<PAGE> 1
VANGUARD
TAX-MANAGED
FUND
Semiannual Report - June 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly motivated
men and women--who form the cornerstone of our operations. We could not survive
long--let alone prosper--without them. That's why we chose this fiscal year's
fund reports to celebrate the spirit, enthusiasm, and achievements of our crew.
(We call those who work at Vanguard crew members, not employees, because they
operate as a team to accomplish our mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving you
in the years ahead.
[PHOTO] [PHOTO]
JOHN C. BOGLE JOHN J. BRENNAN
SENIOR CHAIRMAN CHAIRMAN & CEO
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS....................................... 1
THE MARKETS IN PERSPECTIVE.......................................... 5
PERFORMANCE SUMMARIES............................................... 7
PORTFOLIO PROFILES.................................................. 8
FINANCIAL STATEMENTS................................................ 14
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
The U.S. stock market rocketed to new highs in the first half of Vanguard
Tax-Managed Fund's fiscal year, and bond prices edged higher. Our three
portfolios, each of which is designed to minimize taxable gains and to keep
portfolio turnover low, turned in solid performances during the six months ended
June 30, 1998, outpacing their mutual fund competitors and matching or exceeding
the return of their unmanaged index benchmark.
The +17.7% return of our Growth and Income Portfolio, which tracks the
Standard & Poor's 500 Composite Stock Price Index, provided the highest return
of the three portfolios, but our Capital Appreciation Portfolio was not far
behind. Our Balanced Portfolio earned +9.6%, reflecting the nearly even split of
its assets between stocks and municipal bonds.
The adjacent table compares the total returns (capital change plus
reinvested dividends) of our portfolios with their comparative standards. The
net asset values and income dividends for each portfolio are presented in a
table that follows this letter. None of the portfolios realized net capital
gains during the half-year--nor have they since their 1994 inceptions--an
important factor in minimizing taxable distributions for our shareholders.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1998
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<S> <C>
TAX-MANAGED GROWTH AND
INCOME PORTFOLIO +17.7%
Average Growth and Income Fund +12.6
S&P 500 Index +17.7
- ------------------------------------------------------------------------------
TAX-MANAGED CAPITAL
APPRECIATION PORTFOLIO +17.3%
Average Growth Fund +15.1
Russell 1000 Index +16.2
- ------------------------------------------------------------------------------
TAX-MANAGED BALANCED PORTFOLIO +9.6%
Average Balanced Fund* +9.0
Balanced Composite Index** +9.2
- ------------------------------------------------------------------------------
</TABLE>
*Bond component not tax-exempt.
**50% Russell 1000 Index, 50% Lehman Brothers
7-Year Municipal Bond Index.
THE PERIOD IN REVIEW
The U.S. economy grew vigorously, inflation was subdued, and interest rates
declined during the first half of 1998. Consumers, heartened by high employment
and rising wages, spent freely, providing the economy's propellant. Strength in
consumer spending was more than enough to offset the negative effects of Asia's
severe economic slump.
Asia's troubles, which have lowered the prices of imported goods in the
United States, were partly responsible for the benign behavior of
inflation--consumer prices rose only 1.1% for the six months and 1.7% for the
twelve months ended June 30. Low inflation was especially soothing to the bond
market, where prices rose and interest rates declined. The yield on the
benchmark 30-year U.S. Treasury bond was 5.63% on June 30, down 29 basis points
(0.29 percentage point) from its yield at the start of the year, reflected in a
price increase of about +4%.
The stock market's rise during the six months, however impressive, was not
straight up. Jitters over Asia prompted an across-the-board decline during parts
of April and May and resulted in a 10% "correction" in some small-stock indexes.
The S&P 500's decline of -1.7% in May broke a string of six straight monthly
gains. However, the Index bounced back strongly in June, posting a +4.1%
advance.
As has been the case for a good portion of the current bull run in stocks,
bigger was better during the half-year and "big growth" was better still. The
S&P 500 Index's
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<PAGE> 4
advance was once again led by a relatively narrow segment of blue-chip growth
companies. More than half of the Index's remarkable +17.7% return during the
period was accounted for by fewer than 20 giant stocks. Notably, the Index's
second-largest holding, Microsoft, was up 68% in the first half, Wal-Mart
(seventh-largest in the Index) climbed 54%, and Lucent (twelfth-largest) was up
108%. Those three issues alone accounted for nearly one-fourth of the S&P 500
Index's gain during the half-year.
As a group, technology stocks led the S&P 500 pack during the six months
with a +32.7% gain, while stocks in the health-care sector, consumer
discretionary, and auto & transportation sectors earned returns of more than
+24% for the half-year.
The +17.7% return of our GROWTH AND INCOME PORTFOLIO matched that of its
S&P 500 Index benchmark and outpaced that of the average growth-and-income
mutual fund by more than 5 percentage points. Keeping pace with an unmanaged
index is not easy, given that our portfolio incurs the costs of investing cash
every day, and also has operating expenses (albeit at extremely low levels) that
the indexes do not.
Our CAPITAL APPRECIATION PORTFOLIO, which tracks the Russell 1000 Index of
the largest U.S. stocks, earned a +17.3% return, topping both the +16.2% return
of the benchmark and the +15.1% return of the average growth fund. Though it
tracks the Russell 1000 closely, the portfolio emphasizes lower-yielding growth
stocks in the Index in order to minimize taxable income. This strategy worked to
our relative advantage during the half-year, when the Index's growth component
(with a +20.4% return) significantly outperformed its value component (+12.2%).
That our Growth and Income and Capital Appreciation Portfolios had similar
returns in such a short period is vaguely surprising. However, our strategy is
based on the assumption--fully justified by the record of history--that the
total returns should be similar, but that taxable investors in lower-yielding
growth stocks will achieve slightly superior after-tax returns over the long
run.
Our BALANCED PORTFOLIO, whose holdings are divided between Russell 1000
Index stocks and high-grade, intermediate-term, tax-exempt bonds, earned +9.6%
during the half-year. Our performance reflects the striking difference in
returns of large U.S. stocks and intermediate-term municipal bonds during the
half-year: The Russell 1000 Index's return of +16.2% far surpassed the +2.3%
return of the Lehman 7-Year Municipal Bond Index. We note that our portfolio
maintains its tax-exempt character only if municipal bonds comprise at least 50%
of its assets, so we slightly overweight our bond position to ensure that we
meet that requirement. The interest income earned by the Balanced Portfolio was
fully tax-exempt and represented an annualized yield of 4.5% (after expenses) on
our average bond assets on June 30, 1998. Bear in mind that most balanced funds
hold taxable bonds, not tax-exempt securities, and that their dividend income
is, therefore, taxable.
IN SUMMARY
The rewards of investing in the stock market have been amply demonstrated during
the bull market that began nearly 16 years ago. Bond investors, too, have
enjoyed returns over the past decade that are far above the historical average.
The risks of investing, meanwhile, seem to have come in brief bursts.
For those who believe that such outsized gains will continue indefinitely,
we assure you they will not. Stocks will not continue to pack the historical
equivalent of more than 18 months' worth of returns into six months. And not all
future market declines will be short-lived. Prolonged declines have occurred in
the past and almost surely will recur in the future. That is the nature of the
financial markets.
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Because such turnabouts are difficult--if not impossible--to predict, we
recommend a strategy that allows investors to participate in the stock market's
rewards without shouldering all of its considerable risk: holding a balanced
portfolio of stock funds, bond funds, and money market funds. Such portfolios
are time-tested vehicles for reaping the rewards of financial markets as well as
for "staying the course" toward your long-term objectives.
We look forward to reporting to you on the full 1998 fiscal year in
our annual report six months hence.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
July 21, 1998
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------
DISTRIBUTIONS FROM DIVIDENDS PER
NET ASSET VALUE PER SHARE NET REALIZED SHARE FROM NET
----------------------------- -----------------------------------------
PORTFOLIO DEC. 31, 1997 JUN. 30, 1998 CAPITAL GAINS INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Managed Growth and Income $20.88 $24.45 $0.00 $0.13
Tax-Managed Capital Appreciation 20.18 23.68 0.00 0.00
Tax-Managed Balanced 14.67 15.92 0.00 0.16
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</TABLE>
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<PAGE> 6
Notice to Shareholders
At a special meeting on June 30, 1998, shareholders of Vanguard Tax-Managed Fund
overwhelmingly approved two proposals. The proposals and voting results were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. This change will reduce the
amount of state taxes the fund pays annually by approximately $147,000 at
current asset levels. Approved as follows:
<TABLE>
<CAPTION>
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PERCENT
PORTFOLIO FOR AGAINST ABSTAIN APPROVAL
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income 18,839,517 158,099 263,270 97.8%
Capital Appreciation 27,302,113 187,525 747,027 96.7
Balanced 6,054,935 55,500 96,108 97.6
- ---------------------------------------------------------------------------------------
</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This change
permits Vanguard Tax-Managed Fund to participate in Vanguard's interfund lending
program, which allows funds to lend money to each other if--and only if--it
makes good financial sense to do so on both sides of the transaction. The
interfund lending program won't be an integral part of your fund's investment
program; it is a contingency arrangement for managing unusual cash flows.
Approved as follows:
<TABLE>
<CAPTION>
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PERCENT
PORTFOLIO FOR AGAINST ABSTAIN APPROVAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income 18,390,325 485,075 385,488 95.5%
Capital Appreciation 26,896,776 416,996 922,894 95.3
Balanced 5,929,851 150,157 126,535 95.5
- --------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
THE MARKETS IN PERSPECTIVE
Six Months Ended June 30, 1998
Blue skies predominated for U.S. financial markets during the first six months
of 1998, and even the occasional clouds had silver linings. The bond market
provided solid returns during the half-year, while the stock market's
performance was extraordinarily strong.
After expanding at a 5.4% annual pace during the first quarter, the U.S.
economy kept steaming along through June, fueled by powerful increases in
household spending. Consumers had reason to be upbeat: plentiful jobs
(unemployment fell to 4.3% of the workforce in May); rising wages (personal
income in May was 5.9% higher than in May 1997); and tame inflation (consumer
prices in June were up only 1.7% from a year before).
The economic push provided by consumers more than compensated for the drag
caused by Asia's severe economic problems. Weakening currencies and business
slowdowns in Asia cut into U.S. exports and lowered the cost of Asian imports,
causing the U.S. trade deficit to hit record levels. Ominously, Asia's problems
appear to be more serious and enduring than many economists expected. Yet for
Americans this "Asian contagion" has a bright side: It serves as an escape valve
for the inflationary pressures that ordinarily would be expected to build up
with the U.S. economy humming along at high speed.
<TABLE>
<CAPTION>
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TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998
-------------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 17.7% 30.2% 23.1%
Russell 2000 Index 4.9 16.5 16.0
MSCI EAFE Index 16.1 6.4 10.3
- ------------------------------------------------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 3.9% 10.5% 6.9%
Lehman 10-Year Municipal Bond Index 2.6 8.5 6.6
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.9
- ------------------------------------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.1% 1.7% 2.5%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
The mixture of robust economic growth and anemic inflation was a tonic for the
U.S. stock market. Although prices generally rose, there were striking
disparities in returns between large-capitalization and small-cap stocks and
between growth and value stocks. The large-cap-dominated S&P 500 earned 17.7%
during the six months, nearly double the 9.4% return on the rest of the market
(as measured by the Wilshire 4500 Index) and more than triple the 4.9% return on
the small-cap Russell 2000 Index. Within the S&P 500 Index, growth stocks were
up 23.1%, while value stocks rose 12.1%.
A decline in interest rates contributed to the stock market's rise, as
falling rates on bonds tend to make equities more attractive and to boost the
price investors will pay for each dollar of a stock's earnings or dividends. Yet
growth in earnings and dividends--the long-term underpinning of stock
prices--was unimpressive during the first half of 1998.
Corporate earnings estimates were reduced in June, the tenth consecutive
month in which securities analysts have cut their earnings estimates, according
to I/B/E/S International, a financial research group. Earnings by the S&P 500
companies were expected to
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<PAGE> 8
rise by only about 2% for the first half of 1998, I/B/E/S reported. With gains
in prices outstripping increases in earnings and dividends, stock valuations are
at or near all-time highs, an indication that investors expect ideal conditions
to continue.
Technology stocks were the best-performing sector during the first half of
1998, generating a 32.7% return. Three other sectors of the stock market--health
care, consumer discretionary stocks such as retailers, and auto &
transportation--each provided returns of about 25% for the six months. Companies
involved in energy, chemicals, or other commodity-based businesses were
generally laggards. Prices of many commodities have declined as Asia's economic
funk cuts demand for energy and other industrial materials in the face of
plentiful supplies.
U.S. FIXED-INCOME MARKETS
Investors in fixed-income securities enjoyed a moderate rise in the market value
of their holdings because of declining interest rates. This price appreciation,
added to coupon interest income, resulted in solid total returns. The 3.9% total
return of the Lehman Aggregate Bond Index during the half-year brought its
return for the 12 months ended June 30 to 10.5%, or a very generous 8.8% after
adjustment for inflation.
Yields on 10-year and 30-year U.S. Treasury bonds declined by 29 basis
points (0.29 percentage point) to 5.45% and 5.63%, respectively, during the
first half of 1998, with most of the drop occurring during the second quarter.
The yield on 3-month Treasury bills declined 36 basis points to 4.99%. Mild
inflation--consumer prices were up 1.1% for the half-year--enabled rates to
decline despite the economy's strong growth.
Yields on corporate and municipal bonds did not decline as far as those on
Treasury securities because of a large increase in the supply of new bonds
issued by companies and municipalities taking advantage of lower rates to
refinance old debt. Similarly, mortgage-backed securities did not match
Treasuries' performance because of expectations that large numbers of homeowners
would pay off old, higher-coupon mortgage loans and refinance with new,
lower-rate loans.
INTERNATIONAL EQUITY MARKETS
Stock markets in Europe soared while those in Asia and most emerging economies
suffered steep declines in U.S.-dollar terms. The 16.1% overall return from
international markets, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East Index, masked the divergence between Europe and
other regions.
Europe's markets were up 27.1% when measured in local currencies and 26.5%
in U.S. dollars, after adjusting for a slight overall rise in the dollar's
value. Stocks benefited from an upswing in most European economies, from signs
that corporate managers are increasingly focused on shareholder value, and from
optimism concerning next year's planned adoption of the euro as a single
European currency.
In the Pacific, which is dominated by Japan's stock market, stocks were
buffeted by several problems: slowing growth in economic activity; continued
instability in currencies; political upheavals; and widespread worries about
corporate and banking insolvencies. On balance, the region's stocks fell 6.0% in
U.S.-dollar terms. Japanese stocks were down 2.5%, but losses were more severe
in the region's smaller markets.
Emerging markets were, on balance, down sharply. Asian stock markets were
hurt by continued weakness in the currency values of several countries, by
Japan's recession, and by a growing conviction that the region's economic
troubles are far from transitory. Venezuela and Mexico, both key oil-producing
nations, were hard hit by falling oil prices.
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<PAGE> 9
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 an investment in the
portfolios could lose money.
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-JUNE 30, 1998
- ----------------------------------------------------------------------------------
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% -1.8%
1995 21.0 3.5 24.5 25.5
1996 9.0 3.2 12.2 13.2
1997 13.5 3.1 16.6 19.9
1998** 8.5 1.1 9.6 9.2
- ----------------------------------------------------------------------------------
</TABLE>
*50% Russell 1000 Index, 50% Lehman 7-Year Municipal Bond Index.
**Six months ended June 30, 1998.
See Financial Highlights table on page 36 for dividend information since the
portfolio's inception.
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-JUNE 30, 1998
- ----------------------------------------------------------------------------------
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 31.4 1.9 33.3 33.4
1998* 17.1 0.6 17.7 17.7
- ----------------------------------------------------------------------------------
</TABLE>
*Six months ended June 30, 1998.
See Financial Highlights table on page 37 for dividend information since the
portfolio's inception.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-JUNE 30, 1998
- ----------------------------------------------------------------------------------
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% -1.9%
1995 33.5 0.9 34.4 37.8
1996 20.1 0.8 20.9 22.4
1997 26.5 0.8 27.3 32.9
1998* 17.3 0.0 17.3 16.2
- ----------------------------------------------------------------------------------
</TABLE>
*Six months ended June 30, 1998.
See Financial Highlights table on page 37 for dividend information since the
portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1998
- ----------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio* 9/6/1994 17.37% 12.91% 3.07% 15.98%
Growth and Income Portfolio* 9/6/1994 30.19 26.32 2.29 28.61
Capital Appreciation Portfolio* 9/6/1994 28.16 25.23 0.78 26.01
- ----------------------------------------------------------------------------------------------------------------------
</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.
7
<PAGE> 10
PORTFOLIO PROFILE
Balanced Portfolio
This Profile provides a snapshot of the portfolio's characteristics as of June
30, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------
<S> <C>
Yield 2.1%
Turnover Rate 5%*
Expense Ratio 0.17%
Cash Reserves 0.0%
</TABLE>
*Annualized.
PORTFOLIO ASSET ALLOCATION
- --------------------------------------------------------------
[GRAPHIC]
TOTAL PORTFOLIO VOLATILITY MEASURES
<TABLE>
<CAPTION>
- --------------------------------------------------------------
BALANCED S&P 500
- --------------------------------------------------------------
<S> <C> <C>
R-Squared 0.90 1.00
Beta 0.54 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- --------------------------------------------------------------
<S> <C>
General Electric Co. 3.3%
The Coca-Cola Co. 2.2
Microsoft Corp. 2.0
Merck & Co., Inc. 1.8
AES Corp. 1.6
Pfizer, Inc. 1.6
Procter & Gamble Co. 1.4
Intel Corp. 1.4
International Business Machines Corp. 1.3
Lucent Technologies, Inc. 1.3
- --------------------------------------------------------------
Top Ten 17.9%
- --------------------------------------------------------------
Top Ten as % of Total Net Assets 8.7%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- -----------------------------------------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1998
-------------------------------------------------
BALANCED BALANCED RUSSELL
PORTFOLIO PORTFOLIO 1000
-------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation................................ 5.0% 4.6% 3.4%
Consumer Discretionary............................... 14.9 16.4 11.1
Consumer Staples..................................... 7.9 7.3 9.8
Financial Services................................... 11.0 10.9 19.9
Health Care.......................................... 11.8 14.3 12.4
Integrated Oils...................................... 3.5 2.2 4.9
Other Energy......................................... 4.9 4.0 1.3
Materials & Processing............................... 6.8 4.9 5.2
Producer Durables.................................... 4.7 3.1 3.6
Technology........................................... 19.4 20.2 12.4
Utilities............................................ 5.3 6.5 10.9
Other................................................ 4.8 5.6 5.1
- -----------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- --------------------------------------------------------------
RUSSELL
BALANCED 1000
- --------------------------------------------------------------
<S> <C> <C>
Number of Stocks 505 1,000
Median Market Cap $15.5B $31.9B
Price/Earnings Ratio 26.8x 24.7x
Price/Book Ratio 4.6x 4.3x
Dividend Yield 0.6% 1.4%
Return on Equity 21.2% 21.0%
Earnings Growth Rate 20.7% 16.7%
Foreign Holdings 0.1% 0.0%
</TABLE>
EQUITY INVESTMENT FOCUS
- --------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- --------------------------------------------------------------
<S> <C>
Number of Issues 108
Yield to Maturity 4.3%
Average Coupon 5.6%
Average Maturity 6.6 years
Average Quality Aa1
Average Duration 5.3 years
</TABLE>
FIXED-INCOME INVESTMENT FOCUS
- --------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF BONDS)
- --------------------------------------------------------------
<S> <C>
Under 1 Year 6.2%
1-5 Years 24.8
5-10 Years 47.7
10-20 Years 21.3
20-30 Years 0.0
Over 30 Years 0.0
- --------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- --------------------------------------------------------------
<S> <C>
Aaa 76.5%
Aa 15.7
A 4.4
Baa 3.4
Ba 0.0
B 0.0
Not Rated 0.0
- --------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
LARGEST STATE CONCENTRATIONS (% OF BONDS)
- --------------------------------------------------------------
<S> <C>
New York 13.9%
California 10.3
Pennsylvania 8.3
Florida 7.8
Ohio 6.8
Texas 6.7
Massachusetts 5.1
Michigan 4.5
Nevada 3.6
Louisiana 3.4
- --------------------------------------------------------------
Total 70.4%
</TABLE>
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<PAGE> 12
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the portfolio's duration by the change in rates. If interest
rates rise by one percentage point, the share price of a portfolio with an
average duration of five years would decline by about 5%. If rates decrease by a
percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) and are repaid. In general, the longer the
average maturity, the more a portfolio's share price will fluctuate in response
to changes in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. Quality is graded on a scale, with Aaa or AAA indicating the
most creditworthy bond issuers and A-1 or MIG-1 indicating the most credit-
worthy issuers of money market securities.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock or
bond investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates.
DIVIDEND YIELD. The current, annualized rate of dividends paid on a share of
stock, divided by its current share price. For a portfolio, the weighted
average yield for stocks it holds.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a portfolio.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms
of two attributes: market capitalization (large, medium, or small) and relative
valuation (growth, value, or a blend).
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FIXED-INCOME INVESTMENT FOCUS. This grid indicates the focus of a portfolio in
terms of two attributes: average maturity (short, medium, or long) and average
credit quality (high, medium, or low).
FOREIGN HOLDINGS. The percentage of a portfolio's net assets represented by
stocks or American Depositary Receipts of companies based outside the United
States.
LARGEST STATE CONCENTRATIONS. An indicator of diversification. The less
concentrated a portfolio's holdings of bonds, the less the portfolio will be
hurt by any financial problems in a single state or region.
10
<PAGE> 13
MEDIAN MARKET CAP. An indicator of the size of companies in which a portfolio
invests; the midpoint of market capitalization (market price x shares
outstanding) of a portfolio's stocks, weighted by the proportion of the
portfolio's assets invested in each stock. Stocks representing half of the
portfolio's assets have market capitalizations above the median, and the rest
are below it.
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from
the problems of a particular issue.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a portfolio
holds, the more diversified it is and the more likely to perform in line with
the overall stock market.
PORTFOLIO ASSET ALLOCATION. This chart shows the proportions of a portfolio's
holdings allocated to different types of asset.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a portfolio, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a portfolio, the weighted average P/E of the
stocks it holds. P/E is an indicator of market expectations about corporate
prospects; the higher the P/E, the greater the expectations for a company's
future growth.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a portfolio, the weighted average return
on equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a portfolio's common stocks that come
from each of the major industry groups that compose the stock market.
TEN LARGEST STOCKS/HOLDINGS. The percentage of equity assets that a portfolio
has invested in its ten largest stocks. As this percentage rises, a portfolio's
returns are likely to be more volatile because they are more dependent on the
fortunes of a few companies.
TURNOVER RATE. An indication of trading activity during the period. Portfolios
with high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a portfolio's income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based on
income earned over the past 30 days and is annualized, or projected forward for
the coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
11
<PAGE> 14
PORTFOLIO PROFILE
Growth and Income Portfolio
This Profile provides a snapshot of the portfolio's characteristics as of June
30, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------
GROWTH AND
INCOME S&P 500
- --------------------------------------------------------------
<S> <C> <C>
Number of Stocks 511 500
Median Market Cap $49.4B $50.0B
Price/Earnings Ratio 24.7x 24.8x
Price/Book Ratio 4.5x 4.5x
Yield 1.3% 1.4%
Return on Equity 21.5% 21.6%
Earnings Growth Rate 16.4% 16.4%
Foreign Holdings 1.6% 1.7%
Turnover Rate 4%* --
Expense Ratio 0.17%* --
Cash Reserves 0.0% --
</TABLE>
*Annualized.
EQUITY INVESTMENT FOCUS
- --------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------
<S> <C>
General Electric Co. 3.3%
Microsoft Corp. 3.0
The Coca-Cola Co. 2.4
Exxon Corp. 1.9
Merck & Co., Inc. 1.8
Pfizer, Inc. 1.6
Wal-Mart Stores, Inc. 1.5
Intel Corp. 1.4
Procter & Gamble Co. 1.4
Royal Dutch Petroleum Co. ADR 1.3
- --------------------------------------------------------------
Top Ten 19.6%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------------------
GROWTH AND
INCOME S&P 500
- --------------------------------------------------------------
<S> <C> <C>
R-Squared 1.00 1.00
Beta 1.00 1.00
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ------------------------------------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1998
------------------------------------------------
GROWTH AND GROWTH AND
INCOME INCOME S&P 500
------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation........................... 3.5% 3.4% 3.3%
Consumer Discretionary.......................... 9.1 10.2 10.2
Consumer Staples................................ 12.1 10.8 10.7
Financial Services.............................. 16.3 18.6 18.5
Health Care..................................... 11.5 12.1 12.1
Integrated Oils................................. 7.8 6.5 6.5
Other Energy.................................... 1.2 1.0 1.0
Materials & Processing.......................... 6.8 5.1 5.2
Producer Durables............................... 4.7 3.6 3.5
Technology...................................... 12.1 12.9 13.0
Utilities....................................... 9.2 10.3 10.3
Other........................................... 5.7 5.5 5.7
- ------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
PORTFOLIO PROFILE
Capital Appreciation Portfolio
This Profile provides a snapshot of the portfolio's characteristics as of June
30, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------
CAPITAL RUSSELL
APPRECIATION 1000
- --------------------------------------------------------------
<S> <C> <C>
Number of Stocks 518 1,000
Median Market Cap $16.6B $31.9B
Price/Earnings Ratio 26.8x 24.7x
Price/Book Ratio 4.5x 4.3x
Yield 0.6% 1.4%
Return on Equity 20.8% 21.0%
Earnings Growth Rate 19.4% 16.7%
Foreign Holdings 0.1% 0.0%
Turnover Rate 7%* --
Expense Ratio 0.17%* --
Cash Reserves 0.0% --
</TABLE>
*Annualized.
EQUITY INVESTMENT FOCUS
- --------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------------------
CAPITAL
APPRECIATION S&P 500
- --------------------------------------------------------------
<S> <C> <C>
R-Squared 0.89 1.00
Beta 1.06 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------------------------
<S> <C>
General Electric Co. 3.3%
The Coca-Cola Co. 2.2
Microsoft Corp. 1.9
Merck & Co., Inc. 1.8
Pfizer, Inc. 1.6
Intel Corp. 1.4
Procter & Gamble Co. 1.4
International Business Machines Corp. 1.3
Lucent Technologies, Inc. 1.3
American International Group, Inc. 1.2
- --------------------------------------------------------------
Top Ten 17.4%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ---------------------------------------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1998
-----------------------------------------------------
CAPITAL CAPITAL
APPRECIATION APPRECIATION RUSSELL 1000
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation......................... 3.4% 3.3% 3.4%
Consumer Discretionary........................ 15.3 16.1 11.1
Consumer Staples.............................. 8.8 8.1 9.8
Financial Services............................ 11.4 12.5 19.9
Health Care................................... 13.0 14.0 12.4
Integrated Oils............................... 2.6 1.8 4.9
Other Energy.................................. 3.2 2.9 1.3
Materials & Processing........................ 7.2 5.6 5.2
Producer Durables............................. 5.1 3.8 3.6
Technology.................................... 20.1 20.0 12.4
Utilities..................................... 4.4 6.2 10.9
Other......................................... 5.5 5.7 5.1
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
FINANCIAL STATEMENTS
June 30, 1998 (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. Securities
are grouped and subtotaled by asset type (common stocks, bonds, etc.), with
common stocks 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 (48.0%)
- ---------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 29,700 $ 2,703
The Coca-Cola Co. 21,000 1,795
- - Microsoft Corp. 15,200 1,647
Merck & Co., Inc. 11,100 1,485
- - AES Corp. 25,400 1,335
Pfizer, Inc. 12,200 1,326
Procter & Gamble Co. 12,900 1,175
Intel Corp. 15,400 1,142
International Business
Machines Corp. 9,200 1,056
Lucent Technologies, Inc. 12,638 1,051
Exxon Corp. 13,400 955
American International Group, Inc. 6,500 949
- - Cisco Systems, Inc. 10,000 921
- - Watson Pharmaceuticals, Inc. 19,100 892
- - Dell Computer Corp. 9,600 891
Wal-Mart Stores, Inc. 13,500 820
The Walt Disney Co. 6,700 704
Travelers Group Inc. 11,447 694
American Home Products Corp. 13,400 693
Schering-Plough Corp. 7,400 678
- - Continental Airlines, Inc. Class B 11,000 670
Gillette Co. 11,504 652
Home Depot, Inc. 7,800 648
Johnson & Johnson 7,402 546
Compaq Computer Corp. 18,182 516
McDonald's Corp. 7,300 504
- - WorldCom, Inc. 10,252 497
E.I. du Pont de Nemours & Co. 6,600 492
Hewlett-Packard Co. 8,200 491
Morgan Stanley Dean Witter
& Co. 5,080 464
The Boeing Co. 10,040 447
Citicorp 2,900 433
Time Warner, Inc. 5,000 427
BellSouth Corp. 6,000 403
BankAmerica Corp. 4,600 398
MCI Communications Corp. 6,800 395
- - AirTouch Communications, Inc. 6,400 374
PepsiCo, Inc. 9,000 371
Medtronic, Inc. 5,800 370
- - America Online, Inc. 3,400 360
Mobil Corp. 4,600 352
Motorola, Inc. 6,700 352
Fannie Mae 5,700 346
Abbott Laboratories 8,200 335
- - MediaOne Group, Inc. 7,600 334
- - Safeway, Inc. 7,934 323
Freddie Mac 6,800 320
Ford Motor Co. 5,300 313
- - Tele-Communications, Inc.
Class A 7,890 303
- - US Airways Group, Inc. 3,800 301
- - EMC Corp. 6,600 296
CBS Corp. 8,858 281
General Motors Corp. 4,200 281
Computer Associates
International, Inc. 5,037 280
Texas Instruments, Inc. 4,800 280
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
M & T Bank Corp. 500 $ 277
The Gap, Inc. 4,300 265
- - Amgen, Inc. 3,900 255
Philip Morris Cos., Inc. 6,300 248
AT&T Corp. 4,300 246
- - Oracle Corp. 9,950 244
Amoco Corp. 5,800 241
HBO & Co. 6,800 240
- - Qwest Communications
International Inc. 6,698 234
- - AMR Corp. 2,800 233
- - Costco Cos., Inc. 3,600 227
Sprint Corp. 3,200 226
- - Compuware Corp. 4,400 225
- - Sun Microsystems, Inc. 5,100 222
Merrill Lynch & Co., Inc. 2,400 221
Wells Fargo & Co. 600 221
- - Cendant Corp. 10,546 220
Comcast Corp. Class A Special 5,400 219
Tyco International Ltd. 3,468 218
- - Tele-Communications Liberty
Media Group Class A 5,568 216
- - Viacom Inc. Class B 3,663 213
Chrysler Corp. 3,732 210
- - BMC Software, Inc. 4,000 208
Illinois Tool Works, Inc. 3,100 207
Minnesota Mining &
Manufacturing Co. 2,500 205
Marriott International, Inc. Class A 6,300 204
CVS Corp. 5,228 203
Lowe's Cos., Inc. 5,000 203
Cognizant Corp. 3,200 202
- - Tellabs, Inc. 2,800 201
Mattel, Inc. 4,687 198
- - Federated Department Stores, Inc. 3,600 194
First Data Corp. 5,784 193
Guidant Corp. 2,700 193
Computer Sciences Corp. 3,000 192
- - CIENA Corp. 2,700 188
State Street Corp. 2,700 188
Caterpillar, Inc. 3,500 185
- - Clear Channel
Communications, Inc. 1,700 185
- - Tenet Healthcare Corp. 5,827 182
Delta Air Lines, Inc. 1,400 181
- - Boston Scientific Corp. 2,500 179
Lehman Brothers Holdings, Inc. 2,300 178
United Healthcare Corp. 2,800 178
- - Kohls Corp. 3,400 176
Wrigley, (Wm.) Jr. Co. 1,800 176
Capital One Financial Corp. 1,400 174
Cardinal Health, Inc. 1,850 173
Archer-Daniels-Midland Co. 8,894 172
- - The Kroger Co. 4,000 172
SunAmerica Inc. 3,000 172
- - Kmart Corp. 8,900 171
- - Ascend Communications, Inc. 3,400 168
- - USA Waste Service 3,400 168
The Equitable Cos. 2,200 165
- - Network Associates, Inc. 3,450 165
- - Storage Technology Corp. 3,800 165
Walgreen Co. 4,000 165
- - Wellpoint Health Networks Inc.
Class A 2,233 165
Becton, Dickinson & Co. 2,100 163
- - FDX Corporation 2,600 163
- - Staples, Inc. 5,625 163
Franklin Resources Corp. 3,000 162
- - Gateway, Inc. 3,200 162
- - NEXTEL Communications, Inc. 6,500 162
- - HEALTHSOUTH Corp. 6,000 160
- - PeopleSoft, Inc. 3,400 160
- - Republic Industries, Inc. 6,300 158
- - Yahoo!, Inc. 1,000 158
Southwest Airlines Co. 5,250 156
U.S. Surgical Corp. 3,400 155
Coca-Cola Enterprises, Inc. 3,900 153
AlliedSignal Inc. 3,400 151
- - ADC Telecommunications, Inc. 4,100 150
- - Barnes & Noble, Inc. 4,000 150
- - Novell, Inc. 11,800 150
- - Chancellor Media Corp. 3,000 149
Kansas City Southern
Industries, Inc. 3,000 149
- - Tele-Communications TCI
Ventures Group Series A 7,420 149
Fort James Corp. 3,300 147
Automatic Data Processing, Inc. 2,000 146
Columbia/HCA Healthcare Corp. 5,002 146
Eastman Kodak Co. 2,000 146
- - Synopsys, Inc. 3,200 146
AFLAC, Inc. 4,800 145
Emerson Electric Co. 2,400 145
Banc One Corp. 2,564 143
- - Owens-Illinois, Inc. 3,200 143
SBC Communications Inc. 3,544 142
Circuit City Stores, Inc. 3,000 141
Green Tree Financial Corp. 3,300 141
Kimberly-Clark Corp. 3,072 141
- - Parametric Technology Corp. 5,200 141
Progressive Corp. of Ohio 1,000 141
- - CNA Financial Corp. 3,000 140
Coastal Corp. 2,000 140
- - Humana, Inc. 4,500 140
Monsanto Co. 2,500 140
- - 360 Communications Co. 4,366 140
Lockheed Martin Corp. 1,300 138
- - Viking Office Products 4,400 138
- - AutoZone Inc. 4,300 137
- - Viacom Inc. Class A 2,348 137
- - Health Management Associates
Class A 4,075 136
- - Sterling Commerce, Inc. 2,800 136
- - Teleport Communications
Group Inc. 2,500 136
- - Lexmark International Group, Inc.
Class A 2,200 134
- - Robert Half International, Inc. 2,400 134
- - Starbucks Corp. 2,500 134
FirstEnergy Corp. 4,300 132
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Harley-Davidson, Inc. 3,400 $ 132
- - Jones Apparel Group, Inc. 3,600 132
- - Micron Technology, Inc. 5,300 132
- - Cadence Design Systems, Inc. 4,200 131
Century Telephone
Enterprises, Inc. 2,850 131
MGIC Investment Corp. 2,300 131
- - ALZA Corp. 3,000 130
- - Electronic Arts Inc. 2,400 130
- - Learning Co., Inc. 4,400 130
Charles Schwab Corp. 4,000 130
- - Concord EFS, Inc. 4,950 129
- - Intuit, Inc. 2,100 129
- - Outback Steakhouse 3,300 129
Dillard's Inc. 3,100 128
Golden West Financial Corp. 1,200 128
- - Seagate Technology Inc. 5,390 128
- - Toys R Us, Inc. 5,400 127
- - Tricon Global Restaurants, Inc. 4,000 127
- - Borders Group, Inc. 3,400 126
- - Office Depot, Inc. 4,000 126
- - Solectron Corp. 3,000 126
- - UAL Corp. 1,600 125
Tyson Foods, Inc. 5,700 124
- - Ceridian Corp. 2,100 123
- - SunGard Data Systems, Inc. 3,200 123
Burlington Northern Santa Fe Corp. 1,246 122
- - Unisys Corp. 4,300 121
Dime Bancorp, Inc. 4,000 120
Mylan Laboratories, Inc. 4,000 120
- - Outdoor Systems, Inc. 4,300 120
Biomet, Inc. 3,600 119
- - Western Atlas, Inc. 1,400 119
- - DST Systems, Inc. 2,100 118
- - QUALCOMM, Inc. 2,100 118
- - St. Jude Medical, Inc. 3,192 118
- - Thermo Electron Corp. 3,450 118
AMBAC Financial Group Inc. 2,000 117
- - Foundation Health Systems, Inc.
Class A 4,440 117
- - Maxim Integrated Products, Inc. 3,700 117
- - Mirage Resorts, Inc. 5,500 117
- - SCI Systems, Inc. 3,100 117
- - Cox Communications, Inc.
Class A 2,400 116
Dollar General Corp. 2,900 115
- - FIserv, Inc. 2,700 115
- - LSI Logic Corp. 5,000 115
Linear Technology Corp. 1,900 115
Pharmacia & Upjohn, Inc. 2,500 115
- - R. P. Scherer Corp. 1,300 115
The Hartford Financial Services
Group Inc. 1,000 114
Champion International Corp. 2,300 113
Conseco Inc. 2,416 113
- - Quintiles Transnational Corp. 2,300 113
Solutia, Inc. 3,900 112
- - Bay Networks, Inc. 3,435 111
- - Fred Meyer Inc. 2,600 111
- - Payless ShoeSource, Inc. 1,500 111
- - Analog Devices, Inc. 4,467 110
Danaher Corp. 3,000 110
- - Apple Computer, Inc. 3,800 109
- - General Instrument Corp. 4,000 109
- - NCR Corp. 3,368 109
Newmont Mining Corp. 4,594 109
- - Biogen, Inc. 2,200 108
- - Consolidated Stores, Inc. 2,987 108
Federal-Mogul Corp. 1,600 108
- - Lear Corp. 2,100 108
USG Corp. 2,000 108
Associates First Capital Corp. 1,389 107
- - Forest Laboratories, Inc. 3,000 107
- - Gulfstream Aerospace Corp. 2,300 107
Centex Corp. 2,800 106
- - Litton Industries, Inc. 1,800 106
Raytheon Co. Class B 1,800 106
Albertson's, Inc. 2,000 104
- - Bed Bath & Beyond, Inc. 2,000 104
- - Quantum Corp. 5,000 104
Union Pacific Resources
Group, Inc. 5,904 104
- - American Standard Cos., Inc. 2,300 103
- - Applied Materials, Inc. 3,500 103
Darden Restaurants Inc. 6,500 103
- - General Nutrition Cos., Inc. 3,300 103
The PMI Group Inc. 1,400 103
- - American Power Conversion Corp. 3,400 102
- - Gartner Group, Inc. Class A 2,900 102
- - Host Marriott Corp. 5,700 102
Sigma-Aldrich Corp. 2,900 102
Anadarko Petroleum Corp. 1,500 101
General Re Corp. 400 101
- - Sterling Software, Inc. 3,400 101
Stewart Enterprises, Inc. Class A 3,800 101
- - Sybron International Corp. 4,000 101
- - AccuStaff, Inc. 3,200 100
- - Citizens Utilities Co. Class B 10,354 100
- - Jacor Communications, Inc. 1,700 100
Manor Care Inc. 2,600 100
- - Stone Container Corp. 6,400 100
Stryker Corp. 2,600 100
UNUM Corp. 1,800 100
- - Noble Drilling Corp. 4,100 99
Adobe Systems, Inc. 2,300 98
BHC Communications, Inc. Class A 700 98
Nucor Corp. 2,100 97
- - Alleghany Corp. 410 96
- - EXCEL Communications, Inc. 4,200 96
- - Teradyne, Inc. 3,600 96
- - Chiron Corp. 6,040 95
Noble Affiliates, Inc. 2,500 95
- - Promus Hotel Corp. 2,465 95
- - USA Networks, Inc. 3,800 95
Gaylord Entertainment Co. Class A 2,900 94
- - Ocean Energy, Inc. 4,800 94
- - OfficeMax, Inc. 5,700 94
Owens Corning 2,300 94
Enron Oil & Gas Co. 4,600 93
- - Iomega Corp. 15,900 93
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
- - Northwest Airlines Corp. Class A 2,400 $ 93
Transatlantic Holdings, Inc. 1,200 93
International Game Technology 3,800 92
- - Venator Group, Inc. 4,800 92
- - Centocor, Inc. 2,500 91
- - First Health Group Corp. 3,200 91
- - Harrah's Entertainment, Inc. 3,900 91
- - Healthcare & Retirement Corp. 2,300 91
IBP, Inc. 5,000 91
- - Nabors Industries, Inc. 4,600 91
- - Oryx Energy Co. 4,100 91
- - Fruit of the Loom, Inc. 2,700 90
Newell Co. 1,800 90
- - Chris-Craft Industries, Inc. 1,623 89
Cracker Barrel Old Country
Stores, Inc. 2,800 89
- - FMC Corp. 1,300 89
Newport News Shipbuilding Inc. 3,340 89
Pittston Brink's Group 2,400 89
Praxair, Inc. 1,900 89
Clayton Homes Inc. 4,638 88
- - CommScope, Inc. 5,433 88
Fastenal Co. 1,900 88
- - Global Marine, Inc. 4,700 88
- - Niagara Mohawk Power Corp. 5,900 88
- - R & B Falcon Corp. 3,904 88
Total System Services, Inc. 4,200 88
- - Arrow Electronics, Inc. 4,000 87
- - CompUSA, Inc. 4,800 87
- - Genzyme Corp. 3,400 87
- - PRIMEDIA Inc. 6,400 87
- - Adaptec, Inc. 6,000 86
- - Altera Corp. 2,900 86
- - Circus Circus Enterprises Inc. 5,100 86
- - EVI Weatherford, Inc. 2,315 86
- - LHS Group, Inc. 1,300 86
La Quinta Inns Inc. 4,050 86
New Century Energies, Inc. 1,900 86
- - Tele-Communications
International, Inc. Series A 4,300 86
- - UNOVA, Inc. 4,000 86
J.C. Penney Co., Inc. 1,178 85
- - Xilinx, Inc. 2,500 85
Zions Bancorp 1,600 85
- - CalEnergy Co. 2,800 84
- - International Specialty
Products, Inc. 4,500 84
- - Pacificare Health Systems Inc.
Class B 946 84
- - Bethlehem Steel Corp. 6,700 83
Columbia Energy Group 1,500 83
Molex, Inc. 3,313 83
- - Quorum Health Group, Inc. 3,150 83
Raychem Corp. 2,800 83
Sodexho Marriott Services, Inc. 2,875 83
ENSCO International, Inc. 4,700 82
International Paper Co. 1,900 82
- - King World Productions, Inc. 3,200 82
- - McLeod, Inc. 2,100 82
- - Thermo Instrument Systems, Inc. 3,115 82
- - UCAR International, Inc. 2,800 82
Varian Associates, Inc. 2,100 82
- - ACNielson Corp. 3,200 81
Autodesk, Inc. 2,100 81
- - Atmel Corp. 5,900 80
- - Beverly Enterprises, Inc. 5,800 80
- - Consolidated Freightways Corp. 5,750 80
- - Corrections Corp. of America 3,400 80
Diamond Offshore Drilling, Inc. 2,000 80
- - Premisys Communications, Inc. 3,200 80
- - Rowan Cos., Inc. 4,100 80
- - Catellus Development Corp. 4,500 79
- - Covance, Inc. 3,500 79
Leucadia National Corp. 2,400 79
- - MGM Grand, Inc. 2,500 79
AGCO Corp. 3,800 78
- - DSC Communications Corp. 2,600 78
- - Reebok International Ltd. 2,800 78
Wesco Financial Corp. 200 78
- - Andrew Corp. 4,250 77
- - J.D. Edwards & Co. 1,800 77
Sysco Corp. 3,000 77
- - U.S. Cellular Corp. 2,500 77
Electronic Data Systems Corp. 1,900 76
- - Coltec Inc. 3,700 73
DePuy, Inc. 2,600 73
NIKE, Inc. Class B 1,500 73
- - Smith International, Inc. 2,100 73
Travelers Property Casualty Corp. 1,700 73
Aluminum Co. of America 1,100 72
- - MedPartners, Inc. 9,052 72
- - FORE Systems, Inc. 2,700 71
- - PhyCor, Inc. 4,300 71
The St. Joe Company 2,600 71
Transocean Offshore, Inc. 1,600 71
Loews Corp. 800 70
American General Corp. 975 69
Waste Management Inc. 1,979 69
U.S. Industries, Inc. 2,700 67
- - Cytec Industries, Inc. 1,500 66
General Motors Corp. Class H 1,400 66
Homestake Mining Co. 6,400 66
- - LucasVarity PLC ADR 1,656 66
- - Western Digital Corp. 5,600 66
Amerada Hess Corp. 1,200 65
- - Blyth Industries, Inc. 1,950 65
- - Jefferson Smurfit Corp. 4,100 64
- - Santa Fe Energy Resources, Inc. 5,900 63
- - Sealed Air Corp. 1,720 63
- - Atlas Air, Inc. 1,800 61
- - Electronics for Imaging, Inc. 2,900 61
DENTSPLY International Inc. 2,400 60
W.W. Grainger, Inc. 1,200 60
Rubbermaid, Inc. 1,800 60
Cinergy Corp. 1,700 59
Newmont Gold Co. 2,400 59
- - Quest Diagnostics, Inc. 2,700 59
- - Cabletron Systems, Inc. 4,300 58
Autoliv, Inc. 1,811 57
- - Chicago Title Corp. 1,230 57
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
- - GTech Holdings Corp. 1,700 $ 57
Pioneer Natural Resources Co. 2,400 57
IMC Global Inc. 1,870 56
The Warnaco Group, Inc. Class A 1,300 55
Hasbro, Inc. 1,350 53
The Pep Boys
(Manny, Moe & Jack) 2,800 53
IKON Office Solutions, Inc. 3,600 52
- - IVAX Corp. 5,600 52
Frontier Corp. 1,600 50
Reynolds Metals Co. 900 50
Alumax, Inc. 1,044 48
- - Airgas, Inc. 3,300 47
Burlington Resources, Inc. 1,100 47
Alberto-Culver Co. Class B 1,600 46
- - Silicon Graphics, Inc. 3,800 46
Tenneco, Inc. 1,200 46
- - Ventas, Inc. 3,200 44
York International Corp. 1,000 44
Crown Cork & Seal Co., Inc. 900 43
Sears, Roebuck & Co. 700 43
- - 3Com Corp. 1,400 43
Browning-Ferris Industries, Inc. 1,200 42
Sunbeam Corp. 4,000 42
Fluor Corp. 800 41
Texaco Inc. 688 41
Mark IV Industries, Inc. 1,863 40
- - Nine West Group, Inc. 1,500 40
- - Pacificare Health Systems Inc.
Class A 478 40
The Goodyear Tire & Rubber Co. 600 39
Nordstrom, Inc. 500 39
CNF Transportation, Inc. 900 38
Johns Manville Corp. 2,500 38
Morton International, Inc. 1,500 38
- - National Semiconductor Corp. 2,800 37
20th Century Industries 1,300 37
- - Micron Electronics, Inc. 3,000 36
The Limited, Inc. 1,069 35
Millipore Corp. 1,300 35
NGC Corp. 2,800 35
RJR Nabisco Holdings Corp. 1,460 35
- - Oxford Health Plan 2,200 34
- - Cablevision Systems Corp. Class B 400 33
- - PanAmSat Corp. 544 31
Kellogg Co. 800 30
Mallinckrodt, Inc. 1,000 30
Pogo Producing Co. 1,200 30
- - EEX Corp. 3,148 29
- - Boise Cascade Office
Products Corp. 1,800 28
- - Fritz Cos., Inc. 2,000 27
The Money Store Inc. 800 27
- - Paging Network, Inc. 1,900 27
Manpower Inc. 900 26
Price Enterprises, Inc. 1,400 26
Sealed Air Corp. Pfd. 618 26
- - Brinker International, Inc. 1,300 25
- - KLA-Tencor Corp. 900 25
- - PharMerica, Inc. 2,093 25
- - Planet Hollywood International,
Inc. Class A 3,400 24
W.R. Grace & Co. 1,300 22
ITT Industries, Inc. 600 22
- - Vishay Intertechnology, Inc. 1,221 22
Aetna Inc. 269 20
Albemarle Corp. 900 20
Cintas Corp. 400 20
Cummins Engine Co., Inc. 400 20
Dole Food Co. 400 20
- - Input/Output, Inc. 1,100 20
Telephone & Data Systems, Inc. 500 20
Texas Utilities Co. 472 20
- - Corporate Express, Inc. 1,500 19
Freeport-McMoRan Copper &
Gold Inc. Class B 1,263 19
- - Fresenius Medical Care AG ADR 944 19
Martin Marietta Materials, Inc. 400 18
Russell Corp. 600 18
Schweitzer-Mauduit
International, Inc. 600 17
- - Abercrombie & Fitch Co. 358 16
Great Lakes Chemical Corp. 400 16
- - Netscape Communications Corp. 600 16
Union Pacific Corp. 359 16
Raytheon Co. Class A 267 15
Allegheny Teledyne Inc. 577 13
Bandag, Inc. 300 12
- - Glenayre Technologies, Inc. 1,100 12
- - Choice Hotel International, Inc. 800 11
Louisiana-Pacific Corp. 600 11
Tandy Corp. 200 11
- - Marquette Medical Systems Inc. 400 10
U S West, Inc. 208 10
El Paso Natural Gas Co. 222 8
Aetna Inc. 6.25% Cvt. Pfd. Series C 89 7
- - Host Marriott Services Corp. 420 6
- - PETsMART, Inc. 600 6
Pittston BAX Group 400 6
- - Southland Corp. 2,300 6
Scientific-Atlanta, Inc. 200 5
- - Associated Group, Inc. 100 4
- - Associated Group, Inc. Class B 100 4
- - Sunburst Hospitality Corp. 266 2
- - Crescendo Pharmaceuticals Corp. 115 1
- - Freeport-McMoRan Sulphur, Inc. 63 1
- - General Semiconductor, Inc. 100 1
- - Genzyme Corp. 177 1
- - Octel Corp. 25 1
Talbots Inc. 50 1
- ----------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $49,917) 81,230
- ----------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------
MUNICIPAL BONDS (53.4%)
- --------------------------------------------------------------------
<S> <C> <C>
ALASKA (0.6%)
North Slope AK Borough GO
7.50%, 6/30/2001 (3) $ 1,000 $ 1,095
---------
ARIZONA (0.9%)
Maricopa AZ Unified School Dist.
7.125%, 7/1/1999 1,500 1,549
---------
CALIFORNIA (5.5%)
California Dept. of Water
(Central Valley Project )
8.25%, 12/1/2003 290 347
California GO
6.40%, 2/1/2006 (1) 500 567
California Health Fac. Finance Auth.
(Catholic Healthcare West)
6.25%, 7/1/2006 (1) 395 445
California Public Works Board
Lease Rev. (Dept. of Corrections)
5.00%, 9/1/2011 (2) 1,535 1,573
Central Coast CA Water Auth.
6.00%, 10/1/2008 (2) 1,000 1,119
Clovis CA Unified School Dist.
0.00%, 8/1/2005 (3) 2,000 1,469
Los Angeles CA Unified School
Dist. GO
6.00%, 7/1/2008 (3) 1,000 1,124
Los Angeles CA Waste Water System
5.75%, 6/1/2010 (1) 400 431
San Bernardino County Medical
Center COP
5.50%, 8/1/2005 (1) 500 535
South Orange County CA Public
Finance Auth.
7.00%, 9/1/2006 (1) 875 1,030
Univ. of CA (Multiple Purpose Project)
12.00%, 9/1/2003 (2) 500 678
---------
9,318
---------
CONNECTICUT (1.2%)
Connecticut GO
6.00%, 5/15/2003 1,000 1,081
South Central CT Regional Water
Auth. Water System Rev.
5.75%, 8/1/2006 900 970
---------
2,051
---------
DISTRICT OF COLUMBIA (1.2%)
Dist. of Columbia
5.40%, 6/1/2012 (2) 455 470
6.75%, 6/1/2005 (2) 1,400 1,493
---------
1,963
---------
FLORIDA (4.2%)
Broward County FL School
Dist. GO
5.30%, 2/15/2004 1,295 1,367
Dade County FL School Dist.
7.375%, 7/1/1999 (Prere.) 400 422
Dade County FL Water & Sewer
Rev. VRDO
3.40%, 7/8/1998 (3) 865 865
Florida Dept. of General Services
6.00%, 7/1/2003 (2) 1,000 1,079
Florida Turnpike Auth. Rev.
5.25%, 7/1/2009 (3) 485 512
5.25%, 7/1/2010 (3) 825 864
Lee County FL School Board
6.00%, 8/1/2005 (4) 800 883
Tampa FL Health System Rev.
Catholic Health
5.00%, 11/15/2009 (2) 1,000 1,030
---------
7,022
---------
GEORGIA (0.6%)
Georgia GO
6.00%, 3/1/2004 1,000 1,090
---------
ILLINOIS (1.2%)
Illinois Dev. Fin. Auth.
4.40%, 12/1/2006 (2) 1,500 1,490
Illinois Sales Tax Rev.
7.20%, 6/15/1999 (Prere.) 400 421
Illinois Toll Highway Auth. Rev. VRDO
3.40%, 7/8/1998 (1) 180 180
---------
2,091
---------
IOWA (1.2%)
Iowa School Cash Anticipation
Program
4.25%, 1/28/1999 2,000 2,007
---------
KENTUCKY (0.3%)
Kentucky Property &
Buildings Commission
5.80%, 9/1/2006 400 427
---------
LOUISIANA (1.8%)
Louisiana GO
6.00%, 8/1/2001(3) 1,000 1,055
Louisiana Public Fac. Auth.
Hosp. Rev.
(Franciscan Missionaries)
5.00%, 7/1/2002 (4) 2,000 2,058
---------
3,113
---------
MARYLAND (0.2%)
Maryland Dept. of Transp.
5.20%, 9/15/2004 400 420
---------
MASSACHUSETTS (2.7%)
Chelsea MA Refunding Rev.
5.50%, 6/15/2011 (2) 740 787
5.50%, 6/15/2012 (2) 735 777
Massachusetts Bay Transp. Auth.
6.25%, 3/1/2005 1,000 1,110
Massachusetts GO
7.25%, 7/1/1998 (Prere.) 500 508
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
BALANCED PORTFOLIO (000) (000)
- --------------------------------------------------------------------
<S> <C> <C>
Massachusetts Ind. Finance Agency
Rev. (Refusetech Inc. Project)
6.30%, 7/1/2005 $ 1,000 $ 1,084
Massachusetts Water
Resources Auth.
5.75%, 8/1/2010 (1) 300 328
---------
4,594
---------
MICHIGAN (2.4%)
Dickinson County MI Memorial
Hospital System Rev.
7.625%, 11/1/2005 460 516
Greater Detroit MI Resource
Recovery Auth.
6.25%, 12/13/2006 (2) 1,200 1,348
Michigan Environmental
Protection Program
6.25%, 11/1/2008 (Prere.) 1,000 1,100
Michigan Housing Dev. Auth.
Rental Housing Rev.
6.30%, 4/1/2004 1,000 1,077
---------
4,041
---------
NEBRASKA (1.5%)
Nebraska Public Power Dist. Rev.
5.25%, 1/1/2005 (1) 2,000 2,096
5.25%, 1/1/2010 (1) 125 131
5.25%, 1/1/2011 (1) 225 234
---------
2,461
---------
NEVADA (1.9%)
Clark County Airport NV Rev.
5.00%, 7/1/2005 (1) 1,705 1,764
Clark County NV School Dist. GO
5.90%, 6/15/2012 (3) 750 808
6.00%, 6/15/1999 (3) 700 715
---------
3,287
---------
NEW JERSEY (1.1%)
New Jersey Econ. Dev. Auth.
Market Transition Fac.
5.70%, 7/1/2005 (1) 400 432
New Jersey Health Care Fac.
Finance Auth. (Atlantic City
Medical Center)
6.80%, 7/1/2005 1,000 1,106
New Jersey Transp. Trust Fund
6.00%, 6/15/2008 250 280
---------
1,818
---------
NEW YORK (7.4%)
Erie County NY GO
6.125%, 1/15/2011 (3) 610 693
Hempstead NY GO
5.625%, 2/1/2011 (3) 840 902
Huntington NY GO
6.70%, 2/1/2010 (3) 375 445
Long Island NY Power Auth.
Elec. Sys. Rev.
5.50%, 12/1/2009 (2) 2,000 2,162
Metropolitan NY Transp. Auth.
6.00%, 7/1/2006 (1) 1,000 1,105
New York City NY National
Tennis Center
6.25%, 11/15/2006 2,000 2,240
New York Environmental Fac. Corp.
PCR (State Water Recovery Fund)
6.35%, 6/15/2006 295 331
New York State Dorm Auth. Rev.
(Vassar Brothers Hospital)
5.10%, 7/1/2010 (4) 1,500 1,542
New York City NY Muni. Water
Auth. and Sewer System Rev.
4.00%, 7/2/1998 (3) 15 15
New York City NY GO
6.375%, 8/15/2009 640 705
7.10%, 8/15/2007 500 579
New York City NY Muni.
Fin. Auth. Water & Sewer
System Rev. VRDO
4.00%, 7/2/1998 (3) 255 255
New York City NY Muni.
Assistance Corp.
5.00%, 7/1/1999 500 507
New York Environmental Fac.
Corp. PCR (State Water
Recovery Fund)
6.35%, 6/15/2006 225 251
New York State Dormitory
Auth. (State Univ.)
5.375%, 5/15/2007 (2) 400 427
New York State Thruway Auth.
(Service Contract)
5.40%, 4/1/2005 (1) 400 424
---------
12,583
---------
NORTH CAROLINA (1.4%)
Charlotte NC Airport
Refunding Rev. VRDO
3.40%, 7/8/1998 (1) 415 415
Wake NC Ind. Fac. Pollution
Control Fin. Auth. VRDO
3.50%, 7/8/1998 2,000 2,000
---------
2,415
---------
OHIO (3.7%)
Cuyahoga County OH Hosp.
Rev. VRDO (Cleveland Clinic)
3.50%, 7/8/1998 LOC 255 255
Hamilton County OH Hosp. Rev. VRDO
(Bethesda Hospital)
3.40%, 7/2/1998 LOC 400 400
Lorain County OH Hosp. Rev.
(Catholic Healthcare Partners)
5.625%, 9/1/2013 (1) 1,775 1,892
6.00%, 9/1/2004 (1) 1,080 1,178
Ohio Air Quality Dev. Auth. Rev. VRDO
3.80%, 7/2/1998 LOC 640 640
Ohio Public Fac. Comm.
Higher Educ. Fac.
5.50%, 12/1/2006 (1) 400 424
Ohio Water Dev. Auth.
5.75%, 12/1/2005 (1) 540 579
6.00%, 12/1/2008 (2) 750 815
---------
6,183
---------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------
<S> <C>
OREGON (0.4%)
Oregon GO Veterans Welfare
Program VRDO
3.50%, 7/8/1998 LOC $ 630 $ 630
---------
PENNSYLVANIA (4.4%)
Pennsylvania GO
5.90%, 11/15/2001 1,000 1,059
Pennsylvania Convention
Center Auth.
6.70%, 9/1/2014 (1) 500 567
Pennsylvania Higher Educ. Fac.
Health Services
(Allegheny/Delaware Valley)
5.00%, 11/15/2006 1,125 1,147
Pennsylvania Turnpike
Comm. Rev.
7.625%, 12/1/1999 (Prere.) 500 536
Philadelphia PA Parking Auth.
5.75%, 9/1/2008 (2) 1,150 1,255
Philadelphia PA School Dist. GO
6.25%, 9/1/2005 (2) 870 966
Philadelphia PA Water & Waste
Water Rev.
6.25%, 8/1/2009 (1) 1,000 1,140
Pittsburgh PA GO
5.20%, 3/1/2010 (3) 580 595
Pittsburgh PA Water &
Sewer Auth. System Rev.
5.60%, 9/1/2018 (3) 235 254
---------
7,519
---------
SOUTH DAKOTA (0.6%)
South Dakota Building Authority
Lease Rev.
5.25%, 12/1/2010 (2) 1,000 1,037
---------
TEXAS (3.6%)
Dallas TX Civic Center Refunding &
Improvement Rev.
4.60%, 8/15/2009 (1) 110 109
4.70%, 8/15/2010 (1) 815 808
Harris County TX Toll Road VRDO
3.50%, 7/8/1998 200 200
Houston TX GO
5.70%, 3/1/2001 500 521
Houston TX Hotel Occupancy Tax Rev.
5.25%, 7/1/2007 (4) 500 522
San Antonio TX Water Rev.
6.50%, 5/15/2010 (1) 500 548
Texas Refunding Water Fin.
5.00%, 8/1/2008 690 706
5.00%, 8/1/2009 1,050 1,069
Texas TRAN
4.75%, 8/31/1998 1,000 1,002
Univ. of TX Permanent Fund
6.60%, 7/1/2001 (Prere.) 500 545
---------
6,030
---------
UTAH (0.2%)
Salt Lake County UT Building Auth.
Lease Rev.
5.90%, 10/1/2006 (1) 260 282
---------
VIRGINIA (0.3%)
Virginia Transp. Board
6.00%, 5/15/2007 500 545
---------
WASHINGTON (1.6%)
King County WA Library System GO
6.05%, 12/1/2007 1,000 1,108
Seattle WA Muni. Light & Power Rev.
6.25%, 7/1/2007 700 784
Tacoma WA Electric System Rev.
5.50%, 1/1/2012 (2) 500 511
Washington State GO VRDO
3.45%, 7/8/1998 260 260
---------
2,663
---------
WEST VIRGINIA (1.1%)
West Virginia School Building Auth.
Capital Improvement Rev.
5.625%, 7/1/2002 655 692
West Virginia Building Comm.
5.25%, 7/1/2008 (1) 1,150 1,213
---------
1,905
---------
WISCONSIN (0.2%)
Wisconsin GO
5.00%, 5/1/2000 335 342
---------
- --------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $88,103) 90,481
- --------------------------------------------------------------------
TOTAL INVESTMENTS (101.4%)
(COST $138,020) 171,711
- --------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.4%)
- --------------------------------------------------------------------
Other Assets--Note B 3,609
Liabilities (5,978)
---------
(2,369)
- --------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------
Applicable to 10,640,279 outstanding
$.001 par value shares of beneficial interest.
(unlimited authorization) $169,342
====================================================================
NET ASSET VALUE PER SHARE $15.92
====================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
COP--Certificate of Participation.
GO--General Obligation 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 Assurance Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
The insurance does not guarantee the market value of the
municipal bonds.
LOC--Scheduled principal and interest payments are
guaranteed by bank letter of credit.
21
<PAGE> 24
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AMOUNT PER
BALANCED PORTFOLIO (000) SHARE
- ---------------------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $136,911 $12.86
Undistributed Net
Investment Income 270 .03
Accumulated Net Realized
Losses--Note C (1,530) (.14)
Unrealized Appreciation--Note D 33,691 3.17
- ---------------------------------------------------------------------
NET ASSETS $169,342 $15.92
=====================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
GROWTH AND VALUE*
INCOME PORTFOLIO SHARES (000)
- ---------------------------------------------------------------------
COMMON STOCKS (100.1%)
- ---------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 361,672 $ 32,912
- - Microsoft Corp. 273,992 29,694
The Coca-Cola Co. 274,226 23,446
Exxon Corp. 271,774 19,381
Merck & Co., Inc. 132,479 17,719
Pfizer, Inc. 145,080 15,768
Wal-Mart Stores, Inc. 248,943 15,123
Intel Corp. 188,784 13,994
Procter & Gamble Co. 148,668 13,538
Royal Dutch Petroleum Co. ADR 237,716 13,030
Bristol-Myers Squibb Co. 110,388 12,688
International Business
Machines Corp. 106,768 12,258
Lucent Technologies, Inc. 145,450 12,100
American International
Group, Inc. 77,639 11,335
Johnson & Johnson 149,088 10,995
Philip Morris Cos., Inc. 269,479 10,611
- - Cisco Systems, Inc. 113,965 10,492
AT&T Corp. 180,131 10,290
E.I. du Pont de Nemours & Co. 125,232 9,345
SBC Communications Inc. 204,110 8,164
Eli Lilly & Co. 123,296 8,145
NationsBank Corp. 106,342 8,135
Ford Motor Co. 134,718 7,948
The Walt Disney Co. 75,632 7,946
Bell Atlantic Corp. 172,314 7,862
Travelers Group Inc. 127,641 7,738
American Home Products Corp. 145,736 7,542
Citicorp 50,219 7,495
Schering-Plough Corp. 81,436 7,462
BellSouth Corp. 109,986 7,383
The Chase Manhattan Corp. 95,092 7,179
Gillette Co. 124,816 7,076
Fannie Mae 116,332 7,067
Abbott Laboratories 171,494 7,010
Hewlett-Packard Co. 115,052 6,889
PepsiCo, Inc. 166,352 6,852
Home Depot, Inc. 81,593 6,777
- - Dell Computer Corp. 71,700 6,655
Mobil Corp. 86,818 6,652
BankAmerica Corp. 76,014 6,570
First Union Corp. 110,004 6,408
Warner-Lambert Co. 91,336 6,336
Morgan Stanley Dean Witter
& Co. 66,889 6,112
Chevron Corp. 72,924 6,057
GTE Corp. 107,264 5,966
American Express Co. 51,388 5,858
Unilever NV ADR 70,884 5,595
Time Warner, Inc. 65,391 5,587
- - WorldCom, Inc. 115,105 5,575
Ameritech Corp. 121,830 5,467
McDonald's Corp. 76,715 5,293
Compaq Computer Corp. 184,340 5,231
General Motors Corp. 77,941 5,207
The Boeing Co. 112,683 5,021
MCI Communications Corp. 80,812 4,697
Amoco Corp. 106,788 4,445
Banc One Corp. 78,103 4,359
Allstate Corp. 46,990 4,303
Tyco International Ltd. 65,132 4,103
Chrysler Corp. 72,130 4,066
Schlumberger Ltd. 55,166 3,769
Xerox Corp. 36,665 3,726
- - AirTouch Communications, Inc. 63,481 3,710
Monsanto Co. 66,225 3,700
Minnesota Mining &
Manufacturing Co. 44,945 3,694
Texaco Inc. 60,368 3,603
Freddie Mac 76,560 3,603
U.S. Bancorp 82,841 3,562
Wells Fargo & Co. 9,643 3,558
Merrill Lynch & Co., Inc. 38,492 3,551
Sprint Corp. 48,172 3,396
Computer Associates
International, Inc. 60,416 3,357
Medtronic, Inc. 52,268 3,332
Northern Telecom Ltd. 58,314 3,309
Motorola, Inc. 60,301 3,170
Norwest Corp. 83,774 3,131
Emerson Electric Co. 49,232 2,972
- - MediaOne Group, Inc. 67,446 2,963
Associates First Capital Corp. 38,359 2,949
Sara Lee Corp. 51,932 2,905
Colgate-Palmolive Co. 32,806 2,887
Kimberly-Clark Corp. 61,744 2,833
First Chicago NBD Corp. 31,834 2,821
Atlantic Richfield Co. 35,692 2,788
AlliedSignal Inc. 62,642 2,780
The Gap, Inc. 43,938 2,708
Campbell Soup Co. 50,912 2,705
Sears, Roebuck & Co. 43,499 2,656
Eastman Kodak Co. 36,228 2,647
Fleet Financial Group, Inc. 31,438 2,625
U S West, Inc. 55,561 2,611
Pharmacia & Upjohn, Inc. 56,570 2,609
National City Corp. 36,680 2,604
Anheuser-Busch Cos., Inc. 54,514 2,572
The Bank of New York Co., Inc. 42,100 2,555
Texas Instruments, Inc. 43,552 2,540
CBS Corp. 79,606 2,527
- - EMC Corp. 55,200 2,474
Dow Chemical Co. 25,240 2,440
Automatic Data Processing, Inc. 33,368 2,432
- - Oracle Corp. 98,379 2,416
Duke Energy Corp. 40,203 2,382
Dayton Hudson Corp. 48,764 2,365
United Technologies Corp. 25,466 2,356
J.P. Morgan & Co., Inc. 19,760 2,314
- - Viacom Inc. Class B 39,524 2,302
Lockheed Martin Corp. 21,688 2,296
Walgreen Co. 55,480 2,292
H.J. Heinz Co. 40,388 2,267
Gannett Co., Inc. 31,704 2,253
General Re Corp. 8,687 2,202
- - Tele-Communications, Inc.
Class A 56,847 2,185
Caterpillar, Inc. 40,790 2,157
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
GROWTH AND VALUE*
INCOME PORTFOLIO SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Southern Co. 77,412 $ 2,143
Columbia/HCA Healthcare Corp. 72,386 2,108
J.C. Penney Co., Inc. 28,206 2,040
Mellon Bank Corp. 28,878 2,011
American General Corp. 28,176 2,006
Enron Corp. 36,550 1,976
Wachovia Corp. 23,163 1,957
SunTrust Banks, Inc. 23,736 1,930
Raytheon Co. Class B 32,322 1,911
Washington Mutual, Inc. 43,322 1,882
Illinois Tool Works, Inc. 28,072 1,872
- - Amgen, Inc. 28,588 1,869
Bestfoods 32,122 1,865
MBNA Corp. 56,497 1,864
- - Sun Microsystems, Inc. 42,648 1,853
Waste Management Inc. 52,886 1,851
BankBoston Corp. 32,720 1,820
Household International, Inc. 36,166 1,799
PNC Bank Corp. 33,401 1,797
KeyCorp 49,448 1,762
Marsh & McLennan Cos., Inc. 28,956 1,750
Burlington Northern
Santa Fe Corp. 17,709 1,739
ConAgra, Inc. 54,092 1,714
Kellogg Co. 45,336 1,703
Fifth Third Bancorp 26,950 1,698
Baxter International, Inc. 31,544 1,697
HBO & Co. 47,900 1,688
CVS Corp. 43,226 1,683
- - AMR Corp. 20,118 1,675
CIGNA Corp. 24,238 1,672
May Department Stores Co. 25,447 1,667
First Data Corp. 49,738 1,657
Lowe's Cos., Inc. 39,470 1,601
Williams Cos., Inc. 47,261 1,595
The Seagram Co. Ltd. 38,772 1,587
- - Boston Scientific Corp. 21,541 1,543
- - Costco Cos., Inc. 24,226 1,528
Franklin Resources Corp. 28,000 1,512
The Chubb Corp. 18,698 1,503
Comcast Corp. Class A Special 36,996 1,502
The Hartford Financial
Services Group Inc. 13,101 1,498
Pitney Bowes, Inc. 31,080 1,496
- - Clear Channel
Communications, Inc. 13,700 1,495
International Paper Co. 34,523 1,484
Deere & Co. 27,679 1,464
- - Tellabs, Inc. 20,200 1,447
Albertson's, Inc. 27,365 1,418
Phillips Petroleum Co. 29,092 1,402
Ralston-Ralston Purina Group 11,942 1,395
PPG Industries, Inc. 19,825 1,379
Mattel, Inc. 32,320 1,368
United Healthcare Corp. 21,464 1,363
NIKE, Inc. Class B 27,712 1,349
PG&E Corp. 42,158 1,331
Aon Corp. 18,700 1,314
Texas Utilities Co. 31,544 1,313
Halliburton Co. 29,180 1,300
Textron, Inc. 18,104 1,298
Norfolk Southern Corp. 43,019 1,283
FPL Group, Inc. 20,249 1,276
State Street Corp. 18,300 1,272
Bankers Trust Corp. 10,900 1,265
Aetna Inc. 16,559 1,261
- - Federated Department
Stores, Inc. 23,400 1,259
Archer-Daniels-Midland Co. 64,825 1,256
Wrigley, (Wm.) Jr. Co. 12,797 1,254
Aluminum Co. of America 19,004 1,253
Service Corp. International 29,080 1,247
SunAmerica Inc. 21,700 1,246
Edison International 41,728 1,234
Consolidated Edison Inc. 26,800 1,234
General Mills, Inc. 17,941 1,227
- - The Kroger Co. 28,438 1,219
- - HEALTHSOUTH Corp. 45,442 1,213
Guidant Corp. 16,900 1,205
Honeywell, Inc. 13,946 1,165
Masco Corp. 19,234 1,164
Comerica, Inc. 17,450 1,156
Cardinal Health, Inc. 12,300 1,153
Avon Products, Inc. 14,792 1,146
Cognizant Corp. 17,980 1,133
The Goodyear Tire & Rubber Co. 17,516 1,129
Computer Sciences Corp. 17,644 1,129
Progressive Corp. of Ohio 8,000 1,128
Pioneer Hi-Bred International, Inc. 26,900 1,113
USX-Marathon Group 32,378 1,111
Occidental Petroleum Corp. 41,145 1,111
Loews Corp. 12,700 1,106
- - Applied Materials, Inc. 37,500 1,106
CSX Corp. 24,214 1,102
Fort James Corp. 24,679 1,098
The Clorox Co. 11,470 1,094
- - Cendant Corp. 52,337 1,093
Hershey Foods Corp. 15,798 1,090
St. Paul Cos., Inc. 25,766 1,084
ALLTEL Corp. 23,300 1,083
Rite Aid Corp. 28,802 1,082
Delta Air Lines, Inc. 8,372 1,082
BB&T Corp. 15,900 1,075
- - Tenet Healthcare Corp. 34,366 1,074
- - Ascend Communications, Inc. 21,600 1,071
Rockwell International Corp. 21,953 1,055
Becton, Dickinson & Co. 13,596 1,055
- - FDX Corporation 16,692 1,047
Air Products & Chemicals, Inc. 26,180 1,047
- - Kmart Corp. 53,750 1,035
Lincoln National Corp. 11,321 1,034
Weyerhaeuser Co. 22,201 1,025
Houston Industries, Inc. 33,187 1,025
Lehman Brothers Holdings, Inc. 13,000 1,008
Unocal Corp. 28,023 1,002
Sysco Corp. 38,658 991
Charles Schwab Corp. 30,250 983
Conseco Inc. 21,000 982
Northern Trust Corp. 12,594 960
Summit Bancorp. 20,100 955
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
American Electric Power Co., Inc. 21,030 $ 954
Omnicom Group Inc. 19,100 953
Beneficial Corp. 6,178 946
Tribune Co. 13,658 940
Interpublic Group of Cos., Inc. 15,285 928
The McGraw-Hill Cos., Inc. 11,338 925
Public Service Enterprise
Group, Inc. 26,535 914
Marriott International, Inc. Class A 28,168 912
- - US Airways Group, Inc. 11,302 896
Dominion Resources, Inc. 21,974 895
Newell Co. 17,738 884
The Limited, Inc. 26,597 881
New York Times Co. Class A 11,065 877
- - Gateway, Inc. 17,300 876
H.F. Ahmanson & Co. 12,299 873
Burlington Resources, Inc. 20,217 871
Dresser Industries, Inc. 19,698 868
UNUM Corp. 15,618 867
TJX Cos., Inc. 35,804 864
AMP, Inc. 25,040 861
Dover Corp. 25,080 859
Winn-Dixie Stores, Inc. 16,508 845
The Quaker Oats Co. 15,356 844
Providian Financial Corp. 10,743 844
Unicom Corp. 23,929 839
- - 3Com Corp. 27,250 836
Coastal Corp. 11,957 835
Transamerica Corp. 7,241 834
- - Parametric Technology Corp. 30,700 833
Ingersoll-Rand Co. 18,890 832
Union Carbide Corp. 15,415 823
Union Pacific Corp. 18,600 821
Praxair, Inc. 17,360 813
MBIA, Inc. 10,800 809
Hilton Hotels Corp. 28,316 807
- - Bay Networks, Inc. 24,900 803
- - Unisys Corp. 28,381 802
Northrop Grumman Corp. 7,768 801
Entergy Corp. 27,786 799
FirstEnergy Corp. 25,846 795
Corning, Inc. 22,413 779
Mercantile Bancorp, Inc. 15,400 776
- - Owens-Illinois, Inc. 17,300 774
Cooper Industries, Inc. 13,895 763
TRW, Inc. 13,840 756
PacifiCorp 33,362 755
PECO Energy Corp. 25,756 752
R.R. Donnelley & Sons Co. 16,441 752
Fortune Brands, Inc. 19,388 745
American Stores Co. 30,772 744
Southwest Airlines Co. 25,080 743
Republic New York Corp. 11,800 743
Tenneco, Inc. 19,477 741
Torchmark Corp. 16,098 736
MGIC Investment Corp. 12,900 736
Carolina Power & Light Co. 16,948 735
- - Sempra Energy 26,418 733
Browning-Ferris Industries, Inc. 20,958 728
Huntington Bancshares Inc. 21,599 724
VF Corp. 14,042 723
SAFECO Corp. 15,920 723
Alcan Aluminium Ltd. 26,165 723
- - Toys R Us, Inc. 30,591 721
Cincinnati Financial Corp. 18,800 721
Avery Dennison Corp. 13,284 714
Synovus Financial Corp. 29,900 710
Rohm & Haas Co. 6,831 710
Crown Cork & Seal Co., Inc. 14,803 703
The Dun & Bradstreet Corp. 19,380 700
Genuine Parts Co. 19,937 689
Jefferson-Pilot Corp. 11,829 685
Golden West Financial Corp. 6,418 682
DTE Energy Co. 16,802 678
- - Seagate Technology Inc. 28,400 676
Black & Decker Corp. 10,786 658
Baker Hughes, Inc. 18,879 653
General Dynamics Corp. 14,032 652
Green Tree Financial Corp. 15,200 651
Bear Stearns Co., Inc. 11,400 648
Nordstrom, Inc. 8,374 647
Central & South West Corp. 23,945 644
Consolidated Natural Gas Co. 10,917 643
Cinergy Corp. 18,306 641
The Sherwin-Williams Co. 19,294 639
- - Thermo Electron Corp. 18,600 636
Ameren Corp. 16,005 636
Dana Corp. 11,837 633
The Times Mirror Co. Class A 9,934 625
SLM Holding Corp. 12,700 622
Tandy Corp. 11,632 617
Frontier Corp. 19,500 614
Eaton Corp. 7,859 611
Georgia Pacific Group 10,300 607
Countrywide Credit Industries, Inc. 11,900 604
Equifax, Inc. 16,300 592
Hasbro, Inc. 14,950 588
- - Humana, Inc. 18,700 583
Dow Jones & Co., Inc. 10,440 582
Whirlpool Corp. 8,453 581
- - AutoZone Inc. 17,800 568
Amerada Hess Corp. 10,317 560
UST, Inc. 20,699 559
W.W. Grainger, Inc. 11,146 555
Johnson Controls, Inc. 9,576 548
Eastman Chemical Co. 8,782 547
Rubbermaid, Inc. 16,447 546
Columbia Energy Group 9,759 543
International Flavors &
Fragrances, Inc. 12,482 542
Champion International Corp. 11,017 542
- - Tricon Global Restaurants, Inc. 17,075 541
GPU, Inc. 14,200 537
Maytag Corp. 10,664 527
Baltimore Gas & Electric Co. 16,698 519
- - Novell, Inc. 40,600 518
Circuit City Stores, Inc. 11,028 517
Barrick Gold Corp. 26,879 516
- - Western Atlas, Inc. 6,060 514
Allegheny Teledyne Inc. 22,246 509
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
GROWTH AND VALUE*
INCOME PORTFOLIO SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Northern States Power Co. 17,756 $ 508
ITT Industries, Inc. 13,601 508
Parker Hannifin Corp. 13,273 506
Knight Ridder 9,170 505
- - Ceridian Corp. 8,551 502
Dillard's Inc. 12,086 501
Harcourt General, Inc. 8,366 498
H & R Block, Inc. 11,800 497
Brown-Forman Corp. Class B 7,635 491
PACCAR, Inc. 8,960 468
Ashland, Inc. 9,006 465
Anadarko Petroleum Corp. 6,900 464
Ecolab, Inc. 14,930 463
Laidlaw, Inc. 37,400 456
Nucor Corp. 9,897 455
Reynolds Metals Co. 8,006 448
- - General Instrument Corp. 16,400 446
- - DSC Communications Corp. 14,874 446
American Greetings Corp. Class A 8,747 446
- - Apple Computer, Inc. 15,500 445
- - Consolidated Stores, Inc. 12,152 441
PP&L Resources Inc. 19,200 436
Biomet, Inc. 12,785 423
Case Corp. 8,700 420
- - ALZA Corp. 9,679 419
The BFGoodrich Co. 8,254 410
Union Camp Corp. 8,238 409
Sigma-Aldrich Corp. 11,600 407
Willamette Industries, Inc. 12,700 406
The Stanley Works 9,706 403
Sun Co., Inc. 10,345 402
U.S. Surgical Corp. 8,592 392
Sonat, Inc. 10,097 390
Harris Corp. 8,672 387
- - LSI Logic Corp. 16,800 387
Hercules, Inc. 9,417 387
- - Micron Technology, Inc. 15,300 380
Morton International, Inc. 15,100 378
Echlin, Inc. 7,701 378
Wendy's International, Inc. 15,951 375
Liz Claiborne, Inc. 7,169 375
Apache Corp. 11,900 375
Temple-Inland Inc. 6,900 372
Fluor Corp. 7,280 371
Perkin-Elmer Corp. 5,950 370
Union Pacific Resources
Group, Inc. 20,991 369
Allergan, Inc. 7,918 367
- - NEXTEL Communications, Inc. 14,700 366
The Mead Corp. 11,204 356
- - St. Jude Medical, Inc. 9,646 355
Westvaco Corp. 12,243 346
Thomas & Betts Corp. 6,728 331
Bausch & Lomb, Inc. 6,602 331
- - Niagara Mohawk Power Corp. 22,093 330
Engelhard Corp. 16,290 330
Mercantile Stores Co., Inc. 4,126 326
Deluxe Corp. 9,082 325
Armstrong World Industries Inc. 4,727 318
Adobe Systems, Inc. 7,500 318
USX-U.S. Steel Group 9,600 317
Raytheon Co. Class A 5,497 317
Phelps Dodge Corp. 5,441 311
SuperValu Inc. 6,946 308
Meredith Corp. 6,496 305
Kerr-McGee Corp. 5,276 305
Raychem Corp. 10,292 304
Pall Corp. 14,795 303
Giant Food, Inc. Class A 6,904 297
Manor Care Inc. 7,713 296
Ryder System, Inc. 9,164 289
Brunswick Corp. 11,426 283
Great Lakes Chemical Corp. 7,143 282
- - FMC Corp. 4,123 281
- - Fruit of the Loom, Inc. 8,400 279
Owens Corning 6,747 275
- - Silicon Graphics, Inc. 22,400 272
Pennzoil Co. 5,378 272
- - Harrah's Entertainment, Inc. 11,649 271
- - Sealed Air Corp. 7,336 270
Centex Corp. 7,116 269
National Service Industries, Inc. 5,269 268
- - Oryx Energy Co. 11,631 257
Bemis Co., Inc. 6,275 256
C.R. Bard, Inc. 6,677 254
Nalco Chemical Co. 7,035 247
Darden Restaurants Inc. 15,341 244
- - Navistar International Corp. 8,356 241
- - Venator Group, Inc. 12,450 238
Scientific-Atlanta, Inc. 9,378 238
Cummins Engine Co., Inc. 4,641 238
Crane Co. 4,903 238
Capital One Financial Corp. 1,900 236
- - Mirage Resorts, Inc. 11,000 234
McDermott International, Inc. 6,741 232
Snap-On Inc. 6,367 231
NICOR, Inc. 5,680 228
Autodesk, Inc. 5,860 226
The Timken Co. 7,310 225
Boise Cascade Corp. 6,830 224
Louisiana-Pacific Corp. 12,100 221
- - Advanced Micro Devices, Inc. 12,708 217
Tektronix, Inc. 6,076 215
Tupperware Corp. 7,317 206
- - 360 Communications Co. 6,400 205
Shared Medical Systems Corp. 2,776 204
- - King World Productions, Inc. 7,954 203
Aeroquip-Vickers Inc. 3,397 198
Alberto-Culver Co. Class B 6,786 197
Cooper Tire & Rubber Co. 9,285 192
- - Bethlehem Steel Corp. 15,331 191
Fleetwood Enterprises, Inc. 4,656 186
Peoples Energy Corp. 4,619 178
Placer Dome, Inc. 14,812 174
- - Rowan Cos., Inc. 8,886 173
Potlatch Corp. 4,100 172
General Signal Corp. 4,762 171
Pulte Corp. 5,688 170
Kaufman & Broad Home Corp. 5,311 169
Great Atlantic & Pacific Tea
Co., Inc. 5,030 166
Mallinckrodt, Inc. 5,562 165
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
Adolph Coors Co. Class B 4,828 $ 164
Comcast Corp. Class A 4,100 163
Homestake Mining Co. 15,168 157
- - Cabletron Systems, Inc. 11,700 157
W.R. Grace & Co. 9,120 156
ONEOK, Inc. 3,891 155
- - National Semiconductor Corp. 11,651 154
Longs Drug Stores, Inc. 5,342 154
EG&G, Inc. 5,090 153
Ball Corp. 3,701 149
Worthington Industries, Inc. 9,802 148
- - Reebok International Ltd. 5,191 144
- - Stone Container Corp. 9,100 142
Russell Corp. 4,620 139
Cincinnati Milacron, Inc. 5,615 137
Polaroid Corp. 3,760 134
NACCO Industries, Inc. Class A 1,031 133
Newmont Mining Corp. 5,509 130
Jostens Inc. 5,355 129
- - Andrew Corp. 7,160 129
Eastern Enterprises 2,972 127
- - KLA-Tencor Corp. 4,400 122
IKON Office Solutions, Inc. 8,266 120
Briggs & Stratton Corp. 3,098 116
- - Armco, Inc. 16,455 105
Springs Industries Inc. Class A 2,260 104
Helmerich & Payne, Inc. 4,268 95
Millipore Corp. 3,394 92
Freeport-McMoRan Copper &
Gold Inc. Class B 5,500 84
Harnischfeger Industries Inc. 2,587 73
Battle Mountain Gold Co. Class A 10,900 65
- - Data General Corp. 3,521 53
ASARCO, Inc. 2,342 52
Moore Corp. Ltd. 3,240 43
The Pep Boys
(Manny, Moe & Jack) 2,208 42
Cyprus Amax Minerals Co. 2,000 27
Foster Wheeler Corp. 922 20
Inco Ltd. 997 14
- - Charming Shoppes, Inc. 2,500 12
- - Viacom Inc. Class A 100 6
- ----------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $723,044) 995,102
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ----------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.3%)
- ----------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.67%, 7/1/1998
(COST $3,720) $3,720 $ 3,720
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (100.4%)
(COST $726,764) 998,822
- ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.4%)
- ----------------------------------------------------------------------
Other Assets--Note B 4,628
Liabilities (8,994)
----------
(4,366)
- ----------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------
Applicable to 40,673,720 outstanding
$.001 par value shares of beneficial interest.
(unlimited authorization) $994,456
======================================================================
NET ASSET VALUE PER SHARE $24.45
======================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $725,967 $17.85
Undistributed Net
Investment Income 392 .01
Accumulated Net
Realized Losses--Note C (3,961) (.10)
Unrealized Appreciation--
Note D 272,058 6.69
- ----------------------------------------------------------------------
NET ASSETS $994,456 $24.45
======================================================================
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
MARKET
CAPITAL APPRECIATION VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------
COMMON STOCKS (100.2%)
- ----------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 444,800 $ 40,477
The Coca-Cola Co. 313,100 26,770
- - Microsoft Corp. 221,200 23,973
Merck & Co., Inc. 165,300 22,109
Pfizer, Inc. 182,300 19,814
Intel Corp. 239,500 17,753
Procter & Gamble Co. 190,300 17,329
International Business
Machines Corp. 136,700 15,695
Lucent Technologies, Inc. 188,494 15,680
American International
Group, Inc. 100,025 14,604
- - Cisco Systems, Inc. 150,500 13,855
Johnson & Johnson 186,706 13,770
Wal-Mart Stores, Inc. 204,900 12,448
- - Dell Computer Corp. 132,800 12,326
Exxon Corp. 164,300 11,717
The Walt Disney Co. 100,303 10,538
E.I. du Pont de Nemours & Co. 140,600 10,492
Travelers Group Inc. 170,635 10,345
American Home Products Corp. 198,800 10,288
Schering-Plough Corp. 111,300 10,198
Citicorp 66,100 9,865
Gillette Co. 167,916 9,519
Home Depot, Inc. 114,250 9,490
Abbott Laboratories 232,100 9,487
Fannie Mae 153,400 9,319
PepsiCo, Inc. 221,500 9,123
BankAmerica Corp. 102,400 8,851
Hewlett-Packard Co. 131,400 7,868
Compaq Computer Corp. 276,931 7,858
Morgan Stanley Dean
Witter & Co. 84,400 7,712
- - WorldCom, Inc. 158,406 7,673
McDonald's Corp. 108,700 7,500
The Boeing Co. 156,470 6,973
Time Warner, Inc. 76,275 6,517
Philip Morris Cos., Inc. 163,800 6,450
- - AirTouch Communications, Inc. 98,500 5,756
MCI Communications Corp. 98,100 5,702
Freddie Mac 115,700 5,445
Merrill Lynch & Co., Inc. 58,200 5,369
Motorola, Inc. 100,100 5,262
Medtronic, Inc. 82,400 5,253
- - America Online, Inc. 47,800 5,067
Sprint Corp. 69,000 4,865
- - MediaOne Group, Inc. 110,200 4,842
Associates First Capital Corp. 60,494 4,650
- - Safeway, Inc. 112,184 4,564
AlliedSignal Inc. 99,500 4,415
- - Tele-Communications, Inc.
Class A 113,653 4,369
Emerson Electric Co. 71,200 4,299
Computer Associates
International, Inc. 76,662 4,260
Texas Instruments, Inc. 72,900 4,251
CBS Corp. 131,306 4,169
- - EMC Corp. 90,700 4,064
Mobil Corp. 53,000 4,061
Kimberly-Clark Corp. 87,496 4,014
AT&T Corp. 69,400 3,964
Walgreen Co. 95,600 3,949
The Gap, Inc. 62,750 3,867
- - Compuware Corp. 75,600 3,865
General Re Corp. 15,000 3,802
- - Tele-Communications Liberty
Media Group Class A 97,440 3,782
- - Oracle Corp. 144,875 3,558
- - Amgen, Inc. 53,200 3,478
Lockheed Martin Corp. 32,500 3,441
General Motors Corp. 51,500 3,441
Columbia/HCA Healthcare Corp. 117,021 3,408
- - Cendant Corp. 162,225 3,386
- - Sun Microsystems, Inc. 77,900 3,384
HBO & Co. 95,200 3,356
- - AMR Corp. 39,800 3,313
Comcast Corp. Class A Special 79,666 3,234
- - Costco Cos., Inc. 50,100 3,159
Burlington Northern
Santa Fe Corp. 32,131 3,155
Waste Management Inc. 90,065 3,152
Electronic Data Systems Corp. 78,800 3,152
- - Viacom Inc. Class B 54,106 3,152
CVS Corp. 80,628 3,139
Tyco International Ltd. 49,576 3,123
- - Cablevision Systems Corp.
Class B 37,400 3,123
Lowe's Cos., Inc. 76,200 3,091
Raytheon Co. Class B 51,900 3,069
Automatic Data Processing, Inc. 41,300 3,010
First Data Corp. 88,562 2,950
Mattel, Inc. 69,512 2,941
- - CIENA Corp. 41,200 2,869
Illinois Tool Works, Inc. 43,000 2,868
- - 3Com Corp. 92,475 2,838
The Hartford Financial Services
Group Inc. 24,600 2,814
Cognizant Corp. 43,900 2,766
- - BMC Software, Inc. 53,200 2,763
- - Tellabs, Inc. 38,500 2,758
- - Federated Department
Stores, Inc. 51,100 2,750
Qwest Communications
International Inc. 78,738 2,746
United Healthcare Corp. 43,100 2,737
Guidant Corp. 38,000 2,710
- - Kmart Corp. 138,600 2,668
Delta Air Lines, Inc. 20,500 2,650
Computer Sciences Corp. 41,200 2,637
SunAmerica Inc. 45,850 2,633
Green Tree Financial Corp. 61,400 2,629
State Street Corp. 37,700 2,620
- - Ascend Communications, Inc. 52,040 2,579
Cardinal Health, Inc. 27,300 2,559
- - Clear Channel
Communications, Inc. 23,400 2,553
Archer-Daniels-Midland Co. 131,547 2,549
Wrigley, (Wm.) Jr. Co. 25,700 2,519
Aluminum Co. of America 38,000 2,506
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
Aetna Inc. 32,897 $ 2,504
Lehman Brothers Holdings, Inc. 32,200 2,497
- - USA Waste Service 50,300 2,483
- - Applied Materials, Inc. 84,100 2,481
- - HEALTHSOUTH Corp. 92,902 2,479
Minnesota Mining &
Manufacturing Co. 29,900 2,457
Becton, Dickinson & Co. 31,400 2,437
- - The Kroger Co. 56,600 2,427
- - Boston Scientific Corp. 33,800 2,421
Franklin Resources Corp. 44,800 2,419
- - Bay Networks, Inc. 74,793 2,412
- - Yahoo!, Inc. 15,300 2,410
- - Staples, Inc. 82,287 2,381
- - Republic Industries, Inc. 94,900 2,372
The Equitable Cos. 31,500 2,360
- - FDX Corporation 37,200 2,334
- - Chancellor Media Corp. 46,900 2,329
Caterpillar, Inc. 44,000 2,327
- - US Airways Group, Inc. 29,200 2,314
Coca-Cola Enterprises, Inc. 58,800 2,308
McKesson Corp. 28,400 2,308
- - Kohls Corp. 44,400 2,303
Tele-Communications TCI
Ventures Group Series A 114,494 2,297
- - AES Corp. 43,500 2,286
Sysco Corp. 89,200 2,286
- - ADC Telecommunications, Inc. 62,300 2,276
BellSouth Corp. 33,700 2,262
- - Tenet Healthcare Corp. 72,337 2,261
Conseco Inc. 48,066 2,247
- - PeopleSoft, Inc. 47,800 2,247
- - Forest Laboratories, Inc. 62,400 2,231
Burlington Resources, Inc. 50,500 2,175
Newell Co. 43,600 2,172
Southwest Airlines Co. 72,900 2,160
Kansas City Southern
Industries, Inc. 43,500 2,159
UNUM Corp. 38,700 2,148
- - Storage Technology Corp. 49,200 2,134
Harley-Davidson, Inc. 54,800 2,123
U.S. Surgical Corp. 46,500 2,122
- - DSC Communications Corp. 70,500 2,115
Progressive Corp. of Ohio 15,000 2,115
Marriott International, Inc. Class A 65,200 2,111
MBIA, Inc. 28,000 2,096
AFLAC, Inc. 68,900 2,089
Fort James Corp. 46,087 2,051
Praxair, Inc. 43,800 2,050
General Instrument Corp. 75,100 2,042
- - Novell, Inc. 159,800 2,037
- - Lexmark International
Group, Inc. Class A 33,100 2,019
- - FORE Systems, Inc. 75,900 2,011
Tandy Corp. 37,800 2,006
- - Apple Computer, Inc. 69,700 2,000
Coastal Corp. 28,600 1,997
- - Owens-Illinois, Inc. 44,600 1,996
Charles Schwab Corp. 60,800 1,976
Dollar General Corp. 49,728 1,967
- - Office Depot, Inc. 62,200 1,963
Paychex, Inc. 48,225 1,962
- - Wellpoint Health Networks Inc.
Class A 26,503 1,961
Amoco Corp. 47,000 1,956
- - Intuit, Inc. 31,800 1,948
- - Cadence Design Systems, Inc. 62,300 1,947
- - Sterling Commerce, Inc. 40,100 1,945
Mylan Laboratories, Inc. 64,650 1,944
NIKE, Inc. Class B 39,900 1,943
- - Cox Communications, Inc.
Class A 40,100 1,942
- - Parametric Technology Corp. 71,600 1,942
- - Robert Half International, Inc. 34,700 1,939
Circuit City Stores, Inc. 41,300 1,936
- - Humana, Inc. 62,000 1,934
- - Network Associates, Inc. 40,350 1,932
Loews Corp. 22,100 1,925
- - Fred Meyer Inc. 45,300 1,925
- - Watson Pharmaceuticals, Inc. 41,200 1,924
- - Starbucks Corp. 35,600 1,902
- - Health Management Associates
Class A 56,512 1,890
Dillard's Inc. 45,600 1,890
MGIC Investment Corp. 32,900 1,877
- - NEXTEL Communications, Inc. 75,300 1,873
- - R. P. Scherer Corp. 21,000 1,861
Golden West Financial Corp. 17,500 1,860
- - 360 Communications Co. 58,045 1,857
Century Telephone
Enterprises, Inc. 40,200 1,844
- - Jones Apparel Group, Inc. 50,400 1,843
- - Electronic Arts Inc. 34,100 1,841
- - Toys R Us, Inc. 78,100 1,840
- - AutoZone Inc. 57,600 1,840
Banc One Corp. 32,959 1,839
- - Thermo Electron Corp. 53,800 1,839
Capital One Financial Corp. 14,800 1,838
Hasbro, Inc. 46,400 1,824
- - Ceridian Corp. 30,800 1,810
- - Synopsys, Inc. 39,427 1,804
- - Viking Office Products 57,400 1,801
- - Gateway, Inc. 35,200 1,782
- - Tricon Global Restaurants, Inc. 55,940 1,772
Albertson's, Inc. 34,200 1,772
- - Solectron Corp. 42,000 1,767
Champion International Corp. 35,900 1,766
- - ALZA Corp. 40,500 1,752
- - UAL Corp. 22,300 1,739
- - SunGard Data Systems, Inc. 45,200 1,734
- - Analog Devices, Inc. 70,433 1,730
Amerada Hess Corp. 31,800 1,727
Biomet, Inc. 52,200 1,726
- - Concord EFS, Inc. 66,000 1,724
FirstEnergy Corp. 55,900 1,719
ITT Industries, Inc. 45,900 1,716
Fluor Corp. 33,600 1,714
- - Biogen, Inc. 34,800 1,705
Tyson Foods, Inc. 78,550 1,703
- - FIserv, Inc. 40,100 1,703
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
MARKET
CAPITAL APPRECIATION VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
- - Level 3 Communications, Inc. 23,000 $ 1,702
Allmerica Financial Corp. 26,044 1,693
- - Continental Airlines, Inc. Class B 27,700 1,686
Columbia Energy Group 30,300 1,685
- - Barnes & Noble, Inc. 44,600 1,670
SBC Communications Inc. 41,720 1,669
- - QUALCOMM, Inc. 29,600 1,663
Kellogg Co. 43,700 1,641
- - Maxim Integrated Products, Inc. 51,600 1,635
Cintas Corp. 31,900 1,627
- - Consolidated Stores, Inc. 44,806 1,624
RELTEC Corp. 36,000 1,620
- - LSI Logic Corp. 70,000 1,614
- - SCI Systems, Inc. 42,900 1,614
- - Mirage Resorts, Inc. 75,600 1,611
AMBAC Financial Group Inc. 27,500 1,609
Manor Care Inc. 41,700 1,603
Linear Technology Corp. 26,500 1,598
Nucor Corp. 34,700 1,596
Dime Bancorp, Inc. 53,300 1,596
- - Western Atlas, Inc. 18,800 1,596
- - Teleport Communications
Group Inc. 29,400 1,595
Anadarko Petroleum Corp. 23,700 1,592
- - St. Jude Medical, Inc. 43,109 1,587
Darden Restaurants Inc. 99,900 1,586
USG Corp. 29,300 1,586
- - Quantum Corp. 76,000 1,577
W.W. Grainger, Inc. 31,400 1,564
Owens Corning 38,200 1,559
- - Pacificare Health Systems Inc.
Class B 17,632 1,558
Autoliv, Inc. 49,147 1,554
M & T Bank Corp. 2,800 1,551
Newmont Mining Corp. 65,591 1,550
Centex Corp. 40,800 1,540
- - CompUSA, Inc. 85,100 1,537
The Warnaco Group, Inc. Class A 36,100 1,532
International Paper Co. 35,600 1,531
Union Pacific Resources
Group, Inc. 86,842 1,525
- - Lear Corp. 29,600 1,519
- - Bed Bath & Beyond, Inc. 29,300 1,518
- - American Standard Cos., Inc. 33,900 1,515
- - American Power Conversion Corp. 50,200 1,506
Inland Steel Industries, Inc. 53,300 1,502
Dole Food Co. 30,200 1,500
- - Outback Steakhouse, Inc. 38,400 1,498
Pioneer Natural Resources Co. 62,700 1,497
- - Sybron International Corp. 59,200 1,495
- - USA Networks, Inc. 59,480 1,494
- - Netscape Communications Corp. 55,179 1,493
- - NCR Corp. 45,937 1,493
Adobe Systems, Inc. 35,100 1,490
- - Fruit of the Loom, Inc. 44,800 1,487
Stewart Enterprises, Inc. Class A 55,800 1,486
IMC Global Inc. 49,206 1,482
Williams Cos., Inc. 43,789 1,478
- - Foundation Health Systems, Inc.
Class A 55,970 1,476
- - Quintiles Transnational Corp. 30,000 1,476
Nordstrom, Inc. 19,100 1,475
- - General Nutrition Cos., Inc. 47,400 1,475
Danaher Corp. 40,200 1,475
- - Seagate Technology Inc. 61,870 1,473
- - AccuStaff, Inc. 47,100 1,472
Sigma-Aldrich Corp. 41,900 1,472
- - U.S. Filter Corp. 52,000 1,459
CNF Transportation, Inc. 34,300 1,458
Provident Cos., Inc. 41,904 1,446
- - EXCEL Communications, Inc. 62,800 1,440
- - DST Systems, Inc. 25,600 1,434
- - Host Marriott Corp. 80,400 1,432
Apache Corp. 45,400 1,430
Beckman Coulter, Inc. 24,500 1,427
Stryker Corp. 37,000 1,420
- - Centocor, Inc. 39,100 1,417
- - Venator Group, Inc. 73,900 1,413
- - PRIMEDIA Inc. 103,800 1,408
Martin Marietta Materials, Inc. 31,100 1,400
International Game Technology 57,500 1,394
- - Corrections Corp. of America 59,300 1,393
Fastenal Co. 30,000 1,393
- - Oryx Energy Co. 62,950 1,393
- - Promus Hotel Corp. 36,163 1,392
Horace Mann Educators Corp. 40,300 1,390
- - Citizens Utilities Co. Class B 144,311 1,389
- - Harrah's Entertainment, Inc. 59,600 1,386
R & B Falcon Corp. 61,146 1,383
E.W. Scripps Co. Class A 25,235 1,383
- - First Health Group Corp. 48,400 1,379
- - Global Marine, Inc. 73,800 1,379
Union Pacific Corp. 31,253 1,379
Cracker Barrel Old Country
Stores, Inc. 43,400 1,378
- - Litton Industries, Inc. 23,300 1,375
- - Northwest Airlines Corp. Class A 35,600 1,373
- - Noble Drilling Corp. 57,000 1,372
Freeport-McMoRan Copper &
Gold Inc. Class B 89,987 1,367
Great Lakes Chemical Corp. 34,600 1,365
Noble Affiliates, Inc. 35,900 1,364
- - OfficeMax, Inc. 82,600 1,363
- - UNOVA, Inc. 63,200 1,359
- - Gartner Group, Inc. Class A 38,800 1,358
20th Century Industries 47,300 1,357
- - CalEnergy Co. 45,100 1,356
A. H. Belo Corp. Class A 55,600 1,355
New Century Energies, Inc. 29,800 1,354
- - Healthcare & Retirement Corp. 34,300 1,353
Morton International, Inc. 54,100 1,353
- - Genzyme Corp. 52,900 1,352
- - EVI Weatherford, Inc. 36,400 1,351
Clayton Homes Inc. 71,116 1,351
- - Advanced Micro Devices, Inc. 79,100 1,350
Diamond Offshore Drilling, Inc. 33,700 1,348
- - Micron Technology, Inc. 54,200 1,345
- - BJ Services Co. 46,200 1,343
- - Teradyne, Inc. 50,100 1,340
York International Corp. 30,600 1,333
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------
<S> <C> <C>
Wesco Financial Corp. 3,400 $ 1,329
- - KLA-Tencor Corp. 48,000 1,329
Transatlantic Holdings, Inc. 17,100 1,322
- - Stone Container Corp. 84,500 1,320
- - Xilinx, Inc. 38,600 1,312
- - King World Productions, Inc. 51,400 1,311
Johns Manville Corp. 87,000 1,310
- - Paging Network, Inc. 93,100 1,303
- - Sterling Software, Inc. 44,000 1,301
- - Beverly Enterprises, Inc. 93,900 1,297
Total System Services, Inc. 61,650 1,295
- - Ocean Energy, Inc. 66,140 1,294
- - Tele-Communications
International, Inc. Series A 64,200 1,290
- - Chiron Corp. 82,140 1,288
- - Cooper Cameron Corp. 25,200 1,285
Enron Oil & Gas Co. 63,400 1,284
- - Altera Corp. 43,400 1,283
Homestake Mining Co. 123,300 1,279
- - Iomega Corp. 217,000 1,275
The PMI Group Inc. 17,300 1,269
- - FMC Corp. 18,600 1,268
La Quinta Inns Inc. 60,000 1,267
- - International Specialty
Products, Inc. 68,000 1,267
Telephone & Data Systems, Inc. 32,000 1,260
- - Chris-Craft Industries, Inc. 23,028 1,259
- - Bethlehem Steel Corp. 101,200 1,259
Pittston Brink's Group 34,100 1,257
- - Arrow Electronics, Inc. 57,600 1,253
- - Circus Circus Enterprises Inc. 73,700 1,248
- - Quorum Health Group, Inc. 47,050 1,247
Reebok International Ltd. 44,950 1,244
- - MedPartners, Inc. 155,156 1,241
- - UCAR International, Inc. 42,300 1,235
Leucadia National Corp. 37,300 1,233
Molex, Inc. 49,025 1,226
BHC Communications, Inc.
Class A 8,700 1,221
IBP, Inc. 66,800 1,211
- - Brinker International, Inc. 62,400 1,201
- - Tech Data Corp. 27,900 1,196
Autodesk, Inc. 30,900 1,194
Ford Motor Co. 20,200 1,192
- - Andrew Corp. 65,687 1,186
- - Nabors Industries, Inc. 59,800 1,185
- - MGM Grand, Inc. 37,300 1,177
- - U.S. Cellular Corp. 38,200 1,175
Callaway Golf Co. 59,300 1,167
- - CNA Financial Corp. 24,900 1,159
Raychem Corp. 39,000 1,153
DePuy, Inc. 40,800 1,153
- - Thermo Instrument Systems, Inc. 43,658 1,146
Cooper Tire & Rubber Co. 55,500 1,145
- - Coltec Inc. 57,300 1,139
Lancaster Colony Corp. 30,050 1,138
ENSCO International, Inc. 65,500 1,138
Starwood Hotels & Resorts REIT 23,424 1,132
AGCO Corp. 55,000 1,131
- - Corporate Express, Inc. 88,600 1,124
- - Sealed Air Corp. 30,136 1,108
- - Southland Corp. 402,300 1,106
- - Premisys Communications, Inc. 44,400 1,104
- - Keebler Foods Co. 40,100 1,103
Newmont Gold Co. 44,300 1,094
- - Jefferson Smurfit Corp. 69,500 1,092
- - Rowan Cos., Inc. 56,200 1,092
- - CommScope, Inc. 67,406 1,091
- - Atmel Corp. 80,000 1,090
The St. Joe Company 39,800 1,090
Varian Associates, Inc. 27,900 1,088
Millipore Corp. 39,200 1,068
- - GTech Holdings Corp. 31,700 1,068
- - Smith International, Inc. 30,200 1,051
Rubbermaid, Inc. 31,600 1,049
- - Global Industries Ltd. 62,000 1,046
Manpower Inc. 35,900 1,030
- - Consolidated Freightways Corp. 73,371 1,023
DENTSPLY International Inc. 40,200 1,005
J.C. Penney Co., Inc. 13,654 987
Chrysler Corp. 17,286 975
Mark IV Industries, Inc. 44,310 958
- - Santa Fe Energy Resources, Inc. 89,100 958
Mallinckrodt, Inc. 31,800 944
- - Western Digital Corp. 79,900 944
The Limited, Inc. 28,437 942
Gaylord Entertainment Co.
Class A 28,614 923
- - Informix Corp. 114,800 908
- - Alleghany Corp. 3,808 888
American General Corp. 12,461 887
- - Adaptec, Inc. 61,700 883
Cummins Engine Co., Inc. 16,900 866
Crown Cork & Seal Co., Inc. 17,500 831
Shaw Industries, Inc. 47,000 828
- - Cabletron Systems, Inc. 61,600 828
- - National Semiconductor Corp. 62,600 826
- - EEX Corp. 87,882 824
- - PETsMART, Inc. 81,800 818
- - Host Marriott Services Corp. 53,520 779
- - Silicon Graphics, Inc. 63,500 770
Sodexho Marriott Services, Inc. 26,450 767
- - Electronics for Imaging, Inc. 36,000 761
- - Micron Electronics, Inc. 63,000 760
- - Nine West Group, Inc. 27,100 727
- - Abercrombie & Fitch Co. 16,258 715
- - IVAX Corp. 73,800 683
The Pep Boys
(Manny, Moe & Jack) 35,100 665
Alumax, Inc. 14,178 658
- - Vishay Intertechnology, Inc. 36,334 652
- - IDEXX Laboratories Corp. 26,000 647
- - Airgas, Inc. 44,200 635
- - Ventas, Inc. 45,285 626
Allegheny Teledyne Inc. 27,142 621
Sunbeam Corp. 59,300 615
- - Microchip Technology, Inc. 20,200 528
- - Chicago Title Corp. 11,424 528
- - Sybase, Inc. 74,500 519
Albemarle Corp. 23,000 507
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
MARKET
CAPITAL APPRECIATION VALUE*
PORTFOLIO SHARES (000)
- ----------------------------------------------------------------------
COMMON STOCKS (100.2%)
- ----------------------------------------------------------------------
<S> <C> <C>
Great Atlantic & Pacific
Tea Co., Inc. 15,300 $ 506
- - LAM Research Corp. 26,300 503
Texaco Inc. 7,960 475
Bandag, Inc. 11,850 462
- - LucasVarity PLC ADR 11,592 461
- - Castle & Cooke Inc. 23,300 443
- - Micro Warehouse Inc. 28,400 440
The Reynolds & Reynolds Co.
Class A 23,500 427
IKON Office Solutions, Inc. 29,300 427
Sealed Air Corp. Pfd. 10,117 425
- - VLSI Technology, Inc. 25,200 423
- - Choice Hotel International, Inc. 30,100 408
- - Viacom Inc. Class A 6,844 400
W.R. Grace & Co. 22,100 377
- - J.D. Edwards & Co. 8,500 365
- - Boise Cascade Office
Products Corp. 23,200 360
- - PharMerica, Inc. 29,809 360
Frontier Corp. 11,400 359
General Semiconductor, Inc. 36,100 356
- - Wisconsin Central
Transportation Corp. 16,000 350
Pacificare Health Systems Inc.
Class A 4,096 346
- - Oxford Health Plan 22,000 337
MascoTech Inc. 14,000 336
Texas Utilities Co. 7,965 332
At Home Corp. Series A 7,000 331
Reynolds Metals Co. 5,300 296
ING Groep NV ADR 4,261 278
Pogo Producing Co. 10,300 259
- - Boston Chicken, Inc. 153,500 245
Georgia Gulf Corp. 10,700 244
Price Enterprises, Inc. 13,100 241
First Brands Corp. 9,200 236
TIG Holdings, Inc. 9,800 225
LTV Corp. 22,900 219
St. Paul Cos., Inc. 4,800 202
Cinergy Corp. 5,700 200
Raytheon Co. Class A 3,284 189
- - Mentor Graphics Corp. 16,100 170
Lone Star Industries, Inc. 2,000 154
Burlington Coat Factory
Warehouse Corp. 6,360 143
Werner Enterprises, Inc. 7,500 143
- - Octel Corp. 7,150 142
U S West, Inc. 3,010 141
- - Input/Output, Inc. 6,900 123
- - NovaCare, Inc. 10,200 120
Baxter International, Inc. 2,000 108
RJR Nabisco Holdings Corp. 4,360 103
Aetna Inc. 1,333 100
Unisource Worldwide, Inc. 8,500 92
- - Marquette Medical Systems Inc. 3,500 90
- - Seagull Energy Corp. 5,200 86
Pittston BAX Group 5,450 85
- - TransTexas Gas Corp. 9,300 83
- - Associated Group, Inc. 1,750 72
- - Sunburst Hospitality Corp. 10,033 70
- - Associated Group, Inc. Class B 1,750 70
- - Shiva Corp. 8,000 67
Russell Corp. 1,550 47
- - Lands' End, Inc. 1,400 44
- - Pairgain Technologies, Inc. 2,000 35
- - Glenayre Technologies, Inc. 3,000 32
ASARCO, Inc. 1,400 31
Advanta Corp. Class A 1,400 31
Wausau-Mosinee Paper Corp. 1,100 25
- - Burlington Industries, Inc. 1,500 21
Louisiana-Pacific Corp. 1,050 19
- - Freeport-McMoRan Sulphur, Inc. 1,433 19
- - IMC Global
Warrants Exp. 12/22/2000 2,261 6
Freeport-McMoRan Copper &
Gold, Inc. Class A 138 2
- ----------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $782,375) 1,241,401
- ----------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ----------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.4%)
- ----------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.67%, 7/1/1998 $ 1,600 1,600
5.76%, 7/1/1998--Note E 15,884 15,884
- ----------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $17,484) 17,484
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (101.6%)
(COST $799,859) 1,258,885
- ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.6%)
- ----------------------------------------------------------------------
Other Assets--Note B 22,497
Liabilities--Note E (42,615)
------------
(20,118)
- ----------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------
Applicable to 52,307,423 outstanding
$.001 par value shares of beneficial interest.
(unlimited authorization) $1,238,767
======================================================================
NET ASSET VALUE PER SHARE $23.68
======================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 801,558 $15.32
Undistributed Net
Investment Income 3,144 .06
Accumulated Net
Realized Losses--Note C (24,961) (.48)
Unrealized Appreciation--
Note D 459,026 8.78
- ----------------------------------------------------------------------
NET ASSETS $1,238,767 $23.68
======================================================================
</TABLE>
32
<PAGE> 35
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, 1998
--------------------------------------------------------
(000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 250 $ 5,860 $ 4,134
Interest 1,783 110 260
--------------------------------------------------------
Total Income 2,033 5,970 4,394
--------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 13 9 9
Management and Administrative 76 488 714
Marketing and Distribution 18 90 124
Taxes (other than income taxes) 5 28 40
Custodian Fees 5 40 19
Auditing Fees 4 4 4
Shareholders' Reports 2 8 10
Annual Meeting and Proxy Costs -- 1 1
Trustees' Fees and Expenses -- 1 1
--------------------------------------------------------
Total Expenses 123 669 922
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,910 5,301 3,472
- ----------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT SECURITIES SOLD (736) (2,305) (7,487)
- ----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES 11,715 118,644 170,684
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,889 $121,640 $166,669
======================================================================================================================
</TABLE>
33
<PAGE> 36
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
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, 1998 DEC. 31, 1997 JUN. 30, 1998 DEC. 31, 1997
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,910 $ 2,674 $ 5,301 $ 6,543
Realized Net Gain (Loss) (736) (626) (2,305) (199)
Change in Unrealized Appreciation (Depreciation) 11,715 12,259 118,644 103,458
---------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 12,889 14,307 121,640 109,802
---------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (1,588) (2,697) (4,843) (6,484)
Realized Capital Gain -- -- -- --
---------------------------------------------------------------------
Total Distributions (1,588) (2,697) (4,843) (6,484)
---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 39,649 46,356 312,783 249,262
Issued in Lieu of Cash Distributions 1,402 2,397 3,848 4,965
Redeemed (2,775) (3,726) (18,264) (12,772)
---------------------------------------------------------------------
Net Increase from Capital Share Transactions 38,276 45,027 298,367 241,455
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase 49,577 56,637 415,164 344,773
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 119,765 63,128 579,292 234,519
---------------------------------------------------------------------
End of Period $169,342 $119,765 $994,456 $579,292
==============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 2,569 3,382 13,632 13,396
Issued in Lieu of Cash Distributions 89 169 160 254
Redeemed (181) (273) (860) (671)
---------------------------------------------------------------------
Net Increase in Shares Outstanding 2,477 3,278 12,932 12,979
==============================================================================================================================
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION
PORTFOLIO
-------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1998 DEC. 31, 1997
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 3,472 $ 5,003
Realized Net Gain (Loss) (7,487) (7,186)
Change in Unrealized Appreciation (Depreciation) 170,684 165,146
-------------------------------------
Net Increase in Net Assets Resulting from Operations 166,669 162,963
-------------------------------------
DISTRIBUTIONS
Net Investment Income -- (5,247)
Realized Capital Gain -- --
-------------------------------------
Total Distributions -- (5,247)
-------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 196,525 233,347
Issued in Lieu of Cash Distributions -- 4,508
Redeemed (16,934) (20,455)
-------------------------------------
Net Increase from Capital Share Transactions 179,591 217,400
- ----------------------------------------------------------------------------------------------------------------
Total Increase 346,260 375,116
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 892,507 517,391
-------------------------------------
End of Period $1,238,767 $892,507
================================================================================================================
(1)Shares Issued (Redeemed)
Issued 8,869 12,712
Issued in Lieu of Cash Distributions -- 229
Redeemed (793) (1,141)
-------------------------------------
Net Increase in Shares Outstanding 8,076 11,800
================================================================================================================
</TABLE>
35
<PAGE> 38
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------- JUL. 25* TO
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 DEC. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.67 $12.92 $11.85 $ 9.79 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .20 .37 .36 .31 .09
Net Realized and Unrealized Gain (Loss)
on Investments 1.21 1.75 1.07 2.07 (.21)
--------------------------------------------------------------------------------
Total from Investment Operations 1.41 2.12 1.43 2.38 (.12)
--------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.16) (.37) (.36) (.32) (.09)
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------
Total Distributions (.16) (.37) (.36) (.32) (.09)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.92 $14.67 $12.92 $11.85 $ 9.79
===================================================================================================================================
TOTAL RETURN** 9.62% 16.55% 12.21% 24.52% -1.40%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $169 $120 $63 $39 $17
Ratio of Total Expenses to Average Net Assets 0.17%+ 0.17% 0.20% 0.20% 0%
Ratio of Net Investment Income to
Average Net Assets 2.63%+ 2.77% 3.04% 3.06% 2.88%+
Portfolio Turnover Rate 5%+ 7% 5% 5% 0%
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
36
<PAGE> 39
<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, 1998 1997 1996 1995 DEC. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.88 $15.89 $13.16 $ 9.77 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .14 .29 .27 .25 .09
Net Realized and Unrealized Gain (Loss)
on Investments 3.56 4.98 2.74 3.39 (.23)
--------------------------------------------------------------------------------
Total from Investment Operations 3.70 5.27 3.01 3.64 (.14)
--------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.13) (.28) (.28) (.25) (.09)
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------
Total Distributions (.13) (.28) (.28) (.25) (.09)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $24.45 $20.88 $15.89 $13.16 $9.77
===================================================================================================================================
TOTAL RETURN** 17.73% 33.31% 23.03% 37.53% -1.70%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $994 $579 $235 $98 $31
Ratio of Total Expenses to Average Net Assets 0.17%+ 0.17% 0.20% 0.20% 0.20%+
Ratio of Net Investment Income to
Average Net Assets 1.34%+ 1.62% 2.04% 2.37% 2.82%+
Portfolio Turnover Rate 4%+ 2% 7% 6% 0%
- -----------------------------------------------------------------------------------------------------------------------------------
</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, 1998 1997 1996 1995 DEC. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.18 $15.95 $13.28 $ 9.95 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .07 .11 .12 .08 .04
Net Realized and Unrealized Gain (Loss)
on Investments 3.43 4.24 2.66 3.34 (.05)
-------------------------------------------------------------------------------
Total from Investment Operations 3.50 4.35 2.78 3.42 (.01)
-------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.12) (.11) (.09) (.04)
Distributions from Realized Capital Gains -- -- -- -- --
-------------------------------------------------------------------------------
Total Distributions -- (.12) (.11) (.09) (.04)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $23.68 $20.18 $15.95 $13.28 $ 9.95
===================================================================================================================================
TOTAL RETURN** 17.34% 27.29% 20.92% 34.38% -0.50%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,239 $893 $517 $254 $70
Ratio of Total Expenses to Average Net Assets 0.17%+ 0.17% 0.20% 0.20% 0.20%+
Ratio of Net Investment Income to
Average Net Assets 0.64%+ 0.70% 0.91% 0.97% 1.26%+
Portfolio Turnover Rate 7%+ 4% 12% 7% 1%
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
37
<PAGE> 40
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: Equity 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. Prices are taken from the primary market in
which each security trades. Bonds 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 ratings), both as furnished by
independent pricing services. Temporary cash investments are valued at cost,
which approximates market value. Securities for which market quotations are not
available are valued by methods deemed by the Board of Trustees to represent
fair 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. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
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. Fees assessed on redemptions of
capital shares are credited to paid in capital.
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 Trustees. At
June 30, 1998, the fund had contributed capital aggregating $434,000 to Vanguard
(included in Other Assets), representing 0.6% of Vanguard's capitalization. The
fund's Trustees and officers are also Directors and officers of Vanguard.
C. During the six months ended June 30, 1998, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
(000)
--------------------------------------------
PORTFOLIO PURCHASES SALES
----------------------------------------------------------------------------
<S> <C> <C>
Balanced $ 40,427 $ 3,444
Growth and Income 315,426 16,902
Capital Appreciation 226,538 40,480
----------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
At December 31, 1997, 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 2003-2006 $ 796
Growth and Income 2003-2005 1,650
Capital Appreciation 2003-2006 17,474
--------------------------------------------------------------------------------
</TABLE>
D. At June 30, 1998, 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 $ 34,891 $ (1,200) $ 33,691
Growth and Income 276,774 (4,716) 272,058
Capital Appreciation 477,364 (18,338) 459,026
--------------------------------------------------------------------------------
</TABLE>
E. The market value of Capital Appreciation Portfolio securities on loan to
brokers/dealers at June 30, 1998, was $14,098,000, for which the portfolio held
cash collateral of $15,884,000. Cash collateral received is invested in
repurchase agreements.
39
<PAGE> 42
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Senior 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
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc., and
of each of the investment companies in The Vanguard Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific
Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; 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 Telecommunications 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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director 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
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DiSTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MacKINNON
Managing Director, Fixed Income Group.
F. WILLIAM McNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 43
VANGUARD FAMILY OF FUNDS
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Horizon Fund
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Index Trust
500 Portfolio
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Growth Portfolio
Mid Capitalization Stock
Portfolio
Small Capitalization Growth
Stock Portfolio
Small Capitalization Stock
Portfolio
Small Capitalization Value
Stock Portfolio
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Value Portfolio
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Pacific Portfolio
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Morgan Growth Fund
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Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
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Portfolio
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(CA, NJ, NY, OH, PA)
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Portfolio
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Portfolio
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Portfolio
Long-Term Bond Portfolio
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GNMA Portfolio
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Portfolio
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Treasury Portfolio
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Portfolio
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Portfolio
Short-Term Corporate
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Portfolio
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State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
Q872-6/1998
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All rights reserved.
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