<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
Returns from stocks and bonds diverged sharply during the first half of
Vanguard Tax-Managed Fund's 1996 fiscal year. Stocks provided robust positive
returns, while bond prices suffered losses that were offset, to some degree, by
interest income. Both of our all-equity portfolios--Growth and Income and
Capital Appreciation--earned returns in the area of +10% during the six months
ended June 30, 1996. For the Balanced Portfolio, the return was roughly +5%.
As you know, each of the Tax-Managed Portfolios uses an index approach
to minimize taxable capital gains and keep portfolio turnover low. It is
gratifying to note that each Portfolio closely matched its benchmark. The
following table presents the total returns (capital change plus reinvested
dividends) achieved by our Tax-Managed Portfolios and by their respective
unmanaged benchmarks:
<TABLE>
<CAPTION>
- ------------------------------------------------------
TOTAL RETURN
----------------
SIX MONTHS ENDED
JUNE 30, 1996
- ------------------------------------------------------
<S> <C>
TAX-MANAGED GROWTH AND
INCOME PORTFOLIO +10.1%
STANDARD & POOR'S 500 INDEX +10.1
- ------------------------------------------------------
TAX-MANAGED CAPITAL
APPRECIATION PORTFOLIO +10.3%
RUSSELL 1000 STOCK INDEX + 9.8
- ------------------------------------------------------
TAX-MANAGED BALANCED PORTFOLIO + 4.7%
BALANCED COMPOSITE INDEX* + 4.9
- ------------------------------------------------------
</TABLE>
*Index composition: 50% Russell 1000 Stock Index and 50% Lehman
Intermediate-Term Municipal Bond Index.
Note: "Standard & Poor's(R)," "S&P500(R)," and "500" are trademarks of The
McGraw-Hill Companies, Inc.; "Russell 1000 Stock Index" is a registered
trademark of the Frank Russell Company.
Detailed per share figures for each Portfolio, including net asset values and
income dividends, are presented in the table at the close of this letter. None
of the Portfolios distributed any realized net capital gains during the period.
THE PERIOD IN REVIEW
The U.S. stock market continued to surge upward during the first half of our
Fund's fiscal year, albeit below the near-record pace that prevailed in 1995.
Even so, the advance was impressive, occurring as it did in the face of a sharp
rise in long-term interest rates.
While the stock market, as measured by the Standard & Poor's 500
Composite Stock Price Index, chalked up a +10.1% return from January through
June, the bond market slumped. Short-term interest rates rose only modestly,
with the rate on 90-day Treasury bills rising from 5.0% to 5.2% during the
first half of the year. The rate increase was steeper for long-term bonds, with
the yield on the benchmark long-term U.S. Treasury bond rising from 6.0% at the
beginning of the year to 7.0% at the end of June. The price of the 30-year
Treasury bond fell -12% during the period. The Lehman Aggregate Bond Index, a
benchmark for the overall bond market, provided a negative total return of
- -1.2% in the half year, earning income of 3.3% combined with a price decline of
- -4.5%.
The primary reason for the divergence in the returns of stocks and
bonds appears to be differing responses by equity and bond investors to the
surprising strength of the overall economy. Faster-than-expected economic
growth during the first half of the year led stock investors to anticipate
accelerated growth in corporate earnings, even as bond investors worried about
higher inflation. It remains to be seen whether the bull market in stocks can
continue in the face of higher interest rates, which may provide heightened
competition for investors' dollars at a time when common stocks offer
historically low dividend yields.
In this generous environment for stocks but difficult period for
bonds, our Portfolios performed according to form:
- - Our Growth and Income Portfolio, which aims to provide returns that match,
before expenses, the returns on the Standard & Poor's 500 Index, was exactly
on target. Both the Portfolio and the Index provided total returns of +10.1%
for the six months ended June 30.
(continued)
1
<PAGE> 2
- - Our Capital Appreciation Portfolio, which aims to provide returns comparable
to those of the Russell 1000 Index, outpaced the Index by 0.5% during the
six months. This variation was largely a result of our policy of emphasizing
the lower-yielding stocks in the Russell 1000 Index, so as to minimize
(taxable) dividend income. This emphasis added some value during the first
half of 1996, when growth stocks outperformed more value-oriented stocks,
which generally are characterized by higher dividend yields. In interim
periods, value stocks may take the lead, but we expect the difference to
even out over the long-run.
- - Our Balanced Portfolio's return of +4.7% reflected the divergence in the
stock and bond markets. While the equity portion of the Portfolio, utilizing
our Capital Appreciation Portfolio strategy, chalked up a return of +9.7%,
the portion of the Portfolio invested in tax-exempt intermediate-term bonds
produced a meager total return of +0.2%.
The Growth and Income Portfolio is currently providing a dividend
yield of 2.0%, or about 1.2% after taxes for an investor in the highest
marginal tax bracket; our Capital Appreciation Portfolio is providing a pretax
yield of 0.8%, or 0.5% for an investor in the highest bracket; and our Balanced
Portfolio is providing a pretax yield of 3.0%, or approximately 2.8% on an
after-tax basis.
IN SUMMARY
Six months ago in our Annual Report--following an extraordinarily bountiful
1995--we cautioned that financial markets are not a "one-way street." Despite
the continued strength of the stock market in 1996, investors should be
prepared for the inevitable rough patch by maintaining a balanced portfolio of
stock funds, bond funds, and money market funds. We believe our caution remains
valid today. So, too, does our comment about the major long-term risks of
investing: (1) failing to hold stocks and bonds at all because of their
short-term risks; and (2) following an erratic and ever-changing course toward
your investment goals.
We assure you that Vanguard Tax-Managed Fund will hold to its course,
employing an indexing strategy to minimize the effects of taxes on your
investment returns.
Sincerely,
/s/ JOHN C. BOGLE
- ----------------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- ----------------------
John J. Brennan
President
July 29, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996
NET ASSET VALUE PER SHARE ------------------------
---------------------------------------- DIVIDENDS PER SHARE FROM
TAX-MANAGED PORTFOLIO DECEMBER 31, 1995 JUNE 30, 1996 NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH AND INCOME . . . . . . . $13.16 $14.37 $.12
CAPITAL APPRECIATION . . . . . . 13.28 14.65 --
BALANCED . . . . . . . . . . . . 11.85 12.26 .15
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS (unaudited)
June 30, 1996
Market
GROWTH AND INCOME Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------
COMMON STOCKS (99.8%)
- ------------------------------------------------------------
<S> <C> <C>
General Electric Co. 54,436 $ 4,709
The Coca-Cola Co. 81,826 3,999
Exxon Corp. 40,637 3,530
AT&T Corp. 52,631 3,263
Philip Morris Cos., Inc. 27,293 2,838
Royal Dutch Petroleum Co. ADR 17,529 2,695
Merck & Co., Inc. 40,279 2,603
* Microsoft Corp. 19,523 2,343
Johnson & Johnson 43,588 2,157
Procter & Gamble Co. 22,534 2,042
Intel Corp. 26,892 1,973
Wal-Mart Stores, Inc. 76,843 1,950
PepsiCo, Inc. 51,452 1,820
International Business
Machines Corp. 18,384 1,820
Hewlett-Packard Co. 16,726 1,666
American International Group, Inc. 15,526 1,531
Bristol-Myers Squibb Co. 16,744 1,507
Pfizer, Inc. 20,790 1,484
E.I. du Pont de Nemours & Co. 18,316 1,449
Mobil Corp. 12,859 1,442
GTE Corp. 31,864 1,426
The Walt Disney Co. 22,132 1,392
BellSouth Corp. 32,586 1,381
Citicorp 15,919 1,315
General Motors Corp. 24,741 1,296
Chevron Corp. 21,324 1,258
American Home Products Corp. 20,718 1,246
Ford Motor Co. 38,218 1,237
Motorola, Inc. 19,301 1,214
Federal National Mortgage Assn. 35,632 1,194
Amoco Corp. 16,194 1,172
Eli Lilly & Co. 17,998 1,170
Abbott Laboratories 25,597 1,113
Ameritech Corp. 18,165 1,079
McDonald's Corp. 22,715 1,062
* Cisco Systems, Inc. 18,610 1,054
Chase Manhattan Corp. 14,296 1,010
SBC Communications Inc. 19,948 982
The Boeing Co. 11,262 981
Minnesota Mining &
Manufacturing Co. 13,645 942
BankAmerica Corp. 12,257 928
Bell Atlantic Corp. 14,288 911
Gillette Co. 14,508 905
Eastman Kodak Co. 11,328 881
Home Depot, Inc. 15,629 844
* Oracle Corp. 21,353 841
NationsBank Corp. 9,720 803
Columbia/HCA Healthcare Corp. 14,524 775
Wells Fargo & Co. 3,243 775
Unilever NV ADR 5,246 761
Chrysler Corp. 12,265 760
Pharmacia & Upjohn, Inc. 16,870 749
Schering-Plough Corp. 11,918 748
Texaco Inc. 8,684 728
American Express Co. 16,188 722
Travelers Group Inc. 15,457 705
Kimberly-Clark Corp. 9,072 701
NYNEX Corp. 14,116 671
Schlumberger Ltd. 7,933 668
Emerson Electric Co. 7,366 666
Allstate Corp. 14,590 666
Dow Chemical Co. 8,540 649
Monsanto Co. 19,325 628
Sears, Roebuck & Co. 12,799 622
Atlantic Richfield Co. 5,246 622
Anheuser-Busch Co., Inc. 8,207 616
Sprint Corp. 14,272 599
Campbell Soup Co. 8,356 589
First Data Corp. 7,319 583
MCI Communications Corp. 22,312 569
First Union Corp. 9,339 569
Computer Associates
International, Inc. 7,941 566
Xerox Corp. 10,565 565
Lockheed Martin Corp. 6,488 545
Southern Co. 21,912 540
AlliedSignal Inc. 9,271 530
WMX Technologies Inc. 15,950 522
J.P. Morgan & Co., Inc. 6,160 521
Banc One Corp. 15,285 520
Time Warner, Inc. 13,091 514
Sara Lee Corp. 15,832 513
Kellogg Co. 6,868 503
Federal Home Loan Mortgage Corp. 5,815 497
U S WEST Communications Group 15,446 492
Nike, Inc. Class B 4,706 484
Warner-Lambert Co. 8,712 479
Pacific Telesis Group 14,038 474
Union Pacific Corp. 6,700 468
* Viacom International Class B 12,024 467
* Amgen, Inc. 8,688 467
* AirTouch Communications 16,300 460
Northern Telecom Ltd. 8,357 454
United Technologies Corp. 3,933 452
* COMPAQ Computer Corp. 8,960 441
Caterpillar, Inc. 6,295 426
Medtronic, Inc. 7,484 419
Baxter International, Inc. 8,844 418
Norwest Corp. 11,787 411
General Re Corp. 2,687 409
The Seagram Co. Ltd. 11,972 403
First Chicago NBD Corp. 10,234 400
</TABLE>
3
<PAGE> 4
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Raytheon Co. 7,722 $ 399
Colgate-Palmolive Co. 4,703 399
Rockwell International Corp. 6,953 398
Burlington Northern Santa Fe Corp. 4,909 397
* Tele-Communications, Inc. Class A 21,329 384
J.C. Penney Co., Inc. 7,306 384
Merrill Lynch & Co., Inc. 5,696 371
Fleet Financial Group, Inc. 8,478 369
International Paper Co. 9,923 366
The Dun & Bradstreet Corp. 5,780 361
H.J. Heinz Co. 11,888 361
Phillips Petroleum Co. 8,592 360
Automatic Data Processing, Inc. 9,268 358
May Department Stores Co. 8,147 356
ConAgra, Inc. 7,846 356
* Sun Microsystems, Inc. 6,024 354
Norfolk Southern Corp. 4,173 354
McDonnell Douglas Corp. 7,204 349
CSX Corp. 7,214 348
* WorldCom, Inc. 6,300 348
CPC International, Inc. 4,811 346
PNC Bank Corp. 11,601 345
Albertson's, Inc. 8,265 342
Texas Instruments, Inc. 6,826 340
Deere & Co. 8,479 339
Duke Power Co. 6,599 338
Enron Corp. 8,050 329
The Bank of New York Co., Inc. 6,400 328
Barrick Gold Corp. 12,079 328
Aluminum Co. of America 5,604 322
Gannett Co., Inc. 4,502 319
Archer-Daniels-Midland Co. 16,533 316
Texas Utilities Co. 7,271 311
Pacific Gas & Electric Co. 13,358 311
Dean Witter Discover & Co. 5,382 308
Loews Corp. 3,900 308
Corning, Inc. 7,913 304
PPG Industries, Inc. 6,225 303
* 3 Com Corp. 6,500 297
United Healthcare Corp. 5,864 296
The Gap, Inc. 9,192 295
FPL Group, Inc. 6,349 292
KeyCorp 7,524 292
Tenneco, Inc. 5,677 290
CIGNA Corp. 2,446 288
AMP, Inc. 7,040 282
The Chubb Corp. 5,598 279
CoreStates Financial Corp. 7,231 278
U.S. Healthcare, Inc. 5,040 277
Weyerhaeuser Co. 6,501 276
Mattel, Inc. 9,620 275
SunTrust Banks, Inc. 7,436 275
General Mills, Inc. 5,041 275
* U S WEST Media Group 14,946 273
Occidental Petroleum Corp. 10,945 271
Aetna Life & Casualty Co. 3,783 270
* AMR Corp. 2,959 269
Unocal Corp. 7,923 267
American Brands, Inc. 5,888 267
National City Corp. 7,600 267
Walgreen Co. 7,940 266
First Bank System, Inc. 4,500 261
American Electric Power Co., Inc. 6,030 257
Illinois Tool Works, Inc. 3,786 256
* Boston Scientific Corp. 5,641 254
Edison International 14,328 253
Westinghouse Electric Corp. 13,406 251
* Toys R Us, Inc. 8,791 251
Mellon Bank Corp. 4,389 250
Dominion Resources, Inc. 6,174 247
Morgan Stanley Group, Inc. 5,000 246
* ITT Corp. 3,701 245
Household International, Inc. 3,222 245
American General Corp. 6,731 245
Wachovia Corp. 5,585 244
Honeywell, Inc. 4,446 242
Dayton-Hudson Corp. 2,344 242
Marriott International 4,434 238
The Goodyear Tire & Rubber Co. 4,916 237
Pitney Bowes, Inc. 4,940 236
PacifiCorp 10,362 231
W.R. Grace & Co. 3,220 228
Marsh & McLennan Cos., Inc. 2,352 227
Consolidated Edison Co. of
New York, Inc. 7,700 225
* Digital Equipment Corp. 4,971 224
UST Inc. 6,499 223
* Federated Department Stores 6,500 222
Alcan Aluminium Ltd. 7,265 222
Ralston-Ralston Purina Group 3,442 221
Public Service Enterprise Group Inc. 8,035 220
American Stores Co. 5,286 218
Service Corp. International 3,790 218
Browning-Ferris Industries, Inc. 7,458 216
Textron, Inc. 2,702 216
Air Products & Chemicals, Inc. 3,690 213
* CUC International, Inc. 6,000 213
Halliburton Co. 3,790 210
Houston Industries, Inc. 8,492 209
TRW, Inc. 2,320 209
MBNA Corp. 7,310 208
Unicom Corp. 7,429 207
Entergy Corp. 7,286 207
Georgia-Pacific Corp. 2,900 206
Praxair, Inc. 4,860 205
Tyco International Ltd. 5,016 204
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Sysco Corp. 5,929 $ 203
ITT Hartford Group, Inc. 3,801 202
Boatmen's Bancshares, Inc. 5,048 201
ALLTEL Corp. 6,500 200
Central & South West Corp. 6,845 199
Avon Products, Inc. 4,392 198
Hershey Foods Corp. 2,699 198
* Tellabs, Inc. 2,900 194
Kmart Corp. 15,450 191
Morton International, Inc. 5,100 190
The Limited, Inc. 8,797 189
Lowes Cos., Inc. 5,235 189
Hercules, Inc. 3,417 189
USX-Marathon Group 9,378 189
Delta Air Lines, Inc. 2,272 189
U.S. Bancorp 5,234 188
Carolina Power & Light Co. 4,948 188
Winn Dixie Stores, Inc. 5,308 188
Wrigley, (Wm.) Jr. 3,697 187
Placer Dome, Inc. 7,812 187
PECO Energy Corp. 7,156 186
Bankers Trust New York Corp. 2,500 185
Dover Corp. 3,990 184
Alco Standard Corp. 4,066 184
Fluor Corp. 2,780 182
Transamerica Corp. 2,241 182
Crown Cork & Seal Co., Inc. 4,003 180
Genuine Parts Co. 3,925 180
* Applied Materials, Inc. 5,900 179
Barnett Banks, Inc. 2,932 179
Aon Corp. 3,500 178
Fifth Third Bancorp 3,300 177
Bank of Boston Corp. 3,560 176
Hilton Hotels Corp. 1,564 176
Dresser Industries, Inc. 5,898 174
Micron Technology Inc. 6,700 173
* The Kroger Co. 4,369 173
Union Carbide Corp. 4,315 172
Conrail, Inc. 2,572 171
International Flavors &
Fragrances, Inc. 3,582 171
Comerica, Inc. 3,800 170
Burlington Resources, Inc. 3,943 170
R.R. Donnelley & Sons Co. 4,841 169
Williams Cos., Inc. 3,354 166
Freeport-McMoRan Copper &
Gold Inc. Class B 5,200 166
* Cabletron Systems, Inc. 2,400 165
Becton, Dickinson & Co. 2,048 164
* Novell, Inc. 11,930 164
CINergy Corp. 5,106 163
Newmont Mining Corp. 3,291 162
Amerada Hess Corp. 3,017 162
Masco Corp. 5,234 158
Consolidated Natural Gas Co. 3,017 158
Cooper Industries, Inc. 3,795 157
Eastman Chemical 2,582 157
* Bay Networks 6,100 157
* Federal Express Corp. 1,890 155
Lincoln National Corp. 3,321 154
The Quaker Oats Co. 4,456 152
Newell Co. 4,938 151
Southwest Airlines Co. 5,187 151
Salomon, Inc. 3,400 150
The Clorox Co. 1,685 149
* Tenet Healthcare Corp. 6,966 149
PanEnergy Corp. 4,509 148
Baker Hughes, Inc. 4,479 147
Ingersoll-Rand Co. 3,360 147
UNUM Corp. 2,359 147
SAFECO Corp. 4,120 146
DTE Energy Co. 4,702 145
Inco Ltd. 4,497 145
Eaton Corp. 2,459 144
The McGraw-Hill Cos. 3,138 144
* EMC Corp. 7,600 142
Times Mirror Co. Class A 3,234 141
Green Tree Financial Corp. 4,500 141
Coastal Corp. 3,357 140
Melville Corp. 3,459 140
Tribune Co. 1,929 140
* Computer Sciences Corp. 1,872 140
St. Paul Cos., Inc. 2,589 139
General Dynamics Corp. 2,216 137
Pioneer Hi Bred International 2,598 137
* Price/Costco Inc. 6,426 137
Nucor Corp. 2,697 137
Comcast Corp. Class A Special 7,396 135
Dillard Department Stores Class A 3,686 135
General Public Utilities Corp. 3,800 134
Rohm & Haas Co. 2,131 134
Great Lakes Chemical Corp. 2,143 133
Rubbermaid, Inc. 4,847 132
* Andrew Corp. 2,440 132
Providian Corp. 3,043 130
Knight-Ridder, Inc. 1,785 129
Baltimore Gas & Electric Co. 4,498 128
Phelps Dodge Corp. 2,041 127
Northrop Grumman Corp. 1,868 127
* Silicon Graphics, Inc. 5,300 127
Dow Jones & Co., Inc. 3,040 127
Union Electric Co. 3,148 127
Sherwin-Williams Co. 2,697 125
Reynolds Metals Co. 2,406 125
W.W. Grainger, Inc. 1,573 122
Champion International Corp. 2,917 122
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Whirlpool Corp. 2,453 $ 122
Jefferson-Pilot Corp. 2,353 121
Sonat, Inc. 2,697 121
VF Corp. 2,021 121
PP&L Resources Inc. 5,100 120
Interpublic Group of Cos., Inc. 2,557 120
* General Instrument 4,100 118
Nordstrom, Inc. 2,674 118
Case Corp. 2,400 115
Black & Decker Corp. 2,886 111
Northern States Power Co. 2,228 110
Circuit City Stores, Inc. 3,028 109
Harcourt General, Inc. 2,166 108
* LSI Logic Corp. 4,150 108
Engelhard Corp. 4,690 108
H & R Block, Inc. 3,300 108
* DSC Communications Corp. 3,574 107
Republic New York Corp. 1,700 106
Union Camp Corp. 2,138 104
* Ceridian Corp. 2,051 104
New York Times Co. Class A 3,165 103
H.F. Ahmanson & Co. 3,799 103
* Western Atlas Inc. 1,760 103
Golden West Financial Corp. 1,818 102
Ohio Edison Co. 4,621 101
Willamette Industries, Inc. 1,700 101
Hasbro, Inc. 2,800 100
Great Western Financial Corp. 4,153 99
Dana Corp. 3,137 97
Laidlaw Inc. Class B 9,600 97
Raychem Corp. 1,346 97
Kerr-McGee Corp. 1,576 96
Tandy Corp. 2,016 96
Parker Hannifin Corp. 2,249 95
Beneficial Corp. 1,678 94
Torchmark Corp. 2,149 94
ITT Industries, Inc. 3,701 93
Avery Dennison Corp. 1,692 93
Columbia Gas Systems, Inc. 1,773 92
The Stanley Works 3,106 92
Mallinckrodt Group, Inc. 2,362 92
Westvaco Corp. 3,043 91
* Humana, Inc. 5,000 89
The Dial Corp. 3,114 89
* Woolworth Corp. 3,950 89
The Mead Corp. 1,702 88
Deluxe Corp. 2,482 88
Pall Corp. 3,595 87
* Harrah's Entertainment, Inc. 3,049 86
Johnson Controls, Inc. 1,238 86
* St. Jude Medical, Inc. 2,582 86
Temple-Inland Inc. 1,800 84
Whitman Corp. 3,460 83
Apple Computer, Inc. 3,991 83
Manor Care Inc. 2,113 83
Liz Claiborne, Inc. 2,369 82
Brown-Forman Corp. Class B 2,035 81
* Tupperware Corp. 1,917 81
Reebok International Ltd. 2,391 80
Rite Aid Corp. 2,701 80
* FMC Corp. 1,223 80
Sigma Aldrich Corp. 1,500 80
Ashland Inc. 2,006 79
Mercantile Stores Co., Inc. 1,326 78
Wendy's International, Inc. 4,151 77
Homestake Mining Co. 4,468 77
TJX Cos., Inc. 2,251 76
Echlin, Inc. 2,001 76
Harris Corp. 1,236 75
Allergan, Inc. 1,918 75
Louisiana-Pacific Corp. 3,400 75
* National Semiconductor Corp. 4,809 75
USX-U.S. Steel Group 2,600 74
Pacific Enterprises 2,487 74
Bausch & Lomb, Inc. 1,702 72
Sun Co., Inc. 2,345 71
* Owens Corning 1,647 71
Armstrong World Industries Inc. 1,227 71
* Fruit of the Loom, Inc. 2,700 69
Pennzoil Co. 1,478 68
Maytag Corp. 3,264 68
James River Corp. 2,579 68
Cyprus Amax Minerals Co. 3,000 68
* ALZA Corp. 2,479 68
Nalco Chemical Co. 2,135 67
Ecolab, Inc. 2,015 67
Ryder System, Inc. 2,364 66
Pep Boys (Manny, Moe & Jack) 1,908 65
Giant Food, Inc. Class A 1,804 65
American Greetings Corp. Class A 2,347 64
C.R. Bard, Inc. 1,877 64
General Signal Corp. 1,662 63
Millipore Corp. 1,494 63
Polaroid Corp. 1,360 62
SuperValu Inc. 1,946 61
Santa Fe Pacific Gold Corp. 4,319 61
Perkin-Elmer Corp. 1,250 60
Paccar, Inc. 1,230 60
Cooper Tire & Rubber Co. 2,685 60
Boise Cascade Corp. 1,630 60
Snap-On Inc. 1,245 59
The BF Goodrich Co. 1,574 59
Bemis Co., Inc. 1,675 59
Darden Restaurants Inc. 5,441 58
Louisiana Land & Exploration Co. 1,013 58
National Service Industries, Inc. 1,469 57
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Teledyne Inc. 1,589 $ 57
Moore Corp. Ltd. 3,040 57
* Advanced Micro Devices, Inc. 4,208 57
USF&G Corp. 3,491 57
Brunswick Corp. 2,826 57
Worthington Industries, Inc. 2,702 56
United States Surgical Corp. 1,792 56
* Varity Corp. 1,150 55
Foster Wheeler Corp. 1,222 55
* Oryx Energy Co. 3,231 53
* Biomet, Inc. 3,685 52
NICOR, Inc. 1,780 51
Meredith Corp. 1,198 50
Tektronix, Inc. 1,051 47
Cummins Engine Co., Inc. 1,141 46
NorAm Energy Corp. 4,218 46
Fleetwood Enterprises, Inc. 1,456 45
ENSERCH Corp. 2,027 44
Shared Medical Systems Corp. 676 43
* Bethlehem Steel Corp. 3,631 43
Harnischfeger Industries Inc. 1,287 43
Stone Container Corp. 3,108 43
* Unisys Corp. 5,981 43
Thomas & Betts Corp. 1,128 42
Ogden Corp. 2,324 42
Echo Bay Mines Ltd. 3,882 42
Caliber System Inc. 1,215 41
* King World Productions, Inc. 1,127 41
Autodesk, Inc. 1,360 40
* Bally Entertainment Corp. 1,460 40
Helmerich & Payne, Inc. 1,084 40
The Timkin Co. 1,005 39
Freeport-McMoRan Copper &
Gold Inc. Class A 1,300 39
* Amdahl Corp. 3,593 39
Scientific-Atlanta, Inc. 2,478 38
* Tandem Computers, Inc. 3,089 38
* Rowan Cos., Inc. 2,586 38
Peoples Energy Corp. 1,119 37
ASARCO, Inc. 1,342 37
Alberto-Culver Co. Class B 793 37
Niagara Mohawk Power Corp. 4,593 36
USLIFE Corp. 1,067 35
* USAir Group, Inc. 1,902 34
Great Atlantic & Pacific Tea Co., Inc. 1,030 34
Russell Corp. 1,220 34
Crane Co. 802 33
Briggs & Stratton Corp. 798 33
* Beverly Enterprises Inc. 2,683 32
Cincinnati Milacron, Inc. 1,315 32
Potlatch Corp. 800 31
Inland Steel Industries, Inc. 1,541 30
McDermott International, Inc. 1,441 30
* Santa Fe Energy Resources, Inc. 2,507 30
Springs Industries Inc. Class A 560 28
Safety-Kleen Corp. 1,597 28
Consolidated Freightways, Inc. 1,322 28
EG & G, Inc. 1,290 28
Longs Drug Stores, Inc. 571 25
Centex Corp. 808 25
John H. Harland Co. 1,004 25
* Charming Shoppes, Inc. 3,543 25
Pulte Corp. 894 24
Trinova Corp. 697 23
Alexander & Alexander Services, Inc. 1,149 23
Adolph Coors Co. Class B 1,228 22
Jostens Inc. 1,055 21
Ball Corp. 701 20
* Navistar International Corp. 1,856 18
Fleming Cos., Inc. 1,263 18
* Armco, Inc. 3,555 18
Eastern Enterprises 472 16
* Community Psychiatric Centers 1,574 15
ONEOK, Inc. 591 15
Luby's Cafeterias, Inc. 588 14
* Ryan's Family Steak Houses, Inc. 1,478 14
NACCO Industries, Inc. Class A 231 13
* Data General Corp. 921 12
Giddings & Lewis, Inc. 714 12
* Intergraph Corp. 951 12
Kaufman & Broad Home Corp. 711 10
Outboard Marine Corp. 568 10
* Shoney's Inc. 940 10
Stride Rite Corp. 971 8
* Cox Communications Class A 304 7
Brown Group, Inc. 230 4
* Yellow Corp. 297 4
* Viacom International Class A 100 4
* Zenith Electronics Corp. 202 2
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $137,157) 165,231
- ------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.4%)
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96
(Cost $643) $643 643
- ------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost $137,800) 165,874
- ------------------------------------------------------------
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO (continued) (000)+
- ------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-.2%)
- ------------------------------------------------------------
Other Assets--Note B $ 760
-----------
Liabilities (1,153)
(393)
- ------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------
Applicable to 11,517,126 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $165,481
- ------------------------------------------------------------
NET ASSET VALUE PER SHARE $14.37
============================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
- ------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------
AMOUNT PER
(000) SHARE
--------- ------
<S> <C> <C>
PAID IN CAPITAL $137,517 $11.94
UNDISTRIBUTED NET
INVESTMENT INCOME 100 .01
ACCUMULATED NET
REALIZED LOSSES (210) (.02)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 28,074 2.44
- ------------------------------------------------------
NET ASSETS $165,481 $14.37
- ------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.9%)
- ------------------------------------------------------------
BASIC MATERIALS (4.9%)
* Airgas, Inc. 22,600 $ 429
Albemarle Corp. 20,100 367
* Alumax, Inc. 14,600 443
Aluminum Co. of America 17,900 1,027
ASARCO, Inc. 7,200 199
Battle Mountain Gold Co. Class A 44,900 326
* Bethlehem Steel Corp. 40,900 486
Champion International Corp. 13,600 568
E.I. du Pont de Nemours & Co. 37,200 2,943
* FMC Corp. 8,400 548
Freeport-McMoRan, Inc. 12,466 443
Freeport-McMoRan Copper &
Gold Inc. Class A 138 4
Freeport-McMoRan Copper &
Gold Inc. Class B 11,087 353
Georgia Gulf Corp. 13,000 380
Great Lakes Chemical Corp. 10,600 660
Homestake Mining Co. 27,800 476
IMC Global Inc. 15,000 564
Inland Steel Industries, Inc. 19,600 385
International Paper Co. 12,600 465
* International Specialty Products, Inc. 35,100 386
Kimberly-Clark Corp. 20,848 1,611
LTV Corp. 34,600 394
Louisiana-Pacific Corp. 2,150 48
Mallinckrodt Group, Inc. 14,800 575
Morton International, Inc. 21,000 782
Newmont Gold Co. 6,800 343
Newmont Mining Corp. 13,600 672
Nucor Corp. 12,600 638
Praxair, Inc. 20,900 883
Reynolds Metals Co. 900 47
St. Joe Corp. 6,800 439
Santa Fe Pacific Gold Corp. 26,340 372
A. Schulman Inc. 6,000 146
Sigma Aldrich Corp. 10,500 559
Stone Container Corp. 12,400 171
Wausau Paper Mills Co. 8,475 170
Wellman, Inc. 10,800 252
----------
SECTOR TOTAL 19,554
----------
- ------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (8.5%)
AGCO Corp. 18,300 508
The Boeing Co. 30,000 2,614
Caterpillar, Inc. 19,000 1,287
Centex Corp. 14,900 464
Clayton Homes Inc. 24,193 484
Cummins Engine Co., Inc. 3,700 149
Danaher Corp. 12,100 526
Duracell International, Inc. 700 30
Emerson Electric Co. 16,100 1,455
Fluor Corp. 11,800 771
General Electric Co. 106,100 9,178
* General Instrument 22,900 661
Giddings & Lewis, Inc. 7,000 115
W.W. Grainger, Inc. 8,800 682
Illinois Tool Works, Inc. 12,900 872
Lockheed Martin Corp. 17,300 1,453
Martin Marietta Materials, Inc. 15,200 369
McDonnell Douglas Corp. 15,000 728
* Microchip Technology, Inc. 19,000 475
Millipore Corp. 8,500 356
Nordson Corp. 7,400 421
* Owens Corning 13,200 568
Raychem Corp. 8,200 589
Raytheon Co. 24,700 1,275
Schuller Corp. 37,900 393
Stewart & Stevenson Services, Inc. 15,900 358
Thermo Electron Corp. 18,900 787
* Thermo Instrument Systems, Inc. 12,687 409
Trimas Corp. 18,100 423
Tyco International Ltd. 22,788 929
* USG Corp. 16,800 468
* Varity Corp. 11,200 539
WMX Technologies Inc. 46,400 1,520
Watts Industries Class A 3,500 65
Westinghouse Electric Corp. 50,700 951
Wheelabrator Technologies 27,800 424
York International Corp. 10,100 523
----------
SECTOR TOTAL 33,819
----------
- ------------------------------------------------------------
CONSUMER CYCLICAL (18.7%)
* AutoZone, Inc. 21,300 740
* BHC Communications, Inc. Class A 4,700 459
Bandag, Inc. 1,850 89
* Barnes & Noble Inc. 12,300 441
* Bed Bath & Beyond, Inc. 19,200 510
A. H. Belo Corp. Class A 11,900 443
* Best Buy, Inc. 22,700 519
Bob Evans Farms, Inc. 450 8
* Boyd Gaming Corp. 30,300 455
Breed Technological Inc. 4,400 98
* Brinker International, Inc. 29,300 440
* Broderbund Software, Inc. 9,700 314
* Burlington Coat Factory
Warehouse Corp. 14,000 147
* Burlington Industries Inc. 13,200 186
* CUC International, Inc. 24,200 859
* CableVision Systems Corp. Class B 9,400 435
Callaway Golf Co. 18,900 628
* Century Communications Corp.
Class A 19,400 167
* Chris-Craft Industries, Inc. 9,956 438
Chrysler Corp. 8,643 536
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Circuit City Stores, Inc. 18,300 $ 661
* Circus Circus Enterprises Inc. 17,000 697
* Coleman Inc. 11,200 475
Comcast Corp. Class A Special 39,100 718
* Consolidated Stores, Inc. 16,100 592
Cooper Tire & Rubber Co. 20,500 456
* Corporate Express, Inc. 16,100 645
* Cox Communications Class A 23,000 497
Cracker Barrel Old Country
Stores, Inc. 21,300 514
Darden Restaurants Inc. 39,800 428
* Department 56 Inc. 18,200 412
Dillard Department Stores Class A 17,900 653
The Walt Disney Co. 55,903 3,515
Dollar General Corp. 24,062 704
* Eckerd Corp. 22,600 511
* Electronic Arts 16,400 437
Fastenal Co. 8,900 388
* Federated Department Stores 25,800 880
Fingerhut Co. 9,700 152
First Brands Corp. 18,100 489
Ford Motor Co. 20,200 654
* Fruit of the Loom, Inc. 20,500 523
The Gap, Inc. 28,000 900
* Gartner Group, Inc. Class A 18,100 664
Gaylord Entertainment Class A 18,343 518
General Motors Corp. 51,500 2,697
* General Nutrition Cos., Inc. 29,600 516
* GTech Holdings Corp. 15,900 471
* HFS Inc. 15,600 1,092
Harley-Davidson, Inc. 14,600 600
* Harrah's Entertainment, Inc. 18,600 525
Hasbro, Inc. 15,600 558
Heilig-Meyers Co. 22,700 545
Home Depot, Inc. 42,800 2,311
* Home Shopping Network, Inc. 12,500 150
* Host Marriott 40,400 530
* Host Marriott Services 54,860 398
* ITT Corp. 14,700 974
ITT Industries, Inc. 21,900 550
* Infinity Broadcasting Corp. 20,175 605
International Game Technology 26,400 446
* Jones Apparel Group, Inc. 8,700 427
* King World Productions, Inc. 11,900 433
* Kohls Corp. 15,000 549
La Quinta Inns Inc. 16,200 543
Lancaster Colony Corp. 12,500 467
* Lands' End, Inc. 1,400 35
* Lear Corp. 15,700 553
* Liberty Media Group Class A 25,375 674
The Limited, Inc. 33,137 712
* Lin Television 11,600 415
Lowes Cos., Inc. 20,900 755
* MGM Grand Inc. 10,300 411
Marriott International 17,000 914
* Marvel Entertainment Group 39,100 367
MascoTech Inc. 14,000 207
Mattel, Inc. 33,912 971
McDonald's Corp. 58,500 2,735
* Fred Meyer, Inc. 1,400 41
* Micro Warehouse Inc. 19,000 375
* Mirage Resorts, Inc. 13,700 740
* Navistar International Corp. 44,400 438
Newell Co. 25,000 766
Nike, Inc. Class B 9,000 925
* Nine West Group, Inc. 10,200 521
Nordstrom, Inc. 11,300 501
* Office Depot, Inc. 26,100 532
* Officemax Inc. 22,000 525
* Outback Steakhouse 13,000 447
Pep Boys (Manny, Moe & Jack) 16,500 561
* PETsMART, Inc. 13,850 658
Phillips-Van Heusen Corp. 9,600 122
* Price/Costco Inc. 33,700 725
* Primadonna Resorts, Inc. 3,600 84
* Promus Hotel Corp. 16,950 502
Reebok International Ltd. 8,750 294
* Revco Drug Stores, Inc. 20,600 492
Rubbermaid, Inc. 24,800 676
Russell Corp. 1,550 43
* Scholastic Corp. 6,600 411
E.W. Scripps Co. 10,935 510
* Service Merchandise Co., Inc. 41,200 232
Shaw Industries, Inc. 9,300 122
* Shoney's Inc. 11,400 124
* Spelling Entertainment 41,200 314
* Staples, Inc. 29,325 570
Sunbeam Corp. 15,300 226
Superior Industries
International, Inc. 15,200 403
Talbots Inc. 6,600 214
Tandy Corp. 5,500 261
* Tele-Communications, Inc. Class A 69,400 1,254
Time Warner, Inc. 34,300 1,346
* Toys R Us, Inc. 31,600 901
Turner Broadcasting Class B 23,700 652
* U S WEST Media Group 57,100 1,042
* Viacom International Class A 13,744 524
* Viacom International Class B 16,306 634
* Viking Office Products 18,200 570
Wal-Mart Stores, Inc. 113,600 2,883
Walgreen Co. 29,700 995
Warnaco Group 17,400 448
* Woolworth Corp. 32,700 736
----------
SECTOR TOTAL 74,471
----------
- ------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (10.0%)
Albertson's, Inc. 26,200 $ 1,084
Archer-Daniels-Midland Co. 58,070 1,111
The Coca-Cola Co. 190,800 9,325
Coca-Cola Enterprises, Inc. 18,300 634
Crown Cork & Seal Co., Inc. 11,200 504
Dole Food Co. 8,300 357
Gillette Co. 39,500 2,464
Great Atlantic & Pacific Tea
Co., Inc. 15,300 503
IBP, Inc. 21,600 597
* Jefferson Smurfit Corp. 35,600 392
Kellogg Co. 11,300 828
* The Kroger Co. 18,100 715
* Owens-Illinois, Inc. 30,400 486
PepsiCo, Inc. 126,000 4,457
Philip Morris Cos., Inc. 53,600 5,574
Procter & Gamble Co. 54,400 4,930
RJR Nabisco Holdings Corp. 4,360 135
* Safeway, Inc. 26,700 881
* Sealed Air Corp. 13,600 457
* Southland Corp. 126,100 384
* Starbucks Corp. 22,500 634
* Stop & Shop Cos. Inc. 16,000 534
Sysco Corp. 25,500 873
Tyson Foods, Inc. 21,300 582
* Vons Cos., Inc. 14,100 527
Wrigley, (Wm.) Jr. 15,000 758
----------
SECTOR TOTAL 39,726
----------
- ------------------------------------------------------------
ENERGY (5.4%)
Amerada Hess Corp. 12,500 670
Amoco Corp. 23,500 1,701
Anadarko Petroleum Corp. 10,700 621
Apache Corp. 19,800 651
Burlington Resources, Inc. 19,600 843
* CalEnergy Inc. 18,700 477
Coastal Corp. 13,900 580
* ENSCO International, Inc. 21,400 696
Enron Oil & Gas Co. 16,800 468
ENSERCH Corp. 26,400 574
Exxon Corp. 79,000 6,863
Mapco Inc. 8,000 451
Mobil Corp. 26,500 2,971
Noble Affiliates, Inc. 15,400 581
* Oryx Energy Co. 33,000 536
Parker & Parsley Petroleum Co. 1,200 33
Pogo Producing Co. 13,200 503
* Santa Fe Energy Resources, Inc. 43,000 511
* Seagull Energy Corp. 2,400 60
* TransTexas Gas Corp. 34,400 314
* Triton Energy Ltd. 9,000 438
Union Texas Petroleum
Holdings, Inc. 26,400 515
* Western Atlas Inc. 10,100 588
----------
SECTOR TOTAL 21,645
----------
- ------------------------------------------------------------
FINANCIAL (9.4%)
AFLAC, Inc. 21,750 650
Advanta Corp. Class A 9,800 498
Alexander & Alexander
Services, Inc. 21,400 423
Allmerica Property & Casualty Cos. 18,300 494
AMBAC, Inc. 9,900 516
American International Group, Inc. 33,050 3,260
American Re Corp. 11,900 534
BankAmerica Corp. 26,700 2,023
* CNA Financial Corp. 5,000 515
Capital One Financial Corp. 13,900 396
* Castle & Cooke, Inc. 25,700 411
Citicorp 29,700 2,454
Conseco Co., Inc. 13,600 544
Dean Witter Discover & Co. 17,500 1,002
* Dime Bancorp, Inc. 40,600 528
The Equitable Cos. 21,600 537
Equitable of Iowa Co. 11,900 422
Federal Home Loan Mortgage Corp. 17,500 1,496
Federal National Mortgage Assn. 74,800 2,506
First Empire State Corp. 1,900 458
First USA Inc. 10,500 578
Franklin Resources Corp. 10,900 665
General Re Corp. 8,500 1,294
Golden West Financial Corp. 10,600 594
Green Tree Financial Corp. 21,100 659
Horace Mann Educators Corp. 3,000 95
ITT Hartford Group, Inc. 13,100 698
Lehman Brothers Holdings, Inc. 21,600 535
Leucadia National Corp. 18,200 446
MBIA, Inc. 8,200 639
MGIC Investment Corp. 10,700 601
Merrill Lynch & Co., Inc. 18,500 1,205
Morgan Stanley Group, Inc. 15,100 742
The PMI Group Inc. 10,300 438
Paul Revere Corp. 15,200 418
Price Enterprises, Inc. 13,100 201
Progressive Corp. of Ohio 12,200 564
St. Paul Cos., Inc. 2,400 128
Salomon, Inc. 16,200 713
Charles Schwab Corp. 23,400 573
State Street Boston Corp. 14,000 714
SunAmerica Inc. 5,850 331
TIG Holdings, Inc. 15,600 452
Transatlantic Holdings 7,200 505
* Transport Holdings, Inc. Class A 95 4
Travelers Group Inc. 44,200 2,017
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
* 20th Century Industries of CA 10,400 $ 173
UNUM Corp. 12,000 747
Wesco Financial Corp. 2,500 401
Western National Corp. 8,500 156
Zurich Reinsurance Centre
Holdings, Inc. 13,200 416
----------
SECTOR TOTAL 37,369
----------
- ------------------------------------------------------------
HEALTH CARE (12.0%)
Abbott Laboratories 54,900 2,388
* ALZA Corp. 19,000 520
American Home Products Corp. 2,000 120
* Amgen, Inc. 25,700 1,385
Beckman Instruments 12,900 490
Becton, Dickinson & Co. 9,500 762
* Beverly Enterprises Inc. 39,400 473
* Biogen, Inc. 9,400 514
* Biomet, Inc. 37,400 533
* Boston Scientific Corp. 16,900 761
Cardinal Health, Inc. 10,300 743
Caremark International, Inc. 20,200 510
* Centocor, Inc. 19,900 596
* Chiron Corp. 5,935 581
Columbia/HCA Healthcare Corp. 39,814 2,125
Dentsply International 9,600 406
* FHP International Corp. 16,800 462
* Forest Laboratories, Inc. 12,000 464
* Foundation Health Co. 12,800 459
* Genzyme Corp. 9,300 468
* Genzyme Corp. Tissue Repair 391 5
Guidant Corp. 12,000 591
* Healthcare & Retirement Corp. 17,700 420
* HealthCare Compare Corp. 11,000 536
* Health Management Associates
Class A 24,075 488
* Health Systems 16,000 434
* Healthsource, Inc. 22,400 392
* HEALTHSOUTH Corp. 21,000 756
* Humana, Inc. 33,900 606
IVAX Corp. 19,900 316
Johnson & Johnson 105,506 5,223
* Laboratory Corp. of America 34,400 258
* Laboratory Corp. of America
Warrants Exp. 4/28/00 1,467 1
Manor Care Inc. 12,100 476
* Medaphis Corp. 13,300 528
Medtronic, Inc. 24,500 1,372
Merck & Co., Inc. 79,600 5,144
* Mid Atlantic Medical Services 25,600 365
Mylan Laboratories, Inc. 27,850 480
* NovaCare, Inc. 24,400 186
* OrNda Healthcorp 10,200 245
* Oxford Health Plan 14,500 595
* Pacificare Health Systems Inc.
Class A 3,100 205
* Pacificare Health Systems Inc.
Class B 3,200 217
* Perrigo Co. 33,100 374
Pfizer, Inc. 52,200 3,726
* Physician Corp. of America 26,600 357
* Quorum Health Group, Inc. 19,000 501
* St. Jude Medical, Inc. 16,150 539
* R. P. Scherer Corp. 10,900 495
Schering-Plough Corp. 27,600 1,732
Stryker Corp. 21,800 495
* Sybron Corp. 18,800 470
* Tenet Healthcare Corp. 35,442 758
United Healthcare Corp. 18,800 949
U.S. Healthcare, Inc. 17,800 978
United States Surgical Corp. 16,200 502
* Value Health, Inc. 16,000 378
* Vencor, Inc. 20,485 625
Wellpoint Health Networks Inc.
Class A 8,903 278
----------
SECTOR TOTAL 47,756
----------
- ------------------------------------------------------------
TECHNOLOGY (20.7%)
* ADC Telecommunications, Inc. 13,900 622
* Adaptec, Inc. 11,800 558
Adobe Systems, Inc. 14,800 528
* Altera Corp. 11,700 444
* Amdahl Corp. 43,200 464
* America Online, Inc. 11,700 510
* American Power Conversion Corp. 41,700 433
* Amphenol Corp. 16,900 389
* Analog Devices, Inc. 23,650 603
* Andrew Corp. 14,325 775
Apple Computer, Inc. 25,100 526
* Applied Materials, Inc. 24,400 743
* Arrow Electronics, Inc. 11,500 496
* Ascend Communications, Inc. 13,600 764
* Associated Group, Inc. 875 26
* Associated Group, Inc. Class B 875 26
* Atmel Corp. 20,200 610
Autodesk, Inc. 12,300 367
Automatic Data Processing, Inc. 31,200 1,205
* BMC Software, Inc. 10,400 620
* Bay Networks 28,393 731
* Cabletron Systems, Inc. 9,200 631
* Cadence Design Systems, Inc. 18,750 633
* Cascade Communications Corp. 19,900 1,354
* Ceridian Corp. 12,000 606
* Cerner Corp. 19,300 415
* Cheyenne Software, Inc. 13,500 260
* Cirrus Logic 24,800 432
* Cisco Systems, Inc. 49,100 2,783
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
* COMPAQ Computer Corp. 27,900 $ 1,374
Computer Associates
International, Inc. 18,850 1,343
* Computer Sciences Corp. 9,000 673
* Compuware Corp. 18,900 744
* DSC Communications Corp. 21,800 655
* Dell Computer 16,500 838
* Digital Equipment Corp. 19,900 896
* EMC Corp. 32,800 611
Electronic Data Systems Corp. 32,100 1,725
First Data Corp. 19,481 1,551
* FIserv, Inc. 14,800 448
* Gateway 2000 Inc. 13,600 462
* Glenayre Technologies, Inc. 14,175 708
HBO and Co. 16,200 1,095
Hewlett-Packard Co. 32,000 3,188
* Informix Corp. 27,000 606
* Integrated Device Technology Inc. 35,000 374
Intel Corp. 65,000 4,773
International Business
Machines Corp. 43,800 4,336
* Intuit, Inc. 9,600 451
* KEMET Corp. 14,600 294
* KLA Instruments Corp. 18,100 420
* Komag, Inc. 16,000 420
* LAM Research Corp. 11,000 285
* LSI Logic Corp. 24,500 637
Linear Technology Corp. 17,400 521
* Loral Space & Communications Ltd. 19,100 260
* MFS Communications Co., Inc. 14,400 541
* Marquette Electronics Class A 18,400 322
* Maxim Integrated Products, Inc. 17,700 483
* Mentor Graphics Corp. 28,800 466
Micron Technology Inc. 22,900 592
* Microsoft Corp. 29,600 3,554
* Mobile Telecommunications
Technologies Corp. 29,700 432
Molex, Inc. 17,756 568
Motorola, Inc. 50,200 3,156
* National Semiconductor Corp. 33,300 516
* Nextel Communications 32,400 618
* Novell, Inc. 54,400 751
* Novellus Systems, Inc. 6,400 232
* Oracle Corp. 48,750 1,923
* Paging Network Inc. 24,000 571
* Parametric Technology Corp. 18,400 797
Paychex, Inc. 12,300 591
* Peoplesoft Inc. 9,100 647
* Policy Management Systems Corp. 8,700 435
* Qualcomm, Inc. 15,600 828
* Quantum Corp. 23,900 347
Reynolds & Reynolds Class A 10,900 580
* SPS Transaction Services 15,200 274
* Seagate Technology 18,235 821
* Silicon Graphics, Inc. 27,000 648
* Solectron Corp. 12,800 485
* Storage Technology Corp. 17,000 650
* StrataCom, Inc. 13,600 768
* Stratus Computer, Inc. 3,100 90
* Sun Microsystems, Inc. 20,200 1,189
* SunGard Data Systems, Inc. 14,000 561
* Sybase, Inc. 21,300 505
* Synopsys, Inc. 12,200 486
* Tandem Computers, Inc. 44,700 553
* Tellabs, Inc. 13,600 909
* Teradyne, Inc. 20,700 357
Texas Instruments, Inc. 20,600 1,027
* 3 Com Corp. 20,500 936
* 360 Communications Co. 25,445 611
* U.S. Robotics Corp. 10,800 922
* United States Cellular 15,900 493
* VLSI Technology, Inc. 32,900 459
* Vanguard Cellular Systems, Inc.
Class A 17,600 386
Varian Associates, Inc. 6,900 357
* Vishay Intertechnology, Inc. 19,976 472
* Western Digital Corp. 21,500 562
* Xilinx, Inc. 15,900 504
----------
SECTOR TOTAL 82,217
----------
- ------------------------------------------------------------
TRANSPORT & SERVICES (2.5%)
* AMR Corp. 9,900 901
Airborne Freight Corp. 3,400 88
* American Standard Cos., Inc. 18,900 624
Atlantic Southeast Airlines Inc. 17,100 484
Burlington Northern Santa Fe Corp. 15,231 1,232
Consolidated Freightways, Inc. 17,000 359
Delta Air Lines, Inc. 8,600 714
* Federal Express Corp. 9,100 746
J.B. Hunt Transport Services, Inc. 10,100 211
Kansas City Southern
Industries, Inc. 10,100 433
* Northwest Airlines Corp. Class A 14,600 576
Pittston Brink's Group 16,800 489
Pittston Burlington Group 20,450 442
* Southern Pacific Rail Corp. 22,200 555
Southwest Airlines Co. 24,800 722
* UAL Corp. 11,000 591
* ValuJet Inc. 22,800 214
Werner Enterprises, Inc. 4,000 103
* Wisconsin Central
Transportation Corp. 16,800 542
----------
SECTOR TOTAL 10,026
----------
- ------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
UTILITIES (4.9%)
* AES Corp. 20,100 $ 565
AT&T Corp. 122,800 7,614
* AirTouch Communications 48,800 1,379
BellSouth Corp. 67,500 2,860
Century Telephone Enterprises, Inc. 14,600 465
CINergy Corp. 5,700 182
Columbia Gas Systems, Inc. 11,500 599
Frontier Corp. 11,400 349
MCI Communications Corp. 63,800 1,631
SBC Communications Inc. 41,760 2,057
Sprint Corp. 2,000 84
Telephone & Data Systems, Inc. 12,100 544
* WorldCom, Inc. 22,378 1,238
----------
SECTOR TOTAL 19,567
----------
- ------------------------------------------------------------
MISCELLANEOUS (2.9%)
Alco Standard Corp. 15,800 715
* Alleghany Corp. 2,444 469
AlliedSignal Inc. 27,300 1,559
* Anixter International Inc. 25,100 373
Cintas Corp. 8,700 462
* Coltec Inc. 16,100 229
FlightSafety International, Inc. 8,500 461
* Litton Industries, Inc. 11,100 483
Loews Corp. 11,100 875
Manpower Inc. 15,700 616
Mark IV Industries, Inc. 21,981 497
McKesson Corp. 2,300 110
Minnesota Mining &
Manufacturing Co. 29,900 2,063
Olsten Corp. 15,600 458
Stewart Enterprises, Inc. Class A 18,000 567
Teledyne Inc. 14,100 509
Teledyne Inc. Pfd. 'E' 71 1
Total System Services, Inc. 25,400 581
Xtra Corp. 9,400 416
----------
SECTOR TOTAL 11,444
----------
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $325,914) 397,594
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (.3%)
- ------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96
(Cost $1,068) $1,068 $ 1,068
- ------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(Cost $326,982) 398,662
- ------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.2%)
- ------------------------------------------------------------
Other Assets--Notes B and E 3,227
Liabilities--Note E (3,817)
----------
(590)
- ------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------
Applicable to 27,164,919 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $398,072
- ------------------------------------------------------------
NET ASSET VALUE PER SHARE $14.65
============================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- --------
<S> <C> <C>
PAID IN CAPITAL $326,004 $12.00
UNDISTRIBUTED NET
INVESTMENT INCOME 1,548 .05
ACCUMULATED NET
REALIZED LOSSES (1,160) (.04)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 71,680 2.64
- --------------------------------------------------------------
NET ASSETS $398,072 $14.65
- --------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Market
BALANCED Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (47.4%)
- ------------------------------------------------------------
BASIC MATERIALS (2.7%)
* Airgas, Inc. 2,000 $ 38
Albemarle Corp. 1,400 26
* Alumax, Inc. 1,200 36
Aluminum Co. of America 1,100 63
Battle Mountain Gold Co. Class A 600 4
* Bethlehem Steel Corp. 650 8
Champion International Corp. 900 38
* Crown Vantage, Inc. 2,200 31
E.I. du Pont de Nemours & Co. 3,000 237
* FMC Corp. 700 46
* Fort Howard Corp. 1,700 34
Freeport-McMoRan Copper &
Gold Inc. Class B 1,263 40
Freeport-McMoRan, Inc. 816 29
Georgia Gulf Corp. 300 9
W.R. Grace & Co. 900 64
Great Lakes Chemical Corp. 800 50
Homestake Mining Co. 400 7
IMC Global Inc. 1,200 45
International Paper Co. 1,900 70
* International Specialty Products, Inc. 2,900 32
Kimberly-Clark Corp. 936 72
LTV Corp. 1,000 11
Louisiana-Pacific Corp. 600 13
Mallinckrodt Group, Inc. 1,000 39
Morton International, Inc. 1,500 56
Newmont Gold Co. 500 25
Newmont Mining Corp. 800 40
Nucor Corp. 1,000 51
Praxair, Inc. 1,500 63
Reynolds Metals Co. 900 47
St. Joe Corp. 700 45
Santa Fe Pacific Gold Corp. 1,640 23
A. Schulman Inc. 700 17
Sigma Aldrich Corp. 600 32
Stone Container Corp. 900 12
Wellman, Inc. 100 2
----------
SECTOR TOTAL 1,455
----------
- ------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (4.2%)
AGCO Corp. 800 22
The Boeing Co. 2,000 174
Caterpillar, Inc. 1,400 95
Centex Corp. 200 6
Clayton Homes Inc. 2,031 41
Danaher Corp. 1,000 44
Duracell International, Inc. 500 22
Emerson Electric Co. 1,200 108
Fluor Corp. 800 52
General Electric Co. 7,700 666
* General Instrument 900 26
W.W. Grainger, Inc. 600 47
Illinois Tool Works, Inc. 800 54
Lockheed Martin Corp. 1,100 92
Martin Marietta Materials, Inc. 400 10
McDonnell Douglas Corp. 1,800 87
Millipore Corp. 400 17
* Owens Corning 700 30
Raychem Corp. 200 14
Raytheon Co. 1,800 93
Schuller Corp. 2,500 26
Stewart & Stevenson Services, Inc. 700 16
Thermo Electron Corp. 1,350 56
* Thermo Instrument Systems, Inc. 1,312 42
Trimas Corp. 200 5
Tyco International Ltd. 1,434 58
* USG Corp. 1,100 31
* Varity Corp. 1,200 58
WMX Technologies Inc. 3,000 98
Westinghouse Electric Corp. 3,600 68
Wheelabrator Technologies 1,500 23
York International Corp. 600 30
----------
SECTOR TOTAL 2,211
----------
- ------------------------------------------------------------
CONSUMER CYCLICAL (8.5%)
* AutoZone, Inc. 1,700 59
* BHC Communications, Inc. Class A 300 29
Bandag, Inc. 300 14
* Barnes & Noble Inc. 700 25
* Bed Bath & Beyond, Inc. 400 11
* Best Buy, Inc. 400 9
Bob Evans Farms, Inc. 450 8
* Boyd Gaming Corp. 600 9
* Brinker International, Inc. 900 13
* Burlington Coat Factory
Warehouse Corp. 1,600 17
* Burlington Industries Inc. 1,500 21
* CUC International, Inc. 1,700 60
* Cablevision Systems Corp. Class B 400 19
* Century Communications Corp.
Class A 2,800 24
* Chris-Craft Industries, Inc. 742 33
Chrysler Corp. 1,866 116
Circuit City Stores, Inc. 1,000 36
* Circus Circus Enterprises Inc. 1,200 49
* Coleman Inc. 700 30
Comcast Corp. Class A Special 2,400 44
* Consolidated Stores, Inc. 1,400 51
* Cox Communications Class A 1,600 35
Cracker Barrel Old Country
Stores, Inc. 1,100 26
* Department 56 Inc. 700 16
Dillard Department Stores Class A 1,600 58
The Walt Disney Co. 2,700 170
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
BALANCED Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Eastman Kodak Co. 2,000 $ 156
* Eckerd Corp. 2,000 45
* Electronic Arts 1,200 32
Fastenal Co. 400 17
* Federated Department Stores 1,800 61
Ford Motor Co. 5,300 171
* Fruit of the Loom, Inc. 900 23
The Gap, Inc. 2,000 64
General Motors Corp. 3,900 204
* General Nutrition Cos., Inc. 2,000 35
* GTech Holdings Corp. 1,200 35
* HFS Inc. 1,800 126
Harley-Davidson, Inc. 900 37
* Harrah's Entertainment, Inc. 1,400 39
Hasbro, Inc. 900 32
Home Depot, Inc. 2,900 157
* Home Shopping Network, Inc. 2,000 24
* Host Marriott 2,100 28
* Host Marriott Services 420 3
* ITT Corp. 1,200 79
ITT Industries, Inc. 600 15
* Infinity Broadcasting Corp. 3,075 92
International Game Technology 200 3
* Jones Apparel Group, Inc. 900 44
* King World Productions, Inc. 700 25
* Kohls Corp. 1,200 44
La Quinta Inns Inc. 300 10
* Lear Corp. 1,100 39
* Liberty Media Group Class A 675 18
The Limited, Inc. 1,469 32
* Lin Television 750 27
Lowes Cos., Inc. 1,400 51
* MGM Grand Inc. 800 32
Marriott International 1,200 64
* Marvel Entertainment Group 1,400 13
Mattel, Inc. 2,188 63
McDonald's Corp. 3,700 173
* Micro Warehouse Inc. 700 14
* Mirage Resorts, Inc. 1,000 54
* Navistar International Corp. 1,400 14
Newell Co. 1,800 55
Nike, Inc. Class B 600 62
* Nine West Group, Inc. 800 41
Nordstrom, Inc. 1,000 44
* Office Depot, Inc. 1,000 20
* Officemax Inc. 1,400 33
* Outback Steakhouse 200 7
Pep Boys (Manny, Moe & Jack) 200 7
* PETsMART, Inc. 900 43
* Price/Costco Inc. 2,400 51
* Promus Hotel Corp. 400 12
Reebok International Ltd. 100 3
* Revco Drug Stores, Inc. 1,100 26
Rubbermaid, Inc. 1,800 49
Russell Corp. 600 16
* Scholastic Corp. 600 37
* Service Merchandise Co., Inc. 3,800 21
* Shoney's Inc. 1,500 16
* Staples, Inc. 2,250 44
Sunbeam Corp. 900 13
Superior Industries International, Inc. 200 5
Talbots Inc. 100 3
Tandy Corp. 300 14
* Tele-Communications, Inc. Class A 4,100 74
Time Warner, Inc. 2,000 78
* Toys R Us, Inc. 2,100 60
Turner Broadcasting Class B 1,600 44
* U S WEST Media Group 4,000 73
* Viacom International Class A 1,148 44
* Viacom International Class B 763 30
* Viking Office Products 1,400 45
Wal-Mart Stores, Inc. 7,000 179
Walgreen Co. 2,000 68
Warnaco Group 1,300 34
----------
SECTOR TOTAL 4,528
----------
- ------------------------------------------------------------
CONSUMER STAPLES (5.1%)
Alberto-Culver Co. Class B 800 37
Albertson's, Inc. 2,000 83
Archer-Daniels-Midland Co. 3,780 72
The Coca-Cola Co. 12,400 606
Coca-Cola Enterprises, Inc. 1,300 45
Crown Cork & Seal Co., Inc. 900 41
Dole Food Co. 400 17
Gillette Co. 2,500 156
IBP, Inc. 1,400 39
* Jefferson Smurfit Corp. 2,800 30
Kellogg Co. 900 66
* The Kroger Co. 1,400 55
* Owens-Illinois, Inc. 2,000 32
PepsiCo, Inc. 8,000 283
Philip Morris Cos., Inc. 4,200 437
Procter & Gamble Co. 3,600 326
RJR Nabisco Holdings Corp. 1,460 45
* Safeway, Inc. 2,400 79
Schweitzer-Mauduit
International Inc. 600 17
* Southland Corp. 11,500 35
* Starbucks Corp. 400 11
* Stop & Shop Cos. Inc. 1,400 47
Sysco Corp. 1,500 51
Tyson Foods, Inc. 1,600 44
* Vons Cos., Inc. 1,100 41
Wrigley, (Wm.) Jr. 800 41
----------
SECTOR TOTAL 2,736
----------
- ------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
ENERGY (3.0%)
Amerada Hess Corp. 800 $ 43
Amoco Corp. 2,600 188
Anadarko Petroleum Corp. 600 35
Burlington Resources, Inc. 1,100 47
* CalEnergy Inc. 1,500 38
Coastal Corp. 1,000 42
* Enron Oil & Gas Co. 1,600 45
ENSCO International, Inc. 1,000 33
Exxon Corp. 6,100 530
Mobil Corp. 2,100 235
NGC Corp. 2,800 42
Noble Affiliates, Inc. 1,200 45
* Oryx Energy Co. 2,500 41
Pogo Producing Co. 1,200 46
* Santa Fe Energy Resources, Inc. 3,300 39
* Seagull Energy Corp. 900 23
Sonat Offshore Drilling Co. 800 40
* TransTexas Gas Corp. 2,000 18
* Triton Energy Ltd. 700 34
* Western Atlas Inc. 600 34
----------
SECTOR TOTAL 1,598
----------
- ------------------------------------------------------------
FINANCIAL (4.5%)
Advanta Corp. Class A 200 10
AFLAC, Inc. 1,800 54
Alexander & Alexander Services, Inc. 400 8
American International Group, Inc. 2,200 217
American Re Corp. 800 36
BankAmerica Corp. 2,100 159
* CNA Financial Corp. 400 41
Capital One Financial Corp. 900 26
Citicorp 2,700 223
Conseco Co., Inc. 1,200 48
Dean Witter Discover & Co. 1,200 69
* Dime Bancorp, Inc. 3,000 39
The Equitable Cos. 1,600 40
Federal Home Loan Mortgage Corp. 1,100 94
Federal National Mortgage Assn. 5,700 191
First Empire State Corp. 100 24
First USA Inc. 700 39
Franklin Resources Corp. 1,000 61
General Re Corp. 500 76
Golden West Financial Corp. 600 34
Green Tree Financial Corp. 1,600 50
ITT Hartford Group, Inc. 1,000 53
Lehman Brothers Holdings, Inc. 400 10
Leucadia National Corp. 1,200 29
MGIC Investment Corp. 700 39
Merrill Lynch & Co., Inc. 1,200 78
Morgan Stanley Group, Inc. 1,200 59
The PMI Group Inc. 800 34
Price Enterprises, Inc. 1,400 21
Progressive Corp. of Ohio 1,000 46
Salomon, Inc. 500 22
Charles Schwab Corp. 2,000 49
State Street Boston Corp. 800 41
SunAmerica Inc. 300 17
Transatlantic Holdings 400 28
Travelers Group Inc. 2,850 130
* 20th Century Industries of CA 1,300 22
UNUM Corp. 900 56
Wells Fargo & Co. 600 143
----------
SECTOR TOTAL 2,416
----------
- ------------------------------------------------------------
HEALTH CARE (5.6%)
Abbott Laboratories 4,100 178
* ALZA Corp. 1,100 30
* Amgen, Inc. 1,600 86
Becton, Dickinson & Co. 600 48
* Beverly Enterprises Inc. 800 10
* Biogen, Inc. 600 33
* Biomet, Inc. 1,600 23
* Boston Scientific Corp. 1,100 50
Cardinal Health, Inc. 600 43
Caremark International, Inc. 1,200 30
* Centocor, Inc. 700 21
* Chiron Corp. 485 47
Columbia/HCA Healthcare Corp. 2,568 137
Dentsply International 700 29
* FHP International Corp. 800 22
* Forest Laboratories, Inc. 600 23
* Foundation Health Co. 700 25
* Genzyme Corp. 800 40
* Genzyme Corp. Tissue Repair 108 1
* Health Management Associates
Class A 2,250 46
* Health Systems 1,400 38
* Healthcare & Retirement Corp. 1,200 29
* HealthCare Compare Corp. 800 39
* Healthsource, Inc. 1,200 21
* HEALTHSOUTH Corp. 1,200 43
* Humana, Inc. 2,000 36
IVAX Corp. 1,200 19
Johnson & Johnson 7,102 352
* Laboratory Corp. of America 1,152 9
Manor Care Inc. 800 32
* Medaphis Corp. 1,400 55
Medtronic, Inc. 1,600 90
Merck & Co., Inc. 5,900 381
* Mid Atlantic Medical Services 1,000 14
* OrNda Healthcorp 1,300 31
* Oxford Health Plan 1,600 66
* Pacificare Health Systems
Inc. Class A 400 26
* Perrigo Co. 1,700 19
</TABLE>
17
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
BALANCED Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
Pfizer, Inc. 3,100 $ 221
Pharmacia & Upjohn, Inc. 2,500 111
* Physician Corp. of America 1,200 16
* Quorum Health Group, Inc. 1,500 39
* St. Jude Medical, Inc. 1,200 40
* R. P. Scherer Corp. 1,000 45
Stryker Corp. 1,200 27
* Sybron Corp. 1,400 35
* Tenet Healthcare Corp. 2,562 55
United Healthcare Corp. 1,300 66
U.S. Healthcare, Inc. 1,200 66
United States Surgical Corp. 300 9
* Value Health, Inc. 300 7
Wellpoint Health Networks Inc.
Class A 533 17
----------
SECTOR TOTAL 2,976
----------
- ------------------------------------------------------------
TECHNOLOGY (9.1%)
* ADC Telecommunications, Inc. 400 18
* Adaptec, Inc. 900 43
Adobe Systems, Inc. 300 11
* Adtran, Inc. 800 57
* Advanced Micro Devices, Inc. 1,100 15
* Amdahl Corp. 2,300 25
* American Power Conversion Corp. 200 2
* Amphenol Corp. 400 9
* Analog Devices, Inc. 1,500 38
* Andrew Corp. 900 49
Apple Computer, Inc. 1,500 31
* Applied Materials, Inc. 1,700 52
* Arrow Electronics, Inc. 700 30
* Ascend Communications, Inc. 1,000 56
* Associated Group, Inc. 50 1
* Associated Group, Inc. Class B 50 1
* Atmel Corp. 1,200 36
Automatic Data Processing, Inc. 2,000 77
* BMC Software, Inc. 1,000 60
* Bay Networks 1,435 37
* Cabletron Systems, Inc. 650 45
* Cascade Communications Corp. 1,200 82
* Ceridian Corp. 800 40
* Cheyenne Software, Inc. 600 12
* Cirrus Logic 1,600 28
* Cisco Systems, Inc. 3,400 193
* COMPAQ Computer Corp. 1,600 79
Computer Associates
International, Inc. 1,350 96
* Computer Sciences Corp. 600 45
* DSC Communications Corp. 1,500 45
* Dell Computer 1,200 61
* Digital Equipment Corp. 1,100 50
* EMC Corp. 2,000 37
Electronic Data Systems Corp. 1,900 102
First Data Corp. 1,392 111
* FIserv, Inc. 1,000 30
* Gateway 2000 Inc. 1,100 37
* Glenayre Technologies, Inc. 1,350 67
HBO and Co. 1,200 81
Hewlett-Packard Co. 2,000 199
* Informix Corp. 1,800 40
* Integrated Device Technology Inc. 800 9
Intel Corp. 4,200 308
International Business
Machines Corp. 2,800 277
* Intuit, Inc. 800 37
* KEMET Corp. 600 12
* KLA Instruments Corp. 500 12
* Komag, Inc. 800 21
* LAM Research Corp. 700 18
* LCI International, Inc. 1,400 44
* LSI Logic Corp. 1,800 47
* Loral Space & Communications Ltd. 1,500 20
* MFS Communications Co., Inc. 1,200 45
* Marquette Electronics Class A 1,100 19
* Maxim Integrated Products, Inc. 400 11
Micron Technology Inc. 1,200 31
* Microsoft Corp. 1,800 216
* Mobile Telecommunications
Technologies Corp. 2,200 32
Molex, Inc. 937 30
Motorola, Inc. 3,000 189
* National Semiconductor Corp. 1,300 20
* Nextel Communications 1,700 32
* Novell, Inc. 2,900 40
* Novellus Systems, Inc. 300 11
* Oracle Corp. 3,300 130
* Paging Network Inc. 1,600 38
* Parametric Technology Corp. 1,600 69
* Policy Management Systems Corp. 600 30
* Qualcomm, Inc. 1,000 53
* Quantum Corp. 1,400 20
* SPS Transaction Services 700 13
Scientific-Atlanta, Inc. 400 6
* Seagate Technology 1,795 81
Sensormatic Electronics Corp. 100 2
* Silicon Graphics, Inc. 1,500 36
* Solectron Corp. 800 30
* Storage Technology Corp. 800 31
* StrataCom, Inc. 1,200 68
* Sun Microsystems, Inc. 1,800 106
* Sybase, Inc. 700 17
* Synopsys, Inc. 1,200 48
* Tandem Computers, Inc. 1,300 16
* Tellabs, Inc. 1,200 80
* Teradyne, Inc. 1,400 24
Texas Instruments, Inc. 1,500 75
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------
<S> <C> <C>
* 3 Com Corp. 1,200 $ 55
* 360 Communications Co. 2,066 50
* Unisys Corp. 1,700 12
* United States Cellular 1,200 36
* Vanguard Cellular Systems,
Inc. Class A 750 15
Varian Associates, Inc. 200 10
* Vishay Intertechnology, Inc. 1,323 30
* Xilinx, Inc. 1,200 37
----------
SECTOR TOTAL 4,827
----------
- ------------------------------------------------------------
TRANSPORT & SERVICES (1.0%)
* AMR Corp. 600 55
Burlington Northern Santa Fe Corp. 646 52
Consolidated Freightways, Inc. 900 19
Delta Air Lines, Inc. 500 42
* Federal Express Corp. 700 57
Kansas City Southern Industries, Inc. 1,000 43
* Northwest Airlines Corp. Class A 1,200 47
Pittston Brink's Group 800 23
Pittston Burlington Group 400 9
* Southern Pacific Rail Corp. 1,100 28
Southwest Airlines Co. 1,600 47
* UAL Corp. 1,200 64
* Wisconsin Central
Transportation Corp. 1,800 57
----------
SECTOR TOTAL 543
----------
- ------------------------------------------------------------
UTILITIES (2.5%)
* AES Corp. 1,400 39
AT&T Corp. 7,900 490
* AirTouch Communications 3,400 96
Century Telephone Enterprises, Inc. 1,000 32
CINergy Corp. 1,700 54
Columbia Gas Systems, Inc. 1,000 52
Frontier Corp. 1,600 49
MCI Communications Corp. 4,100 105
Niagara Mohawk Power Corp. 4,000 31
SBC Communications Inc. 3,072 151
Sprint Corp. 2,000 84
Telephone & Data Systems, Inc. 1,000 45
* WorldCom, Inc. 1,781 99
----------
SECTOR TOTAL 1,327
----------
- ------------------------------------------------------------
MISCELLANEOUS (1.2%)
Alco Standard Corp. 1,200 54
* Alleghany Corp. 206 39
AlliedSignal Inc. 1,700 97
* Anixter International Inc. 1,400 21
Cintas Corp. 200 10
* Coltec Inc. 1,100 16
* Litton Industries, Inc. 700 30
Loews Corp. 600 47
Manpower Inc. 900 35
Mark IV Industries, Inc. 441 10
Minnesota Mining &
Manufacturing Co. 2,200 152
Olsten Corp. 300 9
Stewart Enterprises, Inc. Class A 1,500 47
Teledyne Inc. 300 11
Tenneco, Inc. 1,200 62
Total System Services, Inc. 800 19
----------
SECTOR TOTAL 659
----------
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $19,225) 25,276
- ------------------------------------------------------------
MUNICIPAL BONDS (56.0%)
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
---------
<S> <C> <C>
ALASKA (2.1%)
North Slope AK Borough GO
7.50%, 6/30/01 (3) $1,000 1,114
----------
- ------------------------------------------------------------
CALIFORNIA (10.8%)
California GO
6.40%, 2/1/06 (1) 500 547
10.00%, 4/1/98 400 438
Clovis CA Unified School Dist.
0.00%, 8/1/05 (3) 2,000 1,236
Los Angeles CA Waste
Water System
5.75%, 6/1/10 (1) 400 404
Orange County CA Municipal
Water COP
(Allen McColloch Pipeline)
4.80%, 7/1/03 (1) 1,235 1,221
Sacramento County CA TRAN
4.50%, 9/30/97 1,000 1,007
San Diego County CA TRAN
4.50%, 9/30/96 200 200
Univ. of CA Board of Regents
12.00%, 9/1/03 (2) 500 709
----------
STATE TOTAL 5,762
----------
- ------------------------------------------------------------
CONNECTICUT (1.7%)
Connecticut Development Auth.
PCR Refunding VRDO
3.35%, 7/3/96 LOC 925 925
----------
- ------------------------------------------------------------
DISTRICT OF COLUMBIA (2.8%)
District of Columbia GO
6.75%, 6/1/05 (2) 1,400 1,486
----------
- ------------------------------------------------------------
FLORIDA (3.6%)
Dade County FL School Dist.
7.375%, 7/1/99 (Prere.) 400 440
</TABLE>
19
<PAGE> 20
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
BALANCED Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------
<S> <C> <C>
Dade County FL Water & Sewer
System Rev. VRDO
3.30%, 7/3/96 (3) $1,360 $ 1,360
Hillsborough County FL IDA
PCR VRDO (Tampa Electric Co.)
3.55%, 7/2/96 145 145
----------
STATE TOTAL 1,945
----------
- ------------------------------------------------------------
ILLINOIS (.8%)
Illinois Sales Tax Rev.
7.20%, 6/15/99 (Prere.) 400 437
----------
- ------------------------------------------------------------
KENTUCKY (.8%)
Kentucky Property & Buildings
Comm. Rev.
5.80%, 9/1/06 400 413
----------
- ------------------------------------------------------------
MARYLAND (.8%)
Maryland Dept. of Transportation
5.20%, 9/15/04 400 406
----------
- ------------------------------------------------------------
MASSACHUSETTS (5.5%)
Massachusetts Bay Transportation
Auth. TRAN
6.25%, 3/1/05 1,000 1,073
Massachusetts GO
7.25%, 7/1/98 (Prere.) 500 537
Massachusetts Industrial
Finance Agency Rev.
(Refusetech Inc. Project)
6.30%, 7/1/05 1,000 1,030
Massachusetts Water
Resources Auth.
5.75%, 8/1/10 (1) 300 303
----------
STATE TOTAL 2,943
----------
- ------------------------------------------------------------
MICHIGAN (7.4%)
Dickinson County MI Memorial
Hosp. System Rev.
7.625%, 11/1/05 500 511
Greater Detroit MI Resource
Recovery Auth.
6.25%, 12/13/06 (2) 1,200 1,277
Michigan Environmental
Protection Program
6.25%, 11/1/08 1,000 1,089
Michigan Housing Development
Auth. Rental Housing Rev.
6.30%, 4/1/04 1,000 1,044
----------
STATE TOTAL 3,921
----------
- ------------------------------------------------------------
NEVADA (1.5%)
Clark County NV Airport System
Rev. VRDO
3.30%, 7/3/96 (1) 790 790
----------
- ------------------------------------------------------------
NEW JERSEY (2.8%)
New Jersey Economic Development
Auth. Market Transition Facility
5.70%, 7/1/05 (1) 400 414
New Jersey Health Care
Facilities Finance Auth.
(Atlantic City Medical Center)
6.80%, 7/1/05 1,000 1,076
----------
STATE TOTAL 1,490
----------
- ------------------------------------------------------------
NEW YORK (3.8%)
New York City GO
6.375%, 8/15/09 640 642
New York Environmental Facilities
Corp. PCR
6.35%, 6/15/06 520 563
New York State Dormitory Auth.
(State Univ.)
5.375%, 5/15/07 (2) 400 403
New York State Thruway Service
Contract Local Highway/Building
5.40%, 4/1/05 (1) 400 407
----------
STATE TOTAL 2,015
----------
- ------------------------------------------------------------
OHIO (3.3%)
Ohio Public Facilities Comm.
5.50%, 12/1/06 (1) 400 408
Ohio Water Development Auth.
5.75%, 12/1/05 (1) 540 562
6.00%, 12/1/08 (2) 750 779
----------
STATE TOTAL 1,749
----------
- ------------------------------------------------------------
PENNSYLVANIA (3.1%)
Pennsylvania Higher Education
Facilities Health Services
(Allegheny)
5.00%, 11/15/06 (1) 1,125 1,085
Pennsylvania Turnpike Comm. Rev.
7.625%, 12/1/99 (Prere.) 500 557
----------
STATE TOTAL 1,642
----------
- ------------------------------------------------------------
TEXAS (3.9%)
Houston TX Hotel Occupancy
5.25%, 7/1/07 (4) 500 491
San Antonio TX Water Rev.
6.50%, 5/15/10 (1) 500 529
Univ. of Texas Permanent Fund
6.00%, 7/1/06 1,000 1,063
----------
STATE TOTAL 2,083
----------
- ------------------------------------------------------------
WEST VIRGINIA (1.3%)
West Virginia School Building Auth.
Capital Improvement Rev.
5.625%, 7/1/02 655 683
----------
- ------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Market
Value
(000)+
- -------------------------------------------------------------
<S> <C>
TOTAL MUNICIPAL BONDS
(Cost $29,493) $29,804
- -------------------------------------------------------------
TOTAL INVESTMENTS (103.4%)
(Cost $48,718) 55,080
- -------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.4%)
- -------------------------------------------------------------
Other Assets--Note B 597
Liabilities (2,426)
-----------
(1,829)
- -------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------
Applicable to 4,342,511 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $53,251
- -------------------------------------------------------------
NET ASSET VALUE PER SHARE $12.26
=============================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------- --------
<S> <C> <C>
PAID IN CAPITAL $46,821 $10.78
UNDISTRIBUTED NET
INVESTMENT INCOME 90 .02
ACCUMULATED NET
REALIZED LOSSES (22) (.01)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 6,362 1.47
- -------------------------------------------------------------
NET ASSETS $53,251 $12.26
- -------------------------------------------------------------
</TABLE>
COP--Certificate of Participation Bond
GO--General Obligation Bond
IDA--Industrial Development Authority Bond
PCR--Pollution Control Revenue Bond
TRAN--Tax Revenue Anticipation Note
VRDO--Variable Rate Demand Obligation
(Prere.)--Prerefunded
Scheduled principal and interest payments are guaranteed by:
(1) MBIA (Municipal Bond Insurance Association)
(2) AMBAC (AMBAC Indemnity Corporation)
(3) FGIC (Financial Guaranty Insurance Company)
(4) FSA (Financial Security Assurance)
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
21
<PAGE> 22
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
GROWTH AND CAPITAL
INCOME APPRECIATION BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1996
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . $ 1,538 $ 1,977 $ 147
Interest . . . . . . . . . . . . . . . . 24 71 640
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . 1,562 2,048 787
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . $ 7 $ 15 $16
Management and Administrative . . . . 84 233 6
Marketing and Distribution . . . . . . 16 107 43 291 6 28
--- ---- ---
Taxes (other than income taxes) . . . . . 5 12 3
Custodian Fees . . . . . . . . . . . . . 18 16 12
Auditing Fees . . . . . . . . . . . . . . 4 4 4
Shareholders' Reports . . . . . . . . . . 3 10 2
Annual Meeting and Proxy Costs . . . . . -- 1 --
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . 137 334 49
Expenses Paid Indirectly--Note B -- -- (3)
- -------------------------------------------------------------------------------------------------------------------
Net Expenses . . . . . . . . . 137 334 46
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . 1,425 1,714 741
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . . . 89 249 21
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES . . . . . . . . . 11,330 29,260 1,435
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . $12,844 $31,223 $2,197
===================================================================================================================
</TABLE>
22
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AND CAPITAL
INCOME APPRECIATION
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JUNE 30, 1996 Dec. 31, 1995 JUNE 30, 1996 Dec. 31, 1995
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . $ 1,425 $ 1,431 $ 1,714 $ 1,549
Realized Net Gain (Loss) . . . . . . . . 89 (301) 249 (1,441)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . 11,330 17,169 29,260 42,784
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . 12,844 18,299 31,223 42,892
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . (1,296) (1,444) -- (1,680)
Realized Net Gain . . . . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . (1,296) (1,444) -- (1,680)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . 55,886 49,820 115,127 143,035
Issued in Lieu of Cash Distributions . . 995 1,024 -- 1,361
Redeemed . . . . . . . . . . . . . . . . (1,285) (771) (2,511) (1,025)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . 55,596 50,073 112,616 143,371
- -------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . 67,144 66,928 143,839 184,583
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . 98,337 31,409 254,233 69,650
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . $165,481 $98,337 $398,072 $254,233
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 4,067 4,239 8,198 12,127
Issued in Lieu of Cash Distributions 70 84 -- 103
Redeemed . . . . . . . . . . . . . . (93) (65) (180) (85)
- -------------------------------------------------------------------------------------------------------------------
4,044 4,258 8,018 12,145
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
JUNE 30, 1996 Dec. 31, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 741 $ 878
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (45)
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . . . . 1,435 5,151
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . . . . . . 2,197 5,984
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (626) (896)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . (626) (896)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,728 15,702
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . . . 540 790
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,325) (335)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . . . 12,943 16,157
- -------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,514 21,245
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,737 17,492
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,251 $38,737
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140 1,443
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 44 70
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110) (31)
- -------------------------------------------------------------------------------------------------------------------
1,074 1,482
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH AND
INCOME
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended July 25+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1996 Dec. 31, 1995 Dec. 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $13.16 $ 9.77 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .13 .25 .09
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . 1.20 3.39 (.23)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . 1.33 3.64 (.14)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.12) (.25) (.09)
Distributions from Realized Capital Gains . . . . -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.12) (.25) (.09)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $14.37 $13.16 $ 9.77
===================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . +10.12% +37.53% -1.70%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $165 $98 $31
Ratio of Total Expenses to Average Net Assets . . . . .20%* .20% .20%*
Ratio of Net Investment Income to Average Net Assets 2.07%* 2.37% 2.82%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 4%* 6% 0%
Average Commission Rate Paid . . . . . . . . . . . . $.0202++ N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total returns do not reflect the 2% redemption fee on shares held less
than one year, or the 1% redemption fee on shares held more than one
year but less than five years.
+ Subscription period for each Portfolio was July 25, 1994, to September
5, 1994, during which time all assets were held in money market
instruments. Performance measurement begins September 6, 1994.
++ Represents total commissions paid on portfolio securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
25
<PAGE> 26
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended July 25+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1996 Dec. 31, 1995 Dec. 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $13.28 $ 9.95 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .06 .08 .04
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . 1.31 3.34 (.05)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . 1.37 3.42 (.01)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . -- (.09) (.04)
Distributions from Realized Capital Gains . . . . -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . -- (.09) (.04)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $14.65 $13.28 $ 9.95
===================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . +10.32% +34.38% -0.50%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $398 $254 $70
Ratio of Total Expenses to Average Net Assets . . . . .20%* .20% .20%*
Ratio of Net Investment Income to Average Net Assets 1.02%* .97% 1.26%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 4%* 7% 1%
Average Commission Rate Paid . . . . . . . . . . . . $.0207++ N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total returns do not reflect the 2% redemption fee on shares held less
than one year, or the 1% redemption fee on shares held more than one
year but less than five years.
+ Subscription period for each Portfolio was July 25, 1994, to September
5, 1994, during which time all assets were held in money market
instruments. Performance measurement begins September 6, 1994.
++ Represents total commissions paid on portfolio securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
26
<PAGE> 27
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended July 25+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1996 Dec. 31, 1995 Dec. 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $11.85 $ 9.79 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .18 .31 .09
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . .38 2.07 (.21)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . .56 2.38 (.12)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.15) (.32) (.09)
Distributions from Realized Capital Gains . . . . -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.15) (.32) (.09)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $12.26 $11.85 $ 9.79
===================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . +4.74% +24.52% -1.40%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $53 $39 $17
Ratio of Total Expenses to Average Net Assets . . . . .20%* .20% 0%
Ratio of Net Investment Income to Average Net Assets 3.08%* 3.06% 2.88%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 2%* 5% 0%
Average Commission Rate Paid . . . . . . . . . . . . $.0210++ N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total returns do not reflect the 2% redemption fee on shares held less
than one year, or the 1% redemption fee on shares held more than one
year but less than five years.
+ Subscription period for each Portfolio was July 25, 1994, to September
5, 1994, during which time all assets were held in money market
instruments. Performance measurement begins September 6, 1994.
++ Represents total commissions paid on portfolio securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
Vanguard Tax-Managed Fund is registered under the Investment Company Act of
1940 as a diversified open-end investment company and consists of the Growth
and Income, Capital Appreciation, and Balanced Portfolios.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities listed on an exchange are valued at the
latest quoted sales prices as of the close of the New York Stock Exchange
(generally 4:00 PM) on the valuation date; such securities not traded are
valued at the mean of the latest quoted bid and asked prices. Unlisted
securities held by the Growth and Income Portfolio are valued at the
latest quoted bid prices; such securities held by the Capital Appreciation
Portfolio and the equity portion of the Balanced Portfolio are valued at
the mean of the latest quoted bid and asked prices. Municipal bonds are
valued utilizing primarily the latest bid prices or, if bid prices are not
available, on the basis of 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. Temporary
cash investments are valued at amortized cost which approximates market
value.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
3. REPURCHASE AGREEMENTS: The Growth and Income and Capital Appreciation
Portfolios, along with other members of The Vanguard Group, transfer
uninvested cash balances into a Pooled Cash Account, the daily aggregate
of which is invested in repurchase agreements secured by U.S. Government
obligations. Securities pledged as collateral for repurchase agreements
are held by a custodian bank until maturity of each repurchase agreement.
Provisions of the agreement require that the market value of this
collateral is sufficient in the event of default; however, in the event of
default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
4. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities
sold. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Premiums and original issue discounts on municipal
bonds are amortized and accreted, respectively, to interest income over
the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Directors. At June 30, 1996, the Fund had contributed capital of $61,000 to
Vanguard (included in Other Assets), representing .3% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
Vanguard, as investment adviser, may direct certain portfolio trades, subject
to obtaining the best price and execution, to brokers who have agreed to rebate
or credit to the Fund a portion of the commissions generated. Such rebates or
credits are used solely to reduce the Fund's administrative expenses. For the
period ended June 30, 1996, directed brokerage arrangements reduced the
expenses of the Balanced Portfolio by $3,000 (an annual rate of .01 of 1% of
average net assets).
28
<PAGE> 29
C. During the six months ended June 30, 1996, purchases and sales of
investment securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
-----------------------
Portfolio Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
GROWTH AND INCOME $ 59,538 $3,066
CAPITAL APPRECIATION 121,850 7,502
BALANCED 14,564 502
- -------------------------------------------------------
</TABLE>
At December 31, 1995, the Fund had available realized capital losses to offset
future taxable capital gains through the following fiscal year ends:
<TABLE>
<CAPTION>
- -------------------------------------------------------
Expiration
Fiscal Year(s) Ending Amount
Portfolio December 31 (000)
- -------------------------------------------------------
<S> <C> <C>
GROWTH AND INCOME 2003-2004 $ 301
CAPITAL APPRECIATION 2003-2004 1,441
BALANCED 2003-2004 45
- -------------------------------------------------------
</TABLE>
D. At June 30, 1996, net unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(000)
-------------------------------------------------
Appreciated Depreciated Net Unrealized
Portfolio Securities Securities Appreciation
- ------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH AND INCOME $29,015 $ (941) $28,074
CAPITAL APPRECIATION 79,220 (7,540) 71,680
BALANCED 6,811 (449) 6,362
- ------------------------------------------------------------------------
</TABLE>
E. The market value of Capital Appreciation Portfolio securities on loan to
broker/dealers at June 30, 1996, was $1,488,000, for which the Portfolio had
received cash collateral of $1,553,000.
29
<PAGE> 30
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President and Chief Executive Officer
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus of Rhone-
Poulenc Rorer Inc.; Director of Sun Company, Inc. and Westinghouse Electric
Corporation.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and Massachusetts Mutual
Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National Steel
Corporation.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications
Co.
ALFRED M. RANKIN, Jr., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and
The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Co. and
NACCO Industries.
JAMES O. WELCH, Jr., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart
Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
30
<PAGE> 31
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Information Technology Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
31
<PAGE> 32
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 1 (800) 662-2739
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
All Funds in the Vanguard Family are offered by prospectus only.
Q872-6/96
[VANGUARD TAX-MANAGED FUND LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 1996
