (% of equity exposure)

Materials

9.6

9.5

7.7

57.7% Europe

Real Estate

4.6

9.4

3.4

34.5% Pacific

Telecommunication Services

0.7

0.9

4.9

Utilities

1.8

1.7

3.4

7.5% Emerging Markets 0.3% North America

1 The expense ratio shown is from the prospectus dated February 25, 2016, and represents estimated costs for the current fiscal year. For the fiscal year ended October 31, 2016, the expense ratio was 0.41%. 11

International Explorer Fund

Market Diversification (% of equity exposure)

Fund

S&P EPAC SmallCap Index

MSCI AC World Index ex USA 12.4%

Europe United Kingdom

14.8%

14.6%

Italy

8.0

2.0

1.4

France

7.9

8.6

6.9

Germany

5.5

7.8

6.3

Switzerland

4.8

7.9

6.0

Sweden

3.8

3.1

1.9

Ireland

4.6

0.3

0.3

Netherlands

3.0

1.8

2.3

Denmark

1.4

1.4

1.2

Austria

1.2

0.2

0.1

Other

2.7

5.9

4.5

57.7%

53.6%

43.3% 17.2%

Subtotal Pacific Japan

26.7%

25.7%

Australia

4.4

6.6

5.1

South Korea

1.8

3.8

3.4

Hong Kong

1.1

2.5

2.5

Other

0.5

1.4

1.0

34.5%

40.0%

29.2%

Subtotal Emerging Markets India

2.5%

0.0%

2.0%

China

2.5

0.8

6.2

Taiwan

1.7

0.0

2.9

Other

0.8

0.0

Subtotal

7.5%

0.8%

8.9 20.0%

North America Other

0.3%

0.3%

6.8%

Middle East

0.0%

0.8%

0.5%

Other

0.0%

4.5%

0.2%

"Other" represents securities that are not classified by the fund's benchmark index.

12

International Explorer Fund

Performance Summary All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Cumulative Performance: October 31, 2006, Through October 31, 2016 Initial Investment of $10,000

$18,000 14,186

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2,000

Average Annual Total Returns Periods Ended October 31, 2016 One Year

Five Years

Ten Years

Final Value of a $10,000 Investment

International Explorer Fund

-0.06%

8.34%

3.56%

$14,186

S&P EPAC SmallCap Index

1.88

8.64

3.61

14,262

– – – – International Small-Cap Funds Average

1.39

8.07

3.68

14,348

________

0.72

4.11

2.07

12,277

• • • • • • • •

MSCI All Country World Index ex USA

International Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

See Financial Highlights for dividend and capital gains information. 13

International Explorer Fund

Fiscal-Year Total Returns (%): October 31, 2006, Through October 31, 2016 2007

2009

2008

47.88 27.18

2010

2011

2012

2013

2014

2015

2016

42.42 31.13

27.02

18.38

14.10

5.02 –7.60

5.47

31.14 5.65

2.66

8.09

1.88 –0.06

–0.65

–2.42

–53.80 –53.21

International Explorer Fund S&P EPAC SmallCap Index

Average Annual Total Returns: Periods Ended September 30, 2016 This 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.

International Explorer Fund

14

Inception Date

One Year

Five Years

Ten Years

11/4/1996

7.95%

10.77%

4.27%

International Explorer Fund

Financial Statements Statement of Net Assets As of October 31, 2016

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

Shares

Market Value• ($000)

Common Stocks (96.0%)1 Australia (4.0%) Computershare Ltd. Mirvac Group oOh!media Ltd. Iluka Resources Ltd. Ansell Ltd. Tox Free Solutions Ltd. Domino’s Pizza Enterprises Ltd. Fairfax Media Ltd. Spotless Group Holdings Ltd. Incitec Pivot Ltd. ^ Japara Healthcare Ltd. Mantra Group Ltd. SEEK Ltd. Asaleo Care Ltd. Amcor Ltd. ^ Regis Healthcare Ltd. ^,* Karoon Gas Australia Ltd. ^ Estia Health Ltd. Link Administration Holdings Ltd.

1,553,679 6,146,824 2,861,954 2,094,685 547,555 4,248,114

12,446 9,751 9,295 9,183 9,021 7,588

151,696 11,707,454

7,390 7,333

8,552,373 2,439,068 3,284,183 1,784,551 386,119 3,589,221 303,234 1,099,902 1,374,635 1,003,698

6,488 5,455 4,689 4,456 4,288 3,977 3,385 3,289 2,388 2,045

262,865

1,438

China (2.4%) Shenzhou International Group Holdings Ltd. * SINA Corp. * New Oriental Education & Technology Group Inc. ADR ANTA Sports Products Ltd. Belle International Holdings Ltd. CSPC Pharmaceutical Group Ltd. Haitian International Holdings Ltd.

Shares

Market Value• ($000)

2,482,000 208,099

16,440 15,012

285,056

14,290

2,437,000

7,028

8,858,000

5,349

4,756,000

4,924

1,807,000

3,725 66,768

Denmark (1.3%) Matas A/S * H Lundbeck A/S Ambu A/S Class B * OW Bunker A/S

1,375,000 301,184 28,887 1,000,000

26,685 9,707 1,497 — 37,889

Finland (0.2%) Tikkurila Oyj

250,000

4,813

113,905 Austria (1.2%) Lenzing AG ANDRITZ AG BUWOG AG Wienerberger AG Schoeller-Bleckmann Oilfield Equipment AG

98,802 144,985 185,240 264,678 59,483

12,877 7,581 4,477 4,230 4,214 33,379

Belgium (0.7%) Cie d’Entreprises CFE D’ieteren SA Ontex Group NV * Galapagos NV

52,608 117,856 150,617 49,600

5,799 5,195 4,556 3,018 18,568

France (7.4%) Rubis SCA 375,361 SPIE SA 1,500,000 * Ubisoft Entertainment SA 825,000 Elis SA 1,561,961 * Marie Brizard Wine & Spirits SA 1,000,000 Imerys SA 167,514 *,2 Maisons du Monde SA 390,663 Lectra 580,000 * ID Logistics Group 69,999 Eurazeo SA 108,699 Orpea 61,653 * Virbac SA 31,697 BioMerieux 32,381

34,230 28,347 28,071 25,950 16,989 11,663 10,997 10,484 9,874 6,259 5,131 5,044 4,718 15

International Explorer Fund

Albioma SA Wendel SA Coface SA

Shares

Market Value• ($000)

250,000 33,264 512,886

4,130 3,827 3,321 209,035

Germany (5.1%) BRAAS Monier Building Group SA 1,133,916 Duerr AG 300,000 XING AG 87,891 RIB Software AG 900,000 Zeal Network SE 318,921 ^ Wacker Chemie AG 100,000 Grand City Properties SA 425,000 STRATEC Biomedical AG 123,627 * Senvion SA 290,000 Sartorius AG Preference Shares 58,461 SAF-Holland SA 339,483 *,2 windeln.de SE 850,000 Deutsche Beteiligungs AG 110,136 ^ ElringKlinger AG 173,940

*

32,679 22,371 17,926 12,209 10,839 8,921 7,476 7,068 5,101 4,602 4,559 3,824 3,723 2,694 143,992

Hong Kong (1.1%) Techtronic Industries Co. Ltd. Hysan Development Co. Ltd. Johnson Electric Holdings Ltd. Value Partners Group Ltd.

3,898,500

14,647

1,373,000

6,337

2,052,125 4,491,000

4,960 4,284 30,228

India (2.4%) Gujarat Pipavav Port Ltd. Apollo Hospitals Enterprise Ltd. Container Corp. Of India Ltd. Phoenix Mills Ltd. Idea Cellular Ltd. Multi Commodity Exchange of India Ltd.

7,640,999

18,261

616,702 1,438,800 5,969,556

12,712 8,131 6,819 3,966 68,517

Indonesia (0.2%) Matahari Department Store Tbk PT Ciputra Property Tbk PT

3,465,800 34,752,201

4,780 2,026 6,806

Ireland (4.5%) Smurfit Kappa Group plc (London Shares) * Dalata Hotel Group plc Glanbia plc Origin Enterprises plc

16

1,150,000 5,000,000 900,000 2,000,000

Shares 2,500,000

11,659

8,400,000 425,000 5,854,846 650,000 175,000 1,675,000

10,832 10,407 7,575 4,351 3,840 3,315 126,664

Italy (7.7%) 2 Anima Holding SPA Cerved Information Solutions SPA * Yoox Net-A-Porter Group SPA Maire Tecnimont SPA ^ Salvatore Ferragamo SPA Moncler SPA Credito Emiliano SPA Cairo Communication SPA DiaSorin SPA FinecoBank Banca Fineco SPA Brunello Cucinelli SPA 2 Infrastrutture Wireless Italiane SPA 2 OVS SPA Autogrill SPA 2 Banca Sistema SPA *,2 Technogym SPA

7,437,016

36,232

3,947,405

31,773

850,000 6,500,000 606,146 761,170 2,125,000

24,451 15,672 14,817 12,672 11,979

2,372,242 160,424

10,177 9,859

1,500,000 431,223

8,766 8,542

1,802,466 1,419,252 913,656 2,371,523 750,000

8,521 7,775 7,615 6,225 3,386 218,462

18,628

909,567

205,558

*

Irish Continental Group plc Irish Residential Properties REIT plc Kingspan Group plc Cairn Homes plc FBD Holdings plc Smurfit Kappa Group plc IFG Group plc

Market Value• ($000)

25,249 22,374 14,661 12,401

Japan (25.5%) Nippon Shinyaku Co. Ltd. 637,800 Aica Kogyo Co. Ltd. 742,700 Hitachi Transport System Ltd. 978,800 Digital Garage Inc. 1,067,300 Tsuruha Holdings Inc. 167,000 Tokai Tokyo Financial Holdings Inc. 3,670,500 Arcs Co. Ltd. 709,300 Zenkoku Hosho Co. Ltd. 388,555 Ai Holdings Corp. 668,400 Trusco Nakayama Corp. 315,700 Kuroda Electric Co. Ltd. 811,400 Nihon Parkerizing Co. Ltd. 1,140,000 Glory Ltd. 465,700 Nippon Densetsu Kogyo Co. Ltd. 807,600 Koito Manufacturing Co. Ltd. 276,100

32,376 21,194 20,177 20,167 19,269 18,622 17,798 16,706 16,424 16,322 15,787 15,708 15,395 14,714 14,496

International Explorer Fund

*

*

TPR Co. Ltd. Nitta Corp. Kureha Corp. Kakaku.com Inc. JSP Corp. Obara Group Inc. Kissei Pharmaceutical Co. Ltd. Daikyonishikawa Corp. SCSK Corp. OBIC Business Consultants Co. Ltd. Kyudenko Corp. Temp Holdings Co. Ltd. Alps Electric Co. Ltd. Sumitomo Real Estate Sales Co. Ltd. Daibiru Corp. Shinmaywa Industries Ltd. Nippon Shokubai Co. Ltd. Fukushima Industries Corp. IHI Corp. Musashi Seimitsu Industry Co. Ltd. Unipres Corp. NEC Networks & System Integration Corp. Sanwa Holdings Corp. Asahi Intecc Co. Ltd. Taiheiyo Cement Corp. Kenedix Inc. Takara Leben Co. Ltd. Lintec Corp. Iida Group Holdings Co. Ltd. Tokyo TY Financial Group Inc. Nabtesco Corp. Teijin Ltd. Ferrotec Corp. Disco Corp. Itoham Yonekyu Holdings Inc. Miura Co. Ltd. Ezaki Glico Co. Ltd. Toyo Tire & Rubber Co. Ltd. Tokyo Ohka Kogyo Co. Ltd. Ain Holdings Inc. Shinsei Bank Ltd. EPS Holdings Inc. Eagle Industry Co. Ltd.

Shares

Market Value• ($000)

493,100 548,700 369,400 769,500 512,500 279,700

14,259 14,201 14,127 12,928 12,245 12,054

445,800 890,400 307,400

11,651 11,529 11,467

243,800 346,400 626,500 440,090

11,416 11,160 10,625 10,557

465,300 1,195,400 1,321,000 144,361

10,517 10,384 10,225 9,962

285,500 3,703,245

9,747 9,742

384,900 469,200

9,427 9,055

^

^

^ *

^,*

Tokyo Steel Manufacturing Co. Ltd. Kumiai Chemical Industry Co. Ltd. Tenma Corp. Leopalace21 Corp. Yushin Precision Equipment Co. Ltd. Jamco Corp. Kobe Steel Ltd. Hitachi Metals Ltd. Ichigo Inc. Takasago International Corp. DMG Mori Co. Ltd. H2O Retailing Corp. W-Scope Corp. Mitsui Sugar Co. Ltd. Casio Computer Co. Ltd. Tsutsumi Jewelry Co. Ltd.

Shares

Market Value• ($000)

718,100

4,981

876,100 265,300 650,000

4,960 4,595 4,226

175,200 197,300 488,500 321,700 909,600

4,081 4,068 4,031 4,021 3,944

144,600 348,400 246,900 184,800 146,500 228,100 187,900

3,876 3,695 3,667 3,306 3,301 3,177 2,973 721,672

488,600 867,665 182,870 2,736,000 1,823,900 1,088,600 329,700

8,683 8,641 7,920 7,836 7,669 7,384 7,181

369,785

7,148

219,643 225,300 341,800 530,400 51,900

7,028 6,729 6,604 6,451 6,273

651,000 352,400 105,300

6,208 6,081 5,986

375,200

5,819

155,480 81,600 3,390,235 396,100 349,600

5,521 5,508 5,481 5,198 4,988

Luxembourg (0.7%) L’Occitane International SA Reinet Investments SCA

6,365,500 339,753

13,141 6,694 19,835

Malaysia (0.1%) Bursa Malaysia Bhd. Netherlands (2.9%) * Van Lanschot NV Class A Kendrion NV * SIF Holding NV (Berlin Shares) IMCD Group NV 2 Refresco Group NV *,2 Intertrust NV Beter Bed Holding NV * SIF Holding NV Delta Lloyd NV

1,977,900

4,077

950,000 350,000

19,477 10,094

581,260 230,511 658,323 399,996 400,000 343,740 4

10,084 9,969 9,617 8,432 7,243 5,961 — 80,877

New Zealand (0.3%) Fletcher Building Ltd.

1,197,176

8,869

Norway (0.3%) Kongsberg Gruppen ASA

518,433

7,401

Other (0.8%) ^,3 Vanguard FTSE All World ex-US Small-Cap ETF

249,010

24,052

4,816,500

6,301

Singapore (0.2%) First Resources Ltd.

17

International Explorer Fund

Shares South Korea (1.8%) Medy-Tox Inc. NCSoft Corp. Mando Corp. ^ Nexen Tire Corp. S-1 Corp. ^ Hotel Shilla Co. Ltd. Hanon Systems

32,771 36,154 32,377 645,802 83,659 99,951 302,600

Market Value• ($000) 11,627 8,352 7,570 7,408 6,755 5,000 2,829 49,541

Spain (0.7%) Applus Services SA Melia Hotels International SA Naturhouse Health SAU

900,000

8,636

626,180 600,000

7,731 3,194 19,561

Sweden (3.7%) 2 Bravida Holding AB 2 Nordax Group AB Modern Times Group MTG AB Class B 2 Coor Service Management Holding AB Bufab AB Loomis AB Class B Concentric AB

3,250,000 3,125,000

19,974 19,615

600,000

16,148

2,750,000 1,724,046 450,000 469,805

15,984 14,343 12,791 5,587 104,442

Switzerland (4.6%) Logitech International SA OC Oerlikon Corp. AG Helvetia Holding AG Ascom Holding AG Interroll Holding AG u-blox Holding AG Comet Holding AG ams AG Tecan Group AG

1,250,000 2,859,137 37,500 900,000 14,000 51,532 6,000 183,362 21,312

30,233 26,879 19,510 15,411 15,281 9,741 5,202 5,134 3,512 130,903

Taiwan (1.6%) Giant Manufacturing Co. Ltd. Chroma ATE Inc. CTCI Corp. Gourmet Master Co. Ltd. Catcher Technology Co. Ltd. Eclat Textile Co. Ltd. Globalwafers Co. Ltd.

1,767,000 3,824,000 4,336,000 657,300

12,498 9,693 6,363 5,899

492,000 326,000 1,283,000

3,851 3,694 3,162 45,160

Thailand (0.2%) LPN Development PCL

18

14,565,300

4,747

United Arab Emirates (0.1%) * Lamprell plc 3,650,000

3,280

United Kingdom (14.1%) Dechra Pharmaceuticals plc Grainger plc Restaurant Group plc DCC plc Kennedy Wilson Europe Real Estate plc HomeServe plc Micro Focus International plc Elementis plc Abcam plc IG Group Holdings plc SuperGroup plc SSP Group plc Ricardo plc Dunelm Group plc AA plc Northgate plc ^ Telecom Plus plc Eco Animal Health Group plc Tyman plc Grafton Group plc B&M European Value Retail SA Hikma Pharmaceuticals plc Halma plc Keller Group plc Redrow plc ^ Kier Group plc Photo-Me International plc Bodycote plc Hunting plc Pets at Home Group plc Mears Group plc Investec plc ^ Victrex plc WS Atkins plc Saga plc 2 Auto Trader Group plc Polypipe Group plc Consort Medical plc Hays plc Inchcape plc Volution Group plc Genus plc Berendsen plc JRP Group plc James Fisher & Sons plc Soco International plc

Shares

Market Value• ($000)

850,000 4,660,000 2,501,386 140,000

13,988 12,615 11,475 11,390

879,949 1,420,000

10,923 10,602

392,057 3,500,640 936,899 975,000 574,000 2,209,000 800,000 972,500 2,845,363 1,700,208 600,000

10,266 10,210 9,977 9,846 9,446 9,180 9,074 9,007 8,899 8,731 8,688

1,448,166 2,910,245 1,425,000

8,676 8,663 8,655

2,873,534

8,250

380,581 630,000 877,904 1,563,146 420,311

8,163 8,065 7,308 7,261 6,990

3,600,000 913,000 1,023,975 2,356,073 1,096,560 931,000 268,040 310,000 2,289,340 1,203,759 1,744,012 382,925 3,072,148 600,000 2,317,253 205,292 365,000 2,909,347 202,693 2,311,526

6,671 6,617 6,293 6,157 6,050 5,778 5,740 5,729 5,553 5,515 5,377 5,354 5,131 4,770 4,739 4,715 4,307 4,303 4,011 3,901

International Explorer Fund

*

*,2 ^,* *

Ultra Electronics Holdings plc LondonMetric Property plc Electra Private Equity plc Cranswick plc UNITE Group plc Cineworld Group plc Brewin Dolphin Holdings plc Findel plc A.G. Barr plc QinetiQ Group plc Senior plc SIG plc Hill & Smith Holdings plc ConvaTec Group plc LMS Capital plc Ophir Energy plc Laird plc

Shares

Market Value• ($000)

168,554

3,830

2,000,000 67,300 134,329 513,676 524,152

3,649 3,545 3,482 3,480 3,461

984,495 1,104,252 496,000 1,000,000 1,263,500 1,975,000 215,326 824,284 1,906,855 1,408,565 588,080

3,132 2,863 2,859 2,816 2,693 2,672 2,649 2,522 1,314 1,189 1,042 400,257

United States (0.2%) Samsonite International SA

1,969,500

Total Common Stocks (Cost $2,451,654) Temporary Cash Investments Money Market Fund (5.1%) 4,5 Vanguard Market Liquidity Fund, 0.718%

6,192 2,716,193

144,771

Face Amount ($000) Repurchase Agreement (0.3%) Goldman Sachs & Co. 0.320%, 11/1/16 (Dated 10/31/16, Repurchase Value $8,900,000 collateralized by Federal National Mortgage Assn. 3.500%, 8/1/46, with a value of $9,078,000)

8,900

8,900

Market Value• ($000)

U.S. Government and Agency Obligations (0.3%) 6 United States Treasury Bill, 0.327%, 1/19/17 3,000 2,998 7 United States Treasury Bill, 0.320%, 1/26/17 3,000 2,998 7 United States Treasury Bill, 0.381%, 3/9/17 1,000 998 6,994 Total Temporary Cash Investments (Cost $160,658) Total Investments (101.7%) (Cost $2,612,312)

160,665 2,876,858

Other Assets and Liabilities (-1.7%) Other Assets 6 Liabilities 4

16,560 (64,715) (48,155)

Net Assets (100%) Applicable to 168,160,576 outstanding $.001 par value shares of beneficial interest (unlimited authorization) Net Asset Value Per Share

2,828,703 $16.82

Statement of Assets and Liabilities Assets Investments in Securities, at Value Unaffiliated Issuers Affiliated Vanguard Funds

(5.7%)1

1,447,562

Face Amount ($000)

2,708,035 168,823

Total Investments in Securities Investment in Vanguard Receivables for Investment Securities Sold Receivables for Accrued Income Receivables for Capital Shares Issued Other Assets 6

2,876,858 224

Total Assets

2,893,418

Liabilities Payables for Investment Securities Purchased Collateral for Securities on Loan Payables to Investment Advisor Payables for Capital Shares Redeemed Payables to Vanguard Other Liabilities Total Liabilities Net Assets

4,551 7,916 703 3,166

2,498 49,669 1,462 2,638 4,482 3,966 64,715 2,828,703

19

International Explorer Fund

At October 31, 2016, net assets consisted of: Amount ($000) Paid-in Capital Undistributed Net Investment Income Accumulated Net Realized Losses Unrealized Appreciation (Depreciation) Investment Securities Futures Contracts Forward Currency Contracts Foreign Currencies

2,570,759 16,139 (22,767)

Net Assets

2,828,703

264,546 1,174 (716) (432)

• See Note A in Notes to Financial Statements. ^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $47,125,000. * Non-income-producing security. 1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 97.6% and 4.1%, 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 October 31, 2016, the aggregate value of these securities was $158,619,000, representing 5.6% of net assets. 3 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. 4 Includes $49,669,000 of collateral received for securities on loan. 5 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 6 Securities with a value of $1,098,000 and cash of $525,000 have been segregated as collateral for open forward currency contracts. 7 Securities with a value of $3,097,000 have been segregated as initial margin for open futures contracts. ADR—American Depositary Receipt. REIT—Real Estate Investment Trust. See accompanying Notes, which are an integral part of the Financial Statements.

20

International Explorer Fund

Statement of Operations Year Ended October 31, 2016 ($000) Investment Income Income Dividends1 Interest Securities Lending—Net Total Income

62,096 571 2,123 64,790

Expenses Investment Advisory Fees—Note B Basic Fee Performance Adjustment

6,288 (23)

The Vanguard Group—Note C Management and Administrative Marketing and Distribution Custodian Fees

4,387 529 481

Auditing Fees

40

Shareholders’ Reports

45

Trustees’ Fees and Expenses

4

Total Expenses

11,751

Net Investment Income

53,039

Realized Net Gain (Loss) Investment Securities Sold Futures Contracts Foreign Currencies and Forward Currency Contracts Realized Net Gain (Loss)

(17,731) (2,056) 1,507 (18,280)

Change in Unrealized Appreciation (Depreciation) Investment Securities Futures Contracts Foreign Currencies and Forward Currency Contracts Change in Unrealized Appreciation (Depreciation) Net Increase (Decrease) in Net Assets Resulting from Operations

(31,650) (1,998) (433) (34,081) 678

1 Dividends are net of foreign withholding taxes of $4,692,000.

See accompanying Notes, which are an integral part of the Financial Statements. 21

International Explorer Fund

Statement of Changes in Net Assets Year Ended October 31, 2016 ($000)

2015 ($000)

Increase (Decrease) in Net Assets Operations Net Investment Income

53,039

41,153

Realized Net Gain (Loss)

(18,280)

121,585

Change in Unrealized Appreciation (Depreciation)

(34,081)

(29,075)

678

133,663

Net Increase (Decrease) in Net Assets Resulting from Operations Distributions

(43,678)

(45,599)

Realized Capital Gain1

Net Investment Income

(109,775)

(153,304)

Total Distributions

(153,453)

(198,903)

Capital Share Transactions Issued

533,743

712,308

Issued in Lieu of Cash Distributions

139,822

183,328

Redeemed

(578,815)

(541,440)

Net Increase (Decrease) from Capital Share Transactions Total Increase (Decrease)

94,750

354,196

(58,025)

288,956

Net Assets Beginning of Period

2,886,728

2,597,772

End of Period2

2,828,703

2,886,728

1 Includes fiscal 2016 and 2015 short-term gain distributions totaling $0 and $26,297,000 respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes. 2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $16,139,000 and $4,878,000.

See accompanying Notes, which are an integral part of the Financial Statements. 22

International Explorer Fund

Financial Highlights For a Share Outstanding Throughout Each Period Net Asset Value, Beginning of Period

Year Ended October 31, 2016

2015

2014

2013

2012

$17.76

$18.26

$18.50

$14.50

$14.41

Investment Operations Net Investment Income

.318

.287

.335

.327

Net Realized and Unrealized Gain (Loss) on Investments

.362

(.334)

.635

.133

4.078

.287

Total from Investment Operations

(.016)

.922

.468

4.405

.649

Distributions Dividends from Net Investment Income

(.263)

(.326)

(.420)

Distributions from Realized Capital Gains

(.661)

(1.096)

(.288)

Total Distributions

(.924)

(1.422)

(.708)

(.405) — (.405)

(.346) (.213) (.559)

Net Asset Value, End of Period

$16.82

$17.76

$18.26

$18.50

$14.50

Total Return1

-0.06%

5.65%

2.66%

31.13%

5.02%

Ratios/Supplemental Data $2,829

$2,887

$2,598

$2,281

$1,819

Ratio of Total Expenses to Average Net Assets2

Net Assets, End of Period (Millions)

0.41%

0.42%

0.40%

0.36%

0.43%

Ratio of Net Investment Income to Average Net Assets

1.83%

1.53%

1.69%

2.03%

2.35%

37%

42%

39%

36%

28%

Portfolio Turnover Rate

1 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees. 2 Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.00%, 0.00%, (0.05%), and 0.02%.

See accompanying Notes, which are an integral part of the Financial Statements. 23

International Explorer Fund

Notes to Financial Statements Vanguard International Explorer 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. 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 exchangetraded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. 2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses). 3. Futures 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 brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.

24

International Explorer Fund

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 aggregate settlement values and notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures or forward currency contracts. During the year ended October 31, 2016, the fund’s average investments in long and short futures contracts represented 2% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund’s average investment in forward currency contracts represented 5% of net assets, based on the average of notional amounts at each quarter-end during the period. 4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature, and in the absence of a default, such collateral cannot be repledged, resold or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.

25

International Explorer Fund

5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2013–2016), and has concluded that no provision for federal income tax is required in the fund’s financial statements. 6. Distributions: Distributions to shareholders are recorded on the ex-dividend date. 7. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities. 8. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread. The fund had no borrowings outstanding at October 31, 2016, or at any time during the period then ended. 9. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.

26

International Explorer Fund

Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the fund’s understanding of the applicable countries’ tax rules and rates. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these countries. Such tax reclaims received during the year, if any, are included in dividend income. No other amounts for additional tax reclaims are reflected in the financial statements due to the uncertainty as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment. B. The investment advisory firms Schroder Investment Management North America Inc. and Wellington Management Company LLP 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 Schroder Investment Management North America Inc. and Wellington Management Company LLP is subject to quarterly adjustments based on performance relative to the S&P EPAC SmallCap Index for the preceding three years. Vanguard manages the cash reserves of the fund as described below. For the year ended October 31, 2016, the aggregate investment advisory fee represented an effective annual basic rate of 0.22% of the fund’s average net assets, before a decrease of $23,000 (0.00%) based on performance. C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution, and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Assets and Liabilities. Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At October 31, 2016, the fund had contributed to Vanguard capital in the amount of $224,000, representing 0.01% of the fund’s net assets and 0.09% 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).

27

International Explorer Fund

The following table summarizes the market value of the fund’s investments as of October 31, 2016, based on the inputs used to value them: Investments Common Stocks Temporary Cash Investments Futures Contracts—Assets1 Futures Contracts—Liabilities1 Forward Currency Contracts—Assets Forward Currency Contracts—Liabilities Total

Level 1 ($000)

Level 2 ($000)

Level 3 ($000)

53,354

2,662,839

—

144,771

15,894

— —

58

—

(154)

—

—

—

923

—

—

(1,639)

—

198,029

2,678,017

—

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

E. At October 31, 2016, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows:

Statement of Assets and Liabilities Caption Other Assets Other Liabilities

Equity Contracts ($000)

Foreign Exchange Contracts ($000)

Total ($000)

58

923

981

(154)

(1,639)

(1,793)

Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the year ended October 31, 2016, were:

Realized Net Gain (Loss) on Derivatives Futures Contracts Forward Currency Contracts Realized Net Gain (Loss) on Derivatives

Foreign Exchange Contracts ($000)

Total ($000)

(2,056)

—

(2,056)

—

861

861

(2,056)

861

(1,195)

(1,998)

—

(1,998)

—

(288)

(288)

(1,998)

(288)

(2,286)

Equity Contracts ($000)

Change in Unrealized Appreciation (Depreciation) on Derivatives Futures Contracts Forward Currency Contracts Change in Unrealized Appreciation (Depreciation) on Derivatives

28

International Explorer Fund

At October 31, 2016, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were: ($000) Aggregate Settlement Value Long (Short)

Unrealized Appreciation (Depreciation)

Expiration

Number of Long (Short) Contracts

Dow Jones EURO STOXX 50 Index

December 2016

628

21,017

306

Topix Index

December 2016

100

13,275

775

S&P ASX 200 Index

December 2016

56

5,635

(50)

FTSE 100 Index

December 2016

63

5,330

143

Futures Contracts

1,174

Unrealized appreciation (depreciation) on open Dow Jones EURO STOXX 50 and FTSE 100 Index futures contracts is required to be treated as realized gain (loss) for tax purposes. At October 31, 2016, the fund had open forward currency contracts to receive and deliver currencies as follows. Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes.

Deliver

Unrealized Appreciation (Depreciation) ($000)

Toronto-Dominion Securities

12/21/16

EUR

19,023

USD

21,470

(537)

BNP Paribas

12/13/16

JPY

1,551,213

USD

15,214

(396)

Citibank, N.A.

12/21/16

EUR

13,628

USD

14,996

—

Citibank, N.A.

12/13/16

JPY

1,001,960

USD

9,668

(97)

Counterparty

Contract Settlement Date

Contract Amount (000) Receive

Bank of America N.A.

12/21/16

GBP

4,149

USD

5,552

(468)

Goldman Sachs International

12/20/16

AUD

6,481

USD

4,819

105

JPMorgan Chase Bank N.A.

12/20/16

AUD

5,121

USD

3,923

(32)

Citibank, N.A.

12/21/16

GBP

3,139

USD

3,865

(18) (17)

BNP Paribas

12/21/16

EUR

616

USD

695

JPMorgan Chase Bank N.A

12/21/16

GBP

366

USD

489

(40)

Barclays Bank plc

12/21/16

USD

6,905

EUR

6,153

136

Citibank, N.A.

12/13/16

USD

5,781

JPY

587,565

169

JPMorgan Chase Bank N.A

12/21/16

USD

5,337

EUR

4,758

102

Goldman Sachs International

12/21/16

USD

2,189

GBP

1,680

131

BNP Paribas

12/13/16

USD

1,865

JPY

186,830

80

BNP Paribas

12/21/16

USD

1,483

EUR

1,352

(5)

JPMorgan Chase Bank N.A

12/21/16

USD

1,416

GBP

1,084

88 27

BNP Paribas

12/21/16

USD

1,279

EUR

1,138

Bank of America N.A.

12/13/16

USD

1,194

JPY

125,325

(3)

Barclays Bank plc

12/13/16

USD

1,192

JPY

119,205

53

29

International Explorer Fund

Deliver

Unrealized Appreciation (Depreciation) ($000)

Barclays Bank plc

12/20/16

USD

1,089

AUD

1,449

(12)

Citibank, N.A.

12/21/16

USD

1,033

EUR

932

7

JPMorgan Chase Bank N.A

12/13/16

USD

909

JPY

93,930

12

Counterparty

Contract Settlement Date

Contract Amount (000) Receive

JPMorgan Chase Bank N.A

12/20/16

USD

793

AUD

1,058

(11)

Bank of America N.A.

12/13/16

USD

786

JPY

81,210

10

JPMorgan Chase Bank N.A.

12/20/16

USD

623

AUD

819

—

Citibank, N.A.

12/20/16

USD

414

AUD

541

3

JPMorgan Chase Bank N.A.

12/21/16

USD

344

GBP

281

—

Bank of America N.A.

12/20/16

USD

253

GBP

208

(2)

UBS AG

12/21/16

USD

206

AUD

273

(1) —

Barclays Bank plc

12/21/16

USD

172

GBP

140

Bank of America N.A

12/20/16

USD

100

AUD

131

— (716)

AUD—Australian dollar. EUR—Euro. GBP—British pound. JPY—Japanese yen. USD—U.S. dollar.

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 certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the year ended October 31, 2016, the fund realized net foreign currency gains of $647,000, which increased distributable net income for tax purposes; accordingly, such gains have been reclassified from accumulated net realized losses to undistributed net investment income. Certain of the fund’s investments are in securities considered to be passive foreign investment companies, for which any unrealized appreciation and/or realized gains are required to be included in distributable net income for tax purposes. During the year ended October 31, 2016, the fund realized gains on the sale of passive foreign investment companies of $1,287,000, which have been included in current and prior periods’ taxable income; accordingly, such gains have been reclassified from accumulated net realized losses to undistributed net investment income. Passive foreign investment companies held at October 31, 2016, had unrealized appreciation of $28,891,000, all of which has been distributed and is reflected in the balance of undistributed net investment income. The fund realized gains on the sale of securities that were subject to capital gains tax in certain foreign countries. Capital gains taxes reduce realized gains for financial statement purposes but are treated as an expense for tax purposes. Accordingly, $34,000 of capital gains tax has been reclassified from accumulated net realized losses to undistributed net investment income. 30

International Explorer Fund

For tax purposes, at October 31, 2016, the fund had $49,262,000 of ordinary income available for distribution. The fund had available capital losses totaling $21,093,000 that may be carried forward indefinitely to offset future net capital gains. At October 31, 2016, the cost of investment securities for tax purposes was $2,643,118,000. Net unrealized appreciation of investment securities for tax purposes was $233,740,000, consisting of unrealized gains of $479,023,000 on securities that had risen in value since their purchase and $245,283,000 in unrealized losses on securities that had fallen in value since their purchase. G. During the year ended October 31, 2016, the fund purchased $1,056,398,000 of investment securities and sold $1,040,777,000 of investment securities, other than temporary cash investments. H. Capital shares issued and redeemed were: Year Ended October 31,

Issued Issued in Lieu of Cash Distributions Redeemed Net Increase (Decrease) in Shares Outstanding

2016 Shares (000)

2015 Shares (000)

32,185

39,930

8,363

11,118

(34,938)

(30,786)

5,610

20,262

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

Bufab AB

Oct. 31, 2015 Market Value ($000)

Purchases at Cost ($000)

12,344

469

Vanguard FTSE All World ex-US Small-Cap ETF

23,646

Vanguard Market Liquidity Fund

208,878

Total

244,868

Proceeds from Securities Sold ($000)1

Capital Gain Distributions Income Received ($000) ($000)

Oct. 31, 2016 Market Value ($000)

5,448

412

—

NA 2

—

—

632

—

24,052

NA 3

NA 3

477

—

144,771

1,521

—

168,823

1 Includes net realized gain (loss) on affiliated investment securities sold of $298,000. 2 Not applicable—at October 31, 2016, the security was still held, but the issuer was no longer an affiliated company of the fund. 3 Not applicable—purchases and sales are for temporary cash investment purposes.

J. Management has determined that no material events or transactions occurred subsequent to October 31, 2016, that would require recognition or disclosure in these financial statements.

31

Report of Independent Registered Public Accounting Firm To the Board of Trustees of Vanguard Whitehall Funds and the Shareholders of Vanguard International Explorer Fund: In our opinion, the accompanying statement of net assets, statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard International Explorer Fund (constituting a separate portfolio of Vanguard Whitehall Funds, hereafter referred to as the “Fund”) at October 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP Philadelphia, Pennsylvania December 15, 2016

Special 2016 tax information (unaudited) for Vanguard International Explorer Fund This information for the fiscal year ended October 31, 2016, is included pursuant to provisions of the Internal Revenue Code. The fund distributed $109,775,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year. The fund distributed $37,392,000 of qualified dividend income to shareholders during the fiscal year. The fund designates to shareholders foreign source income of $62,810,000 and foreign taxes paid of $4,609,000. Shareholders will receive more detailed information with their Form 1099-DIV in January 2017 to determine the calendar-year amounts to be included on their 2016 tax returns. 32

Your Fund’s After-Tax Returns This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period. Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2016. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.) Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes. Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.

Average Annual Total Returns: International Explorer Fund Periods Ended October 31, 2016 One Year

Five Years

Ten Years

Returns Before Taxes

-0.06%

8.34%

3.56%

Returns After Taxes on Distributions

-1.28

7.14

2.45

1.01

6.47

2.85

Returns After Taxes on Distributions and Sale of Fund Shares

33

About Your Fund’s Expenses As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund. A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The accompanying table illustrates your fund’s costs in two ways: • Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“ • Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.” The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions. You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

34

Six Months Ended October 31, 2016

International Explorer Fund Based on Actual Fund Return Based on Hypothetical 5% Yearly Return

Beginning Account Value 4/30/2016

Ending Account Value 10/31/2016

Expenses Paid During Period

$1,000.00

$1,005.98

$1.97

1,000.00

1,023.18

1.98

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.39%. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/366).

35

Trustees Approve Advisory Arrangements The board of trustees of Vanguard International Explorer Fund has renewed the fund’s investment advisory arrangements with Schroder Investment Management North America Inc. (Schroder Inc.) and Wellington Management Company LLP (Wellington Management), as well as a sub-advisory arrangement with Schroder Investment Management North America Limited (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 advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year directing the board’s focus to relevant information and topics. The board, or an investment committee made up of board members, also received information through 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: Schroder. Schroders plc, the parent company of Schroder Inc. and Schroder Ltd. (collectively, Schroder), founded in 1804, specializes in global equity and fixed income management. Schroder employs a bottom-up, fundamental research-driven process to select stocks. Schroder’s International Small-Cap Committee is responsible for the management of its portion of the fund, and leverages Schroder’s extensive network of local analysts across the globe, as it believes that country factors are more important for smaller companies relative to larger companies. Schroder focuses on identifying companies with sustainable competitive advantages, attractive earnings growth, and compelling valuations. Schroder Inc. has advised the fund since its inception in 1996, and its affiliate Schroder Ltd. has advised a portion of the fund since 2003. Wellington Management. Wellington Management, founded in 1928, is among the nation’s oldest and most respected institutional investment managers. Wellington Management’s international small-cap team uses a traditional, bottom-up investment process that attempts to discover a company’s intrinsic value. In valuing a company, it believes that the same valuation metric should be applied on an industry-by-industry basis. Although the team’s valuation discipline is essential to the process, its philosophy is not biased toward growth or value as it invests in both extended growth opportunities and neglected or misunderstood companies. The firm has advised a portion of the fund since 2010. 36

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, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements 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 its 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 profitability of the fund’s advisors 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. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each firm increase. The board will consider whether to renew the advisory arrangements again after a one-year period.

37

Glossary 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.

38

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.

39

The People Who Govern Your Fund The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis. A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 198 Vanguard funds. The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.

Interested Trustee1 F. William McNabb III Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).

Independent Trustees Emerson U. Fullwood Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Lead Director of SPX FLOW, Inc. (multi-industry manufacturing); Director of the United Way of Rochester, the University of Rochester Medical Center, Monroe Community College Foundation, North Carolina A&T University, and Roberts Wesleyan College.

Rajiv L. Gupta Born 1945. Trustee Since December 2001. 2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International plc (diversified manufacturing and services), HP Inc. (printer and personal computer manufacturing), and Delphi Automotive plc (automotive components); Senior Advisor at New Mountain Capital. Amy Gutmann Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues. JoAnn Heffernan Heisen Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/consumer products); Director of Skytop Lodge Corporation (hotels) and the Robert Wood Johnson Foundation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.

F. Joseph Loughrey Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame. Mark Loughridge Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth. Scott C. Malpass Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee, the Board of Advisors for Spruceview Capital Partners, and the Investment Advisory Committee of Major League Baseball; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors). André F. Perold Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston. Peter F. Volanakis Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Chairman of the Board of Trustees of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center.

Executive Officers Glenn Booraem Born 1967. Treasurer Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Controller of each of the investment companies served by The Vanguard Group (2010–2015); Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010). Thomas J. Higgins Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008). Peter Mahoney Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014). Anne E. Robinson Born 1970. Secretary Since September 2016. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).

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

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

Chairman Emeritus and Senior Advisor John J. Brennan Chairman, 1996–2009 Chief Executive Officer and President, 1996–2008

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

1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds. 2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.

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

Connect with Vanguard® > vanguard.com

Fund Information > 800-662-7447 Direct Investor Account Services > 800-662-2739 Institutional Investor Services > 800-523-1036 Text Telephone for People Who Are Deaf or Hard of Hearing > 800-749-7273

This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus. All comparative mutual fund data are from Lipper, a Thomson Reuters Company, or Morningstar, Inc., unless otherwise noted. You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or sec.gov. You can review and copy information about your fund at the SEC’s Public Reference Room in Washington, D.C. To find out more about this public service, call the SEC at 202-551-8090. Information about your fund is also available on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request in either of two ways: via email addressed to [email protected] or via regular mail addressed to the Public Reference Section, Securities and Exchange Commission, Washington, DC 20549-1520. © 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Q1260 122016