David Tillson is the anti-tax man. The manager of New York-based U.S. Trust Corp.'s Master Equity Fund works hard to protect his clients from having to pay unnecessary taxes on premature profits. While another fund manager might sell a stock because it's not climbing fast enough, Mr. Tillson, 47, is more willing to sit tight, particularly if he sees real potential down the road. Otherwise, his fund's investors would pay a 28% capital gains tax and would be left with 28% less principal to invest in the next stock. We're paying attention to what the individual shareholder is looking at also, he said. We'll take gains when necessary, but we don't want to take unnecessary gains. While he's only been in charge of the portfolio for a year, that kind of long-term philosophy has worked well for the 10-year-old fund. With assets under management of $170 million, UST Master Equity is the top bank-managed growth fund for the last five years, with a 19.6% annualized return for the period, according to Lipper Analytical Services, Summit, N.J.

This fund as I see it is designed more or less to mirror what a typical account at U.S. Trust should look like, Mr. Tillson said. We're managing this with the same idea as a taxable account would be managed here. In general, the Equity Fund, part of the $4 billion-asset UST Master Funds family and distributed by Federated Services Co., Pittsburgh, seeks companies that are mispriced and in out-of-favor industries. That's because those are the stocks with most room for growth, he said. I view the management of this fund kind of like planting a garden, said Mr. Tillson, who often puts in 12-hour days, plus some time on weekends, to weed out the stocks he doesn't want.

You buy some very good seeds, you plant them, and you want them to come up, he said. They're not all going to come up at the same time, but you want them to continue to come up, so you have something blooming throughout the year. Mr. Tillson takes positions across a wide range of industries, choosing between stable value investments and young, small-cap companies in rapidly growing fields. By spreading his investments across a variety of stocks, he hopes to protect the fund from volatility in the market.

Styles go into favor and out of favor, he said. We want to make sure we don't subject someone to being in the wrong style at the wrong time. The fund is authorized to invest up to 10% of its assets in international companies, but only about 6.5% is now in foreign stocks. Besides his focus on when and what to buy, Mr. Tillson believes in a strong sell discipline calculating exactly how much a company is worth in three to five years and not selling it until it reaches that point even if it first drops somewhat in value. He sees the best investment as a company that is fundamentally sound and operating in a good field, is not overpriced, and has such potential for growth over several years that he wouldn't sell it. It's rare to find such a stock, he said, but he cited Johnson & Johnson and Microsoft as examples. Always looking ahead, Mr. Tillson is ready to begin moving his fund away from this year's performers toward those industries that he expects to surge next year, such as AT&T.

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