Vanguard Total World Stock Index Fund

Transcription

1 Annual Report Vanguard Total World Stock Index Fund

2 Vanguard s Principles for Investing Success We want to give you the best chance of investment success. These principles, grounded in Vanguard s research and experience, can put you on the right path. Goals. Create clear, appropriate investment goals. Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost. Discipline. Maintain perspective and long-term discipline. A single theme unites these principles: Focus on the things you can control. We believe there is no wiser course for any investor. Contents Your Fund s Performance at a Glance Chairman s Perspective Fund Profile Performance Summary Financial Statements Your Fund s After-Tax Returns About Your Fund s Expenses Glossary 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: Nautical images have been part of Vanguard s rich heritage since its start in For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first and light the way as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.

3 Your Fund s Performance at a Glance Global stocks rallied in the 12 months ended, amid a broad-based expansion featuring economic growth, supportive monetary policy, and benign inflation. For the fiscal year, Vanguard Total World Stock Index Fund returned about 24%. That result was in line with the return of the fund s benchmark index and exceeded the average return of peer funds. Returns for the European region, which represented about a fifth of the fund s assets, were especially robust. Europe s economy continued to show strength in employment and industrial production. U.S. stocks, which represent more than half of the world s total stock market capitalization, also notched sizable returns. Reflecting the breadth of the global rally, all market sectors advanced. Technology, industrials, basic materials, and financials notched the biggest gains. Total Returns: Fiscal Year Ended Total Returns Vanguard Total World Stock Index Fund Investor 23.71% ETF Price Net Asset Institutional FTSE Global All Cap Index Global Funds Average Global Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. Institutional are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. For the ETF, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF ' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF ' market price was above or below the NAV. 1

4 Total Returns: Inception Through Average Annual Return Total World Stock Index Fund Investor (Returns since inception: 6/26/2008) 6.31% Spliced Total World Stock Index 6.32 Global Funds Average 5.56 For a benchmark description, see the Glossary. Global 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. Expense Ratios Your Fund Compared With Its Peer Group Investor ETF Institutional Peer Group Average Total World Stock Index Fund 0.21% 0.11% 0.10% 1.24% The fund expense ratios shown are from the prospectus dated February 24, 2017, and represent estimated costs for the current fiscal year. For the fiscal year ended, the fund s expense ratios were 0.19% for Investor, 0.10% for ETF, and 0.09% for Institutional. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end Peer group: Global Funds. 2

5 Chairman s Perspective Dear Shareholder, When I find outstanding products or services, I m likely to be loyal to them. And my loyalty usually gets rewarded as I experience consistently high quality whether it s from a favorite restaurant or a favorite author. What s past, in most cases, is prologue. Bill McNabb Chairman and Chief Executive Officer As tempting as it is to apply this rationale to investing for example, if technology stocks have done well this year, they re bound to do well the next it s not all that helpful and can actually be counterproductive. You ve heard it many times: Past performance cannot be used to predict future returns. Taking a new approach The caution about past performance is so familiar that investors are apt to treat it as mere background noise. That s why past-performance bias merited a fresh look from Vanguard s Investment Strategy Group, which tackled the issue last year in a research paper. (I encourage you to read the full paper, Reframing Investor Choices: Right Mindset, Wrong, at vanguard.com/research.) Our strategists were hardly the first to delve into the topic, but they approached it in a new way. They started with the premise that it s perfectly understandable for investors to lean heavily on past performance, because that works well in many areas of life. After all, as the paper describes, in lots of other industries and realms, performance from one time period 3

6 to another is extremely consistent. The researchers looked at everything from cars to fine restaurants to heart surgeons, and in all these examples, past performance was a good predictor of later outcomes. It s different with investing In a nutshell, our brains typically are rewarded and our satisfaction is boosted when we use past performance as a guide for navigating decisions, big and small. But when applied to investing, this method breaks down. Why? Among other reasons, topperforming asset classes one year tend not to repeat as leaders the next. Strong past performance leads to higher valuations, making an investment, all else being equal, less attractive in the future. The data are quite overwhelming in this regard. By allowing past performance to inform their decisions, individual and institutional investors inadvertently end up as momentum investors, putting them on a treadmill of buying high and selling low. A path to better decision-making Of course, many investors are already aware of the pitfalls of projecting past performance into the future. The real question is, what can we all do about it? What does it take to go from having a general awareness to actually changing our behavior? Barometer Average Annual Total Returns Periods Ended One Year Three Years Five Years Stocks Russell 1000 Index (Large-caps) 23.67% 10.58% 15.18% Russell 2000 Index (Small-caps) Russell 3000 Index (Broad U.S. market) FTSE All-World ex US Index (International) Bonds Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) 0.90% 2.40% 2.04% Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) Citigroup Three-Month U.S. Treasury Bill Index CPI Consumer Price Index 2.04% 1.28% 1.29% 4

7 Acknowledging that such change isn t easy, our strategists offered a few ideas for reframing how investors approach their decisions. These recommendations were targeted at advisors working with clients, but they apply equally to individuals and institutions: Educate yourself. The more investors understand why a method that works so well in other areas of life relying on past performance to drive decisions doesn t carry over to investing, the better off they ll be. Be disciplined. The bias toward past performance is ingrained in everybody, professionals included, and shifting away from it can be difficult. But the long-term benefits make the effort worthwhile. Focus on what you can control. It s always most constructive for investors to concentrate on what s actually within their control, such as setting goals, following long-term portfolio construction principles, selecting low-cost investments, and rebalancing periodically. Here s to keeping the past in the rearview mirror. And, as always, thank you for investing with Vanguard. Sincerely, F. William McNabb III Chairman and Chief Executive Officer November 14,

8 Total World Stock Index Fund Fund Profile As of Share-Class Characteristics Investor ETF Institutional Ticker Symbol VTWSX VT VTWIX Expense Ratio % 0.11% 0.10% Portfolio Characteristics FTSE Global All Cap Fund Index Number of Stocks 7,955 7,781 Median Cap $41.4B $41.6B Price/Earnings Ratio 18.9x 18.9x Price/Book Ratio 2.2x 2.2x Return on Equity 13.3% 13.3% Earnings Growth Rate 8.4% 8.5% Dividend Yield 2.2% 2.2% Turnover Rate 10% Short-Term Reserves -0.6% Sector Diversification (% of equity exposure) FTSE Global All Cap Fund Index Basic Materials 5.2% 5.2% Consumer Goods Consumer Services Financials Health Care Industrials Oil & Gas Technology Telecommunications Utilities Sector categories are based on the Industry Classification Benchmark ( ICB ), except for the Other category (if applicable), which includes securities that have not been provided an ICB classification as of the effective reporting period. Volatility Measures FTSE Global All Cap Index R-Squared 0.99 Beta 0.97 These measures show the degree and timing of the fund s fluctuations compared with the index over 36 months. Ten Largest Holdings (% of total net assets) Apple Inc. Computer Hardware 1.7% Microsoft Corp. Software 1.2 Alphabet Inc. Internet 1.2 Amazon.com Inc. Broadline Retailers 0.9 Facebook Inc. Internet 0.8 Johnson & Johnson Pharmaceuticals 0.7 JPMorgan Chase & Co. Banks 0.7 Berkshire Hathaway Inc. Reinsurance 0.7 Exxon Mobil Corp. Integrated Oil & Gas 0.7 Samsung Electronics Co. Ltd. Consumer Electronics 0.5 Top Ten 9.1% The holdings listed exclude any temporary cash investments and equity index products. Allocation by Region (% of equity exposure) 55.1% North America 20.9% Europe 14.3% Pacific 9.5% Emerging s 0.2% Middle East 1 The expense ratios shown are from the prospectus dated February 24, 2017, and represent estimated costs for the current fiscal year. For the fiscal year ended, the expense ratios were 0.19% for Investor, 0.10% for ETF, and 0.09% for Institutional. 6

9 Total World Stock Index Fund Diversification (% of equity exposure) FTSE Global All Cap Fund Index Europe United Kingdom 5.9% 5.9% France Germany Switzerland Netherlands Spain Sweden Other Subtotal 20.9% 21.0% Pacific Japan 8.4% 8.4% Australia South Korea Hong Kong Other Subtotal 14.3% 14.2% Emerging s China 2.6% 2.8% Taiwan India Other Subtotal 9.5% 9.7% North America United States 52.0% 51.7% Canada Subtotal 55.1% 54.9% Middle East Other 0.2% 0.2% 7

10 Total World Stock Index 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: June 26, 2008, Through Initial Investment of $10,000 $20,000 17, ,000 Average Annual Total Returns Periods Ended One Year Five Years Since Inception (6/26/2008) Final of a $10,000 Investment Total World Stock Index Fund Investor 23.71% 11.16% 6.31% $17,724 Spliced Total World Stock Index ,732 Global Funds Average ,586 For a benchmark description, see the Glossary. Global Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. "Since Inception" performance is calculated from the Investor inception date for both the fund and its comparative standards. One Year Five Years Since Inception (6/24/2008) Final of a $10,000 Investment Total World Stock Index Fund ETF Net Asset 23.82% 11.28% 6.29% $17,688 Spliced Total World Stock Index ,732 "Since Inception" performance is calculated from the ETF inception date for both the fund and its comparative standard. See Financial Highlights for dividend and capital gains information. 8

11 Total World Stock Index Fund Average Annual Total Returns Periods Ended One Year Five Years Since Inception (10/9/2008) Final of a $5,000,000 Investment Total World Stock Index Fund Institutional 23.86% 11.29% 11.56% $13,474,382 Spliced Total World Stock Index ,108,613 "Since Inception" performance is calculated from the Institutional inception date for both the fund and its comparative standard. Cumulative Returns of ETF : June 24, 2008, Through One Year Five Years Since Inception (6/24/2008) Total World Stock Index Fund ETF Price 23.89% 70.90% 76.88% Total World Stock Index Fund ETF Net Asset Spliced Total World Stock Index Fiscal-Year Total Returns (%): June 26, 2008, Through Total World Stock Index Fund Investor Spliced Total World Stock Index For a benchmark description, see the Glossary. Index returns are adjusted for withholding taxes applicable to U.S.-based mutual funds organized as Delaware statutory trusts. 9

12 Total World Stock Index Fund Average Annual Total Returns: Periods Ended September 30, 2017 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. Inception Date One Year Five Years Since Inception Investor 6/26/ % 10.60% 6.14% ETF 6/24/2008 Price Net Asset Institutional 10/9/

13 Total World Stock Index Fund Financial Statements Statement of Net Assets Investments Summary As of This Statement summarizes the fund s holdings by asset type. Details are reported for each of the fund s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund s net assets. The total value of smaller holdings is reported as a single amount within each category. 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 complete listing of the fund s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission s website (sec.gov), or you can have it mailed to you without charge by calling For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund s Forms N-Q on the SEC s website. 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). Common Stocks Percentage of Net Assets,1Australia 314, % Austria 16, % Belgium 57, % Brazil CPFL Energia SA 104, % 1 Brazil Other 111, % 112, % 1Canada 431, % Chile 19, % China Tencent Holdings Ltd. 1,451,856 65, % China Construction Bank Corp. 24,434,206 21, % Industrial & Commercial Bank of China Ltd. 21,340,245 16, % China Mobile Ltd. 1,455,861 14, % Bank of China Ltd. 20,969,800 10, % China Life Insurance Co. Ltd. 2,054,000 6, % CNOOC Ltd. 4,478,311 6, % China Petroleum & Chemical Corp. 7,192,465 5, % PetroChina Co. Ltd. 6,018,000 3, % China Overseas Land & Investment Ltd. 1,090,480 3, % Agricultural Bank of China Ltd. 7,194,500 3, % PICC Property & Casualty Co. Ltd. 1,250,887 2, % China Shenhua Energy Co. Ltd. 927,000 2, % China Resources Land Ltd. 715,909 2, % 11

14 Total World Stock Index Fund Percentage of Net Assets * China Unicom Hong Kong Ltd. 1,457,574 2, % China Telecom Corp. Ltd. 3,848,034 1, % CITIC Ltd. 1,313,000 1, % China CITIC Bank Corp. Ltd. 2,293,525 1, % China Communications Construction Co. Ltd. 1,165,875 1, % China Taiping Insurance Holdings Co. Ltd. 389,259 1, % Sinopharm Group Co. Ltd. 274,800 1, % China Resources Beer Holdings Co. Ltd. 422,681 1, % Dongfeng Motor Group Co. Ltd. 782,000 1, % CRRC Corp. Ltd. 1,075,800 1, % China Railway Group Ltd. 1,303,000 1, % 1 People s Insurance Co. Group of China Ltd. 2,129,000 1, % China Merchants Port Holdings Co. Ltd. 312, % China Resources Power Holdings Co. Ltd. 503, % China Cinda Asset Management Co. Ltd. 2,489, % 1 China Galaxy Securities Co. Ltd. 1,100, % 1 Postal Savings Bank of China Co. Ltd. 1,567, % China Everbright International Ltd. 656, % 1 CGN Power Co. Ltd. 2,986, % China Resources Gas Group Ltd. 234, % China State Construction International Holdings Ltd. 593, % * Zhuzhou CRRC Times Electric Co. Ltd. 127, % 1 China Huarong Asset Management Co. Ltd. 1,577, % China Jinmao Holdings Group Ltd. 1,476, % China Longyuan Power Group Corp. Ltd. 894, % Beijing Capital International Airport Co. Ltd. 402, % Kunlun Energy Co. Ltd. 680, % China Railway Construction Corp. Ltd. 466, % Sinopec Shanghai Petrochemical Co. Ltd. 936, % Air China Ltd. 540, % China Oilfield Services Ltd. 542, % Huaneng Renewables Corp. Ltd. 1,228, % China Reinsurance Group Corp. 1,782, % AviChina Industry & Technology Co. Ltd. 656, % China Southern Airlines Co. Ltd. 508, % China Everbright Bank Co. Ltd. 729, % 1 China Railway Signal & Communication Corp. Ltd. 428, % 1 Sinopec Engineering Group Co. Ltd. 389, % China National Materials Co. Ltd. 446, % Chongqing Changan Automobile Co. Ltd. Class B 225, % ^ Angang Steel Co. Ltd. 326, % China Resources Cement Holdings Ltd. 412, % China Coal Energy Co. Ltd. 581, % Metallurgical Corp. of China Ltd. 786, % China Power International Development Ltd. 761, % China Agri-Industries Holdings Ltd. 431, % Sinotrans Ltd. 382, % China Eastern Airlines Corp. Ltd. 350, % China BlueChemical Ltd. 556, % Huadian Fuxin Energy Corp. Ltd. 538, % Minmetals Land Ltd. 932, % Sinopec Kantons Holdings Ltd. 202, % China Machinery Engineering Corp. 200, % * Sinofert Holdings Ltd. 668, % 12

15 Total World Stock Index Fund Percentage of Net Assets China National Accord Medicines Corp. Ltd. Class B 20, % China Foods Ltd. 156, % ^ CSSC Offshore and Marine Engineering Group Co. Ltd. 54, % Sinotrans Shipping Ltd. 278, % Dah Chong Hong Holdings Ltd. 166, % Poly Culture Group Corp. Ltd. 27, % China Overseas Property Holdings Ltd. 267, % Shanghai Baosight Software Co. Ltd. Class B 40, % * China Chengtong Development Group Ltd. 816, % China Electronics Huada Technology Co. Ltd. 322, % *,^ Sinopec Oilfield Service Corp. 316, % Harbin Electric Co. Ltd. 96, % * China Power Clean Energy Development Co. Ltd. 62, % China Merchants Land Ltd. 168, % CITIC Resources Holdings Ltd. 278, %,1 China Other 158, % 361, % Colombia 6, % 1Czech Republic 2, % 1Denmark 83, % Egypt 2, % Finland 49, % 1France 431, % 1Germany 426, % Greece 5, % Hong Kong BOC Hong Kong Holdings Ltd. 985,500 4, % *,1 China Resources Pharmaceutical Group Ltd. 443, % Nexteer Automotive Group Ltd. 217, % *,^ MMG Ltd. 690, % 1 BOC Aviation Ltd. 45, % China Travel International Investment Hong Kong Ltd. 516, % CITIC Telecom International Holdings Ltd. 302, % 1 CGN New Energy Holdings Co. Ltd. 250, % Shenwan Hongyuan HK Ltd. 75, %,1 Hong Kong Other 160, % 167, % Hungary 5, % 1India 166, % Indonesia 32, % 13

16 Total World Stock Index Fund Percentage of Net Assets Ireland 14, % Israel 21, % Italy *,1 Pirelli & C SPA 95, % 1 Italy Other 123, % 124, % Japan Toyota Motor Corp. 709,794 44, % Japan Other 1,106, % 1,150, %,1Malaysia 44, % Malta 0.0% 1Mexico 49, % 1Netherlands 153, % New Zealand 14, % 1Norway 37, % 2Other % Pakistan 3, % Peru 4, % Philippines 21, % 1Poland 20, % Portugal 9, % Qatar 8, % 1Russia 50, % Singapore *,^ COSCO Shipping International Singapore Co. Ltd. 92, % China Everbright Water Ltd. 47, % Singapore Other 62, % 62, %,1South Africa 97, % South Korea Samsung Electronics Co. Ltd. GDR 41,582 51, %,1 South Korea Other 196, % , %

17 Total World Stock Index Fund Percentage of Net Assets,1Spain 147, % 1Sweden 144, % Switzerland Nestle SA 840,925 70, % Novartis AG 638,422 52, % Roche Holding AG 185,394 42, % 1 Switzerland Other 185, % 351, % Taiwan Taiwan Semiconductor Manufacturing Co. Ltd. ADR 842,452 35, % Taiwan Other 176, % 212, %,1Thailand 53, % Turkey 17, % United Arab Emirates 12, % United Kingdom HSBC Holdings plc 5,439,350 53, % Royal Dutch Shell plc Class A 1,176,546 37, % BP plc 5,221,838 35, %,1 United Kingdom Other 690, % 815, % United States Basic Materials * DowDuPont Inc. 632,374 45, % Basic Materials Other 147, % 193, % Consumer Goods Procter & Gamble Co. 699,043 60, % Coca-Cola Co. 1,046,067 48, % Philip Morris International Inc. 420,939 44, % PepsiCo Inc. 390,336 43, % Consumer Goods Other 443, % 639, % Consumer Services * Amazon.com Inc. 108, , % Home Depot Inc. 326,288 54, % Comcast Corp. Class A 1,278,779 46, % Walt Disney Co. 424,793 41, % McDonald s Corp. 222,828 37, % Wal-Mart Stores Inc. 394,878 34, % Consumer Services Other 532, % 865, % Financials JPMorgan Chase & Co. 957,961 96, % Bank of America Corp. 2,673,479 73, % Wells Fargo & Co. 1,217,292 68, % 15

18 Total World Stock Index Fund Percentage of Net Assets * Berkshire Hathaway Inc. Class B 358,007 66, % Visa Inc. Class A 503,269 55, % Citigroup Inc. 738,749 54, % Mastercard Inc. Class A 257,129 38, % Financials Other 990, % 1,442, % Health Care Johnson & Johnson 735, , % Pfizer Inc. 1,604,079 56, % UnitedHealth Group Inc. 262,086 55, % Merck & Co. Inc. 747,267 41, % AbbVie Inc. 432,537 39, % Amgen Inc. 199,811 35, % Health Care Other 566, % 895, % Industrials General Electric Co. 2,360,148 47, % Boeing Co. 151,555 39, % 3M Co. 157,223 36, % Industrials Other 815, % 938, % Oil & Gas Exxon Mobil Corp. 1,152,160 96, % Chevron Corp. 514,546 59, % Oil & Gas Other 236, % 391, %,2Other % Technology Apple Inc. 1,419, , % Microsoft Corp. 2,039, , % * Facebook Inc. Class A 635, , % * Alphabet Inc. Class C 84,070 85, % * Alphabet Inc. Class A 79,195 81, % Intel Corp. 1,279,888 58, % Cisco Systems Inc. 1,361,049 46, % Oracle Corp. 780,130 39, % International Business Machines Corp. 233,129 35, % Technology Other 527, % 1,399, % Telecommunications AT&T Inc. 1,677,196 56, % Verizon Communications Inc. 1,112,686 53, % Telecommunications Other 18, % 128, % Utilities 228, % 7,123, % Total Common Stocks (Cost $10,792,583) 13,705, % 3 Preferred Stocks (Cost $58) % 16

19 Total World Stock Index Fund Percentage of Net Coupon Assets Temporary Cash Investments Money Fund 4,5 Vanguard Liquidity Fund 1.246% 1,088, , % 6U.S. Government and Agency Obligations 6, % Total Temporary Cash Investments (Cost $115,153) 115, % 3 Total Investments (Cost $10,907,794) 13,820, % Amount Other Assets and Liabilities Other Assets Investment in Vanguard 832 Receivables for Investment Securities Sold 63,319 Receivables for Accrued Income 23,684 Receivables for Capital Issued 17,316 Variation Margin Receivable Futures Contracts 305 Unrealized Appreciation Forward Currency Contracts 107 Other Assets 2,433 Total Other Assets 107, % Liabilities Payables for Investment Securities Purchased (10,789) Collateral for Securities on Loan (106,840) Payables for Capital Redeemed (617) Payables to Vanguard (3,382) Variation Margin Payable Futures Contracts (37) Unrealized Depreciation Forward Currency Contracts (1,024) Other Liabilities (17) Total Liabilities (122,706) (0.9%) Net Assets 13,806, % At, net assets consisted of: Amount Paid-in Capital 11,055,166 Undistributed Net Investment Income 21,987 Accumulated Net Realized Losses (184,043) Unrealized Appreciation (Depreciation) Investment Securities 2,912,981 Futures Contracts 1,226 Forward Currency Contracts (917) Foreign Currencies (335) Net Assets 13,806,065 17

20 Total World Stock Index Fund Amount Investor Net Assets Applicable to 51,773,191 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 1,522,074 Net Asset Per Share Investor $29.40 ETF Net Assets Applicable to 135,237,886 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 9,755,332 Net Asset Per Share ETF $72.13 Institutional Net Assets Applicable to 17,164,769 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 2,528,659 Net Asset Per Share Institutional $ See Note A in Notes to Financial Statements. Certain of the fund s securities are valued using significant unobservable inputs. * Non-income-producing security. ^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $80,997,000. Represents the aggregate value, by category, of securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets. 1 Certain of the fund s securities are exempt from registration under Rule 144A of the Securities Act of Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At, the aggregate value of these securities was $78,352,000, representing 0.6% of net assets. 2 Other represents securities that are not classified by the fund s benchmark index. 3 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund s effective common stock and temporary cash investment positions represent 99.9% and 0.2%, respectively, of net assets. 4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 5 Includes $106,840,000 of collateral received for securities on loan. 6 Securities with a value of $4,336,000 have been segregated as initial margin for open futures contracts. ADR American Depositary Receipt. GDR Global Depositary Receipt. 18

21 Total World Stock Index Fund Derivative Financial Instruments Outstanding as of Period End Futures Contracts and Number of Unrealized Long (Short) Notional Appreciation Expiration Contracts Amount (Depreciation) Long Futures Contracts E-mini S&P 500 Index December ,952 (48) MSCI Emerging Index December , Dow Jones EURO STOXX 50 Index December , E-mini S&P Mid-Cap 400 Index December , Topix Index December , FTSE 100 Index December , S&P TSX 60 Index December , S&P ASX 200 Index December , ,226 Unrealized appreciation (depreciation) on open E-mini S&P 500 Index, MSCI Emerging Index, Dow Jones EURO STOXX 50 Index, E-mini S&P Mid-Cap 400 Index, and FTSE 100 Index futures contracts is required to be treated as realized gain (loss) for tax purposes. Forward Currency Contracts Unrealized Contract Appreciation Settlement Contract Amount (000) (Depreciation) Counterparty Date Receive Deliver Barclays Bank plc 12/20/17 EUR 9,969 USD 11,977 (330) BNP Paribas 12/12/17 JPY 834,596 USD 7,734 (379) Toronto-Dominion Bank 12/20/17 GBP 4,566 USD 6,079 (5) Toronto-Dominion Bank 12/28/17 AUD 3,705 USD 2,963 (129) Goldman Sachs International 12/19/17 CAD 2,569 USD 2,116 (123) Goldman Sachs International 12/20/17 EUR 972 USD 1,153 (17) JPMorgan Chase Bank, N.A. 12/12/17 JPY 101,730 USD 907 (11) Credit Suisse International 12/20/17 GBP 523 USD JPMorgan Chase Bank, N.A. 12/19/17 CAD 403 USD 332 (19) Goldman Sachs International 12/28/17 AUD 286 USD 222 (4) BNP Paribas 12/20/17 USD 3,437 EUR 2,

22 Total World Stock Index Fund Forward Currency Contracts (continued) Unrealized Contract Appreciation Settlement Contract Amount (000) (Depreciation) Counterparty Date Receive Deliver Barclays Bank plc 12/12/17 USD 1,945 JPY 218, JPMorgan Chase Bank, N.A. 12/20/17 USD 1,475 GBP 1,114 (7) Goldman Sachs International 12/28/17 USD 1,326 AUD 1, Goldman Sachs International 12/19/17 USD 593 CAD AUD Australian dollar. CAD Canadian dollar. EUR Euro. GBP British pound. JPY Japanese yen. USD U.S. dollar. Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes. (917) See accompanying Notes, which are an integral part of the Financial Statements. 20

23 Total World Stock Index Fund Statement of Operations Year Ended Investment Income Income Dividends 1,2 262,751 Interest Securities Lending Net 3,961 Total Income 267,459 Expenses The Vanguard Group Note B Investment Advisory Services 2,305 Management and Administrative Investor 1,773 Management and Administrative ETF 4,272 Management and Administrative Institutional 1,171 ing and Distribution Investor 251 ing and Distribution ETF 424 ing and Distribution Institutional 63 Custodian Fees 1,424 Auditing Fees 45 Shareholders Reports and Proxy Investor 60 Shareholders Reports and Proxy ETF 380 Shareholders Reports and Proxy Institutional 9 Trustees Fees and Expenses 8 Total Expenses 12,185 Net Investment Income 255,274 Realized Net Gain (Loss) Investment Securities Sold 2 9,035 Futures Contracts 13,976 Foreign Currencies and Forward Currency Contracts 527 Realized Net Gain (Loss) 23,538 Change in Unrealized Appreciation (Depreciation) Investment Securities 2 2,087,475 Futures Contracts 639 Foreign Currencies and Forward Currency Contracts 38 Change in Unrealized Appreciation (Depreciation) 2,088,152 Net Increase (Decrease) in Net Assets Resulting from Operations 2,366,964 1 Dividends are net of foreign withholding taxes of $12,102, Dividend income, interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from affiliated companies of the fund were $0, $703,000, ($252,000), and ($183,000), respectively. See accompanying Notes, which are an integral part of the Financial Statements. 21

24 Total World Stock Index Fund Statement of Changes in Net Assets Year Ended October 31, Increase (Decrease) in Net Assets Operations Net Investment Income 255, ,257 Realized Net Gain (Loss) 23,538 6,772 Change in Unrealized Appreciation (Depreciation) 2,088,152 31,241 Net Increase (Decrease) in Net Assets Resulting from Operations 2,366, ,270 Distributions Net Investment Income Investor (29,590) (22,429) ETF (179,823) (131,316) Institutional (50,514) (41,678) Realized Capital Gain Investor ETF Institutional Total Distributions (259,927) (195,423) Capital Share Transactions Investor 191, ,566 ETF 2,198,964 1,073,261 Institutional 500,503 (221,774) Net Increase (Decrease) from Capital Share Transactions 2,891, ,053 Total Increase (Decrease) 4,998,128 1,010,900 Net Assets Beginning of Period 8,807,937 7,797,037 End of Period 1 13,806,065 8,807,937 1 Net Assets End of Period includes undistributed (overdistributed) net investment income of $21,987,000 and $25,728,000. See accompanying Notes, which are an integral part of the Financial Statements. 22

25 Total World Stock Index Fund Financial Highlights Investor For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $24.30 $24.18 $24.82 $23.48 $19.46 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (.643) Total from Investment Operations (.086) Distributions Dividends from Net Investment Income (.598) (.534) (.554) (.571) (.537) Distributions from Realized Capital Gains Total Distributions (.598) (.534) (.554) (.571) (.537) Net Asset, End of Period $29.40 $24.30 $24.18 $24.82 $23.48 Total Return % 2.80% -0.37% 8.20% 23.79% Ratios/Supplemental Data Net Assets, End of Period (Millions) $1,522 $1,078 $961 $844 $615 Ratio of Total Expenses to Average Net Assets 0.19% 0.21% 0.25% 0.27% 0.30% Ratio of Net Investment Income to Average Net Assets 2.19% 2.40% 2.31% 2.38% 2.28% Portfolio Turnover Rate 3 10% 15% 7% 7% 12% 1 Calculated based on average shares outstanding. 2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. 3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 23

26 Total World Stock Index Fund Financial Highlights ETF For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $59.62 $59.34 $60.89 $57.60 $47.76 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (1.562) Total from Investment Operations (.126) Distributions Dividends from Net Investment Income (1.530) (1.367) (1.424) (1.460) (1.403) Distributions from Realized Capital Gains Total Distributions (1.530) (1.367) (1.424) (1.460) (1.403) Net Asset, End of Period $72.13 $59.62 $59.34 $60.89 $57.60 Total Return 23.82% 2.89% -0.23% 8.31% 23.95% Ratios/Supplemental Data Net Assets, End of Period (Millions) $9,755 $6,112 $5,008 $3,720 $2,837 Ratio of Total Expenses to Average Net Assets 0.10% 0.11% 0.14% 0.17% 0.18% Ratio of Net Investment Income to Average Net Assets 2.28% 2.50% 2.42% 2.48% 2.40% Portfolio Turnover Rate 2 10% 15% 7% 7% 12% 1 Calculated based on average shares outstanding. 2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 24

27 Total World Stock Index Fund Financial Highlights Institutional For a Share Outstanding Year Ended October 31, Throughout Each Period Net Asset, Beginning of Period $ $ $ $ $97.56 Investment Operations Net Investment Income Net Realized and Unrealized Gain (Loss) on Investments (3.189) Total from Investment Operations (.244) Distributions Dividends from Net Investment Income (3.136) (2.800) (2.926) (3.004) (2.897) Distributions from Realized Capital Gains Total Distributions (3.136) (2.800) (2.926) (3.004) (2.897) Net Asset, End of Period $ $ $ $ $ Total Return 23.86% 2.88% -0.22% 8.34% 23.95% Ratios/Supplemental Data Net Assets, End of Period (Millions) $2,529 $1,617 $1,828 $1,277 $724 Ratio of Total Expenses to Average Net Assets 0.09% 0.10% 0.13% 0.15% 0.16% Ratio of Net Investment Income to Average Net Assets 2.29% 2.51% 2.43% 2.50% 2.42% Portfolio Turnover Rate 2 10% 15% 7% 7% 12% 1 Calculated based on average shares outstanding. 2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund s capital shares, including ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. 25

28 Total World Stock Index Fund Notes to Financial Statements Vanguard Total World Stock Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund invests in securities of foreign issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. The fund offers three classes of shares: Investor, ETF, and Institutional. Investor are available to any investor who meets the fund s minimum purchase requirements. ETF are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Institutional are designed for investors who meet certain administrative, service, and account-size criteria. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. 1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund s pricing time but after the close of the securities primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Liquidity Fund are valued at that fund s net asset value. Temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. 2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses). 3. Futures and Forward Currency Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. 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 26

29 Total World Stock Index Fund 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. The fund also enters into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts. The fund s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. The master netting arrangements provide that, in the event of a counterparty s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts contain provisions whereby a counterparty may terminate open contracts if the fund s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any assets pledged as collateral for open contracts are noted in the Statement of Net Assets. The value of collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days. Futures contracts are valued at their quoted daily settlement prices. Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures or forward currency contracts. During the year ended, the fund s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period. The fund s average investment in forward currency contracts represented less than 1% of net assets, based on the average of the notional amounts at each quarter-end during the period. 4. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund s tax positions taken for all open federal income tax years (October 31, ), and has concluded that no provision for federal income tax is required in the fund s financial statements. 5. Distributions: Distributions to shareholders are recorded on the ex-dividend date. 27

30 Total World Stock Index Fund 6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities. 7. Credit Facility: The fund and certain other funds managed by The Vanguard Group ( Vanguard ) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund s board of trustees and included in Management and Administrative expenses on the fund s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread. The fund had no borrowings outstanding at, or at any time during the period then ended. 8. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the fund s understanding of the applicable countries tax rules and rates. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these countries. Such tax reclaims received during the year, if any, are included in dividend income. No other 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. 28