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[VANGUARD TAX-MANAGED FUND LOGO]
ANNUAL REPORT 1995
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In this Annual Report, I am delighted to formally introduce you to John J.
Brennan, who, on January 31, 1996, will assume my responsibilities as Chief
Executive Officer of Vanguard Tax-Managed Fund and the other Funds in The
Vanguard Group. Mr. Brennan will continue to serve as President of the Funds,
and I will continue to serve as Chairman of the Board.
As a shareholder of the Fund since its inception and as Chairman of
all the Vanguard Funds, I want to tell you that I am enthusiastic and confident
that Jack Brennan is exactly the right person to succeed me as Chief Executive
Officer. To use yet another Vanguard nautical metaphor, he will be the new
captain. He has the qualities of leadership, integrity, intelligence, and
vision that must continue to be Vanguard's hallmark as we move toward, and then
into, the 21st century.
I know that he has these qualities, because Jack Brennan and I have
been working closely together since he joined Vanguard in 1982. He is a
graduate of Dartmouth College and Harvard Business School. He started as
Assistant to the Chairman and, rising like a rocket, became President in 1989.
While, at age 41, he may seem young, he is in fact older than I was when I
became Chief Executive Officer of Vanguard's predecessor organization in 1967,
at the age of 38. Most important of all, Jack is completely dedicated to the
Vanguard character, and believes in our basic mission: serving solely the
shareholder, free of any conflict of interest. He believes in holding our costs
of operation to a minimum, and in retaining our position as the lowest-cost
provider of financial services in the world. He is a true competitor, who
shares Vanguard's dedication to providing highly competitive returns to our
investors relative to the returns provided by other mutual funds with
comparable objectives. He also believes in reporting our results to
shareholders with complete candor. He has the full support of the Board of
Directors and our crew, and is committed to staying the course we have set for
Vanguard. You need have no doubt that the essential elements that drew you to
Vanguard in the first place will remain intact.
[FIGURE 1]
As for me, I expect to fill a useful, if less demanding, role as
Chairman of the Board. I shall keep a watchful eye over the interests of our
shareholders, our crew, and our investment policies. I shall also speak out on
industry affairs, reminding all who will listen of the primacy of the interests
of mutual fund shareholders. I will be readily available to provide Jack
Brennan with whatever wisdom I may have acquired during my lifetime of
experience in this wonderful industry and in my service as captain of Vanguard
since I founded this unique organization more than two decades ago.
In short, I'll still be around. Thank you for all your confidence in
me in the past and, in advance, for your continued confidence in Vanguard under
Jack Brennan's leadership.
/s/ JOHN C. BOGLE
VANGUARD TAX-MANAGED FUND IS DESIGNED FOR LONG-TERM INVESTORS SEEKING TO
MINIMIZE THE IMPACT OF TAXES ON THEIR INVESTMENT RETURNS. THE FUND CONSISTS OF
THREE DISTINCT PORTFOLIOS--GROWTH AND INCOME, CAPITAL APPRECIATION, AND
BALANCED--EACH OF WHICH EMPLOYS AN INDEX-ORIENTED APPROACH TO EQUITY
MANAGEMENT.
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CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
In the year ended December 31, 1995, the first full year of operations for
Vanguard Tax-Managed Fund, U.S. stocks and bonds enjoyed a truly remarkable
year. Buoyed by falling long-term interest rates and strong corporate profits,
U.S. stock prices rose dramatically, providing a total return of +37.6% as
measured by the unmanaged Standard & Poor's 500 Composite Stock Price Index.
Municipal bonds also enjoyed a fine year, posting solid, if smaller, positive
returns. In this salubrious environment, each of our three Portfolios provided
handsome returns to our shareholders.
The Growth and Income Portfolio provided our highest total return
(capital change plus reinvested dividends) and also provided a virtually
perfect match to the return of its target index (in this case, the Standard &
Poor's 500 Index). Both of our other Portfolios (Capital Appreciation and
Balanced) were strong participants in their markets, but neither provided
nearly as tight a match to its target standard as we would expect over the long
run. The comparisons follow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
TOTAL RETURN
----------------------
YEAR ENDED
DECEMBER 31, 1995
- ------------------------------------------------------------------
<S> <C>
TAX-MANAGED GROWTH AND
INCOME PORTFOLIO +37.5%
STANDARD & POOR'S 500 INDEX +37.6
- ------------------------------------------------------------------
TAX-MANAGED CAPITAL
APPRECIATION PORTFOLIO +34.4%
RUSSELL 1000 STOCK INDEX +37.8
- ------------------------------------------------------------------
TAX-MANAGED BALANCED PORTFOLIO +24.5%
BALANCED COMPOSITE INDEX* +25.5
- ------------------------------------------------------------------
</TABLE>
* Index composition: 50% Russell 1000 Stock Index and 50% Lehman
Intermediate-Term Municipal Bond Index.
Note: "Standard & Poor's(R)," "S&P 500(R)," and "500" are trademarks of The
McGraw-Hill Companies, Inc.; "Russell 1000 Stock Index" is a registered
trademark of the Frank Russell Company.
The net asset values and income dividends for each Portfolio are presented in
the table at the close of this letter. None of the Portfolios realized net
capital gains.
THE YEAR IN REVIEW
The U.S. stock market rose in almost straight-line fashion throughout 1995,
ending up some +34% higher than the level at which it began the year. Adding
the miserly dividend yield now available on stocks, the Standard & Poor's 500
Index provided a total return of +37.6%. Since 1926, there have been only five
years when the U.S. stock market exceeded this return.
There were, as always, many opinions as to the source of the surprising
strength in the stock market. In my view, it resulted from a combination of:
(1) record-breaking corporate profits; (2) a growing speculative fever in the
marketplace, especially during the final weeks of the year; and (3) a sharp
decline in long-term interest rates. The rise in corporate profits was
particularly striking. It is estimated that operating earnings for the
companies in the Standard & Poor's 500 Index increased about +15% in 1995,
after already rising +16% in 1994. (Since 1926, earnings growth has averaged
less than +7% per year.) If there is a cautionary signal in this boom in
profits, it is that the two-year cumulative earnings growth of +33% has been
accompanied by dividend growth of only +11%.
This subdued dividend growth in the face of sharply higher stock
prices resulted in a decline in the yield on the Index to 2.2%, the lowest
level on record. Nonetheless, the Wall Street chorus sings "this time it's
different." Dividend yield and earnings growth--the two fundamentals of stock
returns--are clearly taking a back seat to the market's high valuation of the
long-term fundamentals. This is called "speculation," and it is hardly an
inconsequential component of 1995's high returns on stocks. So, as 1996 begins,
the low yield on stocks is surely a sobering statistic.
The huge decline in interest rates during the year not only provided a
major stimulus to the stock market, but also set bond prices afire. The yield
of
1
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[FIGURE 2]
[FIGURE 3]
the Lehman Long-Term Corporate Bond Index declined from 8.9% to 6.9% during
1995, even below its level of 7.1% at the start of 1994. The 1995 decline
drove long-term bond prices upward by fully +19%, resulting in a total return
(including the interest coupon) of +28% for this most volatile sector of the
bond market. The decline in yield, however, was considerably lower among
long-term tax-exempt issues (from 6.6% to 5.3%), but they enjoyed a still
healthy total return of +21.0%.
The decline in long-term interest rates was engendered largely by the
diminishing threat of additional increases in short-term interest rates by the
Federal Reserve Board. After a series of seven consecutive increases in the
Federal funds rate (the rate at which banks borrow from one another),
short-term rates then held fairly steady until this key rate was reduced by
1/4% in July 1995, to 53/4%. The Fed did not vary its target rate again until
December, when rates were cut by another 1/4% to 5.5%. Over the course of 1995,
the yield on U.S. Treasury bills declined from 5.6% to 5.0%.
This improvement in the actual (and expected) interest rate
environment was caused largely by a measurable softening in the growth of the
U.S. economy. A sluggish economy, in turn, engendered continued optimism about
the benign outlook for inflation. (Indeed, the Consumer Price Index (CPI) was
quite well-behaved in 1995, rising by but 2.6%, its smallest increase since
1986.) Investors should carefully ponder the extent to which today's high
growth rate of corporate earnings is likely to be sustained in a slowing
economy.
THE 1990s SO FAR
During the past year, growth stocks (return of +38.1%) and value stocks
(+37.0%) were relatively equal participants in the great bull market. So
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far during the 1990s, there has been little overall difference between the two
investment styles as shown in the chart to the left on the facing page, despite
some considerable year-to-year variations. For the six years on balance, the
average annual returns were: Standard & Poor's Growth Index +13.3%; Standard &
Poor's Value Index +12.6%.
During 1995, stocks with large market capitalizations provided
substantially higher returns than small-cap stocks. The giant blue-chip stocks,
which dominate the Standard & Poor's 500 Index, provided a return of +37.6%,
while the small-cap Russell 2000 Index return was +28.4%. Indeed, the
performance of large-cap stocks and small-cap stocks normally swings back and
forth from one year to the next, as shown in the right-hand chart on page 2.
But, so far this decade, these ups and downs have exactly canceled out one
another. The average annual return since year-end 1989 has been +13% for
large-cap and small-cap alike. Thus, over time, there has been little to
distinguish between the performance of large- and small-cap stocks, just as has
been the case between the growth and value objectives.
What should you make of these numbers? This outcome suggests the
wisdom of consistently sticking to your objectives, rather than endeavoring
(fruitlessly, I believe) to switch back and forth between market segments in
the search for higher returns. Put another way, most investors would benefit by
"staying the course" that best meets their needs, whether in large-cap or
small-cap stocks--or in some steady mix of each, or even in the entire stock
market (presently about 70% large-caps and 30% medium- and small-caps).
I should add that the extraordinary gains achieved by stocks in the
great bull market of 1995 have materially added to the total return of the
stock market so far during the 1990s. One year ago, the five-year return on the
Standard & Poor's 500 Index averaged just +8.7% annually. When we tack on an
ebullient 1995, the six-year return rises sharply, to an annual average of
+13.1%. These two returns, in substance, nicely bracket the +10.7% long-term
(since 1926) return on stocks. In any event, I would be surprised if the
decade of the 1990s, when it comes to its conclusion, will have matched the
average return on stocks of +17.5% per year during the Golden Eighties.
THE PORTFOLIOS IN 1995
Despite (or, more probably, because of) the orientation of our Portfolios
toward passive, market-indexed strategies, our common stock portfolios (and the
common stock component of our Balanced Portfolio) provided fine performance
relative to most actively managed equity mutual funds. The major market
averages, dominated as they are by blue-chip equities, were market leaders, as
large capitalization stocks provided championship returns. For example, the
return of +37.6% for the Standard & Poor's 500 Index dwarfed the +31.1% return
achieved by the average general equity mutual fund--an advantage of more than
six percentage points. So, it was a good year for the index strategy we
follow--indeed as good a year as I can remember--with the Index outpacing fully
85% of all actively managed funds. We shall probably not soon see its like
again. An evaluation of the 1995 return earned by each of our Tax-Managed
Portfolios is presented in the following three sections.
TAX-MANAGED GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio earned a return of +37.5%, virtually identical
to the Standard & Poor's 500 Index we emulate. Since we own all 500 stocks,
properly weighted, that might seem like less than a stirring accomplishment,
but the mathematics of matching an index are challenging. An index operates in
a theoretical world, on paper only, and bereft of the real world costs of
investing--advisory fees, operating expenses, cash flows, and portfolio
transaction costs. That is why most actively managed funds are unable to "beat
the market." Even our Growth and Income Portfolio incurs these expenses, but at
vastly lower levels. The typical equity mutual fund incurs operating and
transaction costs totaling something like 2% per year (excluding sales loads).
For the typical index fund, these costs drop to 0.4%,
3
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[FIGURE 4]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1995
- -------------------------------------------------------------
1 Year Since Inception
- -------------------------------------------------------------
<S> <C> <C>
GROWTH AND INCOME PORTFOLIO* +37.53% +25.71%
AVERAGE GROWTH & INCOME FUND +31.36 +20.09
STANDARD & POOR'S 500 INDEX +37.58 +25.68
</TABLE>
[FIGURE 5]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1995
- -------------------------------------------------------------
1 Year Since Inception
- -------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION PORTFOLIO* +34.38% +24.66%
AVERAGE CAPITAL APPRECIATION FUND +30.34 +19.81
RUSSELL 1000 INDEX +37.77 +26.28
</TABLE>
* Returns exclude the redemption fee of 2% on shares held for less than one
year and 1% for shares held from one to five years.
Note: Past performance is not predictive of future performance.
and for our Growth and Income Portfolio the costs run to only about 0.2%
annually--one of the lowest-cost index funds in the field--just as you have
come to expect from a Vanguard Fund.
Lest there be any doubt about the impact of these cost differentials,
let's assume a +10% market return. In this case, the typical mutual fund would
return +8%; the low-cost index fund would return +9.8%. Over 20 years (it may
seem like a long period, but it is in fact only about one-half a working
lifetime), the compound return would be +366% for the typical fund versus +549%
for the low-cost index fund. Past returns--absolute and relative alike--cannot,
however, be projected into the future.
Finally, I should note that the Portfolio neither realized nor
distributed capital gains. Our dividend yield at year end was a market-like
2.2% after expenses, or 1.3% after income taxes (assuming the maximum 40%
marginal tax bracket).
TAX-MANAGED CAPITAL
APPRECIATION PORTFOLIO
This Portfolio, too, enjoyed a banner year, turning in a total return of
+34.4%, excellent both in the absolute and relative to the average capital
appreciation mutual fund (+30.3%). However, we fell somewhat short of the
+37.8% return of the Russell 1000 Index, essentially the largest 1000 companies
in the United States. Our goal is to match this return, but to do so by
selecting the lower-yielding growth stocks, in order to minimize the taxable
income you receive.
Not only did the lower-yielding stocks in the 1000 Index lag its
overall return, but our decision to slightly overweight smaller companies
impeded
4
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[FIGURE 6]
<TABLE>
<CAPTION>
Average Annual Total Returns--Periods Ended December 31, 1995
- -------------------------------------------------------------
1 Year Since Inception
- -------------------------------------------------------------
<S> <C> <C>
BALANCED PORTFOLIO* 24.52% 16.85%
AVERAGE BALANCED FUND 25.19 16.89
BALANCED COMPOSITE INDEX** 25.49 17.10
</TABLE>
* Returns exclude the redemption fee of 2% on shares held for less than one
year and 1% for shares held from one to five years.
** Balanced Composite Index is 50% Russell 1000 Stock Index and 50% Lehman
Intermediate-Term Municipal Bond Index.
Note: Past performance is not predictive of future performance.
our relative performance. As I noted in our Annual Report for 1994, we do not
expect the Capital Appreciation Portfolio to match the Russell 1000 Index from
year to year with the same precision that we expect the Growth and Income
Portfolio to match the Standard & Poor's 500 Index. However, we believe that,
over an extended period of time, the total returns of the Capital Appreciation
Portfolio (largely growth oriented) and the Growth and Income Portfolio
(largely value oriented) will be quite comparable. As the chart on the top of
page 2 shows, growth stocks and value stocks have provided comparable returns
so far during the 1990s.
It is also interesting to note that the total returns of both
Portfolios have been nearly identical over the Fund's brief lifetime. The
Capital Appreciation Portfolio did a bit better during our partial 1994 "year,"
and a bit worse during 1995. The net results for the period from September 6,
1994, through December 31, 1995, were +24.7% for the Capital Appreciation
Portfolio and +25.7% for the Growth and Income Portfolio.
Finally, I should note that the Capital Appreciation Portfolio neither
realized nor distributed capital gains. Our dividend yield at year end was a
growth-stock-like 0.9% after expenses, or 0.5% after income taxes (assuming the
maximum 40% marginal tax bracket).
TAX-MANAGED BALANCED PORTFOLIO
This Portfolio is unique in the mutual fund industry. It combines a diversified
list of growth-oriented stocks similar to the Capital Appreciation Portfolio,
in order to minimize taxable dividend income, with a list of high-grade,
intermediate-term tax-exempt bonds. Our goal is to hold approximately 50% of
the total Portfolio in each asset class. However, municipal bonds must comprise
at least 50% of assets (in order to flow interest through to shareholders and
retain its tax-exempt character). So we maintain a small margin of safety by
slightly overweighting our bond position. (It averaged about 52% of assets
during 1995.)
Despite its conservative investment posture, the Balanced Portfolio
provided a total return of +24.5% in 1995. The return on the stock position was
+36.8%, a bit better than the Capital Appreciation Portfolio. There is some
randomness in this comparison, since the Balanced Portfolio holds a smaller
number of issues. We believe that this randomness will "even out" over time,
and that we will track the index more closely as we are able to purchase
additional holdings in the Balanced Portfolio.
The tax-exempt bond portion of the Portfolio tracked its standard (the
Lehman Intermediate-Term Municipal Bond Index) with almost perfect precision.
Given the lower interest rate sensitivity of intermediate-term bonds, our
return of +13.9% was a bit lower than the return on long-term bonds noted
earlier in this letter. Combining the bond and stock positions on a 52/48
basis, the Fund's total
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return of +24.5% closely matched its joint target index. As mentioned earlier,
there are simply no mutual funds that engage in our unique strategy, so peer
group comparisons are not possible. However, given the difficulty experienced
by so many actively managed funds in matching the results of comparable indexes
during 1995, it is virtually certain that our Balanced Portfolio would have
solidly outpaced competitive norms.
Finally, I should note that the Portfolio neither realized nor
distributed capital gains. The interest income was 100% tax-exempt and
represented 5.2% of our average bond assets. The dividend yield on the total
portfolio at year end was 2.7%, or 2.6% after income taxes (assuming the
maximum 40% marginal tax bracket).
TAX COMMENTARY
After nearly a year and one-half of operations, Vanguard Tax-Managed Fund has
yet to draw, as far as I know, a single competitor. However, it seems likely
that, with 1995's mutual fund results now in-- reflecting large realized
capital gains--mutual fund investors will give more weight to after-tax
returns. By our estimation, the average general equity fund made sufficiently
substantial taxable capital gains distributions to reduce its pre-tax return
from +31.1% to an after-tax return of roughly +26.6%. Consistent with our
objective, the Tax-Managed Fund realized no capital gains and therefore
distributed none.
That said, in a year as profitable for stocks and bonds as 1995,
significant unrealized gains are inevitably generated. At year end, the
Tax-Managed Fund's Portfolios had net unrealized gains as follows: Growth and
Income $2.24 per share; Capital Appreciation $2.22 per share; and Balanced,
$1.51 per share. So, the respective Portfolios' net asset values included 17%,
17%, and 13% of unrealized appreciation. (Interestingly, most mutual funds bury
these figures deep in their financial statements, and in small print.) We
cannot guarantee that the unrealized capital appreciation we have been
fortunate enough to enjoy will remain undistributed. However, our low portfolio
turnover has measured up to our early expectations. Given their passively
managed index character, our three Portfolios held portfolio turnover to 6% of
assets in 1995, compared to an astonishing turnover of 78% for the average
general equity mutual fund. As long as the indexes we track continue to have
small changes in their composition--a virtual certainty--there is every reason
for our turnover rates to remain at rock-bottom levels.
To be sure, a large spurt of redemptions by shareholders could force
us to sell stocks, and hence to realize a portion of these gains. However, we
designed our strategy to minimize the participation of short-term investors and
"market timers" in the Fund by imposing a redemption fee of 2% on shares held
for less than one year and 1% for shares held from one to five years. This
charge has had two effects: (1) short-term investors have not joined the Fund
(our 1995 rate of redemptions was less than 1% of total assets, compared to an
astonishing 16% for the average equity fund); and (2) by precluding short-term
investors from joining the Fund, we have experienced relatively modest asset
growth. That's fine with us; we're in no hurry to make any new Vanguard Fund
grow rapidly. Vanguard Tax-Managed Fund assets totaled almost $400 million at
the close of 1995, more than enough to ensure broad diversification and low
cost, two fundamentals of the Vanguard philosophy.
IN SUMMARY
Index investing has received a great deal of attention during 1995. Countless
articles in the general media and in academic journals have endorsed its
fundamental merits and its tax-effectiveness. The good news is that they're
right. The bad news is that too much of this attention has focused on the
extraordinarily superior results achieved by the Standard & Poor's 500 Index
strategy in a single year, rather than as a sound long-term strategy.
If you are aboard for the long-term, we welcome you, for we believe
you are following a prudent course--very broad diversification at low cost (and
without sales loads). But please realize
6
<PAGE> 9
that the stock market's generosity in 1995 will not frequently recur, and that
the superiority of the index strategy will rarely be of such large dimension.
That said, 1995 was an extraordinarily bountiful year for the
shareholders of all three Portfolios of Vanguard Tax-Managed Fund. We should
all take (only) a moment to bask in the light of its generous rewards. But we
should also recognize that the financial markets are never a "one-way street,"
and that the risks that exist today in the stock market may well come home to
roost in 1996 and erode our 1995 bounty. Put even more bluntly, shareholders in
our Growth and Income and Capital Appreciation Portfolios, enjoyed an
enhancement of some +35% in value during the year, and shareholders in our much
more conservative Balanced Portfolio, enjoyed a return of about +25%. With
these gains now behind us, even a significant market decline seems unlikely to
take shareholders back to where we were--presumably with satisfaction--just one
year ago.
Under these circumstances, what course of action should the Fund's
shareholders follow? In our Annual Report one year ago, under very different
circumstances, I urged you to "stay the course," despite the lackluster returns
provided by equities during the year. You should recognize that, despite
today's short-term risks of investing, the biggest long-term risks are: (1)
failing to invest in stocks at all; and (2) following an erratic and
ever-changing course. For our part, we intend to manage the Portfolios of
Vanguard Tax-Managed Fund under the same time-tested indexing strategies that
have proved so successful for nearly a score of years. "Stay the course"
proved wise counsel a year ago; I reiterate it today.
Sincerely,
/s/ JOHN C. BOGLE
- -----------------
John C. Bogle
Chairman of the Board
February 6, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Net Asset Value Per Share
-------------------------------------- Dividends Per Share From
Portfolio December 31, 1994 December 31, 1995 Net Investment Income
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH AND INCOME . . . . . . . . . . . $9.77 $13.16 $.25
CAPITAL APPRECIATION . . . . . . . . . 9.95 13.28 .09
BALANCED . . . . . . . . . . . . . . . 9.79 11.85 .32
- -----------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS QUOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN ACCORDANCE
WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS
(PERIODS ENDED DECEMBER 31, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
---------------------------------
INCEPTION TOTAL CAPITAL INCOME
TAX-MANAGED PORTFOLIO DATE 1 YEAR RETURN RETURN RETURN
- ---------------------- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
GROWTH AND INCOME* 9/6/94 +37.53% +25.71% +22.89% +2.82%
CAPITAL APPRECIATION* 9/6/94 +34.38 +24.66 +23.64 +1.02
BALANCED* 9/6/94 +24.52 +16.85 +13.57 +3.28
</TABLE>
* RETURNS EXCLUDE THE REDEMPTION FEE OF 2% ON SHARES HELD FOR LESS THAN ONE
YEAR AND 1% FOR SHARES HELD FROM ONE TO FIVE YEARS.
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
8
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STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS
December 31, 1995
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.0%)
- --------------------------------------------------------------------------------
General Electric Co. 36,836 $ 2,652
AT&T Corp. 35,131 2,275
Exxon Corp. 27,337 2,190
The Coca-Cola Co. 27,613 2,050
Merck & Co., Inc. 27,279 1,794
Philip Morris Cos., Inc. 18,493 1,674
Royal Dutch Petroleum Co. ADR 11,829 1,669
Procter & Gamble Co. 15,134 1,256
Johnson & Johnson 14,294 1,224
* Microsoft Corp. 13,023 1,143
Mobil Corp. 8,759 981
PepsiCo, Inc. 17,326 968
American International Group, Inc. 10,426 964
Bristol-Myers Squibb Co. 11,144 957
BellSouth Corp. 21,886 952
Hewlett-Packard Co. 11,326 949
GTE Corp. 21,364 940
Pfizer, Inc. 13,990 881
General Motors Corp. 16,441 869
E.I. du Pont de Nemours & Co. 12,216 854
Amoco Corp. 10,794 776
SBC Communications Inc. 13,448 773
Federal National Mortgage Assn. 6,033 749
Chevron Corp. 14,224 747
International Business
Machines Corp. 7,984 733
Abbott Laboratories, Inc. 17,397 726
Ameritech Corp. 12,165 718
Intel Corp. 12,292 698
Ford Motor Co. 23,718 688
Eli Lilly & Co. 12,198 686
McDonald's Corp. 15,115 682
The Walt Disney Co. 11,432 674
American Home Products Corp. 6,859 665
Bell Atlantic Corp. 9,588 641
Minnesota Mining &
Manufacturing Co. 9,345 619
Citicorp 9,119 613
The Boeing Co. 7,562 593
BankAmerica Corp. 7,957 515
Kimberly-Clark Corp. 6,172 511
Gillette Co. 9,708 506
Eastman Kodak Co. 7,528 504
Home Depot, Inc. 10,529 504
NYNEX Corp. 9,116 492
Unilever NV ADR 3,446 485
Columbia/HCA Healthcare Corp. 9,424 478
Chrysler Corp. 8,365 463
Texaco Inc. 5,784 454
* Cisco Systems, Inc. 6,055 452
Schering-Plough Corp. 8,118 444
American Express Co. 10,688 442
Travelers Group Inc. 7,005 440
Pharmacia & Upjohn, Inc. 10,871 421
Capital Cities/ABC, Inc. 3,323 410
Allstate Corp. 9,890 407
NationsBank, Inc. 5,820 405
Dow Chemical Co. 5,740 404
* Oracle Corp. 9,502 401
Emerson Electric Co. 4,866 398
MCI Communications Corp. 15,012 392
Atlantic Richfield Co. 3,446 382
Kellogg Co. 4,868 376
U S WEST Communications Group 10,446 373
Anheuser-Busch Co., Inc. 5,507 368
Schlumberger Ltd. 5,233 362
Southern Co. 14,712 362
* Viacom International Class B 7,624 361
Lockheed Martin Corp. 4,488 355
Motorola, Inc. 6,101 348
Sara Lee Corp. 10,732 342
Sears, Roebuck & Co. 8,699 339
Federal Home Loan Mortgage Corp. 4,015 335
J.P. Morgan & Co., Inc. 4,160 334
Campbell Soup Co. 5,556 333
* Amgen, Inc. 5,588 331
Banc One Corp. 8,687 328
Chemical Banking Corp. 5,561 327
Time Warner, Inc. 8,591 325
WMX Technologies Inc. 10,850 324
First Data Corp. 4,820 322
Sprint Corp. 7,772 310
Xerox Corp. 2,255 309
Union Pacific Corp. 4,600 304
Pacific Telesis Group 8,938 301
Computer Associates
International, Inc. 5,241 298
AlliedSignal Inc. 6,271 298
Monsanto Co. 2,405 295
* AirTouch Communications 10,381 293
General Re Corp. 1,887 292
Warner-Lambert Co. 2,956 287
First Chicago NBD Corp. 7,134 282
Medtronic, Inc. 4,984 278
H.J. Heinz Co. 8,188 271
* Tele-Communications, Inc.
Class A 13,629 271
The Seagram Co. Ltd. 7,772 269
* COMPAQ Computer Corp. 5,560 267
PNC Bank Corp. 8,101 261
Baxter International, Inc. 6,144 257
</TABLE>
9
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Raytheon Co. 5,422 $ 256
Pacific Gas & Electric Co. 8,958 254
Caterpillar, Inc. 4,195 246
Norwest Corp. 7,387 244
Northern Telecom Ltd. 5,657 243
Burlington Northern Santa Fe Corp. 3,109 243
Rockwell International Corp. 4,553 241
United Technologies Corp. 2,533 240
United Healthcare Corp. 3,664 240
May Department Stores Co. 5,647 238
The Dun & Bradstreet Corp. 3,580 232
Nike, Inc. Class B 3,306 230
Wal-Mart Stores, Inc. 10,243 229
The Chase Manhattan Corp. 3,730 226
J.C. Penney Co., Inc. 4,706 224
Automatic Data Processing, Inc. 2,984 221
McDonnell Douglas Corp. 2,402 221
Norfolk Southern Corp. 2,773 220
First Interstate Bancorp. 1,583 216
First Union Corp. 3,881 216
Enron Corp. 5,650 215
Fleet Financial Group, Inc. 5,278 215
Wells Fargo & Co. 988 213
Aluminum Co. of America 4,004 212
Colgate-Palmolive Co. 3,003 211
Duke Power Co. 4,399 208
ConAgra, Inc. 5,046 208
CPC International, Inc. 3,011 207
The Bank of New York Co., Inc. 4,200 205
* U S WEST Media Group 10,746 204
Loews Corp. 2,600 204
* Digital Equipment Corp. 3,171 203
CSX Corp. 4,414 201
Deere & Co. 5,679 200
International Paper Co. 5,246 199
Archer-Daniels-Midland Co. 11,033 198
Barrick Gold Corp. 7,379 195
PPG Industries, Inc. 4,225 193
General Mills, Inc. 3,341 193
* Sun Microsystems, Inc. 4,224 193
FPL Group, Inc. 4,149 192
Texas Utilities Co. 4,671 192
Albertson's, Inc. 5,765 189
Merrill Lynch & Co., Inc. 3,696 189
* Boston Scientific Corp. 3,841 188
Tenneco, Inc. 3,777 187
Phillips Petroleum Co. 5,492 187
KeyCorp 5,024 182
AMP, Inc. 4,740 182
Weyerhaeuser Co. 4,201 182
Aetna Life & Casualty Co. 2,583 179
Gannett Co., Inc. 2,902 178
Dean Witter Discover & Co. 3,782 178
The Chubb Corp. 1,799 174
American Brands, Inc. 3,888 173
CIGNA Corp. 1,646 170
Consolidated Edison Co. of
New York, Inc. 5,300 170
Public Service Enterprise
Group Inc. 5,535 169
SunTrust Banks, Inc. 2,418 166
Wachovia Corp. 3,585 164
SCEcorp 9,228 164
Pitney Bowes, Inc. 3,440 162
Mellon Bank Corp. 2,989 161
American Electric Power Co., Inc. 3,930 159
* Applied Materials, Inc. 4,000 157
Corning, Inc. 4,813 154
Alcan Aluminium Ltd. 4,865 151
Walgreen Co. 5,040 150
Westinghouse Electric Corp. 9,006 148
American General Corp. 4,231 147
Dominion Resources, Inc. 3,574 147
Marsh & McLennan Cos., Inc. 1,652 147
Unocal Corp. 5,023 146
Ralston-Purina Group 2,342 146
U.S. Healthcare, Inc. 3,140 146
Unicom Corp. 4,429 145
Georgia-Pacific Corp. 2,108 145
Entergy Corp. 4,886 143
Houston Industries, Inc. 5,892 143
Mattel, Inc. 4,636 142
The Goodyear Tire & Rubber Co. 3,116 141
Illinois Tool Works, Inc. 2,386 141
* CUC International, Inc. 4,100 140
Occidental Petroleum Corp. 6,545 140
First Bank System, Inc. 2,800 139
ITT Corp. 2,601 138
PECO Energy Corp. 4,556 137
W.R. Grace & Co. 2,320 137
UST Inc. 4,099 137
Air Products & Chemicals, Inc. 2,590 137
Texas Instruments, Inc. 2,626 136
The Limited, Inc. 7,539 131
Hercules, Inc. 2,317 131
The Gap, Inc. 3,096 130
Morgan Stanley Group, Inc. 1,600 129
Honeywell, Inc. 2,646 129
Browning-Ferris Industries, Inc. 4,358 128
R.R. Donnelley & Sons Co. 3,241 128
Loral Corp. 3,566 126
First Fidelity Bancorp. 1,673 126
Carolina Power & Light Co. 3,648 126
Wrigley (Wm.) Jr. Co. 2,397 126
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Morton International, Inc. 3,500 $ 125
U.S. Bancorp 3,734 125
Sysco Corp. 3,829 124
* Toys R Us, Inc. 5,691 124
PacifiCorp 5,762 122
* Cabletron Systems, Inc. 1,500 122
Halliburton Co. 2,390 121
Boatmen's Bancshares, Inc. 2,948 120
Barnett Banks, Inc. 2,032 120
Nucor Corp. 2,097 120
Household International, Inc. 2,022 119
Winn Dixie Stores, Inc. 3,208 118
* ITT Hartford Group, Inc. 2,401 116
Placer Dome Group, Inc. 4,812 116
* AMR Corp. 1,559 116
Textron, Inc. 1,702 115
USX-Marathon Group 5,878 115
MBNA Corp. 3,107 115
Tyco International Ltd. 3,216 115
International Flavors &
Fragrances, Inc. 2,382 114
Lincoln National Corp. 2,121 114
Central & South West Corp. 4,045 113
* Federated Department Stores 4,100 113
Transamerica Corp. 1,541 112
ALLTEL Corp. 3,800 112
Bankers Trust New York Corp. 1,672 111
Fluor Corp. 1,680 111
Hershey Foods Corp. 1,699 110
Conrail, Inc. 1,572 110
CoreStates Financial Corp. 2,891 110
Bank of Boston Corp. 2,360 109
Avon Products, Inc. 1,446 109
Lowes Cos., Inc. 3,235 108
Dayton-Hudson Corp. 1,444 108
Alco Standard Corp. 2,366 108
Tribune Co. 1,729 106
Union Carbide Corp. 2,815 106
Eastman Chemical 1,682 105
* Novell, Inc. 7,430 105
Burlington Resources, Inc. 2,643 104
Genuine Parts Co. 2,525 104
Micron Technology Inc. 2,600 103
National City Corp. 3,100 103
TRW, Inc. 1,320 102
The McGraw-Hill Cos. 1,169 102
* Silicon Graphics, Inc. 3,700 102
Amerada Hess Corp. 1,917 102
Masco Corp. 3,234 101
Becton, Dickinson & Co. 1,348 101
* Tenet Healthcare Corp. 4,866 101
DTE Energy Co. 2,902 100
Pioneer Hi Bred International 1,798 100
CINergy Corp. 3,206 98
* 3 Com Corp. 2,100 98
Marriott International 2,534 97
Great Lakes Chemical Corp. 1,343 97
Praxair, Inc. 2,860 96
General Dynamics Corp. 1,616 96
* Federal Express Corp. 1,290 95
The Quaker Oats Co. 2,756 95
Williams Cos., Inc. 2,154 95
St. Paul Cos., Inc. 1,689 94
SAFECO Corp. 2,720 94
Ingersoll-Rand Co. 2,660 93
* The Kroger Co. 2,469 93
Dresser Industries, Inc. 3,798 93
Comerica, Inc. 2,300 92
Rohm & Haas Co. 1,431 92
Service Corp. International 2,090 92
Providian Corp. 2,243 91
Reynolds Metals Co. 1,606 91
Comcast Corp. Class A Special 4,996 91
Newmont Mining Corp. 1,991 90
Phelps Dodge Corp. 1,441 90
Union Electric Co. 2,148 90
* Computer Sciences Corp. 1,272 89
Eaton Corp. 1,659 89
* Humana, Inc. 3,200 88
* DSC Communications Corp. 2,374 88
PP&L Resources Inc. 3,500 88
Ohio Edison Co. 3,721 87
Kerr-McGee Corp. 1,376 87
Consolidated Natural Gas Co. 1,917 87
UNUM Corp. 1,559 86
Apple Computer, Inc. 2,691 85
Dow Jones & Co., Inc. 2,140 85
* LSI Logic Corp. 2,600 85
General Public Utilities Corp. 2,500 85
Champion International Corp. 2,017 85
Dover Corp. 2,290 84
Panhandle Eastern Corp. 3,009 84
H & R Block, Inc. 2,062 84
Rubbermaid, Inc. 3,247 83
Baltimore Gas & Electric Co. 2,898 83
Freeport-McMoRan Copper &
Gold Inc. Class B 2,900 82
Newell Co. 3,138 81
Cooper Industries, Inc. 2,195 81
American Stores Co. 2,986 80
Inco Ltd. 2,397 80
Delta Air Lines, Inc. 1,072 79
The Clorox Co. 1,085 78
W.W. Grainger, Inc. 1,173 78
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Whirlpool Corp. 1,453 $ 77
Coastal Corp. 2,057 77
Interpublic Group of Cos., Inc. 1,757 76
Times Mirror Co. Class A 2,234 76
* Crown Cork & Seal Co., Inc. 1,803 75
VF Corp. 1,421 75
Salomon, Inc. 2,077 74
The Mead Corp. 1,402 73
Sherwin-Williams Co. 1,797 73
Great Western Financial Corp. 2,853 73
Baker Hughes, Inc. 2,979 73
* Price/Costco Inc. 4,726 72
Southwest Airlines Co. 3,087 72
* Tellabs, Inc. 1,900 70
Northern States Power Co. 1,428 70
Union Camp Corp. 1,438 68
Republic New York Corp. 1,100 68
* St. Jude Medical, Inc. 1,583 68
Jefferson-Pilot Corp. 1,454 68
Nordstrom, Inc. 1,674 67
Golden West Financial Corp. 1,218 67
Engelhard Corp. 3,090 67
Willamette Industries, Inc. 1,200 67
Wendy's International, Inc. 3,151 67
Laidlaw Inc. Class B 6,500 67
Melville Corp. 2,159 66
Liz Claiborne, Inc. 2,369 66
Torchmark Corp. 1,449 66
Sonat, Inc. 1,797 64
Dana Corp. 2,137 63
Dillard Department Stores Class A 2,186 62
Westvaco Corp. 2,243 62
Northrop Grumman Corp. 968 62
Rite Aid Corp. 1,801 62
Pall Corp. 2,295 62
Premark International, Inc. 1,217 62
Knight-Ridder, Inc. 985 62
Harcourt General, Inc. 1,466 61
New York Times Co. Class A 2,065 61
H.F. Ahmanson & Co. 2,299 61
The Dial Corp. 2,014 60
Black & Decker Corp. 1,686 59
Hilton Hotels Corp. 964 59
Hasbro, Inc. 1,900 59
Tandy Corp. 1,416 59
* Western Atlas Inc. 1,160 59
ITT Industries, Inc. 2,401 58
Johnson Controls, Inc. 838 58
Parker Hannifin Corp. 1,649 56
Circuit City Stores, Inc. 2,028 56
* National Semiconductor Corp. 2,509 56
* Ceridian Corp. 1,351 56
Louisiana-Pacific Corp. 2,276 55
Avery Dennison Corp. 1,092 55
* Harrah's Entertainment, Inc. 2,249 55
Sigma Aldrich Corp. 1,100 54
Raychem Corp. 946 54
Mallinckrodt Group, Inc. 1,462 53
Temple-Inland Inc. 1,189 52
Brown-Forman Corp. Class B 1,435 52
Deluxe Corp. 1,782 52
USX-U.S. Steel Group 1,657 51
Beneficial Corp. 1,078 50
Ashland Inc. 1,406 49
The Stanley Works 953 49
Federal Paper Board Co., Inc. 944 49
* FMC Corp. 723 49
* Columbia Gas Systems, Inc. 1,073 47
Cooper Tire & Rubber Co. 1,885 46
Nalco Chemical Co. 1,535 46
Whitman Corp. 1,960 46
Polaroid Corp. 960 45
Armstrong World Industries Inc. 727 45
Pacific Enterprises 1,587 45
Cyprus Amax Minerals Co. 1,715 45
Pennzoil Co. 1,057 45
* Biomet, Inc. 2,485 44
* ALZA Corp. 1,779 44
Brunswick Corp. 1,826 44
Maytag Corp. 2,164 44
Bausch & Lomb, Inc. 1,102 44
Homestake Mining Co. 2,768 43
James River Corp. 1,779 43
Allergan, Inc. 1,318 43
American Greetings Corp. Class A 1,547 43
* Owens-Corning Fiberglas Corp. 947 43
Manor Care Inc. 1,213 42
Ecolab, Inc. 1,415 42
SuperValu Inc. 1,346 42
Sun Co., Inc. 1,545 42
Reebok International Ltd. 1,482 42
C.R. Bard, Inc. 1,277 41
Harris Corp. 736 40
Echlin, Inc. 1,101 40
Ogden Corp. 1,848 40
Snap-On Inc. 845 38
Giant Food, Inc. Class A 1,204 38
Darden Restaurants Inc. 3,141 37
USF&G Corp. 2,191 37
Millipore Corp. 894 37
Santa Fe Pacific Gold Corp. 3,019 37
Freeport-McMoRan Copper &
Gold Inc. Class A 1,300 36
Ryder System, Inc. 1,464 36
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Harnischfeger Industries Inc. 1,087 $ 36
Moore Corp. Ltd. 1,940 36
Autodesk, Inc. 1,060 36
Caliber System Inc. 730 36
Boise Cascade Corp. 1,030 36
Worthington Industries, Inc. 1,702 35
* Varity Corp. 950 35
General Signal Corp. 1,062 34
* Fruit of the Loom, Inc. 1,400 34
Mercantile Stores Co., Inc. 726 34
The BF Goodrich Co. 487 33
* Tandem Computers, Inc. 3,089 33
* Andrew Corp. 827 32
Advanced Micro Devices, Inc. 1,917 32
Cummins Engine Co., Inc. 841 31
Pep Boys (Manny, Moe & Jack) 1,208 31
Foster Wheeler Corp. 722 31
Paccar, Inc. 730 31
Woolworth Corp. 2,350 31
Teledyne Inc. 1,189 30
* Bethlehem Steel Corp. 2,163 30
Tektronix, Inc. 603 30
Pittston Services Group 941 30
Inland Steel Industries, Inc. 1,141 29
Perkin-Elmer Corp. 750 28
National Service Industries, Inc. 869 28
NICOR, Inc. 980 27
Thomas & Betts Corp. 364 27
Niagara Mohawk Power Corp. 2,787 27
Louisiana Land & Exploration Co. 613 26
Peoples Energy Corp. 819 26
Stone Container Corp. 1,808 26
Briggs & Stratton Corp. 598 26
TJX Cos., Inc. 1,351 26
Meredith Corp. 598 25
Bemis Co., Inc. 975 25
Consolidated Freightways, Inc. 922 24
* King World Productions, Inc. 627 24
Potlatch Corp. 600 24
ASARCO, Inc. 742 24
United States Surgical Corp. 1,092 23
Russell Corp. 841 23
* Oryx Energy Co. 1,731 23
The Timkin Co. 605 23
Echo Bay Mines Ltd. 2,182 23
Fleetwood Enterprises, Inc. 856 22
Alexander & Alexander
Services, Inc. 1,149 22
McDermott International, Inc. 982 22
EG & G, Inc. 890 22
ENSERCH Corp. 1,327 22
* Amdahl Corp. 2,493 21
Shared Medical Systems Corp. 376 20
Trinova Corp. 697 20
* Navistar International Corp. 1,856 19
Ball Corp. 701 19
Fleming Cos., Inc. 926 19
* Beverly Enterprises Inc. 1,783 19
Scientific-Atlanta, Inc. 1,256 19
NorAm Energy Corp. 2,118 19
Crane Co. 502 19
* Unisys Corp. 3,181 18
Longs Drug Stores, Inc. 371 18
Centex Corp. 508 18
* USAir Group, Inc. 1,302 17
Alberto-Culver Co. Class B 493 17
USLIFE Corp. 567 17
* Rowan Cos., Inc. 1,686 17
Eastern Enterprises 472 17
Pulte Corp. 494 17
Adolph Coors Co. Class B 728 16
Jostens Inc. 655 16
* Intergraph Corp. 951 15
Springs Industries Inc. Class A 360 15
* Bally Entertainment Corp. 1,060 15
Great Atlantic & Pacific
Tea Co., Inc. 630 14
Helmerich & Payne, Inc. 484 14
Safety-Kleen Corp. 897 14
* Santa Fe Energy Resources, Inc. 1,407 14
ONEOK, Inc. 591 14
Cincinnati Milacron, Inc. 515 14
Luby's Cafeterias, Inc. 588 13
NACCO Industries, Inc. Class A 231 13
* Data General Corp. 921 13
* Cray Research, Inc. 489 12
Community Psychiatric Centers 948 12
Giddings & Lewis, Inc. 714 12
Outboard Marine Corp. 568 12
* Armco, Inc. 1,855 11
Kaufman & Broad Home Corp. 711 11
John H. Harland Co. 504 11
* Ryan's Family Steak Houses, Inc. 1,478 10
* Shoney's Inc. 940 10
Yellow Corp. 594 7
Stride Rite Corp. 971 7
Brown Group, Inc. 460 7
* Cox Communications Class A 304 6
Charming Shoppes, Inc. 1,943 5
* Viacom International Class A 100 5
* Zenith Electronics Corp. 202 1
Zurn Industries, Inc. 42 1
Handleman Co. 114 1
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $80,595) 97,339
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GROWTH AND INCOME Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (2.2%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.89%, 1/2/96
(Cost $2,140) $2,140 $ 2,140
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.2%)
(Cost $82,735) 99,479
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.2%)
- --------------------------------------------------------------------------------
Other Assets--Note B 1,154
Liabilities (2,296)
--------
(1,142)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 7,472,825 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $98,337
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $13.16
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1995,
NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
-------- --------
<S> <C> <C>
PAID IN CAPITAL $81,921 $10.96
OVERDISTRIBUTED NET
INVESTMENT INCOME (29) --
ACCUMULATED NET
REALIZED LOSSES--NOTE C (299) (.04)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 16,744 2.24
- --------------------------------------------------------------------------------
NET ASSETS $98,337 $13.16
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.8%)
- --------------------------------------------------------------------------------
* ADC Telecommunications, Inc. 9,200 $ 335
* AES Corp. 14,600 349
AFLAC, Inc. 7,400 321
AGCO Corp. 6,700 342
* AMR Corp. 7,400 549
AT&T Corp. 84,500 5,471
Abbott Laboratories, Inc. 45,900 1,916
* Adaptec, Inc. 8,400 344
Adobe Systems, Inc. 6,900 429
Advanta Corp. Class A 7,000 265
Airborne Freight Corp. 4,200 112
* Airgas, Inc. 11,300 376
* AirTouch Communications 34,700 980
Albemarle Corp. 14,400 279
Albertson's, Inc. 12,800 421
Alco Standard Corp. 10,000 456
Alexander & Alexander
Services, Inc. 10,900 207
* Alleghany Corp. 1,416 280
AlliedSignal Inc. 19,900 945
Allmerica Property & Casualty Cos. 12,000 324
* Altera Corp. 6,900 343
* Alumax, Inc. 9,100 279
Aluminum Co. of America 11,600 613
* ALZA Corp. 14,200 351
AMBAC, Inc. 5,400 253
* Amdahl Corp. 33,100 281
Amerada Hess Corp. 8,500 450
* America Online, Inc. 8,600 321
American International
Group, Inc. 22,950 2,123
American Re Corp. 7,300 298
* American Standard Cos., Inc. 11,700 328
* Amgen, Inc. 18,100 1,073
Amoco Corp. 19,900 1,430
* Amphenol Corp. 14,400 349
Anadarko Petroleum Corp. 7,600 411
* Analog Devices, Inc. 11,100 393
* Andrew Corp. 8,350 322
* Anixter International Inc. 15,900 296
Apache Corp. 10,000 295
Apple Computer, Inc. 10,700 340
* Applied Materials, Inc. 14,400 566
Archer-Daniels-Midland Co. 40,470 728
* Arrow Electronics, Inc. 7,700 332
ASARCO, Inc. 7,200 230
* Ascend Communications, Inc. 6,000 487
* Associated Group, Inc. 875 16
* Associated Group, Inc. Class B 875 16
Atlantic Southeast Airlines Inc. 4,600 99
* Atmel Corp. 14,200 316
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Autodesk, Inc. 7,300 $ 250
Automatic Data Processing, Inc. 10,300 765
* AutoZone, Inc. 15,600 450
BHC Communications, Inc. Class A 3,200 302
* BMC Software, Inc. 9,600 409
Bandag, Inc. 3,700 200
BankAmerica Corp. 22,500 1,457
* Barnes & Noble Inc. 8,900 258
Battle Mountain Gold Co. Class A 24,500 205
* Bay Networks 15,993 657
Beckman Instruments 4,000 141
Becton, Dickinson & Co. 5,700 427
* Bed Bath & Beyond, Inc. 9,600 372
BellSouth Corp. 56,500 2,458
A. H. Belo Corp. Class A 7,600 264
* Bethlehem Steel Corp. 22,600 316
* Beverly Enterprises Inc. 29,000 308
* Biogen, Inc. 5,500 337
* Biomet, Inc. 19,400 345
Bob Evans Farms, Inc. 900 17
The Boeing Co. 21,100 1,654
* Boston Scientific Corp. 10,700 524
* Boyd Gaming Corp. 22,900 266
Breed Technological Inc. 4,400 81
* Brinker International, Inc. 20,700 313
* Broderbund Software, Inc. 5,100 310
* Burlington Coat Factory
Warehouse Corp. 14,000 143
* Burlington Industries 13,200 173
Burlington Northern Santa Fe Corp. 10,131 790
Burlington Resources, Inc. 7,900 310
* CNA Financial Corp. 2,700 306
* CUC International, Inc. 16,800 573
* Cabletron Systems, Inc. 6,100 494
* Cablevision Systems Corp. Class B 5,200 282
* Cadence Design Systems, Inc. 11,700 491
* California Energy Co. 14,700 287
Callaway Golf Co. 6,800 154
Capital Cities/ABC, Inc. 9,000 1,110
Capital One Financial Corp. 10,800 258
Cardinal Health, Inc. 7,100 389
Caremark International, Inc. 18,700 339
Cascade Communications Corp. 6,300 536
* Castle & Cooke, Inc. 2,400 40
Caterpillar, Inc. 9,900 582
Centex Corp. 9,200 320
* Century Communications Corp.
Class A 19,400 155
Century Telephone
Enterprises, Inc. 6,800 216
* Ceridian Corp. 8,000 330
Cerner Corp. 11,100 228
Champion International Corp. 9,700 407
* Cheyenne Software, Inc. 13,500 353
* Chiron Corp. 3,935 435
* Chris-Craft Industries, Inc. 6,696 290
Chrysler Corp. 8,643 479
CINergy Corp. 5,700 175
Cintas Corp. 6,800 304
Circuit City Stores, Inc. 13,700 378
* Circus Circus Enterprises Inc. 14,500 404
* Cirrus Logic 12,600 250
* Cisco Systems, Inc. 17,300 1,292
Citicorp 25,400 1,708
Clayton Homes Inc. 15,594 333
Coastal Corp. 9,400 350
The Coca-Cola Co. 66,700 4,952
Coca-Cola Enterprises, Inc. 12,100 324
* Coleman Inc. 8,600 302
* Coltec Inc. 24,900 289
* Columbia Gas Systems, Inc. 8,700 382
Columbia/HCA Healthcare Corp. 27,414 1,391
Comcast Corp. Class A Special 26,900 489
* COMPAQ Computer Corp. 18,700 898
Computer Associates
International, Inc. 13,650 776
* Computer Sciences Corp. 6,500 457
* Compuware Corp. 13,400 251
* Conner Peripherals, Inc. 17,500 368
Conseco Co., Inc. 5,500 344
Consolidated Freightways, Inc. 4,200 111
* Consolidated Stores, Inc. 12,300 268
Cooper Tire & Rubber Co. 9,100 224
* Cordis Corp. 3,900 392
* Corporate Express, Inc. 11,900 357
* Cox Communications Class A 14,900 291
Cracker Barrel Old Country
Stores, Inc. 16,100 279
* Crown Cork & Seal Co., Inc. 10,100 422
Cummins Engine Co., Inc. 1,000 37
* DSC Communications Corp. 13,000 481
Danaher Corp. 9,500 302
Darden Restaurants Inc. 30,200 359
Dean Witter Discover & Co. 12,500 588
* Dell Computer 10,100 352
Delta Air Lines, Inc. 5,800 428
Dentsply International 4,500 180
* Department 56 Inc. 7,500 288
* Digital Equipment Corp. 11,900 763
Dillard Department Stores Class A 13,900 396
* Dime Bancorp, Inc. 26,500 308
The Walt Disney Co. 30,900 1,823
Dole Food Co. 7,200 252
Dollar General Corp. 8,850 184
E.I. du Pont de Nemours & Co. 31,800 2,222
Duracell International, Inc. 1,400 72
</TABLE>
15
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* EMC Corp. 24,900 $ 383
* ENSCO International, Inc. 19,600 451
* Eckerd Corp. 7,400 330
* Electronic Arts 10,500 275
Emerson Electric Co. 10,400 850
Enron Oil & Gas Co. 13,100 314
ENSERCH Corp. 11,800 192
The Equitable Cos. 15,000 360
Equitable of Iowa Co. 5,100 164
Everen Capital Corp. 23 1
Exxon Corp. 66,000 5,288
* FHP International Corp. 12,400 350
* FMC Corp. 4,900 331
Fastenal Co. 2,100 89
* Federal Express Corp. 6,100 451
Federal Home Loan Mortgage Corp. 12,300 1,027
Federal National Mortgage Assn. 16,000 1,986
* Federated Department Stores 19,100 525
Fingerhut Co. 9,700 135
First Brands Corp. 4,600 219
First Data Corp. 16,681 1,116
First Empire State Corp. 1,100 240
First USA Inc. 8,500 377
* FIserv, Inc. 11,000 329
FlightSafety International, Inc. 3,500 176
Fluor Corp. 8,400 554
Ford Motor Co. 20,200 586
* Forest Laboratories, Inc. 9,200 416
* Foundation Health Co. 8,500 366
Franklin Resources Corp. 7,700 388
Freeport-McMoRan Copper &
Gold Inc. Class A 138 4
Freeport-McMoRan Copper &
Gold Inc. Class B 11,087 312
Freeport-McMoRan, Inc. 8,166 302
Frontier Corp. 11,400 342
* Fruit of the Loom, Inc. 17,200 419
GEICO Corp. 2,100 147
The Gap, Inc. 10,500 441
Gartner Group, Inc. 8,600 412
* Gateway 2000 Inc. 10,100 247
Gaylord Entertainment Class A 9,070 252
General Electric Co. 88,700 6,386
* General Instrument 18,300 428
General Motors Corp. 43,000 2,274
General Motors Corp. Class E 20,600 1,071
* General Nutrition Cos., Inc. 15,600 363
General Re Corp. 5,900 915
* Genzyme Corp. 5,700 355
* Genzyme Corp. Tissue Repair 391 6
Georgia Gulf Corp. 7,900 243
Giddings & Lewis, Inc. 7,000 115
Gillette Co. 27,300 1,423
* Glenayre Technologies, Inc. 6,450 402
Golden West Financial Corp. 8,200 453
W.W. Grainger, Inc. 4,100 272
Great Atlantic & Pacific
Tea Co., Inc. 8,200 189
Great Lakes Chemical Corp. 6,600 475
Green Tree Financial Corp. 14,200 375
* Gtech Holdings Corp. 10,700 278
Guidant Corp. 11,200 473
HBO and Co. 7,700 589
* HFS Inc. 7,800 638
Harley-Davidson, Inc. 11,900 342
* Harrah's Entertainment, Inc. 15,400 373
Hasbro, Inc. 10,100 313
* Health Management Associates
Class A 13,050 341
* Health Systems 9,900 318
Healthcare & Retirement Corp. 8,400 294
* HealthCare Compare Corp. 8,200 358
* Healthsource, Inc. 13,400 482
* HEALTHSOUTH Corp. 13,300 387
Heilig-Meyers Co. 8,900 164
Hewlett-Packard Co. 22,900 1,918
Home Depot, Inc. 29,600 1,417
* Home Shopping Network, Inc. 12,500 113
Homestake Mining Co. 14,400 225
Horace Mann Educators Corp. 3,000 94
* Host Marriott 27,300 362
* Humana, Inc. 18,700 512
J.B. Hunt Transport Services, Inc. 10,100 170
IBP, Inc. 7,500 379
IMC Global Inc. 10,200 417
* ITT Corp. 7,800 413
* ITT Hartford Group, Inc. 7,800 377
ITT Industries, Inc. 7,800 187
Illinois Tool Works, Inc. 9,000 531
* Infinity Broadcasting Corp. 12,450 464
* Informix Corp. 15,700 472
Inland Steel Industries, Inc. 9,400 236
* Integrated Device Technology Inc. 20,700 268
Intel Corp. 45,800 2,602
International Business
Machines Corp. 31,300 2,872
International Game Technology 16,600 181
International Paper Co. 12,600 477
International Specialty
Products, Inc. 28,600 311
* Intuit, Inc. 7,400 578
IVAX Corp. 16,900 482
* Jefferson Smurfit Corp. 26,300 248
Johnson & Johnson 35,500 3,040
* Jones Apparel Group, Inc. 8,700 343
* KLA Instruments Corp. 9,400 246
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Kansas City Southern
Industries, Inc. 6,400 $ 293
Kellogg Co. 6,500 502
* KEMET Corp. 11,000 264
Kemper Corp. 700 35
Kimberly-Clark Corp. 9,048 749
* King World Productions, Inc. 7,700 299
* Kohls Corp. 6,000 315
* Komag, Inc. 6,100 280
* The Kroger Co. 12,500 469
* LSI Logic Corp. 12,700 416
* LTV Corp. 22,800 314
La Quinta Inns Inc. 11,200 307
* Laboratory Corp. of America 32,280 303
* Laboratory Corp. of America
Warrants Exp. 4/28/00 1,467 1
* LAM Research Corp. 6,200 283
Lancaster Colony Corp. 800 30
* Lands' End, Inc. 1,400 19
* Lear Seating Corp. 13,000 377
Lehman Brothers Holdings, Inc. 13,400 285
Leucadia National Corp. 10,200 255
* Liberty Media Group Class A 17,775 477
The Limited, Inc. 16,800 292
* Lin Television 7,700 231
Linear Technology Corp. 9,600 378
* Litton Industries, Inc. 7,200 320
Lockheed Martin Corp. 8,800 695
Loews Corp. 7,400 580
Loral Corp. 16,400 580
Louisiana-Pacific Corp. 4,300 104
Lowes Cos., Inc. 15,000 503
MBIA, Inc. 700 53
MCI Communications Corp. 43,600 1,142
* MFS Communications Co., Inc. 6,900 369
MGIC Investment Corp. 7,400 401
* MGM Grand Inc. 10,300 237
* Magma Copper Co. Class B 13,200 368
Mallinckrodt Group, Inc. 1,400 51
Manor Care Inc. 11,000 385
Manpower Inc. 12,600 354
* Manville Corp. 21,700 285
Mapco Inc. 700 38
Mark IV Industries, Inc. 14,830 293
* Marquette Electronics Class A 13,100 270
Marriott International 12,400 474
Martin Marietta Materials, Inc. 4,500 93
* Marvel Entertainment Group 20,900 272
MascoTech Inc. 14,000 152
Mattel, Inc. 19,150 589
* Maxim Integrated Products, Inc. 10,800 416
McDonald's Corp. 40,700 1,837
McDonnell Douglas Corp. 7,500 690
McKesson Corp. 1,500 76
* Medaphis Corp. 11,200 416
Medtronic, Inc. 16,600 928
* Mentor Graphics Corp. 5,000 91
Merck & Co., Inc. 67,000 4,405
Merrill Lynch & Co., Inc. 12,600 643
* Fred Meyer, Inc. 1,400 32
* Micro Warehouse Inc. 6,900 300
* Microchip Technology, Inc. 9,200 337
Micron Technology Inc. 12,500 495
* Microsoft Corp. 21,000 1,844
* Mid Atlantic Medical Services 14,800 359
Millipore Corp. 6,200 255
Minnesota Mining &
Manufacturing Co. 21,500 1,424
* Mirage Resorts, Inc. 11,600 400
Mobil Corp. 22,500 2,520
* Mobile Telecommunications
Technologies Corp. 14,100 301
Molex, Inc. 11,156 357
Morgan Stanley Group, Inc. 4,900 395
Morton International, Inc. 10,900 391
Motorola, Inc. 13,400 764
Mylan Laboratories, Inc. 14,850 349
* National Semiconductor Corp. 17,100 380
* Navistar International Corp. 24,600 258
Newell Co. 11,500 298
Newmont Gold Co. 6,000 263
Newmont Mining Corp. 7,100 321
* Nextel Communications 22,300 330
Nike, Inc. Class B 7,400 515
* Nine West Group, Inc. 6,600 248
Noble Affiliates, Inc. 9,000 269
Nordson Corp. 2,900 165
Nordstrom, Inc. 5,500 222
* Northwest Airlines Corp. Class A 8,800 448
* NovaCare, Inc. 24,400 125
* Novell, Inc. 32,700 464
* Novellus Systems, Inc. 4,900 265
Nucor Corp. 9,100 520
* Office Depot, Inc. 16,700 330
* Officemax Inc. 16,200 362
Olsten Corp. 7,200 284
* Oracle Corp. 22,000 932
* OrNda Healthcorp 10,200 237
* Oryx Energy Co. 24,500 328
* Outback Steakhouse 8,300 298
* Owens-Corning Fiberglas Corp. 8,400 377
* Owens-Illinois, Inc. 24,900 361
* Oxford Health Plan 5,700 420
The PMI Group Inc. 6,500 294
* Pacificare Health Systems Inc.
Class A 3,100 268
</TABLE>
17
<PAGE> 20
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
CAPITAL APPRECIATION Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* Pacificare Health Systems Inc.
Class B 3,200 $ 279
* Paging Network Inc. 16,100 387
* Parametric Technology Corp. 6,900 458
Parker & Parsley Petroleum Co. 1,200 26
Paul Revere Corp. 1,500 31
Paychex, Inc. 6,700 333
* Peoplesoft Inc. 7,000 298
Pep Boys (Manny, Moe & Jack) 10,300 264
PepsiCo, Inc. 44,400 2,481
* Perrigo Co. 23,400 279
* Petsmart, Inc. 9,950 308
Pfizer, Inc. 36,200 2,281
Philip Morris Cos., Inc. 45,700 4,136
Phillips-Van Heusen Corp. 9,600 95
* Physician Corp. of America 19,400 330
Pittston Services Group 10,900 342
Pogo Producing Co. 10,300 291
* Policy Management Systems Corp. 6,100 291
Praxair, Inc. 11,200 377
* Price/Costco Inc. 25,500 392
Price Enterprises, Inc. 13,100 199
* Primadonna Resorts, Inc. 3,600 52
Procter & Gamble Co. 37,700 3,129
Progressive Corp. of Ohio 8,500 415
* Promus Hotel Corp. 13,550 301
* Qualcomm, Inc. 8,300 356
* Quantum Corp. 16,800 272
* Quorum Health Group, Inc. 13,900 304
RJR Nabisco Holdings Corp. 8,720 269
Raychem Corp. 6,800 387
Raytheon Co. 16,600 784
Reebok International Ltd. 9,100 257
* Revco Drug Stores, Inc. 13,800 390
Reynolds & Reynolds Class A 1,400 54
Reynolds Metals Co. 900 51
Riverwood International Corp. 8,400 161
Rubbermaid, Inc. 6,800 173
Russell Corp. 3,100 86
SBC Communications Inc. 35,860 2,062
* SPS Transaction Services 9,100 270
* Safeway, Inc. 11,000 567
St. Joe Paper Co. 4,600 253
* St. Jude Medical, Inc. 9,450 405
St. Paul Cos., Inc. 2,400 134
Salomon, Inc. 8,100 288
* Santa Fe Energy Resources, Inc. 29,800 287
Santa Fe Pacific Gold Corp. 20,940 254
* R. P. Scherer Corp. 6,700 329
Schering-Plough Corp. 22,800 1,248
* Scholastic Corp. 4,300 335
A. Schulman Inc. 6,700 150
Charles Schwab Corp. 15,800 318
E.W. Scripps Co. 6,235 246
* Seagate Technology 8,100 385
* Seagull Energy Corp. 2,400 53
* Sealed Air Corp. 13,600 383
* Service Merchandise Co., Inc. 37,200 186
Shaw Industries, Inc. 9,300 137
* Shoney's Inc. 11,400 117
Sigma Aldrich Corp. 6,900 342
* Silicon Graphics, Inc. 15,300 421
* Sithe Energies, Inc. 21,300 128
* Solectron Corp. 8,700 384
* Southern Pacific Rail Corp. 14,400 346
* Southland Corp. 73,900 238
Southwest Airlines Co. 18,200 423
* Spelling Entertainment 21,000 263
Sprint Corp. 2,000 80
* Staples, Inc. 14,450 354
* Starbucks Corp. 14,800 310
State Street Boston Corp. 2,200 99
Stewart & Stevenson Services, Inc. 5,200 132
Stewart Enterprises, Inc. Class A 12,000 441
Stone Container Corp. 12,400 178
* Stop & Shop Cos. Inc. 14,300 331
* Storage Technology Corp. 12,000 287
* StrataCom, Inc. 5,700 418
* Stratus Computer, Inc. 3,100 107
Stryker Corp. 7,200 378
* Sun Microsystems, Inc. 16,400 749
SunAmerica Inc. 5,850 278
Sunbeam Corp. 20,100 307
* SunGard Data Systems 10,000 281
Superior Industries
International, Inc. 8,700 229
* Sybase, Inc. 10,300 370
* Sybron Corp. 13,600 323
* Synopsys, Inc. 9,600 366
Sysco Corp. 12,000 390
TIG Holdings, Inc. 9,800 279
Talbots Inc. 6,000 173
* Tandem Computers, Inc. 28,100 299
Tandy Corp. 6,900 286
* Tele-Communications, Inc. Class A 45,500 907
Teledyne Inc. 7,100 182
Telephone & Data Systems, Inc. 7,600 300
* Tellabs, Inc. 10,600 394
Tenet Healthcare Corp. 23,042 478
* Teradyne, Inc. 13,100 328
Texas Instruments, Inc. 13,700 709
* Thermo Electron Corp. 9,400 489
* Thermo Instrument Systems, Inc. 8,950 302
* 3 Com Corp. 14,500 677
Time Warner, Inc. 22,900 867
Total System Services, Inc. 12,700 387
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
Transatlantic Holdings 4,400 $ 323
* Transport Holdings, Inc. Class A 95 4
* TransTexas Gas Corp. 20,400 278
Travelers Group Inc. 20,600 1,295
Trimas Corp. 8,600 162
Triton Energy Corp. 6,500 373
Turner Broadcasting Class B 23,700 616
* 20th Century Industries of CA 10,400 207
Tyco International Ltd. 22,788 812
Tyson Foods, Inc. 14,400 379
* UAL Corp. 1,900 339
UNUM Corp. 1,200 66
* USG Corp. 10,700 321
Union Texas Petroleum
Holdings, Inc. 8,000 155
United Healthcare Corp. 12,100 793
* United States Cellular 9,800 331
U.S. Healthcare, Inc. 6,100 283
U.S. Robotics Corp. 4,800 422
United States Surgical Corp. 12,500 267
* U S WEST Media Group 37,600 714
* VLSI Technology, Inc. 12,800 231
* Value Health, Inc. 12,400 341
* Valujet Inc. 14,800 364
* Vanguard Cellular Systems, Inc.
Class A 13,200 266
Varian Associates, Inc. 6,800 325
* Varity Corp. 8,900 330
* Vencor, Inc. 19,185 624
* Viacom International Class A 13,744 631
* Viacom International Class B 6,306 299
* Viking Office Products 8,200 382
* Vishay Intertechnology, Inc. 9,720 306
* Vons Cos., Inc. 11,300 319
WMX Technologies Inc. 27,100 810
Wal-Mart Stores, Inc. 79,300 1,774
Walgreen Co. 15,600 466
Warnaco Group 9,300 233
Watts Industries Class A 7,000 163
Wausau Paper Mills Co. 6,780 186
Wellman, Inc. 6,300 143
* Wellpoint Health Networks, Inc.
Class A 9,000 289
Werner Enterprises, Inc. 4,000 80
Wesco Financial Corp. 1,600 291
* Western Atlas Inc. 7,200 364
* Western Digital Corp. 16,800 300
Western National Corp. 8,500 137
Westinghouse Electric Corp. 23,500 388
Wheelabrator Technologies 19,900 333
* Wisconsin Central
Transportation Corp. 5,000 327
Woolworth Corp. 22,700 295
* WorldCom, Inc. 18,078 640
Wrigley (Wm.) Jr. Co. 1,900 100
* Xilinx, Inc. 12,500 380
Xtra Corp. 3,500 149
York International Corp. 7,700 362
Zurich Reinsurance Centre
Holdings, Inc. 9,100 276
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $211,318) 253,738
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TEMPORARY CASH INVESTMENT (1.2%)
- --------------------------------------------------------------------------------
Face
Amount
(000)
-------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.89%, 1/2/96
(Cost $3,101) $3,101 3,101
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.0%)
(Cost $214,419) 256,839
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.0%)
- --------------------------------------------------------------------------------
Other Assets--Notes B and E 6,893
Liabilities--Note E (9,499)
--------
(2,606)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 19,146,781 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $254,233
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $13.28
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1995,
NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
-------- -------
<S> <C> <C>
PAID IN CAPITAL $213,388 $11.14
OVERDISTRIBUTED NET
INVESTMENT INCOME (166) (.01)
ACCUMULATED NET
REALIZED LOSSES--NOTE C (1,409) (.07)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 42,420 2.22
- --------------------------------------------------------------------------------
NET ASSETS $254,233 $13.28
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
BALANCED Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (47.1%)
- --------------------------------------------------------------------------------
* ADC Telecommunications, Inc. 400 $ 14
AGCO Corp. 400 20
* ALZA Corp. 1,100 27
* AMR Corp. 600 44
AT&T Corp. 6,300 408
Abbott Laboratories, Inc. 3,300 138
* Adaptec, Inc. 900 37
Adobe Systems, Inc. 600 37
* Advanced Micro Devices, Inc. 1,100 18
Advanta Corp. Class A 200 7
* Airgas, Inc. 1,000 33
* AirTouch Communications 2,900 82
Albertson's, Inc. 1,500 49
Alexander & Alexander Services, Inc. 400 8
* Alleghany Corp. 102 20
AlliedSignal Inc. 1,700 81
* Alumax, Inc. 700 21
Aluminum Co. of America 1,100 58
* Amdahl Corp. 2,300 19
Amerada Hess Corp. 200 11
American International Group, Inc. 1,800 166
* American Power Conversion Corp. 400 4
American Re Corp. 800 33
* Amgen, Inc. 1,600 95
Amoco Corp. 2,300 165
* Amphenol Corp. 400 10
Anadarko Petroleum Corp. 600 32
* Analog Devices, Inc. 1,000 35
* Andrew Corp. 600 23
* Anixter International Inc. 1,400 26
* Applied Materials, Inc. 1,200 47
Archer-Daniels-Midland Co. 3,780 68
* Arrow Electronics, Inc. 700 30
* Associated Group, Inc. 50 1
* Associated Group, Inc. Class B 50 1
* Atmel Corp. 1,200 26
Automatic Data Processing, Inc. 800 59
* AutoZone, Inc. 1,100 32
BHC Communications, Inc. Class A 300 28
* BMC Software, Inc. 1,000 42
BankAmerica Corp. 1,800 116
* Barnes & Noble Inc. 700 20
Battle Mountain Gold Co. Class A 600 5
* Bay Networks 1,035 42
* Bed Bath & Beyond, Inc. 200 8
* Best Buy, Inc. 800 13
* Bethlehem Steel Corp. 1,300 18
* Beverly Enterprises Inc. 1,600 17
* Biogen, Inc. 600 37
* Biomet, Inc. 1,600 28
The Boeing Co. 1,600 125
* Boston Scientific Corp. 1,100 54
* Boyd Gaming Corp. 600 7
* Burlington Coat Factory
Warehouse Corp. 1,600 16
* Burlington Industries 1,500 20
Burlington Northern Santa Fe Corp. 646 50
Burlington Resources, Inc. 300 12
* CNA Financial Corp. 400 45
* CUC International, Inc. 1,200 41
* Cabletron Systems, Inc. 650 53
* Cablevision Systems Corp. Class B 400 22
* California Energy Co. 800 16
Capital Cities/ABC, Inc. 800 99
Capital One Financial Corp. 900 21
Cardinal Health, Inc. 600 33
Caremark International, Inc. 1,200 22
Caterpillar, Inc. 1,100 65
Centex Corp. 200 7
* Century Communications Corp.
Class A 2,800 22
* Ceridian Corp. 800 33
Champion International Corp. 900 38
* Cheyenne Software, Inc. 600 16
* Chiron Corp. 485 53
* Chris-Craft Industries, Inc. 721 31
Chrysler Corp. 1,566 87
CINergy Corp. 700 21
Cintas Corp. 200 9
Circuit City Stores, Inc. 1,000 28
* Circus Circus Enterprises Inc. 1,200 33
* Cirrus Logic 1,600 32
* Cisco Systems, Inc. 1,400 104
Citicorp 1,800 121
Clayton Homes Inc. 2,031 43
The Coca-Cola Co. 4,900 364
Coca-Cola Enterprises, Inc. 1,300 35
* Coleman Inc. 700 24
* Coltec Inc. 2,200 26
* Columbia Gas Systems, Inc. 600 26
Columbia/HCA Healthcare Corp. 2,268 115
Comcast Corp. Class A Special 1,600 29
* COMPAQ Computer Corp. 1,600 77
Computer Associates
International, Inc. 1,050 60
* Computer Sciences Corp. 600 42
* Conner Peripherals, Inc. 1,800 38
Conseco Co., Inc. 600 38
Consolidated Freightways, Inc. 900 24
* Consolidated Stores, Inc. 1,400 30
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* Cordis Corp. 400 $ 40
* Cox Communications Class A 1,600 31
Cracker Barrel Old Country
Stores, Inc. 1,100 19
* Crown Cork & Seal Co., Inc. 900 38
* DSC Communications Corp. 900 33
Danaher Corp. 1,000 32
Dean Witter Discover & Co. 900 42
* Dell Computer 1,200 42
Delta Air Lines, Inc. 500 37
Dentsply International 700 28
* Department 56 Inc. 700 27
* Digital Equipment Corp. 1,100 71
Dillard Department Stores Class A 1,000 29
* Dime Bancorp, Inc. 3,000 35
The Walt Disney Co. 2,400 142
E.I. du Pont de Nemours & Co. 2,500 175
* EMC Corp. 2,000 31
* ENSCO International, Inc. 1,000 23
* Eckerd Corp. 1,000 45
* Electronic Arts 1,200 31
Emerson Electric Co. 1,200 98
Enron Oil & Gas Co. 1,000 24
The Equitable Cos. 400 10
Exxon Corp. 4,900 393
* FHP International Corp. 800 22
* FMC Corp. 400 27
* Federal Express Corp. 500 37
Federal Home Loan Mortgage Corp. 900 75
Federal National Mortgage Assn. 1,300 161
* Federated Department Stores 1,800 50
First Data Corp. 1,392 93
First USA Inc. 700 31
* FIserv, Inc. 1,000 30
Fluor Corp. 200 13
* Forest Laboratories, Inc. 600 27
* Foundation Health Co. 700 30
Franklin Resources Corp. 200 10
Freeport-McMoRan Copper &
Gold Inc. Class B 1,263 36
Freeport-McMoRan, Inc. 816 30
Frontier Corp. 1,600 48
* Fruit of the Loom, Inc. 900 22
The Gap, Inc. 200 8
* Gateway 2000 Inc. 1,100 27
General Electric Co. 6,600 475
* General Instrument 900 21
General Motors Corp. 3,200 169
General Motors Corp. Class E 1,600 83
* General Nutrition Cos., Inc. 2,000 46
General Re Corp. 500 78
* Genzyme Corp. 800 50
* Genzyme Corp. Tissue Repair 108 2
Georgia Gulf Corp. 600 18
Gillette Co. 2,200 115
* Glenayre Technologies, Inc. 900 56
Golden West Financial Corp. 600 33
Great Lakes Chemical Corp. 500 36
Green Tree Financial Corp. 400 11
* Gtech Holdings Corp. 1,200 31
HBO and Co. 600 46
* HFS Inc. 900 74
Harley-Davidson, Inc. 400 12
* Harrah's Entertainment, Inc. 1,400 34
Hasbro, Inc. 900 28
* Health Management Associates
Class A 1,500 39
* Health Systems 800 26
* Healthcare & Retirement Corp. 800 28
* HealthCare Compare Corp. 800 35
Healthsource, Inc. 1,200 43
* HEALTHSOUTH Corp. 1,200 35
Hewlett-Packard Co. 1,800 151
Home Depot, Inc. 2,500 120
* Home Shopping Network, Inc. 2,000 18
Homestake Mining Co. 400 6
* Host Marriott 2,100 28
* Humana, Inc. 2,000 55
IBP, Inc. 700 35
IMC Global Inc. 1,200 49
* ITT Corp. 600 32
* ITT Hartford Group, Inc. 600 29
ITT Industries, Inc. 600 14
Illinois Tool Works, Inc. 800 47
* Infinity Broadcasting Corp. 2,050 76
* Informix Corp. 1,800 54
* Integrated Device Technology Inc. 1,600 21
Intel Corp. 3,300 187
International Business
Machines Corp. 2,400 220
International Game Technology 400 4
International Paper Co. 1,500 57
International Specialty Products, Inc. 2,900 32
* Intuit, Inc. 800 62
IVAX Corp. 1,200 34
Johnson & Johnson 2,700 231
* Jones Apparel Group, Inc. 900 35
* KLA Instruments Corp. 1,000 26
Kansas City Southern Industries, Inc. 200 9
Kellogg Co. 900 70
Kimberly-Clark Corp. 936 77
* King World Productions, Inc. 700 27
</TABLE>
21
<PAGE> 24
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
BALANCED Value
PORTFOLIO (continued) Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* Kohls Corp. 600 $ 32
* Komag, Inc. 400 18
* The Kroger Co. 900 34
LSI Logic Corp. 1,200 39
* LTV Corp. 2,000 28
La Quinta Inns Inc. 300 8
* Laboratory Corp. of America 1,152 11
* LAM Research Corp. 700 32
* Lear Seating Corp. 1,100 32
Lehman Brothers Holdings, Inc. 400 9
Leucadia National Corp. 1,200 30
* Liberty Media Group Class A 675 18
* Lin Television 750 22
* Litton Industries, Inc. 700 31
Lockheed Martin Corp. 1,100 87
Loews Corp. 600 47
Lowes Cos., Inc. 1,400 47
MCI Communications Corp. 3,500 91
* MFS Communications Co., Inc. 600 32
MGIC Investment Corp. 700 38
* MGM Grand Inc. 800 18
* Magma Copper Co. Class B 1,200 33
Manor Care Inc. 800 28
Manpower Inc. 900 25
* Manville Corp. 2,500 33
Mark IV Industries, Inc. 420 8
* Marquette Electronics Class A 1,100 22
Martin Marietta Materials, Inc. 400 8
* Marvel Entertainment Group 1,400 18
Mattel, Inc. 1,750 54
* Maxim Integrated Products, Inc. 400 15
McDonald's Corp. 3,000 135
McDonnell Douglas Corp. 900 83
* Medaphis Corp. 1,400 52
Medtronic, Inc. 1,600 89
Merck & Co., Inc. 5,000 329
Merrill Lynch & Co., Inc. 1,200 61
* Micro Warehouse Inc. 700 30
Micron Technology Inc. 1,200 48
* Microsoft Corp. 1,800 158
* Mid Atlantic Medical Services 1,000 24
Minnesota Mining &
Manufacturing Co. 1,900 126
* Mirage Resorts, Inc. 1,000 35
Mobil Corp. 1,700 190
Molex, Inc. 937 30
Motorola, Inc. 2,600 148
* National Semiconductor Corp. 1,300 29
* Navistar International Corp. 1,400 15
Newmont Gold Co. 200 9
Newmont Mining Corp. 200 9
* Nextel Communications 1,700 25
Nike, Inc. Class B 600 42
* Nine West Group, Inc. 800 30
Noble Affiliates, Inc. 200 6
Nordstrom, Inc. 200 8
* Northwest Airlines Corp. Class A 1,200 61
* Novell, Inc. 1,800 25
Nucor Corp. 400 23
* Office Depot, Inc. 1,000 20
Olsten Corp. 200 8
* Oracle Corp. 1,800 76
* OrNda Healthcorp 1,300 30
* Oryx Energy Co. 2,500 33
* Outback Steakhouse 200 7
* Owens-Corning Fiberglas Corp. 700 31
* Owens-Illinois, Inc. 2,000 29
* Oxford Health Plan 800 59
* Pacificare Health Systems Inc. Class A 400 34
* Paging Network Inc. 1,600 38
* Parametric Technology Corp. 800 53
Pep Boys (Manny, Moe & Jack) 200 5
PepsiCo, Inc. 3,400 190
* Perrigo Co. 1,700 20
* Petsmart, Inc. 900 28
Pfizer, Inc. 2,800 176
* Pharmacia & Upjohn, Inc. 2,500 97
Philip Morris Cos., Inc. 3,400 308
* Physician Corp. of America 1,200 20
Pittston Services Group 800 25
Pogo Producing Co. 1,200 34
* Policy Management Systems Corp. 600 29
* Price/Costco Inc. 2,400 37
Price Enterprises, Inc. 1,400 21
Procter & Gamble Co. 2,800 232
Progressive Corp. of Ohio 600 29
* Promus Hotel Corp. 400 9
* Qualcomm, Inc. 1,000 43
* Quantum Corp. 1,400 23
RJR Nabisco Holdings Corp. 2,140 66
Raychem Corp. 200 11
Raytheon Co. 1,400 66
Reebok International Ltd. 200 6
* Revco Drug Stores, Inc. 1,100 31
SBC Communications Inc. 2,572 148
* SPS Transaction Services 700 21
* Safeway, Inc. 1,200 62
St. Joe Paper Co. 400 22
* St. Jude Medical, Inc. 1,200 51
Salomon, Inc. 300 11
* Santa Fe Energy Resources, Inc. 1,600 15
Santa Fe Pacific Gold Corp. 1,640 20
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
* R. P. Scherer Corp. 600 $ 29
* Scholastic Corp. 600 47
Charles Schwab Corp. 2,000 40
Scientific-Atlanta, Inc. 400 6
* Seagate Technology 1,000 48
* Seagull Energy Corp. 900 20
Sensormatic Electronics Corp. 200 3
* Service Merchandise Co., Inc. 3,800 19
* Shoney's Inc. 1,500 15
* Silicon Graphics, Inc. 1,000 28
* Solectron Corp. 800 35
* Southern Pacific Rail Corp. 1,100 26
* Southland Corp. 4,100 13
Southwest Airlines Co. 1,600 37
Sprint Corp. 2,000 80
* Staples, Inc. 1,500 37
* Starbucks Corp. 400 8
Stewart & Stevenson Services, Inc. 700 18
Stewart Enterprises, Inc. Class A 1,000 37
Stone Container Corp. 900 13
* Stop & Shop Cos. Inc. 800 19
* Storage Technology Corp. 800 19
* StrataCom, Inc. 600 44
Stryker Corp. 600 31
* Sun Microsystems, Inc. 1,800 82
SunAmerica Inc. 300 14
Sunbeam Corp. 1,800 27
Superior Industries
International, Inc. 200 5
* Sybase, Inc. 700 25
* Sybron Corp. 1,400 33
* Synopsys, Inc. 1,200 46
Talbots Inc. 200 6
* Tandem Computers, Inc. 1,300 14
* Tele-Communications, Inc. Class A 3,300 66
Teledyne Inc. 300 8
Telephone & Data Systems, Inc. 200 8
* Tellabs, Inc. 1,200 44
* Tenet Healthcare Corp. 2,562 53
Tenneco, Inc. 1,200 60
* Teradyne, Inc. 1,400 35
Texas Instruments, Inc. 1,000 52
* Thermo Electron Corp. 900 47
* Thermo Instrument Systems, Inc. 1,050 35
* 3 Com Corp. 1,200 56
Time Warner, Inc. 2,000 76
Total System Services, Inc. 400 12
* Toys R Us, Inc. 700 15
Transatlantic Holdings 400 29
* TransTexas Gas Corp. 2,000 27
Travelers Group Inc. 1,600 101
Trimas Corp. 200 4
* Triton Energy Corp. 700 40
Turner Broadcasting Class B 1,000 26
* 20th Century Industries of CA 1,300 26
Tyco International Ltd. 1,434 51
Tyson Foods, Inc. 1,000 26
* UAL Corp. 300 54
* USG Corp. 1,100 33
* Unisys Corp. 1,700 10
United Healthcare Corp. 1,000 66
* United States Cellular 700 24
U.S. Healthcare, Inc. 1,200 56
United States Surgical Corp. 300 6
* U S WEST Media Group 3,200 61
* Value Health, Inc. 600 17
* Vanguard Cellular Systems, Inc.
Class A 800 16
Varian Associates, Inc. 200 10
* Varity Corp. 700 26
* Viacom International Class A 1,148 53
* Viacom International Class B 363 17
* Viking Office Products 700 33
* Vishay Intertechnology, Inc. 1,260 40
* Vons Cos., Inc. 1,100 31
WMX Technologies Inc. 2,400 72
Wal-Mart Stores, Inc. 6,300 141
Walgreen Co. 1,500 45
Warnaco Group 1,300 33
Wellman, Inc. 200 5
* Wellpoint Health Networks, Inc.
Class A 800 26
* Western Atlas Inc. 600 30
Wheelabrator Technologies 1,500 25
* WorldCom, Inc. 1,381 49
* Xilinx, Inc. 1,200 36
York International Corp. 600 28
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $14,200) 18,255
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS (55.5%)
- --------------------------------------------------------------------------------
Face
Amount
(000)
--------
<S> <C> <C>
ALASKA (2.9%)
North Slope Borough GO
7.50%, 6/30/01 (3) $1,000 1,145
--------
- --------------------------------------------------------------------------------
CALIFORNIA (6.1%)
California GO
6.40%, 2/1/06 (1) 500 565
10.00%, 4/1/98 400 451
Los Angeles Waste Water System
5.75%, 6/1/10 (1) 400 418
</TABLE>
23
<PAGE> 26
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
BALANCED Amount Value
PORTFOLIO (continued) (000) (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
San Diego County TRAN
4.50%, 9/30/96 $ 200 $ 201
Univ. of California Regents Rev.
12.00%, 9/1/03 (2) 500 737
--------
STATE TOTAL 2,372
--------
- --------------------------------------------------------------------------------
DISTRICT OF COLUMBIA (3.5%)
District of Columbia GO
6.75%, 6/1/05 (2) 1,250 1,354
--------
- --------------------------------------------------------------------------------
FLORIDA (5.6%)
Dade County School Dist.
7.375%, 7/1/99 (Prere.) 400 450
Dade County Water & Sewer
System Rev. VRDO
4.90%, 1/3/96 (3) 1,565 1,565
Hillsborough County Industrial
Development Auth. PCR VRDO
(Tampa Electric Co.)
6.00%, 1/3/96 145 145
--------
STATE TOTAL 2,160
--------
- --------------------------------------------------------------------------------
ILLINOIS (1.2%)
Illinois Sales Tax Rev.
7.20%, 6/1/99 (Prere.) 400 447
--------
- --------------------------------------------------------------------------------
KENTUCKY (1.1%)
Kentucky Property & Buildings
Comm. Rev.
5.80%, 9/1/06 400 425
--------
- --------------------------------------------------------------------------------
MARYLAND (1.1%)
Maryland Dept. of Transportation
5.20%, 9/15/04 400 417
--------
- --------------------------------------------------------------------------------
MASSACHUSETTS (5.3%)
Massachusetts Bay Transportation
Auth. TRAN
6.25%, 3/1/05 500 555
Massachusetts GO
7.25%, 7/1/98 (Prere.) 500 545
Massachusetts Industrial
Finance Agency Rev.
(Refusetech Inc. Project)
6.30%, 7/1/05 600 635
Massachusetts Water
Resources Auth.
5.75%, 8/1/10 (1) 300 315
--------
STATE TOTAL 2,050
--------
- --------------------------------------------------------------------------------
MICHIGAN (5.9%)
Dickinson County Memorial
Hosp. System Rev.
7.625%, 11/1/05 500 527
Michigan Environmental
Protection Program
6.25%, 11/1/08 1,000 1,129
Michigan Housing Development
Auth. Rental Housing Rev.
6.30%, 4/1/04 600 638
--------
STATE TOTAL 2,294
--------
- --------------------------------------------------------------------------------
NEVADA (1.6%)
Clark County Airport System
Rev. VRDO
5.15%, 1/3/96 (1) 620 620
--------
- --------------------------------------------------------------------------------
NEW JERSEY (2.5%)
New Jersey Economic Development
Auth. Market Transition Facility
5.70%, 7/1/05 (1) 400 428
New Jersey Health Care
Facilities Finance Auth.
(Atlantic City Medical Center)
6.80%, 7/1/05 500 546
--------
STATE TOTAL 974
--------
- --------------------------------------------------------------------------------
NEW YORK (8.0%)
New York City GO
RAN 4.75%, 6/28/96 (LOC) 1,000 1,006
6.375%, 8/15/09 640 667
New York Environmental Facilities
Corp. PCR
6.35%, 6/15/06 520 580
New York State Dormitory Auth.
(State Univ.)
5.375%, 5/15/07 (2) 400 417
New York State Thruway Service
Contract Local Highway/Building
5.40%, 4/1/05 (1) 400 419
--------
STATE TOTAL 3,089
--------
- --------------------------------------------------------------------------------
OHIO (4.7%)
Ohio Public Facilities Comm.
5.50%, 12/1/06 (1) 400 421
Ohio Water Development Auth.
5.75%, 12/1/05 (1) 540 579
6.00%, 12/1/08 (2) 750 812
--------
STATE TOTAL 1,812
--------
- --------------------------------------------------------------------------------
PENNSYLVANIA (1.5%)
Pennsylvania Turnpike Comm. Rev.
7.625%, 12/1/99 (Prere.) 500 572
--------
- --------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- --------------------------------------------------------------------------------
<S> <C> <C>
TEXAS (2.7%)
Houston Hotel Occupancy
5.25%, 7/1/07 (4) $ 500 $ 508
San Antonio Water Rev.
6.50%, 5/15/10 (1) 500 551
--------
STATE TOTAL 1,059
--------
- --------------------------------------------------------------------------------
WEST VIRGINIA (1.8%)
West Virginia School Building Auth.
Capital Improvement Rev.
5.625%, 7/1/02 655 698
--------
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost $20,616) 21,488
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.6%)
(Cost $34,816) 39,743
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.6%)
- --------------------------------------------------------------------------------
Other Assets--Note B 686
Liabilities (1,692)
--------
(1,006)
--------
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 3,268,656 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $38,737
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.85
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1995,
NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Amount Per
(000) Share
------- -------
<S> <C> <C>
PAID IN CAPITAL $33,878 $10.36
OVERDISTRIBUTED NET
INVESTMENT INCOME (25) (.01)
ACCUMULATED NET
REALIZED LOSSES--NOTE C (43) (.01)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 4,927 1.51
- --------------------------------------------------------------------------------
NET ASSETS $38,737 $11.85
- --------------------------------------------------------------------------------
</TABLE>
GO=General Obligation
PCR=Pollution Control Revenue
RAN=Revenue Anticipation Note
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.
25
<PAGE> 28
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
GROWTH AND CAPITAL
INCOME APPRECIATION BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1995 1995
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . $ 1,514 $ 1,733 $ 132
Interest . . . . . . . . . . . . . . . . . . 37 140 804
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . 1,551 1,873 936
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . $24 $ 47 $35
Management and Administrative . . . . . . 43 176 --
Marketing and Distribution . . . . . . . 11 78 34 257 6 41
--- ---- ---
Taxes (other than income taxes) . . . . . . 5 12 2
Custodian Fees . . . . . . . . . . . . . . 22 24 2
Auditing Fees . . . . . . . . . . . . . . . 7 7 7
Shareholders' Reports . . . . . . . . . . . 8 23 6
Annual Meeting and Proxy Costs . . . . . . . -- 1 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . 120 324 58
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . 1,431 1,549 878
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . . . (301) (1,441) (45)
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES . . . . . . . . . . . 17,169 42,784 5,151
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . $18,299 $42,892 $5,984
=================================================================================================================================
</TABLE>
26
<PAGE> 29
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AND CAPITAL
INCOME APPRECIATION
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED July 25 to YEAR ENDED July 25 to
DEC. 31, Dec. 31, DEC. 31, Dec. 31,
1995 1994 1995 1994
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . $ 1,431 $ 225 $ 1,549 $ 238
Realized Net Gain (Loss) . . . . . . . . . . . . . . . (301) 2 (1,441) 32
Change in Unrealized Appreciation (Depreciation) . . . 17,169 (425) 42,784 (364)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting from Operations . . . 18,299 (198) 42,892 (94)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . (1,444) (241) (1,680) (273)
Realized Net Gain . . . . . . . . . . . . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (1,444) (241) (1,680) (273)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . 35,411 12,242 107,926 42,711
--In Lieu of Cash Distributions . . . . . . 1,024 164 1,361 250
--Exchange . . . . . . . . . . . . . . . . 14,409 19,462 35,109 27,039
Redeemed --Regular . . . . . . . . . . . . . . . . . (182) (10) (466) (73)
--Exchange . . . . . . . . . . . . . . . . (589) (10) (559) (10)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . . . . . . . . 50,073 31,848 143,371 69,917
- -------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . 66,928 31,409 184,583 69,550
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note F . . . . . . . . . . . . . . 31,409 -- 69,650 100
- -------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . $98,337 $31,409 $254,233 $69,650
===================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . $.25 $.09 $.09 $.04
Realized Net Gain . . . . . . . . . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . 4,239 3,200 12,127 6,976
Issued in Lieu of
Cash Distributions . . . . . . . . . . . . . . 84 17 103 25
Redeemed . . . . . . . . . . . . . . . . . . . . (65) (2) (85) (9)
- -------------------------------------------------------------------------------------------------------------------
4,258 3,215 12,145 6,992
- -------------------------------------------------------------------------------------------------------------------
(3) Overdistributed Net Investment Income . . . . . . $ (29) $ (16) $ (166) $ (35)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED July 25 to
DEC. 31, Dec. 31,
1995 1994
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 878 $ 143
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) 2
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . . . . . 5,151 (224)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting from Operations . . . . . . . . . . . . . . . . 5,984 (79)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (896) (150)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (896) (150)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,592 10,016
--In Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . 790 134
--Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,110 7,634
Redeemed --Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115) (42)
--Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (220) (21)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . . . . . 16,157 17,721
- -------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,245 17,492
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note F . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,492 --
- -------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,737 $17,492
===================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $.32 $.09
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- -------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,443 1,779
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . 70 14
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31) (7)
- -------------------------------------------------------------------------------------------------------------------
1,482 1,786
- -------------------------------------------------------------------------------------------------------------------
(3) Overdistributed Net Investment Income . . . . . . . . . . . . . . . . . . . $ (25) $ (7)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH AND
INCOME
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED July 25+ to
DEC. 31, Dec. 31,
For a Share Outstanding Throughout Each Period 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.77 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 .09
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.39 (.23)
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . 3.64 (.14)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . . (.25) (.09)
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . . . -- --
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . (.25) (.09)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.16 $ 9.77
===================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +37.53% -1.70%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . . $98 $31
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . .20% .20%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.37% 2.82%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6% 0%
- -------------------------------------------------------------------------------------------------------------------
</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.
29
<PAGE> 32
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED July 25+ to
DEC. 31, Dec. 31,
For a Share Outstanding Throughout Each Period 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.95 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08 .04
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.34 (.05)
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.28 $ 9.95
===================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +34.38% -0.50%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . . $254 $70
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . .20% .20%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97% 1.26%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7% 1%
- -------------------------------------------------------------------------------------------------------------------
</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.
30
<PAGE> 33
<TABLE>
<CAPTION>
BALANCED
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED July 25+ to
DEC. 31, Dec. 31,
For a Share Outstanding Throughout Each Period 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.79 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 .09
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . . . 2.07 (.21)
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . 2.38 (.12)
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . . (.32) (.09)
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . . . -- --
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . (.32) (.09)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.85 $ 9.79
===================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +24.52% -1.40%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . . $39 $17
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . .20% 0%
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . . . . 3.06% 2.88%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% 0%
- -------------------------------------------------------------------------------------------------------------------
</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.
31
<PAGE> 34
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 of Investment
Companies, 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, Inc. furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Directors. At December 31, 1995, the Fund had contributed capital of $43,000 to
Vanguard (included in Other Assets), representing .2% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
C. During the year ended December 31, 1995, purchases and sales of investment
securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(000)
-------------------------
Portfolio Purchases Sales
- ----------------------------------------------------------------------
<S> <C> <C>
GROWTH AND INCOME $ 53,044 $ 3,390
CAPITAL APPRECIATION 153,680 10,837
BALANCED 16,531 1,224
- ----------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
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 December 31, 1995, 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 $17,302 $ (558) $16,744
CAPITAL APPRECIATION 46,954 (4,534) 42,420
BALANCED 5,180 (253) 4,927
- ----------------------------------------------------------------------
</TABLE>
E. The market value of Capital Appreciation Portfolio securities on loan to
broker/dealers at December 31, 1995, was $1,882,000, for which the Portfolio
had received cash collateral of $1,971,000.
F. The Fund was organized on July 1, 1994, and its operations up to July 25,
1994, were limited to the sale and issuance of 10,000 shares of common stock of
the Capital Appreciation Portfolio to a director and officer of the Fund.
33
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard Tax-Managed Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Growth and Income, Capital Appreciation, and Balanced Portfolios of
Vanguard Tax-Managed Fund (the "Fund") at December 31, 1995, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the respective periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 31, 1996
34
<PAGE> 37
SPECIAL TAX INFORMATION
SPECIAL 1995 TAX INFORMATION (UNAUDITED)
FOR VANGUARD TAX-MANAGED FUND
Corporate shareholders should note that for the year ended December 31, 1995,
the percentage of investment income (i.e., dividend income plus short-term
capital gains, if any) which qualifies for the intercorporate dividends
received deduction is as follows:
<TABLE>
<S> <C>
Growth and Income Portfolio . . . . . . . . . . 100%
Capital Appreciation Portfolio . . . . . . . . . 100%
Balanced Portfolio . . . . . . . . . . . . . . . 100%*
</TABLE>
* The percentage applies only to the taxable ordinary income which has been
reported on Form 1099-DIV (85.86% of 1995 income dividends).
35
<PAGE> 38
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc
Rorer Inc.; Director of Sun Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great
Atlantic and Pacific Tea Co., Alco Standard Corp.,
Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MacLAURY, President of The Brookings
Institution; Director of American Express Bank Ltd. and
The St. Paul Companies, Inc.
BURTON G. MALKIEL, Chemical Bank Chairman's
Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern
New England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and
Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co.,
and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer
of The Nature Conservancy; formerly, Director and
Senior Partner of McKinsey & Co. and President of New
York University; Director of Pacific Gas and Electric Co.
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco
Brands, Inc.; retired Vice Chairman and Director of RJR
Nabisco; Director of TECO Energy, Inc. and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive
Officer of Rohm & Haas Co.; Director of Cummins
Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice
President and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The
Vanguard Group, Inc., and of each of the investment
companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The
Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DiSTEFANO IAN A. MacKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM McNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
36
<PAGE> 39
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard Convertible
Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LIFEStrategy Funds
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
500 Portfolio
Total Stock Market Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Total Bond Market Portfolio
Short-Term Bond Portfolio
Intermediate-Term Bond Portfolio
Long-Term Bond Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Fund
U.S. Treasury Money Market Portfolio
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Fixed Income
Securities Fund
Vanguard Admiral Fund
Vanguard Preferred Stock Fund
[THE VANGUARD GROUP LOGO]
This Report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Vanguard Financial Center
Valley Forge, Pennsylvania 19482
New Account Information:
1 (800) 662-7447
Shareholder Account Services:
1 (800) 662-2739
Q870-12/95
ON OUR COVER: On the evening of August 1, 1798, Lord Horatio Nelson sailed his
flagship, HMS Vanguard, into Egypt's Aboukir Bay. In a night encounter, the
British fleet annihilated Napoleon Bonaparte's ships of the line in what is
still considered to be the most complete victory ever recorded in naval
history. Our Report's cover illustration is Thomas Luny's 1830 painting, The
Battle Of The Nile, in which the French flagship, L'Orient, is shown as it
exploded at 10:00 p.m. under a gibbous moon.
<PAGE> 40
VANGUARD TAX-MANAGED FUND
EDGAR APPENDIX
This appendix describes the components of the printed version of this report
that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features Thomas Luny's 1830
painting "The Battle Of The Nile".
A photograph of John C. Brennan and John C. Bogle appears on the inside cover
top-center.
A running head featuring a sword, helmet, gloves and battleships in the
background appears at the top of pages one through seven.
A bar chart illustrating Growth Stocks versus Value Stocks (Standard & Poor's
Growth Index, and Standard & Poor's Value Index), Annual Returns for the years
1990 through 1995 and a bar chart illustrating Large Stocks versus Small Stocks
Annual Returns for the years 1990 through 1995 appear at the top of page two.
A line chart illustrating performance between the Growth and Income Portfolio,
Standard & Poor's 500 Index, and Average Growth & Income Fund average Annual
Total Returns for the period September 6, 1994, to December 31, 1995 appears at
the top of page four.
A line chart illustrating performance between Capital Appreciation Portfolio,
Russell 1000 Index, and Average Capital Appreciation Fund, average Annual Total
Returns for the period September 6, 1994, to December 31, 1995 appears at the
top of page four.
A line chart illustrating performance between the Balanced Portfolio, Balanced
Composite Index and Average Balanced Fund, average Annual Total Returns for the
period September 6, 1994, to December 31, 1995 appears at the top of page five.
A running head featuring an hourglass, compass and telescope, and ships in the
background appears at the top of page eight.
A running head featuring open log book, pen and battleships in the background
appears at the top of pages nine through thirty four.
A running head featuring an hourglass, compass, and telescope, and ships in the
background appears at the top of page thirty five.
A running head featuring a sextant, a map, and battleships in the background
appears at the top of page thirty six.
A running head featuring birds flying and ships in the background appears at
the top of the inside back cover.
