<PAGE> 1
VANGUARD INTERNATIONAL
EQUITY INDEX FUND
VANGUARD TOTAL
INTERNATIONAL PORTFOLIO
Annual Report
December 31, 1996
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our
course toward the twenty-first century. Our Report cover reflects that blending
of tradition and innovation, of past, present, and future.
The montage includes a bronze medallion with a likeness of our namesake, HMS
Vanguard (Lord Nelson's flagship at The Battle of the Nile); a clock built
circa 1816 in Scotland, featuring a portrait of Nelson (who is also shown,
accepting a surrender, in a detail from a nineteenth-century engraving); and
several views of our recently completed campus, which is steeped in nautical
imagery--from our buildings named after Nelson's warships (Victory, Majestic,
and Goliath are three shown), to our artwork and ornamental compass rose.
[PHOTO]
<PAGE> 2
[PHOTO]
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John C.
Bogle and President John J. Brennan. This Message continues to provide a candid
assessment of the Fund's performance relative to an appropriate unmanaged
market benchmark and a peer group of mutual funds with similar investment
policies. It also reviews the principal factors contributing to--and detracting
from--the returns earned by the Fund. To help you evaluate your Fund's
current-year performance, the Message includes a discussion of the Fund's
long-term investment results, as well as a look ahead to the prospects for the
coming year. A recap of the financial markets, which had been included as part
of the Chairman's letter, now appears in The Markets In Perspective. This
overview covers the world's financial markets, putting the results of the
Fund's strategy in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS. In this day
and age, many investors use detailed statistical information to evaluate their
mutual fund holdings, and our new Portfolio Profile furnishes shareholders with
comprehensive data on key characteristics--sector diversification, volatility,
top-ten holdings, among others--that ultimately define how a Fund is likely to
perform in various market environments. For this information to be used
effectively, we include a brief description of the profiled characteristics.
The Report From The Adviser (for our traditionally managed Funds) now covers
specific topics that we have defined as being the important ones for the
adviser to address--and we do our best to ensure that this Report is written in
the same simple and candid manner that characterizes all Vanguard
communications. Finally, each Adviser's Report will include an inset reminder
of the adviser's basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need for a
fair, candid, and clear presentation of your Fund's investment results and a
thorough portfolio review. We welcome any comments that you might have at any
time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
6
Performance
Summaries
8
Portfolio
Profiles
12
Financial
Statements
17
Report Of
Independent
Accountants
48
Directors, Trustees,
And Officers
INSIDE BACK COVER
<PAGE> 3
[PHOTO]
John C. Bogle
[PHOTO]
John J. Brennan
FELLOW SHAREHOLDER,
The four Vanguard international index portfolios provided solid
index-matching returns for shareholders during 1996. But it was a mixed year
for investing in world financial markets. European stock markets and emerging
markets on balance rose strongly, while Japan's stock market stumbled. As a
whole, the Morgan Stanley Capital International-Total International Index
provided a total return of +7.6% for U.S. investors, a far cry from the +23.0%
return on U.S. stocks during 1996.
As you would expect, our four international index portfolios provided
total returns (capital change plus reinvested dividends) that closely
paralleled those of their target market indexes. The adjacent table presents
the performance of each Portfolio and its MSCI index benchmark. Per-share
figures for each Portfolio, including its net asset value, income dividends,
and any capital gains distributions, are presented in the table that follows
this letter.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
TOTAL RETURNS
YEAR ENDED
DECEMBER 31, 1996
- -----------------------------------------------------------------------
<S> <C>
Vanguard European Portfolio +21.3%
MSCI-Europe Index +21.4
- -----------------------------------------------------------------------
Vanguard Pacific Portfolio - 7.8%
MSCI-Pacific (Free) Index - 8.2
- -----------------------------------------------------------------------
Vanguard Emerging Markets Portfolio +15.8%
MSCI-Select Emerging Markets (Free) Index +15.2
- -----------------------------------------------------------------------
Vanguard Total International Portfolio + 7.6%*
MSCI-Total International Index + 7.6
- -----------------------------------------------------------------------
</TABLE>
*Performance figure for an account invested in a combination of the three
underlying Portfolios, weighted in accordance with the Total International
Portfolio's allocation guidelines. Actual performance since the Portfolio's
inception on April 29, 1996, was +0.6% versus +0.6% for the Index.
1996 PERFORMANCE OVERVIEW
The developed markets of Europe and Japan were divided by more than physical
distance in 1996. Returns from most of Europe were generous, while Japanese
stocks had a very disappointing year.
The uptrend on Europe's bourses was remarkably steady, with positive
returns in every month but July. For the year, the MSCI-Europe Index provided a
+23.4% return in local currency returns, reduced to +21.4% by an increase of
2.0% on average in the value of the U.S. dollar versus European currencies. A
common theme in Europe was the awakening of corporate managements to a
U.S.-style focus on increasing shareholder value through corporate
restructurings and other steps.
Overall, the MSCI-Pacific Index, dominated by Japan, was unchanged for the
year, but the dollar's sharp rise in value had the effect of generating a loss
of -8.2% for the Pacific Index, as a springtime rally in Tokyo fizzled and
stocks retreated. For the full year, the return for Japan was -4.8% measured in
yen, deepened to -15.4% for U.S. investors by a very weak yen. Japan's downturn
stemmed from concerns about economic policy and the weakness of Japanese banks.
Returns from most emerging markets were strong. A big exception was Korea,
where the market lost a third of its value during 1996 amid political turmoil
and economic
1
<PAGE> 4
uncertainty. The MSCI-Select Emerging Markets Index rose by +25.5%--right up
there with the U.S. and European markets--but again, a strong dollar pared the
gain by -10.3% to +15.2% for the U.S. investor.
The dollar's muscular performance against most other currencies was due in
part to the continuing strength of the economy and the stock market and
relatively higher interest rates in the United States. As investments in
businesses and in the U.S. financial markets attracted capital from abroad, the
demand for dollars increased and so did the dollar's price in relation to other
currencies. As the dollar strengthened, foreign investments denominated in
other currencies were worth fewer dollars, and returns to U.S. investors were
diminished. The adjacent table presents returns on market indexes in both local
currencies and U.S. dollars, as well as the currency impact that accounts for
the differences.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
TOTAL RETURNS
YEAR ENDED
DECEMBER 31, 1996
----------------------------------------
LOCAL
CURRENCY CURRENCY U.S. DOLLAR
INDEX RETURN IMPACT RETURN
- ----------------------------------------------------------------------
<S> <C> <C> <C>
United States +23.0% -- +23.0%
- ----------------------------------------------------------------------
Europe +23.4% - 2.0% +21.4%
Pacific 0.0 - 8.2 - 8.2
Emerging Markets +25.5 -10.3 +15.2
Total International +14.8 - 7.2 + 7.6
- ----------------------------------------------------------------------
</TABLE>
The risk posed by currency fluctuations--felt especially strongly by
shareholders in our Emerging Markets and Pacific Portfolios during 1996--comes
in addition to the normal business and stock market risks encountered with any
investment in equities. Of course, the exchange-rate effect can work in two
directions. In periods when the dollar loses ground against other
currencies--as from 1985 to 1995, for example--returns earned abroad are
enhanced for U.S. investors.
During 1996 Vanguard's international index portfolios tracked the markets
in which they invest with remarkable success. The return on our Total
International Portfolio was "spot on" that of its benchmark index and our
Pacific and Emerging Markets Portfolios slightly outpaced their index
benchmarks, while our European Portfolio's return fell short of its index
standard by a tiny -0.1%. Such tight tracking is difficult to accomplish, since
the indexes exist only on paper and bear neither the operating and advisory
expenses nor the transaction costs incurred by our Portfolios and other
real-world funds. Also, we occasionally experience tracking variations in our
returns versus those on the target indexes because each Portfolio owns only a
sampling (if a large and carefully selected one) of the stocks in its target
index.
In seeking to track the indexes, we are aided by our rock-bottom operating
expenses and by the fact that our index-oriented portfolios keep turnover low,
which minimizes transaction costs. Our tracking is also aided by our
long-standing policy of levying modest transaction fees on new purchases. These
fees are paid directly to the Portfolios with each new purchase to compensate
existing shareholders for the cost of investing assets from new purchases.
During 1996, as our assets continued to grow, the transaction fees for the
Pacific and Emerging Markets Portfolios more than offset the trading costs
associated with net purchases of securities. For this reason, we have lowered
transaction fees on three Portfolios. Effective January 2, 1997, the fees
dropped from 2% to 1.5% on the Emerging Markets Portfolio, from 1% to 0.75% on
the Total International Portfolio, and from 1% to 0.5% on the Pacific
Portfolio.
2
<PAGE> 5
Tracking the indexes is, of course, just part of our job. The other part
is to outperform our peers. In this, we were less successful during 1996,
except for our Emerging Markets Portfolio, whose return nicely outdistanced
that of the average competitor. The adjacent table presents our 1996 returns
and the average returns of competing funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
TOTAL RETURNS
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
EUROPEAN PACIFIC EMERGING TOTAL
MARKETS MARKETS MARKETS INTERNATIONAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vanguard Portfolio +21.3% -7.8% +15.8% + 7.6%
- ------------------------------------------------------------------------------------------------
Average Competitive Fund* +23.9% -1.6% +11.2% +11.8%
- ------------------------------------------------------------------------------------------------
Competitive Margin - 2.6% -6.2% + 4.6% - 4.2%
- ------------------------------------------------------------------------------------------------
</TABLE>
*The Average Competitive Fund for our Pacific Portfolio is from a group of both
Pacific Region funds and mutual funds investing largely in Japan.
Our Emerging Markets Portfolio benefited in relation to many of its peers
since its Index has no stake in Korea and has a relatively big stake in Brazil
(13% of assets versus 10% for our average competitor). We also were aided by a
significant tailwind in the form of our cost advantage--annual operating
expenses amounting to 0.60% of average assets and transaction costs of less
than 0.20%. Our average competitor incurs an expense ratio of about 2% and
transaction costs of perhaps 1%, giving us a theoretical natural advantage of
about two percentage points each year.
After surpassing our peers during each of our first six years of
operations, our European Portfolio lagged during 1996. There were several
reasons for the shortfall. First, our Portfolio invests in larger companies
than the typical competitor (our median market capitalization is roughly three
times higher than the average European stock fund), and small-capitalization
stocks there did better than large-cap issues. Second, both the Portfolio and
our target index are more heavily weighted toward the large economies (Germany,
the United Kingdom, France, and Switzerland) than the average competitor, and
some of Europe's best-performing markets were elsewhere--notably, Ireland,
Sweden, and Norway. Third, many of our competitors benefited in 1996 by hedging
against the dollar's rise. Our international index portfolios do not hedge
against currency risk because we believe that hedging is expensive and is
unlikely to add value over the long run.
Our no-hedging policy also hurt the relative return of our Total
International Portfolio in 1996. But much more damage was done by the fact
that, conforming to its target index, the Portfolio maintained a bigger
weighting than competing funds in Japan--about 30% of the International Index
versus less than 25% for the average competitor.
Similarly, our Pacific Portfolio (and its target index) had on average
about 75% of its assets in Japan versus about 30% for the average competing
fund. The Japanese stock market's woes and the depreciation of the yen against
the dollar therefore had a larger effect on our return than on our
competitors'. Obviously, our concentration in Japan helps us in comparisons
with our peers when the Japanese stock market is relatively strong. While Japan
dominated world returns in much of the 1970s and 1980s, such periods have been
few and fleeting during the 1990s.
LIFETIME PERFORMANCE OVERVIEW
None of our Portfolios is a graybeard. Our two original Portfolios have been in
operation for 6 1/2 years, while our Emerging Markets Portfolio now has a bit
more than 2 1/2 years
3
<PAGE> 6
under its belt. Our Total International Portfolio, of course, has just
completed its first year of operation.
The adjacent table presents the returns since inception for the three
Portfolios that have been in existence more than a year. It also shows the
returns, for the same periods, of each Portfolio's average competitor and its
relevant index standard.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ANNUALIZED TOTAL RETURNS
FROM INCEPTION* THROUGH DEC. 31, 1996
--------------------------------------------
EMERGING
EUROPEAN PACIFIC MARKETS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard Portfolio +10.9% +1.9% +9.7%
- ------------------------------------------------------------------------------------------
Average Competitive Fund + 7.7 +4.4 +5.8
- ------------------------------------------------------------------------------------------
MSCI Market Index +11.3 +1.8 +7.0
- ------------------------------------------------------------------------------------------
Competitive Margin + 3.2 -2.5 +3.9
- ------------------------------------------------------------------------------------------
Index Margin - 0.4 +0.1 +2.7
- ------------------------------------------------------------------------------------------
</TABLE>
*European and Pacific Portfolios (6/18/90); Emerging Markets Portfolio
(5/4/94).
All three Portfolios have done a good job of tracking their benchmark
indexes, with the Pacific and Emerging Markets Portfolios actually exceeding
their index returns.
The European Portfolio's shortfall of -0.4% annually versus its Index is
essentially equal to the Portfolio's expense ratio of 0.35%. The Index,
existing only on paper, has no expenses, of course. Just as each of our
Portfolios is at a modest expense disadvantage versus its cost-free target
index, each has an annual expense advantage over the average competing mutual
fund of at least one percentage point. We believe our expense advantage is
sustainable.
However, as you can see in the table above, our record is mixed relative
to traditionally managed international funds. Our Emerging Markets and European
Portfolios have significantly outperformed their peers. Our Pacific Portfolio,
burdened by the sharp decline in the Japanese stock market since the
Portfolio's inception, has provided returns that have been quite disappointing
in both absolute and relative terms. We do not regard this weakness as a sign
that indexing somehow doesn't work, but rather as an indication that U.S.
managers look at such a high proportion of assets in the Japanese market as
providing too much concentration. In the final analysis, however, know that
world investors as a group have about 30% of their non-U.S. equity holdings in
Japan.
We should emphasize that returns from international stocks have fluctuated
widely from year to year in the past--and they certainly will continue to do
so--so future returns may be higher or lower than those achieved during the
lifetimes of our Portfolios.
IN SUMMARY
The dazzling performance of U.S. stocks in 1995 and 1996--the Standard & Poor's
500 Composite Stock Price Index has provided a cumulative return of nearly +70%
over the two-year span--have left international markets looking dim by
comparison, with a gain of less than +20% in the Total International Index. But
we believe that the main reason to invest internationally--greater
diversification--is still valid, particularly when combined with the benefits
of a low-cost, indexed investment approach.
We continue to believe that a limited commitment to international equities
is a solid choice for investors who seek an extra element of diversification as
part of a balanced investment program in which the core comprises U.S. stock
funds, bond funds, and money market funds. And just as we believe that "staying
the course" with such a balanced program is good advice for mutual fund
investors, we will continue to hold to the course of
4
<PAGE> 7
wide diversification, low cost and low turnover on which we sail with our
international index portfolios.
/S/ JOHN C. BOGLE /s/ JOHN BRENNAN
Chairman of the Board President
January 27, 1997
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
DECEMBER 31, DISTRIBUTIONS FROM DIVIDENDS FROM
------------------------- NET REALIZED NET INVESTMENT
PORTFOLIO 1995 1996 CAPITAL GAINS INCOME
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
European $14.02 $16.57 $0.06 $0.36
Pacific 11.50 10.51 0.00 0.09
Emerging Markets 10.75 12.28 0.00 0.17
Total International 9.59 10.14 0.02 0.16
- ----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
THE MARKETS IN PERSPECTIVE: YEAR ENDED DECEMBER 31, 1996
[PHOTO]
U.S. EQUITY MARKETS
The stock market in 1996 could not match its astonishing 37.6% return of the
previous year--but it made a good run, with the Standard & Poor's 500 Composite
Stock Price Index up by 23.0%. When the two years are considered cumulatively,
the S&P 500 Index has risen 69.2%. Not surprisingly, many of the factors that
drove the market higher in 1995 were still at work: Once again, steady economic
growth, low inflation, and solid earnings growth were powerful motivators.
The market's gains, however, were far from evenly distributed. Investors
strongly favored larger companies, such as those that dominate the S&P 500
Index. In fact, even within the Index, it was the largest companies that
prevailed: The 50 biggest (which account for roughly half the Index's market
value) gained 26.7% in 1996, compared with an increase of 23.0% for the entire
Index. Looking at the S&P 500 Index's performance by sector, technology stocks
were strongest, closing the year with a 42.5% gain. Financial stocks were a
close second, gaining 35.5%. Utilities, plagued early in the year by higher
interest rates and a rapidly changing competitive landscape, eked out a meager
1.8% return, the lowest within the Index.
With the largest companies performing so well, most smaller issues could
not keep pace. This was evidenced in the considerable difference between the
23.0% return of the S&P 500 Index and the 16.5% return of the Russell 2000
Index of small stocks. Even for the smaller companies, there was a significant
range of performance among sectors. Energy stocks led the Russell 2000 Index
with a 62.0% gain for the year. Here, rising prices, limited exposure to the
cyclical refining business, and a reduced number of competitors created a
favorable environment for the stocks. At the other end of the spectrum were
health-care stocks, which showed a loss of -3.3%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED DECEMBER 31, 1996
----------------------------------
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 23.0% 19.7% 15.2%
Russell 2000 Index 16.5 13.7 15.6
MSCI-EAFE Index 6.4 8.6 8.5
- ---------------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 3.6% 6.0% 7.0%
Lehman 10-Year Municipal
Bond Index 4.5 5.3 7.5
Salomon 90-Day U.S. Treasury Bills 5.3 5.1 4.4
- ---------------------------------------------------------------------------
Other
Consumer Price Index 3.3% 2.8% 2.8%
- ---------------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
At year-end, the yield on the 30-year U.S. Treasury bond was 6.64%, noticeably
higher than its 5.95% level on December 31, 1995. The change in rates during
1996 reflects increased concern about the prospects for rising inflation, due
to indications of greater than expected strength in the economy.
When the year began, the general expectation was that modest economic
growth and benign inflation would continue, giving the Federal Reserve no
reason to boost inter-
6
<PAGE> 9
est rates. That complacency was shattered by an exceptionally strong February
jobs report, the first of what turned out to be a succession of signs that in
fact the economy was growing at a much faster--and potentially
inflation-inducing--pace. The bond market reacted swiftly to meet the perceived
risk: The 30-year Treasury bond's yield jumped from just below 6.0% at the end
of 1995 to 6.7% in late March. The next several months saw a consistent pattern
in which bond yields rose on the Friday of the jobs-report release only to fall
back by the middle of the month. Hindsight shows that most of the worry was
wasted: Inflation, as measured by the Consumer Price Index, remained near an
annualized rate of 3.3%. But increasing signs of growth in late November and
December reignited inflation concerns and caused bonds to finish the year on a
sour note.
Despite the numerous setbacks suffered by the bond market in 1996, indexes
were able to finish the year with positive total returns. Although the specter
of the Federal Reserve Board loomed large during the year, in fact the Board
acted only once, lowering the federal funds rate by a total of 0.25% in
January.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots in 1996. The strength in earnings that benefited stock
prices extended to the corporate bond sector as well. These bonds, especially
those of lower credit quality, performed well relative to Treasuries, supported
by general confidence in companies' ability to meet payments. The
stable-to-rising interest-rate environment throughout most of the year
benefited another large segment of the bond market--mortgage-backed
securities--as the threat of refinancings receded. Finally, municipal bonds
outpaced their U.S. Treasury counterparts. The sector was shielded to a certain
extent from the inflation wars of the Treasury market, as demand outstripped
supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Investors who assess international markets by the often-cited EAFE
benchmark--the Morgan Stanley Capital International-Europe, Australasia, Far
East Index, with its 1996 return of 6.4%--could have overlooked a striking
regional disparity between the Euro-pean and Pacific markets. Europe's markets
gained 21.4% during the year, while their Pacific counterparts posted a decline
of -8.2%. Clearly, the outlook and environments that characterized the
European and Far East markets were quite different.
The poor returns in the Pacific region largely reflected ongoing concern
about the health of the Japanese economy. Growth in Japan has remained modest
at best for several years despite government efforts to stimulate the economy
through public works programs and tax incentives. In Europe, the picture was
dramatically different, with the region benefiting from a variety of factors.
Among the most important were (1) ongoing efforts to lower government deficits
consistent with the Maastricht Treaty guidelines, (2) improving economic
growth, and (3) a greater commitment by corporate executives to increasing
"shareholder value."
7
<PAGE> 10
PERFORMANCE SUMMARY: EUROPEAN PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 6/18/90-12/31/96
- -------------------------------------------------------
EUROPEAN PORTFOLIO MSCI-EUROPE
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------
<S> <C> <C> <C> <C>
1990 -8.7% 1.5% -7.2% -6.4%
1991 9.5 2.9 12.4 14.1
1992 -5.9 2.6 -3.3 -3.9
1993 27.3 1.8 29.1 29.3
1994 -0.5 2.4 1.9 2.8
1995 19.6 2.7 22.3 22.1
1996 18.6 2.7 21.3 21.4
- -------------------------------------------------------
</TABLE>
See Financial Highlights table on page 41 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: 6/18/90-12/31/96
[GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1996
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EUROPEAN PORTFOLIO* 20.01% 13.24% 10.66% $19,387
AVERAGE EUROPEAN FUND 23.88 11.16 7.67 16,213
MSCI-EUROPE INDEX 21.42 13.61 11.35 20,190
- --------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the 1% transaction fee on purchases and
the $10 annual account maintenance fee.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 12/31/96
- --------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
European Portfolio* 6/18/90 20.01% 13.24% 8.19% 2.47% 10.66%
- --------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the 1% transaction fee on purchases and
the $10 annual account maintenance fee.
8
<PAGE> 11
PERFORMANCE SUMMARY: PACIFIC PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolio could lose money. Average Annual Total Returns: Periods Ended
12/31/96
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 6/18/90-12/31/96
- ----------------------------------------------------------------
PACIFIC PORTFOLIO MSCI-PACIFIC
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
1990 -14.3% 0.3% -14.0% -15.0%
1991 10.0 0.7 10.7 11.5
1992 -18.7 0.5 -18.2 -18.5
1993 34.7 0.8 35.5 36.1
1994 12.2 0.8 13.0 12.8
1995 1.7 1.0 2.7 2.9
1996 -8.6 0.8 -7.8 -8.2
- ----------------------------------------------------------------
</TABLE>
See Financial Highlights table on page 42 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: 6/18/90-12/31/96
[GRAPH]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1996
-----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PACIFIC PORTFOLIO* -8.79% 3.22% 1.65% $11,133
AVERAGE PACIFIC FUND -1.62 6.38 4.36 13,216
MSCI-PACIFIC (FREE) INDEX -8.23 3.40 1.76 11,206
- ---------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the 1% transaction fee on purchases and
the $10 annual account maintenance fee.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 12/31/96
- --------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pacific Portfolio* 6/18/90 -8.79% 3.22% 0.98% 0.67% 1.65%
- --------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the 1% transaction fee on purchases and
the $10 annual account maintenance fee.
9
<PAGE> 12
PERFORMANCE SUMMARY: EMERGING MARKETS PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolio could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 5/4/94-12/31/96
- -----------------------------------------
EMERGING MARKETS PORTFOLIO MSCI*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------
<S> <C> <C> <C> <C>
1994 9.1% 0.7% 9.8% 3.8%
1995 -1.1 1.7 0.6 0.0
1996 14.2 1.6 15.8 15.2
- -----------------------------------------
</TABLE>
*MSCI-Select Emerging Markets (Free) Index.
See Financial Highlights table on page 42 for dividend and capital gains
information since the Portfolio's inception.
CUMULATIVE PERFORMANCE: 5/4/94-12/31/96
[GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1996
-------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKETS PORTFOLIO* 12.33% 8.38% $12,387
AVERAGE EMERGING MARKETS FUND 11.21 5.76 11,607
MSCI-SELECT EMERGING
MARKETS (FREE) INDEX 15.19 6.95 11,958
- ----------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the 2% transaction fee on purchases, the
1% transaction fee on redemptions, and the $10 annual account maintenance fee.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 12/31/96
- -------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Portfolio* 5/4/94 12.33% 6.95% 1.43% 8.38%
- -------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the 2% transaction fee on purchases, the
1% transaction fee on redemptions, and the $10 annual account maintenance fee.
10
<PAGE> 13
PERFORMANCE SUMMARY: TOTAL INTERNATIONAL PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Both share
price and return can fluctuate widely so that an investment in the Portfolio
could lose money.
CUMULATIVE PERFORMANCE: 12/31/95-12/31/96
[GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
TOTAL RETURNS FINAL VALUE OF A
SINCE INCEPTION $10,000 INVESTMENT
- -------------------------------------------------------------------------
<S> <C> <C>
TOTAL INTERNATIONAL PORTFOLIO* 6.45% $10,645
AVERAGE INTERNATIONAL FUND 11.83 11,183
MSCI-TOTAL INTERNATIONAL INDEX 7.55 10,755
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 12/31/96
- -------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------
DATE CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total International Portfolio* 12/31/95 4.83% 1.62% 6.45%
- -------------------------------------------------------------------------------------
</TABLE>
*Performance figures for an account invested in a combination of the three
underlying Portfolios, weighted in accordance with the Total International
Portfolio's allocation guidelines. Actual performance since the Portfolio's
inception on April 29, 1996, was -0.5% versus 0.6% for the Index and 3.7% for
the average international fund. Performance figures are adjusted for the 1%
transaction fee on purchases and the $10 annual account maintenance fee.
11
<PAGE> 14
PORTFOLIO PROFILE: EUROPEAN PORTFOLIO
DECEMBER 31, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to its unmanaged target index. Key elements of this Profile
are defined on page 13.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -----------------------------------------
EUROPEAN MSCI-
PORTFOLIO EUROPE
- -----------------------------------------
<S> <C> <C>
Number of Stocks 549 573
Turnover Rate 4% --
Expense Ratio 0.35% --
Cash Reserves 0.5% --
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------
EUROPEAN MSCI-
PORTFOLIO EAFE
- -----------------------------------------
<S> <C> <C>
R-Squared 0.56 1.00
Beta 0.67 1.00
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------
<S> <C>
Royal Dutch Petroleum Co. 2.8%
Novartis AG (Registered) 2.3
British Petroleum Co., PLC 2.1
Glaxo Wellcome PLC 1.8
Roche Holding AG
(Dividend-Right Certificates) 1.7
Deutsche Telekom AG 1.4
Ente Nazionale Idrocarburi SPA 1.3
Nestle SA (Registered) 1.3
Allianz AG Holding 1.3
British Telecommunications PLC 1.3
- --------------------------------------------
Top Ten 17.3%
</TABLE>
<TABLE>
<CAPTION>
COUNTRY DIVERSIFICATION (% OF COMMON STOCK)
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------------------------------------
EUROPEAN PORTFOLIO EUROPEAN PORTFOLIO MSCI-EUROPE
---------------------------------------------------------
<S> <C> <C> <C>
Austria . . . . . . . . . . . . . . . 0.6% 0.8% 0.7%
Belgium . . . . . . . . . . . . . . . 2.3 2.0 2.1
Denmark . . . . . . . . . . . . . . . 1.6 1.7 1.6
Finland . . . . . . . . . . . . . . . 1.1 1.3 1.2
France . . . . . . . . . . . . . . . . 12.7 12.0 12.3
Germany . . . . . . . . . . . . . . . 13.7 14.2 14.5
Hong Kong . . . . . . . . . . . . . . 0.3 0.3 0.0
Ireland . . . . . . . . . . . . . . . 0.5 0.6 0.6
Italy . . . . . . . . . . . . . . . . 4.4 5.3 5.4
Netherlands . . . . . . . . . . . . . 8.2 8.2 8.4
Norway . . . . . . . . . . . . . . . . 0.9 1.0 1.0
Spain . . . . . . . . . . . . . . . . 3.5 3.7 4.0
Sweden . . . . . . . . . . . . . . . . 4.1 4.1 4.5
Switzerland . . . . . . . . . . . . . 12.1 10.0 10.0
United Kingdom . . . . . . . . . . . . 34.0 34.8 33.7
- -----------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
[PHOTO]
AVERAGE WEIGHTED EXPENSE RATIO. Portfolios that invest in other Vanguard funds
incur no direct expenses, but do bear their share of the operating,
administrative, and advisory expenses of the underlying funds. The average
weighted expense ratio is the average of these expense ratios, weighted in
proportion to the amount of the portfolio represented by each underlying fund.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the fluctuations in the overall market (or appropriate market
index). The market, or index, has a beta of 1.00, so a portfolio with a beta of
0.80 would have seen its share price rise or fall by 8% when the overall market
rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing investments.
COUNTRY DIVERSIFICATION. The percentage of a global or international
portfolio's common stock invested in securities of various countries.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a portfolio
holds, the more diversified it is and the more likely it is to perform in line
with the overall stock market.
PORTFOLIO ALLOCATION. This table shows the distribution of a portfolio's
holdings in other Vanguard portfolios.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
TEN LARGEST HOLDINGS. The percentage of a portfolio's total net assets in its
ten largest stocks (the average for stock mutual funds is about 25%). As this
percentage rises, a portfolio's returns are likely to be more volatile since
they are more dependent on the fortunes of a few companies.
TURNOVER RATE. Indicates trading activity during the past year. Portfolios with
high turnover rates incur higher transaction costs and are more likely to
realize and distribute capital gains (which are taxable to investors).
13
<PAGE> 16
PORTFOLIO PROFILE: PACIFIC PORTFOLIO
DECEMBER 31, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to its unmanaged target index. Key elements of this Profile
are defined on page 13.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -----------------------------------------
PACIFIC MSCI-
PORTFOLIO PACIFIC
- -----------------------------------------
<S> <C> <C>
Number of Stocks 498 525
Turnover Rate 9% --
Expense Ratio 0.35% --
Cash Reserves 0.1% --
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------
PACIFIC MSCI-
PORTFOLIO EAFE
- -----------------------------------------
<S> <C> <C>
R-Squared 0.86 1.00
Beta 1.30 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -------------------------------------------------
<S> <C>
Toyota Motor Corp. 4.3%
The Bank of Tokyo-Mitsubishi Ltd. 2.6
Sumitomo Bank Ltd. 1.8
Industrial Bank of Japan Ltd. 1.8
Fuji Bank Ltd. 1.7
Matsushita Electric Industrial Co., Ltd. 1.4
Hitachi Ltd. 1.3
Sun Hung Kai Properties Ltd. 1.2
Tokyo Electric Power Co. 1.2
Nomura Securities Co., Ltd. 1.2
- -------------------------------------------------
Top Ten 18.5%
</TABLE>
<TABLE>
<CAPTION>
Country Diversification (% of Common Stock)
- -------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------------------------------------
PACIFIC PORTFOLIO PACIFIC PORTFOLIO MSCI-PACIFIC
---------------------------------------------------------
<S> <C> <C> <C>
Australia . . . . . . . . . . . . . . 5.3% 6.9% 6.7%
Hong Kong . . . . . . . . . . . . . . 6.3 8.8 8.6
Japan . . . . . . . . . . . . . . . . 80.2 73.1 73.9
Malaysia . . . . . . . . . . . . . . . 4.2 6.1 5.9
New Zealand . . . . . . . . . . . . . 0.8 0.9 0.9
Singapore . . . . . . . . . . . . . . 3.2 4.2 4.0
- -------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
PORTFOLIO PROFILE: EMERGING MARKETS PORTFOLIO
DECEMBER 31, 1996
This Profile provides a snapshot of the Portfolio's characteristics, compared
where appropriate to its unmanaged target index. Key elements of this Profile
are defined on page 13.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -----------------------------------------
EMERGING
MARKETS MSCI-
PORTFOLIO SELECT*
- -----------------------------------------
<S> <C> <C>
Number of Stocks 527 631
Turnover Rate 1% --
Expense Ratio 0.60% --
Cash Reserves 5.2% --
</TABLE>
*MSCI-Select Emerging Markets (Free) Index.
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- ------------------------------------------------
<S> <C>
Telecomunicacoes Brasileiras SA Pfd. 2.8%
Telekom Malaysia Bhd. 2.2
Centrais Electricas Brasileiras SA 2.0
Sun Hung Kai Properties Ltd. 1.9
Tenaga Nasional Bhd. 1.8
PT Telekomunikasi Indonesia (Foreign) 1.8
Hutchison Whampoa Ltd. 1.8
Malayan Banking Bhd. 1.6
Telefonos de Mexico SA Series L 1.6
Hang Seng Bank Ltd. 1.5
- ------------------------------------------------
Top Ten 19.0%
</TABLE>
<TABLE>
<CAPTION>
COUNTRY DIVERSIFICATION (% OF COMMON STOCK)
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------------------------------------
EMERGING MARKETS EMERGING MARKETS MSCI-
PORTFOLIO PORTFOLIO SELECT
----------------------------------------------------
<S> <C> <C> <C>
Argentina . . . . . . . . . . . . . . 5.3% 3.8% 3.8%
Brazil . . . . . . . . . . . . . . . . 14.3 13.7 13.8
Greece . . . . . . . . . . . . . . . . 1.7 1.3 1.3
Hong Kong . . . . . . . . . . . . . . 14.7 14.1 13.6
Indonesia . . . . . . . . . . . . . . 6.4 6.1 6.1
Israel . . . . . . . . . . . . . . . . 0.0 2.3 2.3
Malaysia . . . . . . . . . . . . . . . 20.4 18.7 18.6
Mexico . . . . . . . . . . . . . . . . 11.1 9.1 9.0
Philippines . . . . . . . . . . . . . 3.8 3.7 3.8
Portugal . . . . . . . . . . . . . . . 2.3 2.2 2.2
Singapore . . . . . . . . . . . . . . 6.6 6.6 6.4
South Africa . . . . . . . . . . . . . 0.0 11.6 12.2
Thailand . . . . . . . . . . . . . . . 12.0 5.3 5.4
Turkey . . . . . . . . . . . . . . . . 1.4 1.5 1.5
- ----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
PORTFOLIO PROFILE: TOTAL INTERNATIONAL PORTFOLIO
DECEMBER 31, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 13.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ------------------------------------------------
<S> <C>
Expense Ratio 0%
Average Weighted Expense Ratio* 0.38%
</TABLE>
*For underlying portfolios.
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION
- -------------------------------------------
<S> <C>
Vanguard International Equity
Index Fund-
European Portfolio 48.3%
Pacific Portfolio 38.2
Emerging Markets Portfolio 13.5
- -------------------------------------------
Total 100.0%
</TABLE>
16
<PAGE> 19
[PHOTO]
FINANCIAL STATEMENTS
DECEMBER 31, 1996
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings, including
each security's market value on the last day of the reporting period. European,
Pacific and Emerging Market Portfolio securities are grouped and subtotaled by
asset type (common stocks, bonds, etc.) and by country; the Total International
Portfolio lists investments in shares of each Vanguard International Equity
Index Portfolio. Other assets are added to, and liabilities are subtracted
from, the value of Total Investments to calculate the Portfolio's Net Assets.
Finally, Net Assets are divided by the outstanding shares of the Portfolio to
arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Portfolio's net assets on both a dollar and per-share
basis. Because all income and any realized gains must be distributed to
shareholders each year, the bulk of net assets consists of Paid in Capital
(money invested by shareholders). The amounts shown for Undistributed Net
Investment Income and Accumulated Net Realized Gains usually approximate the
sums the Portfolio had available to distribute to shareholders as income
dividends or capital gains as of the statement date, but may differ because
certain investments or transactions may be treated differently for financial
statement and tax purposes. Any Accumulated Net Realized Losses, and any
cumulative excess of distributions over net income or net realized gains, will
appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the Portfolio's investments and their
cost, and reflects the gains (losses) that would be realized if the Portfolio
were to sell all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
EUROPEAN PORTFOLIO SHARES (000)
- -------------------------------------------------------------
COMMON STOCKS (98.5%)(1)
- -------------------------------------------------------------
<S> <C> <C>
AUSTRIA (0.8%)
# Austrian Airlines AG 3,103 $ 472
Bank Austria AG Pfd. 7,420 288
Bank Austria AG 35,772 2,640
Boehler-Uddeholm AG 700 50
BWT Best Water Technology AG 2,860 295
Creditanstalt-Bankverein AG 17,640 1,193
Creditanstalt-Bankverein AG Pfd. 11,958 552
EA-Generali AG 3,581 1,057
EA-Generali AG Pfd. 214 26
Lenzing AG 4,480 286
OMV AG 11,697 1,318
Oesterreichische
Brau-Beteiligungs AG 10,790 732
Oesterreichische
Elektrizitaetswirtschafts AG
Class A 21,075 1,576
Radex-Heraklith
Industriebeteiligungs AG 10,617 336
# Steyr-Daimler-Puch AG 14,144 226
Universale-Bau AG 1,000 46
Wienerberger
Baustoffindustrie AG 5,080 984
------------
12,077
------------
BELGIUM (2.0%)
Bekaert SA 1,837 1,165
CBR Cimenteries SA 16,650 1,512
Delhaize-Le Lion SA 32,928 1,954
Electrabel SA 25,532 6,036
Fortis AG 19,013 3,047
Generale de Banque SA 7,660 2,743
Gevaert NV 15,900 1,101
Glaverbel SA 4,059 471
Groupe Bruxelles Lambert SA 10,850 1,395
Petrofina SA 7,660 2,436
Royale Belge SA 9,310 1,920
Solvay SA 4,225 2,584
Tractebel SA 7,770 3,614
# Tractebel SA Put Warrants
Exp. 11/1/99 7,770 113
# Union Miniere SA 17,668 1,196
------------
31,287
------------
DENMARK (1.7%)
Aarhus Oliefabrik A/S A Shares 2,220 115
Aarhus Oliefabrik A/S B Shares 2,240 116
Bang & Olufsen Holding A/S
B Shares 7,200 349
Carlsberg A/S A Shares 12,675 855
Carlsberg A/S B Shares 8,449 570
D/S 1912 B Shares 80 2,055
D/S Svendborg B Shares 89 3,334
Danisco A/S 31,635 1,920
Den Danske Bank A/S 23,200 1,868
# East Asiatic Co. A/S 7,200 156
FLS Industries A/S B Shares 9,048 1,158
GN Store Nord A/S 1,150 112
ISS International Service Systems
A/S B Shares 34,419 904
# J. Lauritzen Holding A/S B Shares 5,965 698
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
EUROPEAN PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Korn OG Foderstof Kompagniet A/S 5,210 $ 211
NKT Holding A/S 14,200 843
Novo Nordisk A/S B Shares 15,566 2,929
Radiometer A/S B Shares 6,508 386
SAS Danmark A/S 24,480 303
Sophus Berendsen A/S A Shares 3,883 500
Sophus Berendsen A/S B Shares 10,100 1,298
Superfos A/S 8,330 1,052
Tele Danmark A/S B Shares 64,695 3,564
Unidanmark A/S A Shares 25,677 1,328
------------
26,624
------------
FINLAND (1.2%)
Amer Group Ltd. 12,020 248
Cultor Oy - Series 1 2,750 149
Cultor Oy - Series 2 12,120 623
Instrumentarium Group A Shares 1,000 37
Instrumentarium Group B Shares 3,140 114
Kemira Oy 21,730 273
Kesko Oy 26,370 371
Kone Oy B Shares 8,748 964
# Merita Ltd. A Shares 400,667 1,243
Metra Oy A Shares 3,170 178
Metra Oy B Shares 17,128 959
Nokia AB Oy A Shares 79,300 4,590
Nokia AB Oy K Shares 63,200 3,647
Outokumpu Oy A Shares 53,050 904
Pohjola Insurance Co., Ltd.
A Shares 21,688 513
Pohjola Insurance Co., Ltd.
B Shares 6,300 141
Sampo Insurance Co., Ltd.
A Shares 7,601 599
Stockmann AB Oy A Shares 12,300 747
Stockmann AB Oy B Shares 1,380 82
# UPM-Kymmene Oy 169,523 3,549
------------
19,931
------------
FRANCE (11.8%)
AXA SA 104,046 6,605
Accor SA 22,005 2,781
Alcatel Alsthom SA 72,087 5,779
Banque Nationale de Paris SA 104,230 4,026
Bongrain SA 160 62
Bouygues SA 9,492 982
Canal Plus SA 15,450 3,406
Carrefour SA 19,276 12,518
# Chargeurs International SA 4,031 199
Club Mediterranee SA 7,560 490
Compagnie Bancaire SA 18,789 2,219
Compagnie Financiere de
Paribas SA 67,656 4,567
Compagnie Francaise d'Etudes
et de Construction SA 9,600 899
Compagnie Generale des
Establissements Michelin SCA
B Shares 53,510 2,883
# Compagnie Generale de
Geophysique SA 4,000 277
Compagnie Generale des Eaux SA 59,205 7,323
Compagnie Parisienne de
Reescompte SA 10,016 797
Compagnie de Saint-Gobain SA 41,849 5,909
Compagnie de Suez SA 81,564 3,461
Compagnie des Gaz de
Petrole Primagaz SA 8,192 963
Comptoirs Modernes SA 2,692 1,450
Dollfus-Mieg & Cie. SA 5,900 143
Elf Aquitaine SA 131,438 11,941
Eridania Beghin-Say SA 10,385 1,668
Essilor International SA 4,585 1,389
Etablissements Economiques du
Casino Guichard-Perrachon SA 27,200 1,264
Etablissements Economiques du
Casino Guichard-Perrachon
SA Pfd. 6,000 219
Europe 1 Communication SA 1,577 334
Finextel SA 21,600 333
GTM Entrepose SA 3,800 175
Groupe Danone SA 34,757 4,834
Groupe Saint-Louis SA 1,824 453
Havas SA 41,860 2,931
Imetal SA 7,632 1,125
L'Air Liquide SA 26,643 4,151
L'Oreal SA 34,743 13,058
LVMH Moet Hennessy
Louis Vuitton SA 44,775 12,480
Lafarge SA 59,478 3,562
Lagardere SCA 34,440 943
Legrand SA 8,390 1,427
Lyonnaise des Eaux SA 37,625 3,495
# Moulinex SA 14,520 334
Nord-Est SA 27,800 690
PSA Peugeot Citroen SA 19,773 2,221
# Pathe SA 4,407 1,060
Pernod Ricard SA 20,313 1,121
Pinault-Printemps-Redoute SA 11,992 4,747
Promodes SA 9,615 2,709
Rhone-Poulenc SA Series A 99,281 3,378
Sagem SA 2,040 1,228
Salomon SA 9,700 830
Sanofi SA 47,755 4,740
Schneider SA 67,488 3,114
Sidel SA 14,948 1,026
Simco SA 11,509 1,003
Skis Rossignol SA 8,256 228
Societe BIC SA 15,500 2,320
Societe Francaise
d'Investissments Immobiliers
et de Gestion SA 13,508 977
Societe Generale SA 45,183 4,876
Societe National d'Exploitation
Industrielle de Tabacs et
Allumettes SA 18,820 786
Sodexho SA 1,550 862
Sommer Allibert SA 23,100 689
Thomson-CSF SA 77,788 2,518
Total SA Series B 123,484 10,024
Union Immobiliere de France SA 5,513 449
Usinor Sacilor SA 108,865 1,581
Valeo SA 28,396 1,748
------------
188,780
------------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
GERMANY (14.0%)
# AGIV AG Fuer Industrie und
Verkehrswesen AG 20,920 $ 303
Aachener & Muenchener
Beteiligungs AG (Bearer) 544 353
Aachener & Muenchener
Beteiligungs AG (Registered) 2,500 1,784
Adidas AG 17,280 1,491
Allianz AG Holding 11,317 20,562
BASF AG 309,250 11,896
Bayer AG 352,050 14,346
Bayerische Hypotheken-und
Wechsel-Bank AG 87,890 2,655
Bayerische Vereinsbank AG 83,330 3,417
Beiersdorf AG 30,000 1,481
Bilfinger & Berger Bau AG 9,120 334
# Brau und Brunnen AG 4,042 274
CKAG Colonia Konzern AG 13,730 1,131
CKAG Colonia Konzern AG Pfd. 10,500 729
Continental AG 22,000 395
# DLW AG 340 21
# Daimler-Benz AG 226,940 15,609
Degussa AG 5,242 2,369
Deutsche Bank AG 233,200 10,880
Deutsche Lufthansa AG 166,370 2,267
# Deutsche Telekom AG 1,075,850 22,654
# Didier-Werke AG 2,560 203
Douglas Holding AG 9,620 378
Dresdner Bank AG 219,010 6,551
Dyckerhoff AG 991 376
Dyckerhoff AG Pfd. 2,638 728
Escada AG 720 116
Escada AG Pfd. 1,140 187
Fag Kugelfischer Georg
Schaefer AG 35,000 476
Heidelberger Zement AG 30,600 2,472
# Herlitz AG 1,650 187
# Herlitz AG Pfd. 2,015 214
Hochtief AG 41,650 1,649
Holsten-Brauerei AG 987 218
IWKA AG 1,450 343
Karstadt AG 3,150 1,063
# Kloeckner-Humbolt-Deutz AG 22,500 102
Linde AG 4,054 2,473
Man AG 5,125 1,240
Man AG Pfd. 2,300 460
Mannesmann AG 17,929 7,760
Merck KGaA 40,700 1,463
# Metro AG 30,830 2,481
# Metro AG Pfd. 1 5,000 282
# Metro AG Pfd. 2 891 49
Muenchener Rueckversicherungs-
Gesellschaft AG (Bearer) 220 397
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered) 4,110 10,254
PWA Papierwerke Waldhof-
Aschaffanburg AG 5,900 785
Preussag AG 7,430 1,680
RWE AG 176,750 7,478
RWE AG Pfd. 110,240 3,720
Rheinmetall AG 2,450 394
Rheinmetall AG Pfd. 750 97
SAP AG 36,450 4,955
SAP AG Pfd. 23,775 3,317
Salamander AG 430 42
Schering AG 33,250 2,803
Siemens AG 267,770 12,597
# Strabag Bau AG 1,893 120
Strabag Bau AG Pfd. 143 10
Thyssen AG 11,466 2,031
Veba AG 247,331 14,284
Viag AG 14,356 5,627
Volkswagen AG 12,600 5,233
Volkswagen AG Pfd. 3,500 1,123
------------
223,369
------------
HONG KONG (0.3%)
HSBC Holdings PLC 222,877 4,769
------------
IRELAND (0.6%)
Allied Irish Banks PLC 264,300 1,754
CRH PLC 257,900 2,663
Fyffes PLC 56,930 105
Greencore Group PLC 101,600 645
Independent Newspapers PLC 292,105 1,458
Irish Life PLC 160,800 746
James Crean PLC 27,780 89
Jefferson Smurfit Group PLC 586,200 1,726
Kerry Group PLC A Shares 21,160 215
Waterford Wedgewood PLC 374,680 479
------------
9,880
------------
ITALY (5.3%)
Assicurazioni Generali SPA 455,045 8,504
Banca Commerciale Italiana SPA 993,000 1,802
Banco Ambrosiano Veneto SPA 329,255 790
Banco Ambrosiano Veneto
SPA Risp. 325,920 609
Banco Popolare Di Milano SPA 189,000 957
Benetton Group SPA 54,000 669
Bulgari SPA 60,000 1,215
Burgo (Cartiere) SPA 135,100 622
Cementir SPA 479,680 306
Danieli & Co. SPA 83,090 681
Danieli & Co. SPA Risp. 9,000 38
Edison SPA 388,000 2,450
Ente Nazionale Idrocarburi SPA 4,197,000 21,489
Falck, Acciaierie &
Ferriere Lombarde SPA 129,500 517
Fiat SPA 1,478,500 4,463
Fiat SPA Pfd. 535,000 881
Fiat SPA Risp. 255,700 447
# Impregilo SPA 213,000 165
Istituto Bancario San Paolo
de Torino SPA 471,000 2,881
Istituto Nazionale Delle
Assicurazioni SPA 2,205,500 2,866
Italcementi SPA 152,057 856
Italcementi SPA Risp. 204,735 500
Italgas SPA 458,750 1,911
La Previdente SPA 8,000 43
La Rinascente SPA 154,062 883
La Rinascente SPA Pfd. 15,000 34
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
EUROPEAN PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
La Rinascente SPA Risp. 6,000 $ 15
Magneti Marelli SPA 263,500 327
Marzotto & Figli SPA 11,800 76
Marzotto & Figli SPA Risp. 5,000 32
# Mediaset SPA 160,500 739
# Montedison SPA 2,352,502 1,600
# Montedison SPA Risp. 465,000 295
# Olivetti SPA 1,621,250 570
Parmalat Finanziaria SPA 499,500 762
Pirelli SPA 776,000 1,437
Pirelli SPA Risp. 46,300 68
Riunione Adriatica di Sicurta
SPA 200,204 1,870
Riunione Adriatica di Sicurta
SPA Risp. 39,600 210
SNIA BPD SPA 720,000 743
# Saffa SPA 21,790 41
Sasib SPA 76,960 240
Sasib SPA Risp. 24,000 45
Sirti SPA 92,690 568
Societa Assicuratrice
Industriale SPA 83,730 767
Societa Assicuratrice
Industriale SPA Risp. 161,000 571
Telecom Italia Mobile SPA 2,500,166 6,306
Telecom Italia Mobile SPA Risp. 576,944 822
Telecom Italia SPA 3,163,166 8,197
Telecom Italia SPA Risp. 576,944 1,123
------------
84,003
------------
NETHERLANDS (8.1%)
ABN AMRO Holding NV 155,598 10,111
Akzo Nobel NV 30,460 4,156
Assurantieconcern Stad
Rotterdam NV 27,097 1,070
Elsevier NV 334,630 5,649
Getronics NV 62,416 1,692
Heineken NV 26,546 4,693
Hollandsche Beton Groep NV 1,380 286
IHC Caland NV 4,660 266
ING Groep NV 391,250 14,069
KLM Royal Dutch Airlines NV 36,547 1,027
Koninklijke Ahold NV 60,046 3,749
Koninklijke KNP BT NV 52,714 1,149
Koninklijke Nederlandsche
Hoogevens en
Staalfabrieken NV 19,349 805
Koninklijke PTT Nederland NV 222,407 8,473
Koninklijke Pakhoed NV 20,528 641
Nedlloyd Groep NV 15,351 421
Oce-Van Der Grinten NV 10,607 1,150
Philips Electronics NV 142,285 5,758
Royal Dutch Petroleum Co. 259,269 45,401
Stork NV 21,633 762
Unilever NV 79,437 14,034
Wolters Kluwer NV 25,493 3,382
------------
128,744
------------
NORWAY (1.0%)
Aker ASA A Shares 26,623 592
Aker ASA B Shares 11,120 225
Bergesen D.Y. ASA A Shares 31,416 768
Bergesen D.Y. ASA B Shares 18,436 439
Christiania Bank Og Kreditkasse
ASA 82,900 262
Dyno Industrier ASA 21,896 556
Elkem ASA 56,620 935
Hafslund ASA A Shares 16,771 123
Hafslund ASA B Shares 16,531 113
Helikopter Services Group ASA 15,300 199
Kvaerner ASA 30,300 1,473
Kvaerner ASA B Shares 18,600 807
Lief Hoegh & Co. ASA 18,300 387
# NCL Holdings ASA 366,100 613
Norsk Hydro ASA 68,994 3,728
Norske Skogindustrier ASA A
Shares 23,430 782
Norske Skogindustrier ASA B
Shares 3,140 96
# Nycomed ASA A Shares 18,771 287
# Nycomed ASA B Shares 16,531 254
Orkla ASA A Shares 22,100 1,540
Orkla ASA B Shares 7,880 500
# Storebrand ASA 159,600 925
Unitor ASA 51,400 660
------------
16,264
------------
SPAIN (3.6%)
Acerinox SA 8,716 1,257
Argentaria SA 61,100 2,729
Autopista Concesionaria
Espanola SA 97,527 1,342
Banco Bilbao Vizcaya SA
(Registered) 105,821 5,703
Banco Central
Hispanoamericano SA 94,286 2,417
Banco Santander SA 69,827 4,461
Corporacion Financiera Alba SA 7,265 733
Corporacion Mapfre SA 16,521 1,005
Dragados y Construcciones SA 34,796 535
Ebro Agricolas Compania de
Alimentacion SA 33,244 584
# El Aguila SA 33,558 161
Empresa Nacional Compania
de Celulosas SA 18,500 221
Empresa Nacional de
Electricidad SA 122,209 8,681
# Ercros SA 80,232 49
Fomento de Construcciones y
Contratas SA 7,208 671
Gas Natural SDG SA 16,552 3,843
Iberdrola SA 251,863 3,563
Inmobiliaria Metropolitana
Vasca Central SA 16,109 591
# Inmobiliaria Urbis SA 60,880 243
Portland Valderrivas SA 4,748 319
Prosegur Cia de Seguridad SA
(Registered) 74,650 689
Repsol SA 120,337 4,607
Sarrio SA 49,340 162
Tabacalera SA 20,206 868
Telefonica de Espana SA 427,968 9,920
Union Electrica Fenosa SA 27,737 297
Uralita SA 78,364 611
Vallehermoso SA 49,198 1,065
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Viscofan Industria Navarra de
Envolturas Cellulosicas SA 21,160 $ 309
Zardoya Otis SA 2,426 282
------------
57,918
------------
SWEDEN (4.1%)
ABB AB A Shares 36,468 4,113
ABB AB B Shares 9,500 1,074
AGA AB A Shares 92,350 1,393
AGA AB B Shares 45,290 677
Astra AB A Shares 243,300 12,008
Astra AB B Shares 38,830 1,871
Atlas Copco AB A Shares 71,100 1,718
Atlas Copco AB B Shares 32,090 780
Autoliv AB 20,200 885
Electrolux AB B Shares 34,800 2,018
Esselte AB A Shares 13,460 306
Esselte AB B Shares 11,990 265
Hennes & Mauritz AB B Shares 25,288 3,496
LM Ericsson Telephone AB B
Shares 413,700 12,784
SKF AB A Shares 11,140 255
SKF AB B Shares 5,400 128
Scanem AB A Shares 34,680 1,270
Securitas AB B Shares 55,710 1,620
Skandia Forsakrings AB 39,772 1,124
Skandinaviska Enskilda
Banken AB 236,453 2,424
Skanska AB B Shares 75,458 3,332
Stadshypotek AB 4,200 115
Stora Kopparbergs Bergslags
AB A Shares 79,905 1,100
Stora Kopparbergs Bergslags
AB B Shares 3,550 48
Svenska Cellulosa AB B Shares 63,646 1,291
Svenska Handelsbanken AB
A Shares 101,530 2,914
Svenska Handelsbanken AB
B Shares 3,360 93
# Swedish Match AB 180,369 634
Trelleborg AB B Shares 46,598 618
Volvo AB A Shares 41,000 895
Volvo AB B Shares 152,169 3,354
------------
64,603
------------
SWITZERLAND (9.8%)
ABB AG (Bearer) 2,635 3,267
ABB AG (Registered) 620 150
Adecco SA (Bearer) 4,597 1,150
Alusuisse-Lonza Holding AG
(Bearer) 891 695
Alusuisse-Lonza Holding AG
(Registered) 2,085 1,657
CS Holding AG (Registered) 91,545 9,374
Danzas Holding AG (Ptg. Ctf.) 270 55
Danzas Holding AG (Registered) 310 343
Forbo Holding AG (Registered) 380 153
Georg Fischer AG (Bearer) 310 321
Georg Fischer AG (Registered) 210 43
# Grands Magasins Jelmoli SA
(Bearer) 280 154
# Grands Magasins Jelmoli SA
(Registered) 610 65
Holderbank Financiere Glarus AG
(Bearer) 1,310 933
Holderbank Financiere Glarus AG
(Registered) 6,710 964
Kuoni Reisen Holding AG
(Registered) 350 847
Moevenpick Holding AG (Bearer) 1,910 546
Moevenpick Holding AG (Ptg. Ctf.) 200 49
Nestle SA (Registered) 19,839 21,232
# Novartis AG (Bearer) 3,897 4,447
# Novartis AG (Registered) 32,311 36,889
Roche Holding AG (Bearer) 813 9,143
Roche Holding AG
(Dividend-Right Certificates) 3,498 27,132
SMH AG (Bearer) 1,842 1,132
SMH AG (Registered) 7,920 1,127
Schindler Holding AG (Ptg. Ctf.) 60 65
Schindler Holding AG (Registered) 190 194
SGS Societe Generale de
Surveillance Holding SA (Bearer) 752 1,843
Societe Generale de Surveillance
Holding SA (Registered) 1,140 499
Sika Finanz AG (Bearer) 860 205
Sulzer AG (Ptg. Ctf.) 50 27
Sulzer AG (Registered) 300 173
Swiss Bank Corp. (Registered) 37,355 7,080
Swiss Reinsurance Co.
(Registered) 6,988 7,437
# SwissAir AG (Registered) 500 403
Union Bank of Switzerland AG
(Bearer) 10,271 8,973
Union Bank of Switzerland AG
(Registered) 9,860 1,729
Valora Holding AG 1,471 280
Zurich Insurance Co. (Registered) 21,380 5,923
------------
156,699
------------
UNITED KINGDOM (34.2%)
Abbey National PLC 803,157 10,501
AMEC PLC 286,602 451
Amstrad PLC 121,789 307
Anglian Water PLC 194,902 1,961
Argos PLC 190,562 2,501
Arjo Wiggins Appleton PLC 547,832 1,683
Associated British Foods PLC 507,959 4,199
B.A.T. (British American
Tobacco) Industries PLC 1,564,702 12,960
BBA Group PLC 340,997 2,054
BICC PLC 276,999 1,304
BOC Group PLC 257,647 3,854
BPB PLC 361,469 2,375
BTR PLC 1,979,852 9,656
Barclays PLC 752,453 12,883
Barratt Developments PLC 161,350 696
Bass PLC 515,661 7,254
Blue Circle Industries PLC 483,915 2,956
Boots Co., PLC 535,315 5,515
Bowthorpe PLC 150,735 1,169
British Aerospace PLC 258,372 5,651
British Airways PLC 571,086 5,927
British Gas PLC 2,227,664 8,539
British Land Co., PLC 269,867 2,401
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
EUROPEAN PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
British Petroleum Co., PLC 2,834,532 $ 33,955
British Sky Broadcasting
Group PLC 987,101 8,818
British Steel PLC 1,013,769 2,776
British Telecommunications
PLC 3,033,818 20,508
Burmah Castrol PLC 128,457 2,427
Cable and Wireless PLC 1,105,524 9,232
Cadbury Schweppes PLC 569,149 4,802
Calor Group PLC 188,794 953
Caradon PLC 446,677 1,835
Carlton Communications PLC 377,490 3,305
Chubb Security PLC 314,463 1,752
Coats Viyella PLC 187,389 430
Cobham PLC 50,764 533
Commercial Union PLC 410,923 4,817
Courtaulds PLC 270,720 1,830
Courtualds Textiles PLC 121,894 463
De La Rue PLC 182,898 1,800
Delta PLC 143,360 932
EMI Group PLC 208,907 4,933
East Midlands Electricity PLC 153,136 1,735
Electrocomponents PLC 344,060 2,714
English China Clays PLC 299,315 973
FKI PLC 245,961 854
GKN PLC 147,159 2,521
General Electric Co., PLC 1,408,422 9,231
George Wimpey PLC 148,750 318
Glaxo Wellcome PLC 1,728,190 28,096
Granada Group PLC 492,566 7,274
Grand Metropolitan PLC 1,055,930 8,276
Great Universal Stores PLC 587,044 6,158
Guardian Royal Exchange PLC 249,316 1,188
Guinness PLC 980,928 7,705
HSBC Holdings PLC (Foreign) 632,842 13,786
HSBC Holdings PLC (Local) 445,425 9,947
Hammerson PLC 63,516 439
Hanson PLC 2,497,881 3,505
Harrison & Crosfield PLC 225,273 509
Hepworth PLC 50,375 217
Hyder PLC 25,146 321
IMI PLC 140,425 899
Imperial Chemical Industries
PLC 362,954 4,780
Johnson Matthey PLC 44,148 417
Kingfisher PLC 402,963 4,345
Ladbroke Group PLC 779,807 3,096
Laird Group PLC 59,150 402
Land Securities PLC 278,346 3,553
Lasmo PLC 362,571 1,458
Legal & General Group PLC 228,795 1,458
Lex Service PLC 52,726 286
Lloyds TSB Group PLC 2,534,739 18,696
London Electricity PLC 36,427 424
Lonrho PLC 242,458 519
# LucasVarity PLC 794,008 3,030
MEPC PLC 170,124 1,264
Marks & Spencer PLC 1,447,842 12,190
Marley PLC 42,640 92
Mercury Asset Management
Group PLC 117,130 2,486
Meyer International PLC 51,941 322
National Grid Group PLC 408,964 1,365
National Power PLC 680,272 5,681
Next PLC 104,066 1,013
Northern Electric PLC 46,303 513
Ocean Group PLC 71,755 594
Pearson PLC 343,457 4,379
Peninsular & Oriental Steam
Navigation Co. 279,801 2,830
Pilkington PLC 479,875 1,298
Prudential Corp. PLC 1,095,604 9,225
RTZ Corp. PLC 566,505 9,094
Racal Electronics PLC 81,626 358
Rank Group PLC 202,721 1,520
Redland PLC 134,287 848
Reed International PLC 331,391 6,227
Reuters Holdings PLC 865,779 11,119
Rexam PLC 379,396 2,324
RMC Group PLC 43,028 736
Rolls-Royce PLC 401,498 1,766
Royal & Sun Alliance Insurance
Group PLC 873,877 6,662
Royal Bank of Scotland Group
PLC 449,013 4,318
Rugby Group PLC 296,046 476
Safeway PLC 653,580 4,507
J. Sainsbury PLC 1,070,307 7,107
Schroders PLC 117,629 3,058
Scottish & Newcastle PLC 118,531 1,394
Scottish Power PLC 713,254 4,284
Sears PLC 613,365 997
Sedgwick Group PLC 106,450 239
Slough Estates PLC 82,589 392
SmithKline Beecham PLC 1,393,139 19,263
Smiths Industries PLC 161,923 2,222
Southern Electric PLC 48,160 653
St James's Place Capital PLC 439,180 729
T & N PLC 163,227 486
TI Group PLC 76,076 754
Tarmac PLC 539,471 909
Tate & Lyle PLC 98,518 797
Taylor Woodrow PLC 196,099 510
Tesco PLC 1,253,669 7,595
Thames Water PLC 156,799 1,640
Thorn PLC 175,468 760
Transport Development Group
PLC 211,521 688
Unigate PLC 52,393 373
Unilever PLC 405,206 9,812
United Biscuits Holdings PLC 202,267 730
United Utilities PLC 109,672 1,162
Vickers PLC 129,129 561
Vodafone Group PLC 1,404,643 5,937
Waterford Wedgewood PLC 146,200 189
Williams Holdings PLC 89,847 529
Willis Corroon Group PLC 97,319 237
Wilson Connolly Holdings PLC 86,443 246
Wolseley PLC 168,836 1,331
Zeneca Group PLC 522,134 14,699
------------
545,518
------------
- -------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $1,151,969) 1,570,466
- -------------------------------------------------------------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- -------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- -------------------------------------------------------------
<S> <C> <C>
BOND
- -------------------------------------------------------------
SWITZERLAND
(U.S. Dollar Denominated)
Hofi International Cvt.
4.50%, 8/11/08
(COST $613) $ 445 $ 577
- -------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.3%)
- -------------------------------------------------------------
U.S. TREASURY BILL--Note E
5.17%, 1/9/97 1,900 1,898
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.39%, 1/2/97 18,095 18,095
- -------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $19,993) 19,993
- -------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $1,172,575) 1,591,036
- -------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- -------------------------------------------------------------
Other Assets--Notes B and G 375,565
Liabilities--Note G (371,867)
-----------
3,698
- -------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------
Applicable to 96,229,605 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $1,594,734
=============================================================
NET ASSET VALUE PER SHARE $16.57
=============================================================
</TABLE>
*See Note A in Notes to Financial Statements.
#Non-Income Producing Security.
(Ptg. Ctf.)--Participating Certificate.
(1)The combined market value of common stocks and
Eurotop futures contracts represents 99.5% of net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,174,087 $12.20
Overdistributed Net
Investment Income--Note F (717) (.01)
Accumulated Net
Realized Gains--Note F 2,233 .02
Unrealized Appreciation--Note E
Investment Securities 418,461 4.35
Futures Contracts 566 .01
Foreign Currencies and
Forward Currency Contracts 104 --
- -------------------------------------------------------------
NET ASSETS $1,594,734 $16.57
=============================================================
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
PACIFIC PORTFOLIO SHARES (000)
- -------------------------------------------------------------
COMMON STOCKS (98.0%)(1)
- -------------------------------------------------------------
<S> <C> <C>
AUSTRALIA (6.8%)
Aberfoyle Ltd. 141,700 $ 362
Amcor Ltd. 348,691 2,241
Ashton Mining Ltd. 283,500 493
Australia National Industries Ltd. 778,131 773
Australian Gas Light Co., Ltd. 101,300 576
Boral Ltd. 595,400 1,693
Brambles Industries Ltd. 116,911 2,280
Broken Hill Proprietary Ltd. 801,795 11,412
Burns Philp & Co., Ltd. 207,330 369
CRA Ltd. 149,542 2,346
CSR Ltd. 479,800 1,677
Coca-Cola Amatil Ltd. 166,068 1,774
Coles Myer Ltd. 484,685 1,994
# Crown Ltd. 316,295 661
David Jones Ltd. 177,333 246
# Delta Gold NL 99,565 187
Email Ltd. 229,883 743
F.H. Faulding & Co., Ltd. 46,900 317
Foster's Brewing Group Ltd. 443,460 898
Futuris Corp., Ltd. 177,720 243
Gio Australia Holdings Ltd. 173,000 442
Goodman Fielder Ltd. 475,205 589
Great Central Mines Ltd. 122,830 349
Hardie (James) Industries Ltd. 172,047 541
Howard Smith Ltd. 118,500 974
ICI Australia Ltd. 148,748 1,613
Leighton Holdings Ltd. 175,550 753
Metal Manufactures Ltd. 123,400 304
Mount Isa Mines Holdings Ltd. 393,144 550
National Australia Bank Ltd. 580,146 6,820
Newcrest Mining Ltd. 63,945 254
News Corp. Ltd. 734,079 3,871
News Corp. Ltd. Pfd. 407,513 1,813
Normandy Mining Ltd. 308,127 426
North Ltd. 325,613 952
Pacific Dunlop Ltd. 542,540 1,379
Pioneer International Ltd. 367,000 1,093
Plutonic Resources Ltd. 72,250 336
QBE Insurance Group Ltd. 94,451 497
QCT Resources Ltd. 137,600 186
Renison Goldfields
Consolidated Ltd. 34,300 152
Resolute Ltd. 84,495 176
Rothmans Holdings Ltd. 103,900 668
Santos Ltd. 290,389 1,176
Sons of Gwalia Ltd. 112,944 667
Southcorp Holdings Ltd. 333,654 1,060
# Sydney Harbour Casino
Holdings Ltd. 264,000 407
Tabcorp Holdings Ltd. 49,192 234
WMC Ltd. 394,087 2,482
Westpac Banking Corp., Ltd. 725,771 4,127
------------
66,176
------------
HONG KONG (8.6%)
Bank of East Asia Ltd. 520,778 2,316
Cathay Pacific Airways Ltd. 1,128,000 1,779
Cheung Kong Holdings Ltd. 942,000 8,373
China Light and Power Co., Ltd. 768,000 3,416
Dickson Concepts
International Ltd. 46,399 174
Giordano International Ltd. 516,000 440
Hang Seng Bank Ltd. 726,800 8,832
Hong Kong & China
Gas Co., Ltd. 1,326,661 2,564
Hong Kong Aircraft &
Engineering Co., Ltd. 103,600 319
Hong Kong
Telecommunications Ltd. 4,535,400 7,300
Hong Kong and Shanghai
Hotels Ltd. 278,000 525
Hopewell Holdings Ltd. 2,296,000 1,484
Hutchison Whampoa Ltd. 1,209,000 9,495
Hysan Development Co., Ltd. 503,000 2,003
Johnson Electric Holdings Ltd. 424,000 1,173
Kumagai Gumi Hong Kong Ltd. 65,000 76
Lai Sun Garment
International Ltd. 388,000 617
Miramar Hotel &
Investment Ltd. 404,000 810
New World
Development Co., Ltd. 748,000 5,053
Oriental Press Group Ltd. 1,081,000 486
Peregrine Investment
Holdings Ltd. 463,700 794
Playmate Toys Holdings Ltd. 222,900 60
Regal Hotels International
Holdings Ltd. 1,190,000 415
Shangri-La Asia Ltd. 270,000 400
Shun Tak Holdings Ltd. 700,000 466
South China Morning Post Ltd. 1,577,000 1,305
Stelux Holdings
International Ltd. 2,414,000 624
Sun Hung Kai Properties Ltd. 964,400 11,813
Swire Pacific Ltd. A 446,500 4,257
Tai Cheung Holdings Ltd. 648,500 612
Television Broadcasts Ltd. 236,000 943
Wharf Holdings Ltd. 960,000 4,791
Wing Lung Bank Ltd. 66,240 450
Winsor Industrial Corp., Ltd. 265,500 62
------------
84,227
------------
JAPAN (71.6%)
77 Bank Ltd. 70,000 573
Advantest Corp. 27,500 1,287
Ajinomoto Co., Inc. 257,000 2,613
Alps Electric Co., Ltd. 94,000 1,020
Amada Co., Ltd. 178,000 1,380
Amano Corp. 63,000 673
# Aoki Corp. 275,000 571
Aoyama Trading Co., Ltd. 48,000 1,274
Arabian Oil Co., Ltd. 35,500 1,315
Asahi Bank Ltd. 925,000 8,208
Asahi Breweries Ltd. 197,000 2,037
Asahi Chemical Industry Co., Ltd. 605,000 3,419
Asahi Glass Co., Ltd. 480,000 4,508
Ashikaga Bank Ltd. 289,000 1,392
Autobacs Seven Co., Ltd. 15,000 1,058
The Bank of Tokyo-Mitsubishi Ltd. 1,380,945 25,580
Bank of Yokohama Ltd. 486,000 3,140
Bridgestone Corp. 325,000 6,160
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Brother Industries Ltd. 226,000 $ 974
CSK Corp. 21,200 555
Canon, Inc. 340,000 7,499
Casio Computer Co. 123,000 950
Chiba Bank Ltd. 344,000 2,341
Chichibu Onoda Cement Corp. 252,000 1,070
Chiyoda Corp. 85,000 550
Chugai Pharmaceutical Co., Ltd. 96,000 802
Citizen Watch Co., Ltd. 153,000 1,094
Cosmo Oil Co., Ltd. 230,000 1,104
Dai-Nippon Ink & Chemicals, Inc. 308,000 1,138
Dai-Nippon Printing Co., Ltd. 306,000 5,352
Dai-Nippon Screen
Manufacturing Co., Ltd. 68,000 501
Daicel Chemical Industries Ltd. 26,000 122
Daido Steel Co., Ltd. 241,000 893
Daiei, Inc. 308,000 2,348
Daifuku Co., Ltd. 32,000 403
Daiichi Pharmaceutical Co., Ltd. 105,000 1,683
Daikin Industries Ltd. 57,000 506
Daikyo, Inc. 131,000 617
Daimaru, Inc. 80,000 427
Daito Trust Construction Co., Ltd. 52,000 578
Daiwa House Industry Co., Ltd. 187,000 2,401
Daiwa Kosho Lease Co., Ltd. 94,000 721
Daiwa Securities Co., Ltd. 547,000 4,854
Denki Kagaku Kogyo K.K. 207,000 508
Denso Corp. 349,000 8,389
East Japan Railway Co. 1,625 7,294
Ebara Corp. 67,000 872
Eisai Co., Ltd. 104,000 2,043
Ezaki Glico Co. 96,000 827
Fanuc Co., Ltd. 99,900 3,193
Fuji Bank Ltd. 1,135,000 16,526
Fuji Photo Film Co., Ltd. 209,000 6,878
Fujikura Ltd. 163,000 1,303
Fujita Corp. 272,000 780
Fujita Kanko, Inc. 65,000 1,204
Fujitsu Ltd. 696,000 6,476
Furukawa Electric Co. 274,000 1,296
Gakken Co. 6,000 34
Gunma Bank Ltd. 116,000 1,009
Gunze Ltd. 51,000 264
Hankyu Corp. 310,000 1,536
Hankyu Department Stores, Inc. 45,000 446
# Haseko Corp. 135,000 361
Hazama Corp. 175,000 484
Higo Bank Ltd. 67,000 446
Hirose Electronics Co., Ltd. 11,500 665
Hitachi Ltd. 1,317,000 12,254
Hitachi Zosen Corp. 359,000 1,392
Hokuriku Bank Ltd. 252,000 1,233
Honda Motor Co., Ltd. 374,000 10,665
House Foods Industry Corp. 67,000 1,079
Hoya Corp. 52,000 2,038
INAX Corp. 96,000 710
Industrial Bank of Japan Ltd. 994,000 17,213
Isetan Co. 79,000 1,021
# Ishihara Sangyo Kaisha Ltd. 108,000 261
Ito-Yokado Co., Ltd. 166,000 7,208
Itochu Corp. 509,000 2,728
Itoham Foods, Inc. 66,000 408
Iwatani International Corp. 78,000 331
JGC Corp. 47,000 352
# Japan Air Lines Co., Ltd. 740,000 3,921
Japan Energy Corp. 388,000 1,053
# Japan Metals & Chemicals Co. 60,000 200
# Japan Steel Works Ltd. 99,000 225
Joyo Bank Ltd. 387,000 2,327
Jusco Co., Ltd. 134,000 4,537
Kajima Corp. 407,000 2,903
Kaken Pharmaceutical Co. 12,000 71
Kamigumi Co., Ltd. 44,000 288
Kandenko Co., Ltd. 55,000 521
# Kanebo Ltd. 117,000 241
Kaneka Corp. 78,000 399
Kansai Electric Power Co., Inc. 387,500 8,012
Kansai Paint Co., Ltd. 115,000 515
Kao Corp. 224,000 2,605
Katokichi Co., Ltd. 27,000 523
Kawasaki Heavy Industries Ltd. 586,000 2,418
# Kawasaki Kisen Kaisha Ltd. 228,000 519
Kawasaki Steel Corp. 1,112,000 3,190
Keihin Electric Express
Railway Co., Ltd. 147,000 673
Kikkoman Corp. 57,000 336
Kinden Corp. 93,000 1,178
Kinki Nippon Railway Co. 671,000 4,180
Kirin Brewery Co., Ltd. 434,000 4,263
Kissei Pharmaceutical Co. 22,000 436
Kokuyo Co., Ltd. 36,000 887
Komatsu Ltd. 405,000 3,315
Komori Corp. 22,000 466
Konami Co., Ltd. 11,000 374
Konica Corp. 79,000 523
Koyo Seiko Co., Ltd. 70,000 579
Kubota Corp. 592,000 2,851
Kumagai Gumi Co., Ltd. 249,000 616
Kurabo Industries Ltd. 76,000 216
Kuraray Co., Ltd. 127,000 1,171
Kureha Chemical Industry Co. 88,000 351
Kurita Water Industries Ltd. 41,000 827
Kyocera Corp. 77,000 4,790
Kyowa Hakko Kogyo Co. 94,000 716
Kyudenko Corp. 3,000 31
Lion Corp. 85,000 421
Maeda Road
Construction Co., Ltd. 21,000 242
Makino Milling Machine Co. 78,000 497
Makita Corp. 40,000 558
Marubeni Corp. 434,000 1,862
# Maruha Corp. 13,000 37
Marui Co., Ltd. 135,000 2,431
Matsushita Electric
Industrial Co., Ltd. 832,000 13,548
Meiji Milk Products Co., Ltd. 59,000 300
Meiji Seika Kaisha Ltd. 91,000 471
Minebea Co., Ltd. 189,000 1,576
Misawa Homes Co., Ltd. 49,000 342
Mitsubishi Corp. 634,000 6,555
Mitsubishi Chemical Corp. 931,000 3,008
Mitsubishi Electric Corp. 686,000 4,078
Mitsubishi Estate Co., Ltd. 527,000 5,403
Mitsubishi Gas Chemical Co. 111,000 399
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
PACIFIC PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Mitsubishi Heavy Industries Ltd. 1,342,000 $ 10,637
Mitsubishi Logistics Corp. 35,000 452
Mitsubishi Materials Corp. 508,000 2,048
Mitsubishi Oil Co., Ltd. 99,000 591
Mitsubishi Paper Mills Ltd. 158,000 617
Mitsubishi Rayon Co., Ltd. 255,000 942
Mitsubishi Trust & Banking Corp. 523,000 6,984
Mitsui & Co., Ltd. 635,000 5,143
# Mitsui Engineering &
Shipbuilding Co., Ltd. 184,000 374
Mitsui Fudosan Co. 340,000 3,398
Mitsui Marine &
Fire Insurance Co. 276,000 1,481
Mitsui Mining &
Smelting Co., Ltd. 134,000 456
# Mitsui Osk Lines Ltd. 362,000 864
Mitsui Toatsu Chemicals, Inc. 337,000 1,025
Mitsui Trust & Banking Co. 501,000 3,906
Mitsui-Soko Co., Ltd. 92,000 600
Mitsukoshi Ltd. 122,000 864
Mori Seiki Co. 24,000 331
Murata Manufacturing Co., Ltd. 103,000 3,416
Mycal Corp. 113,000 1,636
NEC Corp. 623,000 7,514
NGK Insulators Ltd. 73,000 692
NGK Spark Plug Co. 50,000 547
# NKK Corp. 1,280,000 2,878
NOF Corp. 8,000 35
NSK Ltd. 107,000 647
NTN Corp. 86,000 467
Nagase & Co., Ltd. 5,000 41
Nagoya Railroad Co., Ltd. 300,000 1,150
Namco Ltd. 20,000 612
Nankai Electric Railway Co. 120,000 646
Nichido Fire & Marine
Insurance Co., Ltd. 176,000 1,001
Nichirei Corp. 73,000 354
Nihon Cement Co., Ltd. 62,000 316
# Niigata Engineering Co., Ltd. 245,000 684
Nikon Corp. 130,000 1,613
Nippon Beet Sugar
Manufacturing Co. 10,000 37
Nippon Comsys Corp. 83,000 944
Nippon Express Co., Ltd. 449,000 3,071
Nippon Fire & Marine
Insurance Co., Ltd. 228,000 1,031
Nippon Light Metal Co. 212,000 869
Nippon Meat Packers, Inc. 98,000 1,266
Nippon Oil Co., Ltd. 308,000 1,579
Nippon Paper Industries Co. 408,000 1,898
Nippon Sharyo Ltd. 43,000 307
Nippon Sheet Glass Co., Ltd. 176,000 623
Nippon Shinpan Co. 175,000 980
Nippon Shokubai K.K. 83,000 615
Nippon Steel Corp. 2,392,000 7,048
Nippon Suisan Kaisha Ltd. 110,000 389
# Nippon Yusen Kabushiki
Kaisha Co. 502,000 2,266
Nishimatsu Construction Co. 88,000 766
Nissan Motor Co., Ltd. 916,000 5,303
Nisshinbo Industries, Inc. 71,000 552
Nissin Food Products Co., Ltd. 34,000 724
Nitto Denko Corp. 73,000 1,069
Nomura Securities Co., Ltd. 776,000 11,633
Noritake Co., Ltd. 58,000 483
OJI Paper Co., Ltd. 404,333 2,553
Odakyu Electric Railway Co. 263,000 1,575
Ohbayashi Corp. 264,000 1,779
Okamoto Industries, Inc. 113,000 534
Okuma Corp. 67,000 533
Okumura Corp. 78,000 473
Olympus Optical Co., Ltd. 62,000 588
Omron Corp. 107,000 2,010
Onward Kashiyama Co., Ltd. 89,000 1,250
Osaka Gas Co., Ltd. 863,000 2,357
Oyo Corp. 11,000 477
Penta-Ocean Construction Co. 138,000 613
Pioneer Electronic Corp. 49,000 933
Q.P. Corp. 107,000 867
# Renown, Inc. 89,000 237
Rohm Co., Ltd. 40,000 2,619
SMC Corp. 21,000 1,409
Sakura Bank Ltd. 1,370,000 9,773
Sanden Corp. 35,000 280
Sankyo Aluminum Industry Co. 7,000 28
Sankyo Co., Ltd. 186,000 5,256
# Sanrio Co., Ltd. 40,000 322
Sanwa Shutter Corp. 100,000 745
Sanyo Electric Co., Ltd. 579,000 2,394
Sapporo Breweries Ltd. 68,000 562
Sato Kogyo Co. 94,000 327
Secom Co., Ltd. 49,000 2,959
Sega Enterprises Ltd. 39,000 1,310
Seino Transportation Co., Ltd. 52,000 573
Seiyu Ltd. 40,000 393
Sekisui Chemical Co. 242,000 2,439
Sekisui House Ltd. 302,000 3,070
Sharp Corp. 454,000 6,454
Shimachu Co. 9,000 230
Shimano, Inc. 34,000 577
Shimizu Corp. 336,000 2,504
Shin-Etsu Chemical Co., Ltd. 149,000 2,709
Shionogi & Co., Ltd. 94,000 670
Shiseido Co., Ltd. 183,000 2,113
Shizuoka Bank Ltd. 342,000 3,624
# Showa Denko K.K. 464,000 1,063
Skylark Co., Ltd. 55,000 839
Snow Brand Milk Products Co. 66,000 372
Sony Corp. 149,500 9,776
Sumitomo Bank Ltd. 1,228,000 17,668
Sumitomo Corp. 447,000 3,516
Sumitomo Chemical Co. 693,000 2,740
Sumitomo Electric Industries Ltd. 296,000 4,131
Sumitomo Forestry Co. 72,000 875
# Sumitomo Heavy Industries Ltd. 211,000 640
Sumitomo Marine &
Fire Insurance Co. 301,000 1,867
Sumitomo Metal Industries Ltd. 1,283,000 3,150
Sumitomo Metal Mining Co. 262,000 1,763
Sumitomo Osaka
Cement Co., Ltd. 233,000 769
Taisei Corp. 320,000 1,654
Taisho Pharmaceutical Co. 147,000 3,457
Taiyo Yuden Co., Ltd. 8,000 112
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Takara Shuzo Co. 119,000 $ 836
Takara Standard Co. 4,000 33
Takashimaya Co. 122,000 1,461
Takeda Chemical Industries Ltd. 356,000 7,453
Takuma Co., Ltd. 20,000 219
Teijin Ltd. 282,000 1,229
Teikoku Oil Co., Ltd. 164,000 889
Toa Corp. 84,000 439
Tobu Railway Co., Ltd. 286,000 1,397
Toei Co. 67,000 431
Toho Co., Ltd. 8,700 1,259
Tohoku Electric Power Co. 195,500 3,874
Tokai Bank Ltd. 826,000 8,611
Tokio Marine &
Fire Insurance Co. 623,000 5,851
Tokyo Broadcasting System Inc. 48,000 732
Tokyo Dome Corp. 84,000 1,462
Tokyo Electric Power Co. 534,900 11,705
Tokyo Electron Ltd. 47,000 1,437
Tokyo Gas Co., Ltd. 918,000 2,484
Tokyo Steel Manufacturing Co. 57,000 810
Tokyo Style Co. 31,000 433
# Tokyo Tatemono Co., Ltd. 158,000 708
Tokyotokeiba Co. 132,000 426
Tokyu Corp. 456,000 2,585
Toppan Printing Co., Ltd. 288,000 3,598
Toray Industries, Inc. 594,000 3,659
# Tosoh Corp. 246,000 841
Tostem Corp. 95,000 2,619
Toto Ltd. 139,000 1,581
Toyo Engineering Corp. 112,000 500
Toyo Exterior Co. 12,000 178
Toyo Seikan Kaisha Ltd. 88,000 2,115
Toyobo Ltd. 370,000 1,109
Toyoda Automatic
Loom Works Ltd. 97,000 1,813
Toyota Motor Corp. 1,467,000 42,088
Trans Cosmos, Inc. 8,000 252
Tsubakimoto Chain Co. 132,000 705
Ube Industries Ltd. 359,000 1,014
Uni-Charm Corp. 4,000 98
Uniden Corp. 11,000 145
# Unitika Ltd. 182,000 392
Uny Co. 71,000 1,297
Wacoal Corp. 77,000 849
Yamaguchi Bank 50,000 732
Yamaha Corp. 75,000 1,273
Yamaichi Securities Co. 529,000 2,347
Yamanouchi
Pharmaceuticals Co., Ltd. 137,000 2,809
Yamato Transport Co., Ltd. 152,000 1,571
Yamazaki Baking Co., Ltd. 87,000 1,387
The Yasuda Trust and
Banking Co., Ltd. 479,000 2,026
Yokogawa Electric Corp. 102,000 879
------------
699,960
------------
MALAYSIA (6.0%)
AMMB Holdings Bhd. 232,000 1,948
Aluminum Co. of Malaysia Bhd. 242,000 360
Amsteel Corp., Bhd. 1,344,800 1,001
Antah Holdings Bhd. 350,000 480
# Aokam Perdana Bhd. 278,000 329
Berjaya Group Bhd. 131,000 112
Berjaya Leisure Bhd. 159,000 241
Commerce Asset Holdings Bhd. 162,000 1,219
DCB Holdings Bhd. 282,000 966
Edaran Otomobil Nasional Bhd. 92,000 920
Ekran Bhd. 55,000 231
Golden Hope Plantations Bhd. 411,000 700
Golden Plus Holdings Bhd. 25,000 47
Guinness Anchor Bhd. 51,000 125
Highlands & Lowlands Bhd. 156,000 261
Hong Leong Industries Bhd. 38,400 131
Hong Leong Properties Bhd. 592,000 783
Hume Industries Malaysia Bhd. 42,000 264
IGB Corp., Bhd. 519,000 577
IOI Corp., Bhd. 112,000 172
Johan Holdings Bhd. 721,000 614
Kedah Cement Holdings Bhd. 50,000 99
Kelanamas Industries Bhd. 19,000 36
Kemayan Corp., Bhd. 113,000 154
Kian Joo Can Factory Bhd. 19,000 105
Kuala Lumpur Kepong Bhd. 202,500 513
Land & General Bhd. 203,500 488
Landmarks Bhd. 159,000 212
Leader Universal Holdings Bhd. 259,666 545
MBF Capital Bhd. 549,000 891
Magnum Corp., Bhd. 412,500 800
Malayan Banking Bhd. 465,000 5,155
Malayan Cement Bhd. 56,000 129
Malayan United Industries Bhd. 122,000 91
Malayawata Steel Bhd. 23,000 43
Malaysia International
Shipping Corp. Bhd. (Foreign) 249,333 740
Malaysia Mining Corp., Bhd. 99,400 115
Malaysian Airline System Bhd. 210,000 545
Malaysian Mosaics Bhd. 46,000 59
Malaysian Oxygen Bhd. 53,000 273
Malaysian Pacific Industries Bhd. 226,000 877
Malaysian Resources Corp., Bhd. 322,000 1,269
Mulpha International Bhd. 173,000 150
Nestle Malaysia Bhd. 123,000 989
New Straits Times Press Bhd. 30,000 173
Oriental Holdings Bhd. 182,000 1,240
Pan Malaysia Cement Works Bhd. 105,000 106
Perlis Plantations Bhd. 62,500 194
Perusahaan Otomobil
Nasional Bhd. 107,000 678
Petaling Garden Bhd. 557,000 728
Pilecon Engineering Bhd. 414,000 505
# Promet Bhd. 272,000 236
Public Bank Bhd. (Foreign) 294,666 624
RJ Reynolds Bhd. 309,000 838
Rashid Hussain Bhd. 246,000 1,627
Resorts World Bhd. 298,000 1,357
Rothmans of Pall Mall
Malaysia Bhd. 86,000 902
Shell Refining Co. Malaysia Bhd. 162,000 475
Sime Darby Bhd. 952,600 3,753
Sungei Way Holdings Bhd. 52,000 154
# Sungei Way Holdings Bhd.
Rights Exp. 2/3/97 5,200 6
TA Enterprise Bhd. 475,000 628
Tan Chong Motor Holdings Bhd. 437,000 741
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
PACIFIC PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Technology Resources
Industries Bhd. 161,000 $ 317
Telekom Malaysia Bhd. 813,000 7,243
Tenaga Nasional Bhd. 1,245,000 5,965
Time Engineering Bhd. 105,000 195
UMW Holdings Malaysia Bhd. 81,733 382
United Engineers Malaysia Bhd. 297,000 2,681
YTL Corp., Bhd. 168,000 905
------------
58,412
------------
NEW ZEALAND (0.9%)
Brierley Investments Ltd. 1,698,000 1,572
Carter Holt Harvey Ltd. 713,859 1,619
Fletcher Challenge Ltd. Building 169,067 520
Fletcher Challenge Ltd. Energy 145,667 422
Fletcher Challenge Ltd. Forest 289,003 484
Fletcher Challenge Ltd. Paper 224,135 461
Lion Nathan Ltd. 241,000 577
Telecom Corp. of New Zealand Ltd. 664,900 3,392
------------
9,047
------------
SINGAPORE (4.1%)
Amcol Holdings Ltd. 366,000 492
Chuan Hup Holdings Ltd. 186,000 124
City Developments Ltd. 350,000 3,153
Comfort Group Ltd. 446,000 395
# Creative Technology Ltd. 74,400 777
Cycle & Carriage Ltd. 71,000 868
Development Bank of
Singapore Ltd. (Foreign) 189,625 2,562
Fraser & Neave Ltd. 146,000 1,503
Goldtron Ltd. 251,000 146
Hai Sun Hup Group Ltd. 185,000 136
Haw Par Brothers International Ltd. 411,400 935
Hotel Properties Ltd. 415,000 671
IPC Corp., Ltd. 409,000 143
Inchcape Bhd. 123,000 427
Jurong Shipyard Ltd. 30,000 151
Keppel Corp., Ltd. 242,000 1,886
Lum Chang Holdings Ltd. 384,000 338
Metro Holdings Ltd. 29,000 102
Natsteel Ltd. 105,000 239
Neptune Orient Lines Ltd. 603,000 522
Oversea-Chinese Banking
Corp. Ltd. (Foreign) 296,166 3,684
Overseas Union Enterprise Ltd. 21,000 105
Prima Ltd. 217,000 799
Robinson & Co., Ltd. 84,000 339
Shangri-La Hotel Ltd. 116,300 397
Singapore Airlines Ltd. (Foreign) 538,000 4,885
Singapore Press Holdings Ltd.
(Foreign) 146,960 2,900
Singapore Technologies
Industrial Corp. 394,000 986
Singapore
Telecommunications Ltd. 2,485,000 5,863
United Industrial Corp., Ltd. 915,000 772
United Overseas Bank Ltd.
(Foreign) 305,350 3,405
Van Der Horst Ltd. 57,000 238
------------
39,943
------------
- -------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $939,708) 957,765
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- -------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND (0.8%)
- -------------------------------------------------------------
JAPAN
The Bank of Tokyo-Mitsubishi
Cayman Finance Ltd. Cvt.
4.25%, 3/29/49
(COST $10,068) JPY 720,000 $ 7,987
- -------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.0%)
- -------------------------------------------------------------
U.S. TREASURY BILL--Note E
5.17%, 1/9/97 $5,000 4,995
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
6.39%, 1/2/97 4,802 4,802
- -------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $9,796) 9,797
- -------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $959,572) 975,549
- -------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- -------------------------------------------------------------
Other Assets--Notes B and G 194,705
Liabilities--Note G (192,748)
------------
1,957
- -------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------
Applicable to 93,037,349 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $ 977,506
=============================================================
NET ASSET VALUE PER SHARE $10.51
=============================================================
</TABLE>
*See Note A in Notes to Financial Statements.
#Non-Income Producing Security.
JPY--Japanese Yen.
(1)The combined maket value of common stocks, convertible bond, and Nikkei
300 futures contracts represents 99.9% of net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------
<S> <C> <C>
Paid in Capital $966,709 $10.39
Overdistributed Net Investment
Income--Note F (394) --
Accumulated Net Realized
Losses--Note F (4,213) (.05)
Unrealized Appreciation
(Depreciation)--Note E
Investment Securities 15,977 .17
Futures Contracts (330) --
Foreign Currencies and
Forward Currency Contracts (243) --
- -------------------------------------------------------------
NET ASSETS $977,506 $10.51
=============================================================
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
MARKET
EMERGING VALUE*
MARKETS PORTFOLIO SHARES (000)
- -----------------------------------------------------------------
COMMON STOCKS (94.8%)
- -----------------------------------------------------------------
<S> <C> <C>
ARGENTINA (3.6%)
Astra Cia Argentina de
Petroleum SA 233,840 $ 447
Banco Frances Del Rio de
la Plata SA 116,368 1,088
Banco Galicia y Buenos Aires
SA de CV 284,563 1,711
# Celulosa Argentina SA 1,462,200 388
# Ciadea SA 133,474 634
Irsa Inversiones y
Representaciones SA 91,200 293
Ledesma SA 33,400 42
Nobleza Piccardo SA 41,924 159
Perez Companc SA 612,039 4,303
Pirelli Cables SA 1,036 2
Siderar SA Class A 1,076 3
Siderca SA Class A 26,900 49
Sociedad Comercial
de Plata SA 191,500 490
Telefonica Argentina SA
Class B 1,898,900 4,976
YPF SA Class D 326,824 8,254
------------
22,839
------------
BRAZIL (13.0%)
Aracruz Celulose SA Pfd.
B Shares 880,771 1,433
Banco Bamerindus do
Brasil SA 38,000 603
Banco Bradesco SA 407,525,308 2,765
Banco Bradesco SA Pfd. 392,882,197 2,848
# Banco do Estado de Sao
Paulo SA Pfd. 144,675,000 696
Banco Itau SA Pfd. 9,824,912 4,256
Brasmotor SA Pfd. 1,198,000 333
Centrais Electricas
Brasileiras SA 35,560,301 12,733
Centrais Electricas
Brasileiras SA Pfd. B Shares 5,897,118 2,191
Ceval SA Pfd. 29,720,000 260
Companhia Brasileira de
Petroleo Ipiranga Pfd. 18,806,000 273
Companhia Cervejaria Brahma 1,703,065 984
Companhia Cervejaria
Brahma Pfd. 4,133,150 2,260
Companhia Cimento
Portland Itau Pfd. 1,451,800 510
Companhia de Tecidos
Norte de Minas Pfd. 722,300 231
Companhia Energetica de
Minas Gerais Pfd. 107,986,665 3,680
# Companhia Paulista de
Forca e Luz 13,929,300 1,649
# Companhia Paulista de
Forca e Luz
Rights Exp. 1/14/97 80,943 1
Companhia Siderugica
Nacional 48,422,400 1,375
Companhia Siderurgica
Belgo-Mineira Pfd. 659,000 43
Companhia Vale do Rio
Doce Pfd. 309,892 5,966
Companhia Vidreas
Santa Marina 213,968 669
Copene-Petroquimica SA Pfd.
A Shares 981,194 378
Ericsson Telecomunicadoes
SA Pfd. 46,142,400 711
Fertilizantes Fosfatados
SA Pfd. 66,300,000 268
Industrias Klabin de Papel e
Celulose SA Pfd. 403,025 372
# Iochpe-Maxion SA Pfd. 2,118,738 119
Lojas Americanas SA 14,646,000 194
Lojas Americanas SA Pfd. 24,570,033 324
# Marcopolo SA Pfd. 200,000 34
Metalurgica Gerdau SA Pfd. 5,906,400 134
# Paranapanema SA Pfd. 17,416,000 187
Perdigao SA Pfd. 172,760,000 333
Petroleo Brasileiro SA Pfd. 36,674,500 5,842
Pirelli Cabos SA Pfd. 21,000 45
Pirelli Pneus SA Pfd. 109,000 275
Refrigeracao Parana SA Pfd. 88,033,000 199
Sadia Concordia SA Pfd. 69,000 53
Santista Alimentos SA 221,000 513
Souza Cruz SA 282,600 1,855
Telecomunicacoes
Brasileiras SA Pfd. 233,027,600 17,944
Unibanco-Uniao de Bancos
Brasileiros SA Pfd. 79,945,000 2,609
Unipar-Uniao de Industrias
Petroquimicas SA Pfd.
B Shares 59,645 26
Usiminas-Usinas
Siderurgicas de Minas
Gerais SA Pfd. 1,927,515,400 1,967
# Varig-Viacao Aerea
Rio-Grandense SA Pfd. 79,000 144
Votorantim Celulose e
Papel SA Pfd. 25,294,831 444
Weg SA Pfd. 86,000 41
White Martins SA 1,314,797,600 1,898
------------
82,668
------------
GREECE (1.2%)
Alpha Credit Bank SA 24,233 1,542
Athens Medical Center SA 16,600 116
Attica Enterprises SA 23,100 159
Commercial Bank of Greece SA 19,134 539
Elais SA 7,270 208
Epilectos SA 83,410 238
Ergo Bank SA 12,700 644
Fourlis Brothers SA 45,010 566
Hellas Can Packaging SA 8,900 125
Hellenic Bottling Co. SA (Bearer) 37,400 1,198
Hellenic Sugar Industry SA 34,190 317
Intracom SA 19,340 435
Klonatex ICST & TSA SA 1,900 40
Klonatex ICST & TSA SA Pfd. 4,400 49
Michaniki SA 15,000 116
National Bank of Greece SA 14,200 904
Papastratos Cigarettes SA 2,550 47
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
EMERGING VALUE*
MARKETS PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Parnassos Enterprises ABE SA 16,200 $ 89
Petzetakis SA 20,050 68
Titan Cement Co. SA 3,700 201
------------
7,601
------------
HONG KONG (13.3%)
Applied International
Holdings Ltd. 1,370,000 81
Bank of East Asia Ltd. 564,651 2,511
Cathay Pacific Airways Ltd. 1,070,000 1,688
Cheung Kong Holdings Ltd. 975,000 8,666
China Light and Power Co., Ltd. 902,000 4,011
Dickson Concepts
International Ltd. 120,000 450
Elec & Eltek International
Holdings Ltd. 215,000 47
Giordano International Ltd. 92,000 79
Hang Lung
Development Co., Ltd. 524,000 1,152
Hang Seng Bank Ltd. 805,700 9,791
Hong Kong & China Gas Co., Ltd. 771,760 1,492
Hong Kong Aircraft &
Engineering Co., Ltd. 76,400 235
Hong Kong
Telecommunications Ltd. 4,714,200 7,588
Hong Kong and Shanghai
Hotels Ltd. 404,000 763
Hopewell Holdings Ltd. 1,662,000 1,074
Hutchison Whampoa Ltd. 1,476,000 11,592
Hysan Development Co., Ltd. 497,000 1,979
Johnson Electric Holdings Ltd. 17,500 48
Kumagai Gumi Hong Kong Ltd. 129,000 150
Lai Sun Garment
International Ltd. 30,000 48
Miramar Hotel &
Investment Ltd. 230,000 461
New World
Development Co., Ltd. 823,000 5,559
Oriental Press Group Ltd. 640,000 288
Peregrine Investment
Holdings Ltd. 119,000 204
Playmate Toys Holdings Ltd. 390,000 105
Stelux Holdings
International Ltd. 374,000 97
Sun Hung Kai Properties Ltd. 989,000 12,115
Swire Pacific Ltd. A Shares 651,500 6,212
Tai Cheung Holdings Ltd. 51,000 48
Television Broadcasts Ltd. 151,000 603
Wharf Holdings Ltd. 988,000 4,930
Wing Lung Bank Ltd. 126,540 859
------------
84,926
------------
INDONESIA (5.8%)
PT Astra International (Foreign) 6,000 17
PT Bank Bali (Foreign) 58,725 147
PT Bank Danang Nasional
Indonesia (Foreign) 610,750 620
PT Bank Internasional
Indonesia (Foreign) 1,613,226 1,588
PT Barito Pacific Timber
(Foreign) 1,018,500 625
PT Duta Anggada Realty
(Foreign) 179,332 167
PT Ever Shine Textile
Industry (Foreign) 446,039 132
PT Gadjah Tunggal (Foreign) 1,471,500 638
PT Great River International
(Foreign) 80,000 54
PT Gudang Garam (Foreign) 1,560,000 6,735
PT Indah Kiat Pulp & Paper
(Foreign) 1,192,692 871
PT Indocement Tunggal
Prakarsa (Foreign) 2,000,000 3,048
PT Indocement Tunggal
Prakarsa (Local) 25,000 38
PT Jakarta International Hotel &
Development (Local) 628,000 452
PT Japfa Comfeed Indonesia
(Foreign) 405,000 257
PT Kabelmetal Indonesia
(Foreign) 167,000 74
# PT Kabelmetal Indonesia
Rights Exp. 2/13/97 167,000 4
PT Kalbe Farma (Foreign) 287,000 328
PT Lippo Bank (Foreign) 557,250 543
PT Matahari Putra Prima
(Foreign) 419,500 488
PT Matahari Putra Prima
(Local) 184,000 214
PT Mayora Indah (Foreign) 826,440 385
PT Modern Photo Film Co.
(Foreign) 87,500 278
PT Mulia Industrindo (Foreign) 742,760 770
PT Mulia Industrindo (Local) 41,500 43
PT Pakuwon Jati (Foreign) 329,000 129
PT Polysindo Eka Perkasa
(Foreign) 6,459,000 3,691
PT Sinar Mas Agro Resources
Agricultural Production and
Technology Corp. (Foreign) 280,000 196
PT Supreme Cable
Manufacturing Corp.
(Foreign) 145,500 123
PT Telekomunikasi Indonesia
(Foreign) 6,759,000 11,658
PT Telekomunikasi
Indonesia (Local) 497,500 858
PT Unggul Indah Corp. (Foreign) 78,650 80
PT Unilever Indonesia (Foreign) 95,000 1,659
------------
36,910
------------
ISRAEL (2.2%)
# Ackerstein Industries Ltd. 188,956 225
# Africa-Israel Investments Ltd. 257 322
American Israeli Paper Mills Ltd. 2,862 118
Azorim Investment
Development &
Construction Ltd. 18,151 200
Bank Hapoalim Ltd. 1,403,954 2,223
Bezeq Israeli
Telecommunication Corp., Ltd. 39,039 95
Clal Insurance Enterprise
Holdings Ltd. 3,965 27
Cvalim Electric Wire & Cable Co. 18,525 60
Dead Sea Periclase Ltd. 31,547 159
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Delek Israel Fuel Corp., Ltd. 5,366 $ 131
ECI Telecommunications Ltd. 69,400 1,466
First International Bank of
Israel Ltd.-ILS 1 Par 6,003 665
First International Bank of
Israel Ltd.-ILS 5 Par 6,936 800
# I.I.S. Intelligent Information
Systems Ltd. 21,400 33
# IDB Holding Corp., Ltd. 130,952 483
Industrial Buildings Corp. 717,693 741
# The Israel Corp., Ltd. 4,136 237
# The Israel Land
Development Co., Ltd. 41,800 153
Jerusalem Economic Corp., Ltd. 82,410 225
Koor Industries Ltd. 10,412 907
Malibu Israel Ltd. 61,098 149
Maman Cargo Terminals &
Handling Ltd. 70,434 156
Mul-T-Lock Ltd. 25,386 67
# Ormat Industrites Ltd. 98,850 109
Osem Investment Ltd. 118,027 663
# Packer Plada Ltd. 1,227 30
Property & Building Corp. 12,614 756
Scitex Corp., Ltd. 30,300 288
Super Sol Ltd. 19,858 486
Tempo Beer Industries Ltd. 19,204 76
Teva Pharmaceutical
Industries Ltd. 2,764 1,384
Teva Pharmaceutical
Industries Ltd. Sponsored ADR 9,700 484
------------
13,918
------------
MALAYSIA (17.8%)
AMMB Holdings Bhd. 361,000 3,030
Aluminum Co. of Malaysia Bhd. 128,000 191
Amsteel Corp., Bhd. 1,505,600 1,121
Antah Holdings Bhd. 214,000 293
# Aokam Perdana Bhd. 188,000 223
Berjaya Group Bhd. 511,000 435
Commerce Asset Holdings Bhd. 271,000 2,039
DCB Holdings Bhd. 738,000 2,528
Edaran Otomobil Nasional Bhd. 208,000 2,080
Ekran Bhd. 124,000 520
Golden Hope Plantations Bhd. 959,000 1,633
Golden Plus Holdings Bhd. 112,000 208
Guinness Anchor Bhd. 17,000 42
Highlands & Lowlands Bhd. 328,000 548
Hong Leong Industries Bhd. 163,200 556
Hong Leong Properties Bhd. 999,000 1,321
Hume Industries Malaysia Bhd. 95,000 598
IOI Corp., Bhd. 594,000 913
# Idris Hydraulic Malaysia Bhd. 214,000 247
Jaya Tiasa Holdings Bhd. 81,000 430
Johan Holdings Bhd. 186,000 158
Kedah Cement Holdings Bhd. 245,000 485
Kelanamas Industries Bhd. 105,000 196
Kemayan Corp., Bhd. 222,000 302
Kuala Lumpur Kepong Bhd. 375,000 950
Land & General Bhd. 497,500 1,192
Landmarks Bhd. 478,000 636
Leader Universal Holdings Bhd. 460,000 965
MBF Capital Bhd. 189,000 307
Magnum Corp., Bhd. 1,346,500 2,612
Malayan Banking Bhd. 908,000 10,067
Malayan Cement Bhd. 234,000 537
Malayawata Steel Bhd. 122,000 230
Malaysia International
Shipping Corp., Bhd. (Foreign) 727,000 2,159
Malaysia International
Shipping Corp., Bhd. (Local) 34,000 100
Malaysia Mining Corp., Bhd. 450,800 521
Malaysian Airline System Bhd. 526,000 1,364
Malaysian Pacific
Industries Bhd. 88,000 341
Malaysian Resources
Corp., Bhd. 614,000 2,419
Metroplex Bhd. 697,000 856
Mulpha International Bhd. 415,000 360
Multi-Purpose Holdings Bhd. 451,000 875
Nestle Malaysia Bhd. 281,000 2,259
Oriental Holdings Bhd. 200,600 1,366
Perlis Plantations Bhd. 216,250 672
Perusahaan Otomobil
Nasional Bhd. 465,000 2,946
Petaling Garden Bhd. 200,000 261
Pilecon Engineering Bhd. 192,000 234
# Promet Bhd. 339,000 294
Public Bank Bhd. (Foreign) 321,333 681
RJ Reynolds Bhd. 295,000 800
Rashid Hussain Bhd. 394,000 2,605
Resorts World Bhd. 905,000 4,121
Rothmans of Pall Mall
Malaysia Bhd. 256,000 2,686
Shell Refining Co.
Malaysia Bhd. 198,000 580
Sime Darby Bhd. 1,868,000 7,360
Sungei Way Holdings Bhd. 392,000 1,164
# Sungei Way Holdings Bhd.
Rights Exp. 2/3/97 36,400 43
TA Enterprise Bhd. 583,000 771
Tan Chong Motor
Holdings Bhd. 483,000 819
# Technology Resources
Industries Bhd. 686,000 1,353
Telekom Malaysia Bhd. 1,567,000 13,961
Tenaga Nasional Bhd. 2,434,000 11,662
Time Engineering Bhd. 508,000 941
UMW Holdings Malaysia Bhd. 217,000 1,014
United Engineers Malaysia Bhd. 611,000 5,516
YTL Corp., Bhd. 512,500 2,760
------------
113,457
------------
MEXICO (8.6%)
Alfa SA de CV Series A 527,992 2,444
Apasco SA de CV 260,400 1,790
Cemex SA de CV (CPO) 197,000 706
Cemex SA de CV Series A 546,684 1,949
Cemex SA de CV Series B 417,425 1,632
Cifra SA de CV Series B 2,064,700 2,539
Cifra SA de CV Series C 854,000 1,044
# Consorcio G Grupo Dina SA 269,000 137
# Controladora Comercial
Mexicana SA de CV (Units) 41,000 37
Cydsa SA Series A 86,000 157
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
EMERGING VALUE*
MARKETS PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
# Desc SA de CV Series B 246,907 $ 1,352
El Puerto de Liverpool SA de
CV Series 1 853,950 765
El Puerto de Liverpool SA de
CV Series C1 42,697 40
# Empaques Ponderosa SA
Series B 390,000 238
Empresas ICA Sociedad
Controladora SA de CV 75,100 1,103
Empresas la Moderna SA
de CV Series A 420,700 2,062
Fomento Economico
Mexicano SA de CV Series B 236,950 812
Grupo Carso SA de CV
Series A1 9,000 47
Grupo Continental SA
Series CP 106,800 524
# Grupo Financiero Banamex
Accival SA de CV Series B 731,200 1,547
# Grupo Financiero Banamex
Accival SA de CV Series L 264,910 505
# Grupo Financiero Bancomer
SA de CV Series B 2,532,050 1,012
# Grupo Financiero Probursa SA
de CV Series B 6,832,879 357
# Grupo Financiero Serfin SA de
CV Series L 135,000 129
Grupo Herdez SA Series A 280,000 75
Grupo Industrial Herdez Bimbo
SA de CV Series A 305,882 1,753
Grupo Industrial Maseca SA de
CV Series B 664,000 842
# Grupo Mexicano Desarrollo
SA Series L 47,000 76
# Grupo Mexico SA Series B 558,513 1,742
Grupo Modelo SA de CV
Series C 696,700 4,018
# Grupo Simec SA de CV
Series B 648,000 107
# Grupo Situr SA de CV Series B 1,201,000 66
# Grupo Televisa SA (CPO) 260,400 3,352
Industrias Penoles SA
Series CP 247,599 880
Kimberly Clark de Mexico SA
de CV Series A 227,309 4,434
Telefonos de Mexico SA
Series A 1,694,000 2,808
Telefonos de Mexico SA
Series L 6,068,250 10,060
Transportacion Maritima
Mexicana SA de CV Series L 42,000 222
# Tubos de Acero de Mexico SA 60,000 951
Vitro SA 242,640 442
------------
54,756
------------
PHILIPPINES (3.5%)
Ayala Land, Inc. Class B 1,769,593 2,019
C&P Homes, Inc. 59,200 30
# DMCI Holdings, Inc. 438,300 287
# Filinvest Land, Inc. 2,994,000 933
Guoco Holdings Philippines, Inc. 3,124,000 582
# International Container
Terminal Services, Inc. 697,537 365
# Ionics Circuit, Inc. 177,400 126
Manila Electric Co. Class B 182,622 1,493
# Manila Mining Corp. Class B 309,405,740 282
Metro Pacific Corp. 2,977,900 736
Metropolitan Bank & Trust Co. 167,745 4,146
# Mondragon International
Philippines, Inc. 1,369,800 612
Petron Corp. 6,909,412 2,338
# Philex Mining Corp. Class B 1,424,300 162
Philippine Long Distance
Telephone Co. 31,410 1,726
Philippine Long Distance
Telephone Co. GDR 5.75%
Cvt. Pfd. 13,880 408
# Philippine National Bank Corp. 101,016 1,200
# Robinson's Land Co. Class B 203,200 35
San Miguel Corp. Class B 317,370 1,400
# Security Bank Corp. 32,400 56
SM Prime Holdings, Inc. 8,154,680 2,108
# Southeast Asia Cement
Holdings Inc. 3,500,600 406
# Union Bank of the
Philippines Corp. 513,600 537
Universal Robina Corp. 1,097,300 615
------------
22,602
------------
PORTUGAL (2.0%)
Banco Comercial Portugues
SA (Registered) 93,700 1,234
Banco Espirito Santo e
Comercial de Lisboa SA
(Registered) 93,500 1,643
Banco Totta e Acores SA
(Registered) 43,700 823
BPI-SGPS SA (Registered) 30,800 383
Caima-Companhia de
Celulose do Caima SA 6,700 115
Cimpor-Cimento de Portugal SA 81,428 1,751
Cin-Corporacao Industrial
do Norte SA 4,000 156
Corticeira Amorin SA 19,900 219
# Efacec-Empresa Fabrilde
Maquinas Electricas SA 8,700 72
Estabelecimentos Jeronimo
Martins & Fiho Sociedade
Gestora de Participacoes
Sociais SA 3,000 155
# Estabelecimentos Jeronimo
Martins & Fiho Sociedade
Gestora de Participacoes
Sociais SA Rights Exp. 1/2/97 3,000 50
Inapa-Investimentos
Participacoes e Gestao SA 7,700 169
Lisnave-Estaleiros Navais
de Lisboa SA 49,100 129
# Lusotur-Sociedade Financeira
de Turismo SA 3,700 57
Mundicenter-Sociedade
Imobiliaria SA 6,000 151
Portucel Industrial-Empresa
Productora de Cellulosa SA 79,200 459
Portugal Telecom SA
(Registered) 130,747 3,722
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Sociedade Construcoes
Soares da Costa SA 33,080 $ 388
Sonae Investimentos-Sociedade
Gestora de Participacoes SA 37,300 1,180
# Tertir Terminais de Portugal SA 19,200 109
Unicer-Uniao Cervejeira SA 2,200 38
----------
13,003
----------
SINGAPORE (6.3%)
Chuan Hup Holdings Ltd. 782,000 523
City Developments Ltd. 375,000 3,378
Comfort Group Ltd. 114,000 101
# Creative Technology Ltd. 13,800 144
Cycle & Carriage Ltd. 119,000 1,455
Development Bank of
Singapore Ltd. (Foreign) 308,000 4,162
First Capital Corp., Ltd. 17,000 51
Fraser & Neave Ltd. 83,600 861
Goldtron Ltd. 117,000 68
Hai Sun Hup Group Ltd. 366,000 270
Hotel Properties Ltd. 312,000 504
IPC Corp., Ltd. 190,000 67
Jurong Shipyard Ltd. 53,000 267
Keppel Corp., Ltd. 241,000 1,878
Lum Chang Holdings Ltd. 401,000 353
Natsteel Ltd. 69,000 157
Neptune Orient Lines Ltd. 743,000 643
Oversea-Chinese Banking
Corp. Ltd. (Foreign) 437,000 5,436
Parkway Holdings Ltd. 286,000 1,125
Prima Ltd. 160,000 589
Robinson & Co., Ltd. 58,000 234
Shangri-La Hotel Ltd. 80,300 274
Singapore Airlines Ltd. (Foreign) 552,000 5,012
Singapore Press Holdings Ltd.
(Foreign) 161,400 3,185
Singapore Technologies
Industrial Corp. 17,000 43
Singapore
Telecommunications Ltd. 1,708,000 4,029
Straits Trading Co., Ltd. 88,000 214
United Industrial Corp., Ltd. 46,000 39
United Overseas Bank Ltd.
(Foreign) 402,600 4,490
United Overseas Land Ltd. 203,000 309
Van Der Horst Ltd. 11,000 46
----------
39,907
----------
SOUTH AFRICA (11.0%)
African Oxygen Ltd. 17,100 58
Alpha Ltd. 10,900 178
Amalgamated Banks of
South Africa Ltd. 341,400 1,752
Anglo American Industrial
Corp., Ltd. 66,900 2,424
Anglovaal Industries Ltd. 291,800 1,319
# Anglovaal Industries Ltd.
Rights Exp. 1/15/97 16,045 1
# Avgold Ltd. 73,375 193
Avmin Ltd. 230,600 863
Barlow Ltd. 203,400 1,805
Beatrix Mines Ltd. 5,800 36
De Beers Centenary AG 302,700 8,672
Del Monte Royal Foods Ltd. 378,000 380
Driefontein Consolidated Ltd. 189,100 1,991
Engen Ltd. 29,200 156
Evander Gold Mines Ltd. 16,400 140
First National Bank Holdings Ltd. 396,700 1,942
# Foschini Ltd. 247,445 828
Free State Consolidated
Gold Mines Ltd. 4,200 31
Kloof Gold Mining Co., Ltd. 102,900 838
Liberty Life Assn. of Africa Ltd. 205,223 5,144
# MIH Holdings Ltd. 161,400 690
Malbak Ltd. 320,800 1,406
Metropolitan Life Ltd. 589,600 845
Murray & Roberts Holdings Ltd. 330,000 741
Nampak Ltd. 464,400 1,847
Nedcor Ltd. 197,200 2,698
Palabora Mining Co., Ltd. 25,100 411
Pepkor Ltd. 143,300 440
Pick'n Pay Stores Ltd. 119,800 122
Pick'n Pay Stores Ltd. N Shares 239,600 220
Randfontein Estates Gold
Mining Co., Witwatersrand Ltd. 45,700 236
Rembrandt Group Ltd. 437,700 3,907
Reunert Ltd. 22,400 74
Rustenburg Platinum
Holdings Ltd. 127,435 1,744
Safmarine & Rennies
Holdings Ltd. 393,000 882
Samancor Ltd. 180,300 2,120
Sappi Ltd. 171,400 1,539
Sasol Ltd. 487,200 5,781
South African Breweries Ltd. 255,800 6,480
South African Iron &
Steel Industrial Corp., Ltd. 2,298,209 1,641
Sun International
South Africa Ltd. 1,274,200 1,022
Tiger Oats Ltd. 138,100 1,919
Trencor Ltd. 111,800 562
Vaal Reefs Exploration &
Mining Co., Ltd. 19,350 1,241
Western Area Gold
Mining Co., Ltd. 88,200 1,216
Western Deep Levels Ltd. 19,500 597
Wooltru Ltd. 122,200 494
Wooltru Ltd. N Shares 165,300 633
----------
70,259
----------
THAILAND (5.1%)
Asia Credit PLC (Foreign) 53,800 215
Asia Securities Trading PLC
(Foreign) 357,000 446
Ayudhya Insurance PLC
(Foreign) 38,400 297
Bangkok Bank PLC (Foreign) 19,800 192
Bangkok Bank PLC (Local) 96,400 718
Bangkok Insurance PLC (Foreign) 3,900 55
Bangkok Land PLC (Foreign) 253,100 281
Bangkok Rubber PLC (Foreign) 729,900 265
Bangkok Rubber PLC (Local) 31,000 11
Bank of Ayudhya PLC
(Foreign) 435,450 1,027
Banpu PLC (Foreign) 42,700 793
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
EMERGING VALUE*
MARKETS PORTFOLIO SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Banpu PLC (Local) 11,800 $ 219
Castle Peak Holdings PLC
(Foreign) 130,400 570
CMIC Finance & Securities
PLC (Foreign) 366,000 528
# Compass East Industry
(Thailand) PLC (Foreign) 40,200 180
Dhana Siam Finance &
Securities PLC (Foreign) 130,100 310
Dusit Thani PLC (Foreign) 113,300 119
Finance One PLC (Foreign) 44,100 89
First City Investment PLC
(Foreign) 230,600 144
# GSS Array Technology PLC
(Foreign) 187,200 245
# GSS Array Technology PLC
(Local) 19,600 26
Industrial Finance Corp. of
Thailand PLC (Foreign) 338,000 916
Industrial Finance Corp. of
Thailand PLC (Local) 67,200 180
# International Broadcasting Corp.
PLC (Foreign) 187,400 289
International Cosmetics Corp.
PLC (Foreign) 21,200 97
International Engineering
PLC (Foreign) 148,800 342
International Engineering
PLC (Local) 15,600 36
# International Trust & Finance
PLC (Foreign) 254,725 107
Krisda Mahanakorn PLC
(Foreign) 428,300 334
Land & House PLC (Foreign) 19,800 144
Land & House PLC (Local) 2,600 18
Lee Feed Mill PLC (Foreign) 201,200 253
Lee Feed Mill PLC (Local) 46,300 58
# Malee Sampran Factory PLC
(Foreign) 620,900 260
# Malee Sampran Factory PLC
(Local) 2,800 1
Modernform Group PLC
(Foreign) 408,200 239
Multi-Credit Corp. of Thailand
PLC (Foreign) 132,600 264
Nation Multimedia Group PLC
(Foreign) 28,800 84
National Finance & Securities
PLC (Foreign) 256,600 483
National Petrochemical PLC
(Foreign) 240,400 185
Nava Finance & Securities PLC
(Foreign) 296,300 407
# Nep Realty & Industry PLC
(Foreign) 1,477,500 305
# NTS Steel Group PLC
(Foreign) 1,275,900 560
One Holding PLC (Foreign) 516,600 217
# Pacific Assets PLC (Foreign) 1,300,700 340
# Padaeng Industry PLC
(Foreign) 1,451,150 580
Phatra Thanakit PLC (Foreign) 78,700 224
Phoenix Pulp & Paper PLC
(Foreign) 218,100 415
Phoenix Pulp & Paper PLC
(Local) 19,200 37
# Pranda Jewelry PLC (Foreign) 133,900 172
Premier Enterprise PLC
(Foreign) 255,500 291
PTT Exploration & Production
PLC (Foreign) 269,500 3,889
Regional Container Lines PLC
(Foreign) 3,000 29
Robinson Department Store
PLC (Foreign) 229,800 215
Robinson Department Store
PLC (Local) 75,000 69
Saha Patana Inter-Holding
PLC (Foreign) 149,200 366
Sanyo Universal Electric
PLC (Foreign) 38,900 115
Shangri-la Hotel PLC (Foreign) 18,850 19
Shinawatra Computer &
Communications PLC
(Foreign) 146,500 1,771
Siam Cement PLC (Foreign) 55,100 1,728
Siam Cement PLC (Local) 46,200 1,456
Siam City Cement PLC
(Foreign) 159,880 835
Siam Commercial Bank PLC
(Foreign) 12,400 90
# Siam United Services PLC
(Foreign) 1,559,200 207
Srithai Superware PLC
(Foreign) 49,600 298
# Sun Tech Group PLC (Foreign) 551,900 538
Tanayong PLC (Foreign) 614,670 312
Tanayong PLC (Local) 60,175 26
Thai Central Chemical PLC
(Foreign) 110,900 107
Thai Farmers Bank PLC
(Foreign) 10,900 68
Thai Plastic & Chemical PLC
(Foreign) 95,200 325
Thai President Foods PLC
(Foreign) 16,000 95
# Thai Telephone &
Telecommunication PLC
(Foreign) 840,900 754
Thai Wah PLC (Foreign) 376,300 227
Thai Wah PLC (Local) 4,300 3
Thai-German Ceramic Industry
PLC (Foreign) 371,100 434
Tipco Asphalt PLC (Foreign) 136,000 827
TPI Polene PLC (Foreign) 278,668 516
# Unicord PLC (Foreign) 105,600 11
Union Asia Finance PLC
(Foreign) 92,800 188
United Communication Industry
PLC (Foreign) 248,700 1,620
# Univest Land PLC (Foreign) 721,800 121
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- -------------------------------------------------------------
<S> <C> <C>
Wattachak Public Co., Ltd.
(Foreign) 278,400 $ 377
------------
32,204
------------
TURKEY (1.4%)
Adana Cimento Sanayii AS A
Shares 1,747,834 93
Adana Cimento Sanayii AS C
Shares 6,938,230 83
Akal Tekstil Sanayii AS 1,000,500 68
Altinyildiz Mensucat Ve
Konfeksiyon Fabrikalari AS 1,176,000 159
Arcelik AS 4,047,316 408
Bagfas Bandirma Gubre
Fabrikalari AS 284,000 64
Brisa Bridgestone Sabanci
Lastik Sanayi Ve Ticaretas 875,000 389
Cukurova Elektrik AS 455,000 542
Doktas Dokumculuk Sanayi
Ve Ticaret AS 911,600 102
# Eczacibasi Ilac Sanayi
Ve Ticaret AS 2,999,600 148
Ege Biracilik Ve Malt
Sanayii AS 1,638,657 349
# Ege Seramik Sanayi de
Ticaret AS 2,166,000 70
Eregli Demir Ve Celik
Fabrikalari AS 5,379,250 641
Goodyear Lastikleri TAS 502,000 225
# Ihlas Holding AS 1,778,300 277
Kartonsan Karton Sanayi
Ve Ticaret AS 525,000 50
Kav Orman Sanayii AS 3,555,000 86
Konya Cimento Sanayii AS 720,000 76
Migros Turk AS 257,000 312
Netas-Northern Elektrik
Telekomunikasyon AS 1,089,000 244
Otosan Otomobil Sanayii AS 2,086,500 841
# Raks Elektronik Sanayi Ve
Ticaret AS 467,000 97
Sabah Yayincilik AS 4,723,000 61
Sarkuysan Elektrolitik
Bakir Sanayi De Vicaret AS 1,494,000 99
Sifas Sentetik Iplik
Fabrikalari AS 1,014,000 30
Tofas-Turk Otomobil
Fabrikasi AS 6,462,050 252
Trakya Cam Sanayii AS 6,890,036 347
Turkiye Garanti Bankasi AS 12,944,250 581
Turkiye Is Bankasi AS
B Shares 64,000 164
Turkiye Is Bankasi AS
C Shares 8,065,900 1,238
Usas Ucak Servisi AS 95,500 192
Vestel Elektronik Sanayi Ve
Ticaret AS 576,000 137
Yapi Ve Kredi Bankasi AS 26,940,860 667
------------
9,092
------------
- -------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $577,702) 604,142
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- -------------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.2%)
- -------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.39%, 1/2/97
(COST $32,839) $32,839 $ 32,839
- -------------------------------------------------------------
TOTAL INVESTMENTS (100%)
(COST $610,541) 636,981
- -------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- -------------------------------------------------------------
Other Assets--Note B 4,842
Liabilities (4,702)
-----------
140
- -------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------
Applicable to 51,883,201 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $ 637,121
=============================================================
NET ASSET VALUE PER SHARE $12.28
=============================================================
</TABLE>
*See Note A in Notes to Financial Statements.
#Non-Income Producing Security.
ILS--Israeli Shekel.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------
<S> <C> <C>
Paid in Capital $612,598 $11.80
Overdistributed Net
Investment Income--Note F (1,149) (.02)
Accumulated Net
Realized Losses--Note F (768) (.01)
Unrealized Appreciation--Note E
Investment Securities 26,440 .51
- -------------------------------------------------------------
NET ASSETS $637,121 $12.28
=============================================================
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARKET
VALUE*
TOTAL INTERNATIONAL PORTFOLIO SHARES (000)
- -----------------------------------------------------------------------------------------------------
INVESTMENTS (100%)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Vanguard International Equity Index Fund-European Portfolio 8,170,874 $135,391
Vanguard International Equity Index Fund-Pacific Portfolio 10,189,247 107,089
Vanguard International Equity Index Fund-Emerging Markets Portfolio 3,089,680 37,941
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $281,814) 280,421
- -----------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
Other Assets 2,575
Liabilities (2,638)
---------
(63)
- -----------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------
Applicable to 27,653,167 shares of beneficial interest
(unlimited authorization--no par value) $280,358
=====================================================================================================
NET ASSET VALUE PER SHARE $10.14
=====================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $281,916 $10.20
Overdistributed Net Investment Income (156) (.01)
Overdistributed Net Realized Gains (9) --
Unrealized Depreciation--Note E (1,393) (.05)
- -----------------------------------------------------------------------------------------------------
NET ASSETS $280,358 $10.14
=====================================================================================================
</TABLE>
36
<PAGE> 39
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by each Portfolio
during the reporting period, and details the operating expenses charged to the
Portfolio. These expenses directly reduce the amount of investment income
available to pay to shareholders as dividends. The Total International
Portfolio's income consists of Income Distributions Received from the other
Portfolios' net income, and therefore has been reduced by its share of the
other Portfolios' expenses.
This Statement also shows any Net Gain (Loss) realized on the sale of
investments, and the increase or decrease in the Unrealized Appreciation
(Depreciation) on investments during the period-- these amounts include the
effect of foreign currency movements on the value of a Portfolio's securities.
Currency gains (losses) on the translation of other assets and liabilities,
combined with the results of any investments in forward currency contracts
during the period, are shown separately. If a Portfolio invested in futures
contracts during the period, the results of these investments are also shown
separately. The Total International Portfolio's Capital Gain Distributions
Received from the other Portfolios' realized net gains are shown separately
from the Net Gain (Loss) realized on the sale of investments in the other
Portfolios.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
EMERGING
EUROPEAN PACIFIC MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 33,219 $ 10,109 $ 9,474
Interest 2,628 1,886 1,467
-----------------------------------------
Total Income 35,847 11,995 10,941
-----------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 22 22 22
Management and Administrative 3,256 2,350 1,126
Marketing and Distribution 278 246 119
Taxes (other than income taxes) 91 69 35
Custodian Fees 705 612 1,528
Auditing Fees 9 9 8
Shareholders' Reports 77 70 29
Annual Meeting and Proxy Costs 15 12 9
Directors' Fees and Expenses 4 3 1
-----------------------------------------
Total Expenses 4,457 3,393 2,877
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 31,390 8,602 8,064
- -----------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 4,940 3,183 387
Futures Contracts 5,693 (1,448) --
Foreign Currencies and Forward Currency Contracts (1,548) (3,360) (38)
- -----------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 9,085 (1,625) 349
- -----------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 213,463 (93,248) 35,031
Futures Contracts 248 (1,064) --
Foreign Currencies and Forward Currency Contracts 84 84 3
- -----------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 213,795 (94,228) 35,034
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $254,270 $(87,251) $43,447
===============================================================================================
</TABLE>
*Dividends are net of foreign withholding taxes of $4,885,000, $1,267,000, and
$948,000, respectively.
37
<PAGE> 40
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (continued)
- ------------------------------------------------------------------------------------------------
APR. 29* TO
DEC. 31, 1996
----------------
TOTAL
INTERNATIONAL
PORTFOLIO
(000)
- ------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income Distributions Received $4,158
- ------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME--Note C 4,158
- ------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Capital Gain Distributions Received 396
Investment Securities Sold --
- ------------------------------------------------------------------------------------------------
REALIZED NET GAIN 396
- ------------------------------------------------------------------------------------------------
UNREALIZED DEPRECIATION OF INVESTMENT SECURITIES (1,393)
- ------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,161
================================================================================================
</TABLE>
*Commencement of operations.
38
<PAGE> 41
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes
information that is detailed in the Statement of Operations. The amounts shown
as Distributions to shareholders from the Portfolio's net income and capital
gains may not match the amounts shown in the Operations section, because
distributions are determined on a tax basis and may be made in a period
different from the one in which the income was earned or the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the Portfolio, either by purchasing
shares or by reinvesting distributions, as well as the amounts redeemed. The
corresponding numbers of Shares Issued and Redeemed are shown at the end of the
Statement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EUROPEAN PACIFIC
PORTFOLIO PORTFOLIO
-------------------------- --------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1996 1995
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 31,390 $ 22,605 $ 8,602 $ 7,054
Realized Net Gain (Loss) 9,085 3,836 (1,625) (1,456)
Change in Unrealized Appreciation (Depreciation) 213,795 136,505 (94,228) 17,544
---------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 254,270 162,946 (87,251) 23,142
---------------------------------------------------
DISTRIBUTIONS
Net Investment Income (33,504) (22,611) (8,273) (8,477)
Realized Capital Gain (5,470) (2,826) -- --
---------------------------------------------------
Total Distributions (38,974) (25,437) (8,273) (8,477)
---------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 511,774 263,840 474,705 270,631
Issued in Lieu of Cash Distributions 34,983 21,857 7,164 7,188
Redeemed (184,595) (120,963) (239,553) (158,876)
---------------------------------------------------
Net Increase from Capital
Share Transactions 362,162 164,734 242,316 118,943
- ------------------------------------------------------------------------------------------------------------------
Total Increase 577,458 302,243 146,792 133,608
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,017,276 715,033 830,714 697,106
---------------------------------------------------
End of Period $1,594,734 $1,017,276 $977,506 $830,714
==================================================================================================================
(1)Shares Issued (Redeemed)
Issued 33,822 19,554 41,039 24,480
Issued in Lieu of Cash Distributions 2,156 1,560 684 628
Redeemed (12,290) (9,359) (20,943) (14,514)
---------------------------------------------------
Net Increase in Shares Outstanding 23,688 11,755 20,780 10,594
==================================================================================================================
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS TOTAL INTERNATIONAL
PORTFOLIO PORTFOLIO
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------- APR. 29* TO
1996 1995 DEC. 31, 1996
(000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 8,064 $ 3,024 $ 4,158
Realized Net Gain (Loss) 349 (713) 396
Change in Unrealized Appreciation (Depreciation) 35,034 (404) (1,393)
------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 43,447 1,907 3,161
------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (8,487) (3,765) (4,314)
Realized Capital Gain -- -- (405)
------------------------------------------------------------------
Total Distributions (8,487) (3,765) (4,719)
------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 406,671 176,094 293,013
Issued in Lieu of Cash Distributions 7,541 3,292 4,311
Redeemed (46,342) (26,614) (15,515)
------------------------------------------------------------------
Net Increase from Capital Share Transactions 367,870 152,772 281,809
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase 402,830 150,914 280,251
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note C 234,291 83,377 107
------------------------------------------------------------------
End of Period $637,121 $234,291 $280,358
=============================================================================================================================
(1)Shares Issued and Redeemed
Issued 33,380 16,407 28,748
Issued in Lieu of Cash Distributions 619 307 429
Redeemed (3,916) (2,580) (1,534)
------------------------------------------------------------------
Net Increase in Shares Outstanding 30,083 14,134 27,643
=============================================================================================================================
</TABLE>
*Commencement of operations.
40
<PAGE> 43
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis; investment results for the Total
International Portfolio include both income and capital gain distributions
received from the other Portfolios. The table also presents the Portfolio's
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
Portfolio's net income and total returns from year to year; the relative
contributions of net income and capital gains to the Portfolio's total return;
how much it costs to operate the Portfolio; and the extent to which the
Portfolio tends to distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in
the Portfolio for one year. Finally, the table lists the Portfolio's Average
Commission Rate Paid, a disclosure required by the SEC beginning in 1996. This
rate is calculated by dividing total commissions paid on portfolio securities
by the total number of shares purchased and sold on which commissions were
charged. The Total International Portfolio does not report an Average
Commission Rate Paid because it pays no commissions on transactions in shares
of the other Portfolios.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EUROPEAN PORTFOLIO
YEAR ENDED DECEMBER 31,
----------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.02 $11.76 $11.88 $ 9.33 $9.92
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .34 .32 .28 .17 .25
Net Realized and Unrealized Gain (Loss) on Investments 2.63 2.30 (.06) 2.55 (.58)
----------------------------------------------------
Total from Investment Operations 2.97 2.62 .22 2.72 (.33)
----------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.36) (.32) (.28) (.17) (.26)
Distributions from Realized Capital Gains (.06) (.04) (.06) -- --
----------------------------------------------------
Total Distributions (.42) (.36) (.34) (.17) (.26)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.57 $14.02 $11.76 $11.88 $9.33
==================================================================================================================
TOTAL RETURN* 21.26% 22.28% 1.88% 29.13% -3.32%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,595 $1,017 $715 $601 $256
Ratio of Total Expenses to Average Net Assets 0.35% 0.35% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to Average Net Assets 2.45% 2.66% 2.41% 2.05% 3.05%
Portfolio Turnover Rate 4% 2% 6% 4% 1%
Average Commission Rate Paid $.0395 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% transaction fee on purchases or the
annual account maintenance fee of $10.
41
<PAGE> 44
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PACIFIC PORTFOLIO
YEAR ENDED DECEMBER 31,
----------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.50 $11.31 $10.13 $ 7.56 $9.42
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .10 .10 .08 .06 .05
Net Realized and Unrealized Gain (Loss) on Investments (1.00) .21 1.24 2.62 (1.76)
----------------------------------------------------
Total from Investment Operations (.90) .31 1.32 2.68 (1.71)
----------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.09) (.12) (.08) (.06) (.05)
Distributions from Realized Capital Gains -- -- (.06) (.05) (.10)
----------------------------------------------------
Total Distributions (.09) (.12) (.14) (.11) (.15)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.51 $11.50 $11.31 $10.13 $7.56
========================================================================================================================
TOTAL RETURN* -7.82% 2.75% 13.04% 35.46% -18.17%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $978 $831 $697 $493 $207
Ratio of Total Expenses to Average Net Assets 0.35% 0.35% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to Average Net Assets 0.89% 0.97% 0.71% 0.75% 0.92%
Portfolio Turnover Rate 9% 1% 4% 7% 3%
Average Commission Rate Paid $.0156 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% transaction fee on purchases or the
annual account maintenance fee of $10.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
YEAR ENDED
DECEMBER 31,
-------------------- MAY 4* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1996 1995 DEC. 31, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.75 $10.87 $10.00
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .18 .15 .06
Net Realized and Unrealized Gain (Loss) on Investments 1.52 (.09) .92
--------------------------------------
Total from Investment Operations 1.70 .06 .98
--------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.17) (.18) (.07)
Distributions from Realized Capital Gains -- -- (.04)
--------------------------------------
Total Distributions (.17) (.18) (.11)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.28 $10.75 $10.87
===============================================================================================================
TOTAL RETURN** 15.83% 0.56% 9.81%
===============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $637 $234 $83
Ratio of Total Expenses to Average Net Assets 0.60% 0.60% 0.60%+
Ratio of Net Investment Income to Average Net Assets 1.69% 2.00% 1.32%+
Portfolio Turnover Rate 1% 3% 6%
Average Commission Rate Paid $.0004 N/A N/A
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** 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.
+ Annualized.
42
<PAGE> 45
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOTAL INTERNATIONAL PORTFOLIO
APR. 29* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD DEC. 31, 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.26
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Income Dividends Received .150
Capital Gain Distributions Received .015
-------
Total Distributions Received .165
Net Realized and Unrealized Gain (Loss) on Investments (.110)
-------
Total from Investment Operations .055
-------
DISTRIBUTIONS
Dividends from Net Investment Income (.160)
Distributions from Realized Capital Gains (.015)
-------
Total Distributions (.175)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.14
================================================================================================================
TOTAL RETURN** 0.55%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $280
Ratio of Expenses to Average Net Assets--Note C 0%
Ratio of Net Investment Income to Average Net Assets 1.51%+
Portfolio Turnover Rate 0%
Average Commission Rate Paid N/A
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Total return figures do not reflect the 1% transaction fee on purchases or
the annual account maintenance fee of $10.
+ Annualized.
43
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
Vanguard International Equity Index Fund and Vanguard Total International
Portfolio are registered under the Investment Company Act of 1940 as open-end
investment companies, or mutual funds. Vanguard International Equity Index Fund
consists of the European, Pacific, and Emerging Markets Portfolios, each of
which seeks to match the performance of a distinct international market index
by investing in common stocks. The Total International Portfolio, one of six
independent Portfolios of Vanguard STAR Fund, seeks to match the performance of
its target index by investing in the European, Pacific, and Emerging Markets
Portfolios. The Portfolios' direct and indirect investments in foreign
securities involve investment risks not normally associated with investing in
securities of United States corporations.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Portfolios consistently follow such
policies in preparing their financial statements.
1. SECURITY VALUATION: European, Pacific, and Emerging Markets Portfolios:
Foreign securities listed on an exchange are valued at the latest quoted sales
prices on the appropriate exchange as of the close of trading on the New York
Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Bonds,
and temporary cash investments acquired over 60 days to maturity, are valued
using primarily the latest bid prices or using valuations based on a matrix
system (which considers such factors as security prices, yields, maturities,
and ratings), both as furnished by an independent pricing service. Other
temporary cash investments are valued at amortized cost, which approximates
market value.
Total International Portfolio: Investments are valued at the net asset
value of each Vanguard Portfolio determined as of the close of the New York
Stock Exchange on the valuation date.
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 p.m. Geneva time on the valuation date.
Realized gains (losses) and unrealized appreciation (depreciation) on
investment securities include the effects of changes in exchange rates since
the securities were purchased, combined with the effects of changes in security
prices. Fluctuations in the value of other assets and liabilities resulting
from changes in exchange rates are recorded as unrealized foreign currency
gains (losses) until the asset or liability is settled in cash, when they are
recorded as realized foreign currency gains (losses).
3. FUTURES AND FORWARD CURRENCY CONTRACTS: The European and Pacific
Portfolios use Eurotop and Nikkei 300 Index futures contracts, respectively, to
a limited extent, with the objectives of maintaining full exposure to the stock
market, enhancing returns, maintaining liquidity, and minimizing transaction
costs. The Portfolios may purchase futures contracts to immediately invest
incoming cash in the market, or sell futures in response to cash outflows,
thereby simulating a fully invested position in the underlying index while
maintaining a cash balance for liquidity. The Portfolios may seek to enhance
returns by using 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 held by the
Portfolios and the prices of futures contracts, and the possibility of an
illiquid market.
The European and Pacific Portfolios enter into forward currency contracts
to maintain the same currency exposure as their respective indexes. The
Portfolios' risks in using these contracts include movement in the values of
the foreign currencies relative to the U.S. dollar and the ability of the
counterparties to fulfill their obligations under the contracts.
Futures and forward currency contracts are valued at their quoted daily
settlement prices. The aggregate principal amounts of the contracts are not
recorded in the financial statements. Fluctuations in the value of the
contracts are recorded in the Statement of Net Assets as an asset (liability)
44
<PAGE> 47
and in the Statement of Operations as unrealized appreciation (depreciation)
until the contracts are closed, when they are recorded as realized gains
(losses) on futures or forward currency contracts.
4. FEDERAL INCOME TAXES: Each Portfolio 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 European, Pacific, and Emerging Markets
Portfolios, along with other members of The Vanguard Group, transfer uninvested
cash balances to a Pooled Cash Account, which is invested in repurchase
agreements secured by U.S. government securities. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal; however,
in the event of default or bankruptcy by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
6. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
7. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
B. The Vanguard Group furnishes to the European, Pacific, and Emerging Markets
Portfolios at cost investment advisory, corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the Portfolios under methods approved by the Board of Directors. At December
31, 1996, the Portfolios had contributed capital aggregating $281,000 to
Vanguard (included in Other Assets), representing 1.4% of Vanguard's
capitalization. The Portfolios' directors and officers are also directors and
officers of Vanguard.
C. Under a special service agreement, The Vanguard Group furnishes corporate
management, administrative, marketing, and distribution services to the Total
International Portfolio. The special service agreement provides that Vanguard
will reimburse the Portfolio's expenses to the extent of savings in
administrative and marketing costs realized by Vanguard in the operation of the
Portfolio. Accordingly, all expenses incurred by the Portfolio during the
period ended December 31, 1996, were reimbursed by Vanguard. The Portfolio's
trustees and officers are also directors and officers of Vanguard.
The Total International Portfolio's operations prior to April 29, 1996,
were limited to the issuance of 10,443 shares to a private account of a trustee
and officer of the Portfolio in exchange for shares of the European, Pacific,
and Emerging Markets Portfolios.
D. During the period ended December 31, 1996, purchases and sales of
investment securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(000)
-------------------------------
PORTFOLIO PURCHASES SALES
- ---------------------------------------------------------------------
<S> <C> <C>
European $412,197 $55,784
Pacific 325,172 82,600
Emerging Markets 356,542 5,841
Total International 281,720 --
- ---------------------------------------------------------------------
</TABLE>
45
<PAGE> 48
E. At December 31, 1996, 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 $448,679 $(30,218) $418,461
Pacific 131,394 (115,417) 15,977
Emerging Markets 85,231 (59,682) 25,549
Total International 9,600 (10,993) (1,393)
- ---------------------------------------------------------------------
</TABLE>
At December 31, 1996, the aggregate settlement value of open futures
contracts expiring in March 1997 and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(000)
-------------------------------
AGGREGATE UNREALIZED
NUMBER OF SETTLEMENT APPRECIATION
PORTFOLIO/FUTURES CONTRACTS LONG CONTRACTS VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
European/
Eurotop 100 $16,205 $ 566
Pacific/
Nikkei 300 440 10,614 (330)
- -------------------------------------------------------------------------------
</TABLE>
The market values of U.S. Treasury bills deposited as initial margin for open
futures contracts by the European and Pacific Portfolios were $1,898,000 and
$4,995,000, respectively.
At December 31, 1996, the European and Pacific Portfolios had open forward
currency contracts to receive foreign currency in exchange for U.S. dollars as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(000)
-----------------------------------------------------------------
CONTRACT AMOUNT
----------------------- UNREALIZED
PORTFOLIO/ FOREIGN U.S. MARKET VALUE IN APPRECIATION
CONTRACT SETTLEMENT DATE CURRENCY DOLLARS U.S. DOLLARS (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
European/
Receive:
3/26/97 ECU 12,484 $15,639 $15,667 $ 28
Pacific/
Receive:
3/19/97 JPY 1,270,268 11,298 11,060 (238)
- ----------------------------------------------------------------------------------------------------
</TABLE>
ECU--European Currency Unit.
JPY--Japanese Yen.
Net unrealized appreciation (depreciation) related to open forward currency
contracts is required to be treated as realized gain (loss) for tax purposes.
The European and Pacific Portfolios had net unrealized foreign currency
gains (losses) of $76,000 and ($5,000), respectively, resulting from the
translation of other assets and liabilities at December 31, 1996.
46
<PAGE> 49
F. 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, 1996, the European, Pacific, and
Emerging Markets Portfolios realized net foreign currency losses of $2,000,
$407,000, and $38,000, respectively, which decreased distributable net income
for tax purposes; accordingly such losses have been reclassified from
accumulated net realized gains (losses) to undistributed net investment income.
Certain of the Portfolios' 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 and Emerging Markets
Portfolios' distributions to shareholders from passive foreign investment
company income during the year ended December 31, 1996, were $1,217,600 and
$251,000, respectively. The cumulative total of Emerging Markets Portfolio
distributions related to passive foreign investment company holdings at
December 31, 1996, was $799,000, which is reflected in the balance of
overdistributed net investment income at December 31, 1996. The Emerging
Markets Portfolio had an additional $92,000 of unrealized appreciation on
passive foreign investment companies which was available for distribution at
December 31, 1996.
During the year ended December 31, 1996, the European, Pacific, and
Emerging Markets Portfolios realized gains on the sale of passive foreign
investment companies of $1,766,000, $813,000, and $14,000, respectively, which
were included in 1996 and prior years' distributable net income for tax
purposes; accordingly such gains have been reclassified from accumulated net
realized gains (losses) to undistributed net investment income.
For federal income tax purposes, the European, Pacific, and Emerging
Markets Portfolios had the following capital gains available for distribution
at December 31, 1996, or capital losses available to offset future capital
gains:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CAPITAL LOSS
--------------------------------------
EXPIRATION
CAPITAL GAINS FISCAL
AVAILABLE FOR YEAR(S)
DISTRIBUTION AMOUNT ENDING
PORTFOLIO (000) (000) DECEMBER 31
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
European $2,358 -- --
Pacific -- $4,520 2003-2005
Emerging Markets -- 762 2003-2004
- -----------------------------------------------------------------------------------------
</TABLE>
G. The market value of securities on loan to broker/dealers at December 31,
1996, and collateral received with respect to such loans were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
(000)
----------------------------------
MARKET VALUE CASH
OF LOANED COLLATERAL
PORTFOLIO SECURITIES RECEIVED
-----------------------------------------------------------------------
<S> <C> <C>
European $342,146 $356,490
Pacific 173,868 185,513
-----------------------------------------------------------------------
</TABLE>
47
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors and Trustees of
Vanguard International Equity Index Fund and
Vanguard STAR 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 Portfolio, Pacific Portfolio and Emerging Markets Portfolio,
constituting Vanguard International Equity Index Fund, and Total International
Portfolio, a separate portfolio of Vanguard STAR Fund, (together the
"Portfolios") at December 31, 1996, and the results of each of their
operations, the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolios' 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 at December 31, 1996 by
correspondence with the custodian and, with respect to unsettled securities
transactions, the application of alternative auditing procedures, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 31, 1997
SPECIAL 1996 TAX INFORMATION (UNAUDITED)
VANGUARD INTERNATIONAL EQUITY INDEX FUND AND
VANGUARD STAR FUND-TOTAL INTERNATIONAL PORTFOLIO
This information for the fiscal year ended December 31, 1996, is included
pursuant to provisions of the Internal Revenue Code.
The European Portfolio designates $6,005,000 as capital gain dividends
(from net long-term capital gains), of which $4,268,000 was distributed to
shareholders in December 1996 and $1,737,000 will be distributed in March
1997.
The Total International Portfolio designates $356,000 as capital gain
dividends (from net long-term capital gains), which were distributed in
December 1996.
The Fund has elected to pass through the credit for taxes paid in
foreign countries. Shareholders receive detailed information on foreign
income and foreign tax per share by country along with their 1996 Form
1099-DIV.
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
48
<PAGE> 51
DIRECTORS, TRUSTEES, AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard
Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment
companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer Inc.;
Director of Sun Company, Inc. and Westinghouse Electric
Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and
Massa-chusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc.,
and National Steel Corp.
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., Procter &
Gamble 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; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard
Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard
Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President, Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President, Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses
may be obtained directly from The Vanguard Group.
(C) 1996 Vanguard Marketing Corporation, Distributor
<PAGE> 52
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 Selected Value Portfolio
Vanguard/Trustees' Equity-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 Portfolios
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
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Treasury Money Market Portfolio
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q720-12/96
[PHOTO]
