N-CSR 1 taxmanagedfinal.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 33-53683 Name of Registrant: VANGUARD TAX-MANAGED FUNDS Address of Registrant: P.O. BOX 2600, VALLEY FORGE, PA 19482 Name and address of agent for service: R. GREGORY BARTON P.O. BOX 876 VALLEY FORGE, PA 19482 Registrant's telephone number, including area code: (610) 669-1000 Date of fiscal year end: December 31 Date of reporting period: January 1, 2003 - December 31, 2003 ITEM 1: Reports to Shareholders VANGUARD TAX-MANAGED FUNDS(R) DECEMBER 31, 2003 ANNUAL REPORT VANGUARD(R) TAX-MANAGED BALANCED FUND VANGUARD(R) TAX-MANAGED GROWTH AND INCOME FUND VANGUARD(R) TAX-MANAGED CAPITAL APPRECIATION FUND VANGUARD(R) TAX-MANAGED SMALL-CAP FUND VANGUARD(R) TAX-MANAGED INTERNATIONAL FUND THE VANGUARD GROUP(R)LOGO HOW TO READ YOUR FUND REPORT This report contains information that can help you evaluate your investment. It includes details about your fund's return and presents data and analysis that provide insight into the fund's performance and investment approach. By reading the letter from Vanguard's chairman, you'll get an understanding of how the fund invests and how the market environment affected its performance. The statistical information that follows can help you understand how the fund's performance and characteristics stack up against those of similar funds and market benchmarks. It's important to keep in mind that any opinions expressed here are just that: informed opinions. They should not be considered promises or advice. These opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in the fund are spelled out in the prospectus. Frequent updates on the fund's performance and information about some of its holdings are available on Vanguard.com(R). -------------------------------------------------------------------------------- CONTENTS 1 letter from the chairman 8 fund profiles 15 glossary of investment terms 17 performance summaries 22 your fund's after-tax returns 23 about your fund's expenses 24 financial statements 47 advantages of vanguard.com -------------------------------------------------------------------------------- SUMMARY * The Vanguard Tax-Managed Funds posted stellar returns that ranged from 17.1% to 38.9% during 2003. * Small-cap and international stocks recorded the best results. * Fixed income securities generally made modest gains, though "junk" bonds were popular. Munis outperformed taxable investment-grade bonds during the year. * Three of the five funds outpaced the average returns of their peer groups, but two lagged because their portfolios are more conservative than those of typical competitors. Want less clutter in your mailbox? Just register with VANGUARD.COM and opt to get fund reports online. LETTER FROM THE CHAIRMAN Fellow Shareholder, The market rebound that began in March turned 2003 into a remarkable year for equities, particularly small-capitalization and international stocks. In this environment, the Vanguard Tax-Managed Funds recorded some of their best fiscal-year results ever, with total returns ranging from 17.1% to 38.9%. [PICTURES OF JOHN J. BRENNAN] The table on page 2 compares each fund's return with those of its comparative measures. As you know, the Tax-Managed Funds are not pure indexed portfolios, since they are managed with tax consequences in mind; however, they are index-oriented and typically reflect the performance of their unmanaged market benchmarks. In 2003, the funds kept closely in step with their indexes; in fact, two of them came out slightly ahead. However, while three of our funds generated returns higher than the average for their respective mutual fund peer groups, the others--Tax-Managed Balanced Fund and Tax-Managed Small-Cap Fund--lagged their average peers, mainly because of our funds' more conservative portfolios. Total returns are based on the change in share prices plus income distributions during the year. The table on page 7 provides figures for these components. In 2003, the funds sustained their unblemished record of distributing no net capital gains, which are taxable in a nonretirement account. If you wish to review the funds' after-tax returns, please see the table on page 22. STOCKS REBOUNDED FROM THE FIERCE BEAR MARKET Three straight years of stock market declines ended in a spectacular fashion in 2003. The broad U.S. stock market, as measured by the Wilshire 5000 Total Market Index, returned 31.6% for the 12 months. International markets did even better, aided in large part by a falling 1 dollar, which bolstered returns for U.S.-based investors. And small-caps surged well past the broad market, both here and abroad. ----------------------------------------------------- 2003 TOTAL RETURNS YEAR ENDED DECEMBER 31 ----------------------------------------------------- VANGUARD TAX-MANAGED BALANCED FUND 17.1% Balanced Composite Index* 17.3 Average Balanced Fund** 19.1 ----------------------------------------------------- VANGUARD TAX-MANAGED GROWTH AND INCOME FUND Investor Shares 28.5% Admiral Shares 28.6 Institutional Shares 28.7 S&P 500 Index 28.7 Average Large-Cap Core Fund** 25.6 ----------------------------------------------------- VANGUARD TAX-MANAGED CAPITAL APPRECIATION FUND Investor Shares 31.7% Admiral Shares 31.8 Institutional Shares 31.9 Russell 1000 Index 29.9 Average Multi-Cap Core Fund** 29.9 ----------------------------------------------------- Vanguard Tax-Managed Small-Cap Fund Investor Shares 38.5% Institutional Shares 38.7 S&P SmallCap 600 Index 38.8 Average Small-Cap Core Fund** 44.2 ----------------------------------------------------- Vanguard Tax-Managed International Fund Investor Shares 38.7% Institutional Shares 38.9 MSCI EAFE Index 38.6 Average International Fund** 34.7 ----------------------------------------------------- *50% Russell 1000 Index, 50% Lehman Brothers 7 Year Municipal Bond Index. **Derived from data provided by Lipper Inc. For the average balanced fund, the bond component is not tax-exempt. The start of combat operations in Iraq in mid-March, and the subsequent quick end to that phase of the engagement, relieved months of anticipation and uncertainty that had cast a pall over the financial markets. Other factors also contributed to U.S. investors' optimism: the Federal Reserve Board's cutting short-term interest rates to a 45-year low of 1.00%; a falling U.S. dollar, which aided businesses dependent on exports and profits from operations overseas; mortgage rates' hitting four-decade lows, which spurred further home-buying and freed up cash through refinancing; tax cuts and refunds to consumers, who were more than willing to spend the windfall; a spike in spending by businesses to replenish inventories and equipment; and the rapid growth of the economy, which reached an annual rate of 8.2% in the third quarter. "JUNK" REIGNED SUPREME IN THE BOND MARKET Investors' renewed appetite for risk was evident not just in the equity markets, but on the fixed income side as well. Bonds from companies with below-investment-grade credit ratings (popularly known as "junk" bonds) surged 29.0% during the 12 months, as measured by the Lehman Brothers High Yield Bond Index. At the other extreme of the credit-quality spectrum, U.S. Treasury securities at first seemed poised 2 for a fourth straight year of outstanding gains. By June, the rising price of the 10-year Treasury note drove its yield down to just above 3%--a level not seen since Dwight Eisenhower occupied the Oval Office. --------------------------------------------------------------------------- MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2003 ------------------------------------------- ONE THREE FIVE YEAR YEARS YEARS --------------------------------------------------------------------------- STOCKS Russell 1000 Index (Large-caps) 29.9% -3.8% -0.1% Russell 2000 Index (Small-caps) 47.3 6.3 7.1 Wilshire 5000 Index (Entire market) 31.6 -2.5 0.4 MSCI All Country World Index Free ex USA (International) 41.4 -1.0 1.5 --------------------------------------------------------------------------- BONDS Lehman Aggregate Bond Index 4.1% 7.6% 6.6% (Broad taxable market) Lehman Municipal Bond Index 5.3 6.7 5.8 Citigroup 3-Month Treasury Bill Index 1.1 2.3 3.5 =========================================================================== CPI Consumer Price Index 1.9% 1.9% 2.4% --------------------------------------------------------------------------- However, the prices of Treasuries subsequently fell, and by year-end the 10-year note's yield stood at 4.25%, up 44 basis points (0.44 percentage point) from the beginning of the year. Treasuries' total returns (which include interest income) for the full 12 months were still in positive territory, but barely so after adjusting for inflation. Mortgage-backed securities did only marginally better, while investment-grade corporate bonds--particularly those with longer maturities--posted solid returns. The Lehman Aggregate Bond Index, the benchmark for the broad U.S. investment-grade taxable bond market, earned 4.1%. Meanwhile, in contrast to rising yields for longer-maturity bonds, the yield of the 3-month U.S. Treasury bill, a proxy for money market rates, finished the year at 0.92%, 27 basis points below its year-ago level. THE FUNDS' RETURNS CORRESPONDED TO THEIR LEVELS OF RISK As you would expect given the market environment during the year, the riskiest portfolios provided the highest returns. Each share class of the Tax-Managed Small-Cap Fund and the Tax-Managed International Fund returned almost 39%. Meanwhile, the most conservative portfolio, the Tax-Managed Balanced Fund, earned 17.1%--well above the historical return of the broad stock market and all the more remarkable coming from a portfolio half made up of bonds. -------------------------------------------------------------------------------- ADMIRAL(TM) SHARES A lower-cost class of shares available to many longtime sharesholders and to those with significant investments in the fund. INSTITUTIONAL SHARES This class of shares also carries low expenses and is available for a minimum investment of $10 million. -------------------------------------------------------------------------------- 3 Of the remaining two funds, the Tax-Managed Capital Appreciation Fund's exposure to mid-cap stocks--which are somewhat riskier than large-caps overall--gave it a 3.2-percentage-point lead over the Tax-Managed Growth and Income Fund, which focuses on larger stocks and returned 28.5% (for Investor Shares) in 2003. These two funds and their international sibling bested the average results for their respective peer groups by approximately 2 to 4 percentage points. The Tax-Managed Balanced Fund lagged its average peer by 2 percentage points. Keep in mind that most balanced funds hold a greater proportion of stocks than bonds. Our fund, on the other hand, keeps at least half of its assets in municipal bonds in order to maintain federal tax-exempt status for the interest income from those securities. This conservative asset allocation more than offset the benefits of municipal bonds' strong returns relative to taxable investment-grade bonds during the period. (Most balanced funds hold taxable bonds, which normally provide higher pre-tax returns than munis, though not in 2003.) Despite its impressive performance, the Tax-Managed Small-Cap Fund lagged its average peer by almost 6 percentage points. The fund's target benchmark, the Standard & Poor's SmallCap 600 Index, excludes companies with fewer than four quarters' worth of operating profits, which screens out the most speculative stocks. That criterion means your fund often displays less volatility than many of its peers, never reaching the deepest depths, but never reaching the highest heights, either. This relative temperance proved to be an advantage during the recent bear market and a drawback during the past 12 months. THE FUNDS HAVE OUTPACED PEERS SINCE INCEPTION One year's performance is a mere snapshot; a mutual fund should be evaluated over longer periods. The table on page 5 compares our funds' annualized returns since inception with those of their benchmarks and peers. The table also shows what would have happened to $10,000 investments made in each at the start. Since inception--a period of more than nine years for three of the funds, and more than four years for the others--nearly all of our five funds have outperformed their average peers. The exception, the Tax-Managed Small-Cap Fund, slightly lagged its average peer during its short life span. Four of our five funds also provided solid results in 4 absolute terms. The Tax-Managed International Fund, however, posted an annualized return of -1.4%--a disappointment, but in line with the performance of its target index and of international stocks in general during the fund's short lifetime. --------------------------------------------------------------------------- TOTAL RETURNS SEPTEMBER 6, 1994, THROUGH DECEMBER 31, 2003* --------------------------------------------------------------------------- AVERAGE FINAL VALUE OF ANNUAL A $10,000 RETURN INITIAL INVESTMENT --------------------------------------------------------------------------- Tax-Managed Balanced Fund 9.2% $22,637 Balanced Composite Index 9.4 23,015 Average Balanced Fund 8.3 20,942 --------------------------------------------------------------------------- Tax-Managed Growth and Income Fund Investor Shares 11.6% $27,772 S&P 500 Index 11.6 27,695 Average Large-Cap Core Fund 9.4 23,011 --------------------------------------------------------------------------- Tax-Managed Capital Appreciation Fund Investor Shares 11.2% $26,970 Russell 1000 Index 11.6 27,740 Average Multi-Cap Core Fund 10.2 24,717 --------------------------------------------------------------------------- Tax-Managed Small-Cap Fund Investor Shares 13.0% $17,900 S&P SmallCap 600 Index 12.6 17,621 Average Small-Cap Core Fund 13.9 18,596 --------------------------------------------------------------------------- Tax-Managed International Fund Investor Shares -1.4% $9,396 MSCI EAFE Index -1.5 9,373 Average International Fund -1.6 9,306 --------------------------------------------------------------------------- *Annualized returns are since inception for the Tax-Managed Small-Cap Fund (March 25, 1999) and the Tax-Managed International Fund (August 17, 1999). Past performance, of course, is no guarantee of future returns. However, we believe that two factors will help to keep our performance competitive with that of peers. One is the proven money management skills of Vanguard's Quantitative Equity Group, which provides investment advisory services to many Vanguard funds that, like the Tax-Managed Funds, have logged solid long-term results. The other is Vanguard's continuing focus on low costs, which ensure that more of the funds' returns goes to you rather than to the funds' operations. Competitors have to generate higher gross returns than ours to match our net returns--a difficult obstacle to overcome year after year. (For a comparison of your fund's expenses with those of its average peer, see page 23.) 2003 BROUGHT STRONG RETURNS--AND DISAPPOINTMENT Writing about positive stock fund returns is a welcome change. The market's resurgence has certainly made my task more pleasant--but it has in no way altered the advice that we offered to shareholders both before and during the long downturn, and that we continue to offer 5 today. In any market environment, the keys to successful long-term investing are balance, diversification, and low costs. Make these principles the foundation of your investment plan, and you'll be positioned to survive--and ultimately thrive--come what may. Unfortunately, 2003 also provided a disappointment to many investors. The reports of late trading and market-timing at some other investment management firms have been as disturbing to us as they no doubt have been to you. I want to close this letter with an assurance that Vanguard has long had policies and procedures in place to identify and deter such behavior. More important, Vanguard shareholders are served by a crew of the highest integrity, and our client-owned corporate structure aligns our day-to-day efforts with your long-term financial goals. Thank you for investing your assets with Vanguard. Sincerely, /S/JOHN J. BRENNAN John J. Brennan CHAIRMAN AND CHIEF EXECUTIVE OFFICER JANUARY 22, 2004 6 -------------------------------------------------------------------------------- YOUR FUND'S PERFORMANCE AT A GLANCE DECEMBER 31, 2002-DECEMBER 31, 2003 DISTRIBUTIONS PER SHARE ----------------------- STARTING ENDING INCOME CAPITAL TAX-MANAGED FUND SHARE PRICE SHARE PRICE DIVIDENDS GAINS -------------------------------------------------------------------------------- Balanced $15.54 $17.72 $0.440 $0.000 -------------------------------------------------------------------------------- GROWTH AND INCOME Investor Shares $19.15 $24.23 $0.340 $0.000 Admiral Shares 39.35 49.80 0.726 0.000 Institutional Shares 19.15 24.24 0.359 0.000 -------------------------------------------------------------------------------- CAPITAL APPRECIATION Investor Shares $19.49 $25.43 $0.238 $0.000 Admiral Shares 39.24 51.20 0.510 0.000 Institutional Shares 19.49 25.44 0.257 0.000 -------------------------------------------------------------------------------- SMALL-CAP Investor Shares $12.67 $17.44 $0.109 $0.000 Institutional Shares 12.68 17.47 0.114 0.000 -------------------------------------------------------------------------------- INTERNATIONAL Investor Shares $6.43 $8.76 $0.153 $0.000 Institutional Shares 6.43 8.77 0.160 0.000 -------------------------------------------------------------------------------- 7 FUND PROFILES These Profiles provide snapshots of the funds' characteristics, compared where indicated with both an appropriate market index and a broad market index. Key terms are defined on pages 15 and 16. TAX-MANAGED BALANCED FUND ---------------------------------------- TOTAL FUND CHARACTERISTICS Yield 1.9% Turnover Rate 16% Expense Ratio 0.17% Short-Term Reserves 0% ---------------------------------------- ----------------------------------------------- TEN LARGEST STOCKS (% OF EQUITIES) General Electric Co. 2.8% (conglomerate) Pfizer Inc. 2.6 (pharmaceuticals) ExxonMobil Corp. 2.5 (oil) Citigroup, Inc. 2.4 (banking) Microsoft Corp. 2.2 (software) Intel Corp. 1.9 (electronics) Cisco Systems, Inc. 1.6 (computer hardware) Johnson & Johnson 1.4 (pharmaceuticals) American International Group, Inc. 1.4 (insurance) Wal-Mart Stores, Inc. 1.4 (retail) ----------------------------------------------- Top Ten 20.2% ----------------------------------------------- Top Ten as % of Total Net Assets 9.8% ----------------------------------------------- The "Ten Largest Stocks" excludes any temporary cash investments and equity index products. ----------------------------------------------------------------- TOTAL FUND VOLATILITY MEASURES COMPOSITE BROAD FUND INDEX* FUND INDEX** ----------------------------------------------------------------- R-Squared 0.99 1.00 0.94 1.00 Beta 1.02 1.00 0.45 1.00 ----------------------------------------------------------------- ----------------------------------------------------------------- SECTOR DIVERSIFICATION (% OF EQUITY PORTFOLIO) COMPARATIVE BROAD FUND INDEX+ INDEX** ----------------------------------------------------------------- Auto & Transportation 2% 2% 3% Consumer Discretionary 16 14 15 Consumer Staples 7 7 7 Financial Services 20 23 23 Health Care 15 14 13 Integrated Oils 4 4 3 Other Energy 3 2 2 Materials & Processing 3 4 4 Producer Durables 5 4 4 Technology 17 15 15 Utilities 5 7 6 Other 3 4 5 ----------------------------------------------------------------- --------------------------- FUND ASSET ALLOCATION BONDS 51% STOCKS 48% SHORT-TERM RESERVES 1% --------------------------- *50% Russell 1000 Index, 50% Lehman 7 Year Municipal Bond Index. **Wilshire 5000 Index. +Russell 1000 Index. 8 ----------------------------------------------------------------- EQUITY CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** ----------------------------------------------------------------- Number of Stocks 553 991 5,216 Median Market Cap $34.5B $41.0B $29.3B Price Earnings Ratio 24.1x 22.5x 25.6x Price/Book Ratio 3.2x 3.1x 3.1x Dividend Yield 1.2% 1.6% 1.5% Return on Equity 20.4% 20.8% 15.9% Earnings Growth Rate 10.2% 8.1% 5.3% Foreign Holdings 0.0% 0.0% 0.8% ----------------------------------------------------------------- --------------------------- EQUITY INVESTMENT FOCUS STYLE Blend MARKET CAP Large --------------------------- ----------------------------------------------------------------------------- FIXED INCOME CHARACTERISTIC COMPARATIVE BROAD FUND INDEX+ INDEX++ ----------------------------------------------------------------------------- Number of Bonds 151 5,495 47,689 Yield to Maturity 2.8%+ -- -- Average Coupon 4.5% 5.2% 5.2% Average Effective Maturity 5.6 years 6.9 years 13.8 years Average Quality AA+ AA+ AA+ Average Duration 4.6 years 5.4 years 8.1 years ----------------------------------------------------------------------------- ------------------------------------ FIXED INCOME INVESTMENT FOCUS CREDIT QUALITY High AVERAGE MATURITY Medium ------------------------------------ ------------------------------------------------------------ DISTRIBUTION BY CREDIT QUALITY (% OF FIXED INCOME PORTFOLIO) Treasury/Agency 0% Aaa 75 Aa 21 A 1 Baa 3 ------------------------------------------------------------ Total 100% ------------------------------------------------------------ ------------------------------------ LARGEST STATE CONCENTRATIONS (% OF FIXED INCOME PORTFOLIO) New York 12% Texas 9 Massachusetts 7 Ohio 7 Pennsylvania 6 New Jersey 6 California 6 Arizona 4 Florida 4 Connecticut 4 ------------------------------------ Top Ten 65% ------------------------------------ ------------------------------------ DISTRIBUTION BY MATURITY (% OF FIXED INCOME PORTFOLIO) Under 1 Year 17% 1-5 Years 23 5-10 Years 52 10-20 Years 8 ------------------------------------ Total 100% ------------------------------------ *Russell 1000 Index. **Wilshire 5000 Index. +Lehman 7 Year Municipal Bond Index. ++Lehman Municipal Bond Index. +Before expenses. VISIT OUR WEBSITE AT VANGUARD.COM FOR REGULARLY UPDATED FUND INFORMATION. 9 FUND PROFILES (CONTINUED) TAX-MANAGED GROWTH AND INCOME FUND ------------------------------------------------------------------- PORTFOLIO CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** ------------------------------------------------------------------- Number of Stocks 502 500 5,216 Median Market Cap $52.3B $52.3B $29.3B Price/Earnings Ratio 22.5x 22.6x 25.6x Price/Book Ratio 3.2x 3.2x 3.1x Yield 1.6% 1.5% Investor Shares 1.5% Admiral Shares 1.5% Institutional Shares 1.6% Return on Equity 21.4% 21.4% 15.9% Earnings Growth Rate 7.7% 7.7% 5.3% Foreign Holdings 0.0% 0.0% 0.8% Turnover Rate 5% -- -- Expense Ratio -- -- Investor Shares 0.17% Admiral Shares 0.11% Institutional Shares 0.08% Short-Term Reserves 0% -- -- ------------------------------------------------------------------- ----------------------------------------------------- TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS) General Electric Co. 3.0% (conglomerate) Microsoft Corp. 2.9 (software) ExxonMobil Corp. 2.6 (oil) Pfizer Inc. 2.6 (pharmaceuticals) Citigroup, Inc. 2.4 (banking) Wal-Mart Stores, Inc. 2.2 (retail) Intel Corp. 2.0 (electronics) American International Group, Inc. 1.7 (insurance) Cisco Systems, Inc. 1.6 (computer hardware) International Business Machines Corp. 1.6 (computer hardware) ----------------------------------------------------- Top Ten 22.6% ----------------------------------------------------- The "Ten Largest Holdings" excludes any temporary cash investments and equity index products. ---------------------------------------------------------------------- VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** ---------------------------------------------------------------------- R-Squared 1.00 1.00 0.99 1.00 Beta 1.00 1.00 0.98 1.00 ---------------------------------------------------------------------- ----------------------------------- INVESTMENT FOCUS STYLE Blend MARKET CAP Large ----------------------------------- ----------------------------------------------------------------------- SECTOR DIVERSIFICATION (% OF PORTFOLIO) COMPARATIVE BROAD FUND INDEX* INDEX** ----------------------------------------------------------------------- Auto & Transportation 3% 3% 3% Consumer Discretionary 14 14 15 Consumer Staples 8 8 7 Financial Services 22 22 23 Health Care 13 13 13 Integrated Oils 4 4 3 Other Energy 2 2 2 Materials & Processing 4 4 4 Producer Durables 4 4 4 Technology 16 16 15 Utilities 7 7 6 Other 3 3 5 ----------------------------------------------------------------------- *S&P 500 Index. **Wilshire 5000 Index. 10 TAX-MANAGED CAPITAL APPRECIATION FUND ----------------------------------------------------------------------- PORTFOLIO CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** ----------------------------------------------------------------------- Number of Stocks 557 991 5,216 Median Market Cap $32.1B $41.0B $29.3B Price/Earnings Ratio 24.3x 22.5x 25.6x Price/Book Ratio 3.2x 3.1x 3.1x Yield 1.6% 1.5% Investor Shares 1.0% Admiral Shares 1.1% Institutional Shares 1.1% Return on Equity 20.5% 20.8% 15.9% Earnings Growth Rate 10.5% 8.1% 5.3% Foreign Holdings 0.1% 0.0% 0.8% Turnover Rate 11% -- -- Expense Ratio -- -- Investor Shares 0.17% Admiral Shares 0.11% Institutional Shares 0.08% Short-Term Reserves 0% -- -- ----------------------------------------------------------------------- -------------------------------------------------------- TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS) General Electric Co. 2.7% (conglomerate) Pfizer Inc. 2.6 (pharmaceuticals) ExxonMobil Corp. 2.4 (oil) Citigroup, Inc. 2.3 (banking) Microsoft Corp. 2.2 (software) Intel Corp. 1.9 (electronics) Cisco Systems, Inc. 1.6 (computer hardware) American International Group, Inc. 1.5 (insurance) Johnson & Johnson 1.4 (pharmaceuticals) Wal-Mart Stores, Inc. 1.4 (retail) -------------------------------------------------------- Top Ten 20.0% -------------------------------------------------------- The "Ten Largest Holdings" excludes any temporary cash investments and equity index products. ----------------------------------------------------------------------- VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** ----------------------------------------------------------------------- R-Squared 0.99 1.00 0.99 1.00 Beta 1.10 1.00 1.10 1.00 ----------------------------------------------------------------------- ----------------------------- INVESTMENT FOCUS STYLE Blend MARKET CAP Large ----------------------------- ----------------------------------------------------------------------- SECTOR DIVERSIFICATION (% OF PORTFOLIO) COMPARATIVE BROAD FUND INDEX* INDEX** ----------------------------------------------------------------------- Auto & Transportation 2% 2% 3% Consumer Discretionary 17 14 15 Consumer Staples 6 7 7 Financial Services 20 23 23 Health Care 16 14 13 Integrated Oils 4 4 3 Other Energy 3 2 2 Materials & Processing 3 4 4 Producer Durables 5 4 4 Technology 17 15 15 Utilities 5 7 6 Other 2 4 5 ----------------------------------------------------------------------- *Russell 1000 Index. **Wilshire 5000 Index. VISIT OUR WEBSITE AT VANGUARD.COM FOR REGULARLY UPDATED FUND INFORMATION. 11 FUND PROFILES (CONTINUED) TAX-MANAGED SMALL-CAP FUND ----------------------------------------------------------------------- PORTFOLIO CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** ----------------------------------------------------------------------- Number of Stocks 602 600 5,216 Median Market Cap $0.9B $0.9B $29.3B Price/Earnings Ratio 24.6x 24.6x 25.6x Price/Book Ratio 2.3x 2.3x 3.1x Yield 0.8% 1.5% Investor Shares 0.7% Institutional Shares 0.7% Return on Equity 13.5% 13.5% 15.9% Earnings Growth Rate 12.4% 12.3% 5.3% Foreign Holdings 0.0% 0.0% 0.8% Turnover Rate 21% -- -- Expense Ratio -- -- Investor Shares 0.17% Institutional Shares 0.10% Short-Term Reserves 0% -- -- ----------------------------------------------------------------------- -------------------------------------------------------- TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS) Harman International Industries, Inc. 1.1% (consumer electronics) NVR, Inc. 0.8 (real estate) Mid Atlantic Medical Services, Inc. 0.7 (health care) Cephalon, Inc. 0.6 (biotechnology) Newfield Exploration Co. 0.6 (oil) Alliant Techsystems, Inc. 0.5 (aerospace and defense) Ryland Group, Inc. 0.5 (real estate) ITT Educational Services, Inc. 0.5 (education) Renal Care Group, Inc. 0.5 (health care) Medicis Pharmaceutical Corp. 0.4 (pharmaceuticals) -------------------------------------------------------- Top Ten 6.2% -------------------------------------------------------- The "Ten Largest Holdings" excludes any temporary cash investments and equity index products. --------------------------------------------------------------------- VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** --------------------------------------------------------------------- R-Squared 1.00 1.00 0.73 1.00 Beta 0.98 1.00 0.93 1.00 --------------------------------------------------------------------- --------------------------------------------------------------------- SECTOR DIVERSIFICATION (% OF PORTFOLIO) COMPARATIVE BROAD FUND INDEX* INDEX** --------------------------------------------------------------------- Auto & Transportation 5% 5% 3% Consumer Discretionary 21 21 15 Consumer Staples 2 3 7 Financial Services 16 14 23 Health Care 13 13 13 Integrated Oils 0 0 3 Other Energy 6 6 2 Materials & Processing 11 11 4 Producer Durables 12 12 4 Technology 10 11 15 Utilities 4 4 6 Other 0 0 5 --------------------------------------------------------------------- ------------------------------- INVESTMENT FOCUS STYLE Blend MARKET CAP Small ------------------------------- *S&P SmallCap 600 Index. **Wilshire 5000 Index. 12 TAX-MANAGED INTERNATIONAL FUND -------------------------------------------------------------- PORTFOLIO CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** -------------------------------------------------------------- Number of Stocks 1,001 1,003 1,746 Turnover Rate 9% -- -- Expense Ratio -- -- Investor Shares 0.28% Institutional Shares 0.17% Short-Term Reserves 0% -- -- -------------------------------------------------------------- ------------------------------------------------- TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS) BP PLC 2.4% (oil) HSBC Holdings PLC 2.3 (banking) Vodafone Group PLC 2.3 (cellular communications) GlaxoSmithKline PLC 1.9 (pharmaceuticals) Total SA 1.6 (integrated oil) Royal Dutch Petroleum Co. 1.5 (energy) Novartis AG (Registered) 1.5 (pharmaceuticals) Nestle SA (Registered) 1.4 (food, beverage, and tobacco) Toyota Motor Corp. 1.2 (automobiles) Royal Bank of Scotland Group PLC 1.1 (banking) ------------------------------------------------- Top Ten 17.2% ------------------------------------------------- The "Ten Largest Holdings" excludes any temporary cash investments and equity index products. --------------------------------------------------------------------- VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** --------------------------------------------------------------------- R-Squared 1.00 1.00 0.99 1.00 Beta 1.01 1.00 1.00 1.00 --------------------------------------------------------------------- --------------------------------------------------------------------- SECTOR DIVERSIFICATION (% OF PORTFOLIO) COMPARATIVE BROAD FUND INDEX* INDEX** --------------------------------------------------------------------- Consumer Discretionary 13% 13% 12% Consumer Staples 9 9 8 Energy 8 8 9 Financials 25 25 25 Health Care 9 9 8 Industrials 9 9 9 Information Technology 7 7 8 Materials 7 7 8 Telecommunication Services 8 8 8 Utilities 5 5 5 --------------------------------------------------------------------- ------------------------------ FUND ALLOCATION BY REGION EUROPE 71% PACIFIC 29% ------------------------------ *MSCI EAFE Index. **MSCI All Country World Index Free ex USA. Country Diversification table is on the next page. VISIT OUR WEBSITE AT VANGUARD.COM FOR REGULARLY UPDATED FUND INFORMATION. 13 FUND PROFILES (CONTINUED) TAX-MANAGED INTERNATIONAL FUND (CONTINUED) --------------------------------------------------------------------- COUNTRY DIVERSIFICATION (% OF PORTFOLIO) COMPARATIVE BROAD FUND INDEX* INDEX** --------------------------------------------------------------------- EUROPE United Kingdom 26% 27% 22% France 10 10 8 Switzerland 7 7 6 Germany 7 7 6 Netherlands 5 5 5 Italy 4 4 3 Spain 4 4 3 Sweden 2 2 2 Finland 2 2 1 Belgium 1 1 1 Denmark 1 1 1 Ireland 1 1 1 Norway 1 0 0 Other 0 0 1 --------------------------------------------------------------------- Subtotal 71% 71% 60% --------------------------------------------------------------------- PACIFIC Japan 21% 21% 18% Australia 5 5 4 Hong Kong 2 2 2 Singapore 1 1 1 New Zealand 0 0 0 --------------------------------------------------------------------- Subtotal 29% 29% 25% --------------------------------------------------------------------- EMERGING MARKETS Combined 0% 0% 10% --------------------------------------------------------------------- NORTH AMERICA Canada 0% 0% 5% --------------------------------------------------------------------- Total 100.0% 100.0% 100.0% --------------------------------------------------------------------- *MSCI EAFE Index. **MSCI All Country World Index Free ex USA. 14 GLOSSARY OF INVESTMENT TERMS AVERAGE COUPON. The average interest rate paid on the fixed income securities held by a fund. It is expressed as a percentage of face value. -------------------------------------------------------------------------------- Average Duration. An estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. To see how the value could change, multiply the average duration by the change in rates. If interest rates rise by 1 percentage point, the value of the bonds in a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the value would rise by 5%. -------------------------------------------------------------------------------- AVERAGE EFFECTIVE MATURITY. The average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date. The figure reflects the proportion of fund assets represented by each security; it also reflects any futures contracts held. In general, the longer the average effective 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 fixed income 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. U.S. Treasury securities are considered to have the highest credit quality. -------------------------------------------------------------------------------- BETA. A measure of the magnitude of a fund's past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see definition below). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility. -------------------------------------------------------------------------------- DIVIDEND YIELD. The current, annualized rate of dividends paid on a share of stock, divided by its current share price. For a fund, the weighted average yield for stocks it holds. The index yield is based on the current annualized rate of dividends paid on stocks in the index. -------------------------------------------------------------------------------- EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the past five years for the stocks now in a fund. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks or depositary receipts of companies based outside the United States. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- 15 GLOSSARY OF INVESTMENT TERMS (CONTINUED) -------------------------------------------------------------------------------- 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 market in general, as measured by a given index. If a fund's total returns were precisely synchronized with an index's returns, its R-squared would be 1.00. If the fund's returns bore no relationship to the index'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. -------------------------------------------------------------------------------- SHORT-TERM RESERVES. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash. -------------------------------------------------------------------------------- TURNOVER RATE. An indication of the fund's trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be 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. -------------------------------------------------------------------------------- YIELD TO MATURITY. The rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates. -------------------------------------------------------------------------------- 16 PERFORMANCE SUMMARIES All of the returns in this report represent past performance, which cannot be used to predict future returns that may be achieved by the funds. Note, too, that both share price and return can fluctuate widely. An investor's shares, when redeemed, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares.
TAX-MANAGED BALANCED FUND ------------------------------------------------------------------------------------------------ CUMULATIVE PERFORMANCE SEPTEMBER 6, 1994-DECEMBER 31, 2003 LEHMAN 7 YEAR BALANCED AVERAGE TAX-MANAGED RUSSELL MUNICIPAL COMPOSITE BALANCED BALANCED FUND 1000 INDEX BOND INDEX INDEX+ FUND++ 9/6/1994 10000 10000 10000 10000 10000 199409 9920 9920 9920 9920 9920 199412 9860 9882 9824 9820 9812 199503 10576 10822 10340 10544 10409 199506 11255 11841 10634 11187 11163 199509 11949 12896 10938 11843 11804 199512 12278 13614 11214 12323 12292 199603 12589 14364 11174 12638 12611 199606 12860 14950 11222 12922 12895 199609 13196 15438 11424 13259 13275 199612 13777 16670 11703 13951 13983 199703 13732 16928 11690 14057 13966 199706 14997 19773 12011 15411 15398 199709 16012 21500 12332 16296 16465 199712 16057 22146 12601 16726 16640 199803 17250 25107 12745 17926 17894 199806 17602 25735 12893 18260 18103 199809 16716 23082 13302 17640 17001 199812 18776 28131 13385 19566 18883 199903 19404 29291 13499 20056 19052 199906 19993 31377 13269 20596 19910 199909 19517 29306 13378 19992 19137 199912 21685 34013 13366 21553 20524 200003 22660 35499 13578 22211 21043 200006 22407 34281 13798 22007 20786 200009 22546 34526 14112 22353 21301 200012 21575 31365 14578 21683 20832 200103 20385 27424 14956 20577 19725 200106 21156 29154 15065 21315 20314 200109 19622 24713 15479 19929 18807 200112 20812 27460 15334 20929 19917 200203 20921 27663 15482 21123 20013 200206 19788 23940 16143 20103 18565 200209 18599 19892 16872 18794 16939 200212 19339 21514 16921 19621 17585 200303 19227 20882 17117 19446 17354 200306 20965 24168 17571 21213 19105 200309 21343 24892 17666 21599 19628 200312 22637 27740 17843 23015 20942 ------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2003 ------------------------------------ FINAL VALUE ONE FIVE SINCE OF A $10,000 YEAR YEARS INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Balanced Fund 17.05% 3.81% 9.16% $22,637 Fee-Adjusted Returns** 15.91 3.81 9.16 22,637 Russell 1000 Index 29.89 -0.13 11.57 27,740 Lehman 7 Year Municipal Bond Index 5.45 5.92 6.41 17,843 Balanced Composite Index+ 17.30 3.30 9.36 23,015 Average Balanced Fund++ 19.09 2.09 8.26 20,942 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 6, 1994-DECEMBER 31, 2003 TAX-MANAGED BALANCED BALANCED FUND COMPOSITE INDEX+ 1994 -1.4 -1.8 1995 24.5 25.5 1996 12.2 13.2 1997 16.6 19.9 1998 16.9 17.0 1999 15.5 10.2 2000 -0.5 0.6 2001 -3.5 -3.5 2002 -7.1 -6.2 2003 17.1 17.3 -------------------------------------------------------------------------------- *September 6, 1994. **Reflective of the 2% fee assessed on redemptions of shares held in the fund for less than one year and the 1% fee assessed on redemptions of shares held in the fund for at least one year but less than five years. +50% Russell 1000 Index, 50% Lehman 7 Year Municipal Bond Index. ++Derived from data provided by Lipper Inc. Note: See Financial Highlights table on page 29 for dividend and capital gains information. 17 PERFORMANCE SUMMARIES (CONTINUED) TAX-MANAGED GROWTH AND INCOME FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE SEPTEMBER 6, 1994-DECEMBER 31, 2003 TAX-MANAGED GROWTH AVERAGE AND INCOME FUND WILSHIRE S&P LARGE-CAP INVESTOR SHARES 5000 INDEX 500 INDEX CORE FUND+ 9/6/1994 10000 10000 10000 10000 199409 9831 9882 9826 9831 199412 9830 9806 9824 9723 199503 10787 10692 10781 10519 199506 11818 11690 11810 11416 199509 12753 12758 12749 12278 199512 13519 13381 13516 12859 199603 14238 14132 14241 13532 199606 14888 14755 14881 14048 199609 15344 15172 15341 14502 199612 16633 16219 16619 15497 199703 17070 16324 17065 15686 199706 20051 19081 20044 18222 199709 21548 20942 21545 19591 199712 22173 21294 22164 19878 199803 25264 24118 25256 22539 199806 26105 24588 26090 23142 199809 23509 21630 23495 20482 199812 28531 26283 28498 24929 199903 29939 27275 29918 26159 199906 32042 29404 32027 27867 199909 30045 27459 30027 26164 199912 34556 32475 34495 30501 200003 35336 33715 35286 31835 200006 34401 32202 34349 31036 200009 34084 32257 34016 30821 200012 31434 28938 31354 27768 200103 27695 25365 27637 24793 200106 29312 27261 29255 26188 200109 25013 22926 24960 22373 200112 27684 25762 27628 23947 200203 27751 26010 27703 24330 200206 24054 22730 23992 21197 200209 19941 18909 19847 17807 200212 21608 20388 21522 18322 200303 20918 19759 20844 18057 200306 24133 23019 24052 20785 200309 24769 23873 24689 21521 200312 27772 26839 27695 23011 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2003 --------------------------------- FINAL VALUE OF A ONE FIVE SINCE $10,000 YEAR YEARS INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Growth and Income Fund Investor Shares 28.53% -0.54% 11.59% $27,772 Fee-Adjusted Returns** 27.26 -0.54 11.59 27,772 Wilshire 5000 Index 31.64 0.42 11.18 26,839 S&P 500 Index 28.68 -0.57 11.55 27,695 Average Large-Cap Core FundY 25.59 -1.59 9.36 23,011 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINAL VALUE OF A ONE SINCE $250,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Growth and Income Fund Admiral Shares 28.64% 1.54% $258,296 Fee-Adjusted Returns** 27.37 1.08 255,806 S&P 500 Index 28.68 1.45 257,802 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINAL VALUE OF A ONE SINCE $10,000,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Growth and Income Fund Institutional Shares 28.69% -0.80% $9,620,612 Fee-Adjusted Returns** 27.43 -0.99 9,530,801 S&P 500 Index 28.68 -0.93 9,559,296 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 6, 1994-DECEMBER 31, 2003 TAX-MANAGED GROWTH AND INCOME FUND S&P INVESTOR SHARES 500 INDEX 1994 -1.7 -1.8 1995 37.5 37.6 1996 23.0 23.0 1997 33.3 33.4 1998 28.7 28.6 1999 21.1 21.0 2000 -9.0 -9.1 2001 -11.9 -11.9 2002 -21.9 -22.1 2003 28.5 28.7 -------------------------------------------------------------------------------- *Inception for Tax-Managed Growth and Income Fund Investor Shares is September 6, 1994; for Admiral Shares, November 12, 2001; for Institutional Shares, March 4, 1999. **Reflective of the 2% fee assessed on redemptions of shares held in the fund for less than one year and the 1% fee assessed on redemptions of shares held in the fund for at least one year but less than five years. +Derived from data provided by Lipper Inc. NOTE: See Financial Highlights tables on pages 30-32 for dividend and capital gains information. 18 TAX-MANAGED CAPITAL APPRECIATION FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE SEPTEMBER 6, 1994-DECEMBER 31, 2003 TAX-MANAGED CAPITAL AVERAGE APPRECIATION FUND WILSHIRE RUSSELL MULTI-CAP INVESTOR SHARES 5000 INDEX 1000 INDEX CORE FUND+ 9/6/1994 10000 10000 10000 10000 199409 9910 9882 9847 9910 199412 9950 9806 9810 9752 199503 10860 10692 10742 10519 199506 11950 11690 11754 11407 199509 12990 12758 12802 12316 199512 13371 13381 13515 12784 199603 14166 14132 14260 13545 199606 14750 14755 14841 14049 199609 15213 15172 15325 14553 199612 16169 16219 16548 15442 199703 16138 16324 16804 15493 199706 18845 19081 19629 17758 199709 20974 20942 21343 19563 199712 20581 21294 21985 19455 199803 23590 24118 24924 21968 199806 24151 24588 25547 22090 199809 20989 21630 22913 19156 199812 26334 26283 27926 22967 199903 28098 27275 29077 23576 199906 30445 29404 31149 25575 199909 28661 27459 29092 24000 199912 35156 32475 33765 28123 200003 37770 33715 35239 29590 200006 36216 32202 34029 28527 200009 36041 32257 34273 29179 200012 31595 28938 31135 27290 200103 26978 25365 27223 23583 200106 28899 27261 28941 24895 200109 23528 22926 24532 21441 200112 26749 25762 27259 24318 200203 26780 26010 27461 23798 200206 22861 22730 23765 20588 200209 18806 18909 19746 17674 200212 20476 20388 21357 19029 200303 20003 19759 20729 17984 200306 23207 23019 23991 20502 200309 24016 23873 24710 21891 200312 26970 26839 27740 24717 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2003 --------------------------------- FINAL VALUE OF A ONE FIVE SINCE $10,000 YEAR YEARS INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Capital Appreciation Fund Investor Shares 31.72% 0.48% 11.24% $26,970 Fee-Adjusted Returns** 30.41 0.48 11.24 26,970 Wilshire 5000 Index 31.64 0.42 11.18 26,839 Russell 1000 Index 29.89 -0.13 11.57 27,740 Average Multi-Cap Core FundY 29.89 1.48 10.20 24,717 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINAL VALUE OF A ONE SINCE $250,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Capital Appreciation Fund Admiral Shares 31.80% 2.44% $263,226 Fee-Adjusted Returns** 30.49 1.98 260,666 Russell 1000 Index 29.89 2.37 262,794 -------------------------------------------------------------------------------- FINAL VALUE OF A ONE SINCE $10,000,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Capital Appreciation Fund Institutional Shares 31.87% 0.09% $10,042,891 Fee-Adjusted Returns** 30.56 -0.11 9,946,235 Russell 1000 Index 29.89 -0.45 9,781,571 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 6, 1994-DECEMBER 31, 2003 TAX-MANAGED CAPITAL APPRECIATION FUND RUSSELL INVESTOR SHARES 1000 INDEX 1994 -0.5 -1.9 1995 34.4 37.8 1996 20.9 22.4 1997 27.3 32.9 1998 28 27 1999 33.5 20.9 2000 -10.1 -7.8 2001 -15.3 -12.4 2002 -23.5 -21.7 2003 31.7 29.9 -------------------------------------------------------------------------------- *Inception for Tax-Managed Capital Appreciation Fund Investor Shares is September 6, 1994; for Admiral Shares, November 12, 2001; for Institutional Shares, February 24, 1999. **Reflective of the 2% fee assessed on redemptions of shares held in the fund for less than one year and the 1% fee assessed on redemptions of shares held in the fund for at least one year but less than five years. +Derived from data provided by Lipper Inc. NOTE: See Financial Highlights tables on pages 33-35 for dividend and capital gains information. 19 PERFORMANCE SUMMARIES (CONTINUED) TAX-MANAGED SMALL-CAP FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE MARCH 25, 1999-DECEMBER 31, 2003 TAX-MANAGED S&P AVERAGE SMALL-CAP FUND WILSHIRE SMALL-CAP SMALL-CAP INVESTOR SHARES 5000 INDEX 600 INDEX CORE FUND+ 3/25/1999 10000 10000 10000 10000 199903 10130 10008 10109 10130 199906 11745 10789 11668 11854 199909 11226 10075 11103 11403 199912 12628 11916 12486 13939 200003 13420 12370 13212 15626 200006 13580 11815 13346 15091 200009 14231 11835 13786 15079 200012 14325 10618 13959 14646 200103 13268 9307 13043 14790 200106 15070 10003 14829 16553 200109 12533 8412 12323 13202 200112 15105 9452 14872 15766 200203 16137 9543 15908 17687 200206 15125 8340 14870 15896 200209 12341 6938 12102 12328 200212 12923 7481 12696 12892 200303 12179 7250 11961 13113 200306 14576 8446 14338 15567 200309 15585 8759 15352 16274 200312 17726 9848 17621 18596 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2003 --------------------------------- FINAL VALUE OF A ONE SINCE $10,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Small-Cap Fund Investor Shares 38.51% 12.98% $17,900 Fee-Adjusted Returns** 37.13 12.75 17,726 Wilshire 5000 Index 31.64 -0.32 9,848 S&P SmallCap 600 Index 38.79 12.61 17,621 Average Small-Cap Core FundY 44.24 13.89 18,596 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINAL VALUE OF A ONE SINCE $10,000,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed Small-Cap Fund Institutional Shares 38.68% 11.62% $16,758,326 Fee-Adjusted Returns** 37.30 11.39 16,595,965 S&P SmallCap 600 Index 38.79 11.24 16,492,737 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) MARCH 25, 1999-DECEMBER 31, 2003 TAX-MANAGED S&P SMALL-CAP FUND SMALL-CAP INVESTOR SHARES 600 INDEX 1999 26.3 24.9 2000 13.4 11.8 2001 5.4 6.5 2002 -14.4 -14.6 2003 38.5 38.8 -------------------------------------------------------------------------------- *Inception for Tax-Managed Small-Cap Fund Investor Shares is March 25, 1999; for Institutional Shares, April 21, 1999. **Reflective of the 2% fee assessed on redemptions of shares held in the fund for less than one year and the 1% fee assessed on redemptions of shares held in the fund for at least one year but less than five years. +Derived from data provided by Lipper Inc. Note: See Financial Highlights tables on pages 36 and 37 for dividend and capital gains information. 20 TAX-MANAGED INTERNATIONAL FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE AUGUST 17, 1999-DECEMBER 31, 2003 MSCI TAX-MANAGED ALL COUNTRY AVERAGE INTERNATIONAL FUND WORLD INDEX MSCI EAFE INTERNATIONAL INVESTOR SHARES FREE EX USA INDEX FUND+ 8/17/1999 10000 10000 10000 10000 199909 10230 10188 10200 10158 199912 12001 12039 11933 12543 200003 11981 12133 11920 12635 200006 11499 11638 11448 11966 200009 10576 10689 10525 11258 200012 10286 10223 10242 10586 200103 8876 8879 8838 9115 200106 8785 8867 8746 9091 200109 7547 7558 7521 7776 200112 8030 8230 8046 8288 200203 8112 8365 8087 8433 200206 7937 8143 7915 8166 200209 6350 6571 6353 6655 200212 6776 7022 6763 6907 200303 6217 6510 6208 6358 200306 7419 7802 7404 7515 200309 8019 8479 8006 8181 200312 9396 9930 9373 9306 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2003 --------------------------------- FINAL VALUE OF A ONE SINCE $10,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed International Fund Investor Shares 38.67% -1.42% $9,396 Fee-Adjusted Returns** 37.30 -1.63 9,308 MSCI All Country World Index Free ex USA 41.41 -0.16 9,930 MSCI EAFE Index 38.59 -1.47 9,373 Average International FundY 34.74 -1.63 9,306 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FINAL VALUE OF A ONE SINCE $10,000,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Tax-Managed International Fund Institutional Shares 38.94% -2.82% $9,181,713 Fee-Adjusted Returns** 37.57 -3.12 9,095,138 MSCI EAFE Index 38.59 -2.89 9,161,857 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) AUGUST 17, 1999-DECEMBER 31, 2003 TAX-MANAGED INTERNATIONAL FUND MSCI EAFE INVESTOR SHARES INDEX 1999 20.0 19.3 2000 -14.3 -14.2 2001 -21.9 -21.4 2002 -15.6 -15.9 2003 38.7 38.6 -------------------------------------------------------------------------------- *Inception for Tax-Managed International Fund Investor Shares is August 17, 1999; for Institutional Shares, January 4, 2001. **Reflective of the 2% fee assessed on redemptions of shares held in the fund for less than one year and the 1% fee assessed on redemptions of shares held in the fund for at least one year but less than five years. +Derived from data provided by Lipper Inc. Note: See Financial Highlights tables on pages 38 and 39 for dividend and capital gains information. 21 YOUR FUND'S AFTER-TAX RETURNS This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund's distributions, and (2) assuming that an investor paid taxes on the fund's distributions and sold all shares at the end of each period. Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect the reduced tax rates on ordinary income (including qualified dividend income) and short-term capital gains that became effective as of January 1, 2003, and on long-term capital gains realized on or after May 6, 2003. Qualified dividend income is based on calendar year 2003. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.) The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes. Finally, keep in mind that a fund's performance--whether before or after taxes--does not indicate how it will perform in the future. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* PERIODS ENDED DECEMBER 31, 2003 SINCE ONE YEAR FIVE YEARS INCEPTION** --------------------------------------- TAX-MANAGED BALANCED FUND Returns Before Taxes 15.91% 3.81% 9.16% Returns After Taxes on Distributions 15.81 3.69 9.01 Returns After Taxes on Distributions and Sale of Fund Shares 11.24 3.52 8.34 -------------------------------------------------------------------------------- TAX-MANAGED GROWTH AND INCOME FUND INVESTOR SHARES Returns Before Taxes 27.26% -0.54% 11.59% Returns After Taxes on Distributions 26.96 -0.96 10.98 Returns After Taxes on Distributions and Sale of Fund Shares 18.05 -0.69 9.95 -------------------------------------------------------------------------------- TAX-MANAGED CAPITAL APPRECIATION FUND INVESTOR SHARES Returns Before Taxes 30.41% 0.48% 11.24% Returns After Taxes on Distributions 30.22 0.26 10.97 Returns After Taxes on Distributions and Sale of Fund Shares 20.01 0.29 9.88 -------------------------------------------------------------------------------- TAX-MANAGED SMALL-CAP FUND INVESTOR SHARES Returns Before Taxes 37.13% -- 12.75% Returns After Taxes on Distributions 37.00 -- 12.52 Returns After Taxes on Distributions and Sale of Fund Shares 24.31 -- 11.01 -------------------------------------------------------------------------------- TAX-MANAGED INTERNATIONAL FUND INVESTOR SHARES Returns Before Taxes 37.30% -- -1.63% Returns After Taxes on Distributions 37.14 -- -2.03 Returns After Taxes on Distributions and Sale of Fund Shares 24.91 -- -1.56 -------------------------------------------------------------------------------- *All fund returns are adjusted to reflect fees. Each of the Vanguard Tax-Managed Funds assesses a 2% fee on redemptions of shares held in the fund for less than one year and a 1% fee on redemptions of shares held in the fund for at least one year but less than five years. **Inception dates are September 6, 1994, for the Tax-Managed Balanced, Tax-Managed Growth and Income, and Tax-Managed Capital Appreciation Funds; March 25, 1999, for the Tax-Managed Small-Cap Fund; and August 17, 1999, for the Tax-Managed International Fund. 22 ABOUT YOUR FUND'S EXPENSES All mutual funds have operating expenses. These expenses include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of the fund. A fund's expenses are expressed as a percentage of its net assets. This figure is known as the expense ratio. a hypothetical example We believe it is important for you to understand the impact of costs on your investment. The following example illustrates the costs that you would incur over a 12-month period if you invested $10,000 in your fund, using the funds' actual returns and operating expenses for the fiscal year ended December 31, 2003. The cost in dollars is calculated by applying the expense ratios to the average balance in the hypothetical account. For comparative purposes, we also list the average expense ratios for the funds' peer groups, which are derived from data provided by Lipper Inc. -------------------------------------------------------------------------------- COST OF $10,000 FUND PEER GROUP* TAX-MANAGED FUND INVESTMENT IN FUND EXPENSE RATIO EXPENSE RATIO -------------------------------------------------------------------------------- Balanced $18 0.17% 1.31% -------------------------------------------------------------------------------- GROWTH AND INCOME Investor Shares $19 0.17% 1.41% Admiral Shares 13 0.11 -- Institutional Shares 9 0.08 -- -------------------------------------------------------------------------------- CAPITAL APPRECIATION Investor Shares $20 0.17% 1.38% Admiral Shares 13 0.11 -- Institutional Shares 9 0.08 -- -------------------------------------------------------------------------------- SMALL-CAP Investor Shares $20 0.17% 1.58% Institutional Shares 12 0.10 -- -------------------------------------------------------------------------------- INTERNATIONAL Investor Shares $33 0.28% 1.70% Institutional Shares 20 0.17 -- -------------------------------------------------------------------------------- *Peer groups are: for the Tax-Managed Balanced Fund, the Average Balanced Fund; for the Tax-Managed Growth and Income Fund, the Average Large-Cap Core Fund; for the Tax-Managed Capital Appreciation Fund, the Average Multi-Cap Core Fund; for the Tax-Managed Small-Cap Fund, the Average Small-Cap Core Fund; for the Tax-Managed International Fund, the Average International Fund. The calculation assumes no shares were sold. Your actual costs may have been higher or lower, depending on the amount of your investment and your holding period. Peer-group ratios capture data through year-end 2002. You can find more information about the funds' expenses, including annual expense ratios for the past five years, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate fund prospectus. The prospectus presents hypothetical shareholder costs over various time periods based upon a $10,000 investment and a return of 5% a year. This standardized example, which appears in all mutual fund prospectuses, may be useful to you in comparing the costs of investing in different funds. 23 FINANCIAL STATEMENTS The Statement of Net Assets--an integral part of the Financial Statements for each of the Vanguard Tax-Managed Funds--is included as an insert to this report. STATEMENT OF OPERATIONS This Statement shows the types of income earned by each fund during the reporting period, and details the operating expenses charged to each class of its shares. These expenses directly reduce the amount of investment income available to pay to shareholders as income 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) of investments during the period. -------------------------------------------------------------------------------- TAX-MANAGED BALANCED FUND YEAR ENDED DECEMBER 31, 2003 (000) -------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends $ 2,810 Interest 9,502 Security Lending 3 -------------------------------------------------------------------------------- Total Income 12,315 -------------------------------------------------------------------------------- EXPENSES The Vanguard Group--Note B Investment Advisory Services 85 Management and Administrative 569 Marketing and Distribution 49 Custodian Fees 14 Auditing Fees 15 Shareholders' Reports 12 Trustees' Fees and Expenses 1 -------------------------------------------------------------------------------- Total Expenses 745 -------------------------------------------------------------------------------- NET INVESTMENT INCOME 11,570 -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (8,560) -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 68,158 -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $71,168 ================================================================================ 24 -------------------------------------------------------------------------------- TAX-MANAGED TAX-MANAGED GROWTH AND CAPITAL TAX-MANAGED TAX-MANAGED INCOME APPRECIATION SMALL-CAP INTERNATIONAL FUND FUND FUND FUND ------------------------------------------------------------ YEAR ENDED DECEMBER 31, 2003 ------------------------------------------------------------ (000) (000) (000) (000) -------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends* $ 35,378 $ 28,549 $ 6,721 $ 11,426 Interest 6 13 20 3 Security Lending 26 89 235 154 -------------------------------------------------------------------------------- Total Income 35,410 28,651 6,976 11,583 -------------------------------------------------------------------------------- EXPENSES The Vanguard Group--Note B Investment Advisory Services 113 113 113 53 Management and Administrative Investor Shares 1,687 1,898 966 548 Admiral Shares 541 799 -- -- Institutional Shares 108 64 14 21 Marketing and Distribution Investor Shares 124 136 76 45 Admiral Shares 56 81 -- -- Institutional Shares 21 13 4 7 Custodian Fees 56 37 31 477 Auditing Fees 16 16 15 21 Shareholders' Reports Investor Shares 53 33 13 7 Admiral Shares 3 3 -- -- Institutional Shares -- -- -- -- Trustees' Fees and Expenses 2 2 1 -- -------------------------------------------------------------------------------- Total Expenses 2,780 3,195 1,233 1,179 -------------------------------------------------------------------------------- NET INVESTMENT INCOME 32,630 25,456 5,743 10,404 -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) Investment Securities Sold (37,853) (163,709) (20,076) (14,161) Foreign Currencies -- -- -- 252 -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) (37,853) (163,709) (20,076) (13,909) -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities 513,100 779,669 266,346 160,713 Foreign Currencies -- -- -- 41 -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 513,100 779,669 266,346 160,754 -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $507,877 $641,416 $252,013 $157,249 ================================================================================ *Dividends for the Tax-Managed International Fund are net of foreign withholding taxes of $1,293,000. 25 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 net amount shareholders invested in or redeemed from the fund. Distributions and Capital Share Transactions are shown separately for each class of shares. -------------------------------------------------------------------------------- TAX-MANAGED TAX-MANAGED GROWTH AND BALANCED FUND INCOME FUND ----------------------- ------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------ 2003 2002 2003 2002 (000) (000) (000) (000) -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 11,570 $ 11,239 $ 32,630 $ 29,589 Realized Net Gain (Loss) (8,560) (11,097) (37,853) (245,531) Change in Unrealized Appreciation (Depreciation) 68,158 (32,216) 513,100 (298,017) -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 71,168 (32,074) 507,877 (513,959) -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (12,021) (11,176) (18,634) (19,117) Admiral Shares -- -- (10,596) (8,546) Institutional Shares -- -- (3,149) (2,921) Realized Capital Gain Investor Shares -- -- -- -- Admiral Shares -- -- -- -- Institutional Shares -- -- -- -- -------------------------------------------------------------------------------- Total Distributions (12,021) (11,176) (32,379) (30,584) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--NOTE F Investor Shares 23,416 40,067 (35,229) (175,369) Admiral Shares -- -- 105,703 156,028 Institutional Shares -- -- 5,492 56,906 -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 23,416 40,067 75,966 37,565 -------------------------------------------------------------------------------- Total Increase (Decrease) 82,563 (3,183) 551,464 (506,978) -------------------------------------------------------------------------------- NET ASSETS Beginning of Period 415,720 418,903 1,762,548 2,269,526 -------------------------------------------------------------------------------- End of Period $498,283 $415,720 $2,314,012 $1,762,548 ================================================================================ 26 -------------------------------------------------------------------------------- TAX-MANAGED TAX-MANAGED CAPITAL APPRECIATION FUND SMALL-CAP FUND --------------------------- ------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------ 2003 2002 2003 2002 (000) (000) (000) (000) -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 25,456 $ 20,534 $ 5,743 $ 4,490 Realized Net Gain (Loss) (163,709) (106,097) (20,076) (36,397) Change in Unrealized Appreciation (Depreciation) 779,669 (536,013) 266,346 (72,576) -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 641,416 (621,576) 252,013 (104,483) -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (13,637) (12,093) (5,737) (4,465) Admiral Shares (10,861) (8,248) -- -- Institutional Shares (1,042) (1,216) (80) (227) Realized Capital Gain Investor Shares -- -- -- -- Admiral Shares -- -- -- -- Institutional Shares -- -- -- -- -------------------------------------------------------------------------------- Total Distributions (25,540) (21,557) (5,817) (4,692) -------------------------------------------------------------------------------- Capital Share Transactions--Note F Investor Shares (32,762) (134,940) 88,797 135,406 Admiral Shares 118,814 187,073 -- -- Institutional Shares (30,325) 14,355 (24,074) (17,238) -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 55,727 66,488 64,723 118,168 -------------------------------------------------------------------------------- Total Increase (Decrease) 671,603 (576,645) 310,919 8,993 -------------------------------------------------------------------------------- Net Assets Beginning of Period 2,001,135 2,577,780 630,705 621,712 -------------------------------------------------------------------------------- End of Period $2,672,738 $2,001,135 $941,624 $630,705 ================================================================================ 27 sTATEMENT OF CHANGES IN NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- TAX-MANAGED INTERNATIONAL FUND ----------------------------- YEAR ENDED DECEMBER 31, ----------------------------- 2003 2002 (000) (000) -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 10,404 $ 8,166 Realized Net Gain (Loss) (13,909) (24,940) Change in Unrealized Appreciation (Depreciation) 160,754 (51,327) -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 157,249 (68,101) -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (8,724) (7,187) Institutional Shares (1,434) (1,040) Realized Capital Gain Investor Shares -- -- Institutional Shares -- -- -------------------------------------------------------------------------------- Total Distributions (10,158) (8,227) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--NOTE F Investor Shares 52,530 73,746 Institutional Shares 35,424 1,040 -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 87,954 74,786 -------------------------------------------------------------------------------- Total Increase (Decrease) 235,045 (1,542) -------------------------------------------------------------------------------- NET ASSETS Beginning of Period 380,898 382,440 -------------------------------------------------------------------------------- End of Period $615,943 $380,898 ================================================================================ 28 FINANCIAL HIGHLIGHTS This table summarizes each fund's investment results and distributions to shareholders on a per-share basis for each class of shares. It also presents the 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.
TAX-MANAGED BALANCED FUND ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $15.54 $17.18 $18.30 $18.87 $16.74 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .42 .44 .46 .48 .43 Net Realized and Unrealized Gain (Loss) on Investments* 2.20 (1.65) (1.12) (.56) 2.13 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.62 (1.21) (.66) (.08) 2.56 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income** (.44) (.43) (.46) (.49) (.43) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.44) (.43) (.46) (.49) (.43) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $17.72 $15.54 $17.18 $18.30 $18.87 ======================================================================================================================= TOTAL RETURN+ 17.05% -7.07% -3.54% -0.50% 15.49% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $498 $416 $419 $400 $330 Ratio of Total Expenses to Average Net Assets 0.17% 0.18% 0.19% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 2.58% 2.69% 2.64% 2.61% 2.52% Portfolio Turnover Rate 16% 24% 21% 15% 13% ======================================================================================================================= *Includes increases from redemption fees of $.01, $.01, $.01, $.01, and $.01. **Nontaxable dividends represent 77%, 82%, 87%, 92%, and 90% of dividends from net investment income. +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.
29 FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-MANAGED GROWTH AND INCOME FUND INVESTOR SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.15 $24.93 $28.66 $31.81 $26.55 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .34 .313 .294 .295 .307 Net Realized and Unrealized Gain (Loss) on Investments* 5.08 (5.768) (3.725) (3.148) 5.267 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.42 (5.455) (3.431) (2.853) 5.574 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.34) (.325) (.299) (.297) (.314) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.34) (.325) (.299) (.297) (.314) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $24.23 $19.15 $24.93 $28.66 $31.81 ======================================================================================================================= TOTAL RETURN** 28.53% -21.95% -11.93% -9.03% 21.12% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $1,321 $1,077 $1,606 $2,320 $2,240 Ratio of Total Expenses to Average Net Assets 0.17% 0.17% 0.18% 0.19% 0.19% Ratio of Net Investment Income to Average Net Assets 1.63% 1.44% 1.13% 0.96% 1.11% Portfolio Turnover Rate 5% 9% 5% 5% 4% ======================================================================================================================= *Includes increases from redemption fees of $.01, $.03, $.02, $.02, and $.01. **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.
30 TAX-MANAGED GROWTH AND INCOME FUND ADMIRAL SHARES -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, NOV. 12* TO ----------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $39.35 $51.24 $50.00 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .733 .673 .087 Net Realized and Unrealized Gain (Loss) on Investments** 10.443 (11.870) 1.348 -------------------------------------------------------------------------------- Total from Investment Operations 11.176 (11.197) 1.435 -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.726) (.693) (.195) Distributions from Realized Capital Gains -- -- -- -------------------------------------------------------------------------------- Total Distributions (.726) (.693) (.195) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $49.80 $39.35 $51.24 ================================================================================ TOTAL RETURN+ 28.64% -21.92% 2.87% ================================================================================ RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $777 $520 $505 Ratio of Total Expenses to Average Net Assets 0.11% 0.11% 0.14%++ Ratio of Net Investment Income to Average Net Assets 1.69% 1.52% 1.26%++ Portfolio Turnover Rate 5% 9% 5% -------------------------------------------------------------------------------- *Inception. **Includes increases from redemption fees of $.02, $.05, and $.03. +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. 31 FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-MANAGED GROWTH AND INCOME FUND INSTITUTIONAL SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, Mar. 4* to ---------------------------------------------------------- Dec. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.15 $24.93 $28.66 $31.81 $26.99 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .369 .331 .319 .319 .274 Net Realized and Unrealized Gain (Loss) on Investments** 5.080 (5.768) (3.725) (3.148) 4.882 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.449 (5.437) (3.406) (2.829) 5.156 ----------------------------------------------------------------------------------------------------------------------- Distributions Dividends from Net Investment Income (.359) (.343) (.324) (.321) (.336) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.359) (.343) (.324) (.321) (.336) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $24.24 $19.15 $24.93 $28.66 $31.81 ======================================================================================================================= TOTAL RETURN+ 28.69% -21.88% -11.84% -8.96% 19.23% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $217 $167 $158 $95 $108 Ratio of Total Expenses to Average Net Assets 0.08% 0.08% 0.08% 0.11% 0.10%++ Ratio of Net Investment Income to Average Net Assets 1.72% 1.54% 1.25% 1.04% 1.18%++ Portfolio Turnover Rate 5% 9% 5% 5% 4% ======================================================================================================================= *Inception. **Includes increases from redemption fees of $.01, $.03, $.02, $.02, and $.01. +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.
32 FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-MANAGED CAPITAL APPRECIATION FUND INVESTOR SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.49 $25.73 $30.59 $34.17 $25.69 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .238 .196 .164 .117 .117 Net Realized and Unrealized Gain (Loss) on Investments* 5.940 (6.231) (4.854) (3.578) 8.487 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.178 (6.035) (4.690) (3.461) 8.604 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.238) (.205) (.170) (.119) (.124) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.238) (.205) (.170) (.119) (.124) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $25.43 $19.49 $25.73 $30.59 $34.17 ======================================================================================================================= TOTAL RETURN** 31.72% -23.45% -15.34% -10.13% 33.50% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $1,466 $1,154 $1,678 $2,643 $2,378 Ratio of Total Expenses to Average Net Assets 0.17% 0.17% 0.18% 0.19% 0.19% Ratio of Net Investment Income to Average Net Assets 1.09% 0.87% 0.60% 0.36% 0.47% Portfolio Turnover Rate 11% 10% 13% 17% 12% ======================================================================================================================= *Includes increases from redemption fees of $.01, $.02, $.02, $.01, and $.01. **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.
33 FINANCIAL HIGHLIGHTS (CONTINUED) TAX-MANAGED CAPITAL APPRECIATION FUND ADMIRAL SHARES -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, NOV. 12* TO ----------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $39.24 $51.79 $50.00 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .51 .42 .064 Net Realized and Unrealized Gain (Loss) on Investments** 11.96 (12.53) 2.072 -------------------------------------------------------------------------------- Total from Investment Operations 12.47 (12.11) 2.136 -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.51) (.44) (.346) Distributions from Realized Capital Gains -- -- -- -------------------------------------------------------------------------------- Total Distributions (.51) (.44) (.346) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $51.20 $39.24 $51.79 ================================================================================ TOTAL RETURN+ 31.80% -23.38% 4.26% ================================================================================ RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $1,103 $741 $778 Ratio of Total Expenses to Average Net Assets 0.11% 0.11% 0.14%++ Ratio of Net Investment Income to Average Net Assets 1.16% 0.95% 0.79%++ Portfolio Turnover Rate 11% 10% 13% ================================================================================ *Inception. **Includes increases from redemption fees of $.02, $.03, and $.03. +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. 34
TAX-MANAGED CAPITAL APPRECIATION FUND INSTITUTIONAL SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, FEB. 24* TO ---------------------------------------------------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $19.49 $25.73 $30.59 $34.18 $26.32 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .267 .216 .188 .136 .129 Net Realized and Unrealized Gain (Loss) on Investments** 5.940 (6.231) (4.854) (3.578) 7.877 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.207 (6.015) (4.666) (3.442) 8.006 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.257) (.225) (.194) (.148) (.146) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.257) (.225) (.194) (.148) (.146) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $25.44 $19.49 $25.73 $30.59 $34.18 ======================================================================================================================= TOTAL RETURNY 31.87% -23.37% -15.26% -10.07% 30.43% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $104 $106 $121 $210 $165 Ratio of Total Expenses to Average Net Assets 0.08% 0.08% 0.08% 0.10% 0.10%++ Ratio of Net Investment Income to Average Net Assets 1.17% 0.98% 0.69% 0.46% 0.56%++ Portfolio Turnover Rate 11% 10% 13% 17% 12% ======================================================================================================================= *Inception. **Includes increases from redemption fees of $.01, $.02, $.02, $.01, and $.01. +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.
35 FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-MANAGED SMALL-CAP FUND INVESTOR SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, FEB. 25* TO ---------------------------------------------------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $12.67 $14.92 $14.23 $12.61 $10.00 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .109 .092 .079 .074 .049 Net Realized and Unrealized Gain (Loss) on Investments** 4.770 (2.247) .696 1.620 2.615 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.879 (2.155) .775 1.694 2.664 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.109) (.095) (.085) (.074) (.054) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.109) (.095) (.085) (.074) (.054) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $17.44 $12.67 $14.92 $14.23 $12.61 ======================================================================================================================= TOTAL RETURN+ 38.51% -14.44% 5.44% 13.44% 26.28% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $929 $601 $568 $368 $194 Ratio of Total Expenses to Average Net Assets 0.17% 0.17% 0.20% 0.20% 0.19%++ Ratio of Net Investment Income to Average Net Assets 0.77% 0.68% 0.63% 0.64% 0.70%++ Portfolio Turnover Rate 21% 21% 25% 64% 27% ======================================================================================================================= *Initial share purchase date. Subscription period for the fund was February 22, 1999, to March 24, 1999, during which time all assets were held in money market instruments. Performance measurement begins March 25, 1999. **Includes increases from redemption fees of $.01, $.01, $0, $0, and $0. +Total returns do not reflect the transaction fee on purchases (0.5% from April 1, 2000, through March 31, 2002; 1% through March 31, 2000), the 2% redemption fee on shares held less than one year, or the 1% redemption fee on shares held at least one year but less than five years. ++Annualized.
36
TAX-MANAGED SMALL-CAP FUND INSTITUTIONAL SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, APR. 21* TO ---------------------------------------------------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $12.68 $14.92 $14.23 $12.61 $10.76 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .134 .105 .092 .085 .044 Net Realized and Unrealized Gain (Loss) on Investments** 4.770 (2.247) .696 1.620 1.866 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.904 (2.142) .788 1.705 1.910 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.114) (.098) (.098) (.085) (.060) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.114) (.098) (.098) (.085) (.060) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $17.47 $12.68 $14.92 $14.23 $12.61 ======================================================================================================================= TOTAL RETURN+ 38.68% -14.36% 5.53% 13.53% 17.77% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $12 $29 $53 $46 $19 Ratio of Total Expenses to Average Net Assets 0.10% 0.10% 0.10% 0.10% 0.10%++ Ratio of Net Investment Income to Average Net Assets 0.84% 0.74% 0.73% 0.76% 0.74%++ Portfolio Turnover Rate 21% 21% 25% 64% 27% ======================================================================================================================= *Inception. **Includes increases from redemption fees of $.01, $.01, $0, $0, and $0. +Total returns do not reflect the transaction fee on purchases (0.5% from April 1, 2000, through March 31, 2002; 1% through March 31, 2000), the 2% redemption fee on shares held less than one year, or the 1% redemption fee on shares held at least one year but less than five years. ++Annualized.
37 FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-MANAGED INTERNATIONAL FUND INVESTOR SHARES ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, AUG. 17* TO ---------------------------------------------------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $6.43 $7.79 $10.14 $11.96 $10.00 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .158 .14 .111 .11 .03 Net Realized and Unrealized Gain (Loss) on Investments** 2.325 (1.36) (2.336) (1.82) 1.97 ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.483 (1.22) (2.225) (1.71) 2.00 ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.153) (.14) (.125) (.11) (.04) Distributions from Realized Capital Gains -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.153) (.14) (.125) (.11) (.04) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $8.76 $6.43 $ 7.79 $10.14 $11.96 ======================================================================================================================= TOTAL RETURN+ 38.67% -15.62% -21.94% -14.29% 20.01% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $514 $334 $327 $241 $135 Ratio of Total Expenses to Average Net Assets 0.28% 0.31% 0.35% 0.35% 0.35%++ Ratio of Net Investment Income to Average Net Assets 2.33% 2.04% 1.49% 1.24% 0.96%++ Portfolio Turnover Rate 9% 7% 20% 5% 7% ======================================================================================================================= *Inception. **Includes increases from redemption fees of $.01, $.01, $0, $.01, and $0. +Total returns do not reflect the transaction fee on purchases (0.25% from April 1, 2000, through March 31, 2002; 0.75% through March 31, 2000), 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 TAX-MANAGED INTERNATIONAL FUND INSTITUTIONAL SHARES -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, JAN. 4* TO ----------------- DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $6.43 $7.79 $10.13 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .17 .148 .123 Net Realized and Unrealized Gain (Loss) on Investments** 2.33 (1.361) (2.329) -------------------------------------------------------------------------------- Total from Investment Operations 2.50 (1.213) (2.206) -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.16) (.147) (.134) Distributions from Realized Capital Gains -- -- -- -------------------------------------------------------------------------------- Total Distributions (.16) (.147) (.134) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $8.77 $6.43 $ 7.79 ================================================================================ TOTAL RETURN+ 38.94% -15.52% -21.77% ================================================================================ RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $102 $47 $55 Ratio of Total Expenses to Average Net Assets 0.17% 0.20% 0.22%++ Ratio of Net Investment Income to Average Net Assets 2.44% 2.16% 1.68%++ Portfolio Turnover Rate 9% 7% 20% ================================================================================ *Inception. **Includes increases from redemption fees of $0, $.01, and $0. +Total returns do not reflect the 0.25% transaction fee on purchases through March 31, 2002, 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. SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS Vanguard Tax-Managed Funds comprise the Tax-Managed Balanced, Tax-Managed Growth and Income, Tax-Managed Capital Appreciation, Tax-Managed Small-Cap, and Tax-Managed International Funds, each of which is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The Tax-Managed Growth and Income and Tax-Managed Capital Appreciation Funds each offer three classes of shares: Investor Shares, Admiral Shares, and Institutional Shares. The Tax-Managed Small-Cap and Tax-Managed International Funds each offer two classes of shares: Investor Shares and Institutional Shares. The Tax-Managed Balanced Fund offers only Investor Shares. Investor Shares are available to any investor who meets the funds' minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria. Institutional Shares are designed for investors who meet certain administrative and servicing criteria and invest a minimum of $10 million. The Tax-Managed Balanced Fund invests in debt instruments of many municipal issuers; the issuers' abilities to meet their obligations may be affected by economic and political developments in a specific state or region. The Tax-Managed International Fund invests in securities of foreign issuers, which may subject it to investment risks not normally associated with investing in securities of United States corporations. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The funds consistently follow such policies in preparing their financial statements. 1. SECURITY VALUATION: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Bonds, and temporary cash investments acquired over 60 days to maturity, are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the funds' pricing time but after the close of the securities' primary markets, are valued by methods deemed by the board of trustees to represent fair value. 2. FOREIGN CURRENCY: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates on the valuation date as employed by Morgan Stanley Capital International in the calculation of its indexes. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the asset or liability is settled in cash, when they are recorded as realized foreign currency gains (losses). 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. 40 4. 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. 5. DISTRIBUTIONS: Distributions to shareholders are recorded on the ex-dividend date. 6. 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 discounts on municipal bonds are amortized and accreted, respectively, to interest income over the lives of the respective securities. Fees assessed on capital share transactions are credited to paid-in capital. Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets. B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to each 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, 2003, the funds had contributed capital to Vanguard (included in Other Assets) of: -------------------------------------------------------------------------------- CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF TO VANGUARD OF FUND VANGUARD'S TAX-MANAGED FUND (000) NET ASSETS CAPITALIZATION -------------------------------------------------------------------------------- Balanced $ 77 0.02% 0.08% Growth and Income 351 0.02 0.35 Capital Appreciation 409 0.02 0.41 Small-Cap 146 0.02 0.15 International 87 0.01 0.09 -------------------------------------------------------------------------------- The funds' trustees and officers are also directors and officers of Vanguard. C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the year ended December 31, 2003, the Tax-Managed International Fund realized net foreign currency gains of $252,000, which increased distributable net income for tax purposes; accordingly, such gains have been reclassified from accumulated net realized losses to undistributed net investment income. 41 NOTES TO FINANCIAL STATEMENTS (CONTINUED) At December 31, 2003, the funds had the following tax-basis amounts available for distribution, and capital losses available to offset future net capital gains: -------------------------------------------------------------------------------- AMOUNT AVAILABLE FOR DISTRIBUTION CAPITAL LOSSES ----------------------- ---------------------------- ORDINARY LONG-TERM EXPIRATION: FISCAL INCOME CAPITAL GAIN AMOUNT YEARS ENDING TAX-MANAGED FUND (000) (000) (000) DECEMBER 31, -------------------------------------------------------------------------------- Balanced $(184)* -- $ 36,996 2005-2012 Growth and Income 308 -- 436,447 2004-2012 Capital Appreciation (123)* -- 606,863 2004-2011 Small-Cap (68)* -- 65,359 2007-2012 International 99 -- 74,226 2007-2012 -------------------------------------------------------------------------------- *Amount from the fund's December 2003 dividend payable in January 2004 that will be used to reduce required 2004 ordinary income dividends. At December 31, 2003, net unrealized appreciation (depreciation) of investment securities for tax purposes was: -------------------------------------------------------------------------------- (000) ----------------------------------------------- NET UNREALIZED APPRECIATED DEPRECIATED APPRECIATION TAX-MANAGED FUND SECURITIES SECURITIES (DEPRECIATION) -------------------------------------------------------------------------------- Balanced $ 93,434 $ (2,460) $ 90,974 Growth and Income 582,774 (83,972) 498,802 Capital Appreciation 937,128 (39,760) 897,368 Small-Cap 306,845 (4,939) 301,906 International 84,360 (41,353) 43,007 -------------------------------------------------------------------------------- The Tax-Managed International Fund had net unrealized foreign currency gains of $107,000 resulting from the translation of other assets and liabilities at December 31, 2003. D. During the year ended December 31, 2003, purchases and sales of investment securities other than temporary cash investments were: -------------------------------------------------------------------------------- (000) --------------------------- TAX-MANAGED FUND PURCHASES SALES -------------------------------------------------------------------------------- Balanced $ 76,110 $ 68,833 Growth and Income 177,431 100,517 Capital Appreciation 312,540 255,077 Small-Cap 223,615 158,014 International 121,090 41,105 -------------------------------------------------------------------------------- 42 E. The market value of securities on loan to broker/dealers at December 31, 2003, and collateral received with respect to such loans were: -------------------------------------------------------------------------------- (000) --------------------------------- MARKET VALUE CASH OF LOANED COLLATERAL TAX-MANAGED FUND SECURITIES RECEIVED -------------------------------------------------------------------------------- Growth and Income $ 313 $ 315 Capital Appreciation 3,717 3,895 Small-Cap 18,515 19,339 International 2,375 2,520 -------------------------------------------------------------------------------- The funds invest cash collateral received in repurchase agreements, and record a liability for the return of the collateral, during the period the securities are on loan. F. Capital share transactions for each class of shares were:
--------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------- 2003 2002 ---------------------- --------------------- AMOUNT SHARES AMOUNT SHARES TAX-MANAGED FUND (000) (000) (000) (000) --------------------------------------------------------------------------------------------------- BALANCED Issued $48,701 2,935 $71,312 4,331 Issued in Lieu of Cash Distributions 10,137 605 9,614 605 Redeemed* (35,422) (2,173) (40,859) (2,569) ------------------------------------------------- Net Increase (Decrease) 23,416 1,367 40,067 2,367 --------------------------------------------------------------------------------------------------- GROWTH AND INCOME Investor Shares Issued $111,325 5,244 $150,458 6,864 Issued in Lieu of Cash Distributions 16,193 748 16,381 804 Redeemed** (162,747) (7,721) (342,208) (15,869) ------------------------------------------------- Net Increase (Decrease)--Investor Shares (35,229) (1,729) (175,369) (8,201) ------------------------------------------------- Admiral Shares Issued 142,140 3,222 227,266 5,042 Issued in Lieu of Cash Distributions 8,137 182 6,429 155 Redeemed** (44,574) (1,012) (77,667) (1,852) ------------------------------------------------- Net Increase (Decrease)--Admiral Shares 105,703 2,392 156,028 3,345 ------------------------------------------------- Institutional Shares Issued 9,505 454 65,035 2,752 Issued in Lieu of Cash Distributions 2,724 127 2,082 102 Redeemed** (6,737) (342) (10,211) (494) ------------------------------------------------- Net Increase (Decrease)--Institutional Shares 5,492 239 56,906 2,360 ---------------------------------------------------------------------------------------------------
*Net of redemption fees for 2003 and 2002 of $240,000 and $338,000, respectively. **Net of redemption fees for 2003 and 2002 of $858,000 and $2,036,000, respectively (fund totals). 43 NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------- 2003 2002 ---------------------- --------------------- AMOUNT SHARES AMOUNT SHARES TAX-MANAGED FUND (000) (000) (000) (000) --------------------------------------------------------------------------------------------------- CAPITAL APPRECIATION Investor Shares Issued $127,228 5,787 $161,791 7,252 Issued in Lieu of Cash Distributions 12,060 481 10,694 551 Redeemed* (172,050) (7,873) (307,425) (13,791) ------------------------------------------------- Net Increase (Decrease)--Investor Shares (32,762) (1,605) (134,940) (5,988) ------------------------------------------------- Admiral Shares Issued 170,008 3,847 260,923 5,607 Issued in Lieu of Cash Distributions 8,391 166 6,265 160 Redeemed* (59,585) (1,342) (80,115) (1,918) ------------------------------------------------- Net Increase (Decrease)--Admiral Shares 118,814 2,671 187,073 3,849 ------------------------------------------------- Institutional Shares Issued 1,759 76 16,774 829 Issued in Lieu of Cash Distributions 641 26 564 29 Redeemed* (32,725) (1,454) (2,983) (146) ------------------------------------------------- Net Increase (Decrease)--Institutional Shares (30,325) (1,352) 14,355 712 --------------------------------------------------------------------------------------------------- SMALL-CAP Investor Shares Issued $130,229 8,882 $165,515 11,625 Issued in Lieu of Cash Distributions 4,651 267 3,630 287 Redeemed** (46,083) (3,337) (33,739) (2,556) ------------------------------------------------- Net Increase (Decrease)--Investor Shares 88,797 5,812 135,406 9,356 ------------------------------------------------- Institutional Shares Issued 21 2 5,208 416 Issued in Lieu of Cash Distributions 80 5 102 8 Redeemed** (24,175) (1,616) (22,548) (1,679) ------------------------------------------------- Net Increase (Decrease)--Institutional Shares (24,074) (1,609) (17,238) (1,255) --------------------------------------------------------------------------------------------------- INTERNATIONAL Investor Shares Issued $122,358 17,126 $123,341 17,238 Issued in Lieu of Cash Distributions 6,899 804 5,637 899 Redeemed+ (76,727) (11,353) (55,232) (8,132) ------------------------------------------------- Net Increase (Decrease)--Investor Shares 52,530 6,577 73,746 10,005 ------------------------------------------------- Institutional Shares Issued 33,988 4,247 -- -- Issued in Lieu of Cash Distributions 1,436 167 1,040 166 Redeemed+ -- -- -- -- ------------------------------------------------- Net Increase (Decrease)--Institutional Shares 35,424 4,414 1,040 166 ---------------------------------------------------------------------------------------------------
*Net of redemption fees for 2003 and 2002 of $796,000 and $1,686,000, respectively (fund totals). **Net of redemption fees for 2003 and 2002 of $517,000 and $613,000, respectively (fund totals). +Net of redemption fees for 2003 and 2002 of $658,000 and $415,000, respectively (fund totals). 44 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Trustees of Vanguard Tax-Managed Funds: In our opinion, the statements of net assets appearing in the insert to this annual report and the accompanying related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Tax-Managed Balanced Fund, Tax-Managed Growth and Income Fund, Tax-Managed Capital Appreciation Fund, Tax-Managed Small-Cap Fund, and Tax-Managed International Fund (constituting Vanguard Tax-Managed Funds, hereafter referred to as the "Funds") at December 31, 2003, 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 accounting principles generally accepted in the United States of America. 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 audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2003 by correspondence with the custodians, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 9, 2004 45 -------------------------------------------------------------------------------- SPECIAL 2003 TAX INFORMATION (UNAUDITED) FOR VANGUARD TAX-MANAGED FUNDS This information for the fiscal year ended December 31, 2003, is included pursuant to provisions of the Internal Revenue Code. The Tax-Managed Balanced Fund designates 77.16% of its income dividends as exempt-interest dividends. The Tax-Managed International Fund has elected to pass through to shareholders the credit for taxes paid in foreign countries. Shareholders receive detailed information on foreign income and foreign tax per share by country along with their 2003 Form 1099-DIV. For corporate shareholders, the following percentages of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction. -------------------------------------------------------------------------------- PERCENTAGE -------------------------------------------------------------------------------- Tax-Managed Balanced Fund 100%* Tax-Managed Growth and Income Fund 100 Tax-Managed Capital Appreciation Fund 100 Tax-Managed Small-Cap Fund 98.7 -------------------------------------------------------------------------------- *The percentage applies only to the taxable ordinary income that has been reported on Form 1099-DIV. The funds distributed the maximum amount of qualified dividend income allowable. The amount of qualified dividend distributed by the funds was provided to individual shareholders on their 2003 Form 1099-DIV. -------------------------------------------------------------------------------- 46 -------------------------------------------------------------------------------- INVESTING IS FAST, EASY, AND SECURE ON VANGUARD.COM -------------------------------------------------------------------------------- If you're like many Vanguard investors, you believe in planning and taking control of your own investments. VANGUARD.COM was built for you--and it keeps getting better. RESEARCH AND PLAN YOUR INVESTMENTS WITH CONFIDENCE Use our PLANNING & ADVICE and RESEARCH FUNDS & STOCKS sections to: * Determine what asset allocation might best suit your needs--by taking our Investor Questionnaire. * Find out how much to save for retirement and your children's college education-- by using our planning tools. * Learn how to achieve your goals--by reading our PlainTalk(R) investment guides. * Find your next fund--by using the Compare Funds, Compare Costs, and Narrow Your Fund Choices tools. * Look up fund price, performance history, and distribution information--in a snap. INVEST AND MANAGE ACCOUNTS WITH EASE Log on to VANGUARD.COM to: * See what you own (at Vanguard and elsewhere) and how your investments are doing. * Elect to receive online statements, fund reports (like this one), prospectuses, and tax forms. * Analyze your portfolio's holdings and performance. * Open new accounts, buy and sell shares, and exchange money between funds--securely and easily. * Sign up to receive electronic newsletters from Vanguard informing you of news on our funds, products, and services, as well as on investing and the financial markets. Find out what Vanguard.com can do for you. Log on today! 47 THE PEOPLE WHO GOVERN YOUR FUND -------------------------------------------------------------------------------- The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides services to them on an at-cost basis. A majority of Vanguard's board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME FUND (NUMBER OF (YEAR OF BIRTH) VANGUARD FUNDS TRUSTEE/OFFICER OVERSEEN BY SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS ------------------------------------------------------------------------------------------------------------ JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee (1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies May 1987 Executive Officer, served by The Vanguard Group. and Trustee (118) ------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor (1937) (118) to Greenwich Associates (international business strategy consulting); January 2001 Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. ------------------------------------------------------------------------------------------------------------ RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice (1945) (118) Chairman (January-September 1999), and Vice President (prior to December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of Technitrol, Inc. (electronic components), and Agere Systems (communications components); Board Member of the American Chemistry Council; and Trustee of Drexel University. ------------------------------------------------------------------------------------------------------------ JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the HEISEN (118) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer (1950) products); Director of the Medical Center at Princeton and Women's July 1998 Research and Education Institute. ------------------------------------------------------------------------------------------------------------ BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University; (1932) (116) Director of Vanguard Investment Series plc (Irish invest-ment fund) May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish investment management firm)(since November 2001),Prudential Insurance Co. of America, BKF Capital (investment management), The Jeffrey Co. (holding company), and NeuVis, Inc.(software company). ------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- the funds. Among board members' responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers. Each trustee serves a fund until its termination; or until the trustee's retirement, resignation, or death; or otherwise as specified in the fund's organizational documents. Any trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. --------------------------------------------------------------------------------
POSITION(S) HELD WITH NAME FUND (NUMBER OF (YEAR OF BIRTH) VANGUARD FUNDS TRUSTEE/OFFICER OVERSEEN BY SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS ------------------------------------------------------------------------------------------------------------ Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO (1941) (118) Industries, Inc. (forklift trucks/housewares/lignite); Director of January 1993 Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998. ------------------------------------------------------------------------------------------------------------ J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (1936) (118) (chemicals); Director of Cummins Inc. (diesel engines), The Mead April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal distribution); Trustee of Vanderbilt University. ------------------------------------------------------------------------------------------------------------ EXECUTIVE OFFICERS* R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.; (1951) (118) Secretary of The Vanguard Group and of each of the investment June 2001 companies served by The Vanguard Group. ------------------------------------------------------------------------------------------------------------ Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the (1957) (118) investment companies served by The Vanguard Group. July 1998 ------------------------------------------------------------------------------------------------------------ *Officers of the funds are "interested persons" as defined in the Investment Company Act of 1940. More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group. ------------------------------------------------------------------------------------------------------------ VANGUARD SENIOR MANAGEMENT TEAM MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development. JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance. KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer. F. WILLIAM MCNABB, III, Client Relationship Group. ------------------------------------------------------------------------------------------------------------ JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996. ------------------------------------------------------------------------------------------------------------
[VANGUARD SHIP LOGO] THE VANGUARD GROUP(R) POST OFFICE BOX 2600 VALLEY FORGE, PA 19482-2600 Vanguard, The Vanguard Group, Vanguard.com, Vanguard Tax-Managed Funds, Admiral, PlainTalk, and the ship logo are trademarks of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners. ABOUT OUR COVER The photographs that appear on the cover of this report are copyrighted by Michael Kahn. FOR MORE INFORMATION This report is intended for the funds' shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the appropriate fund prospectus. To receive a free copy of the prospectus or the Statement of Additional Information, or to request additional information about the funds or other Vanguard funds, please contact us at one of the adjacent telephone numbers or by e-mail through VANGUARD.COM. Prospectuses may also be viewed online. All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc., unless otherwise noted. WORLD WIDE WEB www.vanguard.com FUND INFORMATION 1-800-662-7447 DIRECT INVESTOR ACCOUNT SERVICES 1-800-662-2739 INSTITUTIONAL INVESTOR SERVICES 1-800-523-1036 TEXT TELEPHONE 1-800-952-3335 (C) 2004 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Q870 022004 VANGUARD TAX-MANAGED FUNDS(R) STATEMENT OF NET ASSETS The Statement of Net Assets should be read in conjunction with the Statement of Operations, Statement of Changes in Net Assets, Financial Highlights, Notes to Financial Statements, and Report of Independent Auditors, all of which appear in the accompanying report. 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 (grouped by country for the Tax-Managed International Fund). 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. 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, but may differ because certain investments or transactions may be treated differently for financial statement and tax purposes. 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. -------------------------------------------------------------------------------- CONTENTS Tax-Managed Balanced Fund 1 Tax-Managed Growth and Income Fund 13 Tax-Managed Capital Appreciation Fund 19 Tax-Managed Small-Cap Fund 26 Tax-Managed International Fund 33 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (48.3%) -------------------------------------------------------------------------------- General Electric Co. 216,009 $ 6,692 Pfizer Inc. 179,810 6,353 ExxonMobil Corp. 148,644 6,094 Citigroup, Inc. 117,297 5,694 Microsoft Corp. 190,100 5,235 Intel Corp. 142,200 4,579 * Cisco Systems, Inc. 163,100 3,962 Johnson & Johnson 67,232 3,473 American International Group, Inc. 51,806 3,434 Wal-Mart Stores, Inc. 62,500 3,316 International Business Machines Corp. 32,900 3,049 The Procter & Gamble Co. 28,000 2,797 Bank of America Corp. 30,605 2,462 Altria Group, Inc. 41,300 2,248 The Coca-Cola Co. 43,400 2,203 Wells Fargo & Co. 34,000 2,002 Merck & Co., Inc. 43,100 1,991 * Amgen, Inc. 31,400 1,941 Verizon Communications 54,600 1,915 * Dell Inc. 55,700 1,892 PepsiCo, Inc. 40,300 1,879 * Time Warner, Inc. 101,410 1,824 ChevronTexaco Corp. 20,819 1,799 Viacom Inc. Class B 38,271 1,698 SBC Communications Inc. 63,444 1,654 Home Depot, Inc. 46,300 1,643 Medtronic, Inc. 30,400 1,478 Fannie Mae 19,100 1,434 J.P. Morgan Chase & Co. 37,700 1,385 1 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- Abbott Laboratories 29,600 $ 1,379 Merrill Lynch & Co., Inc. 23,200 1,361 Hewlett-Packard Co. 58,512 1,344 * Oracle Corp. 98,200 1,296 Eli Lilly & Co. 18,100 1,273 Morgan Stanley 21,960 1,271 3M Co. 14,600 1,241 U.S. Bancorp 41,500 1,236 American Express Co. 25,100 1,211 Wachovia Corp. 25,700 1,197 Lowe's Cos., Inc. 19,600 1,086 United Technologies Corp. 11,300 1,071 Texas Instruments, Inc. 34,500 1,014 Wyeth 23,300 989 * Applied Materials, Inc. 43,600 979 Anheuser-Busch Cos., Inc. 18,000 948 Bristol-Myers Squibb Co. 32,900 941 Bank One Corp. 20,164 919 ConocoPhillips Co. 13,476 884 UnitedHealth Group Inc. 15,000 873 * Liberty Media Corp. 72,828 866 BellSouth Corp. 30,500 863 * Comcast Corp. Special Class A 27,492 860 McDonald's Corp. 34,500 857 United Parcel Service, Inc. 11,400 850 The Walt Disney Co. 35,800 835 * Comcast Corp. Class A 25,216 829 QUALCOMM Inc. 15,000 809 * EMC Corp. 61,400 793 E.I. du Pont de Nemours & Co. 16,900 776 Walgreen Co. 20,900 760 * eBay Inc. 11,700 756 Freddie Mac 12,600 735 * Nextel Communications, Inc. 25,200 707 The Goldman Sachs Group, Inc. 7,100 701 Sysco Corp. 18,600 692 * Boston Scientific Corp. 18,600 684 FleetBoston Financial Corp. 15,400 672 Prudential Financial, Inc. 15,900 664 * Yahoo! Inc. 14,600 659 * Cendant Corp. 29,595 659 First Data Corp. 15,968 656 Cardinal Health, Inc. 10,290 629 Washington Mutual, Inc. 15,671 629 * Forest Laboratories, Inc. 10,000 618 Alcoa Inc. 16,188 615 Lehman Brothers Holdings, Inc. 7,964 615 HCA Inc. 14,202 610 Gillette Co. 16,500 606 Illinois Tool Works, Inc. 7,100 596 Clear Channel Communications, Inc. 12,530 587 FedEx Corp. 8,600 580 * Genentech, Inc. 6,200 580 Lockheed Martin Corp. 11,200 576 Newmont Mining Corp. Holding Co. 11,689 568 Dow Chemical Co. 13,500 561 AFLAC Inc. 15,500 561 Guidant Corp. 9,300 560 Fifth Third Bancorp 9,400 556 Waste Management, Inc. 18,301 542 * Zimmer Holdings, Inc. 7,570 533 * AT&T Wireless Services Inc. 66,669 533 State Street Corp. 10,200 531 * Costco Wholesale Corp. 14,200 528 Analog Devices, Inc. 11,534 526 Maxim Integrated Products, Inc. 10,300 513 Progressive Corp. of Ohio 6,100 510 MBNA Corp. 20,400 507 Target Corp. 13,200 507 * Veritas Software Corp. 13,319 495 Kimberly-Clark Corp. 8,372 495 * WellPoint Health Networks Inc. Class A 5,000 485 SLM Corp. 12,700 479 The Gap, Inc. 20,125 467 Harley-Davidson, Inc. 9,700 461 * Agilent Technologies, Inc. 15,763 461 * InterActiveCorp 13,400 455 Colgate-Palmolive Co. 9,000 450 * Sun Microsystems, Inc. 100,300 450 Union Pacific Corp. 6,459 449 The Boeing Co. 10,640 448 Best Buy Co., Inc. 8,550 447 * Corning, Inc. 42,800 446 * Xilinx, Inc. 11,500 445 * Staples, Inc. 16,237 443 * The Kroger Co. 23,800 441 Apache Corp. 5,423 440 * Starbucks Corp. 13,300 440 Devon Energy Corp. 7,623 436 Capital One Financial Corp. 7,100 435 * Bed Bath & Beyond, Inc. 10,000 433 Golden West Financial Corp. 4,200 433 Praxair, Inc. 11,200 428 Countrywide Financial Corp. 5,533 420 General Dynamics Corp. 4,600 416 Caterpillar, Inc. 5,000 415 Travelers Property Casualty Corp. Class A 24,698 414 International Game Technology 11,600 414 Motorola, Inc. 29,206 411 Stryker Corp. 4,800 408 2 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- * Kohl's Corp. 9,000 $ 404 Allstate Corp. 9,400 404 Charles Schwab Corp. 34,050 403 * PG&E Corp. 14,500 403 * Lucent Technologies, Inc. 141,100 401 Southwest Airlines Co. 24,718 399 * St. Jude Medical, Inc. 6,484 398 Anadarko Petroleum Corp. 7,796 398 Danaher Corp. 4,300 394 Metropolitan Life Insurance Co. 11,700 394 John Hancock Financial Services, Inc. 10,400 390 Burlington Resources, Inc. 7,000 388 * KLA-Tencor Corp. 6,600 387 * Amazon.com, Inc. 7,300 384 Baker Hughes, Inc. 11,940 384 * Xerox Corp. 27,700 382 * Electronic Arts Inc. 8,000 382 * Symantec Corp. 11,000 381 * Anthem, Inc. 5,036 378 * Hughes Electronic Corp. 22,771 377 * Yum! Brands, Inc. 10,800 371 Aetna Inc. 5,469 370 * Intuit, Inc. 6,900 365 Biomet, Inc. 9,925 361 The Principal Financial Group, Inc. 10,900 360 Paychex, Inc. 9,650 359 Avon Products, Inc. 5,300 358 * Lexmark International, Inc. 4,500 354 * Safeway, Inc. 15,934 349 Marriott International, Inc. Class A 7,500 346 Linear Technology Corp. 8,200 345 Marsh & McLennan Cos., Inc. 7,200 345 * Medco Health Solutions, Inc. 10,078 343 * Apollo Group, Inc. Class A 5,000 340 Federated Department Stores, Inc. 7,200 339 Franklin Resources Corp. 6,500 338 Wm. Wrigley Jr. Co. 6,000 337 Adobe Systems, Inc. 8,500 334 Norfolk Southern Corp. 14,100 333 MBIA, Inc. 5,600 332 * Altera Corp. 14,600 331 Bear Stearns Co., Inc. 4,100 328 Honeywell International Inc. 9,800 328 CVS Corp. 9,028 326 Automatic Data Processing, Inc. 8,100 321 * SunGard Data Systems, Inc. 11,400 316 Moody's Corp. 5,200 315 * Broadcom Corp. 9,200 314 * Cox Communications, Inc. Class A 9,100 313 * Fiserv, Inc. 7,925 313 * Micron Technology, Inc. 23,100 311 * Concord EFS, Inc. 20,950 311 Mattel, Inc. 16,080 310 * National Semiconductor Corp. 7,800 307 The Hartford Financial Services Group Inc. 5,200 307 * Genzyme Corp.-General Division 6,200 306 * Apple Computer, Inc. 14,300 306 M & T Bank Corp. 3,100 305 * Gilead Sciences, Inc. 5,200 302 Sovereign Bancorp, Inc. 12,700 302 * Computer Sciences Corp. 6,800 301 * Coach, Inc. 7,900 298 ITT Industries, Inc. 4,000 297 * EchoStar Communications Corp. Class A 8,657 294 * Caremark Rx, Inc. 11,600 294 Microchip Technology, Inc. 8,800 294 General Motors Corp. 5,479 293 * American Standard Cos., Inc. 2,900 292 Starwood Hotels & Resorts Worldwide, Inc. 8,101 291 Centex Corp. 2,700 291 * Edison International 13,200 289 Burlington Northern Santa Fe Corp. 8,938 289 * Phelps Dodge Corp. 3,800 289 * Sanmina-SCI Corp. 22,908 289 NIKE, Inc. Class B 4,200 288 * Quest Diagnostics, Inc. 3,900 285 Mylan Laboratories, Inc. 11,250 284 Cintas Corp. 5,650 283 * Affiliated Computer Services, Inc. Class A 5,200 283 Northrop Grumman Corp. 2,959 283 * Qwest Communications International Inc. 64,651 279 * Novellus Systems, Inc. 6,600 278 Health Management Associates Class A 11,512 276 * Univision Communications Inc. 6,910 274 * Laboratory Corp. of America Holdings 7,400 273 Hilton Hotels Corp. 15,879 272 * Siebel Systems, Inc. 19,610 272 Emerson Electric Co. 4,200 272 Kinder Morgan, Inc. 4,600 272 * Interpublic Group of Cos., Inc. 17,300 270 Harrah's Entertainment, Inc. 5,400 269 Ambac Financial Group, Inc. 3,850 267 Freeport-McMoRan Copper & Gold, Inc.Class B 6,300 265 3 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- * PeopleSoft, Inc. 11,600 $ 264 Torchmark Corp. 5,800 264 IMS Health, Inc. 10,576 263 * Office Depot, Inc. 15,700 262 The Clorox Co. 5,400 262 * BJ Services Co. 7,300 262 Schering-Plough Corp. 14,900 259 * Chiron Corp. 4,540 259 EOG Resources, Inc. 5,600 259 * Watson Pharmaceuticals, Inc. 5,600 258 Zions Bancorp 4,200 258 D. R. Horton, Inc. 5,950 257 * Varian Medical Systems, Inc. 3,700 256 * AutoZone Inc. 3,000 256 Legg Mason Inc. 3,300 255 Molex, Inc. 7,266 253 * Network Appliance, Inc. 12,339 253 Dollar General Corp. 12,060 253 AmerisourceBergen Corp. 4,500 253 Smurfit-Stone Container Corp. 13,588 252 * Teradyne, Inc. 9,900 252 XTO Energy, Inc. 8,900 252 * Tenet Healthcare Corp. 15,690 252 * Dean Foods Co. 7,650 251 * Avaya Inc. 19,400 251 * Fox Entertainment Group, Inc.Class A 8,600 251 MGIC Investment Corp. 4,400 251 * Synopsys, Inc. 7,400 250 Coca-Cola Enterprises, Inc. 11,400 249 * Sealed Air Corp. 4,600 249 * QLogic Corp. 4,800 248 * SPX Corp. 4,200 247 * Waters Corp. 7,400 245 Archer-Daniels-Midland Co. 16,121 245 The Bank of New York Co., Inc. 7,400 245 Pulte Homes, Inc. 2,600 243 * Advanced Micro Devices, Inc. 16,300 243 The Pepsi Bottling Group, Inc. 10,000 242 Mellon Financial Corp. 7,500 241 Lennar Corp. Class A 2,500 240 Jones Apparel Group, Inc. 6,800 240 * Express Scripts Inc. 3,600 239 * LAM Research Corp. 7,400 239 Radian Group, Inc. 4,900 239 * Thermo Electron Corp. 9,475 239 * Unisys Corp. 16,000 238 Loews Corp. 4,800 237 * JDS Uniphase Corp. 65,000 237 American Power Conversion Corp. 9,700 237 * Pactiv Corp. 9,900 237 Ford Motor Co. 14,765 236 Manpower Inc. 5,000 235 Sigma-Aldrich Corp. 4,100 234 * The Dun & Bradstreet Corp. 4,600 233 * NVIDIA Corp. 10,000 232 * Jabil Circuit, Inc. 8,200 232 * BEA Systems, Inc. 18,800 231 CenturyTel, Inc. 7,075 231 Republic Services, Inc. Class A 9,000 231 * Cadence Design Systems, Inc. 12,800 230 * Celgene Corp. 5,100 230 * Mercury Interactive Corp. 4,700 229 * AES Corp. 24,100 227 Lear Corp. 3,700 227 * Pioneer Natural Resources Co. 7,100 227 * L-3 Communications Holdings, Inc. 4,400 226 Rouse Co. REIT 4,800 226 * DST Systems, Inc. 5,400 225 * Citizens Communications Co. 18,137 225 Gentex Corp. 5,100 225 * Career Education Corp. 5,600 224 * Smith International, Inc. 5,400 224 * Oxford Health Plans, Inc. 5,100 222 * Host Marriott Corp. REIT 18,000 222 * Whole Foods Market, Inc. 3,300 221 * Solectron Corp. 37,400 221 * IVAX Corp. 9,237 221 Foot Locker, Inc. 9,400 220 * NTL Inc. 3,157 220 Liz Claiborne, Inc. 6,200 220 * Barr Pharmaceuticals Inc. 2,850 219 * MedImmune Inc. 8,624 219 * Mohawk Industries, Inc. 3,100 219 Expeditors International of Washington, Inc. 5,800 218 * Robert Half International, Inc. 9,300 217 The PMI Group Inc. 5,800 216 * Tellabs, Inc. 25,500 215 * 3Com Corp. 26,300 215 Fastenal Co. 4,300 215 * Sprint PCS 38,100 214 Gannett Co., Inc. 2,400 214 Telephone & Data Systems, Inc. 3,400 213 * Williams-Sonoma, Inc. 6,100 212 * Patterson Dental Co. 3,300 212 RadioShack Corp. 6,900 212 * Brinker International, Inc. 6,350 211 * Energizer Holdings, Inc. 5,600 210 Plum Creek Timber Co. Inc. REIT 6,900 210 * NVR, Inc. 450 210 Universal Health Services Class B 3,900 209 * Henry Schein, Inc. 3,100 209 * Level 3 Communications, Inc. 36,700 209 4 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- Hasbro, Inc. 9,825 $ 209 CDW Corp. 3,600 208 DENTSPLY International Inc. 4,600 208 Pogo Producing Co. 4,300 208 * AutoNation, Inc. 11,300 208 * SanDisk Corp. 3,387 207 New York Community Bancorp, Inc. 5,437 207 * Coventry Health Care Inc. 3,200 206 Fluor Corp. 5,200 206 * Health Net Inc. 6,300 206 Outback Steakhouse 4,650 206 * Ceridian Corp. 9,800 205 PETsMART, Inc. 8,600 205 * Constellation Brands, Inc. Class A 6,200 204 * MGM Mirage, Inc. 5,414 204 * Avnet, Inc. 9,400 204 * Park Place Entertainment Corp. 18,800 204 GTECH Holdings Corp. 4,100 203 * Allied Waste Industries, Inc. 14,600 203 * LSI Logic Corp. 22,800 202 * Westwood One, Inc. 5,900 202 * Iron Mountain, Inc. 5,100 202 Intersil Corp. 8,100 201 * Navistar International Corp. 4,200 201 * Biogen Idec Inc 5,460 201 * Patterson-UTI Energy, Inc. 6,100 201 * Convergys Corp. 11,500 201 * UTStarcom, Inc. 5,400 200 Noble Energy, Inc. 4,500 200 * Compuware Corp. 33,100 200 Southern Co. 6,600 200 * Providian Financial Corp. 17,100 199 Michaels Stores, Inc. 4,500 199 NSTAR 4,100 199 Darden Restaurants Inc. 9,450 199 Janus Capital Group Inc. 12,100 199 ENSCO International, Inc. 7,300 198 Rockwell Collins, Inc. 6,600 198 * Dollar Tree Stores, Inc. 6,550 197 Lyondell Chemical Co. 11,600 197 Baxter International, Inc. 6,400 195 Precision Castparts Corp. 4,300 195 * Citrix Systems, Inc. 9,200 195 Leucadia National Corp. 4,200 194 * Apogent Technologies Inc. 8,400 194 Williams Cos., Inc. 19,700 193 BB&T Corp. 5,000 193 * SICOR, Inc. 7,100 193 Medicis Pharmaceutical Corp. 2,700 192 Exelon Corp. 2,900 192 * Toys R Us, Inc. 15,200 192 * Pride International, Inc. 10,300 192 * CarMax, Inc. 6,203 192 * Newfield Exploration Co. 4,300 191 Brunswick Corp. 6,000 191 Tyson Foods, Inc. 14,331 190 Catellus Development Corp. 7,843 189 Reebok International Ltd. 4,800 189 * CIENA Corp. 28,400 189 E.W. Scripps Co. Class A 2,000 188 Mandalay Resort Group 4,200 188 HCC Insurance Holdings, Inc. 5,900 188 * Jacobs Engineering Group Inc. 3,900 187 * Lamar Advertising Co. Class A 5,000 187 * Cooper Cameron Corp. 4,000 186 * Andrx Group 7,753 186 * Entercom Communications Corp. 3,500 185 * NCR Corp. 4,768 185 W.W. Grainger, Inc. 3,900 185 * Cablevision Systems NY Group Class A 7,894 185 * Rite Aid Corp. 30,400 184 * Rowan Cos., Inc. 7,900 183 * Toll Brothers, Inc. 4,600 183 * Storage Technology Corp. 7,100 183 C.H. Robinson Worldwide, Inc. 4,800 182 * BMC Software, Inc. 9,700 181 Certegy, Inc. 5,500 180 McKesson Corp. 5,600 180 Northeast Utilities 8,900 179 IndyMac Bancorp, Inc. REIT 6,000 179 Transatlantic Holdings, Inc. 2,200 178 * Markel Corp. 700 177 * Del Monte Foods Co. 17,000 177 * Weight Watchers International, Inc. 4,600 176 * The Cheesecake Factory 4,000 176 Furniture Brands International Inc. 6,000 176 * Pharmaceutical Resources, Inc. 2,700 176 * Metro-Goldwyn-Mayer Inc. 10,273 176 * J.B. Hunt Transport Services, Inc. 6,500 176 The St. Joe Co. 4,700 175 Peabody Energy Corp. 4,200 175 Total System Services, Inc. 5,600 174 * Lincare Holdings, Inc. 5,800 174 * Ingram Micro, Inc. Class A 10,900 173 * Varco International, Inc. 8,400 173 * Cytec Industries, Inc. 4,500 173 * Big Lots Inc. 12,100 172 * Smithfield Foods, Inc. 8,300 172 * Rent-A-Center, Inc. 5,700 170 * Grant Prideco, Inc. 13,015 169 Reynolds & Reynolds Class A 5,800 168 5 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- * Saks Inc. 11,200 $ 168 * Stericycle, Inc. 3,600 168 PepsiAmericas, Inc. 9,800 168 Valero Energy Corp. 3,600 167 * Hovnanian Enterprises Inc.Class A 1,900 165 Dominion Resources, Inc. 2,590 165 * Sepracor Inc. 6,900 165 * Barnes & Noble, Inc. 5,000 164 * Westport Resources Corp. 5,500 164 Tootsie Roll Industries, Inc. 4,542 163 * Performance Food Group Co. 4,500 163 * Alleghany Corp. 730 162 Nucor Corp. 2,900 162 * WellChoice Inc. 4,700 162 Georgia Pacific Group 5,272 162 * ADC Telecommunications, Inc. 54,400 162 * CNA Financial Corp. 6,700 161 * Krispy Kreme Doughnuts, Inc. 4,400 161 * National-Oilwell, Inc. 7,200 161 * Abercrombie & Fitch Co. 6,500 161 Packaging Corp. of America 7,300 160 * United Defense Industries Inc. 5,000 159 * FMC Technologies Inc. 6,803 158 Polo Ralph Lauren Corp. 5,500 158 * Arrow Electronics, Inc. 6,800 157 Monsanto Co. 5,454 157 Kerr-McGee Corp. 3,374 157 * BOK Financial Corp. 4,020 156 * Borders Group, Inc. 7,100 156 Herman Miller, Inc. 6,300 153 Becton, Dickinson & Co. 3,700 152 * Endo Pharmaceuticals Holdings, Inc. 7,900 152 * Timberland Co. 2,900 151 CSX Corp. 4,200 151 ALLTEL Corp. 3,230 150 National City Corp. 4,400 149 BlackRock, Inc. 2,800 149 Helmerich & Payne, Inc. 5,300 148 * Scotts Co. 2,500 148 * Eon Labs, Inc. 2,900 148 * Columbia Sportswear Co. 2,700 147 Reinsurance Group of America, Inc. 3,800 147 * American Pharmaceuticals Partners, Inc. 4,350 146 * JetBlue Airways Corp. 5,475 145 Alberto-Culver Co. Class B 2,300 145 * ChoicePoint Inc. 3,800 145 * BISYS Group, Inc. 9,700 144 Wesco Financial Corp. 410 144 Hearst-Argyle Television Inc. 5,200 143 International Paper Co. 3,300 142 * U.S. Cellular Corp. 4,000 142 * Owens-Illinois, Inc. 11,700 139 * Swift Transportation Co., Inc. 6,600 139 ServiceMaster Co. 11,900 139 Eaton Vance Corp. 3,700 136 Northern Trust Corp. 2,900 135 * Key Energy Services, Inc. 13,000 134 Omnicom Group Inc. 1,500 131 Estee Lauder Cos. Class A 3,300 130 Black & Decker Corp. 2,500 123 Kellogg Co. 3,200 122 Investors Financial Services Corp. 3,100 119 * Mettler-Toledo International Inc. 2,800 118 General Mills, Inc. 2,400 109 Federated Investors, Inc. 3,700 109 Martin Marietta Materials, Inc. 2,300 108 Duke Energy Corp. 5,000 102 Sara Lee Corp. 4,700 102 * Millipore Corp. 2,300 99 SunTrust Banks, Inc. 1,300 93 AT&T Corp. 4,531 92 Sprint Corp. 5,600 92 * BearingPoint, Inc. 9,000 91 * Interactive Data Corp. 5,400 89 Sabre Holdings Corp. 4,140 89 R.J. Reynolds Tobacco Holdings, Inc. 1,501 87 * The MONY Group Inc. 2,700 84 * Maxtor Corp. 7,500 83 * DeVry, Inc. 3,200 80 News Corp. Ltd. Pfd. ADR 2,546 77 * Triad Hospitals, Inc. 2,300 76 * AGCO Corp. 3,700 74 NiSource, Inc. 3,377 74 * PanAmSat Corp. 3,404 73 * Polycom, Inc. 3,600 70 Computer Associates International, Inc. 2,362 65 Amerada Hess Corp. 1,200 64 * Vishay Intertechnology, Inc. 2,600 60 * Amkor Technology, Inc. 3,220 59 * First Health Group Corp. 3,000 58 Beckman Coulter, Inc. 1,100 56 * Tech Data Corp. 1,300 52 ProLogis REIT 1,565 50 Travelers Property Casualty Corp.Class B 2,879 49 SCANA Corp. 1,400 48 * Valassis Communications, Inc. 1,400 41 Belo Corp. Class A 1,400 40 6 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* BALANCED FUND SHARES (000) -------------------------------------------------------------------------------- * Brocade Communications Systems, Inc. 6,800 $ 39 Limited Brands, Inc. 2,138 39 * Instinet Group Inc. 6,800 35 Autodesk, Inc. 1,400 34 * King Pharmaceuticals, Inc. 2,200 34 ConAgra Foods, Inc. 1,200 32 Lennar Corp. Class B 340 31 Nordstrom, Inc. 900 31 Nationwide Financial Services, Inc. 900 30 Albertson's, Inc. 1,300 29 Newell Rubbermaid, Inc. 1,218 28 Cinergy Corp. 700 27 Electronic Data Systems Corp. 1,100 27 FirstEnergy Corp. 700 25 * Alliant Techsystems, Inc. 400 23 LaBranche & Co. Inc. 1,900 22 PNC Financial Services Group 400 22 St. Paul Cos., Inc. 400 16 Xcel Energy, Inc. 900 15 TXU Corp. 600 14 First Tennessee National Corp. 300 13 Delphi Corp. 1,235 13 * Monster Worldwide Inc. 400 9 Diamond Offshore Drilling, Inc. 400 8 * Dynegy, Inc. 1,900 8 * Pixar, Inc. 100 7 StanCorp Financial Group, Inc. 100 6 El Paso Corp. 600 5 Winn-Dixie Stores, Inc. 400 4 Trizec Properties, Inc. REIT 200 3 * Agere Systems Inc. Class B 277 1 -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $164,313) 240,780 -------------------------------------------------------------------------------- FACE AMOUNT (000) -------------------------------------------------------------------------------- MUNICIPAL BONDS (51.1%) -------------------------------------------------------------------------------- ALASKA (0.4%) Matanuska-Susitna Borough AK GO 5.50%, 3/1/2012 (3) 1,695 $ 1,958 ARIZONA (2.2%) Arizona Transp. Board Highway Rev. 5.25%, 7/1/2017 2,215 2,446 5.25%, 7/1/2020 1,965 2,135 Phoenix AZ Civic Improvement Corp. Water System Rev. 5.50%, 7/1/2015 (3) 5,525 6,267 ------------- $ 10,848 ------------- CALIFORNIA (2.8%) California GO 6.40%, 2/1/2006 (1) 500 549 6.00%, 2/1/2016 2,000 2,297 California Health Fac. Finance Auth. Rev. (Catholic Healthcare West) 6.25%, 7/1/2006 (1) 395 439 California Public Works Board Lease Rev. (Dept. of Corrections) 5.00%, 9/1/2011 (2) 1,535 1,673 California State Dept. Water Resources Power Supply Rev. 5.50%, 5/1/2015 (2) 3,000 3,401 Central Coast California Water Auth. Rev. 6.00%, 10/1/2008 (2) 1,000 1,129 Clovis CA USD GO 0.00%, 8/1/2005 (3) (ETM) 2,000 1,957 Los Angeles CA USD GO 6.00%, 7/1/2008 (3) 1,000 1,162 San Bernardino County CA Medical Center COP 5.50%, 8/1/2005 (1) 500 533 South Orange County CA Public Finance Auth. Rev. 7.00%, 9/1/2006 (1) 875 997 ------------- $ 14,137 ------------- COLORADO (0.6%) Colorado Springs CO Util. System Rev. 5.375%, 11/15/2013 2,775 3,128 CONNECTICUT (1.8%) Connecticut GO 5.00%, 8/1/2009 (4) 3,000 3,370 Connecticut Special Tax Obligation Rev. (Transp. Infrastructure) 5.00%, 9/1/2009 (4) 5,000 5,621 ------------- $ 8,991 ------------- DISTRICT OF COLUMBIA (1.3%) District of Columbia GO 5.50%, 6/1/2004 (4) (ETM) 260 265 5.50%, 6/1/2004 (4) 740 754 6.75%, 6/1/2005 (1) 5 5 5.50%, 6/1/2007 (4) 1,490 1,656 5.40%, 6/1/2012 (2) 455 507 District of Columbia Univ. Rev. (George Washington Univ.) 6.00%, 9/15/2011 (1) 3,000 3,489 ------------- $ 6,676 ------------- 7 -------------------------------------------------------------------------------- FACE MARKET TAX-MANAGED AMOUNT VALUE* BALANCED FUND (000) (000) -------------------------------------------------------------------------------- FLORIDA (2.0%) Florida Division Board Financial Dept. of General Services Systems Rev. (Dept. of Environmental Protection) 5.00%, 7/1/2009 (1) 3,000 3,360 Florida Board of Educ. Public Educ. 5.00%, 6/1/2008 3,675 4,088 Florida Turnpike Auth. Rev. 5.25%, 7/1/2009 (3) 485 543 5.25%, 7/1/2010 (3) 825 924 Tampa FL Health System Rev. (Catholic Healthcare East) 5.00%, 11/15/2009 (1) 1,000 1,115 ------------- $ 10,030 ------------- GEORGIA (1.5%) Atlanta GA Airport Fac. Rev. 5.75%, 1/1/2013 (3) 3,370 3,837 Georgia Muni. Electric Power Auth. Rev. 6.25%, 1/1/2012 (1) 3,000 3,618 ------------- $ 7,455 ------------- HAWAII (0.4%) Hawaii GO 5.875%, 10/1/2010 (1) (Prere.) 1,870 2,213 ILLINOIS (1.8%) Chicago IL (City Colleges Improvement) GO 0.00%, 1/1/2012 (3) 2,380 1,750 Illinois GO 5.25%, 8/1/2012 (1) 3,700 4,217 Illinois Sales Tax Rev. 0.00%, 12/15/2016 (2) 5,000 2,809 ------------- $ 8,776 ------------- KANSAS (0.3%) Kansas Dept. of Transp. Highway Rev. VRDO 1.16%, 1/2/2004 1,430 1,430 LOUISIANA (0.6%) Louisiana GO 5.50%, 5/15/2015 (3) 2,665 3,001 MARYLAND (0.9%) Prince Georges County GO 5.00%, 10/1/2008 3,805 4,259 MASSACHUSETTS (3.8%) Chelsea MA GO 5.50%, 6/15/2011 (2) 740 836 5.50%, 6/15/2012 (2) 735 829 Massachusetts Go 5.00%, 8/1/2007 3,000 3,290 Massachusetts Bay Transp. Auth. Rev. 6.25%, 3/1/2005 1,000 1,058 5.125%, 3/1/2013 1,695 1,868 Massachusetts Dev. Finance Agency Rev. (Smith College) Vrdo 1.18%, 1/7/2004 1,000 1,000 Massachusetts Health & Educ. Fac. Auth. Rev. (Caritas Christi Obligated Group) 6.50%, 7/1/2012 1,880 1,955 Massachusetts Health & Educ. Fac. Auth. Rev. (Harvard Univ.) VRDO 0.95%, 1/7/2004 1,300 1,300 Massachusetts Health & Educ. Fac. Auth. Rev. (Northeastern Univ.) 5.00%, 10/1/2017 (1) 1,000 1,072 Massachusetts Water Pollution Abatement Trust 6.00%, 8/1/2010 1,780 2,073 Massachusetts Water Resources Auth. Rev. 5.75%, 8/1/2004 (1) (Prere.) 300 313 5.25%, 8/1/2017 (4) 3,000 3,407 ------------- $ 19,001 ------------- MICHIGAN (1.7%) Dickinson County MI Memorial Hosp. System Rev. 7.625%, 11/1/2004 (Prere.) 130 138 Michigan Building Auth. Rev. 5.30%, 10/1/2007 (2) (Prere.) 1,250 1,420 5.125%, 10/15/2008 3,015 3,390 Michigan Muni. Bond Auth. Rev. (Clean Water Revolving Fund) 5.875%, 10/1/2010 (Prere.) 2,110 2,516 Univ. of Michigan Hosp. Rev. VRDO 1.12%, 1/7/2004 1,000 1,000 ------------- $ 8,464 ------------- MISSISSIPPI (1.1%) Mississippi GO 5.50%, 12/1/2018 2,750 3,200 5.50%, 12/1/2019 2,000 2,325 ------------- $ 5,525 ------------- MISSOURI (1.6%) Missouri Health & Educ. Fac. Auth. (Washington Univ.) 6.00%, 3/1/2010 4,000 4,738 8 -------------------------------------------------------------------------------- FACE MARKET TAX-MANAGED AMOUNT VALUE* BALANCED FUND (000) (000) -------------------------------------------------------------------------------- Missouri Health & Educ. Fac. Auth. Health Fac. Rev. (St. Luke's Episcopal - Presbyterian Hosp.) 5.50%, 12/1/2015 (4) 2,965 $ 3,308 ------------- $ 8,046 ------------- NEBRASKA (0.1%) Nebraska Public Power Dist. Rev. 5.25%, 1/1/2010 (1) 125 139 5.25%, 1/1/2011 (1) 225 250 ------------- $ 389 ------------- NEVADA (0.5%) Clark County NV Airport Improvement Rev. 5.00%, 7/1/2005 (1) 1,705 1,795 Clark County NV School Dist. GO 5.90%, 6/15/2006 (3) (Prere.) 750 834 ------------- $ 2,629 ------------- NEW JERSEY (3.0%) New Jersey GO 5.00%, 7/15/2009 3,000 3,354 New Jersey Econ. Dev. Auth. Market Transition Fac. Rev. 5.70%, 7/1/2004 (1) (Prere.) 400 417 New Jersey Transp. Corp. COP 5.50%, 9/15/2011 (2) 3,000 3,439 New Jersey Transp. Trust Fund Auth. Rev. 6.00%, 6/15/2005 (2) 2,500 2,666 6.00%, 6/15/2008 250 284 6.00%, 12/15/2011 (1) (Prere.) 625 752 6.00%, 12/15/2011 (1) (Prere.) 1,440 1,732 5.00%, 6/15/2014 1,555 1,691 6.00%, 12/15/2014 (1) 330 390 ------------- $ 14,725 ------------- NEW YORK (6.3%) Erie County NY GO 6.125%, 1/15/2011 (3) 610 723 Hempstead NY GO 5.625%, 2/1/2006 (3) (Prere.) 155 171 5.625%, 2/1/2011 (3) 685 750 Huntington NY GO 6.70%, 2/1/2010 (3) 375 453 Long Island NY Power Auth. Electric System Rev. 5.50%, 12/1/2009 (2) 2,000 2,294 5.50%, 12/1/2012 (4) (ETM) 2,000 2,343 Metro. New York Transp. Auth. Rev. (Commuter Fac.) 6.00%, 7/1/2006 (1) (ETM) 1,000 1,108 Metro. New York Transp. Auth. Rev. (Dedicated Petroleum Tax) 6.125%, 4/1/2010 (3) (Prere.) 2,110 2,512 New York City NY GO 7.10%, 8/15/2004 (Prere.) 500 524 6.375%, 8/15/2005 (Prere.) 340 371 6.375%, 8/15/2009 300 324 New York City NY Muni. Water Finance Auth. Water & Sewer System Rev. VRDO 1.30%, 1/2/2004 (3) 3,250 3,250 New York City NY Transitional Finance Auth. Rev. 5.875%, 11/1/2012 3,305 3,835 5.375%, 2/1/2013 2,000 2,268 New York City NY Transitional Finance Auth. Rev. VRDO 1.28%, 1/2/2004 1,500 1,500 New York State Dormitory Auth. Rev. (State Univ.) 5.375%, 5/15/2007 (2) 400 444 New York State Dormitory Auth. Rev. (Vassar Brothers Hosp.) 5.10%, 7/1/2010 (4) 1,500 1,643 New York State Environmental Fac. Corp. PCR (State Water Recovery Fund) 6.35%, 6/15/2004 (Prere.) 295 307 6.35%, 6/15/2006 225 233 New York State Thruway Auth. Rev. (Service Contract) 5.40%, 4/1/2004 (1) (Prere.) 400 412 5.50%, 4/1/2014 4,000 4,505 Suffolk County NY GO 5.00%, 4/1/2007 (3) 1,120 1,228 ------------- $ 31,198 ------------- NORTH CAROLINA (0.5%) North Carolina Eastern Muni. Power Agency Rev. 5.125%, 1/1/2014 2,400 2,548 OHIO (3.6%) Butler County OH Transp. Improvement Dist. Rev. 6.00%, 4/1/2012 (4) 2,250 2,602 Cleveland OH Airport System Rev. VRDO 1.25%, 1/7/2004 (4) 3,300 3,300 Cleveland OH Public Power System Rev. 7.00%, 11/15/2004 (1) (Prere.) 2,750 2,947 9 -------------------------------------------------------------------------------- FACE MARKET TAX-MANAGED AMOUNT VALUE* BALANCED FUND (000) (000) -------------------------------------------------------------------------------- Hamilton County OH Hosp. Fac. Rev. (Health Alliance of Greater Cincinnati) VRDO 1.07%, 1/7/2004 (1) 1,040 $ 1,040 1.12%, 1/7/2004 (1) 960 960 Lorain County OH Hosp. Fac. Rev. (Catholic Healthcare Partners) 6.00%, 9/1/2004 (1) 1,080 1,115 5.625%, 9/1/2013 (1) 1,775 2,004 OH Infrastructure Improvements 5.50%, 2/1/2019 2,000 2,313 Ohio Higher Educ. Fac. Comm. Rev. (Case Western Reserve Univ.) VRDO 1.30%, 1/2/2004 800 800 Ohio Housing Finance Agency Mortgage Rev. 5.025%, 3/1/2021 290 291 Ohio Water Dev. Auth. Rev. 6.00%, 12/1/2004 (2) (Prere.) 315 319 6.00%, 12/1/2008 (2) (Prere.) 75 76 Ohio Water Dev. Auth. Rev. (Pure Water) 5.75%, 12/1/2005 (1) 105 106 ------------- $ 17,873 ------------- OREGON (0.6%) Oregon State Dept. Administrative Services 5.75%, 4/1/2014 (4) 2,400 2,748 PENNSYLVANIA (3.0%) Montgomery County PA IDA PCR (PECO Energy) PUT 5.20%, 10/1/2004 2,000 2,045 Pennsylvania Convention Center Auth. Rev. 6.70%, 9/1/2014 (1) 500 528 Pennsylvania GO 5.00%, 7/1/2009 (3) 5,000 5,611 Pennsylvania Turnpike Comm. Oil Franchise Tax Rev. 5.25%, 12/1/2009 (2) 195 219 5.25%, 12/1/2009 (2) (ETM) 420 474 5.25%, 12/1/2011 (2) 145 163 5.25%, 12/1/2011 (2) (ETM) 310 349 Philadelphia PA Airport Parking Auth. 5.75%, 9/1/2008 (2) 1,150 1,311 Philadelphia PA Hosp. & Higher Educ. Fac. Auth. Rev. (Children's Hosp. of Philadelphia) VRDO 1.30%, 1/2/2004 1,100 1,100 Philadelphia PA School Dist. GO 6.25%, 9/1/2005 (2) 870 938 Philadelphia PA Water & Waste Water Rev. 6.25%, 8/1/2009 (1) 1,000 1,183 Pittsburgh PA GO 5.20%, 3/1/2010 (3) 580 610 Pittsburgh PA Water & Sewer Auth. Rev. 5.60%, 9/1/2005 (3) (Prere.) 235 252 ------------- $ 14,783 ------------- PUERTO RICO (0.6%) Puerto Rico Public Buildings Auth. Govt. Fac. Rev. 5.25%, 7/1/2014 (3) 2,425 2,793 SOUTH DAKOTA (0.2%) South Dakota Building Auth. Lease Rev. 5.25%, 12/1/2010 (2) 1,000 1,109 TENNESSEE (1.0%) Memphis Tennessee Electric System Revenue 5.00%, 12/1/2010 (1) 2,300 2,587 Metro. Govt. of Nashville & Davidson County TN Water & Sewer Rev. 6.50%, 1/1/2009 (3) 2,000 2,365 ------------- $ 4,952 ------------- TEXAS (4.7%) Austin TX Combined Util. System Rev. 5.60%, 5/15/2005 (1) (Prere.) 1,205 1,276 Austin TX Water & Wastewater System Rev. 5.75%, 5/15/2011 (1) 2,200 2,527 Brazos River TX Harbor Navigation Dist. Brazoria County Environmental (Dow Chemical Co. Project) PUT 5.20%, 5/15/2008 800 856 Carrollton TX Independent School Dist. GO 6.00%, 2/15/2009 (Prere.) 2,925 3,410 Dallas TX Civic Center Refunding & Improvement Rev. 4.60%, 8/15/2009 (1) 110 120 4.70%, 8/15/2010 (1) 815 882 10 -------------------------------------------------------------------------------- FACE MARKET TAX-MANAGED AMOUNT VALUE* BALANCED FUND (000) (000) -------------------------------------------------------------------------------- Harris County TX Health Fac. Dev. Corp. Rev. (St. Luke's Episcopal Hosp.) VRDO 1.30%, 1/2/2004 2,650 $ 2,650 Harris County TX Health Fac. Dev. Corp. Rev. (Young Men's Christian Assoc. of Greater Houston) VRDO 1.30%, 1/2/2004 LOC 700 700 Houston TX Water & Sewer System Rev. 0.00%, 12/1/2008 (2) 2,750 2,401 Lubbock TX Health Fac. Dev. Corp. Rev. (St. Joseph's Health System) 5.00%, 7/1/2008 (4) 1,645 1,818 Northwest Texas Independent School Dist. GO 0.00%, 8/15/2004 2,205 2,189 San Antonio TX Electric & Gas Rev. 5.125%, 2/1/2009 1,000 1,120 San Antonio TX Water Rev. 6.50%, 5/15/2004 (1) (Prere.) 15 15 6.50%, 5/15/2010 (1) (ETM) 75 89 Texas Muni. Power Agency Rev. 0.00%, 9/1/2010 (2) (ETM) 160 129 University Houston TX Univ Rev. 5.25%, 2/15/2009 (4) 3,000 3,380 ------------- $ 23,562 ------------- UTAH (0.1%) Intermountain Power Agency Utah Power Supply Rev. 5.20%, 7/1/2006 (ETM) 400 409 Salt Lake City UT Building Auth. Lease Rev. 5.90%, 10/1/2004 (1) (Prere.) 260 272 ------------- $ 681 ------------- VIRGINIA (0.9%) Henrico County VA Water & Sewer Rev. 5.25%, 5/1/2011 1,485 1,660 Virginia Commonwealth Transp. Board Federal Highway Rev. 5.00%, 10/1/2009 2,000 2,250 Virginia Transp. Board Rev. 6.00%, 5/15/2004 (Prere.) 500 514 ------------- $ 4,424 ------------- WASHINGTON (0.6%) King County WA Library System GO 6.05%, 12/1/2006 (Prere.) 1,000 1,123 Seattle WA Muni. Light & Power Rev. 6.25%, 7/1/2004 (Prere.) 700 732 Washington GO 6.00%, 6/1/2012 1,000 1,188 ------------- $ 3,043 ------------- WISCONSIN (0.6%) Wisconsin GO 5.75%, 5/1/2011 (Prere.) 1,340 1,575 5.75%, 5/1/2012 (Prere.) 1,355 1,565 ------------- $ 3,140 ------------- -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost $240,028) $ 254,535 -------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.4%) (Cost $404,341) $ 495,315 -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (0.6%) -------------------------------------------------------------------------------- Other Assets--Note B 4,078 Liabilities (1,110) ------------- $ 2,968 ------------- -------------------------------------------------------------------------------- NET ASSETS (100%) -------------------------------------------------------------------------------- Applicable to 28,112,294 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 498,283 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE $ 17.72 ================================================================================ *See Note A in Notes to Financial Statements. *Non-income-producing security. -------------------------------------------------------------------------------- AT DECEMBER 31, 2003, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- AMOUNT PER (000) SHARE -------------------------------------------------------------------------------- Paid-in Capital $445,150 $ 15.83 Overdistributed Net Investment Income (847) (.03) Accumulated Net Realized Losses (36,994) (1.32) Unrealized Appreciation 90,974 3.24 -------------------------------------------------------------------------------- NET ASSETS $498,283 $ 17.72 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets.. 11 KEY TO ABBREVIATIONS ADR--American Depositary Receipt. BAN--Bond Anticipation Note. COP--Certificate of Participation. CP--Commercial Paper. FR--Floating Rate. GAN--Grant Anticipation Note. GO--General Obligation Bond. IDA--Industrial Development Authority Bond. IDR--Industrial Development Revenue Bond. PCR--Pollution Control Revenue Bond. PUT--Put Option Obligation. RAN--Revenue Anticipation Note. REIT--Real Estate Investment Trust. TAN--Tax Anticipation Note. TOB--Tender Option Bond. TRAN--Tax Revenue Anticipation Note. UFSD--Union Free School District. USD--United School District. VRDO--Variable Rate Demand Obligation. (ETM)--Escrowed to Maturity. (Prere.)--Prerefunded. SCHEDULED PRINCIPAL AND INTEREST PAYMENTS ARE GUARANTEED BY: (1) MBIA (Municipal Bond Insurance Association). (2) AMBAC (AMBAC Indemnity Corporation). (3) FGIC (Financial Guaranty Insurance Company). (4) FSA (Financial Security Assurance). (5) BIGI (Bond Investors Guaranty Insurance). (6) Connie Lee Inc. (7) FHA (Federal Housing Authority). (8) CapMAC (Capital Markets Assurance Corporation). (9) American Capital Access Financial Guaranty Corporation. (10) XL Capital Assurance Inc. 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. 12 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* GROWTH AND INCOME FUND SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (100.0%) -------------------------------------------------------------------------------- General Electric Co. 2,260,816 $ 70,040 Microsoft Corp. 2,434,568 67,048 ExxonMobil Corp. 1,488,194 61,016 Pfizer Inc. 1,718,387 60,711 Citigroup, Inc. 1,161,510 56,380 Wal-Mart Stores, Inc. 974,386 51,691 Intel Corp. 1,470,736 47,358 American International Group, Inc. 587,163 38,917 * Cisco Systems, Inc. 1,554,402 37,756 International Business Machines Corp. 387,436 35,908 Johnson & Johnson 668,392 34,529 The Procter & Gamble Co. 291,868 29,152 The Coca-Cola Co. 551,926 28,010 Bank of America Corp. 334,601 26,912 Altria Group, Inc. 457,379 24,891 Merck & Co., Inc. 500,958 23,144 Wells Fargo & Co. 381,004 22,437 Verizon Communications 621,764 21,811 ChevronTexaco Corp. 240,675 20,792 * Dell Inc. 576,500 19,578 SBC Communications Inc. 745,470 19,434 United Parcel Service, Inc. 253,100 18,869 * Time Warner, Inc. 1,018,214 18,318 Home Depot, Inc. 512,329 18,183 PepsiCo, Inc. 386,580 18,022 * Amgen, Inc. 290,404 17,947 Eli Lilly & Co. 252,796 17,779 Viacom Inc. Class B 390,175 17,316 J.P. Morgan Chase & Co. 459,490 16,877 Fannie Mae 218,732 16,418 Abbott Laboratories 352,094 16,408 Hewlett-Packard Co. 686,681 15,773 * Oracle Corp. 1,176,972 15,536 3M Co. 176,690 15,024 * Comcast Corp. Class A 449,630 14,779 Morgan Stanley 243,878 14,113 American Express Co. 289,619 13,968 Wachovia Corp. 298,030 13,885 Medtronic, Inc. 272,936 13,267 U.S. Bancorp 434,354 12,935 Wyeth 299,836 12,728 Bristol-Myers Squibb Co. 436,676 12,489 Merrill Lynch & Co., Inc. 212,884 12,486 Tyco International Ltd. 450,162 11,929 BellSouth Corp. 416,172 11,778 Bank One Corp. 251,754 11,477 Texas Instruments, Inc. 389,769 11,451 The Walt Disney Co. 460,596 10,746 The Goldman Sachs Group, Inc. 106,600 10,525 FleetBoston Financial Corp. 237,477 10,366 E.I. du Pont de Nemours & Co. 224,433 10,299 ConocoPhillips Co. 153,293 10,051 United Technologies Corp. 105,989 10,045 Lowe's Cos., Inc. 177,012 9,805 QUALCOMM Inc. 180,200 9,718 Anheuser-Busch Cos., Inc. 183,428 9,663 * eBay Inc. 145,500 9,398 Freddie Mac 156,660 9,136 Dow Chemical Co. 207,296 8,617 * Applied Materials, Inc. 374,600 8,410 Walgreen Co. 230,860 8,399 Gillette Co. 227,816 8,368 Washington Mutual, Inc. 202,570 8,127 The Boeing Co. 189,483 7,985 Target Corp. 205,228 7,881 UnitedHealth Group Inc. 132,156 7,689 Fifth Third Bancorp 128,054 7,568 Alcoa Inc. 194,856 7,405 Motorola, Inc. 524,273 7,377 Schlumberger Ltd. 131,910 7,218 MBNA Corp. 287,692 7,149 McDonald's Corp. 285,830 7,097 * EMC Corp. 541,250 6,993 * Nextel Communications, Inc. 247,600 6,948 Allstate Corp. 158,280 6,809 * Boston Scientific Corp. 184,364 6,777 General Motors Corp. 126,202 6,739 First Data Corp. 163,976 6,738 Kimberly-Clark Corp. 113,644 6,715 * Yahoo! Inc. 148,000 6,685 Ford Motor Co. 412,211 6,595 Clear Channel Communications, Inc. 138,657 6,493 Caterpillar, Inc. 78,190 6,491 Honeywell International Inc. 193,928 6,483 Emerson Electric Co. 94,732 6,134 Colgate-Palmolive Co. 121,012 6,057 Cardinal Health, Inc. 97,468 5,961 Illinois Tool Works, Inc. 69,438 5,827 The Bank of New York Co., Inc. 174,100 5,766 Metropolitan Life Insurance Co. 171,200 5,764 Schering-Plough Corp. 330,985 5,756 Marsh & McLennan Cos., Inc. 119,312 5,714 Carnival Corp. 141,800 5,634 Gannett Co., Inc. 61,104 5,448 Sysco Corp. 145,616 5,421 Automatic Data Processing, Inc. 133,736 5,297 Lockheed Martin Corp. 101,476 5,216 * Forest Laboratories, Inc. 82,300 5,086 13 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* GROWTH AND INCOME FUND SHARES (000) -------------------------------------------------------------------------------- * Cendant Corp. 228,097 $ 5,080 Prudential Financial, Inc. 121,600 5,079 Southern Co. 164,812 4,986 Exelon Corp. 73,593 4,884 * AT&T Wireless Services Inc. 611,009 4,882 HCA Inc. 111,486 4,789 BB&T Corp. 122,996 4,753 Newmont Mining Corp. Holding Co. 97,309 4,730 Lehman Brothers Holdings, Inc. 61,063 4,715 The Gap, Inc. 201,585 4,679 Dominion Resources, Inc. 73,033 4,662 International Paper Co. 108,132 4,662 National City Corp. 136,760 4,642 FedEx Corp. 67,184 4,535 SunTrust Banks, Inc. 63,352 4,530 Guidant Corp. 70,000 4,214 Baxter International, Inc. 137,388 4,193 Duke Energy Corp. 204,206 4,176 AFLAC Inc. 115,400 4,175 Progressive Corp. of Ohio 48,600 4,062 NIKE, Inc. Class B 59,112 4,047 General Dynamics Corp. 44,532 4,025 Union Pacific Corp. 57,500 3,995 Northrop Grumman Corp. 41,249 3,943 State Street Corp. 75,200 3,916 Waste Management, Inc. 131,051 3,879 Sara Lee Corp. 177,872 3,862 Travelers Property Casualty Corp. Class B 226,226 3,839 * Costco Wholesale Corp. 103,152 3,835 * Zimmer Holdings, Inc. 54,397 3,830 SLM Corp. 101,400 3,821 Stryker Corp. 44,900 3,817 Best Buy Co., Inc. 72,850 3,806 General Mills, Inc. 83,982 3,804 Analog Devices, Inc. 82,700 3,775 The Hartford Financial Services Group Inc. 63,702 3,760 Omnicom Group Inc. 42,800 3,738 Maxim Integrated Products, Inc. 74,000 3,685 Occidental Petroleum Corp. 86,645 3,660 Tribune Co. 70,291 3,627 Charles Schwab Corp. 305,275 3,614 AT&T Corp. 177,698 3,607 Avon Products, Inc. 53,284 3,596 * Veritas Software Corp. 96,189 3,574 Computer Associates International, Inc. 130,300 3,562 Golden West Financial Corp. 34,254 3,535 Deere & Co. 53,979 3,511 Kellogg Co. 91,936 3,501 * Kohl's Corp. 76,500 3,438 PNC Financial Services Group 62,401 3,415 Sprint Corp. (PCS Group) 203,444 3,341 * WellPoint Health Networks Inc. Class A 34,200 3,317 * Sun Microsystems, Inc. 735,684 3,303 ALLTEL Corp. 70,236 3,272 Harley-Davidson, Inc. 68,200 3,242 CVS Corp. 88,924 3,212 * Electronic Arts Inc. 67,000 3,201 ConAgra Foods, Inc. 120,792 3,188 Capital One Financial Corp. 51,900 3,181 Danaher Corp. 34,600 3,175 Weyerhaeuser Co. 49,469 3,166 Paychex, Inc. 84,775 3,154 Countrywide Financial Corp. 41,466 3,145 * Agilent Technologies, Inc. 107,001 3,129 * Corning, Inc. 299,439 3,123 Mellon Financial Corp. 96,756 3,107 * The Kroger Co. 167,676 3,104 * Staples, Inc. 111,300 3,038 The McGraw-Hill Cos., Inc. 43,076 3,012 Devon Energy Corp. 52,303 2,995 * Xilinx, Inc. 77,100 2,987 Apache Corp. 36,475 2,958 Linear Technology Corp. 70,300 2,958 Entergy Corp. 51,486 2,941 Franklin Resources Corp. 56,500 2,941 * Starbucks Corp. 88,000 2,909 * Bed Bath & Beyond, Inc. 66,600 2,887 H.J. Heinz Co. 79,188 2,885 Anadarko Petroleum Corp. 56,509 2,883 * Univision Communications Inc. 72,487 2,877 The Chubb Corp. 42,209 2,874 Southwest Airlines Co. 177,132 2,859 Masco Corp. 104,268 2,858 Wm. Wrigley Jr. Co. 50,594 2,844 Raytheon Co. 93,719 2,815 Praxair, Inc. 73,120 2,793 International Game Technology 77,900 2,781 KeyCorp 94,348 2,766 American Electric Power Co., Inc. 88,837 2,710 * Biogen Idec Inc. 73,625 2,708 FPL Group, Inc. 41,349 2,705 * Apollo Group, Inc. Class A 39,700 2,700 Burlington Northern Santa Fe Corp. 83,427 2,699 Air Products & Chemicals, Inc. 51,080 2,699 * Lucent Technologies, Inc. 943,310 2,679 Electronic Data Systems Corp. 108,100 2,653 14 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* GROWTH AND INCOME FUND SHARES (000) -------------------------------------------------------------------------------- Ingersoll-Rand Co. 38,990 $ 2,647 FirstEnergy Corp. 74,161 2,610 ACE Ltd. 62,800 2,601 Sears, Roebuck & Co. 57,099 2,597 * PG&E Corp. 93,258 2,590 Equity Office Properties Trust REIT 89,900 2,576 * KLA-Tencor Corp. 43,800 2,570 Halliburton Co. 98,578 2,563 TJX Cos., Inc. 113,208 2,496 Progress Energy, Inc. 55,111 2,494 * Genzyme Corp.-General Division 50,400 2,487 Burlington Resources, Inc. 44,717 2,476 Campbell Soup Co. 92,312 2,474 * Xerox Corp. 177,930 2,455 PPG Industries, Inc. 38,325 2,454 SouthTrust Corp. 74,700 2,445 John Hancock Financial Services, Inc. 65,100 2,441 Baker Hughes, Inc. 75,291 2,421 Marriott International, Inc. Class A 52,068 2,406 * Chiron Corp. 42,200 2,405 * Symantec Corp. 69,400 2,405 The Principal Financial Group, Inc. 72,700 2,404 XL Capital Ltd. Class A 30,900 2,396 * St. Jude Medical, Inc. 38,792 2,380 Johnson Controls, Inc. 20,376 2,366 * Intuit, Inc. 44,600 2,360 Becton, Dickinson & Co. 57,092 2,349 Fortune Brands, Inc. 32,788 2,344 * Anthem, Inc. 31,110 2,333 * Broadcom Corp. 68,200 2,325 Aetna Inc. 34,359 2,322 Public Service Enterprise Group, Inc. 52,935 2,319 Marathon Oil Corp. 69,878 2,312 The Clorox Co. 47,514 2,307 Northern Trust Corp. 49,488 2,297 * Yum! Brands, Inc. 66,250 2,279 * Lexmark International, Inc. 28,900 2,273 Hershey Foods Corp. 29,298 2,256 Allergan, Inc. 29,336 2,253 Coca-Cola Enterprises, Inc. 102,400 2,239 PACCAR, Inc. 26,240 2,234 H & R Block, Inc. 40,100 2,220 Comerica, Inc. 39,453 2,212 Archer-Daniels-Midland Co. 145,214 2,210 * Safeway, Inc. 99,606 2,182 Consolidated Edison Inc. 50,700 2,181 Unocal Corp. 58,323 2,148 Rohm & Haas Co. 50,157 2,142 Pitney Bowes, Inc. 52,480 2,132 McKesson Corp. 65,469 2,105 Limited Brands, Inc. 116,094 2,093 Biomet, Inc. 57,415 2,090 Norfolk Southern Corp. 87,819 2,077 Adobe Systems, Inc. 52,600 2,067 * Medco Health Solutions, Inc. 60,801 2,067 Loews Corp. 41,700 2,062 St. Paul Cos., Inc. 51,366 2,037 Moody's Corp. 33,480 2,027 Simon Property Group, Inc. REIT 43,100 1,997 Synovus Financial Corp. 67,900 1,964 Marshall & Ilsley Corp. 51,000 1,951 AmSouth Bancorp 79,063 1,937 * Altera Corp. 85,036 1,930 Cintas Corp. 38,382 1,924 * PeopleSoft, Inc. 84,200 1,920 MBIA, Inc. 32,400 1,919 Federated Department Stores, Inc. 40,600 1,913 May Department Stores Co. 64,920 1,887 Albertson's, Inc. 82,474 1,868 * Computer Sciences Corp. 42,144 1,864 Mattel, Inc. 96,520 1,860 Regions Financial Corp. 49,900 1,856 * Micron Technology, Inc. 137,446 1,851 Eaton Corp. 17,059 1,842 Equity Residential REIT 61,900 1,827 CIGNA Corp. 31,538 1,813 Dover Corp. 45,480 1,808 * SunGard Data Systems, Inc. 64,600 1,790 * Comcast Corp. Special Class A 57,192 1,789 Bear Stearns Co., Inc. 22,001 1,759 Georgia Pacific Group 57,084 1,751 Textron, Inc. 30,604 1,746 PPL Corp. 39,880 1,745 * Apple Computer, Inc. 81,500 1,742 Charter One Financial, Inc. 50,102 1,731 TXU Corp. 72,944 1,730 * Transocean Inc. 71,900 1,726 CSX Corp. 48,014 1,726 * Fiserv, Inc. 43,550 1,721 * Qwest Communications International Inc. 397,876 1,719 * Quest Diagnostics, Inc. 23,400 1,711 * AutoZone Inc. 20,000 1,704 Monsanto Co. 58,820 1,693 Aon Corp. 70,650 1,691 Ameren Corp. 36,605 1,684 * Tenet Healthcare Corp. 104,699 1,680 Freeport-McMoRan Copper & Gold, Inc. Class B 39,800 1,677 Ambac Financial Group, Inc. 24,100 1,672 15 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* GROWTH AND INCOME FUND SHARES (000) -------------------------------------------------------------------------------- * American Standard Cos., Inc. 16,400 $ 1,651 Eastman Kodak Co. 64,328 1,651 * National Semiconductor Corp. 41,651 1,641 Kinder Morgan, Inc. 27,700 1,637 Starwood Hotels & Resorts Worldwide, Inc. 45,500 1,637 J.C. Penney Co., Inc. (Holding Co.) 61,506 1,616 Jefferson-Pilot Corp. 31,843 1,613 Lincoln National Corp. 39,942 1,612 * Edison International 73,228 1,606 New York Times Co. Class A 33,430 1,598 * Network Appliance, Inc. 77,500 1,591 Dollar General Corp. 75,762 1,590 Parker Hannifin Corp. 26,673 1,587 Ecolab, Inc. 57,960 1,586 Cinergy Corp. 40,006 1,553 * Concord EFS, Inc. 104,400 1,549 * Siebel Systems, Inc. 111,700 1,549 ITT Industries, Inc. 20,801 1,544 * Phelps Dodge Corp. 20,156 1,534 Sempra Energy 50,884 1,530 Xcel Energy, Inc. 89,636 1,522 Centex Corp. 14,016 1,509 Cincinnati Financial Corp. 36,000 1,508 Molex, Inc. 42,825 1,494 Rockwell Automation, Inc. 41,853 1,490 DTE Energy Co. 37,802 1,489 Tiffany & Co. 32,900 1,487 Constellation Energy Group, Inc. 37,598 1,472 * Sanmina-SCI Corp. 116,000 1,463 Hilton Hotels Corp. 85,267 1,461 * Interpublic Group of Cos., Inc. 93,354 1,456 * Novellus Systems, Inc. 34,300 1,442 The Pepsi Bottling Group, Inc. 59,100 1,429 * MedImmune Inc. 55,800 1,417 AmerisourceBergen Corp. 25,100 1,409 Newell Rubbermaid, Inc. 61,773 1,407 Family Dollar Stores, Inc. 38,800 1,392 Knight Ridder 17,970 1,390 Avery Dennison Corp. 24,784 1,388 North Fork Bancorp, Inc. 34,100 1,380 * Nabors Industries, Inc. 33,100 1,374 MeadWestvaco Corp. 45,079 1,341 UST, Inc. 37,399 1,335 IMS Health, Inc. 53,646 1,334 T. Rowe Price Group Inc. 28,100 1,332 Union Planters Corp. 42,250 1,330 * AES Corp. 140,200 1,323 KeySpan Corp. 35,800 1,317 Pulte Homes, Inc. 14,021 1,313 * Sprint PCS 232,072 1,304 ProLogis REIT 40,600 1,303 Genuine Parts Co. 39,037 1,296 NiSource, Inc. 59,059 1,296 Health Management Associates Inc. Class A 53,900 1,294 Delphi Corp. 125,873 1,285 Brown-Forman Corp. Class B 13,722 1,282 * BJ Services Co. 35,600 1,278 * Jabil Circuit, Inc. 45,000 1,274 MGIC Investment Corp. 22,100 1,258 Plum Creek Timber Co. Inc. REIT 41,100 1,252 First Tennessee National Corp. 28,300 1,248 Zions Bancorp 20,200 1,239 Harrah's Entertainment, Inc. 24,849 1,237 SAFECO Corp. 31,120 1,212 Cooper Industries, Inc. Class A 20,895 1,210 * Avaya Inc. 93,359 1,208 EOG Resources, Inc. 26,000 1,200 Rockwell Collins, Inc. 39,753 1,194 * JDS Uniphase Corp. 322,875 1,179 * Office Depot, Inc. 70,400 1,176 * Express Scripts Inc. 17,700 1,176 * Advanced Micro Devices, Inc. 78,500 1,170 Huntington Bancshares Inc. 51,410 1,157 Torchmark Corp. 25,398 1,157 Williams Cos., Inc. 116,100 1,140 Sherwin-Williams Co. 32,794 1,139 Whirlpool Corp. 15,653 1,137 * AutoNation, Inc. 61,700 1,133 RadioShack Corp. 36,764 1,128 El Paso Corp. 136,800 1,120 * Watson Pharmaceuticals, Inc. 24,200 1,113 * Solectron Corp. 187,600 1,109 R.J. Reynolds Tobacco Holdings, Inc. 19,000 1,105 * Unisys Corp. 74,181 1,102 American Power Conversion Corp. 44,800 1,095 * QLogic Corp. 21,200 1,094 * Teradyne, Inc. 42,900 1,092 Vulcan Materials Co. 22,800 1,085 * Noble Corp. 30,100 1,077 Amerada Hess Corp. 20,117 1,070 Nordstrom, Inc. 31,048 1,065 CenturyTel, Inc. 32,500 1,060 Kerr-McGee Corp. 22,679 1,054 VF Corp. 24,242 1,048 UnumProvident Corp. 66,462 1,048 * Sealed Air Corp. 19,236 1,041 Wendy's International, Inc. 25,751 1,010 Jones Apparel Group, Inc. 28,400 1,001 Nucor Corp. 17,597 985 * Mercury Interactive Corp. 20,200 983 16 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* GROWTH AND INCOME FUND SHARES (000) -------------------------------------------------------------------------------- W.W. Grainger, Inc. 20,546 $ 974 Applera Corp.-Applied Biosystems Group 46,900 971 * BMC Software, Inc. 51,085 953 C.R. Bard, Inc. 11,677 949 McCormick & Co., Inc. 31,200 939 Scientific-Atlanta, Inc. 34,156 932 Leggett & Platt, Inc. 42,900 928 * Thermo Electron Corp. 36,500 920 Dow Jones & Co., Inc. 18,240 909 * Waters Corp. 27,300 905 * Allied Waste Industries, Inc. 65,000 902 * Robert Half International, Inc. 38,600 901 Sunoco, Inc. 17,345 887 Sigma-Aldrich Corp. 15,500 886 Janus Capital Group Inc. 53,900 885 * Novell, Inc. 83,502 878 Symbol Technologies, Inc. 51,550 871 Liz Claiborne, Inc. 24,538 870 SuperValu Inc. 30,292 866 Black & Decker Corp. 17,386 858 * Pactiv Corp. 35,377 846 Engelhard Corp. 28,190 844 * NVIDIA Corp. 36,200 842 Alberto-Culver Co. Class B 13,286 838 Hasbro, Inc. 39,325 837 * King Pharmaceuticals, Inc. 54,266 828 * NCR Corp. 21,280 826 * Humana Inc. 36,000 823 Pinnacle West Capital Corp. 20,500 820 United States Steel Corp. 23,300 816 * Citizens Communications Co. 63,800 792 * Tellabs, Inc. 93,800 791 Goodrich Corp. 26,454 785 * Citrix Systems, Inc. 37,000 785 * PMC Sierra Inc. 38,700 780 Darden Restaurants Inc. 36,911 777 R.R. Donnelley & Sons Co. 25,541 770 Equifax, Inc. 31,200 764 KB HOME 10,511 762 * Comverse Technology, Inc. 43,200 760 * Providian Financial Corp. 65,228 759 Temple-Inland Inc. 12,100 758 Pall Corp. 28,195 757 * LSI Logic Corp. 85,174 756 Ball Corp. 12,602 751 * Navistar International Corp. 15,456 740 Fluor Corp. 18,580 737 International Flavors & Fragrances, Inc. 21,082 736 Apartment Investment & Management Co. Class A REIT 21,200 731 Federated Investors, Inc. 24,500 719 * CIENA Corp. 105,849 703 Sabre Holdings Corp. 32,231 696 Eastman Chemical Co. 17,482 691 Manor Care, Inc. 19,913 688 The Stanley Works 18,106 686 Ashland, Inc. 15,506 683 CenterPoint Energy Inc. 68,187 661 Brunswick Corp. 20,626 657 Boise Cascade Corp. 19,530 642 Dana Corp. 33,593 616 Autodesk, Inc. 24,820 610 Bausch & Lomb, Inc. 11,702 607 TECO Energy, Inc. 42,100 607 Tektronix, Inc. 19,052 602 * Toys R Us, Inc. 47,591 602 Bemis Co., Inc. 11,975 599 * Convergys Corp. 32,200 562 Meredith Corp. 11,296 551 * Monster Worldwide Inc. 25,100 551 * ADC Telecommunications, Inc. 181,500 539 * Compuware Corp. 86,400 522 Reebok International Ltd. 13,091 515 Maytag Corp. 17,664 492 Ryder System, Inc. 14,364 491 PerkinElmer, Inc. 28,580 488 * Rowan Cos., Inc. 20,886 484 Circuit City Stores, Inc. 47,000 476 Deluxe Corp. 11,482 475 * Millipore Corp. 10,994 473 Cummins Inc. 9,541 467 Adolph Coors Co. Class B 8,228 462 * Calpine Corp. 92,561 445 Snap-On Inc. 13,067 421 * Louisiana-Pacific Corp. 23,500 420 Crane Co. 13,254 407 * Applied Micro Circuits Corp. 68,100 407 * Andrew Corp. 34,700 399 * Big Lots Inc. 26,052 370 * Allegheny Energy, Inc. 28,800 368 * Dynegy, Inc. 83,600 358 Cooper Tire & Rubber Co. 16,685 357 Peoples Energy Corp. 8,319 350 Worthington Industries, Inc. 19,302 348 NICOR Inc. 9,880 336 * Gateway, Inc. 71,800 330 Delta Air Lines, Inc. 27,400 324 * American Greetings Corp. Class A 14,747 323 Great Lakes Chemical Corp. 11,543 314 Winn-Dixie Stores, Inc. 31,508 314 * CMS Energy Corp. 36,100 308 Dillard's Inc. 18,686 308 17 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* GROWTH AND INCOME FUND SHARES (000) -------------------------------------------------------------------------------- * The Goodyear Tire & Rubber Co. 38,616 $ 304 Visteon Corp. 29,095 303 Thomas & Betts Corp. 13,228 303 * Hercules, Inc. 24,717 302 Allegheny Technologies Inc. 18,000 238 * Parametric Technology Corp. 58,600 231 Tupperware Corp. 12,817 222 * Power-One, Inc. 19,000 206 Viacom Inc.Class A 3,800 168 -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $1,816,301) $ 2,315,103 -------------------------------------------------------------------------------- FACE AMOUNT (000) -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (0.4%) -------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account 0.98%, 1/2/2004 $7,799 7,799 0.99%, 1/2/2004--Note E 315 315 -------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,114) $ 8,114 -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.4%) (Cost $1,824,415) $ 2,323,217 -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-0.4%) -------------------------------------------------------------------------------- Other Assets--Note B 4,196 Liabilities--Note E (13,401) ------------- $ (9,205) ------------- -------------------------------------------------------------------------------- NET ASSETS (100%) $ 2,314,012 ================================================================================ *See Note A in Notes to Financial Statements. *Non-income-producing security. REIT--Real Estate Investment Trust. -------------------------------------------------------------------------------- AT DECEMBER 31, 2003, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Paid-in Capital $ 2,253,982 Overdistributed Net Investment Income (2,327) Accumulated Net Realized Losses (436,445) Unrealized Appreciation 498,802 -------------------------------------------------------------------------------- NET ASSETS $ 2,314,012 ================================================================================ Investor Shares---Net Assets Applicable to 54,495,842 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 1,320,703 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 24.23 ================================================================================ Admiral Shares--Net Assets Applicable to 15,595,656 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 776,719 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $ 49.80 ================================================================================ Institutional Shares--Net Assets Applicable to 8,936,704 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $216,590 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INSTITUTIONAL SHARES $ 24.24 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets. 18 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* CAPITAL APPRECIATION FUND SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (100.1%) -------------------------------------------------------------------------------- General Electric Co. 2,371,134 $ 73,458 Pfizer Inc. 1,991,460 70,358 ExxonMobil Corp. 1,571,734 64,441 Citigroup, Inc. 1,282,844 62,269 Microsoft Corp. 2,096,400 57,735 Intel Corp. 1,611,700 51,897 * Cisco Systems, Inc. 1,814,300 44,069 American International Group, Inc. 596,831 39,558 Johnson & Johnson 744,298 38,450 Wal-Mart Stores, Inc. 686,900 36,440 International Business Machines Corp. 363,300 33,671 The Procter & Gamble Co. 283,800 28,346 Bank of America Corp. 334,575 26,910 Altria Group, Inc. 449,500 24,462 The Coca-Cola Co. 454,400 23,061 Merck & Co., Inc. 485,100 22,412 PepsiCo, Inc. 461,400 21,510 * Amgen, Inc. 345,875 21,375 Wells Fargo & Co. 355,590 20,941 * Dell Inc. 611,200 20,756 Verizon Communications 583,142 20,457 ChevronTexaco Corp. 219,819 18,990 Viacom Inc. Class B 407,230 18,073 SBC Communications Inc. 669,620 17,457 Home Depot, Inc. 468,300 16,620 * Time Warner, Inc. 917,447 16,505 American Express Co. 316,800 15,279 Medtronic, Inc. 314,000 15,264 Merrill Lynch & Co., Inc. 257,200 15,085 Fannie Mae 198,500 14,899 J.P. Morgan Chase & Co. 399,800 14,685 Abbott Laboratories 310,400 14,465 * Oracle Corp. 1,075,048 14,191 Hewlett-Packard Co. 596,658 13,705 Morgan Stanley 235,000 13,599 Eli Lilly & Co. 186,400 13,110 3M Co. 148,200 12,601 Lowe's Cos., Inc. 216,800 12,009 Wachovia Corp. 256,200 11,936 United Technologies Corp. 125,100 11,856 U.S. Bancorp 392,700 11,695 Wyeth 255,800 10,859 * Applied Materials, Inc. 483,500 10,855 Walgreen Co. 287,400 10,456 The Walt Disney Co. 427,509 9,974 QUALCOMM Inc. 183,100 9,875 Bristol-Myers Squibb Co. 342,000 9,781 * Comcast Corp. Class A 297,357 9,774 UnitedHealth Group Inc. 165,200 9,611 McDonald's Corp. 379,700 9,428 Bank One Corp. 205,059 9,349 * Liberty Media Corp. 785,458 9,339 Alcoa Inc. 242,128 9,201 First Data Corp. 221,224 9,090 Texas Instruments, Inc. 308,600 9,067 BellSouth Corp. 316,600 8,960 * Comcast Corp. Special Class A 282,232 8,828 United Parcel Service, Inc. 117,200 8,737 * EMC Corp. 671,600 8,677 ConocoPhillips Co. 130,974 8,588 The Goldman Sachs Group, Inc. 85,500 8,441 * eBay Inc. 129,510 8,365 Freddie Mac 139,800 8,153 Anheuser-Busch Cos., Inc. 151,400 7,976 * Nextel Communications, Inc. 279,390 7,840 * Boston Scientific Corp. 208,500 7,664 E.I. du Pont de Nemours & Co. 165,600 7,599 FleetBoston Financial Corp. 171,700 7,495 The Boeing Co. 177,770 7,491 Prudential Financial, Inc. 177,500 7,414 * Cendant Corp. 331,925 7,392 * Yahoo! Inc. 162,500 7,340 Cardinal Health, Inc. 115,112 7,040 Lehman Brothers Holdings, Inc. 90,469 6,986 * Forest Laboratories, Inc. 111,600 6,897 Sysco Corp. 181,700 6,765 HCA Inc. 155,821 6,694 Illinois Tool Works, Inc. 78,600 6,595 FedEx Corp. 94,800 6,399 Guidant Corp. 106,100 6,387 Washington Mutual, Inc. 157,111 6,303 AFLAC Inc. 173,700 6,284 * Genentech, Inc. 66,850 6,255 Newmont Mining Corp.Holding Co. 128,256 6,235 Target Corp. 161,500 6,202 Waste Management, Inc. 204,297 6,047 State Street Corp. 115,700 6,026 Lockheed Martin Corp. 116,800 6,004 MBNA Corp. 241,500 6,001 * AT&T Wireless Services Inc. 749,010 5,985 Analog Devices, Inc. 128,166 5,851 * Costco Wholesale Corp. 156,100 5,804 Gillette Co. 156,716 5,756 Maxim Integrated Products, Inc. 115,500 5,752 Progressive Corp. of Ohio 68,500 5,726 * Zimmer Holdings, Inc. 79,770 5,616 * Veritas Software Corp. 149,400 5,552 Dow Chemical Co. 133,100 5,533 19 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* CAPITAL APPRECIATION FUND SHARES (000) -------------------------------------------------------------------------------- The Gap, Inc. 237,687 $ 5,517 SLM Corp. 141,700 5,339 Avon Products, Inc. 79,000 5,332 Schering-Plough Corp. 306,300 5,327 * Agilent Technologies, Inc. 179,925 5,261 * WellPoint Health Networks Inc. Class A 54,072 5,244 * Sun Microsystems, Inc. 1,160,700 5,212 Kimberly-Clark Corp. 87,496 5,170 * The Kroger Co. 276,600 5,120 * Corning, Inc. 484,400 5,052 Harley-Davidson, Inc. 106,200 5,048 Capital One Financial Corp. 81,700 5,007 Linear Technology Corp. 118,800 4,998 Best Buy Co., Inc. 95,100 4,968 * Staples, Inc. 181,830 4,964 Apache Corp. 61,131 4,958 * Starbucks Corp. 149,852 4,954 * Xilinx, Inc. 127,800 4,951 * InterActiveCorp 145,860 4,949 Golden West Financial Corp. 47,500 4,902 Devon Energy Corp. 84,111 4,816 Countrywide Financial Corp. 63,466 4,814 Paychex, Inc. 128,680 4,787 International Game Technology 133,000 4,748 Stryker Corp. 55,300 4,701 * Bed Bath & Beyond, Inc. 106,400 4,612 Emerson Electric Co. 71,200 4,610 * PG&E Corp. 165,400 4,593 Praxair, Inc. 118,200 4,515 Travelers Property Casualty Corp. Class A 269,068 4,515 Southwest Airlines Co. 279,087 4,504 Charles Schwab Corp. 380,100 4,500 * Kohl's Corp. 100,100 4,498 Fifth Third Bancorp 75,800 4,480 * Lucent Technologies, Inc. 1,576,754 4,478 * KLA-Tencor Corp. 76,100 4,465 * Amazon.com, Inc. 82,900 4,364 NIKE, Inc. Class B 63,600 4,354 * St. Jude Medical, Inc. 70,716 4,338 Metropolitan Life Insurance Co. 128,400 4,323 * Electronic Arts Inc. 90,200 4,310 Danaher Corp. 46,900 4,303 John Hancock Financial Services, Inc. 114,400 4,290 Burlington Resources, Inc. 76,500 4,237 Motorola, Inc. 300,546 4,229 * Yum! Brands, Inc. 122,680 4,220 * Xerox Corp. 305,400 4,215 * Symantec Corp. 120,400 4,172 Anadarko Petroleum Corp. 81,408 4,153 Aetna Inc. 61,397 4,149 Clear Channel Communications, Inc. 88,336 4,137 * Hughes Electronic Corp. 249,502 4,129 Biomet, Inc. 113,075 4,117 * Lexmark International, Inc. 50,800 3,995 * Medco Health Solutions, Inc. 116,321 3,954 Colgate-Palmolive Co. 78,900 3,949 Federated Department Stores, Inc. 83,300 3,926 Franklin Resources Corp. 74,700 3,889 Automatic Data Processing, Inc. 98,100 3,886 * Anthem, Inc. 51,755 3,882 Adobe Systems, Inc. 98,700 3,879 * Genzyme Corp.-General Division 78,200 3,858 * Altera Corp. 168,976 3,836 * Safeway, Inc. 174,984 3,834 * Apollo Group, Inc. Class A 56,184 3,821 * Intuit, Inc. 71,300 3,772 The Principal Financial Group, Inc. 113,500 3,753 Caterpillar, Inc. 44,000 3,653 * SunGard Data Systems, Inc. 131,400 3,641 Allstate Corp. 84,600 3,639 Norfolk Southern Corp. 152,500 3,607 Marriott International, Inc. Class A 77,100 3,562 * Apple Computer, Inc. 166,300 3,554 Moody's Corp. 58,400 3,536 General Dynamics Corp. 39,100 3,534 * Broadcom Corp. 103,100 3,515 * National Semiconductor Corp. 88,000 3,468 * Fiserv, Inc. 87,650 3,463 Northrop Grumman Corp. 36,134 3,454 Sovereign Bancorp, Inc. 145,000 3,444 Bear Stearns Co., Inc. 43,000 3,438 Starwood Hotels & Resorts Worldwide, Inc. 95,524 3,436 Mattel, Inc. 178,032 3,431 * Coach, Inc. 90,600 3,420 Microchip Technology, Inc. 101,800 3,396 * EchoStar Communications Corp. Class A 99,500 3,383 Marsh & McLennan Cos., Inc. 70,600 3,381 * Sanmina-SCI Corp. 267,046 3,367 ITT Industries, Inc. 45,000 3,339 M & T Bank Corp. 33,900 3,332 Mylan Laboratories, Inc. 131,837 3,330 Becton, Dickinson & Co. 80,600 3,316 * American Standard Cos., Inc. 32,900 3,313 * Cox Communications, Inc. Class A 95,800 3,300 20 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* CAPITAL APPRECIATION FUND SHARES (000) -------------------------------------------------------------------------------- * Caremark Rx, Inc. 130,200 $ 3,298 Centex Corp. 30,600 3,294 * Novellus Systems, Inc. 78,100 3,284 Wm. Wrigley Jr. Co. 58,200 3,271 * Edison International 148,300 3,252 * Concord EFS, Inc. 219,100 3,251 * Phelps Dodge Corp. 42,600 3,241 Cintas Corp. 64,600 3,238 * Tenet Healthcare Corp. 199,805 3,207 CSX Corp. 89,000 3,199 * Univision Communications Inc. 79,595 3,159 Kinder Morgan, Inc. 53,100 3,138 Harrah's Entertainment, Inc. 63,000 3,136 * Micron Technology, Inc. 231,000 3,112 Ambac Financial Group, Inc. 44,650 3,098 Health Management Associates Class A 128,468 3,083 * Qwest Communications International Inc. 713,479 3,082 Plum Creek Timber Co. Inc. REIT 100,900 3,072 Freeport-McMoRan Copper & Gold, Inc. Class B 72,900 3,071 * Chiron Corp. 52,840 3,011 * Watson Pharmaceuticals, Inc. 65,100 2,995 General Motors Corp. 55,882 2,984 * Network Appliance, Inc. 144,463 2,966 * Interpublic Group of Cos., Inc. 189,100 2,950 * Biogen Idec Inc 80,040 2,944 D. R. Horton, Inc. 67,950 2,940 * Affiliated Computer Services, Inc. Class A 53,900 2,935 * Quest Diagnostics, Inc. 40,100 2,932 EOG Resources, Inc. 63,400 2,927 Zions Bancorp 47,600 2,919 * Avaya Inc. 225,000 2,912 The Hartford Financial Services Group Inc. 49,200 2,904 * Teradyne, Inc. 113,700 2,894 XTO Energy, Inc. 101,800 2,881 Legg Mason Inc. 37,300 2,879 * Advanced Micro Devices, Inc. 192,700 2,871 * PeopleSoft, Inc. 125,900 2,871 Honeywell International Inc. 85,700 2,865 * Synopsys, Inc. 84,854 2,865 * Office Depot, Inc. 170,300 2,846 * SPX Corp. 48,300 2,841 Molex, Inc. 81,356 2,839 * AutoZone Inc. 33,300 2,837 Ford Motor Co. 177,313 2,837 Hilton Hotels Corp. 164,950 2,826 Coca-Cola Enterprises, Inc. 129,100 2,823 Valero Energy Corp. 60,900 2,822 * Cadence Design Systems, Inc. 156,900 2,821 * Jabil Circuit, Inc. 99,400 2,813 Pulte Homes, Inc. 29,900 2,799 AmerisourceBergen Corp. 49,800 2,796 Radian Group, Inc. 57,320 2,794 * LAM Research Corp. 86,408 2,791 American Power Conversion Corp. 114,100 2,790 * Sprint PCS 496,200 2,789 * AES Corp. 295,100 2,786 * Waters Corp. 83,300 2,762 * Thermo Electron Corp. 109,534 2,760 Gannett Co., Inc. 30,900 2,755 * BJ Services Co. 76,700 2,754 * QLogic Corp. 53,000 2,735 Jones Apparel Group, Inc. 77,600 2,734 * Solectron Corp. 461,200 2,726 * Siebel Systems, Inc. 196,000 2,719 Sigma-Aldrich Corp. 47,500 2,716 Rockwell Collins, Inc. 90,400 2,715 Lear Corp. 44,200 2,711 MGIC Investment Corp. 47,600 2,710 * Pactiv Corp. 113,400 2,710 RadioShack Corp. 88,300 2,709 Dollar General Corp. 128,687 2,701 Manpower Inc. 56,900 2,679 * Celgene Corp. 59,400 2,674 * Pioneer Natural Resources Co. 83,600 2,669 Torchmark Corp. 58,600 2,669 * The Dun & Bradstreet Corp. 52,600 2,667 Baker Hughes, Inc. 82,480 2,653 * NCR Corp. 68,337 2,651 Smurfit-Stone Container Corp. 142,765 2,651 Republic Services, Inc. Class A 103,300 2,648 * Fox Entertainment Group, Inc. Class A 90,700 2,644 CenturyTel, Inc. 81,000 2,642 * Smith International, Inc. 63,300 2,628 * Varian Medical Systems, Inc. 38,000 2,626 Gentex Corp. 59,426 2,624 * Oxford Health Plans, Inc. 60,300 2,623 Lennar Corp. Class A 27,300 2,621 * Host Marriott Corp. REIT 212,043 2,612 * Dean Foods Co. 79,200 2,603 Foot Locker, Inc. 110,900 2,601 * Express Scripts Inc. 39,100 2,597 * Robert Half International, Inc. 111,000 2,591 Rouse Co. REIT 55,100 2,590 * NTL Inc. 36,996 2,580 * Sealed Air Corp. 47,636 2,579 * AdvancePCS 48,524 2,555 * Barr Pharmaceuticals Inc. 33,150 2,551 21 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* CAPITAL APPRECIATION FUND SHARES (000) -------------------------------------------------------------------------------- SCANA Corp. 74,200 $ 2,541 * Mohawk Industries, Inc. 35,900 2,532 * DST Systems, Inc. 60,600 2,531 The PMI Group Inc. 67,800 2,524 * Patterson Dental Co. 39,315 2,522 CDW Corp. 43,600 2,518 Liz Claiborne, Inc. 70,900 2,514 Fluor Corp. 63,400 2,513 * Park Place Entertainment Corp. 230,600 2,497 Beckman Coulter, Inc. 49,000 2,491 MBIA, Inc. 42,000 2,488 The Pepsi Bottling Group, Inc. 102,800 2,486 * IVAX Corp. 103,975 2,483 Fastenal Co. 49,700 2,482 Janus Capital Group Inc. 150,500 2,470 * Williams-Sonoma, Inc. 71,000 2,469 Expeditors International of Washington, Inc. 65,500 2,467 DENTSPLY International Inc. 54,600 2,466 New York Community Bancorp, Inc. 64,800 2,466 * Coventry Health Care Inc. 38,200 2,464 * AutoNation, Inc. 134,000 2,462 The Bank of New York Co., Inc. 74,200 2,457 * Mercury Interactive Corp. 50,500 2,456 * Energizer Holdings, Inc. 65,328 2,454 * Constellation Brands, Inc. Class A 74,400 2,450 Black & Decker Corp. 49,600 2,446 PETsMART, Inc. 102,700 2,444 * Whole Foods Market, Inc. 36,400 2,444 Outback Steakhouse 55,250 2,443 * Citizens Communications Co. 195,702 2,431 * 3Com Corp. 296,575 2,423 ENSCO International, Inc. 89,000 2,418 * NVIDIA Corp. 103,800 2,413 Alberto-Culver Co. Class B 38,200 2,410 * Allied Waste Industries, Inc. 173,300 2,405 * SanDisk Corp. 39,200 2,397 * Providian Financial Corp. 205,900 2,397 Michaels Stores, Inc. 54,000 2,387 CVS Corp. 66,022 2,385 * Henry Schein, Inc. 35,100 2,372 * L-3 Communications Holdings, Inc. 46,100 2,368 Universal Health Services Class B 43,900 2,358 Darden Restaurants Inc. 111,850 2,353 * Avnet, Inc. 108,600 2,352 Noble Energy, Inc. 52,900 2,350 * Rite Aid Corp. 387,400 2,340 * King Pharmaceuticals, Inc. 153,000 2,335 * Navistar International Corp. 48,700 2,332 * Career Education Corp. 58,200 2,332 GTECH Holdings Corp. 47,100 2,331 * MGM Mirage, Inc. 61,732 2,322 Investors Financial Services Corp. 60,100 2,308 Telephone & Data Systems, Inc. 36,900 2,308 Precision Castparts Corp. 50,700 2,302 * Computer Sciences Corp. 51,900 2,296 * Apogent Technologies Inc. 99,600 2,295 * AmeriCredit Corp. 144,000 2,294 Lyondell Chemical Co. 135,200 2,292 Tyson Foods, Inc. 173,045 2,291 * Jacobs Engineering Group Inc. 47,700 2,290 Medicis Pharmaceutical Corp. 32,100 2,289 Leucadia National Corp. 49,400 2,277 * Brinker International, Inc. 68,500 2,271 * SICOR, Inc. 83,300 2,266 Autodesk, Inc. 91,794 2,256 * CarMax, Inc. 72,879 2,254 * Health Net Inc. 68,800 2,250 * Cablevision Systems NY Group Class A 96,144 2,249 Mandalay Resort Group 50,100 2,240 * NVR, Inc. 4,800 2,237 Catellus Development Corp. 92,708 2,236 NSTAR 46,000 2,231 * Juniper Networks, Inc. 119,000 2,223 Ryland Group, Inc. 25,000 2,216 * Dollar Tree Stores, Inc. 73,650 2,214 * Saks Inc. 146,500 2,203 * Tech Data Corp. 55,510 2,203 * Borders Group, Inc. 100,400 2,201 * Iron Mountain, Inc. 55,600 2,198 Pogo Producing Co. 45,400 2,193 * Patterson-UTI Energy, Inc. 66,600 2,192 * Newfield Exploration Co. 49,100 2,187 Transatlantic Holdings, Inc. 27,050 2,186 Reebok International Ltd. 55,500 2,182 Union Pacific Corp. 31,253 2,171 Federated Investors, Inc. 73,950 2,171 * Convergys Corp. 124,200 2,169 C.H. Robinson Worldwide, Inc. 57,200 2,168 * Reliant Resources, Inc. 294,400 2,167 Northeast Utilities 107,400 2,166 * Westwood One, Inc. 63,300 2,165 * MedImmune Inc. 84,000 2,134 Estee Lauder Cos. Class A 54,300 2,132 Intersil Corp. 85,600 2,127 * UTStarcom, Inc. 57,325 2,125 * Arrow Electronics, Inc. 91,500 2,117 * Foundry Networks, Inc. 76,900 2,104 * Toll Brothers, Inc. 52,900 2,103 Peabody Energy Corp. 50,400 2,102 22 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* CAPITAL APPRECIATION FUND SHARES (000) -------------------------------------------------------------------------------- * Pharmaceutical Resources, Inc. 32,200 $ 2,098 * Toys R Us, Inc. 165,900 2,097 * XM Satellite Radio Holdings, Inc. 79,100 2,085 Herman Miller, Inc. 85,800 2,082 * Level 3 Communications, Inc. 362,819 2,068 * Unisys Corp. 139,000 2,064 Packaging Corp. of America 94,400 2,064 * Markel Corp. 8,100 2,053 The St. Joe Co. 55,000 2,051 * Lamar Advertising Co. Class A 54,886 2,048 * J.B. Hunt Transport Services, Inc. 75,600 2,042 * The MONY Group Inc. 65,000 2,034 PepsiAmericas, Inc. 118,100 2,022 * American Axle & Manufacturing Holdings, Inc. 49,900 2,017 * Comverse Technology, Inc. 114,400 2,012 * Rowan Cos., Inc. 86,800 2,011 Amerada Hess Corp. 37,800 2,010 * Andrx Group 83,377 2,004 Total System Services, Inc. 64,350 2,003 * Hovnanian Enterprises Inc. Class A 23,000 2,002 * ICOS Corp. 48,500 2,002 ALLTEL Corp. 42,953 2,001 * Millipore Corp. 46,200 1,989 Polo Ralph Lauren Corp. 68,700 1,979 * CIENA Corp. 296,704 1,970 FirstEnergy Corp. 55,900 1,968 * The Cheesecake Factory 44,600 1,964 Certegy, Inc. 59,500 1,952 * Alliant Techsystems, Inc. 33,700 1,946 * Ingram Micro, Inc. Class A 122,400 1,946 * JDS Uniphase Corp. 533,100 1,946 Furniture Brands International Inc. 66,300 1,945 Southern Co. 64,200 1,942 * Del Monte Foods Co. 186,700 1,942 * Lincare Holdings, Inc. 64,500 1,937 * Storage Technology Corp. 75,000 1,931 * Rent-A-Center, Inc. 64,400 1,924 Wesco Financial Corp. 5,430 1,911 * Smithfield Foods, Inc. 92,200 1,909 * Cooper Cameron Corp. 40,700 1,897 * FMC Technologies Inc. 81,025 1,888 * Ceridian Corp. 89,900 1,882 * Corinthian Colleges, Inc. 33,700 1,872 BlackRock, Inc. 35,200 1,869 * AGCO Corp. 92,600 1,865 * Tellabs, Inc. 219,200 1,848 HCC Insurance Holdings, Inc. 58,100 1,848 Aramark Corp. Class B 67,200 1,843 StanCorp Financial Group, Inc. 29,300 1,842 * Entercom Communications Corp. 34,700 1,838 * Columbia Sportswear Co. 33,700 1,837 * Amphenol Corp. 28,700 1,835 * Sepracor Inc. 76,400 1,828 * Alleghany Corp. 8,211 1,827 * Stericycle, Inc. 38,900 1,817 * BMC Software, Inc. 96,500 1,800 * LSI Logic Corp. 202,800 1,799 Reinsurance Group of America, Inc. 46,500 1,797 * Timberland Co. 34,500 1,796 BB&T Corp. 46,300 1,789 * Westport Resources Corp. 59,900 1,789 * Eon Labs, Inc. 35,000 1,783 Kerr-McGee Corp. 38,266 1,779 * U.S. Cellular Corp. 50,100 1,779 * Mettler-Toledo International Inc. 42,100 1,777 * JetBlue Airways Corp. 66,950 1,776 * Dynegy, Inc. 412,500 1,765 * Big Lots Inc. 123,806 1,759 Monsanto Co. 60,867 1,752 * BISYS Group, Inc. 117,700 1,751 Hasbro, Inc. 82,100 1,747 * American Pharmaceuticals Partners, Inc. 51,900 1,744 Dominion Resources, Inc. 27,139 1,732 * Key Energy Services, Inc. 167,700 1,729 * Owens-Illinois, Inc. 144,700 1,720 * Performance Food Group Co. 47,500 1,718 * Cytec Industries, Inc. 44,600 1,712 * O'Reilly Automotive, Inc. 44,524 1,708 * BEA Systems, Inc. 138,800 1,707 * Metro-Goldwyn-Mayer Inc. 99,863 1,707 LNR Property Corp. 34,400 1,703 * Calpine Corp. 353,900 1,702 * WellChoice Inc. 49,100 1,694 Brunswick Corp. 53,000 1,687 * Valassis Communications, Inc. 57,300 1,682 * Krispy Kreme Doughnuts, Inc. 45,700 1,673 IndyMac Bancorp, Inc. REIT 56,000 1,668 * Scotts Co. 28,100 1,662 * Swift Transportation Co., Inc. 78,900 1,658 National City Corp. 48,800 1,656 * Weight Watchers International, Inc. 42,900 1,646 Exelon Corp. 24,800 1,646 IMS Health, Inc. 65,752 1,635 * Premcor, Inc. 62,800 1,633 Hearst-Argyle Television Inc. 59,000 1,626 * Compuware Corp. 268,662 1,623 * Western Digital Corp. 136,500 1,609 * United Defense Industries Inc. 49,900 1,591 23 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* CAPITAL APPRECIATION FUND SHARES (000) -------------------------------------------------------------------------------- * BearingPoint, Inc. 156,500 $ 1,579 * Maxtor Corp. 140,000 1,554 * Varco International, Inc. 74,600 1,539 * Pixar, Inc. 21,943 1,520 * CNA Financial Corp. 63,000 1,518 * Citrix Systems, Inc. 71,356 1,513 * Endo Pharmaceuticals Holdings, Inc. 78,500 1,512 E.W. Scripps Co. Class A 16,035 1,510 International Paper Co. 34,600 1,492 W.W. Grainger, Inc. 31,400 1,488 * BOK Financial Corp. 38,374 1,486 * Interactive Data Corp. 89,600 1,484 * Humana Inc. 64,900 1,483 * Pride International, Inc. 78,000 1,454 * Grant Prideco, Inc. 109,700 1,428 * Ameritrade Holding Corp. 100,000 1,407 Martin Marietta Materials, Inc. 29,500 1,386 * 99 Cents Only Stores 48,800 1,329 * First Health Group Corp. 67,575 1,315 * Instinet Group Inc. 239,717 1,235 * PanAmSat Corp. 57,037 1,230 * Gilead Sciences, Inc. 20,900 1,215 Eaton Vance Corp. 32,500 1,191 * Zebra Technologies Corp.Class A 17,876 1,186 Loews Corp. 23,500 1,162 Computer Associates International, Inc. 42,289 1,156 * Abercrombie & Fitch Co. 46,500 1,149 Helmerich & Payne, Inc. 39,300 1,098 Belo Corp. Class A 38,400 1,088 Duke Energy Corp. 53,200 1,088 * Atmel Corp. 174,855 1,051 Limited Brands, Inc. 56,874 1,025 General Mills, Inc. 22,200 1,006 SunTrust Banks, Inc. 13,600 972 Sara Lee Corp. 44,600 968 Sabre Holdings Corp. 43,200 933 McKesson Corp. 27,524 885 News Corp. Ltd. Pfd. ADR 27,906 844 * Laboratory Corp. of America Holdings 22,500 831 Travelers Property Casualty Corp. Class B 46,662 792 NiSource, Inc. 35,920 788 ServiceMaster Co. 66,000 769 Newell Rubbermaid, Inc. 32,660 744 AT&T Corp. 35,017 711 Reynolds & Reynolds Class A 23,500 683 Baxter International, Inc. 22,300 681 * Barnes & Noble, Inc. 20,400 670 Nucor Corp. 11,900 666 Viacom Inc. Class A 13,688 606 ProLogis REIT 18,389 590 * Chico's FAS, Inc. 14,600 539 * Education Management Corp. 16,200 503 Burlington Northern Santa Fe Corp. 14,493 46 Nordstrom, Inc. 13,500 463 Mellon Financial Corp. 12,500 401 Lennar Corp. Class B 4,150 379 Omnicom Group Inc. 3,900 341 The Clorox Co. 6,420 312 ConAgra Foods, Inc. 11,200 296 * National-Oilwell, Inc. 12,700 284 Georgia Pacific Group 8,642 265 Cinergy Corp. 5,700 221 PNC Financial Services Group 3,800 208 St. Paul Cos., Inc. 4,800 190 Occidental Petroleum Corp. 3,200 135 * ADC Telecommunications, Inc. 34,400 102 Archer-Daniels-Midland Co. 4,773 73 Sprint Corp. 4,000 66 First Tennessee National Corp. 300 13 Kellogg Co. 100 4 R.J. Reynolds Tobacco Holdings, Inc. 53 3 -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $1,776,942) $ 2,674,310 -------------------------------------------------------------------------------- FACE AMOUNT (000) -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (0.3%) -------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account 0.98%, 1/2/2004 $ 4,784 4,784 0.99%, 1/2/2004--Note E 3,895 3,895 -------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,679) $ 8,679 -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.4%) (Cost $1,785,621) $ 2,682,989 -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-0.4%) -------------------------------------------------------------------------------- Other Assets--Note B 4,372 Liabilities--Note E (14,623) ------------- $ (10,251) ------------- -------------------------------------------------------------------------------- NET ASSETS (100%) $ 2,672,738 ================================================================================ *See Note A in Notes to Financial Statements. *Non-income-producing security. ADR--American Depositary Receipt. REIT--Real Estate Investment Trust. 24 -------------------------------------------------------------------------------- TAX-MANAGED AMOUNT CAPITAL APPRECIATION FUND (000) -------------------------------------------------------------------------------- AT DECEMBER 31, 2003, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Paid-in Capital $ 2,385,310 Overdistributed Net Investment Income (3,077) Accumulated Net Realized Losses (606,863) Unrealized Appreciation 897,368 -------------------------------------------------------------------------------- NET ASSETS $ 2,672,738 ================================================================================ Investor Shares--Net Assets Applicable to 57,620,498 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 1,465,536 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 25.43 -------------------------------------------------------------------------------- Admiral Shares--Net Assets Applicable to 21,550,624 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 1,103,380 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $ 51.20 ================================================================================ Institutional Shares--Net Assets Applicable to 4,081,179 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 103,822 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INSTITUTIONAL SHARES $ 25.44 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets. 25 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (100.0%) -------------------------------------------------------------------------------- Harman International Industries, Inc. 139,900 $ 10,350 * NVR, Inc. 15,200 7,083 * Mid Atlantic Medical Services, Inc. 104,100 6,746 * Cephalon, Inc. 119,860 5,802 * Newfield Exploration Co. 118,600 5,282 * Alliant Techsystems, Inc. 83,200 4,806 Ryland Group, Inc. 52,900 4,689 * ITT Educational Services, Inc. 96,900 4,551 * Renal Care Group, Inc. 104,700 4,314 Medicis Pharmaceutical Corp. 57,900 4,128 Polaris Industries, Inc. 46,100 4,084 MDC Holdings, Inc. 62,298 4,018 * NBTY, Inc. 144,194 3,873 Jefferies Group, Inc. 116,800 3,857 Oshkosh Truck Corp. 75,100 3,832 UCBH Holdings, Inc. 97,440 3,797 The Timken Co. 188,900 3,789 * Yellow Roadway Corp. 103,586 3,747 * AnnTaylor Stores Corp. 96,050 3,746 Roper Industries Inc. 76,000 3,744 Global Payments Inc. 79,340 3,738 Regis Corp. 93,975 3,714 Shurgard Storage Centers, Inc. Class A REIT 96,700 3,641 * INAMED Corp. 74,850 3,597 Patina Oil & Gas Corp. 72,550 3,554 * Cymer, Inc. 76,800 3,547 Whitney Holdings Corp. 86,100 3,529 Hudson United Bancorp 95,389 3,525 * Performance Food Group Co. 97,000 3,508 * Pacific Sunwear of California, Inc. 165,386 3,493 Thor Industries, Inc. 62,000 3,486 The South Financial Group, Inc. 124,433 3,467 * IDEXX Laboratories Corp. 74,300 3,439 First BanCorp Puerto Rico 86,900 3,437 Standard Pacific Corp. 69,700 3,384 Ethan Allen Interiors, Inc. 80,580 3,375 * Respironics, Inc. 74,704 3,368 Florida Rock Industries, Inc. 61,200 3,357 Massey Energy Co. 158,711 3,301 * Varian Semiconductor Equipment Associates, Inc. 75,400 3,294 * Techne Corp. 87,075 3,290 First Midwest Bancorp, Inc. 101,100 3,277 * Accredo Health, Inc. 101,625 3,212 * Tom Brown, Inc. 99,207 3,199 * Pharmaceutical Product Development, Inc. 118,100 3,185 Briggs & Stratton Corp. 47,000 3,168 Cooper Cos., Inc. 67,200 3,167 Energen Corp. 77,000 3,159 * Urban Outfitters, Inc. 84,682 3,137 * Avid Technology, Inc. 65,296 3,134 Essex Property Trust, Inc. REIT 48,200 3,095 * Zale Corp. 58,025 3,087 Piedmont Natural Gas, Inc. 70,700 3,073 * Tractor Supply Co. 78,700 3,061 UGI Corp. Holding Co. 89,800 3,044 AptarGroup Inc. 77,500 3,022 * Evergreen Resources, Inc. 92,680 3,013 * Benchmark Electronics, Inc. 86,450 3,009 * ResMed Inc. 72,300 3,003 * Hot Topic, Inc. 101,625 2,994 United Bankshares, Inc. 95,649 2,984 MAF Bancorp, Inc. 71,073 2,978 * CACI International, Inc. 61,000 2,966 Downey Financial Corp. 59,800 2,948 New Century Financial Corp. 74,150 2,942 * United Stationers, Inc. 71,500 2,926 IDEX Corp. 70,000 2,911 * Cerner Corp. 76,699 2,903 * Linens 'n Things, Inc. 95,600 2,876 Engineered Support Systems, Inc. 52,224 2,875 * Tetra Tech, Inc. 115,406 2,869 * Southern Union Co. 155,863 2,868 Southwest Bancorporation of Texas, Inc. 72,933 2,833 Diagnostic Products Corp. 61,000 2,800 Staten Island Bancorp, Inc. 124,015 2,790 * P.F. Chang's China Bistro, Inc. 54,300 2,763 FactSet Research Systems Inc. 72,200 2,759 * MGI Pharma, Inc. 67,000 2,757 Fremont General Corp. 162,900 2,755 Flagstar Bancorp, Inc. 128,575 2,754 * Fossil, Inc. 98,100 2,748 East West Bancorp, Inc. 51,100 2,743 * Pediatrix Medical Group, Inc. 49,550 2,730 Invacare Corp. 67,300 2,717 * Arbitron Inc. 64,796 2,703 * Take-Two Interactive Software, Inc. 93,755 2,701 * Simpson Manufacturing Co. 52,800 2,685 * CEC Entertainment Inc. 56,650 2,685 Heartland Express, Inc. 108,934 2,635 Chittenden Corp. 78,275 2,633 The Pep Boys (Manny, Moe & Jack) 114,705 2,623 * FLIR Systems, Inc. 71,800 2,621 * Trimble Navigation Ltd. 70,319 2,619 26 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- * Kronos, Inc. 65,990 $ 2,614 Cognex Corp. 92,500 2,612 Corn Products International, Inc. 75,800 2,611 Winnebago Industries, Inc. 37,900 2,606 Atmos Energy Corp. 107,225 2,606 * Hyperion Solutions Corp. 86,000 2,592 Fred's, Inc. 83,000 2,571 Commercial Federal Corp. 96,000 2,564 * Landstar System, Inc. 67,200 2,556 * Sonic Corp. 82,525 2,527 * Mueller Industries Inc. 73,100 2,512 Hughes Supply, Inc. 50,600 2,511 Flowers Foods, Inc. 96,965 2,502 Hilb, Rogal and Hamilton Co. 77,900 2,498 * Panera Bread Co. 62,900 2,486 * SCP Pool Corp. 75,187 2,457 La-Z-Boy Inc. 116,360 2,441 * Stone Energy Corp. 57,080 2,423 Clarcor Inc. 54,700 2,412 The Toro Co. 51,500 2,390 Delphi Financial Group, Inc. 66,249 2,385 * Steel Dynamics, Inc. 101,500 2,384 Albany International Corp. 70,200 2,380 * Cimarex Energy Co. 88,500 2,362 Mentor Corp. 97,700 2,351 Kellwood Co. 57,100 2,341 * Kroll Inc. 89,700 2,332 Acuity Brands, Inc. 89,700 2,314 * Waste Connections, Inc. 61,000 2,304 Community First Bankshares, Inc. 79,600 2,304 MacDermid, Inc. 67,100 2,297 * Philadelphia Consolidated Holding Corp. 46,900 2,290 * Spinnaker Exploration Co. 70,700 2,281 Alpharma, Inc. Class A 113,100 2,273 * Sybron Dental Specialties, Inc. 80,900 2,273 * Odyssey Healthcare, Inc. 77,600 2,271 * Skyworks Solutions, Inc. 259,459 2,257 Reliance Steel & Aluminum Co. 67,900 2,255 New Jersey Resources Corp. 58,450 2,251 * Priority Healthcare Corp. Class B 93,297 2,249 Capital Automotive REIT 69,662 2,229 * Brooks Automation, Inc. 91,876 2,221 * AMERIGROUP Corp. 52,060 2,220 Skywest, Inc. 122,500 2,220 A.O. Smith Corp. 62,600 2,194 * Unit Corp. 92,634 2,182 Colonial Properties Trust REIT 55,000 2,178 * Axcelis Technologies, Inc. 212,543 2,172 Susquehanna Bancshares, Inc. 85,348 2,135 * Power Integrations, Inc. 63,425 2,122 Lennox International Inc. 126,038 2,105 Gables Residential Trust REIT 60,400 2,098 * Quiksilver, Inc. 118,200 2,096 * Men's Wearhouse, Inc. 82,950 2,075 LandAmerica Financial Group, Inc. 39,650 2,072 * FileNET Corp. 76,200 2,063 TrustCo Bank NY 156,846 2,063 * Dionex Corp. 44,500 2,048 ADVO, Inc. 64,450 2,047 Cabot Oil & Gas Corp. 69,400 2,037 Delta & Pine Land Co. 80,100 2,035 * Knight Transportation, Inc. 79,118 2,029 Burlington Coat Factory Warehouse Corp. 95,800 2,027 R.L.I. Corp. 53,600 2,008 USF Corp. 58,700 2,007 Brady Corp. Class A 49,000 1,997 * US Oncology, Inc. 185,500 1,996 * Anixter International Inc. 77,100 1,995 Curtiss-Wright Corp. 44,000 1,980 Georgia Gulf Corp. 68,500 1,978 NDCHealth Corp. 76,600 1,962 * Cal Dive International, Inc. 81,300 1,960 Kilroy Realty Corp. REIT 59,800 1,958 * Wilson Greatbatch Technologies, Inc. 45,700 1,932 * Commonwealth Telephone Enterprises, Inc. 51,031 1,926 * Ralcorp Holdings, Inc. 61,300 1,922 * United Surgical Partners International, Inc. 57,383 1,921 * Kansas City Southern 133,200 1,907 Irwin Financial Corp. 60,700 1,906 Casey's General Stores, Inc. 107,599 1,900 Brookline Bancorp, Inc. 123,100 1,888 * Cost Plus, Inc. 45,800 1,878 * Insight Enterprises, Inc. 99,600 1,872 Wintrust Financial Corp. 41,200 1,858 Black Box Corp. 40,054 1,845 Republic Bancorp, Inc. 136,620 1,843 Commercial Metals Co. 60,500 1,839 Selective Insurance Group 56,750 1,836 Avista Corp. 101,100 1,832 H.B. Fuller Co. 61,400 1,826 Owens & Minor, Inc. Holding Co. 82,800 1,814 * Moog Inc. 36,512 1,804 UniSource Energy Corp. 73,000 1,800 * Technitrol, Inc. 86,700 1,798 * WebEx Communications, Inc. 89,400 1,797 ABM Industries Inc. 103,200 1,797 K-Swiss, Inc. 74,600 1,795 * Sunrise Senior Living, Inc. 46,200 1,790 * Veeco Instruments, Inc. 63,423 1,788 27 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- * Advanced Energy Industries, Inc. 68,625 $ 1,788 * Southwestern Energy Co. 74,600 1,783 Cleco Corp. 99,100 1,782 * Kirby Corp. 51,000 1,779 The Manitowoc Co., Inc. 56,700 1,769 * Manhattan Associates, Inc. 63,910 1,766 Wolverine World Wide, Inc. 86,500 1,763 IHOP Corp. 45,700 1,759 * Maverick Tube Corp. 90,900 1,750 CARBO Ceramics Inc. 34,000 1,742 * Group 1 Automotive, Inc. 48,120 1,741 * URS Corp. 69,600 1,741 * Hain Celestial Group, Inc. 74,900 1,738 Lexington Corporate Properties Trust REIT 85,700 1,730 * Regeneron Pharmaceuticals, Inc. 117,450 1,728 * Rare Hospitality International Inc. 70,650 1,727 * eFunds Corp. 99,496 1,726 * Province Healthcare Co. 107,450 1,719 * MICROS Systems, Inc. 39,600 1,717 * Sierra Health Services, Inc. 62,500 1,716 * MAXIMUS, Inc. 43,800 1,714 * Hutchinson Technology, Inc. 55,700 1,712 * ManTech International Corp. 68,450 1,708 Vintage Petroleum, Inc. 141,350 1,700 * Watson Wyatt & Co. Holdings 70,400 1,700 St. Mary Land & Exploration Co. 59,500 1,696 * SEACOR SMIT Inc. 40,200 1,690 Northwest Natural Gas Co. 54,600 1,679 * Shaw Group, Inc. 122,670 1,671 * Aztar Corp. 73,900 1,663 Dime Community Bancshares 53,850 1,656 * WMS Industries, Inc. 63,110 1,653 * Piper Jaffray Companies 39,700 1,650 * Integra LifeSciences Holdings 57,500 1,646 * DRS Technologies, Inc. 59,100 1,642 Arkansas Best Corp. 52,300 1,642 * Aeroflex, Inc. 140,334 1,640 Southwest Gas Corp. 73,060 1,640 * Guitar Center, Inc. 50,100 1,632 Texas Industries, Inc. 44,000 1,628 * AmSurg Corp. 42,900 1,625 * American Healthways Inc. 67,800 1,618 * Jack in the Box Inc. 75,650 1,616 G & K Services, Inc. Class A 43,900 1,613 * Wabash National Corp. 55,000 1,612 * Armor Holdings, Inc. 61,200 1,610 John H. Harland Co. 58,690 1,602 * First Federal Financial Corp. 36,800 1,601 * CUNO Inc. 35,500 1,599 * Argosy Gaming Co. 61,500 1,598 * Adaptec, Inc. 180,900 1,597 * BankUnited Financial Corp. 61,800 1,594 Barnes Group, Inc. 49,075 1,586 * American Italian Pasta Co. 37,800 1,584 Quanex Corp. 34,250 1,579 * FEI Co. 70,000 1,575 * SERENA Software, Inc. 85,500 1,569 Seacoast Financial Services Corp. 57,184 1,567 CH Energy Group, Inc. 33,400 1,566 Christopher & Banks Corp. 80,125 1,565 Baldor Electric Co. 68,460 1,564 * Rogers Corp. 35,300 1,557 * The Children's Place Retail Stores, Inc. 58,118 1,553 * American Medical Systems Holdings, Inc. 71,200 1,552 Waypoint Financial Corp. 71,145 1,543 Landry's Restaurants, Inc. 59,930 1,541 Stewart Information Services Corp. 38,000 1,541 * Coherent, Inc. 64,400 1,533 * Progress Software Corp. 74,800 1,530 * DSP Group Inc. 61,226 1,525 Kaydon Corp. 59,018 1,525 * ATMI, Inc. 65,806 1,523 * Exar Corp. 89,000 1,520 * United Natural Foods, Inc. 42,300 1,519 Russ Berrie and Co., Inc. 44,700 1,515 Provident Bankshares Corp. 51,338 1,511 * Microsemi Corp. 61,129 1,503 * CONMED Corp. 63,100 1,502 * Kulicke & Soffa Industries, Inc. 104,400 1,501 * Monaco Coach Corp. 62,750 1,493 * OM Group, Inc. 57,000 1,493 Watts Water Technologies 66,700 1,481 * Global Imaging Systems, Inc. 46,276 1,469 * Ultratech, Inc. 49,559 1,456 Cambrex Corp. 56,900 1,437 UIL Holdings Corp. 31,863 1,437 Barra, Inc. 40,400 1,434 Brown Shoe Co., Inc. 37,800 1,434 * Oceaneering International, Inc. 51,170 1,433 Aaron Rents, Inc. Class B 70,750 1,424 JLG Industries, Inc. 92,700 1,412 * Photon Dynamics, Inc. 34,975 1,407 * El Paso Electric Co. 105,400 1,407 PolyMedica Corp. 53,300 1,402 * Websense, Inc. 47,900 1,401 * American Management Systems, Inc. 92,482 1,394 * Electro Scientific Industries, Inc. 58,493 1,392 * ESS Technology, Inc. 81,657 1,389 28 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- * EMCOR Group, Inc. 31,600 $ 1,387 A. Schulman Inc. 64,440 1,374 * THQ Inc. 80,700 1,365 * Verity, Inc. 81,620 1,362 * Imagistics International Inc. 36,320 1,362 * Photronics Inc. 68,100 1,357 CDI Corp. 41,300 1,353 * Dendrite International, Inc. 85,914 1,346 * Ryan's Family Steak Houses, Inc. 87,950 1,332 * School Specialty, Inc. 39,100 1,330 Cubic Corp. 57,700 1,327 Woodward Governor Co. 23,239 1,321 * UICI 99,250 1,318 Inter-Tel, Inc. 52,708 1,317 * Checkpoint Systems, Inc. 69,400 1,312 * Viasys Healthcare Inc. 63,600 1,310 Cash America International Inc. 61,700 1,307 Boston Private Financial Holdings, Inc. 52,600 1,307 * Actel Corp. 54,150 1,305 * Teledyne Technologies, Inc. 68,700 1,295 Watsco, Inc. 56,948 1,294 * ANSYS, Inc. 32,515 1,291 * Movie Gallery, Inc. 68,970 1,288 * Sola International Inc. 68,400 1,286 * Spherion Corp. 131,300 1,285 * Haemonetics Corp. 53,550 1,279 * Griffon Corp. 63,010 1,277 Zenith National Insurance Corp. 39,200 1,276 Rock-Tenn Co. 73,800 1,274 * Too Inc. 75,400 1,273 * Forward Air Corp. 46,000 1,265 * Shuffle Master, Inc. 36,525 1,264 * Papa John's International, Inc. 37,800 1,262 Thomas Industries, Inc. 36,400 1,262 Sterling Bancshares, Inc. 94,300 1,257 * Triumph Group, Inc. 34,300 1,249 Anchor Bancorp Wisconsin Inc. 50,120 1,248 * NCO Group, Inc. 54,500 1,241 WD-40 Co. 34,989 1,237 Tredegar Corp. 79,600 1,236 * PolyOne Corp. 193,200 1,235 Startek, Inc. 30,200 1,232 Umpqua Holdings Corp. 58,800 1,222 Russell Corp. 69,300 1,217 * InVision Technologies, Inc. 36,060 1,211 Universal Forest Products, Inc. 37,500 1,207 * Advanced Medical Optics, Inc. 61,400 1,207 Arch Chemicals, Inc. 47,000 1,206 * Electronics Boutique Holdings Corp. 52,500 1,202 Regal-Beloit Corp. 54,600 1,201 * Ionics, Inc. 37,700 1,201 * Financial Federal Corp. 39,300 1,201 * Esterline Technologies Corp. 44,500 1,187 * Offshore Logistics, Inc. 48,400 1,187 * Pinnacle Systems, Inc. 137,800 1,175 Gold Banc Corp., Inc. 83,574 1,175 Park Electrochemical Corp. 44,150 1,170 * TBC Corp. 45,300 1,169 Glenborough Realty Trust, Inc. REIT 58,600 1,169 * Centene Corp. 41,630 1,166 * Ciber, Inc. 134,000 1,160 * Mercury Computer Systems, Inc. 46,400 1,155 Helix Technology Corp. 56,100 1,155 Analogic Corp. 28,100 1,152 The Laclede Group, Inc. 40,300 1,151 Valmont Industries, Inc. 49,600 1,148 Oxford Industries, Inc. 33,800 1,145 * j2 Global Communications, Inc. 46,206 1,145 * Hydrill 47,800 1,144 Phillips-Van Heusen Corp. 64,300 1,141 * Enzo Biochem, Inc. 63,616 1,139 Belden, Inc. 53,900 1,137 Arctic Cat, Inc. 45,720 1,129 Central Parking Corp. 75,400 1,126 * Cleveland-Cliffs Inc. 21,900 1,116 * The Gymboree Corp. 64,700 1,115 * Labor Ready, Inc. 84,900 1,112 * TETRA Technologies, Inc. 45,800 1,110 * Systems & Computer Technology Corp. 67,900 1,110 * Paxar Corp. 82,400 1,104 Datascope Corp. 30,788 1,104 ElkCorp 41,200 1,100 First Republic Bank 30,700 1,099 * Remington Oil & Gas Corp. 55,800 1,099 EDO Corp. 43,900 1,082 * K2 Inc. 71,145 1,082 * ArthroCare Corp. 43,733 1,071 * ViaSat, Inc. 55,900 1,070 The Standard Register Co. 63,500 1,069 * Administaff, Inc. 60,500 1,051 C & D Technologies, Inc. 54,800 1,051 * Vicor Corp. 91,811 1,048 * Harmonic, Inc. 144,300 1,046 * CIMA Labs Inc. 32,000 1,044 * Frontier Airlines, Inc. 72,950 1,040 * AAR Corp. 69,000 1,032 Lone Star Steakhouse & Saloon, Inc. 44,400 1,029 * Steak n Shake Co. 57,500 1,026 The Marcus Corp. 62,300 1,022 29 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- * General Communication, Inc. 116,840 $ 1,017 * Information Holdings Inc. 45,900 1,014 * Lone Star Technologies, Inc. 63,400 1,013 * Kopin Corp. 150,905 1,013 Roto-Rooter, Inc. 21,900 1,010 * Swift Energy Co. 59,900 1,009 Frontier Oil Corp. 58,600 1,009 * ICU Medical, Inc. 29,400 1,008 * Cross Country Healthcare, Inc. 67,200 1,003 * JDA Software Group, Inc. 60,672 1,002 Bowne & Co., Inc. 73,800 1,001 GenCorp, Inc. 92,700 998 Riggs National Corp. 60,346 998 * Nuevo Energy Co. 41,200 996 * Atwood Oceanics, Inc. 31,000 990 * Prime Hospitality Corp. 96,800 987 The Nautilus Group, Inc. 69,230 973 * Atlantic Coast Airlines Holdings Inc. 97,896 969 * W-H Energy Services, Inc. 59,800 969 * Pre-Paid Legal Services, Inc. 37,000 966 * The Dress Barn, Inc. 63,600 953 * Insituform Technologies Inc. Class A 57,488 949 Applied Industrial Technology, Inc. 39,700 947 Lance, Inc. 63,000 947 Triarc Cos., Inc. Class B 87,800 946 * SurModics, Inc. 39,400 942 * Standard Microsystem Corp. 37,200 941 The Stride Rite Corp. 82,700 941 * Jo-Ann Stores, Inc. 45,990 938 * DuPont Photomasks, Inc. 38,800 937 * Prima Energy Corp. 26,600 935 Schweitzer-Mauduit International, Inc. 31,300 932 Haverty Furniture Cos., Inc. 46,550 924 Methode Electronics, Inc. 75,300 921 * Orthodontic Centers of America, Inc. 114,100 919 * SOURCECORP, Inc. 35,700 915 * Consolidated Graphics, Inc. 28,660 905 Cohu, Inc. 46,690 894 * C-COR Electronics, Inc. 79,474 885 Vital Signs, Inc. 26,900 880 * PAREXEL International Corp. 54,000 878 Cato Corp. Class A 42,600 873 Stewart & Stevenson Services, Inc. 62,066 872 CTS Corp. 75,300 866 * Champion Enterprises, Inc. 123,300 863 * ShopKo Stores, Inc. 55,898 852 Chesapeake Corp. of Virginia 32,175 852 * Itron, Inc. 46,200 848 * Tower Automotive, Inc. 124,000 847 * Cable Design Technologies Corp. 93,800 843 * Buckeye Technology, Inc. 83,900 843 * Century Aluminum Co. 44,261 841 * Mesa Air Group Inc. 67,200 841 New England Business Service, Inc. 28,500 841 * Fleetwood Enterprises, Inc. 81,930 841 * Rudolph Technologies, Inc. 34,200 839 * O'Charley's Inc. 46,300 831 Libbey, Inc. 28,400 809 American States Water Co. 32,350 809 * Biosite Inc. 27,900 808 * Caraustar Industries, Inc. 58,524 808 * Veritas DGC Inc. 76,800 805 * Gardner Denver Inc. 33,625 803 * Plains Resources Inc. 49,300 791 * Planar Systems, Inc. 32,100 781 * Intermagnetics General Corp. 35,195 780 Agilysys, Inc. 69,800 778 Myers Industries, Inc. 63,837 774 Deltic Timber Corp. 25,395 772 * Concord Communications, Inc. 38,400 767 Bel Fuse, Inc. Class B 23,480 766 * Heidrick & Struggles International, Inc. 34,750 758 * International Multifoods Corp. 41,800 752 * Netegrity, Inc. 72,887 751 Action Performance Cos., Inc. 38,200 749 * Possis Medical Inc. 37,900 749 * RehabCare Group, Inc. 34,900 742 Wellman, Inc. 72,645 742 * RTI International Metals Inc. 43,850 740 * Hologic, Inc. 42,500 737 * 4Kids Entertainment Inc. 28,240 735 * Genesco, Inc. 48,458 733 * Stein Mart, Inc. 88,957 733 * Volt Information Sciences Inc. 32,200 728 * JAKKS Pacific, Inc. 55,000 724 * Noven Pharmaceuticals, Inc. 47,500 722 Standex International Corp. 25,500 714 * Artesyn Technologies, Inc. 83,779 714 * J & J Snack Foods Corp. 18,700 706 * MRO Software Inc. 52,400 705 * MemberWorks, Inc. 25,700 698 * Carreker Corp. 49,700 696 * PRG-Schultz International, Inc. 140,690 689 * SPSS, Inc. 38,185 683 Apogee Enterprises, Inc. 59,800 679 Sturm, Ruger & Co., Inc. 58,650 667 30 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- Lawson Products, Inc. 19,900 $ 660 Ryerson Tull, Inc. 57,300 656 Talx Corp. 28,400 654 Goody's Family Clothing 69,539 651 SWS Group, Inc. 36,492 650 * EPIQ Systems, Inc. 37,800 648 * RadiSys Corp. 38,155 643 * Intrado Inc. 29,300 643 * Rainbow Technologies, Inc. 57,100 643 * Symmetricom Inc. 88,200 642 Lindsay Manufacturing Co. 25,200 636 Dimon Inc. 93,600 632 * Pericom Semiconductor Corp. 59,084 630 * Audiovox Corp. 48,800 627 Skyline Corp. 17,700 617 BEI Technologies, Inc. 30,737 615 * The Wet Seal, Inc. Class A 61,900 612 Quaker Chemical Corp. 19,900 612 Coachmen Industries, Inc. 33,770 612 NUI Corp. 37,300 601 Kaman Corp. Class A 47,200 601 Keithley Instruments Inc. 32,600 597 * Dril-Quip, Inc. 36,300 592 Central Vermont Public Service Corp. 25,100 590 * Mobile Mini, Inc. 29,856 589 Pope & Talbot, Inc. 33,300 586 * Brush Engineered Materials Inc. 38,200 585 Thomas Nelson, Inc. 30,100 582 * Pegasus Solutions Inc. 55,400 580 * Savient Pharmaceuticals Inc. 125,740 580 * Coinstar, Inc. 31,667 572 Robbins & Myers, Inc. 30,100 572 Nash-Finch Co. 25,297 565 Hancock Fabrics, Inc. 38,800 562 * Radiant Systems, Inc. 65,613 552 * NYFIX, Inc. 68,500 545 * Concord Camera Corp. 58,700 543 * Pinnacle Entertainment, Inc. 58,200 542 * Network Equipment Technologies, Inc. 48,100 529 Oshkosh B' Gosh, Inc. Class A 24,493 526 National Presto Industries, Inc. 14,495 524 * Alliance Semiconductor Corp. 73,667 524 * Tollgrade Communications, Inc. 29,638 520 Triarc Cos., Inc. Class A 43,900 519 * Astec Industries, Inc. 41,800 513 * Supertex, Inc. 26,734 511 * Midway Games Inc. 130,800 508 * Bally Total Fitness Holding Corp. 72,300 506 X-Rite Inc. 44,500 504 * Bell Microproducts Inc. 55,600 504 * Zix Corp. 57,896 503 Standard Motor Products, Inc. 41,300 502 Cascade Natural Gas Corp. 23,700 500 * SBS Technologies, Inc. 33,605 494 * Input/Output, Inc. 109,140 492 * Midas Inc. 34,100 488 Presidential Life Corp. 35,500 467 Building Materials Holding Corp. 29,400 457 * PC-Tel, Inc. 42,600 452 Fedders Corp. 62,440 450 * Magnatek, Inc. 67,500 445 * Phoenix Technologies Ltd. 53,900 436 * Omnova Solutions Inc. 90,500 434 * Digi International, Inc. 44,500 427 Angelica Corp. 19,300 425 Bassett Furniture Industries, Inc. 24,416 403 * Gerber Scientific, Inc. 49,300 392 * Catapult Communications Corp. 27,000 392 Steel Technologies, Inc. 21,790 385 * Captaris Inc. 68,400 384 * Applica Inc. 50,500 384 Milacron Inc. 91,600 382 Hooper Holmes, Inc. 61,300 379 * Department 56 Inc. 28,700 376 * Curative Health Services, Inc. 26,930 372 Commonwealth Industries Inc. 36,934 371 CPI Corp. 18,300 370 * Lydall, Inc. 35,000 357 * Theragenics Corp. 64,800 354 Butler Manufacturing Co. 16,100 354 * Duane Reade Inc. 20,600 349 * IMCO Recycling, Inc. 34,700 343 * Interface, Inc. 61,654 341 * MapInfo Corp. 33,033 333 * Brooktrout Technology, Inc. 26,300 331 * Osteotech, Inc. 37,520 330 * Insurance Auto Auctions, Inc. 25,200 329 * Salton, Inc. 24,475 319 * QRS Corp. 39,300 319 Material Sciences Corp. 30,625 310 * Enesco Group, Inc. 30,000 310 Intermet Corp. 56,503 307 * SCM Microsystems, Inc. 39,400 304 * ArQule, Inc. 61,500 300 * Concerto Software Inc. 24,600 295 * On Assignment, Inc. 53,876 281 * Roxio, Inc. 57,600 276 Haggar Corp. 13,900 271 Green Mountain Power Corp. 11,275 266 Penford Corp. 19,004 261 31 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* SMALL-CAP FUND SHARES (000) -------------------------------------------------------------------------------- * Three-Five Systems, Inc. 48,499 $ 254 * CryoLife Inc. 43,500 251 * Ultimate Electronics, Inc. 30,972 236 * Ashworth, Inc. 29,050 234 * A.T. Cross Co. Class A 32,700 218 * A.M. Castle & Co. 29,800 218 Nature's Sunshine Inc. 25,146 212 SCPIE Holdings Inc. 21,700 191 * Wolverine Tube, Inc. 28,400 179 * Huffy Corp. 32,900 173 * Meade Instruments Corp. 46,686 161 * The Great Atlantic & Pacific Tea Co., Inc. 18,500 155 * J. Jill Group, Inc. 8,200 104 * Rewards Network Inc. 5,900 63 Advanced Marketing Services 3,200 36 * Boston Communications Group, Inc. 1,900 18 * Fedders Corp Rights- Exp. 1/16/2004 62,440 4 -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $639,848) $ 941,754 -------------------------------------------------------------------------------- FACE AMOUNT (000) -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (2.5%) -------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account 0.98%, 1/2/2004 $ 4,175 4,175 0.99%, 1/2/2004--Note E 19,339 19,339 -------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $23,514) $ 23,514 -------------------------------------------------------------------------------- TOTAL INVESTMENTS (102.5%)(Cost $663,362) 965,268 -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-2.5%) -------------------------------------------------------------------------------- Other Assets--Note B 1,642 Liabilities--Note E (25,286) ------------- $ (23,644) ------------- -------------------------------------------------------------------------------- NET ASSETS (100%) $ 941,624 ================================================================================ *See Note A in Notes to Financial Statements. *Non-income-producing security. REIT--Real Estate Investment Trust. -------------------------------------------------------------------------------- AMOUNT (000) -------------------------------------------------------------------------------- AT DECEMBER 31, 2003, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Paid-in Capital $ 705,839 Overdistributed Net Investment Income (758) Accumulated Net Realized Losses (65,363) Unrealized Appreciation 301,906 -------------------------------------------------------------------------------- NET ASSETS $ 941,624 ================================================================================ Investor Shares--Net Assets Applicable to 53,280,384 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 929,344 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 17.44 ================================================================================ Institutional Shares--Net Assets Applicable to 703,045 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 12,280 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INSTITUTIONAL SHARES $ 17.47 ================================================================================ See Note C in Notes to Financial Statements for the tax- basis components of net assets. 32 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- COMMON STOCKS (98.7%) -------------------------------------------------------------------------------- AUSTRALIA (4.7%) National Australia Bank Ltd. 122,040 $ 2,754 BHP Billiton Ltd. 297,744 2,735 Commonwealth Bank of Australia 101,733 2,257 Australia & New Zealand Bank Group Ltd. 142,612 1,900 Westpac Banking Corp., Ltd. 143,437 1,728 News Corp. Ltd. Pfd. 159,837 1,204 News Corp. Ltd. 115,597 1,044 Woolworths Ltd. 84,685 753 Rio Tinto Ltd. 24,748 694 Telstra Corp. Ltd. 181,734 660 Wesfarmers Ltd. 30,219 603 Foster's Group Ltd. 172,353 584 Coles Myer Ltd. 87,829 500 * AMP Limited 127,439 481 Amcor Ltd. 71,604 446 Macquarie Bank Ltd. 16,575 444 Alumina Ltd. 86,549 428 Insurance Australia Group Ltd. 133,439 427 Mirvac Group 130,280 424 Suncorp-Metway Ltd. 44,033 411 Woodside Petroleum Ltd. 36,777 410 QBE Insurance Group Ltd. 50,526 404 Stockland 101,612 400 Macquarie Infrastucture Group 155,801 399 Rinker Group Ltd. 77,619 383 * WMC Resources Ltd. 87,731 372 Centro Properties Group 123,881 371 Brambles Industries Ltd. 81,044 322 Westfields Holdings Ltd. 29,775 313 Australian Gas Light Co., Ltd. 36,704 311 BlueScope Steel Ltd. 66,344 280 Tabcorp Holdings Ltd. 31,322 265 Lend Lease Corp. 34,945 265 Newcrest Mining Ltd. 27,053 264 Investa Property Group 169,334 250 Santos Ltd. 45,053 233 Orica Ltd. 21,390 225 Origin Energy Ltd. 56,948 204 John Fairfax Holdings Ltd. 72,681 193 Coca-Cola Amatil Ltd. 38,501 181 Boral Ltd. 46,643 179 CSL Ltd. 13,136 177 Patrick Corp. Ltd. 15,185 167 Tab Ltd. 46,741 163 Mayne Group Ltd. 64,403 158 Paperlinx Ltd. 40,702 153 Transurban Group 40,342 136 Lion Nathan Ltd. 29,055 132 Toll Holdings Ltd. 20,705 129 Australian Stock Exchange Ltd. 9,280 119 Leighton Holdings Ltd. 12,171 108 Harvey Norman Holdings Ltd. 48,047 108 Southcorp Ltd. 52,737 107 Publishing & Broadcasting Ltd. 10,900 103 Deutsche Office Trust 122,237 101 Computershare Ltd. 40,096 100 CSR Ltd. 71,149 99 Sonic Healthcare Ltd. 18,149 96 OneSteel Ltd. 57,056 87 Cochlear Ltd. 4,638 75 Iluka Resources Ltd. 19,443 66 Ansell Ltd. 13,630 66 Futuris Corp., Ltd. 51,353 58 Aristocrat Leisure Ltd. 23,600 31 ------------- $ 29,240 ------------- AUSTRIA (0.2%) Erste Bank der Oesterreichischen Sparkassen AG 2,332 288 * Telekom Austria AG 15,938 197 OMV AG 1,141 170 * Bank Austria Creditanstalt 3,150 161 Mayr-Melnhof Karton AG 836 100 Voestalpine AG 1,653 67 Wienerberger AG 2,259 60 Oesterreichische Elektrizitaetswirtschafts AG Class A 415 48 * RHI AG 1,970 38 Flughafen Wien AG 777 36 Boehler-Uddeholm AG 422 28 * VA Technologies AG 319 10 ------------- $ 1,203 ------------- BELGIUM (1.2%) Fortis Group 89,357 1,797 Dexia 53,952 930 Electrabel SA 2,531 796 Syngenta AG 8,357 563 Solvay SA 5,365 465 KBC Bankverzekeringsholding 7,796 364 Interbrew 12,729 340 Delhaize Group 6,265 322 UCB SA 7,791 294 Cofinimmo 2,106 293 Agfa Gevaert NV 9,099 259 Umicore 1,899 133 Colruyt NV 1,331 128 * Mobistar SA 1,957 110 Bekaert NV 1,402 89 Barco NV 743 65 33 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- D'Ieteren SA 283 $ 58 Omega Pharma SA 1,627 52 UBS AG 741 50 Compagnie Maritime Belge SA 164 13 ------------- $ 7,121 ------------- DENMARK (0.8%) Danske Bank A/S 41,590 976 Novo Nordisk A/S B Shares 20,594 839 AP Moller-Maersk A/S 87 628 TDC A/S 10,241 370 Telefonica SA ADR 6,192 274 Danisco A/S 4,029 179 ISS A/S 3,576 176 Novozymes A/S 4,424 162 Vestas Wind Systems A/S 8,834 144 Group 4 Falck A/S 6,500 133 * GN Store Nord A/S 18,667 121 * Topdanmark A/S 2,000 107 Iberia (Linea Aer Espana) 35,600 102 H. Lundbeck A/S 5,918 98 Coloplast A/S B Shares 1,075 92 * William Demant A/S 2,600 88 Carlsberg A/S B Shares 1,846 85 DSV, De Sammensluttede Vognmaend A/S 1,900 84 East Asiatic Co. A/S 1,350 59 Kobenhavns Lufthavne A/S 460 54 Bang & Olufsen A/S B Shares 909 38 * NEG Micon A/S 1,795 29 * FLS Industries A/S B Shares 1,399 16 NKT Holding A/S 740 13 ------------- $ 4,867 ------------- FINLAND (1.6%) Nokia Oyj 401,575 6,944 UPM-Kymmene Oyj 41,332 788 Stora Enso Oyj R Shares 51,266 691 Fortum Oyj 26,377 272 Sampo Oyj A Shares 20,550 213 TietoEnator Oyj B Shares 6,575 180 Kone Corp. B Shares 2,885 166 * Elisa Oyj Class A 11,400 152 Outokumpu Oyj A Shares 7,400 101 Metso Oyj 7,540 92 Kesko Oyj 4,360 76 Amer Group Ltd. 1,607 70 Uponor Oyj 2,095 66 Orion-Yhtyma Oyj B Shares 2,550 55 Wartsila Oyj B Shares 2,770 53 * Rautaruuki Oyj 6,970 51 Nokian Renkaat Oyj 609 46 Pohjola Group PLC D Shares 1,290 34 KCI Konecranes Oyj 700 24 ------------- $ 10,074 ------------- FRANCE (9.6%) Total SA 53,671 9,979 BNP Paribas SA 67,876 4,274 Aventis SA 56,790 3,754 Carrefour SA 47,684 2,618 * France Telecom SA 90,122 2,576 AXA 117,985 2,525 Societe Generale Class A 27,381 2,418 L'Oreal SA 28,224 2,314 Sanofi-Synthelabo SA 30,611 2,305 * Vivendi Universal SA 75,856 1,844 Groupe Danone 10,184 1,662 LVMH Louis Vuitton Moet Hennessy 20,389 1,484 L'Air Liquide SA (Registered) 8,259 1,458 Suez SA 66,758 1,341 * Alcatel SA 101,614 1,309 Cie. de St. Gobain SA 25,959 1,271 Lafarge SA 13,952 1,242 Schneider Electric SA 17,237 1,128 Renault SA 14,203 980 PSA Peugeot Citroen 15,198 774 Credit Agricole SA 30,242 722 Accor SA 15,848 718 Lagardere S.C.A 10,436 602 Bouygues SA 16,693 584 Pinault-Printemps-Redoute SA 5,664 548 Veolia Environnement 20,101 540 Compagnie Generale des Etablissements Michelin SA B Shares 11,639 534 Pernod Ricard SA 4,461 496 Vinci SA 5,637 467 BP PLC ADR 9,184 453 * Cap Gemini SA 9,510 422 Thomson SA 19,410 413 Essilor International SA 7,913 409 Unibail Co. 3,815 358 Societe Television Francaise 1 9,741 340 Gecina SA 2,108 310 Etablissements Economiques du Casino Guichard-Perrachon SA 3,159 307 Publicis Groupe SA 8,390 272 Valeo SA 6,544 262 Sodexho Alliance SA 8,281 250 * Wanadoo 30,243 248 Dassault Systemes SA 4,630 211 34 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Thales SA 6,244 $ 210 Autoroutes du Sud de la France 5,779 194 * Business Objects SA 5,471 191 Sagem SA 1,743 187 Klepierre 2,795 168 Technip SA 1,450 157 Hermes International 800 155 CNP Assurances 2,937 153 Imerys 655 138 Kidde PLC 72,050 137 * Atos Origin SA 2,033 130 Societe BIC SA 2,760 128 Air France 6,563 101 Zodiac SA 3,382 99 WPP Group PLC ADR 2,004 98 * Alstom 37,903 60 ------------- $ 59,028 ------------- GERMANY (7.1%) Siemens AG 66,794 5,350 * Deutsche Telekom AG 209,993 3,843 Deutsche Bank AG 43,753 3,626 DaimlerChrysler AG (Registered) 71,786 3,350 E.On AG 50,999 3,328 Allianz AG 23,907 3,018 SAP AG 17,040 2,862 BASF AG 44,975 2,529 Bayer AG 54,427 1,594 Muenchener Rueckversicherungs-Gesellschaft AG (Registered) 11,860 1,438 RWE AG 33,334 1,319 Volkswagen AG 18,617 1,037 Commerzbank AG 39,583 776 Schering AG 13,837 701 * Bayerische Hypo-und Vereinsbank AG 29,157 674 Deutsche Post AG 31,443 648 Metro AG 12,216 539 * Infineon Technologies AG 37,066 515 * Hypo Real Estate Holding AG 20,543 513 ThyssenKrupp AG 24,739 489 Deutsche Boerse AG 8,553 468 Adidas-Salomon AG 3,656 416 Porsche AG 655 389 Continental AG 9,959 378 Henkel KGaA 4,805 376 Linde AG 6,697 361 Altana AG 5,636 339 Volkswagen AG Pfd. 8,742 317 Man AG 9,192 279 Deutsche Lufthansa AG 15,019 251 Beiersdorf AG 2,032 247 Puma AG 1,334 236 TUI AG 11,015 230 Fresenius Medical Care AG 2,790 198 Merck KGaA 3,673 153 * HeidelbergerCement AG 3,295 139 Fresenius Medical Care AG 2,150 108 Wella AG 1,206 107 * MLP AG 5,402 106 RWE AG Pfd. 2,938 104 ProSieben Sat.1 Media AG 6,045 101 Celesio AG 2,066 100 * EPCOS AG 4,367 99 Karstadt Quelle AG 3,791 94 Douglas Holding AG 2,498 69 Suedzucker AG 3,469 66 ------------- $ 43,880 ------------- GREECE (0.4%) Alpha Credit Bank SA 12,600 381 National Bank of Greece SA 14,433 378 EFG Eurobank Ergasias 15,000 292 Hellenic Telecommunication Organization SA 20,980 277 Public Power Corp. 8,300 205 Greek Organization of Football Prognostics 12,400 178 Bank of Piraeus 13,200 161 Vodafone-Panafon SA 15,700 122 Commercial Bank of Greece SA 4,800 121 Coca-Cola Hellenic Bottling Co. SA 4,900 102 Titan Cement Co. SA 2,400 98 ASM Pacific Technology Ltd. 16,500 72 Viohalco, Hellenic Copper & Aluminum Industry SA 9,400 61 Hellenic Petroleum SA 6,700 59 Intracom SA 7,700 52 Hellenic Duty Free Shops SA 2,400 47 Technical Olympic SA 8,000 43 Folli-Follie SA 1,400 39 Hellenic Technodomiki Tev SA 4,230 27 Aluminum of Greece SA 970 20 ------------- $ 2,735 ------------- HONG KONG (1.6%) Hutchison Whampoa Ltd. 172,512 1,272 Cheung Kong Holdings Ltd. 124,000 986 Sun Hung Kai Properties Ltd. 107,064 886 Hang Seng Bank Ltd. 62,643 823 CLP Holdings Ltd. 141,732 675 Hong Kong & China Gas Co., Ltd. 323,177 493 Swire Pacific Ltd. A Shares 79,798 492 Hong Kong Electric Holdings Ltd. 112,500 445 Boc Hong Kong Holdings Ltd. 206,500 388 Bank of East Asia Ltd. 105,400 324 35 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Henderson Land Development Co. Ltd. 64,006 $ 283 Wharf Holdings Ltd. 100,215 278 Li & Fung Ltd. 131,850 226 Hong Kong Exchanges & Clearing Ltd. 79,000 171 Cathay Pacific Airways Ltd. 83,170 158 Johnson Electric Holdings Ltd. 121,498 155 Esprit Holdings Ltd. 42,072 140 * PCCW Ltd. 212,000 138 Yue Yuen Industrial (Holdings) Ltd. 46,000 127 Hang Lung Properties Ltd. 96,500 124 MTR Corp. 93,000 123 Television Broadcasts Ltd. 23,000 116 Cheung Kong Infrastructure Holdings Ltd. 46,000 103 Hysan Development Co., Ltd. 64,000 99 New World Development Co., Ltd. 115,000 93 Sino Land Co. 159,000 91 Techtronic Industries Co., Ltd. 32,000 89 Hopewell Holdings Ltd. 43,000 66 Shangri-La Asia Ltd. 68,078 64 Giordano International Ltd. 129,000 60 SCMP Group Ltd. 79,863 35 Texwinca Holdings Ltd. 36,000 26 * Hopewell Highway Infrastructure Warrants Exp. 8/5/2006 4,300 1 ------------- $ 9,550 ------------- IRELAND (0.8%) Bank of Ireland 81,237 1,108 * Allied Irish Banks PLC 68,371 1,095 * CRH PLC 43,372 891 Riunione Adriatica di Sicurta SpA 24,323 414 Alleanza Assicurazioni SpA 37,542 411 Irish Life & Permanent PLC 21,533 348 * Elan Corp. PLC 32,401 223 * Ryanair Holdings PLC 16,819 140 Kerry Group PLC A Shares 9,405 177 * Independent News & Media PLC 45,298 107 * Grafton Group PLC 13,538 93 DCC PLC 6,580 90 * Greencore Group PLC 13,017 58 Fyffes PLC 21,558 45 * Waterford Wedgewood PLC 38,659 11 ------------- $ 5,211 ------------- ITALY (3.7%) ENI SpA 216,647 4,088 * Telecom Italia SpA 764,636 2,267 Assicurazioni Generali SpA 79,951 2,118 Unicredito Italiano SpA 314,738 1,699 Telecom Italia Mobile SpA 304,485 1,655 ENEL SpA 202,050 1,374 Banca Intesa SpA 293,590 1,148 San Paolo-IMI SpA 83,981 1,095 * Telecom Italia SpA RNC 465,007 947 Mediaset SpA 47,088 559 Banco Popolare di Verona e Novara Scrl 28,842 488 * Banche Popolari Unite Scrl 25,700 466 Mediobanca Banca di Credito Finanziaria SpA 36,739 399 Finmeccanica SpA 503,735 395 Snam Rete Gas SpA 69,983 297 * Capitalia SpA 99,026 290 * Banca Nazionale del Lavoro (BNL) 116,877 279 Banca Monte dei Paschi di Siena SpA 86,426 273 * Autostrade SpA 15,200 267 * Seat Pagine Gialle SpA 270,700 258 * Fiat SpA 32,978 253 Banca Intesa SpA Non Convertible Risp 80,442 230 Banca Popolare di Milano SpA 30,380 199 Luxottica Group SpA 10,687 185 Mediolanum SpA 21,792 172 Pirelli & C. Accomandita per Azioni 155,820 159 Banca Fideuram SpA 25,758 153 * Autogrill SpA 8,600 123 * Tiscali SpA 13,670 96 Bulgari SpA 10,300 95 Mondadori (Arnoldo) Editore SpA 10,600 95 Gruppo EditorialeL'Espresso SpA 14,836 92 * FinecoGroup SpA 126,087 89 Italcementi SpA 6,455 81 * Telecom Italia SpA 130,836 65 Snia SpA 21,912 54 Benetton Group SpA 4,600 53 Parmalat Finanziaria SpA 34,147 5 ------------- $ 22,561 ------------- JAPAN (20.5%) Toyota Motor Corp. 217,000 7,330 NTT DoCoMo, Inc. 1,406 3,188 Canon, Inc. 67,000 3,120 Honda Motor Co., Ltd. 62,600 2,780 Takeda Chemical Industries Ltd. 67,800 2,689 Mitsubishi Tokyo Financial Group Inc. 324 2,527 36 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Sony Corp. 70,300 $ 2,434 Nomura Holdings Inc. 141,000 2,401 Matsushita Electric Industrial Co., Ltd. 167,034 2,310 Nissan Motor Co., Ltd. 200,000 2,284 Nippon Telegraph and Telephone Corp. 423 2,041 Tokyo Electric Power Co. 92,100 2,020 Sumitomo Mitsui Financial Group, Inc. 300 1,601 Millea Holdings, Inc. 120 1,568 * Mizuho Financial Group, Inc. 488 1,480 Hitachi Ltd. 230,000 1,386 * UFJ Holdings Inc. 284 1,365 East Japan Railway Co. 271 1,277 Fuji Photo Film Co., Ltd. 37,000 1,195 Sharp Corp. 75,000 1,183 Shin-Etsu Chemical Co., Ltd. 28,700 1,173 Chubu Electric Power Co. 51,500 1,074 JFE Holdings, Inc. 37,300 1,018 Rohm Co., Ltd. 8,600 1,008 Ricoh Co. 51,000 1,006 Seven Eleven Japan Co. Ltd. 33,000 1,001 Kansai Electric Power Co., Inc. 55,300 969 Murata Manufacturing Co., Ltd. 17,800 962 Nippon Steel Corp. 439,000 942 Ito-Yokado Co., Ltd. 29,000 912 Tokyo Electron Ltd. 11,900 904 Kao Corp. 44,000 895 NEC Corp. 119,400 879 Kyocera Corp. 13,100 873 Mitsubishi Corp. 81,000 859 Mitsui Sumitomo Insurance Co. 100,880 828 Toshiba Corp. 215,000 815 Hoya Corp. 8,700 799 Denso Corp. 39,500 778 Yamanouchi Pharmaceuticals Co., Ltd. 24,700 767 Mitsui & Co., Ltd. 94,000 757 Mitsubishi Estate Co., Ltd. 79,000 749 * Fujitsu Ltd. 126,000 743 Nintendo Co. 7,800 728 Tokyo Gas Co., Ltd. 201,000 716 Bridgestone Corp. 52,000 699 Dai-Nippon Printing Co., Ltd. 49,000 688 Fanuc Co., Ltd. 11,300 677 Nitto Denko Corp. 12,700 675 TDK Corp. 8,900 641 Daiwa Securities Group Inc. 94,000 639 Mitsubishi Heavy Industries Ltd. 228,000 634 Sanyo Electric Co., Ltd. 121,000 632 Central Japan Railway Co. 73 631 Aeon Co., Ltd. 18,600 623 Tohoku Electric Power Co. 36,900 612 Kyushu Electric Power Co., Inc. 35,200 605 Secom Co., Ltd. 16,000 597 Nikko Securities Co., Ltd. 105,000 585 Mitsubishi Electric Corp. 140,000 581 SMC Corp. 4,400 548 Sankyo Co., Ltd. 28,900 543 Asahi Kasei Corp. 99,000 538 Keyence Corp. 2,510 529 Orix Corp. 6,300 521 Nippon Oil Corp. 101,000 515 Komatsu Ltd. 80,000 508 Ajinomoto Co., Inc. 44,000 506 Mitsui Fudosan Co., Ltd. 56,000 506 Sompo Japan Insurance Inc. 60,000 493 Asahi Glass Co., Ltd. 60,000 493 Softbank Corp. 15,900 487 Kirin Brewery Co., Ltd. 57,000 486 Eisai Co., Ltd. 17,600 475 Sumitomo Trust & Banking Co., Ltd. 78,000 459 Toppan Printing Co., Ltd. 44,000 458 Fujisawa Pharmaceutical Co., Ltd. 21,200 452 * Resona Holdings Inc. 358,000 451 Shionogi & Co., Ltd. 24,000 447 Konica Minolta Holdings, Inc. 32,000 430 Sumitomo Electric Industries Ltd. 48,000 429 Osaka Gas Co., Ltd. 158,000 428 Sumitomo Corp. 57,000 425 Sekisui House Ltd. 41,000 424 Advantest Corp. 5,200 412 Japan Tobacco, Inc. 56 410 Tokyu Corp. 79,000 405 OJI Paper Co., Ltd. 62,000 400 Tostem Inax Holding Corp. 20,512 396 Toray Industries, Inc. 94,000 393 Sumitomo Chemical Co. 95,000 392 Yamato Transport Co., Ltd. 33,000 389 NTT Data Corp. 102 385 Shizuoka Bank Ltd. 51,000 377 Daiwa House Industry Co., Ltd. 35,000 372 Olympus Corp. 17,000 369 Bank of Yokohama Ltd. 79,000 367 Nippon Unipac Holding 71 366 Daiichi Pharmaceutical Co., Ltd. 20,200 364 Itochu Corp. 107,000 353 West Japan Railway Co. 89 350 * Kinki Nippon Railway Co. 116,190 349 Omron Corp. 17,200 349 37 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Pioneer Corp. 12,600 $ 348 Daikin Industries Ltd. 15,000 346 Marui Co., Ltd. 27,200 343 Shiseido Co., Ltd. 28,000 340 Mitsubishi Chemical Corp. 129,000 336 Kubota Corp. 81,000 334 Chugai Pharmaceutical Co., Ltd. 22,300 321 Nippon Yusen Kabushiki Kaisha Co. 70,000 317 JSR Corp. 14,000 313 Mitsui Osk Lines Ltd. 63,000 307 Sumitomo Metal Mining Co. 41,000 304 Promise Co., Ltd. 6,950 303 Nippon Express Co., Ltd. 64,000 302 * Nikon Corp. 20,000 302 Matsushita Electric Works, Ltd. 33,000 297 Daido Life Insurance Co. 96 286 Acom Co., Ltd. 6,050 274 Asahi Breweries Ltd. 30,000 273 Terumo Corp. 14,000 266 Oriental Land Co., Ltd. 4,300 265 Hirose Electric Co., Ltd. 2,300 264 Credit Saison Co., Ltd. 11,500 260 Nidec Corp. 2,700 258 Takefuji Corp. 5,460 255 Fast Retailing Co., Ltd. 4,200 255 Yamaha Corp. 12,900 253 Mitsui Chemicals, Inc. 43,000 251 Sumitomo Metal Industries Ltd. 253,000 250 Yokogawa Electric Corp. 17,000 246 Kuraray Co., Ltd. 29,000 245 Aiful Corp. 3,300 241 * Mitsui Trust Holding Inc. 43,100 241 Kajima Corp. 74,000 240 Taisei Corp. 64,000 234 Seiko Epson Corp. 5,000 233 Taisho Pharmaceutical Co. 13,000 232 Stanley Electric Co. 12,000 232 Sumitomo Realty & Development Co. 25,000 220 Keio Electric Railway Co., Ltd. 42,000 218 Daito Trust Construction Co., Ltd. 7,200 214 Chiba Bank Ltd. 52,000 213 Yamada Denki Co., Ltd. 6,300 212 Tobu Railway Co., Ltd. 59,000 211 Ohbayashi Corp. 47,000 210 Trend Micro Inc. 7,500 201 Teijin Ltd. 68,000 200 Kawasaki Kisen Kaisha Ltd. 40,000 199 Toto Ltd. 23,000 195 Konami Corp. 6,600 192 ToneGeneral Sekiyu K.K 23,000 190 Joyo Bank Ltd. 58,000 189 Nissin Food Products Co., Ltd. 7,500 187 Marubeni Corp. 97,000 186 Mabuchi Motor Co. 2,400 185 Citizen Watch Co., Ltd. 20,000 184 Mitsui Mining & Smelting Co., Ltd. 44,000 183 Jafco Co., Ltd. 2,300 181 CSK Corp. 5,000 181 Keihin Electric Express Railway Co., Ltd. 30,000 176 Alps Electric Co., Ltd. 12,000 176 Nomura Research Institute, Ltd. 1,800 176 THK Co., Inc. 8,600 175 Lawson Inc. 5,000 171 Casio Computer Co. 16,000 169 Showa Denko K.K 75,000 169 Bank of Fukuoka, Ltd. 40,000 168 Uni-Charm Corp. 3,400 167 Kyowa Hakko Kogyo Co. 26,000 165 NGK Insulators Ltd. 22,000 164 77 Bank Ltd. 29,000 163 Sekisui Chemical Co. 32,000 163 NTN Corp. 34,000 162 Fujikura Ltd. 27,000 159 Mitsubishi Rayon Co., Ltd. 42,000 158 JGC Corp. 15,000 156 Gunma Bank Ltd. 35,000 156 * Oki Electric Industry Co. Ltd. 40,000 156 Yakult Honsha Co., Ltd. 10,000 156 Taiheiyo Cement Corp. 55,000 156 Isetan Co. 14,100 155 Toyo Seikan Kaisha Ltd. 11,000 154 Furukawa Electric Co. 45,000 149 Ushio Inc. 9,000 149 Kaneka Corp. 20,000 149 Shimizu Corp. 38,000 145 Takashimaya Co. 20,000 143 Hino Motors, Ltd. 20,000 143 Hitachi Chemical Co., Ltd. 8,400 141 Oracle Corp. Japan 2,700 140 Japan Airlines System Co. 52,000 137 Toho Co., Ltd. 10,700 136 Nippon Mining Holdings Inc. 39,000 136 Amada Co., Ltd. 26,000 135 Minebea Co., Ltd. 26,000 132 Takara Holdings Inc. 14,000 131 * Mitsukoshi, Ltd. 32,000 130 Dowa Mining Co. Ltd. 24,000 129 Nippon Meat Packers, Inc. 13,000 127 38 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Bandai Co., Ltd. 5,000 $ 126 Ishikawajima-Harima Heavy Industries Co. 88,000 126 * Mitsubishi Materials Corp. 81,000 125 Benesse Corp. 5,100 124 Skylark Co., Ltd. 7,500 124 Uny Co., Ltd. 12,000 123 Kawasaki Heavy Industries Ltd. 100,000 123 Shimamura Co., Ltd. 1,800 122 Onward Kashiyama Co., Ltd. 10,000 121 Kamigumi Co., Ltd. 17,000 120 Shimano, Inc. 5,800 120 Dai-Nippon Ink & Chemicals, Inc. 63,000 120 Ube Industries Ltd. 59,000 118 Taiyo Yuden Co., Ltd. 9,000 118 * All Nippon Airways Co., Ltd. 47,000 116 Nisshin Seifun Group Inc. 13,000 116 Toyoda Gosei Co., Ltd. 4,000 115 World Co., Ltd. 3,600 115 FamilyMart Co., Ltd. 5,000 114 Tosoh Corp. 34,000 114 NSK Ltd. 31,000 113 Denki Kagaku Kogyo K.K 35,000 113 Sankyo Co., Ltd. 3,500 111 TIS Inc. 3,200 108 Meitec Corp. 2,800 108 House Foods Industry Corp. 9,500 108 Dentsu Inc. 21 106 Daimaru, Inc. 19,000 105 NGK Spark Plug Co. 13,000 105 Ebara Corp. 24,000 104 Fuji Electric Holdings Co., Ltd. 46,000 101 Obic Co., Ltd. 500 101 Makita Corp. 10,000 100 Mitsubishi Gas Chemical Co. 29,000 99 Yamaha Motor Co., Ltd. 9,000 98 Nissan Chemical Industries, Ltd. 11,000 98 Susuken Co., Ltd. 3,000 97 USS Co., Ltd. 1,370 97 The Suruga Bank, Ltd. 15,000 96 Toyobo Ltd. 44,000 96 * Sumitomo Heavy Industries Ltd. 42,000 95 Showa Shell Sekiyu K.K 11,500 93 Q.P. Corp. 11,200 93 Kikkoman Corp. 13,000 92 Net One Systems Co., Ltd. 12 92 Fuji Television Network, Inc. 17 92 * Sega Corp. 9,600 91 Sumitomo Bakelite Co. Ltd. 14,000 91 Yamazaki Baking Co., Ltd. 11,000 91 Seino Transportation Co., Ltd. 11,000 91 * Hokugin Financial Group, Inc. 66,000 89 Aoyama Trading Co., Ltd. 4,500 89 * Dai-Nippon Screen Manufacturing Co., Ltd. 13,000 89 Itochu Techno-Science Corp. 2,800 87 Ito En, Ltd. 2,000 86 Nippon Sheet Glass Co., Ltd. 29,000 85 Kurita Water Industries Ltd. 7,000 84 Nippon Shokubai Co., Ltd. 11,000 83 Central Glass Co., Ltd. 13,000 82 Gunze Ltd. 18,000 81 Nichii Gakkan Co. 1,430 81 Aeon Credit Service Co. Ltd. 1,870 80 Shimachu Co. 4,000 79 Mitsui Engineering & Shipbuilding Co., Ltd. 48,000 79 Meiji Seika Kaisha Ltd. 19,000 77 Tokyo Style Co. 7,000 76 Teikoku Oil Co., Ltd. 15,000 75 Daicel Chemical Industries Ltd. 18,000 74 Komori Corp. 5,000 74 Asatsu-DK Inc. 2,800 72 Koyo Seiko Co., Ltd. 7,000 72 Namco Ltd. 2,500 69 Mitsumi Electric Co., Ltd. 6,200 68 Sanden Corp. 11,000 68 Toyo Suisan Kaisha, Ltd. 6,000 67 Mitsubishi Logistics Corp. 8,000 67 Nishimatsu Construction Co. 20,000 66 Sumitomo Osaka Cement Co., Ltd. 33,000 65 * Comsys Holdings Corp. 10,000 64 Okumura Corp. 15,000 64 Sapparo Holdings Ltd. 23,000 63 Nippon Kayaku Co., Ltd. 12,000 59 Wacoal Corp. 7,000 58 Coca-Cola West Japan Co. Ltd. 2,900 57 Hitachi Cable Ltd. 15,000 56 Meiji Dairies Corp. 13,000 56 Nippon Sanso Corp. 13,000 55 Hitachi Software Engineering Co., Ltd. 2,100 54 Hankyu Department Stores, Inc. 8,000 54 Autobacs Seven Co., Ltd. 2,200 51 Nisshinbo Industries, Inc. 9,000 50 * Ishihara Sangyo Kaisha Ltd. 25,000 50 Bellsystem24, Inc. 240 49 Nichirei Corp. 15,000 49 Tokyo Broadcasting System, Inc. 3,000 48 Kinden Corp. 10,000 47 Kokuyo Co., Ltd. 4,300 47 Toda Corp. 16,000 45 Aderans Co. Ltd. 2,800 45 Katokichi Co., Ltd. 2,700 44 39 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- * Anritsu Corp. 6,000 $ 40 Amano Corp. 5,000 36 Kaken Pharmaceutical Co. 7,000 35 Ariake Japan Co., Ltd. 1,100 35 * Snow Brand Milk Products Co. 12,000 35 Capcom Co., Ltd. 2,500 31 Saizeriya Co., Ltd. 2,900 29 * Kanebo Ltd. 28,000 28 * Matsumotokiyoshi Co., Ltd. - When Issued 1,100 25 Matsumotokiyoshi Co., Ltd. 1,100 25 Takuma Co., Ltd. 4,000 22 ------------- $ 126,297 ------------- LUXEMBOURG (0.1%) Arcelor 29,338 511 NETHERLANDS (5.5%) Royal Dutch Petroleum Co. 173,736 9,160 ING Groep NV 146,906 3,426 Koninklijke (Royal) Philips Electronics NV 109,684 3,203 Unilever NV 47,591 3,113 * ABN-AMRO Holding NV 127,963 2,994 * Aegon NV 112,997 1,672 * Koninklijke KPN NV 176,438 1,362 STMicroelectronics NV 48,879 1,326 Akzo Nobel NV 22,575 871 * ASML Holding NV 38,256 759 * Koninklijke Ahold NV 90,405 689 Reed Elsevier NV 53,079 659 TPG NV 27,443 643 Heineken NV 15,999 609 Verenigde Nederlandse Uitgeversbedrijven NV 18,539 586 European Aeronautic Defence and Space Co. 23,304 554 Wolters Kluwer NV 23,253 364 DSM NV 6,873 338 * Koninklijke Numico NV 12,019 332 Rodamco Europe NV 4,197 244 James Hardie Industries NV 39,967 207 Euronext NV 7,724 196 Wereldhave NV 2,356 176 * Qiagen NV 10,946 134 * IHC Caland NV 2,264 123 Vedior NV 7,831 122 Koninklijke Vendex KBB NV 7,459 104 Oce NV 6,587 101 Hagemeyer NV 6,827 15 ------------- $ 34,082 ------------- NEW ZEALAND (0.2%) Telecom Corp. of New Zealand Ltd. 160,652 566 Sky City Entertainment Group Ltd. 39,726 120 Contact Energy Ltd. 27,315 96 Fletcher Building Ltd. 34,487 96 Carter Holt Harvey Ltd. 63,968 79 Auckland International Airport Ltd. 16,132 74 The Warehouse Group Ltd. 13,360 45 * Fletcher Challenge Forests Ltd. Pfd. 43,386 39 Fisher & Paykel Healthcare Corp. Ltd. 4,355 36 Fisher & Paykel Appliances Holdings Ltd. 14,260 36 * Tower Ltd. 38,377 31 * Sky Network Television, Ltd. 8,195 30 Independent Newspapers Ltd. 6,105 21 NGC Holdings, Ltd. 12,944 19 * Fletcher Challenge Forests Ltd. 2,482 2 ------------- $ 1,290 ------------- NORWAY (0.5%) Norsk Hydro ASA 11,492 709 Telenor ASA 63,326 414 Statoil ASA 36,570 411 DNB NOR ASA 60,480 404 Orkla ASA 15,120 339 Norske Skogindustrier ASA 8,000 153 * Storebrand ASA 16,000 104 Frontline Ltd. 3,610 94 Tomra Systems ASA 13,900 84 * Tandberg ASA 9,400 69 Schibsted ASA 3,930 68 * Aker Kvaerner ASA 1,837 31 Smedvig ASA A Shares 3,320 25 ------------- $ 2,905 ------------- PORTUGAL (0.4%) Portugal Telecom SGPS SA 77,909 784 Electricidade de Portugal SA 143,086 377 Banco Comercial Portugues SA 167,852 375 Banco Espirito Santo SA 9,181 151 Brisa-Auto Estradas de Portugal SA 17,975 120 Banco BPI SA 31,375 116 * PT Multimedia-Servicos de Telecomunicacoes e Multimedia, SGPS, SA 4,325 84 40 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- * Sonae SGPS SA 80,058 $ 67 Cimpor-Cimento de Portugal SA 12,366 64 * Jeronimo Martins & Filho, SGPS, SA 2,748 36 ------------- $ 2,174 ------------- SINGAPORE (0.8%) DBS Group Holdings Ltd. 88,082 762 United Overseas Bank Ltd. 93,504 727 Singapore Telecommunications Ltd. 507,900 586 Oversea-Chinese Banking Corp., Ltd. 78,650 560 Singapore Press Holdings Ltd. 28,000 312 Singapore Airlines Ltd. 41,751 275 Venture Corp. Ltd. 17,000 200 Keppel Corp., Ltd. 40,000 144 City Developments Ltd. 37,000 132 Singapore Technologies Engineering Ltd. 100,906 121 * Neptune Orient Lines Ltd. 88,000 112 Fraser & Neave Ltd. 14,130 105 * Chartered Semiconductor Manufacturing Ltd. 90,398 92 Capitaland Ltd. 95,000 87 Singapore Exchange Ltd. 79,000 79 ComfortDelgro Corp Ltd. 110,000 53 United Overseas Land Ltd. 45,000 51 Creative Technology Ltd. 4,450 47 Allgreen Properties Ltd. 65,000 43 Sembcorp Industries Ltd. 56,000 42 SembCorp Marine Ltd. 68,000 40 Singapore Land Ltd. 16,000 37 * ST Assembly Test Services Ltd. 30,000 37 Sembcorp Logistics Ltd. 28,000 33 Singapore Post Ltd. 77,000 32 * Datacraft Asia Ltd. 25,000 32 Keppel Land Ltd. 29,000 27 Jardine Cycle N Carriage Ltd. 7,037 24 Wing Tai Holdings Ltd. 25,000 12 Parkway Holdings Ltd. 20,000 11 SMRT Corp. Ltd. 25,000 9 Overseas Union Enterprise Ltd. 2,000 8 ------------- $ 4,832 ------------- SPAIN (3.6%) * Telefonica SA 374,393 5,497 Banco Santander Central Hispano SA 358,370 4,245 Banco Bilbao Vizcaya Argentaria SA 251,763 3,477 Repsol-YPF SA 75,638 1,475 Endesa SA 74,193 1,427 Iberdrola SA 63,485 1,255 Banco Popular Espanol SA 12,727 759 Altadis SA 22,927 651 Gas Natural SDG SA 16,209 379 ACS, Actividades de Construccion y Servicios, SA 7,648 373 Industria de Diseno Textil SA 17,704 360 Abertis Infraestructuras SA 19,974 302 Union Fenosa SA 14,696 276 Acerinox SA 3,820 180 Grupo Ferrovial, SA 4,984 175 Fomento de Construc y Contra SA 3,820 141 Acciona SA 2,144 130 Sacyr Vallehermoso SA 8,461 128 Amadeus Global Travel Distribution SA 18,872 123 Indra Sistemas, SA 9,069 116 * Zeltia SA 14,509 102 Promotora de Informaciones SA 6,947 101 Corporacion Mapfre SA 6,152 87 Telefonica Publicidad e Informacion, SA 14,486 79 * NH Hoteles SA 6,197 71 Sociedad General de Aguas de Barcelona SA 4,442 66 * Antena 3 Television 1,199 53 ------------- $ 22,028 ------------- SWEDEN (2.2%) * Telefonaktiebolaget LM Ericsson AB Class B 1,212,162 2,173 Nordea AB 195,674 1,469 Hennes & Mauritz AB B Shares 38,265 909 Svenska Handelsbanken AB A Shares 43,770 894 TeliaSonera AB 136,643 714 Sandvik AB 18,283 630 Svenska Cellulosa AB B Shares 15,010 613 Volvo AB B Shares 18,770 574 Skandinaviska Enskilda Banken AB A Shares 38,324 565 Electrolux AB Series B 23,936 526 * Tele2 AB B Shares 7,696 411 Securitas AB B Shares 24,340 328 Atlas Copco AB A Shares 9,000 322 Swedish Match AB 28,831 295 Skanska AB B Shares 32,176 284 Assa Abloy AB 23,800 283 Skandia Forsakrings AB 66,500 242 Volvo AB A Shares 8,152 239 SKF AB B Shares 6,070 235 Atlas Copco AB B Shares 5,330 174 Eniro AB 14,400 138 Holmen AB 3,800 135 41 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Getinge AB-B Shares 13,600 $ 130 Drott AB B Shares 6,870 130 Gambro AB A Shares 15,600 129 Castellum AB 4,600 109 Svenskt Stal AB A Shares 5,730 102 Trelleborg AB B Shares 6,220 101 * Modern Times Group AB 4,600 97 SKF AB A Shares 2,260 88 Svenska Handelsbanken AB B Shares 4,390 87 Alfa Laval AB 4,900 75 Billerud Aktiebolag 4,600 69 * SAS AB 5,875 56 OM HEX AB 4,260 53 Gambro AB B Shares 6,200 51 Hoganas AB B Shares 2,300 49 * WM-Data AB Class B 19,000 41 Axfood AB 1,550 36 Svenskt Stal AB 580 10 ------------- $ 13,566 ------------- SWITZERLAND (7.2%) Novartis AG (Registered) 196,856 8,938 Nestle SA (Registered) 33,595 8,394 UBS AG 97,185 6,656 Roche Holdings AG 58,430 5,894 Credit Suisse Group (Registered) 99,520 3,641 Swiss Re (Registered) 26,947 1,819 Zurich Financial Services AG 12,037 1,732 Cie. Financiere Richemont AG 41,555 998 Swisscom AG 2,116 698 * ABB Ltd. 136,011 690 Adecco SA (Registered) 10,400 669 Holcim Ltd. (Registered) 11,981 558 * CIBA Specialty Chemicals AG (Registered) 5,364 415 Serono SA Class B 562 401 Roche Holdings AG (Bearer) 2,834 393 Synthes-Stratec Inc. 342 338 Swatch Group AG (Bearer) 2,602 312 Givaudan SA 557 289 SGS Societe Generale de Surveillance Holding SA (Registered) 335 210 Lonza AG (Registered) 3,101 178 * Clariant AG 11,804 174 Nobel Biocare Holding AG 1,650 161 * Logitech International SA 3,666 159 Geberit AG 314 154 Swatch Group AG (Registered) 5,145 123 * Schindler Holding AG (Ptg. Ctf.) 445 109 Unaxis Holding AG 722 102 Kuoni Reisen Holding AG (Registered) 254 85 Sulzer AG (Registered) 306 82 * Kudelski SA 2,391 79 Valora Holding AG 246 61 ------------- $ 44,512 ------------- UNITED KINGDOM (25.9%) BP PLC 1,813,782 14,709 * HSBC Holdings PLC 920,592 14,469 Vodafone Group PLC 5,781,563 14,335 GlaxoSmithKline PLC 506,132 11,598 Royal Bank of Scotland Group PLC 239,835 7,067 AstraZeneca Group PLC 146,323 7,020 Shell Transport & Trading Co. PLC 830,211 6,175 Barclays PLC 560,750 5,002 HBOS PLC 327,958 4,248 Lloyds TSB Group PLC 479,463 3,845 Diageo PLC 264,127 3,475 Tesco PLC 624,878 2,883 BT Group PLC 744,360 2,508 Rio Tinto PLC 88,746 2,451 Unilever PLC 237,965 2,218 National Grid Transco PLC 267,332 1,915 British American Tobacco PLC 131,532 1,813 BHP Billiton PLC 205,114 1,792 Aviva PLC 188,395 1,653 BG Group PLC 292,608 1,502 Prudential PLC 167,426 1,415 Centrica PLC 354,130 1,338 * British Sky Broadcasting Group PLC 104,779 1,319 Cadbury Schweppes PLC 171,030 1,256 Compass Group PLC 179,909 1,224 Imperial Tobacco Group PLC 60,433 1,190 GUS PLC 83,682 1,159 Reckitt Benckiser PLC 49,860 1,128 Marks & Spencer Group PLC 195,032 1,009 Legal & General Group PLC 543,503 975 ScottishPower PLC 144,603 964 Kingfisher PLC 191,338 954 Reed Elsevier PLC 105,448 882 WPP Group PLC 87,850 863 Scottish & Southern Energy PLC 71,158 857 Boots Group PLC 66,591 824 BAA PLC 88,858 789 BAE Systems PLC 256,961 774 Amersham PLC 55,780 764 Pearson PLC 66,401 739 Land Securities Group PLC 38,756 688 SABMiller PLC 66,267 687 42 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- J. Sainsbury PLC 121,806 $ 682 Wolseley PLC 47,248 668 Smith & Nephew PLC 77,254 649 BOC Group PLC 41,739 638 InterContinental Hotels Group PLC 60,235 570 Man Group PLC 21,755 569 Carnival PLC 14,011 565 3i Group PLC 48,105 532 Rentokil Initial PLC 155,709 530 Hilton Group PLC 130,884 527 Smiths Group PLC 44,435 526 Reuters Group PLC 118,841 500 Granada PLC 216,871 474 Cable and Wireless PLC 191,262 457 Hanson Building Materials PLC 61,778 454 Next PLC 22,452 451 Scottish & Newcastle PLC 64,315 435 Safeway PLC 83,432 424 British Land Co., PLC 39,204 410 Amvescap PLC 56,290 409 United Utilities PLC 43,994 390 Severn Trent PLC 29,078 390 Rolls-Royce Group PLC 122,351 388 Dixons Group PLC 153,404 382 Royal & Sun Alliance Insurance Group PLC 232,340 367 Imperial Chemical Industries PLC 96,508 344 Rexam PLC 44,102 338 Whitbread PLC 25,165 324 Exel PLC 24,401 323 Emap PLC 20,815 319 Friends Provident PLC 134,935 319 Johnson Matthey PLC 17,675 310 The Sage Group PLC 98,409 310 Daily Mail and General Trust 25,836 305 Tomkins PLC 63,096 302 Slough Estates PLC 37,841 298 Hays PLC 138,406 297 GKN PLC 61,845 296 Liberty International PLC 23,199 283 Hammerson PLC 24,205 281 Bunzl PLC 36,621 280 LogicaCMG PLC 60,863 279 Signet Group PLC 148,365 274 RMC Group PLC 21,744 272 William Hill PLC 34,668 265 Kelda Group PLC 30,905 259 Enterprise Inns PLC 14,135 257 BPB PLC 41,199 256 Capita Group PLC 57,204 249 Provident Financial PLC 21,269 248 Rank Group PLC 48,172 241 The Peninsular & Oriental Steam Navigation Co. 57,532 237 United Business Media PLC 26,403 232 Taylor Woodrow PLC 47,768 228 Carlton Communications PLC 53,799 222 Electrocomponents PLC 36,965 215 Persimmon PLC 21,821 210 Kesa Electricals PLC 45,320 209 Brambles Industries PLC 56,129 204 Yell Group PLC 37,358 204 * International Power PLC 91,466 202 Associated British Ports Holdings PLC 24,730 199 * Canary Wharf Group PLC 40,766 195 Tate & Lyle PLC 34,861 194 * ARM Holdings PLC 83,466 192 * George Wimpey PLC 28,691 192 EMI Group PLC 66,627 189 * British Airways PLC 45,312 189 Alliance Unichem PLC 20,114 187 Mitchells & Butlers PLC 44,660 180 Barratt Developments PLC 18,327 178 Misys PLC 46,192 175 Cobham PLC 8,315 174 IMI PLC 27,366 165 Aegis Group PLC 89,499 158 FirstGroup PLC 31,833 156 * Celltech Group PLC 22,810 154 The Berkeley Group PLC 9,458 149 BBA Group PLC 32,803 147 Close Brothers Group PLC 11,081 146 Cattles PLC 24,169 145 Pilkington PLC 83,735 144 United Utilities PLC 25,326 138 Balfour Beatty PLC 35,238 138 MFI Furniture Group PLC 43,698 118 Schroders PLC 9,729 110 Stagecoach Group PLC 78,315 110 Amec PLC 23,276 108 Serco Group PLC 34,984 108 * Invensys PLC 303,905 99 The Davis Service Group PLC 13,854 93 SSL International PLC 15,601 92 Great Portland Estates PLC 21,249 89 FKI PLC 45,877 88 * HHG PLC 116,391 84 De La Rue Group PLC 15,481 77 Securicor PLC 41,981 72 43 -------------------------------------------------------------------------------- MARKET TAX-MANAGED VALUE* INTERNATIONAL FUND SHARES (000) -------------------------------------------------------------------------------- Novar PLC 28,502 $ 70 ScottishPower PLC ADR 2,320 63 Aggreko PLC 21,868 60 ------------- $ 159,880 ------------- -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $564,540) $ 607,547 -------------------------------------------------------------------------------- FACE AMOUNT (000) -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (0.5%) -------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account 0.98%, 1/2/2004 $ 748 748 0.99%, 1/2/2004--Note E 2,520 2,520 -------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $3,268) $ 3,268 -------------------------------------------------------------------------------- TOTAL INVESTMENTS (99.2%)(Cost $567,808) $ 610,815 -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (0.8%) -------------------------------------------------------------------------------- Receivables for Capital Shares Sold 23,118 Other Assets--Note B 1,206 Payables for Investment Securities Purchased (16,016) Other Liabilities--Note E (3,180) ------------- $ 5,128 ------------- -------------------------------------------------------------------------------- NET ASSETS (100%) $ 615,943 ================================================================================ *See Note A in Notes to Financial Statements. *Non-income-producing security. ADR--American Depositary Receipt. (Ptg. Ctf.)--Participating Certificates. -------------------------------------------------------------------------------- AMOUNT (000) -------------------------------------------------------------------------------- AT DECEMBER 31, 2003, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Paid-in Capital $ 647,034 Undistributed Net Investment Income 21 Accumulated Net Realized Losses (74,226) Unrealized Appreciation Investment Securities 43,007 Foreign Currencies 107 -------------------------------------------------------------------------------- NET ASSETS $ 615,943 ================================================================================ Investor Shares--Net Assets Applicable to 58,616,474 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 513,759 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 8.76 ================================================================================ Institutional Shares--Net Assets Applicable to 11,654,507 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $ 102,184 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INSTITUTIONAL SHARES $ 8.77 ================================================================================ See Note C in Notes to Financial Statements for the tax- basis components of net assets. 44 THIS PAGE INTENTIONALLY LEFT BLANK. THIS PAGE INTENTIONALLY LEFT BLANK. THIS PAGE INTENTIONALLY LEFT BLANK. (C) 2004 THE VANGUARD GROUP, INC. ALL RIGHTS RESERVED. VANGUARD MARKETING CORPORATION, DISTRIBUTOR. F870 022004 ITEM 2: Code of Ethics. The Board of Trustees has adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller of the Registrant and The Vanguard Group, Inc., and to persons performing similar functions. ITEM 3: Audit Committee Financial Expert. All of the members of the Audit Committee have been determined by the Registrant's Board of Trustees to be Audit Committee Financial Experts. The members of the Audit Committee are: Charles D. Ellis, Rajiv L. Gupta, JoAnn Heffernan Heisen, Burton G. Malkiel, Alfred M. Rankin, Jr., and J. Lawrence Wilson. All Audit Committee members are independent under applicable rules. ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES. (A) AUDIT FEES. AUDIT FEES OF THE REGISTRANT Fiscal Year Ended December 31, 2003: $83,000 Fiscal Year Ended December 31, 2002: $60,000 AGGREGATE AUDIT FEES OF REGISTERED INVESTMENT COMPANIES IN THE VANGUARD GROUP Fiscal Year Ended December 31, 2003: $1,660,800 Fiscal Year Ended December 31, 2002: $1,620,200 (B) AUDIT-RELATED FEES. Fiscal Year Ended December 31, 2003: $324,460 Fiscal Year Ended December 31, 2002: $420,280 Includes fees billed in connection with assurance and related services provided to the Registrant, The Vanguard Group, Inc., Vanguard Marketing Corporation, and other registered investment companies in the Vanguard Group. (C) TAX FEES. Fiscal Year Ended December 31, 2003: $409,900 Fiscal Year Ended December 31, 2002: $103,200 Includes fees billed in connection with compliance, planning, and advice services provided to the Registrant, The Vanguard Group, Inc., Vanguard Marketing Corporation, and other registered investment companies in the Vanguard Group and related to income, excise, and stamp taxes. (D) ALL OTHER FEES. Fiscal Year Ended December 31, 2003: $31,000 Fiscal Year Ended December 31, 2002: $367,500 Includes fees billed in connection with benefit plans and statements, risk management, privacy matters, educational training materials, and other business advisory services provided to the Registrant, The Vanguard Group, Inc., Vanguard Marketing Corporation, and other registered investment companies in the Vanguard Group. (E) (1) PRE-APPROVAL POLICIES. The policy of the Registrant's Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and permitted non-audit services provided to: (1) the Registrant; (2) The Vanguard Group, Inc.; (3) other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant; and (4) other registered investment companies in the Vanguard Group. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant's independence. In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant's independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant's independence. The Registrant's Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: (1) the Registrant; (2) The Vanguard Group, Inc.; (3) other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant; or (4) other registered investment companies in the Vanguard Group. (2) No percentage of the principal accountant's fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant's engagement were not performed by persons other than full-time, permanent employees of the principal accountant. (G) AGGREGATE NON-AUDIT FEES. Fiscal Year Ended December 31, 2003: $440,900 Fiscal Year Ended December 31, 2002: $470,700 Includes fees billed for non-audit services provided to the Registrant, The Vanguard Group, Inc., Vanguard Marketing Corporation, and other registered investment companies in the Vanguard Group. (h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant's independence. ITEM 5: Not applicable. ITEM 6: Reserved. ITEM 7: Not applicable. ITEM 8: Reserved. ITEM 9: CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) Internal Control Over Financial Reporting. There were no significant changes in Registrant's internal control over financial reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10: EXHIBITS. The following exhibits are attached hereto: (a) Code of Ethics (b) Certifications Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VANGUARD TAX-MANAGED FUNDS BY:_____________(signature)________________ (HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER Date: February 20, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. VANGUARD TAX-MANAGED FUNDS BY:_____________(signature)________________ (HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER Date: February 20, 2004 VANGUARD TAX-MANAGED FUNDS BY:_____________(signature)________________ (HEIDI STAM) THOMAS J. HIGGINS* TREASURER Date: February 20, 2004 *By Power of Attorney. See File Number 2-57689, filed on December 26, 2002. Incorporated by Reference.