<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
During the six months ended June 30, the first half of the 1994 fiscal year for
Vanguard/Trustees' Equity Fund, the returns in global equity markets--with a
few exceptions, most notably in Japan--turned negative. In this challenging, if
short-term, environment, the -6.2% return of our U.S. Portfolio was a bit
disappointing, falling behind the results of our two benchmark standards. Our
International Portfolio, on the other hand, provided a +6.6% return that was
satisfactory relative to its index standard and excellent relative to other
funds with similar investment policies.
The following table presents the total returns (capital change plus
income) of our two Portfolios during the past six months, compared with those
of their respective benchmarks: for the U.S. Portfolio, the unmanaged Standard
& Poor's 500 Composite Stock Price Index and the average growth and income
mutual fund; for the International Portfolio, the unmanaged Morgan Stanley
Capital International Europe, Australia, and Far East ("EAFE") Index, and the
average diversified international mutual fund.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------
Total Return
----------------
Six Months Ended
June 30, 1994
- - -------------------------------------------------------------------------
<S> <C>
TRUSTEES' U.S. PORTFOLIO -6.2%
- - -------------------------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX -3.4%
AVERAGE GROWTH AND INCOME FUND -3.6
- - -------------------------------------------------------------------------
- - -------------------------------------------------------------------------
TRUSTEES' INTERNATIONAL PORTFOLIO +6.6%
- - -------------------------------------------------------------------------
MSCI EAFE INDEX +8.9%
AVERAGE INTERNATIONAL FUND -0.1
- - -------------------------------------------------------------------------
</TABLE>
The total return of the U.S. Portfolio is based on net asset values of $30.65
per share on December 31, 1993, and $28.58 on June 30, 1994, with the latter
figure adjusted to take into account the reinvestment of two quarterly
dividends totaling $.14 per share from net investment income and a carry-over
distribution of $.03 per share from net capital gains realized during 1993. For
the International Portfolio, the respective net asset values were $31.04 and
$32.80 per share, and there were two quarterly dividends totaling $.28 per
share from net investment income.
* THE U.S. PORTFOLIO
Following two years of relative tranquility, substantial volatility returned to
the U.S. equity market during the past six months, and stocks in the aggregate
showed a net decline. While the decline in stock prices from the February high
to the June low (-8%) was fairly significant, it was a far cry from the
market's sharp dips in 1990 (-20%), 1987 (-34%), 1981 (-18%), and 1973-1974
(-48%). (Price change from high to low, excluding income.)
Although the decline in domestic stock prices could be described as
"moderate" in an historical sense, it seemed to reflect investor concerns
beyond the actual dimensions of the problems confronting the market, most
notably possible future inflation. Given these inflationary fears, the Federal
Reserve effected four increases in the Federal funds rate, pushing the rate
from 3.00% to 4.25%. Theory suggests that increases in short-term rates should
be regarded by market participants as a restraint on potential inflation, and
thus cause long-term rates to fall. However, this theory seldom holds true in
practice, and 1994 has proved to be no exception.
The past six months saw a continuation of the 1993 market trend in which
"value" stocks--those with above-average dividend yields and below-average
price-book ratios--outpaced "growth" stocks--those that provide lower yields
but presumably richer prospects for earnings growth. Although our Portfolio
owns a mixture of growth and value stocks, the growth component contributed
significantly to our underperforming both the Standard & Poor's 500 Index and
the average growth and income fund. But the dominant impact on our relative
performance had to do with sub-par individual stock selections--across a
variety of market sectors--by our investment adviser, Geewax, Terker & Company.
While we are, of course, disappointed with the Portfolio's
1
<PAGE> 2
performance thus far in 1994, it would, I think, be unwise to place any
particular credence on results achieved over but half a year.
* INTERNATIONAL PORTFOLIO
As noted at the outset, financial markets all over the world declined during
the first half of 1994. However, these declines were generally substantially
moderated for U.S. investors due to the persistent weakness in the U.S. dollar.
(As you know, when the dollar falls relative to a given country's currency, the
returns to U.S. investors in that country's stock market are enhanced. And, to
be sure, a rising dollar reduces local returns to U.S. investors.) Since
December 31, 1994, the dollar has dropped sharply versus virtually every major
world currency, converting negative returns in those markets to positive
returns for U.S. investors.
It is not really possible to categorize simply the major factors that
influenced international equity markets during the past six months. Markets in
each country stand pretty much on their own, although all were importantly
impacted by the fluctuating value of the dollar, and all seem to have inflation
under reasonable control. In general, two broad trends remain in place: (1) the
European economies are fairly weak, while the Japanese economy appears to be
gaining in strength; and (2) interest rates have risen in Europe, but remain
low in Japan. In all, broad portfolio diversification seems more important than
ever.
The International Portfolio achieved a six-month total return of +6.6% in
this turbulent market environment, short of the +8.9% return of the unmanaged
EAFE Index, but well ahead of the negative return of -0.1% turned in by the
average international fund. We are especially pleased with the substantial
margin that we achieved over our competitors, which maintain investment
policies that are similar to ours. Our advantage thus far in 1994 is related to
two factors that were distinctly disadvantageous during 1993: (1) our Portfolio
maintained a much higher weighting in the top-performing Japanese stock market
(40% of net assets on average versus 17% for our "peer group" of funds); and
(2) we held a much lower weighting in the emerging markets of the Pacific
region and Latin America (9% of assets for the Portfolio versus some 20% for
our peers), which "brought up the rear" in performance over the past six
months.
* IN SUMMARY
We begin the second half with little sign that the U.S. stock market will
reverse its sluggish course, nor that the turbulence in international stock and
currency markets will abate. Given that forecasting any market trend with
accuracy is impossible (even for the "experts," who are having a bad year), and
given that foreign investing carries currency risk that is not a factor for
U.S. investors investing in U.S. markets, it seems only prudent to maintain an
appropriate balance among stocks, bonds, and short-term reserves. For
international investors, we would stick by our recommendation that foreign
investments be limited to no more than 20% of their equity position.
As always, the unexpected awaits us as we move into the second half of
1994. Nonetheless, we are confident that, come what may, the two Portfolios of
Vanguard Trustees' Equity Fund will provide results that are fully competitive
with their peers. We look forward to reporting to you again in our Annual
Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- - --------------------
John C. Bogle
Chairman of the Board
July 25, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED JUNE 30,
1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
10 YEARS
----------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
- - ----------------------- ---------- --------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. PORTFOLIO 1/31/80 - 1.54% +6.81% +11.84% + 8.45% +3.39%
INTERNATIONAL PORTFOLIO 5/16/83 +18.03 +8.35 +17.28 +13.99 +3.29
</TABLE>
ALL OF THE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
3
<PAGE> 4
REPORT FROM GEEWAX, TERKER & COMPANY
After a satisfactory 1993 performance, the first six months of 1994 turned out
to be somewhat disappointing, with Trustees' Equity Fund-U.S. Portfolio
underperforming the unmanaged Standard & Poor's 500 Index: -6.2% versus -3.4%.
Virtually all of this underperformance occurred during the second quarter.
During the first three months of the year, the Portfolio outperformed the S&P
500 by 2.7 percentage points. Clearly, the latest quarter has been quite
hostile to our style of investing. Going forward, however, we are satisfied
with the overall complexion and structure of the portfolio.
Late last year we rotated out of the utility and financial sectors into
the cyclical, consumer durable, and capital equipment/technology sectors. We
achieved some slight outperformance with the later group, while our cyclical
and durable sectors performed dismally. Going forward, we are still happy with
the automotive-related consumer durable stocks we have owned from last year, as
their earnings continue to exceed expectations. Our technology stocks are
performing adequately, but we are increasingly aware of seeking reasonable
valuations for future earnings growth. The volatile market environment has
caused us to lighten our representation in the cyclical area and search for
some reasonably valued stable earnings firms--albeit slower growing--in the
consumer and service sectors. Finally, our financial service companies continue
to have high-quality earnings, and we will maintain our current position.
These minor changes are consistent with our focus on maintaining a
portfolio of stocks that: (1) have reasonable valuations given their growth
potential and market conditions; (2) have good recent earnings "news"; and (3)
have been experiencing some increases in estimates of future earnings. The
above characteristics should be rewarded over time--not withstanding the second
quarter of 1994, which did not favor such stocks. As the recent rise in
interest rates works its way through the economy and the market adjusts
accordingly, we believe earnings will be rewarded on a more consistent
basis--as will the Portfolio. The current portfolio is a good solid one, and we
do not think any major changes are presently needed. Of course, all of the
above could change immediately if market conditions warrant.
With the current hostile market environment dissipating, we continue to
find reasonably priced, quality earnings companies. If we can avoid the
"minefields," we are reasonably confident of the next six months being a more
successful investment period.
Respectfully,
Geewax, Terker & Company
July 13, 1994
4
<PAGE> 5
REPORT FROM BATTERYMARCH FINANCIAL MANAGEMENT
* OVERALL PERFORMANCE
During the six months ended June 30, 1994, Trustees' Equity Fund-International
Portfolio's total return was +6.6% (see Chairman's letter for details). You may
compare this figure to +8.9% for the MSCI Europe, Australia, and Far East
(EAFE) Index. It may also be compared with the -0.1% return for the average
international mutual fund.
In many ways, the pattern of international equity markets has reversed
course since the last half of 1993. Late last year, falling interest rates
benefited European equity markets and the high flying emerging markets. At the
same time, the Japanese market declined sharply as recession took hold. In the
second half of 1993, your Portfolio returned +10.7% versus only +7.7% for EAFE,
although our return was less than the returns of many funds with
characteristically less invested in Japan and more in Southeast Asia and Latin
America. This year, rising interest rates have hurt the European and emerging
markets, while a strong Tokyo market and a very strong yen have made Japan the
best place in which to invest. We are pleased to report that your Portfolio
ranks very high among competitive funds through June.
* INVESTMENT ENVIRONMENT
The short-term return environment has become potentially more volatile given
the imbalance in economic policies between one governmental philosophy,
typified by Japan, and, that of the United States. Japan has shown a regard for
the future with policies favoring a high savings rate, while U.S. policy
subsidizes current consumption through a continuing large government budget
deficit. The imbalance has eventually resulted in rapid deterioration of the
dollar against the yen. There has also been an increase in real interest rates
in the U.S. and, in turn, Europe. The consequences have unsettled and weakened
equity markets everywhere but Japan. Aesop's fable about the fate of the ant
and grasshopper at the end of the summer gives fair warning that Japan may
remain a good place to invest.
We are also investing for a decade-long business environment. We can
look ahead to continued transition from the current high amounts of obsolescent
industrial capacity. Innovators will gain ground in new companies, new
industries, and even new countries. This economic phenomenon includes the rise
of emerging markets, other forms of globalization, and the reduction of work
forces in mature industries such as steel and autos in the developed markets.
It also includes the creation of new technology-based industries such as
biotechnology and multimedia "information highways." The key concept is
restructuring. The consequences are both far reaching and difficult to predict
in detail. We believe this environment favors investments in smaller companies
in the developed markets. The environment also favors a few companies which, as
global competitors, will capitalize on enlarged markets, and a broad spectrum
of companies in emerging markets. On the other hand, many well-established
companies with good reputations for growth may prove disappointing.
* INVESTMENT STRATEGY
Our four investment strategies strongly favor value and small stocks. About
two-thirds of the Portfolio is invested in the hypothesis that restructuring
surprises will favor such stocks in our Traditional Value and Corporate Value
strategies. However, we are also investing in more identifiable beneficiaries
of globalization, though in a price-conscious way, through our Global
Competitor strategy, and in intermediate emerging markets through our Early
Database strategy. We recently merged our Regional Relative Score strategy in
order to better focus the Portfolio.
Traditional Value was very strong early in the year in many countries.
For the period as a whole, however, Corporate Value has been particularly
strong in Europe, while Global Competitors has been particularly strong in
Japan. Small capitalization stocks have generally outperformed large
capitalization stocks within each region.
(continued)
5
<PAGE> 6
Although returns for the Early Database strategy were weak, we have gradually
accumulated holdings in these emerging markets where we believe we can add
value. The conservative posture of the Fund overall allows the exposure of a
portion of the Portfolio, currently targeted at 10%, to these intermediate
(non-EAFE) emerging markets, while keeping the Portfolio's return volatility
low relative to the EAFE Index.
We also employ a country discipline to help provide a level playing
field so that stocks in different countries can be compared effectively, given
differences in local conditions. Expected country returns for each country have
consistently correlated positively with actual returns. We were successful this
year in country allocation relative to other funds not only because we expected
above-average returns in Japan but also because of a tilt against the U.K.
market. Our approach incorporates risk premium, value, and momentum elements.
At the end of the period, the outlook in Japan diminished to average.
In the 1993 annual shareholders' report, we stated that we believed the
continued surprises caused by industrial restructuring would work in favor of
small stock, value-oriented investing during 1994. The year so far has
vindicated that judgment, and we are continuing to deploy the Portfolio along
those lines.
Respectfully submitted,
Batterymarch Financial Management
July 13, 1994
6
<PAGE> 7
TOTAL INVESTMENT RETURN
The table below illustrates the results of a single share investment in the
U.S. PORTFOLIO for the period from January 31, 1980, to June 30, 1994. During
this period, stock prices fluctuated and were higher at the end than at the
beginning. These results should not be considered a representation of the
dividend income or capital gain or loss which may be realized from an
investment made in the Portfolio today.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - --------------------------------------------------------------------------------------------------------------------
Annual Percentage Change*
--------------------------
Value with Income
Year Ended Net Asset Income Capital Gains Dividends & Capital U.S. S&P 500
December 31 Value Dividends Distributions Gains Reinvested Portfolio Index
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL (1/80) $25.00 -- -- $25.00 -- --
- - --------------------------------------------------------------------------------------------------------------------
1980 26.95 $ 1.49 $ .84 29.35 + 17.4% + 24.6%
- - --------------------------------------------------------------------------------------------------------------------
1981 27.05 1.80 .87 32.37 + 10.3 - 4.9
- - --------------------------------------------------------------------------------------------------------------------
1982 30.56 1.75 1.19 40.42 + 24.9 + 21.5
- - --------------------------------------------------------------------------------------------------------------------
1983 35.72 1.52 2.15 52.19 + 29.1 + 22.5
- - --------------------------------------------------------------------------------------------------------------------
1984 30.56 1.57 2.51 50.68 - 2.9 + 6.2
- - --------------------------------------------------------------------------------------------------------------------
1985 31.15 1.45 4.10 61.09 + 20.5 + 31.6
- - --------------------------------------------------------------------------------------------------------------------
1986 28.69 1.16 6.15 70.41 + 15.3 + 18.6
- - --------------------------------------------------------------------------------------------------------------------
1987 22.77 .72 5.88 71.59 + 1.7 + 5.2
- - --------------------------------------------------------------------------------------------------------------------
1988 26.35 .97 1.00 89.23 + 24.6 + 16.5
- - --------------------------------------------------------------------------------------------------------------------
1989 26.15 .88 3.81 104.61 + 17.2 + 31.6
- - --------------------------------------------------------------------------------------------------------------------
1990 22.90 1.08 -- 95.90 - 8.3 - 3.1
- - --------------------------------------------------------------------------------------------------------------------
1991 28.20 .71 -- 121.38 + 26.6 + 30.4
- - --------------------------------------------------------------------------------------------------------------------
1992 28.43 .67 .86 129.21 + 6.5 + 7.6
- - --------------------------------------------------------------------------------------------------------------------
1993 30.65 .43 2.16 151.49 + 17.2 + 10.1
- - --------------------------------------------------------------------------------------------------------------------
1994 (6/30) 28.58 .14 .03 142.03 - 6.2 - 3.4
- - --------------------------------------------------------------------------------------------------------------------
LIFETIME $16.34 $31.55 + 468.1% + 581.9%
- - --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
RATE OF RETURN + 12.8% + 14.2%
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted to include reinvestment of income dividends and any capital gains
distributions both for the Portfolio and the Index.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
7
<PAGE> 8
TOTAL INVESTMENT RETURN
The table below illustrates the results of a single share investment in the
INTERNATIONAL PORTFOLIO for the period from May 31, 1983, to June 30, 1994.
During this period, stock prices fluctuated and were higher at the end than at
the beginning. These results should not be considered a representation of the
dividend income or capital gain or loss which may be realized from an
investment made in the Portfolio today.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - -------------------------------------------------------------------------------------------------------------------
Annual Percentage Change*
---------------------------
Value with Income
Year Ended Net Asset Income Capital Gains Dividends & Capital International EAFE
December 31 Value Dividends Distributions Gains Reinvested Portfolio Index
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL (5/83) $25.00 -- -- $ 25.00 -- --
- - -------------------------------------------------------------------------------------------------------------------
1983 25.98 $ .44 $ .02 26.46 + 6.6% + 11.8%
- - -------------------------------------------------------------------------------------------------------------------
1984 24.59 1.09 .11 26.25 - 0.8 + 7.9
- - -------------------------------------------------------------------------------------------------------------------
1985 30.91 .93 2.54 36.85 + 40.3 + 56.7
- - -------------------------------------------------------------------------------------------------------------------
1986 38.68 1.03 6.55 55.53 + 50.7 + 69.9
- - -------------------------------------------------------------------------------------------------------------------
1987 28.66 .75 18.32 68.79 + 23.9 + 24.9
- - -------------------------------------------------------------------------------------------------------------------
1988 28.27 .99 4.58 81.71 + 18.8 + 28.6
- - -------------------------------------------------------------------------------------------------------------------
1989 32.44 .79 2.08 102.93 + 26.0 + 10.8
- - -------------------------------------------------------------------------------------------------------------------
1990 26.58 .95 1.01 90.31 - 12.3 - 23.2
- - -------------------------------------------------------------------------------------------------------------------
1991 27.78 .77 .61 99.30 + 10.0 + 12.5
- - -------------------------------------------------------------------------------------------------------------------
1992 24.44 .67 .28 90.64 - 8.7 - 11.9
- - -------------------------------------------------------------------------------------------------------------------
1993 31.04 .81 -- 118.28 + 30.5 + 33.0
- - -------------------------------------------------------------------------------------------------------------------
1994 (6/30) 32.80 .28 -- 126.07 + 6.6 + 8.9
- - -------------------------------------------------------------------------------------------------------------------
LIFETIME $9.50 $36.10 + 408.1% + 530.8%
- - -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
RATE OF RETURN + 15.8% + 18.1%
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted to include reinvestment of income dividends and any capital gains
distributions both for the Portfolio and the Index.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
8
<PAGE> 9
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
June 30, 1994
<TABLE>
<CAPTION>
Market
Value
U.S. PORTFOLIO Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.3%)
- - --------------------------------------------------------------------------
BASIC MATERIALS (5.0%)
* Amgen, Inc. 22,000 $ 941
Amoco Corp. 7,400 422
Asarco, Inc. 10,100 284
Ecolab, Inc. 8,000 176
Federal Paper Board Co., Inc. 3,200 73
* Georgia Gulf Corp. 3,100 106
Kimberly-Clark Corp. 4,500 238
Loctite Corp. 4,000 169
* Magma Copper Co. Class B 13,300 201
Mallinckrodt Group, Inc. 12,000 390
The Mead Corp. 12,200 539
Morton International, Inc. 3,900 304
Olin Corp. 12,200 657
Praxair, Inc. 12,500 244
Rohm & Haas Co. 12,500 778
Union Carbide Corp. 3,000 80
* Wellman, Inc. 13,800 385
Worthington Industries, Inc. 14,865 275
--------
GROUP TOTAL 6,262
--------
- - -------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (7.7%)
* BMC West Corp. 1,500 33
Browning-Ferris Industries, Inc. 5,200 158
Caterpillar, Inc. 19,000 1,900
* Central Sprinkler Corp. 6,100 62
* Clark Equipment Co. 12,000 717
Federal-Mogul Corp. 12,000 349
Fluor Corp. 8,000 407
General Dynamics Corp. 7,400 302
* General Instrument 14,400 821
General Motors Corp. Class H 7,400 265
Ingersoll-Rand Co. 8,000 281
Johnson Controls, Inc. 12,400 600
Lafarge Corp. 16,000 310
Lennar Corp. 2,500 47
Lockheed Corp. 17,500 1,144
Martin Marietta Corp. 3,800 168
Parker Hannifin Corp. 9,000 384
* Redman Industries, Inc. 14,900 235
Sundstrand Corp. 2,000 94
TRW, Inc. 13,400 864
* Teradyne, Inc. 4,000 106
The Timkin Co. 5,300 174
* USG Corp. 5,500 100
--------
GROUP TOTAL 9,521
--------
- - -------------------------------------------------------------------------
CONSUMER CYCLICAL (21.3%)
Acclaim Entertainment Inc. 36,800 593
* Ann Taylor Stores Corp. 5,000 192
Armstrong World Industries Inc. 14,500 676
* Breed Technological Inc. 12,400 344
* Brinker International, Inc. 13,650 287
Brunswick Corp. 15,500 341
Bush Industries, Inc. 2,700 69
CBS, Inc. 5,500 1,705
* CUC International, Inc. 3,000 80
Callaway Golf Co. 12,000 468
Chrysler Corp. 34,500 1,626
Claire's Stores, Inc. 4,200 43
* Coleman Inc. 6,600 198
Cooper Tire & Rubber Co. 21,500 497
Culp, Inc. 15,000 131
Dayton-Hudson Corp. 10,800 875
The Walt Disney Co. 14,200 591
Dollar General Corp. 3,906 98
Eastman Chemical 3,400 162
* Federated Stores 33,400 668
First Brands Co. 2,000 73
Fleetwood Enterprises, Inc. 5,000 96
Ford Motor Co. 18,600 1,097
* Fruit of the Loom, Inc. 10,000 261
The Gap, Inc. 14,300 611
General Motors Corp. 36,700 1,844
General Nutrition Cos., Inc. 3,000 52
* Gentex Corp. 6,500 166
The Goodyear Tire & Rubber Co. 19,000 684
Heilig-Meyers Co. 23,925 649
Hospitality Franchise Systems, Inc. 20,000 490
Intelligent Electronics Inc. 12,000 181
Lands' End, Inc. 6,000 104
Leggett & Platt, Inc. 8,000 300
Lowes Cos., Inc. 45,600 1,562
Mattel, Inc. 23,425 594
May Department Stores Co. 36,800 1,444
Maytag Corp. 33,000 611
Melville Corp. 5,000 194
Mercantile Stores Co., Inc. 16,200 520
* Mohawk Industries, Inc. 9,000 158
Nautica Enterprises Inc. 10,000 240
New York Times Co. Class A 9,500 227
Office Depot, Inc. 29,100 582
Outback Steakhouse 9,000 216
Premark International, Inc. 7,600 572
* Primadonna Resorts, Inc. 8,000 194
* Prime Hospitality Corp. 12,000 89
Promus Co. Inc. 17,000 504
* Rhodes Inc. 2,000 32
Royal Caribbean Cruises, Ltd. 6,600 183
E.W. Scripps Co. 5,700 167
* Spartan Motors, Inc. 6,000 74
Superior Industries
International, Inc. 18,000 576
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
Talbots Inc. 11,000 $ 330
U.S. Shoe Corp. 15,800 300
VF Corp. 13,000 618
Wolverine World Wide, Inc. 7,500 159
--------
GROUP TOTAL 26,398
--------
- - --------------------------------------------------------------------------
CONSUMER STAPLES (5.2%)
American Stores Co. 6,700 164
Clorox Co. 2,600 127
Conagra, Inc. 16,500 503
Adolph Coors Co. Class B 9,600 166
* Dr. Pepper/Seven Up Cos., Inc. 17,700 407
Gerber Products Co. 9,000 459
Giant Food, Inc. Class A 15,800 310
* The Kroger Co. 22,500 523
Libbey, Inc. 16,200 300
Midwest Grain Products 10,000 358
* Owens-Illinois, Inc. 38,400 422
Philip Morris Cos., Inc. 27,400 1,411
* RJR Nabisco Holdings Corp. 87,100 533
Ralston-Purina Group 7,700 267
* United States Can Co. 1,000 18
Universal Foods Corp. 12,500 395
Wm. Wrigley, Jr. Co. 3,000 143
--------
GROUP TOTAL 6,506
--------
- - --------------------------------------------------------------------------
DIVERSIFIED (.8%)
Allied-Signal, Inc. 14,900 516
The Dial Corp. 11,700 500
* Speizman Industries, Inc. 3,000 25
-------
GROUP TOTAL 1,041
--------
- - --------------------------------------------------------------------------
ENERGY (7.5%)
Amerada Hess Corp. 7,900 389
Ashland Oil, Inc. 8,600 289
Chevron Corp. 13,200 553
Dresser Industries, Inc. 15,000 308
El Paso Natural Gas 22,700 732
Exxon Corp. 12,600 713
* Input/Output, Inc. 30,000 713
Mobil Corp. 21,300 1,739
Murphy Oil Corp. 8,200 351
Panhandle Eastern Corp. 35,100 693
Sun Co., Inc. 15,300 411
Tosco Corp. 30,200 898
* Total Petroleum (North America) Ltd. 14,300 172
USX-Marathon Group 30,100 504
Ultramar Corp. 28,200 740
Union Texas Petroleum Holdings 4,200 75
--------
GROUP TOTAL 9,280
--------
- - --------------------------------------------------------------------------
FINANCIAL (17.1%)
Aflac, Inc. 18,500 624
John Alden Financial Group 20,000 690
AT&T Capital Corp. 3,300 76
American General Corp. 16,200 448
* American Power Conversion Corp. 4,700 75
American Premier Underwriter 7,800 196
* American Re Corp. 5,000 154
The Bank of New York Co., Inc. 5,000 144
BankAmerica Corp. 15,200 695
Beneficial Corp. 7,000 256
CIGNA Corp. 10,500 768
The Chase Manhattan Corp. 5,001 191
Chemical Banking Corp. 7,000 270
Citicorp 12,600 502
Comdisco, Inc. 20,700 396
Conseco, Inc. 3,700 173
Crestar Financial Corp. 14,800 673
Dean Witter Discover & Co. 11,500 431
Federal Home Loan Mortgage Corp. 20,800 1,258
Federal National Mortgage Assn. 11,900 994
First Chicago Corp. 7,200 347
First Commerce Corp. 10,200 288
First Interstate Bancorp. 11,600 893
First Union Corp. 11,000 507
First USA Inc. 22,500 864
Fremont General Corp. 3,000 70
GFC Financial Corp. 10,800 361
Green Tree Financial Corp. 8,900 498
Horace Mann Educators Corp. 2,000 54
* Humana, Inc. 20,000 322
Kemper Corp. 5,000 303
Lincoln National Corp. 3,200 136
Mercury Finance Co. 4,500 74
Merrill Lynch & Co., Inc. 34,800 1,218
Michigan National Corp. 6,700 482
NWNL Cos., Inc. 5,000 166
NationsBank, Inc. 12,600 647
Pioneer Group Inc. 5,000 179
Protective Life Corp. 3,500 141
Republic New York Corp. 5,800 268
Paul Revere Corp. 6,400 127
Safeco Corp. 10,600 588
Charles Schwab Corp. 25,800 639
* Shawmut National Corp.
Warrants Exp. 1/1/95 645 3
Signet Banking Corp. 2,000 81
Standard Federal Bank 11,200 280
Sunamerica Inc. 11,000 450
Transamerica Corp. 285 15
Travelers Inc. 13,000 419
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
United Asset Management Corp. 3,000 $ 99
USLIFE Corp. 5,000 178
Wells Fargo & Co. 9,900 1,489
-------
GROUP TOTAL 21,200
-------
- - --------------------------------------------------------------------------
HEALTH CARE (6.3%)
* Abbey Healthcare Group, Inc. 10,000 147
* American Medical Response, Inc. 10,000 258
Baxter International, Inc. 27,500 722
Columbia/HCA Healthcare Corp. 20,400 765
* Cordis Corp. 3,000 116
* FHP International Corp. 12,000 282
* Foundation Health Co. 10,200 397
Health Management Associates
Class A 7,500 154
Healthsource, Inc. 6,500 185
* Kendall International Inc. 23,100 1,178
* Medical Care America, Inc. 16,900 458
Oxford Health Plan 8,500 374
Pyxis Corp. 16,400 312
* Sybron Corp. 2,000 60
Thermo Cardiosystems Inc. 7,500 150
United Healthcare Corp. 30,000 1,376
U.S. Healthcare, Inc. 21,300 788
* Value Health, Inc. 2,400 92
--------
GROUP TOTAL 7,814
--------
- - --------------------------------------------------------------------------
TECHNOLOGY (17.1%)
* ADC Telecommunications, Inc. 5,000 201
* ALC Communications 18,600 572
Adaptec, Inc. 3,000 53
Amdahl Corp. 25,400 140
Applied Materials, Inc. 12,800 54
* Arrow Electronics, Inc. 5,000 186
* Artisoft, Inc. 6,500 96
Atmel Corp. 22,000 517
Autodesk, Inc. 2,000 99
* BMC Software, Inc. 4,300 186
* Cabletron Systems, Inc. 3,300 319
Cheyenne Software, Inc. 14,000 119
Computer Associates
International, Inc. 33,400 1,336
* Conner Peripherals, Inc. 28,300 343
DSC Communications Corp. 39,000 761
* Dell Computer 13,400 352
EMC Corp. 26,000 351
General Motors Corp. Class E 12,500 436
Harris Corp. 9,500 419
IDB Communications Group, Inc. 19,915 184
* Integrated Device Technology Inc. 18,000 443
Intel Corp. 17,000 995
International Business Machines Corp. 24,300 1,428
* KLA Instruments Corp. 5,200 192
* Komag, Inc. 12,000 219
* LSI Logic Corp. 15,300 383
LAM Research Corp. 5,000 140
* Littelfuse, Inc. 1,700 35
Litton Industries, Inc. 7,000 235
* Lotus Development Corp. 6,500 237
* MB Communications, Inc. 3,000 29
* Megatest Corp. 13,000 198
* Micom Communications 2,000 21
Micron Technology Inc. 56,950 1,965
Microsoft Corp. 14,000 721
Motorola, Inc. 11,312 503
* National Semiconductor Corp. 43,500 750
* Newbridge Networks Corp. 4,500 155
Northern Telecom Ltd. 7,000 193
* Optical Data Systems Inc . 1,400 18
Oracle Systems Corp. 14,000 523
* Quantum Corp. 24,300 313
* Seagate Technology 35,000 683
Silicon Graphics, Inc. 34,000 752
* Stratus Computer, Inc. 5,000 141
Sybase, Inc. 7,500 366
Tech Data Corp. 12,000 198
Tellabs, Inc. 5,000 154
Texas Instruments, Inc. 15,900 1,264
* Wellfleet Communications 12,100 299
* Xilinx, Inc. 15,200 517
--------
GROUP TOTAL 21,284
--------
- - --------------------------------------------------------------------------
TRANSPORT & SERVICES (1.1%)
Burlington Northern, Inc. 6,200 331
Kansas City Southern Industries, Inc. 4,000 163
McDonnell Douglas Corp. 2,950 345
Santa Fe Pacific Corp. 16,100 336
Southwest Airlines Co. 6,200 162
--------
GROUP TOTAL 1,337
--------
- - --------------------------------------------------------------------------
UTILITIES (9.2%)
AT&T Corp. 27,400 1,490
Allegheny Power System, Inc. 6,000 126
Ameritech Corp. 10,900 417
Bell Atlantic Corp. 22,000 1,232
* Columbia Gas Systems, Inc. 10,000 270
Consolidated Edison Co.
of New York, Inc. 18,900 501
DQE Inc. 28,000 829
Duke Power Co. 13,300 475
Equitable Resources, Inc. 8,200 282
GTE Corp. 14,200 447
General Public Utilities Corp. 2,200 58
MCN Corp. 13,100 524
National Fuel & Gas Co. 4,800 141
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
New England Electric System 19,700 $ 643
Rochester Telephone Corp. 24,200 547
Scana Corp. 1,000 43
Sonat, Inc. 14,600 449
Southwestern Bell Corp. 33,400 1,453
Sprint Corp. 11,800 412
Tenneco, Inc. 4,100 190
U.S. West Corp. 19,800 829
--------
GROUP TOTAL 11,358
--------
- - --------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $119,528) 122,001
- - --------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.4%)
- - --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-----
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 4.26%, 7/1/94
(Cost $2,914) $2,914 2,914
- - --------------------------------------------------------------------------
TOTAL INVESTMENTS (100.7%)
(Cost $122,442) 124,915
- - --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.7%)
- - --------------------------------------------------------------------------
Other Assets--Notes C and E 5,050
Liabilities--Note E (5,869)
--------
(819)
- - --------------------------------------------------------------------------
NET ASSETS (100%)
- - --------------------------------------------------------------------------
Applicable to 4,341,916 outstanding
shares of beneficial interest
(unlimited authorization) $124,096
- - --------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $28.58
==========================================================================
+See Note A to Financial Statements.
*Non-Income Producing Security.
</TABLE>
- - --------------------------------------------------------------------------
AT JUNE 30, 1994,
NET ASSETS CONSISTED OF:
- - --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Per
(000) Share
-------- --------
<S> <C> <C>
Paid in Capital $120,838 $27.83
Undistributed Net
Investment Income 31 .01
Accumulated Net Realized Gains 754 .17
Unrealized Appreciation
of Investments--Note D 2,473 .57
- - --------------------------------------------------------------------------
NET ASSETS $124,096 $28.58
- - --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
INTERNATIONAL PORTFOLIO Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.8%)
- - --------------------------------------------------------------------------
AUSTRALIA (3.6%)
Australia & New Zealand Banking 1,108,500 $ 3,260
Broken Hill Proprietary Co. Ltd. 179,800 2,347
Coles Myer Ltd. 1,209,150 3,750
CSR Ltd. 1,897,300 6,662
GIO Australia Holding 525,000 910
Lend Lease Corp. 102,300 1,215
Mayne Nickless Ltd. 406,200 2,353
Pacific Dunlop Ltd. 763,900 2,409
Santos Ltd. 2,195,600 6,103
Howard Smith Ltd. 845,610 3,811
Stockland Trust Group 2,607,300 5,817
Westfield Trust (Units) 610,300 1,045
--------
GROUP TOTAL 39,682
--------
- - --------------------------------------------------------------------------
AUSTRIA (.3%)
* Austrian Airlines 10,000 1,702
Constantia Industrie Holdings AG 9,000 754
Weinerberger Baustoffindustrie AG 1,525 502
--------
GROUP TOTAL 2,958
--------
- - --------------------------------------------------------------------------
BELGIUM
Kon Bijenkorf 5,000 289
--------
- - --------------------------------------------------------------------------
CANADA (2.8%)
Agra Industries Ltd. Class B 52,300 246
* Air Canada 109,600 486
Alcan Aluminium Ltd. 63,100 1,436
Atcor Resources Ltd. 10,000 25
* Avencor Inc. 50,000 765
BCE, Inc. 38,900 1,259
B.C. Pacific Capital Corp. Class A 29,000 3
B.C. Pacific Capital Corp. Class B 52,840 8
Bank of Montreal 43,900 747
Bombardier Class B 60,200 856
Cambior Inc. 32,600 419
Cambridge Shopping Centers 53,000 537
Canadian Aviation Express 106,500 511
Canadian Imperial Bank of Commerce 58,000 1,245
Canbra Foods 10% Pfd. 262 1
Dofasco Inc. 32,800 442
Echo Bay Mines Ltd. 38,700 416
Greenalls 299,000 1,902
Harrowston Corp. 377 1
Hemlo Gold Mining 90,900 782
Imasco Ltd. 54,300 1,318
Imperial Oil Ltd. 27 1
Lac Minerals Ltd. 69,600 592
Loblaw Cos. Ltd. Class A 36,500 542
MacMillan Bloedel Ltd. 62,200 783
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
Maple Leaf Foods Inc. 99,500 $ 847
Moore Corp. Ltd. 49,800 840
Nova Corp. of Alberta 112,000 882
Oshawa Group 31,200 441
Petro Canada 101,100 842
Placer Dome Group, Inc. 49,800 1,071
Potash Corp. of Saskatchewan, Inc. 63,700 1,744
Power Corp. 125,100 1,790
Quebecor Inc. Class B 41,400 521
Ranger Oil Ltd. 121,800 807
Royal Bank of Canada 110,000 2,131
Shell Canada Ltd. 70,500 2,094
Toronto Dominion Bank 71,600 1,031
Transalta Utilities Corp. 81,500 834
--------
GROUP TOTAL 31,198
--------
- - --------------------------------------------------------------------------
DENMARK (.8%)
ISS (International Service Systems) 191,400 6,599
Jyske Bank 33,400 1,813
--------
GROUP TOTAL 8,412
--------
- - --------------------------------------------------------------------------
FRANCE (5.1%)
BIC 20,300 4,385
Comptoirs Modernes 17,600 4,162
Eridania Beghin Say 13,200 2,074
Esso Francais 18,900 3,308
Eurafrance 7,650 2,733
Finexte l81,500 1,851
Fromageries Bel 12,300 10,742
Poliet Ex Lambert Freres 17,600 1,371
Navigation Mixte 28,800 5,104
Nord Est SA 52,400 1,276
Sagem 27,200 13,149
Sovac-Credit Mobilier 27,300 2,661
Total SA 64,100 3,677
--------
GROUP TOTAL 56,493
--------
- - --------------------------------------------------------------------------
GERMANY (6.3%)
Altana Ind. AG 16,900 6,507
Bayer Vereins Bank 20,500 5,733
Bayerische Hypotheken und Wechsel Bank 26,700 6,948
Berliner Handels und Frankfurter Bank 26,200 6,407
Cassella AG 200 329
Commerzbank AG 19,600 4,004
Douglas Holding 9,800 3,103
Hoechst AG 20,600 4,211
Ikb-AG (Deut. Industriebank) 7,600 1,334
Industrie-Werke Karlsruhe 18,400 4,292
Man AG 30,300 7,489
Rheinisch-Westfaelisches Elektrizitats Werk AG 25,700 6,672
Rheinmetall Berlin 12,700 2,357
RWE-Dea AG 1,326 324
Varta AG 16,200 3,124
Viag AG 17,600 5,121
Wurtt Metallwaren 6,900 1,715
--------
GROUP TOTAL 69,670
--------
- - --------------------------------------------------------------------------
GREECE (1.1%)
Alpha Leasing 45,870 1,065
* Credit Bank 31,200 1,240
Delta Dairy 55,390 1,737
Elais Oleaginous 17,905 1,266
Ergo Bank 33,210 1,229
Etva Leasing 31,770 688
Hellenic Bottling Co. 57,700 1,658
Michaniki 33,480 1,305
Titan Cement Co. 47,680 1,525
--------
GROUP TOTAL 11,713
--------
- - --------------------------------------------------------------------------
HONG KONG (3.7%)
Cheung Kong Holdings Ltd. 612,000 2,672
China Light & Power 600,000 3,066
* China Travel International 1,780,000 524
Citic Pacific Ltd. 276,000 746
Cross-Harbor Tunnel Co. 1,215,000 2,657
Hang Seng Bank 564,070 3,722
Hong Kong Aircraft 100,000 531
Hong Kong Realty & Trust Class A 2,465,000 6,761
Hong Kong Telecommunication Ltd. 2,267,600 4,283
HSBC Holding PLC 43,400 475
Hutchinson Whampoa Ltd. 190,000 781
* Jardine Matheson Holdings 705,600 5,432
* Jardine Strategic 681,000 2,555
Johnson Electric Holdings 830,000 1,944
Mandarin Oriental International Ltd. 500,000 699
New World Development 156,000 428
Orient Overseas Holdings 197,641 104
Peregrine Investment Holdings 514,000 838
Tai Cheung Properties 776,820 1,156
Television Broadcasts Ltd. 203,000 801
Varitronix Internationa l267,000 411
Wharf Holdings Ltd. 800 3
--------
GROUP TOTAL 40,589
--------
- - --------------------------------------------------------------------------
INDONESIA (.4%)
Astra International 140,000 1,000
* Bank International Indonesia 156,000 494
* HM Sampoerna (Foreign) 85,500 650
Inti Indorayon ADR 38,000 263
Inti Indorayon (Foreign) 419,000 967
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
Kalbe Farma (Foreign) 211,000 $ 719
Unilever (Foreign) 25,000 449
Unilever (Local) 9,500 171
--------
GROUP TOTAL 4,713
--------
- - --------------------------------------------------------------------------
IRELAND (.9%)
Allied Irish Bank 343,864 1,239
Bank of Ireland 346,200 1,353
Clondalkin Group 259,200 962
CRH PLC 263,600 1,297
Greencore 249,000 1,252
Irish Life 453,100 1,290
Jefferson Smurfit Group 439,900 2,232
Waterford Foods A 687,700 781
--------
GROUP TOTAL 10,406
--------
- - --------------------------------------------------------------------------
ITALY (2.9%)
Banca Pop Novara 100,000 599
Banca Toscana 1,447,000 2,736
* Breda Ernesto Finanziaria 3,759,600 189
Caffaro 505,000 751
Cementir SPA 318,333 441
Credito Fondiario 265,000 832
Falck, Acc & Fer 200 1
Finmeccanica SPA 1,133,940 1,392
Franco Tosi SPA 70,000 832
Gilardini 1,922,300 5,149
Istituto Bancario San Paolo
Ditorino Spareuters 619,600 3,811
Italcable 1,163,600 6,873
Sirti SPA 1,129,400 8,311
--------
GROUP TOTAL 31,917
--------
- - --------------------------------------------------------------------------
JAPAN (39.7%)
AIDA Engineering 431,000 3,751
Aisin Seiki Co. 29,000 400
Aoki Construction Co. 1,499,000 7,655
Best Denki 50,000 877
Brother Industries Ltd. 1,204,000 9,540
Canon Inc. 224,000 3,927
Chubu Electric Power 133,600 3,587
Chudenko Corp. 30,000 1,243
Chugoku Electric Power Co. 260,700 6,630
Citizen Watch Co. 262,000 2,456
Dai Nippon Printing Co. Ltd. 214,000 4,185
Daicel Chemical Industries 346,000 2,047
Daido Steel Co. 1,340,000 7,332
* Daiichi Pharmaceutical Co. Ltd. 476,000 7,090
Daikyo Inc. 240,000 2,748
Daiwa House Industries 279,000 4,353
Daiwa Securities Ltd. 530,000 9,290
Danto Corp. 40,000 608
Eisai Co., Ltd. 94,000 1,638
Fuji Photo Film Co. Ltd. 308,000 6,866
Fukusuke Corp. 36,000 255
Gakken Co. 2,000 18
Hazama-Gumi Ltd. 801,000 4,001
Hitachi Cable 317,000 3,003
Hitachi Maxwell 172,000 3,660
Hokkaido Electric Power 265,800 6,841
Hokuriku Electric Power 248,000 6,357
House Foods Industrial Co., Ltd. 546,700 11,356
Itoham Food Co., Ltd. 357,000 3,057
Izumiya Co. 3,000 57
Japan Synthetic Rubber 203,000 1,425
Kajima Corp. 448,000 4,517
Katakura Industries Co. 10,000 144
Kawasaki Heavy Industries 422,000 2,001
Kirin Brewery Co. Ltd. 572,000 6,781
Kokuyo Co., Ltd. 40,000 1,082
Konica 200,000 1,425
Kumagai Gumi Co., Ltd. 1,460,000 7,456
Kyudenko Corp. 164,000 2,742
Kyushu Electric Power 278,800 7,062
Marubeni Corp. 468,000 2,580
Marudai Food Co. 603,000 5,224
Maruetsu 27,000 301
Marui 443,000 8,214
Maruichi Steel Tube 111,000 2,025
Matsushita Electric Industries Co. Ltd. 25,000 458
Matsushita Electric Works Ltd. 173,000 2,033
Matsushita-Kotobuki Electric 98,000 3,426
Mitsubishi Material 397,000 2,265
New Japan Securities Co. Ltd. 1,554,000 14,171
NHK Spring Co. 224,000 1,362
Nichicon Corp. 510,000 8,010
Nintendo Co. 18,900 1,360
Nippon Credit Bank 10,400 673
Nippon Denso Co. Ltd. 361,000 7,608
Nippon Express Co.,Ltd. 372,000 3,958
Nippon Steel Corp. 954,000 3,325
Nisshin Oil Mills 334,000 2,843
Nisshinbo Industries 693,000 7,935
Nitto Denko Corp. 178,000 2,850
The Nomura Securities Co. Ltd. 263,000 6,342
NTN Toyo-Bearing Co. 1,211,000 8,749
Okumura Corp. 347,000 3,189
Onward Kashiyama Co. 1,492,000 21,467
Orient Corp. 201,000 1,375
Ricoh Co. 805,000 7,708
Royal Co. 158,500 2,586
Sankyo Co., Ltd. 65,000 1,449
Seino Transportation Co. Ltd. 258,000 4,836
Sekisui Chemical Co. 427,000 4,846
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
Sekisui House Ltd. 234,000 $ 3,011
Shikoku Electric Power 83,200 2,124
Showa Shell Sekiyu 241,000 3,443
Sony Corp. 259,600 15,914
Stanley Electric 68,000 564
Sumitomo Metal Industries 921,000 2,772
Sumitomo Rubber Industries 72,000 751
Sumitomo Warehouse 228,000 1,733
Suzuki Motor 493,000 6,544
Taisei Construction Corp. 1,066,000 7,345
Takasago Thermal Engineering 119,000 1,893
Takashimaya Co. 72,000 985
Takeda Chemical Industries 252,000 3,013
TDK Corp. 111,000 5,500
Teijin Ltd. 173,000 941
Teikoku Oil Co., Ltd. 266,000 2,110
Toho Co., Ltd. 9,000 1,851
Tokyo Sowa Bank 284,000 1,614
Tokyo Style Co. 411,000 8,162
Tokyo Tanabe Co. Ltd. 12,000 115
Tokyu Contsruction 622,000 3,586
Tonen Corp. 188,000 2,953
Toyo Ink Manufacturing 83,000 589
Toyo Trust & Banking 3,000 38
Toyod Automatic Loom Works 118,000 2,343
Toyota Motor Corp. 681,000 15,249
Uny Co. 285,000 4,823
Wacoal Corp. 1,126,000 14,603
Yamanouchi Pharmaceuticals Ltd. 358,000 6,819
Yamatake-Honeywell 415,000 6,644
The Yasuda Trust & Banking Co., Ltd. 689,000 6,646
--------
GROUP TOTAL 437,299
--------
- - --------------------------------------------------------------------------
MALAYSIA (1.2%)
AMMB Holdings Bhd. 278,000 2,478
General Lumber Holdings 374,000 1,250
Genting Bhd. 153,000 1,822
Hong Leong Industries 193,000 875
IJM Corp. Bhd. 208,000 695
Malaysian International Shipping Corp.
Bhd. (Foreign) 398,000 1,384
Nestle Malaysia Bhd. 81,000 523
* Sungei Way Holdings 404,000 1,211
* Technology Resources Industries 122,000 497
Telekom Malaysian Bhd. 83,000 618
Tenaga Nasional 73,000 409
Uniphone Telecommunications 243,000 1,139
* Westmont Bhd. 72,000 462
--------
GROUP TOTAL 13,363
--------
- - --------------------------------------------------------------------------
MEXICO (1.1%)
Cementos Mexicanos SA Class B 243,337 1,608
Cifra 'C' SA 524,000 1,221
Empresas ICA 58,800 1,414
* Grupo Carso 133,000 1,202
Grupo Financiero Bancomer SA de CV Class C 692,000 774
Grupo Industrial Bimbo Series 'A' 206,571 1,523
* Grupo Posadas SA Series 'L' 1,422,500 1,271
Kimberly Clark Class A 91,000 1,686
Telefonos de Mexico 430,200 1,206
--------
GROUP TOTAL 11,905
--------
- - --------------------------------------------------------------------------
NETHERLANDS (4.8%)
ABN Amro Holding NV 188,900 6,220
AEGON NV 121,214 6,281
Amev NV 161,600 6,351
Bolswessanen 227,300 4,765
Grolsch NV 56,000 1,550
Hollandsche Beton 7,600 1,255
Innovest 35,900 1,314
Koninklijke Knp BT NV 55,200 1,333
Royal Dutch Petroleum 65,000 6,816
Telegraaf Holdings 59,600 5,631
Unilever NV 62,900 6,382
Volmac Software 70,000 724
Wereldhave 68,400 3,869
--------
GROUP TOTAL 52,491
--------
- - --------------------------------------------------------------------------
NEW ZEALAND (.4%)
Lion Nathan 1,373,800 2,519
Telecom Corp. of New Zealand 537,120 1,449
--------
GROUP TOTAL 3,968
--------
- - --------------------------------------------------------------------------
PHILIPPINES (.5%)
Ayala Corp 'B' 701,600 969
* JG Summit Holdings Inc. 'B' 2,516,600 864
* Manila Electric 'B' 50,850 640
Philippine Long Distance Telephone 15,160 945
Philippines National Bank 'B' 44,300 719
San Miquel Corp. 'B' 198,500 1,000
--------
GROUP TOTAL 5,137
--------
- - --------------------------------------------------------------------------
PORTUGAL (.9%)
Banco Commercial Portugal 88,920 1,101
Banco Espirito Santo e Commercial 79,100 1,427
* Corticeira Amorin (Bearer) 84,100 1,181
Efacec-Emp 45,000 635
Jeronimo Martins 26,580 1,711
* Modelo S.G.P.S. 38,200 1,194
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
Radio Marconi 41,400 $ 1,295
Soares Da Costa 31,000 570
Unicer-Uniao 25,500 625
--------
GROUP TOTAL 9,739
--------
- - --------------------------------------------------------------------------
SINGAPORE (.8%)
Asia Pac Breweries 9,000 97
Berjuntai Tin 199,000 895
Cycle & Carriage 67,000 501
Inchcape Bhd. 136,000 490
Malaysia Mining Corp. Bhd. 1,460,000 2,498
Malaysian Tobacco 754,000 1,165
Overseas Union Bank 66,000 283
Rothmans Industries Ltd. 82,000 382
Singapore Press Holdings Ltd. (Foreign) 66,000 1,103
Straits Steamship 186,000 451
Tractors Malaysia Holding 1,120,000 1,299
--------
GROUP TOTAL 9,164
--------
- - --------------------------------------------------------------------------
SPAIN (3.3%)
Autopistas Del Mare Nostrum 332,000 3,330
Banco Bilbao Vizcaya 84,400 1,847
Banco Central Hispanoamericano 103,100 2,006
Banco de Santander 122,300 4,400
Empresa Nacional de Electricidad SA 30,000 1,343
Fabric Auto Renault de Espana 4,792 269
Fuerzas Electrica 897,300 6,143
Hidroelectrica Iberica Iberduero SA 396,000 2,801
Sevillana de Electricidad Cia 1,390,600 6,742
Union Electrica Fenosa 1,613,500 7,884
--------
GROUP TOTAL 36,765
--------
- - --------------------------------------------------------------------------
SWEDEN (.5%)
Asea AB Series A 70,700 5,233
--------
- - --------------------------------------------------------------------------
SWITZERLAND (6.5%)
Baer Holdings 2,610 2,724
BBC Brown Boveri (Bearer) 8,650 7,570
CS Holdings (Bearer) 5,915 2,465
CS Holdings (Registered) 75,875 6,137
CS Holdings Warrants Exp. 12/16/94 (Bearer) 5,915 47
* CS Holdings Warrants Exp.
12/16/94 (Registered) 75,875 113
Elektrowatt AG (Bearer) 22,920 5,826
Holderbank Financiere Glarus AG (Bearer) 14,000 9,184
Magazine Zum Globus Inhaber (Registered) 1,500 1,084
Nestle SA (Registered) 8,050 6,787
Sandoz AG (Registered) 9,000 4,656
SBSI Holding SA 600 872
Schindler Holdings AG 200 1,126
Societe Generale de Surveillance
Holdings SA (Bearer) 5,000 7,417
Swiss Bank Corp. (Bearer) 27,000 7,930
Swissair (Registered) 5,200 2,992
Winterthur (Bearer) 9,500 4,922
--------
GROUP TOTAL 71,852
--------
- - --------------------------------------------------------------------------
THAILAND (1.1%)
American Standard (Foreign) 32,150 1,028
Bangkok Bank Public Co. Ltd. (Foreign) 208,000 1,579
Dhana Siam Finance & Securities Co., Ltd. 56,500 1,345
MDX Co. Ltd. (Foreign) 85,800 463
Phatra Thanakit (Foreign) 65,200 2,105
Phatra Thanakit (Local) 23,400 755
Siam Cement Co., Ltd. (Foreign) 12,500 580
Siam Pulp & Paper (Foreign) 312,000 1,109
Sri Thai Superware Public Co. Ltd. 67,000 533
Thai-German Ceramics (Foreign) 121,000 629
TPI Polene Co. Ltd. (Foreign) 225,500 1,396
--------
GROUP TOTAL 11,522
--------
- - --------------------------------------------------------------------------
TURKEY (.7%)
Akbank Turker 4,661,862 2,207
Arcelik 3,603,538 1,301
Cimsa Cemento 476,100 948
Cukurova Electric 1,557,400 435
EGE Biracilik 448,400 1,065
Koc Holdings AS 1,575,140 1,163
Migros 67,000 192
Tofas Turk Otomobil Fabrikasi AS 353,800 556
--------
GROUP TOTAL 7,867
--------
- - --------------------------------------------------------------------------
UNITED KINGDOM (7.4%)
Amersham International PLC 175,400 2,477
Anglian Water 296,100 2,171
BTR PLC Warrants Exp. 11/26/98 27,191 27
Carlton Communications PLC 134,200 1,691
Charter (Registered) 343,600 3,699
East Midlands Electric PLC 305,300 2,826
Eastern Electricity PLC 783,900 7,461
FR Group PLC2 25,000 922
General Accident PLC 117,900 968
General Electric PLC 1,312,700 5,691
Great Portland Estates 245,000 709
Hazlewood Foods PLC 1,092,500 2,221
Hillsdown Holdings 809,200 1,919
Lex Services 187,100 1,248
London Electricity PLC 125,900 1,109
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------------------
<S> <C> <C>
Lonrho 497,000 $ 972
Manweb PLC 108,200 1,155
Midlands Electric 126,800 1,180
North West Water Group 225,800 1,648
Northern Electricity PLC 363,800 3,816
Norweb 110,500 1,081
Peninsular & Orient Steam Navigation Co. 668,300 6,515
Pentland Group 334,800 480
Powell Duffryn 75,000 639
Powergen 556,300 4,224
Rothmans International Units 312,300 1,746
Royal Insurance Holdings 302,800 1,185
Seeboard PLC 272,600 1,419
Slough Estates PLC 341,500 1,204
South Wales Electricity 108,100 1,049
South West Water 244,400 1,859
Southern Electric PLC 152,900 1,387
St. James Unit Trust 1,406,400 2,794
Sun Alliance 810,700 3,558
Tate & Lyle 315,900 1,990
T & N PLC 175,000 593
Unigate PLC 495,000 2,744
Williams Holdings PLC 454,000 2,349
Yorkshire Water 107,000 768
--------
GROUP TOTAL 81,494
--------
- - --------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $873,663) 1,065,839
- - --------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.0%)
- - --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-----
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 4.26%, 7/1/94
(Cost $21,902 ) $21,902 21,902
- - --------------------------------------------------------------------------
TOTAL INVESTMENTS (98.8%)
(Cost $895,565) 1,087,741
- - --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.2%)
- - --------------------------------------------------------------------------
Other Assets--Notes C and E 229,319
Liabilities--Note E (216,223)
---------
13,096
- - --------------------------------------------------------------------------
NET ASSETS (100%)
- - --------------------------------------------------------------------------
Applicable to 33,562,301 outstanding
shares of beneficial interest
(unlimited authorization) 1,100,837
- - --------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $32.80
==========================================================================
+ See Note A to Financial Statements.
* Non-Income Producing Security.
</TABLE>
- - --------------------------------------------------------------------------
AT JUNE 30, 1994,
NET ASSETS CONSISTED OF:
- - --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $ 885,140 $26.37
Overdistributed Net
Investment Income (4,039) (.12)
Accumulated Net Realized Gains 27,560 .82
Unrealized Appreciation of
Investments--Note D 192,176 5.73
- - --------------------------------------------------------------------------
NET ASSETS $1,100,837 $32.80
- - --------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
U.S. INTERNATIONAL
PORTFOLIO PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1994 June 30, 1994
(000) (000)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . . $ 997 $12,147
Interest . . . . . . . . . . . . . . . . . . 113 812
- - -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 1,110 12,959
- - -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . 319 804
The Vanguard Group--Note C . . . . . . . . .
Management and Administrative . . . . . . . . $108 $287
Marketing and Distribution . . . . . . . . . 10 118 92 379
---- ----
Taxes (other than income taxes)--Note A . . . 10 86
Custodians' Fees . . . . . . . . . . . . . . 17 383
Auditing Fees . . . . . . . . . . . . . . . . 3 5
Shareholders' Reports . . . . . . . . . . . . 14 63
Annual Meeting and Proxy Costs . . . . . . . 1 6
Trustees' Fees and Expenses . . . . . . . . . -- 3
- - -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 482 1,729
- - -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 628 11,230
- - -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON
INVESTMENT SECURITIES SOLD . . . . . . . . . . 747 39,991
- - -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT
SECURITIES . . . . . . . . . . . . . . . . . . (10,359) 14,294
- - -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . $ (8,984) $65,515
===================================================================================================================
</TABLE>
(1) Dividends for the International Portfolio are net of foreign withholding
taxes of $2,212,000.
18
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. PORTFOLIO INTERNATIONAL PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JUNE 30, 1994 December 31, 1993 JUNE 30, 1994 December 31, 1993
(000) (000) (000) (000)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . $ 628 $ 1,224 $ 11,230 $ 14,708
Realized Net Gain . . . . . . . . . . . 747 5,818 39,991 7,616
Change in Unrealized
Appreciation (Depreciation) . . . . . (10,359) 5,947 14,294 187,176
- - ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting
from Operations . . . . . . . . . (8,984) 12,989 65,515 209,500
- - ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . (603) (1,229) (9,447) (24,484)
Realized Net Gain . . . . . . . . . . . (128) (7,223) -- --
- - ------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (731) (8,452) (9,447) (24,484)
- - -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . 10,0762 3,118 88,370 173,380
-- In Lieu of
Cash Distributions . . . . 641 7,922 8,798 22,676
-- Exchange . . . . . . . . . 26,495 51,318 110,997 197,436
Redeemed -- Regular . . . . . . . . . . (4,362) (8,342) (77,675) (152,955)
-- Exchange . . . . . . . . . (17,783) (28,191) (68,056) (121,635)
- - -------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . 15,067 45,825 62,434 118,902
- - ------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . 5,352 50,362 118,502 303,918
- - ------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . 118,744 68,382 982,335 678,417
- - ------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . $124,096 $118,744 $1,100,837 $ 982,335
========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . $ .14 $ .43 $ .28 $ .81
Realized Net Gain . . . . . . . . . $ .03 $ 2.16 -- $ --
- - ------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 1,170 2,388 6,151 12,809
Issued in Lieu of Cash
Distributions . . . . . . . . . . 21 261 272 761
Redeemed . . . . . . . . . . . . . (723) (1,180) (4,505) (9,687)
- - -------------------------------------------------------------------------------------------------------------------------
468 1,469 1,918 3,883
- - ------------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income . . . . . . $ 31 $ 6 $ (4,039) $ (5,822)
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
SIX MONTHS ENDED -------------------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1994 1993 1992 1991 1990 1989
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $30.65 $28.43 $28.20 $22.90 $26.15 $26.35
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .15 .43 .68 .71 1.02 .87
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . (2.05) 4.38 1.08 5.30 (3.19) 3.62
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . (1.90) 4.81 1.76 6.01 (2.17) 4.49
- - ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.14) (.43) (.67) (.71) (1.08) (.88)
Distributions from Realized Capital Gains . . (.03) (2.16) (.86) -- -- (3.81)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . (.17) (2.59) (1.53) (.71) (1.08) (4.69)
- - ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $28.58 $30.65 $28.43 $28.20 $22.90 $26.15
==================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . -6.24% +17.24% +6.45% +26.57% -8.33% +17.23%
- - ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . $124 $119 $68 $115 $100 $121
Ratio of Expenses to Average Net Assets . . . . . . .76%* .90% .65% .44% .52% .51%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . .99%* 1.43% 2.33% 2.67% 4.18% 2.90%
Portfolio Turnover Rate . . . . . . . . . . . . . . 192% 139% 209% 84% 81% 72%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
20
<PAGE> 21
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
SIX MONTHS ENDED ------------------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1994 1993 1992 1991 1990 1989
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $31.04 $24.44 $27.78 $26.58 $32.44 $28.27
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .34 .50 .66 .78 1.02 .82
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . 1.70 6.91 (3.05) 1.80 (4.92) 6.22
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . 2.04 7.41 (2.39) 2.58 (3.90) 7.04
- - ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.28) (.81) (.67) (.77) (.95) (.79)
Distributions from Realized Capital Gains . . -- -- (.28) (.61) (1.01) (2.08)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . (.28) (.81) (.95) (1.38) (1.96) (2.87)
- - ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $32.80 $31.04 $24.44 $27.78 $26.58 $32.44
==================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . +6.58% +30.49% -8.72% +9.96% -12.26% +25.97%
- - ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . $1,101 $982 $678 $878 $796 $646
Ratio of Expenses to Average Net Assets . . . . . . .32%* .40% .42% .38% .44% .46%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 2.09%* 1.76% 2.48% 2.87% 3.62% 2.61%
Portfolio Turnover Rate . . . . . . . . . . . . . . 42% 39% 51% 46% 18% 25%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
Vanguard/Trustees' Equity Fund is registered under the Investment Company Act
of 1940 as a diversified open-end investment company and consists of the U.S.
and International Portfolios. The International Portfolio invests in securities
of foreign issuers which may subject the Portfolio to investment risks not
normally associated with investing in securities of United States corporations.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Market values for securities listed on the New York
Stock Exchange or other U.S. exchanges are based upon the latest quoted
sales prices for such securities on the appropriate exchange as of
4:00 PM on the valuation date; such securities not traded are valued at the
mean of the latest quoted bid and asked prices. Securities listed on
foreign exchanges are valued at the latest quoted sales prices. Securities
not listed are valued at the latest quoted bid prices. Temporary cash
investments are valued at cost which approximates market value. Foreign
currency amounts are converted into U.S. dollars at the bid prices of such
currencies against U.S. dollars last quoted by major banks as of 4:00 PM
Central Europe Time.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group of Investment Companies, transfers uninvested cash balances into a
Pooled Cash Account, the daily aggregate of which is invested in repurchase
agreements secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by the Fund's custodian banks
until maturity of each repurchase agreement. Provisions of each agreement
ensure that the market value of this collateral is sufficient in the
event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may
differ from net investment income and realized capital gains for
financial reporting purposes. In the International Portfolio, such
differences relate to investments in securities considered to be "passive
foreign investment companies," for which any unrealized appreciation and/or
realized gains are required to be included in distributable net investment
income for tax purposes.
5. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
are those of specific securities sold. Dividend income is recorded on the
ex-dividend date.
* B. Under the terms of a contract which expires March 31, 1995, the U.S.
Portfolio pays Geewax, Terker & Company an investment advisory fee which
represents a percentage rate of average net assets of the Portfolio adjusted
for the investment performance of the Portfolio relative to that of the
Standard & Poor's 500 Composite Stock Price Index. For the six months ended
June 30, 1994, the investment advisory fee of the U.S. Portfolio represented an
effective annual rate of .50 of 1% of average net assets. Under the terms of a
contract which expires April 30, 1995, the International Portfolio pays
Batterymarch Financial Management an investment advisory fee calculated at an
annual percentage rate of average net assets of the
22
<PAGE> 23
Portfolio. For the six months ended June 30, 1994, the investment advisory fee
of the International Portfolio represented an effective annual rate of .15 of
1% of average net assets.
* C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing and distribution services. The costs of such services
are allocated to the Fund under methods approved by the Board of Trustees. At
June 30, 1994, the Fund had contributed capital of $194,000 to Vanguard
(included in Other Assets), representing 1.0% of Vanguard's capitalization. The
Fund's trustees and officers are also directors and officers of Vanguard.
* D. During the six months ended June 30, 1994, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------
(000)
---------------------------------
Portfolio Purchases Sales
- - ---------------------------------------------------------------------
<S> <C> <C>
U.S. $135,294 $117,359
- - ---------------------------------------------------------------------
INTERNATIONAL 280,505 218,768
- - ---------------------------------------------------------------------
</TABLE>
At December 31, 1993, the International Portfolio had available a capital loss
carryforward of $12,431,000 to offset future net realized gains through
December 31, 2001.
At June 30, 1994, unrealized appreciation (depreciation) for Federal income tax
purposes was:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
(000)
--------------------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Appreciation
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 9,101 $ (6,628) $ 2,473
- - --------------------------------------------------------------------------------
INTERNATIONAL 240,181 (48,005) 192,176
- - --------------------------------------------------------------------------------
</TABLE>
* E. The market values of securities on loan to broker/dealers at June 30, 1994,
and the cash collateral received with respect to such loans were:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------
(000)
-----------------------------------
Market Value Cash
of Loaned Collateral
Portfolio Securities Received
- - ---------------------------------------------------------------------
<S> <C> <C>
U.S. $ 1,601 $ 1,696
- - ---------------------------------------------------------------------
INTERNATIONAL 184,625 195,426
- - ---------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q252-06/94
VANGUARD
TRUSTEES'
EQUITY FUND
[Photo -- See Edgar Appendix]
SEMI-ANNUAL REPORT
JUNE 30, 1994
<PAGE> 25
EDGAR APPENDIX
The back cover of the printed version of this report features
the flags of the United States of America and Vanguard flying from a halyard.
