|
|
|
|
|
|
|
|
|
<PAGE> 1
VANGUARD
TAX-MANAGED
FUND
Semiannual Report
June 30, 1997
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
[PHOTO]
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our
course toward the twenty-first century. Our Report cover reflects that blending
of tradition and innovation, of past, present, and future. The montage includes
a bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson; and several views of our recently completed
campus, which is steeped in nautical imagery--from our buildings named after
Nelson's warships (Victory, Majestic, and Goliath are three shown), to our
artwork and ornamental compass rose.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Performance
Summaries
6
Financial
Statements
7
Directors And
Officers
INSIDE BACK COVER
All comparative mutual fund data
are from Lipper Analytical Services, Inc.
or Morningstar unless otherwise noted.
<PAGE> 3
[PHOTO]
FELLOW SHAREHOLDER,
The stock market continued to race ahead while bond returns ambled along at a
deliberate pace during the first half of 1997. Vanguard Tax-Managed Fund's two
all-equity portfolios, Growth and Income and Capital Appreciation, posted very
strong gains during the period, while the Balanced Portfolio provided lower
returns that were representative of its less risky mix of assets.
Each of the Tax-Managed Portfolios uses an index approach to minimize
taxable capital gains and keep portfolio turnover low. Our Growth and Income
Portfolio precisely matched the performance of its benchmark, the Standard &
Poor's 500 Composite Stock Price Index, which is dominated by
large-capitalization stocks, while our Capital Appreciation Portfolio and
Balanced Portfolio trailed their benchmark indexes. The adjacent table presents
the total return (capital change plus reinvested dividends) provided by our
Portfolios and their respective unmanaged benchmarks.
The net asset values and income dividends for each Portfolio are
presented in the table at the end of this letter. None of the Portfolios
distributed any net realized capital gains during the period.
<TABLE>
<CAPTION>
- -----------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1997
- -----------------------------------------------------
<S> <C>
TAX-MANAGED GROWTH AND
INCOME PORTFOLIO +20.6%
S&P 500 Index +20.6
- -----------------------------------------------------
TAX-MANAGED CAPITAL
APPRECIATION PORTFOLIO +16.6%
Russell 1000 Index +18.6
- -----------------------------------------------------
TAX-MANAGED BALANCED PORTFOLIO + 8.9%
Tax-Managed Balanced
Composite Index* +10.5
- -----------------------------------------------------
</TABLE>
*50% Russell 1000 Index, 50% Lehman 7-Year
Municipal Bond Index.
THE PERIOD IN REVIEW
A nearly perfect climate for common stocks--strong economic growth, rising
corporate profits, and decelerating inflation--prevailed during the six months
ended June 30. The market's advance was especially impressive, since it was
achieved despite a drop of nearly -10% in the S&P 500 Index during the seven
weeks following February 18. By early May, however, the market had resumed its
ascent into record territory.
Large-cap stocks led the market's remarkable advance, and the S&P 500
Index handily beat the broader market averages: The Russell Midcap Index and
the Russell 2000 Index of small-cap stocks trailed the S&P 500 Index by 8 and
10 percentage points, respectively. Even within the S&P 500 Index, there was an
extreme bias in favor of big stocks. The 25 largest stocks in the Index
provided a +26.4% return during the six months, while the 475 others gained
+17.6%.
The bond market lost ground early in the period, but recovered nicely.
On balance, interest rates barely moved during the half-year--the yield on the
Bond Buyer Index of municipal bonds slipped a mere 3 basis points, from 5.72%
to 5.69%. The Lehman Municipal Bond Index, a good measure of the overall
tax-exempt bond market, provided a +3.2% return for the six months.
Our GROWTH AND INCOME PORTFOLIO, which aims to provide returns that
parallel the S&P 500 Index, benefited from the market's tilt toward large-cap
stocks and was able to
1
<PAGE> 4
match the Index precisely. The +20.6% return was well above the +16.0% return
on the average value (growth and income) mutual fund and exceeded returns of an
astounding 95% of all general equity mutual funds over the period. Although
grateful for such a remarkable result, we emphasize that it is unlikely to
persist or to recur.
Our CAPITAL APPRECIATION PORTFOLIO earned +16.6%, far above the
average capital appreciation fund's +10.2% return, but two percentage points
behind our benchmark Russell 1000 Index. Ironically, the stock market's
large-cap bias was the key factor in both the Portfolio's underperformance
versus the Index and its superiority over its average competitor. We select
stocks for the Portfolio from the lower-yielding growth stocks in the Russell
1000 Index. The market capitalizations of these stocks tend to be smaller than
those of the Index's higher-yielding growth stocks. Although "bigger was
better" during the first half of 1997, there are other periods when "small is
beautiful" and smaller stocks outperform the giants. For us, size was a help,
not a hindrance, in comparison with our peers. Our typical holding is larger
than those of many competing funds, some of which emphasize small-cap stocks.
The stock portion of our BALANCED PORTFOLIO is based on the same group
of low-yielding, growth-oriented equities that constitute our Capital
Appreciation Portfolio. We combine those stocks with holdings of high-quality,
intermediate-term, tax-exempt bonds. This market sector, as measured by the
Lehman 7-Year Municipal Bond Index, provided a return of +2.6% during the
half-year, a paltry result in comparison with the stock market's gains. To
retain its tax-exempt character, our Portfolio must invest at least 50% of its
assets in municipal bonds, and we slightly overweight the bond portion of the
Portfolio to assure meeting this requirement. This slight tilt toward municipal
bonds and the previously mentioned impact of the market's bias toward large
stocks are the reasons we trailed our Balanced Composite Index by 1.6
percentage points during the six months.
IN SUMMARY
The extraordinary bull market for U.S. stocks that began almost 15 years ago
has amply demonstrated the rewards of long-term investing. Risk, the
inseparable companion of reward, may not be so apparent just now. Yet investors
disregard risk at their peril.
We continue to believe that a prudent investment approach is to hold a
balanced portfolio of stock funds, bond funds, and money market funds in
proportions appropriate to one's financial situation, tolerance for risk, and
investment objectives. By helping to reduce the drag of taxes on returns,
Vanguard Tax-Managed Fund can play a useful role in such balanced portfolios
and help investors to "stay the course" toward their long-term investment
goals.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
July 24, 1997
2
<PAGE> 5
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------------------
DIVIDENDS FROM
NET INVESTMENT
NET ASSET VALUE PER SHARE INCOME FOR
------------------------------- SIX MONTHS ENDED
PORTFOLIO DEC. 31, 1996 JUN. 30, 1997 JUNE 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Managed Growth and Income $15.89 $19.03 $0.12
Tax-Managed Capital Appreciation 15.95 18.59 0.00
Tax-Managed Balanced 12.92 13.90 0.16
- --------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
[PHOTO]
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JUNE 30, 1997
U.S. EQUITY MARKETS
As the economy continued to grow while the rate of inflation did not, a robust
market provided solid gains to investors in U.S. common stocks during the first
half of 1997. The best performers were primarily larger-capitalization issues,
although the small-company indexes exhibited some strength in the final two
months of the period. Over the half-year, the Standard & Poor's 500 Composite
Stock Price Index gained 20.6%, fueled by a 10.8% boost since the end of April.
Reflecting the gains among smaller companies, the Russell 2000 Index posted a
10.2% increase for the six-month period, driven by an 11.1% jump in May and a
4.3% rise in June. It was particularly noteworthy that the recent small-cap
gains were led by small growth stocks, the worst segment of the U.S. market
during the past 12 months. This group has surged 17.6% since the end of March,
although at the half-year's end it still lagged the S&P 500 Index by a sizable
margin (5.2% versus 20.6%).
Stocks benefited from the continued strength of corporate earnings,
which rose some 15% during the past year, and from a widespread confidence
reflected in increased price/earnings ratios. The strength in earnings, the
expectation that income will continue to increase at an attractive pace, and
the further conviction that inflation is not a problem helped stocks to
continue to produce solid gains in the fiscal period. What's more, earnings
have shown not only good strength but remarkable consistency in beating the
consensus forecasts of Wall Street analysts.
The strongest gains in the S&P 500 Index during the past six months
came from the health-care sector (up 31.4%) and the consumer-staples sector (up
23.9%). By contrast, numerous uncertainties for utilities caused the issues in
that sector to lag the broad market, although, on an absolute basis, their 8.2%
return over six months is quite good.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 1997
---------------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 20.6% 34.7% 19.8%
Russell 2000 Index 10.2 16.3 17.9
MSCI EAFE Index 11.4 13.2 13.2
- --------------------------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 3.1% 8.2% 7.1%
Lehman 10-Year Municipal
Bond Index 3.3 8.3 7.4
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.5
- --------------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.1% 2.3% 2.7%
- --------------------------------------------------------------------------------------
</TABLE>
*Average annual.
U.S. FIXED-INCOME MARKETS
The modest rise in interest rates during the past six months reflects the
economy's underlying momentum. The 10-year U.S. Treasury's yield increased from
6.42% at the end of December to 6.97% by the middle of April. In the following
weeks, economic reports indicated a slowing in economic growth and further
reduced fears of an increase in inflation. This news helped interest rates fall
to 6.50% by the end of June.
4
<PAGE> 7
Fueled by robust consumer spending, the U.S. economy expanded at a
remarkable 5.8% rate in the first three months of 1997. Reflecting the vibrant
economy, the nation's unemployment rate stood at 5.0% in June. Strong economic
growth and tight labor markets have often led to rising inflation because of
increased demand for goods and services. With this in mind, the Federal Reserve
raised its federal funds interest rate target by 0.25% on March 25 in a
"preemptive" strike against mounting inflationary pressures. Observed price
increases have been subdued in recent months, however. Wholesale prices have
fallen in each of the first six months of 1997, and so far this year consumer
prices have risen at a slower pace than last year.
With interest rates very close to year-end levels, bond investors have
fared reasonably well during the past six months, as illustrated by the 3.1%
return of the Lehman Brothers Aggregate Bond Index. Investors who favored
shorter-maturity and lower-quality issues achieved somewhat better returns.
Mortgage-backed securities continued to perform well because refinancing
activity has been reduced to historically low levels as interest rates have
risen. Municipal issues also tended to perform better than their taxable
counterparts.
INTERNATIONAL EQUITY MARKETS
International investors received fairly good returns over the past six months.
As measured by the broad Morgan Stanley Capital International Europe,
Australasia, Far East Index, foreign markets gained 11.4%.
The period saw two major developments. First, the Japanese stock
market moved sharply higher in the spring, returning 11.1% in May and 7.5% in
June to U.S. investors. Better tone in the economy, plus strong earnings
reported by export-oriented companies benefiting from the weak yen, gave Japan
a long-awaited boost. For the six months, the Japanese market is up 9.2%. The
competitive benefits of a weak currency relative to the dollar extended to
Germany, where the export-driven capital goods and chemical manufacturers
gained; overall, the German market rose 17.0% during the six-month period.
Arguably the biggest news came from the French elections at the end of
May. The new government is considered to be less friendly toward the austerity
measures needed to meet the eligibility requirements for the European Monetary
Union (EMU) in 1999. The French elections also had a broad impact across the
continent. Although most investors appear to agree that the elections won't
jeopardize the continent's move toward the EMU, the timing and intensity of the
fiscal measures are now less certain. For the six months, Europe gained 24.8%
in local currencies, which a strong dollar trimmed to 14.4% for U.S. investors.
5
<PAGE> 8
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolios could lose money.
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-JUNE 30, 1997
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -2.3% 0.9% -1.4% -1.5%
1995 21.0 3.5 24.5 25.5
1996 9.0 3.2 12.2 13.2
1997** 7.6 1.3 8.9 10.5
- --------------------------------------------------------------------------------
</TABLE>
*50% Russell 1000 Index, 50% Lehman 7-Year Municipal Bond Index.
**Six months ended June 30, 1997.
See Financial Highlights table on page 28 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-JUNE 30, 1997
- --------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -2.6% 0.9% -1.7% -1.8%
1995 34.7 2.8 37.5 37.6
1996 20.7 2.3 23.0 23.0
1997* 19.8 0.8 20.6 20.6
- --------------------------------------------------------------------------------
</TABLE>
*Six months ended June 30, 1997.
See Financial Highlights table on page 29 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-JUNE 30, 1997
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO RUSSELL 1000
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -0.9% 0.4% -0.5% -1.3%
1995 33.5 0.9 34.4 37.8
1996 20.1 0.8 20.9 22.4
1997* 16.6 0.0 16.6 18.6
- --------------------------------------------------------------------------------
</TABLE>
*Six months ended June 30, 1997.
See Financial Highlights table on page 29 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1997
- ----------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio* 9/6/94 16.62% 12.34% 3.15% 15.49%
Growth and Income Portfolio* 9/6/94 34.68 25.56 2.49 28.05
Capital Appreciation Portfolio* 9/6/94 27.76 24.48 0.78 25.26
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Total returns do not reflect the 2% redemption fee on shares held less than
one year, or the 1% redemption fee on shares held at least one year but less
than five years.
6
<PAGE> 9
[PHOTO]
FINANCIAL STATEMENTS
JUNE 30, 1997 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings, including
each security's market value on the last day of the reporting period. The
Balanced and Capital Appreciation Portfolios' common stocks are grouped and
subtotaled by industry sector; the Growth and Income Portfolio's S&P 500 Index
common stocks are listed in descending market value order. The Balanced
Portfolio's municipal bond holdings are grouped and subtotaled by state. Other
assets are added to, and liabilities are subtracted from, the value of Total
Investments to calculate the Portfolio's Net Assets. Finally, Net Assets are
divided by the outstanding shares of the Portfolio to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each Portfolio, you will
find a table displaying the composition of the Portfolio's net assets on both a
dollar and per-share basis. Because all income and any realized gains must be
distributed to shareholders each year, the bulk of net assets consists of Paid
in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the Portfolio had available to distribute to shareholders
as income dividends or capital gains as of the statement date. Any Accumulated
Net Realized Losses, and any cumulative excess of distributions over net income
or net realized gains, will appear as negative balances. Unrealized
Appreciation (Depreciation) is the difference between the market value of the
Portfolio's investments and their cost, and reflects the gains (losses) that
would be realized if the Portfolio were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (47.8%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (2.4%)
- - AMR Corp. 1,000 $ 93
- - Atlas Air, Inc. 1,800 62
- - Autoliv, Inc. 511 20
Bandag, Inc. 300 15
Burlington Northern
Santa Fe Corp. 1,246 112
CNF Transportation Inc. 900 29
Chrysler Corp. 3,732 123
- - Consolidated Freightways Corp. 5,750 94
- - Continental Airlines, Inc. Class B 11,000 384
Delta Air Lines, Inc. 1,200 98
- - Federal Express Corp. 1,800 104
Ford Motor Co. 5,300 200
- - Fritz Cos., Inc. 2,000 19
General Motors Corp. 4,200 234
Harley-Davidson, Inc. 1,400 67
Kansas City Southern Industries, Inc. 1,000 65
- - Lear Corp. 1,600 71
LucasVarity PLC ADR 1,656 57
- - Northwest Airlines Corp. Class A 1,600 58
Pittston Burlington Group 400 11
Southwest Airlines Co. 3,100 80
- - UAL Corp. 1,200 86
Union Pacific Corp. 359 25
- - US Airways Group Inc. 3,800 133
- - Wisconsin Central
Transportation Corp. 1,800 67
-----------
2,307
-----------
CONSUMER DISCRETIONARY (7.2%)
- - AccuStaff, Inc. 2,700 64
- - ACNielson Corp. 3,200 63
Alberto-Culver Co. Class B 1,600 45
- - America Online, Inc. 1,700 95
- - AutoZone Inc. 3,100 73
BHC Communications, Inc.
Class A 500 60
- - Barnes & Noble Inc. 2,000 86
- - Bed Bath & Beyond, Inc. 2,000 61
- - Blyth Industries, Inc. 1,950 66
- - Boise Cascade Office
Products Corp. 2,400 41
- - Borders Group, Inc. 3,400 82
- - Boston Chicken, Inc. 1,700 24
- - Brinker International, Inc. 1,300 19
- - Choice Hotels Corp. Inc. 800 13
- - Chris-Craft Industries, Inc. 1,176 57
Circuit City Stores, Inc. 1,700 60
Cintas Corp. 200 14
- - Circus Circus Enterprises Inc. 2,600 64
- - Clear Channel Communications 1,700 104
Cognizant Corp. 2,200 89
- - Coleman Inc. 3,600 62
- - Consolidated Stores, Inc. 2,187 76
- - Corporate Express, Inc. 4,650 67
- - Corrections Corp. of America 2,100 83
- - Costco Cos., Inc. 3,000 99
Cracker Barrel Old Country
Stores, Inc. 2,300 61
- - CUC International, Inc. 3,900 101
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Dillard's Inc. 1,600 $ 55
The Walt Disney Co. 4,800 385
Eastman Kodak Co. 2,000 153
- - Electronic Arts Inc. 2,400 81
Fastenal Co. 1,400 68
- - Federated Department Stores 2,800 97
- - Fruit of the Loom, Inc. 1,900 59
The Gap, Inc. 2,000 78
- - Gartner Group, Inc. Class A 2,300 82
- - General Nutrition Cos., Inc. 3,300 92
- - GTech Holdings Corp. 1,700 55
- - HFS Inc. 1,800 104
- - HSN Inc. 900 28
- - Harrah's Entertainment, Inc. 700 13
Hasbro, Inc. 1,350 38
Home Depot, Inc. 3,800 262
- - Host Marriott Corp. 4,100 73
- - Host Marriott Services Corp. 420 5
- - ITT Corp. 600 37
IKON Office Solutions 1,200 30
International Game Technology 2,600 46
- - Jones Apparel Group, Inc. 1,800 86
- - Kmart Corp. 7,600 93
- - K-III Communications Corp. 5,000 60
King World Productions, Inc. 1,600 56
- - Kohls Corp. 1,700 90
La Quinta Inns Inc. 3,150 69
The Limited, Inc. 1,469 30
- - Lin Television 750 33
Lowe's Cos., Inc. 1,400 52
- - MGM Grand Inc. 1,300 48
Manpower Inc. 900 40
Marriott International 1,500 92
- - Marvel Entertainment Group 700 2
Mattel, Inc. 3,387 115
McDonald's Corp. 3,400 164
- - Micro Warehouse Inc. 300 5
- - Mirage Resorts, Inc. 3,400 86
Newell Co. 1,800 71
NIKE, Inc. Class B 1,500 88
- - Nine West Group, Inc. 1,200 46
Nordstrom, Inc. 500 24
- - Oakley, Inc. 5,000 70
- - Office Depot, Inc. 3,000 58
- - OfficeMax Inc. 4,600 66
- - Outback Steakhouse 100 2
- - Payless ShoeSource, Inc. 1,500 82
J.C. Penney Co., Inc. 1,178 61
Pep Boys (Manny, Moe & Jack) 200 7
- - PETsMART, Inc. 2,500 29
Pittston Brink's Group 800 24
- - Promus Hotel Corp. 1,800 70
Reebok International Ltd. 1,500 70
- - Robert Half International, Inc. 1,600 75
Rubbermaid, Inc. 1,800 53
Russell Corp. 600 18
- - Spiegel, Inc. Class A 2,200 15
- - Staples, Inc. 3,050 70
- - Starbucks Corp. 2,100 82
Stewart Enterprises, Inc. Class A 1,500 63
Sunbeam Corp. 2,400 91
Talbots Inc. 50 2
- - Tele-Communications Liberty
Media Group Class A 3,712 88
Time Warner, Inc. 3,200 154
- - Toys R Us, Inc. 3,200 112
- - USA Waste Service 1,900 73
Unisource Worldwide, Inc. 600 10
- - Viacom Inc. Class B 2,763 83
- - Viking Office Products 2,900 55
Wal-Mart Stores, Inc. 7,000 237
Warnaco Group 1,300 41
Waste Management Inc. 1,979 64
- - Woolworth Corp. 2,600 62
-----------
6,907
-----------
CONSUMER STAPLES (3.8%)
Albertson's, Inc. 2,000 73
CVS Corp. 1,414 73
The Coca-Cola Co. 16,300 1,100
Coca-Cola Enterprises, Inc. 3,900 90
Dole Food Co. 400 17
Gillette Co. 3,752 355
IBP, Inc. 2,100 49
Kellogg Co. 400 34
- - The Kroger Co. 3,600 104
PepsiCo, Inc. 9,000 338
Philip Morris Cos., Inc. 6,300 280
Procter & Gamble Co. 3,800 537
RJR Nabisco Holdings Corp. 1,460 48
- - Safeway, Inc. 3,967 183
Schweitzer-Mauduit International, Inc. 600 22
- - Southland Corp. 17,200 58
Sysco Corp. 1,500 55
Tyson Foods, Inc. 3,200 61
Walgreen Co. 2,000 107
Wrigley, (Wm.) Jr. Co. 800 54
-----------
3,638
-----------
FINANCIAL SERVICES (5.3%)
AFLAC, Inc. 1,800 85
Advanta Corp. Class A 200 7
- - Alleghany Corp. 410 89
American International Group, Inc. 3,000 448
Automatic Data Processing, Inc. 2,000 94
Banc One Corp. 2,332 113
BankAmerica Corp. 4,600 297
- - CNA Financial Corp. 1,000 105
Capital One Financial Corp. 900 34
Citicorp 2,900 350
- - Concord EFS, Inc. 2,600 67
Conseco Inc. 2,416 89
- - ContiFinancial Corp. 1,700 62
- - DST Systems, Inc. 1,600 53
Dime Bancorp, Inc. 4,000 70
The Equitable Cos. 2,200 73
Fannie Mae 5,700 249
Federal Home Loan
Mortgage Corp. 4,400 151
First Data Corp. 3,584 158
First Empire State Corp. 500 169
- - FIserv, Inc. 1,400 62
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Resources Corp. 1,500 $ 109
General Re Corp. 400 73
Golden West Financial Corp. 900 63
Green Tree Financial Corp. 2,100 75
Hartford Financial Services
Group Inc. 1,000 83
Lehman Brothers Holdings, Inc. 1,900 77
Leucadia National Corp. 1,200 37
Loews Corp. 800 80
MGIC Investment Corp. 1,800 86
Merrill Lynch & Co., Inc. 2,400 143
The Money Store 800 23
Morgan Stanley, Dean Witter,
Discover and Co. 4,380 189
The PMI Group Inc. 800 50
Progressive Corp. of Ohio 1,000 87
Salomon, Inc. 500 28
Charles Schwab Corp. 2,000 81
State Street Corp. 2,400 111
SunAmerica Inc. 1,800 88
- - SunGard Data Systems, Inc. 1,600 74
Transatlantic Holdings 600 60
Travelers Property Casualty Corp. 1,700 67
Travelers Group Inc. 3,800 240
20th Century Industries of CA 1,300 27
UNUM Corp. 1,800 76
Wells Fargo & Co. 600 162
Zions Bancorp 1,600 60
-----------
5,074
-----------
HEALTH CARE (5.7%)
Abbott Laboratories 4,100 274
Aetna Inc. 269 28
Aetna Inc. 6.25% Pfd. Series C 89 8
- - ALZA Corp. 2,300 67
Amgen, Inc. 2,800 163
- - Apria Healthcare 2,500 44
Becton, Dickinson & Co. 1,200 61
- - Beverly Enterprises, Inc. 4,600 75
- - Biogen, Inc. 1,700 58
Biomet, Inc. 3,000 56
- - Boston Scientific Corp. 1,400 86
Cardinal Health, Inc. 1,350 77
- - Centocor, Inc. 1,700 53
- - Chiron Corp. 3,540 74
Columbia/HCA Healthcare Corp. 5,902 232
- - Covance, Inc. 3,500 68
DENTSPLY International Inc. 1,200 59
- - Forest Laboratories, Inc. 300 12
- - Foundation Health Systems
Class A 4,440 134
- - Fresenius Medical Care AG ADR 944 27
- - Genzyme Corp. 2,300 64
- - Genzyme Corp. Tissue Repair 108 1
Guidant Corp. 1,200 102
HBO & Co. 1,700 117
- - HEALTHSOUTH Corp. 4,200 105
- - HealthCare COMPARE Corp. 1,200 63
- - Health Management Associates
Class A 2,250 64
- - Healthcare & Retirement Corp. 1,900 63
- - Humana, Inc. 3,600 83
- - IVAX Corp. 4,800 54
Johnson & Johnson 7,402 476
Mallinckrodt, Inc. 1,000 38
Manor Care Inc. 2,100 68
- - Marquette Medical Systems Inc. 400 9
- - Medaphis Corp. 700 7
- - MedPartners Inc. 1,452 31
Medtronic, Inc. 2,000 162
Merck & Co., Inc. 6,300 652
- - Nellcor Puritan Bennett, Inc. 3,400 62
Olsten Corp. 300 6
- - Oxford Health Plan 1,600 115
PacifiCare Health Systems Inc.
Class A 478 29
- - PacifiCare Health Systems Inc.
Class B 646 41
Pharmacia & Upjohn, Inc. 2,500 87
Pfizer, Inc. 3,100 370
- - PhyCor, Inc. 2,000 69
- - Quest Diagnostics Inc. 2,700 56
- - Quintiles Transnational Corp. 900 62
- - Quorum Health Group, Inc. 2,100 74
- - St. Jude Medical, Inc. 1,600 62
- - R. P. Scherer Corp. 1,000 52
Stryker Corp. 1,700 59
- - Sybron International Corp. 2,000 80
- - Talbert Medical Management
Holdings 66 3
- - Tenet Healthcare Corp. 5,827 172
United Healthcare Corp. 800 42
U.S. Surgical Corp. 1,700 63
- - Value Health, Inc. 100 2
- - Vencor, Inc. 1,700 72
- - Watson Pharmaceuticals, Inc. 1,400 59
- - Wellpoint Health Networks Inc.
Class A 233 11
-----------
5,463
-----------
INTEGRATED OILS (1.7%)
Amerada Hess Corp. 1,200 67
Amoco Corp. 2,900 252
Coastal Corp. 1,500 80
Exxon Corp. 13,400 824
Mobil Corp. 4,600 321
- - Seagull Energy Corp. 3,000 53
-----------
1,597
-----------
OTHER ENERGY (2.3%)
- - AES Corp. 12,700 899
Anadarko Petroleum Corp. 900 54
Burlington Resources, Inc. 1,100 49
- - CalEnergy Co. 1,500 57
- - Diamond Offshore Drilling, Inc. 800 62
- - ENSCO International, Inc. 1,400 74
El Paso Natural Gas 111 6
Enron Oil & Gas Co. 2,200 40
- - Enserch Exploration, Inc. 4,200 46
- - Global Marine, Inc. 3,200 74
- - Input/Output, Inc. 1,100 20
- - Nabors Industries, Inc. 3,900 97
Noble Affiliates, Inc. 1,200 46
- - Noble Drilling Corp. 3,000 68
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
- - Oryx Energy Co. 3,500 $ 74
Pogo Producing Co. 1,700 66
- - Reading & Bates Corp. 2,800 75
- - Rowan Cos., Inc. 2,900 82
- - Santa Fe Energy Resources, Inc. 4,500 66
- - Smith International, Inc. 1,400 85
TransOcean Offshore, Inc. 800 58
Union Pacific Resources Group, Inc. 304 8
- - Weatherford Enterra Inc. 1,700 65
- - Western Atlas, Inc. 900 66
-----------
2,237
-----------
MATERIALS & PROCESSING (3.3%)
- - Airgas, Inc. 2,700 53
Albemarle Corp. 900 19
Allegheny Teledyne Inc. 577 16
- - Alumax, Inc. 1,700 64
Aluminum Co. of America 1,100 83
- - American Standard Cos., Inc. 1,600 72
Archer-Daniels-Midland Co. 5,614 132
- - Bethlehem Steel Corp. 350 4
- - Catellus Development Corp. 4,500 81
Centex Corp. 1,400 57
Champion International Corp. 1,300 72
Crown Cork & Seal Co., Inc. 900 48
- - Cytec Industries, Inc. 1,500 56
E.I. du Pont de Nemours & Co. 6,600 415
Fluor Corp. 800 44
- - Fort Howard Corp. 2,400 121
Freeport-McMoRan Copper &
Gold Inc. Class B 1,263 39
Freeport-McMoRan, Inc. 300 9
W.R. Grace & Co. 900 50
Great Lakes Chemical Corp. 400 21
Homestake Mining Co. 200 3
IMC Global Inc. 1,600 56
Illinois Tool Works, Inc. 1,600 80
International Paper Co. 1,900 92
- - International Specialty
Products, Inc. 4,500 63
- - Jefferson Smurfit Corp. 4,100 66
Johns Manville Corp. 2,500 30
Kimberly-Clark Corp. 3,072 153
LTV Corp. 1,000 14
Louisiana-Pacific Corp. 600 13
Martin Marietta Materials, Inc. 400 13
Monsanto Co. 2,500 108
Morton International, Inc. 1,500 45
Newmont Gold Co. 200 8
Newmont Mining Corp. 2,094 82
Nucor Corp. 1,300 73
Owens Corning 1,100 47
- - Owens-Illinois, Inc. 2,800 87
Praxair, Inc. 1,900 106
Price Enterprises, Inc. 1,400 27
Reynolds Metals Co. 900 64
A. Schulman Inc. 700 17
- - Sealed Air Corp. 1,400 66
Sigma-Aldrich Corp. 2,000 70
Stone Container Corp. 400 6
Tyco International Ltd. 1,734 121
- - UCAR International, Inc. 1,400 64
- - USG Corp. 1,600 58
- - U.S. Industries, Inc. 1,800 64
-----------
3,152
-----------
PRODUCER DURABLES (2.0%)
AGCO Corp. 2,000 72
- - American Power Conversion Corp. 100 2
- - Applied Materials, Inc. 1,200 85
- - Associated Group, Inc. Class B 50 2
The Boeing Co. 4,400 233
Caterpillar, Inc. 1,400 150
Clayton Homes Inc. 3,638 52
Cummins Engine Co., Inc. 400 28
Danaher Corp. 1,500 76
Emerson Electric Co. 2,400 132
W.W. Grainger, Inc. 600 47
- - KLA-Tencor Corp. 400 20
- - LAM Research Corp. 300 11
- - Lexmark International Group, Inc.
Class A 2,200 67
Lockheed Martin Corp. 1,300 135
Mark IV Industries, Inc. 2,038 49
McDonnell Douglas Corp. 1,800 123
Millipore Corp. 1,300 57
Molex, Inc. 2,171 79
- - Octel Communications Corp. 900 21
- - PictureTel Corp. 1,400 13
Raychem Corp. 800 60
- - Republic Industries, Inc. 2,800 68
Sensormatic Electronics Corp. 50 1
- - Solectron Corp. 1,100 77
- - Teradyne, Inc. 3,600 141
- - Thermo Instrument Systems, Inc. 2,012 62
- - Thermo Fibertek, Inc. 1,800 18
Wheelabrator Technologies, Inc. 1,500 23
York International Corp. 1,000 46
-----------
1,950
-----------
TECHNOLOGY (9.2%)
- - ADC Telecommunications, Inc. 2,700 90
- - Adaptec, Inc. 1,800 63
Adobe Systems, Inc. 100 4
- - Adtran, Inc. 400 10
- - Advanced Micro Devices, Inc. 500 18
- - Altera Corp. 1,800 91
- - Amdahl Corp. 5,000 44
- - Analog Devices, Inc. 3,666 97
- - Andrew Corp. 1,950 55
- - Apple Computer, Inc. 1,100 16
- - Arrow Electronics, Inc. 1,000 53
- - Ascend Communications, Inc. 1,900 75
- - Atmel Corp. 2,400 67
- - BMC Software, Inc. 2,000 111
- - Bay Networks, Inc. 1,035 27
- - Cabletron Systems, Inc. 2,600 74
- - Cadence Design Systems, Inc. 2,100 70
- - Cascade Communications Corp. 1,900 52
- - Cisco Systems, Inc. 5,100 342
- - Compaq Computer Corp. 2,400 238
Computer Associates International, Inc. 2,825 157
- - CompUSA, Inc. 4,000 86
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
- - Computer Sciences Corp. 1,500 $ 108
- - Compuware Corp. 2,200 105
- - DSC Communications Corp. 700 16
- - Dell Computer Corp. 2,400 282
- - Digital Equipment Corp. 2,700 96
- - EMC Corp. 3,300 129
Electronic Data Systems Corp. 1,900 78
- - Electronics for Imaging, Inc. 1,600 76
- - FORE Systems, Inc. 4,200 57
- - Gateway 2000 Inc. 2,200 71
- - General Instrument Corp. 400 10
- - Glenayre Technologies, Inc. 2,700 44
Hewlett-Packard Co. 6,000 336
- - Imation Corp. 920 24
- - Informix Corp. 4,800 43
Intel Corp. 5,600 793
International Business
Machines Corp. 7,000 631
- - Intuit, Inc. 400 9
- - Iomega Corp. 3,700 74
- - Komag, Inc. 1,900 31
- - LSI Logic Corp. 2,400 77
- - Learning Co., Inc. 4,400 41
Lucent Technologies, Inc. 2,119 153
- - MEMC Electronic Materials, Inc. 2,800 92
- - Maxim Integrated Products, Inc. 1,400 79
- - McAfee Associates, Inc. 1,300 82
- - Microchip Technology, Inc. 1,900 56
- - Microsoft Corp. 5,900 746
- - Micron Technology, Inc. 2,200 88
Motorola, Inc. 1,500 114
- - NCR Corp. 2,368 70
- - National Semiconductor Corp. 2,600 80
- - Netscape Communications Corp. 1,700 54
Newport News Shipbuilding Inc. 3,340 65
- - Novell, Inc. 5,900 41
- - Oracle Corp. 4,900 247
- - Pairgain Technologies, Inc. 1,900 29
- - PanAmSat Corp. 540 16
- - Parametric Technology Corp. 2,600 110
- - PeopleSoft Inc. 1,500 79
- - Premisys Communications, Inc. 3,200 50
- - Quantum Corp. 5,000 102
- - SCI Systems, Inc. 1,300 83
Scientific-Atlanta, Inc. 200 4
- - Seagate Technology 4,790 169
- - Shiva Corp. 2,600 27
- - Silicon Graphics, Inc. 3,600 54
- - Sterling Commerce, Inc. 1,900 62
- - Sterling Software, Inc. 1,700 53
- - Storage Technology Corp. 1,900 85
- - Sun Microsystems, Inc. 4,200 156
- - Sybase, Inc. 300 4
- - Synopsys, Inc. 1,200 44
- - Tandem Computers, Inc. 600 12
Tandy Corp. 100 6
- - Tellabs, Inc. 2,400 134
Texas Instruments, Inc. 1,300 109
- - 3Com Corp. 5,225 235
Total System Services, Inc. 2,000 49
- - Unisys Corp. 1,700 13
Varian Associates, Inc. 900 49
- - Vishay Intertechnology, Inc. 2,124 61
- - Western Digital Corp. 2,200 70
- - Xilinx, Inc. 1,600 78
-----------
8,881
-----------
UTILITIES (2.6%)
AT&T Corp. 4,300 151
- - AirTouch Communications, Inc. 5,100 140
- - Associated Group, Inc. 50 2
BellSouth Corp. 6,000 278
- - Cablevision Systems Corp. Class B 200 11
Century Telephone Enterprises, Inc. 1,500 50
CINergy Corp. 1,700 59
- - Citizens Utilities Co. Class B 7,000 56
Columbia Gas Systems, Inc. 1,000 65
Comcast Corp. Class A Special 4,300 92
- - Cox Communications Class A 2,400 58
ENSERCH Corp. 2,100 47
Frontier Corp. 1,600 32
- - LCI International, Inc. 3,600 79
MCI Communications Corp. 5,700 218
NGC Corp. 2,800 43
- - NEXTEL Communications 6,500 123
- - Niagara Mohawk Power Corp. 5,900 50
- - Paging Network, Inc. 1,900 17
- - QUALCOMM, Inc. 1,400 71
SBC Communications Inc. 1,772 110
Sprint Corp. 3,200 168
- - Tele-Communications, Inc.
Class A 2,000 30
- - Tele-Communications
International, Inc. Series A 3,300 50
Telephone & Data Systems, Inc. 500 19
- - 360 Communications Co. 2,766 47
- - U.S. Cellular Corp. 1,800 53
- - U S WEST Media Group 5,700 115
- - Viacom Inc. Class A 548 16
- - WorldCom, Inc. 8,152 260
-----------
2,510
-----------
OTHER (2.3%)
AlliedSignal Inc. 1,700 143
- - Ceridian Corp. 1,600 68
- - Coltec Inc. 3,100 60
- - FMC Corp. 400 32
General Electric Co. 16,400 1,072
ITT Industries, Inc. 600 15
- - Litton Industries, Inc. 1,200 58
Minnesota Mining &
Manufacturing Co. 2,500 255
Raytheon Co. 1,800 92
St. Joe Corp. 700 59
Tenneco, Inc. 1,200 54
- - Thermo Electron Corp. 2,650 91
Westinghouse Electric Corp. 8,858 205
-----------
2,204
-----------
- ----------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $30,833) 45,920
- ----------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
BALANCED PORTFOLIO (000) (000)
- ----------------------------------------------------------------------------------------------
MUNICIPAL BONDS (54.5%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ALASKA (1.9%)
Alaska Housing Finance
Corp. VRDO
4.15%, 7/2/97 $ 700 $ 700
North Slope AK Borough GO
7.50%, 6/30/01 1,000 1,110
-----------
1,810
-----------
ARIZONA (1.6%)
Maricopa AZ Unified School Dist.
7.125%, 7/1/99 1,500 1,574
-----------
CALIFORNIA (6.6%)
Anaheim CA Public Improvement
Corp. Lease COP Project VRDO
3.90%, 7/2/97 (2) 40 40
California Dept. of Water
(Central Valley Project )
8.25%, 12/1/03 290 351
California GO
6.40%, 2/1/06 (1) 500 559
10.00%, 4/1/98 400 418
California Health Fac. Finance Auth.
(Catholic Healthcare West)
6.25%, 7/1/06 (1) 395 438
Central Coast CA Water Auth.
6.00%, 10/1/08 (2) 1,000 1,087
Clovis CA Unified School Dist.
0.00%, 8/1/05 (3) 2,000 1,350
Los Angeles CA Waste
Water System
5.75%, 6/1/10 (1) 400 415
South Orange County CA
Public Finance Auth.
7.00%, 9/1/06 (1) 875 1,019
Univ. of California
(Multiple Purpose Project)
12.00%, 9/1/03 (2) 500 695
-----------
6,372
-----------
CONNECTICUT (2.1%)
Connecticut GO Series A
6.00%, 5/15/03 1,000 1,073
South Central CT Regional
Water Auth. Water System Rev.
5.75%, 8/1/06 900 953
-----------
2,026
-----------
DISTRICT OF COLUMBIA (1.6%)
District of Columbia GO
6.75%, 6/1/05 (2) 1,400 1,490
-----------
FLORIDA (3.7%)
Dade County FL School Dist.
7.375%, 7/1/99 (Prere.) 400 432
Dade County FL Water &
Sewer Rev. VRDO
4.15%, 7/2/97 (3) 1,110 1,110
Florida Dept. of General Services
6.00%, 7/1/03 (2) 1,000 1,071
Hillsborough County FL IDA
PCR Rev. VRDO
(Tampa Electric Co.)
4.00%, 7/2/97 30 30
Lee County FL School Board
6.00%, 8/1/05 (4) 800 863
-----------
3,506
-----------
GEORGIA (1.6%)
Burke County GA Dev. Auth.
PCR VRDO (Oglethorpe Power)
4.15%, 7/2/97 480 480
Georgia GO
6.00%, 3/1/04 1,000 1,081
-----------
1,561
-----------
ILLINOIS (0.5%)
Illinois Sales Tax Rev.
7.20%, 6/15/99 (Prere.) 400 430
-----------
INDIANA (0.1%)
Amoco IN PCR VRDO
(Amoco Co. Project)
4.00%, 7/2/97 135 135
-----------
KENTUCKY (0.4%)
Kentucky Property &
Buildings Comm.
5.80%, 9/1/06 400 422
-----------
LOUISIANA (1.4%)
East Baton Rouge Parish
LA PCR VRDO (Exxon Project)
4.05%, 7/2/97 255 255
Louisiana GO
6.00%, 8/1/01 (3) 1,000 1,059
-----------
1,314
-----------
MARYLAND (0.4%)
Maryland Dept. of Transp.
5.20%, 9/15/04 400 412
-----------
MASSACHUSETTS (3.1%)
Massachusetts Bay Transp. Auth.
6.25%, 3/1/05 1,000 1,090
Massachusetts GO
7.25%, 7/1/98 (Prere.) 500 524
Massachusetts Ind. Finance Agency
Rev. (Refusetech Inc. Project)
6.30%, 7/1/05 1,000 1,057
Massachusetts Water
Resources Auth.
5.75%, 8/1/10 (1) 300 311
-----------
2,982
-----------
MICHIGAN (4.2%)
Dickinson County MI Memorial
Hospital System Rev.
7.625%, 11/1/05 500 532
Greater Detroit MI Resource
Recovery Auth.
6.25%, 12/13/06 (2) 1,200 1,318
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Michigan Environmental
Protection Program
6.25%, 11/1/08 $ 1,000 $ 1,098
Michigan Housing Dev. Auth.
Rental Housing Rev.
6.30%, 4/1/04 1,000 1,052
-----------
4,000
-----------
NEVADA (1.6%)
Clark County NV School Dist. GO
5.90%, 6/15/12 (3) 750 781
6.00%, 6/15/99 (3) 700 723
-----------
1,504
-----------
NEW JERSEY (1.8%)
New Jersey Econ. Dev. Auth. Market
Transition Fac.
5.70%, 7/1/05 (1) 400 422
New Jersey Health Care Fac.
Finance Auth.
(Atlantic City Medical Center)
6.80%, 7/1/05 1,000 1,081
New Jersey Transp. Trust Fund
6.00%, 6/15/08 250 271
-----------
1,774
-----------
NEW YORK (7.1%)
Erie County NY GO
6.125%, 1/15/11 (3) 610 669
Hempstead NY GO
5.625%, 2/1/11 (3) 840 866
Huntington NY GO
6.70%, 2/1/10 (3) 375 431
Metropolitan NY Transp. Auth.
6.00%, 7/1/06 (1) 1,000 1,082
New York City NY GO
6.375%, 8/15/09 640 678
7.10%, 8/15/07 500 551
New York City NY Muni.
Assistance Corp.
5.00%, 7/1/99 500 508
New York City NY Muni.
Finance Auth. Water &
Sewer System Rev. VRDO
4.15%, 7/2/97 (3) 585 585
New York Environmental Fac.
Corp. PCR
(State Water Recovery Fund)
6.35%, 6/15/06 520 572
New York State Dormitory Auth.
(State Univ.)
5.375%, 5/15/07 (2) 400 418
New York State Thruway Service
Contract Local Highway/Building
5.40%, 4/1/05 (1) 400 414
-----------
6,774
NORTH CAROLINA (1.1%)
Charlotte NC Airport Refunding
Rev. VRDO
4.15%, 7/2/97 (1) 1,060 1,060
-----------
OHIO (2.5%)
Cuyahoga County OH
Hospital Rev.
VRDO (Cleveland Clinic)
4.05%, 7/2/97 LOC 620 620
Ohio Public Fac. Comm.
5.50%, 12/1/06 (1) 400 416
Ohio Water Dev. Auth.
5.75%, 12/1/05 (1) 540 572
6.00%, 12/1/08 (2) 750 797
-----------
2,405
-----------
PENNSYLVANIA (5.6%)
Geisinger PA Auth. Health System
Rev. VRDO
4.05%, 7/2/97 1,170 1,170
Pennsylvania GO
5.90%, 11/15/01 1,000 1,058
Pennsylvania Convention
Center Auth.
6.70%, 9/1/14 (1) 500 554
Pennsylvania Higher Educ. Fac.
Health Services
(Allegheny Delaware Valley
Obligation Group)
5.00%, 11/15/06 1,125 1,127
Pennsylvania Turnpike Comm. Rev.
7.625%, 12/1/99 (Prere.) 500 549
Philadelphia PA School Dist. GO
6.25%, 9/1/05 (2) 870 949
-----------
5,407
-----------
TEXAS (2.6%)
Harris County TX Toll Road VRDO
4.05%, 7/2/97 930 930
Houston TX Hotel Occupancy
5.25%, 7/1/07 (4) 500 508
San Antonio TX Water Rev.
6.50%, 5/15/10 (1) 500 544
Univ. of Texas Permanent Fund
6.60%, 7/1/01 (Prere.) 500 549
-----------
2,531
-----------
UTAH (0.3%)
Salt Lake County UT Building Auth.
Lease Rev.
5.90%, 10/1/06 (1) 260 277
-----------
VIRGINIA (0.6%)
Virginia Transp. Board
6.00%, 5/15/07 500 536
-----------
WASHINGTON (1.0%)
Washington State GO VRDO
4.10%, 7/2/97 1,000 1,000
-----------
WEST VIRGINIA (0.7%)
West Virginia School Building Auth.
Capital Improvement Rev.
5.625%, 7/1/02 655 689
-----------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
BALANCED PORTFOLIO (000) (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
WISCONSIN (0.4%)
Wisconsin GO
5.00%, 5/1/00 $ 335 $ 341
-----------
- ----------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $51,260) 52,332
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.3%)
(COST $82,093) 98,252
- ----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.3%)
- ----------------------------------------------------------------------------------------------
Other Assets--Notes B and E 1,977
Liabilities--Note E (4,204)
-----------
(2,227)
- ----------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------
Applicable to 6,910,649 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $96,025
==============================================================================================
NET ASSET VALUE PER SHARE $13.90
==============================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income Producing Security.
ADR--American Depository Receipt.
COP--Certificate of Participation.
GO--General Obligation Bond.
IDA--Industrial Development Authority Bond.
PCR--Pollution Control Revenue Bond.
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $80,349 $11.63
Undistributed Net
Investment Income 101 .01
Accumulated Net Realized Losses (584) (.08)
Unrealized Appreciation--Note D 16,159 2.34
- ----------------------------------------------------------------------------------------------
NET ASSETS $96,025 $13.90
==============================================================================================
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
GROWTH AND INCOME VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (99.5%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 198,572 $ 12,982
The Coca-Cola Co. 150,026 10,127
Exxon Corp. 149,774 9,211
- - Microsoft Corp. 72,246 9,135
Merck & Co., Inc. 72,379 7,491
Intel Corp. 49,492 7,006
Royal Dutch Co. ADR 128,516 6,988
Philip Morris Cos., Inc. 147,379 6,540
Procter & Gamble Co. 41,134 5,810
International Business
Machines Corp. 62,168 5,607
Johnson & Johnson 80,288 5,169
Bristol-Myers Squibb Co. 60,088 4,867
Wal-Mart Stores, Inc. 138,043 4,667
Pfizer, Inc. 38,890 4,647
E.I. du Pont de Nemours & Co. 67,932 4,271
American International Group, Inc. 28,526 4,261
Eli Lilly & Co. 33,698 3,684
PepsiCo, Inc. 93,652 3,518
AT&T Corp. 97,731 3,427
Hewlett-Packard Co. 60,752 3,402
SBC Communications Inc. 54,555 3,376
Citicorp 27,919 3,366
Mobil Corp. 47,718 3,334
The Walt Disney Co. 40,632 3,261
Gillette Co. 33,808 3,203
Abbott Laboratories 46,497 3,104
American Home Products Corp. 38,618 2,954
Chevron Corp. 39,324 2,908
Fannie Mae 65,832 2,872
NationsBank Corp. 44,253 2,854
Lucent Technologies, Inc. 38,825 2,798
BellSouth Corp. 60,086 2,786
BankAmerica Corp. 43,114 2,784
Motorola, Inc. 36,101 2,744
- - Cisco Systems, Inc. 40,310 2,706
Ford Motor Co. 71,518 2,700
Amoco Corp. 29,994 2,608
Minnesota Mining &
Manufacturing Co. 25,245 2,575
Chase Manhattan Corp. 26,296 2,552
GTE Corp. 57,864 2,539
General Motors Corp. 44,541 2,480
Travelers Group Inc. 38,876 2,452
The Boeing Co. 43,718 2,320
Ameritech Corp. 33,365 2,267
Schering-Plough Corp. 44,436 2,127
American Express Co. 28,388 2,115
Unilever NV ADR 9,546 2,081
Warner-Lambert Co. 16,312 2,027
- - Oracle Corp. 39,753 2,000
Home Depot, Inc. 28,829 1,987
Bell Atlantic Corp. 26,188 1,987
McDonald's Corp. 41,115 1,986
Allstate Corp. 26,190 1,912
Schlumberger Ltd. 15,033 1,879
- - WorldCom, Inc. 54,200 1,731
Texaco Inc. 15,784 1,717
Kimberly-Clark Corp. 34,044 1,694
Banc One Corp. 34,885 1,690
- - Compaq Computer Corp. 16,660 1,654
Time Warner, Inc. 33,491 1,616
Columbia/HCA Healthcare Corp. 40,286 1,584
First Union Corp. 17,039 1,576
MCI Communications Corp. 41,012 1,569
Xerox Corp. 19,465 1,535
NYNEX Corp. 26,416 1,522
Monsanto Co. 35,225 1,517
Eastman Kodak Co. 19,528 1,499
Morgan Stanley, Dean Witter,
Discover and Co. 34,589 1,489
Freddie Mac 42,960 1,477
Emerson Electric Co. 26,732 1,472
Wells Fargo & Co. 5,443 1,467
Northern Telecom Ltd. 15,757 1,434
AlliedSignal Inc. 16,971 1,426
Campbell Soup Co. 28,112 1,406
Chrysler Corp. 42,230 1,386
Sprint Corp. 25,972 1,367
Atlantic Richfield Co. 19,092 1,346
Dow Chemical Co. 14,640 1,276
Sears, Roebuck & Co. 23,399 1,258
Anheuser-Busch Cos., Inc. 29,914 1,255
Norwest Corp. 22,087 1,242
Lockheed Martin Corp. 11,688 1,210
Caterpillar, Inc. 11,195 1,202
Sara Lee Corp. 28,832 1,200
- - Dell Computer Corp. 10,200 1,197
First Data Corp. 27,138 1,192
Computer Associates
International, Inc. 21,411 1,192
United Technologies Corp. 14,266 1,184
Merrill Lynch & Co., Inc. 19,592 1,168
Medtronic, Inc. 14,384 1,165
Colgate-Palmolive Co. 17,506 1,142
J.P. Morgan & Co., Inc. 10,860 1,134
First Chicago NBD Corp. 18,534 1,121
Duke Energy Corp. 22,903 1,098
Kellogg Co. 12,668 1,085
U S WEST Communications Group 28,746 1,083
Pharmacia & Upjohn, Inc. 30,870 1,073
Union Pacific Corp. 14,700 1,036
H.J. Heinz Co. 22,088 1,019
The Bank of New York Co., Inc. 23,100 1,005
NIKE, Inc. Class B 17,012 993
Fleet Financial Group, Inc. 15,678 992
Texas Instruments, Inc. 11,626 977
Amgen, Inc. 16,088 934
ConAgra, Inc. 14,446 926
General Re Corp. 4,987 908
Aetna Inc. 8,859 907
Southern Co. 41,412 906
- - 3Com Corp. 20,150 905
Westinghouse Electric Corp. 38,206 884
The Seagram Co. Ltd. 21,872 880
International Paper Co. 18,023 875
Waste Management Inc. 27,186 873
McDonnell Douglas Corp. 12,704 870
Baxter International, Inc. 16,344 854
Gannett Co., Inc. 8,602 849
PNC Bank Corp. 20,101 837
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
GROWTH AND INCOME VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Data Processing, Inc. 17,568 $ 826
Deere & Co. 14,979 822
- - Sun Microsystems, Inc. 21,948 816
Burlington Northern Santa Fe Corp. 9,009 810
CIGNA Corp. 4,546 807
- - AirTouch Communications, Inc. 29,400 805
CPC International, Inc. 8,611 795
- - Applied Materials, Inc. 11,100 785
Walgreen Co. 14,640 785
Aluminum Co. of America 10,404 784
J.C. Penney Co., Inc. 15,006 783
Rockwell International Corp. 13,153 776
Archer-Daniels-Midland Co. 32,624 767
Corning, Inc. 13,713 763
- - U S WEST Media Group 37,346 756
Household International, Inc. 6,422 754
Norfolk Southern Corp. 7,473 753
Illinois Tool Works, Inc. 14,872 743
KeyCorp 13,224 739
MBNA Corp. 20,065 735
SunTrust Banks, Inc. 13,336 734
CSX Corp. 13,014 722
CoreStates Financial Corp. 13,431 722
Raytheon Co. 14,122 720
Marsh & McLennan Cos., Inc. 9,904 707
Mellon Bank Corp. 15,578 703
The Chubb Corp. 10,498 702
- - Boston Scientific Corp. 11,341 697
Tyco International Ltd. 10,016 697
American General Corp. 14,576 696
May Department Stores Co. 14,647 692
First Bank System, Inc. 8,100 692
Phillips Petroleum Co. 15,792 691
Loews Corp. 6,900 691
National City Corp. 13,100 688
Dayton-Hudson Corp. 12,732 677
Textron, Inc. 10,004 664
The Gap, Inc. 16,892 657
- - CUC International, Inc. 24,800 640
- - Viacom Inc. Class B 21,324 640
General Mills, Inc. 9,741 634
BankBoston Corp. 8,760 631
Barnett Banks, Inc. 11,964 628
Weyerhaeuser Co. 12,001 624
Enron Corp. 15,250 622
Pitney Bowes, Inc. 8,940 621
PPG Industries, Inc. 10,525 612
Edison International 24,428 608
PG&E Corp. 24,858 603
- - Tellabs, Inc. 10,800 602
Halliburton Co. 7,590 602
- - Tele-Communications, Inc.
Class A 39,729 588
Hartford Financial Services
Group Inc. 7,101 588
United Healthcare Corp. 11,264 586
U.S. Bancorp 9,134 586
- - Toys R Us, Inc. 16,691 584
Mattel, Inc. 17,220 583
Honeywell, Inc. 7,646 580
The Goodyear Tire & Rubber Co. 9,116 577
Unocal Corp. 14,723 571
Wachovia Corp. 9,785 571
CVS Corp. 10,959 562
- - EMC Corp. 14,300 558
Albertson's, Inc. 15,265 557
Avon Products, Inc. 7,692 543
Praxair, Inc. 9,560 535
- - HFS Inc. 9,200 534
AMP, Inc. 12,740 532
Ralston-Ralston Purina Group 6,442 529
Air Products & Chemicals, Inc. 6,490 527
Aon Corp. 10,100 523
- - Tenet Healthcare Corp. 17,466 516
FPL Group, Inc. 11,049 509
Fifth Third Bancorp 6,200 508
- - Seagate Technology 14,400 507
Barrick Gold Corp. 22,579 497
- - HEALTHSOUTH Corp. 19,900 496
- - Micron Technology, Inc. 12,200 487
Hershey Foods Corp. 8,798 487
- - AMR Corp. 5,259 486
USX-Marathon Group 16,578 479
Service Corp. International 14,480 476
Occidental Petroleum Corp. 18,945 475
Georgia-Pacific Corp. 5,500 470
American Electric Power Co., Inc. 10,930 459
Alcan Aluminium Ltd. 13,165 457
Marriott International 7,434 456
Texas Utilities Co. 13,071 450
Wrigley, (Wm.) Jr. Co. 6,697 449
Tenneco, Inc. 9,877 446
- - The Kroger Co. 15,338 445
Great Western Financial Corp. 8,053 433
Comerica, Inc. 6,300 428
TRW, Inc. 7,440 423
Conseco Inc. 11,400 422
American Stores Co. 8,486 419
- - Federated Department Stores 12,000 417
Crown Cork & Seal Co., Inc. 7,803 417
- - ITT Corp. 6,801 415
Browning-Ferris Industries, Inc. 12,358 411
Bankers Trust New York Corp. 4,700 409
Charles Schwab Corp. 10,000 407
Dover Corp. 6,590 405
Consolidated Edison Co. of
New York, Inc. 13,700 403
- - Costco Cos., Inc. 12,226 402
Dominion Resources, Inc. 10,874 398
Eaton Corp. 4,559 398
Cognizant Corp. 9,780 396
Williams Cos., Inc. 9,031 395
Lincoln National Corp. 6,121 394
The Clorox Co. 2,985 394
Masco Corp. 9,434 394
Entergy Corp. 14,386 394
Ingersoll-Rand Co. 6,360 393
Fortune Brands, Inc. 10,388 388
Hilton Hotels Corp. 14,416 383
- - Federal Express Corp. 6,580 380
Dresser Industries, Inc. 10,098 376
Pioneer Hi-Bred International, Inc. 4,698 376
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Guidant Corp. 4,400 $ 374
PacifiCorp 16,962 373
Lowe's Cos., Inc. 10,035 372
Newell Co. 9,338 370
Sysco Corp. 10,129 370
Transamerica Corp. 3,941 369
St. Paul Cos., Inc. 4,789 365
Rite Aid Corp. 7,301 364
Union Pacific Resources
Group, Inc. 14,591 363
Becton, Dickinson & Co. 7,096 359
Cooper Industries, Inc. 7,195 358
ALLTEL Corp. 10,700 358
UNUM Corp. 8,518 358
Cardinal Health, Inc. 6,200 355
The Quaker Oats Co. 7,856 353
Salomon, Inc. 6,300 350
Delta Air Lines, Inc. 4,272 350
Genuine Parts Co. 10,337 350
The McGraw-Hill Cos. 5,938 349
Newmont Mining Corp. 8,909 347
- - Kmart Corp. 28,150 345
Union Carbide Corp. 7,315 344
Tribune Co. 7,158 344
Republic New York Corp. 3,200 344
SAFECO Corp. 7,320 342
Public Service Enterprise
Group Inc. 13,635 341
Freeport-McMoRan Copper &
Gold Inc. Class B 10,900 339
Baker Hughes, Inc. 8,679 336
MGIC Investment Corp. 7,000 336
International Flavors &
Fragrances, Inc. 6,582 332
The Limited, Inc. 16,197 328
Coastal Corp. 6,157 327
Rohm & Haas Co. 3,631 327
Winn-Dixie Stores, Inc. 8,708 324
Burlington Resources, Inc. 7,343 324
R.R. Donnelley & Sons Co. 8,741 320
Comcast Corp. Class A Special 14,996 320
Phelps Dodge Corp. 3,741 319
- - Digital Equipment Corp. 8,971 318
Carolina Power & Light Co. 8,848 317
CINergy Corp. 9,106 317
Times Mirror Co. Class A 5,734 317
VF Corp. 3,721 315
- - Computer Sciences Corp. 4,372 315
Sherwin-Williams Co. 10,194 315
Reynolds Metals Co. 4,406 314
- - Bay Networks, Inc. 11,800 313
- - Parametric Technology Corp. 7,300 310
Champion International Corp. 5,517 305
Northrop Grumman Corp. 3,468 305
- - Thermo Electron Corp. 8,800 303
Amerada Hess Corp. 5,417 301
Houston Industries, Inc. 13,992 300
Interpublic Group of Cos., Inc. 4,857 298
Inco Ltd. 9,897 298
Eastman Chemical Co. 4,682 297
UST Inc. 10,699 297
Consolidated Natural Gas Co. 5,517 297
Torchmark Corp. 4,149 296
Nucor Corp. 5,197 294
Hercules, Inc. 6,117 293
Green Tree Financial Corp. 8,200 292
Jefferson-Pilot Corp. 4,153 290
Case Corp. 4,200 289
- - Advanced Micro Devices, Inc. 8,008 288
General Dynamics Corp. 3,816 286
Unicom Corp. 12,729 283
MBIA, Inc. 2,500 282
PECO Energy Corp. 13,256 278
New York Times Co. Class A 5,565 275
Allegheny Teledyne Inc. 10,046 271
Parker Hannifin Corp. 4,449 270
Fluor Corp. 4,880 269
Knight-Ridder, Inc. 5,470 268
Equifax, Inc. 7,200 268
The Dun & Bradstreet Corp. 10,180 267
- - LSI Logic Corp. 8,250 264
H.F. Ahmanson & Co. 6,099 262
Sonat, Inc. 5,097 261
Laidlaw Inc. Class B 18,900 261
Central & South West Corp. 12,245 260
GPU Inc. 7,200 258
- - National Semiconductor Corp. 8,409 258
Rubbermaid, Inc. 8,647 257
Avery Dennison Corp. 6,284 252
- - Cabletron Systems, Inc. 8,900 252
TJX Cos., Inc. 9,502 251
W.R. Grace & Co. 4,420 244
Whirlpool Corp. 4,453 243
Baltimore Gas & Electric Co. 8,998 240
- - Western Atlas, Inc. 3,260 239
Morton International, Inc. 7,900 238
Willamette Industries, Inc. 3,400 238
Dana Corp. 6,237 237
Union Electric Co. 6,248 235
Placer Dome, Inc. 14,312 234
Nordstrom, Inc. 4,774 234
Beneficial Corp. 3,278 233
Golden West Financial Corp. 3,318 232
Southwest Airlines Co. 8,887 230
DTE Energy Co. 8,302 229
- - Humana, Inc. 9,900 229
Dow Jones & Co., Inc. 5,640 227
W.W. Grainger, Inc. 2,873 225
Pennzoil Co. 2,878 221
Columbia Gas Systems, Inc. 3,373 220
Hasbro, Inc. 7,750 220
Northern States Power Co. 4,228 219
State Street Corp. 4,700 217
- - AutoZone Inc. 9,200 217
PACCAR, Inc. 4,660 216
Sigma-Aldrich Corp. 6,100 213
The Stanley Works 5,306 212
Union Camp Corp. 4,238 212
Black & Decker Corp. 5,686 211
Perkin-Elmer Corp. 2,650 211
Circuit City Stores, Inc. 5,928 211
Dillard's Inc. 6,086 211
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
GROWTH AND INCOME VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
- - General Instrument Corp. 8,300 $ 208
Brown-Forman Corp. Class B 4,235 207
Wendy's International, Inc. 7,951 206
Harcourt General, Inc. 4,266 203
IKON Office Solutions 8,066 201
Ohio Edison Co. 9,221 201
Liz Claiborne, Inc. 4,269 199
- - St. Jude Medical, Inc. 5,082 198
Frontier Corp. 9,900 197
PP&L Resources Inc. 9,900 197
Harris Corp. 2,336 196
- - Woolworth Corp. 8,150 196
Westvaco Corp. 6,143 193
Johnson Controls, Inc. 4,676 192
James River Corp. 5,179 192
Brunswick Corp. 6,026 188
Ecolab, Inc. 3,915 187
Ashland Inc. 4,006 186
ITT Industries, Inc. 7,201 185
- - Ceridian Corp. 4,351 184
USX-U.S. Steel Group 5,200 182
H & R Block, Inc. 5,600 181
- - Providian Financial Corp. 5,543 178
Great Lakes Chemical Corp. 3,343 175
Tandy Corp. 3,116 175
Raychem Corp. 2,346 174
The Mead Corp. 2,802 174
Thomas & Betts Corp. 3,228 170
Aegon NV ARS 2,407 169
Armstrong World Industries Inc. 2,227 163
Kerr-McGee Corp. 2,576 163
Temple-Inland Inc. 3,000 162
Engelhard Corp. 7,690 161
- - FMC Corp. 2,023 161
U.S. Surgical Corp. 4,292 160
- - US Airways Group Inc. 4,502 157
Pall Corp. 6,695 156
Pacific Enterprises 4,587 154
Cummins Engine Co., Inc. 2,141 151
Mallinckrodt, Inc. 3,962 151
American Greetings Corp. Class A 4,047 150
Deluxe Corp. 4,382 149
USF&G Corp. 6,191 149
Ryder System, Inc. 4,364 144
- - Tandem Computers, Inc. 6,989 142
Bausch & Lomb, Inc. 3,002 141
- - Silicon Graphics, Inc. 9,400 141
Nalco Chemical Co. 3,635 140
Adobe Systems, Inc. 4,000 140
Maytag Corp. 5,364 140
Reebok International Ltd. 2,991 140
- - DSC Communications Corp. 6,274 140
Polaroid Corp. 2,460 136
- - Andrew Corp. 4,860 136
Whitman Corp. 5,560 133
- - ALZA Corp. 4,479 130
- - Rowan Cos., Inc. 4,586 129
Snap-On Inc. 3,267 129
- - Fruit of the Loom, Inc. 4,100 127
Tupperware Corp. 3,417 125
- - Novell, Inc. 18,030 125
The BFGoodrich Co. 2,874 124
Louisiana-Pacific Corp. 5,800 123
Cyprus Amax Minerals Co. 5,000 123
SuperValu Inc. 3,546 122
Sun Co., Inc. 3,945 122
The Timken Co. 3,410 121
Mercantile Stores Co., Inc. 1,926 121
Bemis Co., Inc. 2,775 120
- - Oryx Energy Co. 5,631 119
Echlin, Inc. 3,301 119
Owens Corning 2,747 118
Crane Co. 2,803 117
General Signal Corp. 2,662 116
National Service Industries, Inc. 2,369 115
Biomet, Inc. 6,185 115
Allergan, Inc. 3,518 112
C.R. Bard, Inc. 3,077 112
NorAm Energy Corp. 7,318 112
Pep Boys (Manny, Moe & Jack) 3,208 109
Manor Care Inc. 3,313 108
Harnischfeger Industries Inc. 2,587 107
Moore Corp. Ltd. 5,340 105
Tektronix, Inc. 1,751 105
Giant Food, Inc. Class A 3,204 105
Louisiana Land & Exploration Co. 1,813 104
Homestake Mining Co. 7,868 103
Scientific-Atlanta, Inc. 4,678 102
Millipore Corp. 2,294 101
Autodesk, Inc. 2,560 98
- - Harrah's Entertainment, Inc. 5,449 98
McDermott International, Inc. 3,341 98
Cooper Tire & Rubber Co. 4,385 96
NICOR, Inc. 2,680 96
Worthington Industries, Inc. 5,202 95
- - Apple Computer, Inc. 6,691 95
Countrywide Credit Industries, Inc. 3,000 94
Foster Wheeler Corp. 2,222 90
- - Beverly Enterprises, Inc. 5,283 86
Comcast Corp. Class A 4,100 86
Meredith Corp. 2,896 84
- - Santa Fe Energy Resources, Inc. 5,707 84
Boise Cascade Corp. 2,330 82
Shared Medical Systems Corp. 1,476 79
Caliber System Inc. 2,115 79
Darden Restaurants Inc. 8,541 77
ENSERCH Corp. 3,427 76
Stone Container Corp. 5,308 76
Alberto-Culver Co. Class B 2,686 75
Helmerich & Payne, Inc. 1,284 74
- - Unisys Corp. 9,381 72
King World Productions, Inc. 2,027 71
Briggs & Stratton Corp. 1,398 70
Inland Steel Industries, Inc. 2,641 69
Peoples Energy Corp. 1,819 68
- - Niagara Mohawk Power Corp. 7,793 67
- - Navistar International Corp. 3,756 65
Potlatch Corp. 1,400 63
ASARCO, Inc. 2,042 63
Battle Mountain Gold Co. Class A 10,888 62
- - Bethlehem Steel Corp. 5,931 62
Aeroquip-Vickers Inc. 1,297 61
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
- - Amdahl Corp. 6,693 $ 59
Centex Corp. 1,408 57
Fleetwood Enterprises, Inc. 1,856 55
Great Atlantic &
Pacific Tea Co., Inc. 2,030 55
Jostens Inc. 2,055 55
Russell Corp. 1,820 54
EG & G, Inc. 2,290 52
Ball Corp. 1,701 51
Springs Industries Inc. Class A 960 51
Safety-Kleen Corp. 2,797 47
Longs Drug Stores, Inc. 1,742 46
Adolph Coors Co. Class B 1,728 46
- - Data General Corp. 1,721 45
Cincinnati Milacron, Inc. 1,715 44
ONEOK, Inc. 1,291 42
Pulte Corp. 1,194 41
Freeport-McMoRan Copper &
Gold Inc. Class A 1,300 38
Echo Bay Mines Ltd. 6,582 38
Eastern Enterprises 1,072 37
Kaufman & Broad Home Corp. 2,111 37
Stride Rite Corp. 2,771 36
John H. Harland Co. 1,304 30
Giddings & Lewis, Inc. 1,414 29
Fleming Cos., Inc. 1,563 28
- - Charming Shoppes, Inc. 5,243 27
- - Armco, Inc. 6,055 23
- - Intergraph Corp. 2,751 23
NACCO Industries, Inc. Class A 331 19
- - Viacom Inc. Class A 100 3
- ----------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $298,103) 407,119
- ----------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.93%, 7/1/97
(COST $609) $609 609
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.6%)
(COST $298,712) 407,728
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- ----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.4%)
- ----------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note B $ 2,781
Liabilities (1,310)
----------
1,471
- ----------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------
Applicable to 21,500,341 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $409,199
==============================================================================================
NET ASSET VALUE PER SHARE $19.03
==============================================================================================
*See Note A in Notes to Financial Statements.
- -Non-Income Producing Security.
ADR--American Depository Receipt.
ARS--American Registered Share.
- ----------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------
Paid in Capital $301,226 $14.01
Undistributed Net
Investment Income 196 .01
Accumulated Net Realized Losses (1,239) (.06)
Unrealized Appreciation--Note D 109,016 5.07
- ----------------------------------------------------------------------------------------------
NET ASSETS $409,199 $19.03
==============================================================================================
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
CAPITAL APPRECIATION VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (100%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (3.6%)
- - AMR Corp. 16,300 $ 1,508
- - Autoliv, Inc. 30,047 1,176
Bandag, Inc. 11,850 581
Burlington Northern Santa Fe Corp. 17,931 1,611
CNF Transportation Inc. 22,600 729
Chrysler Corp. 17,286 567
- - Consolidated Freightways Corp. 73,371 1,204
- - Continental Airlines, Inc. Class B 24,900 870
Cooper Tire & Rubber Co. 27,300 601
Delta Air Lines, Inc. 14,100 1,156
- - Federal Express Corp. 25,000 1,444
Ford Motor Co. 20,200 762
General Motors Corp. 51,500 2,868
Harley-Davidson, Inc. 22,900 1,098
Kansas City Southern
Industries, Inc. 14,500 935
- - Lear Corp. 23,500 1,043
LucasVarity PLC ADR 12,956 449
MascoTech Inc. 14,000 292
- - Northwest Airlines Corp. Class A 24,700 903
Pittston Burlington Group 7,650 215
Southwest Airlines Co. 40,300 1,043
- - UAL Corp. 16,700 1,195
Union Pacific Corp. 24,653 1,738
- - US Airways Group Inc. 25,000 875
Werner Enterprises, Inc. 6,000 117
- - Wisconsin Central
Transportation Corp. 24,300 904
-----------
25,884
-----------
CONSUMER DISCRETIONARY (15.4%)
- - AccuStaff, Inc. 40,000 947
- - America Online, Inc. 23,000 1,279
- - AutoZone Inc. 44,800 1,056
BHC Communications, Inc.
Class A 7,200 860
- - Barnes & Noble Inc. 22,300 959
- - Bed Bath & Beyond, Inc. 27,300 830
A. H. Belo Corp. Class A 19,200 799
- - Boise Cascade Office
Products Corp. 34,100 580
- - Boston Chicken, Inc. 42,400 592
- - Brinker International, Inc. 34,800 496
- - Burlington Coat Factory
Warehouse Corp. 5,300 103
- - CUC International, Inc. 71,450 1,844
Callaway Golf Co. 26,500 941
- - Choice Hotels Corp. Inc. 30,100 510
- - Chris-Craft Industries, Inc. 18,125 874
Cintas Corp. 11,100 764
Circuit City Stores, Inc. 26,900 957
- - Circus Circus Enterprises Inc. 33,800 832
- - Clear Channel Communications 19,000 1,168
Cognizant Corp. 34,700 1,405
- - Coleman Inc. 33,800 583
- - Consolidated Stores, Inc. 29,406 1,022
- - Corporate Express, Inc. 71,000 1,023
- - Corrections Corp. of America 32,800 1,304
- - Costco Cos., Inc. 39,700 1,306
Cracker Barrel Old Country
Stores, Inc. 26,800 708
Darden Restaurants Inc. 99,900 905
Dillard's Inc. 30,400 1,053
The Walt Disney Co. 77,503 6,220
Dollar General Corp. 31,827 1,193
- - Electronic Arts Inc. 29,100 980
Fastenal Co. 19,100 933
- - Federated Department Stores 38,600 1,341
First Brands Corp. 9,200 211
- - Fruit of the Loom, Inc. 26,100 809
The Gap, Inc. 34,900 1,357
- - Gartner Group, Inc. Class A 31,100 1,117
Gaylord Entertainment Class A 25,843 596
- - General Nutrition Cos., Inc. 37,900 1,059
- - GTech Holdings Corp. 22,100 713
- - HFS Inc. 27,600 1,601
- - HSN Inc. 27,290 855
- - Harrah's Entertainment, Inc. 45,000 810
Hasbro, Inc. 32,400 919
Home Depot, Inc. 58,900 4,060
- - Host Marriott Corp. 52,700 939
- - Host Marriott Services Corp. 53,520 629
- - ITT Corp. 24,500 1,496
IKON Office Solutions 33,300 830
International Game Technology 49,100 871
- - Jones Apparel Group, Inc. 19,200 917
- - Kmart Corp. 101,600 1,245
- - K-III Communications Corp. 68,200 818
King World Productions, Inc. 19,900 696
- - Kohls Corp. 20,000 1,059
La Quinta Inns Inc. 35,200 770
- - Lands' End, Inc. 1,400 41
The Limited, Inc. 37,337 756
- - Lin Television 15,800 697
- - Lone Star Steakhouse & Saloon 3,000 78
Lowe's Cos., Inc. 32,500 1,206
- - MGM Grand Inc. 19,200 710
Manpower Inc. 14,200 632
Marriott International 20,800 1,277
- - Marvel Entertainment Group 248,200 589
Mattel, Inc. 48,612 1,647
McDonald's Corp. 81,900 3,957
- - Fred Meyer, Inc. 18,300 946
- - Micro Warehouse Inc. 43,400 744
- - Mirage Resorts, Inc. 48,400 1,222
Newell Co. 27,300 1,082
NIKE, Inc. Class B 23,100 1,348
- - Nine West Group, Inc. 19,900 760
Nordstrom, Inc. 7,100 348
- - Office Depot, Inc. 54,700 1,063
- - OfficeMax Inc. 62,600 904
- - Outback Steakhouse 34,100 824
J.C. Penney Co., Inc. 13,654 712
Pep Boys (Manny, Moe & Jack) 20,000 681
- - PETsMART, Inc. 69,500 797
Pittston Brink's Group 18,900 567
- - Promus Hotel Corp. 22,550 874
Reebok International Ltd. 21,750 1,017
- - Robert Half International, Inc. 21,800 1,026
Rubbermaid, Inc. 31,600 940
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Russell Corp. 17,250 $ 511
E.W. Scripps Co. 12,835 534
Shaw Industries, Inc. 47,000 499
- - Staples, Inc. 45,325 1,051
- - Starbucks Corp. 28,100 1,097
Stewart Enterprises, Inc. Class A 19,800 829
Sunbeam Corp. 32,100 1,212
Talbots Inc. 3,400 116
- - Tele-Communications Liberty
Media Group Class A 51,412 1,223
Time Warner, Inc. 62,775 3,029
- - Toys R Us, Inc. 50,200 1,757
- - USA Waste Service 28,500 1,101
Unisource Worldwide, Inc. 9,800 157
- - Viacom Inc. Class B 47,006 1,410
- - Viking Office Products 47,100 892
Wal-Mart Stores, Inc. 142,100 4,805
Warnaco Group 24,300 774
- - Woolworth Corp. 42,400 1,018
-----------
110,204
-----------
CONSUMER STAPLES (8.7%)
Albertson's, Inc. 29,200 1,066
CVS Corp. 18,214 933
The Coca-Cola Co. 249,300 16,828
Coca-Cola Enterprises, Inc. 54,900 1,263
Dole Food Co. 18,800 804
Gillette Co. 64,058 6,070
Great Atlantic & Pacific
Tea Co., Inc. 15,300 416
IBP, Inc. 35,300 821
Kellogg Co. 6,500 556
- - The Kroger Co. 48,200 1,398
PepsiCo, Inc. 178,400 6,701
Philip Morris Cos., Inc. 163,800 7,269
Procter & Gamble Co. 74,300 10,495
RJR Nabisco Holdings Corp. 4,360 144
- - Safeway, Inc. 56,092 2,587
- - Southland Corp. 211,500 710
Sysco Corp. 28,100 1,026
Tyson Foods, Inc. 43,350 826
Walgreen Co. 33,400 1,791
Wrigley, (Wm.) Jr. Co. 16,300 1,092
-----------
62,796
-----------
FINANCIAL SERVICES (11.5%)
AFLAC, Inc. 28,050 1,325
Advanta Corp. Class A 18,600 682
Aetna Inc. 21,097 2,160
Aetna Inc. 6.25% Pfd. Series C 1,333 124
- - Alleghany Corp. 3,808 828
Allmerica Property & Casualty Cos. 26,700 874
AMBAC, Inc. 11,700 893
American International Group, Inc. 44,750 6,684
Automatic Data Processing, Inc. 34,800 1,636
Banc One Corp. 29,963 1,451
BankAmerica Corp. 71,400 4,610
- - CNA Financial Corp. 7,300 770
Capital One Financial Corp. 15,700 593
Citicorp 45,200 5,449
- - Concord EFS, Inc. 35,500 925
Conseco Inc. 31,766 1,175
Dime Bancorp, Inc. 46,100 807
The Equitable Cos. 26,700 888
Equitable of Iowa Co. 13,700 767
Fannie Mae 103,800 4,528
Federal Home Loan Mortgage Corp. 91,600 3,149
First Data Corp. 52,462 2,305
First Empire State Corp. 2,200 741
- - FIserv, Inc. 21,800 975
Franklin Resources Corp. 18,750 1,361
General Re Corp. 9,800 1,784
Golden West Financial Corp. 13,500 945
Green Tree Financial Corp. 33,200 1,183
Hartford Financial Services Group 17,300 1,431
Horace Mann Educators Corp. 16,000 784
Lehman Brothers Holdings, Inc. 30,200 1,223
Leucadia National Corp. 25,800 798
Loews Corp. 12,900 1,292
MBIA, Inc. 8,700 981
MGIC Investment Corp. 26,000 1,246
Merrill Lynch & Co., Inc. 49,800 2,969
Morgan Stanley, Dean Witter,
Discover and Co. 71,900 3,096
The PMI Group Inc. 13,600 848
Paychex, Inc. 19,950 765
Progressive Corp. of Ohio 13,200 1,148
Provident Cos., Inc. 12,502 669
St. Paul Cos., Inc. 2,400 183
Salomon, Inc. 20,800 1,157
Charles Schwab Corp. 28,600 1,164
State Street Corp. 32,600 1,508
SunAmerica Inc. 25,100 1,224
- - SunGard Data Systems, Inc. 17,400 809
TIG Holdings, Inc. 20,800 650
Transatlantic Holdings 8,400 834
Travelers Group Inc. 74,265 4,683
20th Century Industries of CA 38,400 806
UNUM Corp. 26,400 1,109
Western National Corp. 34,000 912
Zurich Reinsurance Centre
Holdings, Inc. 5,600 221
-----------
82,122
-----------
HEALTH CARE (13.0%)
Abbott Laboratories 70,300 4,692
- - ALZA Corp. 30,500 884
American Home Products Corp. 24,400 1,867
Amgen, Inc. 36,800 2,138
Beckman Instruments Inc. 13,700 661
Becton, Dickinson & Co. 25,000 1,266
- - Beverly Enterprises, Inc. 54,500 886
- - Biogen, Inc. 26,400 895
Biomet, Inc. 47,000 877
- - Boston Scientific Corp. 24,800 1,524
Cardinal Health, Inc. 21,300 1,219
- - Centocor, Inc. 28,300 878
- - Chiron Corp. 51,540 1,074
Columbia/HCA Healthcare Corp. 82,821 3,256
DENTSPLY International 12,900 631
- - DePuy, Inc. 20,000 460
- - Forest Laboratories, Inc. 21,800 903
- - Foundation Health Systems
Class A 53,770 1,630
- - Genzyme Corp. 34,000 941
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
CAPITAL APPRECIATION VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
- - Genzyme Corp. Tissue Repair 391 $ 4
Guidant Corp. 17,100 1,454
HBO & Co. 20,200 1,391
- - HEALTHSOUTH Corp. 62,202 1,551
- - HealthCare COMPARE Corp. 17,000 891
- - Health Management Associates
Class A 32,075 914
- - Healthcare & Retirement Corp. 24,800 828
- - Humana, Inc. 47,800 1,105
- - IDEXX Laboratories 26,000 322
- - Interneuron Pharmaceutical, Inc. 11,900 240
- - IVAX Corp. 85,500 957
Johnson & Johnson 146,606 9,438
Mallinckrodt, Inc. 16,500 627
Manor Care Inc. 28,500 930
- - Marquette Medical Systems Inc. 3,500 77
McKesson Corp. 12,200 946
- - Medaphis Corp. 17,100 173
- - MedPartners Inc. 49,856 1,078
Medtronic, Inc. 31,600 2,560
Merck & Co., Inc. 107,800 11,157
Mylan Laboratories, Inc. 54,450 803
- - Nellcor Puritan Bennett, Inc. 40,000 728
- - NovaCare, Inc. 10,200 142
Olsten Corp. 23,100 449
- - Oxford Health Plan 17,700 1,271
PacifiCare Health Systems Inc.
Class A 4,096 248
- - PacifiCare Health Systems Inc.
Class B 10,432 666
Pfizer, Inc. 64,900 7,756
- - PhyCor, Inc. 26,100 898
- - Quintiles Transnational Corp. 13,000 904
- - Quorum Health Group, Inc. 24,300 866
- - St. Jude Medical, Inc. 28,050 1,094
- - R. P. Scherer Corp. 15,600 805
Schering-Plough Corp. 76,200 3,648
Stryker Corp. 29,700 1,040
- - Sybron International Corp. 24,200 965
- - Talbert Medical Management
Holdings 839 38
- - Tenet Healthcare Corp. 70,537 2,085
United Healthcare Corp. 31,100 1,617
U.S. Surgical Corp. 24,300 905
- - Value Health, Inc. 18,600 377
- - Vencor, Inc. 22,385 946
- - Watson Pharmaceuticals, Inc. 20,600 869
- - Wellpoint Health Networks Inc.
Class A 18,303 840
-----------
93,285
-----------
INTEGRATED OILS (2.6%)
Amerada Hess Corp. 19,100 1,061
Amoco Corp. 23,500 2,043
Coastal Corp. 21,200 1,128
Exxon Corp. 158,000 9,717
Mobil Corp. 53,000 3,703
- - Seagull Energy Corp. 41,300 723
-----------
18,375
-----------
OTHER ENERGY (3.2%)
- - AES Corp. 20,100 1,422
Anadarko Petroleum Corp. 15,300 918
Apache Corp. 26,100 848
Burlington Resources, Inc. 26,500 1,169
- - CalEnergy Co. 21,500 817
- - Diamond Offshore Drilling, Inc. 12,200 953
Enron Oil & Gas Co. 36,200 656
- - ENSCO International, Inc. 21,400 1,129
- - Global Marine, Inc. 45,900 1,067
- - Input/Output, Inc. 6,900 125
Mapco Inc. 19,600 617
- - Nabors Industries, Inc. 45,900 1,148
Noble Affiliates, Inc. 20,200 781
- - Noble Drilling Corp. 47,000 1,060
- - Oryx Energy Co. 39,650 838
Parker & Parsley Petroleum Co. 19,900 704
Pogo Producing Co. 19,100 739
- - Reading & Bates Corp. 34,700 928
- - Rowan Cos., Inc. 40,700 1,147
- - Santa Fe Energy Resources, Inc. 52,000 764
- - Smith International, Inc. 18,800 1,142
- - TransTexas Gas Corp. 43,200 678
Union Pacific Resources
Group, Inc. 48,342 1,203
Union Texas Petroleum
Holdings, Inc. 37,800 791
- - Western Atlas, Inc. 14,200 1,040
-----------
22,684
-----------
MATERIALS & PROCESSING (7.3%)
- - Airgas, Inc. 49,800 987
Albemarle Corp. 23,000 484
Allegheny Teledyne Inc. 27,142 733
- - Alumax, Inc. 22,000 835
Aluminum Co. of America 23,600 1,779
- - American Standard Cos., Inc. 21,900 980
Archer-Daniels-Midland Co. 82,283 1,934
ASARCO, Inc. 7,200 221
- - Bethlehem Steel Corp. 82,600 862
- - Burlington Industries, Inc. 1,500 18
- - Castle & Cooke Inc. 23,300 386
Centex Corp. 18,900 768
Champion International Corp. 20,800 1,149
Crown Cork & Seal Co., Inc. 17,500 935
E.I. du Pont de Nemours & Co. 101,600 6,388
Fluor Corp. 16,200 894
- - Fort Howard Corp. 23,700 1,199
Freeport-McMoRan, Inc. 6,785 196
Freeport-McMoRan Copper &
Gold Inc. Class A 138 4
Freeport-McMoRan Copper &
Gold Inc. Class B 11,087 345
Georgia Gulf Corp. 14,700 427
W.R. Grace & Co. 19,300 1,064
Great Lakes Chemical Corp. 18,700 979
Homestake Mining Co. 53,500 699
IMC Global Inc. 27,100 949
Illinois Tool Works, Inc. 32,400 1,618
Inland Steel Industries, Inc. 34,100 891
International Paper Co. 35,600 1,729
- - International Specialty
Products, Inc. 50,300 707
- - Jefferson Smurfit Corp. 49,300 795
Johns Manville Corp. 55,100 651
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Kimberly-Clark Corp. 57,696 $ 2,870
LTV Corp. 58,400 832
Lone Star Industries, Inc. 2,000 91
Louisiana-Pacific Corp. 1,050 22
Martin Marietta Materials, Inc. 20,900 677
Morton International, Inc. 23,600 712
Newmont Gold Co. 15,100 603
Newmont Mining Corp. 47,291 1,844
Nucor Corp. 21,800 1,232
Owens Corning 19,600 845
- - Owens-Illinois, Inc. 38,400 1,190
Praxair, Inc. 29,200 1,635
Price Enterprises, Inc. 13,100 251
Reynolds Metals Co. 5,300 378
- - Sealed Air Corp. 19,800 941
Sigma-Aldrich Corp. 30,400 1,064
Stone Container Corp. 72,700 1,041
TriMas Corp. 7,700 217
Tyco International Ltd. 24,788 1,724
- - UCAR International, Inc. 16,800 769
- - USG Corp. 23,000 840
Waste Management Inc. 37,265 1,197
Wausau Paper Mills Co. 1,100 21
-----------
52,602
-----------
PRODUCER DURABLES (4.6%)
AGCO Corp. 26,700 960
- - American Power Conversion Corp. 45,800 866
- - Applied Materials, Inc. 31,700 2,244
The Boeing Co. 83,600 4,436
Caterpillar, Inc. 22,000 2,362
Clayton Homes Inc. 51,616 736
Cummins Engine Co., Inc. 9,800 692
Danaher Corp. 18,100 920
Emerson Electric Co. 47,200 2,599
W.W. Grainger, Inc. 12,300 962
- - KLA-Tencor Corp. 27,000 1,317
- - LAM Research Corp. 21,000 779
- - Lexmark International Group,
Inc. Class A 31,100 945
Lockheed Martin Corp. 19,200 1,988
Mark IV Industries, Inc. 32,110 771
McDonnell Douglas Corp. 24,000 1,644
Millipore Corp. 17,900 788
Molex, Inc. 30,820 1,126
Nordson Corp. 2,000 129
Raychem Corp. 11,900 885
- - Republic Industries, Inc. 48,600 1,195
- - Solectron Corp. 15,100 1,058
- - Teradyne, Inc. 34,700 1,362
- - Thermo Instrument Systems, Inc. 21,887 670
Wheelabrator Technologies, Inc. 36,300 560
York International Corp. 18,000 828
-----------
32,822
-----------
TECHNOLOGY (20.3%)
- - ADC Telecommunications, Inc. 33,000 1,103
- - Adaptec, Inc. 29,600 1,029
Adobe Systems, Inc. 22,900 804
- - Advanced Micro Devices, Inc. 42,700 1,537
- - Altera Corp. 28,600 1,445
- - Amdahl Corp. 73,300 641
- - Analog Devices, Inc. 42,533 1,130
- - Andrew Corp. 31,987 898
- - Apple Computer, Inc. 53,000 754
- - Arrow Electronics, Inc. 16,500 877
- - Ascend Communications, Inc. 25,600 1,006
- - Atmel Corp. 34,200 960
Autodesk, Inc. 22,500 863
- - BMC Software, Inc. 24,800 1,375
- - Bay Networks, Inc. 50,093 1,331
- - Cabletron Systems, Inc. 29,100 824
- - Cadence Design Systems, Inc. 31,150 1,044
- - Cascade Communications Corp. 28,200 778
- - CIENA Corp. 10,000 471
- - Cisco Systems, Inc. 76,100 5,111
- - Compaq Computer Corp. 34,500 3,424
- - CompUSA, Inc. 44,400 955
Computer Associates
International, Inc. 39,675 2,209
- - Computer Sciences Corp. 16,300 1,176
- - Compuware Corp. 37,800 1,810
- - DSC Communications Corp. 42,200 940
- - DST Systems, Inc. 21,900 730
- - Dell Computer Corp. 33,000 3,874
- - Digital Equipment Corp. 36,900 1,308
- - EMC Corp. 40,900 1,595
Electronic Data Systems Corp. 35,500 1,456
- - Electronics For Imaging, Inc. 21,900 1,034
- - FORE Systems, Inc. 46,700 635
- - Gateway 2000 Inc. 27,200 882
- - General Instrument Corp. 39,400 985
- - Glenayre Technologies, Inc. 33,200 545
Hewlett-Packard Co. 95,500 5,348
- - Imation Corp. 27,190 717
- - Informix Corp. 85,400 770
Intel Corp. 87,700 12,418
International Business
Machines Corp. 109,100 9,839
- - Intuit, Inc. 29,800 683
- - Iomega Corp. 49,700 988
- - Komag, Inc. 29,200 479
- - LSI Logic Corp. 29,900 957
Linear Technology Corp. 19,200 992
Lucent Technologies, Inc. 74,897 5,397
- - Maxim Integrated Products, Inc. 20,800 1,182
- - McAfee Associates, Inc. 17,800 1,123
- - Mentor Graphics Corp. 16,100 149
- - Microchip Technology, Inc. 24,600 731
- - Microsoft Corp. 84,600 10,699
- - Micron Electronics, Inc. 38,000 679
- - Micron Technology, Inc. 33,200 1,326
Motorola, Inc. 71,500 5,434
- - NCR Corp. 29,837 888
- - National Semiconductor Corp. 38,900 1,191
- - Netscape Communications Corp. 26,900 862
- - Novell, Inc. 117,200 811
- - Oracle Corp. 65,150 3,280
- - Pairgain Technologies, Inc. 40,400 627
- - Parametric Technology Corp. 27,100 1,153
- - PeopleSoft Inc. 21,200 1,117
- - Premisys Communications, Inc. 44,400 702
- - Quantum Corp. 76,000 1,546
- - SCI Systems, Inc. 15,000 956
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MARKET
CAPITAL APPRECIATION VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
- - Seagate Technology 40,970 $ 1,442
- - Shiva Corp. 15,000 157
- - Silicon Graphics, Inc. 56,600 849
- - Sterling Commerce, Inc. 29,500 970
- - Storage Technology Corp. 22,600 1,006
- - Sun Microsystems, Inc. 57,400 2,136
- - Sybase, Inc. 49,600 735
- - Synopsys, Inc. 27,027 997
- - Tandem Computers, Inc. 59,600 1,207
Tandy Corp. 14,500 812
- - Tellabs, Inc. 31,200 1,741
Texas Instruments, Inc. 26,200 2,202
- - 3Com Corp. 80,625 3,626
Total System Services, Inc. 25,400 618
- - U S WEST Media Group 90,200 1,827
- - VLSI Technology, Inc. 29,700 701
Varian Associates, Inc. 13,500 732
- - Vishay Intertechnology, Inc. 33,994 984
- - Western Digital Corp. 43,000 1,360
- - Xilinx, Inc. 20,100 986
-----------
145,671
-----------
UTILITIES (4.2%)
AT&T Corp. 61,400 2,153
- - AirTouch Communications, Inc. 74,000 2,026
- - Associated Group, Inc. 875 35
- - Associated Group, Inc. Class B 875 34
BellSouth Corp. 33,700 1,563
- - Cablevision Systems Corp.
Class B 18,700 1,000
Century Telephone
Enterprises, Inc. 23,100 778
CINergy Corp. 5,700 198
- - Citizens Utilities Co. Class A 50,000 469
- - Citizens Utilities Co. Class B 50,000 400
Columbia Gas Systems, Inc. 14,700 959
Comcast Corp. Class A Special 62,066 1,325
- - Cox Communications Class A 40,100 962
ENSERCH Corp. 35,400 788
Frontier Corp. 11,400 227
MCI Communications Corp. 85,500 3,273
- - NEXTEL Communications 63,900 1,208
- - Paging Network, Inc. 28,200 248
- - QUALCOMM, Inc. 19,800 1,008
SBC Communications Inc. 20,860 1,291
Sprint Corp. 47,000 2,473
- - Tele-Communications, Inc.
Class A 114,900 1,706
- - Tele-Communications
International, Inc. Series A 48,600 744
Telephone & Data Systems, Inc. 20,000 759
- - 360 Communications Co. 47,045 806
- - U.S. Cellular Corp. 26,100 773
- - Viacom Inc. Class A 6,844 201
- - WorldCom, Inc. 94,506 3,021
-----------
30,428
-----------
OTHER (5.6%)
AlliedSignal Inc. 28,600 2,402
- - Ceridian Corp. 25,800 1,090
- - Coltec Inc. 37,700 735
- - FMC Corp. 12,000 953
General Electric Co. 344,700 22,535
ITT Industries, Inc. 28,700 739
Lancaster Colony Corp. 13,700 662
- - Litton Industries, Inc. 18,200 879
Minnesota Mining &
Manufacturing Co. 29,900 3,050
Raytheon Co. 29,700 1,515
Reynolds & Reynolds Class A 23,500 370
St. Joe Corp. 9,600 804
- - Thermo Electron Corp. 34,600 1,189
Wesco Financial Corp. 3,000 976
Westinghouse Electric Corp. 99,446 2,300
-----------
40,199
-----------
- ----------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $495,423) 717,072
- ----------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.93%, 7/1/97
(COST $224) $224 224
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(COST $495,647) 717,296
- ----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------
Other Assets--Notes B and E 27,739
Liabilities--Note E (27,992)
-----------
(253)
- ----------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------
Applicable to 38,570,259 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $717,043
==============================================================================================
NET ASSET VALUE PER SHARE $18.59
==============================================================================================
*See Note A in Notes to Financial Statements.
- -Non-Income Producing Security.
ADR--American Depository Receipt.
- ----------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------
Paid in Capital $508,131 $13.17
Undistributed Net
Investment Income 2,142 .06
Accumulated Net Realized Losses (14,879) (.39)
Unrealized Appreciation--Note D 221,649 5.75
- ----------------------------------------------------------------------------------------------
NET ASSETS $717,043 $18.59
==============================================================================================
</TABLE>
24
<PAGE> 27
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by each Portfolio
during the reporting period, and details the operating expenses charged to the
Portfolio. These expenses directly reduce the amount of investment income
available to pay to shareholders as dividends. This Statement also shows any
Net Gain (Loss) realized on the sale of investments, and the increase or
decrease in the Unrealized Appreciation (Depreciation) on investments during
the period.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Growth and Capital
Balanced Income Appreciation
Portfolio Portfolio Portfolio
--------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 172 $ 2,929 $ 2,624
Interest 1,109 37 182
--------------------------------------------------------
Total Income 1,281 2,966 2,806
--------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 10 7 7
Management and Administrative 47 208 451
Marketing and Distribution 10 36 78
Taxes (other than income taxes) 3 11 22
Custodian Fees 5 23 4
Auditing Fees 4 4 4
Shareholders' Reports -- 2 4
Directors' Fees and Expenses -- -- 1
--------------------------------------------------------
Total Expenses 79 291 571
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,202 2,675 2,235
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (416) 218 (4,623)
- -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES 6,442 59,060 98,453
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,228 $61,953 $96,065
===============================================================================================================================
</TABLE>
25
<PAGE> 28
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes
information that is detailed in the Statement of Operations. The amounts shown
as Distributions to shareholders from the Portfolio's net income and capital
gains may not match the amounts shown in the Operations section, because
distributions are determined on a tax basis and may be made in a period
different from the one in which the income was earned or the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the Portfolio, either by purchasing
shares or by reinvesting distributions, as well as the amounts redeemed. The
corresponding numbers of Shares Issued and Redeemed are shown at the end of the
Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Balanced Growth and Income
Portfolio Portfolio
-------------------------------- -------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUN. 30, 1997 DEC. 31, 1996 JUN. 30, 1997 DEC. 31, 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,202 $ 1,611 $ 2,675 $ 3,404
Realized Net Gain (Loss) (416) (125) 218 (1,158)
Change in Unrealized Appreciation
(Depreciation) 6,442 4,790 59,060 33,212
--------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 7,228 6,276 61,953 35,458
--------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (1,072) (1,615) (2,354) (3,500)
Realized Capital Gain -- -- -- --
--------------------------------------------------------------
Total Distributions (1,072) (1,615) (2,354) (3,500)
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 27,798 21,055 116,534 104,812
Issued in Lieu of Cash Distributions 952 1,399 1,880 2,711
Redeemed (2,009) (2,724) (3,333) (3,299)
--------------------------------------------------------------
Net Increase from Capital
Share Transactions 26,741 19,730 115,081 104,224
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase 32,897 24,391 174,680 136,182
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 63,128 38,737 234,519 98,337
--------------------------------------------------------------
End of Period $96,025 $63,128 $409,199 $234,519
===============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 2,109 1,728 6,833 7,344
Issued in Lieu of Cash Distributions 70 112 103 180
Redeemed (153) (224) (199) (233)
--------------------------------------------------------------
Net Increase in Shares Outstanding 2,026 1,616 6,737 7,291
===============================================================================================================================
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Capital Appreciation
Portfolio
-----------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1997 DEC. 31, 1996
(000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 2,235 $ 3,593
Realized Net Gain (Loss) (4,623) (8,847)
Change in Unrealized Appreciation (Depreciation) 98,453 80,776
---------------------------------------
Net Increase in Net Assets Resulting from Operations 96,065 75,522
---------------------------------------
Distributions
Net Investment Income -- (3,520)
Realized Capital Gain -- --
---------------------------------------
Total Distributions -- (3,520)
---------------------------------------
Capital Share Transactions(1)
Issued 115,174 194,035
Issued in Lieu of Cash Distributions -- 2,907
Redeemed (11,587) (5,786)
---------------------------------------
Net Increase from Capital Share Transactions 103,587 191,156
- ---------------------------------------------------------------------------------------------------------------
Total Increase 199,652 263,158
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 517,391 254,233
End of Period $717,043 $517,391
===============================================================================================================
(1)Shares Issued (Redeemed)
Issued 6,837 13,509
Issued in Lieu of Cash Distributions -- 180
Redeemed (698) (405)
--------------------------------------
Net Increase in Shares Outstanding 6,139 13,284
===============================================================================================================
</TABLE>
27
<PAGE> 30
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total
Return and shows net investment income and expenses as percentages of average
net assets. These data will help you assess: the variability of the Portfolio's
net income and total returns from year to year; the relative contributions of
net income and capital gains to the Portfolio's total return; how much it costs
to operate the Portfolio; and the extent to which the Portfolio tends to
distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in
the Portfolio for one year. Finally, the table lists the Portfolio's Average
Commission Rate Paid, a disclosure required by the SEC beginning in 1996. This
rate is calculated by dividing total commissions paid on portfolio securities
by the total number of shares purchased and sold on which commissions were
charged.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
YEAR ENDED
DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------- JUL. 25* TO
THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 DEC. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.92 $11.85 $ 9.79 $10.00
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS
Net Investment Income .18 .36 .31 .09
Net Realized and Unrealized Gain (Loss) on Investments .96 1.07 2.07 (.21)
------------------------------------------------------
Total from Investment Operations 1.14 1.43 2.38 (.12)
------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.16) (.36) (.32) (.09)
Distributions from Realized Capital Gains -- -- -- --
------------------------------------------------------
Total Distributions (.16) (.36) (.32) (.09)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.90 $12.92 $11.85 $ 9.79
=======================================================================================================================
TOTAL RETURN** 8.86% 12.21% 24.52% -1.40%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $96 $63 $39 $17
Ratio of Total Expenses to Average Net Assets 0.19%+ 0.20% 0.20% 0%
Ratio of Net Investment Income to Average Net Assets 2.84%+ 3.04% 3.06% 2.88%+
Portfolio Turnover Rate 14%+ 5% 5% 0%
Average Commission Rate Paid $.0141 $.0216 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Subscription period for the 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.
* Total returns do not reflect the 2% redemption fee on shares held less than
one year, or the 1% redemption fee on shares held at least one year but less
than five years.
+ Annualized.
28
<PAGE> 31
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
YEAR ENDED
DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ---------------------- JUL. 25* TO
THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 DEC. 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.89 $13.16 $ 9.77 $10.00
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .14 .27 .25 .09
Net Realized and Unrealized Gain (Loss) on Investments 3.12 2.74 3.39 (.23)
-------------------------------------------------------
Total from Investment Operations 3.26 3.01 3.64 (.14)
-------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.12) (.28) (.25) (.09)
Distributions from Realized Capital Gains -- -- -- --
-------------------------------------------------------
Total Distributions (.12) (.28) (.25) (.09)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.03 $15.89 $13.16 $9.77
===================================================================================================================
TOTAL RETURN** 20.55% 23.03% 37.53% -1.70%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $409 $235 $98 $31
Ratio of Total Expenses to Average Net Assets 0.19%+ 0.20% 0.20% 0.20%+
Ratio of Net Investment Income to Average Net Assets 1.70%+ 2.04% 2.37% 2.82%+
Portfolio Turnover Rate 1%+ 7% 6% 0%
Average Commission Rate Paid $.0132 $.0199 N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Subscription period for the 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.
**Total returns do not reflect the 2% redemption fee on shares held less than
one year, or the 1% redemption fee on shares held at least one year but less
than five years.
+Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
YEAR ENDED
DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ---------------------- JUL. 25* TO
THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 DEC. 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.95 $13.28 $ 9.95 $10.00
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .06 .12 .08 .04
Net Realized and Unrealized Gain (Loss) on Investments 2.58 2.66 3.34 (.05)
------------------------------------------------------
Total from Investment Operations 2.64 2.78 3.42 (.01)
------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.11) (.09) (.04)
Distributions from Realized Capital Gains -- -- -- --
------------------------------------------------------
Total Distributions -- (.11) (.09) (.04)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.59 $15.95 $13.28 $ 9.95
===================================================================================================================
TOTAL RETURN** 16.55% 20.92% 34.38% -0.50%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $717 $517 $254 $70
Ratio of Total Expenses to Average Net Assets 0.19%+ 0.20% 0.20% 0.20%+
Ratio of Net Investment Income to Average Net Assets 0.73%+ 0.91% 0.97% 1.26%+
Portfolio Turnover Rate 5%+ 12% 7% 1%
Average Commission Rate Paid $.0202 $.0214 N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Subscription period for the 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.
**Total returns do not reflect the 2% redemption fee on shares held less than
one year, or the 1% redemption fee on shares held at least one year but less
than five years.
+Annualized.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
Vanguard Tax-Managed Fund is registered under the Investment Company Act of
1940 as a diversified open-end investment company, or mutual fund, and
comprises the Balanced, Growth and Income, and Capital Appreciation Portfolios.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Securities listed on an exchange are valued at the
latest quoted sales prices as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) on the valuation date; such
securities not traded on the valuation date 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. Bonds, and temporary cash investments acquired more than 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and credit ratings), both as furnished by independent pricing
services. Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: The Growth and Income Portfolio and the Capital
Appreciation Portfolio, along with other members of The Vanguard Group,
transfer uninvested cash balances to a Pooled Cash Account, which is invested
in repurchase agreements secured by U.S. government securities. Securities
pledged as collateral for repurchase agreements are held by a custodian bank
until the agreements mature. Each agreement requires that the market value of
the collateral be sufficient to cover payments of interest and principal;
however, in the event of default or bankruptcy by the other party to the
agreement, retention of the collateral may be subject to legal proceedings.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold. 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 provides investment advisory, corporate management,
administrative, marketing, and distribution services. The costs of such
services are allocated to the Fund under methods approved by the board of
directors. At June 30, 1997, the Fund had contributed capital aggregating
$88,000 to Vanguard (included in Other Assets), representing 0.4% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
C. During the six months ended June 30, 1997, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(000)
-------------------------
PORTFOLIO PURCHASES SALES
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balanced $ 28,867 $ 5,540
Growth and Income 114,250 1,527
Capital Appreciation 122,448 16,147
- -----------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
At December 31, 1996, the Fund had available realized capital losses to offset
future net capital gains through the following fiscal year-ends:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
EXPIRATION
FISCAL YEAR(S) ENDING AMOUNT
PORTFOLIO DECEMBER 31, (000)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balanced 2003-2004 $ 170
Growth and Income 2003-2005 1,459
Capital Appreciation 2003-2004 10,289
- -----------------------------------------------------------------------------------
</TABLE>
D. At June 30, 1997, 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>
Balanced $ 16,829 $ (670) $ 16,159
Growth and Income 110,692 (1,676) 109,016
Capital Appreciation 230,321 (8,672) 221,649
- ---------------------------------------------------------------------------------------------------
</TABLE>
E. The market value of securities on loan to broker/dealers at June 30, 1997,
and collateral received with respect to such loans were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(000)
----------------------------
MARKET VALUE CASH
OF LOANED COLLATERAL
PORTFOLIO SECURITIES RECEIVED
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balanced $ 51 $ 55
Capital Appreciation 10,815 13,364
- -----------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer,
Inc.; Managing Director of Global Health Care Partners/DLJ Merchant
Banking Partners; Director of Sun Company, Inc. and Westinghouse
Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Ikon Business Solutions, Inc., Raytheon Co., Knight-Ridder, Inc., and
Massa-chusetts Mutual Life Insurance Co.; Trustee Emerita of Wellesley
College.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National
Steel Corp.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corp., Baker Fentress & Co., The Jeffrey Co., and Southern New England
Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich
Co., and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric
Co., Procter & Gamble Co., and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and
Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in
The Vanguard Group.
RICHARD F. HYLAND, Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President,
Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President,
Institutional Investor Group.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[THE VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
http://www.vanguard.com [email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses
may be obtained directly from The Vanguard Group.
(C) 1997 Vanguard Marketing Corporation, Distributor
<PAGE> 35
[PHOTO]
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Growth and Income Portfolio
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard International Value Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Treasury Money Market Portfolio
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q872-6/97
|
|