<PAGE> 1
VANGUARD
TAX-MANAGED FUNDS
VANGUARD TAX-MANAGED BALANCED FUND
VANGUARD TAX-MANAGED GROWTH AND
INCOME FUND
VANGUARD TAX-MANAGED CAPITAL
APPRECIATION FUND
[PHOTO]
ANNUAL
REPORT
DECEMBER 31, 1998
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto-- "Leading the way"--serves as a guiding principle for
our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape the
standards and business principles that Mr. Bogle laid down for Vanguard at its
beginning nearly 25 years ago: a stress on balanced, diversified investments;
insistence on fair dealing and candor with clients; and a focus on long-term
investing. To our great regret, Mr. Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
6
FUND PROFILES
8
PERFORMANCE SUMMARIES
14
FINANCIAL STATEMENTS
17
REPORT OF
INDEPENDENT ACCOUNTANTS
42
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO SENIOR CHAIRMAN
The three Vanguard Tax-Managed Funds provided excellent returns during 1998,
surpassing by substantial margins the results from peer mutual funds during a
volatile year for financial markets. Our two stock funds, the Growth and Income
Fund and the Capital Appreciation Fund, provided returns of +28.7% and +28.0%,
respectively, for the twelve months ended December 31, 1998. Our Balanced Fund
earned +16.9%, a bountiful return for a fund that invests slightly more than
half of its assets in municipal bonds. Each fund's return closely tracked that
of the unmanaged index against which we measure its performance.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
TOTAL RETURNS
YEAR ENDED
DECEMBER 31, 1998
- ---------------------------------------------------------
<S> <C>
TAX-MANAGED GROWTH AND INCOME FUND +28.7%
Average Growth and Income Fund +17.0
S&P 500 Index +28.6
- ---------------------------------------------------------
TAX-MANAGED CAPITAL APPRECIATION FUND +28.0%
Average Growth Fund +22.9
Russell 1000 Index +27.0
- ---------------------------------------------------------
TAX-MANAGED BALANCED FUND +16.9%
Average Balanced Fund* +13.5
Balanced Composite Index** +17.0
- ---------------------------------------------------------
</TABLE>
*Bond component not tax-exempt.
**50% Russell 1000 Index, 50% Lehman Brothers 7 Year
Municipal Bond Index.
The adjacent table shows the 1998 total returns (capital change plus
reinvested dividends) for our funds, their average peers, and the relevant index
benchmarks. Detailed per-share figures, including net asset values at the
beginning and end of the year and income dividends, are presented in the table
on page 5. We are pleased to note that none of the Tax-Managed Funds realized
net capital gains in 1998--continuing a track record that began with the funds'
inception in 1994. As you know, keeping such taxable distributions to a minimum
is a core objective of these funds. With this report, on page 3, we are
introducing some comparative data of pretax and after-tax returns that we hope
will give you a clearer sense of the tax-efficiency of your fund.
FINANCIAL MARKETS IN REVIEW
The U.S. economy grew at a robust pace--nearly 4%--during 1998 as it shrugged
off the effects of serious financial problems in Asia, Russia, and Latin
America. Troubles abroad slowed demand for American exports and boosted demand
for imported goods, increasing the U.S. trade deficit. But the domestic economy
got a powerful push from higher consumer spending, which was encouraged by low
unemployment (4.3% at year-end) and higher wages (up about 4%, well above the
1.6% inflation rate).
The optimism that kept shopping malls and automobile showrooms busy was
also a factor in the financial markets. Stock prices shot up during the first
half of the year, despite news that corporate earnings actually declined
slightly, and by July 17 the Standard & Poor's 500 Composite Stock Price Index
had gained +23.3%. But fears that Asia's financial troubles were spreading
worldwide touched off a sharp decline: During the six weeks ended August 31, the
S&P 500 Index fell -19.2%. Declines were much steeper for smaller stocks: The
Russell 2000 Index of small-capitalization stocks declined nearly -40% from its
mid-April peak to its low in October.
1
<PAGE> 4
The stock market then revived with remarkable speed and vigor. By year-end,
the S&P 500 Index was again in record territory, having gained +28.6% for the
year. The Russell 1000 Index, a broader gauge of the nation's larger companies,
gained +27.0%. These results, however, masked weakness elsewhere in the market.
The Wilshire 4500 Equity Index, which comprises stocks not included in the S&P
500, gained just +8.6%, while the Russell 2000 Index declined -2.5%. In the
entire market, more stocks declined in price than rose.
Interest rates declined on balance during 1998, and bond prices, which move
in the opposite direction from rates, generally rose. Price appreciation
accounted for 2 percentage points of the +8.7% total return of the Lehman
Aggregate Bond Index. Rates fell furthest--roughly 1 percentage point--for U.S.
Treasury securities. Treasury bond prices benefited from a "flight to quality"
as many investors shunned riskier securities. Municipal bond yields declined
only slightly and at year-end were nearly equal to yields on long-term
Treasuries, even though interest from municipals is exempt from federal income
tax.
1998 PERFORMANCE OVERVIEW
The remarkable comeback of large-cap stocks after the summer meltdown boosted
the returns of our Tax-Managed Funds, which seek tax-efficient total returns
that closely parallel those of their target indexes. Our Growth and Income and
Capital Appreciation Funds actually earned a bit more than their target indexes
during 1998, even though indexes do not incur the real-world costs of fund
operations and securities transactions.
The TAX-MANAGED GROWTH AND INCOME FUND's return of +28.7% exceeded by a
tenth of a percentage point that of the S&P 500 Index, whose stocks it holds in
approximately the same proportions as the index. Thanks to the market's strong
bias toward the large-cap stocks that dominate the S&P 500, our fund trounced
the +17.0% return of the average growth-and-income fund.
The TAX-MANAGED CAPITAL APPRECIATION FUND returned +28.0%, a percentage
point more than the Russell 1000 Index and 5.1 percentage points more than the
average growth fund. These results reflect the fund's slight bias toward the
lower-yielding growth stocks within the index. These stocks, which we emphasize
for their relative tax efficiency, were strong performers during the year. We
note that disparities in returns between growth stocks and value stocks, and
between mid-cap and small-cap issues, tend to run in cycles and won't always be
in our favor. For example, as we noted a year ago, the Capital Appreciation Fund
lagged the Russell 1000 Index during 1997 largely because the index's value
stocks outperformed its growth stocks that year.
The TAX-MANAGED BALANCED FUND's gain of +16.9% closely tracked the +17.0%
return of its composite benchmark index and easily outpaced the +13.5% return of
the average balanced fund. Our 3.4-percentage-point margin actually understates
our lead because most balanced funds hold taxable bonds, so their interest
income is entirely taxable. Our bond segment, of course, is invested in
high-quality, tax-exempt municipal bonds, so most of our income dividends are
not taxable. The stock portion of our fund is invested in essentially the same
way as the assets of the Capital Appreciation Fund.
At least 50% of the Balanced Fund's assets must be invested in municipal
bonds to preserve the tax exemption for interest we earn on those bonds, so we
slightly overweight our bond position to ensure that we meet that requirement.
(Our municipal bond position averaged about 51% of assets during 1998.) This
divergence accounts for our tiny shortfall against our composite index, which is
weighted 50% in the Russell 1000 Index and 50% in the Lehman 7 Year Municipal
Bond Index (whose return was +6.2% during 1998).
2
<PAGE> 5
A NEW LOOK AT TAX EFFICIENCY
The concept of tax-efficient investing began to catch on during 1998, as more
investors considered the benefits of deferring capital gains rather than having
them distributed and taxed. We're glad to see this increased focus on tax
efficiency, which was the reason we decided to pioneer this concept and created
the Vanguard Tax-Managed Funds more than four years ago.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
TOTAL RETURNS BEFORE AND AFTER TAXES*
- ---------------------------------------------------------------------
TOTAL RETURNS AVERAGE ANNUAL
YEAR ENDED TOTAL RETURNS
DECEMBER 31, 1998 SINCE INCEPTION**
------------------ ------------------
TAX-MANAGED FUND PRETAX AFTER TAX PRETAX AFTER TAX
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income +28.7% +28.1% +27.5% +26.6%
Capital Appreciation +28.0 +27.7 +25.1 +24.8
Balanced +16.9 +16.8 +15.7 +15.5
- ---------------------------------------------------------------------
</TABLE>
*Based on the highest federal tax rate of 39.6%; state taxes, if any, are not
included.
**September 6, 1994.
In the adjoining table, we present after-tax returns for our three
Tax-Managed Funds for 1998 and since their inception. These return figures
assume that shares have been held, not sold; that all income dividends, less any
tax that would be owed on them, were reinvested; and that the taxable portions
of the dividends were subject to tax at the highest federal income-tax rate.
Comparable data for our peer mutual funds are not yet available, though we
expect such information to evolve. However, you can easily see that our strategy
has helped you keep a high percentage of your pretax earnings. If you are
subject to a lower tax rate, your after-tax returns would have been higher than
those shown. Any state income taxes on dividends are not included.
Capital gains that a fund earns but does not realize through the sale of
securities build up as unrealized gains until the securities are sold. At
year-end 1998, the Growth and Income Fund had net unrealized gains of $7.50 per
share, or 28% of net asset value; Capital Appreciation, $10.21 per share, or 40%
of net asset value; and Balanced, $3.79 per share, or 23% of net asset value.
We intend to avoid realizing these gains, although we cannot guarantee that
we'll achieve this aim. One way we pursue this goal is to minimize fund
turnover--trading activity as a percentage of assets. During 1998, our Growth
and Income Fund had a turnover rate of 4%; the Capital Appreciation Fund, 5%;
and the Balanced Fund, 7%. The average general equity fund turns over its
securities at an annual rate of 83%. The turnover in our Tax-Managed Funds is
related almost entirely to changes in our target indexes (for example, when
there is a corporate takeover) and to the sale of securities on which we can
book capital losses that can be used to offset future capital gains we may
realize.
The buy-and-hold nature of our indexing strategy makes it unlikely that
frequent portfolio transactions will convert our unrealized gains into realized
gains. What's more, we have substantial loss carryforwards that we could use to
offset gains in the event that a market downturn prompted heavy redemptions by
shareholders. Also, we sell our highest-cost shares first, so the first shares
sold to meet redemptions during a market pullback would be likely to generate
realized losses, not gains. Finally, we attempt to limit our funds'
vulnerability to large redemptions by discouraging investments from short-term
speculators and market-timers. We do this by imposing redemption fees of 2% on
shares held less than one year and 1% on shares held from one to five years.
This policy seems to be working. Our redemption rates for the Tax-Managed Funds
averaged about 4.4% last year, far below the industry level for equity funds of
34.1%.
3
<PAGE> 6
LIFETIME PERFORMANCE OVERVIEW
Although they are only a little more than four years old, the Vanguard
Tax-Managed Funds are building solid track records both in absolute returns and
in comparison with their competitive standards.
The following table presents the average annual returns earned by each of
our Tax-Managed Funds since inception on September 6, 1994. It also shows how an
initial investment of $10,000 in each fund would have grown, assuming
reinvestment of income dividends. The table presents the same information
(assuming that dividends and capital gains distributions were reinvested) for
the average comparable mutual fund and the appropriate index. All the returns
are pretax. So far, the Growth and Income Fund's return has exceeded that of its
average peer by 6.2 percentage points a year, while the Capital Appreciation
Fund has achieved a 3.2-point margin of superiority over its average peer. Such
margins add up to significant sums. For example, an investment of $10,000 in the
Growth and Income Fund at inception would have grown to $28,531, or $5,540 more
than the $22,991 that would have accumulated in the average competitor.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
TOTAL RETURNS
SEP. 6, 1994, TO DEC. 31, 1998
------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
TAX-MANAGED FUND RATE INITIAL INVESTMENT
- -----------------------------------------------------------------
<S> <C> <C>
GROWTH AND INCOME +27.5% $28,531
Average Growth and Income Fund +21.3 22,991
S&P 500 Index +27.4 28,498
- -----------------------------------------------------------------
CAPITAL APPRECIATION +25.1% $26,334
Average Growth Fund +21.9 23,492
Russell 1000 Index +26.8 27,923
- -----------------------------------------------------------------
BALANCED +15.7% $18,776
Average Balanced Fund* +15.9 18,883
Balanced Composite Index +16.8 19,567
- -----------------------------------------------------------------
</TABLE>
*Bond component not tax-exempt
Our Tax-Managed Balanced Fund has virtually matched the total returns of
its average peer, a noteworthy feat since income from our fund's bond component
is exempt from federal income tax, while income from the average balanced fund
is entirely taxable. We estimate that on an after-tax basis, the annualized
return on our Balanced Fund has exceeded that of its average peer by roughly 1
percentage point.
A key factor in these results is our emphasis on keeping costs down. Our
expense ratio (annual expenses as a percentage of average net assets) for these
funds is a slender 0.19%, less than one-seventh the 1.45% in expenses charged by
the average equity mutual fund.
We emphasize that the lifetime results of our Tax-Managed Funds are not
necessarily indicative of future returns. Indeed, we would expect future returns
to be far less generous than the extraordinary gains experienced during the past
four years. Returns simply can't continue at such high levels indefinitely. In
terms of our performance relative to other funds, we note that part of our
margin of superiority stemmed from the U.S. stock market's bias toward large-cap
stocks during the past four years. The typical equity mutual fund invests a
larger proportion of its assets in mid- and small-cap stocks than do the
Tax-Managed Funds. Since our funds began operations, large-cap stocks have been
the market's best performers by a wide margin. We would expect smaller stocks to
be the market's leaders during some other periods.
While we are grateful for fabulous returns from the financial markets in
recent years, they create two potential dangers. The first is that investors may
have unrealistic expectations for future returns. Investors who base plans on
such assumptions may fall well short of their financial goals if returns revert
to lower levels. The second danger is that investors
4
<PAGE> 7
may underestimate the risks that are part of investing. While returns have been
positive for each Tax-Managed Fund in each of the past four years, the stock and
bond markets are also capable of producing steep declines. Investors who
understand that downturns will occur, and are a risk that must be endured in
pursuit of investment rewards, may find it easier to stay on an even keel when
the seas get stormy.
IN SUMMARY
The advantages of a tax-efficient investment approach are becoming more widely
understood, in part because the booming stock markets of recent years have
resulted in sizable capital gains distributions by many mutual funds. We look at
taxes as another cost that can reduce the long-term returns that investors
actually reap from their mutual funds. Our Tax-Managed Funds aim to provide
superior after-tax returns by keeping operating and transaction costs low and
minimizing the bite that taxes take from your investment returns.
We have always believed that investors are well served by devising a
long-term plan based on a mix of stock funds, bond funds, and money market funds
appropriate to their investment time horizon, goals, and risk tolerance. Once
your plan is in place, we advocate that you stick with it. We will certainly
"stay the course" in implementing the tax- efficient strategy on which our
Tax-Managed Funds are based.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
January 27, 1999
NOTE: You'll observe that we have made a minor change in the name of each of the
Vanguard Tax-Managed Funds. We replaced "portfolio" with "fund" as part of a
broader effort to clarify the names in our fund lineup.
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- -------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE 12 MONTHS ENDED DECEMBER 31, 1998
DECEMBER 31, -----------------------------------
------------------------- INCOME CAPITAL GAINS
TAX-MANAGED FUND 1997 1998 DIVIDENDS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income $20.88 $26.55 $0.29 $0.00
Capital Appreciation 20.18 25.69 0.13 0.00
Balanced 14.67 16.74 0.39 0.00
- -------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
THE MARKETS IN PERSPECTIVE
YEAR ENDED DECEMBER 31, 1998
[PHOTO]
Financial markets continued to produce solid overall gains during 1998. After
overcoming a sharp, six-week setback in July and August, the S&P 500 Index
gained 28.6% for the year, marking the first time the index had produced returns
of 20% or more in four consecutive years. Bond prices rose as interest rates
generally declined over the year. Returns from overseas stock markets varied
widely, with big gains in Europe, small gains in the Pacific, and losses in most
emerging markets.
U.S. STOCK MARKETS
Large-capitalization stocks--especially those of large growth companies--were
the best performers during 1998. The 50 largest stocks within the S&P 500 Index
earned more than 40%, while the return of the other 450 stocks was less than
17%. The stock market as a whole, as measured by the Wilshire 5000 Equity Index,
earned 23.4%. Small-cap stocks, represented by the Russell 2000 Index, declined
2.5% for the year.
The huge gap between returns of large and small stocks was not the only
oddity during the year. Among large stocks there also was a large disparity in
performance between growth and value stocks. Within the S&P 500 Index, growth
stocks rose 42.2%, while value stocks were up 14.7%. The gap of 27.5 percentage
points is the largest in the 23 years that the growth and value components have
been tracked.
Stocks rose strongly during the first half of the year. But after hitting a
then-record high on July 17, the S&P 500 Index fell by 19.2% during the
following six weeks. Declines were steeper for most smaller stocks. The Russell
2000 Index fell nearly 40% from its peak in April before climbing back during
the fourth quarter.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED DECEMBER 31, 1998
---------------------------------
1 YEAR 3 YEARS 5 YEARS
- -------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 28.6% 28.2% 24.1%
Russell 2000 Index -2.5 11.6 11.9
MSCI EAFE Index 20.3 9.3 9.5
- -------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 8.7% 7.3% 7.3%
Lehman 10 Year Municipal Bond Index 6.8 6.8 6.4
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.1 5.2 5.1
- -------------------------------------------------------------------
OTHER
Consumer Price Index 1.6% 2.2% 2.4%
- -------------------------------------------------------------------
</TABLE>
The summer slump in stock prices reflected several factors that raised
anxiety among investors and prompted a reconsideration of risk that extended
past stocks to bonds. Among these factors were deteriorating corporate earnings;
Russia's default on its debts; sharp swings in currency exchange rates; and
lingering economic weakness in Asia.
Although these sources of uncertainty remained as the year went on, many
investors reacted not by abandoning stocks, but by selecting large, well-known
stocks they perceived as reliable vehicles for long-term growth. The strong
rebound in prices during the fourth quarter was due in large part to the calming
influence on jittery markets of the Federal Reserve Board's decision to cut
short-term interest rates by 0.75 percentage point.
6
<PAGE> 9
Technology stocks led the market's advance during 1998, rising 83%.
Investors were attracted by rapid revenue growth and a belief that consumers and
businesses will keep spending freely on computers, software, and computer
services. Speculation also played a role in the surge. Burgeoning activity on
the Internet sent many stocks, even those with no hint of profitability,
skyrocketing. The bulge in Internet stock prices prompted comparisons with such
historic asset "bubbles" as Japan's stock market in the late 1980s and the
tulip-bulb mania in Holland in the 1630s.
Health care and utilities, especially telecommunications providers, also
soared, achieving returns of more than 43%. Both sectors benefited from rising
demand for their products and a perception that they are somewhat protected from
foreign economic troubles and foreign competition. Consumer-related stocks such
as retailers also did well, reflecting strength in consumer spending. Americans
spent almost every after-tax dollar they earned during 1998. Jobs were abundant;
unemployment fell to 4.3% by year-end.
The worst-performing groups were two directly harmed by falling commodity
prices: oil drilling and services firms in the "other energy" category (-36%)
and materials & processing firms (-1%), such as paper, steel, and chemical
makers. Producer-durables companies, such as machinery and aircraft makers, eked
out a 2% return as companies saw falling sales abroad and rising competition at
home from foreign firms.
U.S. BOND MARKETS
The fall in interest rates during 1998 was steepest for U.S. Treasury
securities, which benefited from heightened aversion to risk among investors and
from a slight decrease in supply, thanks to a $70 billion federal budget
surplus. The low inflation rate--consumer prices were up just 1.6%--gave the
Federal Reserve the flexibility to cut short-term rates even though economic
growth was strong.
Yields on long-term Treasury issues fell by roughly 1 percentage point, and
the 30-year Treasury bond's yield was 5.09% on December 31. Lower rates mean
higher bond prices, and the Lehman Brothers Long U.S. Treasury Index earned a
total return of 13.5%, an astounding margin of nearly 12 percentage points over
the inflation rate.
Bonds lacking the unquestioned credit quality of Treasuries did not fare as
well, reflecting a repricing of risk and a "flight to quality" by investors who
began to feel they had been underestimating risk. One result was price declines
that nearly offset the interest earned on high-yield "junk" bonds. However,
high-quality corporate bonds and mortgage-backed securities generally held up
well. The Lehman Aggregate Bond Index, which encompasses Treasury, mortgage, and
high-quality corporate securities and has an intermediate-term average maturity,
earned a solid 8.7%.
Yields on long-term municipal bonds declined only slightly during the year,
and by December 31 were only a tad lower than yields on long-term Treasuries.
This was striking because the interest on municipals is exempt from federal
income tax.
INTERNATIONAL STOCK MARKETS
Europe's stock markets beat even the S&P 500 Index's gaudy return, gaining 28.7%
in U.S.-dollar terms, with about 5% of the gain due to a fall in the dollar
versus most European currencies. Pacific-region stocks rose 2.6%, although it
took a fall in the dollar's value versus the Japanese yen to overcome losses in
local-currency terms. Overall, developed international markets, as measured by
the MSCI EAFE Index, earned 20.3%.
Investors' confidence in emerging markets continued to evaporate in 1998,
and stocks in these markets fell about 25% as a group. The few bright spots
included South Korea (+141%) and the Philippines (+13%), which had suffered big
declines in 1997.
7
<PAGE> 10
FUND PROFILE
TAX-MANAGED BALANCED FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
<TABLE>
<CAPTION>
TOTAL FUND CHARACTERISTICS
- -------------------------------------------
<S> <C>
Yield 2.2%
Turnover Rate 7%
Expense Ratio 0.19%
Cash Reserves 0.0%
</TABLE>
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
- -------------------------------------------
<S> <C>
Bonds 52%
Stocks 48%
</TABLE>
<TABLE>
<CAPTION>
TOTAL FUND VOLATILITY MEASURES
- -------------------------------------------
BALANCED S&P 500
- -------------------------------------------
<S> <C> <C>
R-Squared 0.95 1.00
Beta 0.55 1.00
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- ---------------------------------------------
<S> <C>
General Electric Co. 3.4%
Microsoft Corp. 2.3
Intel Corp. 2.0
Merck & Co., Inc. 1.8
International Business Machines Corp. 1.7
Pfizer, Inc. 1.6
MCI WorldCom, Inc. 1.5
Cisco Systems, Inc. 1.5
The Coca-Cola Co. 1.4
Lucent Technologies, Inc. 1.4
- ---------------------------------------------
Top Ten 18.6%
- ---------------------------------------------
Top Ten as % of Total Net Assets 9.1%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- -----------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
-----------------------------------------------
RUSSELL
BALANCED BALANCED 1000
-----------------------------------------------
<S> <C> <C> <C>
Auto & Transportation.................... 5.1% 3.4% 2.7%
Consumer Discretionary................... 16.0 16.5 12.4
Consumer Staples......................... 6.9 5.9 8.5
Financial Services....................... 11.1 10.9 18.0
Health Care.............................. 12.3 14.5 12.7
Integrated Oils.......................... 2.8 2.0 4.6
Other Energy............................. 5.2 2.4 1.0
Materials & Processing................... 6.1 3.4 3.7
Producer Durables........................ 4.1 3.7 3.2
Technology............................... 18.6 23.7 16.0
Utilities................................ 6.4 7.6 12.5
Other.................................... 5.4 6.0 4.7
- -----------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- -------------------------------------------
RUSSELL
BALANCED 1000
- -------------------------------------------
<S> <C> <C>
Number of Stocks 471 963
Median Market Cap $26.4B $46.8B
Price/Earnings Ratio 29.4x 27.1x
Price/Book Ratio 4.9x 4.7x
Dividend Yield 0.6% 1.3%
Return on Equity 21.8% 21.8%
Earnings Growth Rate 21.6% 17.2%
Foreign Holdings 0.1% 0.0%
</TABLE>
EQUITY INVESTMENT FOCUS
- ---------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- -------------------------------------------
BALANCED LEHMAN*
- -------------------------------------------
<S> <C> <C>
Number of Issues 120 48,049
Yield to Maturity 4.0% --
Average Coupon 5.4% 5.5%
Average Maturity 6.3 years 13.4 years
Average Quality AA+ AA+
Average Duration 5.1 years 7.3 years
</TABLE>
*Lehman Municipal Bond Index.
FIXED-INCOME INVESTMENT FOCUS
- --------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF BONDS)
- -----------------------------------------
<S> <C>
Under 1 Year 8.4%
1-5 Years 26.4
5-10 Years 48.7
10-20 Years 16.5
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 73.5%
AA 19.5
A 5.4
BBB 1.5
BB 0.0
B 0.0
Not Rated 0.1
- -------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
LARGEST STATE CONCENTRATIONS (% OF BONDS)
- -----------------------------------------
<S> <C>
New York 16.4%
Texas 9.4
California 9.3
Florida 8.7
Pennsylvania 8.1
Massachusetts 5.4
Ohio 5.0
Michigan 3.7
Illinois 3.3
Nevada 3.1
- -----------------------------------------
Top Ten 72.4%
</TABLE>
9
<PAGE> 12
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average
duration of five years would decline by about 5%. If rates decrease by a
percentage point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund'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 fund'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 creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund'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 fund 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 fund'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 bond and
stock investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund'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 fund'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 fund.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a fund 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 fund'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 fund 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 fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
FUND ASSET ALLOCATION. This chart shows the proportions of a fund's holdings
allocated to different types of assets.
LARGEST STATE CONCENTRATIONS. An indicator of diversification. The less
concentrated a fund's holdings of bonds, the less the fund 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 fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund'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
fund 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 fund holds,
the more diversified it is and the more likely to perform in line with the
overall stock market.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, 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 fund, 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 fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund'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 fund, the weighted average return on
equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a fund'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 fund has
invested in its ten largest stocks. As this percentage rises, a fund'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 past year. Funds
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 fund's income from interest and dividends. The yield,
expressed as a percentage of the fund'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 fund were held to their maturity dates.
11
<PAGE> 14
FUND PROFILE
TAX-MANAGED GROWTH AND INCOME FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 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 513 500
Median Market Cap $61.5B $60.3B
Price/Earnings Ratio 28.2x 28.0x
Price/Book Ratio 4.9x 4.9x
Yield 1.2% 1.3%
Return on Equity 22.3% 22.5%
Earnings Growth Rate 17.2% 17.2%
Foreign Holdings 1.6% 1.6%
Turnover Rate 4% --
Expense Ratio 0.19% --
Cash Reserves 0.4% --
</TABLE>
EQUITY INVESTMENT FOCUS
- -------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------
<S> <C>
Microsoft Corp. 3.5%
General Electric Co. 3.3
Intel Corp. 2.0
Wal-Mart Stores, Inc. 1.8
Exxon Corp. 1.8
Merck & Co., Inc. 1.8
International Business Machines Corp. 1.7
The Coca-Cola Co. 1.6
Pfizer, Inc. 1.6
Cisco Systems, Inc. 1.5
- --------------------------------------------
Top Ten 20.6%
</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)
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------------------------
GROWTH AND GROWTH AND
INCOME INCOME S&P 500
------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation 3.5% 2.5% 2.5%
Consumer Discretionary 9.8 12.0 12.0
Consumer Staples 11.5 9.8 9.8
Financial Services 17.7 16.2 16.2
Health Care 11.5 12.5 12.5
Integrated Oils 7.2 5.2 5.2
Other Energy 1.4 1.0 0.9
Materials & Processing 6.0 3.7 3.7
Producer Durables 4.0 3.2 3.2
Technology 11.2 16.6 16.6
Utilities 10.7 11.7 11.7
Other 5.5 5.6 5.7
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
FUND PROFILE
TAX-MANAGED CAPITAL APPRECIATION FUND
This Profile provides a snapshot of the fund's characteristics as of December
31, 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 486 963
Median Market Cap $24.7B $46.8B
Price/Earnings Ratio 28.7x 27.1x
Price/Book Ratio 4.7x 4.7x
Yield 0.5% 1.3%
Return on Equity 21.3% 21.8%
Earnings Growth Rate 20.4% 17.2%
Foreign Holdings 0.0% 0.0%
Turnover Rate 5% --
Expense Ratio 0.19% --
Cash Reserves 0.1% --
</TABLE>
EQUITY INVESTMENT FOCUS
- -------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- --------------------------------------------
<S> <C>
General Electric Co. 3.3%
Microsoft Corp. 2.3
Intel Corp. 1.9
Merck & Co., Inc. 1.8
International Business
Machines Corp. 1.7
Pfizer, Inc. 1.7
The Coca-Cola Co. 1.5
Cisco Systems, Inc. 1.4
Lucent Technologies, Inc. 1.4
MCI WorldCom, Inc. 1.4
- --------------------------------------------
Top Ten 18.4%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
CAPITAL
APPRECIATION S&P 500
- -------------------------------------------
<S> <C> <C>
R-Squared 0.95 1.00
Beta 1.14 1.00
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
--------------------------------------------------
CAPITAL CAPITAL RUSSELL
APPRECIATION APPRECIATION 1000
--------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation 3.6% 2.9% 2.7%
Consumer Discretionary 16.2 16.9 12.4
Consumer Staples 8.4 6.6 8.5
Financial Services 12.2 10.7 18.0
Health Care 13.1 13.7 12.7
Integrated Oils 2.2 1.6 4.6
Other Energy 3.9 2.7 1.0
Materials & Processing 6.4 4.5 3.7
Producer Durables 4.3 4.2 3.2
Technology 18.6 23.2 16.0
Utilities 5.5 6.8 12.5
Other 5.6 6.2 4.7
- ------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
PERFORMANCE SUMMARY
TAX-MANAGED BALANCED FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-DECEMBER 31, 1998
- --------------------------------------------------------------
TAX-MANAGED BALANCED FUND 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 14.1 2.8 16.9 17.0
- --------------------------------------------------------------
</TABLE>
*50% Russell 1000 Index, 50% Lehman 7 Year Municipal Bond Index.
See Financial Highlights table on page 38 for dividend information since the
fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: SEPTEMBER 6, 1994-DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------
Tax-Managed Average Tax-Managed Russell Lehman 7-Year
Balanced Balanced Balanced 1000 Municipal
Fund Fund Composite Index Index Bond Index
<S> <C> <C> <C> <C> <C>
09/06/94 10000 10000 10000 10000 10000
1994 09 9920 9920 9920 9847 9924
1994 12 9860 9812 9820 9809 9827
1995 03 10576 10409 10543 10742 10343
1995 06 11255 11163 11186 11753 10636
1995 09 11949 11804 11841 12800 10940
1995 12 12278 12292 12321 13513 11215
1996 03 12589 12611 12636 14258 11175
1996 06 12860 12895 12921 14840 11223
1996 09 13196 13275 13257 15324 11425
1996 12 13777 13983 13950 16547 11705
1997 03 13732 13966 14056 16803 11691
1997 06 14997 15398 15411 19627 12012
1997 09 16012 16465 16297 21341 12333
1997 12 16057 16640 16726 21983 12602
1998 03 17250 17894 17926 24922 12746
1998 06 17602 18103 18260 25545 12895
1998 09 16716 17001 17641 22911 13304
1998 12 18776 18883 19567 27923 13386
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Managed Balanced Fund* 16.93% 15.71% $18,776
Average Balanced Fund 13.48 15.86 18,883
Tax-Managed Balanced Composite Index** 16.98 16.82 19,567
Russell 1000 Index 27.02 26.85 27,923
Lehman 7 Year Municipal Bond Index 6.22 6.99 13,386
- ----------------------------------------------------------------------------------------------
</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.
**50% Russell 1000 Index, 50% Lehman 7 Year Municipal Bond Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Managed Balanced Fund* 9/6/1994 16.93% 12.62% 3.09% 15.71%
- -----------------------------------------------------------------------------------------
</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.
14
<PAGE> 17
PERFORMANCE SUMMARY
TAX-MANAGED GROWTH AND INCOME FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-DECEMBER 31, 1998
- -------------------------------------------------------------
TAX-MANAGED
GROWTH AND INCOME FUND 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 27.2 1.5 28.7 28.6
- -------------------------------------------------------------
</TABLE>
See Financial Highlights table on page 39 for dividend information since the
fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: SEPTEMBER 6, 1994-DECEMBER 31, 1998
- -----------------------------------------------------------
Tax-Managed Average Growth S&P 500
Growth & Income & Income Fund Index
<S> <C> <C> <C>
9/06/94 10000 10000 10000
1994 09 9831 9831 9826
1994 12 9830 9690 9824
1995 03 10787 10470 10781
1995 06 11818 11345 11810
1995 09 12753 12157 12749
1995 12 13519 12731 13516
1996 03 14238 13410 14241
1996 06 14888 13886 14881
1996 09 15344 14277 15341
1996 12 16633 15393 16619
1997 03 17070 15530 17065
1997 06 20051 17863 20044
1997 09 21548 19438 21545
1997 12 22173 19652 22164
1998 03 25264 21871 25256
1998 06 26105 22066 26090
1998 09 23509 19420 23495
1998 12 28531 22991 28498
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Managed Growth and Income Fund* 28.67% 27.48% $28,531
Average Growth and Income Fund 16.99 21.27 22,991
S&P 500 Index 28.58 27.45 28,498
- --------------------------------------------------------------------------------------------------
</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.
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Managed Growth and Income Fund* 9/6/1994 28.67% 25.29% 2.19% 27.48%
- ------------------------------------------------------------------------------------------
</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.
15
<PAGE> 18
PERFORMANCE SUMMARY
TAX-MANAGED CAPITAL APPRECIATION FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: SEPTEMBER 6, 1994-DECEMBER 31, 1998
- -------------------------------------------------------------
TAX-MANAGED RUSSELL
CAPITAL APPRECIATION FUND 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 27.3 0.7 28.0 27.0
- -------------------------------------------------------------
</TABLE>
See Financial Highlights table on page 39 for dividend information since the
fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: SEPTEMBER 6, 1994-DECEMBER 31, 1998
- --------------------------------------------------------------------
Tax-Managed Capital Average Russell
Appreciation Growth Fund 1000 Index
Fund
<S> <C> <C> <C>
09/6/94 10000 10000 10000
1994 09 9910 9910 9847
1994 12 9950 9779 9809
1995 03 10860 10505 10742
1995 06 11950 11493 11753
1995 09 12990 12474 12800
1995 12 13371 12798 13513
1996 03 14166 13481 14258
1996 06 14750 14044 14840
1996 09 15213 14456 15324
1996 12 16169 15260 16547
1997 03 16138 15065 16803
1997 06 18845 17409 19627
1997 09 20974 19302 21341
1997 12 20581 19121 21983
1998 03 23590 21528 24922
1998 06 24151 21827 25545
1998 09 20989 19024 22911
1998 12 26334 23492 27923
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998
------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Managed Capital Appreciation Fund* 27.95% 25.14% $26,334
Average Growth Fund 22.86 21.87 23,492
Russell 1000 Index 27.02 26.85 27,923
- --------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax-Managed Capital Appreciation Fund* 9/6/1994 27.95% 24.31% 0.83% 25.14%
- ------------------------------------------------------------------------------------------
</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.
16
<PAGE> 19
FINANCIAL STATEMENTS
DECEMBER 31, 1998
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund'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 Tax-Managed Balanced Fund'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 fund's Net Assets. Finally, Net Assets are divided by the
outstanding shares of the fund to arrive at its share price, or Net Asset Value
(NAV) Per Share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund'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 fund 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 fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
BALANCED FUND SHARES (000)
- ---------------------------------------------------------------------
COMMON STOCKS (48.9%)
- ---------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 33,203 $ 3,389
- - Microsoft Corp. 16,900 2,344
Intel Corp. 17,200 2,039
Merck & Co., Inc. 12,100 1,787
International Business
Machines Corp. 9,400 1,737
Pfizer, Inc. 13,300 1,668
- - MCI WorldCom, Inc. 20,910 1,500
- - Cisco Systems, Inc. 16,050 1,490
The Coca-Cola Co. 21,800 1,458
Lucent Technologies, Inc. 12,938 1,423
- - Dell Computer Corp. 19,200 1,405
Procter & Gamble Co. 14,300 1,306
Citigroup, Inc. 26,197 1,297
- - AES Corp. 25,400 1,203
- - Watson Pharmaceuticals, Inc. 19,100 1,201
Wal-Mart Stores, Inc. 14,700 1,197
Johnson & Johnson 14,202 1,191
American International Group, Inc. 11,450 1,106
- - America Online, Inc. 6,800 1,088
Exxon Corp. 13,400 980
Home Depot, Inc. 15,600 954
Schering-Plough Corp. 15,600 862
Fannie Mae 11,500 851
Abbott Laboratories 16,600 813
Compaq Computer Corp. 18,181 762
American Home Products Corp. 13,400 754
Time Warner, Inc. 10,600 658
BellSouth Corp. 12,000 598
McDonald's Corp. 7,800 598
- - EMC Corp. 6,600 561
Hewlett-Packard Co. 8,200 560
The Walt Disney Co. 18,500 555
Freddie Mac 8,400 541
AT&T Corp. 6,940 522
- - AirTouch Communications, Inc. 7,100 512
Gillette Co. 10,504 507
- - Safeway, Inc. 7,934 483
Motorola, Inc. 7,900 482
- - Yahoo!, Inc. 2,000 474
- - Sun Microsystems, Inc. 5,500 471
Texas Instruments, Inc. 5,400 462
- - Oracle Corp. 10,650 459
- - Tele-Communications-TCI
Group A 7,890 436
Medtronic, Inc. 5,800 431
- - Amgen, Inc. 3,900 408
Tyco International Ltd. 5,370 405
Mobil Corp. 4,600 401
Associates First Capital Corp. 9,378 397
Sprint Corp. 4,500 379
Charles Schwab Corp. 6,750 378
- - Tele-Communications Liberty
Media Group Class A 8,062 371
- - Continental Airlines, Inc. Class B 11,000 368
PepsiCo, Inc. 9,000 368
The Gap, Inc. 6,450 363
Morgan Stanley Dean Witter & Co. 5,080 361
- - MediaOne Group, Inc. 7,600 357
Waste Management, Inc. 7,634 356
Cardinal Health, Inc. 4,627 351
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
BALANCED FUND SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
E.I. du Pont de Nemours & Co. 6,600 $ 350
- - Compuware Corp. 4,400 344
Amoco Corp. 5,800 342
Philip Morris Cos., Inc. 6,300 337
- - Office Depot, Inc. 9,100 336
- - Viacom Inc. Class A 4,548 335
- - Qwest Communications
International Inc. 6,697 334
Comcast Corp. Class A Special 5,400 317
BankAmerica Corp. 5,205 313
- - Applied Materials, Inc. 7,300 312
Ford Motor Co. 5,300 311
CBS Corp. 9,458 310
- - Costco Cos., Inc. 4,300 310
General Motors Corp. 4,200 300
Guidant Corp. 2,700 298
- - 3Com Corp. 6,600 296
- - Smurfit-Stone Container Corp. 18,684 295
CVS Corp. 5,228 287
- - FDX Corp. 3,200 285
- - Solectron Corp. 3,000 279
- - Viacom Inc. Class B 3,663 271
- - Ascend Communications, Inc. 4,100 270
- - Berkshire Hathaway Class A 4 270
- - Micron Technology, Inc. 5,300 268
The Boeing Co. 8,040 262
- - Level 3 Communications, Inc. 6,000 259
M & T Bank Corp. 500 259
Lowe's Cos., Inc. 5,000 256
- - Cendant Corp. 13,146 251
Computer Associates
International, Inc. 5,837 249
- - Staples, Inc. 5,625 246
SunAmerica Inc. 3,000 243
- - The Kroger Co. 4,000 242
Linear Technology Corp. 2,700 242
IMS Health, Inc. 3,200 241
Wells Fargo Co. 6,000 240
Progressive Corp. of Ohio 1,400 237
Walgreen Co. 4,000 234
AFLAC, Inc. 5,300 233
- - Analog Devices, Inc. 7,367 231
- - Network Associates, Inc. 3,450 229
Albertson's, Inc. 3,500 223
- - At Home Corp. Series A 3,000 223
- - Fred Meyer Inc. 3,700 223
- - DaimlerChrysler AG 2,326 223
- - Lexmark International Group, Inc.
Class A 2,200 221
- - Teradyne, Inc. 5,200 220
- - Altera Corp. 3,600 219
- - Tellabs, Inc. 3,200 219
First Data Corp. 6,784 215
- - Novell, Inc. 11,800 214
- - SCI Systems, Inc. 3,700 214
Harley-Davidson, Inc. 4,500 213
Aetna Inc. 2,669 210
- - Concord EFS, Inc. 4,950 210
- - Kohl's Corp. 3,400 209
State Street Corp. 3,000 209
- - Advanced Micro Devices, Inc. 7,000 203
Kansas City Southern
Industries, Inc. 4,100 202
- - Xilinx, Inc. 3,100 202
- - Tricon Global Restaurants, Inc. 4,000 201
- - Tele-Communications TCI
Ventures Group Series A 8,420 198
- - US Airways Group, Inc. 3,800 198
- - HCR Manor Care, Inc. 6,700 197
Illinois Tool Works, Inc. 3,400 197
- - AMR Corp. 3,300 196
Capital One Financial Corp. 1,700 196
Danaher Corp. 3,600 196
- - Unisys Corp. 5,700 196
HBO & Co. 6,800 195
- - Kmart Corp. 12,700 194
- - Wellpoint Health Networks Inc.
Class A 2,233 194
ALLTEL Corp. 3,230 193
Aluminum Co. of America 2,595 193
Computer Sciences Corp. 3,000 193
Century Telephone
Enterprises, Inc. 2,850 192
SBC Communications Inc. 3,544 190
- - Abercrombie & Fitch Co. 2,658 188
- - Apple Computer, Inc. 4,600 188
- - Maxim Integrated Products, Inc. 4,300 188
- - Clear Channel
Communications, Inc. 3,400 185
- - Seagate Technology 6,090 184
- - Biogen, Inc. 2,200 183
Coca-Cola Enterprises, Inc. 5,100 182
Lehman Brothers Holdings, Inc. 4,100 181
Becton, Dickinson & Co. 4,200 179
- - Federated Department Stores, Inc. 4,100 179
- - BMC Software, Inc. 4,000 178
Minnesota Mining &
Manufacturing Co. 2,500 178
Southwest Airlines Co. 7,875 177
Archer-Daniels-Midland Co. 10,238 176
Cintas Corp. 2,500 176
UNUM Corp. 3,000 175
- - Synopsys, Inc. 3,200 174
- - Parametric Technology Corp. 10,600 172
- - Iomega Corp. 23,400 171
Stryker Corp. 3,100 171
- - Barnes & Noble, Inc. 4,000 170
- - Genzyme Corp. 3,400 169
- - Tenet Healthcare Corp. 6,427 169
The Equitable Cos. 2,900 168
- - Starbucks Corp. 3,000 168
- - Bed Bath & Beyond, Inc. 4,900 167
- - Cadence Design Systems, Inc. 5,600 167
Kimberly-Clark Corp. 3,072 167
Conseco Inc. 5,440 166
- - Cox Communications Class A 2,400 166
Delta Air Lines, Inc. 3,200 166
- - NCR Corp. 3,968 166
- - American Power Conversion Corp. 3,400 165
- - Arrow Electronics, Inc. 6,200 165
- - AutoZone Inc. 5,000 165
Paychex, Inc. 3,200 165
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
- - Gateway 2000, Inc. 3,200 $ 164
- - Comverse Technology, Inc. 2,300 163
Marriott International, Inc. Class A 5,600 162
Teleglobe Inc. 4,513 162
Caterpillar, Inc. 3,500 161
Wrigley, (Wm.) Jr. Co. 1,800 161
Automatic Data Processing, Inc. 2,000 160
- - Forest Laboratories, Inc. 3,000 160
- - General Instrument Corp. 4,700 160
- - KLA-Tencor Corp. 3,700 160
Merrill Lynch & Co., Inc. 2,400 160
- - Brinker International, Inc. 5,500 159
Champion International Corp. 3,900 158
- - Chiron Corp. 6,040 158
- - ALZA Corp. 3,000 157
Coastal Corp. 4,500 157
Loews Corp. 1,600 157
- - MedPartners, Inc. 29,552 155
- - Sybron International Corp. 5,700 155
- - Keebler Foods Co. 4,100 154
- - NEXTEL Communications, Inc. 6,500 154
- - Intuit, Inc. 2,100 152
AlliedSignal Inc. 3,400 151
- - Cablevision Systems Corp. Class B 3,000 151
- - Boston Scientific Corp. 5,600 150
Circuit City Stores, Inc. 3,000 150
Centex Corp. 3,300 149
Martin Marietta Materials, Inc. 2,400 149
- - Sealed Air Corp. 2,920 149
- - Sterling Commerce, Inc. 3,300 149
Shaw Industries, Inc. 6,100 148
- - Ceridian Corp. 2,100 147
- - Robert Half International, Inc. 3,300 147
IBP, Inc. 5,000 146
Biomet, Inc. 3,600 145
Emerson Electric Co. 2,400 145
Provident Cos., Inc. 3,500 145
- - Quantum Corp. 6,800 145
AMBAC Financial Group Inc. 2,400 144
- - Chancellor Media Corp. 3,000 144
Eastman Kodak Co. 2,000 144
Franklin Resources Corp. 4,500 144
- - Gulfstream Aerospace Corp. 2,700 144
- - ADC Telecommunications, Inc. 4,100 142
- - CalEnergy Co. 4,100 142
Pharmacia & Upjohn, Inc. 2,500 142
- - Republic Industries, Inc. 9,600 142
FirstEnergy Corp. 4,300 140
- - W.R. Grace & Co. 8,900 140
- - Fiserv, Inc. 2,700 139
MGIC Investment Corp. 3,500 139
- - Centocor, Inc. 3,000 135
- - Electronic Arts Inc. 2,400 135
- - Storage Technology Corp. 3,800 135
Telephone & Data Systems, Inc. 3,000 135
International Game Technology 5,500 134
Fort James Corp. 3,300 132
- - Health Management Associates
Class A 6,112 132
- - Outback Steakhouse 3,300 132
Bank One Corp. 2,564 131
Columbia/HCA Healthcare Corp. 5,302 131
- - Outdoor Systems, Inc. 4,300 129
- - U.S. Cellular Corp. 3,400 129
Golden West Financial Corp. 1,400 128
- - Humana, Inc. 7,200 128
Raytheon Co. Class B 2,400 128
Allmerica Financial Corp. 2,200 127
- - SunGard Data Systems, Inc. 3,200 127
Total System Services, Inc. 5,400 127
Burlington Northern Santa Fe Corp. 3,738 126
Molex, Inc. 3,313 126
Mylan Laboratories, Inc. 4,000 126
NIKE, Inc. Class B 3,100 126
- - USA Networks, Inc. 3,800 126
Dime Bancorp, Inc. 4,700 124
- - Sprint PCS 5,350 124
- - Quintiles Transnational Corp. 2,300 123
- - Promus Hotel Corp. 3,765 122
USG Corp. 2,400 122
- - CNA Financial Corp. 3,000 121
Tyson Foods, Inc. 5,700 121
- - DST Systems, Inc. 2,100 120
Owens Corning 3,400 120
- - Owens-Illinois, Inc. 3,900 119
- - Atmel Corp. 7,700 118
Darden Restaurants Inc. 6,500 117
- - Litton Industries, Inc. 1,800 117
Clayton Homes Inc. 8,422 116
- - Lear Corp. 3,000 116
- - Coltec Inc. 5,900 115
- - Learning Co., Inc. 4,400 114
- - Jones Apparel Group, Inc. 5,100 113
- - King World Productions, Inc. 3,800 112
Newport News Shipbuilding Inc. 3,340 112
Sigma-Aldrich Corp. 3,800 112
United Healthcare Corp. 2,600 112
Manpower Inc. 4,400 111
- - Niagara Mohawk Power Corp. 6,900 111
Fastenal Co. 2,500 110
The Hartford Financial Services
Group Inc. 2,000 110
- - International Specialty
Products, Inc. 8,100 110
Lockheed Martin Corp. 1,300 110
- - Consolidated Stores, Inc. 5,387 109
- - Jacor Communications, Inc. 1,700 109
- - QUALCOMM, Inc. 2,100 109
Adobe Systems, Inc. 2,300 108
- - Sterling Software, Inc. 4,000 108
- - General Nutrition Cos., Inc. 6,600 107
Mattel, Inc. 4,687 107
- - FMC Corp. 1,900 106
- - PRIMEDIA Inc. 9,000 106
Wesco Financial Corp. 300 106
- - Blyth Industries, Inc. 3,350 105
- - St. Jude Medical, Inc. 3,792 105
Stewart Enterprises, Inc. Class A 4,700 105
- - Tech Data Corp. 2,600 105
- - U.S. Filter Corp. 4,600 105
Amerada Hess Corp. 2,100 104
- - National Semiconductor Corp. 7,700 104
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
BALANCED FUND SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
The PMI Group Inc. 2,100 $ 104
- - Payless ShoeSource, Inc. 2,200 104
The St. Joe Co. 4,400 103
- - Covance, Inc. 3,500 102
Dillard's Inc. 3,600 102
- - American Standard Cos., Inc. 2,800 101
- - Citizens Utilities Co. Class B 12,438 101
Federal-Mogul Corp. 1,700 101
- - McLeodUSA, Inc. Class A 3,200 100
- - Northwest Airlines Corp. Class A 3,900 100
Zions Bancorp 1,600 100
- - PacifiCare Health Systems, Inc.
Class B 1,246 99
Varian Associates, Inc. 2,600 98
- - Chris-Craft Industries, Inc. 2,023 97
- - FORE Systems, Inc. 5,300 97
- - Alleghany Corp. 510 96
- - Sodexho Marriott Services, Inc. 3,475 96
- - UAL Corp. 1,600 96
Electronic Data Systems Corp. 1,900 95
- - General Motors Corp. Class H 2,400 95
- - Total Renal Care Holdings, Inc. 3,200 95
- - Adaptec, Inc. 5,300 93
Anadarko Petroleum Corp. 3,000 93
- - Catellus Development Corp. 6,500 93
Cracker Barrel Old Country
Stores, Inc. 4,000 93
New Century Energies, Inc. 1,900 93
Sunbeam Corp. 13,100 92
- - Consolidated Freightways Corp. 5,750 91
Host Marriott Corp. 6,600 91
- - Leucadia National Corp. 2,900 91
Transatlantic Holdings, Inc. 1,200 91
- - ACNielson Corp. 3,200 90
Autodesk, Inc. 2,100 90
- - Mirage Resorts, Inc. 6,000 90
- - CommScope, Inc. 5,300 89
Great Lakes Chemical Corp. 2,200 88
Columbia Energy Group 1,500 87
Dole Food Co. 2,900 87
Solutia, Inc. 3,900 87
Horace Mann Educators Corp. 3,000 86
BHC Communications, Inc. Class A 700 85
- - Borders Group, Inc. 3,400 85
- - Harrah's Entertainment, Inc. 5,400 85
International Paper Co. 1,900 85
- - OfficeMax, Inc. 7,000 85
- - LHS Group, Inc. 1,600 83
- - Reebok International Ltd. 5,600 83
- - J.D. Edwards & Co. 2,900 82
Starwood Hotels & Resorts REIT 3,600 82
Sysco Corp. 3,000 82
Homestake Mining Co. 8,800 81
- - Snyder Communications, Inc. 2,400 81
Enron Oil & Gas Co. 4,500 78
- - RELTEC Corp. 3,500 78
Pittston Brink's Group 2,400 77
AGCO Corp. 9,700 76
American General Corp. 975 76
Dollar General Corp. 3,175 75
Newell Co. 1,800 74
- - PeopleSoft, Inc. 3,900 74
- - UNOVA, Inc. 4,000 73
Raychem Corp. 2,200 71
- - Silicon Graphics, Inc. 5,500 71
- - Venator Group, Inc. 11,100 71
- - IVAX Corp. 5,600 70
Baker Hughes, Inc. 3,890 69
- - LSI Logic Corp. 4,300 69
- - PanAmSat Corp. 1,744 68
Autoliv, Inc. 1,811 67
- - Global Industries Ltd. 11,000 67
- - Modis Professional Services Inc. 4,600 67
Praxair, Inc. 1,900 67
- - Corrections Corp. of America 3,700 65
Newmont Mining Corp. 3,589 65
Nucor Corp. 1,500 65
- - Cabletron Systems, Inc. 7,600 64
DENTSPLY International Inc. 2,400 62
Monsanto Co. 1,300 62
- - MGM Grand, Inc. 2,240 61
- - Quorum Health Group, Inc. 4,650 60
- - Thermo Instrument Systems, Inc. 4,015 60
- - Andrew Corp. 3,550 59
Chicago Title Corp. 1,230 58
Cinergy Corp. 1,700 58
- - Oryx Energy Co. 4,300 58
Rubbermaid, Inc. 1,800 57
- - UCAR International, Inc. 3,200 57
- - Noble Drilling Corp. 4,300 56
- - Western Digital Corp. 3,700 56
LucasVarity PLC ADR 1,656 55
J.C. Penney Co., Inc. 1,178 55
- - Weatherford International, Inc. 2,815 55
- - CompUSA, Inc. 4,100 54
Frontier Corp. 1,600 54
- - Paging Network, Inc. 11,500 54
- - Smith International, Inc. 2,100 53
Travelers Property Casualty Corp. 1,700 53
- - Micron Electronics, Inc. 3,000 52
W.W. Grainger, Inc. 1,200 50
- - Cooper Cameron Corp. 2,000 49
Hasbro, Inc. 1,350 49
- - Netscape Communications Corp. 800 49
- - Quest Diagnostics, Inc. 2,700 48
Diamond Offshore Drilling, Inc. 2,000 47
McKesson Corp. 600 47
Reynolds Metals Co. 900 47
- - Gartner Group, Inc. Class A 2,100 45
Pioneer Natural Resources Co. 5,000 44
Alberto-Culver Co. Class B 1,600 43
Apache Corp. 1,700 43
RJR Nabisco Holdings Corp. 1,460 43
Transocean Offshore, Inc. 1,600 43
ENSCO International, Inc. 3,900 42
Johns Manville Corp. 2,500 41
Tenneco, Inc. 1,200 41
York International Corp. 1,000 41
- - Thermo Electron Corp. 2,350 40
Burlington Resources, Inc. 1,100 39
Morton International, Inc. 1,500 37
- - Nabors Industries, Inc. 2,700 37
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Noble Affiliates, Inc. 1,500 $ 37
- - Toys R Us, Inc. 2,200 37
U.S. Industries, Inc. 2,000 37
- - Electronics for Imaging, Inc. 900 36
Texaco Inc. 688 36
Nordstrom, Inc. 1,000 35
- - Pacificare Health Systems Inc.
Class A 478 35
Browning-Ferris Industries, Inc. 1,200 34
CNF Transportation, Inc. 900 34
The Warnaco Group, Inc. Class A 1,300 33
Sealed Air Corp. $ 2.00 Cvt. Pfd.
Series A 618 32
Dynegy,Inc. 2,800 31
IMC Global Inc. 1,470 31
The Limited, Inc. 1,069 31
Mallinckrodt, Inc. 1,000 31
The Goodyear Tire & Rubber Co. 600 30
Sears, Roebuck & Co. 700 30
20th Century Industries of CA 1,300 30
- - Fruit of the Loom, Inc. 2,100 29
- - Beverly Enterprises, Inc. 4,100 28
Crown Cork & Seal Co., Inc. 900 28
First Union Corp. 468 28
- - HEALTHSOUTH Corp. 1,800 28
- - First Health Group Corp. 1,600 27
Kellogg Co. 800 27
ITT Industries, Inc. 600 24
Texas Utilities Co. 472 22
IKON Office Solutions, Inc. 2,400 21
- - BJ Services Co. 1,300 20
Nielsen Media Research 1,066 19
- - Rowan Cos., Inc. 1,900 19
Albemarle Corp. 740 18
- - Global Marine, Inc. 1,800 17
Union Pacific Corp. 359 16
Cummins Engine Co., Inc. 400 14
- - Foundation Health Systems
Class A 1,200 14
Raytheon Co. Class A 267 14
U S West, Inc. 207 13
Allegheny Teledyne Inc. 577 12
Louisiana-Pacific Corp. 600 11
- - Ocean Energy, Inc. 1,700 11
- - Crestline Capital Corp. 660 10
- - R & B Falcon Corp. 1,304 10
El Paso Energy Corp. 222 8
Tandy Corp. 200 8
Scientific-Atlanta, Inc. 200 5
- - Associated Group, Inc. 100 4
- - Associated Group, Inc. Class B 100 4
- - Host Marriott Services Corp. 420 4
Union Pacific Resources Group, Inc. 304 3
- - Crescendo Pharmaceuticals Corp. 115 2
Price Enterprises, Inc. 288 2
- - Genzyme Molecular Oncology 367 1
- - McMoRan Exploration Co. 39 1
- - PharMerica, Inc. 93 1
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $57,954) 101,123
- ---------------------------------------------------------------------
<CAPTION>
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (52.6%)
- ---------------------------------------------------------------------
ALABAMA (1.0%)
Huntsville AL Health Care
Auth. VRDO
3.85%, 1/6/1999 (1) 2,000 $ 2,000
----------
ALASKA (0.5%)
North Slope Borough AK GO
7.50%, 6/30/2001 (3) 1,000 1,090
----------
ARIZONA (0.7%)
Maricopa AZ Unified School Dist.
7.125%, 7/1/1999 1,500 1,529
----------
CALIFORNIA (4.9%)
California Dept. of Water
(Central Valley Project )
8.25%, 12/1/2003 290 348
California Finance Auth. PCR VRDO
(Pacific Gas & Electric)
5.00%, 1/5/1999 LOC 240 240
California GO
6.40%, 2/1/2006 (1) 500 573
California Health Fac. Finance Auth.
(Catholic Healthcare West)
6.25%, 7/1/2006 (1) 395 447
California PCR VRDO
(Pacific Gas & Electric)
5.05%, 1/5/1999 400 400
California Public Works Board
Lease Rev. (Dept. of Corrections)
5.00%, 9/1/2011 (2) 1,535 1,615
Central Coast CA Water Auth.
6.00%, 10/1/2008 (2) 1,000 1,139
Clovis CA Unified School Dist.
0.00%, 8/1/2005 (3) 2,000 1,531
Los Angeles CA Unified School
Dist. GO
6.00%, 7/1/2008 (3) 1,000 1,142
Los Angeles CA Waste Water System
5.75%, 6/1/2010 (1) 400 437
San Bernardino CA Medical
Center COP
5.50%, 8/1/2005 (1) 500 541
South Orange County CA Public
Finance Auth.
7.00%, 9/1/2006 (1) 875 1,034
Univ. of California
(Multiple Purpose Project)
12.00%, 9/1/2003 (2) 500 673
----------
10,120
----------
COLORADO (1.1%)
Colorado Health Fac. Auth. Rev.
(Sisters of Charity Health
System Inc.)
5.25%, 12/1/2012 (1) 2,250 2,353
----------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
TAX-MANAGED AMOUNT VALUE*
BALANCED FUND (000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
CONNECTICUT (1.0%)
Connecticut GO
6.00%, 5/15/2003 $ 1,000 $ 1,091
South Central CT Regional Water
Auth. Water System Rev.
5.75%, 8/1/2006 900 978
----------
2,069
----------
DISTRICT OF COLUMBIA (1.0%)
District of Columbia GO
5.40%, 6/1/2012 (2) 455 482
6.75%, 6/1/2000 (2) (Prere.) 1,395 1,487
6.75%, 6/1/2005 (2) 5 5
----------
1,974
----------
FLORIDA (4.6%)
Broward County FL School Dist. GO
5.30%, 2/15/2004 1,295 1,384
Dade County FL School Dist.
7.375%, 7/1/1999 (Prere.) 400 416
Florida Dept. of General Services
6.00%, 7/1/2003 (2) 1,000 1,085
Florida Muni. Power Agency VRDO
(Stanton Project)
3.90%, 1/6/1999 (1) 2,900 2,900
Florida Turnpike Auth. Rev.
5.25%, 7/1/2009 (3) 485 528
5.25%, 7/1/2010 (3) 825 892
Lee County FL School Board
6.00%, 8/1/2005 (2) 800 892
St. Lucie County FL PCR VRDO
(Florida Power & Light Co.)
4.00%, 1/5/1999 300 300
Tampa FL Health System Rev.
Catholic Health
5.00%, 11/15/2009 (2) 1,000 1,058
----------
9,455
----------
GEORGIA (0.5%)
Georgia GO
6.00%, 3/1/2004 1,000 1,102
----------
ILLINOIS (1.8%)
Illinois Dev. Finance Auth. PCR PUT
(Commonwealth Edison)
4.40%, 12/1/2006 (2) 1,500 1,517
Illinois Health Fac. Auth. Rev.
(Hosp. Sisters Services)
5.00%, 6/1/2002 1,635 1,692
Illinois Sales Tax Rev.
7.20%, 6/15/1999 (Prere.) 400 415
----------
3,624
----------
KENTUCKY (0.2%)
Kentucky Property & Buildings
Comm. Rev.
5.80%, 9/1/2006 400 432
----------
LOUISIANA (1.5%)
Louisiana GO
6.00%, 8/1/2001(3) 1,000 1,058
Louisiana Public Fac. Auth. Hosp.
Rev. (Franciscan Missionaries)
5.00%, 7/1/2002 (4) 2,000 2,071
----------
3,129
----------
MARYLAND (0.2%)
Maryland Dept. of Transp.
5.20%, 9/15/2004 400 427
----------
MASSACHUSETTS (2.8%)
Chelsea MA GO
5.50%, 6/15/2011 (2) 740 805
5.50%, 6/15/2012 (2) 735 794
Massachusetts Bay Transp. Auth.
5.125%, 3/1/2013 1,695 1,757
6.25%, 3/1/2005 1,000 1,120
Massachusetts Ind. Finance Agency
(Refusetech Inc. Project)
6.30%, 7/1/2005 1,000 1,077
Massachusetts Water
Resources Auth.
5.75%, 8/1/2010 (1) 300 332
----------
5,885
----------
MICHIGAN (1.9%)
Dickinson County MI Memorial
Hosp. System Rev.
7.625%, 11/1/2005 415 460
Greater Detroit MI Resource
Recovery Auth.
6.25%, 12/13/2006 (2) 1,200 1,361
Michigan Environmental
Protection Program
6.25%, 11/1/2008 1,000 1,106
Michigan Housing Dev. Auth. Rev.
6.30%, 4/1/2004 1,000 1,077
----------
4,004
----------
NEBRASKA (1.2%)
Nebraska Public Power Dist. Rev.
5.25%, 1/1/2005 (1) 2,000 2,130
5.25%, 1/1/2010 (1) 125 134
5.25%, 1/1/2011 (1) 225 239
----------
2,503
----------
NEVADA (1.6%)
Clark County NV Airport Rev.
5.00%, 7/1/2005 (1) 1,705 1,796
Clark County NV School Dist. GO
5.90%, 6/15/2012 (3) 750 844
6.00%, 6/15/1999 (3) 700 709
----------
3,349
----------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
NEW JERSEY (0.9%)
New Jersey Econ. Dev. Auth. Market
Transition Fac.
5.70%, 7/1/2005 (1) $ 400 $ 438
New Jersey Health Care Fac. Auth.
Rev. (Atlantic City Medical Center)
6.80%, 7/1/2005 1,000 1,104
New Jersey Transp. Trust Fund Auth.
6.00%, 6/15/2008 250 285
----------
1,827
----------
NEW YORK (8.6%)
Erie County NY GO
6.125%, 1/15/2011 (3) 610 708
Hempstead NY GO
5.625%, 2/1/2011 (3) 840 921
Huntington NY GO
6.70%, 2/1/2010 (3) 375 454
Long Island NY Power Auth. Electric
System Rev.
5.50%, 12/1/2009 (2) 2,000 2,196
Metropolitan NY Transp. Auth.
6.00%, 7/1/2006 (1) 1,000 1,120
Muni. Assistance Corp. for New York
City NY
5.00%, 7/1/1999 500 505
New York City NY GO
6.375%, 8/15/2005 (Prere.) 135 155
6.375%, 8/15/2009 505 569
7.10%, 8/15/2004 (Prere.) 500 584
New York City NY Muni. Water
Finance Auth. Water & Sewer
System Rev. VRDO
5.10%, 1/5/1999 (3) 397 397
New York City NY National
Tennis Center
6.25%, 11/15/2006 2,000 2,258
New York Environmental Fac. Corp.
PCR (State Water Recovery Fund)
6.35%, 6/15/2004 (Prere.) 295 334
6.35%, 6/15/2006 225 253
New York State GO
4.50%, 9/15/2000 1,600 1,629
New York State Dormitory Auth. Rev.
(State Univ.)
5.375%, 5/15/2007 (2) 400 434
New York State Dormitory Auth. Rev.
(Vassar Brothers Hosp.)
5.10%, 7/1/2010 (4) 1,500 1,583
New York State Thruway Auth.
(Service Contract)
5.40%, 4/1/2005 (1) 400 430
Suffolk County NY
5.00%, 4/1/2007 (3) 1,120 1,184
Triborough Bridge & Tunnel NY
Auth. Rev.
5.50%, 1/1/2006 (4) 2,000 2,168
----------
17,882
----------
OHIO (2.6%)
Lorain County OH Hosp. Rev.
(Catholic Healthcare Partners)
5.625%, 9/1/2013 (1) 1,775 1,927
6.00%, 9/1/2004 (1) 1,080 1,187
Ohio Air Quality Dev. Auth. VRDO
(Cincinnati Gas & Electric
Co. Project)
5.00%, 1/5/1999 LOC 540 540
Ohio Public Fac. Comm. Higher
Educ. Fac.
5.50%, 12/1/2006 (1) 400 427
Ohio Water Dev. Auth.
5.75%, 12/1/2005 (1) 540 583
6.00%, 12/1/2008 (2) 750 819
----------
5,483
----------
PENNSYLVANIA (4.3%)
Delaware County PA IDA PCR VRDO
(BP Exploration & Oil Project)
5.00%, 1/5/1999 80 80
Pennsylvania Convention Center Auth.
6.70%, 9/1/2014 (1) 500 571
Pennsylvania GO
5.90%, 11/15/2001 1,000 1,064
Pennsylvania Higher Educ. Fac. Auth.
(Allegheny/Delaware Valley)
5.00%, 11/15/2006 (1) 1,125 1,125
Pennsylvania Turnpike Comm. Oil
Franchise Tax Rev.
5.25%, 12/1/2009 (2) 615 666
5.25%, 12/1/2011 (2) 455 486
Pennsylvania Turnpike Comm. Rev.
7.625%, 12/1/1999 (Prere.) 500 530
Philadelphia PA Parking Auth. Airport
5.75%, 9/1/2008 (2) 1,150 1,278
Philadelphia PA School Dist. GO
6.25%, 9/1/2005 (2) 870 975
Philadelphia PA Water & Waste Rev.
6.25%, 8/1/2009 (1) 1,000 1,156
Pittsburgh PA GO
5.20%, 3/1/2010 (3) 580 606
Pittsburgh PA Water & Sewer
Auth. Rev.
5.60%, 9/1/2018 (3) 235 256
----------
8,793
----------
PUERTO RICO (0.9%)
Puerto Rico Govt. Dev. Bank VRDO
3.60%, 1/6/1999 (1) 1,765 1,765
----------
SOUTH DAKOTA (0.5%)
South Dakota Building Auth.
Lease Rev.
5.25%, 12/1/2010 (2) 1,000 1,063
----------
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
TAX-MANAGED AMOUNT VALUE*
BALANCED FUND (000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
TEXAS (5.0%)
Dallas TX Civic Center Refunding &
Improvement
4.60%, 8/15/2009 (1) $ 110 $ 112
4.70%, 8/15/2010 (1) 815 834
Fort Worth TX Water & Sewer Rev.
5.25%, 2/15/2011 3,800 4,017
Gulf Coast TX Waste Disposal Auth.
PCR VRDO
5.05%, 1/5/1999 153 153
5.10%, 1/5/1999 140 140
Houston TX GO
5.70%, 3/1/2001 500 522
Houston TX Hotel Occupancy Tax Rev.
5.25%, 7/1/2007 (4) 500 530
San Antonio TX Electric & Gas Rev.
5.125%, 2/1/2009 1,000 1,066
San Antonio TX Water Rev.
6.50%, 5/15/2002 (1) (Prere.) 145 160
6.50%, 5/15/2010 (1) 280 306
6.50%, 5/15/2010 (1) (ETM) 75 89
Texas Water Finance Assistance
5.00%, 8/1/2008 690 713
5.00%, 8/1/2009 1,050 1,082
Univ. of TX Permanent Fund
6.60%, 7/1/2001 (Prere.) 500 545
----------
10,269
----------
UTAH (0.7%)
Intermountain Power Agency
Utah Rev
5.20%, 7/1/2006 1,150 1,209
Salt Lake County UT Building Auth.
Lease Rev.
5.90%, 10/1/2006 (1) 260 285
----------
1,494
----------
VIRGINIA (0.3%)
Virginia Transp. Board
6.00%, 5/15/2007 500 550
----------
WASHINGTON (1.2%)
King County WA Library System GO
6.05%, 12/1/2007 1,000 1,123
Seattle WA Muni. Light & Power Rev.
6.25%, 7/1/2007 700 791
Tacoma WA Electric System Rev.
5.50%, 1/1/2012 (2) 500 521
----------
2,435
----------
WEST VIRGINIA (0.9%)
West Virginia Building Comm. Rev.
5.25%, 7/1/2008 (1) 1,150 1,238
West Virginia School Building Auth.
Capital Improvement Rev.
5.625%, 7/1/2002 655 696
----------
1,934
----------
WISCONSIN (0.2%)
Wisconsin GO
5.00%, 5/1/2000 335 342
----------
- ---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(COST $105,216) 108,882
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.2%)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.77%, 1/4/1999--Note F
(COST $384) 384 384
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (101.7%)
(COST $163,554) 210,389
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.7%)
- ---------------------------------------------------------------------
Other Assets--Note B 2,198
Liabilities--Note F (5,655)
----------
(3,457)
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 12,364,125 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $206,932
=====================================================================
NET ASSET VALUE PER SHARE $16.74
=====================================================================
</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.
IDA--Industrial Development Authority Bond.
PCR--Pollution Control Revenue Bond.
PUT--Put Option Obligation.
REIT--Real Estate Investment Trust.
VRDO--Variable Rate Demand Obligation.
(Prere.)--Prerefunded.
(ETM)--Escrowed to Maturity.
Scheduled principal and interest payments are
guaranteed by:
(1) MBIA (Municipal Bond Insurance Association).
(2) AMBAC (AMBAC Indemnity Corporation).
(3) FGIC (Financial Guaranty Insurance Company).
(4) FSA (Financial Security Assurance).
The insurance does not guarantee the market value of the municipal bonds.
LOC--Scheduled principal and interest payments are guaranteed by bank letter of
credit.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $163,928 $13.26
Overdistributed Net
Investment Income (96) (.01)
Accumulated Net Realized
Losses--Note D (3,735) (.30)
Unrealized Appreciation--
Note E 46,835 3.79
- ---------------------------------------------------------------------
NET ASSETS $206,932 $16.74
=====================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
GROWTH AND INCOME FUND SHARES (000)
- -----------------------------------------------------------------------------
COMMON STOCKS (99.6%)
- -----------------------------------------------------------------------------
<S> <C> <C>
- - Microsoft Corp. 337,392 $ 46,792
General Electric Co. 443,372 45,252
Intel Corp. 225,384 26,722
Wal-Mart Stores, Inc. 304,543 24,801
Exxon Corp. 328,674 24,034
Merck & Co., Inc. 160,979 23,775
International Business
Machines Corp. 126,168 23,310
The Coca-Cola Co. 333,326 22,291
Pfizer, Inc. 175,480 22,012
- - Cisco Systems, Inc. 213,547 19,820
Lucent Technologies, Inc. 177,850 19,564
AT&T Corp. 244,263 18,381
Bristol-Myers Squibb Co. 134,388 17,983
- - MCI WorldCom, Inc. 247,970 17,792
Philip Morris Cos., Inc. 329,279 17,616
Procter & Gamble Co. 179,468 16,388
Johnson & Johnson 181,888 15,256
Citigroup, Inc. 307,338 15,213
SBC Communications Inc. 264,610 14,190
BankAmerica Corp. 234,201 14,081
Royal Dutch Petroleum Co. ADR 290,116 13,889
American International
Group, Inc. 142,058 13,726
Eli Lilly & Co. 148,796 13,224
BellSouth Corp. 264,672 13,201
Home Depot, Inc. 211,486 12,940
- - Dell Computer Corp. 172,600 12,632
Bell Atlantic Corp. 210,114 11,136
Schering-Plough Corp. 199,172 11,004
Fannie Mae 140,532 10,399
Time Warner, Inc. 166,382 10,326
American Home Products Corp. 178,736 10,065
Abbott Laboratories 204,894 10,040
Compaq Computer Corp. 230,539 9,668
Ford Motor Co. 164,118 9,632
Hewlett-Packard Co. 140,652 9,608
Ameritech Corp. 149,630 9,483
Mobil Corp. 105,718 9,211
Wells Fargo Co. 219,404 8,762
GTE Corp. 130,864 8,506
Warner-Lambert Co. 111,336 8,371
The Walt Disney Co. 277,896 8,337
First Union Corp. 134,204 8,161
PepsiCo, Inc. 199,052 8,149
Bank One Corp. 158,854 8,111
E.I. du Pont de Nemours & Co. 152,732 8,104
- - America Online, Inc. 49,500 7,920
The Chase Manhattan Corp. 114,092 7,765
Chevron Corp. 88,424 7,334
Gillette Co. 150,516 7,272
Unilever NV ADR 86,884 7,206
McDonald's Corp. 91,815 7,035
Tyco International Ltd. 87,403 6,593
General Motors Corp. 88,241 6,315
American Express Co. 60,988 6,236
Freddie Mac 91,460 5,893
- - EMC Corp. 67,600 5,746
- - Oracle Corp. 130,979 5,648
- - AirTouch Communications, Inc. 77,081 5,559
Morgan Stanley Dean
Witter & Co. 77,989 5,537
Xerox Corp. 44,165 5,211
Motorola, Inc. 80,901 4,940
Medtronic, Inc. 66,068 4,906
Sprint Corp. 58,072 4,885
Texas Instruments, Inc. 52,552 4,496
The Boeing Co. 135,783 4,430
The Gap, Inc. 78,657 4,424
Northern Telecom Ltd. 87,874 4,405
- - Sun Microsystems, Inc. 51,348 4,397
U S WEST, Inc. 67,760 4,379
Allstate Corp. 110,880 4,283
Anheuser-Busch Cos., Inc. 64,314 4,221
Associates First Capital Corp. 97,418 4,128
The Bank of New York Co., Inc. 102,500 4,126
- - Tele-Communications-TCI
Group A 72,547 4,013
Monsanto Co. 84,425 4,010
- - Safeway, Inc. 65,500 3,991
Kimberly-Clark Corp. 73,144 3,986
Walgreen Co. 67,180 3,934
Minnesota Mining &
Manufacturing Co. 54,545 3,879
Pharmacia & Upjohn, Inc. 68,470 3,877
- - MediaOne Group, Inc. 81,946 3,851
Texaco Inc. 72,768 3,848
Colgate-Palmolive Co. 39,906 3,706
Waste Management, Inc. 77,451 3,611
- - Amgen, Inc. 34,388 3,596
Emerson Electric Co. 59,332 3,590
- - Viacom Inc. Class B 47,424 3,509
Sara Lee Corp. 124,064 3,497
U.S. Bancorp 98,141 3,484
Fleet Financial Group, Inc. 76,572 3,422
Schlumberger Ltd. 73,610 3,395
AlliedSignal Inc. 75,442 3,343
Electronic Data Systems Corp. 66,400 3,337
Campbell Soup Co. 60,512 3,328
United Technologies Corp. 30,566 3,324
Automatic Data Processing, Inc. 40,768 3,269
Carnival Corp. 67,400 3,235
National City Corp. 44,580 3,232
Dayton Hudson Corp. 59,264 3,215
Computer Associates
International, Inc. 75,316 3,210
Merrill Lynch & Co., Inc. 47,792 3,190
Eastman Kodak Co. 43,628 3,141
Duke Energy Corp. 48,803 3,126
CBS Corp. 95,306 3,121
Washington Mutual, Inc. 79,954 3,053
Charles Schwab Corp. 54,125 3,041
CVS Corp. 52,524 2,889
Atlantic Richfield Co. 43,792 2,857
H.J. Heinz Co. 48,988 2,774
Dow Chemical Co. 30,140 2,741
Southern Co. 94,012 2,732
American General Corp. 34,476 2,689
Comcast Corp. Class A Special 45,796 2,688
Household International, Inc. 66,011 2,616
Enron Corp. 45,150 2,576
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
GROWTH AND INCOME FUND SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
SunTrust Banks, Inc. 33,636 $ 2,573
Fifth Third Bancorp 35,950 2,564
MBNA Corp. 100,995 2,519
Baxter International, Inc. 38,544 2,479
J.P. Morgan & Co., Inc. 23,560 2,475
Lowe's Cos., Inc. 48,170 2,466
Gannett Co., Inc. 38,004 2,451
Pitney Bowes, Inc. 36,780 2,430
Wachovia Corp. 27,763 2,428
Mellon Bank Corp. 35,178 2,418
Firstar Corp. 25,700 2,397
SunAmerica Inc. 29,300 2,377
Lockheed Martin Corp. 26,588 2,253
Caterpillar, Inc. 48,890 2,249
Guidant Corp. 20,300 2,238
Sears, Roebuck & Co. 51,999 2,210
PNC Bank Corp. 40,801 2,208
ALLTEL Corp. 36,736 2,197
CIGNA Corp. 28,338 2,191
- - Cendant Corp. 114,437 2,181
- - 3Com Corp. 48,350 2,167
Columbia/HCA Healthcare Corp. 86,586 2,143
Burlington Northern
Santa Fe Corp. 63,227 2,134
Raytheon Co. Class B 39,922 2,126
- - Applied Materials, Inc. 49,800 2,126
- - Costco Cos., Inc. 29,226 2,110
Albertson's, Inc. 33,065 2,106
- - The Kroger Co. 34,538 2,090
ConAgra, Inc. 65,492 2,063
Cardinal Health, Inc. 27,047 2,052
Bestfoods 38,522 2,051
The Seagram Co. Ltd. 53,172 2,021
Marsh & McLennan Cos., Inc. 34,456 2,014
Clear Channel
Communications, Inc. 36,100 1,967
KeyCorp 61,448 1,966
Illinois Tool Works, Inc. 33,672 1,953
Coca-Cola Enterprises, Inc. 54,400 1,945
- - Ascend Communications, Inc. 29,200 1,920
First Data Corp. 59,638 1,890
May Department Stores Co. 31,247 1,887
Kellogg Co. 54,536 1,861
International Paper Co. 41,423 1,856
Aluminum Co. of America 24,822 1,851
- - Staples, Inc. 42,000 1,835
Williams Cos., Inc. 58,161 1,814
- - FDX Corp. 20,292 1,806
HBO & Co. 62,685 1,798
Texas Utilities Co. 38,444 1,795
- - Tellabs, Inc. 26,100 1,789
Halliburton Co. 59,078 1,750
The Hartford Financial Services
Group Inc. 31,502 1,729
Rite Aid Corp. 34,802 1,725
Progressive Corp. of Ohio 9,800 1,660
IMS Health, Inc. 21,980 1,658
Consolidated Edison Inc. 31,200 1,650
Textron, Inc. 21,604 1,640
The Clorox Co. 13,970 1,632
PG&E Corp. 51,558 1,624
J.C. Penney Co., Inc. 34,606 1,622
Norfolk Southern Corp. 51,119 1,620
Avon Products, Inc. 36,084 1,597
General Mills, Inc. 20,441 1,589
BB&T Corp. 39,300 1,584
NIKE, Inc. Class B 38,612 1,566
BankBoston Corp. 39,620 1,543
Aetna Inc. 19,559 1,538
AMP, Inc. 29,271 1,524
State Street Corp. 21,800 1,516
Loews Corp. 15,300 1,503
Union Pacific Corp. 33,300 1,501
Interpublic Group of Cos., Inc. 18,685 1,490
FPL Group, Inc. 24,149 1,488
- - AMR Corp. 24,918 1,480
Phillips Petroleum Co. 34,692 1,479
Providian Financial Corp. 19,514 1,464
- - Micron Technology, Inc. 28,800 1,456
Becton, Dickinson & Co. 34,092 1,455
- - Boston Scientific Corp. 54,182 1,453
PPG Industries, Inc. 24,425 1,423
Comerica, Inc. 20,850 1,422
The Chubb Corp. 21,898 1,421
Wrigley, (Wm.) Jr. Co. 15,697 1,406
Corning, Inc. 31,113 1,400
Archer-Daniels-Midland Co. 80,141 1,377
American Stores Co. 36,972 1,366
Ralston-Ralston Purina Group 42,126 1,364
Computer Sciences Corp. 21,144 1,362
Service Corp. International 35,680 1,358
The McGraw-Hill Cos., Inc. 13,238 1,349
Weyerhaeuser Co. 26,501 1,347
Edison International 47,528 1,325
Omnicom Group Inc. 22,800 1,322
- - Kohl's Corp. 21,500 1,321
Masco Corp. 45,768 1,316
Conseco Inc. 42,430 1,297
Northern Trust Corp. 14,794 1,292
Honeywell, Inc. 17,046 1,284
- - BMC Software, Inc. 28,800 1,283
RJR Nabisco Holdings Corp. 43,200 1,283
Houston Industries, Inc. 39,487 1,269
Aon Corp. 22,800 1,263
- - Fred Meyer Inc. 20,900 1,259
PECO Energy Corp. 30,156 1,255
TJX Cos., Inc. 43,204 1,253
Sysco Corp. 45,658 1,253
Air Products & Chemicals, Inc. 31,280 1,251
Rockwell International Corp. 25,753 1,251
USX-Marathon Group 41,378 1,247
Public Service Enterprise
Group, Inc. 30,835 1,233
- - Federated Department
Stores, Inc. 28,200 1,228
Dominion Resources, Inc. 26,174 1,224
CSX Corp. 29,114 1,208
Hershey Foods Corp. 19,298 1,200
American Electric Power Co., Inc. 25,430 1,197
Regions Financial Corp. 29,600 1,193
Fort James Corp. 29,779 1,191
- - AES Corp. 24,800 1,175
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- - Solectron Corp. 12,600 $ 1,171
- - Unisys Corp. 33,881 1,167
Paychex, Inc. 22,000 1,132
United Healthcare Corp. 26,064 1,122
- - Sprint PCS 48,436 1,120
Unicom Corp. 28,929 1,115
Lincoln National Corp. 13,621 1,114
SLM Holding Corp. 23,000 1,104
St. Paul Cos., Inc. 31,666 1,100
Dover Corp. 29,980 1,098
Deere & Co. 33,079 1,096
Bankers Trust Corp. 12,700 1,085
UNUM Corp. 18,518 1,081
- - Tenet Healthcare Corp. 41,066 1,078
Franklin Resources Corp. 33,600 1,075
Jefferson-Pilot Corp. 14,329 1,075
The Quaker Oats Co. 18,056 1,074
The Goodyear Tire & Rubber Co. 21,216 1,070
- - Gateway 2000, Inc. 20,900 1,070
Ingersoll-Rand Co. 22,590 1,060
Tribune Co. 16,058 1,060
Delta Air Lines, Inc. 20,344 1,058
Summit Bancorp 23,700 1,035
- - Tricon Global Restaurants, Inc. 20,575 1,031
FirstEnergy Corp. 31,646 1,030
Entergy Corp. 32,886 1,024
Capital One Financial Corp. 8,900 1,024
Southwest Airlines Co. 45,370 1,018
- - Kmart Corp. 66,450 1,018
Coastal Corp. 28,814 1,007
- - Seagate Technology 33,100 1,001
General Dynamics Corp. 17,032 999
Barrick Gold Corp. 50,679 988
Transamerica Corp. 8,441 975
Mercantile Bancorp, Inc. 21,015 969
Marriott International, Inc. Class A 33,368 968
Carolina Power & Light Co. 20,348 958
Unocal Corp. 32,423 946
TRW, Inc. 16,640 935
- - HEALTHSOUTH Corp. 58,942 910
Newell Co. 21,938 905
- - NEXTEL Communications, Inc. 38,300 905
Dana Corp. 21,993 899
MBIA, Inc. 13,700 898
Winn-Dixie Stores, Inc. 19,908 893
The Limited, Inc. 30,497 888
Mattel, Inc. 38,520 879
UST, Inc. 25,099 875
Huntington Bancshares Inc. 29,058 874
Pioneer Hi-Bred International, Inc. 32,300 872
Burlington Resources, Inc. 24,217 867
New York Times Co. Class A 24,930 865
- - Novell, Inc. 47,600 863
Synovus Financial Corp. 35,200 858
PacifiCorp 40,062 844
DTE Energy Co. 19,602 840
R.R. Donnelley & Sons Co. 19,041 834
Alcan Aluminium Ltd. 30,665 830
Union Planters Corp. 18,200 825
Cincinnati Financial Corp. 22,500 824
Occidental Petroleum Corp. 47,945 809
Genuine Parts Co. 24,137 807
Sempra Energy 31,617 802
SAFECO Corp. 18,620 800
Central & South West Corp. 28,945 794
Frontier Corp. 23,200 789
Tenneco, Inc. 22,977 783
Ameren Corp. 18,305 781
Praxair, Inc. 22,160 781
Baker Hughes, Inc. 44,091 780
Union Carbide Corp. 18,115 770
VF Corp. 16,342 766
GPU, Inc. 17,200 760
Maytag Corp. 12,164 757
Provident Cos., Inc. 18,200 755
Danaher Corp. 13,900 755
Countrywide Credit
Industries, Inc. 14,900 748
- - General Instrument Corp. 22,000 747
New Century Energies, Inc. 15,200 741
Cinergy Corp. 21,406 736
Fortune Brands, Inc. 23,088 730
Golden West Financial Corp. 7,918 726
Dun & Bradstreet Corp. 22,980 725
- - Apple Computer, Inc. 17,700 725
Georgia Pacific Group 12,200 714
Rohm & Haas Co. 23,693 714
Consolidated Natural Gas Co. 13,117 708
Avery Dennison Corp. 15,684 707
Eaton Corp. 9,859 697
Nordstrom, Inc. 20,048 695
Lehman Brothers Holdings, Inc. 15,700 692
Brown-Forman Corp. Class B 9,035 684
Equifax, Inc. 20,000 684
Northrop Grumman Corp. 9,268 678
Johnson Controls, Inc. 11,476 677
Cooper Industries, Inc. 14,095 672
- - AutoZone Inc. 20,400 672
- - Ceridian Corp. 9,551 667
Sherwin-Williams Co. 22,694 667
Black & Decker Corp. 11,886 666
Hilton Hotels Corp. 34,316 656
Browning-Ferris Industries, Inc. 23,058 656
Circuit City Stores, Inc. 13,128 656
International Flavors &
Fragrances, Inc. 14,782 653
ITT Industries, Inc. 16,401 652
Columbia Energy Group 11,259 650
Torchmark Corp. 18,398 650
Perkin-Elmer Corp. 6,650 649
- - Compuware Corp. 8,300 648
Republic New York Corp. 14,200 647
- - Owens-Illinois, Inc. 21,100 646
- - US Airways Group, Inc. 12,302 640
Rubbermaid, Inc. 20,247 637
H & R Block, Inc. 14,100 635
Ecolab, Inc. 17,430 631
The Times Mirror Co. Class A 11,234 629
Union Camp Corp. 9,238 624
Hasbro, Inc. 17,250 623
- - ALZA Corp. 11,779 615
Dow Jones & Co., Inc. 12,640 608
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
GROWTH AND INCOME FUND SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amerada Hess Corp. 12,217 $ 608
- - Parametric Technology Corp. 37,400 608
Biomet, Inc. 15,085 607
MGIC Investment Corp. 15,200 605
Baltimore Gas & Electric Co. 19,498 602
Dollar General Corp. 25,300 598
Northern States Power Co. 21,356 593
- - PeopleSoft, Inc. 31,000 587
- - Toys R Us, Inc. 34,591 584
- - Sealed Air Corp. 11,236 574
Bear Stearns Co., Inc. 15,200 568
PP&L Resources Inc. 20,380 568
Allergan, Inc. 8,618 558
Tandy Corp. 13,432 553
Whirlpool Corp. 9,953 551
Allegheny Teledyne Inc. 26,946 551
- - Advanced Micro Devices, Inc. 18,908 547
Knight Ridder 10,570 540
Nucor Corp. 12,197 528
Champion International Corp. 12,917 523
W.W. Grainger, Inc. 12,446 518
- - KLA-Tencor Corp. 11,800 512
Reynolds Metals Co. 9,506 501
Anadarko Petroleum Corp. 16,200 500
Willamette Industries, Inc. 14,800 496
Crown Cork & Seal Co., Inc. 16,003 493
Harcourt General, Inc. 9,266 493
Ashland, Inc. 10,006 484
Eastman Chemical Co. 10,682 478
Parker Hannifin Corp. 14,573 477
Temple-Inland Inc. 7,900 469
Sunoco, Inc. 12,945 467
Bausch & Lomb, Inc. 7,502 450
Fluor Corp. 10,480 446
- - HCR Manor Care, Inc. 15,113 444
SuperValu Inc. 15,792 442
Laidlaw, Inc. 43,400 437
Dillard's Inc. 15,386 437
PACCAR, Inc. 10,560 434
Pall Corp. 16,495 418
Adobe Systems, Inc. 8,900 416
- - Niagara Mohawk Power Corp. 25,693 414
Morton International, Inc. 16,800 412
The Mead Corp. 13,804 405
Amoco Corp. 6,788 400
Sonat, Inc. 14,797 400
Harris Corp. 10,872 398
American Greetings Corp. Class A 9,547 392
Newmont Mining Corp. 21,609 390
Phelps Dodge Corp. 7,641 389
- - Humana, Inc. 21,800 388
Centex Corp. 8,516 384
Deluxe Corp. 10,482 383
Sigma-Aldrich Corp. 13,000 382
C.R. Bard, Inc. 7,677 380
Placer Dome, Inc. 32,212 370
Hercules, Inc. 13,517 370
Westvaco Corp. 13,643 366
Engelhard Corp. 18,590 363
- - Thermo Electron Corp. 21,300 361
Wendy's International, Inc. 15,951 348
- - Mirage Resorts, Inc. 23,000 344
The BFGoodrich Co. 9,554 343
Brunswick Corp. 13,826 342
Great Lakes Chemical Corp. 8,443 338
Apache Corp. 13,300 337
- - Silicon Graphics, Inc. 26,100 336
Thomas & Betts Corp. 7,728 335
Raychem Corp. 10,292 333
The Stanley Works 11,906 330
Armstrong World Industries Inc. 5,427 327
Mallinckrodt, Inc. 10,462 322
Darden Restaurants Inc. 17,841 321
- - St. Jude Medical, Inc. 11,546 320
- - LSI Logic Corp. 19,600 316
- - National Semiconductor Corp. 22,851 308
- - Consolidated Stores, Inc. 15,252 308
Homestake Mining Co. 32,668 300
Union Pacific Resources
Group, Inc. 32,991 299
- - Harrah's Entertainment, Inc. 18,749 294
Raytheon Co. Class A 5,497 284
Bemis Co., Inc. 7,375 280
- - King World Productions, Inc. 9,454 278
NICOR, Inc. 6,580 278
USX-U.S. Steel Group 11,900 274
Liz Claiborne, Inc. 8,669 274
Adolph Coors Co. Class B 4,828 272
Louisiana-Pacific Corp. 14,800 271
Snap-On Inc. 7,467 260
Crane Co. 8,554 258
Nalco Chemical Co. 8,235 255
Autodesk, Inc. 5,860 250
Freeport-McMoRan Copper &
Gold Inc. Class B 23,800 248
Meredith Corp. 6,496 246
Owens Corning 6,747 239
Ryder System, Inc. 9,164 238
- - Navistar International Corp. 8,356 238
Inco Ltd. 22,397 237
Boise Cascade Corp. 7,630 237
Comcast Corp. Class A 4,100 235
- - FMC Corp. 4,123 231
Case Corp. 10,500 229
Cummins Engine Co., Inc. 6,441 229
Kerr-McGee Corp. 5,876 225
Scientific-Atlanta, Inc. 9,378 214
McDermott International, Inc. 8,341 206
- - Andrew Corp. 12,460 206
Longs Drug Stores, Inc. 5,342 200
National Service Industries, Inc. 5,269 200
Cooper Tire & Rubber Co. 9,285 190
EG&G, Inc. 6,790 189
- - Cabletron Systems, Inc. 22,500 188
Millipore Corp. 6,594 188
Peoples Energy Corp. 4,619 184
Tektronix, Inc. 6,076 183
Alberto-Culver Co. Class B 6,786 181
- - Oryx Energy Co. 13,331 179
Ball Corp. 3,701 169
IKON Office Solutions, Inc. 19,666 168
Shared Medical Systems Corp. 3,376 168
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
The Timken Co. 8,910 $ 168
Fleetwood Enterprises, Inc. 4,656 162
Pulte Corp. 5,688 158
Worthington Industries, Inc. 12,402 155
Briggs & Stratton Corp. 3,098 155
Kaufman & Broad Home Corp. 5,311 153
Crestar Financial Corp. 2,100 151
Potlatch Corp. 4,100 151
Great Atlantic & Pacific Tea
Co., Inc. 5,030 149
- - W.R. Grace & Co. 9,120 143
ONEOK, Inc. 3,891 141
Jostens Inc. 5,355 140
Cyprus Amax Minerals Co. 13,500 135
Helmerich & Payne, Inc. 6,768 131
- - Rowan Cos., Inc. 13,086 131
Eastern Enterprises 2,972 130
- - Bethlehem Steel Corp. 15,331 128
Tupperware Corp. 7,317 120
- - Data General Corp. 7,121 117
- - Fruit of the Loom, Inc. 8,400 116
The Pep Boys
(Manny, Moe & Jack) 7,208 113
Moore Corp. Ltd. 10,040 110
- - Reebok International Ltd. 7,291 108
Milacron Inc. 5,615 108
Battle Mountain Gold Co. Class A 26,200 108
Aeroquip-Vickers Inc. 3,397 102
Polaroid Corp. 5,360 100
NACCO Industries, Inc. Class A 1,031 95
Russell Corp. 4,620 94
Springs Industries Inc. Class A 2,260 94
ASARCO, Inc. 5,042 76
Foster Wheeler Corp. 4,622 61
- - Venator Group, Inc. 8,750 56
PennzEnergy Co. 2,978 49
Harnischfeger Industries Inc. 4,587 47
- - Pennzoil-Quaker State Co. 2,978 44
- - Viacom Inc. Class A 100 7
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $965,377) 1,347,481
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.0%)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.76%, 1/4/1999
(COST $13,018) $13,018 13,018
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(COST $978,395) 1,360,499
- ----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.6%)
- ----------------------------------------------------------------------------------------
Other Assets--Note B 15,026
Liabilities (23,094)
-------------
(8,068)
- ----------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------
Applicable to 50,930,787 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $1,352,431
========================================================================================
NET ASSET VALUE PER SHARE $26.55
========================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
AT DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 972,963 $19.10
Overdistributed Net
Investment Income (201) --
Accumulated Net Realized
Losses--Note D (2,435) (.05)
Unrealized Appreciation--
Note E 382,104 7.50
- ----------------------------------------------------------------------------------------
NET ASSETS $1,352,431 $26.55
========================================================================================
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
CAPITAL APPRECIATION FUND SHARES (000)
- ----------------------------------------------------------------------------------------
COMMON STOCKS (99.9%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Electric Co. 474,778 $ 48,457
- - Microsoft Corp. 242,000 33,562
Intel Corp. 241,500 28,633
Merck & Co., Inc. 176,800 26,111
International Business
Machines Corp. 136,700 25,255
Pfizer, Inc. 194,600 24,410
The Coca-Cola Co. 340,400 22,764
- - Cisco Systems, Inc. 225,750 20,952
Lucent Technologies, Inc. 188,494 20,734
- - MCI WorldCom, Inc. 287,532 20,630
- - Dell Computer Corp. 265,600 19,439
Procter & Gamble Co. 202,400 18,482
Johnson & Johnson 206,106 17,287
Wal-Mart Stores, Inc. 204,900 16,687
Citigroup, Inc. 336,885 16,676
American International
Group, Inc. 161,387 15,594
- - America Online, Inc. 95,600 15,296
Home Depot, Inc. 228,500 13,981
Schering-Plough Corp. 231,500 12,790
Fannie Mae 163,500 12,099
Exxon Corp. 164,300 12,014
Abbott Laboratories 240,700 11,794
Compaq Computer Corp. 276,930 11,614
American Home Products Corp. 198,800 11,195
Time Warner, Inc. 154,550 9,592
Hewlett-Packard Co. 139,100 9,502
PepsiCo, Inc. 225,500 9,231
The Walt Disney Co. 307,509 9,225
Gillette Co. 183,516 8,866
Philip Morris Cos., Inc. 163,800 8,763
McDonald's Corp. 109,700 8,406
AT&T Corp. 109,383 8,231
- - EMC Corp. 92,100 7,829
Freddie Mac 117,000 7,539
E.I. du Pont de Nemours & Co. 140,600 7,460
- - AirTouch Communications, Inc. 103,000 7,429
- - Yahoo!, Inc. 30,600 7,250
Morgan Stanley Dean
Witter & Co. 100,400 7,128
BankAmerica Corp. 115,875 6,967
- - Safeway, Inc. 112,184 6,836
- - Sun Microsystems, Inc. 77,900 6,670
- - Oracle Corp. 154,475 6,662
Tyco International Ltd. 84,943 6,408
- - Tele-Communications-TCI
Group A 113,653 6,286
Texas Instruments, Inc. 72,900 6,238
Motorola, Inc. 102,100 6,234
- - Tele-Communications Liberty
Media Group Class A 134,676 6,203
Medtronic, Inc. 82,400 6,118
- - Compuware Corp. 75,600 5,906
Sprint Corp. 69,000 5,805
Associates First Capital Corp. 136,188 5,771
Monsanto Co. 118,400 5,624
Walgreen Co. 95,600 5,598
- - Amgen, Inc. 53,200 5,563
Waste Management, Inc. 117,597 5,483
Cardinal Health, Inc. 70,875 5,378
The Gap, Inc. 94,125 5,294
Charles Schwab Corp. 93,900 5,276
- - MediaOne Group, Inc. 110,200 5,179
The Boeing Co. 156,470 5,105
Kimberly-Clark Corp. 87,496 4,768
Comcast Corp. Class A Special 79,666 4,675
Mobil Corp. 53,000 4,618
Aluminum Co. of America 60,723 4,528
CVS Corp. 80,628 4,434
- - Office Depot, Inc. 119,600 4,418
AlliedSignal Inc. 99,500 4,409
Emerson Electric Co. 71,200 4,308
CBS Corp. 131,306 4,300
- - 3Com Corp. 94,975 4,256
Guidant Corp. 38,000 4,189
- - Viacom Inc. Class B 54,106 4,004
Electronic Data Systems Corp. 78,800 3,960
- - Qwest Communications
International Inc. 78,738 3,937
- - Applied Materials, Inc. 91,900 3,923
- - Solectron Corp. 42,000 3,903
Lowe's Cos., Inc. 76,200 3,900
Merrill Lynch & Co., Inc. 58,200 3,885
- - FDX Corp. 43,200 3,845
- - Smurfit-Stone Container Corp. 240,602 3,805
- - Cendant Corp. 199,125 3,796
- - Cablevision Systems Corp.
Class B 74,800 3,754
SunAmerica Inc. 45,850 3,719
General Motors Corp. 51,500 3,685
- - Berkshire Hathaway Class A 53 3,675
- - Costco Cos., Inc. 50,100 3,616
- - Staples, Inc. 82,287 3,595
First Data Corp. 111,262 3,526
- - Micron Technology, Inc. 69,700 3,524
- - The Kroger Co. 56,600 3,424
- - Ascend Communications, Inc. 52,040 3,422
BellSouth Corp. 67,400 3,361
- - Netscape Communications Corp. 55,179 3,352
- - Lexmark International Group, Inc.
Class A 33,100 3,326
- - Forest Laboratories, Inc. 62,400 3,319
- - Level 3 Communications, Inc. 76,900 3,316
Automatic Data Processing, Inc. 41,300 3,312
IMS Health, Inc. 43,900 3,312
Computer Associates
International, Inc. 76,662 3,268
Burlington Northern
Santa Fe Corp. 96,393 3,253
- - Altera Corp. 52,500 3,196
Conseco Inc. 104,339 3,189
Columbia/HCA Healthcare Corp. 126,421 3,129
AFLAC, Inc. 70,900 3,120
- - Network Associates, Inc. 45,050 2,985
- - Analog Devices, Inc. 94,133 2,953
Illinois Tool Works, Inc. 50,700 2,941
- - Fred Meyer Inc. 48,700 2,934
- - Tellabs, Inc. 42,600 2,921
- - Xilinx, Inc. 44,700 2,911
- - Unisys Corp. 84,500 2,910
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
State Street Corp. 41,700 $ 2,901
- - Novell, Inc. 159,800 2,896
- - Biogen, Inc. 34,800 2,888
- - Teradyne, Inc. 68,100 2,886
- - Apple Computer, Inc. 69,700 2,853
- - SCI Systems, Inc. 48,600 2,807
- - Tricon Global Restaurants, Inc. 55,940 2,804
- - Concord EFS, Inc. 66,000 2,797
- - AMR Corp. 46,700 2,773
Amoco Corp. 47,000 2,773
- - Cox Communications Class A 40,100 2,772
Raytheon Co. Class B 51,900 2,764
Lockheed Martin Corp. 32,500 2,754
- - Clear Channel
Communications, Inc. 50,500 2,752
- - Genzyme Corp. 55,300 2,751
Aetna Inc. 34,897 2,744
HBO & Co. 95,200 2,731
- - Kohl's Corp. 44,400 2,728
Century Telephone
Enterprises, Inc. 40,200 2,714
The Hartford Financial Services
Group Inc. 49,200 2,700
- - Tele-Communications TCI
Ventures Group Series A 114,494 2,698
Becton, Dickinson & Co. 62,800 2,681
- - Seagate Technology 88,170 2,667
Linear Technology Corp. 29,700 2,660
Computer Sciences Corp. 41,200 2,655
- - Advanced Micro Devices, Inc. 91,100 2,636
Capital One Financial Corp. 22,800 2,622
Harley-Davidson, Inc. 54,800 2,596
- - Watson Pharmaceuticals, Inc. 41,200 2,590
- - Wellpoint Health Networks Inc.
Class A 29,703 2,584
ALLTEL Corp. 42,953 2,569
- - General Instrument Corp. 75,100 2,549
Progressive Corp. of Ohio 15,000 2,541
- - At Home Corp. Series A 33,800 2,510
- - KLA-Tencor Corp. 57,600 2,498
- - Arrow Electronics, Inc. 93,300 2,490
- - Tenet Healthcare Corp. 94,637 2,484
Paychex, Inc. 48,225 2,481
- - Bed Bath & Beyond, Inc. 72,100 2,460
Southwest Airlines Co. 109,350 2,454
Sysco Corp. 89,200 2,447
- - AES Corp. 51,500 2,440
- - American Power
Conversion Corp. 50,200 2,432
- - HEALTHSOUTH Corp. 155,402 2,399
Coca-Cola Enterprises, Inc. 66,900 2,392
- - Sprint PCS 103,000 2,382
Archer-Daniels-Midland Co. 138,124 2,374
- - BMC Software, Inc. 53,200 2,371
- - Boston Scientific Corp. 88,000 2,360
- - Starbucks Corp. 42,000 2,357
- - Maxim Integrated Products, Inc. 53,600 2,342
Delta Air Lines, Inc. 45,000 2,340
- - Cadence Design Systems, Inc. 78,300 2,329
- - Abercrombie & Fitch Co. 32,658 2,311
- - HCR Manor Care, Inc. 78,600 2,309
- - Intuit, Inc. 31,800 2,306
Wrigley, (Wm.) Jr. Co. 25,700 2,302
Kansas City Southern
Industries, Inc. 46,500 2,287
- - U.S. Filter Corp. 99,300 2,271
Loews Corp. 23,100 2,270
UNUM Corp. 38,700 2,259
- - Chiron Corp. 85,840 2,248
Cintas Corp. 31,900 2,247
- - Chancellor Media Corp. 46,900 2,245
McKesson Corp. 28,400 2,245
Danaher Corp. 41,200 2,238
SBC Communications Inc. 41,720 2,237
- - Federated Department
Stores, Inc. 51,100 2,226
The Equitable Cos. 38,100 2,205
Adobe Systems, Inc. 47,100 2,202
- - Republic Industries, Inc. 148,800 2,195
- - NCR Corp. 52,337 2,185
Albertson's, Inc. 34,200 2,178
- - ADC Telecommunications, Inc. 62,300 2,165
Lehman Brothers Holdings, Inc. 49,100 2,163
- - Ceridian Corp. 30,800 2,150
- - Synopsys, Inc. 39,427 2,139
Minnesota Mining &
Manufacturing Co. 29,900 2,127
- - Kmart Corp. 138,600 2,122
Stryker Corp. 38,500 2,120
- - ALZA Corp. 40,500 2,116
Biomet, Inc. 52,200 2,101
United Healthcare Corp. 48,800 2,101
- - Health Management Associates
Class A 97,068 2,099
- - Sterling Commerce, Inc. 46,500 2,093
Coastal Corp. 59,700 2,086
- - Adaptec, Inc. 118,700 2,085
- - Gulfstream Aerospace Corp. 39,100 2,082
- - Atmel Corp. 135,800 2,079
- - General Motors Corp. Class H 52,000 2,064
- - Fiserv, Inc. 40,100 2,063
Circuit City Stores, Inc. 41,300 2,062
IBP, Inc. 70,800 2,062
Mylan Laboratories, Inc. 64,650 2,036
- - US Airways Group, Inc. 39,000 2,028
Caterpillar, Inc. 44,000 2,024
Teleglobe Inc. 55,578 2,001
Shaw Industries, Inc. 82,200 1,993
- - AutoZone Inc. 60,200 1,983
- - USA Networks, Inc. 59,480 1,970
- - Sybron International Corp. 72,300 1,966
- - Sealed Air Corp. 38,336 1,958
Molex, Inc. 51,325 1,957
- - Owens-Illinois, Inc. 63,900 1,957
- - Centocor, Inc. 43,300 1,954
Marriott International, Inc.
Class A 67,200 1,949
- - Brinker International, Inc. 67,400 1,946
- - American Standard Cos., Inc. 54,100 1,944
MGIC Investment Corp. 48,700 1,939
- - Iomega Corp. 264,900 1,937
Martin Marietta Materials, Inc. 31,100 1,934
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
CAPITAL APPRECIATION FUND SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- - National Semiconductor Corp. 143,200 $ 1,933
Centex Corp. 42,600 1,920
Allmerica Financial Corp. 33,144 1,918
Federal-Mogul Corp. 32,200 1,916
- - Electronic Arts Inc. 34,100 1,914
Anadarko Petroleum Corp. 61,400 1,896
- - Barnes & Noble, Inc. 44,600 1,896
Golden West Financial Corp. 20,600 1,889
Champion International Corp. 46,500 1,883
Franklin Resources Corp. 58,800 1,882
- - Storage Technology Corp. 52,200 1,856
AMBAC Financial Group Inc. 30,800 1,854
- - Quantum Corp. 87,200 1,853
Starwood Hotels & Resorts REIT 81,624 1,852
- - Robert Half International, Inc. 41,400 1,850
Fort James Corp. 46,087 1,843
MBIA, Inc. 28,000 1,836
- - Keebler Foods Co. 48,700 1,832
Autoliv, Inc. 49,147 1,828
ITT Industries, Inc. 45,900 1,825
- - Quintiles Transnational Corp. 34,200 1,825
FirstEnergy Corp. 55,900 1,820
Burlington Resources, Inc. 50,500 1,809
- - Parametric Technology Corp. 111,200 1,807
International Game Technology 74,300 1,806
- - Western Digital Corp. 119,900 1,806
- - Gateway 2000, Inc. 35,200 1,802
Newell Co. 43,600 1,799
Darden Restaurants Inc. 99,900 1,798
- - SunGard Data Systems, Inc. 45,200 1,794
- - NEXTEL Communications, Inc. 75,300 1,779
- - Outdoor Systems, Inc. 59,100 1,773
USG Corp. 34,600 1,762
- - McLeodUSA, Inc. Class A 56,100 1,753
Columbia Energy Group 30,300 1,750
- - CalEnergy Co. 50,400 1,748
- - LSI Logic Corp. 108,400 1,748
Provident Cos., Inc. 41,904 1,739
Hasbro, Inc. 48,100 1,738
Tyson Foods, Inc. 81,550 1,733
- - Thermo Electron Corp. 101,900 1,726
Transocean Offshore, Inc. 64,200 1,721
- - Outback Steakhouse 42,800 1,707
Autodesk, Inc. 39,900 1,703
- - Jones Apparel Group, Inc. 77,100 1,701
- - Modis Professional Services Inc. 117,300 1,701
- - Silicon Graphics, Inc. 130,900 1,685
Bank One Corp. 32,959 1,683
- - PeopleSoft, Inc. 88,400 1,674
- - Niagara Mohawk Power Corp. 103,600 1,671
Dime Bancorp, Inc. 62,900 1,663
M & T Bank Corp. 3,200 1,661
Manpower Inc. 65,900 1,660
- - Litton Industries, Inc. 25,400 1,657
Sigma-Aldrich Corp. 55,700 1,636
- - W.R. Grace & Co. 104,200 1,635
- - Lear Corp. 42,200 1,625
NIKE, Inc. Class B 39,900 1,618
- - Humana, Inc. 90,300 1,608
Total System Services, Inc. 68,250 1,604
Nordstrom, Inc. 46,200 1,603
- - Weatherford International, Inc. 82,600 1,600
International Paper Co. 35,600 1,595
Enron Oil & Gas Co. 92,400 1,594
Praxair, Inc. 45,100 1,590
Mattel, Inc. 69,512 1,586
- - King World Productions, Inc. 53,800 1,584
Amerada Hess Corp. 31,800 1,582
Solutia, Inc. 70,700 1,582
- - Payless ShoeSource, Inc. 33,200 1,573
Newmont Mining Corp. 87,056 1,572
- - Coltec Inc. 79,900 1,558
Tandy Corp. 37,800 1,557
- - Citizens Utilities Co. Class B 190,502 1,548
- - St. Jude Medical, Inc. 55,809 1,545
Clayton Homes Inc. 111,395 1,539
- - Promus Hotel Corp. 47,463 1,537
Sunbeam Corp. 219,300 1,535
- - QUALCOMM, Inc. 29,600 1,534
- - U.S. Cellular Corp. 40,200 1,528
- - Reebok International Ltd. 102,650 1,527
- - Fruit of the Loom, Inc. 109,800 1,517
- - Continental Airlines, Inc. Class B 45,200 1,514
- - Global Marine, Inc. 164,800 1,514
Noble Affiliates, Inc. 61,500 1,514
- - Toys R Us, Inc. 89,400 1,509
- - BJ Services Co. 96,300 1,505
Great Lakes Chemical Corp. 37,600 1,504
Nucor Corp. 34,700 1,501
- - Smith International, Inc. 59,500 1,499
- - Blyth Industries, Inc. 47,900 1,497
Kellogg Co. 43,700 1,491
- - FMC Corp. 26,600 1,490
- - UCAR International, Inc. 83,300 1,484
- - Nabors Industries, Inc. 108,900 1,477
- - Noble Drilling Corp. 113,900 1,474
Dollar General Corp. 62,160 1,469
- - PacifiCare Health Systems, Inc.
Class B 18,432 1,465
- - DST Systems, Inc. 25,600 1,461
- - Cooper Cameron Corp. 59,500 1,458
New Century Energies, Inc. 29,800 1,453
- - Sterling Software, Inc. 53,700 1,453
- - Oryx Energy Co. 107,050 1,438
Telephone & Data Systems, Inc. 32,000 1,438
- - Sodexho Marriott Services, Inc. 51,850 1,436
AGCO Corp. 181,800 1,432
Fluor Corp. 33,600 1,430
Johns Manville Corp. 87,000 1,430
Transatlantic Holdings, Inc. 18,900 1,428
- - Leucadia National Corp. 45,300 1,427
Apache Corp. 56,300 1,425
- - Allied Waste Industries, Inc. 60,000 1,418
Owens Corning 39,800 1,410
- - Tech Data Corp. 35,000 1,409
Union Pacific Corp. 31,253 1,408
- - Northwest Airlines Corp. Class A 54,900 1,403
- - Ocean Energy, Inc. 221,440 1,398
Dillard's Inc. 49,200 1,396
- - UAL Corp. 23,300 1,391
- - FORE Systems, Inc. 75,900 1,390
Fastenal Co. 31,500 1,386
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- - CNA Financial Corp. 34,400 $ 1,385
- - Catellus Development Corp. 95,800 1,371
- - MedPartners, Inc. 261,156 1,371
- - PRIMEDIA Inc. 116,500 1,369
Dynegy,Inc. 125,100 1,368
Williams Cos., Inc. 43,789 1,366
- - Cytec Industries, Inc. 64,200 1,364
Raychem Corp. 42,000 1,357
Pittston Brink's Group 42,500 1,355
- - Rowan Cos., Inc. 133,500 1,335
Beckman Coulter, Inc. 24,500 1,329
- - Global Industries Ltd. 216,900 1,329
Morton International, Inc. 54,100 1,325
DENTSPLY International Inc. 51,400 1,324
- - Mirage Resorts, Inc. 88,600 1,323
- - R & B Falcon Corp. 173,346 1,322
- - Thermo Instrument Systems, Inc. 87,458 1,317
The St. Joe Co. 55,800 1,308
W.W. Grainger, Inc. 31,400 1,307
Host Marriott Corp. 93,900 1,297
CNF Transportation, Inc. 34,300 1,288
- - International Specialty
Products, Inc. 94,700 1,284
- - Alleghany Corp. 6,808 1,279
The PMI Group Inc. 25,900 1,279
- - Andrew Corp. 76,487 1,262
E.W. Scripps Co. Class A 25,235 1,255
York International Corp. 30,600 1,249
Stewart Enterprises, Inc. Class A 55,800 1,242
- - Total Renal Care Holdings, Inc. 41,000 1,212
Wesco Financial Corp. 3,400 1,206
- - Electronics for Imaging, Inc. 30,000 1,200
Ford Motor Co. 20,200 1,185
ENSCO International, Inc. 109,500 1,170
- - Consolidated Freightways Corp. 73,371 1,165
- - OfficeMax, Inc. 95,900 1,163
Homestake Mining Co. 126,300 1,160
Horace Mann Educators Corp. 40,300 1,149
- - UNOVA, Inc. 63,200 1,146
- - Chris-Craft Industries, Inc. 23,628 1,139
Cooper Tire & Rubber Co. 55,500 1,134
BHC Communications, Inc.
Class A 9,200 1,122
Millipore Corp. 39,200 1,115
- - CompUSA, Inc. 85,100 1,112
- - Harrah's Entertainment, Inc. 70,900 1,112
A. H. Belo Corp. Class A 55,600 1,109
Cracker Barrel Old Country
Stores, Inc. 47,400 1,105
20th Century Industries 47,300 1,097
- - Micron Electronics, Inc. 63,000 1,091
- - Circus Circus Enterprises Inc. 94,200 1,077
Baker Hughes, Inc. 60,480 1,070
Varian Associates, Inc. 27,900 1,057
IMC Global Inc. 49,206 1,052
- - Corrections Corp. of America 59,300 1,045
- - DaimlerChrysler AG 10,777 1,035
- - Cabletron Systems, Inc. 121,700 1,019
- - Consolidated Stores, Inc. 50,406 1,018
- - RELTEC Corp. 45,800 1,016
Dole Food Co. 33,200 996
Rubbermaid, Inc. 31,600 993
Mallinckrodt, Inc. 31,800 980
American General Corp. 12,461 972
Lancaster Colony Corp. 30,050 965
The Warnaco Group, Inc. Class A 38,100 962
- - Micro Warehouse Inc. 28,400 960
Freeport-McMoRan Copper &
Gold Inc. Class B 89,987 939
Alberto-Culver Co. Class B 35,000 934
- - Gartner Group, Inc. Class A 43,400 922
- - First Health Group Corp. 54,600 904
- - Foundation Health Systems
Class A 75,570 902
- - J.D. Edwards & Co. 30,800 874
- - General Nutrition Cos., Inc. 51,600 839
The Limited, Inc. 28,437 828
- - Beverly Enterprises, Inc. 121,900 823
Pioneer Natural Resources Co. 93,700 820
Diamond Offshore Drilling, Inc. 33,700 798
Union Pacific Resources
Group, Inc. 86,842 787
- - IVAX Corp. 61,700 767
Zions Bancorp 12,000 749
- - Microchip Technology, Inc. 20,200 747
- - Quorum Health Group, Inc. 56,750 734
- - IDEXX Laboratories Corp. 26,000 700
- - Venator Group, Inc. 101,300 652
Gaylord Entertainment Co.
Class A 21,614 651
J.C. Penney Co., Inc. 13,654 640
- - CIENA Corp. 43,000 629
Callaway Golf Co. 59,300 608
Cummins Engine Co., Inc. 16,900 600
- - MGM Grand, Inc. 21,509 583
Allegheny Teledyne Inc. 27,142 555
- - Host Marriott Services Corp. 53,520 555
The Pep Boys
(Manny, Moe & Jack) 35,100 551
Crown Cork & Seal Co., Inc. 17,500 539
Reynolds & Reynolds Class A 23,500 539
Chicago Title Corp. 11,424 536
- - Paging Network, Inc. 112,800 529
Sealed Air Corp. $2.00 Cvt. Pfd.
Series A 10,117 525
Meditrust Corp. 33,722 510
- - Viacom Inc. Class A 6,844 503
- - CommScope, Inc. 27,534 463
Albemarle Corp. 18,800 447
Texaco Inc. 7,960 421
- - PETsMART, Inc. 37,000 407
Northern Telecom Ltd. 8,005 401
Frontier Corp. 11,400 388
LucasVarity PLC ADR 11,592 388
- - Jacor Communications, Inc. 5,900 380
Texas Utilities Co. 7,965 372
- - Corporate Express, Inc. 70,600 366
First Brands Corp. 9,200 363
- - Castle & Cooke Inc. 23,300 344
- - Santa Fe Energy Resources, Inc. 43,000 317
- - Pacificare Health Systems Inc.
Class A 4,096 298
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MARKET
TAX-MANAGED VALUE*
CAPITAL APPRECIATION FUND SHARES (000)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Great Atlantic & Pacific Tea
Co., Inc. 9,900 293
Reynolds Metals Co. 5,300 279
- - Choice Hotel International, Inc. 19,500 267
ING Groep NV-Sponsored ADR 4,261 265
Nielsen Media Research 14,633 263
IKON Office Solutions, Inc. 29,300 251
MascoTech Inc. 14,000 240
Cinergy Corp. 5,700 196
U S WEST, Inc. 3,009 194
Raytheon Co. Class A 3,284 170
St. Paul Cos., Inc. 4,800 167
- - GTech Holdings Corp. 5,800 149
Lone Star Industries, Inc. 4,000 147
- - Crestline Capital Corp. 9,390 137
Werner Enterprises, Inc. 7,500 133
Baxter International, Inc. 2,000 129
RJR Nabisco Holdings Corp. 4,360 129
- - Mentor Graphics Corp. 13,900 118
Burlington Coat Factory
Warehouse Corp. 6,360 104
- - Informix Corp. 10,000 99
- - Southland Corp. 47,100 90
- - Associated Group, Inc. 1,750 75
- - Associated Group, Inc. Class B 1,750 74
- - Lands' End, Inc. 1,400 38
Genzyme Molecular Oncology 5,975 19
Louisiana-Pacific Corp. 1,050 19
Mark IV Industries, Inc. 1,272 17
Price Enterprises, Inc. 2,698 14
- - Premisys Communications, Inc. 400 4
Freeport-McMoRan Copper &
Gold, Inc. Class A 138 1
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $890,299) 1,477,711
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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
4.76%, 1/4/1999 $ 1,090 1,090
4.77%, 1/4/1999--Note F 18,729 18,729
- ----------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $19,819) 19,819
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.3%)
(COST $910,118) 1,497,530
- ----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.3%)
- ----------------------------------------------------------------------------------------
Other Assets--Note B 5,161
Liabilities--Note F (23,892)
----------
(18,731)
- ----------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------
Applicable to 57,573,853 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $1,478,799
========================================================================================
NET ASSET VALUE PER SHARE $25.69
========================================================================================
</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 DECEMBER 31, 1998, NET ASSETS CONSISTED OF:
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 922,368 $16.02
Overdistributed Net
Investment Income (516) (.01)
Accumulated Net Realized
Losses--Note D (30,465) (.53)
Unrealized Appreciation--
Note E 587,412 10.21
- ----------------------------------------------------------------------------------------
NET ASSETS $1,478,799 $25.69
========================================================================================
</TABLE>
34
<PAGE> 37
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by each fund during
the reporting period, and details the operating expenses charged to the fund.
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>
- -----------------------------------------------------------------------------------------------------------
TAX-MANAGED TAX-MANAGED
TAX-MANAGED GROWTH AND CAPITAL
BALANCED INCOME APPRECIATION
FUND FUND FUND
-------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------
(000) (000) (000)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 561 $ 14,037 $ 8,959
Interest 4,000 157 80
Security Lending 16 19 375
-------------------------------------------------
Total Income 4,577 14,213 9,414
-------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 39 29 29
Management and Administrative 205 1,425 1,804
Marketing and Distribution 37 199 240
Taxes (other than income taxes) 6 31 41
Custodian Fees 16 69 33
Auditing Fees 8 8 8
Shareholders' Reports 3 12 16
Annual Meeting and Proxy Costs -- 1 2
Trustees' Fees and Expenses -- 1 2
-------------------------------------------------
Total Expenses 314 1,775 2,175
Expenses Paid Indirectly--Note C (9) -- --
-------------------------------------------------
Net Expenses 305 1,775 2,175
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 4,272 12,438 7,239
- -----------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT SECURITIES SOLD (2,941) (779) (12,991)
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES 24,859 228,690 299,070
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $26,190 $240,349 $293,318
===========================================================================================================
</TABLE>
35
<PAGE> 38
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund'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 fund'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 fund, 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>
- -------------------------------------------------------------------------------------------------------------------------------
TAX-MANAGED TAX-MANAGED
BALANCED GROWTH AND INCOME
FUND FUND
---------------------------- -------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 4,272 $ 2,674 $ 12,438 $ 6,543
Realized Net Loss (2,941) (626) (779) (199)
Change in Unrealized Appreciation (Depreciation) 24,859 12,259 228,690 103,458
------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 26,190 14,307 240,349 109,802
------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (4,316) (2,697) (12,573) (6,484)
Realized Capital Gain -- -- -- --
------------------------------------------------------------
Total Distributions (4,316) (2,697) (12,573) (6,484)
------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 69,200 46,356 578,935 249,262
Issued in Lieu of Cash Distributions 3,808 2,397 10,083 4,965
Redeemed* (7,715) (3,726) (43,655) (12,772)
------------------------------------------------------------
Net Increase from Capital Share Transactions 65,293 45,027 545,363 241,455
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase 87,167 56,637 773,139 344,773
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 119,765 63,128 579,292 234,519
------------------------------------------------------------
End of Year $206,932 $119,765 $1,352,431 $579,292
===============================================================================================================================
(1)SHARES ISSUED (REDEEMED)
Issued 4,462 3,382 24,760 13,396
Issued in Lieu of Cash Distributions 239 169 411 254
Redeemed (500) (273) (1,982) (671)
------------------------------------------------------------
Net Increase in Shares Outstanding 4,201 3,278 23,189 12,979
===============================================================================================================================
</TABLE>
*Net of redemption fees of $77,000, $39,000, $523,000, and $156,000,
respectively.
36
<PAGE> 39
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TAX-MANAGED
CAPITAL APPRECIATION
FUND
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997
(000) (000)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 7,239 $ 5,003
Realized Net Loss (12,991) (7,186)
Change in Unrealized Appreciation (Depreciation) 299,070 165,146
------------------------------
Net Increase in Net Assets Resulting from Operations 293,318 162,963
------------------------------
DISTRIBUTIONS
Net Investment Income (7,427) (5,247)
Realized Capital Gain -- --
------------------------------
Total Distributions (7,427) (5,247)
------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 342,075 233,347
Issued in Lieu of Cash Distributions 6,434 4,508
Redeemed* (48,108) (20,455)
------------------------------
Net Increase from Capital Share Transactions 300,401 217,400
- -----------------------------------------------------------------------------------------------
Total Increase 586,292 375,116
- -----------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 892,507 517,391
------------------------------
End of Year $1,478,799 $ 892,507
===============================================================================================
(1)Shares Issued (Redeemed)
Issued 15,346 12,712
Issued in Lieu of Cash Distributions 252 229
Redeemed (2,255) (1,141)
------------------------------
Net Increase in Shares Outstanding 13,343 11,800
===============================================================================================
</TABLE>
*Net of redemption fees of $489,000 and $205,000.
37
<PAGE> 40
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund'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 fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the
fund; and the extent to which the fund 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 fund for
one year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TAX-MANAGED BALANCED FUND
YEAR ENDED DECEMBER 31,
---------------------------------------------- JUL. 25* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <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 .39 .37 .36 .31 .09
Net Realized and Unrealized Gain (Loss) on Investments 2.07 1.75 1.07 2.07 (.21)
--------------------------------------------------------------
Total from Investment Operations 2.46 2.12 1.43 2.38 (.12)
--------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.39) (.37) (.36) (.32) (.09)
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------
Total Distributions (.39) (.37) (.36) (.32) (.09)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.74 $14.67 $12.92 $11.85 $ 9.79
================================================================================================================================
TOTAL RETURN** 16.93% 16.55% 12.21% 24.52% -1.40%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $207 $120 $63 $39 $17
Ratio of Total Expenses to Average Net Assets 0.19% 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 7% 7% 5% 5% 0%
================================================================================================================================
</TABLE>
* Subscription period for the fund 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.
38
<PAGE> 41
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TAX-MANAGED GROWTH AND INCOME FUND
YEAR ENDED DECEMBER 31,
----------------------------------------------- JUL. 25* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <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 .29 .29 .27 .25 .09
Net Realized and Unrealized Gain (Loss) on Investments 5.67 4.98 2.74 3.39 (.23)
---------------------------------------------------------------
Total from Investment Operations 5.96 5.27 3.01 3.64 (.14)
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.29) (.28) (.28) (.25) (.09)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------------------------------
Total Distributions (.29) (.28) (.28) (.25) (.09)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.55 $20.88 $15.89 $13.16 $9.77
================================================================================================================================
TOTAL RETURN** 28.67% 33.31% 23.03% 37.53% -1.70%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,352 $579 $235 $98 $31
Ratio of Total Expenses to Average Net Assets 0.19% 0.17% 0.20% 0.20% 0.20%+
Ratio of Net Investment Income to Average Net Assets 1.32% 1.62% 2.04% 2.37% 2.82%+
Portfolio Turnover Rate 4% 2% 7% 6% 0%
================================================================================================================================
</TABLE>
*Subscription period for the fund 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>
- --------------------------------------------------------------------------------------------------------------------------------
TAX-MANAGED CAPITAL APPRECIATION FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------ JUL. 25* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1998 1997 1996 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <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 .13 .11 .12 .08 .04
Net Realized and Unrealized Gain (Loss) on Investments 5.51 4.24 2.66 3.34 (.05)
---------------------------------------------------------------
Total from Investment Operations 5.64 4.35 2.78 3.42 (.01)
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.13) (.12) (.11) (.09) (.04)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------------------------------
Total Distributions (.13) (.12) (.11) (.09) (.04)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $25.69 $20.18 $15.95 $13.28 $ 9.95
================================================================================================================================
TOTAL RETURN** 27.95% 27.29% 20.92% 34.38% -0.50%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,479 $893 $517 $254 $70
Ratio of Total Expenses to Average Net Assets 0.19% 0.17% 0.20% 0.20% 0.20%+
Ratio of Net Investment Income to Average Net Assets 0.62% 0.70% 0.91% 0.97% 1.26%+
Portfolio Turnover Rate 5% 4% 12% 7% 1%
================================================================================================================================
</TABLE>
*Subscription period for the fund 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.
39
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
Vanguard Tax-Managed Funds comprise the Tax-Managed Balanced, Tax-Managed
Growth and Income, and Tax-Managed Capital Appreciation Funds, each of which is
registered under the Investment Company Act of 1940 as a diversified open-end
investment company, or mutual fund.
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 fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: Each fund, along with other members of The
Vanguard Group, transfers 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. Each fund has committed to provide up to 0.40% of its assets in
capital contributions to Vanguard. At December 31, 1998, the funds had
contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF FUND OF VANGUARD'S
TAX-MANAGED FUND (000) NET ASSETS CAPITALIZATION
-----------------------------------------------------------------------
<S> <C> <C> <C>
Balanced $ 35 0.02% 0.05%
Growth and Income 217 0.02 0.31
Capital Appreciation 238 0.02 0.34
-----------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
40
<PAGE> 43
C. The Tax-Managed Balanced Fund's investment adviser may direct new issue
purchases, subject to obtaining the best price and execution, to underwriters
who have agreed to rebate or credit to the fund part of the underwriting fees
generated. Such rebates or credits are used solely to reduce the fund's
administrative expenses. The Tax-Managed Balanced Fund's custodian bank has
also agreed to reduce its fees when the fund maintains cash on deposit in the
non-interest-bearing custody account. For the year ended December 31, 1998,
directed brokerage and custodian fee offset arrangements reduced expenses of
the Tax-Managed Balanced Fund by $7,000 and $2,000, respectively. The total
expense reduction represented an effective annual rate of 0.01% of the fund's
average net assets.
D. During the year ended December 31, 1998, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
(000)
--------------------------
TAX-MANAGED FUND PURCHASES SALES
-----------------------------------------------------------------
<S> <C> <C>
Balanced $ 76,625 $11,377
Growth and Income 574,304 34,970
Capital Appreciation 361,548 62,050
-----------------------------------------------------------------
</TABLE>
At December 31, 1998, the funds 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
TAX-MANAGED FUND DECEMBER 31, (000)
-----------------------------------------------------------------
<S> <C> <C>
Balanced 2003-2007 $ 3,738
Growth and Income 2004-2006 2,436
Capital Appreciation 2003-2007 30,465
-----------------------------------------------------------------
</TABLE>
E. At December 31, 1998, net unrealized appreciation of investment securities
for financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
(000)
---------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
TAX-MANAGED FUND SECURITIES SECURITIES APPRECIATION
---------------------------------------------------------------------
<S> <C> <C> <C>
Balanced $ 48,195 $ (1,360) $ 46,835
Growth and Income 401,694 (19,590) 382,104
Capital Appreciation 639,221 (51,809) 587,412
---------------------------------------------------------------------
</TABLE>
F. The market value of securities on loan to broker/dealers at December 31,
1998, and collateral received with respect to such loans were:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
(000)
-------------------------------
MARKET VALUE CASH
OF LOANED COLLATERAL
TAX-MANAGED FUND SECURITIES RECEIVED
--------------------------------------------------------------------
<S> <C> <C>
Balanced $ 224 $ 384
Capital Appreciation 17,774 18,729
--------------------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements.
41
<PAGE> 44
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees of
Vanguard Tax-Managed Funds
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Tax-Managed Balanced Fund, Vanguard Tax-Managed Growth and Income Fund
and Vanguard Tax-Managed Capital Appreciation Fund (constituting Vanguard
Tax-Managed Funds, hereafter referred to as the "Funds") at December 31, 1998,
the results of each of their operations for the year then ended, the changes in
each of their net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1998 by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 2, 1999
42
<PAGE> 45
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD TAX-MANAGED FUNDS
This information for the fiscal year ended December 31, 1998, is included
pursuant to provisions of the Internal Revenue Code.
The Tax-Managed Balanced Fund designates $3,760,000 of its income dividends
as exempt-interest dividends.
For corporate shareholders, the following percentage of investment income
(dividend income plus short-term gains, if any) qualifies for the
dividends-received deduction.
<TABLE>
<S> <C>
------------------------------------------------
Tax-Managed Balanced Fund 100%*
Tax-Managed Growth and Income Fund 100
Tax-Managed Capital Appreciation Fund 100
------------------------------------------------
</TABLE>
*The percentage applies only to the taxable ordinary income
that has been reported on Form 1099-DIV.
43
<PAGE> 46
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and 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.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & Johnson-Merck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
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, Banco Bilbao Gestinova, 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.,
NACCO Industries, and Newfield Exploration Co.
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.
THOMAS J. HIGGINS
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.
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44
<PAGE> 47
VANGUARD
MILESTONES
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The Vanguard Group is
named for HMS Vanguard, Admiral Horatio
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at the Battle of the Nile on
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after reading Nelson's inspiring
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withstand the squadron . . .
with the judgment of the captains,
together with their valour, and
that
of the officers and men of every
description, it was absolutely
irresistible."
[PHOTO]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family of
some 100 Vanguard funds,
celebrated his 100th birthday on July
23, 1998. Mr. Morgan,
a true investment pioneer, died six
weeks later on September 2.
[PHOTO]
Wellington Fund, The Vanguard Group's
oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
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Q870-02/26/1999
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