<PAGE> 1
VANGUARD
INTERNATIONAL
EQUITY INDEX
FUND
ANNUAL REPORT 1994
THE VANGUARD VOYAGE . . . STAYING THE COURSE
<PAGE> 2
THE VANGUARD VOYAGE . . . STAYING THE COURSE
WE ARE PRESENTLY OBSERVING TWO MILESTONES IN OUR HISTORY: (1) THE 20TH
ANNIVERSARY OF THE VANGUARD GROUP; AND (2) THE 65TH ANNIVERSARY YEAR OF
WELLINGTON FUND, THE OLDEST MUTUAL FUND ASSOCIATED WITH VANGUARD. WE CELEBRATE
THESE TWO EVENTS SINCE THEY HAVE INDELIBLY ALTERED THE MUTUAL FUND INDUSTRY--IN
OUR VIEW, FOR THE BETTER.
Wellington Fund--a pioneer in the mutual fund industry--began operations on
June 30, 1929. Its first fifteen years were a struggle for survival in an
industry that was shaken to its roots by the Great Crash of 1929-1933. From an
initial base of $100,000, Wellington's assets had grown to but $27 million by
the end of World War II. The Vanguard Group was founded on September 24, 1974.
Soon thereafter, we assumed responsibility for the management of Wellington
Fund and ten associated funds, with assets aggregating $1.4 billion.
The years that followed the founding of The Vanguard Group were marked by
exceptional growth. Today, Wellington Fund, with assets of nearly $9 billion,
remains one of the largest mutual funds in the nation. And Vanguard, now
managing 85 mutual fund portfolios, is entrusted with assets of $134 billion,
and ranks as the second largest fund complex in the world.
Our durability in an era of change--and our longevity in an era of
challenge--didn't "just happen." What brought us to where we are today is what
we were when we began. Put another way, we set our original investment course
based on sound principles, and our corporate course based on a single focus:
serving solely the interests of our Fund shareholders.
FOUNDING INVESTMENT PRINCIPLES
The founding investment principles of Wellington Fund were, above all,
conservative. The Fund provided a broadly diversified portfolio at a time when
holding individual securities was the conventional strategy. It incurred no
debt in an era of high leverage that would soon come back to haunt less
cautious investors. And it was a "balanced" fund--in fact, Wellington is
America's oldest balanced fund--with holdings from each of the three basic
financial asset classes: cash reserves, bonds, and common stocks. In short,
Wellington Fund was a staid investment in an era of stock speculation that was
to become, almost within moments, an era of conservatism.
For Vanguard, these investment principles endure. "Balance" is still our
watchword, because the three basic financial asset classes have different--and
usually countervailing--investment characteristics. When it began, Wellington
Fund provided a balanced program in a single investment; in 1994, such a
balance is often achieved by a combination of Vanguard money market, bond, and
stock funds.
"Conservatism," too, remains our standard. Over the years, we have tried
to maintain the discipline to eschew offering funds that lack sound financial
principles, often based on marketplace fads that could not--and did
not--endure. Our conservatism applies not only to the funds we offer, but to
the instruments in which they invest. For example, we have steered clear of
exotic derivative securities with unpredictable investment characteristics. Too
many fund managers have been taken in by these highly risky instruments, and
their shareholders have paid a heavy price--except in cases where the manager
has "made the fund whole," when to do otherwise would have shocked investors
and impaired their confidence in the fund complex.
Speculation, it seems, comes and goes, albeit in different guises. But the
investment principles to which we have adhered since Wellington Fund began in
1929 remain firm:
* We offer Funds with sound and durable investment objectives, designed for
long-term investors.
(please turn to inside back cover)
VANGUARD INTERNATIONAL EQUITY INDEX FUND OFFERS THREE "MARKET INDEX"
PORTFOLIOS. THE EUROPEAN PORTFOLIO IS DESIGNED TO MATCH THE PERFORMANCE OF THE
UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE (FREE) INDEX. THE
PACIFIC PORTFOLIO IS DESIGNED TO MATCH THE PERFORMANCE OF THE MSCI PACIFIC
(FREE) INDEX. THE EMERGING MARKETS PORTFOLIO IS DESIGNED TO MATCH THE
PERFORMANCE OF THE MSCI SELECT EMERGING MARKETS (FREE) INDEX. TOGETHER, THESE
THREE PORTFOLIOS ARE DESIGNED TO "TRACK" THE ENTIRE INTERNATIONAL EQUITY
MARKET.
<PAGE> 3
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
Common stock prices generally faltered around the globe (Japan being the major
exception) during the year ended December 31, 1994. A weak dollar, however,
significantly enhanced the stock market returns as measured in each nation's
currency, moving negative results to the positive side of the ledger for U.S.
investors. In this environment, the three Portfolios of Vanguard International
Equity Index Fund provided positive, but mixed, results.
The table below shows the total returns (capital change plus income) of
each of our Portfolios for the period--the full calendar year for our now
well-established European and Pacific Portfolios, and since inception (May 4,
1994) for our new Emerging Markets Portfolio. The table also provides a
comparison of our returns relative to the respective unmanaged market indexes
that we use as our benchmarks.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Total Return
-----------------
Year Ended
December 31, 1994
- ---------------------------------------------------------------------
<S> <C>
VANGUARD EUROPEAN PORTFOLIO + 1.9%
MSCI* EUROPE (FREE) INDEX + 2.8
- ---------------------------------------------------------------------
VANGUARD PACIFIC PORTFOLIO +13.0%
MSCI* PACIFIC (FREE) INDEX +12.8
- ---------------------------------------------------------------------
VANGUARD EMERGING MARKETS PORTFOLIO + 9.8%**
MSCI* SELECT EMERGING MARKETS (FREE) INDEX + 3.7**
- ---------------------------------------------------------------------
</TABLE>
* Morgan Stanley Capital International.
** Period beginning May 4, 1994.
These returns are presented on a "U.S. dollar" basis, reflecting the actual
returns earned by the Fund. The per share net asset values, dividends from net
investment income, and any distributions from net realized capital gains on
which these total returns are based are presented in a table at the end of this
letter.
WORLD FINANCIAL MARKETS IN 1994
For the second consecutive year, returns earned in the Pacific markets outpaced
the returns earned in European markets. Most emerging markets tumbled during
the year following their extraordinary returns in 1993. It was a volatile year
for each nation's bourse, indeed one that defies most broad generalizations.
One general statement that can be made is that the weak U.S. dollar
enhanced the "local currency" returns earned in virtually every nation. As you
know, when the U.S. dollar weakens relative to the currency of a given nation,
the return to U.S. investors is enhanced (just as a stronger dollar reduces
local currency returns). Put another way, if, say, the Japanese yen can be
converted into a larger number of U.S. dollars, then U.S. investors in Japan
are advantaged.
If each foreign market marched to the same drummer and if the dollar
behaved similarly relative to each local currency, it would be easy to
summarize the year's results. Alas, since neither situation is apt to occur, we
must look to specific markets to get the flavor of the year.
In that regard, the table at the bottom of the following page clearly
reflects the disparate valuation changes in some of the world's major markets.
It shows that the return of +8.1% for U.S. investors in international markets
was more than accounted for by the continuing weakness of the U.S. dollar. On a
local currency basis, the return was actually negative (-1.8%), lagging the
modest +1.3% return achieved by the U.S. market (as measured by the unmanaged
Standard & Poor's 500 Composite Stock Price Index).
(continued)
[FIGURE 1]
1
<PAGE> 4
[FIGURE 2]
To add some perspective to the financial markets in 1994, the chart above
contrasts the returns earned (in dollar terms) in markets around the world
during the past five years. I call your special attention to the chart's
principal findings: 1) the U.S. stock market provided the highest average
annual returns (+8.7%) among the industrialized nations; 2) average annual
returns in the Pacific markets were negative (-1.8%), as strong returns in the
1993-1994 period were more than offset by negative annual returns for the three
preceding years; and 3) the emerging markets of the world provided championship
returns during 1991-1993, only to weaken in 1994, although the net result was a
remarkable annualized return of +21.3% for the full period.
A year ago, I wrote to you that "the rule seems to be 'what goes around,
comes around' in international markets." Witnessing the reversal of the
Japanese market decline in 1989-1992, and the 1994 reversal of the emerging
markets boom, this principle is no less true today.
I should also reemphasize that, while the risk assumed by U.S. investors
in U.S. stocks is based solely on the performance of the stock market, there
are two additional risks assumed by U.S. investors in world markets: 1) the
risk in the stock market of each particular nation; and 2) the risk of
fluctuations in the value of each nation's currency in U.S. dollar terms.
THE INDEX APPROACH TO INTERNATIONAL INVESTING
The returns of our three Portfolios during the past year, in our perhaps biased
view, go into the record as another affirmation of the value of an "indexing"
approach to investing abroad. Despite our operating expenses (very low) and our
portfolio transaction costs (also very low, a result of our minimal portfolio
turnover, even considering the high commissions incurred in buying and selling
securities abroad), our "tracking" of our target indexes was tight.
Part of the reason for our fine tracking record, I should note, is that
investors in the Fund incur a transaction fee of 1% (2% in the Emerging Markets
Portfolio) when they purchase shares, which helps to cover our portfolio
trading costs. As you know, this fee is paid to the Fund itself, so that the
cost of investing new money tends to be borne, not by the existing shareholders
in the Fund, but by those who have invested the new money. (In our Emerging
Markets Portfolio, there is also a redemption fee of 1%.) Thus, in no way
should these transaction charges be considered "sales loads" or commissions
paid to an outside agent or stockbroker.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended
December 31, 1994
---------------------------------------------------
Local Currency Currency U.S. Dollar
Return Impact Return
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPEAN INDEX - 6.2% + 9.0% + 2.8%
United Kingdom - 7.0 + 5.4 - 1.6
Germany - 6.2 +11.3 + 5.1
France -13.9 + 9.2 - 4.7
- -----------------------------------------------------------------------------------------------
PACIFIC INDEX + 2.1% +10.7% +12.8%
Japan + 8.7 +12.9 +21.6
Hong Kong -28.8 - 0.1 -28.9
- -----------------------------------------------------------------------------------------------
EMERGING MARKETS INDEX + 199.1% -203.8% - 4.7%
Brazil +1,006.4 -954.0 +52.4
Mexico - 2.8 -35.9 -38.7
Malaysia -19.8 + 4.4 -15.4
- -----------------------------------------------------------------------------------------------
INTERNATIONAL INDEX* - 1.8% + 9.9% + 8.1%
- -----------------------------------------------------------------------------------------------
</TABLE>
* MSCI Europe, Australia, and Far East ("EAFE") Index.
2
<PAGE> 5
Given the fact that operating and transaction costs--even at the minimal
levels incurred by your Fund--exist in the "real world" of investing but do not
exist in the "paper world" of calculating an index, we are most pleased with
the ability of the Vanguard Core Management Group to administer our Portfolios
with such effectiveness. This table presents the returns of our two original
Portfolios during 1994 and over the Fund's four-and-one-half year history,
compared to those of their respective unmanaged Indexes:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Rate of Total Return
--------------------------------------
Year Ended June 30, 1990, to
December 31, 1994 December 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
EUROPEAN PORTFOLIO* + 1.9% +5.7%
MSCI EUROPE (FREE) INDEX + 2.8 +6.3
- --------------------------------------------------------------------------------
PACIFIC PORTFOLIO* +13.0% +4.1%
MSCI PACIFIC (FREE) INDEX +12.8 +4.0
- --------------------------------------------------------------------------------
</TABLE>
* Performance figures do not reflect the 1% portfolio transaction fee on
purchases and the $10 annual account maintenance fee.
INDEXING VERSUS TRADITIONAL MANAGEMENT
The next question, of course, is how the returns generated by our indexing
strategy compare with those achieved by professional investment managers of
international funds. These funds charge higher expenses (averaging about 1.66%
of assets annually, or five times our 0.32% expense ratio) and also engage in
higher portfolio turnover (averaging 74% of assets, compared to rates of 6% in
our European Portfolio and 4% in our Pacific Portfolio) in markets where
transaction costs are considerably higher than in U.S. markets. Our index
strategy is based on the conviction that it is only the rare traditional fund
manager who has sufficient skill to consistently overcome these substantial
cost handicaps. (A further challenge for investors, of course, is that such
managers are difficult to identify in advance.)
Admittedly, the period covered (412 years) is fairly short, but the
results of our European Portfolio present solid evidence that indexing in
international markets works, and works well. The following table shows our
results during 1994 and since our inception, compared to the returns of the
average European mutual fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Rate of Total Return
--------------------------------------
Year Ended June 30, 1990, to
December 31, 1994 December 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
EUROPEAN PORTFOLIO* +1.9% +5.7%
- --------------------------------------------------------------------------------
AVERAGE EUROPEAN FUND +1.2% +1.8%
- --------------------------------------------------------------------------------
</TABLE>
* Performance figures do not reflect the 1% portfolio transaction fee on
purchases and the $10 annual account maintenance fee.
Our annualized positive margin of +3.9 percentage points over the competitive
funds since our inception is most satisfying on a relative basis. What is more,
this satisfaction seems particularly justified by the fact that our country
diversification is very broad, including 35% of net assets in the United
Kingdom, 14% in Germany, 12% in France, and 10% in Switzerland. These
weightings match those of our target index, and can fairly be compared with the
portfolios of competitive funds with similar broad diversification.
The relative country weightings are "another story" in our Pacific
Portfolio, which renders making a fair comparison to other funds quite
challenging. Again paralleling the diversification of our target index, we have
82% of our assets in the huge Japanese market, 5% in Hong Kong, 5% in
Australia, and 3% in both Singapore and Malaysia. Our competitors have
maintained a major--but much lower--commitment in Japan (averaging about 44% of
assets in recent years). Thus, our returns are much more closely related to the
returns in the Japanese market than the returns of our peers.
In any event, this table shows the comparative returns for the past year and
since our inception:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Rate of Total Return
--------------------------------------
Year Ended June 30, 1990, to
December 31, 1994 December 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
PACIFIC PORTFOLIO* +13.0% +4.1%
- --------------------------------------------------------------------------------
AVERAGE PACIFIC FUND - 8.3% +6.6%
- --------------------------------------------------------------------------------
</TABLE>
* Performance figures do not reflect the 1% portfolio transaction fee on
purchases and the $10 annual account maintenance fee.
In short, the heavy weight of the Japanese market in our Pacific Portfolio (and
in the Pacific Index) remarkably enhanced our 1994 relative return (to a
positive +21.3 percentage points over our peers), even as it had retarded our
returns in earlier years.
(continued)
3
<PAGE> 6
The point of all of this analysis is that we do not intend to "brag" about
our returns whenever the Japanese market does particularly well, as in 1994;
nor shall we "apologize" for our returns when the Japanese market lags the
other Pacific markets.
Finally, our Emerging Markets Portfolio is off to a good start in relative
terms. With some common sense, seasoned with a pinch of good luck, we did not
begin operations until May 4, 1994, after at least some of the 1993 "bubble"
had burst. Nonetheless, in this "start-up" period, we did outpace our average
competitor, as we earned a return of +9.8% versus +3.3% for our peers. We
should emphasize that the timing of our initial cash flows took place in a very
volatile period, and had the effect of greatly enhancing the Fund's returns
relative to the Index and to other emerging market funds. Similar positive
margins should not be expected in the future.
While the volatility of our Emerging Markets Portfolio is extremely high,
we believe it is a useful medium for the long-term investor seeking
above-average returns and fully aware of the high risks involved. The debacle
in the Mexican market in December 1994--and continuing as I write this
letter--engendered in large part by the devaluation of the peso, is certainly
all the evidence we need to realize that "lightning can strike" any stock
market at any time.
THE WORLD PORTFOLIO
The chart below shows the combined stock market capitalization of the nations
of the world. You will note that the world market continues to be dominated by
the U.S. (34% of the total), but with the Pacific Basin and Europe not far
behind. Emerging markets comprise a relatively small share of the total (7%);
indeed, given their 1994 tumble, below their 10% weight just one year ago.
Under academic theory, the fully diversified investor seeking the maximum
risk-adjusted return should emulate the weights shown in the pie chart. We
respectfully--but strongly--disagree. Portfolio theory does not take into
account the special risks involved in a large exposure to the markets of
nations that (in many cases) lack the economic, financial, social, and
governmental stability that presently exists--at least in relative terms--in
the U.S.
[FIGURE 3]
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Dollar Value
Region (trillions)
- -------------------------------------------------------------
<S> <C>
U.S. $ 4.6
PACIFIC 4.3
EUROPE 3.5
EMERGING MARKETS 1.0
OTHER 0.3
------
TOTAL $13.7
- -------------------------------------------------------------
</TABLE>
Source: Morgan Stanley Capital International.
4
<PAGE> 7
What is more, theory seems to ignore the clear fact that the high returns
in international markets have been achieved, not in local currency terms, but
in U.S. dollar terms. Given the weakness of the dollar since 1985, U.S.
investors in offshore markets have received returns that have been remarkable.
But these returns seem mundane when measured in local currencies. This table
presents the comparisons:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Total Return
-------------------------------
Ten Years Ended
December 31, 1994
- ----------------------------------------------------------------------------
Global Markets Annual Rate Cumulative
- ----------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES +14.3% +282%
- ----------------------------------------------------------------------------
INTERNATIONAL--LOCAL CURRENCY +10.7% +176%
INTERNATIONAL--DOLLAR BASED +17.9 +419
- ----------------------------------------------------------------------------
</TABLE>
Note: For U.S. stocks, the Standard & Poor's 500 Stock Index; for international
stocks, the MSCI EAFE Index.
The symmetry between these two ways of measuring international returns relative
to U.S. returns is paradoxical. Evaluating our nation's annual total return of
+14.3% becomes a sort of exercise in "compared to what?" Without the dollar's
"wind at its back," the international rate of return was +10.7% (a shortfall of
- -3.6%); with it, the return leaps to +17.9% (an advantage of +3.6%), and
creates a monumental difference in the ten-year cumulative figure.
Investors who rely on history as a sound guide to the future (sometimes it
is, sometimes it is not; the trick is knowing which is which) should be clear
on exactly which historical comparison--dollar-based or
local-currency-based--they use, and why. From my view, it would be unrealistic
to expect the dollar to continue to weaken in the coming decade--if it weakens
at all--at the same pace as in the past decade.
If a "world portfolio" is what you want--and it does offer, in Europe and
the Pacific, some prudent diversification, and in the emerging markets, some
higher return potential--I would recommend for most investors a diversified
approach. This might entail holding a package of diversified mutual funds
investing in each of these three non-U.S. markets and limiting the aggregate
amount of such holdings to no more than 20% of the investor's total equity
portfolio.
IN SUMMARY
A year ago, I cautioned shareholders not to simply extrapolate (the sensational
results in the banner year of 1993) into the future. To do so would invite
unrealistic expectations and ultimately disappointment. The past year surely
reaffirmed the importance of such caution, with most international markets
declining before taking into account the positive impetus of the weak dollar.
Nonetheless, international investing, despite its extra risks, still has a
role to play in the portfolio of the long-term investor. And, if you wish to
own "a share of the world," the three Portfolios of Vanguard International
Equity Index Fund--European, Pacific, and Emerging Markets--make consummate
good sense. Together, they provide the greatest diversification in the field,
available at by far the lowest cost. The theory that international indexes can
outpace most actively managed international funds has proved itself over and
over again. And the implementation of international indexing by Vanguard has
reaffirmed, in the real world, albeit in a fairly short period, that practice
can validate theory.
Index funds--their composition defined by the market indexes they
emulate--inevitably "stay the course" in investment policy. What remains is
for shareholders seeking international diversification to stay the course, too.
Decide on the exposure to the markets that best fits your long-term risk/return
profile, hold fast to that structure, and do your best to ignore the
inevitable--and sometimes violent--short-term ups and downs in the markets of
many foreign nations. For our part, we shall continue to do our very best to
serve your interests.
Sincerely,
/s/ JOHN C. BOGLE
- -----------------
John C. Bogle
Chairman of the Board
January 23, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
5
<PAGE> 8
[FIGURE 4]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1994
- -------------------------------------------------------------------------------
1 Year Since Inception*
- -------------------------------------------------------------------------------
<S> <C> <C>
EUROPEAN PORTFOLIO** +0.80% +5.40%
AVERAGE EUROPEAN FUND +1.22 +1.83
MSCI EUROPE (FREE) INDEX +2.82 +6.35
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1994
- -------------------------------------------------------------------------------
1 Year Since Inception*
- -------------------------------------------------------------------------------
<S> <C> <C>
PACIFIC PORTFOLIO** +11.86% +3.79%
AVERAGE PACIFIC FUND - 8.31 +6.64
MSCI PACIFIC (FREE) INDEX +12.82 +3.96
</TABLE>
* Inception: June 18, 1990. Performance data begins June 30, 1990, to show
competitive data.
** Performance figures are adjusted for a 1% portfolio transaction fee on
purchases and a $10 annual account maintenance fee.
Note: Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share
---------------------------------------- Dividends Per Share From
International Equity Index Portfolios December 31, 1993 December 31, 1994 Net Investment Income*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPEAN $11.88 $11.76 $0.28
PACIFIC 10.13 11.31 0.08
EMERGING MARKETS -- 10.87 0.07
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* In addition, distributions from net realized capital gains were paid by
the following Portfolios: European ($.06 per share), Pacific ($.06 per
share), and Emerging Markets ($.04 per share).
6
<PAGE> 9
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED DECEMBER 31,
1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
-------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE 1 YEAR RETURN RETURN RETURN
- -------------------------- --------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
EUROPEAN PORTFOLIO* 6/18/90 + 0.80% +6.10% +3.71% +2.39%
PACIFIC PORTFOLIO* 6/18/90 +11.86 +3.65 +3.07 +0.58
EMERGING MARKETS PORTFOLIO** 5/4/94 N/A +8.66 +8.01 +0.65
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
* RETURNS ARE ADJUSTED FOR THE 1% PORTFOLIO TRANSACTION FEE ON PURCHASES AND
THE ANNUAL ACCOUNT MAINTENANCE FEE OF $10.
** CUMULATIVE RETURNS SINCE INCEPTION, ADJUSTED FOR THE 2% PORTFOLIO
TRANSACTION FEE ON PURCHASES, THE 1% PORTFOLIO TRANSACTION FEE ON
REDEMPTIONS, AND THE ANNUAL ACCOUNT MAINTENANCE FEE OF $10.
7
<PAGE> 10
FINANCIAL STATEMENTS
December 31, 1994
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
EUROPEAN PORTFOLIO Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.2%)
- --------------------------------------------------------------------------------
AUSTRIA (.8%)
* Austrian Airlines 2,378 $ 445
Bank Austria AG 1,460 54
Bank Austria AG Pfd. 950 46
Bank Austria AG (Ptg. Ctf.) 11,692 954
BWT (Benck Wassertech) 610 94
Creditanstalt Bank AG 12,540 740
Creditanstalt Bank Pfd. 9,738 566
Ea-Generali AG 1,661 455
Lenzing 750 68
Oest Brau-Beteil 1,750 98
Oesterreicherische Wirtsc. Class A 15,405 890
* OMV AG 11,307 958
Radex-Heraklith 2,110 79
Strabag Oesterreich 716 103
Universale-Bau 1,000 68
* Veitsch-Fadex AG 1,660 51
Weinerberger Baustoffindustrie AG 870 309
-----------
GROUP TOTAL 5,978
-----------
- --------------------------------------------------------------------------------
BELGIUM (2.1%)
Bekaert Class B 1,537 1,088
Cimenteries Cbr NPV 1,060 402
Cimenteries Cbr VVPR NPV 1,050 384
Delhaize Freres 20,028 812
Electrabel NPV 14,432 2,584
Electrabel-VVPR NPV 900 161
Fortis AG NPV 9,197 779
Generale de Banque NPV 4,560 1,160
Gevaert Photo Products NPV 15,900 739
Glaverbel 2,790 369
Group Bruxelles Lambert SA 5,950 703
Kredietbank NPV 2,038 427
Kredietbank VVPR NPV 1,000 208
Petrofina SA 6,660 1,969
Royale Belge NPV 4,000 627
Royale Belge VVPR NPV 510 79
Solvay et Cie. SA 3,025 1,440
Tractebel NPV 2,050 619
Tractebel VVPR NPV 120 36
* Union Miniere NPV 8,168 634
-----------
GROUP TOTAL 15,220
-----------
- --------------------------------------------------------------------------------
DENMARK (1.8%)
Carlsberg Series A 8,875 384
Carlsberg Series B Pfd. 8,449 361
Danisco 15,135 537
* Danske Luftfart 70 57
Den Danske Bank AF 23,200 1,266
D/S 1912 B 50 1,346
D/S Svenborg B 70 1,368
* East Asiatic Co. 3,600 82
FLS Industries Class B 3,548 286
GN Store Nord 1,150 94
ISS (International Service Systems) Series B 11,619 315
Korn-Og Foderstof 490 93
* J Lauritzen Holding B 1,065 188
NKT(Nordisk Kabel) 14,200 765
Novo-Nordisk Class B 7,166 681
Radiometer Class B 6,508 301
Sophus Berendsen Class A 3,483 283
Sophus Berendsen Class B 6,200 502
Superfos 8,330 548
Teledanmark B 42,295 2,148
* Unidanmark AS Class A 25,677 987
-----------
GROUP TOTAL 12,592
-----------
- --------------------------------------------------------------------------------
FINLAND (1.2%)
Amer Group A 4,520 78
Cultor Oy-1 2,750 74
* Instrumentarium Class B 3,140 66
* Kansallis Osake 54,600 64
Kesko 16,170 188
Kone Corp. B 228 26
Kymmene Corp. 26,154 712
Metra AB A 3,170 93
Metra AB B 17,128 503
Nokia AB 13,900 2,054
Nokia AB Oy Pfd. 7,700 1,135
* Outokumpu A 46,450 853
Pohjola A 21,688 298
Pohjola B 6,300 69
Repola Oy 86,808 1,567
Sampo A 7,601 345
* Stockmann A 1,200 61
* Stockmann AB Oy 1,380 66
* Unitas A 60,000 155
-----------
GROUP TOTAL 8,407
-----------
- --------------------------------------------------------------------------------
FRANCE (12.4%)
Accor 5,800 630
Air Liquide 11,465 1,534
Alcatel Alsthom 48,496 4,143
AXA 62,075 2,877
BSN-Gervais Danone 29,678 4,165
Banque Nationale de Paris 54,454 2,505
BIC 3,250 409
Bongrain 160 85
Bouygues 8,732 836
CMB Packaging 17,805 602
Carrefour 8,580 3,556
Casino (Etabl. Economique) 14,600 413
Casino Guich-Perr 6,000 143
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Chargeurs SA 1,665 364
* Club Mediterranee 4,260 357
Compagnie Bancaire 9,146 882
Compagnie Financier de Suez 44,091 2,024
Comptoirs Modernes 2,392 601
Credit Foncier France 4,692 677
Credit Nationale 4,222 320
DMC Dollfus-Mieg 5,900 335
Docks de France 3,630 444
Eaux (Cie. Generale) 41,559 4,041
Ecco 4,396 522
Elf Sanofi 12,488 576
Eridania Beghin-Say 7,785 1,024
Essilor International 4,185 576
Eurafrance 2,142 658
Europe 1 1,577 432
Finextel 21,600 377
* Geophysique (Cie. Generale) 2,500 141
GTM Entrepose 3,800 269
Havas 20,693 1,617
Imetal 6,932 670
Lafarge-Coppee 28,427 2,024
Lagardere Groupe 20,770 483
Legrande (Bearer) 510 619
L'Oreal 23,285 4,751
LVMH Moet-Hennessy 28,121 4,441
Lyonnaise des Eaux 15,334 1,347
* Michelin Series B (Registered) 37,360 1,360
* Moulinex 14,520 273
Nord Est SA 27,800 654
Paribas Compagnie Financiere A 36,943 2,457
Parisienne de Reescompte 8,002 535
Pernod-Ricard 14,113 826
* Peugeot Citroen SA 16,273 2,232
Pinault-Printemps SA 8,292 1,473
Promodes 9,415 1,753
Radiotechnique 792 78
Rhone-Poulenc A 72,733 1,688
Sagem 2,040 1,017
Saint-Gobain 23,447 2,697
Saint-Louis 1,824 470
Salomon 970 388
Schneider SA 20,415 1,354
S.E.F.I.M.E.G. 3,350 238
Simco 4,328 373
Skis Rossignol 240 89
Societe Centrale des Assurance
Generales de France 22,455 2,360
Societe National Elf Aquitaine 93,865 6,611
Societe Unibail 2,180 199
Sodexho 1,550 257
Sommer Allibert 2,310 729
Sovac 7,560 530
* Thomson-C.S.F. 36,475 1,092
Total SA 76,977 4,474
Union Immobilier 320 27
-----------
GROUP TOTAL 88,704
-----------
- --------------------------------------------------------------------------------
GERMANY (14.3%)
Aachener & Muenchener (Bearer) 444 286
Aachener & Muenchener
Beteiligungs (Registered) 1,250 903
AGIV AG Industrie & Verkehr 937 294
Allianz AG Holdings 7,697 12,361
* Asko Deutsche Kaufhaus AG 1,700 800
BASF AG 23,350 4,812
Bayer AG 22,050 5,162
Bayerische Hypotheken und
Wechsel Bank 4,539 1,200
Bayer Vereins Bank 7,453 2,149
Beiersdorf AG 1,500 982
Bilfinger & Berger 912 465
Brau & Brunnen AG 1,350 295
* Bremer Vulk Schiff 6,033 366
Colonia Konzern AG 1,200 983
Colonia Konzern VZA 1,050 535
Continental AG 2,200 315
Daimler Benz AG 17,170 8,438
Degussa AG 1,692 512
Deutsche Bank AG 17,220 7,996
* Didier 760 70
DLW 340 90
Douglas Holding AG 962 271
Dresdner Bank AG 14,026 3,682
Dyckerhoff AG 650 293
Dyckerhoff VZA 990 338
* Fag Kugelfischer STA 350 52
Heidelberger Zement 650 524
Herlitz STA 1,000 190
Herlitz VZA 1,815 315
Hochtief 1,359 819
Holsten-Brauerei 337 72
Industrie-Werke Karlsruhe 450 99
Karstadt AG 2,300 838
Kaufhof AG 2,090 646
Kaufhof AG Pfd. 1,250 291
* Klockner-Humbolt-Deutz 4,500 354
Linde AG 1,170 683
* Linotype AG 950 214
* Lufthansa 13,487 1,696
* Lufthansa VZA 700 86
Man AG 1,875 513
Man Vorzug AG 2,050 426
Mannesmann AG 10,179 2,770
</TABLE>
9
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C>
Muenchener Ruckver 2,400 $ 4,489
Muenchener Ruckver STA 120 189
Preussag AG 3,480 1,010
* PWA Papierwerke Waldhof 3,300 507
Rheinmetall Berlin 1,900 341
Rheinisch-Westfaelisches
Elektrizitaetswerk AG 18,375 5,149
Rheinisch-Westfaelisches
Elektrizitaetswerk AG Pfd. 7,968 1,801
Salamander 430 89
Sap AG 2,885 1,907
Sap AG VZA Pfd. 970 549
Schering AG 1,210 794
Siemens AG 19,780 8,279
Strabag Bau AG 1,293 365
Strabag Bau AG Pfd. 143 31
* Thyssen AG 7,710 1,469
Veba AG 19,283 6,716
Viag AG 6,106 1,902
Volkswagen AG 8,150 2,239
Volkswagenwerke AG 1,850 406
-----------
GROUP TOTAL 102,418
-----------
- --------------------------------------------------------------------------------
IRELAND (.5%)
Allied Irish Bank 179,900 750
CRH PLC 79,200 434
FYFFES 56,930 90
Greencore 25,000 156
Independent News 175,263 717
Irish Life 93,700 275
Jefferson Smurfit Group 182,200 1,058
Kerry Group A 21,160 106
* Waterford Wedgewood 520,880 458
Woodchester Invest 9,100 18
-----------
GROUP TOTAL 4,062
-----------
- --------------------------------------------------------------------------------
ITALY (4.6%)
* Alitalia Linee 111,220 69
* Alitalia Linee Priv. 683,496 265
Assicurazioni Generali 294,778 6,893
Banca Commerciale Italiana Risp. 336,000 725
* Banca Nazionale dell' Agricoltura 176,925 316
* Banca Nazionale dell' Agricoltura Pfd. 545,637 486
Banco Ambrosiano Veneto 131,255 350
Banco Ambrosiano Veneto Risp. 65,920 94
Benetton Group SPA 54,000 634
* Burgo (Cartiere) SPA 84,100 560
Cementir SPA 96,680 85
Credito Italiano 692,380 720
* Dalmine 500,000 127
Danieli & Co. 11,090 71
Edison SPA 119,000 521
* Falck, Acc & Fer 41,000 94
* Fiat SPA 725,500 2,639
* Fiat SPA Pfd. 454,000 1,051
Fiat SPA Risp. 144,000 323
Fidis 132,500 291
Franco Tosi SPA 24,100 266
* Gilardini 263,500 633
* Impregilo SPA 65,000 65
Istituto Bancario San Paolo Ditorino SPA 246,000 1,440
Italcementi 46,057 320
Italcementi Svg N/CVT 46,235 159
Italgas 119,750 332
La Previdente 8,000 63
Lane Marzotto 11,800 81
Mediobanca Banca Di Credito Finanziar 110,300 894
* Montedison Risp. 260,000 170
* Montedison SPA 1,499,274 1,126
* Olivetti & Cie. 272,250 345
Parmalat Finanziaria SPA 136,000 144
* Pirelli SPA 314,000 422
RAS 54,550 553
RAS Risp. 36,000 217
Rinascente 127,062 715
* Saffa 21,790 65
SAI 53,730 574
SAI Risp. 18,000 94
* Saipem 71,500 132
Sasib 14,960 75
Sirti SPA 92,690 591
SME Meridonale Finanziaria 52,945 130
* SNIA 629,000 710
Telecom Italia 2,000,166 5,182
Telecom Italia Risp. 576,944 1,157
-----------
GROUP TOTAL 32,969
-----------
- --------------------------------------------------------------------------------
NETHERLANDS (7.6%)
ABN AMRO Holding NV 107,114 3,721
Ahold NV 41,070 1,271
Akzo NV 18,700 2,159
Assur Con Stad Rotte 4,180 91
Elsevier NV 237,000 2,472
Getronics NV 13,579 495
Heineken NV 13,573 2,047
Hollandsche Beton Groep NV 630 97
* Hoogovens & Staalf 16,984 771
IHC Caland 4,660 118
International Nederlanden Group 96,341 4,552
* KLM Royal Dutch Airlines 32,247 791
Koninklijke Knp BT NV 41,914 1,193
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* Nedlloyd Group NV 15,351 $ 503
Oce Van Der Grinten 10,607 475
Philips Gloeilampenfabrieken NV (Non-Voting) 112,995 3,346
Royal Dutch Petroleum 193,354 21,055
Royal Pakhoed Holdings 14,630 388
Stork VMF 14,373 373
Unilever NV 60,707 7,100
Wolters Kluwer 13,919 1,030
-----------
GROUP TOTAL 54,048
-----------
- --------------------------------------------------------------------------------
NORWAY (.8%)
Aker 15,723 187
Bergesen Series A 24,616 601
Bergesen Series B 16,236 394
Dyno Industrier AS 21,896 641
Hafslund Nycomed Series A 16,258 347
Hafslund Nycomed Series B 16,018 334
Kvaerner Industries A 4,000 187
Kvaerner Industries B 1,500 68
Leif Hoegh 9,000 120
Norsk Hydro 65,394 2,572
Orkla-Borregard 4,000 146
Orkla-Borregard B 2,580 92
Unitor 2,500 42
* Vard A 8,000 17
-----------
GROUP TOTAL 5,748
-----------
- --------------------------------------------------------------------------------
SPAIN (3.4%)
Acerinox SA 7,816 814
* Aguila (El) SA 33,558 277
Alba 7,265 307
Argentaria SA 41,000 1,450
Autopista Aces 46,727 360
Banco Bilbao Vizcaya 46,621 1,154
Banco Central Hispanoamericano 45,402 1,084
Banco Santander 8,927 341
Banco Santander New 25,000 913
Carburos Metalic 9,732 351
Dragados y Construcciones SA 34,796 488
Ebro Agricolas 28,444 313
Empresa Nacional de Electricidad SA 67,309 2,745
* ENCE 11,200 266
* Ercros 80,232 77
Fabrica Auto Renault de Espana 9,213 307
Fomento de Construciones y Contra 7,208 691
Gas Natural 16,552 1,388
Iberduola 140,963 868
Inmobiliaria 10,509 337
Mapfre 16,521 689
* Metal Duro Felguera 110,508 511
Portland Valderrivas 3,848 277
Prosegur Compania 3,930 74
Repsol SA 80,737 2,185
* Sarrio Papelera 36,340 128
Tabacalera SA 20,206 538
Telefonica de Espana 309,868 3,652
Union Electrica Fenosa 27,737 115
* Uralita 54,364 530
Vallehermoso SA 27,198 471
Viscofan Envoltura 21,160 321
Zardoya Otis SA 2,006 208
-----------
GROUP TOTAL 24,230
-----------
- --------------------------------------------------------------------------------
SWEDEN (3.6%)
Aga AB Series A 89,150 816
Aga AB Series B 9,000 83
Asea AB Series A 42,768 3,125
Asea AB Series B 9,500 688
* Assa Abloy SA 'B' 4,070 14
Astra AB Series A 168,400 4,350
Astra AB Series B 33,830 863
Atlas Copco AB Series A 67,000 856
Atlas Copco AB Series B 8,690 111
Electrolux Series B 29,900 1,517
Esselte AB Series A 5,660 73
Esselte AB Series B 5,790 74
Euroc Industries Series A 6,880 140
Hennes & Mauritz Series B 11,888 609
S E Banken Series A 181,353 1,037
Securitas Series B 4,070 110
Skandia Free 33,072 572
Skanska Series B 32,758 754
* SKF AB Series A 11,140 184
* SKF AB Series B 5,400 89
Stora Kopparberg Series A 12,741 770
Stora Kopparberg Series B 710 43
SV Handelsbanken Series B 3,360 42
Svenska Cell Series 'B' (Free) (SCA) 61,646 966
Svenska Handelsbanken Series A 61,330 809
Telefon AB L.M. Ericsson Series B 82,800 4,579
* Trelleborg AB Series B 41,898 612
Volvo AB Series A 41,000 770
Volvo AB Series B 57,625 1,085
-----------
GROUP TOTAL 25,741
-----------
- --------------------------------------------------------------------------------
SWITZERLAND (10.1%)
* Adia SA (Bearer) 3,017 502
Alusuisse-Lonza Holding AG (Bearer) 891 449
Alusuisse-Lonza Holding AG (Registered) 1,025 513
BBC Brown Boveri AG A 1,925 1,656
BBC Brown Boveri AG B 620 102
Ciba Geigy AG 925 553
Ciba Geigy AG (Bearer) 8,896 5,305
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
CS Holdings (Bearer) 8,785 $ 3,756
CS Holdings (Registered) 15,050 1,287
Danzas 120 116
Forbo Holding AG 50 84
Forbo Holding AG (Registered) 90 76
* Georg Fischer B 190 222
Grands Magasins Jelmoli (Bearer) 280 156
Grands Magasins Jelmoli (Registered) 610 62
Holderbank Financiere Glarus AG (Bearer) 520 393
Holderbank Financiere Glarus AG (Registered) 1,500 227
Interdiscount Holding B 50 57
Merkur Holding AG 1,471 372
Nestle SA (Registered) 13,729 13,072
Roche Holdings AG (Bearer) 613 5,254
Roche Holdings Ltd. 2,444 11,822
Sandoz AG (Bearer) 250 132
Sandoz AG (Registered) 10,850 5,650
SMH (Bearer) 962 478
SMH (Registered) 4,750 522
Schindler Holdings AG (Registered) 90 104
Schindler Holdings AG PC 60 70
Societe Generale de Surveillance Holdings
SA (Bearer) 522 721
Societe Generale de Surveillance Holdings
SA (Registered) 120 31
Sulzer (Registered) 300 208
Sulzer PC 50 34
Swiss Bank Corp. (Bearer) 6,829 1,888
Swiss Bank Corp. (Registered) 11,117 1,485
Swiss Reinsurance (Bearer) 575 347
Swiss Reinsurance (Registered) 4,183 2,520
* Swissair Inhaber (Registered) 400 235
Union Bank of Switzerland 9,100 1,737
Union Bank of Switzerland (Bearer) 7,801 6,469
Zurich Insurance (Bearer) 1,643 1,562
Zurich Insurance (Registered) 2,052 1,958
-----------
GROUP TOTAL 72,187
-----------
- --------------------------------------------------------------------------------
UNITED KINGDOM (35.0%)
Abbey National 539,827 3,631
Amstrad PLC 59,889 125
Anglian Water 212,431 1,703
Argos PLC 166,829 918
Argyll Group PLC 463,420 1,950
Arjo Wiggins Appleton PLC 275,332 1,016
Associated British Foods PLC 285,764 2,530
B.A.T. (British American
Tobacco) Industries 1,151,882 7,775
BBA Group 240,079 762
Barclays PLC 704,485 6,744
Barratt Development 133,502 349
Bass PLC 340,743 2,742
B.E.T. PLC 351,449 558
BICC PLC 131,864 742
Blue Circle Industries 268,190 1,187
BOC Group 245,619 2,708
Boots Co. PLC 382,447 3,015
Bowater PLC 196,792 1,345
Bowthorpe PLC 133,113 602
BPB Industries Ltd. 219,184 1,008
British Aerospace 156,711 1,054
British Airways PLC 369,176 2,067
British Gas 1,709,763 8,344
British Land Co., PLC 105,843 635
British Petroleum Co. 1,886,585 12,557
British Steel 711,110 1,730
British Telecommunications PLC 2,198,364 12,981
BTR PLC 1,349,541 6,206
Burmah Castrol PLC 72,161 922
Cable and Wireless PLC 814,290 4,802
Cadbury Schweppes PLC 319,223 2,157
Calor Group 88,819 381
Carlton Communications PLC 49,675 697
Chubb Security PLC 101,311 452
Coats Viyella PLC 187,389 557
Cobham PLC 29,000 151
Commercial Union 216,924 1,720
* Costain Group 357,020 120
Courtalds Textiles 17,193 123
Courtaulds PLC 225,285 1,635
Dawson International PLC 85,165 151
De La Rue Co. PLC 36,899 545
Delta Group British 33,049 225
East Midlands Electric 39,986 525
Eastern Group 49,902 607
ECC Group 46,508 269
Electrocomponents PLC 43,988 327
FKI 168,244 395
Forte PLC 234,082 886
General Accident PLC 114,389 909
General Electric PLC 1,064,736 4,563
GKN 38,727 356
Glaxo Holdings PLC 975,321 10,115
Grand Metropolitan PLC 649,239 4,143
Great Portland Estates 51,123 147
Great Universal Stores PLC 417,439 3,513
Guardian Royal Exchange PLC 198,749 522
Guinness PLC 783,376 5,514
Hammerson Property Investment 63,516 346
Hanson 1,567,451 5,664
Harrison and Crosfield 225,273 493
Hepworth Ceramic Holdings Ltd. 50,375 246
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
HSBC Holdings PLC 241,500 $ 2,669
HSBC Holdings (Foreign) 617,060 6,684
IMI PLC 69,098 340
Imperial Chemical Industries 190,991 2,236
Johnson Matthey PLC 44,148 377
Kingfisher PLC 182,963 1,274
Kleinwort Benson Group 45,559 392
Ladbroke Group 487,807 1,320
Laing, John 32,357 113
Laird Group 59,150 320
Land Securities PLC 158,670 1,482
* Lasmo PLC 312,571 724
Legal & General Group PLC 91,518 620
Lex Services 52,726 249
Lloyds Bank Group PLC 541,359 4,679
London Electricity PLC 42,499 495
Lonrho 242,458 576
Lucas Industries 329,225 1,061
Manweb PLC 32,418 441
Marks and Spencer PLC 961,727 5,987
Marley 42,640 89
MB Group 213,803 826
MEPC PLC 119,000 713
Meyer International PLC 51,941 290
National Power 525,151 4,009
Next PLC 104,066 417
North West Water Group 109,672 930
Northern Electricity PLC 52,343 820
Ocean Transportation & Trading 71,755 318
Pearson, S. & Son PLC 126,019 1,100
Peninsular & Orient Steam Navigation Co. 143,201 1,366
Pilkington 352,635 921
Prov. Financial 14,000 119
Prudential Corp. 559,037 2,755
Racal Electronics PLC 81,626 287
Rank Organization Ltd. 164,657 1,074
Redland PLC 134,287 970
Reed International PLC 197,067 2,458
Reuters Holdings PLC 576,144 4,209
RMC Group PLC 34,423 505
Rolls Royce PLC 338,764 954
Royal Bank of Scotland 378,481 2,333
Royal Insurance Holdings 150,291 658
RTZ Corp. 340,134 4,411
Rugby Group 267,024 518
J. Sainsbury PLC 575,075 3,702
Schroders PLC 23,826 548
Scottish & Newcastle Breweries 118,531 947
Scottish Power 311,598 1,711
Sears PLC 613,365 1,055
Sedgwick Group PLC 106,450 253
Seeboard PLC 72,592 550
Slough Estates PLC 82,589 305
Smiths Industries PLC 161,923 1,112
Smithkline Beecham PLC Class A 474,255 3,364
Smithkline Beecham PLC Equity Unit 366,545 2,408
Southern Electric PLC 51,786 656
Southern Water 36,461 332
T & N PLC 162,499 407
Tate & Lyle 98,518 653
Taylor Woodrow PLC 172,537 345
Tesco PLC 541,764 2,110
Thames Water PLC 121,699 923
Thorn EMI PLC 195,423 3,173
Trafalgar House PLC 367,275 442
Transport Development 211,521 688
Tube Investment Group 76,076 457
Unigate PLC 52,393 272
Unilever PLC 304,328 5,510
United Biscuits Holdings PLC 202,267 1,041
Vickers PLC 129,129 353
Vodafone Group PLC 1,107,243 3,672
S.G. Warburg Group PLC 40,291 435
Welsh Water 30,176 312
Williams Holdings PLC 89,847 438
Willis Corroon PLC 89,536 195
Wilson C. Holdings 86,443 219
George Wimpey PLC 112,698 227
Wolseley PLC 84,418 1,038
Zeneca Group PLC 283,918 3,895
-----------
GROUP TOTAL 249,999
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $633,715) 702,303
- --------------------------------------------------------------------------------
BONDS (.2%)
- --------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
--------
<S> <C> <C>
ITALY
Pirelli SPA 5.00%, 12/31/98 ITL 327,600 180
SWEDEN
Volvo 12.50%, 3/15/95 SK 2,317 477
SWITZERLAND
Hofi International 4.50%, 8/11/08 SF 445 605
- --------------------------------------------------------------------------------
TOTAL BONDS
(Cost $1,301) 1,262
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (1.6%)
- --------------------------------------------------------------------------------
U.S. TREASURY BILL--Note D
5.395%, 3/23/95 $ 500 $ 494
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.90%, 1/3/95 10,763 10,763
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $11,257) 11,257
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $646,273) 714,822
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets--Notes B and F 114,359
Liabilities--Note F (114,148)
-----------
211
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 60,786,421 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $715,033
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.76
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
ITL--Italian Lira
SK--Swedish Krona
SF--Swiss Francs
(Ptg. Ctf.)--Participating Certificate
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1994, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
------- -------
<S> <C> <C>
Paid in Capital $647,191 $10.65
Overdistributed Net Investment Income (317) (.01)
Overdistributed Net Realized Gains (672) (.01)
Unrealized Appreciation of Investments--Note D 68,831 1.13
- --------------------------------------------------------------------------------
NET ASSETS $715,033 $11.76
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
PACIFIC PORTFOLIO Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.5%)
- --------------------------------------------------------------------------------
AUSTRALIA (4.9%)
* Aberfoyle 77,700 $ 196
Amcor Ltd. 261,683 1,892
Australia National Industries 690,131 771
Boral Ltd. 413,400 1,090
Brambles Industries, Ltd. 75,911 725
Broken Hill Proprietary Ltd. 456,860 6,946
Burns Phillip & Co. 140,993 334
Coca-Cola Amatil Ltd. 140,468 894
Coles Myer Ltd. 355,750 1,209
CRA Ltd. 181,900 2,512
CSR Ltd. 158,900 549
Dominion Mining 246,575 59
Email Ltd. 197,883 563
* Emperor Mines 52,510 82
Fosters Brewing Corp. 739,100 648
Gold Mines Kalgoorlie 115,673 90
Goodman Fielder Ltd. 464,800 411
ICI Australia Ltd. 77,000 649
Lend Lease Corp. 51,390 636
MIM Holdings Ltd. 393,144 656
National Australia Bank Ltd. 269,300 2,156
Newcrest Mining Ltd. 63,945 285
News Corp. Ltd. 549,164 2,151
News Corp. Ltd. Pfd. 274,582 946
North Ltd. 325,613 859
OPSM Industries 116,000 180
Pacific Dunlop Ltd. 167,640 446
Pioneer International 67,000 166
Rothmans Holdings 103,900 387
Santos Ltd. 290,389 784
Sons of Gwalia 112,944 407
Southcorp Holdings Ltd. 312,000 702
* TNT 126,000 215
Western Mining Corp. 267,100 1,546
Westpac Banking Ltd. 539,771 1,821
-----------
GROUP TOTAL 33,963
-----------
- --------------------------------------------------------------------------------
HONG KONG (5.1%)
The Bank of East Asia, Ltd. 295,700 1,181
Cathay Pacific Air 1,034,000 1,503
Cheung Kong Holdings Ltd. 617,000 2,512
China Light & Power 547,000 2,333
Hang Seng Bank 543,800 3,900
Hong Kong Aircraft 42,800 143
Hong Kong & China Gas 408,793 660
The Hong Kong and Shanghai Hotels, Ltd. 278,000 322
Hong Kong Telecommunication Ltd. 3,031,400 5,779
Hopewell Holdings 1,509,000 1,248
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Hutchison Whampoa Ltd. 879,000 $ 3,556
Hysan Development Co., Ltd. 243,000 482
Miramar Hotel & Investment 139,000 302
New World Development 477,000 1,273
Orient Press Group 368,000 172
Regal Hotels International 1,190,000 255
Shun Tak Enterprises 518,000 368
South China Morning Post 1,045,000 611
Sun Hung Kai Properties Ltd. 561,400 3,352
Swire Pacific Ltd. A 356,500 2,221
Tai Cheung Properties 224,500 218
Television Broadcasts Ltd. 176,000 703
Wharf Holdings Ltd. 626,000 2,111
Wing Lung Bank 46,000 330
Winsor Industrial Corp. 207,500 255
-----------
GROUP TOTAL 35,790
-----------
- --------------------------------------------------------------------------------
JAPAN (82.3%)
AIDA Engineering 109,000 962
Advantest Corp. 19,000 642
Ajinomoto Co., Inc. 286,000 3,673
* Alps Electric Co., Ltd. 114,000 1,498
Amada Co., Ltd. 153,000 1,919
Amano Corp. 78,000 1,158
Aoki Corp. 249,000 1,087
Aoyama Trading 34,000 774
Arabian Oil Co. Ltd. 18,000 787
Asahi Bank Ltd. 567,000 6,599
Asahi Breweries, Ltd. 264,000 2,914
Asahi Chemical Industries 548,000 4,201
Asahi Glass Co. Ltd. 418,000 5,159
* Asahi Optical 82,000 425
Ashikaga Bank 300,000 2,131
Asics Corp. 174,000 681
Bank of Tokyo 515,000 7,958
Bank of Yokohama 327,000 2,773
Banyu Pharmaceutical 127,000 1,300
Bridgestone Corp. 242,000 3,788
Brother Industries Ltd. 107,000 708
Canon Inc. 239,000 4,053
Casio Computer Co. 87,000 1,100
Chiba Bank 252,000 2,301
Chiyoda Corp. 73,000 989
Chugai Pharmaceutical Ltd. 74,000 780
Citizen Watch Co. 123,000 949
Cosmo Oil Co., Ltd. 211,000 1,579
Credit Saison 21,000 430
CSK 18,200 592
Daicel Chemical Industries 26,000 147
Daido Steel Co. 106,000 617
Daiei Inc. 171,000 2,557
Daifuku 32,000 539
Daiichi Pharmaceutical Co., Ltd. 91,000 1,434
Dai-ichi Kangyo Bank 835,000 15,751
Daikin Industries Ltd. 57,000 506
Daikyo Inc. 88,000 693
Daimaru Inc. 80,000 630
Dai-Nippon Ink & Chemicals 153,000 749
Dai-Nippon Printing Co. Ltd. 210,000 3,582
* Dai-Nippon Screen Manufacturing 68,000 525
* Daishowa Paper Mfg. Co., Ltd. 60,000 424
Daito Trust 27,000 322
Daiwa House Industries 99,000 1,401
Daiwa Kosho Lease 5,000 43
Daiwa Securities Ltd. 391,000 5,649
* Denki Kagaku Kogyo 182,000 752
Ebara Corp. 67,000 1,129
Eisai Co., Ltd. 65,000 1,063
Ezaki Glico Co. 5,000 55
Fanuc Co. Ltd. 55,500 2,612
Fuji Bank 775,000 17,107
Fuji Photo Film Co., Ltd. 139,000 3,222
Fujikura Cable 60,000 476
Fujita Corp. 159,000 844
Fujita Tourist Enterprises 29,000 634
Fujitsu Ltd. 454,000 4,601
Furukawa Electric Co. 172,000 1,115
* Gakken Co. 6,000 46
Gunma Bank Ltd. 116,000 1,257
Gunze 7,000 46
Hankyu Corp. 198,700 1,158
Hankyu Department Stores 45,000 578
Haseko 135,000 799
Hattori Seiko 38,000 337
Hazama-Gumi Ltd. 52,000 224
Higo Bank 67,000 551
Hirose Electric Co. Ltd. 11,000 674
Hitachi Ltd. 880,000 8,732
Hokkaido Bank 103,000 398
Hokuriku Bank 252,000 1,798
Honda Motor Co. Ltd. 250,000 4,440
Honshu Paper Co., Ltd. 93,000 633
House Foods Industrial Co., Ltd. 27,000 536
Hoya Corp. 29,000 774
INAX 46,000 480
Industrial Bank of Japan Ltd. 628,000 18,588
Isetan 55,000 993
* Ishihara Sangyo 108,000 432
C Itoh & Co. 439,000 3,127
Itoham Food Co., Ltd. 66,000 521
Ito-Yokado Co. 112,000 5,990
Iwatani & Co. 75,000 440
Jaccs 46,000 457
* Japan Air Lines Co. Ltd. 448,000 3,160
</TABLE>
15
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* Japan Metals & Chemicals 8,000 $ 42
Japan Steel Works Ltd. 99,000 314
* Jeol 18,000 136
JGC Corp. 43,000 733
Joyo Bank 204,000 1,736
Jusco Co., Ltd. 83,000 1,849
Kajima Corp. 221,000 1,894
Kaken Pharmaceutical 3,000 38
Kamigumi 44,000 468
Kandenko 46,000 775
Kanebo Ltd. 117,300 412
Kanegafuchi Chemical Industry Co. Ltd. 78,000 583
Kansai Electric Power Inc. 261,400 6,295
Kansai Paint Co., Ltd. 115,000 664
Kao Corp. 155,000 1,757
Katokichi 27,000 612
* Kawasaki Kisen Kaisha Ltd. 189,000 759
* Kawasaki Steel Corp. 852,000 3,565
Keihin Electric Express Railway Co. Ltd. 100,000 591
Kikkoman 55,000 461
Kinden Corp. 46,000 743
Kinki Nippon Railway 453,000 3,745
Kirin Brewery Co. Ltd. 235,000 2,617
Kissei Pharmaceutical 19,000 810
* Kobe Steel Ltd. 779,000 2,431
Kokuyo Co., Ltd. 36,000 867
Komatsu 223,000 2,014
Komori Corp. 22,000 589
Konami 11,000 238
Konica 79,000 666
Koyo Seiko Co. 70,000 701
Kubota Ltd. 329,000 2,357
Kumagai Gumi Co., Ltd. 196,000 1,019
Kurabo Industries Ltd. 76,000 327
Kuraray 60,000 710
Kureha Chemical Industries 88,000 477
Kurita Water Industries 38,000 984
Kyocera Corp. 48,000 3,559
Kyowa Hakko Kogyo 94,000 929
Kyudenko Corp. 3,300 41
Lion Corp. 85,050 543
Maeda Road Construction Co. Ltd. 20,000 331
* Makino Milling 7,000 63
Makita Electric Works 40,000 722
Marubeni Corp. 390,000 2,152
Marudai Food Co. 6,000 47
* Maruha Corp. 13,000 51
Marui 82,000 1,497
Matsushita Electric Industries Co., Ltd. 581,000 9,560
Meiji Milk Products Co. 59,000 435
Meiji Seika Kaisha Ltd. 91,000 586
Minebea Co., Ltd. 95,000 801
Misawa Homes Co., Ltd. 49,000 433
Mitsubishi Corp. 436,000 5,731
Mitsubishi Chemical Corp. 523,000 2,876
Mitsubishi Electric Co. 508,000 3,604
Mitsubishi Estate Co., Ltd. 413,000 4,434
Mitsubishi Gas & Chemical 107,000 538
Mitsubishi Heavy Industries Ltd. 858,000 6,543
Mitsubishi Material 239,000 1,269
Mitsubishi Oil 98,000 943
Mitsubishi Paper Mills 75,000 558
* Mitsubishi Steel Manufacturing 77,000 391
Mitsubishi Trust & Banking Co. 414,000 6,189
Mitsubishi Warehouse & Transportation 35,000 583
Mitsui & Co., Ltd. 415,000 3,539
Mitsui Engineering & Ship Building 184,000 572
Mitsui Marine & Fire Insurance 195,000 1,473
* Mitsui Mining & Smelting Co., Ltd. 134,000 597
* Mitsui Osk Lines Ltd. 362,000 1,373
Mitsui Real Estate Development 197,000 2,095
Mitsui Toatsu Chemicals Inc. 128,000 534
Mitsui Trust & Banking Corp. 322,000 3,360
Mitsui Warehouse 36,000 308
Mitsukoshi Ltd. 122,000 1,285
Mochida Pharmaceutical 33,000 669
Mori Seiki Co. 24,000 576
Murata Manufacturing Co. Ltd. 64,900 2,507
Nagase 5,000 48
Nagoya Railroad Co. 165,000 805
Nankai Railway 115,000 870
NEC Corp. 409,000 4,678
NGK Insulators 73,000 747
NGK Spark Plug Co. 50,000 657
Nicherei 73,000 487
* Nichido Fire Marine 91,000 788
Nichii Co., Ltd. 56,000 725
Nihon Cement Co. 62,000 450
Niigata Engineering Co. 102,000 444
Nikko Kyoto Co., Ltd. 388,000 1,534
Nippon Beet Sugar 10,000 47
Nippon Comsys 34,000 474
Nippon Denko 11,000 43
Nippon Denso Co., Ltd. 231,000 4,867
Nippon Express Co., Ltd. 283,000 2,840
Nippon Fire & Marine 129,000 896
Nippon Kokan (NKK) 848,000 2,348
Nippon Light Metal Co. 140,000 933
Nippon Meat Packers Inc. 80,000 1,052
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Nippon Oil Co. Ltd. 298,000 $ 1,982
Nippon Oil Fats 8,000 51
Nippon Paper Industries Co. 260,000 1,910
Nippon Seiko Kabushiki 107,000 848
Nippon Sharyo Seizo Kaisha 43,000 453
Nippon Sheet Glass Co. 91,000 489
Nippon Shinpan Co. 58,000 448
Nippon Shokubai 70,000 681
Nippon Steel Corp. 1,793,000 6,746
* Nippon Suisan Kaisha 110,000 517
Nippon Yusen Kabushiki Kaisha 351,000 2,303
Nishimatsu Construction 47,000 490
Nissan Motor Co., Ltd. 606,000 5,004
Nisshinbo Industries 57,000 658
Nissin Food 34,000 805
Nitto Denko Corp. 40,000 634
The Nomura Securities Co. Ltd. 513,000 10,655
Noritake Co., Ltd. 58,000 464
NTN Toyo-Bearing Co. 86,000 645
Odakyu Electric Railway 186,000 1,362
Ohbayashi-Gumi Ltd. 190,000 1,218
OJI Paper Co., Ltd. 197,000 2,076
Okamoto Industries 6,000 43
* Okuma Machinery Works 51,000 477
Okumura Corp. 78,000 583
Olympus Optical Ltd. 62,000 678
Omron Tateisi Electronics Co. 52,000 960
Onoda Cement 161,000 918
Onward Kashiyama Co. 44,000 609
Orient Corp. 67,000 399
Orix Corp. 19,000 702
Osaka Gas Co., Ltd. 666,000 2,673
Penta Ocean Construction 138,000 757
Pioneer Electronic Corp. 49,000 1,180
Q P Corp. 4,400 47
* Renown Inc. 89,000 399
Ricoh Co. 170,000 1,689
Rohm 26,000 1,101
Sagami Railway 92,000 414
Sakura Bank 886,000 11,912
Sanden Corp. 35,000 242
Sankyo Co., Ltd. 121,000 3,011
Sankyo Aluminum 7,000 43
Sanrio Co., Ltd. 35,000 523
Sanwa Shutter 53,000 466
Sanyo Electric Co., Ltd. 502,000 2,886
Sapporo Breweries 68,000 646
Secom Co., Ltd. 30,000 1,866
Sega Enterprises 25,000 1,442
Seino Transportation Co. Ltd. 36,000 657
Seiyu 40,000 522
Sekisui Chemical Co. 157,000 1,560
Sekisui House Ltd. 197,000 2,194
* Settsu 97,000 392
Seven Eleven Japan Co. Ltd. 93,000 7,474
Seventy-Seven Bank 70,000 738
Sharp Corp. 258,000 4,660
Shimachu 9,000 324
Shimano Industrial 34,000 658
Shimizu Construction Corp. 220,000 2,168
Shin-Etsu Chemical Co. Ltd. 65,000 1,291
Shionogi & Co., Ltd. 94,000 841
Shiseido Co., Ltd. 93,000 1,101
Shizuoka Bank 197,000 2,431
Shochiku 27,000 303
* Shokusan Jutaku 68,000 283
* Showa Denko Kabushiki 277,000 970
Skylark Co., Ltd. 31,000 591
Snow Brand Milk Products 66,000 501
Sony Corp. 95,500 5,414
Sumitomo Corp. 266,000 2,722
Sumitomo Bank 820,000 15,632
Sumitomo Cement Co. 89,000 409
Sumitomo Chemical Co. 526,000 3,008
Sumitomo Electric Co. 194,000 2,764
Sumitomo Forestry 44,000 693
Sumitomo Heavy Industries Ltd. 211,000 796
Sumitomo Marine & Fire Insurance Co. 191,000 1,648
Sumitomo Metal Industries 880,000 2,852
Sumitomo Metal Mining 122,000 1,115
Taisei Construction Corp. 262,000 1,625
Taisho Pharmaceuticals 86,000 1,648
Taiyo Yuden Co. 8,000 90
Takara Shuzo Co. 69,000 548
Takara Standard 4,000 45
Takashimaya Co. 45,000 677
Takeda Chemical Industries 231,000 2,805
Takuma 20,000 361
Tanabe Seiyaku Co., Ltd. 56,000 465
Teijin Ltd. 122,000 643
Teikoku Oil Co., Ltd. 62,000 435
Toa Harbor Works 84,000 571
Tobu Railway Co., Ltd. 200,000 1,168
Toho Co., Ltd. 5,200 913
Tohoku Electric Power 128,800 3,270
Tokai Bank 540,000 6,502
Tokio Marine & Fire Insurance Ltd. 400,000 4,896
Tokyo Broadcasting System 37,000 613
Tokyo Dome 31,000 566
Tokyo Electric Power 371,700 10,368
Tokyo Electron Inc. 35,000 1,089
Tokyo Gas Co., Ltd. 773,000 3,351
</TABLE>
17
<PAGE> 20
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Tokyo Style Co. 22,000 $ 373
Tokyo Tatemono 63,000 377
Tokyotokeiba 54,000 285
Tokyu Corp. 343,000 2,271
Toppan Printing Co. 201,000 2,803
Toray Industries Inc. 414,000 3,012
* Tosoh Corp. 164,000 661
Tostem Corp. 52,000 1,518
Toto Ltd. 103,000 1,685
Toyo Engineering Corp. 24,000 173
Toyo Exterior 8,000 218
Toyo Kanetsu Kabushiki 44,000 259
Toyo Seikan Kaisha Ltd. 57,000 1,899
Toyobo 173,000 689
Toyoda Automatic Loom Works 66,000 1,358
Toyota Motor Corp. 1,016,000 21,408
Tsubakimoto Chain Co. 132,000 715
Tsugami Corp. 37,000 215
* Ube Industries Ltd. 231,000 892
Uni Charm 4,000 97
Uniden 11,000 277
Unitika 182,000 603
Yamaguchi Bank 50,000 923
Yamaha Corp. 49,000 624
Yamaichi Securities Co. 333,000 2,519
Yamanouchi Pharmaceuticals Ltd. 81,000 1,666
Yamato Transport Co. 88,000 1,086
Yamazaki Baking Co., Ltd. 64,000 1,284
The Yasuda Trust and Banking Co., Ltd. 242,000 1,928
Yokogawa Electric 15,000 157
-----------
GROUP TOTAL 573,708
-----------
- --------------------------------------------------------------------------------
MALAYSIA (3.4%)
AMMB Holdings Bhd. 88,000 833
Amsteel Corp. Bhd. 393,000 597
DCB Holdings Bhd. 24,000 54
Edaran Otomobil 92,000 698
* Faber Merlin Malaysia 171,000 149
Golden Hope Plantations Bhd. 257,000 469
Hong Leong Properties 247,000 348
* Idris Hydraulic Bhd. 332,000 535
Johan Holdings 721,000 686
Kuala Lumpur Kepong Bhd. 26,000 69
Land and General Bhd. 15,000 62
Landmarks Bhd. 136,000 220
Leader Universal Holdings Bhd. 16,666 54
Magnum Corp. Bhd. 275,000 493
Malayan Banking Bhd. 220,000 1,326
Malayan United Industries. Bhd. 33,000 52
Malaysian Airlines System Bhd. 180,000 539
Malaysian International Shipping Corp.
Bhd. (Foreign) 249,333 712
Malaysian Pacific 226,000 400
* Malaysian Resources Co. Bhd. 125,000 231
Multi-Purpose Holdings Bhd. 163,000 226
Oriental Holdings Bhd. 130,000 671
Perusahaan Otomobil NA 107,000 389
Petaling Garden Bhd. 557,000 719
Pilecon Engineering 414,000 541
* Promet Bhd. 180,000 178
Public Bank Bhd. (Foreign) 221,000 441
Rashid Hussain Bhd. 246,000 645
Resorts World Bhd. 282,000 1,655
RJ Reynolds 309,000 447
Rothmans of Pall Mall Bhd. 74,000 484
Shell Refining Co. Bhd. 131,000 415
Tan Chong Motor Holdings Bhd. 437,000 511
Technology Resources Industries Bhd. 161,000 513
Telekom Malaysian Bhd. 449,000 3,040
Tenaga Nasional Bhd. 897,000 3,545
United Engineers Bhd. 118,000 582
-----------
GROUP TOTAL 23,529
-----------
- --------------------------------------------------------------------------------
NEW ZEALAND (.7%)
Brierley Investment 792,000 574
Carter Holt Harvey 555,559 1,139
Fletcher Challenge Ltd. 448,269 1,054
Fletcher Challenge Ltd. (Forestry Division) 35,000 42
Lion Nathan 177,000 338
Telecom Corp. of New Zealand 523,900 1,712
Wilson & Horton Ltd. 10,000 57
-----------
GROUP TOTAL 4,916
-----------
- --------------------------------------------------------------------------------
SINGAPORE (3.1%)
City Development 144,000 806
Cycle & Carriage 71,000 639
DBS Land 232,000 692
Development Bank of Singapore (Foreign) 189,625 1,953
Fraser & Neave Ltd. 55,000 570
Haw Par Brothers International 411,400 898
Jurong Shipyard 30,000 231
Keppel Corp. 185,000 1,575
Malayan Banking 240,000 1,451
* Neptune Orient Lines 338,000 464
Overseas Chinese Banking Corp. (Foreign) 239,166 2,464
Prima 172,000 602
Sime Darby Bhd. 645,600 1,490
Singapore Airlines Ltd. (Foreign) 325,000 2,991
Singapore Press Holdings Ltd. (Foreign) 115,800 2,108
Straits Steamship 117,000 402
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
United Industrial Corp. 57,000 $ 54
United Overseas Bank (Foreign) 181,125 1,916
-----------
GROUP TOTAL 21,306
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $601,213) 693,212
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (.6%)
- --------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
--------
<S> <C> <C>
U.S. TREASURY BILL--Note D
5.395%, 3/23/95 $2,400 2,370
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.90%, 1/3/95 1,949 1,949
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $4,319) 4,319
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(Cost $605,532) 697,531
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.1%)
- --------------------------------------------------------------------------------
Other Assets--Notes B and F 161,680
Liabilities--Note F (162,105)
--------
(425)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 61,662,838 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $697,106
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.31
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1994, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
------- -------
<S> <C> <C>
Paid in Capital $605,450 $ 9.82
Overdistributed Net Investment Income (227) --
Overdistributed Net Realized Gains (205) --
Unrealized Appreciation of Investments--Note D 92,088 1.49
- --------------------------------------------------------------------------------
NET ASSETS $697,106 $11.31
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
EMERGING MARKETS PORTFOLIO Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.3%)
- --------------------------------------------------------------------------------
ARGENTINA (4.8%)
Astra Cia Argentin B Shares 56,950 $ 94
Banco Frances 20,500 136
Banco Galicia y Buenos 29,497 118
Compania Naviera Perez 88,100 364
Interamericana Auto 12,450 109
Telefonica Argentina 261,050 1,347
YPF Sociedad Anonima 86,424 1,819
-----------
GROUP TOTAL 3,987
-----------
- --------------------------------------------------------------------------------
BRAZIL (16.5%)
Aracruz Celulose Pfd. B 112,684 306
Banco Bradesco 56,406,800 434
Banco Bradesco Pfd. 51,345,598 437
Banco Do Brasil Pfd. 18,485,618 365
Banco Itau Pfd. 1,867,100 523
Brasmotor 340,000 191
Cemig Pfd. 5,492,100 500
Cervejaria Brahma 295,000 99
Cervejaria Brahma Pfd. 691,250 228
Cia Cimento Portland 499,800 207
Copene Petroquimica Pfd. 259,800 227
Electrobras 8,092,541 2,860
Electrobras Pfd. B 1,227,818 427
Ericsson Teleco PN 10,447,400 62
Industrias Klabin Papel E 73,000 109
* Lojas Americanas 3,301,000 92
Lojas Americanas PN 5,889,033 164
* Papel Simao PN 2,052,000 90
Paulista Forca Luz 2,946,700 261
Petroleo Brasileiro Pfd. 6,804,500 861
* Pirelli Pneus PN 21,000 77
Souza Cruz 44,900 372
Telebras Pfd. 53,051,200 2,377
Unipar Union Ind Petro 13,122,000 67
Usiminas Pfd. 351,451,400 478
Vale Do Rio Doce Pfd. 8,439,200 1,616
Vidreas Santa Marina 28,539 146
White Martins 12,945,600 188
-----------
GROUP TOTAL 13,764
-----------
- --------------------------------------------------------------------------------
GREECE (1.3%)
Alpha Credit Bank 3,700 159
Commercial Bank 4,540 160
Ergo Bank 2,700 111
Ethniki General Insurance (Registered) 2,000 17
Fourlis 2,340 29
Hellas Can 5,400 91
Hellenic Bottling Co. (Bearer) 4,800 170
* Hellenic Sugar 5,900 92
Intracom (Bearer) 2,640 95
Michaniki 2,800 43
</TABLE>
19
<PAGE> 22
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
National Bank of Greece 2,700 $ 126
-----------
GROUP TOTAL 1,093
-----------
- --------------------------------------------------------------------------------
HONG KONG (12.5%)
Applied International 320,000 40
The Bank of East Asia, Ltd. 67,000 268
Cathay Pacific Air 252,000 366
Cheung Kong Holdings Ltd. 168,000 684
China Light & Power 158,000 674
Hang Seng Bank 206,100 1,478
Hong Kong Aircraft 27,600 92
Hong Kong & China Gas 121,000 195
The Hong Kong and Shanghai Hotels, Ltd. 95,000 110
Hong Kong Telecommunications Ltd. 1,038,800 1,980
Hong Leong Properties 104,000 147
Hopewell Holdings 400,000 331
Hutchison Whampoa Ltd. 189,000 765
Hysan Development Co., Ltd. 79,000 157
Miramar Hotel & Investment 64,000 139
New World Development 179,000 478
Orient Press Group 200,000 94
Sun Hung Kai Properties Ltd. 157,000 937
Swire Pacific Ltd. A 107,000 667
Television Broadcasts Ltd. 45,000 180
Wharf Holdings Ltd. 159,000 536
Wing Lung Bank 17,000 122
-----------
GROUP TOTAL 10,440
-----------
- --------------------------------------------------------------------------------
INDONESIA (5.5%)
Astra International 6,000 11
Bank Bali (Foreign) 43,500 101
Bank International Indonesia (Foreign) 28,500 91
Barito Pacific Timber 78,500 124
Barito Pacific Timber (Foreign) 478,500 756
Duta Anggada Realty (Foreign) 63,333 43
Evershine Textiles (Foreign) 28,000 23
Gadjah Tunggal (Foreign) 75,000 102
Great River (Foreign) 40,000 36
Gudang Garm. 21,000 125
Indah Kiat Pulp & Paper 157,000 171
Indocement (Foreign) 214,500 617
Indocement Tunggal Perkasa 15,500 45
Jembo Cable Co. (Foreign) 13,500 21
Kabel Metal (Foreign) 31,500 43
Kalbe Farma (Foreign) 32,500 134
Lippo Bank (Foreign) 59,750 92
Mayora Indah (Foreign) 23,740 117
Pakuwon Jati (Foreign) 38,000 32
Perusahaan Gudang Garam 90,500 540
Polysindo Eka Perkasa 64,500 122
Polysindo Eka Perkasa (Foreign) 449,000 847
Sinar Mas Agro (Foreign) 36,500 46
Sucaco (Alien) 27,500 81
Unilever Indonesia (Foreign) 13,000 207
-----------
GROUP TOTAL 4,527
-----------
- --------------------------------------------------------------------------------
MALAYSIA (19.1%)
AMMB Holdings Bhd. 32,000 303
Amsteel Corp Bhd Myr. 114,000 173
Commerce Asset Holdings Bhd. 50,000 202
DCB Holdings Bhd. 114,999 256
Edaran Otomobil 34,000 258
Faber Merlin Malaysia 174,000 152
Golden Hope Plantations Bhd. 95,000 173
Golden Plus Holdings Bhd. 31,000 117
Highlands & Lowlands 60,000 105
Hong Leong Industries Bhd. 23,000 119
Hume Industries Bhd. 41,000 183
* Idris Hydraulic Bhd. 107,000 173
Industrial Oxygen Inc. Bhd. 106,000 127
Johan Holdings 81,000 77
Kedah Cement Holdings Bhd. 80,000 104
Kelanamas Industries Bhd. 22,000 44
Kemayan Oil Palm Bhd. 41,000 64
Kuala Lumpur Kepong Bhd. 82,000 218
Land and General Bhd. 43,000 178
Landmarks Bhd. 92,000 149
Leader Universal Holdings Bhd. 65,000 209
* Magnum Corp. Bhd. 167,000 299
Malayan Banking Bhd. 150,000 904
Malayan Cement Bhd. 50,000 86
Malayawata Steel 39,000 71
Malaysia Mining Corp. 70,000 128
Malaysian Airlines System Bhd. 102,000 305
Malaysian International Shipping Corp.
Bhd. (Foreign) 163,000 466
* Malaysian Resources Co. Bhd. 91,000 168
Metroplex Bhd. 159,000 142
Multi-Purpose Holdings Bhd. 138,000 191
Nestle Malaysia Bhd. 37,000 246
Oriental Holdings Bhd. 31,000 160
Perlis Plantations Bhd. 52,000 171
Perusahaan Otomobil NA 86,000 313
* Promet Bhd. 83,000 82
Public Bank Bhd. (Foreign) 17,000 34
Rashid Hussain Bhd. 42,000 110
Resorts World Bhd. 189,000 1,109
Rothmans of Pall Mall Bhd. 44,000 288
Shell Refining Co. Bhd. 45,000 143
Sime Darby Bhd. 498,000 1,140
Tan Chong Motor Holdings Bhd. 103,000 121
Technology Resources Industries Bhd. 88,000 281
Telekom Malaysian Bhd. 383,000 2,593
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Tenaga Nasional Bhd. 614,000 $ 2,427
UMW Holdings Bhd. 55,000 146
United Engineers Bhd. 84,000 414
-----------
GROUP TOTAL 15,922
-----------
- --------------------------------------------------------------------------------
MEXICO (11.8%)
Apasco 'A' 57,400 300
Cementos Mexicanos 19,000 98
Cementos Mexicanos SA Class A 84,687 432
Cementos Mexicanos SA Class B 71,000 383
Cifra 'B' SA 335,400 703
Cifra 'C' SA 114,000 222
El Puerto Liverpool 'L' 185,950 193
Empresa La Moderna 'A' 72,700 320
Empresas ICA 17,100 284
Fomento Economico Mexicano SA B 62,150 164
Grupo Continental 'A' 25,800 92
Grupo Financiero Banamex 'C' 59,000 176
Grupo Financiero Bancomer SA de C.V. Class C 171,050 101
Grupo Financiero Serfin 'L' 24,000 50
Grupo Industrial Alfa 'A' 35,550 346
* Grupo Industrial Bimbo Series 'A' 52,982 294
Grupo Mexico SA 'B' 115,529 416
* Grupo Sidek SA 61,406 139
Grupo Televisa-CPO 32,800 546
* Industrias Penoles 'A' 65,199 183
Kimberly Clark Class A 28,209 340
Sociedad Fomento Industrial B 43,907 228
Telefonos de Mexico 'A' 431,600 924
Telefonos de Mexico 'L' 1,229,550 2,622
* Tubos de Acero de Mexico 10,000 49
Vitro-CP 49,700 235
-----------
GROUP TOTAL 9,840
-----------
- --------------------------------------------------------------------------------
PHILIPPINES (3.3%)
Ayala Land Inc. 'B' 228,550 354
* Basic Petroleum and Minerals 'B' 66,438,900 35
* International Container Terminal 99,700 79
* Keppel Philippines Holdings 'B' 329,000 201
Manila Electric B 19,250 263
Manila Mining 3,720 21
Metro Bank 3,000 85
* Oriental Petroleum & Minerals 29,300,000 28
* Petron Corp. 197,000 173
Philippine Long Distance Telephone 12,050 668
* Philippine Offshore Drilling and Oil 70,129,910 25
Philippines National Bank 16,366 225
San Miguel Corp. B 118,700 619
-----------
GROUP TOTAL 2,776
-----------
- --------------------------------------------------------------------------------
PORTUGAL (1.2%)
* Banco Commercial Portugal 17,100 224
* Banco Espirito Santo e Commercial 11,000 213
* Banco Portugues Investentos 7,100 106
Cel-cat (cond. Elect.) 2,100 48
* Cia de Celulose 1,700 61
* Corticeira Amorin 2,800 47
Engil Soc Const. 3,300 47
* Estoril-sol SA 5,300 43
Soares Da Costa 3,600 68
Soares Da Costa Rfd. 1,080 20
* Sonae Investimentos 6,000 138
-----------
GROUP TOTAL 1,015
-----------
- --------------------------------------------------------------------------------
SINGAPORE (5.8%)
City Development 57,000 319
Cycle & Carriage 19,000 171
Development Bank of Singapore (Foreign) 66,000 680
Fraser & Neave Ltd. 23,000 239
Hotel Propertie 40,000 73
Keppel Corp. 40,000 341
Lum Chang 84,000 78
Overseas Chinese Banking Corp. (Foreign) 78,000 804
Parkway Holdings 28,000 69
Shangri-La Hotel 23,000 93
Singapore Airlines Ltd. (Foreign) 92,000 847
Singapore Press Holdings Ltd. (Foreign) 12,000 218
Straits Steamship Land Ltd. 45,000 155
United Overseas Bank (Foreign) 71,000 751
-----------
GROUP TOTAL 4,838
-----------
- --------------------------------------------------------------------------------
THAILAND (11.3%)
Asia Credit Co., Ltd.(Foreign) 14,800 131
Asia Securities Trading (Foreign) 19,400 60
Ayudhua Insurance Co. (Foreign) 7,200 66
Bangkok Bank Public Co. Ltd. (Foreign) 19,800 211
Bangkok Insurance (Foreign) 1,900 33
Bangkok Land Public Co. Ltd. (Foreign) 85,900 214
Bank of Ayudhya Ltd. (Foreign) 312,800 1,284
Banpu Public Co. Ltd. (Foreign) 7,400 162
* Castle Peak Garment (Foreign) 13,200 23
Cmic Finance and Securities Co., Inc. 9,000 87
Dhana Siam Finance & Securities Co., Ltd. 1,800 12
Dhana Siam Finance & Securities Co., Ltd.
(Foreign) 34,100 240
Finance One 12,700 197
* First City Investment Co. (Foreign) 57,600 69
</TABLE>
21
<PAGE> 24
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
GSS Electronics (Foreign) 7,400 $ 36
Industrial Finance Corp. of Thailand (Foreign) 88,800 189
International Broadcasting Corp. Ltd. (Foreign) 12,800 67
ITF Finance (Foreign) 29,100 29
* Krisda Mahanakorn Ltd. (Foreign) 33,600 68
Land & House Co., Ltd. (Foreign) 10,600 189
Modern Form 30,200 60
Multi Credit Corp. 3,600 67
National Finance & Securities Co., Ltd. 42,600 233
National Petrochemical (Foreign) 57,000 109
Nava Finance & Securities Co. Ltd. (Foreign) 15,600 98
* One Holding Public Co. Ltd. (Foreign) 30,000 84
Padaeng Industry (Foreign) 28,800 53
Phatra Thanakit (Foreign) 63,300 489
* Robinson Department Store (Foreign) 229,800 423
Shinawatra Computer & Communications Co.,
Ltd. (Foreign) 29,700 648
Siam Cement Co., Ltd. (Foreign) 18,800 1,126
Siam City Cement Co., Ltd. 2,600 44
Siam City Cement Co., Ltd. (A) 23,480 400
Siam Commercial Bank Ltd. 12,400 114
Thai Farmers Bank Ltd. (Foreign) 10,900 89
Thai-German Ceramic (Foreign) 17,400 48
* Thai Plastic Chemical (Foreign) 7,800 78
* TPI Polene Co., Ltd. 8,600 77
* TPI Polene Co., Ltd. (Foreign) 102,275 880
* Unicord Public Co Ltd. (Foreign) 105,600 26
Union Asia Finance Ltd. 13,600 82
* Univest Land Public (Foreign) 35,800 255
UTD Communications Ind. (Foreign) 34,800 453
* Wattachak Public Co., Ltd. (Foreign) 43,000 86
-----------
GROUP TOTAL 9,389
-----------
- --------------------------------------------------------------------------------
TURKEY (1.2%)
Adana Cimento A 74,400 36
Arcelik 491,801 128
Brisa Bridgestone Sabanci 304,000 51
Doktas 58,000 18
EGE Biracilik 105,400 67
Eregli Demir Ve Celik 1,850,250 169
* T Garanti Bankasi 643,000 164
* Kav 80,000 38
Sarkuysan Elektrolitik 62,000 36
Tanayong Public 7,600 17
Tofas-Turk Otomobil Fabrikas AS 209,400 180
Turkiye is Bankasi 627,000 116
-----------
GROUP TOTAL 1,020
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $86,801) 78,611
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.7%)
- --------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
-------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.90%, 1/3/95
(Cost $5,562) $5,562 5,562
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.0%)
(Cost $92,363) 84,173
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.0%)
- --------------------------------------------------------------------------------
Other Assets--Note B 803
Liabilities (1,599)
-----------
(796)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 7,666,885 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $83,377
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.87
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1994,
NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
------- -------
<S> <C> <C>
Paid in Capital $91,956 $11.99
Overdistributed Net Investment Income (68) (.01)
Accumulated Net Realized Losses--Note E (321) (.04)
Unrealized Depreciation of Investments--Note D (8,190) (1.07)
- --------------------------------------------------------------------------------
NET ASSETS $83,377 $10.87
- --------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING MARKETS
EUROPEAN PORTFOLIO PACIFIC PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended May 4 to
December 31, 1994 December 31, 1994 December 31, 1994
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . $ 18,247 $ 6,482 $ 522
Interest . . . . . . . . . . . . . . . . . . 549 192 108
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . 18,796 6,674 630
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . $ 73 $ 73 $15
Management and Administrative . . . . . . 1,497 1,343 51
Marketing and Distribution . . . . . . . . 135 1,705 132 1,548 3 69
-------- -------- --------
Taxes (other than income taxes) . . . . . . . 54 50 2
Custodian's Fees . . . . . . . . . . . . . . 358 389 90
Auditing Fees . . . . . . . . . . . . . . . . 9 9 7
Shareholders' Reports . . . . . . . . . . . . 59 61 4
Annual Meeting and Proxy Costs . . . . . . . 13 13 1
Directors' Fees and Expenses . . . . . . . . 3 3 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 2,201 2,073 173
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 16,595 4,601 457
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . 3,023 3,512 (21)
Futures Contracts . . . . . . . . . . . . . . (1,179) 208 --
Forward Currency Contracts . . . . . . . . . 815 (79) --
- ---------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . 2,659 3,641 (21)
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . (10,256) 52,956 (8,190)
Futures Contracts . . . . . . . . . . . . . . 106 21 --
Forward Currency Contracts . . . . . . . . . 150 170 --
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) . . (10,000) 53,147 (8,190)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
in Net Assets
Resulting from Operations . . . $ 9,254 $61,389 $(7,754)
=================================================================================================================================
</TABLE>
(1) Dividends are net of foreign withholding taxes of $2,885,000, $1,124,000,
and $102,000, respectively.
23
<PAGE> 26
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING
MARKETS
EUROPEAN PORTFOLIO PACIFIC PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended MAY 4 TO
DECEMBER 31, December 31, DECEMBER 31, December 31, DECEMBER 31,
1994 1993 1994 1993 1994
(000) (000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . $ 16,595 $ 8,240 $ 4,601 $ 2,833 $ 457
Realized Net Gain (Loss) . . . . . . . . . . . 2,659 776 3,641 2,508 (21)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . (10,000) 97,183 53,147 58,530 (8,190)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . 9,254 106,199 61,389 63,871 (7,754)
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . (16,520) (8,362) (4,872) (2,867) (525)
Realized Net Gain . . . . . . . . . . . . . . (3,560) -- (3,654) (2,387) (300)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . (20,080) (8,362) (8,526) (5,254) (825)
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 173,784 190,298 175,468 205,281 43,149
--In Lieu of Cash
Distributions . . . . . . . . . . 16,864 7,046 7,350 4,530 757
--Exchange . . . . . . . . . . . . 75,709 124,502 114,335 174,449 55,090
Redeemed --Regular . . . . . . . . . . . . . (78,527) (40,561) (79,042) (72,255) (1,563)
--Exchange . . . . . . . . . . . . (62,816) (34,640) (66,483) (84,944) (5,477)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . 125,014 246,645 151,628 227,061 91,956
- -------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . 114,188 344,482 204,491 285,678 83,377
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 600,845 256,363 492,615 206,937 --
- -------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . $ 715,033 $ 600,845 $ 697,106 $ 492,615 $ 83,377
=========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.28 $.17 $.08 $.06 $.07
Realized Net Gain . . . . . . . . . . . $.06 -- $.06 $.05 $.04
- -------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 20,475 29,683 25,165 36,353 8,198
Issued in Lieu of Cash
Distributions . . . . . . . . . . . . 1,443 584 656 452 70
Redeemed . . . . . . . . . . . . . . . . (11,707) (7,181) (12,797) (15,525) (601)
- -------------------------------------------------------------------------------------------------------------------------
10,211 23,086 13,024 21,280 7,667
- -------------------------------------------------------------------------------------------------------------------------
(3) Overdistributed Net
Investment Income . . . . . . . . . . $ (317) $ (392) $ (227) $ (33) $ (68)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EUROPEAN PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, May 1 to
------------------------------------------------------- Dec. 31,
For a Share Outstanding Throughout Each Period 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $11.88 $ 9.33 $9.92 $9.06 $10.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .28 .17 .25 .26 .16
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . (.06) 2.55 (.58) .86 (.94)
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . .22 2.72 (.33) 1.12 (.78)
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.28) (.17) (.26) (.26) (.16)
Distributions from Realized Capital Gains . . (.06) -- -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.34) (.17) (.26) (.26) (.16)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $11.76 $11.88 $9.33 $9.92 $ 9.06
=========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +1.88% +29.13% -3.32% +12.40% -7.23%**
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $715 $601 $256 $161 $96
Ratio of Expenses to Average Net Assets . . . . . .32% .32% .32% .33% .40%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . 2.41% 2.05% 3.05% 3.06% 3.68%*
Portfolio Turnover Rate . . . . . . . . . . . . . 6% 4% 1% 15%+ 3%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Subscription period for the Portfolio was May 1, 1990, to June 17, 1990,
during which time all assets were held in money market instruments.
Performance measurement begins on June 18, 1990.
+ Portfolio turnover rate for 1991, excluding in-kind redemptions, was 3%.
Note: Total return figures do not reflect the 1% transaction fee on purchases
or the annual account maintenance fee of $10.
25
<PAGE> 28
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
PACIFIC PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, May 1 to
------------------------------------------------------- Dec. 31,
For a Share Outstanding Throughout Each Period 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.13 $ 7.56 $9.42 $8.56 $10.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .08 .06 .05 .05 .05
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . 1.24 2.62 (1.76) .86 (1.44)
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . 1.32 2.68 (1.71) .91 (1.39)
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.08) (.06) (.05) (.05) (.05)
Distributions from Realized Capital Gains . . (.06) (.05) (.10) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.14) (.11) (.15) (.05) (.05)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $11.31 $10.13 $7.56 $9.42 $ 8.56
=========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +13.04% +35.46% -18.17% +10.65% -14.01%**
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $697 $493 $207 $84 $31
Ratio of Expenses to Average Net Assets . . . . . .32% .32% .32% .32% .35%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . .71% .75% .92% .70% 1.02%*
Portfolio Turnover Rate . . . . . . . . . . . . . 4% 7% 3% 21%+ 2%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Subscription period for the Portfolio was May 1, 1990, to June 17, 1990,
during which time all assets were held in money market instruments.
Performance measurement begins on June 18, 1990.
+ Portfolio turnover rate for 1991, excluding in-kind redemptions, was 1%.
Note: Total return figures do not reflect the 1% transaction fee on purchases
or the annual account maintenance fee of $10.
26
<PAGE> 29
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
For a Share Outstanding Throughout The Period MAY 4 TO DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $10.00
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .06
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . .92
------
TOTAL FROM INVESTMENT OPERATIONS . . . . . .98
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.07)
Distributions from Realized Capital Gains . . . . (.04)
------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.11)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $10.87
=========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +9.81%
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $83
Ratio of Expenses to Average Net Assets . . . . . . . .60%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 1.32%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 6%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
Note: Total return does not reflect the 2% transaction fee on purchases, the 1%
transaction fee on redemptions, or the annual account maintenance fee of $10.
27
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
Vanguard International Equity Index Fund is registered under the Investment
Company Act of 1940 as a diversified open-end investment company and consists
of the European, Pacific, and Emerging Markets Portfolios. The Portfolios
invest in foreign securities which involve investment risks not normally
associated with investing in securities of United States corporations.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities listed on foreign exchanges are valued at
the latest quoted sales prices. Securities not listed are valued at the
latest quoted bid prices. Temporary cash investments are valued at cost
which approximates market value. Foreign currency amounts are translated
into U.S. dollars at the bid prices of such currencies against U.S.
dollars last quoted by major banks as of 4:00 PM London time.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group of Investment Companies, transfers uninvested cash balances into a
Pooled Cash Account, the daily aggregate of which is invested in
repurchase agreements secured by U.S. Government obligations. Securities
pledged as collateral for repurchase agreements are held by the Fund's
custodian bank until maturity of each repurchase agreement. Provisions of
the agreement ensure that the market value of this collateral is
sufficient in the event of default; however, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
4. FUTURES AND FORWARD CURRENCY CONTRACTS: The Fund utilizes Eurotop futures
contracts (European Portfolio) and Japanese-Topix futures contracts
(Pacific Portfolio) to a limited extent, with the objectives of
maintaining full exposure to the underlying stock markets, enhancing
returns, maintaining liquidity, and minimizing transaction costs. The
Portfolios may purchase futures contracts to immediately position incoming
cash in the market, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. In the
event of redemptions, the Portfolios may pay departing shareholders from
their cash balances and reduce their futures positions accordingly.
Returns may be enhanced by purchasing futures contracts instead of the
underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated
with the use of futures contracts are imperfect correlation between
changes in market values of stocks contained in the indexes and the prices
of futures contracts, and the possibility of an illiquid market.
The European and Pacific Portfolios also enter into forward foreign
currency contracts, in order to maintain the same currency exposure as
their respective indexes. Risks associated with forward currency contracts
include movement in the value of the foreign currency relative to the U.S.
dollar and the ability of the counterparty to fulfill its obligations
under the contract.
Futures and forward currency contracts are valued based upon their quoted
daily settlement prices. Fluctuations in the values of such contracts are
recorded as unrealized appreciation (depreciation) until terminated, at
which time realized gains (losses) are recognized. Unrealized appreciation
(depreciation) related to open futures and forward currency contracts is
required to be treated as realized gain (loss) for Federal income tax
purposes.
28
<PAGE> 31
5. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities
sold. The Fund does not isolate that portion of the results of operations
arising from changes in foreign exchange rates on investments from the
fluctuations arising from changes in the market prices of securities held.
Such fluctuations are included in the realized gain (loss) or unrealized
appreciation (depreciation) on investment securities.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
B. The Vanguard Group, Inc. furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Directors. At December 31, 1994, the Fund had contributed capital of $231,000
to Vanguard (included in Other Assets), representing 1.2% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
C. During the period ended December 31, 1994, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
---------------------------
Portfolio Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
European $152,034 $38,605
- -------------------------------------------------------
Pacific 179,002 28,808
- -------------------------------------------------------
Emerging Markets 89,729 2,904
- -------------------------------------------------------
</TABLE>
D. At December 31, 1994, unrealized appreciation (depreciation) of investment
securities for Federal income tax purposes was:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
---------------------------------------
Net Unrealized
Appreciated Depreciated Appreciation
Portfolio Securities Securities (Depreciation)
- --------------------------------------------------------
<S> <C> <C> <C>
European $ 95,085 $(26,536) $68,549
- --------------------------------------------------------
Pacific 108,306 (16,307) 91,999
- --------------------------------------------------------
Emerging Markets 2,936 (11,126) (8,190)
- --------------------------------------------------------
</TABLE>
At December 31, 1994, the aggregate settlement value of open Eurotop futures
contracts (European Portfolio) and Japanese-Topix futures contracts (Pacific
Portfolio) expiring in March 1995, the related unrealized appreciation, and the
market value of securities deposited as initial margin for those contracts
were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
-----------------------------------------
Market Value
Aggregate of Securities
Settlement Unrealized Deposited as
Portfolio Value Appreciation Initial Margin
- --------------------------------------------------------
<S> <C> <C> <C>
European $12,226 $139 $ 494
- --------------------------------------------------------
Pacific 3,605 65 2,370
- --------------------------------------------------------
</TABLE>
Under the terms of open forward currency exchange contracts at December 31,
1994, the Portfolios were obligated to receive foreign currencies in exchange
for U.S. dollars as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
------------------------------
Portfolio/ Foreign U.S. Unrealized
Contract Date Currency Dollars Appreciation
- --------------------------------------------------------
<S> <C> <C> <C> <C>
European
Receive 3/22/95 ECU* 9,978 $12,229 $143
- --------------------------------------------------------
Pacific
Receive 3/16/95 Yen 353,150 3,575 24
- --------------------------------------------------------
</TABLE>
* ECU--European Currency Units.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (continued)
E. Capital gain distributions are determined on a tax basis and may differ
from realized capital gains for financial reporting purposes depending on the
timing of realization of gains. Capital gains required to be distributed in
December 1994 included gains realized through October 31, 1994. Subsequently,
the Emerging Markets Portfolio realized capital losses of $319,000 which are
available to offset future net capital gains.
F. The market values of securities on loan to broker/dealers at December 31,
1994, and the cash collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
--------------------------------
Market Value Cash
of Loaned Collateral
Portfolio Securities Received
- --------------------------------------------------------
<S> <C> <C>
European $ 98,452 $103,092
- --------------------------------------------------------
Pacific 147,996 157,585
- --------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
30
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard International Equity Index Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the European, Pacific, and Emerging Markets Portfolios of Vanguard
International Equity Index Fund (the "Fund") at December 31, 1994, the results
of each of their operations, the changes in each of their net assets and the
financial highlights for each of the respective periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial 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, which included confirmation of
securities by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 7, 1995
31
<PAGE> 34
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc Rorer, Inc.; Director of Sun
Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of American
Express Bank Ltd., The St. Paul Companies, Inc., and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., The Jeffrey Co., and Southern New England
Communications Company.
ALFRED M. RANKIN, Jr., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company,
Reliance Electric Company, and The Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
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 FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD VINCENT S. MCCORMACK
Senior Vice President Senior Vice President
Planning & Development Operations
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Institutional Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
32
<PAGE> 35
THE VANGUARD VOYAGE . . . STAYING THE COURSE
(continued from inside front cover)
* We set specific standards for each Fund's investment policies and
principles.
* We adhere to the highest standards of investment quality, consistent with
each Fund's objectives.
* We offer candor in our Fund descriptions (including full disclosure of
risk) to prospective investors, and in our description to
shareholders of each Fund's success (or, sometimes, lack of the
same).
These principles make at least as much sense today as they did in 1929, perhaps
even more. For we live in an era when many fund organizations have become
asset-gathering machines, capitalizing on past performance that is unrepeatable
and investment fads that today, as yesterday, will come and go. The new
marketing policy is too often "if investors want it, we'll sell it to them."
But our principle remains "if it makes sound investment sense, we'll offer it,
even if it takes years to attract substantial assets."
FOUNDING CORPORATE VALUES
With the founding of The Vanguard Group in 1974, a new concept of values was
brought to bear on mutual fund management. Unlike other fund organizations,
Vanguard alone is structured to serve only its Funds' shareholders. Vanguard's
corporate structure places not the fund management company, but the fund
shareholders, "at the top" of the organizational chart. Vanguard Fund
shareholders are literally the owners of the firm and are entitled to all of
the benefits that, at other fund firms, accrue to the owners of the management
company.
Because of this unique structure, Vanguard has become best known for its
low costs, which we believe are just as essential a consideration in investing
in mutual funds as risk potential and total return. We call this relationship
between risk, return, and cost the "eternal triangle" of mutual fund investing.
We take special pride in our position as (by far) the lowest-cost provider
of financial services in the world. Under our "no-load" offering structure,
shareholders begin their Vanguard investment program with $1,000 of assets
(not, say, $950) for each $1,000 investment. Then, under our "at-cost"
operating structure, each $1,000 is managed for only about $3 per year; our
competitors may charge three, four, or even five times that amount.
In all, Vanguard has distinguished itself by providing Funds with sound
and durable goals to investors with long-term time horizons, and doing so at
the fairest financial terms available. We believe that the unique Vanguard
structure "promotes a healthy and viable mutual fund complex within which each
Fund can better prosper; enables the Funds to realize substantial savings from
advisory fee reductions; promotes savings from economies of scale; and provides
the Funds with direct and conflict-free control over distribution functions."
We are not alone in this belief. Indeed, the quotation is taken verbatim from
the unanimous decision of the U.S. Securities and Exchange Commission when, in
1981, it approved our application for the structure under which we operate
today.
A CLOSING THOUGHT
We are proud of what Wellington Fund, the other Vanguard Funds, and The
Vanguard Group have come to represent, and we are grateful for the success and
growth with which we have been blessed. We are an industry leader, and, as a
competitor observed a few years ago, we are "the standard by which all fund
organizations are judged."
In battle terms, "the vanguard" is the first wave of troops or ships, and
Vanguard surely is in the first wave of the battle for investment survival. As
we look behind us, however, the "second wave" is not in sight. No fund
organization has followed our lead, leaving ours a lonely course. No matter. We
have an organization that places the interests of our Fund shareholders first.
We have Funds that shall endure the vicissitudes of the future. Come what may,
we intend to "stay the course," and we shall do our very best to continue to
deserve your confidence and loyalty. We hope that you will stay the
course with us.
<PAGE> 36
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: 1-(800) 662-7447 Shareholder Account Services: 1-(800) 662-2739
</TABLE>
This Report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus. All Funds in
the Vanguard Family are offered by prospectus only.
Q720-12/94
<PAGE> 37
EDGAR APPENDIX
This appendix describes the components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The front cover of the printed version of this report features the
Vanguard ship in the crashing sea.
A small picture of a rear view of the Vanguard ship crashing through
the sea appears at the top of the inside covers of the report.
A running head featuring a sextant appears on pages one through six.
A photograph of John C. Bogle appears at the lower-right of page one.
A line chart depicting Cumulative Performance of the U.S. Stocks
versus International Stocks, MSCI Emerging Market, Standard & Poors 500
Index, MSCI Europe (Free) Index, MSCI Pacific (Free) Index for the period
1990-1994 is at the top left of page two.
A pie chart depicting Composition of World Financial Markets for the
period of December 31, 1994, appears at the bottom of page four.
A line chart depicting Cumulative Performance for European Portfolio,
MSCI Europe (Free) Index, Average European Fund, Average Pacific Fund, MSCI
Pacific (Free) Index and Pacific Portfolio appears at the top of page six.
A running head featuring a coiled rope appears on page seven.
A running head featuring a log book and pen appears on page eight
through thirty-one.
A running head featuring a compass appears on page thirty-two.
At the bottom of the inside back cover appears a triangle with the
sides labeled "Risk," "Cost," and "Return."
A seagull in flight is featured at the top of the outside back cover of
the report.
