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VANGUARD/TRUSTEES' EQUITY FUND
INTERNATIONAL PORTFOLIO
PROSPECTUS SUPPLEMENT
MARCH 4, 1996
On February 16, 1996, the Board of Trustees of
Vanguard/Trustees' Equity Fund (the "Fund") approved the
appointment of UBS International Investment ("UBSII") as
investment adviser to the Fund's International Portfolio
effective March 31, 1996. UBSII replaces Batterymarch
Financial Management ("Batterymarch") which served as adviser
to the International Portfolio since its inception in 1983.
The appointment of UBSII as investment adviser of the
International Portfolio will not require shareholder approval.
This procedure was approved by the Fund's shareholders at the
April 12, 1993, Annual Meeting and was authorized by an
exemptive order issued by the Securities and Exchange
Commission on May 12, 1993.
DESCRIPTION OF NEW INVESTMENT ADVISORY AGREEMENT
Under the terms of the new investment advisory agreement, the
Fund will pay UBSII a basic advisory fee at the end of each
quarter, calculated by applying a quarterly rate, based on the
following annual percentage rates, to the average month-end
assets of the Portfolio for the quarter:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL BASIC FEE RATE
-------------------------------------------------------
<S> <C>
First $50 million 0.475%
Next $450 million 0.150
Next $500 million 0.120
Over $1 billion 0.110
</TABLE>
INCENTIVE/PENALTY FEE. Effective with the quarter ending March
31, 1996, the basic fee paid to UBSII, as provided above, may
be increased or decreased by applying a performance fee
adjustment, based on the investment performance of the
International Portfolio relative to the return of the Morgan
Stanley Capital International Europe, Australia, and Far East
Index ("EAFE Index") measured over a 36-month period. Under
the performance fee adjustment, the basic fee payable to UBSII
may be increased or decreased by as much as 50% of the basic
fee.
(over, please)
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The following table sets forth the performance fee adjustment
payable by the International Portfolio to UBSII under the new
investment advisory agreement:
<TABLE>
<CAPTION>
THREE YEAR CUMULATIVE PERFORMANCE PERFORMANCE FEE
DIFFERENTIAL VERSUS EAFE INDEX ADJUSTMENT
------------------------------------------------------
<S> <C>
+13.5% points or more above + 0.50 X Basic Fee
Between +4.5% points and
+13.5% points above + 0.25 X Basic Fee
Between +4.5% points and
-0% points 0 X Basic Fee
Between 0% points and
-9% points below - 0.25 X Basic Fee
-9% points or more below - 0.50 X Basic Fee
</TABLE>
Under the rules of the Securities and Exchange Commission, the
incentive/penalty fee will not be fully operable until the
quarter ending March 31, 1999, and until that date, will be
calculated according to certain transition rules. The Fund's
Statement of Additional Information, which is available on
request, provides a detailed description of the EAFE Index and
the applicable transition rules.
RELATED INFORMATION CONCERNING UBSII. UBSII
is a London-based investment adviser that oversees
nearly $6 billion in net assets for clients in the United
States, Europe, and Australia. UBSII traces its roots to the
investment division of Phillips & Drew, a leading British
brokerage firm. Phillips & Drew was acquired by the Union Bank
of Switzerland in 1985, creating UBS Asset Management London,
an $80 billion investment advisory firm that employs some 85
investment managers and analysts. UBSII was founded two years
later to provide investment management services to clients
outside of the United Kingdom.
If you have any further questions concerning the new adviser
for the International Portfolio, please call Vanguard's
Investor Information Department at 1-800-662-7447.
PSTA
