<PAGE> 1
[VANGUARD INTERNATIONAL EQUITY INDEX FUND LOGO]
ANNUAL REPORT 1995
<PAGE> 2
In this Annual Report, I am delighted to formally introduce you to John J.
Brennan, who, on January 31, 1996, will assume my responsibilities as Chief
Executive Officer of Vanguard International Equity Index Fund and the other
Funds in The Vanguard Group. Mr. Brennan will continue to serve as President of
the Funds, and I will continue to serve as Chairman of the Board.
As a shareholder of the Fund since its inception and as Chairman of
all the Vanguard Funds, I want to tell you that I am enthusiastic and confident
that Jack Brennan is exactly the right person to succeed me as Chief Executive
Officer. To use yet another Vanguard nautical metaphor, he will be the new
captain. He has the qualities of leadership, integrity, intelligence, and
vision that must continue to be Vanguard's hallmark as we move toward, and then
into, the 21st century.
I know that he has these qualities, because Jack Brennan and I have
been working closely together since he joined Vanguard in 1982. He is a
graduate of Dartmouth College and Harvard Business School. He started as
Assistant to the Chairman and, rising like a rocket, became President in 1989.
While, at age 41, he may seem young, he is in fact older than I was when I
became Chief Executive Officer of Vanguard's predecessor organization in 1967,
at the age of 38. Most important of all, Jack is completely dedicated to the
Vanguard character, and believes in our basic mission: serving solely the
shareholder, free of any conflict of interest. He believes in holding our costs
of operation to a minimum, and in retaining our position as the lowest-cost
provider of financial services in the world. He is a true competitor, who
shares Vanguard's dedication to providing highly competitive returns to our
investors relative to the returns provided by other mutual funds with
comparable objectives. He also believes in reporting our results to
shareholders with complete candor. He has the full support of the Board of
Directors and our crew, and is committed to staying the course we have set for
Vanguard. You need have no doubt that the essential elements that drew you to
Vanguard in the first place will remain intact.
[FIGURE 1]
As for me, I expect to fill a useful, if less demanding, role as
Chairman of the Board. I shall keep a watchful eye over the interests of our
shareholders, our crew, and our investment policies. I shall also speak out on
industry affairs, reminding all who will listen of the primacy of the interests
of mutual fund shareholders. I will be readily available to provide Jack
Brennan with whatever wisdom I may have acquired during my lifetime of
experience in this wonderful industry and in my service as captain of Vanguard
since I founded this unique organization more than two decades ago.
In short, I'll still be around. Thank you for all your confidence in
me in the past and, in advance, for your continued confidence in Vanguard under
Jack Brennan's leadership.
/s/ JOHN C. BOGLE
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 INDEX. THE PACIFIC
PORTFOLIO IS DESIGNED TO MATCH THE PERFORMANCE OF THE MSCI PACIFIC INDEX. THE
EMERGING MARKETS PORTFOLIO IS DESIGNED TO MATCH THE PERFORMANCE OF THE MSCI
SELECT EMERGING MARKETS INDEX. TOGETHER, THESE THREE PORTFOLIOS ARE DESIGNED TO
"TRACK" THE ENTIRE INTERNATIONAL EQUITY MARKET.
<PAGE> 3
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
On balance, 1995 turned out to be a good year for European markets and a poor
year for Japan and most emerging markets. Taken together, international equity
markets--as measured by the Morgan Stanley Capital International (MSCI) Europe,
Australia, and Far East (EAFE) Index--provided a total return of +11.6%.
However, this return paled by comparison with the +37.6% return on U.S.
equities.
In this environment, the three Portfolios of Vanguard International
Equity Index Fund--European, Pacific, and Emerging Markets--closely tracked
their respective target market indexes. What's more, each Portfolio outpaced
the average of its peer group. The table below compares our total returns
(capital change plus reinvested dividends) with the returns of the sectors of
the international markets we emulate.
<TABLE>
<CAPTION>
- --------------------------------------------------------
TOTAL RETURN
-------------------
YEAR ENDED
DECEMBER 31, 1995
- --------------------------------------------------------
<S> <C>
VANGUARD EUROPEAN PORTFOLIO +22.3%
MSCI EUROPE INDEX +22.1
- --------------------------------------------------------
VANGUARD PACIFIC PORTFOLIO + 2.7%
MSCI PACIFIC (FREE) INDEX + 2.9
- --------------------------------------------------------
VANGUARD EMERGING MARKETS PORTFOLIO + 0.6%
MSCI SELECT EMERGING MARKETS (FREE) INDEX + 0.2
- --------------------------------------------------------
</TABLE>
Detailed per share figures for each Portfolio, including net asset values,
income dividends, and any capital gains distributions, are presented in the
table that follows this letter.
WORLD FINANCIAL MARKETS IN 1995
To some degree, 1995 was "the world turned upside down." European equities,
having lagged in 1994, were the clear (and big) winners in 1995. Pacific
equities (dominated by the huge Japanese market), having led the international
markets in 1994, lagged substantially last year. And the emerging markets,
which set the world afire during 1993 with a single year return of +90%, only
to collapse during 1994, essentially held their own during the past year. If
you see a pattern in these points and counterpoints, you have completed phase
#1 in the lesson on international investing: different regions of the world
often march to the beat of a different drummer.
Phase #2 in the lesson is: understand that the dollar matters. The
strength (or weakness) of the U.S. dollar plays a major role in shaping the
returns earned by U.S. investors in foreign markets. A weak dollar enhances the
returns earned on foreign stocks when measured in U.S. dollar terms; a strong
dollar does the opposite. The table below shows the contrast between foreign
stock returns measured in local currency terms versus returns measured in U.S.
dollar terms.
Overall, you can see that a weak U.S. dollar added marginally to
international returns during 1995, but its impact was uneven. The dollar's
weakness relative to the franc and deutschmark more than doubled local currency
returns in France and Germany. In the United Kingdom, the dollar was about
neutral. In Japan, the dollar was very weak against the yen through July, then
rebounded sufficiently to provide only a small net change for the full year.
Even this modest negative impact nearly offset the small rise in
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1995
--------------------------------------------
LOCAL
CURRENCY CURRENCY U.S. DOLLAR
RETURN IMPACT RETURN
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPEAN INDEX +15.7% + 6.4% +22.1%
UNITED KINGDOM +22.2 - 0.9 +21.3
GERMANY + 8.0 + 9.0 +17.0
FRANCE + 5.2 + 9.6 +14.8
- -------------------------------------------------------------------------------
PACIFIC INDEX + 5.9% - 3.0% + 2.9%
JAPAN + 4.3 - 3.4 + 0.9
HONG KONG +22.5 + 0.1 +22.6
- -------------------------------------------------------------------------------
EMERGING MARKETS INDEX + 0.8% - 6.0% - 5.2%
BRAZIL - 7.7 -11.5 -19.2
MEXICO +22.5 -42.9 -20.4
MALAYSIA + 4.1 + 0.6 + 4.7
- -------------------------------------------------------------------------------
INTERNATIONAL INDEX* +10.1% + 1.5% +11.6%
- -------------------------------------------------------------------------------
</TABLE>
* Excludes emerging markets.
1
<PAGE> 4
[FIGURE 2]
the Tokyo market, such that U.S. investors received a return of just +0.9% for
the year.
Phase #3 of our lesson is: foreign markets are exposed not only to
independent economic and fundamental variables and independent movements
against the dollar but also to independent national risks. Foreign nations
differ greatly in their national cultures, forms of government, tax policies,
tolerance of inflation, and susceptibility to unexpected shocks. These factors
are magnified in the emerging markets but less crucial in the markets of the
industrialized nations. For whatever reason, the U.S. appears far less exposed
to these kinds of extraneous shocks.
The performance chart above illustrates some of these differences
among the European, Pacific basin, and emerging markets--as well as the U.S.
stock market--so far during the 1990s. Note particularly that: (1) the returns
on European equities most closely track those in the U.S.; (2) the boom in
emerging markets took place over a relatively short span of years; and (3) the
Pacific market (dominated by Japan) has yet to recover sufficiently to offset
its sharp decline during the first half of the six-year period. I should note
that the returns shown are dollar-denominated--taking into account the impact
of currency changes--and therefore reflect the returns achieved by U.S.
investors. On balance, the average annual rates of return so far during the
decade were: Europe +9.7%, Pacific -1.0%, emerging markets +17.6%, and the U.S.
+13.1%.
VANGUARD INTERNATIONAL EQUITY INDEX
FUND IN 1995
By all relative standards, 1995 was a truly superior year for each of the three
Portfolios of Vanguard International Equity Index Fund. We did the two things
we are supposed to do:
(1) Substantially match our target MSCI Indexes. In this task, we succeeded
admirably, actually exceeding the Index returns for the
emerging and European markets and coming within 0.2% of the return in the
Pacific market. There is no reason we should not consistently meet this
goal (net of our expense ratio), year after year.
(2) Outperform our peers with comparable regional diversification. We
successfully accomplished this goal also, with a positive margin of
fully +5.4 percentage points in Europe, +5.2 percentage points in the
emerging markets, and +2.8 percentage points in the Pacific Rim. These are,
2
<PAGE> 5
perhaps obviously, very large annual return advantages for the Vanguard
Portfolios. We do not expect to meet this standard with regularity, but we do
expect to meet it over time.
This table presents our 1995 returns versus these two benchmarks:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TOTAL RETURN
-------------------------------------------
YEAR ENDED
DECEMBER 31, 1995
-------------------------------------------
EUROPEAN PACIFIC EMERGING
MARKETS MARKETS MARKETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
VANGUARD PORTFOLIO +22.3% +2.7% +0.6%
MSCI MARKET INDEX +22.1 +2.9 +0.2
COMPETITIVE GROUP* +16.9 -0.1 -4.6
==============================================================================
INDEX MARGIN + 0.2% -0.2% +0.4%
- ------------------------------------------------------------------------------
COMPETITIVE MARGIN + 5.4% +2.8% +5.2%
- ------------------------------------------------------------------------------
</TABLE>
* The competitive group for our Pacific Portfolio comprises 50% in mutual funds
investing largely in Japan and 50% in Pacific Region funds.
The numbers on this scoreboard are extremely favorable to the indexing
concept.(1) That said, it would be an oversight not to note that, in general,
international investing during 1995 left a good deal to be desired when
compared to the near-record returns achieved by U.S. stocks. As noted at the
outset, the MSCI EAFE Index provided a total return of +11.6% in dollar terms,
while the return of the U.S. Standard & Poor's 500 Stock Index was +37.6%, its
highest return since 1958.
I should also note that some of our international fund competitors
have elected to partially "immunize" their portfolios against variations in the
U.S. dollar by "hedging" foreign currencies. The three Portfolios of Vanguard
International Equity Index Fund do not do so, for we believe that such a policy
is expensive and, over the long run, unlikely to add value to our returns.
(It's sort of like forecasting future interest rates: easier said than done!)
Further, the international indexes we track are completely unhedged, and our
objective is to emulate their returns, which are measured in U.S. dollars.
A LIFETIME REVIEW
Far more important than our results in any single year are the returns we
deliver over the long term. While I would hardly define "long term" as the
brief span of time during which our two original Portfolios have operated (five
and one-half years), that period is all we have to rely on. So, this table
presents the performance comparisons since each Portfolio's inception.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
ANNUAL TOTAL RETURN
SINCE INCEPTION*
------------------------------------------
EUROPEAN PACIFIC EMERGING
MARKETS MARKETS MARKETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
VANGUARD PORTFOLIO +8.9% +3.5% +4.2%
COMPETITIVE GROUP +5.0 +3.1 +2.6
- ------------------------------------------------------------------------------
VANGUARD ADVANTAGE +3.9% +0.4% +1.6%
- ------------------------------------------------------------------------------
</TABLE>
* Portfolio inceptions: European and Pacific Portfolios, June 1990; Emerging
Markets Portfolio, May 1994.
Note: Performance figures are adjusted for transaction and annual account
maintenance fees.
I should note that these performance comparisons are inevitably imprecise. The
most accurate one is in Europe, where the country profile of other
international funds is generally similar to our own (about one-third of assets
in the United Kingdom, and one-sixth each in Germany, France, Switzerland, and
the Netherlands). Second best is in the emerging markets (roughly one-half of
assets in the Pacific rim; one-third in Latin America).
The least valid comparison is in the Pacific basin, where Japanese
equities account for a giant 80% of our Portfolio (the same as their weight in
the index). Other Pacific mutual funds, however, given their concern for
diversification, hold, on average, about 30% of their assets in Japan. This
differential in the weighting of Japan means that the index return and the
returns of actively managed funds in the Pacific can be extreme. The
variability of performance works in our favor when stocks on the Tokyo bourse
are relatively strong--and vice-versa.
(continued)
- ------------------
(1) When we published our booklet The Triumph Of Indexing in early 1995, little
did we know that the year would work out so favorably for index funds.
3
<PAGE> 6
To use the proper mutual fund boilerplate parlance: "Past performance
is not predictive of future performance." And in terms of the absolute returns
reflected in the previous table, an investor could well respond, "I hope not."
But in terms of relative returns, our international index Portfolios have, over
their lifetimes, more than held their own when compared with our traditionally
managed peers.
THE WORLD EQUITY MARKETS
The charts below show the world's combined stock market capitalization at the
start of 1990 versus the close of 1995. The comparison reveals two dramatic
changes:
(1) The total market value of the world's stock markets has increased by more
than 40%--from $12 trillion to $17 trillion.
(2) The distribution of the world's market capitalization has shifted
dramatically away from Japan (falling from 38% to 22% of the
world's market value) and toward the U.S. (rising from 30% to 38%) during
the period.
The changing weights in the two countries are largely the result of markedly
different cumulative returns in the stock markets of the two nations, with a
- -19% decrease in the value of Japanese stocks for the period versus a +80%
increase in the value of the U.S. stock market (in both cases excluding
dividends). The objective of most equity investors is to achieve enhanced
capital growth while at the same time minimizing risk by diversifying among
nations in which returns can vary so widely. In the 1990s, of course, the
objective of enhanced capital growth has thus far yet to be reached.
In any event, 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 that most
investors commit to a limited exposure in foreign markets. A truly global
portfolio would include 38% U.S. equities and 62% international equities.
However, given the risks I've described throughout this letter, I would
recommend that U.S. investors seeking global diversification limit their
exposure to non-U.S. equities to no more than 20% of their total equity
position.
[FIGURE 3]
<TABLE>
<CAPTION>
Dollar Value
(trillions)
-----------------
Region 1989 1995
- --------------------------------------------------
<S> <C> <C>
U.S. $3.5 $6.3
JAPAN 4.4 3.6
OTHER PACIFIC 0.3 0.8
EUROPE 2.5 4.3
EMERGING MARKETS 0.6 1.2
OTHER 0.4 0.3
- --------------------------------------------------
TOTAL $ 11.7 $ 16.5
</TABLE>
SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL.
4
<PAGE> 7
IN SUMMARY
Perhaps surprisingly, many portfolio managers are recommending reduced exposure
to U.S. equities following their extraordinarily high 1995 returns and
increased exposure to international markets despite their generally lackluster
returns during the past year. While these "experts" too often provide advice
that simply extends the trends of the recent past, their conclusions today seem
to be based more on the premises that: (a) returns among markets tend to even
out over time; and (b) international equities are undervalued relative to U.S.
equities based on investment fundamentals such as earnings and dividends. This
time, they may be right.
One year ago, in my Chairman's letter to you in the Fund's 1994 Annual
Report, I noted:
"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."
That's a long quote of one's own words, but, with 1995's results now history,
the strategy of international indexing is equally valid--if not more so--today.
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.
While I recommend limited exposure to international equity markets, it is you
who must decide on the portfolio structure that best fits your long-term needs,
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. A year ago, I suggested that you, too, stay the course; I reiterate
that advice today.
Sincerely,
/s/ JOHN C. BOGLE
John C. Bogle
Chairman of the Board
January 25, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
------------------------------------------- DIVIDENDS PER SHARE FROM
PORTFOLIO DECEMBER 31, 1994 DECEMBER 31, 1995 NET INVESTMENT INCOME*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPEAN . . . . . . . . . . . . . . . $11.76 $14.02 $.32
PACIFIC . . . . . . . . . . . . . . . 11.31 11.50 .12
EMERGING MARKETS . . . . . . . . . . . 10.87 10.75 .18
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* In addition, a distribution from net realized capital gains was paid by the
European Portfolio ($.04 per share).
5
<PAGE> 8
CUMULATIVE PERFORMANCE
[FIGURE 4]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1995
- -------------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPEAN PORTFOLIO** +21.01% +11.52% +8.85%
AVERAGE EUROPEAN FUND +16.85 + 7.66 +4.98
MSCI EUROPE INDEX +22.08 +12.21 +9.62
</TABLE>
* Inception, June 18, 1990.
** Performance figures are adjusted for the 1% transaction fee on purchases and
the $10 annual account maintenance fee.
Note: Past performance is not predictive of future performance.
[FIGURE 5]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1995
- -------------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
PACIFIC PORTFOLIO** +1.67% +7.05% +3.48%
AVERAGE PACIFIC/JAPAN FUND -0.08 +7.33 +3.08
MSCI PACIFIC (FREE) INDEX +2.89 +7.51 +3.65
</TABLE>
* Inception, June 18, 1990.
** Performance figures are adjusted for the 1% transaction fee on purchases and
the $10 annual account maintenance fee.
Note: Past performance is not predictive of future performance.
6
<PAGE> 9
[FIGURE 6]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1995
- ---------------------------------------------------------------------
1 Year Since Inception*
- ---------------------------------------------------------------------
<S> <C> <C>
EMERGING MARKETS PORTFOLIO** -2.52% +4.15%
AVERAGE EMERGING MARKETS FUND -4.59 +2.61
MSCI SELECT EMERGING
MARKETS (FREE) INDEX +0.24 +2.38
</TABLE>
* Inception, May 4, 1994.
** Performance figures are adjusted for the 2% transaction fee on purchases,
the 1% transaction fee on redemptions, and the $10 annual account
maintenance fee.
Note: Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED DECEMBER 31, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
----------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
- --------- ---- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
EUROPEAN* 6/18/90 +21.01% +11.52% +8.85% +6.41% +2.44%
PACIFIC* 6/18/90 + 1.67 + 7.05 +3.48 +2.82 +0.66
EMERGING MARKETS** 5/4/94 - 2.52 -- +4.15 +2.80 +1.35
</TABLE>
* PERFORMANCE FIGURES ARE ADJUSTED FOR THE 1% TRANSACTION FEE ON PURCHASES AND
THE $10 ANNUAL ACCOUNT MAINTENANCE FEE.
** PERFORMANCE FIGURES ARE ADJUSTED FOR THE 2% TRANSACTION FEE ON PURCHASES,
THE 1% TRANSACTION FEE ON REDEMPTIONS, AND THE $10 ANNUAL ACCOUNT
MAINTENANCE FEE.
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
7
<PAGE> 10
THE LONG-TERM CASE FOR INTERNATIONAL INDEXING
When Vanguard pioneered the first series of international index portfolios in
mid-1990, the public and our peers' reaction was sort of "ho-hum."
International index funds were said to be destined to mediocrity at best,
since, to paraphrase the criticism, "international equity markets are so
complex and inefficient that skilled portfolio managers can, with relative
ease, not only identify the best regions of the world in which to invest, but
select the most undervalued individual stocks in each nation."
That argument is, logically speaking, absurd. It ignores the fact that
if one of the so-called skilled investors earns, say, a return that is 3%
greater than the market, there must inevitably be another investor that earns
3% less (assuming an equal amount of assets). It is also a dubious proposition,
given the Herculean challenge of identifying the skilled managers in advance.
A LARGE ADVANTAGE IN THE U.S.
This lesson has been driven home with considerable force in the U.S., where the
Standard & Poor's 500 Stock Index has provided annual returns that are, on
average, higher than those achieved by about three out of every four
professional mutual fund portfolio managers. Over the past decade, the Index
has outperformed the average U.S. equity fund by over 2% annually--+14.9%
versus +12.5%. This difference strongly suggests that mutual fund managers as
a group provided the same gross returns as the Index, but carried a cost
handicap of about 2%.
This 2% annual cost is composed of an average advisory fee and other
fund expenses equal to 1.3% of assets and portfolio turnover costs that may run
to approximately 0.7% of assets. Even though transaction costs are relatively
low in the U.S., the typical equity fund has an annual turnover rate of 78% of
portfolio net assets. (I should note that fund sales charges are ignored in
this cost comparison. For a typical "load" fund, the added cost would be about
1% per year, if amortized over five years. This addition would raise the annual
cost to fully 3% per year--a truly staggering handicap to overcome, even among
the very best managers.)
AN EVEN LARGER ADVANTAGE AROUND
THE GLOBE
Indexing provides financial advantages that should be even greater in
international equity markets than in the United States. First, average expenses
are considerably greater in international mutual funds, running about 1.6% (a
cost increase of 0.3% versus U.S. funds). Second, although portfolio turnover
is lower among international funds (about 57% per year, still a very high
figure), transaction costs are considerably larger in international markets.
Liquidity costs, trading costs, stamp taxes, and custodian fees are all higher
in offshore markets and may result in transaction costs that alone total as
much as 2% of assets per year (maybe even more). Thus, the annual handicap to
be overcome, in our judgment, approaches 4%, nearly double the 2% handicap
faced by U.S. equity managers. (Again, if load funds are considered, we can
assume that a total annual cost of about 5% must be overcome.)
International index funds must incur the same types of costs, but they
should be of far lower dimension. Specifically, the low-cost Vanguard
International Equity Index Fund Portfolios pay no investment advisory fees and,
partially because of that fact, incur expense ratios that are 75% below
competitive norms. Our European and Pacific Portfolios incurred expenses equal
to only 0.35% in 1995; for our Emerging Markets Portfolio, the expense ratio
was 0.60%.
Even more important is the fact that, as index Portfolios, our annual
portfolio turnover is minimal, averaging about 2% in 1995--fully 96% below the
average turnover ratio of our peers. As a result, we estimate that our
transaction costs run about 0.5% of assets per year, most of which
8
<PAGE> 11
have been covered by the transaction fees paid by shareholders when they join
the Fund. Thereafter, shareholders should incur little or no such costs.
Combined, our operating and transaction costs average less than 1%
annually, compared to nearly 4% for our actively managed competitors. Over an
extended period of time, our international index portfolios seek to achieve a
major portion of this natural advantage of over 3.0% in annual return--a truly
substantial margin.
So far, our results, as shown in the table on page 3, have indicated
that this ambitious goal is not unrealistic. During the relatively brief five
and one-half year period in which our European and Pacific Portfolios have
operated, and in the extremely brief period of operations for our Emerging
Markets Portfolio, we can preliminarily conclude, I think, that our actual
returns in the real world have verified our theory that costs make the
difference. As for the long-run, of course, only time will tell.
COUNTRY DIVERSIFICATION
Under academic theory, a fully diversified investor seeking the maximum
risk-adjusted return should emulate the country weights shown in the pie charts
on page 4. 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 United States.
What is more, theory seems to ignore the clear fact that the
competitive returns in international markets--at least during the past
decade--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 similar to those in the U.S. But
these returns were far smaller when measured in local currencies. The following
table presents the comparisons.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
TOTAL RETURN
-----------------------
TEN YEARS ENDED
DECEMBER 31, 1995
-----------------------
ANNUAL
GLOBAL MARKETS RATE CUMULATIVE
- --------------------------------------------------------------------
<S> <C> <C>
UNITED STATES +14.9% +300%
- --------------------------------------------------------------------
INTERNATIONAL--DOLLAR BASED +14.0% +269%
INTERNATIONAL--LOCAL CURRENCY + 9.0 +136
- --------------------------------------------------------------------
</TABLE>
Note: For U.S. stocks, the Standard & Poor's 500 Stock Index; for international
stocks, the MSCI EAFE Index.
As you can see, when measured in dollar terms, the annual rates of return from
international markets almost matched the return of the U.S. stock market
(+14.0% versus +14.9%). But, measured in local currency terms (+9.0% overall),
foreign markets have provided returns that can be described as mundane at best.
As a result of these annual rates of returns, the cumulative return
differentials have been monumental, with international markets providing a
decade-long return of but +136% measured in local terms and +269% in dollar
terms, compared to a return of +300% for the U.S. market. You should recognize
that these returns are not predictive of future returns. Indeed, future returns
will depend not only on the economic performance of each nation but also on
whether returns are enhanced by continued weakness in the dollar or eroded by
the dollar's strength.
"RISK ADJUSTED" RETURNS
According to theory, the value of international diversification is not that it
necessarily increases returns but that it increases risk-adjusted returns. That
is to say that, to some degree at least, stock markets of different nations
fluctuate independently of one another. As a result, the price volatility of an
international investor's portfolio should be reduced. Leaving aside the
speculative nature of forecasting both returns and future volatility,
9
<PAGE> 12
the question posed is this: Are relatively small differences in volatility
important enough to justify a large difference in return (which, in fairness,
may be positive for international markets in the years ahead)? It is a question
that cannot be answered in advance.
Nonetheless, the evidence does not confirm this seemingly rational
theory. Indeed, over the past 15 years, a 100% U.S. portfolio provided both
slightly higher returns and slightly lower risks* to U.S. investors than the
internationally diversified MSCI World Index. And, so far during the 1990s, the
100% U.S. portfolio provided not only lower risks but substantially higher
returns.
- ----------
* As measured by "standard deviation."
10
<PAGE> 13
TOTAL INVESTMENT RETURN TABLES
The following tables illustrate the results of single-share investments in the
VANGUARD INTERNATIONAL EQUITY INDEX FUND-EUROPEAN and PACIFIC PORTFOLIOS since
inception through December 31, 1995. During the period illustrated, stock
prices fluctuated widely; these results should not be considered a
representation of the dividend income or capital gain or loss that may be
realized from an investment made in the Portfolios today.
<TABLE>
<CAPTION>
EUROPEAN PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- ---------------------------------------------------------------------------------------------------------------------------------
MSCI Europe
European Portfolio Index
Value With Income ---------------------------------- ------------
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (6/90) $ 9.92 -- -- $ 9.92 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1990 9.06 -- $.14 9.20 - 9.6% +1.4% - 8.2% - 6.5%
- ---------------------------------------------------------------------------------------------------------------------------------
1991 9.92 -- .26 10.34 + 8.4 +2.8 +11.2 +14.1
- ---------------------------------------------------------------------------------------------------------------------------------
1992 9.33 -- .26 10.00 - 6.9 +2.5 - 4.4 - 3.9
- ---------------------------------------------------------------------------------------------------------------------------------
1993 11.88 -- .17 12.91 +26.1 +1.7 +27.8 +29.3
- ---------------------------------------------------------------------------------------------------------------------------------
1994 11.76 $.06 .28 13.15 - 1.5 +2.3 + 0.8 + 2.8
- ---------------------------------------------------------------------------------------------------------------------------------
1995 14.02 .04 .32 16.09 +18.4 +2.6 +21.0 +22.1
- ---------------------------------------------------------------------------------------------------------------------------------
LIFETIME +59.9% +66.3%
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +8.9% +9.6%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PACIFIC PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- ---------------------------------------------------------------------------------------------------------------------------------
MSCI Pacific
Pacific Portfolio (Free) Index
Value with Income ---------------------------------- ------------
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (6/90) $ 9.99 -- -- $ 9.99 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1990 8.56 -- $.03 8.59 -15.2% +0.3% -14.9% -15.1%
- ---------------------------------------------------------------------------------------------------------------------------------
1991 9.42 -- .05 9.51 + 8.9 +0.6 + 9.5 +11.5
- ---------------------------------------------------------------------------------------------------------------------------------
1992 7.56 $.10 .05 7.78 -19.5 +0.4 -19.1 -18.5
- ---------------------------------------------------------------------------------------------------------------------------------
1993 10.13 .05 .06 10.54 +33.3 +0.8 +34.1 +36.1
- ---------------------------------------------------------------------------------------------------------------------------------
1994 11.31 .06 .08 11.91 +11.1 +0.8 +11.9 +12.8
- ---------------------------------------------------------------------------------------------------------------------------------
1995 11.50 -- .12 12.24 + 0.7 +1.0 + 1.7 + 2.9
- ---------------------------------------------------------------------------------------------------------------------------------
LIFETIME +20.8% +21.9%
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +3.5% +3.6%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes reinvestment of income dividends and any capital gains distributions
for both the Portfolio and the Index. Portfolio performance adjusted for the
1% transaction fee on purchases and the $10 annual account maintenance fee.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
11
<PAGE> 14
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS
December 31, 1995
<TABLE>
<CAPTION>
Market
Value
EUROPEAN PORTFOLIO Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.3%)
- -------------------------------------------------------------------------------
AUSTRIA (.6%)
* Austrian Airlines 2,378 $ 396
Bank Austria AG 1,460 58
Bank Austria AG Pfd. 950 45
Bank Austria AG (Ptg. Ctf.) 15,862 1,282
BWT (Benck Wassertech) 610 63
Creditanstalt Bank AG 12,540 696
Creditanstalt Bank AG Pfd. 9,738 501
Ea-Generali AG 1,661 498
Ea-Generali AG Pfd. 214 34
Lenzing 750 63
Oest Brau-Beteiligungs AG 1,750 80
Oest Elektrizitaetswirts Class A 15,405 927
OMV AG 11,307 982
Radex-Heraklith 7,067 214
* Steyr-Daimler-Puch 1,944 33
* Universale-Bau 1,000 53
Wienerberger Baustoffindustrie AG 1,310 260
----------
GROUP TOTAL 6,185
----------
- -------------------------------------------------------------------------------
BELGIUM (2.3%)
Bekaert NPV 1,537 1,266
Cimenteries NPV 1,060 430
Cimenteries VVPR NPV 1,050 421
Delhaize Freres 20,028 830
Electrabel NPV 19,632 4,670
Electrabel VVPR NPV 5,500 1,312
Fortis AG NPV 17,097 2,080
Generale de Banque NPV 4,560 1,615
Gevaert Photo Products NPV 15,900 978
Glaverbel 2,859 306
Group Bruxelles Lambert SA 5,950 826
Kredietbank NPV 5,938 1,624
Kredietbank VVPR NPV 1,000 273
Petrofina SA 6,760 2,070
Royale Belge NPV 7,800 1,558
Royale Belge VVPR NPV 510 102
Solvay et Cie. SA 3,025 1,634
Tractebel NPV 2,050 846
Tractebel VVPR NPV 120 49
* Union Miniere SA 8,168 547
----------
GROUP TOTAL 23,437
----------
- -------------------------------------------------------------------------------
DENMARK (1.5%)
Aarhus Oliefabrik A 1,620 94
Aarhus Oliefabrik B 840 47
Carlsberg Series A 8,875 496
Carlsberg Series B Pfd. 8,449 473
Danisco 15,135 732
Danske Luftfartselsk AB 1,120 98
Den Danske Bank AF 23,200 1,603
D/S 1912 B 70 1,339
D/S Svendborg B 50 1,344
* East Asiatic Co. 3,600 72
FLS Industries Class B 3,548 275
GN Store Nord 1,150 92
ISS (International Service Systems)
Series B 15,619 352
Korn-Og Foderstof 2,450 106
* J Lauritzen Holding B 1,065 117
NKT (Nordisk Kabel) 14,200 666
Novo-Nordisk Class B 7,166 983
Radiometer Class B 6,508 467
Royal Copenhagen A 100 9
Sophus Berendsen Class A 3,483 392
Sophus Berendsen Class B 6,200 699
Superfos 8,330 729
Teledanmark B 56,695 3,100
Unidanmark Class A 25,677 1,274
----------
GROUP TOTAL 15,559
----------
- -------------------------------------------------------------------------------
FINLAND (1.1%)
Amer Group A 8,720 136
Cultor Oy - Series 1 2,750 114
Cultor Oy - Series 2 4,420 183
Instrumentarium Class A 1,000 26
Instrumentarium Class B 3,140 81
* Kansallis Osake 1,202,000 997
Kesko 21,370 266
Kone Class B 1,428 119
Kymmene Oy 28,354 751
Metra Oy A 3,170 131
Metra Oy B 17,128 710
Nokia AB A 50,600 1,958
Nokia AB K 63,200 2,503
Outokumpu A 46,450 738
Pohjola A 21,688 275
Pohjola B 6,300 81
Repola Oy 66,808 1,262
Sampo A 7,601 408
Stockmann AB Oy A 1,200 69
Stockmann AB Oy B 1,380 72
----------
GROUP TOTAL 10,880
----------
- -------------------------------------------------------------------------------
FRANCE (12.5%)
Accor 13,318 1,727
Air Liquide 18,465 3,062
Alcatel Alsthom 52,037 4,492
AXA 62,775 4,236
Banque Nationale de Paris 73,368 3,314
BIC 8,300 845
Bongrain 160 90
Bouygues 9,132 921
BSN-Gervais Danone 30,878 5,102
Canal Plus SA 7,500 1,408
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Carrefour 10,880 $ 6,610
Casino Guichard Perrachon 6,000 136
Casino Guichard Perrachon Pfd. 14,600 424
Chargeurs SA 4,031 804
Cie. Generale des Eaux 43,133 4,312
Club Mediterranee 4,260 341
CMB Packaging 27,905 1,278
Compagnie Bancaire 11,660 1,307
Compagnie Financiere de Suez 55,656 2,299
Compagnie UAP SA 127,400 3,332
Comptoirs Modernes 2,392 778
Credit Foncier de France 14,073 204
Credit Nationale 4,222 311
DMC (Dollfus-Mieg et Cie.) 5,900 241
Docks de France 3,630 552
Ecco 4,396 666
Eridania Beghin-Say 7,785 1,337
Essilor International 4,585 878
Eurafrance 2,249 756
Europe 1 1,577 319
Finextel 21,600 314
Geophysique 2,500 82
GTM Entrepose 3,800 267
Havas 21,599 1,716
Imetal 6,932 829
Lafarge 41,908 2,704
Lagardere Groupe 33,620 619
Legrande (Bearer) 8,390 1,297
L'Oreal 24,685 6,617
LVMH Moet-Hennessy 36,175 7,545
Lyonnaise des Eaux 24,647 2,376
Michelin Series B (Registered) 39,560 1,580
Moulinex 14,520 200
Nord Est SA 27,800 645
Paribas A 52,543 2,885
Parisienne de Reescompte 8,002 654
Pernod-Ricard 20,313 1,156
Peugeot SA 16,473 2,176
Pinault-Printemps SA 8,492 1,696
Primagaz Cie. 6,575 523
Promodes 9,615 2,263
Radiotechnique 792 44
Rhone-Poulenc A 96,692 2,074
Sagem 2,040 1,147
Saint-Gobain 28,210 3,126
Saint-Louis 1,824 485
Salomon 970 565
Sanofi 34,894 2,240
Schneider SA 60,130 2,058
S.E.F.I.M.E.G. 3,350 223
Seita 18,820 683
Sidel SA 2,487 776
Simco 4,328 412
Skis Rossignol 288 79
Societe Centrale des Assurance
Generales de France 26,854 3,322
Societe National Elf Aquitaine 104,538 7,712
Societe Unibail 2,180 226
Sodexho 1,550 456
Sommer Allibert 2,310 613
Technip 5,800 400
Thomson-C.S.F. 37,110 828
Total SA B 100,392 6,784
Union Immobilier 320 28
Usinor Sacilor 78,700 1,032
Valeo SA 28,100 1,303
----------
GROUP TOTAL 126,842
----------
- -------------------------------------------------------------------------------
GERMANY (13.4%)
Aachener & Muenchener
Beteiligungs (Bearer) 444 282
Aachener & Muenchener
Beteiligungs (Registered) 1,250 943
AGIV AG Industrie & Verkehr 18,870 398
Allianz AG Holding 8,787 17,165
Asko Deutsche Kaufhaus AG 1,700 891
Asko Deutsche Kaufhaus AG VZA 110 50
BASF AG 24,700 5,514
Bayer AG 23,800 6,294
Bayerische Hypotheken und
Wechsel Bank 87,890 2,220
Bayerische Vereinsbank AG 75,530 2,248
Beiersdorf AG 1,500 1,032
Bilfinger & Berger 912 346
Brau & Brunnen AG 1,992 302
* Bremer Vulk Schiff 6,033 168
Colonia Konzern AG 1,373 1,151
Colonia Konzern VZA 1,050 682
Continental AG 22,000 307
Daimler Benz AG 20,394 10,287
Degussa AG 1,692 565
Deutsche Bank AG 182,100 8,648
* Didier Werke 760 63
DLW 340 52
Douglas Holding AG 9,620 340
Dresdner Bank AG 143,110 3,829
Dyckerhoff AG 650 250
Dyckerhoff VZA 990 213
Escada STA 470 85
Escada VZA 840 147
* Fag Kugelfischer STA 1,850 239
* Fag Kugelfischer VZA 800 100
Heidelberger Zement 1,650 1,038
Herlitz STA 1,000 166
Herlitz VZA 1,815 292
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
EUROPEAN Value
PORTFOLIO (continued) Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Hochtief 3,955 $ 1,691
Holsten-Brauerei 337 77
Industrie-Werke
Karlsruheaugsburg AG 450 82
Karstadt AG 2,300 940
Kaufhof AG 2,090 638
Kaufhof AG Pfd. 1,250 306
* Klockner-Humbolt-Deutz 22,500 138
Linde AG 1,404 821
* Linotype AG 950 98
Lufthansa 13,737 1,896
Lufthansa VZA 700 91
Man AG 2,625 712
Man Vorzug AG 2,050 443
Mannesmann AG 15,029 4,795
Munchener Ruckversicherung STA 120 218
Munchener Ruckversicherung VZA 2,870 6,256
Preussag AG 5,680 1,591
* PWA Papierwerke Waldhof 3,300 491
Rheinisch-Westfaelisches
Elektrizitaetswerk AG 19,422 7,056
Rheinisch-Westfaelisches
Elektrizitaetswerk AG Pfd. 8,368 2,339
Rheinmetall 1,900 272
Rheinmetall VZA 750 85
Salamander 430 68
Sap AG 28,700 4,462
Sap AG Pfd. 15,750 2,388
Schering AG 24,950 1,657
Siemens AG 22,385 12,277
Strabag Bau AG 1,893 338
Strabag Bau AG Pfd. 143 24
* Thyssen AG 10,366 1,887
Veba AG 207,581 8,832
Viag AG 8,856 3,558
Volkswagen AG 9,800 3,284
Volkswagen AG Pfd. 1,850 449
----------
GROUP TOTAL 136,567
----------
- -------------------------------------------------------------------------------
HONG KONG (.3%)
HSBC Holdings PLC 220,000 3,329
----------
- -------------------------------------------------------------------------------
IRELAND (.5%)
Allied Irish Banks 179,900 975
Crean, James Ltd. 27,780 87
CRH PLC 101,800 767
FYFFES PLC 56,930 100
Greencore PLC 25,000 218
Independent News 175,263 1,110
Irish Life PLC 93,700 356
Jefferson Smurfit Group 364,400 870
Kerry Group A 21,160 166
Waterford Wedgewood 374,680 360
Woodchester Holdings 9,100 25
----------
GROUP TOTAL 5,034
----------
- -------------------------------------------------------------------------------
ITALY (4.3%)
Assicurazioni Generali 338,678 8,208
Banca Commerciale Italiana Risp. 495,000 1,058
Banco Ambrosiano Veneto 131,255 358
Banco Ambrosiano Veneto Risp. 65,920 83
Benetton Group SPA 54,000 643
Burgo (Cartiere) SPA 91,100 455
Cementir SPA 96,680 77
Credito Italiano 1,077,380 1,256
Danieli & Co. 11,090 70
Danieli & Co. Risp. 9,000 24
Edison SPA 233,000 1,005
* Falck, Accia & Ferr 81,000 180
Fiat SPA 1,228,500 3,996
Fiat SPA Pfd. 475,000 868
Fiat SPA Risp. 255,700 452
Fidis 132,500 254
Franco Tosi SPA 24,100 143
* Impregilo SPA 213,000 180
Istituto Bancario San Paolo SPA 246,000 1,458
Istituto Mobiliare Italiano 220,000 1,387
Istituto Naz Delle Assicurazioni 2,131,500 2,828
Italcementi 46,057 276
Italcementi Risp. 46,235 114
Italgas 119,750 365
La Previdente 8,000 53
Lane Marzotto 11,800 71
Lane Marzotto Risp. 5,000 34
Magnetti Marelli SPA 263,500 323
Mediobanca Banca Di
Credito Finanziaria 207,000 1,435
* Montedison Risp. 260,000 154
* Montedison SPA 1,729,274 1,160
* Olivetti & Cie. SPA 686,250 551
Parmalat Finanziaria SPA 136,000 118
* Pirelli SPA 314,000 406
* Pirelli SPA Risp. 46,300 48
RAS 101,550 1,155
RAS Risp. 36,000 221
Rinascente 127,062 770
Rinascente Priv. 15,000 39
Rinascente Risp. 6,000 17
* Saffa 21,790 57
SAI 53,730 550
SAI Risp. 18,000 75
Saipem 131,500 303
Sasib 14,960 66
Sasib Risp. 24,000 59
Sirti SPA 92,690 521
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
* SME Meridonale Finanziaria 26,747 $ 55
* SNIA Bpd 665,000 555
SNIA Bpd Risp. 29,411 24
Telecom Italia Mobile SPA 2,477,166 4,364
Telecom Italia Mobile SPA Risp. 576,944 607
Telecom Italia Risp. 576,944 706
Telecom Italia SPA 2,477,166 3,857
----------
GROUP TOTAL 44,092
----------
- --------------------------------------------------------------------------------
NETHERLANDS (8.1%)
ABN AMRO Holding NV 121,152 5,525
Ahold NV 44,291 1,810
Akzo NV 24,000 2,779
Elsevier NV 240,190 3,206
Getronics NV 13,579 635
Heineken NV 17,276 3,068
Hollandsche Beton Groep NV 1,380 211
Hoogovens & Staalf 17,549 588
IHC Caland NV 4,660 157
Internationale Nederlanden Groep 116,849 7,814
KLM Royal Dutch Airlines 32,247 1,135
Koninklijke KNP BT NV 41,914 1,077
Koninklijke PTT Nederland NV 164,040 5,966
Nedlloyd Group NV 15,351 349
Oce Van Der Grinten 10,607 646
Philips Electronics NV
(non-voting) 134,305 4,859
Royal Dutch Petroleum 215,789 30,180
Royal Pakhoed Holdings 15,152 417
Stad Rotterdam 14,180 423
Stork VMF 14,772 367
Unilever NV 64,477 9,070
Wolters Kluwer 16,983 1,608
----------
GROUP TOTAL 81,890
----------
- -------------------------------------------------------------------------------
NORWAY (.9%)
Aker AS A 18,723 249
Aker AS B 3,920 48
Bergesen Series A 24,616 491
Bergesen Series B 16,236 319
Dyno Industrier AS 21,896 513
Elkem A 42,320 482
Hafslund Nycomed AS A 16,771 438
Hafslund Nycomed AS B 16,531 420
Kvaerner Industries AS A 9,300 330
Kvaerner Industries AS B 3,800 128
Lief Hoegh 9,000 134
* NCL Holdings AS 105,500 83
Norsk Hydro 66,294 2,791
Norske Skog Industries A 9,530 281
Norske Skog Industries B 3,140 87
Orkla AS A 22,100 1,100
Orkla AS B 2,580 123
* Uni-Storebrand AS A 109,300 605
* Unitor 2,500 34
----------
GROUP TOTAL 8,656
----------
- -------------------------------------------------------------------------------
SPAIN (3.4%)
Acerinox SA 7,816 790
* Aguila (El) SA 33,558 206
Alba 7,265 447
Argentaria SA 46,900 1,933
Autopista Acesa 46,727 532
Banco Bilbao Vizcaya 65,221 2,349
Banco Central Hispanoamericano 9,402 191
Banco Santander 61,927 3,109
Dragados y Construcciones SA 34,796 457
Ebro Agricolas 28,444 298
Empresa Nacional de
Electricidad SA 102,609 5,810
ENCE-Empresa Nacional
Celulosa SA 11,200 182
Ercros SA 80,232 57
Ercros SA Rights Exp. 1/5/96 80,232 1
Fomento de Construciones
y Contra 7,208 553
Gas Natural 16,552 2,579
Iberdrola SA 251,863 2,304
* Inmobiliaria Metropolitana
Vasca Central SA 10,509 346
Inmobiliaria Ubbis 18,280 86
Mapfre 16,521 925
Portland Valderrivas 3,848 243
Prosegur Compania 14,930 370
Repsol SA 98,937 3,242
Sarrio Papelera 36,340 139
Tabacalera SA 20,206 766
Telefonica de Espana 355,568 4,924
Union Electrica Fenosa 27,737 167
Uralita 67,964 616
Vallehermoso SA 30,198 561
Viscofan Envoltura 21,160 251
Zardoya Otis SA 2,206 241
----------
GROUP TOTAL 34,675
----------
- -------------------------------------------------------------------------------
SWEDEN (4.0%)
Aga AB Series A 89,150 1,231
Aga AB Series B 35,090 484
Asea AB Series A Free 43,168 4,201
Asea AB Series B Free 9,500 926
Astra AB Series A 202,600 8,101
Astra AB Series B 38,830 1,541
Atlas Copco AB Series A 67,000 1,031
Atlas Copco AB Series B 8,690 131
Autoliv AB 10,100 591
Electrolux Series B 29,900 1,229
</TABLE>
15
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
EUROPEAN Value
PORTFOLIO (continued) Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Esselte AB Series A 5,660 $ 85
Esselte AB Series B 5,790 87
Euroc Industries Series A 6,880 184
Hennes & Mauritz Series B 11,888 664
LM Ericsson Telephone AB 379,300 7,440
SCA Svenska Cell Series B Free 61,646 958
S E Banken Series A 215,153 1,786
Securitas Series B 12,770 607
Skandia 33,072 896
Skanska Series B 54,758 1,884
SKF AB Series A 11,140 211
SKF AB Series B 5,400 103
Stora Kopparberg Series A 79,905 940
Stora Kopparberg Series B 3,550 43
Svenska Handelsbanken, Inc.
Series A 69,830 1,454
Svenska Handelsbanken, Inc.
Series B 3,360 70
Trelleborg AB Series B 41,898 452
Volvo AB Series A 41,000 844
Volvo AB Series B 139,369 2,860
----------
GROUP TOTAL 41,034
----------
- -------------------------------------------------------------------------------
SWITZERLAND (11.9%)
Adia SA (Bearer) 3,017 493
Alusuisse-Lonza Holding AG
(Bearer) 891 708
Alusuisse-Lonza Holding AG
(Registered) 2,085 1,656
BBC Brown Boveri AG A (Bearer) 2,635 3,069
BBC Brown Boveri AG B 620 141
Ciba Geigy AG 925 812
Ciba Geigy (Registered) 9,486 8,368
CS Holdings (Registered) 70,145 7,209
Danzas Holding (Ptg. Ctf.) 270 56
Danzas Holding AG (Registered) 120 131
Forbo Holding AG (Registered) 380 163
Georg Fischer (Bearer) 190 248
Georg Fischer (Registered) 210 53
Grands Magasins Jelmoli (Bearer) 280 127
Grands Magasins Jelmoli
(Registered) 610 56
Holderbank Financiere Glarus AG
(Bearer) 520 400
Holderbank Financiere Glarus AG
(Registered) 6,710 1,032
* Interdiscount Holding (Bearer) 1,010 64
Kuoni Reisen NB (Registered) 120 193
Merkur Holding AG 1,471 323
Movenpick Holding (Bearer) 310 115
Movenpick Holding (Ptg. Ctf.) 200 87
Nestle SA (Registered) 14,749 16,356
Roche Holdings AG (Bearer) 663 9,306
Roche Holdings Ltd. 2,808 22,268
Sandoz AG (Bearer) 1,680 1,551
Sandoz AG (Registered) 14,010 12,858
Schindler Holdings AG (Ptg. Ctf.) 60 62
Schindler Holdings AG (Registered) 190 205
Sika Finanz B 860 209
SMH (Bearer) 1,662 997
SMH (Registered) 6,320 829
Societe Generale de Surveillance
Holdings SA (Bearer) 522 1,039
Societe Generale de Surveillance
Holdings SA (Registered) 120 41
Sulzer (Ptg. Ctf.) 50 27
Sulzer (Registered) 300 172
Swiss Bank Corp. (Bearer) 8,729 3,573
Swiss Bank Corp. (Registered) 11,327 2,318
Swiss Reinsurance (Registered) 5,868 6,844
* Swissair Inhaber (Registered) 400 292
Union Bank of
Switzerland (Bearer) 8,321 9,039
Union Bank of
Switzerland (Registered) 9,260 2,108
Zurich Insurance (Registered) 18,140 5,439
----------
GROUP TOTAL 121,037
----------
- -------------------------------------------------------------------------------
UNITED KINGDOM (33.5%)
Abbey National 665,701 6,573
Amec PLC 250,185 365
Amstrad PLC 82,302 250
Anglian Water 237,636 2,230
Argos PLC 214,520 1,983
Argyll Group PLC 645,706 3,408
Arjo Wiggins Appleton PLC 275,332 703
Associated British Foods PLC 578,232 3,313
Barclays PLC 820,857 9,418
Barratt Development 145,451 557
Bass PLC 439,314 4,901
B.A.T. (British American
Tobacco) Industries 1,394,299 12,285
BBA Group 253,006 1,137
B.E.T. PLC 524,517 1,034
BICC PLC 181,542 778
Blue Circle Industries 372,471 1,981
BOC Group 325,149 4,548
Boots Co. PLC 529,948 4,817
Bowthorpe PLC 232,963 1,519
BPB Industries Ltd. 273,460 1,280
British Aerospace 184,882 2,284
British Airways PLC 437,931 3,168
British Gas 2,095,054 8,262
British Land Co., PLC 179,390 1,061
British Petroleum Co. 2,285,780 19,110
British Sky Broadcasting 275,800 1,741
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
British Steel PLC 811,203 $ 2,050
British Telecommunications PLC 2,623,290 14,418
BTR PLC 1,658,551 8,472
Burmah Castrol PLC 101,914 1,477
Cable and Wireless PLC 961,543 6,867
Cadbury Schweppes PLC 525,761 4,338
Calor Group 128,742 512
Caradon PLC 331,302 1,006
Carlton Communications PLC 56,378 845
Chubb Security PLC 188,291 931
Coats Viyella PLC 187,389 508
Cobham PLC 29,000 212
Commercial Union 356,936 3,480
* Costain Group 65,636 72
Courtalds Textiles 66,298 366
Courtaulds PLC 214,359 1,353
Dawson International PLC 196,835 329
De La Rue Co. PLC 129,985 1,314
Delta Group British 96,634 598
East Midlands Electric 45,099 467
ECC Group (English China Clays) 57,231 281
Electrocomponents PLC 124,450 695
FKI 168,244 431
Forte PLC 285,466 1,465
General Accident PLC 114,389 1,155
General Electric PLC 1,148,581 6,330
George Wimpey PLC 148,750 333
GKN 74,985 907
Glaxo Wellcome PLC 1,352,350 19,211
Grand Metropolitan PLC 743,906 5,353
Great Portland Estates 51,123 138
Great Universal Stores PLC 421,127 4,475
Guardian Royal Exchange PLC 249,316 1,068
Guinness PLC 843,963 6,204
Hammerson Property Investment 63,516 348
Hanson PLC 1,671,094 4,994
Harrison and Crosfield 225,273 560
Hepworth Ceramic Holdings Ltd. 50,375 249
HSBC Holdings PLC 337,555 5,270
HSBC Holdings PLC (Foreign) 443,512 6,758
IMI PLC 140,425 716
Imperial Chemical Industries 326,365 3,864
Johnson Matthey PLC 44,148 358
Kingfisher PLC 182,963 1,540
Ladbroke Group 487,807 1,110
Laing, John 57,357 245
Laird Group 59,150 355
Land Securities PLC 158,670 1,520
Lasmo PLC 362,571 979
Legal & General Group PLC 91,518 952
Lex Services 52,726 250
Lloyds TSB Bank Group PLC 1,577,248 8,105
London Electricity PLC 42,499 378
Lonrho PLC 242,458 663
Lucas Industries 329,225 925
Marks and Spencer PLC 1,037,862 7,251
Marley 42,640 73
MEPC PLC 119,000 729
Mercury Asset Management
Group PLC 33,242 449
Meyer International PLC 51,941 311
National Grid Group PLC 374,784 1,161
National Power 529,939 3,698
Next PLC 104,066 737
North West Water Group 109,672 1,047
Northern Electricity PLC 46,303 450
Ocean Transportation & Trading 71,755 432
Oxford Instruments 25,820 162
Pearson, S. & Son PLC 223,978 2,168
Peninsular & Oriental Steam
Navigation Co. Pfd. 143,201 1,058
Pilkington 352,635 1,106
Provident Financial PLC 14,000 178
Prudential Corp. 565,968 3,642
Racal Electronics PLC 81,626 361
Rank Organisation Ltd. 194,710 1,409
Redland PLC 134,287 810
Reed International PLC 199,787 3,044
Reuters Holdings PLC 595,291 5,448
Rexam PLC 326,764 1,796
RMC Group PLC 43,028 662
Rolls Royce PLC 401,498 1,178
Royal Bank of Scotland 315,413 2,870
Royal Insurance Holdings 189,775 1,124
RTZ Corp. 349,597 5,080
Rugby Group 296,046 506
J. Sainsbury PLC 699,593 4,263
Seeboard PLC 72,592 593
Schroders PLC 35,739 759
Scottish & Newcastle Breweries 118,531 1,128
Scottish Power 311,598 1,790
Sears PLC 613,365 990
Sedgwick Group PLC 106,450 200
Slough Estates PLC 82,589 281
Smithkline Beecham PLC Class A 488,567 5,386
Smithkline Beecham PLC
Equity Unit 453,210 4,940
Smiths Industries PLC 161,923 1,599
Southern Electric PLC 51,786 727
Southern Water 36,461 389
T & N PLC 162,499 409
Tarmac PLC 335,080 536
Tate & Lyle 98,518 722
Taylor Woodrow PLC 172,537 315
Tesco PLC 549,559 2,534
Thames Water PLC 121,699 1,061
</TABLE>
17
<PAGE> 20
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
EUROPEAN Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Thorn EMI PLC 159,336 $ 3,752
Trafalgar House PLC 367,275 158
Transport Development 211,521 614
Tube Investment Group 76,076 542
Unigate PLC 52,393 334
Unilever PLC 325,708 6,687
United Biscuits Holdings PLC 202,267 802
Vickers PLC 129,129 509
Vodafone Group PLC 1,118,425 4,011
Waterford Wedgewood (GBP) 146,200 138
Welsh Water 25,146 302
Williams Holdings PLC 89,847 457
Willis Corroon PLC 89,536 196
Wilson C. Holdings 86,443 225
Wolseley PLC 168,836 1,182
Zeneca Group PLC 334,565 6,469
-----------
GROUP TOTAL 340,446
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $794,485) 999,663
- --------------------------------------------------------------------------------
BONDS (.2%)
- --------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
-------
<S> <C> <C>
SPAIN
Banco Central
Hispanoamericano
10.25%, 3/11/96 ECU 1,265 737
ITALY
Pirelli SPA
5.00%, 12/31/98 ITL 327,600 185
SWITZERLAND
(U.S. Dollar Denominated)
Hofi International
4.50%, 8/11/08 $ 445 617
- --------------------------------------------------------------------------------
TOTAL BONDS
(Cost $1,719) 1,539
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.5%)
- --------------------------------------------------------------------------------
U.S. TREASURY BILL--Note D
5.33%, 3/21/96 $ 700 $ 692
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.89%, 1/2/96 14,997 14,997
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $15,689) 15,689
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $811,893) 1,016,891
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets--Notes B and F 133,580
Liabilities --Note F (133,195)
-----------
385
-----------
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 72,541,418 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $1,017,276
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $14.02
================================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ECU--European Currency Units
ITL--Italian Lira
(Ptg. Ctf.)--Participating Certificate
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
AT DECEMBER 31, 1995,
NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------
Amount Per
(000) Share
----------- --------
<S> <C> <C>
Paid in Capital $ 811,925 $11.19
Overdistributed Net
Investment Income--Note E (367) (.01)
Accumulated Net
Realized Gains--Note E 382 .01
Unrealized Appreciation--Note D:
Investment Securities 204,998 2.83
Futures Contracts 318 --
Foreign Currencies and
Forward Currency Contracts 20 --
- ---------------------------------------------------------------------------------
NET ASSETS $1,017,276 $14.02
- ---------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
Market
Value
PACIFIC PORTFOLIO Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.6%)
- -------------------------------------------------------------------------------
AUSTRALIA (5.1%)
Aberfoyle 141,700 $ 311
Adelaide Brighton Ltd. 676,200 604
Amcor Ltd. 317,541 2,244
* Ampolex Ltd. 305,400 668
Ashton Mining Ltd. 191,900 278
Australia National Industries 778,131 579
Boral Ltd. 442,400 1,119
Brambles Industries, Ltd. 87,911 981
Broken Hill Proprietary Ltd. 579,399 8,189
Burns Phillip & Co. 186,330 417
Caltex Australia 30,800 122
Coca-Cola Amatil Ltd. 140,468 1,121
Coles Myer Ltd. 377,865 1,178
CRA Ltd. 195,542 2,871
CSR Ltd. 267,900 873
Email Ltd. 197,883 471
* Emperor Mines 52,510 84
Fai Insurances Ltd. 51,800 28
Fosters Brewing Group 443,460 729
Gold Mines Kalgoorlie 115,673 108
Goodman Fielder Ltd. 464,800 467
Hardie (James) Industries 65,400 113
Howard Smith 29,500 139
ICI Australia Ltd. 77,000 590
Lend Lease Corp. 60,090 872
MIM Holdings Ltd. 393,144 544
National Australia Bank Ltd. 279,546 2,516
Newcrest Mining Ltd. 63,945 269
News Corp. Ltd. 603,779 3,225
News Corp. Ltd. Pfd. 274,582 1,285
North Ltd. 325,613 908
OPSM Industries Protector Ltd. 116,000 181
Pacific Dunlop Ltd. 374,640 878
Pioneer International 67,000 173
QCT Resources 107,600 121
Renison Goldfields
Consolidated Ltd. 34,300 171
Rothmans Holdings 103,900 425
Santos Ltd. 290,389 849
Sons of Gwalia 112,944 622
Southcorp Holdings Ltd. 312,000 726
* TNT Ltd. 126,000 167
Tubemakers of Australia 47,500 147
Westpac Banking Ltd. 586,771 2,600
WMC Ltd. 272,887 1,753
----------
GROUP TOTAL 42,716
----------
- -------------------------------------------------------------------------------
HONG KONG (6.1%)
The Bank of East Asia Ltd. 477,639 1,714
Cathay Pacific Air Ltd. 1,095,000 1,671
Cheung Kong Holdings Ltd. 659,000 4,014
China Light and Power Co., Ltd. 606,000 2,790
Dickson Concepts 116,000 108
Giordano International 220,000 188
Hang Seng Bank Ltd. 554,800 4,969
Hong Kong Aircraft 103,600 268
Hong Kong & China Gas
Co., Ltd. 760,551 1,225
The Hong Kong and Shanghai
Hotels Ltd. 278,000 403
Hong Kong
Telecommunication Ltd. 3,662,600 6,537
Hopewell Holdings Ltd. 1,583,000 911
Hutchison Whampoa Ltd. 982,000 5,982
Hysan Development Co., Ltd. 447,000 1,182
Johnson Electric Holdings 324,000 578
Kumagai Gumi (HK) 65,000 47
Lai Sun Garment International 388,000 376
Miramar Hotel & Investment 139,000 293
New World Development
Co., Ltd. 533,000 2,323
Orient Press Group 958,000 291
Peregrine Investment Holdings 95,000 123
Playmate Toys Holdings 222,900 44
Regal Hotels International 1,190,000 280
Shangri-La Asia 248,000 303
Shun Tak Enterprises 518,000 365
South China Morning Post 1,083,000 662
Stelux Holdings 160,000 41
Sun Hung Kai Properties Ltd. 719,400 5,885
Swire Pacific Ltd. A 446,500 3,465
Tai Cheung Properties 336,500 259
Television Broadcast Ltd. 182,000 648
Wharf Holdings Ltd. 775,000 2,581
Wing Lung Bank 55,200 309
Winsor Industrial Corp. 241,500 205
----------
GROUP TOTAL 51,040
----------
- -------------------------------------------------------------------------------
JAPAN (78.4%)
Advantest Corp. 19,000 976
AIDA Engineering Ltd. 159,000 1,221
Ajinomoto Co., Inc. 336,000 3,746
Alps Electric Co., Ltd. 132,000 1,523
Amada Co., Ltd. 177,000 1,750
Amano Corp. 102,000 1,285
Aoki Corp. 255,000 1,070
Aoyama Trading 44,000 1,408
Arabian Oil Co., Ltd. 23,500 980
Asahi Bank Ltd. 639,000 8,053
Asahi Breweries Ltd. 311,000 3,678
Asahi Chemical Industries 697,000 5,338
Asahi Glass Co., Ltd. 512,000 5,708
* Asahi Optical 82,000 390
Ashikaga Bank 402,000 2,510
</TABLE>
19
<PAGE> 22
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
PACIFIC Value
PORTFOLIO (continued) Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
* Asics Corp. 240,000 $ 735
Bank of Tokyo 436,000 7,650
Bank of Yokohama 327,000 2,679
Banyu Pharmaceutical 151,000 1,859
Bridgestone Corp. 284,000 4,515
Brother Industries Ltd. 135,000 734
Canon, Inc. 259,000 4,695
Casio Computer Co. 107,000 1,048
Chiba Bank 275,000 2,479
Chiyoda Corp. 80,000 791
Chugai Pharmaceutical Ltd. 90,000 863
Citizen Watch Co. 146,000 1,118
Cosmo Oil Co., Ltd. 230,000 1,258
Credit Saison 21,000 501
CSK 21,200 664
Dai-ichi Kangyo Bank 971,000 19,108
Dai-Nippon Ink & Chemicals 153,000 713
Dai-Nippon Printing Co. Ltd. 239,000 4,055
* Dai-Nippon Screen Manufacturing 68,000 597
Daicel Chemical Industries 26,000 148
Daido Steel Co. 108,000 544
Daiei, Inc. 225,000 2,726
Daifuku 32,000 453
Daiichi Pharmaceutical Co., Ltd. 91,000 1,297
Daikin Industries Ltd. 57,000 558
Daikyo, Inc. 88,000 657
Daimaru, Inc. 80,000 620
* Daishowa Paper Mfg. Co., Ltd. 60,000 465
Daito Trust 27,000 319
Daiwa House Industries 121,000 1,994
Daiwa Kosho Lease 52,000 519
Daiwa Securities Ltd. 436,000 6,678
* Denki Kagaku Kogyo 182,000 662
Ebara Corp. 67,000 981
Eisai Co., Ltd. 65,000 1,141
Ezaki Glico Co. 5,000 48
Fanuc Co., Ltd. 55,500 2,405
Fuji Bank 904,000 19,981
Fuji Photo Film Co., Ltd. 169,000 4,882
Fujikura Cable 163,000 1,067
Fujita Corp. 159,000 718
Fujita Tourist Enterprises 29,000 641
Fujitsu Ltd. 531,000 5,920
Furukawa Electric Co. 274,000 1,341
* Gakken Co. 6,000 40
Gunma Bank Ltd. 116,000 1,248
Gunze Ltd. 7,000 42
Hankyu Corp. 310,000 1,698
Hankyu Department Stores 45,000 667
Haseko Co. 135,000 546
Hattori Seiko 38,000 337
Hazama Corp. 175,000 746
Higo Bank 67,000 539
Hirose Electronics Co. Ltd. 11,550 665
Hitachi Ltd. 1,070,000 10,788
Hokkaido Bank 103,000 349
Hokuriku Bank 252,000 1,581
Honda Motor Co., Ltd. 301,000 6,215
Honshu Paper Co., Ltd. 93,000 570
House Foods Industrial Co., Ltd. 55,000 992
Hoya Corp. 29,000 998
INAX 46,000 437
Industrial Bank of Japan Ltd. 731,000 22,181
Isetan Co. 55,000 906
* Ishihara Sangyo 108,000 351
Ito-Yokado Co. 134,000 8,262
Itochu Corp. 446,000 3,005
Itoham Food Co., Ltd. 66,000 499
Iwatani & Co. 78,000 416
Jaccs Co. 46,000 477
* Japan Air Lines Co., Ltd. 474,000 3,148
Japan Energy Corp. 388,000 1,301
* Japan Metals & Chemicals 60,000 330
* Japan Steel Works Ltd. 99,000 283
* Jeol Ltd. 18,000 153
JGC Corp. 47,000 497
Joyo Bank 204,000 1,641
Jusco Co., Ltd. 83,000 2,164
Kajima Corp. 328,000 3,243
Kaken Pharmaceutical 3,000 27
Kamigumi Co. 44,000 423
Kandenko Co. 50,000 625
* Kanebo Ltd. 117,000 290
Kaneka Corp. 78,000 492
Kansai Electric Power, Inc. 311,334 7,545
Kansai Paint Co., Ltd. 115,000 535
Kao Corp. 214,000 2,655
Katokichi Co., Ltd. 27,000 563
* Kawasaki Kisen Kaisha Ltd. 197,000 626
Kawasaki Steel Corp. 900,000 3,141
Keihin Electric Express
Railway Co. Ltd. 143,000 858
Kikkoman Shoyu Co. 57,750 425
Kinden Corp. 85,000 1,450
Kinki Nippon Railway 479,000 3,622
Kirin Brewery Co., Ltd. 235,000 2,779
Kissei Pharmaceutical 20,000 605
* Kobe Steel Ltd. 791,000 2,446
Kokuyo Co., Ltd. 36,000 838
Komatsu Ltd. 223,000 1,838
Komori Corp. 22,000 555
Konami Industry Co. 11,000 307
Konica Corp. 79,000 573
Koyo Seiko Co. 70,000 638
Kubota Ltd. 329,000 2,121
Kumagai Gumi Co., Ltd. 249,000 1,002
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Kurabo Industries Ltd. 76,000 $ 291
Kuraray Co., Ltd. 60,000 657
Kureha Chemical Industries 88,000 414
Kurita Water Industries 38,000 1,013
Kyocera Corp. 61,000 4,536
Kyowa Hakko Kogyo 94,000 888
Kyudenko Corp. 3,000 40
Lion Corp. 85,000 502
Maeda Road Construction
Co., Ltd. 20,000 370
* Makino Milling 7,000 60
Makita Corp. 40,000 640
Marubeni Corp. 390,000 2,113
Marudai Food Co. 6,000 43
* Maruha Corp. 13,000 44
Marui Co. 84,000 1,751
Matsushita Electric Industrial
Co. Ltd. 669,000 10,895
Meiji Milk Products Co. 59,000 353
Meiji Seika Kaisha Ltd. 91,000 549
Minebea Co., Ltd. 110,000 923
Misawa Homes Co., Ltd. 49,000 431
Mitsubishi Chemical Corp. 523,000 2,545
Mitsubishi Corp. 504,000 6,205
Mitsubishi Electric Co. 599,000 4,314
Mitsubishi Estate Co., Ltd. 413,000 5,165
Mitsubishi Gas & Chemical 107,000 482
Mitsubishi Heavy Industries Ltd. 987,000 7,875
Mitsubishi Material 421,000 2,183
Mitsubishi Oil 98,000 871
Mitsubishi Paper Mills 75,000 452
* Mitsubishi Steel Manufacturing 77,000 403
Mitsubishi Trust & Banking Corp. 438,000 7,303
Mitsubishi Warehouse &
Transportation 35,000 546
Mitsui & Co., Ltd. 435,000 3,821
* Mitsui Engineering &
Ship Building 184,000 512
Mitsui Fudosan Co. 262,000 3,226
Mitsui Marine & Fire Insurance 195,000 1,391
* Mitsui Mining & Smelting
Co., Ltd. 134,000 538
* Mitsui Osk Lines Ltd. 362,000 1,162
Mitsui Soko 92,000 738
Mitsui Toatsu Chemicals Inc. 337,000 1,356
Mitsui Trust & Banking Co. 397,000 4,349
Mitsukoshi Ltd. 122,000 1,147
Mochida Pharmaceutical 39,000 541
Mori Seiki Co. 24,000 542
Murata Manufacturing Co. Ltd. 64,000 2,358
Nagase & Co. 5,000 43
Nagoya Railroad Co. 300,000 1,512
Nankai Railway 115,000 780
NEC Corp. 436,000 5,326
NGK Insulators 73,000 729
NGK Spark Plug Co. 50,000 630
Nichido Fire Marine 91,000 732
Nichii Co., Ltd. 56,000 744
Nichirei 73,000 474
Nihon Cement Co. 62,000 415
* Niigata Engineering Co. 102,000 322
Nippon Beet Sugar 10,000 44
Nippon Comsys Corp. 37,000 391
Nippon Denko 11,000 42
Nippon Denso Co., Ltd. 281,000 5,257
Nippon Express Co., Ltd. 315,000 3,035
Nippon Fire & Marine 129,000 875
Nippon Light Metal Co. 140,000 803
Nippon Meat Packers, Inc. 80,000 1,163
Nippon Oil Co., Ltd. 298,000 1,872
Nippon Oil Fats 8,000 44
Nippon Paper Industries Co. 260,000 1,807
Nippon Sharyo Seizo Kaisha 43,000 415
Nippon Sheet Glass Co. 91,000 396
Nippon Shinpan Co. 58,000 439
Nippon Shokubai 70,000 685
Nippon Steel Corp. 2,125,000 7,292
* Nippon Suisan Kaisha 110,000 455
Nippon Yusen 351,000 2,038
Nishimatsu Construction 88,000 1,032
Nissan Motor Co., Ltd. 646,000 4,966
Nisshinbo Industries 57,000 553
Nissin Food 34,000 798
Nitto Denko Corp. 40,000 620
* NKK Corp. 988,000 2,663
Nomura Securities Co., Ltd. 612,000 13,349
Noritake Co., Ltd. 58,000 494
NSK Ltd. 107,000 778
NTN Corp. 86,000 575
Odakyu Electric Railway 256,000 1,750
Ohbayashi-Gumi Ltd. 240,000 1,908
OJI Paper Co., Ltd. 197,000 1,784
Okamoto Industries 6,000 39
* Okuma Machinery Works 51,000 477
Okumura Corp. 78,000 711
Olympus Optical Ltd. 62,000 601
Omron Tateisi Electronics Co. 66,000 1,523
Onoda Cement 252,000 1,346
Onward Kashiyama Co. 44,000 717
Orient Corp. 67,000 381
Orix Corp. 19,000 783
Osaka Gas Co., Ltd. 731,000 2,530
Penta Ocean Construction 138,000 1,070
Pioneer Electronic Corp. 49,000 898
Q.P. Corp. 4,000 35
* Renown, Inc. 89,000 310
</TABLE>
21
<PAGE> 24
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
PACIFIC Value
PORFOLIO (continued) Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Ricoh Co. 170,000 $ 1,862
Rohm Co., Ltd. 40,000 2,261
Sagami Railway 92,000 399
Sakura Bank 1,082,000 13,741
Sanden Corp. 35,000 225
Sankyo Aluminum 7,000 38
Sankyo Co., Ltd. 133,000 2,991
Sanrio Co., Ltd. 35,000 404
Sanwa Shutter 53,000 385
Sanyo Electric Co., Ltd. 502,000 2,896
Sapporo Breweries 68,000 633
Secom Co., Ltd. 38,000 2,645
Sega Enterprises 26,000 1,437
Seino Transportation Co. Ltd. 52,000 872
Seiyu Ltd. 40,000 496
Sekisui Chemical Co. 160,000 2,358
Sekisui House Ltd. 197,000 2,521
* Settsu Corp. 97,000 306
Seven Eleven Japan Co. Ltd. 120,000 8,469
Seventy-Seven Bank 70,000 643
Sharp Corp. 334,000 5,342
Shimachu Co. 9,000 289
Shimano Industrial 34,000 600
Shimizu Construction Corp. 220,000 2,239
Shin-Etsu Chemical Co. Ltd. 68,000 1,411
Shionogi & Co., Ltd. 94,000 792
Shiseido Co., Ltd. 128,000 1,526
Shizuoka Bank 275,000 3,466
Shochiku Co. 27,000 296
* Shokusan Jutaku 74,000 271
* Showa Denko Kabushiki 464,000 1,457
Skylark Co., Ltd. 31,000 571
Snow Brand Milk Products 66,000 422
Sony Corp. 105,500 6,331
Sumitomo Bank 981,000 20,827
Sumitomo Cement Co. 89,000 414
Sumitomo Chemical Co. 526,000 2,626
Sumitomo Corp. 336,000 3,420
Sumitomo Electric Co. 194,000 2,332
Sumitomo Forestry 44,000 674
* Sumitomo Heavy Industries Ltd. 211,000 759
Sumitomo Marine & Fire
Insurance Co. 191,000 1,570
* Sumitomo Metal Industries 987,000 2,995
Sumitomo Metal Mining 122,000 1,098
Taisei Construction Corp. 262,000 1,750
Taisho Pharmaceuticals 124,000 2,452
Taiyo Yuden Co. 8,000 86
Takara Shuzo Co. 69,000 660
Takara Standard 4,000 46
Takashimaya Co. 70,000 1,120
Takeda Chemical Industries 293,000 4,829
Takuma Co., Ltd. 20,000 273
Tanabe Seiyaku Co., Ltd. 56,000 403
Teijin Ltd. 122,000 624
Teikoku Oil Co., Ltd. 62,000 418
Toa Corp. 84,000 619
Tobu Railway Co., Ltd. 279,000 1,747
Toho Co., Ltd. 5,700 912
Tohoku Electric Power 156,348 3,774
Tokai Bank 582,000 8,124
Tokio Marine & Fire
Insurance Ltd. 497,000 6,504
Tokyo Broadcasting System 37,000 610
Tokyo Dome 31,000 532
Tokyo Electric Power 418,767 11,204
Tokyo Electron Inc. 43,000 1,667
Tokyo Gas Co., Ltd. 826,000 2,915
Tokyo Style Co. 31,000 532
Tokyo Tatemono 63,000 299
Tokyotokeiba 54,000 225
Tokyu Corp. 347,000 2,452
Toppan Printing Co. 238,000 3,138
Toray Industries, Inc. 414,000 2,729
* Tosoh Corp. 164,000 790
Tostem Corp. 70,000 2,328
Toto Ltd. 103,000 1,438
Toyo Engineering Corp. 112,000 706
Toyo Exterior 12,000 295
Toyo Kanetsu Kabushiki 44,000 226
Toyo Seikan Kaisha Ltd. 57,000 1,707
Toyobo Co. 173,000 622
Toyoda Automatic Loom Works 66,000 1,184
Toyota Motor Corp. 1,175,000 24,945
Tsubakimoto Chain Co. 132,000 795
Tsugami Corp. 37,000 207
* Ube Industries Ltd. 359,000 1,357
Uni Charm 4,000 101
Uniden 11,000 184
* Unitika 182,000 554
Yamaguchi Bank 50,000 853
Yamaha Corp. 49,000 884
Yamaichi Securities Co. 430,000 3,347
Yamanouchi Pharmaceuticals Ltd. 81,000 1,743
Yamato Transport Co. 101,000 1,204
Yamazaki Baking Co., Ltd. 76,000 1,415
The Yasuda Trust and Banking
Co., Ltd. 242,000 1,433
Yokogawa Electric 15,000 143
----------
GROUP TOTAL 651,161
----------
- -------------------------------------------------------------------------------
MALAYSIA (4.1%)
Aluminum Co. of Malaysia Bhd. 68,000 101
AMMB Holdings Bhd. 103,000 1,176
Amsteel Corp. Bhd. 950,800 708
Antah Holdings 116,000 116
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Aokam Perdana Bhd. 112,000 $ 181
Berjaya Group 131,000 85
Berjaya Leisure 77,000 76
Commerce Asset Holdings Bhd. 85,000 428
DCB Holdings Bhd. 268,000 781
Edaran Otomobil 92,000 692
Ekran Bhd. 44,000 107
Golden Hope Plantations Bhd. 357,000 596
Golden Plus Holdings Bhd. 25,000 43
Guiness Malaysia 51,000 96
Highlands & Lowlands 103,000 165
Hong Leong Industries Bhd. 24,000 128
Hong Leong Properties 299,000 311
Hume Industries Bhd. 42,000 202
* Idris Hydraulic Bhd. 332,000 392
IOI Corp. Bhd. 112,000 110
Johan Holdings 721,000 517
Kedah Cement Holdings Bhd. 50,000 86
Kelanamas Industries Bhd. 19,000 27
Kemayan Oil Palm Bhd. 44,000 61
Kian Joo Can Factory 19,000 78
Kuala Lumpur Kepong Bhd. 135,000 428
Land and General Bhd. 76,500 166
Landmarks Bhd. 159,000 212
Leader Universal Holdings Bhd. 219,666 502
Magnum Corp. Bhd. 275,000 520
Malayan Banking Bhd. 460,000 3,877
Malayan Cement Bhd. 56,000 107
Malayan United Industries Bhd. 66,000 53
Malaysia Mining Corp. 71,000 102
Malaysian Airlines System Bhd. 180,000 585
Malaysian International
Shipping Corp. Bhd. (Foreign) 249,333 643
Malaysian Mosaics 46,000 58
Malaysian Oxygen 23,000 87
Malaysian Pacific 226,000 699
Malaysian Resources Co. Bhd. 125,000 201
Malaywata Steel Bhd. 23,000 37
MBF Capital 133,000 135
Mulpha International 119,000 117
Multi-Purpose Holdings Bhd. 292,000 428
Nestle Malaysia Bhd. 81,000 593
New Straits Times 30,000 100
Oriental Holdings Bhd. 130,000 660
Pan Malaysia Cement Works Bhd. 105,000 110
Perlis Plantations Bhd. 50,000 156
Perusahaan Otomobil NA 107,000 377
Petaling Garden Bhd. 557,000 619
Pilecon Engineering 414,000 416
* Promet Bhd. 219,000 219
Public Bank Bhd. (Foreign) 221,000 423
Rashid Hussain Bhd. 246,000 736
Resorts World Bhd. 282,000 1,511
RJ Reynolds 309,000 712
Rothmans of Pall Mall Bhd. 74,000 609
Shell Refining Co. Bhd. 131,000 379
Sungei Way Holdings 26,000 94
Ta Enterprise Bhd. 230,000 279
Tan Chong Motor Holdings Bhd. 437,000 432
* Technology Resources
Industries Bhd. 161,000 476
Telekom Malaysia Bhd. 449,000 3,501
Tenaga Nasional Bhd. 933,000 3,675
Time Engineering 34,000 79
UMW Holdings Bhd. 44,000 118
United Engineers Bhd. 118,000 753
YTL Corp. Bhd. 100,000 631
----------
GROUP TOTAL 33,878
----------
- -------------------------------------------------------------------------------
NEW ZEALAND (.8%)
Brierley Investment 998,000 789
Carter Holt Harvey Ltd. 555,559 1,199
Fletcher Challenge Ltd. 448,269 1,034
Fletcher Challenge Ltd.
(Forestry Division) 261,603 373
Lion Nathan 177,000 422
Telecom Corp. of New Zealand 664,900 2,869
Wilson & Horton Ltd. 10,000 60
----------
GROUP TOTAL 6,746
----------
- -------------------------------------------------------------------------------
SINGAPORE (3.1%)
Amcol Holdings 174,000 480
Chuan Hup Holdings 39,000 35
City Development Ltd. 247,000 1,799
Cycle & Carriage Ltd. 71,000 708
DBS Land 361,000 1,220
Development Bank of
Singapore (Foreign) 189,625 2,359
Fraser & Neave Ltd. 55,000 700
Hai Sun Hup Group 73,000 49
Haw Par Brothers International 411,400 878
Hotel Properties Ltd. 68,000 105
Inchcape Bhd. 28,000 90
Jurong Shipyard 30,000 231
Keppel Corp. 185,000 1,648
Lum Chang Holdings 55,000 46
Metro Holdings 18,000 70
Natsteel Ltd. 55,000 113
Neptune Orient Lines 338,000 380
Overseas Chinese Banking
Corp. (Foreign) 268,166 3,356
Overseas Union Enterprise Ltd. 21,000 106
Prima Ltd. 178,000 680
Robinson & Co., Ltd. 10,000 42
Shangri-La Hotel 25,000 97
Sime Darby Bhd. 645,600 1,689
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
Market
PACIFIC Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Singapore International Airlines
Ltd. (Foreign) 369,000 $ 3,443
Singapore Press Holdings
Ltd. (Foreign) 138,960 2,456
Straits Steamship Land Ltd. 128,000 433
Straits Trading 50,000 117
United Industrial Corp. 57,000 56
United Overseas Bank (Foreign) 230,350 2,215
-----------
GROUP TOTAL 25,601
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $702,367) 811,142
- --------------------------------------------------------------------------------
CONVERTIBLE BOND (.4%)
- --------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
--------
<S> <C> <C>
JAPAN
Bank of Tokyo
6.10%, 3/31/97
(Cost $2,773) JPY 187,000 3,222
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.9%)
- --------------------------------------------------------------------------------
U.S. TREASURY BILL--Note D
5.33%, 3/21/96 $ 2,500 2,473
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.89%, 1/2/96 13,090 13,090
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $15,562) 15,563
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(Cost $720,702) 829,927
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.1%)
Other Assets--Notes B and F 75,748
Liabilities--Note F (74,961)
-----------
787
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 72,257,048 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $830,714
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.50
================================================================================
+See Note A to Financial Statements.
*Non-Income Producing Security.
JPY--Japanese Yen
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1995,
NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $724,393 $10.03
Overdistributed Net
Investment Income--Note E (1,129) (.02)
Accumulated Net
Realized Losses--Note E (2,182) (.03)
Unrealized Appreciation
(Depreciation)--Note D:
Investment Securities 109,225 1.51
Futures Contracts 734 .01
Foreign Currencies and Forward
Currency Contracts (327) --
- --------------------------------------------------------------------------------
NET ASSETS $830,714 $11.50
- --------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
Market
Value
EMERGING MARKETS PORTFOLIO Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.6%)
- -------------------------------------------------------------------------------
ARGENTINA (5.0%)
Astra Cia Argentina de Petol
B Shares 106,090 $ 196
Banco Frances Del Rio Plata 53,590 474
Banco Galicia y Buenos 101,104 526
* Commercial de Plata 137,500 364
Compania Naviera Perez 249,958 1,325
* Interamericana Auto 51,867 270
Nobleza Piccardo Ind. 28,200 107
Telefonica Argentina 1,221,900 3,300
YPF SA 238,524 5,129
----------
GROUP TOTAL 11,691
----------
- -------------------------------------------------------------------------------
BRAZIL (13.5%)
Aracruz Celulose Pfd. B 631,771 988
Banco Bradesco 120,699,688 932
Banco Bradesco Pfd. 126,124,898 1,103
* Banco do Brasil Pfd. 39,946,618 452
* Banco Estado Sao Paulo Pfd. 24,276,000 125
Banco Itau Pfd. 5,263,412 1,468
Brasmotor SA Pfd. 872,000 173
Cemig Pfd. 50,306,665 1,113
Cervejaria Brahma 295,000 124
Cervejaria Brahma Pfd. 1,315,150 541
Ceval Pfd. 29,720,000 339
Cia Cimento Portland Pfd. 802,800 192
* Cia Tecidos Norte de Mina Pfd. 722,300 242
Copene-Petroquimica Pfd. 530,194 237
Electrobras 21,275,532 5,758
Electrobras Pfd. B 3,087,118 835
Ericsson Telecomunicadoes Pfd. 21,379,400 97
Fosfertil Pfd. 66,300,000 198
Industrias Klabin de Papel Pfd. 403,025 365
Iochpe-Maxion Pfd. 478,738 52
Lojas Americanas 5,202,000 113
* Lojas Americanas Pfd. 7,418,033 174
Metalurgica Gerdau Pfd. 1,649,000 29
* Paranapanema SA Pfd. 6,302,000 81
Paulista de Forcae Luz 8,275,300 401
* Perdigao Pfd. 115,326,000 178
Petrobras Pfd. 19,434,500 1,660
* Pirelli Pneus Pfd. 53,000 75
Refrigeracgo Parana Pfd. 88,033,000 176
Siderugica Nacional 24,440,300 503
Souza Cruz Ind. 115,600 652
Telecom Brasileiras SA Pfd. 144,605,500 6,964
Unipar Union
Industria Petroquim 47,716 43
Usiminas Pfd. 814,634,400 662
Vale do Rio Doce Pfd. 22,006,901 3,623
* Viacao Aerea Riograndense
SA Pfd. 32,000 94
* Vidreas Santa Marina 72,539 246
Votorantim Celulose E Papel SA 11,126,324 229
White Martins 443,981,600 443
----------
GROUP TOTAL 31,680
----------
- -------------------------------------------------------------------------------
GREECE (1.6%)
Alpha Credit Bank 6,900 400
Athens Medical Center 10,900 68
Commercial Bank of Greece 15,734 591
Elais Co. 3,770 123
Ergo Bank 8,600 343
Ethniki General Insurance
(Registered) 3,400 28
Fourlis Brothers Corp. 12,510 149
Hellas Can 5,400 108
Hellenic Bottling Co. (Bearer) 26,200 858
Hellenic Sugar 16,090 208
Intracom (Bearer) 5,940 128
Klonatex SA Pfd. 4,400 62
Michaniki 9,100 117
National Bank of Greece 8,800 450
* Petzetakis SA 13,350 66
----------
GROUP TOTAL 3,699
----------
- -------------------------------------------------------------------------------
HONG KONG (13.9%)
* Applied International 320,000 29
The Bank of East Asia Ltd. 129,040 463
Cathay Pacific Air Ltd. 480,000 734
Cheung Kong Holdings Ltd. 559,000 3,405
China Light and Power Co., Ltd. 220,000 1,013
Dickson Concepts 143,000 133
Hang Lung Development Co. 216,000 344
Hang Seng Bank Ltd. 479,500 4,294
Hong Kong Aircraft 27,600 71
Hong Kong & China Gas Co., Ltd. 172,800 278
The Hong Kong and Shanghai
Hotels Ltd. 191,000 277
Hong Kong
Telecommunication Ltd. 2,812,000 5,019
Hopewell Holdings Ltd. 576,000 332
Hutchison Whampoa Ltd. 548,000 3,338
Hysan Development Co., Ltd. 161,000 426
Miramar Hotel & Investment 100,000 211
New World Development
Co., Ltd. 585,000 2,550
Orient Press Group 200,000 61
Playmate Toys Holdings 220,000 44
Sun Hung Kai Properties Ltd. 594,000 4,859
Swire Pacific Ltd. A 359,500 2,790
Television Broadcast Ltd. 70,000 249
Wharf Holdings Ltd. 457,000 1,522
Wing Lung Bank 31,200 175
----------
GROUP TOTAL 32,617
----------
- -------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
EMERGING MARKETS Value
Portfolio (continued) Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA (6.1%)
Astra International (Foreign) 6,000 $ 12
Bank Bali (Foreign) 58,725 117
Bank Dagang Nasional
Indonesia (Foreign) 411,250 337
Bank Internasional
Indonesia (Foreign) 129,500 429
Barito Pacific Timber (Foreign) 970,500 711
Duta Anggada Realty (Foreign) 179,332 86
Evershine Textile (Foreign) 189,000 72
Gadjah Tunggal (Foreign) 186,500 104
Great River Ind. (Foreign) 40,000 26
Gudang Garam 22,500 235
Gudang Garam (Foreign) 305,000 3,188
Indocement 45,000 151
Indocement (Foreign) 486,500 1,633
Kabel Metal (Foreign) 69,000 58
Kalbe Farma (Foreign) 81,500 276
Lippo Bank 41,000 63
Lippo Bank (Foreign) 127,750 197
Mayora Indah (Foreign) 365,440 264
Mulia Industrindo (Foreign) 54,000 152
Pakuwon Jati (Foreign) 85,000 54
Polysindo Eka Perkas (Foreign) 2,996,500 1,704
PT Bank Bali Warrants
Exp. 8/29/00 8,700 4
PT Indah Kiat Pulp & Paper
Corp. (Foreign) 480,798 352
PT Indah Kiat Pulp & Paper
Corp. (Local) 86,500 63
PT Indosat (Foreign) 195,000 708
PT Japfa Comfeed Indonesia 206,000 101
PT Japfa Comfeed Indonesia
(Foreign) 53,000 26
PT Modern Photo Film Co.
(Foreign) 54,000 313
PT Supreme Cable Manufacturing
Corp. (Foreign) 27,500 41
PT Unggul Indah Corp. (Foreign) 78,650 72
Sinar Mas Agro (Foreign) 177,500 99
* Telekom Indonesia 1,398,000 1,834
Unilever Indonesia 11,500 138
Unilever Indonesia (Foreign) 46,500 559
----------
GROUP TOTAL 14,179
----------
- -------------------------------------------------------------------------------
MALAYSIA (19.2%)
Aluminum Co. of Malaysia Bhd. 53,000 78
AMMB Holdings Bhd. 59,000 674
Amsteel Corp. Bhd. 740,600 551
Antah Holdings 184,000 184
Aokam Perdana Bhd. 188,000 304
Berjaya Group 325,000 210
Commerce Asset Holdings Bhd. 117,000 590
DCB Holdings Bhd. 371,000 1,081
Edaran Otomobil 101,000 760
Ekran Bhd. 104,000 254
Golden Hope Plantations Bhd. 232,000 387
Golden Plus Holdings Bhd. 99,000 172
Highlands & Lowlands 185,000 297
Hong Leong Industries Bhd. 56,000 298
Hong Leong Properties 273,000 284
Hume Industries Bhd. 95,000 456
* Idris Hydraulic Bhd. 214,000 253
IOI Corp. Bhd. 183,000 179
Jia Tiasa Holdings 74,000 258
Johan Holdings 186,000 133
Kedah Cement Holdings Bhd. 138,000 237
Kelanamas Industries Bhd. 46,000 65
Kemayan Oil Palm Bhd. 173,000 241
Kuala Lumpur Kepong Bhd. 112,000 355
Land and General Bhd. 173,500 376
Landmarks Bhd. 180,000 240
Leader Universal Holdings Bhd. 186,000 425
Magnum Corp. Bhd. 352,000 665
Malayan Banking Bhd. 479,000 4,037
Malayan Cement Bhd. 234,000 446
Malaysia Mining Corp. 162,000 234
Malaysian Airlines System Bhd. 210,000 682
Malaysian International
Shipping Corp. Bhd. (Foreign) 207,000 534
Malaysian Pacific 88,000 272
Malaysian Resources Co. Bhd. 122,000 196
Malaywata Steel Bhd. 80,000 130
Metroplex Bhd. 313,000 255
Mulpha International 230,000 226
Multi-Purpose Holdings Bhd. 283,000 415
Nestle Malaysia Bhd. 151,000 1,106
Oriental Holdings Bhd. 72,000 366
Perlis Plantations Bhd. 83,000 260
Perusahaan Otomobil NA 186,000 656
Petaling Garden Bhd. 71,000 79
Pilecon Engineering 192,000 193
* Promet Bhd. 222,000 222
Public Bank Bhd. (Foreign) 241,000 461
Rashid Hussain Bhd. 148,000 443
Resorts World Bhd. 370,000 1,982
RJ Reynolds 158,000 364
Rothmans of Pall Mall Bhd. 100,000 823
Shell Refining Co. Bhd. 101,000 292
Sime Darby Bhd. 1,116,000 2,967
Sungei Way Holdings 93,000 335
TA Enterprise Bhd. 363,000 440
Tan Chong Motor
Holdings Bhd. 274,000 271
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
* Technology Resources
Industries Bhd. 181,000 $ 535
Telekom Malaysia Bhd. 901,000 7,026
Tenaga Nasional Bhd. 1,505,000 5,928
Time Engineering 52,000 121
UMW Holdings Bhd. 110,000 295
United Engineers Bhd. 220,000 1,404
YTL Corp. Bhd. 156,000 983
----------
GROUP TOTAL 44,986
----------
- -------------------------------------------------------------------------------
MEXICO (10.5%)
Apasco A 205,400 847
Cementos Mexicanos SA 69,000 230
Cementos Mexicanos SA Class A 257,884 859
Cementos Mexicanos SA Class B 238,425 873
* Cifra B SA 706,300 740
* Cifra C SA 236,000 240
Consorcio G Grupo Dina 114,000 49
* Cydsa SA Series A 86,000 210
El Puerto Liverpool Series 1 440,950 299
* Empaques Ponderosa 45,000 81
Empresas ICA 62,100 648
* Empresas La Moderna A 209,700 813
Fomento Economico
Mexicano SA B 150,950 342
Grupo Continental A 106,800 301
Grupo Financiero Banamex B 352,200 594
Grupo Financiero Banamex L 94,800 142
* Grupo Financiero Bancomer B 962,050 270
* Grupo Financiero Probursa
Series B 3,075,000 124
* Grupo Financiero Serfin L 73,000 82
* Grupo Herdez SA Series A 280,000 58
Grupo Industrial Alfa A 81,350 1,051
Grupo Industrial Bimbo Series A 105,882 441
Grupo Industrial Maseca B 664,000 407
Grupo Mexicano Desarrollo L 47,000 114
* Grupo Mexico SA B 312,513 1,330
Grupo Modelo SA Series C 378,200 1,802
* Grupo Situr B 703,000 226
Grupo Televisa-CPO 101,900 1,211
Industrias Penoles A 228,599 955
Kimberly Clark Class A 94,109 1,430
* Sociedad Fomento Industrial B 89,907 332
Telefonos de Mexico A 648,000 1,049
Telefonos de Mexico L 3,718,250 6,000
* Transport Maritima Mexico L 31,000 265
* Tubos de Acero de Mexico 24,000 176
Vitro 59,640 93
----------
GROUP TOTAL 24,684
----------
- -------------------------------------------------------------------------------
PHILIPPINES (3.6%)
Ayala Land Inc. B 793,862 968
* Basic Petroleum and
Minerals, Inc. 139,238,900 64
* International Container
Terminal 465,025 244
Manila Electric B 68,025 555
Manila Mining 14,734,200 28
Metro Pacific A Corp. 1,845,000 341
Metropolitan Bank & Trust Co. 72,096 1,402
* Oriental Petroleum and
Minerals Corp. 50,078,028 27
Petron Corp. 3,289,050 1,693
Philippine Long Distance
Telephone Co. 7,810 424
Philippine Long Distance
Telephone Co. GDR 13,880 434
* Philippine National Bank Class B 44,516 492
* Philippine Overseas
Drilling & Oil B 146,629,910 45
* SM Prime Holdings 3,082,000 881
San Miguel Corp. B 221,719 757
* Union Bank 82,100 88
----------
GROUP TOTAL 8,443
----------
- -------------------------------------------------------------------------------
PORTUGAL (2.2%)
Banco Commercial Portugal
(Registered) 61,400 836
* Banco de Fomento 38,900 361
Banco Espirito Santo e Commercial 30,600 463
Banco Portugues Investentos 17,600 211
* Cimentos de Portugal 51,128 848
* Com Cel de Celulose do Caima SA 1,700 33
Corporacao Industrial do Norte 4,000 92
Corticeira Amorin (Bearer) 6,100 70
Industria Nacional Papeis 2,700 51
* Lisnave 34,000 96
* Portucel Industrial 43,000 255
* Portugal Telecom SA 50,247 947
Soares da Costa Rfd. 16,580 189
Sonae Industria e Investimentos 23,900 512
* Tertir Terminai 19,200 81
----------
GROUP TOTAL 5,045
----------
- -------------------------------------------------------------------------------
SINGAPORE (6.3%)
City Development Ltd. 209,000 1,522
Cycle & Carriage Ltd. 25,000 249
Development Bank of
Singapore (Foreign) 135,000 1,680
Fraser & Neave Ltd. 23,000 293
Hotel Properties Ltd. 71,000 110
Jurong Shipyard 17,000 131
Keppel Corp. 48,000 428
Lum Chang Holdings 84,000 70
</TABLE>
27
<PAGE> 30
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
EMERGING MARKETS Value
PORTFOLIO (continued) Shares (000)+
- -------------------------------------------------------------------------------
<S> <C> <C>
Neptune Orient Lines 97,000 $ 109
Overseas Chinese Banking
Corp.(Foreign) 252,000 3,153
Parkway Holdings 49,000 133
Prima Ltd. 32,000 122
Shangri-La Hotel 23,000 89
Singapore International Airlines
Ltd. (Foreign) 284,000 2,650
Singapore Press Holdings
Ltd. (Foreign) 58,400 1,032
Straits Steamship Land Ltd. 72,000 243
United Overseas Bank (Foreign) 280,600 2,698
----------
GROUP TOTAL 14,712
----------
- -------------------------------------------------------------------------------
THAILAND (11.4%)
Asia Credit Co., Ltd. (Foreign) 26,800 182
Asia Credit Co., Ltd. (Local) 17,400 117
Asia Securities Trading (Foreign) 59,200 165
Asia Securities Trading (Local) 14,200 39
Ayudhya Insurance Co. (Foreign) 17,000 111
Bangkok Bank Public Co.
Ltd. (Foreign) 19,800 241
Bangkok Insurance Co.,
Ltd. (Foreign) 2,018 33
Bangkok Insurance Co., Ltd. (Local) 1,882 31
Bangkok Land Public Co.
Ltd. (Foreign) 253,100 387
Bangkok Rubber (Foreign) 216,200 137
Bank of Ayudhya Ltd. (Foreign) 330,600 1,851
Banpu Public Co. 10,200 222
Ban-Pu Coal Co., Ltd. (Foreign) 18,600 400
* Castle Peak Garment Factory Co.,
Ltd. (Foreign) 45,800 122
CMIC Finance and Securities Co.,
Ltd. (Foreign) 208,900 664
CMIC Finance and Securities Co.,
Ltd. (Local) 28,100 89
Compass East (Foreign) 19,800 114
Dhana Siam Finance & Securities
Co. Ltd. (Foreign) 107,900 617
Dhana Siam Finance & Securities
Co. Ltd. (Local) 22,200 113
Dusit Thani Public Co.,
Ltd. (Foreign) 82,500 121
Finance One (Foreign) 44,100 306
First City Investment
Co. (Foreign) 131,400 207
* First Pacific Land (Foreign) 73,500 35
* GSS Array Technology (Foreign) 16,500 75
Industrial Finance Corp.
of Thailand (Foreign) 303,800 1,031
* Industrial Finance Corp.
of Thailand (Local) 38,600 131
International Broadcasting
Corp. Ltd. (Foreign) 36,600 62
International Engineering
Co. (Foreign) 23,800 122
* International Trust and Finance
Co., Ltd. (Foreign) 71,900 66
* International Trust and Finance
Co., Ltd. (Local) 131,000 121
Krisda Mahanakorn Ltd. (Foreign) 59,400 120
Land & House Co., Ltd. (Foreign) 19,800 326
Lee Feedmill Co. Ltd. (Foreign) 29,000 58
* Malee Sampran Factory (Foreign) 36,400 23
* Malee Sampran Factory (Local) 58,800 37
Modern Form Group Co.,
Ltd. (Foreign) 30,200 29
Multi Credit Corp. of
Thailand (Foreign) 14,200 81
National Finance & Securities
Co., Ltd. (Foreign) 227,100 1,217
National Finance & Securities
Co., Ltd (Local) 10,300 49
National Petrochemical (Foreign) 160,000 311
Nava Finance & Securities
Co., Ltd. (Foreign) 265,200 800
Nava Finance & Securities
Co., Ltd. (Local) 31,900 96
* Nep Realty (Foreign) 166,000 66
NTS Steel Groups (Foreign) 92,200 106
* One Holding Public Co. Ltd. 16,200 42
* One Holding Public Co.
Ltd. (Foreign) 142,600 365
PTT Exploration and
Production PLC (Foreign) 138,400 1,451
* PTT Exploration and
Production PLC (Local) 12,600 132
* Padaeng Industry (Foreign) 88,600 63
Phatra Thanakit Co., Ltd. (Foreign) 78,700 675
Phoenix Pulp & Paper (Foreign) 76,200 330
Phoenix Pulp & Paper (Local) 7,400 32
Pranda Jewelry Co. (Foreign) 46,100 78
Premier Enterprise (Foreign) 68,000 108
Robinson Department
Store (Foreign) 229,800 429
* Saha Phatana International
(Foreign) 43,800 85
Shangri-la Hotel (Foreign) 11,500 9
Shinawatra Computer &
Communications Co.,
Ltd. (Foreign) 94,300 2,321
Shinawatra Computer &
Communications Co., Ltd. (Local) 5,300 130
Siam Cement Co., Ltd. (Foreign) 37,900 2,100
Siam City Cement Co., Ltd. (Foreign) 68,780 1,016
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Siam City Cement Co., Ltd. (Local) 6,800 $ 106
Siam Commercial Bank
Ltd. (Foreign) 12,400 163
* Siam United Services (Foreign) 154,000 40
Srithai Superware Co. (Foreign) 29,800 199
* Sun Tech Group Co. Ltd. (Foreign) 37,000 57
* Sun Tech Group Co. Ltd. (Local) 22,000 34
Tanayong Public 7,600 12
* Thai Telephone and
Telecom (Foreign) 237,500 1,292
* Thai Telephone and
Telecom (Local) 14,400 78
Thai Central Chemical (Foreign) 67,700 67
Thai Farmers Bank Ltd. (Foreign) 10,900 110
Thai-German Ceramic (Foreign) 52,500 141
Thai Plastic Chemical Co.,
Ltd. (Foreign) 35,300 171
Thai Wah (Foreign) 21,300 25
Tipco Asphalt Co. (Foreign) 65,600 367
Tipco Asphalt Co. (Local) 6,400 36
TPI Polene Co., Ltd. (Foreign) 161,568 962
* Unicord Public Co., Ltd. (Foreign) 105,600 12
Union Asia Finance Ltd. (Foreign) 37,200 165
United Communication
Industry (Foreign) 119,400 1,526
United Communication
Industry (Local) 9,800 125
Univest Land Public (Foreign) 109,200 164
Univest Land Public (Local) 27,000 42
Wattachak Public Co.,
Ltd. (Foreign) 96,800 194
-----------
GROUP TOTAL 26,685
-----------
- --------------------------------------------------------------------------------
TURKEY (1.3%)
Adana Cimento A 178,560 23
Adana Cimento C 1,567,200 38
Akal Tekstil 667,000 65
Altinyildiz Mensucat 285,000 62
Arcelik 1,685,211 136
Bagfas 198,000 61
Brisa Bridgestone 408,000 99
Doktas 234,800 30
* Eczacibasi Ilac 1,063,800 60
EGE Biracilik 768,820 265
EGE Seramik 187,000 46
Eregli Demir Celik 2,938,250 241
T Garanti Bankasi 3,561,000 298
* Ihlas Holdings 687,000 127
Kav Orman Sanayii AS 237,000 78
Konya Cimento 422,000 34
Otosan Otomobil SAS 505,500 83
Raks Elektronik Sanayi
Ve Ticaret AS 376,000 79
Sarkuysan Elektrolitik 355,000 52
* Sifas 676,000 36
Tofas-Turk Otomobil
Fabrikasi AS 1,843,600 179
* Trakya Cam Sanayii AS 726,000 74
Turkiye Is Bankasi AS 42,000 64
Turkiye Is Bankasi C 6,513,900 567
* Usas Ucak Servisi 95,500 132
* Vestel Electronic Sanayi 576,000 55
Yapi Ve Kredi Bank 4,318,600 177
-----------
GROUP TOTAL 3,161
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $230,173) 221,582
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.6%)
- --------------------------------------------------------------------------------
<CAPTION>
Face
Amount
(000)
---------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.89%, 1/2/96
(Cost $13,235) $13,235 13,235
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost $243,408) 234,817
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.2%)
- --------------------------------------------------------------------------------
Other Assets--Note B 6,194
Liabilities (6,720)
-----------
(526)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 21,800,402 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $234,291
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.75
================================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1995,
NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
--------- -------
<S> <C> <C>
Paid in Capital $244,728 $11.22
Overdistributed Net
Investment Income--Note E (702) (.03)
Accumulated Net
Realized Losses--Note E (1,141) (.05)
Unrealized Depreciation--Note D:
Investment Securities (8,591) (.39)
Foreign Currencies (3) --
- --------------------------------------------------------------------------------
NET ASSETS $234,291 $10.75
- --------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING MARKETS
EUROPEAN PORTFOLIO PACIFIC PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1995 December 31, 1995
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . . $ 24,359 $ 8,401 $3,401
Interest . . . . . . . . . . . . . . . . . . 1,219 1,171 524
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . 25,578 9,572 3,925
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . $ 47 $ 47 $ 47
Management and Administrative . . . . . 2,219 1,788 134
Marketing and Distribution . . . . . . . 180 2,446 176 2,011 32 213
Taxes (other than income taxes) . . . . . . -------- 69 ------- 59 ----- 12
Custodian Fees . . . . . . . . . . . . . 389 380 655
Auditing Fees . . . . . . . . . . . . . 9 9 8
Shareholders' Reports . . . . . . . . . . . 39 38 7
Annual Meeting and Proxy Costs . . . . . . . 18 18 5
Directors' Fees and Expenses . . . . . . . . 3 3 1
- ---------------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 2,973 2,518 901
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . 22,605 7,054 3,024
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . 2,728 (297) (713)
Futures Contracts . . . . . . . . . . . . . 292 1,782 --
Foreign Currencies and
Forward Currency Contracts . . . . . . . 816 (2,941) --
- ---------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . 3,836 (1,456) (713)
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . 136,449 17,226 (401)
Futures Contracts . . . . . . . . . . . . . 179 669 --
Foreign Currencies and
Forward Currency Contracts . . . . . . . (123) (351) (3)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized
Appreciation (Depreciation) 136,505 17,544 (404)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $162,946 $23,142 $1,907
=================================================================================================================================
</TABLE>
(1)Dividends are net of foreign withholding taxes of $3,238,000, $1,101,000,
and $464,000, respectively.
30
<PAGE> 33
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EUROPEAN PORTFOLIO PACIFIC PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended
DECEMBER 31, December 31, DECEMBER 31, December 31,
1995 1994 1995 1994
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . $ 22,605 $ 16,595 $ 7,054 $ 4,601
Realized Net Gain (Loss) . . . . . . . . . . . . 3,836 2,659 (1,456) 3,641
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . 136,505 (10,000) 17,544 53,147
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . 162,946 9,254 23,142 61,389
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . (22,611) (16,520) (8,477) (4,872)
Realized Net Gain . . . . . . . . . . . . . . . . (2,826) (3,560) -- (3,654)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . (25,437) (20,080) (8,477) (8,526)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . 186,864 173,784 198,869 175,468
--In Lieu of Cash Distributions . . 21,857 16,864 7,188 7,350
--Exchange . . . . . . . . . . . . . 76,976 75,709 71,762 114,335
Redeemed --Regular . . . . . . . . . . . . . (63,026) (78,527) (64,934) (79,042)
--Exchange . . . . . . . . . . . . . (57,937) (62,816) (93,942) (66,483)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . 164,734 125,014 118,943 151,628
- -------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . 302,243 114,188 133,608 204,491
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . 715,033 600,845 697,106 492,615
- -------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . $ 1,017,276 $ 715,033 $ 830,714 $ 697,106
===================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . $.32 $.28 $.12 $.08
Realized Net Gain . . . . . . . . . . . $.04 $.06 -- $.06
- -------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . 19,554 20,475 24,480 25,165
Issued in Lieu of Cash Distributions . . 1,560 1,443 628 656
Redeemed . . . . . . . . . . . . . . . . (9,359) (11,707) (14,514) (12,797)
- -------------------------------------------------------------------------------------------------------------------
11,755 10,211 10,594 13,024
- -------------------------------------------------------------------------------------------------------------------
(3) Overdistributed Net Investment Income . $ (367) $ (317) $ (1,129) $ (227)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED May 4+ to
DECEMBER 31, December 31,
1995 1994
(000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,024 $ 457
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (713) (21)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (404) (8,190)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . . . . . . 1,907 (7,754)
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,765) (525)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (300)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,765) (825)
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,202 43,149
--In Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . 3,292 757
--Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,892 55,090
Redeemed --Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,582) (1,563)
--Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,032) (5,477)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . . . . . . . . . . . . . . 152,772 91,956
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,914 83,377
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,377 --
- ---------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 234,291 $ 83,377
===========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . $.18 $.07
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- $.04
- ---------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,407 8,198
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . 307 70
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,580) (601)
- ---------------------------------------------------------------------------------------------------------------------------
14,134 7,667
- ---------------------------------------------------------------------------------------------------------------------------
(3) Overdistributed Net Investment Income . . . . . . . . . . . . . . . . . . $ (702) $ (68)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Commencement of Operations.
32
<PAGE> 35
FINANACIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EUROPEAN PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $11.76 $11.88 $ 9.33 $9.92 $9.06
------ ------ ------- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . .32 .28 .17 .25 .26
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . 2.30 (.06) 2.55 (.58) .86
------ ------ ------- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . 2.62 .22 2.72 (.33) 1.12
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . (.32) (.28) (.17) (.26) (.26)
Distributions from Realized Capital Gains . . . . . . . . . (.04) (.06) -- -- --
------ ------ ------- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.36) (.34) (.17) (.26) (.26)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $14.02 $11.76 $11.88 $9.33 $9.92
===========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +22.28% +1.88% +29.13% -3.32% +12.40%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . . . . . . . . . $1,017 $715 $601 $256 $161
Ratio of Expenses to Average Net Assets . . . . . . . . . . . .35% .32% .32% .32% .33%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . 2.66% 2.41% 2.05% 3.05% 3.06%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 2% 6% 4% 1% 15%+
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ 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.
33
<PAGE> 36
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
PACIFIC PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------
For a Share Outstanding Throughout Each Year 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . . . . $11.31 $10.13 $ 7.56 $9.42 $8.56
------ ------ ------- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . .10 .08 .06 .05 .05
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . .21 1.24 2.62 (1.76) .86
------ ------ ------- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . .31 1.32 2.68 (1.71) .91
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . (.12) (.08) (.06) (.05) (.05)
Distributions from Realized Capital Gains . . . . . . . . . -- (.06) (.05) (.10) --
------ ------ ------- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.12) (.14) (.11) (.15) (.05)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . . . . $11.50 $11.31 $10.13 $7.56 $9.42
===========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +2.75% +13.04% +35.46% -18.17% +10.65%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . . . . . . . . . $831 $697 $493 $207 $84
Ratio of Expenses to Average Net Assets . . . . . . . . . . . .35% .32% .32% .32% .32%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . .97% .71% .75% .92% .70%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 1% 4% 7% 3% 21%+
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+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.
34
<PAGE> 37
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED May 4+ to
For a Share Outstanding Throughout Each Period DECEMBER 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $10.87 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . .15 .06
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . (.09) .92
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . .06 .98
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . (.18) (.07)
Distributions from Realized Capital Gains . . . . . . . . . . . -- (.04)
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . (.18) (.11)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $10.75 $10.87
===============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . +.56% +9.81%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . $234 $83
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . .60% .60%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . 2.00% 1.32%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . 3% 6%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
+Commencement of operations.
Note: Total return figures do not reflect the 2% transaction fee on purchases,
the 1% transaction fee on redemptions, or the annual account maintenance fee of
$10.
35
<PAGE> 38
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. Bonds, and temporary cash investments
acquired over sixty days to maturity, are valued utilizing the latest
quoted bid prices and on the basis of a matrix system (which considers
such factors as security prices, yields, maturities, and ratings) both
as furnished by independent pricing services. Other temporary cash
investments are valued at amortized cost which approximates market
value.
2. FOREIGN CURRENCY: Securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at
the bid prices of those currencies against U.S. dollars last quoted by
major banks as of 5:00 PM Geneva time on the valuation date.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on securities from the
portion arising from changes in market prices of securities. Such
fluctuations are included in realized net gains (losses) and unrealized
appreciation (depreciation) on investment securities. Changes in the
value of other assets and liabilities resulting from changes in foreign
exchange rates are recorded as unrealized foreign currency gains
(losses) until settled in cash, at which time realized foreign currency
gains (losses) are recognized.
3. FUTURES AND FORWARD CURRENCY CONTRACTS: The Fund utilizes Eurotop
futures contracts (European Portfolio) and Japanese-Nikkei 300 Index
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 redeeming 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 certain open futures
and
36
<PAGE> 39
forward currency contracts is required to be treated as realized gain
(loss) for Federal income tax purposes.
4. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
5. REPURCHASE AGREEMENTS: 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 a custodian bank until maturity of each repurchase
agreement. Provisions of the agreement require that the market value of
this collateral is sufficient in the event of default; however, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
6. OTHER: 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. 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, 1995, the Fund had contributed capital of
$230,000 to Vanguard (included in Other Assets), representing 1.1% of
Vanguard's capitalization. The Fund's directors and officers are also directors
and officers of Vanguard.
C. During the year ended December 31, 1995, 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 $176,116 $15,812
PACIFIC 107,854 3,337
EMERGING MARKETS 148,331 3,635
- ------------------------------------------------------------------------------
</TABLE>
D. At December 31, 1995, net 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 $237,485 $(33,303) $204,182
PACIFIC 134,907 (26,319) 108,588
EMERGING MARKETS 13,225 (22,594) (9,369)
- -------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the aggregate settlement value of open Eurotop futures
contracts (European Portfolio) and Japanese-Nikkei 300 Index futures contracts
(Pacific Portfolio) expiring in March 1996, the related unrealized
appreciation, and the market value of U.S. Treasury Bills 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 $15,156 $318 $ 692
PACIFIC 15,179 734 2,473
- -------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (continued)
Under the terms of open forward currency exchange contracts at December 31,
1995, the Portfolios were obligated to receive foreign currencies in exchange
for U.S. dollars as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(000)
-----------------------------------------------------
Unrealized
Portfolio/ Foreign U.S. Appreciation
Contract Date Currency Dollars (Depreciation)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPEAN
RECEIVE 3/20/96 ECU 11,582 $14,838 $ 10
- --------------------------------------------------------------------------------------------------------------
PACIFIC
RECEIVE 3/13/96 JPY 1,490,169 14,586 (308)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
ECU--European Currency Units.
JPY--Japanese Yen.
At December 31, 1995, the European, Pacific, and Emerging Markets Portfolios
had net unrealized foreign currency gains (losses) of $10,000, ($19,000), and
($3,000), respectively, resulting from the translation of other assets and
liabilities.
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
During the year ended December 31, 1995, the Portfolios realized net foreign
currency gains (losses) which increased (decreased) distributable net income
for tax purposes; accordingly such gains (losses) have been reclassified from
accumulated net realized gains (losses) to undistributed net income as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Increase (Decrease)
Undistributed
Net Income
Portfolio (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
EUROPEAN $ (44)
PACIFIC 521
EMERGING MARKETS 107
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain of the Fund's investments are in securities considered to be "passive
foreign investment companies," for which any unrealized appreciation and/or
realized gains are required to be included in distributable net investment
income for tax purposes. The European, Pacific, and Emerging Markets
Portfolios' distributions from passive foreign investment company income
totalled $256,000, $369,000, and $478,000, respectively, during the year ended
December 31, 1995. The Portfolios' overdistributed net income balances at
December 31, 1995, primarily reflect the cumulative prior and current years'
distributions from passive foreign investment company income.
At December 31, 1995, the Portfolios had available the following realized
capital losses to offset future net capital gains:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Expiration
Fiscal Year(s) Ending Amount
Portfolio December 31 (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PACIFIC 2003-2004 $2,559
EMERGING MARKETS 2003-2004 1,135
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F. The market values of securities on loan to broker/dealers at December
31, 1995, 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 $117,404 $125,410
PACIFIC 66,955 71,591
- ----------------------------------------------------------------------------------------------------------------------
</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.
38
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTS
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
European, Pacific, and Emerging Markets Portfolios of Vanguard International
Equity Index Fund (the "Fund") at December 31, 1995, and 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
January 31, 1996
39
<PAGE> 42
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 Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MacLAURY, President of The Brookings Institution; Director of American
Express Bank Ltd. and The St. Paul Companies, Inc.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications
Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and
The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Co. and
NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart
Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DiSTEFANO IAN A. MacKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM McNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
40
<PAGE> 43
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard Convertible
Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LIFEStrategy Funds
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
500 Portfolio
Total Stock Market Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Total Bond Market Portfolio
Short-Term Bond Portfolio
Intermediate-Term Bond Portfolio
Long-Term Bond Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Fund
U.S. Treasury Money Market Portfolio
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 Fixed Income
Securities Fund
Vanguard Admiral Fund
Vanguard Preferred Stock Fund
[THE VANGUARD GROUP(R) LOGO]
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.
Vanguard Financial Center
Valley Forge, Pennsylvania 19482
New Account Information:
1 (800) 662-7447
Shareholder Account Services:
1 (800) 662-2739
Q720-12/95
ON OUR COVER: On the evening of August 1, 1798, Lord Horatio Nelson sailed his
flagship, HMS Vanguard, into Egypt's Aboukir Bay. In a night encounter, the
British fleet annihilated Napoleon Bonaparte's ships of the line in what is
still considered to be the most complete victory ever recorded in naval
history. Our Report's cover illustration is Thomas Luny's 1830 painting, The
Battle Of The Nile, in which the French flagship, L'Orient, is shown as it
exploded at 10:00 p.m. under a gibbous moon.
<PAGE> 44
VANGUARD INTERNATIONAL EQUITY INDEX FUND
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 cover of the printed version of this report features Thomas Luny's 1830
painting "The Battle Of The Nile".
A photograph of John C. Brennan and John C. Bogle appears on the inside cover
top-center.
A running head featuring a sword, helmet, gloves and battleships in the
background appears at the top of pages one through ten.
A line chart of the Indexed Value between MSCI Select Emerging Markets (Free)
Index, Standard & Poor's 500 Index, MSCI Europe Index, and MSCI Pacific (Free)
Index for the fiscal years 1990 through 1995 appears at the top of page two.
Pie charts illustrating composite of World Financial Markets for the years 1989
and 1995 appear at the bottom of page four.
A line chart illustrating cumulative performance between European Portfolio,
Average European Fund, and MCSI Europe Index, average Annual Total Returns for
the period June 18, 1990, to December 31, 1995 appears at the top of page six.
A line chart illustrating cumulative performance between Pacific Portfolio,
Average Pacific/Japan Fund, and MSCI Pacific (Free) Index, average Annual Total
Returns for the period June 18, 1990, to December 31, 1995 appears at the
bottom of page six.
A line chart illustrating cumulative performance between Emerging Markets
Portfolio, Average Emerging Markets Fund, and the MSCI Select Emerging Markets
(Free) Index, average Annual Total Returns for the period May 4, 1994, to
December 31, 1995 appears at the top of page seven.
A running head featuring a cannon and battleships in the background appears at
the top of page eleven.
A running head featuring open log book, pen and battleships in the background
appears at the top of pages twelve through thirty nine.
A running head featuring a sextant, a map, and battleships in the background
appears at the top of page forty.
A running head featuring birds flying and ships in the background appears at
the top of the inside back cover.
