VANGUARD REAL ESTATE FUND I /MA/, 10-K, 1995-03-31

VANGUARD REAL ESTATE FUND I /MA/
10-K, 1995-03-31
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
Annual Report Pursuant To Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1994 0-16785

VANGUARD REAL ESTATE FUND I, A Sales-Commission-Free Income Properties Fund
(Exact Name of Registrant as specified in its charter)

Massachusetts 23-6861048
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

Vanguard Financial Center, Malvern, PA 19355
(Address of principal executive offices) (Zip Code)
610-669-1000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Shares of
Beneficial
Interest, no
par value

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES _X_ NO ___.

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]

The aggregate market value of the registrant's outstanding shares of
beneficial interest held by non-affiliates on February 28, 1995 was
$45,389,347 based upon the last sale price of the shares on February 28,
1995.

As of February 28, 1995, 11,019,978 shares of beneficial interest were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Annual Report to Shareholders
for fiscal year ended December 31, 1994 Part II (Items 6-8)

Portions of the definitive Proxy Statement,
filed pursuant to Regulation 14A, to be
issued in connection with the Annual Meeting
of Shareholders to be held on April 18, 1995 Part III (Items 10-13)

<PAGE>
INDEX

ITEM NO. PAGE NO.

Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

PART I

1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 8
4. Submission of Matters to a Vote of Security Holders . . . . . . 8

PART II

5. Market for Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . 8
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . .10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . .10
8. Financial Statements and Supplementary Data . . . . . . . . . .10
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . .10

PART III

10. Directors and Executive Officers of the Registrant. . . . . . .10
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . .10
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . . .10
13. Certain Relationships and Related Transactions. . . . . . . . .11

PART IV

14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . .12
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . .23
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . .24

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

1
<PAGE>

PART I

Item 1. Business

Vanguard Real Estate Fund I, A Sales-Commission-Free Income Properties
Fund (the "Fund"), was organized on September 10, 1986 as a Massachusetts
business trust and is a qualified finite-life real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended. The Fund has
no employees. The Fund's Declaration of Trust precludes the Fund from
reinvesting net proceeds from the sale or repayment of its real estate
investments after December 31, 1993 and contemplates the liquidation of all
the Fund's investments after a period of approximately seven to twelve
years following the completion of its initial public offering, or between
June 30, 1994 and 1999, respectively.

On December 12, 1994, the Fund's Board of Trustees adopted a Plan of
Liquidation and Termination (the Liquidation Plan ). The Trustee's
decision to adopt the Liquidation Plan at this point in the Fund's
initially contemplated liquidation period was driven by several factors,
including real estate market conditions affecting each investment in the
Fund's portfolio and tax considerations affecting real estate investment
trusts. The Liquidation Plan provides that the Fund will dispose of all of
its assets, wind up its affairs, pay or adequately provide for the payment
of all of its liabilities and distribute for the benefit of its
shareholders all of the Fund's assets over 24 months, in complete
cancellation and redemption of all issued and outstanding shares of
beneficial interest. Under the Liquidation Plan, the Fund's Adviser,
Aldrich, Eastman and Waltch, L.P., Trustees and officers are authorized and
directed to take any and all actions as may be necessary or convenient to
market the assets of the Fund and convert them into a form that may be
distributed to shareholders. The Liquidation Plan provides that the Fund's
assets may be sold, conveyed, transferred or otherwise disposed of when and
on such terms and conditions as are deemed by the Trustees to be in the
best interests of the Fund and the shareholders.

The Fund is currently in the process of liquidating its real estate
investments and distributing the net proceeds to its shareholders in
accordance with the Liquidation Plan. At December 31, 1994, the Fund held
investments in four income-producing properties or portfolios, including
three commercial properties (consisting of one office complex located
outside of Minneapolis, Minnesota, and shopping centers located in
Torrance, California and Durham, North Carolina) and one residential
apartment complex located in Montgomery County, Maryland. It is
contemplated that the Fund will be completely liquidated and dissolved by
December 12, 1996. To the extent that the Fund has not disposed of all of
its assets or made provision for all of its liabilities on December 12,
1996, the Fund intends to form a liquidating trust, the beneficiaries of
which will be the shareholders of the Fund. All assets and liabilities of
the Fund not previously disposed of and discharged will be transferred to
the liquidating trust. Shares of the Fund would no longer be traded and the
beneficial interests in the liquidating trust would not be readily
transferable. As of February 28, 1995, approximately $41 million was
invested in real estate assets, of which $28 million (68%) consisted of real
estate owned directly, $11 million (27%) consisted of a mortgage loan
investment, and $2 million (5%) consisted of marketable securities.

Pending disposition of the Fund's real estate investments pursuant to
the Liquidation Plan, the Fund's real estate investments will continue to be
subject to competition from existing commercial, industrial, and residential
properties and will be subject to competition from properties that are
developed in the future. The REIT provisions of the Code impose certain
financial, investment and operational restrictions that are not applicable
to competing entities that are not REITs.

Pursuant to the Liquidation Plan, in disposing of real estate
investments, the Fund is in competition with other domestic institutional
investors, including commercial banks and other financial institutions,
insurance companies, pensions and other retirement funds, mortgage bankers,
other real estate investment trusts, real estate brokers, developers and
various types of foreign investors who may be seeking to dispose of real
estate investments. The principal factors of competition for the
disposition of the mortgage loan receivable include the base interest rate,
contingent interest rate and the amount of loan relative to the value of
the underlying property. In the case of leased properties which the Fund
owns or which secure Fund investments, the marketability of the investments
is also affected by how rental rates, lease terms, free rent concessions
and tenant improvement allowances compare with those in local markets.

Pursuant to a Services Agreement dated December 23, 1986 (the
"Services Agreement") between the Fund and The Vanguard Group, Inc. (the
"Sponsor"), the Sponsor has been retained to provide administrative
services for the Fund, including the maintenance of financial records,
oversight of the performance of outside service providers and the
preparation and distribution of communications to shareholders, etc., and
to supervise its day-to-day business affairs. Pursuant to an Advisory
Agreement dated December 23, 1986 (as amended, the "Advisory Agreement")
between the Fund and Aldrich, Eastman & Waltch, Inc. (the "Adviser"), the
Adviser has been retained to advise the Fund in connection with the
evaluation, selection, management and disposition of its real estate
investments. For additional information concerning the Sponsor, the
Adviser, the Services Agreement and the Advisory Agreement, see Item 8,
Financial Statements and Supplementary Data - Notes to Financial
Statements, and Item 13, Certain Relationships and Related Transactions.

2
<PAGE>

The Fund has elected to be treated as a REIT under the Code. The Fund
intends to operate in a manner that will continue to maintain its
qualification as a REIT during its liquidation period.

For additional information regarding the Fund's Liquidation Plan,
investments, operations, and other significant events, see Item 2,
Properties, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Item 8, Financial Statements and
Supplementary Data.

The following table sets forth the names and positions with the Fund
of the executive officers of the Fund:

NAME AGE POSITIONS
John C. Bogle 65 Trustee and Chairman of the Board
John J. Brennan 40 President
Ralph K. Packard 50 Vice President and Controller
Richard F. Hyland 57 Treasurer
Raymond J. Klapinsky 56 Secretary

All executive officers of the Fund also serve as executive officers of
Vanguard Real Estate Fund II, A Sales-Commission-Free Income Properties
Fund ("VREFII"). All executive officers of the Fund, with the exceptions
of Mr. Packard, who was elected as an officer of the Fund in May 1988, and
Mr. Klapinsky, who was elected as an officer of the Fund in May 1989, have
served since the Fund's inception. Under the Fund's Declaration of Trust,
the officers of the Fund serve at the pleasure of the Trustees. There are
no family relationships between any Trustee or executive officer.

Mr. Bogle is Chairman and Chief Executive Officer of the Fund, The
Vanguard Group, Inc. (the Sponsor of the Fund) and each of the investment
companies in The Vanguard Group. Mr. Bogle has served in such capacities
during each of the past five years. Mr. Bogle also serves as a Director of
The Mead Corporation and General Accident Insurance Companies.

Mr. Brennan is President of The Vanguard Group, Inc. and has served in
such capacity during each of the past five years. Mr. Brennan also serves
as a Director (Trustee) of The Vanguard Group, Inc., and each of the
investment companies in The Vanguard Group.

Mr. Packard is Senior Vice President and Chief Financial Officer of
The Vanguard Group, Inc. and has served in such capacity during each of the
past five years.

Mr. Hyland is, and has served for each of the past five years as,
Treasurer of The Vanguard Group, Inc. and each of the investment companies
in The Vanguard Group.

Mr. Klapinsky is, and has served for each of the past five years as,
Senior Vice President and Secretary of The Vanguard Group, Inc. and each of
the investment companies in The Vanguard Group.

3
<PAGE>

Item 2. Properties

As of December 31, 1994, the Fund held the following real estate
investments:

<TABLE>
<CAPTION>
EQUITY INVESTMENTS

Nature of Initial
Title Total Acquisition
to/Interest in Date Square Cost
Property & Location Property Description Acquired Footage/Units (000)
------------------- -------------- ----------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Durham, North Carolina
Oakcreek Village Direct Community 11-25-87 116,195 $10,592
Ownership Shopping square feet
Center

Silver Spring, Maryland
Sheffield Forest Apartments Direct Apartment 4-13-94* 256 units 15,500
Ownership Complex

The Minnesota Portfolio:

Roseville, Minnesota
Fairview Industrial Building Direct Office and 2-25-88 29,412 1,200
Ownership Warehouse square feet

Shoreview, Minnesota
Shoreview Professional Direct Office 2-25-88 10,627 1,236
Building Ownership square feet -------

Total Equity Investments $28,528
=======
Total Square Feet 156,234
=======
</TABLE>

*Property was a mortgage loan investment from 12/8/88 - 4/13/94.

<TABLE>
<CAPTION>
MORTGAGE INVESTMENTS

Funds
Nature of Total Advanced and
Title to/ Square Mortgage Mortgage
Interest Date Footage/ Receivable Debt Repaid Mortgage Debt
Property and Location Description In Acquired Units (000) (000) (000)
--------------------- ----------- --------- -------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Torrance, California Community Shared- 9-16-87 91,609 $10,646* $8,263 $2,383
Plaza del Amo Shopping Appreciation
Center Wraparound
Mortgage
Total Mortgage -----------------------------------
Investment $10,646 $8,263 $2,383
======= ====== ======

</TABLE>
* In late September 1994, the Fund exercised its call right with respect to
its Plaza del Amo mortgage loan investment. As a result, the entire balance
of the loan, less the unpaid balance of the senior mortgage on the Plaza
property, was due and payable on March 26, 1995. The borrower failed to
tender payment of the outstanding loan balance on March 26, 1995 and is
now in default under the terms of the loan. The Fund and the
borrower are currently negotiating in an effort to seek a resolution of
the default, which resolution may include satisfaction of the loan by
means of a transfer of title of the property to the Fund in lieu of
foreclosure. Since, as of the exercise of the call right and as of
December 31, 1994 the appraised value of the Plaza property securing the
loan was in excess of the mortgage loan's current carrying value, no loss
is currently expected to be incurred by the Fund as a result of the
default. The borrower is also expected to continue to pay all interest
due until transfer of the property to the Fund.

4
<PAGE>

Set forth below is a summary of the general competitive conditions for
those properties whose book value is ten percent or more of the Fund's
total assets as of December 31, 1994, or whose gross revenues are ten
percent or more of the aggregate gross revenues of the Fund for the year
ended December 31, 1994.

Plaza del Amo
-------------

Plaza Del Amo is a neighborhood shopping center located in Torrance,
California, a highly dense trade area (3-mile ring) with approximately
215,000 residents. Torrance is a submarket of the South Bay area of Southern
California, where the economy, seriously undermined by the recent recession
in the defense and aerospace industries, is showing the initial signs of
recovery after a 4 1/2 year downturn. Population growth of 3.9% over the
past five years has improved significantly and is currently outpacing
Los Angeles County's rate (3.0%). Household incomes have lagged behind those
of the Los Angeles market. Per capita and the median household income grew
10.3% and 6.3% over the past five years in the trade area versus 13.2% and
6.8%, respectively, in Los Angeles. While Torrance is a mature city with
relatively little population growth projected over the next five years,
retail sales are beginning to increase again. In 1994, retail sales grew
approximately 4%; however retail construction permit activity has decreased
by approximately 14%. Current vacancy rates for retail space are at 10%.
The only planned project in Torrance is a Kmart 500,000 square foot center.
Market rental rates currently range from $1.70 per square foot to $1.90 per
square foot monthly.

Oakcreek Village
----------------

Oakcreek Village is a neighborhood shopping center located in Durham,
North Carolina. Annual population growth has been approximately 2% over
the past three years; while households have grown over 11% during that time.
The median household income has grown approximately 22% in the last five
years while per capita income increased approximately 27% during that time.
The market vacancy rate remains tight at only 3%. Market rental rates have
risen at an annual average rate of 7% over the past two years, from $9.50-
$11.50 per square foot NNN (triple net leases) to $10.50-$13.50 per square
foot NNN.

Sheffield Forest Apartments
---------------------------

Sheffield Forest is a 256-unit multi-family apartment complex located
in Silver Springs, Maryland. Employment growth in 1994 for the area was
approximately 1.8%. The combination of no new apartment deliveries in 1994
coupled with strong rental demand has pushed the market vacancy rate below
5%. There was no significant rent growth in 1994; however, due to the low
vacancy and limited apartment development, the outlook for rent growth
is positive. Current monthly market rents are approximately $.75-$1.10 per
square foot.

Minnesota Portfolio
-------------------

The Minnesota Portfolio currently consists of one office building and
one retail/service center building located in the Minneapolis/St. Paul
suburbs of Shoreview and Roseville, respectively. The Minneapolis/St. Paul
unemployment rate of 3.4% is lower than the national rate of 6.5%.
Population growth in Shoreview is expected to be nearly 2% over the next
year. Current market vacancy rates for Shoreview and Roseville are 7.3% and
8.4%, respectively. Annual market rental rates are $8.50 per square foot and
$6.25 per square foot.

5
<PAGE>

Occupancy Rates at December 31:
-------------------------------

Plaza Del Oakcreek Minnesota Sheffield
Amo Village Portfolio* Forest Apt.
--------- -------- --------- -----------

1994 99% 96% 100% 96%
1993 98% 96% 99% 93%
1992 94% 95% 99% 93%
1991 92% 94% 99% 93%
1990 100% 97% 75% 96%

*1990-1993 data includes Deluxe Check Building, sold in August of 1994; 1990
data includes Zycad Building, sold in May of 1991.

Avg. Effective
Rental/Sq.Ft./Year:
------------------

Plaza Del Oakcreek Minnesota Sheffield
Amo Village Portfolio** Forest Apt.*
--------- -------- --------- ------------

1994 $13.28 $9.94 $7.02 $9,394
1993 $13.23 $9.07 $8.06 $8,796
1992 $13.06 $9.11 $7.95 $8,976
1991 $13.72 $9.47 $8.71 $9,240
1990 $13.11 $8.82 $7.40 $9,180
* Annual rent/unit.
** Includes Deluxe Check and Zycade Buildings through their respective
disposition dates.

Real Estate Tax/Fiscal Year:
Effective Rate
Per $1000
of Assessed
Value $11.74 $16.24 $61.33 $27.84

Annual Taxes $86,547 $103,233 $82,858 $183,227

<TABLE>
<CAPTION>
Tenants Occupying 10% or more of rentable square footage:

Rental
Property Major Tenants Sq.Ft. Principal Bus. Sq.Ft./Yr. Expiration Date Renewal Options
-------- ------------- ------ -------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Plaza del Albertsons 39,852 Supermarket $6.36 10/29/06 1, 5 year Option
Amo Oshman's 9,930 Sporting Goods $9.03 9/23/01 None

Oakcreek T.J. Maxx 31,303 Clothing Retail. $7.62 4/30/03 2, 5 yr. Options
Village Durham S.G. 16,034 Sporting Goods $5.00 8/31/97 2, 5 yr. Options

Minnesota The Tile Shop 23,122 Tile Retailers $6.43 9/30/98 None
Portfolio NAPA 6,290 Auto Parts $4.50 7/31/96 None

Sheffield N/A N/A N/A N/A N/A N/A
Forest

</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
Lease Expirations during the next ten years:
By Square Foot

Total
Sq. Ft.
Property Expiring 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004+
-------- -------- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plaza del
Amo 90,646 5,411 3,716 10,913 2,554 5,566 0 22,634 0 0 39,852

Oakcreek
Village 111,395 1,600 26,263 30,434 11,760 0 0 0 0 1,303 10,035

Minnesota
Portfolio 40,039 4,069 12,848 0 23,122 0 0 0 0 0 0

</TABLE>

<TABLE>
<CAPTION>
By Annual Rental

Property Expirations 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004+
-------- ----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plaza del Amo
# of leases 23 4 4 6 1 3 0 4 0 0 1
annual $ 1,216,973 131,497 90,690 244,335 55,166 124,989 0 316,792 0 0 253,504
annual % 100.0 10.8 7.5 20.1 4.5 10.3 0 26.0 0 0 20.8

Oakcreek Vlg.
# of leases 21 1 8 5 4 0 0 0 0 1 2
annual $ 1,107,818 20,304 301,651 248,810 125,168 0 0 0 0 238,529 173,356
annual % 100.0 1.8 27.3 22.5 11.3 0 0 0 0 21.5 15.6

Minnesota
Portfolio
# of leases 9 3 5 0 1 0 0 0 0 0 0
annual $ 280,975 43,132 89,163 0 148,680 0 0 0 0 0 0
annual % 100.0 15.4 31.7 0 52.9 0 0 0 0 0 0

</TABLE>

Leases at Sheffield Forest are generally one year or less and no
individual tenant exceeds ten percent of the units rented.

A mortgage loan payable, secured by the Plaza del Amo property, is
outstanding at December 31, 1994. Information concerning its principal,
interest rate, amortization and maturity provisions is included in Note H
to the Fund's financial statements, incorporated by reference in Item 8,
Financial Statements and Supplementary Data, and in Schedule XII to Item
14.

7
<PAGE>

Information concerning the interest rates, shared-appreciation
features, and other terms of the Fund's mortgage investment is included in
Note F to the Fund's Financial Statements, included in Item 8, Financial
Statements and Supplementary Data, and in Schedule XII to Item 14.

The Fund believes that its direct ownership properties and the
property underlying its mortgage investment are well maintained, in good
repair, suitable for their intended uses and are adequately covered by
insurance. For additional information regarding the Fund's real estate
investments see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Item 8, Financial Statements and
Supplementary Data, and Schedules XI and XII to Item 14.

The Fund has no other significant renovation, improvement or
development plans for its properties.

Information concerning the Federal tax basis and depreciation method
and lives of the Fund's properties and components thereof and on which
depreciation is taken is included in Notes A and E to the Fund's Financial
Statements, included in Item 8, Financial Statements and Supplementary
Data, and in Schedule XI to Item 14. All real estate owned has been
depreciated over 40 years for both financial and tax reporting purposes on
a straight-line basis except for leasehold improvements, which are
depreciated over the term of the respective lease for financial reporting
purposes.

Item 3. Legal Proceedings
-------------------------

None

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

None

PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
---------------------------------------------------------------------

The Fund's shares of beneficial interest ("Shares") are traded on the
American Stock Exchange (AMEX) under the symbol "VRO". The Shares have
been traded on the AMEX since August 20, 1991. From July 24, 1989 to
August 19, 1991, the Fund's shares were traded on the over the counter
market and were quoted by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). Prior to July 24, 1989, there was
no trading market for the Shares. As of February 28, 1995, there were
approximately 15,542 holders of record of the Fund's Shares.

Set forth below is certain information regarding the Fund's Shares for
each of the eight fiscal quarters in the two-year period ended December 31,
1994:

8
<PAGE>

Year Ended December 31,
----------------------------------------
1994 1993
Share Prices Share Prices
------------------- -------------------
High Low High Low
---- ---- ---- ----
For the Quarter Ended:

March 31 $8.00 $7.375 $8.25 $6.625

June 30 $7.25 $6.25 $8.00 $7.25

September 30 $6.625 $5.75 $8.25 $7.375

December 31 $7.626 $3.50* $8.75 $7.375

* A liquidating dividend of $3.54 per share was paid on December 29, 1994.

The tables below indicate the amount of cash dividends per share
declared and paid during the years ended December 31, 1994 and 1993.

Record Distribution
Date Per Share
-------------- ------------
03-31-94 $ .15
06-30-94 .15
09-30-94 .15
12-27-94 3.69
-----
Total Distributions-1994 $ 4.14
=====

Record Distribution
Date Per Share
-------------- ------------
03-31-93 $ .15
06-30-93 .15
09-30-93 .15
12-22-93 1.24
-----
Total Distributions-1993 $ 1.69
=====

Status of Distributions 1994 1993
----------------------- ---- ----
Ordinary Income $ .01 $ .00
Return of Capital .35 1.69
Long-term Capital Gain .09 .00
Liquidating 3.69 .00
----- -----
Total $ 4.14 $ 1.69
===== =====

9
<PAGE>

Except during its offering period, the Fund has historically paid
distributions on a quarterly basis and there are currently no contractual
restrictions on the Fund's present or future ability to make distributions
to shareholders. For additional information regarding the Fund's
distributions and its ability and intent to pay distributions during the
liquidation period, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Item 6. Selected Financial Data
-------------------------------

The information required by this Item is included on page 20 of the
Fund's 1994 Annual Report to Shareholders and is incorporated herein by
reference thereto.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------------------------------------------------------------------

The information required by this Item is included on pages 21 through
28 of the Fund's 1994 Annual Report to Shareholders and is incorporated
herein by reference thereto.

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

The Fund's financial statements at December 31, 1994 and 1993, and for
each of the three years in the period ended December 31, 1994 are included
on pages 7-18 of the Fund's 1994 Annual Report to Shareholders and are
incorporated herein by reference thereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
-----------------------------------------------------------------------

None

PART III

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

The information required by this Item with respect to Trustees is
included in the Fund's definitive Proxy Statement filed with the Securities
and Exchange Commission on March 13, 1995 for its Annual Meeting of
Shareholders to be held on April 18, 1995, which is incorporated herein by
reference thereto. (Information with respect to executive officers of the
Fund is included in Item 1.)

Item 11. Executive Compensation
-------------------------------

The information required by this Item is included in the Fund's
definitive Proxy Statement filed with the Securities and Exchange
Commission on March 13, 1995 for its Annual Meeting of Shareholders to be
held on April 18, 1995, which is incorporated herein by reference thereto.

Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

10
<PAGE>

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------

11
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------------------------------------------------------------------------

(a) 1. Financial Statements:
--------------------

The following financial statements as of, and for the years ended,
December 31, 1994, 1993 and 1992 are incorporated in Item 8 herein by
reference from the following pages of the Fund's 1994 Annual Report to
Shareholders, which is filed as an Exhibit hereto.

ANNUAL REPORT
PAGE NO.

Balance Sheets 7
Statements of Operations 8
Statements of Cash Flows 9-10
Statements of Changes in Shareholders' Equity 11
Notes to Financial Statements 12-18
Report of Independent Accountants 19

2. Financial Statement Schedules:

The financial statement schedules included in Part IV of this report
should be read in conjunction with the Fund's financial statements
incorporated by reference in Item 8 of this report.
FORM 10-K
SCHEDULE PAGE NO.

X Supplementary Income Statement Information 17
XI Real Estate and Accumulated Depreciation 18-19
XII Mortgage Loans on Real Estate 20
Report of Independent Accountants 21

All other schedules have been omitted since the required information
is presented in the financial statements, the related notes, or is not
applicable.

<PAGE>

3. Exhibits:
--------

Exhibit No. Description
----------- -----------

2 Plan of Liquidation and Termination, dated December 12,
1994.

3.1 Amended and Restated Declaration of Trust, dated December 9,
1986, filed as exhibit 3 to the Fund's Registration
Statement on Form S-11, SEC Registration #33-8649, and
incorporated herein by reference.

3.2 Amendment #1 to Amended and Restated Declaration of Trust,
dated January 10, 1987, filed as exhibit 3(b) to the Fund's
Registration Statement on Form S-11, SEC Registration #33-
15040, and incorporated herein by reference.

3.3 Amendment #2 to Amended and Restated Declaration of Trust,
dated May 31, 1988, filed as exhibit 3 to the Fund's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1988, and incorporated herein by reference.

3.4 By-laws, filed as exhibit 3 to the Fund's Registration
Statement on Form S-11, SEC Registration #33-8649, and
incorporated herein by reference.

10.1 Advisory Agreement between the Fund and Aldrich, Eastman &
Waltch, Inc. dated December 23, 1986, filed as exhibit 10.1
to the Fund's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, and incorporated herein by
reference.

10.2 Services Agreement between the Fund and The Vanguard Group,
Inc. dated December 23, 1986, filed as exhibit 10.2 to the
Fund's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, and incorporated herein by reference.

10.3(a) Loan Agreement by and between Plaza Del Amo and Lawrence W.
Doyle, J. Grant Monahon and Richard F. Burns, Trustees of
AEW #82 Trust, established by Declaration of Trust dated
August 14, 1987, dated September 16, 1987, filed as exhibit
10.3(a) to the Fund's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, and incorporated herein
by reference.

10.3(b) Declaration of Trust, AEW #82 Trust and Schedule of
Beneficial Interest dated August 14, 1987, filed as exhibit
10.3(b) to the Fund's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, and incorporated herein
by reference.

10.3(c) All-Inclusive Promissory Note from Plaza Del Amo in favor of
Lawrence W. Doyle, J. Grant Monahon and Richard F. Burns,
Trustees of AEW #82, established by Declaration of Trust
dated August 14, 1987, dated September 16, 1987, filed as
exhibit 10.3(c) to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987 and incorporated
herein by reference.

10.4(a) Purchase and Sale Agreement of Oakcreek Village Shopping
Center, between Pacific Guaranty Retail Development
Corporation and Michael O. Craig, Richard F. Burns and J.
Grant Monahon as Trustees of AEW #96 Trust, under
Declaration of Trust dated November 6, 1987, dated October
31, 1987, filed as exhibit 10.4(a) to the Fund's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987, and incorporated herein by reference.

13
<PAGE>

10.4(b) Declaration of Trust, AEW #96 Trust and Schedule of
Beneficial Interest, dated November 6, 1987, filed as
exhibit 10.4(b) to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, and incorporated
herein by reference.

10.4(c) First Amendment to Purchase and Sale Agreement of Oakcreek
Village Shopping Center between Pacific Guaranty Retail
Development Corporation and Michael O. Craig, Richard F.
Burns and J. Grant Monahon as Trustees of AEW #96 Trust,
under Declaration of Trust dated November 6, 1987, dated
November 24, 1987, filed as exhibit 10.4(c) to the Fund's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, and incorporated herein by reference.

10.5(a) Purchase and Sale Agreement of Valley Industrial Park and
Sea-Tac Industrial Park between Prudential Insurance Company
of America and Joseph F. Azrack, Richard F. Burns and J.
Grant Monahon as Trustees of AEW #105 Trust, under
Declaration of Trust dated December 23, 1987, dated January
8, 1988, filed as exhibit 10.5(a) to the Fund's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987, and incorporated herein by reference.

10.5(b) Declaration of Trust, AEW #105 Trust and Schedule of
Beneficial Interest, dated December 23, 1987, filed as
exhibit 10.5(b) to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, and incorporated
herein by reference.

10.6(a) Purchase and Sale Agreement of Vita-Fresh Vitamin Facility,
dated January 10, 1988, between Vita-Fresh Vitamin Company,
Inc. and Lawrence W. Doyle, Richard F. Burns and J. Grant
Monahon as Trustees of AEW #113 Trust, under Declaration of
Trust dated January 10, 1988, filed as exhibit 10.6(a) to
the Fund's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, and incorporated herein by
reference.

10.6(b) Declaration of Trust, AEW #113 Trust and Schedule of
Beneficial Interest, dated January 19, 1988, filed as
exhibit 10.6(b) to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, and incorporated
herein by reference.

10.7(a) Purchase and Sale Agreement of Everest I, Everest II,
Fairview Industrial Building and Shoreview Professional
Building between Everest Development ltd. and Michael O.
Craig, Richard F. Burns and J. Grant Monahon as Trustees of
AEW #106 Trust, under Declaration of Trust dated December
17, 1987, dated February 8, 1988, filed as exhibit 10.7(a)
to the Fund's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, and incorporated herein by
reference.

10.7(b) Declaration of Trust, AEW #106 Trust and Schedule of
Beneficial Interest, dated December 17, 1987, filed as
exhibit 10.7(b) to the Fund's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, and incorporated
herein by reference.

10.8 All-Inclusive Promissory Note (Wraparound note) dated May
11, 1988, Escrow Agreement dated May 27, 1988 and Option
Agreement dated May 11, 1988, all relating to the Fund's
mortgage investment in the Carmel Executive Park, filed as
exhibit 10 to the Fund's Quarterly Report on Form 10-Q
Report for the quarter ended June 30, 1988, and incorporated
herein by reference.

10.9(a) Purchase and Sale Agreement of Citadel II office building,
between Crow Vista #1 and Aldrich, Eastman & Waltch, Inc., a
Massachusetts Corporation acting as agent for the Fund,
filed as exhibit 10(a) to the Fund's

14
<PAGE>

Quarterly Report on Form 10-Q for the quarter ended September
30, 1988, and incorporated herein by reference.

10.9(b) Citadel II Escrow Agreement, filed as exhibit 10(b) to the
Fund's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, and incorporated herein by reference.

10.10(a) Loan Agreement for Sheffield Forest Apartments by and
between Lincoln Park Place II Limited Partnership and J.
Grant Monahon, Richard F. Burns and Marvin M. Franklin,
Trustees of AEW #145 Trust, established by Declaration of
Trust dated October 14, 1988, dated December 7, 1988, filed
as exhibit 10.10(a) to the Fund's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988, and
incorporated herein by reference.

10.10(b) Second Amended and Restated Promissory Note for Sheffield
Forest Apartments from Lincoln Park Place II Limited
Partnership in favor of J. Grant Monahon, Richard F. Burns
and Marvin M. Franklin, Trustees of AEW #145 Trust,
established by Declaration of Trust dated October 14, 1988,
dated December 7, 1988, filed as exhibit 10.10(b) to the
Fund's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference.

10.10(c) Amended and Restated Deed of Trust for Sheffield Forest
Apartments by and between Lincoln Park Place II Limited
Partnership and J. Grant Monahon, Richard F. Burns and
Marvin M. Franklin, Trustees of AEW #145 Trust, established
by Declaration of Trust dated October 14, 1988, dated
December 7, 1988, filed as exhibit 10.10(c) to the Fund's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, and incorporated herein by reference.

10.10(d) Declaration of Trust, AEW #145 Trust and Schedule of
Beneficial Interest dated October 14, 1988, filed as exhibit
10.10(d) to the Fund's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, and incorporated herein
by reference.

10.11(a) Promissory note of Citadel II by and between the Variable
Annuity Life Insurance Company and J. Grant Monahon, Richard
F. Burns, and Lee H. Sandwen, Trustees of AEW #131 Trust,
established by Declaration of Trust dated June 7, 1988,
dated October 9, 1990, filed as exhibit 10.1(a) to the
Fund's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990, and incorporated herein by reference.

10.11(b) Mortgage and Security Agreement of Citadel II by and between
the Variable Annuity Life Insurance Company and J. Grant
Monahon, Richard F. Burns, and Lee H. Sandwen, Trustees of
AEW #131 Trust, established by Declaration of Trust dated
June 7, 1988, dated October 9, 1990, filed as exhibit
10.1(b) to the Fund's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, and incorporated herein by
reference.

10.11(c) Assignment of Lessor's Interest in Leases of Citadel II by
and between the Variable Annuity Life Insurance Company and
J. Grant Monahon, Richard F. Burns, and Lee H. Sandwen,
Trustees of AEW #131 Trust, established by Declaration of
Trust dated June 7, 1988, dated October 9, 1990, filed as
exhibit 10.1(c) to the Fund's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1990, and incorporated
herein by reference.

10.12 Standard Offer, Agreement and Escrow Instructions for
Purchase of Real Estate by and between the Fujita
Corporation USA, a California Corporation, and Richard F.
Burns, J. Grant Monahon, Lawrence W. Doyle, Trustees of AEW
#113 Trust, established by Declaration of Trust dated
January 19, 1988, filed as exhibit 10.12 to the Fund's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990 and incorporated herein by reference.

15
<PAGE>

10.13 Purchase and Sale Agreement of the Everest I ("Zycad")
Building by and between Richard F Burns, J. Grant Monahon,
and Bruce H. Freedman as Trustees of AEW #106, under
Declaration of Trust dated December 17, 1987 and JLS and
L.P., dated April 23, 1991, filed as exhibit 10.13 to the
Fund's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991 and incorporated herein by reference.

10.14 Settlement Agreement and Mutual Release from mortgage by and
among J. Grant Monahon, Richard F Burns and Lee. H. Sandwen,
Trustees of AEW #155 Trust under Declaration of Trust dated
January 11, 1989, Mark C. Dickinson, Dickinson Development
Corp. and Citadel III Partners, Ltd., a Florida limited
partnership, dated December 30, 1991, filed as exhibit 10.14
to the Fund's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by
reference.

10.15 First Amendment to Second Amended and Restated Promissory
Note by and between Lincoln Park Place II Limited
Partnership, a Maryland limited partnership and J. Grant
Monahon, Richard F. Burns and Devin McCall, Trustees of AEW
#145 Trust under Declaration of Trust dated October 14, 1988
dated April 30, 1992, filed as exhibit 10.15 to the Fund's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1992 and incorporated herein by reference.

10.16 Amendment No.1 to Loan Agreement by and between Lincoln Park
Place II Limited Partnership, a Maryland limited partnership
and J. Grant Monahon, Richard F. Burns and Kevin McCall,
Trustees of AEW #145 Trust under Declaration of Trust dated
October 14, 1988, dated April 30. 1992, filed as exhibit
10.16 to the Fund's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 and incorporated herein by
reference.

10.17 Amendment No.1 to All-Inclusive Promissory Note by and
between Piazzagalli Development Company, a Vermont General
Partnership and J. Grant Monahon, Richard F. Burns and Lee
H. Andwen, Trustees of AEW #127 Trust, under Declaration of
Trust dated May 3, 1988, dated December 23, 1991 for
purposes of reference, filed as exhibit 10.17 to the Fund's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1992 and incorporated herein by reference.

10.18 Amendment No.1 to Loan Agreement by and between Piazzagalli
Development Company, a Vermont General Partnership and J.
Grant Monahon, Richard F. Burns and Lee H. Sandwen, Trustees
of AEW #127 Trust, under Declaration of Trust dated May 3,
1988, dated December 23, 1991 for purposes of reference,
filed as exhibit 10.18 to the Fund's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992 and
incorporated herein by reference.

10.19 Purchase and Sale Agreement of the Seattle Industrial Parks,
by and between AEW #105 Trust and Spieker Properties, Inc.,
dated September 21, 1994.

13 1994 Annual Report to Shareholders. (With the exception of
the information and data incorporated by reference in Items
6, 7, and 8 of this Annual Report on Form 10-K, no other
information or data appearing in the 1994 Annual Report to
Shareholders is to be deemed filed as part of this report.)

27 Financial Data Schedule. A Financial Data Schedule for the
year ended December 31, 1994, was submitted in electronic
format only.

(b) Reports on Form 8-K

During the fourth quarter ended December 31, 1994, the Fund filed a
Report on Form 8-K, dated October 3, 1994, reporting, in Item 2, the sale
of its Seattle Industrials investment and a Report on Form 8-K dated
December 12, 1994, reporting, in Item 5, the adoption of the Fund's formal
Plan of Liquidation and Termination.

16
<PAGE>

SCHEDULE X

VANGUARD REAL ESTATE FUND I
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
SUPPLEMENTARY INCOME STATEMENT INFORMATION

Year Ended December 31,
---------------------------
1994 1993 1992
(000) (000) (000)
----- ----- -----

1. Maintenance and repairs $ 548 $ 275 $ 374

2. Depreciation and amortization 1,073 1,503 1,610

3. Real estate taxes 671 823 887

17
<PAGE>

SCHEDULE XI

<TABLE>
<CAPTION>
VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994

Description Oakcreek Village Minnesota Portfolio Sheffield Forest
Shopping Center, Two Office Buildings Apartments
Durham, NC Roseville, MN (e) Silver Spring, MD (g) TOTAL

<S> <C> <C> <C> <C>
Encumbrances None None None -
Initial Cost to Fund
Land (000) $3,100 $570 $3,100 $6,770
Buildings and Improvements (000) 7,492 1,866 12,400 21,758
Total Acquisition Costs $10,592 $2,436 $15,500 $28,528
Costs Capitalized Subsequent to
Acquisition
Improvements (000) 535 60 $14 $609
Write-downs (a) (150) (200) (500) (850)
Gross Amount at which Carried
at Close of Period (b)
Land (000) 3,050 520 3,000 $6,570
Building and Improvements (000) 7,927 1,776 12,014 $21,717
Total (000) (c) $10,977 $2,296 $15,014 $28,287
Accumulated Depreciation (000) (d) $1,492 $355 $222 $2,069
Date of Construction 1986 1978-1986 1987 -
Date Acquired 11/87 2/88 4/94 -
Depreciable Life (f) 40 years 40 years 40 years -

</TABLE>

(a) Write downs in the carrying value of the Fund's three direct
ownership investments have been recorded, upon adoption of the Liquidation
Plan in December 1994, to reflect the effect of their held for sale status
on management's assessment of the investment's recoverability.
(b) The aggregate cost of real estate for federal income tax purposes at
December 31, 1994 was $29,137,000.

18
<PAGE>

SCHEDULE XI (Continued)
(c) The activity in real estate is summarized as follows:

<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992 1991 1990 1989 1988 1987
(000) (000) (000) (000) (000) (000) (000) (000)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $44,222 $63,622 $63,192 $71,561 $71,304 $71,422 $10,574 $0
Additions during the year:
Transfers 15,500 0 0 0 0 0 0 0
Property purchases 0 0 0 0 0 0 61,108 10,574
Property improvements 14 360 430 613 257 160 60 0
Deletions during the year:
Sales of properties, net
of write-downs (30,528) (19,704) 0 (8,962) 0 0 0 0
Citadel II contingent purchase
price refund* 0 0 0 (20) 0 (278) (320) 0
Write-downs (850)
Write-off of tenant improvements (71) (56) 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Balance at end of year $28,287 $44,222 $63,622 $63,192 $71,561 $71,304 $71,422 $10,574
======= ======= ======= ======= ======= ======= ======= =======

</TABLE>
* The Fund purchased the Citadel II office building ("Citadel II") for a
contract price of $19,500,000. Included in the contract price was a
$1,000,000 contingent purchase price payment placed in escrow for the
Fund, of which an aggregate of $618,000 was returned to the Fund by
the seller at the expiration of the escrow period pursuant to the
terms of the purchase and sale agreement.

(d) Reconciliation of accumulated depreciation is summarized as follows:

<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992 1991 1990 1989 1988 1987
(000) (000) (000) (000) (000) (000) (000) (000)
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $4,789 $5,862 $4,557 $3,792 $2,413 $1,087 $23 $0
Add:
Depreciation for the year 941 1,217 1,305 1,231 1,379 1,326 1,064 23
Deduct:
Accumulated depreciation of
real estate sold (3,597) (2,234) 0 (466) 0 0 0 0
Write-off of tenant improvements (64) (56) 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Balance at end of year $2,069 $4,789 $5,862 $4,557 $3,792 $2,413 $1,087 $23

</TABLE>

(e) Zycad Building sold in 1991 with a land and building cost of
$1,894,000, Deluxe Check Building sold in August, 1994, with an original
land and building and improvement cost of $7,719,000.
(f) Prior to the adoption of the Liquidation Plan, depreciation on real
estate owned was computed using the straight-line method over 40 years
for buildings and costs incurred in conjunction with the acquisition
of real estate investments were deferred and amortized on a straight-
line basis over the life of the loan for mortgage loan investments and
the life of the property for equity investments. Subsequent to
adoption of the Liquidation Plan, no depreciation or amortization
expense related to the Fund's owned real estate and acquisition costs
is recognized since the Fund's real estate investments are considered
to be held for sale.
(g) Sheffield Forest was obtained on April 13, 1994, via a transfer of all
of the partnership interests of the borrower to the Fund in full
satisfaction of the mortgage loan secured by the Sheffield property,
and recorded at its then-appraised fair market value.

19
<PAGE>
SCHEDULE XII
VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
MORTGAGE LOANS ON REAL ESTATE (c)
DECEMBER 31, 1994

Wraparound Mortgage

Description Plaza del Amo Shopping Center,
Torrance, CA (a)
Effective Rate 10.3%
Pay Rate 9.7%-10.8%
Maturity Date 1995 (a)
Call Date 1994
Periodic Payment Terms Interest only, principal due upon
maturity or call date.
Prior Liens (a)
Face Amount of Mortgage $10,646,000
Carrying Amount of Mortgage (b) $10,646,000
Principal Amount of Loan
Subject to Delinquent Principal
or Interest None

(a) The Fund advanced $7,750,000 to enter into a shared-appreciation,
wraparound, mortgage loan secured by the Plaza del Amo Shopping Center
( Plaza ). In addition, Plaza secures two existing senior mortgage loans,
which at the time of investment had an aggregate outstanding balance of
$2,896,000. The funds advanced plus these two existing senior mortgages
resulted in a total wraparound loan of $10,646,000. Upon repayment of the
loan, the Fund is entitled to a share of Plaza's appreciation, if any,
equal to 50% of Plaza's fair market value in excess of the original balance
of the wraparound loan. In late September 1994, the Fund exercised its
call right with respect to the Plaza loan and, therefore, the entire
balance of the loan, less the unpaid balance of the senior mortgage on the
property, becomes due and payable six months from the exercise of the call
right.

<TABLE>
<CAPTION>
(b) 1994 1993 1992 1991 1990 1989 1988 1987
(000) (000) (000) (000) (000) (000) (000) (000)
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $27,838 $42,032 $45,046 $45,046 $45,046 $45,046 $10,646 $0
Additions during the year:
New mortgage loans 0 90 76 0 0 0 34,400 10,646

Deductions during the year:
Obtained Sheffield (d) (17,192) 0 0 0 0 0 0 0
Pay-off of Carmel loan 0 (14,284) 0 0 0 0 0 0
Collections of principal 0 0 (90) 0 0 0 0 0
Write down of in-substance
foreclosed assets (e) 0 0 (3,000) 0 0 0 0 0
Balance at end of year $10,646 $27,838 $42,032 $45,046 $45,046 $45,046 $45,046 $10,646

(c) Includes loans considered to be in-substance foreclosed assets for
financial reporting purposes.
(d) On April 13, 1994, the Fund obtained title to the Sheffield Forest
Apartments via a transfer of all of the partnership interests of the
borrower in full satisfaction of the mortgage loan outstanding. For further
information, see Note F to the Fund's financial statements, included in
item 8, Financial Statements and Supplementary Data.
(e) Consists of the following charges to the provision for possible
losses: Carmel - $2,200,000; Sheffield - $800,000.

20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Trustees of
Vanguard Real Estate Fund I

Our audits of the financial statements referred to in our report dated
January 27, 1995 appearing on page 19 of the 1994 Annual Report to
Shareholders of Vanguard Real Estate Fund I (which report and financial
statements are incorporated by reference in this Annual Report on Form 10-
K) also included audits of the Financial Statement Schedules listed in Item
14(a) of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial
statements.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
January 27, 1995

21
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

VANGUARD REAL ESTATE FUND I,
A Sales-Commission-Free Income Properties Fund

March 31, 1995 John J. Brennan
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.

March 31, 1995 J. Mahlon Buck, Jr.
Trustee

March 31, 1995 William S. Cashel, Jr.
Trustee

March 31, 1995 David C. Melnicoff
Trustee

March 31, 1995 J. Lawrence Wilson
Trustee

March 31, 1995 Ralph K. Packard
Vice President & Controller

22
<PAGE>
EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION PAGE NO.

13 1994 Annual Report to Shareholders . . . . . . . . . . . .24

2 Vanguard Real Estate Fund I, A Sales-
Commission-Free Income Properties Fund -
Plan of Liquidation and Termination. . . . . . . . . . . .54

10 Seattle Industrials Purchase and Sale Agreement. . . . . .59

23
<PAGE>

</TABLE>

<PAGE> 1
VANGUARD

REAL ESTATE FUND I

ANNUAL REPORT 1994

[The cover of the report features the Vanguard ship crashing through the sea.]

THE VANGUARD VOYAGE . . . STAYING THE COURSE
<PAGE> 2
CHAIRMAN'S LETTER

FELLOW SHAREHOLDER:

Vanguard Real Estate Fund I enjoyed a solid year during 1994. The Fund
completed the sale of its largest asset, Seattle Industrials, at a handsome
profit. Net proceeds from the sale of this property and a smaller one in
Minnesota, totaling some $35.3 million, represented the majority of the Fund's
year-end distribution of $3.69 per share. In December, the Board of Trustees
formally adopted a plan of liquidation calling for the disposition of our
remaining assets and distribution of net proceeds to shareholders by the end of
1996.

FINANCIAL RESULTS

For the year, net income per share amounted to $1.12 per share, compared to
$.30 per share in 1993. Net income was boosted by the net gains realized on
property sales, notably the Seattle properties, of $.85 per share.

A better guide to the cash flow provided by the Fund's properties is
"funds from operations," which excludes the impact of capital gains and adds
back to net income amortization, depreciation and provisions for losses. Funds
from operations totaled $.51 per share, which compares to $.69 per share in
1993. There were three main reasons for the decline in funds from operations:
(i) the liquidation of our Carmel office investment late in 1993, and the
subsequent return to shareholders of $1.00 per share capital at year-end 1993;
(ii) the October 1994 sale of our Seattle investment which had produced a
substantial portion of the Fund's cash flow; and (iii) the drop in cash flow
from our Sheffield Forest property which was converted from a mortgage
investment to equity ownership. (After the conversion, the Fund expended
substantial amounts to improve the property's competitive position and future
rental prospects.)

The Fund made four distributions in 1994. The first three were paid at
the regular quarterly rate of $.15 per share. The fourth, paid in late December,
amounted to $3.69 per share, bringing the total distributions for the year to
$4.14 per share. Effectively, the final distribution reflected a return of
capital to shareholders from net proceeds of property sales. Aggregating this
payment along with previous returns of proceeds, the amount of capital at work
since the Fund's inception has been cut by approximately two-thirds. The Fund's
ability to generate income in the future has been reduced correspondingly.
Accordingly, we would expect to reduce the quarterly distribution to
approximately $.05-$.06 per share in 1995, down from the level of $.15 per share
we have maintained since inception in 1987.

For tax purposes, the $3.69 per share distribution paid after the
adoption of the plan of liquidation is considered a liquidating distribution
which is nontaxable to shareholders (to the extent a shareholder has a remaining
tax cost basis). Of the remaining $.45 per share paid in 1994, $.10 per share is
taxable ($.09 per share as a long-term capital gain, $.01 per share as ordinary

[FIGURE 1 - A picture of John C. Bogle]

1
<PAGE> 3
income) and $.35 per share represents a non-taxable return of capital.

THE PROPERTY PORTFOLIO

The Fund made good progress on its property portfolio during 1994. As
noted, the highlight of the year was the sale, on October 3, of our Seattle
Industrials property (consisting of over one million square feet of warehouse
space), for net proceeds of $30.1 million. This sale was completed at a price
substantially higher than our 1993 year-end valuation, and some 35% higher than
the cost of the property when purchased in January 1988. The Fund had benefited
over the years from a high level of income on this property. However, we believe
the sale price was attractive, especially given the substantial risk associated
with the scheduled 1997 expiration of the leases, all dependent on a single
tenant.

In other transactions during the year, the Fund also sold, in August,
the Deluxe Check building in Minnesota for net proceeds of $5.2 million. The
Fund recorded a loss of some $1.1 million on this sale. In April, the Fund took
control of the Sheffield Forest apartment complex in the Washington, D.C. area,
a property on which we had previously held a mortgage loan. Net cash flow from
the property declined during the year, in part due to needed maintenance and
improvements made at the recommendation of our Adviser, Aldrich, Eastman &
Waltch, L.P. (AEW).

After the year's two sales, the remaining property portfolio is small,
consisting of our participating mortgage investment in the Plaza del Amo
shopping center in Torrance, California and equity investments in Sheffield
Forest Apartments, the Oakcreek Village shopping center in Durham, North
Carolina, and two very small properties remaining in our Minnesota Portfolio.
Occupancy throughout the portfolio remains high at 98% overall, as detailed in
the table on page 5. For further details on the Fund's investments, please see
the letter from our Adviser beginning on page 5.

MEASURES OF VALUE

At each year end, we provide you with an update on the estimated value of
the Fund's investments. This valuation is based on the lower of the opinions
provided by independent appraisers and our Adviser. For year-end 1994, the
estimated fair market value was $3.79 per share. This amount is of course lower
than the $7.15 per share reported to you at year-end 1993, principally as a
result of 1994 distributions from property sales. Adjusting the year-end
valuation for 1994 distributions in excess of funds from operations ($3.63 per
share), the Fund's fair market value remained steady in 1994.

We have also provided, on page 27, an estimate of the Fund's liquidation
value which takes into account the substantial costs of completing real estate
sales. Based on the fair market value of $3.79 per share, we would expect the
Fund to net approximately $3.73 per share after all costs if the properties were
sold in the current environment. Of course, we would stress that these
valuations are merely estimates and the eventual net sales proceeds may be
higher or lower.

I would note that, again in 1994, there is a discrepancy between the
appraisers' and AEW's estimate of fair market value, with the appraisers'
valuations being in aggregate some 7% higher than the reported figure. This
disparity confirms how imprecise real estate valuations really are. In the end,
the only valid valuation is a completed transaction price.

Reflecting the substantial year-end distribution, the secondary market
trading price of the Fund's shares declined in December. The last trade of the
year on the American Stock Exchange was completed at $3.75 per share. Adjusting
this price for the Fund's year-end distribution from net sales proceeds, the
trading price is nearly identical to the $7.38 per share level at the end of
1993.

2
<PAGE> 4

[FIGURE 2 - Bar Chart--Total Return of Vanguard Real Estate Fund I vs.
Russell-NCREIF Index for the years 1988-1994.]

LONGER-TERM PERFORMANCE

In total return terms--that is taking into account income and capital
change--1994 was a strong year for Vanguard Real Estate Fund I. The Fund's total
return (calculated on the basis of our year-end 1993 valuation of $7.15 per
share) was +10.9%, which compares favorably to the return of +6.7% for the
Russell-NCREIF Index of pension real estate portfolios (one of the few indexes
available to measure real estate performance).

The chart at the top of the page illustrates the Fund's performance
since its inception in 1987. The Fund's return has been very competitive with
the Index over its lifetime. However, in absolute terms, the Fund's returns have
indeed been modest. We calculate the Fund's return to have been approximately
4.7% annually without the benefit of reinvested distributions. If we include the
effect of reinvestment of distributions at the U.S. Treasury bill rate, the
total return would have been 4.8% annually (versus 2.1% for the Index).

With the return of capital each year, we recognize it may be getting a
little difficult to keep track of the Fund's results. The chart on page 4 may
make the task easier by showing the annual year-end appraised value per share
since inception (1987), as well as the annual and cumulative distributions each
year. In sum, the combined value of the Fund's cumulative distributions,
excluding the benefit of any earnings on reinvested distributions, and the
year-end 1994 appraised value per share amounts to $13.54 which compares to the
original offering price of $10 per share.

THE PLAN OF LIQUIDATION

As you know, Vanguard Real Estate Fund I is a finite-life real estate
investment trust, established in 1987 with an expected life of seven to twelve
years. Now in the eighth year of operations, we have completed the sale of our
largest holding and believe it is appropriate to adopt a "plan of liquidation
and termination." This plan calls for the Fund to sell its remaining investments
over the course of 1995 and 1996, returning net proceeds to shareholders and
terminating REIT operations at the end of the period.

The plan has beneficial tax implications for the Fund's taxable
shareholders. Because of the formal plan filed with the Internal Revenue
Service, all distributions made in accordance with the plan after its adoption,
including 1994's year-end distribution, are considered "liquidating
distributions." Such distributions are treated as a return of capital to
shareholders in that they effectively serve to reduce tax cost basis.
Accordingly, no taxes are owed on these distributions until such time as a
shareholder's tax cost basis is reduced to zero. Thereafter, additional payments
from the Fund are taxable as capital gains, not as ordinary income.

The plan reflects our expectation that the remaining investments held by
the Fund can be sold on a favorable basis over the course of the

3
<PAGE> 5

[FIGURE 3 - Stacked Bar Chart--Vanguard Real Estate Fund I Year-End Appraised
Value Per Share, Annual and Cumulative Distributions Per Share, from inception
through 1994.]

<TABLE>
<CAPTION>
Per Share Amounts: Inception 1987 1988 1989 1990 1991 1992 1993 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Distributions: -- $.53 $.64 $.68 $.69 $.69 $.69 $1.69 $4.14
Year-end Appraised Value: -- $9.69 $9.87 $9.93 $9.39 $8.37 $8.23 $7.15 $3.79
Year-end Tax Cost Basis for
an Investor* $10.00 $10.00 $9.93 $9.85 $9.78 $9.38 $9.26 $7.57 $3.53
</TABLE>

*Assuming shares purchased at inception of Fund and subsequently reduced by
annual non-taxable return of capital and liquidating distributions, as
applicable.

next two years. Of course, real estate market conditions or local property
circumstances may change such that it may not be appropriate to sell a
property within this timeframe. In such case, any remaining properties may be
transferred into a "liquidating trust" in which shareholders would maintain
beneficial interest, continuing to receive the net income earned on the
assets until eventual sale.

Over the remaining life of the Fund, our attention, and that of our
Adviser, will continue to be focused on maximizing the value you receive from
your investment. I look forward to reporting to you on our ongoing progress.

Sincerely,

/s/ JOHN C. BOGLE
-----------------
John C. Bogle
Chairman of the Board

January 31, 1995

4
<PAGE> 6
REPORT FROM THE INVESTMENT ADVISER

PORTFOLIO OVERVIEW

Late in the year, the Fund's Board of Trustees adopted a plan of
liquidation. Consistent with this approach, we have been working to position
each of the assets so as to generate the maximum potential sales proceeds. With
respect to the Fund's fee-owned properties, this means maintaining high
occupancy levels, completing capital improvements that will add value to the
assets, and minimizing expenses so as to maximize net operating income (NOI).
NOI is a key factor in the market pricing of real estate assets.

Two of the Fund's assets were sold during the final half of 1994. In
August, we completed the sale of the Deluxe Check Building, which had been part
of the three-property Minnesota Portfolio (Minneapolis area, Minnesota). The
gross sale price was $5,550,000, or 2% higher than the Fund's most recent
valuation of the asset, albeit at a loss from its original purchase price. In
October, the Fund's largest asset, Seattle Industrials (Seattle and Kent,
Washington), was sold at a price that exceeded the Fund's most recent appraised
value by about 18%. The investment produced a 15% annual rate of return to the
Fund over its seven-year holding period. We also have taken steps, by exercising
a call right, to liquidate the Fund's only debt investment, a wraparound
mortgage loan secured by Plaza del Amo (Torrance, California).

All of the assets in the Fund's remaining portfolio are well-leased and
stable. Occupancy ranges from 96% to 100%. On a combined basis, 1994 net
operating income for the remaining assets was 4% below budget, due primarily to
slower than expected leasing of the remaining space at Oakcreek Village (Durham,
North Carolina) and higher than anticipated costs associated with the Fund's
April 1994 acquisition of title to Sheffield Forest (Silver Spring, Maryland).

The remaining two properties in the Minnesota Portfolio are currently
being marketed for sale, and we expect to begin the marketing of Sheffield
Forest and Oakcreek Village in the second and fourth quarters of 1995,
respectively.

VALUATION

Once again this year, the value of each property in which the Fund holds an
interest was thoroughly reviewed by both AEW and by independent appraisers prior
to year end. The lower of the two amounts is then used in determining the fair
market value of the Fund's assets. On a combined basis, the independently
appraised value of the Fund's remaining properties increased by about 4%;
however, AEW's opinion of value remained unchanged.

PROPERTY HIGHLIGHTS

The Fund took title to Sheffield Forest in April 1994. Since then, we have
hired a new property manager and stabilized the property's occupancy and
operations. Maintenance items that had been neglected by the former owner (the
Fund's borrower), such as painting, public area renovations and landscaping,
have been addressed. Leasing efforts have been reinvigorated, and occupancy

<TABLE>
<CAPTION>
======================================================================================================
PROPERTY DECEMBER 31, 1994 DECEMBER 31, 1993
PROPERTY TYPE INVESTMENT TYPE OCCUPANCY RATE OCCUPANCY RATE
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. PLAZA DEL AMO Retail Shared-Appreciation 99% 98%
Wraparound Mortgage
------------------------------------------------------------------------------------------------------
2. OAKCREEK VILLAGE Retail Direct Ownership 96% 96%
------------------------------------------------------------------------------------------------------
3. MINNESOTA PORTFOLIO Office Direct Ownership 100% 99%
------------------------------------------------------------------------------------------------------
4. SHEFFIELD FOREST Residential Direct Ownership 96% 93%
APARTMENTS
======================================================================================================
</TABLE>

5
<PAGE> 7
has improved from 93% at the end of 1993 to 96%. Since the Fund took title to
the property, average monthly rents have increased by almost 4%.

At Oakcreek Village, much of our effort during the year has focused on
positioning the center to compete effectively with a new retail center currently
under construction nearby. All leases that expired in 1994 were renewed
successfully, and 1,600 square feet of new leasing was completed. Early renewal
discussions are underway with several tenants whose leases expire in 1995 and
1996.

As a result of the Fund's exercise of its call right, discussions are
underway with the borrower at Plaza del Amo regarding repayment of the Fund's
loan. It is unlikely that the borrower, who has until late March 1995 to repay
the loan, will be able to refinance the full amount of the debt. However, the
appraised value of the property collateralizing the loan is in excess of the
outstanding mortgage, and, therefore, we anticipate satisfactory recovery of
this investment via a sale of the center, a partial refinancing coupled with the
investment of additional capital by the borrower, or a transfer of title to the
Fund.

The two properties that now comprise the Minnesota Portfolio are 100%
leased, and operations are stable. Both properties are being actively marketed
for sale.

Sincerely,

Aldrich, Eastman & Waltch, L.P.

January 13, 1995

6
<PAGE> 8
BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
ASSETS ($ in 000's) ($ in 000's)
------------- -------------
<S> <C> <C>
Investments in Real Estate:
Direct Ownership Investments:
Land ............................................. $6,570 $12,790
Buildings and Improvements ....................... 21,717 31,432
------------- -------------
28,287 44,222
Less--Accumulated Depreciation ................... 2,069 4,789
------------- -------------
26,218 39,433
Mortgage Loan Receivable ........................... 10,646 10,646
In-Substance Foreclosed Asset....................... -- 17,192
------------- -------------
36,864 67,271
Less: Allowance for Possible Losses................. -- 2,410
------------- -------------
Net Investment Portfolio............................ 36,864 64,861
Marketable Securities--REMICs......................... 1,992 1,684
Short-Term Investments:
Vanguard Money Market Reserves-Prime Portfolio
(1,478,147 and 2,482,738 shares, respectively) ... 1,478 2,483
Temporary Cash Investments ......................... 2,000 6,000
Other Assets ......................................... 945 1,897
------------- -------------
TOTAL ASSETS ......................................... $43,279 $76,925
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage Loans (including current portion of $102 and
$93, respectively) ................................. $2,383 $2,477
Due to Affiliates ................................... 98 149
Other Liabilities .................................... 297 558
------------- -------------
TOTAL LIABILITIES .................................... 2,778 3,184
------------- -------------
Shares of Beneficial Interest, without par value,
unlimited shares authorized ........................ 36,047 80,608
Undistributed (Accumulated Taxable Distributions in
Excess of) Net Income .............................. 4,454 (6,867)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY ........................... 40,501 73,741
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $43,279 $76,925
============= =============
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE> 9
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
REAL ESTATE INCOME ($ in 000's) ($ in 000's) ($ in 000's)
---------- ---------- ----------
<S> <C> <C> <C>
Rental Income ................................ $6,753 $7,517 $7,588
Mortgage Interest Income ...................... 1,101 1,279 1,106
Net Income from In-Substance Foreclosed Assets. 319 2,499 3,137
---------- ---------- ---------
8,173 11,295 11,831
---------- ---------- ---------
REAL ESTATE EXPENSES
Mortgage Interest Expense ..................... 243 1,030 1,433
Real Estate Taxes ............................. 671 823 887
Property Operating Expenses ................... 1,465 1,042 1,244
Depreciation and Amortization ................. 1,073 1,503 1,610
Provision for Possible Losses ................. 1,630 2,798 4,501
---------- ---------- ---------
5,082 7,196 9,675
---------- ---------- ---------
INCOME FROM REAL ESTATE ....................... 3,091 4,099 2,156
INVESTMENT INCOME FROM SHORT-TERM
INVESTMENTS ................................. 820 367 444
---------- ---------- ---------
3,911 4,466 2,600
---------- ---------- ---------
ADMINISTRATIVE EXPENSES
Investment Advisory Fee ....................... 305 421 470
Administrative Fee ............................ 269 350 380
Other Administrative Expenses ................. 367 357 405
---------- ---------- ---------
941 1,128 1,255
---------- ---------- ---------
INCOME BEFORE NET GAIN ON SALES ...............
OF INVESTMENTS............................... 2,970 3,338 1,345
Net Gain on Sales of Investments .............. 9,412 -- --
---------- ---------- ----------
NET INCOME .................................... $12,382 $3,338 $1,345
========== ========== ==========
Weighted Average Number of Shares Outstanding . 11,019,978 11,039,590 11,176,864
========== ========== ==========
Net Income Per Share:
Income Before Net Gain on Sales of Investments $.27 $.30 $.12
Net Gain on Sales of Investments............. .85 -- --
---------- ---------- ----------
Net Income Per Share .......................... $1.12 $.30 $.12
========== ========== ==========
Ordinary Income Distributions Per Share ....... $ .01 -- $.57
Long-Term Capital Gain Distributions Per Share. .09 -- --
Return of Capital Distributions Per Share ..... .35 $1.69 .12
Liquidating Distributions Per Share............ 3.69 -- --
---------- ---------- ----------
Total Distributions Per Share ................. $4.14 $1.69 $.69
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

8
<PAGE> 10

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES (000) (000) (000)
--------- --------- ---------
<S> <C> <C> <C>
Real Estate Investments:
Rental Income ......................................... $6,851 $ 7,564 $ 7,695
Mortgage Interest Income ............................... 1,599 3,896 4,221
Mortgage Interest Payments ............................. (243) (609) (1,433)
Operating Expense Payments ............................. (2,211) (1,780) (2,545)
--------- --------- ---------
Net Cash Provided by Real Estate
Investments ....................................... 5,996 9,071 7,938
Interest from Short-Term Investments ..................... 820 367 560
Administrative Expenses .................................. (992) (1,180) (1,247)
--------- --------- ---------
Net Cash Provided by Operating Activities .......... 5,824 8,258 7,251
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Real Estate:
Mortgage Loans.......................................... -- -- (76)
Principal Repayments.................................... -- -- 90
Building Improvements .................................. (14) (360) (430)
Payoff from In-Substance Foreclosed Asset............... -- 13,500 --
Transaction Fees ....................................... (724) (270) --
Sales of Investments ................................... 36,060 -- --
Marketable Securities Acquired.......................... (719) (15,846) --
Marketable Securities Sold.............................. -- 13,713 --
Principal Repayments from Marketable Securities-REMICs.. 284 423 --
--------- --------- ---------
Net Cash Provided by (Used In ) Investing Activities 34,887 11,160 (416)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Mortgage Principal Payments............................. (94) (85) (154)
Distributions Paid ..................................... (45,622) (18,629) (7,694)
Shares Repurchased...................................... -- (587) (1,263)
--------- --------- ---------
Net Cash Used in Financing Activities .............. (45,716) (19,301) (9,111)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .................................. (5,005) 117 (2,276)
CASH AND CASH EQUIVALENTS--Beginning
of Year ........................................... 8,483 8,366 10,642
--------- --------- ---------
CASH AND CASH EQUIVALENTS--End of Year ................. $3,478 $ 8,483 $ 8,366
========= ========= =========
</TABLE>

(continued on next page)

<PAGE> 11
STATEMENTS OF CASH FLOWS (continued)

<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(000) (000) (000)
--------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net Income ...................................... $12,382 $3,338 $1,345
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Property Depreciation and Amortization ...... 1,073 1,503 1,610
Provision for Possible Losses ............... 1,630 2,798 4,501
Decrease in Deferred Rent Receivable ........ -- -- 106
Decrease (Increase) in Deferred
Mortgage Interest Receivable .............. 50 -- (27)
Net Gain on Sales of Investments............. (9,412) -- --
Interest Payable Satisfied................... -- 421 --
Valuation Allowance on Marketable Securities. 111 14 --
Changes in Other Assets and Liabilities ..... (10) 184 (284)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......... $5,824 $8,258 $7,251
========= ========= =========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

On April 13, 1994, the Fund obtained title to its Sheffield Forest investment
via a transfer of the partnership interests of the borrower in full satisfaction
of the mortgage loan secured by Sheffield (see Note F). The excess of recorded
net assets over the fair value of assets obtained, net of liabilities assumed,
was charged to the allowance for possible losses in the year ended December 31,
1994 as follows (amounts in 000's):

Recorded Net Assets $17,797
Assets Obtained $15,772
Liabilities Assumed (95)
--------
Assets Obtained, Net of Liabilities 15,677
--------
Write-off to Allowance $ 2,120
========

On September 1, 1993, the Fund ceded title to its Citadel II investment to the
lender in full satisfaction of amounts due under the non-recourse mortgage loan
secured by Citadel II (see Note I). The excess of recorded assets over
liabilities related to the investment were written off against the allowance for
possible losses in the year ended December 31, 1993 as follows (amounts in
000's):

Recorded Assets $18,807
Write-off to Allowance (6,398)
--------
Liabilities Satisfied $12,409
========

On July 30, 1993, the Fund accepted a discounted payoff on its mortgage loan
secured by Carmel Executive Park. The excess of recorded assets over the payoff
amount were written off against the allowance for possible losses in the year
ended December 31, 1993 as follows (amounts in 000's):

Recorded Assets $14,468
Write-off to Allowance (1,238)
--------
Payoff Amount, Net of Transaction Fee $13,230
========

The accompanying notes are an integral part of these statements.

<PAGE> 12
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Undistributed
(Accumulated
Taxable
Shares of Distributions
Beneficial Interest in Excess of) Total Shareholders'
Number Amount Net Income Equity
(000) (000) (000)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance: January 1, 1992 .. 11,246,978 $102,238 $ (5,220) $97,018
Net Income for the Year ... 1,345 1,345
Less Distributions:
Ordinary Income ......... (6,330) (6,330)
Return of Capital ....... (1,364) (1,364)
Shares Repurchased ........ (159,100) (1,127) (1,127)
-------------------------------------------------------------
Balance: December 31, 1992 11,087,878 99,747 (10,205) 89,542
Net Income for the Year ... 3,338 3,338
Less Distributions:
Return of Capital ....... (18,629) (18,629)
Shares Repurchased ........ (67,900) (510) (510)
-------------------------------------------------------------
Balance: December 31, 1993 11,019,978 80,608 (6,867) 73,741
Net Income for the Year ... 12,382 12,382
Less Distributions:
Ordinary Income ......... (61) (61)
Long-Term Capital Gain... (1,000) (1,000)
Return of Capital ....... (3,899) (3,899)
Liquidating ............. (40,662) (40,662)
-------------------------------------------------------------
Balance: December 31, 1994 11,019,978 $ 36,047 $ 4,454 $40,501
=============================================================
</TABLE>

The accompanying notes are an integral part of these statements.

11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS

A. GENERAL DESCRIPTION: Vanguard Real Estate Fund I, A Sales-Commission-Free
Income Properties Fund (the "Fund"), a Massachusetts business trust established
in 1987, is a qualified finite-life real estate investment trust ("REIT") under
the Internal Revenue Code of 1986. The Fund's Declaration of Trust precludes the
Fund from reinvesting net proceeds from the sale or repayment of its real estate
investments in additional real estate investments after December 31, 1993 and
contemplates the liquidation of all of the Fund's investments after a period of
approximately seven to twelve years following completion of its initial public
offering. On December 12, 1994, the Fund's Board of Trustees approved a Plan of
Liquidation and Termination (the "Liquidation Plan"). The Liquidation Plan
provides that the Fund will dispose of all of its assets, wind up its affairs,
pay or adequately provide for the payment of all of its liabilities and
distribute for the benefit of its shareholders all of the Fund's assets over 24
months in complete cancellation and redemption of all issued and outstanding
shares of beneficial interest. The Liquidation Plan provides that the Fund's
assets may be sold, conveyed, transferred or otherwise disposed of when and on
such terms and conditions as are deemed by the Trustees to be in the best
interests of the Fund and the shareholders. It is contemplated that the Fund
will be completely liquidated and dissolved by December 12, 1996. To the extent
that the Fund has not disposed of all of its assets or made provision for all of
its liabilities on December 12, 1996, the Fund intends to form a liquidating
trust, the beneficiaries of which will be the shareholders of the Fund. All
assets and liabilities not disposed of and discharged will be transferred to the
liquidating trust. Shares of the Fund would no longer be traded and the
beneficial interests in the liquidating trust would not be readily transferable.

The Fund intends to continue to qualify as a REIT under the Internal
Revenue Code during the Fund's liquidation period.

B. The following significant accounting policies are in conformity with
generally accepted accounting principles for real estate investment trusts.
Such policies are consistently followed by the Fund in the preparation of
financial statements.

1. BASIS OF PRESENTATION: The Fund's financial statements have been prepared
on the basis of a going concern using historical cost. In December 1994,
upon adoption of the Liquidation Plan, the Fund considered all of its
remaining investments as held for sale and reduced the carrying value of
such investments to the extent that each investment's then-current
carrying value exceeded its estimated net realizable value, defined as
estimated fair market value less selling costs.

2. ORGANIZATION COSTS: Costs incurred in conjunction with the organization of
the Fund were deferred and were amortized on a straight-line basis over a
60-month period from the date the Fund commenced operations.

3. INVESTMENTS IN REAL ESTATE: Real estate directly owned by the Fund is
carried at cost less accumulated provisions for depreciation and estimated
losses. Major renovations are capitalized, and routine maintenance and
repairs are charged to expense as incurred.

During 1993 and part of 1994, the Fund held mortgage loan investments
accounted for as in-substance foreclosed assets. In general, property is
deemed to be an in-substance foreclosed asset when a debtor has little or no
equity in the collateral and proceeds for repayment of the loan can be
expected to come only from the sale or operation of the collateral. Although
legal title to such property had not been obtained, the Fund is considered
to have substantially the same risks and rewards as a mortgagee.

4. REVENUE RECOGNITION: Rental income is accrued as rents are due. For those
operating leases that provide for rental concessions or fixed escalation
increases, rental income is recognized on a straight-line basis over the
term of the lease. For those operating leases that provide for reimbursement
of expenses for real estate taxes, common area maintenance, utilities and
insurance, income is recognized in the period in which the expenses are
incurred.

12
<PAGE> 14
Mortgage interest income is recorded based on the annual effective yield
of the respective loans. For mortgage loans treated for accounting purposes
as in-substance foreclosed assets, revenue is recognized only to the extent
of cash receipts.

5. PROVISION FOR POSSIBLE LOSSES: Provision for possible losses is provided
for estimated losses based upon management's regular evaluation of the
recoverability of each investment in the portfolio. Except for investments
considered to be held-for-sale, management's evaluation included
consideration of cash flows during each investment's estimated remaining
holding period. Provisions for possible losses are recorded as direct
write downs of the carrying value of direct ownership investments and
mortgage loans receivable at the time such investments are deemed to be
in-substance foreclosed assets. Subsequent provisions to reduce the
carrying value of in-substance foreclosed assets are included in the
allowance for possible losses.

6. DEPRECIATION AND ACQUISITION COSTS: Prior to the adoption of the Liquidation
Plan, depreciation on real estate owned was computed using the straight-line
method over 40 years for buildings and costs incurred in conjunction with
the acquisition of real estate investments were deferred and amortized on a
straight-line basis over the life of the loan for mortgage loan investments
and the life of the property for equity investments. Subsequent to adoption
of the Liquidation Plan, no depreciation or amortization expense related to
the Fund's owned real estate and acquisition costs is recognized since the
Fund's real estate investments are considered to be held-for-sale assets.

7. SHORT-TERM AND MARKETABLE SECURITIES INVESTMENTS: Investments in marketable
securities, including Vanguard Money Market Reserves-Prime Portfolio, are
carried at the lower of cost or market. Temporary cash investments are
carried at amortized cost, which approximates market value. The Fund's
temporary cash investments consisted of certificates of deposit at December
31, 1994.

8. CASH EQUIVALENTS: For purposes of the Statements of Cash Flows, the Fund
considers all highly liquid short-term investments with original
maturities of less than three months to be cash equivalents.

9. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as a
real estate investment trust and to distribute, at a minimum, all of its
taxable income. Accordingly, no provision for federal income taxes is
required in the financial statements. Differences between net income
determined in accordance with generally accepted accounting principles and
taxable income before dividend distributions result primarily from timing
differences relating to the accounting for the provision for possible
losses, depreciation on tenant improvements, and certain rental income.

10. PER SHARE AMOUNTS: The calculation of the Fund's net income per share is
based upon the weighted average number of shares outstanding during the
year. Income, capital gain, liquidating and return of capital distributions
per share represent actual distributions made during the year.

C. Under the terms of an agreement expiring December 31, 1995, as amended,
the Fund pays Aldrich, Eastman and Waltch, L.P. (the "Adviser") an annual
investment advisory fee equal to .5% of the average fair market value of the
Fund's real estate investments. The Fund also pays the Adviser investment
transaction fees generally equal to an amount ranging from 1.5% to 2% of the
proceeds realized from its real estate investments and to .65% of the proceeds
realized from refinancing mortgage loans outstanding. Pursuant to an amendment
of the agreement dated September 2, 1994, investment transaction fees will be
equal to 1.5% of the proceeds realized from real estate investments unless
such proceeds exceed an agreed-upon target amount above the investment's March
31, 1994 appraised value, in which case investment transaction fees will be
equal to 2% of such proceeds. At December 31, 1994, the associated investment
transaction fee percentage for all of the Fund's real estate investments, if
sold at their current appraised value, would be 1.5%. The Fund incurred real
estate investment transaction fees of $724,000 and $270,000, respectively, for
the years ended December 31, 1994 and 1993. The Fund did not incur real estate
investment transaction fees during the year ended December 31, 1992.

13
<PAGE> 15
D. Under the terms of an agreement expiring December 31, 1995, the Fund
pays The Vanguard Group, Inc. (the "Sponsor") an administrative fee calculated
at an annual percentage rate of the average fair market value of the Fund's real
estate investments and temporary cash investments (excluding investments in
Vanguard Money Market Reserves-Prime Portfolio). The administrative fee
represents an effective annual rate of .4% of the average fair market value of
such investments for the years ended December 31, 1994, 1993, and 1992,
respectively.

E. The Fund's wholly-owned direct real estate investments consisted of the
following:

<TABLE>
<CAPTION>
December 31, 1994 (4) December 31, 1993
(In thousands) (In thousands)
---------------------------- -----------------------------
ACCUMULATED ACCUMULATED
DESCRIPTION COST DEPRECIATION NET COST DEPRECIATION NET
-------------- ---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTER
Land $ 3,050 $ -- $ 3,050 $ 3,100 $ -- $ 3,100
Buildings and
Improvements 7,927 (1,492) 6,435 8,098 (1,304) 6,794
-------- -------- -------- -------- -------- --------
10,977 (1,492) 9,485 11,198 (1,304) 9,894
-------- -------- -------- -------- -------- --------
INDUSTRIAL PARKS (1)
Land -- -- -- 8,250 -- 8,250
Buildings and
Improvements -- -- -- 14,844 (2,232) 12,612
-------- -------- -------- -------- -------- --------
-- -- -- 23,094 (2,232) 20,862
-------- -------- -------- -------- -------- --------
OFFICE BUILDINGS (2)
Land 520 -- 520 1,440 -- 1,440
Buildings and
Improvements 1,776 (355) 1,421 8,490 (1,253) 7,237
-------- -------- -------- -------- -------- --------
2,296 (355) 1,941 9,930 (1,253) 8,677
-------- -------- -------- -------- -------- --------
RESIDENTIAL (3)
Land 3,000 -- 3,000 -- -- --
Buildings and
Improvements 12,014 (222) 11,792 -- -- --
-------- -------- -------- -------- -------- --------
15,014 (222) 14,792 -- -- --
-------- -------- -------- -------- -------- --------
TOTAL $28,287 $(2,069) $26,218 $44,222 $(4,789) $39,433
======== ======== ======== ======== ======== ========
</TABLE>

(1) The Fund sold Seattle Industrial Parks ("Seattle") on October 3, 1994, for a
contract price of $31,850,000. In addition to a 2% disposition fee paid to the
Fund's Adviser, the Fund also paid a sales incentive fee of $520,000 to the
Seattle property manager, a wholly-owned subsidiary of the purchaser, in
connection with the sale of Seattle.

(2) On August 17, 1994, the Fund sold the Deluxe Check, or Arden Hills,
building in its Minnesota Portfolio for $5,550,000. Deluxe Check, purchased in
February 1988, was the largest of three buildings in the Minnesota Portfolio.
The Fund realized a loss of $1,137,000 on the sale of the building, $1,070,000
of which was recognized via a write down of the investment's carrying value
in the second quarter of 1994.

(3) On April 13, 1994, the Fund obtained title to Sheffield Forest Apartments
(see Note F).

(4) Upon adoption of the Liquidation Plan in December 1994, the Fund's
management wrote down the carrying value of its three direct ownership
investments to reflect the effect of their held-for-sale status on management's
assessment of the investments' recoverability.

14
<PAGE> 16
F. The Fund's mortgage loan receivable and in-substance foreclosed asset
consisted of the following:

<TABLE>
<CAPTION>
(In thousands)
----------------------------------------------------------------------
MATURITY CALL EFFECTIVE PAY DECEMBER 31,
DESCRIPTION DATE DATE RATE RATE 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PLAZA DEL AMO:
shared-appreciation wrap-
around mortgage loan 1995 1994 10.3% 9.7%-10.8% $10,646 $10,646
SHEFFIELD FOREST APARTMENTS:
participating shared-
appreciation mortgage loan 1998 1994 n/a 8%-9% -- 17,192(1)
-------- ----------
TOTAL $10,646 $27,838
======== ==========
</TABLE>

(1) Classified as an in-substance foreclosed asset.

Upon repayment of the Plaza del Amo loan, the Fund is entitled to a share
of the property's appreciation, if any, equal to 50% of Plaza del Amo's fair
market value in excess of the original wraparound mortgage loan balance of $10.6
million. In late September 1994, the Fund exercised its call right with respect
to the Plaza loan and, therefore, the entire balance of the loan, less the
unpaid balance of the senior mortgage on the property (see Note H), becomes due
and payable six months from the exercise of the call right. As of the date of
the exercise of the call right and at December 31, 1994, the appraised value of
the Plaza property was in excess of the mortgage loan's carrying value and,
accordingly, no provision for possible losses has been recorded with respect to
this investment.

On April 13, 1994, the Fund obtained title to Sheffield Forest Apartments
("Sheffield") via a transfer of all of the partnership interests of the borrower
in full satisfaction of the mortgage loan outstanding. The borrower that
formerly owned and operated Sheffield funded, pursuant to a guarantee which
expired on December 7, 1993, interest on the mortgage loan secured by the
Sheffield property in excess of cash flow generated by the property during 1993.
The Fund and the borrower were unable to reach satisfactory restructuring terms
on the loan, and the borrower defaulted on the loan in January 1994 by making
only a partial payment of its then-due interest installment. This investment,
which had been written down to its estimated fair value minus selling costs at
December 31, 1993, was reclassified as a direct ownership investment at the date
of transfer. No additional loss was required to be recorded at the date of the
transfer since the allowance for possible losses previously recorded
sufficiently reduced the carrying value of the Sheffield investment to its net
realizable value.

In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors for
the Impairment of a Loan." Adoption of SFAS 114 is required for the year
beginning January 1, 1995. It requires that loans, such as the Fund's mortgage
loan receivable, if impaired, be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or as a
practical expedient, at the loan's observable market price or the fair value of
the collateral. Because the Fund already recognizes such reductions of value, if
present, through its provision for possible losses, adoption of SFAS 114 is not
expected to have a significant effect on the Fund's financial position or
results of operations.

15
<PAGE> 17
G. Activity relating to the allowance for possible losses on real estate is
as follows:

<TABLE>
<CAPTION>
(In thousands)
-------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------------------------
<S> <C> <C>
Balance--Beginning of Year $ 2,410 $ 7,248
Provision for Losses -- 3,500
Amounts Charged Off (290) (702)
Write-off--Sheffield (2,120) --
Write-off--Carmel Executive Park -- (1,238)
Write-off--Citadel II -- (6,398)
-------- --------
Balance--End of Year $ -- $ 2,410
======== ========
</TABLE>

In addition to the provision for possible losses recorded through the
allowance account, $1,920,000 was charged to the provision for losses in 1994 to
directly write down the carrying value of three direct ownership investments to
their respective estimated net realizable values (see Note E).

H. The Fund's mortgage loans payable consisted of the following:

<TABLE>
<CAPTION>
(In thousands)
-----------------------------
DECEMBER 31, DECEMBER 31,
DESCRIPTION 1994 1993
-------------------------------------------------------------------------------------------
<S> <C> <C>
PLAZA DEL AMO:
senior mortgage loans, secured by the shopping center,
principal and interest payable over term
10%, matures June, 2007 $2,236 $2,324
9.5%, matures June, 2007 147 153
------- -------
TOTAL $2,383 $2,477
======= =======
</TABLE>

Scheduled principal payments for each of the next five years and
thereafter are as follows:

<TABLE>
<CAPTION>
Year Ending December 31, (In thousands)
------------
<S> <C>
1995 $ 102
1996 113
1997 125
1998 139
1999 155
Thereafter 1,749
-----------
TOTAL PRINCIPAL PAYMENTS $2,383
===========
</TABLE>

16
<PAGE> 18
I. In the first quarter of 1993, the Fund defaulted on its mortgage loan
obligation secured by the Citadel II investment in Orlando, Florida. During the
period of default, the net cash flow generated from the property's operations
were remitted to the lender on a monthly basis, under terms of a cash flow
agreement. Accordingly, the Fund did not realize any net income or receive any
cash flow from the property during the default period. The Fund's Adviser had
previously approached the lender in an effort to restructure the loan; however,
a restructuring satisfactory to both the Fund and the lender could not be
achieved. Accordingly, on September 1, 1993, the Fund ceded title of the
property to the lender in full satisfaction of amounts due under the
non-recourse mortgage loan obligation. Since the Citadel II investment had
previously been written down to the remaining principal balance of the loan, no
additional loss on this investment was recognized in the year ended December 31,
1993.

J. For the Fund's wholly-owned direct real estate investments, annual minimum
future rentals to be received under operating leases in effect at December 31,
1994, are as follows:

<TABLE>
<CAPTION>
Year Ending December 31, (In thousands)
-----------
<S> <C>
1995 $1,400
1996 1,213
1997 859
1998 615
1999 412
Thereafter 1,841
-----------
TOTAL MINIMUM FUTURE RENTALS $6,340
===========
</TABLE>

Total minimum future rentals do not include contingent rentals under
certain leases based upon lessees' sales volumes. Contingent rentals aggregating
$4,000, $37,000, and $30,000 were received during 1994, 1993, and 1992,
respectively. Certain leases also require lessees to pay all or a portion of
real estate taxes and operating costs.

K. During the fourth quarter of 1990, the Fund's Board of Trustees authorized
the Fund to repurchase in the open market from time to time up to 500,000 of the
Fund's outstanding shares. As of December 31, 1994, 413,725 shares have been
repurchased at an aggregate cost of $3,134,000.

L. The Fund's investment in marketable securities consisted of the following:

<TABLE>
<CAPTION>
(In thousands)
----------------------------
DESCRIPTION (COST IN THOUSANDS) STANDARD & POOR'S RATING DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1994 1993
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Resolution Trust Corporation (RTC) AA $1,336 $1,684
Series 1992-C5, Class B REMIC
6.9%, cost $1,458
Resolution Trust Corporation (RTC) AAA 656 --
Series 1992-C6, Class A2 REMIC
7.0%, cost $659
------- -------
TOTAL $1,992 $1,684
======= =======
</TABLE>

17
<PAGE> 19
Valuation allowances of $125,000 and $14,000, respectively, were
recorded to reduce the carrying value of the securities to their respective
market values at December 31, 1994 and 1993. During 1993, four other RTC REMIC
securities were purchased and subsequently sold at a realized gain of $8,000.
Such gain, determined based on the cost of the specific securities sold, is
included in mortgage interest income for the year ended December 31, 1993.

Statement of Financial Accounting Standards No. 115 (SFAS 115),
Accounting for Certain Investments in Debt and Equity Securities, was issued by
the Financial Accounting Standards Board in May 1993. SFAS 115, which addresses
the accounting and reporting for investments in equity securities that have
readily determinable fair values and all debt securities, was adopted for the
year beginning January 1, 1994. Adoption of SFAS 115 did not materially affect
the Fund's financial position or results of operations.

M. The unaudited quarterly results of operations for the years ended
December 31, 1994, and 1993, are as follows:

<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
(amounts in thousands, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
except per share data) 1994 1994 1994 1994 1993 1993 1993 1993
---------------------- ---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate and Short-
term Investment
Income $2,333 $2,323 $2,444 $1,893 $3,140 $3,228 $2,861 $2,433
======= ======= ======= ======= ======= ======= ======= =======

Net Income (Loss) $1,420 $ 399 $ 989 $9,574(1) $1,783 $ (239) $ 81 $1,713
======= ======= ======= ======= ======= ======= ======= =======

Per Share
Net Income (Loss) $ .13 $ .04 $ .09 $ .86 $ .16 $ (.02) $ .01 $ .15
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

(1) Net income for the quarter ended December 31, 1994 includes (i) a gain on
the sale of the Seattle investment in the amount of $9,479,000 and, (ii) a
provision for possible losses in the amount of $850,000 to write down the
carrying value of each of the Fund's three remaining direct ownership
investments to their estimated net realizable values (see Notes B and E).

18
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Trustees of
Vanguard Real Estate Fund I

In our opinion, the accompanying balance sheets and the related statements of
operations, changes in shareholders' equity and cash flows present fairly, in
all material respects, the financial position of Vanguard Real Estate Fund I
(the "Fund") at December 31, 1994 and 1993, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Fund's management; our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

As explained in Note A to the financial statements, on December 12, 1994, the
Fund's Board of Trustees approved a Plan of Liquidation and Termination which
will result in the sale or disposition of all of the assets of the Fund, the
payment or provision for all liabilities of the Fund, and the distribution to
shareholders of the remaining proceeds in a complete liquidation and dissolution
of the Fund. The Fund's management currently anticipates that such liquidation
and dissolution of the Fund will occur on or before December 12, 1996.

PRICE WATERHOUSE LLP

Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 27, 1995

<PAGE> 21
SELECTED FINANCIAL DATA

(amounts in thousands, except per share data)

The following table sets forth selected financial data for the Fund and should
be read in conjunction with the financial statements included elsewhere herein.

<TABLE>
<CAPTION>
Year Ended December 31,
RESULTS OF OPERATIONS: 1994 1993 1992 1991 1990
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Real estate and short-term
investment income ................ $ 8,993 $11,662 $ 12,275 $ 12,901 $ 13,343
Income (loss) from real estate........ 3,091 4,099 2,156 (221) 4,943
Funds from operations (a) ............ 5,673 7,639 7,456 7,631 8,201
Net income ........................... 12,382 3,338 1,345 394 3,973
PER SHARE (b):
Net income ........................... $ 1.12 $ .30 $ .12 $ .03 $ .35
Income distributions ................. .01 -- .57 .29 .62
Long-term capital gain distributions.. .09 -- -- -- --
Return of capital distributions....... .35 1.69 .12 .40 .07
Liquidating distributions............. 3.69 -- -- -- --
Total distributions .................. 4.14 1.69 .69 .69 .69
FINANCIAL POSITION:
Real estate investments (c)........... $36,864 $64,989 $ 92,940 $ 98,464 $112,914
Total assets ......................... 43,279 76,925 104,859 112,606 128,430
Long-term obligations ................ 2,281 2,384 14,234 14,404 16,834
Total liabilities .................... 2,778 3,184 15,317 15,588 22,554
Total shareholders' equity ........... 40,501 73,741 89,542 97,018 105,876
</TABLE>

(a) Funds from operations is calculated by adding back depreciation,
amortization, and the Fund's provision for possible losses to income (loss)
before net gain on sales of investments. Funds from operations should not be
considered as an alternative to net income as an indicator of the Fund's
operating performance or to cash flows as a measure of liquidity.

(b) Net income per share is calculated based upon the weighted average number of
shares outstanding during the year. Income, capital gain, liquidating and
return of capital distributions per share designations are made based on
their treatment for Federal income tax purposes and represent actual
distributions made during the year.

(c) Net of accumulated depreciation, the allowance for possible losses and
reductions in carrying value recorded via the provision for possible losses.

MARKET AND DISTRIBUTION INFORMATION

The Fund's Shares of Beneficial Interest ("Shares") are traded on the American
Stock Exchange under the symbol "VRO." As of December 31, 1994, there were
approximately 15,621 shareholders of record of the Fund's Shares.

<TABLE>
<CAPTION>
Year Ended December 31, 1994
---------------------------------------------------------
Share Prices Distributions Declared
---------------------- ------------------------
High Low Per Share
---------------------- ------------------------
<S> <C> <C> <C>
For the Quarter Ended:
March 31, 1994 .......... $8 $7 3/8 $ .15
June 30, 1994............ 7 1/4 6 1/4 .15
September 30, 1994....... 6 5/8 5 3/4 .15
December 31, 1994........ 7 5/8 3 1/2 3.69
====================== ========================
</TABLE>

20
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Vanguard Real Estate Fund I, A Sales-Commission-Free Income Properties
Fund (the "Fund"), a Massachusetts business trust established in 1987, is a
qualified finite-life real estate investment trust ("REIT") under the Internal
Revenue Code of 1986. The Fund's current real estate investments include both
direct ownership properties and a shared appreciation mortgage and consist of
three income-producing commercial properties (comprised of one office building
and two shopping centers) and one income-producing residential apartment
complex. Geographically, the Fund's investments are located in each of the North
Central, Pacific Southwest and Mideast regions. The Fund's Declaration of Trust
precludes the Fund from reinvesting net proceeds from the sale or repayment of
its real estate investments in additional real estate investments after December
31, 1993 and contemplates the liquidation of all of the Fund's investments after
a period of approximately seven to twelve years following completion of its
initial public offering, or between June 30, 1994 and 1999, respectively.

On December 12, 1994, the Fund's Board of Trustees approved a Plan of
Liquidation and Termination (the "Liquidation Plan"). The Trustee's decision to
adopt the Liquidation Plan at this point in the Fund's initially contemplated
liquidation period was driven by several factors, including real estate market
conditions affecting each investment in the Fund's portfolio and tax
considerations affecting real estate investment trusts. The Liquidation Plan
provides that the Fund will dispose of all of its assets, wind up its affairs,
pay or adequately provide for the payment of all of its liabilities and
distribute for the benefit of its shareholders all of the Fund's assets over 24
months, in complete cancellation and redemption of all issued and outstanding
shares of beneficial interest. Under the Liquidation Plan, the Fund's Adviser,
Aldrich, Eastman and Waltch, L.P., Trustees and officers are authorized and
directed to take any and all actions as may be necessary or convenient to market
the assets of the Fund and convert them into a form that may be distributed to
shareholders. The Liquidation Plan provides that the Fund's assets may be sold,
conveyed, transferred or otherwise disposed of when and on such terms and
conditions as are deemed by the Trustees to be in the best interests of the Fund
and the shareholders.

The Fund is currently in the process of liquidating its real estate
investments and distributing the net proceeds to its shareholders in accordance
with the Liquidation Plan. It is contemplated that the Fund will be completely
liquidated and dissolved by December 12, 1996. To the extent that the Fund has
not disposed of all of its assets or made provision for all of its liabilities
on December 12, 1996, the Fund intends to form a liquidating trust, the
beneficiaries of which will be the shareholders of the Fund. All assets and
liabilities of the Fund not previously disposed of and discharged will be
transferred to the liquidating trust. See "Distributions" and "Liquidity and
Capital Resources."

In late September 1994, the Fund exercised its call right with respect
to its Plaza del Amo wrap-around mortgage loan investment and, therefore, the
entire balance of the loan, less the unpaid balance of the senior mortgage on
the Plaza property, becomes due and payable in late March 1995. As of the date
of the exercise of the call right and at December 31, 1994, the appraised value
of the Plaza property was in excess of the mortgage loan investment's carrying
value.

The Fund intends to continue to qualify as a REIT under the Internal
Revenue Code during the Fund's liquidation period.

RESULTS OF OPERATIONS

1994 as compared to 1993

Net Income

For the year ended December 31, 1994, the Fund earned net income of
$12,382,000, or $1.12 per share, as compared to net income of $3,338,000, or
$.30 per share, for the year ended December 31, 1993. Net income for the year
ended December 31, 1994 included a net gain on sales of investments of
$9,412,000, or $.85 per share, resulting from a gain of $9,479,000, or $.86 per
share, realized from the Fund's October 3, 1994 sale of its Seattle Industrial
Park investment for a contract price of

21
<PAGE> 23

$31,850,000. This gain was partially offset by a loss of $67,000, or $.01 per
share, on the Fund's August 17, 1994 sale of the Deluxe Check, or Arden Hills,
building (the largest of the three buildings in its Minnesota Portfolio)
for a contract price of $5,550,000. Including a charge to the provision for
possible losses of $1,070,000 in the second quarter of 1994 to reduce the
carrying value of this building to its estimated net realizable value, the
Fund's realized loss on the Deluxe Check sale aggregated $1,137,000. In
connection with the Seattle sale, and in accordance with the terms of the Fund's
advisory agreement, the Fund paid a disposition fee of $616,000, representing 2%
of the net proceeds of the transaction, to its Adviser. The Fund also paid a
sales incentive fee of $520,000 to the Seattle property manager, a wholly-owned
subsidiary of the purchaser. In connection with the Deluxe Check sale, the Fund
paid its Adviser a disposition fee of $108,000, representing 2% of the net
proceeds of the transaction.

The Fund's net income before net gain on sales of investments for the
year ended December 31, 1994, was $2,970,000, or $.27 per share, as compared to
net income before net gain on sales of investments for the year ended December
31, 1993 of $3,338,000, or $.30 per share, representing a decrease in net income
of $368,000. This decrease, as more fully described below, primarily reflects
decreases in net rental income, net income from in-substance foreclosed assets
and mortgage interest income. These decreases in net income were partially
offset by (i) a provision for possible losses of $1,630,000 in 1994 as compared
to $3,263,000 for 1993, (ii) an increase in short-term investment income; and
(iii) a decrease in administrative expenses, in each case as compared to such
items in 1993 and excluding results from the Fund's Citadel II investment, to
which title was transferred on September 1, 1993.

For comparison purposes, results from Citadel II have been excluded
since the Fund did not realize net income, or recognize a loss, related to
Citadel II in 1993. In January 1993, the Fund defaulted on a mortgage loan
obligation secured by its Citadel II office building investment in Orlando,
Florida. In September 1993, the Fund ceded title to Citadel II to the lender in
full satisfaction of amounts due under the non-recourse mortgage loan. This
investment had been written down to the remaining principal balance of the loan
as of December 31, 1992. In addition, during the period of default, the net cash
flow generated from the property's operations was remitted to the lender.
Accordingly, the Fund did not realize any net income related to Citadel II in
1993. The excess of Citadel II's expenses over its net income for the year ended
December 31, 1993 of $465,000 was charged off to the Fund's provision for
possible losses, resulting in net income of zero related to Citadel II in 1993.

Provisions for Possible Losses

The Fund's 1994 provision for possible losses in the amount of
$1,630,000 ($1,920,000 net of charge-offs of $290,000 recorded during 1994) was
recorded to (i) write down the carrying value of the Fund's investment in the
Deluxe Check building to its estimated net realizable value and, (ii) write down
the carrying value of the Fund's remaining three direct ownership
investments--Oakcreek Village, Sheffield Forest Apartments and the two remaining
buildings in the Minnesota Portfolio--upon adoption of the Fund's Liquidation
Plan to their estimated net realizable values. The Fund's 1993 provision for
possible losses was recorded to write down the carrying value of two of the
Fund's then-in-substance foreclosed asset investments, Sheffield and Carmel.

The provision for possible losses is based upon management's regular
evaluation of the recoverability of each investment in the portfolio. Prior to
the adoption of the Liquidation Plan on December 12, 1994, management's
evaluation of recoverability was based upon (i) the Adviser's analysis of
current property values (adjusted for estimated selling costs), (ii) independent
appraisals, and (iii) management's estimate of cash flows during each
investment's remaining holding period. Upon adoption of the Liquidation Plan,
the Fund's remaining real estate investments are considered to be held for sale,
rather than for the production of income, and, accordingly, are, for purposes of
assessing their recoverability, considered to have no remaining holding period.
A provision for possible losses of

<PAGE> 24

$850,000 was recorded in the fourth quarter of 1994 to reflect the effect of the
held-for-sale status on the Fund's three remaining direct ownership investments.
Since the appraised value of the property securing the Fund's Plaza del Amo
mortgage loan investment exceeds the loan receivable balance at December 31,
1994 , the loan's carrying value was not reduced as a result of the adoption of
the Liquidation Plan. With respect to Deluxe Check, during the second quarter of
1994, Fund management, based on information provided by the Fund's Adviser,
shortened the estimated remaining holding period for this building (which
was subsequently sold in the third quarter of 1994) and recorded a provision for
possible losses in the amount of $1,070,000.

The Fund's management believes that the provisions recorded to write
down the carrying values of its remaining direct ownership investments are
adequate at December 31, 1994; however, the provisions are based on estimates
and actual results may vary from current estimates.

Net Rental Income

Net rental income (rental income less real estate taxes and property
operating expenses) decreased by $372,000, or 7%, from $4,989,000 for the year
ended December 31, 1993 to $4,617,000 for the year ended December 31, 1994. This
decrease was primarily due to the dispositions of Seattle and Deluxe Check,
which generated for the Fund net rental income of $2,398,000 and $439,000,
respectively, during their respective 1994 holding periods, as compared to
$3,172,000 and $640,000, respectively, for the full year in 1993. This decline
was partially offset by the net rental income generated for the Fund in 1994 by
the Sheffield Forest Apartment complex, to which the Fund obtained title on
April 13, 1994 as described in Note F to the accompanying financial statements.
This investment, which was classified as an in-substance foreclosed asset during
all of 1993, provided net rental income of $495,000 from April 13 through
December 31, 1994.

At each of December 31, 1994 and December 31, 1993, the overall
occupancy rate of the Fund's direct real estate investments, excluding
Sheffield, was 97%. The occupancy rate of Sheffield was 96% and 93% at December
31, 1994 and December 31, 1993, respectively. The occupancy rate of the property
underlying the Fund's Plaza del Amo mortgage loan investment was 99% and 98% at
December 31, 1994 and December 31, 1993, respectively. Leases for 4% of the
rentable space of the properties directly owned by the Fund, excluding
Sheffield, and for 6% at the property underlying the Plaza del Amo mortgage
investment expire during 1995, respectively. Leases for units at Sheffield are
generally for one-year terms or less as is customary for apartment leases. The
Fund's Adviser is currently working to renew leases and to identify new tenants
for space covered by leases that have expired or are expiring. However, there
can be no assurance that the Fund will be able to maintain its current occupancy
and level of income.

Net Income From In-Substance Foreclosed Assets

Net income from in-substance foreclosed assets decreased by $2,180,000,
or 87%, from $2,499,000 in the year ended December 31, 1993 to $319,000 in the
year ended December 31, 1994. This decrease was primarily a result of: (i) the
discounted payoff in late July 1993 of the Carmel mortgage loan investment,
which had been classified as an in-substance foreclosed asset since 1991 and
which contributed $915,000 in net income for the year ended December 31, 1993,
and (ii) the Fund obtaining title to Sheffield in April 1994. Sheffield provided
net income of $1,584,000 as an in-substance foreclosed asset in 1993, as
compared to $319,000 during the period in 1994 prior to the Fund obtaining title
to the property, at which time it was reclassified from an in-substance
foreclosed asset to a direct ownership investment.

<PAGE> 25
Mortgage Interest Income

Mortgage interest income decreased by $178,000, or 14%, from $1,279,000
in 1993 to $1,101,000 in 1994. This decrease was primarily due to: (i) a
decrease of $ 63,000 in interest income earned from the Fund's investments in
RTC-issued mortgage-backed securities; and (ii) valuation adjustments totaling
$111,000 recorded during 1994 to reduce the carrying value of such
mortgage-backed securities. Interest income earned from mortgage-backed
securities decreased as a result of a lower average investment balance of such
securities in 1994 as compared to 1993. Valuation adjustments to reduce the
carrying value of such securities have been recorded to reflect reductions in
the market value of these investments resulting from increases in prevailing
interest rates. These investments were acquired as an additional temporary
investment vehicle for excess working capital reserve balances.

Investment Income From Short-Term Investments

Investment income from short-term investments increased by $453,000,
from $367,000 for the year ended December 31, 1993 to $820,000 for the year
ended December 31, 1994. This increase is primarily due to income from the
investment of the proceeds made available by the sales of the Deluxe Check
building in August 1994 and Seattle Industrial Parks in October 1994 and an
increase in prevailing short-term interest rates in 1994 as compared to 1993.

Administrative Expenses

Administrative expenses decreased by $187,000, or 17%, from $1,128,000
for the year ended December 31, 1993 to $941,000 for the year ended December 31,
1994. This decrease was primarily due to lower advisory and administrative fees
payable in the 1994 period, which fees are based on average invested real estate
assets. The Fund's average assets invested in real estate decreased during 1994
due to (i) the payoff of the Carmel investment and subsequent distribution of
the proceeds to shareholders in 1993 and (ii) the sale of the Deluxe Check and
Seattle investments in 1994.

Exclusive of the amounts related to Citadel II, depreciation and
amortization expense and mortgage interest expense decreased by $80,000 and
$9,000, respectively, for the year ended December 31, 1994 as compared to such
expenses for the year ended December 31, 1993.

1993 as compared to 1992

For the year ended December 31, 1993, the Fund earned net income of
$3,338,000, or $.30 per share, compared to net income for the year ended
December 31, 1992, of $1,345,000, or $.12 per share. As more fully described
below, this increase in net income reflects: (i) a 1993 provision for possible
losses of $2,798,000 as compared to $4,501,000 in 1992; (ii) an increase in net
rental income and mortgage interest income; (iii) a decrease in net income from
then in-substance foreclosed assets and investment income from short-term
investments; and (iv) a decrease in mortgage interest expense, in each case as
compared to such items in 1992.

The 1993 provision for possible losses in the amount of $2,798,000
($3,500,000 net of charge-offs of $702,000 recorded during 1993) was recorded to
write down the carrying value of two of the Fund's then-classified in-substance
foreclosed assets, Sheffield and Carmel. The Fund's provision for possible
losses recorded in 1992 reduced the carrying value of the Citadel II investment
to the remaining principal balance of the loan secured by this investment.

Net rental income (rental income less real estate taxes and property
operating expenses) increased by $195,000, or 4%, from $5,457,000 for the year
ended December 31, 1992, to $5,652,000 for the year ended December 31, 1993.
This increase in net rental income was attributable primarily to an increase of
$538,000, or 20%, in the net rental income from the Fund's Seattle investment
which increased from $2,634,000 for the year ended December 31, 1992, to
$3,172,000 for the comparable

24
<PAGE> 26
period of 1993. This increase was due to a 57% increase in the rental rates on
one of the major leases (502,500 square feet), which was renewed in the fourth
quarter of 1992 for a term of five years.

In addition, net rental income at the Fund's Oakcreek investment
increased by $95,000, or 11%, from $875,000 for the year ended December 31,
1992, to $970,000 for the comparable period of 1993.

Increases in the net rental income of Seattle and Oakcreek were offset
by a decrease of $442,000 in net rental income from Citadel II. In consideration
of several factors resulting from weak local market conditions in the Orlando
airport area, including; (i) insufficient net rental income in 1992 to cover
debt service on the non-recourse mortgage loan secured by Citadel II; (ii) the
expected continuation of such debt service deficits over the next several years;
and (iii) a decline in the appraised value of the property to a point below the
outstanding principal balance of the loan at December 31, 1992, the Fund
defaulted on the mortgage loan obligation secured by Citadel II in the first
quarter of 1993. During the period of default, the net cash flow generated from
the property's operations were remitted to the lender on a monthly basis under
terms of a cash flow agreement. Accordingly, the Fund did not realize any net
income or receive any cash flow from the property during the default period. On
September 1, 1993, the Fund ceded title of the property to the lender in full
satisfaction of amounts due under the non-recourse mortgage loan obligation.
Since the Citadel II investment had previously been written down to the
remaining principal balance of the loan, no loss on this transaction was
recognized in the year ended December 31, 1993. Net rental income at Citadel II
decreased from $1,105,000 for the year ended December 31, 1992, to $663,000 for
the comparable period of 1993, reflecting the disposition of the property on
September 1, 1993, and, to a lesser extent, the lower average occupancy rate and
lower rental rates on lease renewals during the eight-month period ended August
31, 1993, as compared to the comparable period of 1992.

Mortgage interest income increased by $173,000, or 16%, from $1,106,000
in the year ended December 31, 1992, to $1,279,000 in the year ended December
31, 1993. In early June 1993, the Fund began acquiring RTC-issued
mortgage-backed securities as an additional temporary investment vehicle for
excess working capital reserve balances. Income of $174,000 earned on these
investments during the year ended December 31, 1993, is included in Mortgage
Interest Income.

Net income from in-substance foreclosed assets decreased by $638,000, or
20%, primarily as a result of the discounted payoff in late July 1993, of the
Carmel mortgage loan investment, which had been classified as an in-substance
foreclosed asset in 1991.

Investment income from short-term and other investments decreased by
$77,000, or 17%, as compared to such income in the comparable period of 1992,
primarily as a result of a decrease in the average amount of short-term
investments for the year ended December 31, 1993, as compared to such
investments during the same period of 1992.

Mortgage interest expense decreased by $403,000, or 28%, primarily as a
result of the Fund's ceding title to its Citadel II investment on September 1,
1993, in full satisfaction of the non-recourse mortgage loan obligation secured
by the Citadel II property.

DISTRIBUTIONS

Prior to the adoption of the Liquidation Plan on December 12, 1994, the
Fund's policy was to distribute, at a minimum, all of its taxable income to its
shareholders. Subsequent to adoption of the Liquidation Plan, the Fund's
Trustees will also seek to distribute net proceeds from the liquidation of the
Fund's investments at such time and, in such amounts, which is, in the opinion
of the Trustees, in the best interests of the Fund's shareholders. In
establishing distribution rates, the Fund's Trustees consider the operating
performance of the Fund, the Fund's cash position and aggregate future cash
requirements. Total distributions declared by the Fund in 1994 aggregated
$45,622,000, or $4.14 per share, compared to distributions in the amount of
$18,629,000, or $1.69 per share, and $7,694,000, or $.69 per share, made in 1993
and 1992, respectively. Distributions to shareholders in 1994 included three

25
<PAGE> 27
quarterly distributions at $.15 per share, and a $40,662,000, or $3.69 per
share, liquidating distribution made at year end pursuant to the Liquidation
Plan. This liquidating distribution resulted primarily from the Fund's sale of
(i) its Seattle investment in October 1994 and (ii) the Deluxe Check building in
the Minnesota Portfolio in August 1994. Since the Fund had formally commenced
its liquidation period, the Trustees believed it was in the best interests of
shareholders to return the majority of its cash to shareholders with the
year-end distribution. In determining the amount of such distribution, the Fund
estimated its aggregate future cash requirements necessary to: (i) fund its
capital and tenant improvement and leasing programs necessary to maintain the
value of its property investments, (ii) maintain its minimum working capital
reserve requirement and (iii) make its principal payments on mortgage loan debt
outstanding during the estimated remaining liquidation period for all of the
Fund's investments. Except for the amount of such estimated future requirements,
all cash held by the Fund as of year end was distributed to shareholders.

All, or a significant portion of, the past three years' distributions
(excluding the year-end 1994 liquidating distribution of $3.69 per share)
represented a return of shareholder's capital. Return of capital and liquidating
distributions are non taxable to a shareholder to the extent the shareholder has
remaining tax cost basis in the Fund's shares. Return of capital distributions
aggregated $3,899,000, or $.35 per share, $18,629,000, or $1.69 per share, and
$1,364,000, or $.12 per share, for 1994, 1993, and 1992, respectively.

During the Fund's liquidation period, its ability to make quarterly
distributions will be dependent upon its financial condition, earnings and cash
flow, cash position and future working capital requirements. As a result of the
1994 property sales, and the subsequent year-end liquidating distribution of the
proceeds from such sales, the book value of the Fund's shares has been
significantly reduced. Accordingly, the amount of future income the Fund may be
expected to generate has also been reduced. Further, as a result of the adoption
of the Liquidation Plan, the Fund's remaining investments are being held for
sale, rather than the production of income, and, accordingly, income from
operations can be expected to decline throughout the Fund's liquidation period.
In addition, the cumulative amount of the Fund's three 1994 quarterly
distributions paid to shareholders prior to the adoption of the Liquidation Plan
in the amount of $4,960,000 exceeded funds from operations (defined as net
income, plus depreciation and the provision for possible losses) for the nine
months ended September 30, 1994 by $401,000. In the opinion of the Trustees, the
Fund had adequate working capital reserves to make such distributions and thus
to maintain the Fund's regular quarterly distribution rate of $.15 per share
during the nine-month period ended September 30, 1994. However, with respect to
the Fund's future distribution policy, in determining the amount of the
liquidating year-end distribution to shareholders as described above, it was, in
the opinion of the Trustees, in the best interests of shareholders to
distribute, rather than retain, available working capital reserves which would
otherwise be necessary to maintain future quarterly distributions at the rate of
$.15 per share.

As a result of the factors cited in the preceding paragraph, future
quarterly liquidating distributions to shareholders, excluding any amounts
distributed from net proceeds from property sales, will be largely dependent
upon the amount of funds from operations generated by the Fund during its
liquidation period. Funds from operations are generated from the operations of
the Fund's direct real estate investments and interest income on short-term
investments and mortgage loans. Accordingly, unfavorable economic conditions,
vacancies, environmental requirements, reductions in prevailing short-term
interest rates or increases in major expenses such as energy, insurance, and
real estate taxes during the liquidation period could have an adverse impact
upon the Fund's future funds from operations and distributions to shareholders.
The exact amount of quarterly distributions to shareholders will be determined
by the Trustees based on the Fund's actual results of operations and cash
position. The timing and amount of distributions of net proceeds from property
sales to shareholders will be determined by the Trustees as such amounts are
realized and based on relevant considerations such as the Fund's then current
results of operations, cash position, and future working capital requirements.

26
<PAGE> 28
Under the Liquidation Plan, the Fund intends to sell or otherwise
dispose of its real estate investments. In disposing of real estate investments,
the Fund is in competition with other domestic institutional investors,
including commercial banks and other financial institutions, insurance
companies, pensions and other retirement funds, mortgage bankers, other real
estate investment trusts, real estate brokers, developers and various types of
foreign investors who may be seeking to dispose of real estate investments. The
principal factors of competition for the disposition of the mortgage loan
receivable include the base interest rate, contingent interest rate and the
amount of loan relative to the value of the underlying property. In the case of
leased properties which the Fund owns or which secure Fund investments, the
marketability of the investments is also affected by how rental rates, lease
terms, free-rent concessions and tenant improvements allowances compare with
those in local markets.

If the Fund's remaining real estate investments are sold or disposed of
prior to December 12, 1996, it is the Fund's intention to make a final
liquidating distribution, or distributions, prior to that date. Any assets which
have not been distributed as of December 12, 1996, will be contributed to a
liquidating trust, of which the shareholders will be the beneficiaries. The
shares of the Fund would no longer be traded and the beneficial interests in the
liquidating trust would not be readily transferable.

The schedule below sets forth the pro forma cash available for
distribution (per share) to Fund shareholders as if the Fund were liquidated on
December 31, 1994 pursuant to the Liquidation Plan. Gross proceeds on sale of
properties assumes that the Fund's properties are sold for their appraised
values at December 31, 1994. Since appraised values are based on estimates, no
assurance can be given that sales could have been transacted at their appraised
values at December 31, 1994 and actual gross sales amounts may vary from
appraised amounts. Gross proceeds on sales of properties are reduced by an
estimated provision of 4.5% of the gross selling price for commissions, expenses
and state and local taxes to arrive at net sales proceeds. Repayment of mortgage
loan receivable includes $.04 per share relating to a shared appreciation
provision on the loan receivable. Such amount represents 50% of the excess of
the December 31, 1994 appraised value of the property underlying the mortgage
loan over the original loan balance, or its December 31, 1994 carrying value. No
consideration has been made for cash flow from operations from the Fund's
investments during their remaining holding periods prior to their sale or
disposition. All other amounts shown are based on their respective historical
carrying values at December 31, 1994.

<TABLE>
<CAPTION>
PRO FORMA
AMOUNT
PER SHARE
---------
<S> <C>
Gross proceeds on sale of properties.............................................. $2.50
Less: Selling commissions, expenses, and state and local taxes.................... (.11)
-------
Net proceeds on sale of properties................................................ 2.39
Repayment of mortgage loan receivable at December 31, 1994........................ 1.02
-------
Net proceeds on disposition of real estate assets................................. 3.41
Repayment of mortgage loan payable at December 31, 1994........................... (.22)
Settlement of receivables and payables at December 31, 1994 related to operations:
Receipt of accounts receivable.................................................. .07
Payment of liabilities.......................................................... (.03)
Cash and short-term investments................................................... .32
Liquidation of marketable securities--REMICs...................................... .18
-------
Pro forma cash available for distribution to shareholders
(based on 11,019,978 shares outstanding at December 31, 1994)..................... $3.73
=======
</TABLE>

27
<PAGE> 29
The calculation of the pro forma cash available for distribution (per
share) set forth above assumes that the Fund will continue to qualify as a real
estate investment trust during the entire liquidation period and, therefore, no
provision has been made for federal income taxes. The above calculation also
assumes that all of the Fund's assets are sold or distributed prior to December
12, 1996, and does not reflect any incremental costs or expenses associated with
establishing and operating a liquidating trust. It is possible that the sale of
the remaining assets cannot be completed by December 12, 1996, in which case the
assumptions regarding the timing and costs required to complete the liquidation
would need to be revised.

Caution should be used in relying on the above pro forma estimate, which
assumes the continuation of reasonably stable economic conditions during the
remaining liquidation period and depends, among other factors, on the level of
capital available for investment in real estate, interest rates, and the demand
for real estate and mortgage investments. While the Fund's management, Trustees
and Adviser believe the assumptions and projections used in arriving at this
estimate of pro forma cash available for distribution (per share) are
reasonable, there can be no assurance that such assumptions will in fact prove
correct. Accordingly, there can be no assurance that actual sales or
dispositions of particular assets will not be at prices which vary materially
from management's current estimates of net liquidation values.

LIQUIDITY AND CAPITAL RESOURCES

As a matter of policy, the Fund seeks to maintain working capital
reserves in an amount not less than $2,300,000, which amount constitutes 2% of
the gross proceeds of the Fund's initial offering. Working capital reserves are
defined as cash and cash equivalents, including the Fund's investment in
marketable securities, and other working assets expected to be realized over
the next year, less liabilities expected to be paid over the next year.
Working capital reserves at December 31, 1994, after payment of the $3.69 per
share liquidating distribution discussed above, aggregated approximately $5.7
million, representing 5.0% of the initial public offering proceeds, compared
to working capital reserves of $8.5 million at December 31, 1993, which
represented 7.4% of the Fund's initial offering proceeds.

During the fourth quarter of 1990, the Fund instituted a share
repurchase program. Under the program, the Fund is authorized to repurchase in
the open market from time to time up to 500,000 of the Fund's outstanding
shares. As of December 31, 1994, 413,725 shares have been repurchased at an
aggregate cost of $3,134,000. No shares have been repurchased since September
1993 and the Fund's management,in consideration of the Liquidation Plan, does
not expect the Fund to repurchase any further shares.

The Fund intends to continue to qualify as a real estate investment
trust under the Internal Revenue Code and distribute all of its taxable income.
The Fund's management considers the Fund's liquidity, as well as its ability
to generate cash, as adequate to meet its presently foreseeable operating and
shareholder distribution requirements and to fund its capital improvements.

28
<PAGE> 30

TRUSTEES & OFFICERS

JOHN C. BOGLE, Chairman
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc.,
and each of the investment companies in The Vanguard Group.

J. MAHLON BUCK, JR.
Chairman and President of TDH Capital Corporation; Director, Alco Standard
Corporation.

WILLIAM S. CASHEL, JR.
Private Investor; formerly Vice Chairman, American Telephone & Telegraph, Inc.

DAVID C. MELNICOFF
Adjunct Professor of Finance, Temple University; Director, Seamens' Capital
Corporation; Director, Cortland Trust; President, Samuel F. Fels Fund;
formerly Executive Vice President of Meritor Financial Group.

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

OTHER OFFICERS

JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.

RALPH K. PACKARD, Vice President and Controller Senior Vice President and
Chief Financial Officer of The Vanguard Group, Inc.

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

RICHARD F. HYLAND, Treasurer
Treasurer of The Vanguard Group, Inc., and each of the investment companies
in The Vanguard Group.
<PAGE> 31

[LOGO]

Vanguard Real Estate Fund I Valley Forge, Pennsylvania 19482

New Account Information: Real Estate Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739

A copy of the Fund's Annual Report on Form 10-K filed with the Securities and
Exchange Commission may be obtained by shareholders without charge by
calling 1-800-662-7447 or by writing the Fund's Investor Relations
office at P.O. Box 2600, V35, Valley Forge, PA 19482.

Q700-12/94

VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND

SECRETARY'S CERTIFICATE

The undersigned, Raymond J. Klapinsky, being the duly elected and
acting Secretary of Vanguard Real Estate Fund I, A Sales-Commission-Free
Income Properties Fund (the "Fund"), hereby certifies that attached hereto
as Exhibit A is a true and complete copy of a Plan of Liquidation and
Termination duly adopted by the Trustees of the Fund (including a majority
of the unaffiliated Trustees) at a meeting duly called therefor on
December 12, 1994, at which meeting a quorum was present and acting
throughout. Such resolutions have not been modified or repealed and remain
in full force and effect as of the date hereof.

IN WITNESS WHEREOF, I have hereunto set my hand to this Certificate as
of this 21st day of December, 1994.

_______________________________________
Raymond J. Klapinsky
Secretary

Vanguard Real Estate Fund I,
A Sales-Commission-Free Income Properties
Fund

<PAGE>
Exhibit A

VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND

PLAN OF LIQUIDATION AND TERMINATION

WHEREAS, Vanguard Real Estate Fund I, A Sales-Commission-Free Income
Properties Fund (the "Fund"), is a business trust organized pursuant to the
laws of the Commonwealth of Massachusetts; and

WHEREAS, the Fund has operated as a "real estate investment trust"
under Sections 856-859 of the Internal Revenue Code of 1986, as amended the
("Code"); and

WHEREAS, the Fund was organized in 1986 as a "finite life" real estate
investment trust, with a then-contemplated duration of between seven and
twelve years; and

WHEREAS, pursuant to Section 8.1 of the Fund's Amended and Restated
Declaration of Trust, dated as of September 10, 1986 (as subsequently
amended, the "Declaration of Trust"), the Trustees of the Fund have the
discretion to determine in good faith whether and when the Fund should be
liquidated and terminated, if and so long as the termination occurs not
later than September 10, 2001; and

WHEREAS, the Trustees have determined in good faith that it is in the
best interest of the Fund and the Shareholders for the Fund to be
liquidated and terminated in accordance with the Plan of Liquidation hereby
adopted:

NOW THEREFORE, BE AND IT HEREBY IS RESOLVED that the Fund be
completely liquidated in accordance with Section 331 of the Code.

FURTHER RESOLVED, that the Trustees and officers of the Fund be and
they hereby are authorized and directed to complete and carry out the Plan
of Liquidation as hereinafter set forth.

FURTHER RESOLVED, that, without limiting the generality of the
foregoing, the following Plan of Liquidation be and it hereby is adopted:

1. TERMS. All capitalized terms not otherwise defined herein shall
have the meaning set forth in the Declaration of Trust of the Fund.

2. IRS FILING. Within thirty days of the date of the adoption of
this Plan of Liquidation by the Trustees, an IRS Form 966 shall be properly
filed with the appropriate office of the Internal Revenue Service.

3. LIQUIDATION OF ASSETS. In furtherance of this Plan of
Liquidation, the Fund shall sell, exchange or otherwise dispose of all of
its assets to the extent, for such consideration and upon such terms and
conditions as the Trustees of the Fund deem expedient and in the best
interest of the Fund and its Shareholders. All assets remaining after the
payment of or provision for the payment or satisfaction of all liabilities
or obligations of the Fund shall, to the extent not already consisting of
cash, be converted into cash at public or private sale.

<PAGE>
4. PAYMENT OF DEBTS. Prior to any final distribution to its
Shareholders, the Fund shall promptly pay or provide for the payment or
satisfaction of all debts, expenses, taxes, liabilities (whether known,
unascertained, contingent or unmatured) and all other obligations of the
Fund, including expenses of dissolution, liquidation and termination of
existence.

5. LIQUIDATION DISTRIBUTION. Following the payment or provision for
the payment or satisfaction of the Fund's liabilities and obligations
pursuant to paragraph 3 above, the Fund shall distribute its remaining cash
and assets to Shareholders of the Fund in such amounts and at such times as
shall be determined by the Trustees in their sole discretion and consistent
with the Fund's Declaration of Trust and its maintaining its status as a
"real estate investment trust" under the Code. Distributions may be made
in installments from time to time or as a whole. Upon payment of the
liquidation distribution (or final liquidation distribution, if made in
installments), each Shareholder of the Fund shall be given notice to
deliver to the Fund, or to a trust to which the assets of the Fund may have
been transferred, the certificates representing all of the shares of the
Fund owned by such Shareholder. The cash of the Fund as determined under
paragraphs 4 and 5 above shall be divided among the Shareholders on a pro
rata basis. If a Shareholder's certificate of shares of beneficial
interest in the Fund has been lost, stolen or destroyed, such Shareholder
may be required to furnish the Fund with satisfactory evidence of the loss,
theft or destruction thereof, together with a reasonable undertaking or
indemnity satisfactory to the Fund, as a condition to the receipt of any
distribution. The complete liquidation of the Fund shall be completed
within 24 months of the date of the adoption of this Plan of Liquidation.

6. TERMINATION. As promptly as practicable after the payment of or
provision for the payment or satisfaction of all liabilities and
obligations of the Company, and upon the taking of any act required to be
taken under the laws of the Commonwealth of Massachusetts, the Fund shall
be terminated in accordance with the laws of the Commonwealth of
Massachusetts.

7. CESSATION OF BUSINESS. After the adoption of this Plan of
Liquidation, the Fund shall not engage in any business activities except
for the purposes of preserving the values of its assets, adjusting and
winding up its business affairs, and making any liquidation distribution in
accordance with the Plan of Liquidation. The Trustees now in office and,
at their pleasure, the officers of the Fund, shall continue in office
solely for these purposes. Unless and until the decision to proceed with
the Plan of Liquidation is reversed by the Fund's Trustees, no new business
operations will be explored or undertaken by the Fund.

8. POWER OF THE TRUSTEES. The Trustees and, if authorized by the
Trustees, the officers of the Fund, shall have authority to do or authorize
any and all acts and things as provided for in this Plan of Liquidation and
any and all such further acts and things as they may consider desirable to
carry out the purposes of this Plan of Liquidation, including the execution
and filing of all such certificates, documents, information returns, tax
returns, and other documents which may be necessary or appropriate to
implement this Plan of Liquidation. The Trustees may authorize such
variations from or amendments to the provisions of this Plan of Liquidation
as may be necessary or appropriate to effectuate the complete liquidation,
dissolution and termination of existence of the Fund, and the distribution
of its assets to its Shareholders in accordance with the laws of the
Commonwealth of Massachusetts. The death, resignation, or other disability
of any Trustees, or officer of the Fund shall not impair the authority of
the surviving or remaining Trustees or officers to exercise any of the
powers provided for in the Plan of Liquidation. Upon such death,
resignation, or other disability, the surviving or remaining Trustees, or,
if there be none, the surviving or remaining officers, shall have authority
to fill the vacancy or vacancies created, but the failure to fill such
vacancy or vacancies shall not impair the authority of the surviving or
remaining Trustees or officers to exercise any of the powers provided for
in this Plan of Liquidation.

7
<PAGE>
After the effective date of termination of the Fund, the Trustees
shall continue to act as Trustees and shall have full power to wind up and
settle the Fund's affairs, and the Fund shall cease to carry on business
except to the extent necessary for the beneficial winding up thereof. The
powers and duties of the Trustees of the Fund shall include, but are not
limited to, the following acts in the name and on behalf of the Fund: (a)
to elect officers and employ agents and attorneys to liquidate or wind up
its affairs; (b) to continue the conduct of the business of the Fund only
insofar as necessary for the disposal or winding up thereof; (c) to carry
out contracts and collect, pay, compromise and settle debts for or against
the Fund; (d) to defend suits brought against the Fund; (e) to sue in the
name of the Fund for all sums due or owing to the Fund or to recover any of
its property; and (f) in general, to make contracts and to do any and all
things in the name of the Fund which may be proper or convenient for the
purposes of winding up, settling and liquidating the affairs of the Fund.

9. LIQUIDATING TRUST. If advisable for any reason to complete the
liquidation and distribution of the Fund's assets to the Shareholders of
the Fund, and subject to approval of the liquidating trustee by
Shareholders of the Fund if such approval is deemed advisable by the
Trustees, the Trustees may at any time (including after its dissolution)
transfer to a liquidating trust any or all remaining assets of the Fund.
The liquidating trust will succeed to all of the then-remaining assets of
the Fund, including the reserve for contingent or unsatisfied liabilities
and obligations of the Fund and any liabilities and obligations of the Fund
expressly not assumed by any purchaser of the Fund's assets. The sole
purposes of the liquidating trust will be to prosecute and defend suits by
or against the Fund, to enable the Fund to settle and close the business of
the Fund, to dispose of and convey the assets of the Fund, to satisfy the
remaining liabilities and obligations of the Fund, and to distribute the
remaining cash to the Fund's Shareholders. The Trustees may appoint a
trustee or trustees to act as trustee or trustees of the liquidating trust
on such terms and conditions as the Trustees determine. It is intended
that any liquidating trust so established qualify as a "liquidating trust",
as such term is defined in Treasury Regulation 301.7701-4(d).

In the event it is determined by a majority of the Trustees that an
entity or entities different in form but similar in purpose to a
liquidating trust, such as an escrow or partnership, is more appropriate to
the administration and completion of the liquidation, then the Trustees
shall take all steps necessary to establish such other entity or entities.
Such an entity or entities shall be administered, to the extent possible,
in the same manner as provided with respect to the liquidating trust
contemplated above.

10. AMENDMENTS. The Trustees of the Fund may modify or amend this
Plan of Liquidation and, prior to the final termination of the Trust, may
abandon this Plan of Liquidation without further action to the extent
permitted by the laws of the Commonwealth of Massachusetts.

11. INDEMNIFICATION OR INSURANCE. The obligation of the Fund to
indemnify and reimburse its trustees, officers, employees or affiliates
pursuant to Section 7.4 of the Fund's Declaration of Trust or otherwise
shall survive the liquidation and dissolution of the Fund, but may be
satisfied only out of the assets of any reserve fund or liquidating trust
which has assumed the liability therefor or the proceeds of insurance
therefor, but not from distributions made to shareholders. The Trustees
shall have the power and authority after the termination of the Fund to
purchase, continue and maintain insurance as may be necessary to cover the
Fund's indemnification obligations, and the Trustees also shall have the
power and authority to satisfy any of the indemnification obligations of
the Fund out of the assets of the Fund, including assets held by an agent
or a trust or other entity.

12. COSTS. The Trustees are authorized, empowered and directed to
pay all legal, accounting, printing, appraisal and other fees and expenses
of persons rendering services to the Fund in connection with adoption
and/or implementation of this Plan of Liquidation.

8
<PAGE>
13. AGENT FOR SHAREHOLDERS. In order to effect a final distribution
of its remaining cash and investments to its Shareholders, the appropriate
officers of the Fund are hereby authorized to appoint an agent for
Shareholders of the Fund, if such action is deemed advisable by the
Trustees. The Fund shall deliver to such agent for the Shareholders the
cash to be distributed to the Shareholders as determined under paragraph 4
above. Such liquidation distribution will be distributable to the
Shareholders by the agent for Shareholders as soon as practicable after
receipt of the funds from the Fund to those Shareholders who have delivered
their certificates representing shares of the Fund or other satisfactory
evidence as provided for in paragraph 4 above. The remainder of such cash
will be held for the account of those Shareholders who have not delivered
their share certificates or other satisfactory evidence. No interest shall
accrue at any time on any cash held by the agent for Shareholders.

14. APPROVAL AND EFFECTIVE DATE. In accordance with the provisions
of Section 8.1 of the Declaration of Trust, this Plan of Liquidation shall
be and become effective upon its approval by a majority of Trustees of the
Fund then in office (including a majority of Unaffiliated Trustees).

SPIEKER PROPERTIES

EARNEST MONEY CONTRACT

Subject to the terms and provisions contained herein, AEW #105 TRUST
("Seller") hereby agrees to sell and convey to SPIEKER PROPERTIES INC.
("Purchaser"), and Purchaser hereby agrees to buy and agrees to pay for all
of the following:

(a) All of Seller's right, title and interest in and to those three
(3) parcels of land described on EXHIBIT "A" attached hereto and made a
part hereof (the "Land"), together with all rights, privileges and
easements or appurtenances included in, adjacent to or used in connection
with such Land, before or after the vacation thereof, including without
limitation any streets, alleys, passages, other easements and other rights
of way (collectively, the "Appurtenances").

(b) All improvements situated upon the Land, including, but not
limited to, those certain buildings, structures, fixtures, systems,
facilities, fences and parking areas located on the Land or Appurtenances
and/or used in connection with the operation or occupancy of the Land (such
as heating and air conditioning systems and facilities used to provide
utility services, refrigeration, ventilation, garbage disposal, cable
television or other amenities upon the Land or Appurtenances) and other
improvements of every kind and nature presently situated on, in or under or
hereafter erected or installed on the Land or Appurtenances (the
"Improvements").

(c) All furniture, equipment, machinery and other tangible personal
property of every kind and nature, if any, owned by Seller and now or
hereafter installed, located or situated on or used in connection with the
operation of the Land or Improvements (the "Personal Property").

(d) All of Seller's rights in all leases and other occupancy
agreements, if any, covering any portion of the Land or Improvements (the
"Tenant Leases") including Seller's rights to any Tenant Deposits (herein
so called) and prepaid rent, and any and all guarantees of and security for
the Tenant Leases.

(e) All of Seller's right, title and interest, if any, in all
intangible assets of any nature relating to the Land, the Improvements or
the Personal Property, including, without limitation, all of Seller's
right, title and interest in (i) all warranties, guaranties and bonds
applicable to the Improvements or Personal Property, to the full extent
same are assignable, (ii) copies of all plans, specifications, engineering
drawings and prints relating to the construction of the Improvements, (iii)
all operating manuals and books, data and records regarding the
Improvements or Personal Property and their component systems, (iv) all
licenses, permits, franchises and certificates of occupancy held by Seller
by any state, federal or local municipal authorities relating to the use,
maintenance or operation of the Land or Improvements to the extent that
same may be transferred and assigned, and (v) all trademarks, tradenames
and service marks used by Seller in connection with the Real Property
(collectively, the "Intangible Property").

(f) All of Seller's rights, if any, in all service and other contracts
affecting the Land or Improvements (the "Property Contracts"), to the
extent Purchaser elects to take assignment thereof.

The Land, Improvements and Appurtenances are hereinafter sometimes
referred to collectively as the "Real Property" and the Real Property,
Personal Property, Tenant Leases, Tenant Deposits, Intangible Property and
Property Contracts are hereinafter sometimes referred to collectively as
the "Property."

This Contract is executed upon the following terms and conditions:

1. PURCHASE PRICE. The Purchase Price for the Property shall be
Thirty-One Million Three Hundred Thirty Thousand Dollars ($31,330,000).
The Purchase Price shall be paid in cash at Closing. Purchaser and Seller
each acknowledge that there is little or no Personal Property included in
the Property and that the entire Purchase Price shall be allocated to the
Real Property.

2. EARNEST MONEY. Within two (2) days following the final execution
of this Contract, Purchaser shall deposit with Chicago Title Insurance
Company, 1800 Columbia Center, 701 Fifth Avenue, Seattle, Washington 98104
(the "Title Company") as a good faith deposit the sum of Three Hundred
Thousand Dollars ($300,000) (the "Earnest Money"). Purchaser's failure to
timely deposit the Earnest Money shall entitle Seller, at Seller's option,
to terminate this Contract. The Earnest Money shall be invested in a
federally insured financial institution of Purchaser's choice and all
interest on the Earnest Money shall become a part of the Earnest Money. If
this Contract closes, the Earnest Money shall be applied to the Purchase
Price; otherwise, the Earnest Money shall be disposed of as provided for
elsewhere in this Contract.

3. SURVEY. Seller has heretofore furnished to Purchaser and
Purchaser hereby acknowledges receipt of the following Surveys (herein so
called, and individually called a "Survey"):

(a) With respect to Parcel 1, a Survey prepared by Stephen A.
Hitchings of Bush, Roed and Hitchings, Inc., P.S., Civil Engineers and Land
Surveyors, dated December 21, 1987, Job No. 87306.

(b) With respect to Parcels 2 and 3, a Survey prepared by Stephen A.
Hitchings of Bush, Roed and Hitchings, Inc., P.S., Civil Engineers and Land
Surveyors, dated December 14, 1987, Job No. 80091.

Purchaser accepts these Surveys and Seller, within twenty (20) days
after the date of this Contract, shall cause the Surveys to be updated and
recertified to Purchaser, Seller, and Title Company as of a current date in
such a manner as to allow the Title Company to provide an extended coverage
owner's title insurance policy.

4. TITLE COMMITMENT. Within twenty (20) days after the date of this
Contract, Seller agrees, at Seller's sole expense, to cause to be furnished
to Purchaser a current title commitment for an extended coverage owner's
title insurance policy (the "Commitment") issued through the Title Company,
setting forth the state of title to the Real Property and all exceptions,
including easements, restrictions, rights-of-way, covenants, reservations
and other conditions, if any, affecting the Real Property which would
appear in an owner's title policy if issued, together with legible copies
of all instruments creating such exceptions.

5. PURCHASER'S REVIEW AND APPROVAL. Purchaser shall have ten (10)
days (the "Review Period") after Purchaser receives the last to be received
among the Commitment, the copies of the instruments creating such
exceptions, and the updated and recertified Surveys in which to notify
Seller of any objections Purchaser may have to any of the items shown on
the Commitment or Surveys. Any exceptions or conditions to which Purchaser
does not object shall be considered as "Permitted Exceptions." If
Purchaser notifies Seller of unacceptable exceptions or conditions as
herein provided, Seller shall have twenty (20) days thereafter (the "Cure
Period") in which to eliminate or modify such unacceptable exceptions or
conditions, but Seller shall have no obligation to do so. In the event
Seller fails or chooses not to eliminate or modify such unacceptable
exceptions or conditions to the reasonable satisfaction of Purchaser within
said Cure Period, then in such event, this Contract shall automatically
terminate unless Purchaser waives in writing each uncured exception or
condition within five (5) days following the Cure Period and the Earnest
Money shall be immediately returned to Purchaser by the Title Company and
the parties hereto shall have no further obligations one to the other
hereunder. If Purchaser waives all such exceptions and conditions by
giving such written notice to Seller within the five-day period provided,
then Purchaser shall be deemed conclusively to have waived all exceptions
and conditions which Seller has not cured or agreed to cure, and all such
exceptions and conditions shall be included in the term "Permitted
Exceptions."

6. INSPECTION. During the pendency of this Contract, Purchaser shall
have access to the Real Property for the purpose of conducting such
inspections, investigations, soil tests, environmental audits, engineering
and feasibility studies of the Real Property as Purchaser deems necessary
or advisable in connection with the purchase of the Property. Further,
Seller agrees to make available to Purchaser or to its duly authorized
agents or representatives, the originals of all Tenant Leases and all
applicable books and records relating to the Real Property and the
operation and maintenance thereof. Such items may be examined at all
reasonable times during normal business hours. In this regard, Seller
agrees that during the pendency of this Contract, Purchaser and its agents
and representatives shall be entitled to enter upon the Real Property for
inspection and examination; provided, however, that: (i) neither Purchaser
nor its agents shall interfere with Seller's operation of the Real Property
or any tenant's occupancy of same; (ii) Purchaser shall be responsible for
any damages to the property or injuries to persons caused by Purchaser or
Purchaser's agents and representatives; (iii) Purchaser shall, at
Purchaser's sole cost and expense, restore the Real Property to its
condition prior to Purchaser's inspection and testing of same; (iv) if this
Contract does not close for reasons other than Seller's default, Purchaser
shall furnish to Seller copies of all reports, test results, etc. obtained
by Purchaser in the conduct of Purchaser's inspection and testing (without
representation or warranty of any kind, express or implied); and (v)
Purchaser shall indemnify and hold Seller harmless from and against any
loss, cost, damage or expense, including reasonable attorneys fees and
court costs, suffered or incurred by Seller as a result of any activities
conducted by Purchaser, its agents, employees, contractors or
representatives on or about the Real Property. Purchaser's obligations
contained in this paragraph shall survive the Closing or other termination
of this Contract.

7. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Purchaser as follows:

(a) Seller is a duly organized trust. Seller has full power and
authority to enter into this Contract and to perform its obligations under
this contract. The execution, delivery and performance of this Contract
and the transactions contemplated hereby have been duly authorized and
approved and no other actions or proceedings on its part are necessary to
authorize the execution, delivery or performance of this Contract. This
Contract constitutes the legal, valid and binding obligations of Seller
enforceable in accordance with its terms.

(b) Seller is not a foreign person as defined in Section 1445 of the
Internal Revenue Code of 1986 or the regulations promulgated thereunder.

(c) There are no attachments, execution, assignments for the benefit
of creditors, receiverships, conservatorships or voluntary or involuntary
proceedings in bankruptcy or pursuant to any debtor relief laws filed by
Seller or pending against Seller.

(d) Seller is not prohibited from consummating the transactions
contemplated in this Contract by any law, regulation, agreement,
instrument, order or judgment.

(e) Seller is the legal owner of the Real Property.

(f) Seller knows of no litigation currently pending against Seller
concerning the Real Property or its use.

(g) Seller carries casualty insurance covering the Real Property in
sufficient amounts to avoid the imposition of any co-insurance provisions.

8. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
makes the following representations and warranties to Seller:

(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of its incorporation and the State of
Washington. Purchaser has full right, title, authority and capacity to
execute and perform its obligations under this Contract and to consummate
all of the transactions contemplated herein and the officers of Purchaser
who executed and delivered this Contract and all of the documents to be
delivered to Purchaser hereunder are and shall be duly authorized to do so.

(b) There are no attachments, execution, assignments for the benefit
of creditors, receiverships, conservatorships or voluntary or involuntary
proceedings in bankruptcy or pursuant to any debtor relief laws filed by
Purchaser or pending against Purchaser.

(c) Purchaser is not prohibited from consummating the transactions
contemplated in this Contract by any law, regulation, agreement,
instrument, order or judgment.

9. CASUALTY AND CONDEMNATION.

(a) In the event that all or a portion of the Improvements should be
damaged or destroyed by fire or other casualty prior to Closing, such that
the cost to repair same is determined by Seller's insurance adjuster to be
$500,000 or less, Purchaser shall accept the Improvements in their damaged
or destroyed condition and close this Contract without reduction in the
Purchase Price, and Seller shall assign to Purchaser at Closing all
insurance proceeds payable for such damage and pay to Purchaser through a
credit against the Purchase Price the amount of any deductible under
Seller's insurance policy.

(b) In the event all or a portion of the Improvements should be
damaged or destroyed by fire or other casualty prior to Closing such that
the cost to repair same is determined by Seller's insurance adjuster to
exceed $500,000, Purchaser may, at Purchaser's sole option, elect at any
time up to the Closing to either:

(i) terminate this Contract and receive back its Earnest Money; or

(ii) accept the Improvements in their damaged or destroyed
condition and close this Contract without reduction in the Purchase Price
and Seller shall assign to Purchaser at Closing all insurance proceeds
payable for such damage and pay to Purchaser through a credit against the
Purchase Price the amount of any deductible under Seller's insurance
policy.

(c) In the event that all or any portion of the Real Property should
be condemned prior to the Closing, Purchaser may, at Purchaser's sole
option, elect at any time up to the Closing either to:

(i) terminate this Contract and receive back its Earnest
Money; or

(ii) close this Contract without reduction in the Purchase
Price and Seller shall assign to Purchaser at Closing all condemnation
proceeds payable as a result of such condemnation or sale in lieu thereof.

10. CLOSING DATE AND PLACE. The Closing of this Contract shall take
place at the offices of the Title Company at 10:00 a.m. on the Closing Date
(herein so called) which shall be sixty (60) days after the final execution
of this Contract.

11. SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller shall
deliver or cause to be delivered to the Title Company for filing or
delivery to the Purchaser, as the case may be, at the close of escrow each
of the following items:

(a) A special warranty deed duly executed and acknowledged by Seller
conveying to Purchaser good, indefeasible fee simple title in the Land and
Improvements and conveying, without warranty, the Appurtenances subject
only to the Permitted Exceptions.

(b) A bill of sale executed by Seller conveying to Purchaser the
Personal Property.

(c) Executed originals of all Tenant Leases (with all amendments and
modifications thereto) relating to all or any part of the Real Property
together with an assignment, duly executed and acknowledged by Seller
assigning all of the lessor's or landlord's interest in said Tenant Leases
(including prepaid rents, guarantees and security for rents) and all Tenant
Deposits to Purchaser.

(d) A blanket assignment duly executed by Seller assigning to
Purchaser all of Seller's rights, title and interest in and to the
Intangible Property and any Property Contracts which Purchaser has elected
to assume.

(e) All keys to all locks on the Real Property in the Possession of
Seller; all books and records pertaining to the Property; and all documents
in the possession of Seller pertaining to tenants of the Real Property,
including, but not by way of limitation, all applications, correspondence
and credit reports relating to each such tenant.

(f) A non-foreign person affidavit sworn to by Seller as required by
Section 1445 of the Internal Revenue Code.

(g) An extended coverage owner's policy of title insurance (the
"Owner's Title Policy") issued through the Title Company and underwritten
by Chicago Title Insurance Company in the amount of the Purchase Price on
the standard form for owner's policies of title insurance in the state in
which the Real Property is located.

(h) Such evidence or documents as may be reasonably required by
Purchaser or the Title Company evidencing the status and capacity of Seller
and the authority of the person or persons who are executing the various
documents on behalf of Seller in connection with the sale of the Property.

12. PURCHASER'S OBLIGATIONS AT CLOSING. At the Closing, Purchaser
shall deliver to the Title Company for delivery to Seller at the close of
escrow the following items:

(a) The Purchase Price by wire transfer to an account designated by
the Title Company.

(b) An assumption by which Purchaser assumes the obligations of Seller
under the Tenant Leases, the Tenant Deposits and those Property Contracts
that Purchaser elects to assume and agrees to indemnify and hold Seller
harmless from any claims and expenses arising thereunder, including
reasonable attorneys' fees and court costs arising from and after the
Closing Date and with Seller agreeing to indemnify and hold Purchaser
harmless from any claims and expense arising thereunder, including
reasonable attorneys' fees and court costs arising prior to the Closing
Date.

(c) Such evidence or documents as may be reasonably required by Seller
or the Title Company evidencing the status and capacity of Purchaser and
the authority of the person or persons who are executing the various
documents on behalf of Purchaser in connection with the sale of the
Property.

13. PRORATIONS. At the Closing, the following items shall be adjusted
or prorated between Seller and Purchaser:

(a) MINIMUM MONTHLY RENTS. All minimum monthly rents and base rents
due under the Tenant Leases for the month in which the Closing occurs shall
be prorated as of the Closing Date on the basis of the sums actually
collected by Seller prior to Closing. At Closing, Seller shall furnish to
Purchaser a complete and correct schedule of all minimum monthly rents and
base rents which are then due and payable but which have not been paid.
From and after the Closing, all rent collections shall be applied first to
current rents and then to delinquent rents, and the portion thereof due to
Seller shall be remitted to Seller if and when collected; however,
Purchaser shall have no obligation to Seller to collect any such unpaid
rents, but Seller shall be permitted to pursue collection directly against
the tenants for delinquent rent. Any prepaid rents for periods subsequent
to the month in which Closing occurs shall be paid to Purchaser.

(b) OPERATING EXPENSE REIMBURSEMENTS; OPERATING EXPENSES. With
respect to payments ("CAM Payments") under the Tenant Leases to reimburse
the lessor for expenses of operating the Property (other than Taxes and
Insurance Costs) ("CAM Expenses"), Seller shall prepare an accounting at
Closing comparing (i) the CAM Payments received to the Closing Date for the
calendar year in which the Closing occurs plus the amount of the CAM
Expenses allocable to unleased space for such period (i.e. based on the
ratio in which the leasable area of the unleased space bears to the entire
leasable area in the Improvements), and (ii) the CAM Expenses incurred to
the Closing Date for the calendar year in which the Closing occurs. If the
amount determined in (i) is greater than the amount determined in (ii),
Purchaser shall be entitled to a credit against the Purchase Price in the
amount of such excess. If, however, the amount determined in (ii) is
greater than the amount determined in (i), Purchaser shall pay such
difference to Seller if and when such amount is collected by Purchaser from
the tenants. In that connection, Purchaser agrees to invoice the tenants
for year-end adjustments in accordance with their respective Tenant Leases
for the amount due as set out in Seller's and Purchaser's respective books
and records, provided Purchaser shall have no obligation to Seller to
collect any such unpaid amounts. To the extent only a portion of the
amount due from any tenant is actually collected for such year-end
adjustments, such amount shall be prorated between Seller and Purchaser
based upon the amount owed to each party during their respective periods of
ownership. Seller shall be responsible for paying all CAM Expenses
incurred prior to the Closing Date and Purchaser shall be responsible for
paying for all CAM Expenses incurred from and after the Closing Date.

(c) TAX PAYMENTS; TAXES. Seller has paid, or prior to Closing will
pay, all tax payments due on the Property in the calendar year 1994.
Purchaser will assume the payment of all tax payments due in any calendar
year after 1994. Purchaser shall reimburse Seller for its pro rata share
of the tax payments made in 1994 based on that portion of the calendar year
1994 that falls after the Closing Date. With respect to payments received
from tenants under the Tenant Leases to reimburse Seller for real estate,
ad-valorem and personal property taxes and other state, county and
municipal taxes, charges and assessments, Seller shall prepare an
accounting at Closing showing such payments received under the Tenant
Leases during 1994. To the extent such amount exceeds the 1994 taxes
allocable to Seller, Purchaser will receive a credit at Closing for the
excess and to the extent the amounts so received were insufficient to cover
the 1994 taxes allocated to Seller, Seller shall receive a credit for such
deficiency.

(d) INSURANCE REIMBURSEMENTS; INSURANCE COSTS. With respect to
payments (the "Insurance Payments") under the Tenant Leases to reimburse
the lessor for premiums for insurance policies carried by lessor covering
the Property (the "Insurance Costs"), Seller shall prepare an accounting at
Closing comparing (i) the amount of the Insurance Payments received by
Seller to the Closing Date for the calendar year in which the Closing
occurs plus the amount of the Insurance Costs allocable to the unleased
space for such period, and (ii) the amount of the Insurance Costs earned to
the Closing Date for the calendar year in which the Closing occurs. If the
amount determined in (i) above is greater than the amount determined in
(ii) above, Purchaser shall be entitled to a credit against the Purchase
Price in the amount of such excess. If, however, the amount determined in
(ii) is greater than the amount determined in (i) above, Purchaser shall
pay such excess to Seller if and when such amount is collected by Purchaser
from the tenants under the Tenant Leases. In that connection, Purchaser
agrees to invoice the tenants for year-end adjustments in accordance with
their respective Tenant Leases for the amount due as set out in Seller's
and Purchaser's respective books and records, provided Purchaser shall have
no obligation to Seller to collect any such unpaid amounts. To the extent
only a portion of the amount due from any tenant is actually collected for
such year-end adjustments, such amount shall be prorated between Seller and
Purchaser based upon the amounts owed each party during their respective
periods of ownership. Seller's insurance policies shall be cancelled as of
the Closing Date as to the Property and Seller shall be entitled to the
unearned Insurance Costs.

(e) SECURITY DEPOSITS. Seller shall pay to Purchaser, in cash at
Closing, the amount of any Tenant Deposits under the provisions of any
Tenant Lease. Purchaser shall assume and agree to pay all Tenant Deposits
to such tenants upon and subject to the terms of the applicable Tenant
Leases.

(f) UTILITIES. All utility services (other than those contracted for
directly by the tenants) shall be terminated by Seller as of the Closing
Date, and Purchaser acknowledges that it shall be the responsibility of
Purchaser prior to Closing to make application for and to obtain
continuation of such utility services in the name and for the account of
Purchaser as of the Closing Date. If any provider of a public utility to
the Property is holding a deposit in connection therewith as of the Closing
Date, Seller shall retain all right to the return of such deposit(s).

(g) POST CLOSING ADJUSTMENTS. In the event any adjustments pursuant
to this Paragraph 13 are, subsequent to Closing, found to be erroneous,
then either party hereto who is entitled to additional monies shall invoice
the other party for such additional amounts as may be owing, and such
amount shall be paid within ten (10) days from receipt of the invoice.

14. POSSESSION OF THE PROPERTY. Possession of the Property shall be
delivered to Purchaser by Seller at the Closing, subject only to the rights
of tenants and subtenants, as tenants only, under the Tenant Leases and the
Permitted Exceptions. Seller and Purchaser covenant and agree to execute,
at Closing, a written notice of the acquisition of the Property by
Purchaser, in sufficient copies for transmittal to all tenants affected by
the sale and purchase of the Property and properly addressed to all such
tenants. Such notice shall be prepared by Purchaser and approved by
Seller, notifying the tenants of the sale and transfer and containing
appropriate instructions relating to the payment of future rentals, the
giving of future notices, and other matters reasonably required by
Purchaser or required by law. Unless a different procedure is required by
applicable law, in which event such laws shall be controlling, Seller
agrees to transmit or otherwise deliver such letters to the tenants, and
evidence of such delivery to Purchaser on the first business day after the
Closing. If Seller fails to deliver such evidence to Purchaser, Purchaser
shall have the right to deliver such letters to the tenants.

15. CLOSING COSTS. Seller shall pay all survey costs; the premium for
the Title Policy; and all transfer, documentary and stamp fees. Each party
shall pay its own attorneys' fees and the parties shall share equally all
escrow fees. Purchaser shall pay all recording fees. All other closing
costs and expenses in connection with the transaction contemplated by this
Contract shall be borne by Seller and Purchaser in the manner in which such
costs and expenses are customarily allocated between the parties at
closings of Real Property similar to the Real Property in the area in which
the real property is located.

16. SELLER'S DEFAULT. In the event of Seller's default hereunder,
Purchaser may, at Purchaser's option and as Purchaser's sole remedy,
either: (i) terminate this Contract by giving written notice to Seller in
which event the Earnest Money will be immediately returned to Purchaser by
the Title Company and the parties shall have no further obligation one to
the other hereunder (except for Purchaser's indemnity obligations in
Paragraph 6 above); or (ii) enforce specific performance hereunder.
Purchaser may not sue Seller for damages.

17. PURCHASER'S DEFAULT. In the event Purchaser fails, without legal
excuse, to complete the purchase of the Property, the Earnest Money made by
the Purchaser shall be forfeited to the Seller as the sole and exclusive
remedy available to the Seller for such failure. Notwithstanding the
provisions of this paragraph, nothing contained herein shall limit Seller's
right to recover damages and pursue all other legal remedies available to
it in the event Purchaser fails to indemnify Seller for damages resulting
from Purchaser's activities in and about the property pursuant to Paragraph
6 above.

18. NOTICE. Any notice or document required to be delivered hereunder
shall be in writing and shall be deemed effective when delivered and shall
be deemed delivered when actually received, or, if earlier and whether or
not received, four days after it is deposited in the United States mail,
postage prepaid, certified or registered mail (with or without return
receipt requested) addressed to the parties hereto at the respective
addresses set out opposite their names below, or at such other address as
they have heretofore specified by written notice delivered in accordance
herewith:

TO SELLER: AEW #105 Trust c/o Aldrich, Eastman & Waltch 225
Franklin Street Boston, MA 02110 Attn.: J. Grant Monahon

with copy to: Mr. Robert L. Trimble Andrews & Kurth L.L.P. 4400
Thanksgiving Tower Dallas, TX 75201

and copy to: Robert E. Neugebauer Preston Gates & Ellis 5000
Columbia Center 701 Fifth Avenue Seattle, Washington 98104-7078

TO PURCHASER: Spieker Properties, Inc. 915 118th Avenue S.E., Suite
110 Bellevue, Washington 98005-3855 Attn.: Mr. Richard L. Romney

with copy to: Mr. William Appel Appel & Gluck 2500 Seattle Tower
1218 Third Avenue Seattle, Washington 98101

19. GOVERNING LAW AND VENUE. This Contract shall be construed in
accordance with the laws of the State of Washington and any court action
arising out of this Contract shall be brought in King County, Washington.

20. NO SURVIVAL. Except for Purchaser's obligations, representations
and covenants in Paragraphs 6, 13 and 29 hereof (all of which shall survive
the Closing) and Seller's obligations, representations and covenants in
Paragraphs 13 and 29 (all of which shall survive the Closing) hereof, no
covenant, agreement, representation or warranty contained herein shall
survive Closing.

21. CAPACITY. Each person executing this Contract hereby represents
and warrants that he has the authority to do so and that his signature
shall bind the entity for which he signed. Each party hereto shall provide
the other party and the Title Company with such documentation as the Title
Company or Purchaser's or Seller's attorney deems necessary to evidence the
authority of that party to perform the actions contemplated herein.

22. TIMING. Time is of the essence of this Contract. For purposes
hereof, the date of this Contract shall be the date it is deposited with
and receipted for by the Title Company.

23. ATTORNEYS' FEES AND COSTS. In the event either party hereto files
a suit to enforce this Contract or any provisions contained herein, the
party prevailing in such action shall be entitled to recover, in addition
to all other remedies or damages, its costs, including reasonable
attorneys' fees, incurred in such suit.

24. NO ASSIGNABILITY. This Contract may not be assigned by Purchaser
without the prior written consent of Seller, which consent need not be
given.

25. GENDER. Where required for proper interpretation, words in the
singular shall include the plural and the masculine gender shall include
the neuter and the feminine gender and vice versa.

26. HEADINGS. The descriptive headings of the several Paragraphs
contained in this Contract are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions
hereof.

27. DISCLAIMER AND WAIVER. PURCHASER ACKNOWLEDGES AND AGREES THAT AT
THE TIME OF THE EXECUTION OF THIS CONTRACT PURCHASER HAS AS MUCH KNOWLEDGE
ABOUT THE PROPERTY AND ALL ASPECTS THEREOF AS DOES SELLER. SELLER HAS NOT
MADE ANY AND MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS,
IMPLIED, OR ARISING BY OPERATION OF LAW, WITH RESPECT TO THE PROPERTY OR
THE CONDITION OF THE PROPERTY. PURCHASER HEREBY REPRESENTS AND WARRANTS TO
SELLER THAT (A) PURCHASER SHALL CONDUCT ITS OWN INSPECTIONS AND
INVESTIGATIONS OF THE PROPERTY AND (B) PURCHASER HAS NOT ENTERED INTO THIS
CONTRACT BASED UPON ANY REPRESENTATION, WARRANTY, AGREEMENT, STATEMENT, OR
EXPRESSION OF OPINION BY SELLER OR ANY OTHER PERSON OR ENTITY ACTING OR
ALLEGEDLY ACTING FOR OR ON BEHALF OF SELLER WITH RESPECT TO SELLER, THE
INTEREST, THE PROPERTY, OR THE CONDITION OF THE PROPERTY. PURCHASER AGREES
THAT THE PROPERTY WILL BE SOLD AND CONVEYED TO (AND ACCEPTED BY) PURCHASER
AT THE CLOSING IN ITS THEN CONDITION, AS IS, WHERE IS, WITH ALL FAULTS, AND
WITHOUT ANY WRITTEN OR ORAL REPRESENTATIONS OR WARRANTIES WHATSOEVER,
EXPRESS, IMPLIED, OR ARISING BY OPERATION OF LAW, OTHER THAN THE WARRANTY
OF TITLE TO THE PROPERTY AS SPECIFICALLY SET FORTH IN THE CONVEYANCE
DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT FOR
THE WARRANTY OF TITLE AS SPECIFICALLY SET FORTH IN THE CONVEYANCE
DOCUMENTS, THE TRANSACTION CONTEMPLATED BY THIS CONTRACT IS WITHOUT ANY
STATUTORY, EXPRESS, OR IMPLIED WARRANTY, REPRESENTATION, AGREEMENT,
STATEMENT, OR EXPRESSION OF OPINION OF OR WITH RESPECT TO: (i) THE
CONDITION OF THE PROPERTY OR ANY ASPECT THEREOF, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL STATUTORY, EXPRESS, OR IMPLIED REPRESENTATIONS OR
WARRANTIES RELATED TO SUITABILITY FOR HABITATION, MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR USE OR PURPOSE; (ii) THE NATURE OR QUALITY OF
CONSTRUCTION, STRUCTURAL DESIGN, OR ENGINEERING OF THE IMPROVEMENTS (THE "
IMPROVEMENTS") COMPRISING A PART OF THE PROPERTY; (iii) THE QUALITY OF THE
LABOR OR MATERIALS INCLUDED IN THE IMPROVEMENTS; (iv) THE SOIL CONDITIONS,
DRAINAGE, TOPOGRAPHICAL FEATURES, FLORA, FAUNA, OR OTHER CONDITIONS OF OR
WHICH AFFECT THE PROPERTY; (v) ANY CONDITIONS AT OR WHICH AFFECT THE
PROPERTY WITH RESPECT TO ANY PARTICULAR USE, PURPOSE, DEVELOPMENT
POTENTIAL, OR OTHERWISE; (vi) THE AREA, SIZE, SHAPE, CONFIGURATION,
LOCATION, ACCESS, CAPACITY, QUANTITY, QUALITY, CASH FLOW, EXPENSES, VALUE,
CONDITION, MAKE, MODEL, COMPOSITION, ACCURACY, COMPLETENESS, APPLICABILITY,
ASSIGNABILITY, ENFORCEABILITY, EXCLUSIVITY, USEFULNESS OR AUTHENTICITY OF
THE PROPERTY; (vii) ANY STATUTORY, EXPRESS, OR IMPLIED REPRESENTATIONS OR
WARRANTIES CREATED BY ANY AFFIRMATION OF FACT OR PROMISE, BY ANY
DESCRIPTION OF THE PROPERTY, OR BY OPERATION OF LAW; (viii) ANY
ENVIRONMENTAL, BOTANICAL, ZOOLOGICAL, HYDROLOGICAL, GEOLOGICAL,
METEOROLOGICAL, STRUCTURAL OR OTHER CONDITION OR HAZARD OR THE ABSENCE
THEREOF HERETOFORE, NOW, OR HEREAFTER AFFECTING IN ANY MANNER ANY OF THE
PROPERTY; AND (ix) ALL OTHER STATUTORY, EXPRESS, OR IMPLIED REPRESENTATIONS
AND WARRANTIES BY SELLER WHATSOEVER, OTHER THAN TITLE TO THE PROPERTY.
FURTHER, PURCHASER REPRESENTS AND WARRANTS TO SELLER THAT PURCHASER HAS
KNOWLEDGE AND EXPERTISE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE
PURCHASER TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTION CONTEMPLATED
BY THIS CONTRACT AND THAT PURCHASER IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION.

28. ENVIRONMENTAL WAVIER AND RELEASE. Purchaser expressly
acknowledges that there may be certain environmental issues and/or risks
with respect to the Property. Purchaser has been expressly advised by
Seller to conduct an independent investigation and inspection of the
Property utilizing experts as Purchaser deems to be necessary for an
independent assessment of all environmental liability and risk with respect
to the Property. Purchaser further acknowledges and agrees that, having
been given the opportunity to inspect the Property, Purchaser is relying
solely on its own investigation of the Property and not on any information
provided or to be provided by Seller and hereby covenants for itself and
its affiliates not to sue Seller with respect to any claims of an
environmental nature arising from or related to the Property or to any
"Hazardous Materials" (as defined below) on the Property. For purposes of
this Contract, the term "Hazardous Materials" shall mean any substance
which is or contains: (i) any "hazardous substance" as now or hereafter
defined in Section 101(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601
et seq.) ("CERCLA") or any regulations promulgated under CERCLA; (ii) any
"hazardous waste" as now or hereafter defined in the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.) ("RCRA") or regulations
promulgated under RCRA; (iii) any substance regulated by the Toxic
Substances Control Act (15 U.S.C. Section 2601 et. seq.); (iv) gasoline,
diesel fuel or other petroleum hydrocarbons; (v) asbestos and asbestos
containing materials, in any form, whether friable or non-friable; (vi)
polychlorinated biphenyls; (vii) radon gas; and (viii) any additional
substances or materials which are now or hereafter classified or considered
to be hazardous or toxic under "Environmental Requirements" (as hereinafter
defined) or the common law, or any other applicable laws related to the
Property. Hazardous Materials shall include, without limitation, any
substance, the presence of which on the Property (A) requires reporting,
investigation or remediation under Environmental Requirements; (B) causes
or threatens to cause a nuisance on the Property or adjacent property or
poses or threatens to pose a hazard to the health or safety of persons on
the Property or adjacent property; or (C) which, if emanated or migrated
from the Property, could constitute a trespass.

For purposes of this Contract, the term "Environmental Requirements"
shall mean all laws, ordinances, statutes, codes, rules, regulations,
agreements, judgments, orders and decrees now or hereafter enacted,
promulgated or amended, of the United States, the states, the counties, the
cities or any other political subdivisions in which the Property is located
and any other political subdivision, agency or instrumentality exercising
jurisdiction over the owner of the Property, the Property or the use of the
Property relating to pollution, the protection or regulation of human
health, natural resources or the environment, or the emission, discharge,
release or threatened release of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or waste or Hazardous Materials
into the environment (including, without limitation, ambient air, surface
water, ground water or land or soil).

29. NO BROKERS. Purchaser and Seller each represent and warrant to
the other that they have dealt with no real estate broker or agent in
connection with the negotiation of this Contract. Seller agrees to
indemnify Purchaser and hold Purchaser harmless from any loss, liability,
damage, cost or expense (including, without limitation, reasonable
attorney's fees) paid or incurred by Purchaser by reason of any claim to
any broker's, finder's or other fee in connection with this transaction by
any party claiming by, through or under Seller. Purchaser agrees to
indemnify Seller and hold Seller harmless from any loss, liability, damage,
cost or expense (including, without limitation, reasonable attorney's fees)
paid or incurred by Seller by reason of any claim to any broker's, finder's
or other fee in connection with this transaction by any party claiming by,
through or under Purchaser. Purchaser acknowledges that at the time of the
execution of this Contract, the Seller advised Purchaser by this writing
that Purchaser should have an abstract covering the Real Property examined
by an attorney of Purchaser's own selection.

30. EXCULPATION OF TRUST. This Contract is executed by the
undersigned, not individually but as a trustee of AEW #105 Trust created
under a Declaration of Trust, in the exercise of the power and authority
conferred upon and vested in the undersigned as trustee. It is expressly
understood and agreed by every party now or hereafter claiming any right or
interest herein or hereunder that nothing contained herein shall be
construed as creating any personal liability or obligation upon the
undersigned. Reference is made to, and this Contract is executed under and
by virtue of the powers contained in the Declaration of Trust, and each
person dealing with any trustee or the Trust expressly agrees to look
solely to the Trust Property for satisfaction of any obligation set forth
herein and agrees that neither the trustees nor the beneficiaries of the
Trust shall have any personal or corporate liability hereunder.

31. ORDINANCE WAIVER AND RELEASE. Purchaser waives all rights under
Ordinance No. 101941 of the City of Seattle and releases Seller from any
and all duties, obligations and liabilities thereunder.

32. COMPLETE AGREEMENT. This Contract embodies the complete agreement
between the parties hereto and cannot be varied or terminated except by
written agreement of the parties.

33. WITHDRAWAL OF OFFER. Seller must accept this Contract by signing
and returning a fully executed copy of the same to the Purchaser and to the
Title Company within ten (10) days from the date of Purchaser's execution
hereof, or this offer may, at Purchaser's option, be deemed to be
withdrawn.

EXECUTED by Purchaser this 16th day of September 1994.

PURCHASER:

SPIEKER PROPERTIES, INC.

By: Richard L. Romney
Title: Sr. V. P.

EXECUTED by Seller this 20th day of September 1994.

SELLER:

AEW #105 TRUST

By: Steven D. Corkin
as Trustee and not Individually

RECEIPT BY TITLE COMPANY

This Contract has been received by the undersigned this, the 21st day of
September, 1994.

CHICAGO TITLE INSURANCE COMPANY

By: Marria J. Fugma
Title: Escrow Officer

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31, 1994 financial statements and is qualified in
its entirety by reference to such statements.
</LEGEND>
<CIK> 0000801124
<NAME> VANGUARD REAL ESTATE FUND I
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 3,478
<SECURITIES> 1,992
<RECEIVABLES> 10,956
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,694
<PP&E> 28,287
<DEPRECIATION> 2,069
<TOTAL-ASSETS> 43,279
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<BONDS> 2,281
<COMMON> 36,047
0
0
<OTHER-SE> 4,454
<TOTAL-LIABILITY-AND-EQUITY> 43,279
<SALES> 0
<TOTAL-REVENUES> 8,173
<CGS> 0
<TOTAL-COSTS> 3,209
<OTHER-EXPENSES> 941
<LOSS-PROVISION> 1,630
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 2,970
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,382
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12

</TABLE>