VANGUARD TRUSTEES EQUITY FUND, 485BPOS, 1994-04-18

VANGUARD TRUSTEES EQUITY FUND
485BPOS, 1994-04-18

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-65955) UNDER
THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
Post-Effective Amendment No. 17
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 17

VANGUARD/TRUSTEES' EQUITY FUND
(FORMERLY TRUSTEES' COMMINGLED FUND)
(Exact Name of Registrant as Specified in Charter)

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

(Address of Principal Executive Office)

Registrant's Telephone Number (610) 669-1000

RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

It is proposed that this filing become effective:

It is proposed that the amendment become effective on April 22, 1994, pursuant
to paragraph (b) of Rule 485 of the Securities Act of 1933.

Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.

Registrant elects to register an indefinite number of shares pursuant to
Regulation 24f-2 under the Investment Company Act of 1940. Registrant filed its
Rule 24f-2 Notice for the year ended December 31, 1993 on February 24, 1994.

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VANGUARD TRUSTEES' EQUITY FUND
CROSS REFERENCE SHEET

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FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
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Item 1. Cover Page......................................... Cover Page
Item 2. Synopsis........................................... Not Applicable
Item 3. Condensed Financial Information.................... Financial Highlights
Item 4. General Description of Registrant.................. Investment Objective; Investment Limitations;
Investment Policies; General Information
Item 5. Management of the Fund............................. Management of the Fund; Investment Advisers
Item 6. Capital Stock and Other Securities................. Opening an Account and Purchasing Shares; Selling
Your Shares; The Share Price of Each Portfolio;
Dividends, Capital Gains and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............... Cover Page; Opening an Account and Purchasing
Shares
Item 8. Redemption or Repurchase........................... Selling Your Shares
Item 9. Pending Legal Proceedings.......................... Not Applicable

<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page......................................... Cover Page
Item 11. Table of Contents.................................. Cover Page
Item 12. General Information and History.................... Investment Objectives and Policies; General
Information
Item 13. Investment Objective and Policies.................. Investment Objectives and Policies; Investment
Limitations
Item 14. Management of the Fund............................. Management of the Fund; Investment Management
Item 15. Control Persons and Principal Holders of
Securities......................................... Management of the Fund; General Information
Item 16. Investment Advisory and Other Services............. Management of the Fund; Investment Management
Item 17. Brokerage Allocation............................... Not Applicable
Item 18. Capital Stock and Other Securities................. General Information; Financial Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered...................................... Purchase of Shares; Redemption of Shares;
Item 20. Tax Status......................................... Appendix
Item 21. Underwriters....................................... Not Applicable
Item 22. Calculations of Yield Quotations of Money Market
Fund............................................... Not Applicable
Item 23. Financial Statements............................... Financial Statements
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OPQRS A MEMBER OF THE VANGUARD GROUP
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PROSPECTUS--APRIL 22, 1994
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447 (SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739 (CREW)
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INVESTMENT Vanguard/Trustees' Equity Fund (the "Fund"), formerly known
OBJECTIVE AND as "Trustees' Commingled Fund," is an open-end diversified
POLICIES investment company that seeks to realize maximum long-term
total return consistent with reasonable risk. The Fund
consists of two Portfolios: the U.S. Portfolio, which
invests in equity securities of companies based in the
United States, and the International Portfolio, which
invests in equity securities of companies based outside the
United States. There is no assurance that either Portfolio
will achieve its stated objective.
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OPENING AN ACCOUNT To open a regular (non-retirement) account, please complete
and return the Account Registration Form. If you need
assistance in completing this Form, please call our Investor
Information Department. To open an Individual Retirement
Account (IRA), please use a Vanguard IRA Adoption Agreement.
To obtain a copy of this form, call 1-800-662-7447, Monday
through Friday from 8:00 a.m to 8:00 p.m. (Eastern time).
The minimum initial investment is $10,000 ($500 for
Individual Retirement Accounts and Uniform Gifts/Transfers
to Minors Act accounts). The Fund is offered on a no-load
basis (i.e., there are no sales commissions or 12b-1 fees).
However, the Fund incurs expenses for investment advisory,
management, administrative and distribution services.
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ABOUT THIS This Prospectus is designed to set forth concisely the
PROSPECTUS information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing additional
information about the Fund has been filed with the
Securities and Exchange Commission. This Statement is dated
April 22, 1994 and has been incorporated by reference into
this Prospectus. A copy may be obtained without charge by
writing to the Fund or by calling the Investor Information
Department.
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TABLE OF CONTENTS
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PAGE
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Fund Expenses..................... 2
Financial Highlights.............. 3
Yield and Total Return............ 5
FUND INFORMATION
Investment Objective.............. 5
Investment Policies............... 5
Investment Risks.................. 6
Who Should Invest................. 8
Implementation of Policies........ 9
Investment Limitations............ 10

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PAGE
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Management of the Fund............ 11
Investment Advisers............... 12
Performance Record................ 14
Dividends, Capital Gains and
Taxes........................... 15
The Share Price of Each
Portfolio....................... 16
General Information............... 17
SHAREHOLDER GUIDE
Opening an Account and
Purchasing Shares............... 18
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PAGE
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Choosing a Distribution Option.... 20
Tax Caution....................... 20
When Your Account Will Be
Credited........................ 21
Selling Your Shares............... 21
Exchanging Your Shares............ 23
Important Information About
Telephone Transactions.......... 24
Transferring Registration......... 25
Other Vanguard Services........... 25
</TABLE>

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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FUND EXPENSES The following table illustrates all expenses and fees that
you would incur as a shareholder of the Fund. The expenses
and fees set forth in the table are for the 1993 fiscal
year.
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION
EXPENSES
<S> <C> <C>
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Sales Load Imposed on
Purchases.................... None
Sales Load Imposed on
Reinvested Dividends......... None
Redemption Fees............... None
Exchange Fees................. None

<CAPTION>
U.S. INTERNATIONAL
ANNUAL FUND OPERATING EXPENSES PORTFOLIO PORTFOLIO
<S> <C> <C>
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Management & Administrative
Expenses..................... 0.23% 0.13%
Investment Advisory Fees...... 0.59% 0.16%
12b-1 Fees.................... None None
Other Expenses
Distribution Costs.......... 0.02% 0.02%
Miscellaneous Expenses...... 0.06% 0.09%
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Total Other Expenses.......... 0.08% 0.11%
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0.90% 0.40%
TOTAL OPERATING
EXPENSES...............
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The purpose of this table is to assist you in understanding
the various costs and expenses that you would bear directly
or indirectly as an investor in the Fund.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above, the
Fund charges no redemption fees of any kind.
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<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Portfolio..................... $ 9 $ 29 $ 50 $ 111
International Portfolio............ $ 4 $ 13 $ 22 $ 51
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.

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2
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FINANCIAL The following financial highlights for a share outstanding
HIGHLIGHTS throughout each period, insofar as they relate to each of
the five years in the period ended December 31, 1993, have
been audited by Price Waterhouse, independent accountants,
whose report thereon was unqualified. This information
should be read in conjunction with the Fund's financial
statements and notes thereto which are incorporated by
reference in the Statement of Additional Information and in
this Prospectus, and which appear, along with the report of
Price Waterhouse, in the Fund's 1993 Annual Report to
Shareholders. For a complete discussion of the Fund's
performance, please see the Fund's 1993 Annual Report to
Shareholders which may be obtained without charge by writing
to the Fund or by calling our Investor Information
Department at 1-800-662-1447.
</TABLE>

<TABLE>
<CAPTION>
U.S. PORTFOLIO
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YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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NET ASSET VALUE, BEGINNING OF YEAR...... $28.43 $28.20 $22.90 $26.15 $26.35 $22.77 $28.69 $31.15 $30.56 $35.72
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income................. .43 .68 .71 1.02 .87 1.02 .92 1.16 1.45 1.57
Net Realized and Unrealized Gain
(Loss) on Investments................ 4.38 1.08 5.30 (3.19) 3.62 4.53 (.24) 3.69 4.69 (2.65)
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS.... 4.81 1.76 6.01 (2.17) 4.49 5.55 .68 4.85 6.14 (1.08)
DISTRIBUTIONS
Dividends from Net Investment
Income............................... (.43) (.67) (.71) (1.08) (.88) (.97) (.72) (1.16) (1.45) (1.57)
Distributions from Realized Capital
Gains................................ (2.16) (.86) -- -- (3.81) (1.00) (5.88) (6.15) (4.10) (2.51)
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS................. (2.59) (1.53) (.71) (1.08) (4.69) (1.97) (6.60) (7.31) (5.55) (4.08)
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NET ASSET VALUE, END OF YEAR............ $30.65 $28.43 $28.20 $22.90 $26.15 $26.35 $22.77 $28.69 $31.15 $30.56
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TOTAL RETURN............................ 17.24% 6.45% 26.57% (8.33)% 17.23% 24.64% 1.68% 15.26% 20.53% (2.89)%
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions)...... $119 $68 $115 $100 $121 $115 $122 $163 $202 $272
Ratio of Expenses to Average Net
Assets................................. .90% .65% .44% .52% .51% .58% .52% .52% .48% .53%
Ratio of Net Investment Income to
Average Net Assets..................... 1.43% 2.33% 2.67% 4.18% 2.90% 3.86% 2.77% 3.46% 4.42% 4.74%
Portfolio Turnover Rate................. 139% 209% 84% 81% 72% 90% 44% 19% 23% 33%
</TABLE>

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<CAPTION>
INTERNATIONAL PORTFOLIO
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YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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NET ASSET VALUE, BEGINNING OF
YEAR.............................. $24.44 $27.78 $26.58 $32.44 $28.27 $28.66 $38.68 $ 30.91 $24.59 $25.98
------- -------- ------- -------- ------- ------- ------- -------- ------- -------
INVESTMENT OPERATIONS
Expenses.........................
Net Investment Income............ .50 .66 .78 1.02 .82 .77 1.14 1.03 .93 1.02
Net Realized and Unrealized Gain
(Loss) on Investments........... 6.91 (3.05) 1.80 (4.92) 6.22 4.41 7.91 14.32 8.86 (1.21)
------- -------- ------- -------- ------- ------- ------- -------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS.................... 7.41 (2.39) 2.58 (3.90) 7.04 5.18 9.05 15.35 9.79 (.19)
DISTRIBUTIONS
Dividends from Net Investment
Income.......................... (.81) (.67) (.77) (.95) (.79) (.99) (.75) (1.03) (.93) (1.09)
Distributions from Realized
Capital Gains................... -- (.28) (.61) (1.01) (2.08) (4.58) (18.32) (6.55) (2.54) (.11)
------- -------- ------- -------- ------- ------- ------- -------- ------- -------
TOTAL DISTRIBUTIONS............ (.81) (.95) (1.38) (1.96) (2.87) (5.57) (19.07) (7.58) (3.47) (1.20)
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NET ASSET VALUE, END OF YEAR....... $31.04 $24.44 $27.78 $26.58 $32.44 $28.27 $28.66 $38.68 $30.91 $24.59
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TOTAL RETURN....................... 30.49% (8.72)% 9.96% (12.26)% 25.97% 18.78% 23.88% 50.71% 40.33% (0.76)%
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)........................ $982 $678 $878 $796 $646 $467 $657 $719 $582 $317
Ratio of Expenses to Average Net
Assets............................ .40% .42% .38% .44% .46% .51% .50% .52% .56% .63%
Ratio of Net Investment Income to
Average Net Assets................ 1.76% 2.48% 2.87% 3.62% 2.61% 2.55% 2.44% 2.65% 3.11% 3.89%
Portfolio Turnover Rate............ 39% 51% 46% 18% 25% 14% 48% 24% 29% 8%

4
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YIELD AND TOTAL From time-to-time a Portfolio may advertise its yield and
RETURN total return. BOTH YIELD AND TOTAL RETURN FIGURES ARE BASED
ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" of a Portfolio refers
to the average annual compounded rates of return over one-,
five-and ten-year periods or for the life of the Portfolio
(as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distribu-
tions.
The "30-day yield" of a Portfolio is calculated by dividing
the net investment income per share earned during a 30-day
period by the net asset value per share on the last day of
the period. Net investment income includes interest and
dividend income earned on the Portfolio's securities; it is
net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder accounts.
The yield calculation assumes that the net investment income
earned over 30 days is compounded monthly for six months and
then annualized. Methods used to calculate advertised yields
are standardized for all stock and bond mutual funds. Howev-
er, these methods differ from the accounting methods used by
a Portfolio to maintain its books and records, and so the
advertised 30-day yield may not fully reflect the income
paid to your own account or the yield reported in the Fund's
reports to shareholder.
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INVESTMENT The Fund is an open-end diversified investment company that
OBJECTIVE consists of two Portfolios. The U.S. Portfolio invests in
EACH PORTFOLIO equity securities of companies based in the United States,
SEEKS TO PROVIDE and the International Portfolio invests in equity securities
MAXIMUM LONG-TERM of companies based outside the United States.
TOTAL RETURN The objective of each Portfolio is to realize maximum
long-term total return consistent with reasonable risk.
Total return includes both capital return (appreciation or
depreciation in a Portfolio's net asset value, adjusted for
any distributions of net realized capital gains) and income
return (dividends from investment income net of operating
expenses); it assumes the reinvestment of all dividend and
capital gains distributions.
There is no assurance that either Portfolio will achieve its
stated objective.
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INVESTMENT Both Portfolios of the Fund invest primarily in common
POLICIES stocks that have attractive total return potential. The Fund
THE U.S. PORTFOLIO is managed without regard to tax ramifications. The two
BLENDS GROWTH AND Portfolios differ primarily in their geographic orientation
VALUE STRATEGIES and their investment adviser.
The U.S. Portfolio invests primarily in domestic common
stocks that are considered undervalued by the investment
adviser. Geewax, Terker & Co. ("Geewax Terker") utilizes a
quantitative approach to identify from a large universe of
companies those common stocks with the best relative total
return potential. Geewax Terker selects a combination of
attractively priced "value" and "growth" stocks for the
Portfolio. Among the characteristics emphasized in stock
selection are (i) market liquidity; (ii) low volatility; and
(iii) financial strength relative to other domestic common
stocks.
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THE INTERNATIONAL The International Portfolio invests primarily in common
PORTFOLIO stocks of companies located outside the United States. Under
EMPHASIZES STOCK normal circumstances, at least 65% of the International
SELECTION RATHER Portfolio's assets will be invested in at least three
THAN COUNTRY different countries. Batterymarch Financial Management
WEIGHTING examines securities from over 20 international stock
markets, with emphasis on the five largest--Japan, the
United Kingdom, France, Canada and Germany. Common stocks
are chosen for the International Portfolio using the
investment adviser's scoring system for identifying
undervalued common stocks. The weighting of the
International Portfolio's assets among individual countries
is not based on a forecast of expected changes in currency
exchange rates. Rather, country weightings reflect an
assessment of the attractiveness of individual equity
securities regardless of where they trade.
Both Portfolios of the Fund will be diversified across a
broad range of industries, and the International Portfolio
will be diversified across a number of countries, consistent
with the objective of providing a high level of total return
with a reasonable level of risk. Both Portfolios are
expected to remain substantially fully invested in equity
securities. However, the proportion of cash reserves held by
the Portfolios may increase if a Portfolio's adviser feels
that a conservative investment posture is warranted.
Each Portfolio of the Fund is authorized to invest in stock
index futures and options to a limited extent. Each
Portfolio is permitted to hold equity securities other than
common stock, such as debentures or preferred stock that are
convertible into common stock, although there are no present
plans to do so. The International Portfolio may also enter
into forward foreign currency exchange contracts in order to
protect against fluctuations in exchange rates. See
"Implementation of Policies" for a description of these and
other investment practices of the Fund.
The investment objectives and policies of the Fund are not
fundamental and so may be changed by the Board of Trustees
without shareholder approval. However, shareholders would be
notified prior to a material change in either.
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INVESTMENT RISKS As mutual funds investing in equity securities, the
BOTH PORTFOLIOS Portfolios of the Fund are subject to market risk--i.e., the
ARE SUBJECT TO possibility that stock prices in general will decline over
STOCK MARKET RISK short or even extended periods. Domestic and foreign stock
markets tend to be cyclical, with periods when stock prices
generally rise and periods when stock prices generally
decline.
To illustrate the volatility of domestic stock prices, the
following table sets forth the extremes for U.S. stock
market returns as well as the average return for the period
from 1926 to 1993, as measured by the Standard & Poor's 500
Composite Stock Price Index:
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 -0.9 +3.1
Average +12.3 +10.3 +10.6 +10.6
</TABLE>

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As shown, from 1926 to 1993, U.S. common stocks as measured
by the S&P 500 Index have provided an annual total return
(capital appreciation plus dividend income), on average, of
+12.3%. While this average return can be used as a guide for
setting reasonable expectations for future stock market
returns, it may not be useful for forecasting future returns
in any particular period, as stock returns are quite
volatile from year-to-year.
INTERNATIONAL Investments in foreign stock markets can be as volatile, if
STOCKS MAY BE MORE not more volatile, than investments in U.S. markets. To
VOLATILE THAN U.S. illustrate the volatility of foreign stock market returns
STOCKS for the U.S. dollar-based investor, the following table sets
forth the extremes for foreign stock market returns as well
as the average return for the period from 1969 to 1993, as
measured by the Morgan Stanley Capital International Europe,
Australia and Far East (EAFE) Index:
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL INTERNATIONAL STOCK MARKET RETURNS
(1969-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS
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<S> <C> <C> <C>
Best +70.2% +36.8% +22.9%
Worst -23.0 + 1.4 + 7.0
Average +15.3 +14.7 +15.9
</TABLE>

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As shown, over the period from 1969 to 1993, international
(non-U.S.) stocks have provided an annual total return, on
average, of +15.3%. By comparison, the average annual total
return on U.S. stocks during this same period was +11.7% (as
measured by the Standard & Poor's 500 Composite Index).
Note, however, that the period from 1969 to 1993 was a
favorable one for foreign stock market investing. As a
result, the figures on total return and stock market
volatility are provided here only as a guide to potential
market risk, and may not be useful for forecasting future
returns in any particular period.
INTERNATIONAL For U.S. investors, the returns of foreign investments, such
STOCKS ALSO EXPOSE as those held by the International Portfolio, are influenced
INVESTORS TO by not only the returns on foreign common stocks themselves,
CURRENCY AND OTHER but also by currency risk--i.e., changes in the value of the
RISKS currencies in which the stocks are denominated. In a period
when the U.S. dollar generally rises against foreign
currencies, the returns on foreign stocks for a U.S.
investor are diminished. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign
stocks are enhanced.
Other risks and considerations of international investing
include the following: differences in accounting, auditing
and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the
smaller trading volumes and generally lower liquidity of
foreign stock markets, which may result in greater price
volatility; foreign withholding taxes payable on the
Portfolio's foreign securities, which may reduce dividend
income payable to shareholders; the possibility of
expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations; political
instability which could affect U.S. investment in foreign
countries; difficulty in obtaining and enforcing foreign
court judgements and potential restrictions on the flow of
international capital.
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These tables on U.S. and international stock market returns
should not be viewed as representations of future returns
from U.S. or international stock markets or the U.S. or
International Portfolios of the Fund. The illustrated
returns represent historical investment performance, which
may be a poor guide to future returns. Also, stock market
indexes are based on unmanaged portfolios of securities
before transaction costs and other expenses. Such costs will
reduce the relative investment performance of the Fund's
Portfolios and other "real world" portfolios. Finally, the
Fund's Portfolios are likely to differ in portfolio
composition from broad stock market averages, and so a
Portfolio's performance should not be expected to mirror the
returns provided by a specific index.
BOTH PORTFOLIOS The investment advisers manage the Portfolios according to
ARE SUBJECT TO the traditional methods of "active" investment management,
MANAGER RISK which involve the buying and selling of securities based
upon economic, financial and market analysis and investment
judgement. Manager risk refers to the possibility that each
Portfolio's investment adviser may fail to execute the
Portfolio's investment strategy effectively. As a result,
the Portfolio may fail to achieve its stated objectives.
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WHO SHOULD The two Portfolios of the Fund are intended for investors
INVEST who are seeking maximum long-term total return with
INVESTORS SEEKING reasonable risk. Because of the risks associated with common
LONG-TERM TOTAL stock investments, the two Portfolios of the Fund are
RETURN intended to be long-term investment vehicles and are not
designed to provide investors with a means of speculating on
short-term stock market movements. Investors should be able
to tolerate sudden, sometimes substantial fluctuations in
the value of their investment. Investors in the
International Portfolio should be cognizant of the unique
risks of international investing, including their exposure
to currency fluctuations.
The Fund is intended to be a long-term investment vehicle
and is not designed to provide investors with a means of
speculating on short-term market movements. Investors who
engage in excessive account activity generate additional
costs which are borne by all of the Fund's shareholders. In
order to minimize such costs the Fund has adopted the
following policies. The Fund reserves the right to reject
any purchase request (including exchange purchases from
other Vanguard portfolios) that is reasonably deemed to be
disruptive to efficient portfolio management, either because
of the timing of the investment or previous excessive
trading by the investor. Additionally, the Fund has adopted
exchange privilege limitations as described in the section
"Exchange Privilege Limitations." Finally, the Fund reserves
the right to suspend the offering of its shares.
No assurance can be given that a Portfolio of the Fund will
attain its objective or that shareholders will be protected
from the risk of loss that is inherent in equity investing.
Investors may wish to reduce the potential risk of investing
in the Fund by purchasing shares on a regular, periodic
basis (dollar-cost averaging) rather than making an
investment in one lump sum.
Because of these risks, the Fund should not be considered a
complete investment program. Most investors should maintain
diversified holdings of securities with different risk
characteristics--including common stocks, bonds and money
market instruments. Investors may also wish to complement an
investment in the Fund with other types of common stock
investments.
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<TABLE>
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IMPLEMENTATION OF In addition to investing primarily in equity securities,
POLICIES each Portfolio of the Fund follows a number of additional
THE INTERNATIONAL investment practices to achieve its objective.
PORTFOLIO MAY The International Portfolio of the Fund may enter into
ENTER INTO FORWARD forward foreign currency exchange contracts in order to
CURRENCY CONTRACTS protect against uncertainty in the level of future foreign
exchange rates in the purchase and sale of investment
securities. It may not enter into such contracts for
speculative purposes.
A forward foreign currency exchange contract is an
obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts may be
bought or sold to protect the Portfolio to a limited extent
against adverse changes in exchange rates between foreign
currencies and the U.S. dollar. Such contracts, which
protect the value of a Portfolio's investment securities
against a decline in the value of a currency, do not
eliminate fluctuations in the underlying prices of the
securities, they simply establish an exchange rate at a
future date. Also, although such contracts tend to minimize
the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential
gain that might be realized should the value of such
currency increase.
EACH PORTFOLIO MAY Although both normally seek to remain substantially fully
INVEST IN invested in equity securities, the two Portfolios of the
SHORT-TERM FIXED Fund may invest temporarily in certain short-term fixed
INCOME SECURITIES income securities. Such securities may be used to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or to take a temporary defensive
position against potential stock market declines. No more
than 35% of a Portfolio's assets will be invested in
short-term fixed income securities for other than temporary
defensive purposes. These securities include: obligations of
the United States Government and its agencies or
instrumentalities; commercial paper, bank certificates of
deposit, and bankers' acceptances; and repurchase agree-
ments collateralized by these securities.
EACH PORTFOLIO MAY Each Portfolio may utilize stock futures contracts and
USE FUTURES options to a limited extent. Specifically, each Portfolio
CONTRACTS AND may enter into futures contracts provided that not more than
OPTIONS 5% of its assets are required as a futures contract deposit;
in addition, each Portfolio may enter into futures contracts
and options transactions only to the extent that obligations
under such contracts or transactions represent not more than
20% of the Portfolio's assets.
Futures contracts and options may be used for several
reasons: to simulate full investment in underlying
securities while retaining a cash balance for Fund man-
agement purposes, to facilitate trading, to reduce
transaction costs, or to seek higher investment returns when
a futures contract is priced more attractively than the
underlying equity security or index.
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The risk of loss in trading futures contracts in some
strategies can be substantial due both to the low margin
deposits required and the extremely high degree of
leveraging involved in futures pricing. As a result, a
relatively small price movement in a futures contract may
result in immediate and substantial loss or gain. However, a
Portfolio will not use futures contracts or options for
speculative purposes or to leverage its assets. Accordingly,
the primary risks associated with the use of futures
contracts and options by a Portfolio are: (i) imperfect
correlation between the change in market value of the stocks
held by the Portfolio and the prices of futures contracts
and options; and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The
risk of imperfect correlation will be minimized by investing
only in those contracts whose behavior is expected to
resemble that of a Portfolio's underlying securities. The
risk that a Portfolio will be unable to close at a futures
position will be minimized by entering into such
transactions on a national exchange with an active and
liquid secondary market.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required, and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate
and substantial loss (or gain) to the investor. When
investing in futures contracts, the Fund will segregate cash
or cash equivalents in the amount of the underlying
obligation.
EACH PORTFOLIO MAY Each Portfolio may lend its investment securities on a
LEND ITS short-term or long-term basis to qualified institutional
SECURITIES investors for the purpose of realizing additional income.
Loans of securities by a Portfolio will be collateralized by
cash, letters of credit, or securities issued or guaranteed
by the U.S. Government or its agencies. The collateral will
equal at least 100% of the current market value of the
loaned securities.
BORROWING The Fund may borrow money, subject to the limits set forth
below, for temporary or emergency purposes, including the
meeting of redemption requests which might otherwise require
the untimely disposition of securities.
PORTFOLIO TURNOVER Although both Portfolio's generally seek to invest for the
IS NOT EXPECTED TO long term, the Portfolios of the Fund retain the right to
EXCEED 100% sell securities irrespective of how long they have been
held. It is anticipated that the annual portfolio turnover
of each Portfolio will not exceed 100%. A turnover rate of
100% would occur, for example, if all the securities of a
Portfolio were replaced within one year. The U.S.
Portfolio's portfolio turnover was unusually high for 1992
and 1993 due to a change in investment advisers during the
first year of that period. The new adviser, Geewax Terker,
restructured the U.S. Portfolio, selling some stocks and
purchasing others. As a result of this temporarily high
annual turnover, the U.S. Portfolio incurred higher than
normal transaction costs during 1992 and 1993.
- --------------------------------------------------------------------------------
INVESTMENT Each Portfolio has adopted certain limitations designed to
LIMITATIONS reduce its exposure to specific situations. Some of these
THE FUND HAS limitations are that a Portfolio will not:
ADOPTED CERTAIN (a) with respect to 75% of the value of its total assets,
FUNDAMENTAL invest more than 5% of its assets in the securities of any
LIMITATIONS single issuer (other than obligations issued or
guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities);
(b) with respect to 75% of the value of its total assets,
purchase more than 10% of the voting securities of any
issuer;
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10
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<S> <C>
(c) invest more than 25% of its assets in any one industry;
(d) borrow money, except from banks (or through repurchase
agreements) for temporary or emergency (not leveraging)
purposes, and then not in an amount exceeding 10% of the
value of the Fund's net assets at the time the borrowing
is made. Whenever borrowing exceeds 5% of the value of
the Fund's net assets, the Fund will not make any
additional investments; and
(e) make loans, except by (i) purchasing a portion of an
issue of bonds, debentures or similar obligations which are
either publicly distributed or customarily purchased by
institutional investors, (ii) entering into repurchase
agreements (provided, however, that repurchase
agreements maturing in more than seven days, together
with securities which are not readily marketable, will
not exceed 10% of a Portfolio's total assets), and (iii)
lending its investment securities.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional Infor-
mation may be changed only with the approval of a majority
of a Portfolio's shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE The Fund is a member of The Vanguard Group of Investment
FUND Companies, a family of 32 investment companies with 78
VANGUARD distinct investment portfolios and total assets in excess of
ADMINISTERS AND $120 billion. Through their jointly owned subsidiary, The
DISTRIBUTES THE Vanguard Group, Inc. ("Vanguard"), the Fund and the other
FUND funds in the Group obtain at cost virtually all of their
corporate management, administrative and distribution ser-
vices. Vanguard also provides investment advisory services
on an at-cost basis to certain Vanguard funds. As a result
of Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most competing
mutual funds. In 1993, the average expense ratio (annual
costs including advisory fees divided by total net assets)
for the Vanguard funds amounted to approximately .30%
compared to an average of 1.02% for the mutual fund industry
(data provided by Lipper Analytical Services).
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each fund
pays its share of Vanguard's total expenses, which are
allocated among the funds under methods approved by the
Board of Trustees (Directors) of each fund. In addition,
each fund bears its own direct expenses, such as legal,
auditing and custodian fees.
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Trustees. The
Trustees set broad policies for the Fund and choose its
Officers. A list of the Trustees and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard provides distribution and marketing services to the
funds. The funds are available on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees). However, each
fund bears its share of the Group's distribution costs.
- --------------------------------------------------------------------------------
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11
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<S> <C>
INVESTMENT The investment adviser to the U.S. Portfolio is Geewax,
ADVISERS Terker & Co. ("Geewax Terker"), 99 Starr Street,
GEEWAX TERKER Phoenixville, PA 19460. Under an investment advisory
MANAGES THE U.S. agreement dated April 1, 1992, Geewax Terker manages the
PORTFOLIO'S investment and reinvestment of the U.S. Portfolio's assets
INVESTMENTS and continuously reviews, supervises and administers the
U.S. Portfolio's investment program. Geewax Terker
discharges its responsibilities subject to the control of
the Officers and Trustees of the Fund.
Founded in 1982, Geewax Terker provides investment advisory
services to institutional endowment and pension funds. As of
December 31, 1993, Geewax Terker provided investment
advisory services with respect to approximately $2.28
billion of client assets. Geewax Terker's investment
approach is quantitative and uses a series of analytical
screens to evaluate a universe of over 3,000 stocks from
which an "investable universe" of approximately 900 stocks
is determined. Stock selections for the U.S. Portfolio are
made from those 900 stocks. John J. Geewax and Bruce E.
Terker, founders and Partners of Geewax Terker, are
primarily responsible for managing the U.S. Portfolio.
The investment advisory fee payable to Geewax Terker by the
U.S. Portfolio will represent a percentage of the
Portfolio's average net assets adjusted for the investment
performance of the Portfolio relative to that of the
Standard & Poor's 500 Composite Stock Price Index ("S&P
500") over the preceding 36-month period as follows:
<CAPTION>
THREE YEAR
PERFORMANCE
DIFFERENTIAL VS. ANNUAL
THE S&P 500 FEE RATE
- ------------------ ------------------
<S> <C>
+4.5% points or more above 0.60%
+2.25% points but less than
+4.5% points above 0.40%
Less than +2.25% points above 0.20%
</TABLE>

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<S> <C>
The incentive/penalty fee structure will not be fully
operable until the quarter ending March 31, 1995, and, until
that date, will be calculated according to certain
transition rules. From April 1, 1992 through December 31,
1992, the fee was payable at the rate of .40% per annum. For
quarters ending after this period, the fee is computed based
upon a comparison of the investment performance of the
Portfolio and that of the S&P 500 over the number of months
that have elapsed between April 1, 1992 and the end of the
quarter when the fee is computed.
BATTERYMARCH The investment adviser to the International Portfolio of the
MANAGES THE Fund is Batterymarch Financial Management ("Batterymarch"),
INTERNATIONAL 600 Atlantic Avenue, Boston, MA 02210. Under its investment
PORTFOLIO'S advisory agreement with the Fund, Batterymarch manages the
INVESTMENTS investment and reinvestment of the International Portfolio's
assets and continuously reviews, supervises, and administers
the Portfolio's investment program. Batterymarch discharges
its responsibilities subject to the control of the Officers
and Trustees of the Fund.
Founded in 1969, Batterymarch is a sole proprietorship which
provides investment advisory services to institutional
accounts, such as corporate pension plans and endowment
funds, as well as to individual investors. Total assets
under management were $6.39 billion as of December 31, 1993.
For the majority of Batterymarch's clients, including the
Fund, the investment principals at Batterymarch develop a
common, firm-wide investment strategy that is employed in
managing client investment portfolios and selecting equity
securities for those portfolios.
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12
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Dean LeBaron and Jarrod Wilcox, Trustees of Batterymarch,
are primarily responsible for managing the International
Portfolio of the Fund. A founder of Batterymarch, Mr.
LeBaron has been with the firm since its inception in 1969.
Mr. Wilcox was associated with Batterymarch as a portfolio
manager from 1980 through 1985. He then became associated
with another investment advisory firm, and rejoined
Batterymarch in 1991.
The International Portfolio pays Batterymarch an advisory
fee calculated by applying various percentage rates to the
aggregate average net assets of the Portfolio. The fee
schedule is as follows:
</TABLE>

<TABLE>
<CAPTION>
NET ASSETS RATE
-------------------- -------
<S> <C> <C>
First $10 million 0.85%
Next $10 million 0.45%
Next $30 million 0.35%
Next $450 million 0.15%
Over $500 million 0.12%
</TABLE>

<TABLE>
<S> <C>
Prior to April 1, 1992, Batterymarch served as investment
adviser to both the U.S. and International Portfolios. For
the fiscal year ended December 31, 1993, the investment
advisory fee paid by the U.S. Portfolio represented an
effective annual rate of .59 of 1% of average net assets
while the International Portfolio's fee represented an
effective annual rate of .16 of 1% of average net assets.
The investment advisory agreements authorize Batterymarch
and Geewax Terker to select brokers and dealers to execute
purchases and sales of the Fund's portfolio securities, and
direct the respective advisers to use their best efforts to
obtain the best available price and the most favorable
execution with respect to all transactions. The full range
and quality of brokerage services available are considered
in making these determinations.
The Fund has authorized Batterymarch and Geewax Terker to
pay higher commissions in recognition of brokerage services
felt necessary for the achievement of better execution,
provided the respective advisers believe this to be in the
best interest of the Portfolio. Although the Fund does not
market its shares through intermediary brokers, each
Portfolio may place orders with qualified broker-dealers who
recommend the Portfolio to clients if the Officers of the
Fund believe that the quality of the transaction and the
commission are comparable to what they would be with other
qualified brokerage firms.
The Fund's Board of Trustees may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement, either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of an
advisory agreement; and (c) the continued employment of an
existing adviser on the same advisory contract terms where a
contract has been assigned because of a change in control of
the adviser. Any such change will only be made upon not less
than 30 days prior written notice to shareholders of the
Fund which shall include substantially the information
concerning the adviser that would have normally been
included in a proxy statement.
- --------------------------------------------------------------------------------
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13
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<TABLE>
<S> <C>
PERFORMANCE RECORD The tables below provide investment results for both
Portfolios for several periods throughout the Fund's
lifetime. The results shown represent "total return" invest-
ment performance, which assumes the reinvestment of all
capital gains and income dividends for the indicated
periods. Also included is comparative information with
respect to the unmanaged Standard & Poor's 500 Composite
Stock Price Index, a widely-used barometer of U.S. stock
market activity; the Consumer Price Index, a statistical
measure of changes in the prices of U.S. goods and services;
and the Morgan Stanley Capital International Europe,
Australia and Far East Index ("EAFE"), a diversified
portfolio of foreign stocks commonly used as a benchmark of
foreign stock market activity. The tables do not make any
allowance for federal, state or local income taxes, which
shareholders must pay on a current basis.
</TABLE>

<TABLE>
<S> <C>
The results shown should not be considered a representation
of the total return from an investment made in the Fund
today. The periods shown were generally favorable ones for
stock market investing. This information is provided to help
investors better understand the Fund and may not provide a
basis for comparison with other investments or mutual funds
which use a different method to calculate performance.
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN FOR
VANGUARD/TRUSTEES' EQUITY FUND--
U.S. PORTFOLIO
---------------------------------------------
FISCAL PERIODS U.S. S&P 500 CONSUMER
ENDED 12/31/93 PORTFOLIO INDEX PRICE INDEX
- -------------------- ------------ ----------- -------------
<S> <C> <C> <C>
1 Year +17.2% +10.1 % +2.7%
5 Years +11.2 +14.5 +3.9
10 Years +11.2 +14.9 +3.6
Lifetime* +13.8 +15.1 +5.0
*JANUARY 31, 1980 TO DECEMBER 31, 1993.
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN FOR
VANGUARD/TRUSTEES' EQUITY FUND--
INTERNATIONAL PORTFOLIO
------------------------------------------
FISCAL PERIODS INTERNATIONAL EAFE CONSUMER
ENDED 12/31/93 PORTFOLIO INDEX PRICE INDEX
- -------------------- ---------------- ------- -----------
<S> <C> <C> <C>
1 Year +30.5% +33.1% +2.7%
5 Years + 7.7 + 2.6 +3.9
10 Years +16.2 +18.1 +3.6
Lifetime* +15.7 N/A N/A
*MAY 16, 1983 TO DECEMBER 31, 1993.
</TABLE>

<TABLE>
<S> <C>
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14
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<S> <C>
DIVIDENDS, CAPITAL Dividend and capital gains distributions may be
GAINS AND TAXES automatically reinvested or received in cash. See "Choosing
THE FUND PAYS a Distribution Option" for a description of these
QUARTERLY distribution methods.
DIVIDENDS AND ANY In addition, in order to satisfy certain distribution
CAPITAL GAINS requirements of the Tax Reform Act of 1986, the Fund may
ANNUALLY declare special year-end dividend and capital gains
distributions during December. Such distributions, if
received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on
December 31 of the prior year.
Each Portfolio of the Fund intends to continue to qualify
for taxation as a "regulated investment company" under the
Internal Revenue Code so that each Portfolio will not be
subject to federal income tax to the extent its income is
distributed to shareholders. Dividends paid by the Fund from
net investment income, whether received in cash or
reinvested in additional shares, will be taxable to
shareholders as ordinary income. For corporate investors of
the U.S. Portfolio, dividends from net investment income
will generally qualify in part for the intercorporate
dividends-received deduction. However, the portion of the
dividends so qualified depends on the aggregate taxable
qualifying dividend income received by the Fund from domes-
tic (U.S.) sources.
Distributions paid by the Fund from long-term capital gains,
whether received in cash or reinvested in additional shares,
are taxable as long-term capital gains, regardless of the
length of time you have owned shares in the Fund. Capital
gains distributions are made when a Portfolio realizes net
capital gains on sales of portfolio securities during the
year. The Fund does not seek to realize any particular
amount of capital gains during a year; rather, realized
gains are a byproduct of portfolio management activities.
Consequently, capital gains distributions may be expected to
vary considerably from year-to-year; there will be no
capital gains distributions in years when a Portfolio
realizes net capital losses.
Note that if you accept capital gains distributions in cash,
instead of reinvesting them in additional shares, you are in
effect reducing the capital at work for you in the Fund.
Also, keep in mind that if you purchase shares in the Fund
shortly before the record date for a dividend or capital
gains distribution, a portion of your investment will be
paid to you as a taxable distribution, regardless of whether
you are reinvesting your distributions or receiving them in
cash.
The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
THE INTERNATIONAL The International Portfolio may elect to "pass through" to
PORTFOLIO MAY the Portfolio's shareholders the amount of foreign income
"PASS THROUGH" taxes paid by the Portfolio. The Portfolio will make such an
FOREIGN TAXES election only if it deems it to be in the best interests of
its shareholders.
If this election is made, shareholders of the International
Portfolio will be required to include in their gross income
their pro rata share of foreign taxes paid by the Portfolio.
However, shareholders will be able to treat their pro rata
share of foreign taxes as either an itemized deduction or a
foreign tax credit against U.S. income taxes (but not both)
on their federal income tax return.
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15
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<S> <C>
A CAPITAL GAIN OR A sale of shares of the Fund is a taxable event, and may
LOSS MAY BE result in a capital gain or loss. A capital gain or loss may
REALIZED UPON be realized from an ordinary redemption of shares or an
EXCHANGE OR exchange of shares between two mutual funds (or two
REDEMPTION portfolios of a mutual fund). Any loss incurred on sale or
exchange of the Fund's shares, held for six months or less,
will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such
shares.
Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges may
be subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer
identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form
your proper Social Security or Taxpayer Identification
Number and by certifying that you are not subject to backup
withholding.
The Fund is organized as a Pennsylvania business trust and
therefore is not liable under current law for any corporate
income or franchise tax of the Commonwealth of Pennsylvania.
The Fund is subject to Pennsylvania county personal property
tax in the county which is the site of its principal office.
In the opinion of counsel, shareholders who are Pennsylvania
residents are not subject to county personal property taxes
on their shares, with the exception of shareholders who are
residents of Allegheny County or the City and School
District of Pittsburgh.
The tax discussion set forth above is included for general
information only. Prospective investors should consult their
own tax advisers concerning the tax consequences of an
investment in the Fund. The Fund is managed without regard
to tax ramifications.
- --------------------------------------------------------------------------------
THE SHARE PRICE OF Each Portfolio's share price or "net asset value" per share
EACH PORTFOLIO is determined as of the close of regular trading on the New
York Stock Exchange (generally 4:00 p.m. Eastern time) on
each day the Exchange is open for trading. Net asset value
per share is computed by dividing the total value of a
Portfolio's investments and other assets of each Portfolio,
less any liabilities, by the number of outstanding shares of
such Portfolio.
Securities listed on a U.S. exchange are valued at the
latest quoted sale prices on the day the valuation is made.
Securities listed on a U.S. exchange which are not traded on
the valuation date are valued at the mean between the bid
and ask prices. Securities listed on a foreign exchange are
valued at the latest quoted sales price available. All
prices of listed securities are taken from the exchange
where the security is primarily traded. Securities regularly
traded in the over-the-counter market for which market
quotations are readily available will be valued at the
latest quoted bid price. Securities may be valued on the
basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such
securities. Other assets and securities for which no
quotations are readily available will be valued in a manner
determined in good faith by the Board of Trustees to reflect
their fair value.
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16
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<TABLE>
<S> <C>
For purposes of determining the International Portfolio's
net asset value per share, all assets and liabilities
initially expressed in foreign currencies will be translated
into U.S. dollars at the bid price of such currencies
against U.S. dollars quoted by major banks as of 4:00 p.m.
Central Europe time. If such quotations are not available as
of the close of the Exchange, the rate of exchange will be
determined in accordance with policies established in good
faith by the Board of Trustees.
The share price of each Portfolio can be found daily in the
mutual fund section of most major newspapers under the
heading of The Vanguard Group.
- --------------------------------------------------------------------------------
GENERAL Vanguard/Trustees' Equity Fund is a Pennsylvania business
INFORMATION trust. The Declaration of Trust permits the Trustees to
issue an unlimited number of shares of beneficial interest,
without par value, from an unlimited number of classes of
shares. Currently, the Fund is offering two classes of
shares (known as Portfolios).
Shares of each Portfolio when issued are fully paid and
non-assessable; participate equally in dividends,
distributions and net assets; are entitled to one vote per
share; have pro rata liquidation rights; and do not have
pre-emptive rights. Also, shares of the Fund have
non-cumulative voting rights, meaning that the holders of
more than 50% of the shares voting for the election of the
Trustees can elect all of the Trustees if they so choose.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on
the removal of a Trustee or Trustees of the Fund if
requested in writing by the holders of not less than 10% of
the outstanding shares of the Fund.
All securities and cash of the U.S. Portfolio are held by
State Street Bank and Trust Company, Boston, MA. All
securities and cash of the International Portfolio are held
by Morgan Stanley Trust Company, New York, NY. The Vanguard
Group, Inc., Valley Forge, PA, serves as the Fund's Transfer
and Dividend Disbursing Agent. Price Waterhouse serves as
independent accountants for the Fund and will audit its
financial statements annually. The Fund is not involved in
any litigation.
- --------------------------------------------------------------------------------
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17
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SHAREHOLDER GUIDE

<TABLE>
<S> <C>
OPENING AN ACCOUNT You may to open a regular (non-retirement) account, either
AND PURCHASING by mail or wire. Simply complete and return your Account
SHARES Registration Form and any required legal documentation,
indicating the amount you wish to invest. Your purchase must
be equal to or greater than the $10,000 minimum initial
investment requirement ($500 for Uniform Gifts/Transfers to
Minors Act accounts). You must open a new Individual
Retirement Account by mail (IRAs may not be opened by wire)
using a Vanguard IRA Adoption Agreement. Your purchase must
be equal to or greater than the $500 minimum initial
investment requirement, but no more than $2,000 if you are
making a regular IRA contribution. Rollover contributions
are generally limited to the amount withdrawn within the
past 60 days from an IRA or other qualified Retirement Plan.
If you need assistance with the forms or have any questions
about this Fund, please call our Investor Information
Department (1-800-662-7447). Note: For other types of
account registrations (e.g., corporations, associations,
other organizations, trusts or powers of attorney), please
call us to determine which additional forms you may need.
Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide investors
with a means of speculating on short-term market movements.
Consequently, the Fund reserves the right to reject any
specific purchase (and exchange purchase) request. The Fund
also reserves the right to suspend the offering of shares
for a period of time.
The Fund's shares are purchased at the next-determined net
asset value after your investment has been received. The
Fund is offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees).
ADDITIONAL Subsequent investments to regular accounts may be made by
INVESTMENTS mail ($1,000 minimum), wire ($1,000 minimum), exchange from
another Vanguard Fund account ($100 minimum), or Vanguard
Fund Express. Subsequent investments to Individual
Retirement Accounts may be made by mail ($100 minimum) or
exchange from another Vanguard Fund account. In some
instances, contributions may be made by wire or Vanguard
Fund Express. Please call us for more information on these
options.
------------------------------------------------------------
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18
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<TABLE>
<CAPTION>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
<S> <C> <C>
PURCHASING BY Please include the amount of Additional investments should
MAIL your initial investment and include the Invest-by-Mail
Complete and the name of the Portfolio you remittance form attached to
sign the have selected on the your Fund confirmation
enclosed Account registration form, make your statements. Please make your
Registration check payable to THE VANGUARD check payable to THE VANGUARD
Form GROUP--(Portfolio Number) (see GROUP--(Portfolio Number), see
below for the appropriate below for the appropriate
Portfolio number and mail to: Portfolio number, write your
VANGUARD FINANCIAL CENTER account number on your check
P.O. BOX 2600 and, using the return envelope
VALLEY FORGE, PA 19482 provided, mail to the address
indicated on the Invest-by-
Mail Form.
For express or VANGUARD FINANCIAL CENTER All written requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do
not send registered or express
mail to the post office box
address.
VANGUARD/TRUSTEES' EQUITY FUND PORTFOLIOS:
UNITED STATES PORTFOLIO--25
INTERNATIONAL PORTFOLIO--46
--------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
PURCHASING BY WIRE CORESTATES BANK, N.A.
Money should be ABA 031000011
wired to: CORESTATES NO 0101 9897
ATTN VANGUARD
BEFORE WIRING VANGUARD/TRUSTEES' EQUITY FUND
Please contact PORTFOLIO NAME
Client Services ACCOUNT NUMBER
(1-800-662-2739) ACCOUNT REGISTRATION
To assure proper receipt, please be sure your bank includes
the Portfolio name, the account number Vanguard has assigned
to you and the eight digit CoreStates number. If you are
opening a new account, please complete the Account
Registration Form and mail it to the "New Account" address
above after completing your wire arrangement. NOTE: Federal
Funds wire purchase orders will be accepted only when the
Fund and Custodian Banks are open for business.
------------------------------------------------------------
PURCHASING BY You may open a new account or purchase additional shares by
EXCHANGE (from a making an exchange from an existing Vanguard account.
Vanguard account) However, the Fund reserves the right to refuse any exchange
purchase request. Call our Client Services Department
(1-800-662-2739) for assistance. The new account will have
the same registration as the existing account.
------------------------------------------------------------
</TABLE>

19
<PAGE>

<TABLE>
<S> <C>
PURCHASING BY The Fund Express SPECIAL PURCHASE option lets you move money
FUND EXPRESS from your bank account to your Vanguard account at your
Special Purchase request. Or if you choose the AUTOMATIC INVESTMENT option,
and money will be moved from your bank account to your Vanguard
Automatic account on the schedule (monthly, bimonthly [every other
Investment month], quarterly or yearly) you select. To establish these
Fund Express options, please provide the appropriate
information on the Account Registration Form. We will send
you a confirmation of your Fund Express enrollment; please
wait three weeks before using the service.
- --------------------------------------------------------------------------------
CHOOSING A You must select one of three distribution options:
DISTRIBUTION 1. AUTOMATIC REINVESTMENT OPTION--Both dividends and capital
OPTION gains distributions will be reinvested in additional Fund
shares. This option will be selected for you
automatically unless you specify one of the other
options.
2. CASH DIVIDEND OPTION--Your dividends will be paid in cash
and your capital gains will be reinvested in additional Fund
shares.
3. ALL CASH OPTION--Both dividend and capital gains
distributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividends and/or
capital gains distributions in another Vanguard Fund account
is available. Please call our Client Services Department
(1-800-662-2739) for information. You may also elect
Vanguard Dividend Express which allows you to transfer your
cash dividends and/or capital gains distributions
automatically to your bank account. Please see "Other
Vanguard Services" for more information.
- --------------------------------------------------------------------------------
TAX CAUTION Under Federal tax laws, the Fund is required to distribute
INVESTORS SHOULD net capital gains and dividend income to Fund shareholders.
ASK ABOUT THE These distributions are made to all shareholders who own
TIMING OF CAPITAL Fund shares as of the distribution's record date, regardless
GAINS AND DIVIDEND of how long the shares have been owned. Purchasing shares
DISTRIBUTIONS just prior to the record date could have a significant
BEFORE INVESTING impact on your tax liability for the year. For example, if
you purchase shares immediately prior to the record date of
a sizable capital gain or income dividend distribution, you
will be assessed taxes on the amount of the capital gain
and/or dividend distribution later paid even though you
owned the Fund shares for just a short period of time.
(Taxes are due on the distributions even if the dividend or
gain is reinvested in additional Fund shares.) While the
total value of your investment will be the same after the
distribution--the amount of the distribution will offset the
drop in the NAV of the shares--you should be aware of the
tax implications the timing of your purchase may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's annual
capital gains distribution normally occurs in December,
while income dividends are generally paid quarterly in
March, June, September and December. For additional
information on distributions and taxes, see the section
titled "Dividends, Capital Gains, and Taxes."
- --------------------------------------------------------------------------------
</TABLE>

20
<PAGE>

<TABLE>
<S> <C>
IMPORTANT The easiest way to establish optional Vanguard services on
INFORMATION your account is to select the options you desire when you
ESTABLISHING complete your Account Registration Form. If you wish to add
OPTIONAL SERVICES shareholder options later, you may need to provide Vanguard
with additional information and a signature guarantee.
Please call our Client Services Department (1-800-662-2739)
for further assistance.
SIGNATURE For our mutual protection, we may require a signature
GUARANTEES guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your signa-
ture and may be obtained from banks, brokers and any other
guarantor that Vanguard deems acceptable. A SIGNATURE
GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace it.
BROKER-DEALER If you purchase shares in Vanguard Funds through a
PURCHASES registered broker-dealer or investment adviser, the
broker-dealer or adviser may charge a service fee.
CANCELLING TRADES The Fund will not cancel any trade (e.g., a purchase,
exchange or redemption) believed to be authentic, received
in writing or by telephone, once the trade has been
received.
- --------------------------------------------------------------------------------
WHEN YOUR ACCOUNT Your TRADE DATE is the date on which your account is
WILL credited. If your purchase is made by check, Federal Funds
BE CREDITED wire or exchange, and is received by the close of the New
York Stock Exchange (generally 4:00 p.m. Eastern time), your
trade date is the day of receipt. If your purchase is
received after the close of the Exchange, your trade date is
the next business day. Your shares are purchased at the net
asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the
clearing of foreign checks, Vanguard will only accept a
foreign check which has been drawn in U.S. dollars and has
been issued by a foreign bank with a U.S. correspondent
bank. The name of the U.S. correspondent bank must be
printed on the face of the foreign check.
- --------------------------------------------------------------------------------
SELLING YOUR You may withdraw any portion of the funds in your account by
SHARES redeeming shares at any time. You may initiate a request by
writing or by telephoning. Your redemption proceeds are
normally mailed within two business days after the receipt
of the request in Good Order.
SELLING BY MAIL Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD/TRUSTEES' EQUITY FUND, P.O. BOX 1120, VALLEY FORGE,
PA 19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard/Trustees' Equity
Fund, 455 Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be the Portfolio's net
asset value next determined after Vanguard has received all
required documents in Good Order.
DEFINITION OF GOOD ORDER means that the request includes the following:
GOOD ORDER 1. The account number and Portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
</TABLE>

21
<PAGE>

<TABLE>
<S> <C>
3. Signatures of all owners exactly as they are registered
on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required, in the case of estates, corporations, trusts and
certain other accounts.
IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS
TO YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES DEPARTMENT
(1-800-662-2739).
------------------------------------------------------------
SELLING BY To sell shares by telephone, you or your pre-authorized
TELEPHONE representative may call our Client Services Department at
1-800-662-2739. The proceeds will be sent to you by mail.
Please see "Important Information About Telephone
Transactions."
------------------------------------------------------------
SELLING BY FUND If you select the Fund Express AUTOMATIC WITHDRAWAL option,
EXPRESS money will be automatically moved from your Vanguard Fund
Automatic account to your bank account according to the schedule you
Withdrawal & have selected. The SPECIAL REDEMPTION option lets you move
Special Redemption money from your Vanguard account to your bank account on
your request. You may elect Fund Express on the Account
Registration Form or call our Investor Information
Department (1-800-662-7447) for a Fund Express application.
------------------------------------------------------------
SELLING BY You may sell shares by making an exchange into another
EXCHANGE Vanguard Fund account. Please see "Exchanging Your Shares"
for details.
------------------------------------------------------------
IMPORTANT Shares purchased by check may not be redeemed until payment
REDEMPTION for the purchase is collected, which may take up to ten
INFORMATION calendar days. Your money is invested during the holding
period.
------------------------------------------------------------
DELIVERY OF Redemption requests received by telephone prior to the close
REDEMPTION of regular trading on the New York Stock Exchange (generally
PROCEEDS 4:00 p.m. Eastern time) are processed on the day of receipt
and the redemption proceeds are normally sent on the
following business day.
Redemption requests received by telephone after the close of
the Exchange are processed on the business day following
receipt and the proceeds are normally sent on the second
business day following receipt.
Redemption proceeds must be sent to you within seven days of
receipt of your request in Good Order.
If you experience difficulty in making a telephone
redemption during periods of drastic economic or market
changes, your redemption request may be made by regular or
express mail. It will be implemented at the net asset value
next determined after your request has been received by
Vanguard in Good Order. The Fund reserves the right to
revise or terminate the telephone redemption privilege at
any time.
The Fund may suspend the redemption right or postpone
payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the
United States Securities and Exchange Commission.
</TABLE>

22
<PAGE>

<TABLE>
<S> <C>
If the Board of Trustees determines that it would be
detrimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution in
kind of readily marketable securities.
------------------------------------------------------------
VANGUARD'S AVERAGE If you make a redemption from a qualifying account, Vanguard
COST STATEMENT will send you an Average Cost Statement which provides you
with the tax basis of the shares you redeemed. Please see
"Other Vanguard Services" for additional information.
------------------------------------------------------------
MINIMUM ACCOUNT Due to the relatively high cost of maintaining smaller
BALANCE accounts, the Fund reserves the right to redeem shares in
REQUIREMENT any account that is below the minimum initial investment
amount of $10,000. In addition, if at any time your total
investment in a Portfolio does not have a value of at least
$1,000, you may be notified that the value of your account
is below the Fund's minimum account balance requirement. You
would then be allowed 60 days to make an additional
investment before the account is liquidated. Proceeds would
be promptly paid to the shareholder. This minimum
requirement does not apply to IRAs, other retirement
accounts and Uniform Gifts/ Transfers to Minors Act
accounts.
- --------------------------------------------------------------------------------
EXCHANGING Should your investment goals change, you may exchange your
YOUR SHARES shares of Vanguard/ Trustees' Equity Fund for those of other
EXCHANGING BY available Vanguard Funds.
TELEPHONE When exchanging shares by telephone, please have ready the
Call Client Portfolio name, account number, Social Security Number or
Services Taxpayer Indentification Number listed on the account, and
(1-800-662-2739) account address. Requests for telephone exchanges received
prior to the close of regular trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) are processed at
the close of business that same day. Requests received after
the close of the Exchange are processed the next business
day. TELEPHONE EXCHANGES ARE NOT ACCEPTED INTO OR FROM
VANGUARD BALANCED INDEX FUND, VANGUARD EXPLORER FUND,
VANGUARD INDEX TRUST, VANGUARD INTERNATIONAL EQUITY INDEX
FUND--EUROPEAN AND PACIFIC PORTFOLIOS, AND VANGUARD
QUANTITATIVE PORTFOLIOS. If you experience difficulty in
making a telephone exchange, your exchange request may be
made by regular or express mail, and it will be implemented
at the closing net asset value on the date received by
Vanguard provided the request is received in Good Order.
------------------------------------------------------------
EXCHANGING BY MAIL Please be sure to include on your exchange request the name
and account number of your current Portfolio, the name of
the Fund you wish to exchange into, the amount you wish to
exchange, and the signatures of all registered account
holders. Send your request to VANGUARD FINANCIAL CENTER,
VANGUARD/TRUSTEES' EQUITY FUND, P.O. BOX 1120, VALLEY FORGE,
PA 19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard/Trustees' Equity
Fund, 455 Devon Park Drive, Wayne, PA 19087.)
------------------------------------------------------------
</TABLE>

23
<PAGE>

<TABLE>
<S> <C>
Before you make an exchange, you should consider the
following:
IMPORTANT EXCHANGE
INFORMATION
- Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions you
may have, call our Investor Information Department
(1-800-662-7447).
- An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on the
transaction.
- Exchanges are accepted only if the registrations and the
Taxpayer Identification numbers of the two accounts are
identical.
- The shares to be exchanged must be on deposit and not held
in certificate form.
- New accounts are not currently accepted in the Vanguard/
Windsor Fund.
- The redemption price of shares redeemed by exchange is the
net asset value next determined after Vanguard has
received the required documentation in Good Order.
- When opening a new account by exchange, you must meet the
minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange
privilege. However, the Fund reserves the right to revise or
terminate its provisions, limit the amount of or reject any
exchange, as deemed necessary, at any time.
- --------------------------------------------------------------------------------
EXCHANGE The Fund's exchange privilege is not intended to afford
PRIVILEGE shareholders a way to speculate on short-term movements in
LIMITATIONS the market. Accordingly, in order to prevent excessive use
of the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the
Fund has established a policy of limiting excessive exchange
activity.
Exchange activity generally will not be deemed excessive if
limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT LEAST 30
DAYS APART) from a Portfolio during any twelve month period.
Notwithstanding these limitations, the Fund reserves the
right to reject any purchase request (including exchange
purchases from other Vanguard portfolios) that is reasonably
deemed to be disruptive to efficient portfolio management.
- --------------------------------------------------------------------------------
IMPORTANT The ability to initiate redemptions (except wire
INFORMATION redemptions) and exchanges by telephone is automatically
ABOUT TELEPHONE established on your account unless you request in writing
TRANSACTIONS that telephone transactions on your account not be
permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions, Vanguard
adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio; (ii) the
10-digit account number; (iii) the exact name in which
the account is registered; and (iv) the Social Security
or Taxpayer Identification number listed on the account.
</TABLE>

24
<PAGE>

<TABLE>
<S> <C>
2. PAYMENT POLICY. The proceeds of any telephone redemption
by mail will be made payable to the registered shareowner
and mailed to the address of record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures have
been followed. Vanguard believes that the security
procedures described above ARE reasonable and that if such
procedures are followed, YOU WILL BEAR THE RISK OF ANY
LOSSES RESULTING FROM UNAUTHORIZED OR FRAUDULENT TELEPHONE
TRANSACTIONS ON YOUR ACCOUNT. If Vanguard fails to follow
reasonable security procedures, it may be liable for any
losses resulting from unauthorized or fraudulent telephone
transactions on your account.
- --------------------------------------------------------------------------------
TRANSFERRING You may transfer the registration of any of your Fund shares
REGISTRATION to another person by completing a transfer form and sending
it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110, VALLEY
FORGE, PA 19482. ATTENTION TRANSFER DEPARTMENT. The request
must be in Good Order. BEFORE MAILING YOUR REQUEST, PLEASE
CALL OUR CLIENT SERVICES DEPARTMENT (1-800-662-2739) FOR
FULL INSTRUCTIONS.
- --------------------------------------------------------------------------------
OTHER VANGUARD For more information about any of these services, please
SERVICES call our Investor Information Department at 1-800-662-7447.
STATEMENTS AND Vanguard will send you a confirmation statement each time
REPORTS you initiate a transaction in your account except for
checkwriting redemptions from Vanguard money market
accounts. You will also receive a comprehensive account
statement at the end of each calendar quarter. The
fourth-quarter statement will be a year-end statement,
listing all transaction activity for the entire calendar
year.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using the
average cost single category method. This service is
available for most taxable accounts opened since January 1,
1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement in February of the following year.
Please call our Client Services department (1-800-662-2739)
for information.
Financial reports on the Fund will be mailed to you
semi-annually, according to the Fund's fiscal year-end.
VANGUARD DIRECT With Vanguard's Direct Deposit Service, most U.S. Government
DEPOSIT SERVICE checks (including Social Security and military pension
checks) and private payroll checks may be automatically
deposited into your Vanguard Fund account. Separate
brochures and forms are available for direct deposit of U.S.
Government and private payroll checks.
VANGUARD AUTOMATIC Vanguard's Automatic Exchange Service allows you to move
EXCHANGE SERVICE money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan.
</TABLE>

25
<PAGE>

<TABLE>
<S> <C>
VANGUARD FUND Vanguard's Fund Express allows you to transfer money between
EXPRESS your Fund account and your account at a bank, savings and
loan association, or a credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our
Investor Information Department (1-800-662-7447) for a Fund
Express application.
The minimum amount that can be transferred by telephone is
$100. However, if you have established one of the automatic
options, the minimum amount is $50. The maximum amount that
can be transferred using any of the options is $100,000.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition, some
services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
VANGUARD DIVIDEND Vanguard's Dividend Express allows you to transfer your
EXPRESS dividends and/or capital gains distributions automatically
from your Fund account, one business day after the Fund's
payable date, to your account at a bank, savings and loan
association,
or a credit union that is a member of the Automated Clearing
House (ACH)
network. You may elect this service on the Account
Registration Form or call
our Investor Information Department (1-800-662-7447) for a
Vanguard Dividend
Express application.
VANGUARD Vanguard's Tele-Account is a convenient, automated service
TELE-ACCOUNT that provides share price, price change and yield quotations
on Vanguard Funds through any TouchTone(TM) telephone. This
service also lets you obtain information about your account
balance, your last transaction, and your most recent
dividend or capital gains payment. To contact Vanguard's
Tele-Account service, dial 1-800-ON-BOARD (1-800-662-6273).
A brochure offering detailed operating instructions is
available from our Investor Information Department
(1-800-662-7447).
- --------------------------------------------------------------------------------
</TABLE>

26
<PAGE>

OPQRS OPQRS
- --- P R O S P E C T U S
THE VANGUARD GROUP APRIL 22, 1994
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON BOARD)
TELECOMMUNICATION SERVICE FOR
THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
(LOGO)
<PAGE>
PART C
VANGUARD/TRUSTEES' EQUITY FUND
(FORMERLY KNOWN AS "TRUSTEES' COMMINGLED FUND")
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(A)FINANCIAL STATEMENTS

The Registrant's financial statements for the year ended December 31, 1993,
including Price Waterhouse's report thereon, are incorporated by reference, in
the Statement of Additional Information, from the Registrant's 1993 Annual
Report to Shareholders which has been filed with the Commission. The financial
statements included in the Annual Report are:

1.Statement of Net Assets as of December 31, 1993

2.Statement of Operations for the year ended December 31, 1993

3.Statement of Changes in Net Assets for the each of the two years in the
period ended December 31, 1993

4.Financial Highlights for each of the five years in the period ended
December 31, 1993 (also appearing in the Prospectus along with previous
years)

5.Notes to Financial Statements

6.Report of Independent Accountants

(B)
EXHIBITS

1.Declaration of Trust**

2.By-Laws of Registrant**

3.Not Applicable

4.Not Applicable

5.Not Applicable

6.Not Applicable

7.Reference is made to the section entitled "Management of the Fund" in the
Registrant's Statement of Additional Information

8.Form of Custody Agreement**

9.Form of Vanguard Service Agreement**

10.Opinion of Counsel**

11.Consent of Independent Accountants*

12.Financial Statements -- reference is made to (a) above

13.Not Applicable

14.Not Applicable

15.Not Applicable

16.Schedule for Computation of Performance Quotations*
- ------------------------
* Filed herewith
** Previously filed

C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is not controlled by or under common control with any person. The
Officers of the Registrant, the 32 investment companies in The Vanguard Group of
Investment Companies and The Vanguard Group, Inc. are identical. Reference is
made to the caption "Management of the Fund" in the Prospectus constituting Part
A and in the Statement of Additional Information constituting Part B of this
Registration Statement.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of December 31, 1993 there were 5,186 shareholders of the United States
Portfolio and 37,927 shareholders of the International Portfolio.

ITEM 27. INDEMNIFICATION

Reference is made to Article XI of Registrant's Declaration of Trust.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Reference is made to the caption "Investment Advisers" in the Prospectus
constituting Part A of this Registration Statement, and the caption "Investment
Advisory Services" included in Part B of this Registration Statement.

Listed below are the officers of Batterymarch Financial Management and
Geewax, Terker & Co. No officer has any affiliation with the Registrant.

The business address of each officer of Batterymarch is 600 Atlantic Avenue,
Boston, Massachusetts 02210 and the business address of each officer of Geewax
Terker is 99 Starr Street, Phoenixville, Pa. 19960.

<TABLE>
<CAPTION>
BATTERYMARCH
- ------------------------------------------------------------
<S> <C>
President and Sole
Dean F. LeBaron................. Proprietor
Alan J. Strassman............... Executive Vice President
Henry E. C. Schulman............ Senior Vice President
John W. Callahan................ Senior Vice President
Anne Marie Hoehn................ Senior Vice President
Dean Williams................... Senior Vice President
Arnold S. Wood.................. Senior Vice President
Lawrence S. Speidell............ Senior Vice President
Jarrod W. Wilcox................ Senior Vice President
Vice President and
Patricia J. O'Connor............ Treasurer
Donald F. O'Hara................ Vice President
Lynne Johnson................... Senior Vice President
Gerald Chisholm................. Senior Vice President
John F. McCormack............... Vice President

<CAPTION>
GEEWAX TERKER
- ------------------------------------------------------------
<S> <C>
John J. Geewax.................. Partner
Bruce E. Terker................. Partner
Rosemarie Hunter................ Senior Trader
Peter M. Schofield.............. Portfolio Manager
Manu Prattull Dattray........... Portfolio Manager
</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS

(a) None
(b) Not Applicable

C-2
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley Forge,
Pennsylvania 19482; and the Registrant's Custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02105.

ITEM 31. MANAGEMENT SERVICES

Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described in
Part B hereof under "Management of the Fund;" the Registrant is not a party of
any management-related service contract.

ITEM 32. UNDERTAKINGS

Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 ("1940 Act") or other applicable law. Registrant
hereby undertakes to comply with the provisions of Section 16(C) of the 1940 Act
in regard to shareholders' rights to call a meeting of shareholders for the
purpose of voting on the removal of Trustees and to assist in shareholder
communications in such matters, to the extent required by law.

Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.

C-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness pursuant to paragraph (b) of Rule 485 under the
Securities Act of 1933, and that it has duly caused this Post-Effective
Amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Valley Forge and the
Commonwealth of Pennsylvania, on the 18th day of April, 1994.

VANGUARD TRUSTEES' EQUITY FUND

By RAYMOND J. KLAPINSKY

------------------------------------
(RAYMOND J. KLAPINSKY)
JOHN C. BOGLE*
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- -------------------------------------------- ---------------------- ----------------------
<C> <S> <C>
By: RAYMOND J. KLAPINSKY Chairman of the Board, April 18, 1994
--------------------------------------- Trustee, and Chief
(RAYMOND J. KLAPINSKY) Executive Officer
JOHN C. BOGLE*
By: RAYMOND J. KLAPINSKY President and Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
JOHN J. BRENNAN*
By: RAYMOND J. KLAPINSKY Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
BARBARA B. HAUPTFUHRER*
By: RAYMOND J. KLAPINSKY Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
BRUCE K. MACLAURY*
By: RAYMOND J. KLAPINSKY Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
BURTON G. MALKIEL*
By: RAYMOND J. KLAPINSKY Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
ALFRED M. RANKIN, JR.*
By: RAYMOND J. KLAPINSKY Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
JAMES O. WELCH, JR.*
By: RAYMOND J. KLAPINSKY Trustee April 18, 1994
---------------------------------------
(RAYMOND J. KLAPINSKY)
J. LAWRENCE WILSON*
By: RAYMOND J. KLAPINSKY Treasurer and April 18, 1994
--------------------------------------- Principal Financial
(RAYMOND J. KLAPINSKY) Officer and
RICHARD F. HYLAND* Accounting Officer
</TABLE>

* By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<S> <C>
Consent of Independent Accountants..................................................... 11
Schedule for Computation of Performance Quotations..................................... 16
</TABLE>
<PAGE>

PART B
VANGUARD/TRUSTEES' EQUITY FUND
(FORMERLY KNOWN AS "TRUSTEES' COMMINGLED FUND")
STATEMENT OF ADDITIONAL INFORMATION
APRIL 22, 1994

This Statement is not a prospectus but should be read in conjunction with
the Fund's Prospectus dated April 22, 1994. To obtain the Prospectus, please
call the Investor Information Department:

1-800-662-7447

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Investment Objective and Policies...................................... 1
Purchase of Shares..................................................... 5
Redemption of Shares................................................... 6
Yield and Total Return................................................. 7
Investment Limitations................................................. 7
Management of the Fund................................................. 9
Investment Advisory Services........................................... 11
Portfolio Transactions................................................. 14
Performance Measures................................................... 14
General Information.................................................... 16
Financial Statements................................................... 17
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The following policies supplement the investment objective and policies set
forth in the Fund's Prospectus:

FOREIGN INVESTMENTS

Investors should recognize that investing in foreign companies involves
certain special considerations which are not typically associated with investing
in U.S. companies. Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since the International Portfolio may
temporarily hold uninvested reserves in bank deposits in foreign currencies, the
International Portfolio will be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies. The investment policies
of the International Portfolio permit it to enter into forward foreign currency
exchange contracts in order to hedge the Portfolio's holdings and commitments
against changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contact.

As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.

B-1
<PAGE>
Although the International Portfolio will endeavor to achieve most favorable
execution costs in its portfolio transactions, fixed commissions on many foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodian
arrangements of the Portfolio's foreign securities will be somewhat greater than
the expenses for the custodian arrangements for handling the U.S. Portfolio's
securities of equal value.

Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the companies comprising the Fund's International
Portfolio. However, these foreign withholding taxes are not expected to have a
significant impact on the International Growth Portfolio, since the Portfolio's
investment objective is to seek long-term capital appreciation and any income
should be considered incidental.

FUTURES CONTRACTS

Each Portfolio may enter into futures contracts, options, options on futures
contracts and foreign currency futures contracts for several reasons: to
maintain cash reserves while remaining fully invested, to facilitate trading, to
reduce transaction costs, or to seek higher investment returns when a futures
contract is priced more attractively than the underlying equity security or
index. Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security at a specified
future time and at a specified price. Futures contracts which are standardized
as to maturity date and underlying financial instrument are traded on national
futures exchanges. Futures exchanges and trading are regulated under the
Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a
U.S. Government Agency.

Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.

Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin
deposits that may range upward from less than 5% of the value of the contract
being traded.

After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Portfolio
expects to earn interest income on its margin deposits.

The Portfolios will not use futures and options for speculative purposes. A
Portfolio will use futures and options to simulate full investment in underlying
securities while retaining a cash balance for fund management purposes.

Regulations of the CFTC applicable to the Company require that all of its
futures transactions constitute bona fide hedging transactions. Each Portfolio
will only sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of

B-2
<PAGE>
securities it intends to purchase. As evidence of this hedging interest, a
Portfolio expects that approximately 75% of its futures contract purchases will
be "completed"; that is, equivalent amounts of related securities will have been
purchased or are being purchased by the Portfolio upon sale of open futures
contracts.

Although techniques other than the sale and purchase of futures contracts
could be used to control the exposure of the Portfolio income to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the Portfolio will incur commission expenses in
both opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of U.S. Government
securities.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS

A Portfolio will not enter into futures contract transactions to the extent
that, immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of the Portfolio's total assets. In
addition, a Portfolio will not enter into futures contracts to the extent that
its outstanding obligations to purchase securities under these contracts would
exceed 20% of the Portfolio's total assets.

RISK FACTORS IN FUTURES TRANSACTIONS

Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Portfolio would continue to be required
to make daily cash payments to maintain its required margin. In such situations,
if a Portfolio has insufficient cash, it may have to sell portfolio securities
to meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, a Portfolio may be required to make delivery of the instruments
underlying interest rate futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on the ability
to effectively hedge its portfolio. A Portfolio will minimize the risk that it
will be unable to close out a futures contract by only entering into futures
which are traded on national futures exchanges and for which there appears to be
a liquid secondary market.

The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the Futures Contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Portfolio are engaged in only for hedging purposes, the
Adviser does not believe that the Portfolio is subject to the risks of loss
frequently associated with futures transactions. The Portfolio would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying security and sold it after the decline.

Utilization of futures transactions by the Portfolio does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Portfolio could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option. Additionally, investments in futures contracts and options
involve risk that the investment advisers will incorrectly predict stock market
and interest rate trends.

Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract

B-3
<PAGE>
may vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a particular type
of contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of future positions and
subjecting some futures traders to substantial losses.

FEDERAL TAX TREATMENT OF FUTURES CONTRACTS

Except for transactions a Portfolio has identified as hedging transactions,
the Portfolio is required for Federal income tax purposes to recognize as income
for each taxable year its net unrealized gains and losses on futures contracts
as of the end of the year as well as those actually realized during the year. In
most cases, any gain or loss recognized with respect to a futures contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the contract. Furthermore,
sales of futures contracts which are intended to hedge against a change in the
value of securities held by the Portfolio may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.

In order for a Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies or other income derived with respect to the
fund's business of investing in securities. In addition, gains realized on the
sale or other disposition of securities held for less than three months must be
limited to less than 30% of the Portfolio's annual gross income. It is
anticipated that any net gain realized from the closing out of futures contracts
will be considered gain from the sale of securities and therefore be qualifying
income for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the Portfolio may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
gains on futures contracts, which have been open for less than three months as
of the end of the Portfolio's fiscal year and which are recognized for tax
purposes, will not be considered gains on sales of securities held less than
three months for the purpose of the 30% test.

The Portfolio will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes (including unrealized
gains at the end of the Portfolio's fiscal year) on futures transaction. Such
distributions will be combined with distributions of capital gains realized on
the Portfolio's other investments and shareholders will be advised on the nature
of the payments.

REPURCHASE AGREEMENTS

Each Portfolio may invest in repurchase agreements with commercial banks,
brokers or dealers either for defensive purposes due to market conditions or to
generate income from its excess cash balances. A repurchase agreement is an
agreement under which the Portfolio acquires a money market instrument
(generally a security issued by the U.S. Government or an agency thereof, a
banker's acceptance or a certificate of deposit) from a commercial bank, broker
or dealer, subject to resale to the seller at an agreed upon price and date
(normally, the next business day). A repurchase agreement may be considered a
loan collateralized by securities. The resale price reflects an agreed upon
interest rate effective for the period the instrument is held by the Portfolio
and is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Portfolio (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Fund's custodian bank until
repurchased. In addition, the Fund's Board of Trustees will monitor a
Portfolio's repurchase agreement transactions generally and will establish
guidelines and standards for review by the investment adviser of the
creditworthiness of any bank, broker or dealer party to a repurchase agreement

B-4
<PAGE>

with the Portfolio. No more than an aggregate of 15% of a Portfolio's assets, at
the time of investment, will be invested in repurchase agreements having
maturities longer than seven days and in securities subject to legal or
contractual restrictions on resale, or for which there are no readily available
market quotations.

The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Portfolio may incur a loss upon disposition of the security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Portfolio not within the
control of the Portfolio and therefore the realization by the Portfolio on such
collateral may be automatically stayed. Finally, it is possible that the
Portfolio may not be able to substantiate its interest in the underlying
security and may be deemed an unsecured creditor of the other party to the
agreement. While the Fund's management acknowledges these risks, it is expected
that they can be controlled through careful monitoring procedures.

LENDING OF SECURITIES

Each Portfolio may lend its investment securities on a short-term or
long-term basis to qualified institutional investors who need to borrow
securities in order to complete certain transactions, such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its investment securities, a Portfolio attempts to
increase its net investment income through the receipt of interest on the loan.
Any gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Portfolio. Each
Portfolio may lend its investment securities to qualified brokers, dealers,
banks or other financial institutions, so long as the terms, the structure and
the aggregate amount of such loans are not inconsistent with the Investment
Company Act of 1940, or the Rules and Regulations or interpretations of the
Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Portfolio at any
time, and (d) the Portfolio receive reasonable interest on the loan (which may
include the Portfolio's investing any cash collateral in interest bearing
short-term investments), any distribution on the loaned securities and any
increase in their market value. Loan arrangements made by a Portfolio will
comply with all other applicable regulatory requirements, including the rules of
the New York Stock Exchange, which rules presently require the borrower, after
notice, to redeliver the securities within the normal settlement time of five
business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Fund's Board of Trustees.

At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors (Trustees). In addition, voting
rights may pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.

PURCHASE OF SHARES

The purchase price of shares of each Portfolio of the Fund is the net asset
value next determined after the order is received. The net asset value is
calculated as of the close of regular trading on the New York Stock Exchange on
each day the Exchange is open for business, and on any other day on which there
is sufficient trading in a Portfolio's investment securities to materially
affect the Portfolio's net asset value

B-5
<PAGE>
per share. An order received prior to the close of the Exchange will be executed
at the price computed on the date of receipt; and an order received after the
close of the Exchange will be executed at the price computed on the next day the
Exchange is open.

Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Portfolio's shares.

REDEMPTION OF SHARES

Each Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Securities and
Exchange Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is not
reasonably practicable for a Portfolio to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.

The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in investment securities or in cash, as the Trustees
may deem advisable; however, payment will be made wholly in cash unless the
Trustees believe that economic or market conditions exist which would make such
a practice detrimental to the best interests of the Fund. If redemptions are
paid in investment securities, such securities will be valued as set forth in
the Prospectus under "The Share Price of Each Portfolio" and a redeeming
shareholder would normally incur brokerage expenses if he converted these
securities to cash.

No charge is made by a Portfolio for redemptions. Any redemption may be more
or less than the shareholder's cost depending on the market value of the
securities held by the Portfolio.

SIGNATURE GUARANTEES. To protect your account, the Fund and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Fund to verify the identity of the person who has
authorized a redemption from your account. SIGNATURE GUARANTEES ARE REQUIRED IN
CONNECTION WITH: (1) REDEMPTIONS INVOLVING MORE THAN $25,000 ON THE DATE OF
RECEIPT BY VANGUARD OF ALL NECESSARY DOCUMENTS; (2) ALL REDEMPTIONS, REGARDLESS
OF THE AMOUNT INVOLVED, WHEN THE PROCEEDS ARE TO BE PAID TO SOMEONE OTHER THAN
THE REGISTERED OWNER(S) AND/OR TO AN ADDRESS OTHER THAN THE ADDRESS OF RECORD;
AND (3) SHARE TRANSFER REQUESTS. These requirements are not applicable to
redemptions in the Fund's Keogh, IRA, and 403(b) plans except in connection
with: (1) distributions made when the proceeds are to be paid to someone other
than the plan participant; (2) certain authorizations to effect exchanges by
telephone; and (3) when proceeds are to be wired. These requirements may be
waived by the Fund in certain instances.

A guarantor must be a bank, a trust company, a member firm of a domestic
stock exchange, or a foreign branch of any of the foregoing. NOTARIES PUBLIC ARE
NOT ACCEPTABLE GUARANTORS.

The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by Vanguard are also
being redeemed, on the letter or stock power.

B-6
<PAGE>
YIELD AND TOTAL RETURN

The yield of the U.S. Portfolio of the Fund for the 30 day period ended
December 31, 1993 was 1.03%.

The average annual total return of each Portfolio of the Fund for the
following periods ending December 31, 1993 is set forth below:

<TABLE>
<CAPTION>
1 YEAR ENDED 5 YEARS ENDED 10 YEARS ENDED
12/31/93 12/31/93 12/31/93
------------- ------------- ---------------
<S> <C> <C> <C>
U.S. Portfolio.................. +17.24% +11.16% +11.24%
International Portfolio......... +30.49% +7.68% +16.16%
</TABLE>

Total return is computed by finding the average compounded rates of return
over the periods set forth above that would equate an initial amount invested at
the beginning of the periods to the ending redeemable value of the investment.

INVESTMENT LIMITATIONS

Each Portfolio of the Fund is subject to the following limitations which
(except as indicated otherwise below) may not be changed without the approval of
at least a majority of the outstanding voting securities (as defined in the
Investment Company Act of 1940) of the Fund. A Portfolio will not:

(1) Borrow money except that the Portfolio may borrow from banks (or
through reverse repurchase agreements), for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests which
might otherwise require the untimely disposition of securities, in an
amount not exceeding 10% of the value of the Portfolio's net assets
(including the amount borrowed and the value of any outstanding reverse
repurchase agreements) at the time the borrowing is made. Whenever
borrowings exceed 5% of the value of the Portfolio's net assets, the
Portfolio will not make any additional investments;

(2) With respect to 75% of the value of its total assets, purchase
the securities of any issuer (except obligations of the United States
government and its instrumentalities) if as a result the Portfolio would
hold more than 10% of the outstanding voting securities of the issuer, or
more than 5% of the value of the Portfolio's total assets would be
invested in the securities of such issuer;

(3) Invest in companies for the purpose of exercising control;

(4) Invest in securities of other investment companies, except as may
be acquired as a part of a merger, consolidation or acquisition of assets
or otherwise to the extent permitted by Section 12 of the Investment
Company Act of 1940. The Portfolio will invest only in investment
companies which have investment objectives and investment policies
consistent with those of the Portfolio;

(5) Engage in the business of underwriting securities issued by other
persons, except to the extent that the Portfolio may technically be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in disposing of portfolio securities;

(6) Purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that are
illiquid (including the Fund's investment in The Vanguard Group, Inc., as
discussed on page 8);

(7) Purchase or sell real estate although it may purchase and sell
securities of companies which deal in real estate or interests therein;

(8) Purchase securities on margin or sell any securities short except
that each Portfolio may invest in stock futures contracts, stock options,
options on stock futures contracts and foreign currency futures contracts
to the extent that not more than five percent of its total assets are
required as margin deposit to secure obligations under futures contracts
and not more than twenty percent of its total assets are committed to
such transactions at any time;

B-7
<PAGE>
(9) Invest more than 5% of the value of the total assets of the
Portfolio at the time of investment in the securities of any issuers
which have records of less than three years' continuous operation,
including the operation of any predecessor, but this limitation does not
apply to securities issued or guaranteed as to interest and principal by
the United States Government or its agencies or instrumentalities;*

(10) Purchase or retain any security if any officer, director,
security holder of the issuer of such security is at the same time an
officer, director, or investment adviser of the Fund, or a partner or
officer or director of such investment adviser and owns beneficially more
than 1/2 of 1 percent of the securities of such issuer provided that the
aggregate holdings of such securities of all such persons so owning more
than 1/2 of 1 percent of the outstanding stock or securities of such
issuer exceed 5% of the outstanding stock or securities of such issuer;*

(11) Make loans except by (i) purchasing a portion of an issue of
bonds, debentures or similar obligations which are either publicly
distributed or customarily purchased by institutional investors, (ii)
entering into repurchase agreements, provided, however, that repurchase
agreements maturing in more than seven days, together with securities
which do not have readily available market quotations, will not exceed
10% of a Portfolio's total assets, and (iii) lending its securities as
provided under "Investment Objective and Policies";

(12) Purchase or write put or call options except as specified in
"(8)" above;

(13) Invest in interests in oil, gas, or other mineral exploration or
development programs;

(14) Purchase or sell commodities on commodity contracts except as
specified in "(8)" above; and

(15) Concentrate its investments in a particular industry, although it
may invest up to 25% of the value of the Portfolio's total assets taken
at market in securities of issuers all of which conduct their principal
business activities in the same industry.

* These limitations are not fundamental and therefore may be changed by
the Fund's Trustees without a shareholder vote.

Notwithstanding these limitations, the Fund may own all or any portion of
the securities of, or make loans to, or contribute to the costs or other
financial requirements of any company which will be wholly owned by the Fund and
one or more other investment companies and is primarily engaged in the business
of providing, at-cost, management, administrative or related services to the
Fund and other investment companies. See "MANAGEMENT OF THE FUND" on page 9.

The above-mentioned investment limitations are considered at the time
investment securities are purchased.

B-8
<PAGE>
MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The Officers of the Fund manage its day to day operations and are
responsible to the Fund's Board of Trustees. The Trustees set broad policies for
the Fund and choose its Officers. Following is a list of Trustees and Officers
of the Fund and a statement of their present positions and principal occupations
during the past five years. The mailing address of the Fund's Trustees and
Officers is Post Office Box 876, Valley Forge, PA 19482.

JOHN C. BOGLE, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND TRUSTEE*
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The Vanguard Group. Director of The
Mead Corporation and General Accident Insurance.

JOHN J. BRENNAN, PRESIDENT & TRUSTEE*
President and Director of The Vanguard Group, Inc., and of each of the other
investment companies in The Vanguard Group.

ROBERT E. CAWTHORN, TRUSTEE
Chairman and Chief Executive Officer, Rhone-Poulenc Rorer, Inc.; Director of
Immune Response Corp. and Sun Company, Inc.; Trustee, Universal Health Realty
Income Trust.

BARBARA BARNES HAUPTFUHRER, TRUSTEE
Director of The Great Atlantic and Pacific Tea Company, Alco Standard Corp.,
Raytheon Company, Knight-Ridder, Inc., and Massachusetts Mutual Life Insurance
Co.

BRUCE K. MACLAURY, TRUSTEE
President, The Brookings Institution; Director of Dayton Hudson Corporation.
American Express Bank Ltd., and St. Paul Companies, Inc.

BURTON G. MALKIEL, TRUSTEE
Chemical Bank Chairman's Professor of Economics, Princeton University;
Director of Prudential Insurance Co. of America, Amdahl Corporation, Baker
Fentress & Co., Jeffrey Co., and The Southern New England Telephone Company.

ALFRED M. RANKIN, JR., TRUSTEE
President, Chief Executive Officer and Director of NACCO Industries Inc.;
Director of The BFGoodrich Company, The Standard Products Company and The
Reliance Electric Company.

JOHN C. SAWHILL, TRUSTEE
President and Chief Executive Officer, The Nature Conservancy; formerly,
Director and Senior Partner, McKinsey & Co.; President, New York University;
Director of Pacific Gas and Electric Company and NACCO Industries.

JAMES O. WELCH, JR., TRUSTEE
Retired Chairman of Nabisco Brands Inc., retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc.

J. LAWRENCE WILSON, TRUSTEE
Chairman and Director of Rohm & Haas Company; Director of Cummins Engine
Company and Vanderbilt University; Trustee of the Culver Educational
Foundation.

RAYMOND J. KLAPINSKY, SECRETARY*
Senior Vice President and Secretary of The Vanguard Group, Inc.; Secretary of
each of the investment companies in The Vanguard Group.

RICHARD F. HYLAND, TREASURER*
Treasurer of The Vanguard Group, Inc. and of each of the investment companies
in The Vanguard Group.

KAREN E. WEST, CONTROLLER*
Vice President of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.

- ------------
* Officers of the Fund are "interested persons" as defined in the Investment
Company Act of 1940.

THE VANGUARD GROUP

Vanguard/Trustees' Equity Fund is a member of The Vanguard Group of
Investment Companies. Through their jointly-owned subsidiary, The Vanguard
Group, Inc. ("Vanguard"), the Fund and the other Funds in the Group obtain at
cost virtually all of their corporate management, administrative and
distribution services. Vanguard also provides investment advisory services on an
at-cost basis to several of the Vanguard Funds.

Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's net expenses which are allocated among the
Funds under methods approved by the Board of Trustees (Directors) of each Fund.
In addition, each Fund bears its own direct expenses, such as legal, auditing
and custodian fees.

The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts which each of the Funds have invested

B-9
<PAGE>

are adjusted from time to time in order to maintain the proportionate
relationship between each Fund's relative net assets and its contribution to
Vanguard's capital. At December 31, 1993, the Fund had contributed capital of
$168,000 to Vanguard, representing .8% of Vanguard's capitalization. The Funds'
Service Agreement provides as follows: (a) each Vanguard Fund may invest up to
.40% of its current assets in Vanguard, and (b) there is no other limitation on
the amount that each Vanguard Fund may contribute to Vanguard's capitalization.

MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended December 31, 1993, the Fund's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $1,314,000.

DISTRIBUTION. Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of Vanguard, acts as Sales Agent for shares of the Funds in
connection with any sales made directly to investors in the states of Florida,
Missouri, New York, Ohio, Texas and such other states as it may be required.

The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Directors and
Officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.

One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon their relative net assets. The remaining
one half of these expenses is allocated among the Funds based upon each Fund's
sales for the preceding 24 months relative to the total sales of the Funds as a
Group, provided, however, that no Fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for the Group, and
that no Fund shall incur annual distribution expenses in excess of 20/100 of 1%
of its average month-end net assets. During the fiscal year ended December 31,
1993, the Fund paid approximately $202,000 of the Group's distribution and
marketing expenses.

INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to Vanguard Money Market Reserves, Vanguard Institutional Money Market
Portfolio, Vanguard Municipal Bond Fund, Vanguard Admiral Funds, several
Portfolios of Vanguard Fixed Income Securities Fund, Vanguard's State Tax-Free
Funds, Vanguard Index Trust, Vanguard International Equity Index Fund, Vanguard
Balanced Index Fund, Vanguard Bond Index Fund, Vanguard Institutional Index
Fund, several Portfolios of Vanguard Variable Insurance Fund and a portion of
Vanguard/Windsor II, as well as several indexed separate accounts. These
services are provided on an at-cost basis from a money management staff employed
directly by Vanguard. The compensation and other expenses of this staff are paid
by the Funds utilizing these services.

REMUNERATION OF TRUSTEES AND OFFICERS. The Fund pays each Trustee, who is
not also an Officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. The Fund's Officers and employees are paid by Vanguard
which, in turn, is reimbursed by the Fund, and each other Fund in the Group, for
its proportionate share of Officers' and employees' salaries and retirement
benefits.

During the fiscal year ended December 31, 1993, the Fund paid approximately
$3,000 in fees and expenses to its "non-interested" Trustees. The Fund's
proportionate share of remuneration paid by Vanguard (and reimbursed by the
Fund) during the fiscal year to all Officers of the Fund, as a group, was
approximately $1,833,000.

Trustees who are not Officers are paid an annual fee upon retirement equal
to $1,000 for each year of service on the Board up to a maximum of $15,000.
Under its retirement plan, Vanguard contributes

B-10
<PAGE>

annually an amount equal to 10% of each Officer's annual compensation plus 5.7%
of that part of the eligible Officer's compensation during the year, if any,
that exceeds the Social Security Taxable Wage Base then in effect. Under its
thrift plan, all eligible officers are permitted to make pre-tax contributions
in an amount equal to 4% of total compensation which are matched by Vanguard on
a 100% basis. The Fund's proportionate share of retirement contributions made by
Vanguard under its retirement and thrift plans on behalf of all eligible
Officers of the Fund, as a group, during the 1993 fiscal year was approximately
$4,910.

INVESTMENT ADVISORY SERVICES

The investment adviser to the Fund's International Portfolio is a sole
proprietorship doing business under the name "Batterymarch Financial Management"
("Batterymarch"), 600 Atlantic Avenue, Boston, Massachusetts 02210. Batterymarch
provides investment management services to numerous institutional accounts, such
as corporate pension plans, endowment funds and individual investors. Under an
Investment Advisory Agreement ("Agreement") with the Fund, dated May 1, 1993,
Batterymarch, subject to the control and supervision of the Fund's Board of
Trustees and in conformance with the stated investment objective and policies of
the International Portfolio, manages the investment and reinvestment of the
assets of the International Portfolio. In this regard, it is the responsibility
of Batterymarch to make investment decisions for the International Portfolio and
to place the Portfolio's purchase and sale orders for investment securities.

As compensation for the services rendered by Batterymarch under the
Agreement and the assumption by Batterymarch of the expenses related thereto
(other than the cost of securities purchased for the International Portfolio and
the taxes and brokerage commissions, if any, payable in connection with the
purchase and/or sale of such securities), the International Portfolio pays
Batterymarch an advisory fee calculated by applying various percentage rates to
the aggregate average net assets of the International Portfolio, and then
apportioning that fee to the International Portfolio, according to its net
assets. The fee schedule is as follows:

<TABLE>
<CAPTION>
NET ASSETS RATE
- ----------------------------------------------------------------------- -----
<S> <C>
First $10 million...................................................... 0.85%
Next $10 million....................................................... 0.45%
Next $30 million....................................................... 0.35%
Next $450 million...................................................... 0.15%
Over $500 million...................................................... 0.12%
</TABLE>

Although the base advisory fee rate on the first $10 million of the
International Portfolio's net assets is in excess of the fee rate paid by many
other mutual funds, it is substantially reduced as the value of the Portfolio's
assets increases. For example, it will result in an effective fee rate of .59%
at $25 million of assets, .47% at $50 million of assets, and .31% at $100
million of assets. During the years ended December 31, 1991, 1992 and 1993, the
International Portfolio paid Batterymarch advisory fees totaling $1,252,000 (.14
of 1% of average net assets), $1,246,000 (.15 of 1% of average net assets) and
$1,326,000 (.16 of 1% of average net assets), respectively.

Until April 1, 1992 Batterymarch served as investment adviser to the U.S.
Portfolio according to the terms of the fee schedule set forth above. For the
fiscal years ended December 31, 1991 and 1992 the U.S. Portfolio paid
Batterymarch advisory fees totaling $245,000 (.22 of 1% of average net assets)
and $325,000 (.35 of 1% of average net assets), respectively.

On April 1, 1992, the U.S. Portfolio entered into an Investment Advisory
Agreement with Geewax, Terker & Co. ("Geewax Terker"), 99 Starr Street,
Phoenixville, Pa. 19460. Under the terms of the Agreement Geewax Terker, subject
to the control and supervision of the Fund's Board of Trustees and in
conformance with the Fund's investment objective and policies, manages the
investment and reinvestment of the assets of the Fund's U.S. Portfolio. In this
regard it is the responsibility of Geewax Terker to make investment

B-11
<PAGE>

decisions for the U.S. Portfolio and to place the Portfolio's purchase and sale
orders for investment securities. For the fiscal year ended December 31, 1993,
U.S. Portfolio paid Geewax advisory fees totaling $507,000 .59 of 1% of average
net assets.

As compensation for the services rendered by Geewax Terker under the
Agreement and the assumption by Geewax Terker of the expenses related thereto
(other than the cost of securities purchased for the U.S. Portfolio) and the
taxes and brokerage commissions, if any, payable in connection with such
transactions), the U.S. Portfolio pays Geewax Terker an investment advisory fee
which represents a percentage of the Portfolio's average net assets adjusted for
the investment performance of the Portfolio relative to that of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500") over the preceding 36-month
period as follows:

<TABLE>
<CAPTION>
THREE YEAR PERFORMANCE
DIFFERENTIAL VS. THE S&P 500 ANNUAL FEE RATE
- ---------------------------------------------------------------------- ---------------
<S> <C>
+4.5% points or more above............................................ 0.60%
+2.25% points but less than
+4.5% points above.................................................... 0.40%
Less than +2.25% points above......................................... 0.20%
</TABLE>

Until the quarter ending March 31, 1993, the investment advisory fee was
calculated according to the following transition rules:

(a) April 1, 1992 through December 31, 1992. For the quarters ending
on or prior to December 31, 1992, the incentive/penalty fee was not
operable. The advisory fee was payable at the annual rate of .40% of the
U.S. Portfolio's net assets.

(b) For the calendar quarter ended March 31, 1993 if the investment
performance of the Portfolio for the 12 consecutive months then ended
exceeded the investment performance of the S&P 500 by:

(i) less than .75%, the fee rate payable to Geewax Terker was
.05% (annual rate of .20%); or

(ii) not less than .75% but not more than 1.5%, the fee rate
payable to Geewax Terker was .10% (annual rate of .40%); or

(iii) more than 1.5%, the fee rate payable to Geewax Terker was
.15% (annual rate of .60%).

(c) For each calendar quarter ended after March 31, 1993, the fee
payable to Geewax Terker shall be paid on the same basis as provided in
the previous paragraph except that each of the investment performance
percentages set forth in (i), (ii) and (iii) above (the "original
percentages") shall be replaced by a new percentage that is equal to the
product obtained by multiplying each such original percentage by a
fraction whose numerator is the number of calendar quarters, not
exceeding 12, that have elapsed since April 1, 1992 and whose denominator
is 4. For example, for the quarter ended March 31, 1994 (the eighth
quarter), the fee rate will be calculated based on the performance of the
Portfolio relative to that of the S&P 500 as follows:

(i) .05% (.20% annual rate) if the return of the Portfolio for
the preceding 24 months does not exceed that of the S&P 500 by more
than 1.5%;

(ii) .10% (.40% annual rate) if the return of the Portfolio for
the preceding 24 months exceeds that of the S&P 500 by more than 1.5%
but not more than 3.0%;

(iii) .15% (.60% annual rate) if the return of the Portfolio for
the preceding 24 months exceeds that of the S&P 500 by more than
3.0%.

The period of time which shall be used to compare the investment performance
of the Portfolio with the investment performance of the S&P 500 shall be the
number of consecutive months that this Agreement has been in effect as of the
end of the quarter for which such fee is being calculated, but not longer than
the most recent 36 months.

B-12
<PAGE>
The investment performance of the Portfolio and the S&P 500 shall be
calculated (i) as of the end of each calendar quarter on a total return basis
and (ii) for the same period of time. In calculating the investment performance
of the Portfolio for any period, the value of the Portfolio's cash distributions
from net investment income and realized net capital gains (whether long-term or
short-term) having an ex-dividend date occurring within such period and the
value of capital gains taxes paid or accrued during such period by the Portfolio
for undistributed realized long-term capital gains realized from the Portfolio,
shall be included.

In April 1972, the Securities and Exchange Commission ("SEC") issued Release
No. 7113 under the Investment Company Act of 1940 to call attention of directors
and investment advisers to certain factors which must be considered in
connection with investment company incentive fee arrangements. One of these
factors is to "avoid basing significant fee adjustments upon random or
insignificant differences" between the investment performance of a fund and that
of the particular index with which it is being compared. The Release provides
that "preliminary studies (of the SEC staff) indicate that as a 'rule of thumb'
the performance difference should be at least +10 percentage points" annually
before the maximum performance adjustment may be made. However, the Release also
states that "because of the preliminary nature of these studies, the Commission
is not recommending, at this time, that any particular performance difference
exist before the maximum fee adjustment may be made". The Release concludes that
the directors of a fund "should satisfy themselves that the maximum performance
adjustment will be made only for performance differences that can reasonably be
considered significant." The Board of Trustees of the Fund has fully considered
the SEC Release and believes that the performance adjustments as included in the
proposed agreement are entirely appropriate although not within the +10
percentage points per year range suggested in the Release. Under the Fund's
investment advisory agreement, the maximum performance adjustment is made at a
difference of +4.5 percentage points from the performance of the index over a
thirty-six month period, which would effectively be the equivalent of
approximately +1.125 percentage points difference per year. The Fund's
investment advisory agreements provide for no performance adjustment at a
difference of less than +2.25 percentage points from the performance of the
index over a thiry-six month period, which would be the equivalent of
approximately +.56 percentage points per year.

The agreement with Geewax Terker continues until March 31, 1994 and the
agreement with Batterymarch continues until May 1, 1994. Each agreement may be
terminated sooner, as provided herein.

The Agreements are renewable thereafter, for successive one year periods, so
long as such renewal is specifically approved at least annually by vote of a
majority of those members of the Board of Trustees of the Fund who are not
parties to the Agreements or interested persons of any such party, cast in
person at a meeting called for the purpose of voting such approval. In addition,
the question of continuance of the agreements may be presented to shareholders
of either of the Portfolios; in such event, continuance shall be effected only
if approved by vote of a majority of the outstanding shares of the respective
Portfolio. If the holders of the Portfolio fail to approve the agreement, the
adviser of the Portfolio may continue to serve as investment adviser until new
arrangements have been made. The Agreements may be terminated at any time,
without penalty, by vote of the Board of Trustees of the Fund or by vote of a
majority of the outstanding shares of the Portfolio on 60 days' written notice
to the investment advisers, or by the investment advisers on 90 days' written
notice to the Fund. The Agreements will automatically terminate in the event of
its assignment.

CONTROL OF THE ADVISERS

John J. Geewax and Bruce E. Terker, Partners, are the "controlling persons"
(as that term is defined in the rules and regulations of the Securities and
Exchange Commission) of Geewax Terker.

Dean LeBaron, President and owner of Batterymarch, is the "controlling
person" (as that term is defined in the rules and regulations of the Securities
and Exchange Commission) of Batterymarch.

B-13
<PAGE>
The Fund's Board of Trustees may, without the approval of shareholders,
provide for:

A. The employment of a new investment adviser pursuant to the terms
of a new advisory agreement, either as a replacement for an existing
adviser or as an additional adviser.

B. A change in the terms of an advisory agreement.

C. The continued employment of an existing adviser on the same
advisory contract terms where a contract has been assigned because of a
change in control of the adviser.

Any such change will only be made upon not less than 30 days' prior written
notice to shareholders of the affected Portfolio, which shall include the
information concerning the adviser that would have normally been included in a
proxy statement.

PORTFOLIO TRANSACTIONS

The investment advisory agreement authorizes the investment adviser to
select the brokers or dealers that will execute the purchases and sales of
investment securities for the Portfolios and directs the investment adviser to
use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions for the Portfolios.

Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Fund may place portfolio orders with qualified
broker-dealers who recommend the Fund to clients, and may, when a number of
brokers and dealers can provide comparable best price and execution on a
particular transaction, consider the sale of Fund shares by a broker or dealer
in selecting among qualified broker-dealers.

Some securities considered for investment by one of the Portfolios may also
be appropriate for other clients served by the investment advisers. If purchase
or sale of securities consistent with the investment policies of the Portfolio
and one or more of these other clients served by the investment adviser is
considered at or about the same time, transactions in such securities will be
allocated among the Portfolio and clients in a manner deemed fair and reasonable
by the investment adviser. Although there is no specified formula for allocating
such transactions, the various allocation methods used by the investment
advisers, and the results of such allocations, are subject to periodic review by
the Fund's Board of Trustees.

During the years ended December 31, 1991, 1992 and 1993 the Fund paid
$184,013, $879,366 and $753,881, respectively, in brokerage commissions.

PERFORMANCE MEASURES

Vanguard/Trustees' Equity Fund may use one or more, of the following
unmanaged indexes for comparative performance purposes:

STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX--is a well diversified list of
500 companies representing the U.S. Stock Market.

WILSHIRE 5000 EQUITY INDEXES--consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available.

WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.

RUSSELL 3000 STOCK INDEX--a diversified portfolio of over 3,000 common stocks
accounting for over 90% of the market value of publicly traded stocks in the
U.S.

RUSSELL 2000 STOCK INDEX--a subset of approximately 2,000 of the smallest stocks
contained in the Russell 3000; a widely used benchmark for small capitalization
common stocks.

B-14
<PAGE>
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.

GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 67 bonds and 33
preferreds. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.

SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.

SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.

SHEARSON LEHMAN LONG-TERM TREASURY BOND--is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.

MERRILL LYNCH CORPORATE & GOVERNMENT BOND--consists of over 4,500 U.S. Treasury,
Agency and investment grade corporate bonds.

SHEARSON LEHMAN CORPORATE (BAA) BOND INDEX--all publicly offered fixed rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.

BOND BUYER MUNICIPAL INDEX (20 YEAR) BOND--is a yield index on current coupon
high grade general obligation municipal bonds.

STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average yield
of four high grade, non-callable preferred stock issues.

NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It is
a value-weighted index calculated on price change only and does not include
income.

COMPOSITE INDEX--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.

COMPOSITE INDEX--35% Standard & Poor's 500 Index and 65% Salomon Brothers
High-Grade Bond Index.

COMPOSITE INDEX--65% Standard & Poor's 500 Index and 35% Salomon Brothers
High-Grade Bond Index.

LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB- or better. The Index has a market value of over
$4 trillion.

LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX--is a market
weighted index that contains individually priced U.S. Treasury, agency, and
corporate investment grade bonds rated BBB- or better with maturities between 1
and 5 years. The index has a market value of over $1.3 trillion.

LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX--is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $600 billion.

LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX--is a market
weighted index that contains individually priced U.S. Treasury, agency, and
corporate securities rated BBB- or better with maturities greater than 10 years.
The index has a market value of over $900 billion.

LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average

B-15
<PAGE>
expenses ratio of the small company growth funds. (This fund category was first
established in 1982. For years prior to 1982, the results of the Lipper Small
Company Growth category were estimated using the returns of the Funds that
constituted the Group at its inception.)

LIPPER BALANCED FUND AVERAGE--An industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.

LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--An industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.

LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--An industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc

GENERAL INFORMATION

DESCRIPTION OF SHARES AND VOTING RIGHTS

The Fund was established as a "business trust" under Pennsylvania law under
a Declaration of Trust dated May 16, 1984. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares of beneficial interest, without
par value, from an unlimited number of separate classes ("Portfolios") of
shares. Currently the Fund is offering shares of two Portfolios.

The shares of each Portfolio are fully paid and non-assessable, except as
set forth under "Shareholder and Trustee Liability," and have no preference as
to conversion, exchange, dividends, retirement or other features. The shares
have no preemptive rights. The shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees if they choose to do so. A shareholder
is entitled to one vote for each full share held (and a fractional vote for each
fractional share held), then standing in his name on the books of the Fund. On
any matter submitted to a vote of shareholders, all shares of the Fund then
issued and outstanding and entitled to vote, irrespective of the class, shall be
voted in the aggregate and not by class: except (i) when required by the
Investment Company Act of 1940, shares shall be voted by individual class; and
(ii) when the matter does not affect any interest of a particular class, then
only shareholders of the affected class or classes shall be entitled to vote
thereon.

The Fund will continue without limitation of time, provided however that:

1) Subject to the majority vote of the holders of shares of any
Portfolio of the Fund outstanding, the Trustees may sell or convert
the assets of such Portfolio to another investment company in
exchange for shares of such investment company, and distribute such
shares, ratably among the shareholders of such Portfolio; and

2) Subject to the majority vote of shares of any Portfolio of the Fund
outstanding, the Trustees may sell and convert into money the assets
of such Portfolio and distribute such assets ratably among the
shareholders of such Portfolio.

Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Portfolio as provided in paragraphs 1) and 2) above, the
Fund shall terminate as to that Portfolio and the Trustees shall be discharged
of any and all further liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.

SHAREHOLDER AND TRUSTEE LIABILITY

Under Pennsylvania law, shareholders of a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. Therefore, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation, or instrument
entered into or executed by the Fund or

B-16
<PAGE>
the Trustees. The Declaration of Trust provides for indemnification out of the
Fund property of any shareholder held personally liable for the obligations of
the Fund. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. The Trustees and officers of the Fund believe that, in view of the
above, the risk of personal liability to shareholders is remote.

The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

FINANCIAL STATEMENTS

The Fund's financial statements for the year ended December 31, 1993,
including the financial highlights for each of the five years in the year ended
December 31, 1993, appearing in the Fund's 1993 Annual Report to Shareholders,
and the report thereon of Price Waterhouse, independent accountants, also
appearing therein, are incorporated by reference in this Statement of Additional
Information. The Fund's 1993 Annual Report to Shareholders is enclosed with this
Statement of Additional Information.

B-17

<PAGE>
EXHIBIT 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
the Statement of Additional Information, constituting parts of this amended
Registration Statement on Form N-1A, of our report dated January 31, 1994
relating to the financial statements, including the financial highlights,
appearing in the December 31, 1993 Annual Report to Shareholders of
Vanguard/Trustees' Equity Fund (comprised of the U.S. Portfolio and the
International Portfolio), which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "General Information" in the Prospectus and
"Financial Statements" in the Statement of Additional Information.

PRICE WATERHOUSE
Philadelphia, PA
April 15, 1994

<PAGE>
EXHIBIT 16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD TRUSTEES' EQUITY FUND -- U.S. PORTFOLIO

1. Average Annual Total Return (As of December 31, 1993)

P(1 + T)to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period

EXAMPLE:
One Year
P = $1,000
T = +17.24%
N = 1
ERV = $1,172.44
Five Year
P = $1,000
T = +11.16%
N = 5
ERV = $1,697.59
Ten Year
P = $1,000
T = +11.24%
N = 10
ERV = $2,902.64

2. YIELD (30 Days Ended December 31, 1993)

a
Yield = 2 [( -----+ 1) to the power of b - 1] - b X 100
c X d

Where: a = dividends and interest paid during the period
expense ratios during the period (net of
b = reimbursements)
the average daily number of shares outstanding
c = during the period
the maximum offering price per share on the last
d = day of the period

EXAMPLE:
a = $181,988.39
b = .813
c = 3,879,145.000
d = $30.65
Yield = 1.03%

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EXHIBIT 16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD TRUSTEES' EQUITY FUND -- INTERNATIONAL PORTFOLIO

1. Average Annual Total Return (As of December 31, 1993)

P(1 + T)to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
One Year
P = $1,000
T = +30.49%
N = 1
ERV = $1,034.94
Five Years
P = $1,000
T = +7.68%
N = 5
ERV = $1,447.60
Ten Year*
P = $1,000
T = +16.16%
N = 10
ERV = $4,470.78*
Since inception 5/16/83