Vanguard International Stock Index Funds Annual Report

Pacific Stock Index Fund
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 possibility of an
illiquid market.
The fund also may enter 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. Counterparty risk is mitigated by entering into forward
currency contracts only with highly rated counterparties, by a master netting arrangement between
the fund and the counterparty, and by the posting of collateral by the counterparty. 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 posted. Any securities posted as collateral for open contracts are noted in
the Statement of Net Assets
Futures and forward currency contracts are valued at their quoted daily settlement prices. The
aggregate principal 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.
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, 2006–2009), 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.
6. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn
additional income. Security loans are required to be secured at all times by collateral at least equal
to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market
Liquidity Fund, and records a liability for the return of the collateral, during the period the securities
are on loan. Security lending income represents the income earned on investing cash collateral, less
expenses associated with the loan.
7. 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. 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. Fees assessed
on redemptions of capital shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately
bears certain class-specific expenses related to maintenance of shareholder accounts (included in
Management and Administrative expenses), shareholder reporting, and proxies. Marketing and
distribution expenses are allocated to each class of shares based on a method approved by the
board of trustees. Income, other non-class-specific expenses, and gains and losses on investments
are allocated to each class of shares based on its relative net assets.
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