VANGUARD TRUSTEES EQUITY FUND, 497, 1996-06-28

VANGUARD TRUSTEES EQUITY FUND
497, 1996-06-28

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<PAGE> 1

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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. 19
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 20
VANGUARD/TRUSTEES' EQUITY 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 29, 1996, pursuant to paragraph (a) 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, 1995 ON FEBRUARY 28, 1996.

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<PAGE> 2

VANGUARD TRUSTEES' EQUITY FUND

CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
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
Advisory Services
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
Advisory Services
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
</TABLE>
<PAGE> 3
VANGUARD/TRUSTEES'
EQUITY FUND -
U.S. PORTFOLIO

Institutional Prospectus
June 28, 1996

This prospectus contains
financial data for the
Portfolio through the
fiscal year ended
December 31, 1995.

[VANGUARD GROUP LOGO]
<PAGE> 4
VANGUARD/TRUSTEES' EQUITY FUND -
U.S. PORTFOLIO A Growth and Income Stock Mutual Fund

CONTENTS

Portfolio Expenses 2

Financial Highlights 3

A Word About Risk 4

The Portfolio's
Objective 4

Who Should Invest 4

Investment Strategies 5

Investment Policies 7

Investment Limitations 8

Investment
Performance 8

Share Price 9

Dividends, Capital
Gains, and Taxes 9

The Portfolio and
Vanguard 9

Investment Adviser 10

General Information 11

Investing
with Vanguard

- - For Plan Participants 12

- - For Other
Institutional Investors 12

Accessing Fund Information
by Computer 13

Prospectus Postscript 14

Glossary Inside Back Cover

INVESTMENT OBJECTIVE AND POLICIES

Vanguard/Trustees' Equity Fund - U.S. Portfolio (the "Portfolio") is a
diversified mutual fund, a part of Vanguard/Trustees' Equity Fund, Inc. (the
"Fund"), an open-end investment management company.

The Portfolio seeks to provide long-term capital growth and a modest
amount of income by investing in equity securities of U.S. companies. About 50%
to 70% of the Portfolio's assets are invested in companies whose stocks,
according to the adviser, are undervalued. The remaining assets are invested in
companies with a history of sales and earnings growth or, the adviser believes,
an expectation of growth.

IT IS IMPORTANT TO NOTE THAT THE PORTFOLIO'S SHARES ARE NOT GUARANTEED
OR INSURED BY THE FDIC OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT. AS WITH ANY
INVESTMENT IN COMMON STOCKS, WHICH ARE SUBJECT TO WIDE FLUCTUATIONS IN MARKET
VALUE, YOU COULD LOSE MONEY BY INVESTING IN THE PORTFOLIO.

FEES AND EXPENSES

The Portfolio is offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in the expense ratio.

IMPORTANT NOTE

This prospectus is intended for institutional clients and for participants in
employer-sponsored retirement or savings plans. Another version -- for investors
who would like to open a personal investment account -- can be obtained by
calling Vanguard at 1-800-662-7447.

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO

A Statement of Additional Information containing more information about the
Portfolio is, by reference, part of this prospectus and may be obtained without
charge by contacting Vanguard (see back cover).

WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of the U.S.
Portfolio of Vanguard/Trustees' Equity Fund. To highlight terms and concepts
important to mutual fund investors, we have provided "Plain Talk" explanations
along the way. Reading the prospectus will help you to decide whether the
Portfolio is the right investment for your needs. We suggest that you keep it
for future reference.

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.

<PAGE> 5
PORTFOLIO PROFILE Vanguard/Trustees' Equity Fund - U.S. Portfolio

WHO SHOULD INVEST (page 4)

- - Investors seeking a growth and income stock mutual fund as part of a balanced
and diversified investment program.

- - Investors seeking capital growth and some income over the long term -- at
least five years.

- - Investors seeking a fund that employs both value and growth investment
strategies.

WHO SHOULD NOT INVEST

- - Investors unwilling to accept significant fluctuations in share price.

- - Investors seeking significant income.

RISKS OF THE PORTFOLIO (pages 4 - 7)

This Portfolio's total return will fluctuate within a wide range, so an investor
could lose money over short or even extended periods. The Portfolio is subject
to manager risk (the chance that poor security selection will cause it to lag
the stock market as a whole) and to objective risk (the chance that returns from
either value stocks or growth stocks will trail returns from the overall stock
market).

DIVIDENDS AND CAPITAL GAINS (page 9)

Dividends are paid in March, June, September, and December. Capital gains, if
any, are paid in December. In participant accounts, all distributions are
automatically reinvested.

INVESTMENT ADVISER (page 10)

Geewax, Terker & Company, Phoenixville, PA.

INCEPTION DATE: January 31, 1980

NET ASSETS AS OF 12/31/95: $137.4 million

PORTFOLIO'S EXPENSE RATIO FOR THE
YEAR ENDED 12/31/95: 0.56%

NEWSPAPER ABBREVIATION: TrUS

VANGUARD FUND NUMBER: 025

AVERAGE ANNUAL TOTAL RETURN --
PERIODS ENDED DECEMBER 31, 1995

1 YEAR 5 YEARS 10 YEARS
----------------------------
<S> <C> <C> <C>
U.S. Portfolio +33.2% +15.1% +12.2%
S&P 500 Index +37.6 +16.6 +14.9

</TABLE>

QUARTERLY RETURNS (%) 1986 - 1995

[GRAPH - DATA TO BE SUPPLIED BY CLIENT]

In evaluating past performance, remember that it is not indicative of future
performance and that returns from stocks before adjusting for inflation were
relatively high during the periods shown. Performance figures include there
investment of any dividends and capital gains distributions. The returns shown
are net of expenses, but they do not reflect income taxes an investor would have
incurred. Note, too, that both the 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.

1
<PAGE> 6
PLAIN TALK ABOUT
THE COSTS OF INVESTING

Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with buying, selling, or exchanging shares. These costs can
erode a substantial portion of the gross income or capital appreciation a fund
achieves. Even seemingly small differences in fund expenses can, over time, have
a dramatic impact on a fund's performance.

PLAIN TALK ABOUT
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. The U.S. Portfolio's expense ratio in fiscal year 1995 was 0.56%, or
$5.60 per $1,000 of average net assets. The average growth and income equity
mutual fund had expenses in 1995 of 1.17%, or $11.70 per $1,000 of average net
assets, according to Lipper Analytical Services, Inc., which reports on the
mutual fund industry.

PORTFOLIO EXPENSES

The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in the Portfolio.

As noted in this table, you do not pay fees of any kind when you buy, sell,
or exchange shares of the Portfolio:

SHAREHOLDER TRANSACTION EXPENSES

Sales Load Imposed on Purchases: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

The next table illustrates the operating expenses that you would incur as a
shareholder of the Portfolio. These expenses are deducted from the Portfolio's
income before it is paid to you. Expenses include investment advisory fees as
well as the costs of maintaining accounts, administering the Portfolio,
providing shareholder services, and other activities. The expenses shown in the
table are for the fiscal year ended December 31, 1995.

ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
<S> <C> <C>
Management and Administrative Expenses: 0.20%
Investment Advisory Expenses: 0.30%
12b-1 Marketing Fees: None
Other Expenses
Marketing and Distribution Costs: 0.02%
Miscellaneous Expenses (e.g., Taxes, Auditing): 0.04%
----
Total Other Expenses: 0.06%
----
TOTAL OPERATING EXPENSES (EXPENSE RATIO): 0.56%
====
</TABLE>

The following example illustrates the hypothetical expenses that you would
incur on a $1,000 investment over various periods. The example assumes (1) that
the Portfolio provides a return of 5% a year and (2) that you redeem your
investment at the end of each period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------
<S> <C> <C> <C>
$6 $18 $31 $70
---------------------------------------------
</TABLE>

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

<PAGE> 7
FINANCIAL HIGHLIGHTS

The following financial highlights table shows the results for each share
outstanding for each of the last ten years ended December 31, 1995. The
financial highlights were audited by Price Waterhouse LLP, independent
accountants. You should read this information in conjunction with the
Portfolio's financial statements and accompanying notes, which appear, along
with the audit report from Price Waterhouse, in the Portfolio's most recent
Annual Report to shareholders. The Annual Report is incorporated by reference in
the Statement of Additional Information and in this prospectus, and contains a
more complete discussion of the Portfolio's performance. You may have the Report
sent to you without charge by writing to or calling Vanguard (see back cover).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $29.09 $30.65 $28.43 $28.20 $22.90 $26.15 $26.35 $22.77 $28.69 $31.15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income .62 .34 .43 .68 .71 1.02 .87 1.02 .92 1.16
Net Realized and
Unrealized Gain (Loss)
on Investments 8.96 (1.53) 4.38 1.08 5.30 (3.19) 3.62 4.53 (.24) 3.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 9.58 (1.19) 4.81 1.76 6.01 (2.17) 4.49 5.55 .68 4.85
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.61) (.34) (.43) (.67) (.71) (1.08) (.88) (.97) (.72) (1.16)
Distributions from
Realized Capital Gains (1.05) (.03) (2.16) (.86) -- -- (3.81) (1.00) (5.88) (6.15)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (1.66) (.37) (2.59) (1.53) (.71) (1.08) (4.69) (1.97) (6.60) (7.31)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $37.01 $29.09 $30.65 $28.43 $28.20 $22.90 $26.15 $26.35 $22.77 $28.69
========================================================================================================
TOTAL RETURN 33.21% (3.91)% 17.24% 6.45% 26.57% (8.33)% 17.23% 24.64% 1.68% 15.26%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $137 $113 $119 $68 $115 $100 $121 $115 $122 $163
Ratio of Expenses to
Average Net Assets .56% .73% .90% .65% .44% .52% .51% .58% .52% .52%
Ratio of Net Investment
Income to Average
Net Assets 1.79% 1.14% 1.43% 2.33% 2.67% 4.18% 2.90% 3.86% 2.77% 3.46%
Portfolio Turnover Rate 77% 151% 139% 209% 84% 81% 72% 90% 44% 19%
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</TABLE>

From time to time, the Vanguard Funds advertise yield and total return
figures. Yield is an historical measure of dividend income, and total return is
a measure of past dividend income (assuming that it has been reinvested) plus
capital appreciation. Neither yield nor total return should be used to predict
the future performance of a fund.

PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL
HIGHLIGHTS TABLE

The Portfolio began fiscal 1995 with a net asset value (price) of $29.09 per
share. During the year, the Portfolio earned $0.62 per share from investment
income (interest and dividends) and $8.96 per share from investments that had
appreciated in value or that were sold for higher prices than the Portfolio paid
for them. Of those total earnings of $9.58 per share, $1.66 per share was
returned to shareholders in the form of distributions ($0.61 in dividends, $1.05
in capital gains). The earnings ($9.58 per share) less distributions ($1.66 per
share) resulted in a share price of $37.01 at the end of the year, an increase
of $7.92 per share (from $29.09 at the beginning of the period to $37.01 at the
end of the period). Assuming that the shareholder had reinvested the
distribution in the purchase of more shares, total return from the Portfolio was
33.21% for the year.

As of December 31, 1995, the Portfolio had $137 million in net assets; an
expense ratio of 0.56% ($5.60 per $1,000 of net assets); and net investment
income amounting to 1.79% of its average net assets. It sold and replaced
securities valued at 77% of its total net assets.

<PAGE> 8
PLAIN TALK ABOUT
INVESTING FOR THE LONG TERM

The Portfolio is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term
fluctuations in the stock market.

A WORD ABOUT RISK

This prospectus describes the risks you will face as an investor in the U.S.
Portfolio of Vanguard/Trustees' Equity Fund. It is important to keep in mind one
of the main axioms of investing: the higher the risk of losing money, the higher
the potential reward. The reverse, also, is generally true: the lower the risk,
the lower the potential reward. However, as you consider an investment in the
U.S. Portfolio, you should also take into account your personal tolerance for
the daily fluctuations of the stock market.

Look for this "warning flag" symbol [Flag Symbol] throughout the prospectus.
It is used to mark detailed information about each type of risk that you, as a
shareholder of the Portfolio, will confront.

THE PORTFOLIO'S OBJECTIVES

Vanguard/Trustees' Equity Fund - U.S. Portfolio seeks to provide long-term
capital growth and a modest amount of income. These objectives are fundamental,
which means that they cannot be changed unless a majority of shareholders vote
to do so.

[Flag Symbol] BECAUSE OF THE SEVERAL TYPES OF RISK DESCRIBED ON THE FOLLOWING
PAGES, YOUR INVESTMENT IN THE PORTFOLIO, AS WITH ANY INVESTMENT
IN COMMON STOCKS, COULD LOSE MONEY.

WHO SHOULD INVEST

The Portfolio may be a suitable investment for you if:

- - You wish to add a growth and income stock fund to your existing holdings,
which could include other stock -- as well as bond and money market --
investments.

- - You are seeking growth of capital over the long term -- at least five years.

- - You characterize your investment temperament as "relatively aggressive."

- - You are looking for some dividend income.

This Portfolio is not an appropriate investment if you are a market-timer.
Investors who engage in excessive in-and-out trading activity generate
additional costs that are borne by all of the Portfolio's shareholders. To
minimize such costs, which reduce the ultimate returns achieved by you and other
shareholders, the Portfolio has adopted the following policies:

- - The Portfolio reserves the right to reject any purchase request -- including
exchanges from other Vanguard Funds -- that it regards as disruptive to the
efficient management of the Portfolio. This could be because of the timing
of the investment or because of a history of excessive trading by the
investor. If you own shares of

<PAGE> 9
the Portfolio as an investment option in an employer-sponsored retirement or
savings plan, your plan dictates the rules governing exchanges. Contact your
plan administrator for details.

- - There is a limit on the number of times you can exchange into or out of the
Portfolio.

- - The Portfolio reserves the right to stop offering shares at any time.

INVESTMENT STRATEGIES

This section explains how the Portfolio's investment adviser pursues the
objectives of long-term capital growth and some income. It also explains three
important risks -- market risk, objective risk, and manager risk -- faced by
investors in the Portfolio. Unlike the Portfolio's investment objectives, the
adviser's investment strategies are not fundamental and can be changed by the
Portfolio's Board of Trustees without shareholder approval. However, before
making any important change in its strategies, the Portfolio will give
shareholders 30-days notice, in writing.

MARKET EXPOSURE

The Portfolio invests in common stocks of U.S. companies. Between 50% and 70% of
the Portfolio's assets are invested in common stocks that display value
investment characteristics; the remaining portion of the Portfolio's assets are
invested in growth-oriented common stocks.

[Flag Symbol] THE PORTFOLIO IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT STOCK PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN
EXTENDED PERIODS. STOCK MARKETS TEND TO MOVE IN CYCLES, WITH
PERIODS OF RISING STOCK PRICES AND PERIODS OF FALLING STOCK
PRICES.

To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns (dividend income plus change in market
value) for the U.S. stock market over various periods as measured by the
Standard & Poor's 500 Composite Stock Price Index, a widely used barometer of
stock market activity. Note that the returns shown do not include the costs of
buying and selling stocks or other expenses that a real-world investment
portfolio would incur. Note, also, how the gap between best and worst tends to
narrow over the long term.

U.S. STOCK MARKET RETURNS (1926 - 1995)
- ----------------------------------------------------------------
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 +12.5 +10.3 +10.7 +10.7
- --------------------------------------------------------------
</TABLE>

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1995. For example, while the average return on stocks

PLAIN TALK ABOUT
COSTS AND MARKET TIMING

Some investors try to profit from "market timing" -- switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Portfolio tries to discourage short-term trading by closely
monitoring daily transactions.

PLAIN TALK ABOUT
VALUE FUNDS AND GROWTH FUNDS

Value investing and growth investing are two styles employed by stock fund
managers. Value funds generally emphasize companies that, considering their
assets and earnings history, are attractively priced; these companies often pay
regular dividend income to shareholders. Growth funds generally focus on
companies that, due to their strong earnings and revenue potential, offer
above-average prospects for capital growth, with less emphasis on dividend
income. Value and growth stocks have, in the past, produced similar long-term
returns, though each has periods when it outperforms the other. In general,
value funds are appropriate for investors who want some dividend income and the
potential for capital gains but are less tolerant of share-price fluctuations,
while growth funds appeal to investors who will accept more volatility in hope
of a greater increase in share price.

5
<PAGE> 10
PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS

Stocks of publicly traded companies -- and mutual funds that hold these stocks
- -- can be classified by the companies' market value, or capitalization. Vanguard
defines large-capitalization, or large-cap, funds as those holding stocks of
companies with an average total market value exceeding $5 billion. Mid-cap funds
hold stocks of companies with an average market value between $750 million and
$5 billion. Small-cap funds hold stocks of companies with an average market
value of less than $750 million.

PLAIN TALK ABOUT
PORTFOLIO DIVERSIFICATION

In general, the more diversified a fund's portfolio of stocks, the less likely
that a specific stock's poor performance will hurt the fund. One measure of a
fund's level of diversification is the percentage of total net assets
represented by its ten largest holdings. The average U.S. equity mutual fund has
about 25% of its assets invested in its ten largest holdings, while some
less-diversified mutual funds have more than 50% of their assets invested in the
stocks of just ten companies.

for all of the 5-year periods was +10.3%, returns for these 5-year periods
ranged from a -12.5% average (from 1928 through 1932), to +23.9% (from 1951
through 1955). These average returns reflect past performance on common stocks
and should not be regarded as an indication of future returns from either the
stock market as a whole or this Portfolio in particular.

Finally, the U.S. Portfolio invests in large-, mid-, and
small-capitalization stocks. Mid- and small-cap stocks have historically been
more volatile than -- and at times have performed quite differently from -- the
large-cap stocks found in the S&P 500 Index. For this reason and because the
U.S. Portfolio does not hold the same securities held in the S&P Index or any
other market index, the performance of the Portfolio will not mirror the returns
of any particular index.

[Flag Symbol] THE PORTFOLIO IS SUBJECT TO OBJECTIVE RISK, WHICH IS THE
POSSIBILITY THAT RETURNS FROM EITHER VALUE OR GROWTH STOCKS WILL
TRAIL RETURNS FROM THE OVERALL STOCK MARKET. AS GROUPS, VALUE
STOCKS AND GROWTH STOCKS TEND TO GO THROUGH CYCLES OF RELATIVE
UNDERPERFORMANCE AND OUTPERFORMANCE IN COMPARISON TO COMMON
STOCKS IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS
LONG AS SEVERAL YEARS.

SECURITY SELECTION

Geewax, Terker & Company (Geewax, Terker), adviser to the Portfolio, uses a
multi-step process in evaluating and picking stocks for the Portfolio.

In screening stocks for the value portion of the Portfolio, Geewax, Terker
examines a company's financial statements; measures the market's response to the
company's recent earnings announcements; and reviews analyst data to find
problems that may not be detected from the company's financial reports.

To be considered for the U.S. Portfolio's growth portion, a company must, in
Geewax, Terker's opinion, be financially sound and have the ability to finance
future growth; be considered a "growth stock" by the general market; and have
earnings that are growing at a higher-than-expected rate.

All value and growth stocks that pass this screening process are owned by
the Portfolio. The top ten holdings (which amounted to 23% of the Portfolio's
total net assets) as of December 31, 1995, follow.

1. NYNEX Corp.
2. Philip Morris Cos., Inc.
3. Bristol-Myers Squibb Co.
4. BellSouth Corp.
5. American Home Products
6. Bell Atlantic Corp.
7. GTE Corp.
8. Chevron Corp.
9. Texaco, Inc.
10. Ameritech Corp.

<PAGE> 11
Keep in mind that, because the makeup of the Portfolio changes daily, this
listing is only a "snapshot" at one point in time.

The Portfolio is run by Geewax, Terker according to traditional methods of
active investment management, which means securities are bought and sold
according to Geewax, Terker's judgments about companies and their financial
prospects, and about the stock market and the economy in general.

[Flag Symbol] THE PORTFOLIO IS SUBJECT TO MANAGER RISK, WHICH IS THE
POSSIBILITY THAT GEEWAX, TERKER MAY DO A POOR JOB OF SELECTING
STOCKS.

PORTFOLIO TURNOVER

Although the Portfolio generally seeks to invest for the long term, it retains
the right to sell securities regardless of how long they have been held. The
Portfolio's average turnover rate for the past ten years has been high -- about
96% -- and has exceeded 100% in three of the past five years. (A turnover rate
of 100% would occur, for example, if the Portfolio sold and replaced securities
valued at 100% of its total net assets within a one-year period.)

INVESTMENT POLICIES

Besides investing in common stocks of growth companies, the Portfolio may follow
a number of investment policies to achieve its objectives.

[Flag Symbol] ALTHOUGH IT HAS NOT DONE SO IN THE PAST, THE PORTFOLIO RESERVES
THE RIGHT TO INVEST, TO A LIMITED EXTENT, IN STOCK FUTURES AND
OPTIONS CONTRACTS, WHICH ARE TRADITIONAL TYPES OF DERIVATIVES.

Losses (or gains) involving futures can sometimes be substantial -- in part
because a relatively small price movement in a futures contract may result in an
immediate and substantial loss (or gain) for a Portfolio. This Portfolio will
not use futures and options for speculative purposes or as leveraged investments
that magnify the gains or losses of an investment. Rather, the Portfolio will
keep separate cash reserves or short-term cash-equivalent securities in the
amount of the obligation underlying the futures contract. Only a limited
percentage of the Portfolio's assets -- up to 5% if required for deposit and no
more than 20% of total assets -- may be committed to such contracts.

The reasons for which the Portfolio may use futures and options are:

- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.

- - To make it easier to trade.

- - To reduce costs by buying futures instead of actual stocks when futures are
cheaper.

The Portfolio will usually hold only a small percentage of its assets in
cash reserves, although if the investment adviser believes that market
conditions warrant a temporary defensive measure, the Portfolio may hold cash
reserves without limit.

PLAIN TALK ABOUT
PORTFOLIO TURNOVER

Before investing in a mutual fund, you should review its portfolio turnover rate
for an indication of the potential effect of transaction costs on the fund's
future returns. In general, the greater the volume of buying and selling by the
fund, the greater the impact that brokerage commissions and other transaction
costs will have on its return. The average turnover rate for actively managed
funds investing in common stocks is 75%.

PLAIN TALK ABOUT
DERIVATIVES

A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new, exotic types of derivatives -- some of which
can carry considerable risks.

<PAGE> 12
PLAIN TALK ABOUT
PAST PERFORMANCE

Whenever you see information on a fund's performance, do not consider the
figures to be an indication of the performance you could expect by making an
investment in the fund today. The past is an imperfect guide to the future;
history does not repeat itself in neat, predictable patterns.

INVESTMENT LIMITATIONS

To reduce risk and maintain diversification, the Portfolio has adopted limits on
some of its investment policies. Specifically, the Portfolio will not:

- - Invest more than 25% of its assets in any one industry.

- - Borrow money, except for the purpose of meeting shareholder requests to
redeem shares.

With respect to 75% of its assets, this Portfolio will not:

- - Invest more than 5% in the securities of any one company.

- - Buy more than 10% of the outstanding voting securities of any company.

The limitations listed in this prospectus and in the Statement of Additional
Information are fundamental and may be changed only by approval of a majority of
the Portfolio's shareholders.

INVESTMENT PERFORMANCE

Vanguard/Trustees' Equity Fund - U.S. Portfolio invests primarily in common
stocks, so its performance is closely correlated to the performance of the
overall stock market. Historically, stock market performance has been
characterized by sharp up-and-down swings in the short term and by more stable
growth over the long term.

AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 12/31/95
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
U.S. Portfolio 33.2% 14.5% 15.1% 12.2%
S&P 500 Index 37.6% 15.3% 16.6% 14.9%
</TABLE>

The results shown above represent the Portfolio's "average annual total
return" performance, which assumes that any distributions of capital gains and
dividends were reinvested for the indicated periods. Also included is
comparative information on the unmanaged Standard & Poor's 500 Index. The chart
does not make any allowance for Federal, state, or local income taxes that
shareholders must pay on a current basis.

In weighing these performance figures, note that the U.S. Portfolio has been
in operation since January 31, 1980, and managed by Geewax, Terker since April
1, 1992.

<PAGE> 13
SHARE PRICE

The Portfolio's share price, called its net asset value, is calculated each
business day after the close of regular trading (generally 4:00 p.m. Eastern
time) of the New York Stock Exchange. Net asset value per share is computed by
adding up the total value of the Portfolio's investments and other assets,
subtracting any of its liabilities, or debts, and then dividing by the number of
Portfolio shares outstanding:

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = ----------------------------
NUMBER OF SHARES OUTSTANDING

Daily net asset value, or NAV, is useful to you as a shareholder because the
NAV, multiplied by the number of Portfolio shares you own, gives you the dollar
amount you would have received had you sold all of your shares back to the
Portfolio that day.

The Portfolio's share price can be found daily in the mutual fund listings
of most major newspapers under the heading Vanguard Group. Different newspapers
use different abbreviations of the Portfolio's name, but the most common is
TrUS.

DIVIDENDS, CAPITAL GAINS, AND TAXES

Each March, June, September, and December, the Portfolio distributes to
shareholders virtually all of its income from interest and dividends. Any
capital gains realized from the sale of securities are distributed in December.

If you own shares of the Portfolio as an investment option in an
employer-sponsored retirement or savings plan, these dividend and capital gains
distributions will be reinvested in additional Portfolio shares and accumulate
on a tax-deferred basis. You will not owe taxes on these distributions until you
begin withdrawals. You should consult your plan administrator, your plan's
Summary Plan Document, or your own tax adviser about the tax consequences of an
investment in the Portfolio and of any plan withdrawals.

If your Vanguard/Trustees' Equity Fund -- U.S. Portfolio investment is not
part of an employer-sponsored plan, you can receive distributions of income or
capital gains in cash, or you may have them automatically reinvested in more
shares of the Portfolio. Both dividend and capital gains distributions --
whether received in cash or reinvested in additional shares -- are subject to
Federal (and possibly state and local) income taxes, no matter how long you have
held the shares in the Portfolio. You should consult your own tax adviser about
other tax consequences of an investment in the Portfolio.

PLAIN TALK ABOUT
DISTRIBUTIONS

As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or capital gains distribution. Income
dividends come from the dividends that the fund earns from its holdings as well
as interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. These capital gains are either short-term or long-term depending
on whether the fund held the securities for less than or more than one year.

<PAGE> 14
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

The Vanguard Group, Inc. is the only MUTUAL mutual fund company. It is owned
jointly by the Funds it oversees and by the shareholders in those Funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, by a group of individuals, or by investors who bought the
management company's publicly traded stock. Because of its structure, Vanguard
operates its Funds at cost. Instead of distributing profits from operations to a
separate management company, Vanguard returns profits to Fund shareholders in
the form of lower operating expenses.

PLAIN TALK ABOUT
THE PORTFOLIO'S ADVISER

Geewax, Terker & Company, an investment advisory firm founded in 1982, currently
manages about $2 billion in assets for institutional endowment and pension
funds. The manager responsible for overseeing the implementation of Geewax,
Terker's strategy for Vanguard/Trustees' Equity Fund - U.S. Portfolio is:

JOHN J. GEEWAX, Partner and Founder, Geewax, Terker & Company; 16 years
investment experience; B.S., M.B.A., and J.D. from the University of
Pennsylvania.

Mr. Geewax has served in this capacity since Geewax, Terker became the
Portfolio's adviser in April 1992.

THE PORTFOLIO AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 30 investment
companies with more than 90 distinct investment portfolios and total net assets
of more than $200 billion. All of the Vanguard Funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.

Vanguard also provides marketing services to the Funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each Fund
pays its allocated share of The Vanguard Group's costs.

A list of the Fund's Trustees and Officers, and their present positions and
principal occupations during the past five years, can be found in the Statement
of Additional Information.

INVESTMENT ADVISER

The Portfolio employs Geewax, Terker & Company, 99 Starr Street, Phoenixville,
PA 19460, as its investment adviser. Geewax, Terker manages the Portfolio
subject to the control of the Officers and Trustees of the Fund.

Geewax, Terker is paid an advisory fee at the end of each fiscal quarter.
The fee is based on the Portfolio's average month-end net assets during the
quarter, multiplied by an annual percentage rate of 0.40%.

The advisory fee may be increased or decreased by an incentive/ penalty fee
based on the difference between the Portfolio's cumulative 36-month total return
performance and that of the S&P 500 Index.

For the year ended December 31, 1995, the investment advisory fee paid to
Geewax, Terker was $383,000.

The agreement authorizes Geewax, Terker to choose brokers or dealers to
handle the purchase and sale of the Portfolio's securities, and directs Geewax,
Terker to get the best available price and most favorable execution from these
brokers with respect to all transactions.

The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement or hire a new investment adviser, either as
a replacement for Geewax, Terker or as an additional adviser. However, no such
change would be made before giving shareholders 30-days notice, in writing.

<PAGE> 15
GENERAL INFORMATION

The U.S. Portfolio is one of two Portfolios of Vanguard/Trustees' Equity Fund,
Inc., a Pennsylvania business trust. The other Portfolio is the International
Portfolio. The Portfolios are combined under one corporation for administrative
purposes, but in virtually all respects operate like separate corporations.

Shareholders of the U.S. Portfolio have rights and privileges similar to
those enjoyed by other corporate shareholders. For example, shareholders will
not be responsible for any liabilities of the corporation. If any matters are to
be voted on by shareholders (such as a change in a fundamental investment
objective or the election of Trustees), each share outstanding at that point
would be entitled to one vote. Although the Portfolio does not usually hold an
annual meeting, shareholders may request one under certain circumstances, which
are described in the Statement of Additional Information.

<PAGE> 16
INVESTING WITH VANGUARD

FOR PLAN PARTICIPANTS

Vanguard/Trustees' Equity Fund-U.S. Portfolio is an investment option in your
retirement or savings plan. Your plan administrator or your employee benefits
office can provide you with detailed information on how to participate in your
plan and how to elect the Portfolio as an investment option.

- - If you have any questions about the Portfolio or Vanguard, including the
Portfolio's investment objective, strategies, or risks, contact Vanguard's
Participant Services Department, toll-free, at 1-800-523-1188.

- - If you have questions about your account, contact your plan administrator or
the organization that provides recordkeeping services for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS

Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.

TRANSACTIONS

Contributions, exchanges, or redemptions of the Portfolio's shares are processed
as soon as they have been received by Vanguard in good order. Good order means
that your request includes complete information on your contribution, exchange,
or redemption, and that Vanguard has received the appropriate assets.

EXCHANGES

The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. However,
because excessive exchanges can potentially disrupt the management of the
Portfolio and increase its transaction costs, Vanguard reserves the right to
refuse any exchange request. In addition, certain investment options,
particularly funds made up of company stock or investment contracts, may be
subject to unique restrictions. Contact your plan administrator for details on
the exchange policies that apply to your plan.

Before making an exchange, you should consider the following:

- - Before you exchange to another Vanguard Fund available in your plan, you
should read that Fund's prospectus. Contact Participant Services, toll-free,
at 1-800-523-1188 for a copy.

- - Vanguard can accept exchanges only as permitted by your plan. Your plan
administrator can explain how frequently exchanges are allowed.

FOR OTHER INSTITUTIONAL INVESTORS

If you have questions about Vanguard/Trustees' Equity Fund-U.S. Portfolio,
including how to establish an account, call Vanguard, toll-free, at
1-800-523-1036.

If you have questions about an existing account, contact your Vanguard
account administrator.

<PAGE> 17
INVESTING WITH VANGUARD (continued)

TRANSACTIONS

Purchases, exchanges, or redemptions of the Portfolio's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your purchase, exchange, or
redemption, and that Vanguard has received the appropriate assets. The price of
shares bought, exchanged, or sold will be the Portfolio's next-determined net
asset value after Vanguard has processed your request, provided your request has
been received before 4:00 p.m. Eastern time.

Vanguard must consider the interests of all Portfolio shareholders and so
reserves the right to . . .

- - Delay or reject any purchase or exchange request that may disrupt the
Portfolio's operation or performance.

- - Revise or terminate the exchange privilege or limit the amount of an
exchange, at any time, without notice.

- - Take up to seven days to deliver your redemption proceeds.

- - Pay redemption proceeds -- in whole or in part--through a distribution in
kind of readily marketable securities.

ACCESSING FUND INFORMATION BY COMPUTER

VANGUARD ONLINE(SM) Information via your personal computer on Fund share
KEYWORD: vanguard price, yield, and total return; offered through
America Online(R) (AOL). To establish an AOL account,
call 1-800-238-6336.

VANGUARD ON THE An education-oriented website offering news and
WORLD WIDE WEB information about Vanguard Funds and services, as
http://www.vanguard.com well as interactive, easy-to-use investment planning
tools.

SHARES OF THE PORTFOLIO MAY ONLY BE SOLD IN THOSE STATES IN WHICH THEY ARE
REGISTERED. THE PORTFOLIO'S SHARES ARE CURRENTLY REGISTERED FOR SALE IN ALL 50
STATES, AND THE PORTFOLIO INTENDS TO MAINTAIN SUCH REGISTRATION.

<PAGE> 18
PLAIN TALK ABOUT
KEEPING YOUR PROSPECTUS

Reading this prospectus will help you to decide whether Vanguard/Trustees'
Equity Fund-U.S. Portfolio is suitable for your investment goals. If you decide
to invest, don't throw the prospectus out: you will no doubt need it for future
reference.

PROSPECTUS POSTSCRIPT

This prospectus is designed to provide you with pertinent information about
Vanguard/Trustees' Equity Fund-U.S. Portfolio, including its investment
objective, risks, strategies, and expenses.

It is important that you understand these facts so that you can decide
whether an investment in this Portfolio is right for you. The following
questions offer a quick review of some of the subjects covered by this
prospectus.

In Reading The Prospectus, Did You Learn . . .

- The Portfolio's objective? (page 4)

- The Portfolio's investment strategies? (page 5)

- Who should invest in the Portfolio? (page 4)

- The risks associated with the Portfolio? (pages 4-7)

- Whether the Portfolio is Federally insured?
(inside front cover)

- The Portfolio's expenses? (page 2)

- The background of the Portfolio's investment managers?
(page 10)

14
<PAGE> 19
GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION

Payment to mutual fund shareholders of gains realized during the year on
securities that the fund has sold at a profit, minus any realized losses.

CASH RESERVES

Cash deposits as well as short-term bank deposits, money market instruments, and
U.S. Treasury bills.

COMMON STOCK

A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

DIVIDEND INCOME

Payment to shareholders of income from interest or dividends generated by a
fund's investments.

DOLLAR-COST AVERAGING

Investing equal amounts of money at regular intervals on an ongoing basis. This
technique ensures that an investor buys fewer shares when prices are high and
more shares when prices are low.

EXPENSE RATIO

The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.

FIXED-INCOME SECURITIES

Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

GROWTH AND INCOME STOCK FUND

A mutual fund that emphasizes stocks of companies that are believed to offer
growth potential as well as market or above-average dividend income.

GROWTH STOCK FUND

A mutual fund that emphasizes stocks of companies whose strong earnings and
revenue potential indicate above-average prospects for capital growth, with less
emphasis on dividend income.

INVESTMENT ADVISER

An organization that makes the day-to-day decisions regarding a portfolio's
investments.

MUTUAL FUND

An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

NET ASSET VALUE (NAV)

The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

PORTFOLIO DIVERSIFICATION

Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security or industry.

PRICE/EARNINGS (P/E) RATIO

The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

PRINCIPAL

The amount of your own money you put into an investment.

SECURITIES

Stocks, bonds, and other investment vehicles.

TOTAL RETURN

A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.

VALUE STOCK FUND

A mutual fund that focuses on the stocks of companies that, considering their
earnings and dividends, are attractively priced; these companies often pay
regular dividend income to shareholders.

VOLATILITY

The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.

YIELD

Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.

<PAGE> 20

[VANGUARD GROUP LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482

FOR PARTICIPANTS IN
EMPLOYER-SPONSORED PLANS

PARTICIPANT SERVICES DEPARTMENT
1-800-523-1188
TEXT TELEPHONE:
1-800-523-8004
For information on the
Vanguard Funds in your plan,
Monday through Friday
8:30 a.m. to 7:00 p.m.,
Eastern time

FOR OTHER INSTITUTIONAL INVESTORS
1-800-523-1036
For information on Vanguard Funds and services

ELECTRONIC ACCESS TO THE VANGUARD MUTUAL FUND EDUCATION AND INFORMATION CENTER
On America Online(R)
Keyword: Vanguard

On the World Wide Web
http://www.vanguard.com

To send e-mail to Vanguard
[email protected]

I025N

<PAGE> 21
Vanguard/Trustees'
Equity Fund -
International Portfolio

Institutional Prospectus
June 28, 1996

This prospectus contains financial data for the Portfolio through the fiscal
year ended December 31, 1995.

[VANGUARD LOGO]
<PAGE> 22
VANGUARD/TRUSTEES' EQUITY FUND -
INTERNATIONAL PORTFOLIO An International Stock Mutual Fund

CONTENTS

Portfolio Expenses 2

Financial Highlights 3

A Word About Risk 4

The Portfolio's
Objectives 4

Who Should Invest 4

Investment Strategies 5

Investment Policies 7

Investment Limitations 8

Investment
Performance 9

Share Price 9

Dividends, Capital
Gains, and Taxes 10

The Portfolio and
Vanguard 11

Investment Adviser 11

General Information 12

Investing
with Vanguard

- - For Plan Participants 13

- - For Other
Institutional Investors 13

Accessing Fund Information
by Computer 14

Prospectus Postscript 15

Glossary Inside Back Cover

INVESTMENT OBJECTIVES AND POLICIES

Vanguard/Trustees' Equity Fund - International Portfolio (the "Portfolio") is a
diversified mutual fund, a part of Vanguard/Trustees' Equity Fund, Inc. (the
"Fund"), an open-end investment management company.

The Portfolio seeks to provide long-term growth and income by investing
primarily in equity securities of large and medium-size companies located
outside the U.S. The Portfolio uses a "value" investment approach, emphasizing
companies that -- considering their histories and compared to similar companies
- -- are attractively priced. These companies tend to be out of favor with
investors.

IT IS IMPORTANT TO NOTE THAT THE PORTFOLIO'S SHARES ARE NOT GUARANTEED OR
INSURED BY THE FDIC OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT OR FOREIGN
GOVERNMENTS. AS WITH ANY INVESTMENT IN COMMON STOCKS, WHICH ARE SUBJECT TO WIDE
FLUCTUATIONS IN MARKET VALUE, YOU COULD LOSE MONEY BY INVESTING IN THE
PORTFOLIO.

FEES AND EXPENSES

IMPORTANT NOTE

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO

WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objectives, risks, and strategies of the
International Portfolio of Vanguard/Trustees' Equity Fund. To highlight terms
and concepts important to mutual fund investors, we have provided "Plain Talk"
explanations along the way. Reading the prospectus will help you to decide
whether the Portfolio is the right investment for your needs. We suggest that
you keep it for future reference.

WHO SHOULD INVEST (page 4)

- - Investors seeking investment opportunities outside the United States.

- - Investors seeking capital growth and some income over the long term -- at
least five years.

- - Investors willing to accept the additional risks associated with
international investing.

WHO SHOULD NOT INVEST

- - Investors unwilling to accept significant fluctuations in share price.

- - Investors seeking significant income.

RISKS OF THE PORTFOLIO (pages 4 - 8)

This Portfolio's total return will fluctuate within a wide range, so an investor
could lose money over short or even extended periods. In addition to the risks
of U.S. stock funds (market risk, etc.), the Portfolio is subject to risks
associated with foreign investing. Among these are country risk (the chance that
a country's economy will be hurt by political or financial problems or natural
disasters) and currency risk (the chance that Americans investing abroad could
lose money because of a rise in the value of the U.S. dollar versus foreign
currencies).

DIVIDENDS AND CAPITAL GAINS (page 10)

Dividends are paid in March, June, September, and December. Capital gains, if
any, are paid in December. In participant accounts, all distributions are
automatically reinvested.

INVESTMENT ADVISER (page 11)

UBS International Investment London Limited, London, England (replaced
Batterymarch Financial Management, Inc., as adviser on March 31, 1996).

INCEPTION DATE: May 16, 1983

NET ASSETS AS OF 12/31/95: $988 million

PORTFOLIO'S EXPENSE RATIO FOR THE YEAR ENDED 12/31/95: 0.47%

NEWSPAPER ABBREVIATION: TrIntl

VANGUARD FUND NUMBER: 046

AVERAGE ANNUAL TOTAL RETURN --
PERIODS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
International Portfolio +9.7% +8.6% +14.0%

MSCI EAFE Index +11.6 +9.7 +14.0
</TABLE>

QUARTERLY RETURNS (%) 1986 - 1995

[GRAPH]

In evaluating past performance, remember that it is not indicative of future
performance (a point especially valid in this case, since the Portfolio changed
its adviser on March 31, 1996). Performance figures include the reinvestment of
any dividends and capital gains distributions. The returns shown are net of
expenses, but they do not reflect income taxes an investor would have incurred.
Note, too, that both the 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.

1
<PAGE> 24
Plain Talk About
THE COSTS OF INVESTING

Plain Talk About
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard/Trustees' Equity Fund - International Portfolio's expense
ratio in fiscal year 1995 was 0.47%, or $4.70 per $1,000 of average net assets.
The average actively managed international equity mutual fund had expenses in
1995 of 1.58%, or $15.80 per $1,000 of average net assets, according to Lipper
Analytical Services, Inc., which reports on the mutual fund industry.

PORTFOLIO EXPENSES

The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in the Portfolio.

As noted in this table, you do not pay fees of any kind when you buy, sell,
or exchange shares of the Portfolio:

SHAREHOLDER TRANSACTION EXPENSES

Sales Load Imposed on Purchases: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

ANNUAL PORTFOLIO OPERATING EXPENSES

Management and Administrative Expenses: 0.23%
Investment Advisory Expenses: 0.12%
12b-1 Marketing Fees: None
Other Expenses
Marketing and Distribution Costs: 0.02%
Miscellaneous Expenses (e.g., Taxes, Auditing): 0.10%
----
Total Other Expenses: 0.12%
----
TOTAL OPERATING EXPENSES (EXPENSE RATIO): 0.47%
====

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------
<S> <C> <C> <C>
$5 $15 $26 $59
---------------------------------------------
</TABLE>

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

2
<PAGE> 25
FINANCIAL HIGHLIGHTS

The following financial highlights table shows the results for a share
outstanding for each of the last ten years ended December 31, 1995. The
financial highlights were audited by Price Waterhouse LLP, independent
accountants. You should read this information in conjunction with the
Portfolio's financial statements and accompanying notes, which appear, along
with the audit report from Price Waterhouse, in the Portfolio's most recent
Annual Report to shareholders. The Annual Report is incorporated by reference in
the Statement of Additional Information and in this prospectus, and contains a
more complete discussion of the Portfolio's performance. You may have the Report
sent to you without charge by writing to or calling Vanguard (see back cover).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 31.48 $ 31.04 $ 24.44 $ 27.78 $ 26.58 $ 32.44 $ 28.27
--------- --------- --------- --------- --------- --------- ---------
INVESTMENT OPERATIONS
Net Investment Income .75 .55 .50 .66 .78 1.02 .82
Net Realized and
Unrealized Gain (Loss)
on Investments 2.185 1.08 6.91 (3.05) 1.80 (4.92) 6.22
--------- --------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS 2.935 1.63 7.41 (2.39) 2.58 (3.90) 7.04
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.79) (.56) (.81) (.67) (.77) (.95) (.79)
Distributions from
Realized Capital Gains (2.515) (.63) -- (.28) (.61) (1.01) (2.08)
------ ----- ---- ---- ----- ----- -----
TOTAL DISTRIBUTIONS (3.305) (1.19) (.81) (.95) (1.38) (1.96) (2.87)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 31.11 $ 31.48 $ 31.04 $ 24.44 $ 27.78 $ 26.58 $ 32.44
=============================================================================================================================
TOTAL RETURN 9.65% 5.25% 30.49% (8.72)% 9.96% (12.26)% 25.97%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 988 $ 1,053 $ 982 $ 678 $ 878 $ 796 $ 646
Ratio of Expenses to
Average Net Assets .47% .34% .40% .42% .38% .44% .46%
Ratio of Net Investment
Income to Average
Net Assets 2.29% 1.71% 1.76% 2.48% 2.87% 3.62% 2.61%
Portfolio Turnover Rate 47% 40% 39% 51% 46% 18% 25%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1988 1987 1986
- --------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 28.66 $ 38.68 $ 30.91
--------- --------- ---------
INVESTMENT OPERATIONS
Net Investment Income .77 1.14 1.03
Net Realized and
Unrealized Gain (Loss)
on Investments 4.41 7.91 14.32
--------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS 5.18 9.05 15.35
- --------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.99) (.75) (1.03)
Distributions from
Realized Capital Gains (4.58) (18.32) (6.55)
----- ------ -----
TOTAL DISTRIBUTIONS (5.57) (19.07) (7.58)
- --------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 28.27 $ 28.66 $ 38.68
==========================================================================
TOTAL RETURN 18.78% 23.88% 50.71%
==========================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 467 $ 657 $ 719
Ratio of Expenses to
Average Net Assets .51% .50% .52%
Ratio of Net Investment
Income to Average
Net Assets 2.55% 2.44% 2.65%
Portfolio Turnover Rate 14% 48% 24%
- --------------------------------------------------------------------------
</TABLE>

Plain Talk About
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Portfolio began fiscal 1995 with a net asset value (price) of $31.48 per
share. During the year, the Portfolio earned $0.75 per share from investment
income (interest and dividends) and $2.185 per share from investments that had
appreciated in value or that were sold for higher prices than the Portfolio paid
for them. Of those total earnings of $2.935 per share, $3.305 per share was
returned to shareholders in the form of distributions ($0.79 in dividends,
$2.515 in capital gains). The earnings ($2.935 per share) less distributions
($3.305 per share) resulted in a share price of $31.11 at the end of the year, a
decrease of $0.37 per share (from $31.48 at the beginning of the period to
$31.11 at the end of the period). Assuming that the shareholder had reinvested
the distribution in the purchase of more shares, total return from the Portfolio
was 9.65% for the year.

As of December 31, 1995, the Portfolio had $988 million in net assets; an
expense ratio of 0.47% ($4.70 per $1,000 of net assets); and net investment
income amounting to 2.29% of its average net assets. It sold and replaced
securities valued at 47% of its total net assets.

3
<PAGE> 26
Plain Talk About

INVESTING FOR THE LONG TERM

The Portfolio is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term
fluctuations in the stock market.

A WORD ABOUT RISK

This prospectus describes the risks you will face as an investor in the
International Portfolio of Vanguard/Trustees' Equity Fund. It is important to
keep in mind one of the main axioms of investing: the higher the risk of losing
money, the higher the potential reward. The reverse, also, is generally true:
the lower the risk, the lower the potential reward. However, as you consider an
investment in the International Portfolio, you should also take into account
your personal tolerance for the daily fluctuations of the stock market.

Look for this "warning flag" symbol [FLAG] throughout the prospectus. It is
used to mark detailed information about each type of risk that you, as a
shareholder of the Portfolio, will confront.

THE PORTFOLIO'S OBJECTIVES

Vanguard/Trustees' Equity Fund - International Portfolio seeks to provide
long-term capital growth and income. These objectives are fundamental, which
means that they cannot be changed unless a majority of shareholders vote to do
so.

[FLAG]BECAUSE OF THE SEVERAL TYPES OF RISK DESCRIBED ON THE FOLLOWING PAGES,
YOUR INVESTMENT IN THE PORTFOLIO, AS WITH ANY INVESTMENT IN COMMON STOCKS,
COULD LOSE MONEY.

WHO SHOULD INVEST

The Portfolio may be a suitable investment for you if:

- - You are seeking investment opportunities outside the United States.

- - You wish to add a value-oriented international stock fund to your existing
holdings, which could include U.S. stock, bond, and money market investments.

- - You are willing to accept the additional risks (country risk, currency risk,
etc.) associated with international investments.

- - You are seeking growth of capital over the long term -- at least five years.

This Portfolio is not an appropriate investment if you are a
market-timer. Investors who engage in excessive in-and-out trading activity
generate additional costs that are borne by all of the Portfolio's shareholders.
To minimize such costs, which reduce the ultimate returns achieved by you and
other shareholders, the Portfolio has adopted the following policies:

- - The Portfolio reserves the right to reject any purchase request -- including
exchanges from other Vanguard Funds -- that it regards

4
<PAGE> 27

as disruptive to the efficient management of the Portfolio. This could be
because of the timing of the investment or because of a history of excessive
trading by the investor. If you own shares of the Portfolio as an investment
option in an employer-sponsored retirement or savings plan, your plan
dictates the rules governing exchanges. Contact your plan administrator for
details.

- - There is a limit on the number of times you can exchange into or out of the
Portfolio.

- - The Portfolio reserves the right to stop offering shares at any time.

INVESTMENT STRATEGIES

This section explains how the Portfolio's investment adviser pursues the
objectives of long-term growth and income. It also explains several of the risks
- -- market risk, objective risk, country risk, manager risk, and currency risk --
faced by investors in the Portfolio. Unlike the Portfolio's investment
objectives, the adviser's investment strategies are not fundamental and can be
changed by the Portfolio's Board of Trustees without shareholder approval.
However, before making any important change in its policies, the Portfolio will
give shareholders 30-days notice, in writing.

MARKET EXPOSURE

The Portfolio is a value-oriented fund that invests primarily in the stocks of
large and medium-size non-U.S. companies.

[FLAG]THE PORTFOLIO IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT
STOCK PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN EXTENDED PERIODS.
STOCK MARKETS TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING STOCK PRICES
AND PERIODS OF FALLING STOCK PRICES. IN ADDITION, INVESTMENTS IN FOREIGN
STOCK MARKETS CAN BE AS RISKY, IF NOT MORE RISKY, THAN U.S. STOCK
INVESTMENTS.

To illustrate the volatility of international stock prices, the following
table shows the best, worst, and average total returns (dividend income plus
change in market value) for foreign stock markets over various periods as
measured by the Morgan Stanley Capital International Europe, Australia, and Far
East (EAFE) Index, a widely used barometer of international stock market
activity. Note that the returns shown do not include the costs of buying and
selling stocks or other expenses that a real-world investment portfolio would
incur. Note, also, how the gap between best and worst tends to narrow over the
long term.

Plain Talk About
COSTS AND MARKET TIMING

Plain Talk About
VALUE FUNDS AND
GROWTH FUNDS

5
<PAGE> 28
Plain Talk About
THE RISKS OF
INTERNATIONAL INVESTING

Because foreign stock markets operate differently from the U.S. market,
Americans investing abroad will encounter risks not typically associated with
U.S. companies. For instance, foreign countries are not subject to the same
accounting, auditing, and financial reporting standards and practices as U.S.
companies, and may not be as liquid as similar U.S. companies. In addition,
foreign stock exchanges, brokers, and companies generally have less government
supervision and regulation than in the U.S. These factors -- as well as possible
country risk and currency risk (which are described in detail in this
prospectus) -- could negatively impact the returns that Americans receive from a
foreign investment. For more information about foreign investment risk, see the
Statement of Additional Information.

Plain Talk About
PORTFOLIO DIVERSIFICATION

In general, the more diversified a fund's portfolio of stocks, the less likely
that a specific stock's poor performance will hurt the fund. One measure of a
fund's level of diversification is the percentage of total net assets
represented by its ten largest holdings. The average foreign equity mutual fund
has about 25% of its assets invested in its ten largest holdings, while some
less-diversified international mutual funds have more than 50% of their assets
invested in the stocks of just ten companies.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
INTERNATIONAL STOCK MARKET RETURNS (1969 - 1995)
- ------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Best +69.9% +36.5% +22.8% +16.3%

Worst -23.2 + 1.5 + 7.0 +12.0

Average +15.3 +14.2 +16.2 +14.9
- ------------------------------------------------------------------
</TABLE>

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969
through 1995. Keep in mind that this was a particularly favorable period for
foreign markets. For instance, over 10-year periods, foreign stocks provided an
average return of +16.2%, compared to +13.1% for U.S. stocks (as measured by the
Standard & Poor's 500 Composite Stock Price Index) during the same time frame.
These average returns reflect past performance and should not be regarded as an
indication of future returns from either foreign markets as a whole or this
Portfolio in particular.

Note, too, that, while the Portfolio emphasizes stocks of large and
medium-size companies, it also includes stocks of small companies. Stocks of
small companies have historically been more volatile than -- and at times have
performed quite differently from -- the stocks of larger companies. Keep in
mind, too, that classifications of companies as large, medium, or small vary
from country to country. For instance, a large company in one country could be
considered a small company in another.

For these reasons and because the International Portfolio does not hold the
same securities held in the EAFE Index or any other market index, the
performance of the Portfolio will not mirror the returns of any particular
index.

[FLAG]THE PORTFOLIO IS SUBJECT TO OBJECTIVE RISK, WHICH IS THE POSSIBILITY THAT
RETURNS FROM INTERNATIONAL STOCKS WILL TRAIL RETURNS FROM THE U.S. STOCK
MARKETS. THE PRICES OF INTERNATIONAL STOCKS AND THE PRICES OF U.S. STOCKS
HAVE OFTEN MOVED IN OPPOSITE DIRECTIONS. THESE PERIODS HAVE, IN THE PAST,
LASTED FOR AS LONG AS SEVERAL YEARS.

SECURITY SELECTION

UBS International Investment London Limited (UBSII), adviser to the Portfolio,
believes that research is the key to selecting securities for an international
stock portfolio. Much of this research takes the form of on-site visits. In
1995, for instance, UBSII's investment analysts visited some 1,400 companies.

To be considered for the International Portfolio, a company must -- looking
at its history and compared to similar companies -- be cheap statistically (that
is, it has an above-average yield and a relatively low price considering its
earnings, book value, and cash flow); be out of favor with investors; and appear
to have a management that is motivated to make positive changes.

<PAGE> 29

The adviser decides whether -- and how much -- to invest in each country by
first determining how many of a country's companies meet UBSII's value criteria.
Other factors in UBSII's country selection process include the size of the
market and the variety of investment opportunities available within the market.

[FLAG]THE PORTFOLIO IS SUBJECT TO COUNTRY RISK, WHICH IS THE POSSIBILITY THAT
POLITICAL EVENTS (A WAR, NATIONAL ELECTIONS), FINANCIAL PROBLEMS (RISING
INFLATION, GOVERNMENT DEFAULT), OR NATURAL DISASTERS (AN EARTHQUAKE, A
POOR HARVEST) WILL WEAKEN A COUNTRY'S ECONOMY AND CAUSE INVESTMENTS IN
THAT COUNTRY TO LOSE MONEY.

The Portfolio is expected to hold some 150 securities, with the top ten
holdings making up about 20% of the Portfolio's net assets. The stocks are
chosen from a diverse range of industries.

The Portfolio is run by UBSII according to traditional methods of active
investment management, which means that securities are bought and sold according
to UBSII's judgments about companies and their financial prospects, and about
foreign stock markets and economies in general.

[FLAG]THE PORTFOLIO IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT
UBSII MAY DO A POOR JOB OF EVALUATING FOREIGN MARKETS AND SELECTING
STOCKS.

PORTFOLIO TURNOVER

Although the Portfolio generally seeks to invest for the long term, it retains
the right to sell securities regardless of how long they have been held. The
Portfolio's average turnover rate for the past ten years has been about 35%. (A
turnover rate of 100% would occur, for example, if the Portfolio sold and
replaced securities valued at 100% of its total net assets within a one-year
period.)

Because of the Portfolio's recent change in investment adviser, the turnover
rate may approach 100% during 1996. Once this transition year is over, however,
UBSII expects the Portfolio's turnover rate to return to its historical average
of about 35%.

INVESTMENT POLICIES

Besides investing in stocks of foreign companies, the Portfolio may follow a
number of investment policies to achieve its objectives.

The Portfolio may enter into forward foreign currency contracts, which help
protect the Portfolio's securities against unfavorable short-term changes in
exchange rates. UBSII will use these contracts to eliminate some of the
uncertainty of foreign exchange rates -- but will not speculate on changes in
the market.

Plain Talk About
PORTFOLIO TURNOVER

Plain Talk About
FORWARD FOREIGN
CURRENCY CONTRACTS

A forward foreign currency contract is an agreement to buy or sell a country's
currency at a specific price usually 30, 60, or 90 days in the future. In other
words, the contract guarantees an exchange rate on a given date. Managers of
international stock funds use these contracts to guard against sudden,
unfavorable changes in U.S. dollar/foreign currency exchange rates. The
contracts will not prevent the fund's securities from falling in value during
foreign market downswings.

7
<PAGE> 30
Plain Talk About
DERIVATIVES

Plain Talk About
CASH RESERVES

With mutual funds, holding cash reserves -- or "cash" -- does not mean literally
that the fund holds a stack of currency. Rather, cash reserves refer to
short-term, interest-bearing securities that can easily and quickly be converted
to cash. (Most mutual funds hold at least a small percentage of assets in cash
to accommodate shareholder redemptions.) While some equity funds strive to keep
cash levels at a minimum and to always remain fully invested in stocks, other
equity funds allow investment advisers to hold up to 20% or more of a fund's
assets in cash reserves.

[FLAG] THE PORTFOLIO IS SUBJECT TO CURRENCY RISK, WHICH IS THE POSSIBILITY
THAT A "STRONGER" U.S. DOLLAR WILL REDUCE RETURNS FOR AMERICANS
INVESTING OVERSEAS. GENERALLY, WHEN THE DOLLAR RISES IN VALUE AGAINST
A FOREIGN CURRENCY, YOUR INVESTMENT IN THAT COUNTRY LOSES VALUE
BECAUSE ITS CURRENCY IS WORTH FEWER U.S. DOLLARS. ON THE OTHER HAND,
A "WEAKER" DOLLAR GENERALLY LEADS TO HIGHER RETURNS FOR AMERICANS
HOLDING FOREIGN INVESTMENTS.

The Portfolio may also invest in derivatives.

[FLAG] ALTHOUGH IT HAS NOT DONE SO IN THE PAST, THE PORTFOLIO RESERVES THE
RIGHT TO INVEST, TO A LIMITED EXTENT, IN STOCK FUTURES AND OPTIONS
CONTRACTS, WHICH ARE TRADITIONAL TYPES OF DERIVATIVES.

Losses (or gains) involving futures can sometimes be substantial -- in
part because a relatively small price movement in a futures contract may result
in an immediate and substantial loss (or gain) for a Portfolio. This Portfolio
will not use futures and options for speculative purposes or as leveraged
investments that magnify the gains or losses of an investment. Rather, the
Portfolio will keep separate cash reserves or short-term cash-equivalent
securities in the amount of the obligation underlying the futures or options
contract. Only a limited percentage of the Portfolio's assets -- no more than
20% of total assets -- may be committed to such contracts.

The reasons for which the Portfolio may use futures and options are:

- - To keep cash on hand to meet shareholder redemptions or other needs
while simulating full investment in stocks.

- - To make it easier to trade.

- - To reduce costs by buying futures instead of actual stocks when
futures are cheaper.

The Portfolio will usually hold only a small percentage of its assets
in cash reserves, although if the investment adviser believes that market
conditions warrant a temporary defensive measure, the Portfolio may hold cash
reserves without limit.

INVESTMENT LIMITATIONS

To reduce risk and maintain diversification, the Portfolio has adopted limits on
some of its investment policies. Specifically, the Portfolio will not:

- - Invest more than 5% of its assets in the securities of companies that
have been in business for less than three years.

- - Invest more than 25% of its assets in any one industry.

- - Borrow money, except for the purpose of meeting shareholder requests to
redeem shares.

With respect to 75% of its assets, this Portfolio will not:

- - Invest more than 5% in the securities of any one company.

- - Buy more than 10% of the outstanding voting securities of any company.

8
<PAGE> 31
The limitations listed in this prospectus and in the Statement of
Additional Information are fundamental and may be changed only by approval of a
majority of the Portfolio's shareholders.

INVESTMENT PERFORMANCE

Vanguard/Trustees' Equity Fund - International Portfolio invests in foreign
stocks, so its performance is tied to the performance of many stock markets
outside the United States. Historically, stock market performance, both foreign
and domestic, has been characterized by sharp up-and-down swings in the short
term and by more stable growth over the long term.

AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 12/31/95

[CHART]

The results shown above represent the Portfolio's "average annual total
return" performance, which assumes that any distributions of capital gains and
dividends were reinvested for the indicated periods. Also included is
comparative information on the unmanaged Morgan Stanley Capital International
Europe, Australia, and Far East (EAFE) Index. The chart does not make any
allowance for Federal, state, or local income taxes that shareholders must pay
on a current basis.

In weighing these performance figures, note that the International
Portfolio was managed by Batterymarch Financial Management, Inc., from the
Portfolio's inception on May 16, 1983, until March 31, 1996, when UBS
International Investment London Limited became the Portfolio's investment
adviser.

SHARE PRICE

Plain Talk About
PAST PERFORMANCE

9
<PAGE> 32
investments and other assets, subtracting any of its liabilities, or debts, and
then dividing by the number of Portfolio shares outstanding:

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = ------------------------------
NUMBER OF SHARES OUTSTANDING

Daily net asset value, or NAV, is useful to you as a shareholder
because the NAV, multiplied by the number of Portfolio shares you own, gives you
the dollar amount you would have received had you sold all of your shares back
to the Portfolio that day.

To help determine its daily share price, the Portfolio calculates the
value of its foreign securities in U.S. dollars. The Portfolio uses the daily
exchange rate employed by Morgan Stanley Capital International in the
calculation of its own indexes. If Morgan Stanley's exchange rate is not
available, the Portfolio uses a rate according to policies set by the Fund's
Board of Trustees.

The Portfolio's share price can be found daily in the mutual fund
listings of most major newspapers under the heading Vanguard Group. Different
newspapers use different abbreviations of the Portfolio's name, but the most
common is TRINTL.

DIVIDENDS, CAPITAL GAINS, AND TAXES

If your Vanguard/Trustees' Equity Fund - International Portfolio
investment is not part of an employer-sponsored plan, you can receive
distributions of income or capital gains in cash, or you may have them
automatically reinvested in more shares of the Portfolio. Both dividend and
capital gains distributions -- whether received in cash or reinvested in
additional shares -- are subject to Federal (and possibly state and local)
income taxes, no matter how long you have held the shares in the Portfolio. You
should consult your own tax adviser about other tax consequences of an
investment in the Portfolio.

Plain Talk About
DISTRIBUTIONS

10
<PAGE> 33
THE PORTFOLIO AND VANGUARD

Vanguard also provides marketing services to the Funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each Fund
pays its allocated share of The Vanguard Group's costs.

A list of the Fund's Trustees and Officers, and their present positions
and principal occupations during the past five years, can be found in the
Statement of Additional Information.

INVESTMENT ADVISER

The Portfolio employs UBS International Investment London Limited (UBSII),
Triton Court, 14 Finsbury Square, London EC2A 1PD, as its investment adviser.
UBSII manages the Portfolio subject to the control of the Officers and Trustees
of the Fund.

UBSII's advisory fee is calculated at the end of each fiscal quarter
and is based on the Portfolio's average month-end net assets during that
quarter:

<TABLE>
<CAPTION>
------------------------------------------
NET ASSETS FEE
------------------------------------------
<S> <C>
First $50 million 0.475%
Next $450 million 0.150
Next $500 million 0.120
Assets over $1 billion 0.110
------------------------------------------
</TABLE>

The advisory fee may be increased or decreased by an incentive/penalty
fee based on the Portfolio's total return performance as compared to that of the
MSCI EAFE Index. Under the fee schedule, the basic fee may be increased or
decreased by as much as 50%. The incentive/penalty fee will not be fully
operable until June 30, 1999. Until that date, the incentive/penalty fee will be
calculated using certain transition rules that are explained in the Statement of
Additional Information.

The agreement authorizes UBSII to choose brokers or dealers to handle
the purchases and sales of the Portfolio's securities, and directs UBSII to use
every effort to get the best available price and most favorable execution from
these brokers with respect to all transactions.

The Board of Trustees may, without prior approval from shareholders,
change the terms of the advisory agreement or hire a new investment adviser,
either as a replacement for UBSII or as an additional adviser. However, no such
change would be made before giving shareholders 30-days notice, in writing.

Plain Talk About
VANGUARD'S UNIQUE
CORPORATE STRUCTURE

The Vanguard Group, Inc. is the only MUTUAL mutual fund company. It is owned
jointly by the Funds it oversees and by the shareholders in those Funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, a group of individuals, or by investors who bought the management
company's publicly traded stock. Because of its structure, Vanguard operates its
Funds at cost. Instead of distributing profits from operations to a separate
management company, Vanguard returns profits to Fund shareholders in the form of
lower operating expenses.

Plain Talk About
THE PORTFOLIO'S ADVISER

UBS International Investment London Limited (UBSII) traces its roots to the
British brokerage firm, Phillips & Drew, which was acquired by the Union Bank of
Switzerland in 1985. UBSII, which was created two years later to provide
investment management services to clients outside the United Kingdom, currently
manages some $6 billion in assets. Although the adviser uses a team approach,
the managers with primary responsibility for the International Portfolio are:

WILSON PHILLIPS, CFA, Investment Manager, UBSII; 16 years investment
experience (14 years with the firm); B.S., Glasgow University.

ROBIN APPS, Investment Manager and Investment Committee Member, UBSII;
12 years investment experience (10 years with the firm); B. Soc. SC., Birmingham
University.

11
<PAGE> 34
GENERAL INFORMATION

The International Portfolio is one of two Portfolios of Vanguard/Trustees'
Equity Fund, Inc., a Pennsylvania business trust. The other Portfolio is the
U.S. Portfolio. The Portfolios are combined under one corporation for
administrative purposes, but in virtually all respects operate like separate
corporations.

Shareholders of the International Portfolio have rights and privileges
similar to those enjoyed by other corporate shareholders. For example,
shareholders will not be responsible for any liabilities of the corporation. If
any matters are to be voted on by shareholders (such as a change in a
fundamental investment objective or the election of Trustees), each share
outstanding at that point would be entitled to one vote. Although the Portfolio
does not usually hold an annual meeting, shareholders may request one under
certain circumstances, which are described in the Statement of Additional
Information.

12
<PAGE> 35
INVESTING WITH VANGUARD

FOR PLAN PARTICIPANTS

Vanguard/Trustees' Equity Fund - International Portfolio is an investment option
in your retirement or savings plan. Your plan administrator or your employee
benefits office can provide you with detailed information on how to participate
in your plan and how to elect the Portfolio as an investment option.

- - If you have any questions about the Portfolio or Vanguard, including
the Portfolio's investment objective, strategies, or risks, contact
Vanguard's Participant Services Department, toll-free, at
1-800-523-1188.

- - If you have questions about your account, contact your plan
administrator or the organization that provides recordkeeping services
for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS

TRANSACTIONS

EXCHANGES

Before making an exchange, you should consider the following:

- - Before you exchange to another Vanguard Fund available in your plan,
you should read that Fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.

- - Vanguard can accept exchanges only as permitted by your plan. Your plan
administrator can explain how frequently exchanges are allowed.

FOR OTHER INSTITUTIONAL INVESTORS

If you have questions about Vanguard/Trustees' Equity Fund - International
Portfolio, including how to establish an account, call Vanguard, toll-free, at
1-800-523-1036.

If you have questions about an existing account, contact your Vanguard
account administrator.

TRANSACTIONS

13
<PAGE> 36
Portfolio's next-determined net asset value after Vanguard has processed your
request, provided your request has been received before 4:00 p.m.
Eastern time.

Vanguard must consider the interests of all Portfolio shareholders and
so reserves the right to...
- - Delay or reject any purchase or exchange request
that may disrupt the Portfolio's operation or performance.

- - Revise or terminate the exchange privilege or limit the amount of an
exchange, at any time, without notice.

- - Take up to seven days to deliver your redemption proceeds.

- - Pay redemption proceeds -- in whole or in part -- through a
distribution in kind of readily marketable securities.

ACCESSING FUND INFORMATION BY COMPUTER

VANGUARD ONLINE(SM) Information via your personal computer on Fund
KEYWORD: vanguard share price, yield, and total return; offered
through America Online(R) (AOL). To establish an
AOL account, call 1-800-238-6336.

14
<PAGE> 37
PROSPECTUS POSTSCRIPT

This prospectus is designed to provide you with pertinent information about
Vanguard/Trustees' Equity Fund - International Portfolio, including its
investment objectives, risks, strategies, and expenses, as well as services
available to you as a shareholder.

IN READING THE PROSPECTUS, DID YOU LEARN . . .

/ / The Portfolio's objectives? (page 4)

/ / The Portfolio's investment strategies? (page 5)

/ / Who should invest in the Portfolio? (page 4)

/ / The risks associated with the Portfolio? (pages 4 - 8)

/ / Whether the Portfolio is Federally insured? (inside front cover)

/ / The Portfolio's expenses? (page 2)

/ / The background of the Portfolio's investment managers? (page 11)

Plain Talk About
KEEPING YOUR PROSPECTUS

Reading this prospectus will help you to decide whether Vanguard/Trustees'
Equity Fund - International Portfolio is suitable for your investment goals. If
you decide to invest, don't throw the prospectus out: you will no doubt need it
for future reference.

<PAGE> 38
GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION

Payment to mutual fund shareholders of gains realized during the year on
securities that the fund has sold at a profit, minus any realized losses.

CASH RESERVES

Cash deposits as well as short-term bank deposits, money market instruments, and
U.S. Treasury bills.

COMMON STOCK

A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

COUNTRY RISK

The possibility that events such as political or financial troubles or natural
disasters will weaken a country's economy.

CURRENCY RISK

The possibility that an American's foreign investment will lose money because of
unfavorable exchange rates.

DIVIDEND INCOME

Payment to shareholders of income from interest or dividends generated by a
fund's investments.

EXPENSE RATIO

The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.

FIXED-INCOME SECURITIES

Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

GROWTH STOCK FUND

A mutual fund that emphasizes stocks of companies whose strong earnings and
revenue potential indicate above-average prospects for capital growth with less
emphasis on dividend income.

INTERNATIONAL STOCK FUND

A mutual fund that invests in the stocks of companies located outside the United
States.

INVESTMENT ADVISER

An organization that makes the day-to-day decisions regarding a portfolio's
investments.

MUTUAL FUND

An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

NET ASSET VALUE (NAV)

The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

PORTFOLIO DIVERSIFICATION

Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security, industry, or country.

PRINCIPAL

The amount of your own money you put into an investment.

SECURITIES

Stocks, bonds, and other investment vehicles.

TOTAL RETURN

VALUE STOCK FUND

A mutual fund that focuses on the stocks of companies that, considering their
earnings and dividends, are attractively priced; these companies often pay
regular dividend income to shareholders.

VOLATILITY

The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.

YIELD

Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 39
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Institutional Division
Post Office Box 2900
Valley Forge, PA 19482

HOW TO DO AN INSTITUTIONAL PROSPECTUS COVER:

1. Dupe the Fund/Portfolio's retail cover file.

2. Replace ALL of the back-cover text/elements with that from the institutional
cover template file (filename: CvrTmpltInst.pm6).

3. Make edits/changes marked on these pages.

FOR PARTICIPANTS IN EMPLOYER-SPONSORED PLANS

PARTICIPANT SERVICES DEPARTMENT
1-800-523-1188

TEXT TELEPHONE:
1-800-523-8004

For information on the Vanguard Funds in your plan, Monday through Friday 8:30
a.m. to 7:00 p.m., Eastern time

FOR OTHER INSTITUTIONAL INVESTORS
1-800-523-1036

For information on Vanguard Funds and services

ELECTRONIC ACCESS TO THE VANGUARD MUTUAL FUND EDUCATION AND INFORMATION CENTER

On America Online(R) Keyword: vanguard

On the World Wide Web http://www.vanguard.com

To send e-mail to Vanguard [email protected]

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