<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
During the six months ended June 30, the first half of the 1996 fiscal year for
Vanguard/Trustees' Equity Fund, the returns earned by stocks around the world
were generally strong. U.S. stocks provided a return of +10.1% and
international equities provided a return of +8.9% in local currency terms.
However, a strong U.S. dollar reduced the returns on international stocks to
+4.7% for U.S. investors.
TRUSTEES' INTERNATIONAL PORTFOLIO
International stock returns were closely reflected in our International
Portfolio, which provided a total return (capital change plus reinvested
dividends) of +5.7%. This table presents the performance of our Portfolio
relative to the unmanaged Morgan Stanley Capital International (MSCI) Europe,
Australasia, and Far East (EAFE) Index and the average international mutual
fund:
<TABLE>
<CAPTION>
- ------------------------------------------------------
TOTAL RETURN
----------------
SIX MONTHS ENDED
JUNE 30, 1996
- ------------------------------------------------------
<S> <C>
TRUSTEES' INTERNATIONAL PORTFOLIO +5.7%
- ------------------------------------------------------
AVERAGE INTERNATIONAL MUTUAL FUND +8.2%
MSCI EAFE INDEX +4.7
- ------------------------------------------------------
</TABLE>
The total return of the International Portfolio is based on net asset values of
$31.11 per share on December 31, 1995, and $32.27 on June 30, 1996, adjusted to
take into account the reinvestment of two dividends totaling $.49 per share
from net investment income and a carry-over distribution of $.11 per share from
net capital gains realized during 1995 and paid in March 1996.
After the dichotomies in global markets we witnessed during
1995--remarkably strong returns in the U.S. and European markets, surprisingly
weak returns in the Pacific and emerging markets--the course of global markets
was remarkably uniform during the first half of 1996. Optimism about
prospective global economic conditions prevailed, and regional differences were
muted, with gains in the area of +10% being the rule for the major markets.
That said, it should be emphasized that these gains were achieved on a
local currency basis--i.e., measured in the monetary units of each nation.
However, the U.S. dollar was strong in world currency markets during the past
six months, meaning that the gains achieved by U.S. citizens--measured in U.S.
dollars--were significantly reduced. With foreign currency purchasing fewer
dollars, from one-quarter to two-thirds of the reported local currency gains in
the stock markets of the world were erased. This table tells the story:
<TABLE>
<CAPTION>
- ------------------------------------------------------
TOTAL RETURN
----------------------------
SIX MONTHS ENDED
JUNE 30, 1996
----------------------------
LOCAL U.S.
CURRENCY CURRENCY DOLLAR
INDEX RETURN IMPACT RETURN
- ------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES +10.1% -- +10.1%
- ------------------------------------------------------
EUROPEAN +10.4% -3.7% + 6.7%
PACIFIC + 7.5 -4.8 + 2.7
MSCI EAFE + 8.9 -4.2 + 4.7
- ------------------------------------------------------
EMERGING MARKETS +18.0% -4.3% +13.7%
- ------------------------------------------------------
</TABLE>
As we have noted in the past, this "currency risk" that is assumed by investors
in international stocks is in addition to the normal market and business risks
assumed by investors in U.S. equities. To be sure, with the dollar's weakness
in earlier years, we enjoyed a "currency reward." So far in 1996, however, it
has worked the other way.
During the six-month period, our International Portfolio eked out a
modest margin over the MSCI EAFE Index (+5.7% for the Portfolio versus +4.7%
for the Index). While the Index, like our Portfolio, reflects a highly
diversified mix of foreign markets, a dominant 40% of the Index is represented
by the Japanese stock market, compared to a 25% weighting for the Portfolio.
Given that the Japanese market lagged the world's major bourses during the past
six months, our Portfolio's underweighting in Japan provided a nice boost to
our relative performance.
(continued)
1
<PAGE> 2
Our Portfolio did not measure up as well relative to its peer group of
international funds. Our 2.5-percentage-point shortfall during the six months
was largely the result of three factors. First, while our weighting in Japanese
stocks was far less than that of the Index, it was above that of our average
competitor, which held 21% of its net assets in Japan. Second, our competitors
placed a greater emphasis on so-called emerging stock markets (3% of net assets
for our Portfolio versus 25% for the average competitor), which were among the
strongest markets over the past six months. Finally, our Portfolio has a bias
toward smaller-capitalization value stocks, which were laggards in the world's
stock markets over the past six months.
We should note that UBS International Investment London assumed
responsibilities as the new investment adviser to the International Portfolio
effective April 1, 1996. The transition was smooth, but was accompanied by a
significant level of interim portfolio turnover reflecting the investment
choices of UBS. In part due to this portfolio turnover, the Portfolio may
realize an unusually large capital gain (presently estimated at $4.75 per
share) at the end of the year. The Portfolio's returns remained competitive
during and after the transfer of responsibilities.
TRUSTEES' U.S. PORTFOLIO
The U.S. Portfolio of Vanguard/Trustees' Equity Fund turned in a solid absolute
return of +8.5% during the half year, but finished the period below the results
of its two primary competitive standards.
The table that follows compares the total return (capital change plus
reinvested dividends) of the U.S. Portfolio during the semi-annual period with
those of the two benchmarks we use to gauge our
<TABLE>
<CAPTION>
- ------------------------------------------------------
TOTAL RETURN
----------------
SIX MONTHS ENDED
JUNE 30, 1996
- ------------------------------------------------------
<S> <C>
TRUSTEES' U.S. PORTFOLIO + 8.5%
- ------------------------------------------------------
AVERAGE GENERAL EQUITY MUTUAL FUND +10.8%
STANDARD & POOR'S 500 INDEX +10.1
- ------------------------------------------------------
</TABLE>
performance: the unmanaged Standard & Poor's 500 Composite Stock Price Index
and the average general equity mutual fund.
The U.S. Portfolio's total return is based on net asset values of $37.01
per share on December 31, 1995, and $38.13 on June 30, 1996, adjusted to take
into account the reinvestment of two dividends totaling $.34 per share from net
investment income and a carry-over distribution of $1.63 per share from net
capital gains realized during 1995 and paid in March 1996.
The U.S. stock market continued to surge upward during the first half of
1996, albeit below the near-record pace that prevailed in 1995. Even so, the
advance was impressive, occurring as it did in the face of a sharp rise in
long-term interest rates.
While the stock market, as measured by the Standard & Poor's 500 Index,
chalked up a +10.1% return from January through June, the bond market slumped.
The Lehman Aggregate Bond Index, a good measure of the overall bond market,
provided a total return of -1.2% in the half year, earning income of 3.3%
combined with a price decline of -4.5%.
The primary reason for the divergence in the returns of stocks and bonds
appears to be differing responses by equity and bond investors to the
surprising strength of the U.S. economy. Faster-than-expected economic growth
during the first half of 1996 led stock investors to anticipate accelerated
growth in corporate earnings, even as bond investors worried about higher
inflation. It remains to be seen whether the bull market in stocks can continue
in the face of higher interest rates, which may provide heightened competition
for investors' dollars at a time when common stocks offer historically low
dividend yields.
In this generous environment for common stocks, the +8.5% return of the
U.S. Portfolio fell 1.6 percentage points behind the +10.1% return of the
Standard & Poor's 500 Index. Although the Portfolio maintained market-like
weightings in the major industry sectors, our performance relative to the Index
was impaired by some poor individual stock selections, particularly in the
technology and health-care sectors. Also contributing to our relative
2
<PAGE> 3
shortfall was our small position in cash reserves, which represented a "drag"
on our performance in a rising stock market.
The reasons for our Portfolio's 2.3-percentage-point shortfall relative
to the average general equity mutual fund are a bit difficult to precisely
identify, because this competitive group includes a large number of
aggressively managed funds, which assume higher risks. Part of our shortfall
was no doubt the result of a heavier emphasis on utility stocks, the
worst-performing market sector over the past six months. We also maintained
only modest representation in capital goods stocks, one of the strongest areas
of the stock market.
IN SUMMARY
Six months ago in our Annual Report--following a bountiful 1995--we cautioned
shareholders that "the financial markets are never a 'one-way street.'"
Despite the continued strength of the stock market thus far in 1996, investors
should be prepared for the inevitable rough patches that surely lie ahead.
Investors who understand that the long-term rewards of investing in stocks go
hand-in-hand with above-average interim volatility are much more apt to "stay
the course"--come what may--with their long-term investment program. We
recommend that you do the same.
We look forward to reporting to you on the Portfolio's full-year results
in our Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
John J. Brennan
President
July 25, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
3
<PAGE> 4
REPORT FROM UBS INTERNATIONAL INVESTMENT LONDON
UBS International Investment London began managing the assets of
Vanguard/Trustees' International Portfolio on April 1, 1996, and it is a great
honor to present our first report to shareholders.
The return on the MSCI EAFE Index for the first six months of 1996 was
+4.7%. Strong international returns were eroded by the strength of the dollar
which rose 4%. Japan, the largest market in EAFE, saw a local return of +7.6%
reduced to +1.2% by the strength of the dollar. The Portfolio's position in
Japan has been reduced under our management and has helped our performance
relative to the Index.
On balance, the Continental European markets showed better returns. In
particular, Spain (+14.4%) and Italy (+13.2%) responded well to the election of
new governments and the hope that firm policies designed to improve economic
management and increase the chances of joining the European single currency
would ensue. The U.K. equity market returned +2.7% in both local currency and
dollar terms since the pound/dollar rate was almost unchanged during the
period.
In taking over responsibility for the management of the Portfolio, we
made a number of significant changes to the geographical allocation. This
resulted in a reduction in the Japanese equity weighting from 32% to 25%,
compared with an Index weight of 40%, which is a non-consensus view.
International investors have been pouring money into Japan recently, such that
foreign ownership of Japanese equities is at an historic high. We would caution
against simple comparisons between the current index level (around 21,000) and
the historic peak (40,000) since the latter was reached during a period of high
speculation, and is out of line with long-term averages.
Respectfully,
Wilson Phillips
Portfolio Manager
UBS International Investment London
July 17, 1996
4
<PAGE> 5
REPORT FROM GEEWAX, TERKER & COMPANY
The first half of 1996 was kind to most equity funds, including Trustees' U.S.
Portfolio, which was up +8.5% for this time period (slightly underperforming
the S&P 500 Index). Smaller technology stocks led the market during this half
year, as did larger consumer nondurables. Our medium-capitalization orientation
and high earnings quality emphasis did not, however, reward the Portfolio as
much as we would have liked, especially in the technology sector.
Within the technology sector, we continue to avoid the "concept"
technology equities and to emphasize the strong, dominant companies that
produce solid earnings gains. Furthermore, we have continued to diversify your
Portfolio across all economic sectors, emphasizing the higher-quality, more
stable stocks within each sector. Our emphasis on earnings quality and
reasonable valuation should bear fruit as the market becomes increasingly
volatile.
We are quite happy with the current composition of the Portfolio and
expect very few changes going forward. As of the writing of this letter, the
earnings reports coming out on the stocks in your Portfolio have been much
better than expected, and we fully anticipate to outpace our peers for the
second half of this year. Your continued confidence in us is greatly
appreciated. As a fellow shareholder, I am quite happy with the Portfolio and
its recent results and look forward to the second half of the year.
Respectfully,
John J. Geewax
Geewax, Terker & Company
July 25, 1996
5
<PAGE> 6
TOTAL INVESTMENT RETURN TABLE
The following table illustrates the results of a single-share investment in
TRUSTEES' EQUITY FUND-INTERNATIONAL PORTFOLIO since inception through June 30,
1996. During the period illustrated, stock prices fluctuated widely; these
results should not be considered a representation of the dividend income or
capital gain or loss that may be realized from an investment made in the
Portfolio today.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- --------------------------------------------------------------------------------------------------------------------
International Portfolio EAFE Index
Value with Income ----------------------------- ----------
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (5/83) $25.00 -- -- $ 25.00 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
1983 25.98 $ .02 $ .44 26.46 + 4.0% +1.8% + 5.8% +11.0%
- --------------------------------------------------------------------------------------------------------------------
1984 24.59 .11 1.09 26.26 - 4.9 +4.1 - 0.8 + 7.9
- --------------------------------------------------------------------------------------------------------------------
1985 30.91 2.54 .93 36.85 +36.1 +4.2 +40.3 +56.7
- --------------------------------------------------------------------------------------------------------------------
1986 38.68 6.55 1.03 55.53 +46.8 +3.9 +50.7 +69.9
- --------------------------------------------------------------------------------------------------------------------
1987 28.66 18.32 .75 68.79 +22.1 +1.8 +23.9 +24.9
- --------------------------------------------------------------------------------------------------------------------
1988 28.27 4.58 .99 81.71 +14.8 +4.0 +18.8 +28.6
- --------------------------------------------------------------------------------------------------------------------
1989 32.44 2.08 .79 102.93 +22.8 +3.2 +26.0 +10.8
- --------------------------------------------------------------------------------------------------------------------
1990 26.58 1.01 .95 90.31 -15.1 +2.8 -12.3 -23.2
- --------------------------------------------------------------------------------------------------------------------
1991 27.78 .61 .77 99.30 + 6.9 +3.1 +10.0 +12.5
- --------------------------------------------------------------------------------------------------------------------
1992 24.44 .28 .67 90.64 -11.0 +2.3 - 8.7 -11.8
- --------------------------------------------------------------------------------------------------------------------
1993 31.04 -- .81 118.28 +27.0 +3.5 +30.5 +32.9
- --------------------------------------------------------------------------------------------------------------------
1994 31.48 .63 .56 124.50 + 3.5 +1.8 + 5.3 + 8.1
- --------------------------------------------------------------------------------------------------------------------
1995 31.11 2.52 .79 136.51 + 7.0 +2.6 + 9.6 +11.6
- --------------------------------------------------------------------------------------------------------------------
1996 (6/30) 32.27 .11 .49 144.26 + 4.1 +1.6 + 5.7 + 4.7
- --------------------------------------------------------------------------------------------------------------------
LIFETIME +477.0% +624.9%
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +14.3% +16.3%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes reinvestment of income dividends and any capital gains distributions
for both the Portfolio and the Index.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
6
<PAGE> 7
The following table illustrates the results of a single-share investment in
TRUSTEES' EQUITY FUND-U.S. PORTFOLIO since inception through June 30, 1996.
During the period illustrated, stock prices fluctuated widely; these results
should not be considered a representation of the dividend income or capital
gain or loss that may be realized from an investment made in the Portfolio
today.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- -----------------------------------------------------------------------------------------------------------------------
U.S. Portfolio S&P 500
Value with Income ----------------------------- -------
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (1/80) $25.00 -- -- $ 25.00 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
1980 26.95 $ .84 $1.49 29.35 +11.2% +6.2% +17.4% +24.6%
- -----------------------------------------------------------------------------------------------------------------------
1981 27.05 .87 1.80 32.38 + 3.6 +6.7 +10.3 - 4.9
- -----------------------------------------------------------------------------------------------------------------------
1982 30.56 1.19 1.75 40.42 +17.4 +7.4 +24.8 +21.5
- -----------------------------------------------------------------------------------------------------------------------
1983 35.72 2.15 1.52 52.19 +23.9 +5.2 +29.1 +22.5
- -----------------------------------------------------------------------------------------------------------------------
1984 30.56 2.51 1.57 50.69 - 7.4 +4.5 - 2.9 + 6.3
- -----------------------------------------------------------------------------------------------------------------------
1985 31.15 4.10 1.45 61.09 +15.4 +5.1 +20.5 +31.8
- -----------------------------------------------------------------------------------------------------------------------
1986 28.69 6.15 1.16 70.41 +11.3 +4.0 +15.3 +18.7
- -----------------------------------------------------------------------------------------------------------------------
1987 22.77 5.88 .72 71.60 - 0.3 +2.0 + 1.7 + 5.3
- -----------------------------------------------------------------------------------------------------------------------
1988 26.35 1.00 .97 89.24 +20.1 +4.5 +24.6 +16.6
- -----------------------------------------------------------------------------------------------------------------------
1989 26.15 3.81 .88 104.61 +13.8 +3.4 +17.2 +31.7
- -----------------------------------------------------------------------------------------------------------------------
1990 22.90 -- 1.08 95.90 -12.4 +4.1 - 8.3 - 3.1
- -----------------------------------------------------------------------------------------------------------------------
1991 28.20 -- .71 121.38 +23.1 +3.5 +26.6 +30.5
- -----------------------------------------------------------------------------------------------------------------------
1992 28.43 .86 .67 129.21 + 3.9 +2.6 + 6.5 + 7.6
- -----------------------------------------------------------------------------------------------------------------------
1993 30.65 2.16 .43 151.49 +15.6 +1.6 +17.2 +10.1
- -----------------------------------------------------------------------------------------------------------------------
1994 29.09 .03 .34 145.56 - 5.0 +1.1 - 3.9 + 1.3
- -----------------------------------------------------------------------------------------------------------------------
1995 37.01 1.05 .61 193.90 +30.9 +2.3 +33.2 +37.6
- -----------------------------------------------------------------------------------------------------------------------
1996 (6/30) 38.13 1.63 .34 210.35 + 7.5 +1.0 + 8.5 +10.1
- -----------------------------------------------------------------------------------------------------------------------
LIFETIME +741.4% +988.9%
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +13.9% +15.7%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes reinvestment of income dividends and any capital gains distributions
for both the Portfolio and the Index.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
7
<PAGE> 8
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
June 30, 1996
<TABLE>
<CAPTION>
Market
Value
INTERNATIONAL PORTFOLIO Shares (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.9%)
- ---------------------------------------------------------------------
AUSTRALIA (8.0%)
Australia & New Zealand Bank
Group Ltd. 2,457,100 $ 11,642
Burns Phillip & Co. 2,257,000 4,263
Coles Myer Ltd. 1,503,000 5,465
Fosters Brewing Group 2,844,000 4,902
Goodman Fielder Ltd. 5,000,000 5,076
Highlands Gold Ltd. 2,370,000 1,175
M.I.M. Holdings Ltd. 11,850,000 15,296
Pacific Dunlop Ltd. 2,300,000 5,177
Pasminco Ltd. 5,572,000 7,850
Santos Ltd. 2,768,300 9,587
Stockland Trust Group 2,023,400 4,618
----------
COUNTRY TOTAL 75,051
----------
- ---------------------------------------------------------------------
BELGIUM (.5%)
Societe Generale de Belgique
Parts de Reserve NPV 64,300 4,874
----------
- ---------------------------------------------------------------------
CANADA (.5%)
Fletcher Challenge Canada Ltd. 81,700 1,107
Imasco Ltd. 171,800 3,510
----------
COUNTRY TOTAL 4,617
----------
- ---------------------------------------------------------------------
DENMARK (1.5%)
Teledanmark B 287,100 14,372
----------
- ---------------------------------------------------------------------
FINLAND (.3%)
* Merita Ltd. A 1,132,000 2,363
----------
- ---------------------------------------------------------------------
FRANCE (14.0%)
BSN-Gervais Danone 162,692 24,618
Casino Guichard Perrachon 292,000 12,053
Compagnie UAP SA 657,000 13,336
Eridania Beghin-Say 31,900 4,994
Esso Francais 10,900 1,164
* Pechiney SA A 170,000 6,865
Societe Centrale des Assurance
Generales de France 125,000 13,743
Societe National Elf Aquitaine 291,700 21,451
Thomson-C.S.F. 409,000 11,496
Total SA B 302,000 22,396
----------
COUNTRY TOTAL 132,116
----------
- ---------------------------------------------------------------------
GERMANY (5.7%)
Bayer AG 477,900 16,876
Berliner Handels und
Frankfurter Bank 193,400 4,993
Hoechst AG 162,800 5,519
* Varta AG 15,480 3,320
Veba AG 250,000 13,282
Viag AG 2,150 857
Volkswagen AG 25,000 9,289
----------
COUNTRY TOTAL 54,136
----------
- ---------------------------------------------------------------------
GREECE (.3%)
* Aegek Pfd. 63,120 327
Aegek SA 267,260 1,776
Alpha Credit Bank 6,090 321
----------
COUNTRY TOTAL 2,424
----------
- ---------------------------------------------------------------------
INDONESIA (1.3%)
PT Astra International (Foreign) 1,695,000 2,458
PT Bank Dagang Nasional
Indonesia (Foreign) 775,250 650
PT Bank Internasional
Indonesia (Foreign) 449,500 2,221
PT Indah Kiat Pulp & Paper
Corp. (Foreign) 1,643,292 1,606
* PT Indah Kiat Pulp & Paper Corp.
Warrants Exp. 4/13/01 197,193 100
PT Indosat (Foreign) 262,000 881
* PT Inti Indorayon Utama (Foreign) 545,000 527
PT Kalbe Farma (Foreign) 353,000 789
* PT Matahari Putra Prima (Foreign) 609,750 1,113
PT Tjiwi Kimia (Foreign) 1,280,294 1,306
PT Unilever Indonesia (Foreign) 9,900 146
----------
COUNTRY TOTAL 11,797
----------
- ---------------------------------------------------------------------
IRELAND (.7%)
Allied Irish Banks 124,600 647
Bank of Ireland Stock (Dublin) 687,000 4,675
Greencore PLC 283,200 1,471
----------
COUNTRY TOTAL 6,793
----------
- ---------------------------------------------------------------------
ITALY (3.5%)
* Breda Ernesto Finanziaria 3,759,600 0
Stet D Risp. Port SPA Non-Cvt. 500,000 1,313
Telecom Italia Mobile SPA 6,786,440 15,162
Telecom Italia SPA 7,463,240 16,041
----------
COUNTRY TOTAL 32,516
----------
- ---------------------------------------------------------------------
JAPAN (24.6%)
* Aoki Corp. 1,628,000 6,041
Calsonic Corp. 81,000 682
Chudenko Corp. 24,000 871
Chugoku Electric Power Co. 184,100 4,079
Daiichi Pharmaceutical Co., Ltd. 188,000 2,897
Fuji Photo Film Co., Ltd. 425,000 13,407
Fujisawa Pharmaceutical 242,000 2,537
Hitachi Ltd. 650,000 6,045
Hokkaido Electric Power 68,400 1,509
Hokuriku Electric Power 129,300 2,924
House Foods Industrial Co., Ltd. 497,000 9,425
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Ishikawajima-Harima
Heavy Industries 1,179,000 $ 5,751
Itoham Food Co., Ltd. 333,000 2,535
Kandenko Co. 600 8
Kyudenko Corp. 172,000 2,305
Kyushu Electric Power 215,200 4,846
Lion Corp. 91,000 546
Marudai Food Co. 596,000 4,298
Matsushita Electric Industrial
Co., Ltd. 633,000 11,773
Mitsubishi Estate Co., Ltd. 850,000 11,702
Mitsubishi Heavy Industries Ltd. 650,000 5,648
Mitsubishi Material 1,840,000 9,998
Nippon Flour Mills 100,000 589
Nippon Meat Packers, Inc. 241,000 3,428
Nippon Yusen 890,000 5,144
Nishimatsu Construction 671,000 7,341
Nissan Fire & Marine Insurance
Co., Ltd. 1,100,000 7,963
Nisshin Oil Mills 297,000 2,459
Nisshinbo Industries 1,040,000 10,240
Okumura Corp. 300,000 2,505
Santen Pharmaceutical Co. Ltd. 24,800 577
Sekisui House Ltd. 335,000 3,818
Showa Electric Wire & Cable 197,000 1,117
Sony Corp. 85,000 5,587
Sumitomo Forestry 143,000 2,125
Sumitomo Marine & Fire
Insurance Co. 900,000 7,836
Tokyo Style Co. 144,000 2,508
Tokyu Construction 595,000 2,750
Toppan Printing Co. 750,000 10,940
Toray Industries, Inc. 1,566,000 10,793
Yamaha Motor Co. 1,559,000 15,918
Yamanouchi Pharmaceuticals Ltd. 875,000 18,985
----------
COUNTRY TOTAL 232,450
----------
- ---------------------------------------------------------------------
KOREA (.1%)
Hyundai Motor Co. Ltd. 80,500 1,006
* Hyundai Motor Co. Ltd. GDS Rfd. 19,500 244
----------
COUNTRY TOTAL 1,250
----------
- ---------------------------------------------------------------------
MALAYSIA (1.0%)
Arab Malaysia Corp. 1,005,000 3,947
DCB Holdings Bhd. 815,000 2,793
Hong Leong Industries Bhd. 298,000 1,445
Malaysian International Shipping
Corp. Bhd. (Foreign) 530,666 1,648
----------
COUNTRY TOTAL 9,833
----------
- ---------------------------------------------------------------------
NETHERLANDS (4.1%)
ABN AMRO Holdings NV 224,000 12,020
Fortis Amev NV 404,000 11,573
Internationale Nederlanden
Groep NV 509,500 15,193
----------
COUNTRY TOTAL 38,786
----------
- ---------------------------------------------------------------------
NEW ZEALAND (1.0%)
Brierley Investment 4,866,300 4,600
* Fletcher Challenge Paper 454,200 877
Lion Nathan 1,516,100 3,957
----------
COUNTRY TOTAL 9,434
----------
- ---------------------------------------------------------------------
NORWAY (1.6%)
Den Norske Bank 586,900 1,780
Norsk Hydro AS 281,000 13,754
----------
COUNTRY TOTAL 15,534
----------
- ---------------------------------------------------------------------
PHILIPPINES (.3%)
Engineering Equipment 8,870,000 779
JG Summit Holdings Inc. B 3,226,000 1,207
Metropolitan Bank & Trust Co. 26,077 731
* Philex Mining Corp. B 3,807,000 487
----------
COUNTRY TOTAL 3,204
----------
- ---------------------------------------------------------------------
PORTUGAL (.3%)
Soares da Costa S.A.
(Sociedade de Cinstrucoes) 84,500 717
* Sonae Industries SGPS SA 54,700 454
Sonae Investimentos SGPS SA 58,820 1,528
----------
COUNTRY TOTAL 2,699
----------
- ---------------------------------------------------------------------
SINGAPORE (.5%)
Dairy Farm International 1,585,740 1,340
* Jardine Strategic 651,000 2,083
Rothmans Industries Ltd. 267,000 1,031
----------
COUNTRY TOTAL 4,454
----------
- ---------------------------------------------------------------------
SPAIN (5.1%)
Argentaria SA 69,300 3,021
Aumar-Autopistas del
Mare Nostrum 471,800 6,090
Banco Bilbao Vizcaya 211,508 8,562
Fuerzas Electrica 369,700 3,013
Iberdrola SA 878,100 9,006
Repsol SA 200,000 6,949
Tabacalera SA 13,700 689
Union Electrica Fenosa 1,613,500 10,370
----------
COUNTRY TOTAL 47,700
----------
- ---------------------------------------------------------------------
SWEDEN (5.1%)
Astra AB Series A 328,000 14,483
Electrolux Series B 218,000 10,956
Marieberg Tidnings AB Class A 55,000 1,376
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
INTERNATIONAL Value
PORTFOLIO (continued) Shares (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
SKF AB Series A 236,000 $ 5,477
Stora Kopparberg Series A 1,206,000 15,903
----------
COUNTRY TOTAL 48,195
----------
- ---------------------------------------------------------------------
SWITZERLAND (4.4%)
Ciba Geigy (Registered) 11,000 13,402
Georg Fischer AG (Bearer) 3,630 4,191
Kuoni Reisen (Registered) 935 2,144
Nestle SA (Registered) 18,000 20,550
Sulzer (Registered) 1,875 1,205
----------
COUNTRY TOTAL 41,492
----------
- ---------------------------------------------------------------------
THAILAND (.2%)
Siam Pulp & Paper (Foreign) 251,100 544
Thai Plastic Chemical
Co., Ltd. (Foreign) 187,850 828
* Thai Telephone and
Telecom (Foreign) 93,750 201
TPI Polene Co., Ltd. (Foreign) 91,875 416
----------
COUNTRY TOTAL 1,989
----------
- ---------------------------------------------------------------------
TURKEY (.4%)
* Akbank T.A.S. 9,700,000 1,169
Akbank Turkery 4,850,000 584
Altinyildiz Mensucat 4,982,750 1,182
Netas 3,705,850 880
----------
COUNTRY TOTAL 3,815
----------
- ---------------------------------------------------------------------
UNITED KINGDOM (12.9%)
Allied Domecq PLC 1,914,000 13,472
Anglian Water 422,000 3,869
B.A.T. (British American
Tobacco) Industries 1,240,000 9,653
British Gas 6,850,000 19,051
BTR PLC 4,046,000 15,905
Marley 3,500,000 7,043
MEPC PLC 2,391,000 15,157
National Grid Group PLC 98,673 261
Severn Trent Water PLC 328,300 2,775
South West Water 244,400 2,483
Southern Water 293,600 4,557
T & N PLC 1,728,500 3,733
United Biscuits Holdings PLC 2,903,000 9,698
United Utilities PLC 265,000 2,244
Whitbread & Co. A 805,800 8,877
Williams Holdings PLC 531,100 2,781
----------
COUNTRY TOTAL 121,559
----------
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $869,868) 923,453
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.1%)
- ---------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.35%, 7/1/96
(Cost $9,952) $ 9,952 $ 9,952
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (99.0%)
(Cost $879,820) 933,405
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.0%)
- ---------------------------------------------------------------------
Other Assets--Notes C and F 62,058
Liabilities--Note F (52,250)
----------
9,808
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 29,228,444 outstanding
shares of beneficial interest
(unlimited authorization) $943,213
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $32.27
=====================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
GDS--Global Depository Share.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
PAID IN CAPITAL--NOTE D $749,077 $25.63
UNDISTRIBUTED NET
INVESTMENT INCOME--
NOTE E 1,894 .06
ACCUMULATED NET
REALIZED GAINS--
NOTES D AND E 138,635 4.75
UNREALIZED APPRECIATION--
NOTE D:
INVESTMENT SECURITIES 53,585 1.83
FOREIGN CURRENCIES 22 --
- ---------------------------------------------------------------------
NET ASSETS $943,213 $32.27
- ---------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
U.S. PORTFOLIO Shares (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.9%)
- ---------------------------------------------------------------------
BASIC MATERIALS (3.3%)
Albemarle Corp. 3,500 $ 64
Aluminum Co. of America 3,000 172
* Cytec Industries, Inc. 3,500 299
Dow Chemical Co. 9,400 714
E.I. du Pont de Nemours & Co. 13,600 1,076
* Fort Howard Corp. 11,600 231
Georgia-Pacific Corp. 3,200 227
Hercules, Inc. 2,200 122
Praxair, Inc. 21,700 917
Sigma Aldrich Corp. 1,100 58
Union Carbide Corp. 20,500 815
----------
SECTOR TOTAL 4,695
----------
- ---------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (8.3%)
AGCO Corp. 4,000 111
Caterpillar, Inc. 9,600 650
Clayton Homes Inc. 6,875 138
Deere & Co. 13,000 520
Dover Corp. 17,200 793
General Electric Co. 32,900 2,846
Harsco Corp. 2,200 148
Honeywell, Inc. 4,000 218
Illinois Tool Works, Inc. 1,900 128
* International Rectifier Corp. 13,900 224
JLG Industries, Inc. 3,800 282
Lockheed Martin Corp. 11,579 973
Parker Hannifin Corp. 3,500 148
Robbins & Myers, Inc. 1,500 67
Rockwell International Corp. 20,200 1,156
TRW, Inc. 9,100 818
Tecumseh Products Co. Class A 2,000 108
Tyco International Ltd. 34,406 1,402
* UCAR International, Inc. 800 33
United Technologies Corp. 10,200 1,174
----------
SECTOR TOTAL 11,937
----------
- ---------------------------------------------------------------------
CONSUMER CYCLICALS (10.2%)
Apple South, Inc. 1,900 51
Black & Decker Corp. 4,300 166
Callaway Golf Co. 11,500 382
Chrysler Corp. 20,200 1,252
* Consolidated Stores, Inc. 3,900 143
Dana Corp. 9,500 295
Darden Restaurants Inc. 17,900 192
The Walt Disney Co. 32,000 2,012
Eastman Kodak Co. 1,500 117
* Emmis Broadcasting Corp. Class A 4,500 223
Ford Motor Co. 18,100 586
Gannett Co., Inc. 900 64
The Gap, Inc. 3,500 112
General Motors Corp. 21,400 1,121
The Goodyear Tire & Rubber Co. 31,000 1,496
* Grand Casinos, Inc. 4,300 111
* HFS Inc. 12,000 840
Harley-Davidson, Inc. 1,500 62
Home Depot, Inc. 22,400 1,210
* ITT Corp. 900 60
ITT Industries, Inc. 1,400 35
Mattel, Inc. 5,375 154
McDonald's Corp. 17,400 813
* Mirage Resorts, Inc. 3,400 184
* Officemax Inc. 21,700 518
* PETsMART, Inc. 1,700 80
Rite Aid Corp. 31,500 937
Sears, Roebuck & Co. 12,200 593
Snap-On Inc. 3,000 142
Times Mirror Co. Class A 6,400 278
Wal-Mart Stores, Inc. 16,000 406
----------
SECTOR TOTAL 14,635
----------
- ---------------------------------------------------------------------
CONSUMER STAPLES (12.6%)
Albertson's, Inc. 1,000 41
American Stores Co. 23,400 965
Avon Products, Inc. 44,200 1,995
The Coca-Cola Co. 29,000 1,417
Great Atlantic & Pacific Tea Co., Inc. 5,000 164
Hannaford Brothers Co. 4,950 161
Hormel Foods Corp. 8,000 214
* The Kroger Co. 14,700 581
PepsiCo, Inc. 77,500 2,742
Philip Morris Cos., Inc. 48,700 5,065
Procter & Gamble Co. 19,400 1,758
* Safeway, Inc. 51,000 1,683
Sara Lee Corp. 3,200 104
* Vons Cos., Inc. 33,500 1,252
----------
SECTOR TOTAL 18,142
----------
- ---------------------------------------------------------------------
ENERGY (9.1%)
Amoco Corp. 5,600 405
Ashland Inc. 11,800 468
Atlantic Richfield Co. 9,700 1,149
Baker Hughes, Inc. 17,000 559
Chevron Corp. 50,900 3,003
Exxon Corp. 17,800 1,546
* Global Marine, Inc. 15,700 218
Halliburton Co. 8,200 455
Lomak Petroleum, Inc. 5,000 70
Mobil Corp. 4,600 516
* Noble Drilling Corp. 2,800 39
Occidental Petroleum Corp. 5,000 124
Phillips Petroleum Co. 4,500 188
Sonat Offshore Drilling Co. 3,700 187
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
U.S. PORTFOLIO (continued) Shares (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Texaco Inc. 32,200 $ 2,701
Tidewater, Inc. 2,000 88
Tosco Corp. 14,800 744
USX-Marathon Group 24,800 499
Vintage Petroleum, Inc. 6,000 153
----------
SECTOR TOTAL 13,112
----------
- ---------------------------------------------------------------------
FINANCIAL (13.4%)
AFLAC, Inc. 4,500 134
AT&T Capital Corp. 500 22
Aetna Life & Casualty Co. 2,700 193
Allstate Corp. 21,554 983
American Express Co. 10,100 451
American General Corp. 10,900 396
American International Group, Inc. 1,800 178
* American Travellers Corp. 500 11
Banc One Corp. 8,100 275
Bancorp Hawaii, Inc. 5,000 180
Bank of Boston Corp. 6,700 332
BankAmerica Corp. 13,000 985
Bankers Trust New York Corp. 2,300 170
Bear Stearns Co., Inc. 6,825 161
* CNA Financial Corp. 3,000 309
Capital One Financial Corp. 1,500 43
Charter One Financial 4,000 139
Chase Manhattan Corp. 13,364 944
Citicorp 17,700 1,462
Conseco Co., Inc. 8,000 320
CoreStates Financial Corp. 6,800 262
Countrywide Credit Industries, Inc. 12,500 309
Dean Witter Discover & Co. 9,800 561
Federal National Mortgage Assn. 68,600 2,298
Finova Group, Inc. 4,000 195
First Chicago NBD Corp. 8,120 318
First Tennessee National Corp. 2,700 82
First USA Inc. 18,400 1,012
Great Western Financial Corp. 1,900 45
Green Tree Financial Corp. 33,000 1,031
Household International, Inc. 3,000 228
Lehman Brothers Holdings, Inc. 3,300 82
MGIC Investment Corp. 6,800 382
Mellon Bank Corp. 6,200 353
The Money Store 1,500 33
National City Corp. 4,100 144
NationsBank Corp. 2,000 165
Old Republic International Corp. 3,450 74
PNC Bank Corp. 3,900 116
Reliastar Financial Corp. 7,000 302
SAFECO Corp. 1,200 42
St. Paul Cos., Inc. 2,600 139
Charles Schwab Corp. 25,500 625
Standard Federal Bank 4,200 162
Student Loan Marketing Assn. 11,500 851
SunAmerica Inc. 16,500 932
TIG Holdings, Inc. 6,500 189
Travelers Group Inc. 6,150 281
Union Planters Corp. 6,300 191
Washington Mutual Inc. 4,800 144
Zions Bancorp. 1,900 139
----------
SECTOR TOTAL 19,375
----------
- ---------------------------------------------------------------------
HEALTH CARE (13.0%)
Abbott Laboratories 24,000 1,044
American Home Products Corp. 28,600 1,720
* Amgen, Inc. 3,700 199
Baxter International, Inc. 12,600 595
Bergen Brunswig Corp. Class A 11,650 323
* Boston Scientific Corp. 4,000 180
Bristol-Myers Squibb Co. 40,300 3,627
Cardinal Health, Inc. 2,900 209
Columbia/HCA Healthcare Corp. 22,800 1,217
* Genetics Institute Inc.
Depository Shares 1,600 100
Guidant Corp. 12,319 607
* HEALTHSOUTH Corp. 4,600 166
Johnson & Johnson 62,800 3,109
Eli Lilly & Co. 13,000 845
* Lincare Holdings Inc. 1,500 59
Medtronic, Inc. 12,300 689
Omnicare, Inc. 3,200 85
* OrNda Healthcorp 8,500 204
* Oxford Health Plan 24,000 984
Pfizer, Inc. 25,700 1,834
Pharmacia & Upjohn, Inc. 17,500 777
* Physician Computer Network, Inc. 10,000 114
* Steris Corp. 2,000 63
----------
SECTOR TOTAL 18,750
----------
- ---------------------------------------------------------------------
TECHNOLOGY (12.1%)
AVX Corp. 600 11
* America Online, Inc. 3,500 152
* Amphenol Corp. 3,400 78
* Analog Devices, Inc. 5,500 140
* Applied Materials, Inc. 13,200 401
* Atmel Corp. 19,500 587
Avnet, Inc. 20,300 855
* C-Cube Microsystems, Inc. 700 23
* Cabletron Systems, Inc. 3,750 257
* Cadence Design Systems, Inc. 6,750 228
* Cisco Systems, Inc. 7,800 442
* COMPAQ Computer Corp. 20,100 990
Computer Associates
International, Inc. 19,550 1,393
Harris Corp. 2,900 177
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ---------------------------------------------------------------------
<S> <C> <C>
Hewlett-Packard Co. 20,400 $ 2,032
Intel Corp. 29,500 2,165
International Business
Machines Corp. 11,900 1,178
* KLA Instruments Corp. 11,100 257
* MEMC Electronic Materials, Inc. 1,200 47
* Microsoft Corp. 14,500 1,740
* Octel Communications Corp. 2,000 39
* Oracle Corp. 15,000 591
* Parametric Technology Corp. 3,800 164
Paychex, Inc. 3,150 151
Pitney Bowes, Inc. 3,300 158
* Premisys Communications, Inc. 700 43
* SGS-Thomson Microelectronics
NV ADR 1,100 39
* Seagate Technology 1,950 88
* Shiva Corp. 1,000 80
* Solectron Corp. 1,100 42
* StrataCom, Inc. 3,000 169
* Sun Microsystems, Inc. 15,000 881
* Tandem Computers, Inc. 5,500 68
* Technology Solutions Co. 500 17
* Tellabs, Inc. 3,500 234
* 3 Com Corp. 4,000 183
* U.S. Robotics Corp. 12,000 1,023
* VeriFone, Inc. 1,700 71
* Western Digital Corp. 600 15
Xerox Corp. 2,800 150
----------
SECTOR TOTAL 17,359
----------
- ---------------------------------------------------------------------
TRANSPORT & SERVICES (2.6%)
* AMR Corp. 11,100 1,010
Burlington Northern Santa Fe Corp. 10,300 833
CSX Corp. 11,500 555
Delta Air Lines, Inc. 8,800 730
* Mesa Airlines, Inc. 6,200 72
Southwest Airlines Co. 6,400 186
* UAL Corp. 5,600 301
* Wisconsin Central
Transportation Corp. 4,000 129
----------
SECTOR TOTAL 3,816
----------
- ---------------------------------------------------------------------
UTILITIES (11.0%)
* AES Corp. 500 14
AT&T Corp. 8,800 546
Allegheny Power System, Inc. 4,700 145
American Water Works Co., Inc. 4,100 165
Ameritech Corp. 28,100 1,668
Baltimore Gas & Electric Co. 5,100 145
Bell Atlantic Corp. 38,700 2,467
BellSouth Corp. 3,800 161
Brooklyn Union Gas Co. 3,200 87
Central & South West Corp. 12,900 374
DQE Inc. 19,700 542
FPL Group, Inc. 17,700 814
Frontier Corp. 13,600 417
GTE Corp. 70,900 3,173
MCI Communications Corp. 5,400 138
MCN Corp. 26,200 639
NYNEX Corp. 15,600 741
PP&L Resources Inc. 5,900 139
Pinnacle West Capital Corp. 18,300 556
Potomac Electric Power Co. 2,200 58
Southern New England
Telecommunications Corp. 23,000 966
Sprint Corp. 29,200 1,226
Williams Cos., Inc. 13,800 683
----------
SECTOR TOTAL 15,864
----------
- ---------------------------------------------------------------------
MISCELLANEOUS (2.3%)
* Access Health Marketing, Inc. 1,000 47
AlliedSignal Inc. 4,300 246
American Financial Group, Inc. 16,900 509
* APAC Teleservices, Inc. 300 11
* Colonial Data Technologies Corp. 2,000 30
* Litton Industries, Inc. 23,100 1,005
Loews Corp. 5,900 465
McKesson Corp. 10,000 476
Service Corp. International 500 29
Stewart Enterprises, Inc. Class A 750 23
Textron, Inc. 5,900 471
* U.S. Industries, Inc. 1,000 24
----------
SECTOR TOTAL 3,336
----------
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $111,020) 141,021
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.4%)
- ---------------------------------------------------------------------
Face
Amount
(000)
------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.35%, 7/1/96
(Cost $3,492) $3,492 3,492
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(Cost $114,512) 144,513
- ---------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
U.S. PORTFOLIO (continued) (000)+
- ---------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-.3%)
Other Assets--Notes C and F $ 1,522
Liabilities--Note F (2,029)
----------
(507)
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 3,776,967 outstanding
shares of beneficial interest
(unlimited authorization) $144,006
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $38.13
=====================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
PAID IN CAPITAL $105,071 $27.82
UNDISTRIBUTED NET
INVESTMENT INCOME 54 .02
ACCUMULATED NET
REALIZED GAINS 8,880 2.35
UNREALIZED APPRECIATION
OF INVESTMENTS--NOTE D 30,001 7.94
- ---------------------------------------------------------------------
NET ASSETS $144,006 $38.13
- ---------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INTERNATIONAL U.S.
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . . . . . . . $ 17,301 $ 1,552
Interest . . . . . . . . . . . . . . . . . . . . . . . 1,600 85
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 18,901 1,637
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees . . . . . . . . . . . . . . . . . . . . . $ 744 $214
Performance Adjustments . . . . . . . . . . . . . . (94) 650 (62) 152
------- ----
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . 1,207 148
Marketing and Distribution . . . . . . . . . . . . . 105 1,312 13 161
------- ----
Taxes (other than income taxes) . . . . . . . . . . . . 81 11
Custodian Fees . . . . . . . . . . . . . . . . . . . . 386 13
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . . . . . 52 7
Annual Meeting and Proxy Costs . . . . . . . . . . . . 8 1
Trustees' Fees and Expenses . . . . . . . . . . . . . . 2 --
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 2,495 349
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 16,406 1,288
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold . . . . . . . . . . . . . . 139,448 8,866
Foreign Currencies and Forward Currency Contracts . . . 2,296 --
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . . 141,744 8,866
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . (102,767) 1,168
Foreign Currencies and Forward Currency Contracts . . . (828) --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . (103,595) 1,168
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . . $ 54,555 $11,322
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Dividends for the International Portfolio are net of foreign withholding
taxes of $2,207,000.
15
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO U.S. PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED December 31, ENDED December 31,
JUNE 30, 1996 1995 JUNE 30, 1996 1995
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 16,406 $ 23,153 $ 1,288 $ 2,230
Realized Net Gain . . . . . . . . . . . . . . 141,744 72,176 8,866 11,499
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . (103,595) (3,263) 1,168 21,505
- ---------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . 54,555 92,066 11,322 35,234
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . (14,292) (24,492) (1,258) (2,220)
Realized Net Gain . . . . . . . . . . . . . . (3,449) (74,633) (5,910) (3,834)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . (17,741) (99,125) (7,168) (6,054)
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . 98,436 181,298 11,499 22,182
Issued in Lieu of Cash Distributions . . . . . 16,597 93,901 6,828 5,704
Redeemed . . . . . . . . . . . . . . . . . (196,760) (333,139) (15,930) (32,389)
- ---------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . (81,727) (57,940) 2,397 (4,503)
- ---------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . (44,913) (64,999) 6,551 24,677
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 988,126 1,053,125 137,455 112,778
- ---------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . $ 943,213 $ 988,126 $144,006 $137,455
=====================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . 3,081 5,672 302 646
Issued in Lieu of Cash Distributions 519 3,046 183 160
Redeemed . . . . . . . . . . . . . . (6,138) (10,409) (422) (968)
- ---------------------------------------------------------------------------------------------------------------------
(2,538) (1,691) 63 (162)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
SIX MONTHS ENDED ------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $31.11 $31.48 $31.04 $24.44 $27.78 $26.58
-------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . .57 .750 .55 .50 .66 .78
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . 1.19 2.185 1.08 6.91 (3.05) 1.80
-------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 1.76 2.935 1.63 7.41 (2.39) 2.58
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . (.49) (.790) (.56) (.81) (.67) (.77)
Distributions from Realized Capital Gains . . . . . (.11) (2.515) (.63) -- (.28) (.61)
-------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . (.60) (3.305) (1.19) (.81) (.95) (1.38)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $32.27 $31.11 $31.48 $31.04 $24.44 $27.78
========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . +5.68% +9.65% +5.25% +30.49% -8.72% +9.96%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $943 $988 $1,053 $982 $678 $878
Ratio of Total Expenses to Average Net Assets . . . . . .51%* .47% .34% .40% .42% .38%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . 3.36%* 2.29% 1.71% 1.76% 2.48% 2.87%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 138%* 47% 40% 39% 51% 46%
Average Commission Rate Paid . . . . . . . . . . . . . $.0638+ N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
+Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
17
<PAGE> 18
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
U.S. PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
SIX MONTHS ENDED --------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $37.01 $29.09 $30.65 $28.43 $28.20 $22.90
-------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . .35 .62 .34 .43 .68 .71
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . 2.74 8.96 (1.53) 4.38 1.08 5.30
-------- -------- ------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 3.09 9.58 (1.19) 4.81 1.76 6.01
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . (.34) (.61) (.34) (.43) (.67) (.71)
Distributions from Realized Capital Gains . . . . . (1.63) (1.05) (.03) (2.16) (.86) --
-------- -------- ------- -------- -------- --------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . (1.97) (1.66) (.37) (2.59) (1.53) (.71)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $38.13 $37.01 $29.09 $30.65 $28.43 $28.20
========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . +8.48% +33.21% -3.91% +17.24% +6.45% +26.57%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . $144 $137 $113 $119 $68 $115
Ratio of Total Expenses to Average Net Assets . . . . . .49%* .56% .73% .90% .65% .44%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . 1.82%* 1.79% 1.14% 1.43% 2.33% 2.67%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 84%* 77% 151% 139% 209% 84%
Average Commission Rate Paid . . . . . . . . . . . . . $.0564+ N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
This disclosure is required by the SEC beginning in 1996.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Vanguard/Trustees' Equity Fund is registered under the Investment Company Act
of 1940 as a diversified open-end investment company and consists of the
International and U.S. Portfolios. The International Portfolio invests in
securities of foreign issuers which may subject the Portfolio to investment
risks not normally associated with investing in securities of United States
corporations.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Market values for securities listed on U.S. exchanges
are based upon the latest quoted sales prices for such securities on the
appropriate exchange as of the close of the New York Stock Exchange
(generally 4:00 PM) on the valuation date; such securities not traded are
valued at the mean of the latest quoted bid and asked prices. Securities
listed on foreign exchanges are valued at the latest quoted sales prices.
Securities not listed are valued at the latest quoted bid prices.
Temporary cash investments are valued at cost which approximates market
value.
2. FOREIGN CURRENCY: Securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollars at the bid prices of
those currencies against U.S. dollars last quoted by major banks as of 5:00
PM Geneva Time on the valuation date.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on securities from the
portion arising from changes in market prices of securities. Such
fluctuations are included in realized net gains (losses) and unrealized
appreciation (depreciation) on investment securities. Changes in the value
of other assets and liabilities resulting from changes in foreign exchange
rates are recorded as unrealized foreign currency gains (losses) until
settled in cash, at which time realized foreign currency gains (losses) are
recognized.
3. FORWARD CURRENCY CONTRACTS: The International Portfolio enters into forward
currency contracts to protect the value of securities and related
receivables and payables against changes in future foreign exchange rates.
Risks associated with such contracts include movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the
counterparties to fulfill their obligations under the contracts.
Fluctuations in the value of such contracts are recorded as unrealized
appreciation (depreciation) until terminated, at which time realized gains
(losses) are recognized.
4. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income taxes is required in
the financial statements.
5. REPURCHASE AGREEMENTS: Each Portfolio of the Fund, along with other members
of The Vanguard Group, transfers uninvested cash balances into a Pooled
Cash Account, the daily aggregate of which is invested in repurchase
agreements secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until
maturity of each repurchase agreement. Provisions of each agreement require
that the market value of this collateral is sufficient in the event of
default; however, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
6. OTHER: Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Security transactions are accounted for on the date
the securities are purchased or sold. Costs used in determining realized
gains and losses are those of specific securities sold.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (continued)
B. INTERNATIONAL PORTFOLIO: Under the terms of a contract which expires March
30, 1998, the Portfolio pays UBS International Investment London an investment
advisory fee calculated at an annual percentage rate of average net assets of
the Portfolio. Prior to March 31, 1996, Batterymarch Financial Management
served as adviser to the Portfolio. The base advisory fee paid to Batterymarch
was subject to quarterly adjustments based on performance relative to the
Morgan Stanley Capital International Europe, Australasia, and Far East Index.
For the six months ended June 30, 1996, the aggregate investment advisory fees
of the Portfolio represented an effective annual rate of .15 of 1% of average
net assets, before a decrease of $94,000 (an annual rate of .02 of 1%) based on
performance.
U.S. PORTFOLIO: Under the terms of a contract which expires March 31, 1998, the
Portfolio pays Geewax, Terker & Company an investment advisory fee calculated
at an annual percentage rate of average net assets of the Portfolio. The base
fee thus computed is subject to quarterly adjustments based on performance
relative to that of the Standard & Poor's 500 Composite Stock Price Index. For
the six months ended June 30, 1996, the investment advisory fee of the
Portfolio represented an effective annual rate of .30 of 1% of average net
assets, before a decrease of $62,000 (an annual rate of .09 of 1%) based on
performance.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the Fund under methods approved by the Board of Trustees. At June 30, 1996,
the Fund had contributed capital of $112,000 to Vanguard (included in Other
Assets), representing .6% of Vanguard's capitalization. The Fund's trustees and
officers are also directors and officers of Vanguard.
D. During the six months ended June 30, 1996, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
-----------------------
Portfolio Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
INTERNATIONAL $644,302 $693,767
U.S. 58,021 58,233
- -------------------------------------------------------
</TABLE>
During the six months ended June 30, 1996, the International Portfolio realized
$1,860,000 of net capital gains resulting from in-kind redemptions. Such gains
are not taxable income to the Portfolio and, therefore, will not be distributed
to shareholders; accordingly, such gains have been reclassified from
accumulated net realized gains to paid in capital.
At June 30, 1996, net unrealized appreciation for Federal income tax purposes
was:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(000)
----------------------------------------
Appreciated Depreciated Net Unrealized
Portfolio Securities Securities Appreciation
- ------------------------------------------------------------
<S> <C> <C> <C>
INTERNATIONAL $93,213 $(39,628) $53,585
U.S. 30,865 (864) 30,001
- ------------------------------------------------------------
</TABLE>
At June 30, 1996, the International Portfolio had net unrealized foreign
currency gains of $22,000 resulting from the translation of other assets and
liabilities.
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
In the International Portfolio, such differences primarily relate to
investments in securities considered to be "passive foreign investment
companies," for which any unrealized appreciation and/or realized gains are
required to be included in distributable net income for tax purposes.
20
<PAGE> 21
During the six months ended June 30, 1996, the International Portfolio realized
gains on the sale of passive foreign investment companies of $705,000, which
had been included in 1995 and prior years' distributable net income for tax
purposes; accordingly, such gains have been reclassified from accumulated net
realized gains to undistributed net income.
During the six months ended June 30, 1996, the International Portfolio realized
net foreign currency losses of $173,000, which decreased distributable net
income for tax purposes; accordingly, such losses have been reclassified from
accumulated net realized gains to undistributed net income.
F. The market values of securities on loan to broker/dealers at June 30, 1996,
and the cash collateral received with respect to such loans were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
------------------------
Market Value Cash
of Loaned Collateral
Portfolio Securities Received
- --------------------------------------------------------
<S> <C> <C>
INTERNATIONAL $44,965 $47,565
U.S. 320 328
- --------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
21
<PAGE> 22
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman of the Board
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President and Chief Executive Officer
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus of Rhone-Poulenc Rorer Inc.; Director of
Sun Company, Inc.; Director of Westinghouse Electric Corporation.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National Steel
Corporation.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications
Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and
The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Co. and
NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart
Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
22
<PAGE> 23
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Information Technology Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
23
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 1 (800) 662-2739
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
All Funds in the Vanguard Family are offered by prospectus only.
Q252-6/96
VANGUARD
TRUSTEES'
EQUITY FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
