(MONEY Magazine) – When Charles Freeman succeeded the retiring John Neff as head of the $17 billion Vanguard Windsor fund in January 1996, it was a little like Jay Leno taking over The Tonight Show from Johnny Carson. After all, how do you replace a legend? Running Windsor since June 1964, Neff built a reputation as one of the nation's foremost value investors. He compiled a long-term record that few, if any, fund managers could match: an annual average return of 14% during his 31-year tenure, vs. 10.7% for both the Standard & Poor's 500 index and the average equity fund. Talk about tough acts to follow!

After 14 months on the job, though, Freeman, 53, has proved himself a worthy successor. He led Windsor to a 26% gain in 1996, topping the 23% rise in the S&P 500 and the 21% return of the average growth and income fund. What's more, after spending virtually his entire career as Neff's understudy, Freeman did it his way. For example, he raised the fund's technology stake to 13% from 3% by adding solid performers such as $9.5 billion Seagate Technology, a leading maker of computer disk drives, and $21.5 billion computermaker Compaq. In addition, during the past 14 months he has cut his cash holdings in half, to 10%, and intends to have them down below 5% by the summer. He has also increased the fund's total stocks to 119 from 90 after Neff's departure. Daniel Wiener, editor of the Independent Adviser for Vanguard Investors, thinks that Freeman was wise to plow cash into the market. "Neff's style of market timing and keeping lots of cash on hand had not worked in this bull market," he says.

Freeman, however, has retained Neff's basic value approach: Buy stocks that other investors have shunned and wait for Wall Street to discover their virtues. The fund's average stock has a price/earnings ratio of 15, well below the S&P 500's 19.6. And Freeman shares Neff's penchant for big bets as well. Recently, Windsor's 10 largest holdings, which include $16 billion paper giant Georgia Pacific and $59 billion AT&T, accounted for 35% of the portfolio (about the same as during Neff's last year), vs. 25% at the typical value fund.

Unfortunately, Windsor has been closed to new investors since 1989. If you are an existing shareholder, though, you can feel confident putting more money into the fund. And if you are lucky enough to work for one of the 300 companies that offer Windsor in an employee savings plan, consider it an ideal core holding for 10% to 15% of your equity stake.

--Galina Espinoza