<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
Common stocks experienced two significant downdrafts--one in late March, the
other in late June--during the six months ended July 31, the first half of the
1995 fiscal year for Vanguard Specialized Portfolios. Nonetheless, reasonable
strength during the remainder of the six-month period held the net decline in
the total return of all U.S. common stocks, as a group, to -4.6%.
Given the specialized nature of our Portfolios, our results during the
period were unsurprisingly mixed, with total returns (capital change plus
income) ranging from +2.8% for our Energy Portfolio to -6.5% for our Utilities
Income Portfolio. The Standard & Poor's 500 Composite Stock Price Index, which
emphasizes high-quality common stocks with large market capitalizations,
provided a return of -3.5%. The components of each Portfolio's return,
including the change in net asset value, income dividends, and any capital
gains distributions, are presented in a table on page 3 of this report.
The overall weakness in the stock market during the six-month period
seemed to reflect investor concerns beyond the actual dimensions of the
problems confronting the market, most notably possible future increases in
inflation. Surely, investor concerns were heightened by the -14% decline in the
prices of long-term corporate bonds, as yields on AA utilities leaped
upward--from 7.0% at the start of our fiscal period to 8.3% at its close.
While inflationary concerns have yet to be reflected in the Consumer
Price Index, the Federal Reserve has acted to "tighten" the money supply and
slow economic growth and potential future inflation, raising the Federal funds
rate (at which banks borrow from one another) on four separate occasions.
During the past six months, the Fed has pushed this benchmark rate from 3.00%
to 4.25%. Theory suggests that these increases should be regarded by market
participants as a restraint on potential inflation, and thus cause long-term
rates to fall. However, this theory seldom holds true in practice, and 1994 has
proved to be no exception.
* UTILITIES INCOME PORTFOLIO
With interest rates rising fairly steadily over the past six months, all
interest rate sensitive securities, including utility stocks, experienced sharp
price declines. As might be expected in this environment, the performance of
the Utilities Income Portfolio moved into negative territory. While our
six-month total return of -6.5% exceeded the decline in the Standard & Poor's
500 Index, our Portfolio held up a bit better than the average utilities mutual
fund, which fell -7.2% over the same period.
In some respects, the decline in the prices of utility stocks might
aptly be described as a case of "what goes around, comes around." Indeed,
utility stocks had benefited from a fairly steady decline in interest rates
going back some seven years. All told, the retracement of interest rates over
the past six months has merely returned rates to the level prevailing during
the final quarter of 1992, shortly after the introduction of our Portfolio. In
all, since the Portfolio's inception in May 1992, its annualized rate of return
has been +9.6%, compared with an average annual return of +6.5% for our "peer
group" of utility funds.
* HEALTH CARE PORTFOLIO
Given the uncertainty that has plagued the health care industry, particularly
since the Administration proposed sweeping changes in the way that Americans
pay for medical care, it is not surprising that health care stocks were harder
hit over the past six months than the market as a whole. While our Health Care
Portfolio was not immune to the sector weakness, our -5.7% decline was only
about one-half the -11.6% decline for the average health care fund. Our
relative advantage thus far in fiscal 1995 was engendered by pretty much the
same factors that benefited our performance last year: (1) an underweighting in
smaller biotechnology stocks, and (2) an overweighting in international drug
companies, which once again generally fared better than their U.S.
counterparts.
(continued)
1
<PAGE> 2
Since the Health Care Portfolio's inception in May 1984, its
annualized rate of return has been +19.5%, compared with an average annual
return of +18.2% for our peer group of health care funds.
* ENERGY PORTFOLIO
Energy stocks were about the only major market sector to resist the market
decline over the past six months, and the Energy Portfolio was able to buck the
trend and earn a positive total return of +2.8%. Although this result may seem
modest to a fault, it is considerably better than the negative return achieved
by the Standard & Poor's 500 Index and the -2.3% return posted by the average
natural resources fund. This peer group, of course, includes funds that invest
across a variety of market sectors, in contrast to our Portfolio, which has
some 95% of its assets concentrated in the energy sector. In this light, our
outperformance through the first half of the fiscal year is not at all
surprising.
Since the Energy Portfolio's inception in May 1984, its annualized
rate of return has been +12.5%, compared with an average annual return of +8.2%
for the average natural resources funds.
* GOLD & PRECIOUS METALS PORTFOLIO
Coming on the heels of an outstanding fiscal 1994--during which the Morgan
Stanley Gold Mines Index achieved a return of +121.5%--gold stocks "came back
to earth" in the first half of fiscal 1995, as the Index fell -7.5%. As we have
often noted, the performance of gold stocks is linked to investors' outlook for
inflation, with high inflation expectations generally presaging higher gold
stock prices and low inflation having the reverse effect. Over the past six
months, inflation has remained relatively subdued (the Consumer Price Index has
increased at an annualized rate of 2.8%), and the Federal Reserve has shown a
staunch commitment to keeping it that way.
The Gold & Precious Metals Portfolio held its own in this challenging
environment, achieving a negative return of -3.8%. Our decline was only
one-half the -7.5% drop in the Gold Mines Index; our return was even more
competitive relative to the average gold fund, which declined -10.1% during the
same period. Our advantage over the average gold fund had to do primarily with
our larger commitment to South African gold shares, which best resisted the
overall decline in the gold sector. Since the Gold & Precious Metals
Portfolio's inception in May 1984, its annualized rate of return has been
+6.0%, compared with an average annual return of +2.2% for our peer group of
gold funds.
* IN SUMMARY
When I wrote to you six months ago in our Annual Report, I noted that, as we
look ahead, "it would be imprudent not to offer a word of caution about the
stock and bond markets, which are surely due for their share of difficult bumps
along the way." There were obviously some "bumps along the road" during the
first half of fiscal 1995, and there may well be more to come--for bond and
stock markets in the aggregate, and for discrete sectors of the stock market.
That said, we have always emphasized the importance of focusing on the
long-term rather than short-term market gyrations. So, provided that your
Specialized Portfolio holding is part of a well-diversified portfolio, we would
urge you, once again, to "stay the course."
Sincerely,
/s/ JOHN C. BOGLE
- - ---------------------
John C. Bogle
Chairman of the Board
August 16, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
SPECIAL MESSAGE TO SHAREHOLDERS
At a meeting on June 1, 1994, shareholders of our Technology and Service
Economy Portfolios approved the mergers of these Portfolios into, respectively,
Vanguard Explorer Fund and Vanguard/Morgan Growth Fund. The mergers were
completed on June 2, 1994, and shareholders received shares of Explorer and
Morgan with a market value equivalent to the market values of their holdings in
these two Portfolios at the time of the mergers.
We would remind shareholders of the remaining Specialized Portfolios
that a 1% redemption (and exchange redemption) fee was instituted for all
transactions involving redemptions of shares that are held in the Portfolios
for less than one year, using your "oldest" holdings as the first to be
redeemed. At the same time, the prior 1% fee--which was assessed whenever
shareholders left the Specialized Portfolios family, regardless of the holding
period--was dropped. As before, no 1% fee is assessed on redemptions or
exchanges from the Utilities Income Portfolio. Under the new Specialized
Portfolios guidelines, the Specialized Money Market Portfolio will no longer be
required. Exchanges from the Portfolios may be made at any time into Vanguard's
"regular" money market funds under the conditions outlined above.
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
Six-Month
Net Asset Value Per Share -----------------------------
---------------------------------- Income Capital Six-Month
Portfolio January 31, 1994 July 31, 1994 Dividends Gains* Total Return
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTH CARE $36.51 $33.86 $.05 $.51 -5.7%
ENERGY 15.77 16.12 .02 .07 +2.8
GOLD & PRECIOUS METALS 13.58 13.01 .05 -- -3.8
UTILITIES INCOME 11.67 10.47 .33 .12 -6.5
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes both long-term and short-term capital gains distributions.
3
<PAGE> 4
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED JUNE 30,
1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
10 YEARS
-------------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
- - --------------------------------- -------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
HEALTH CARE PORTFOLIO 5/23/84 +8.87% +15.76% +19.46% +17.54% +1.92%
ENERGY PORTFOLIO 5/23/84 +1.35 +10.56 +13.26 +10.01 +3.25
GOLD & PRECIOUS METALS PORTFOLIO 5/23/84 +7.85 + 8.60 + 6.72 + 4.14 +2.58
UTILITIES INCOME PORTFOLIO 5/15/92 -7.48 -- + 7.80* + 2.89* +4.91*
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. TOTAL RETURNS DO NOT
REFLECT THE 1% FEE THAT IS ASSESSED ON REDEMPTIONS OF SHARES THAT ARE HELD IN
THE PORTFOLIOS FOR LESS THAN ONE YEAR.
* ANNUALIZED RETURN SINCE INCEPTION.
4
<PAGE> 5
REPORT FROM M&G INVESTMENT MANAGEMENT LTD.
Following the Gold & Precious Metals Portfolio's spectacular performance last
year, this year has begun in a much more subdued manner, with the Portfolio
earning a total return of -3.8% over the past six months. While this is a
disappointing start to the year, we are pleased that the Portfolio has actually
outperformed the Morgan Stanley Gold Mines Index (-7.5%) and also the new U.S.
Dollar-based F. T. Global Gold Mines Index (-6.9%) over the same period. The F.
T. Global Gold Mines Index is a newly introduced international index, which has
replaced the old Sterling-based, South African F. T. Gold Index. The price of
gold bullion actually showed a small improvement, increasing +2.3% during the
six months.
In contrast to the previous year, gold bullion has recently traded in
a particularly narrow range between US $ 370 and US $ 390. The bullion market
was obviously unsettled by the Federal Reserve's February decision to increase
interest rates, and much of the euphoria that had previously surrounded the
market tended to evaporate at this time, with share prices falling from their
highs. Following the successful conclusion to the multi-racial elections in
South Africa at the end of April, which duly saw Nelson Mandela installed as
State President of the new Government of National Unity, the South African gold
shares proved to be the best relative performers, as investor sentiment was
more influenced by the positive result of the election than the lower gold
price. During the past six months, the South African weighting showed a modest
increase, primarily due to new purchases. Following the merger, by scheme of
arrangement of Orange Free State Investments Limited and Free State
Consolidated Gold Mines Limited (Freegold), the resulting holding of Freegold
is now the Portfolio's largest single equity investment. Coincidentally,
Freegold is also the world's largest gold-producing company, with annual
production of around 3.5 million ounces. Elsewhere in Africa, the Portfolio
participated in the successful new listing of Ashanti Goldfields, as the
Ghanaian Government sold down its holding by way of a major international stock
offering.
Otherwise, the geographical distribution of the Portfolio shows almost
no change in Australia, but a small decline in North America. However, this
decline has primarily been due to negative market movements, as the Portfolio
has actually made some selective new investments in both regions. In Australia,
the two new holdings are Great Central Mines and Samantha Gold, both extremely
well-managed and successful exploration companies which are making the
transition to junior producers. In North America, major new holdings are the
entrepreneurially managed Atlas Corp.; Rayrock Yellowknife, which recently
substantially increased their reserve base; and Santa Fe Pacific Gold, a major
low-cost, U.S.-based producer, which was formerly a subsidiary of Santa Fe
Pacific Corporation.
While the general tone of the gold equity markets has been subdued
this year, corporate activity has actually been on the increase. In Australia,
for example, Samantha Gold has bid for Resolute Resources, while Gold Mines of
Australia (GMA) has bid for Dominion Mining. The Samantha Gold bid is currently
still open, while GMA has withdrawn its bid for technical reasons but is now
Dominion's largest shareholder. In North America, Royal Oak Mines recently made
a hostile bid for the substantially larger Lac Minerals. However, since that
announcement, American Barrick has also launched a bid for Lac, while other
parties have expressed interest in becoming involved in the situation. In the
absence of a higher gold price, this corporate activity is obviously a welcome
development. In other areas, the Portfolio's holdings in the United Kingdom,
Japan, and physical bullion show no change, apart from market movements.
(continued)
5
<PAGE> 6
While the spectacular performance of last year is probably
unrepeatable, we continue to remain cautiously optimistic for the year ahead.
While most of the euphoria surrounding the market has dissipated over the past
six months, the physical demand for gold bullion remains relatively firm, with
calendar 1993 demand being only slightly below 1992's record figure. As we have
indicated on many occasions in the past, the Portfolio will remain fully
invested at all times, with a continued bias towards gold equities, given their
substantial gearing over the physical metal.
Respectfully,
David J. Hutchins
M&G Investment Management Ltd.
(Member of IMRO)
London, England
August 8, 1994
6
<PAGE> 7
REPORT FROM WELLINGTON MANAGEMENT COMPANY
* HEALTH CARE PORTFOLIO
During the first half of the 1995 fiscal year, the Health Care Portfolio
returned -5.7%, trailing the overall market return of -3.5%, as measured by the
S&P 500 Index.
After hitting what we hope will prove to have been a "triple bottom"
early in the year, health care stocks rallied from these distressed levels to
lead a slightly improving stock market. Health care stocks are rallying due to
increased merger activity and a sense that any changes in the health care
system will be moderate.
The biggest contributors to our performance during the first fiscal
half were McKesson, which is being partially acquired by Eli Lilly, and Syntex,
which is being acquired by Roche. Johnson & Johnson also was a strong
performer. The weakest area of the health care sector during the first half was
in the smaller, more speculative companies, a sector we now feel offers
especially good potential.
The Portfolio will continue to seek a balanced representation in the
health care field, searching for the best value in each market subsector. While
the short-term outlook is somewhat cloudy and uncertain, we are confident that
the long-term future of the health care industry is among the brightest in the
economy, as demand is driven by the remarkable new discoveries coming from
biotechnology and the favorable demographic trends in the developed world.
* ENERGY PORTFOLIO
The Energy Portfolio achieved a total return of +2.8% during the past six
months. The price of oil, which was unduly depressed in January, increased
about $5.00 per barrel to $20.00 during the period. Good demand growth, coupled
with the decision by OPEC to freeze output at current levels for the remainder
of the year, were the main reasons for this favorable price shift.
While the profitability of producing oil has improved markedly,
refining profits suffered (as they always do in a rising oil price
environment). Natural gas prices are relatively weak, as the rebuilding of
inventories for winter consumption is proceeding more rapidly this year than
expected.
Looking forward, the capacity utilization of the industry is quite
high, well over 90% in oil and gas production and in refining as well. At the
same time, major companies are reducing the scope of their operations in order
to become more profitable when the price of oil is low, as it was last winter.
While such a conservative posture is understandable, we expect that it will
lead to upward price pressure in the long run, and eventually to a recovery in
oil industry exploration and development.
The Energy Portfolio emphasizes domestic integrated oil companies like
Amoco, Atlantic Richfield, and Unocal, all of which are actively pursuing ways
to improve earnings. At the same time, despite the satisfactory performance of
the energy sector in the last two-and-a-half years, there are many companies,
such as USX-Marathon, Maxus Energy, and Baker Hughes, which have languished
during the poor pricing environment of recent years. As the fundamentals of the
energy sector continue to improve, we expect a solid contribution from these
companies as well.
* UTILITIES INCOME PORTFOLIO
Continuing a slide which commenced from a peak established in September 1993,
utility stocks were poor performers for the recent six-month period ended July
31, 1994. Our portfolio management efforts failed to overcome the price
deterioration which was experienced in the sector. For the six months ended
July 31, 1994, the Fund's total return was -6.5%, near the average utility fund
performance. (See Chairman's letter for details.)
Several fundamental forces worked against utility investors, and fears
concerning competition intensified, particularly in the electric utility
sector. During the recent six-month period, interest rates rose by more than a
full point across the spectrum of maturities, and concerns of future inflation
were widespread. Rising interest rates and inflation worries typically exert
downward price pressure on interest rate-sensitive securities, such as utility
stocks.
(continued)
7
<PAGE> 8
As we mentioned in our January 1994 report, technology developments
and shifting regulatory attitudes are encouraging competitive entry into
utility markets, which traditionally have operated under the rules of a
regulated monopoly. This past spring, the California Public Utility Commission
proposed retail competition in the electric utility markets, starting as early
as 1996 for large customers. Then, on May 9, FPL Group, a Florida electric
utility with a relatively strong competitive position and relatively low rates,
created controversy by cutting its dividend 32% and citing concerns about the
unfolding competitive environment. In summary, worries about competition and
the security of dividends pushed utility stocks down, perhaps further than
warranted by the interest rate move alone.
Looking forward, we believe that the utility sector's severe
underperformance relative to the average stock is nearing completion, but we
still do not see anything on the near-term horizon that would lead to a major
rally in utility shares. Our modest expectations for the group are based not
only on our outlook for interest rates, which we do not expect to decline
substantially, but also on our major concerns about regulatory restructuring
and competition which continue to overhang the group. Changes in technology and
new pools of capital are introducing competition in the telecommunications
industry. U.S. West's recent purchase of cable franchises in Atlanta, proposed
legislation enabling long distance, cable TV, and local phone service providers
to enter each other's markets, and the merging of cellular businesses
illustrate a trend toward greater competition.
While we do not see these same factors affecting the electric utility
industry, regulators are attempting to force competition. Our strategy to
overweight electrics backfired under the weight of the proposed California
regulatory changes and the surprising FPL dividend reduction. Though these
actions are misguided in our view, they nevertheless are now part of the
investment landscape. While we have our doubts about the regulators' ability to
"create" competition, there is no doubt that they have created clouds of
uncertainty, which are likely to hamper returns for electric utilities in the
near future. As the market sorts out these uncertainties, we expect to be
overweighted in both natural gas and water utilities. We are maintaining our
telephone weighting somewhat below that of the S&P Utility Index because we
suspect that one or several telephone companies could surprise the market with
a dividend disappointment similar to the FPL Group action.
In the utility bond markets over the past six months, rates have risen
and utility bond prices have fallen, reflecting the downward move in the U.S.
Treasury bond market and tighter credit rating standards due to the increasing
business risk. We modestly lengthened maturities during the rate rise and
continue to emphasize high-quality names with less regulatory uncertainty or
competitive pressure.
We look forward to reporting to you on our results for the full fiscal
year.
Respectfully,
Edward P. Owens, Senior Vice President
Health Care Portfolio Manager
Ernst H. von Metzsch, Senior Vice President
Energy Portfolio Manager
John R. Ryan, Senior Vice President
Utilities Income Portfolio Manager
Wellington Management Company
August 22, 1994
8
<PAGE> 9
TOTAL INVESTMENT RETURN
The following three tables illustrate the results of single-share investments
in three of the four Portfolios from their inception on May 23, 1984, through
July 31, 1994. The percentage figures show results on a "total return" basis
and assume the reinvestment of both income and capital gains distributions.
During this period, stock prices fluctuated and were generally higher at the
end than at the beginning. The results shown should not be considered a
representation of the dividend income or capital gain or loss that may be
realized from an investment made in the Portfolios today.
<TABLE>
<CAPTION>
HEALTH CARE PORTFOLIO
- - --------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - --------------------------------------------------------------------------------------------------------------------------------
Annual Percentage Change
Value with Income ------------------------
Year Ended Net Asset Income Capital Gains Dividends & Capital Health Care S&P 500
January 31 Value Dividends Distributions Gains Reinvested Portfolio Index
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL (5/84) $10.00 -- -- $10.00 -- --
- - --------------------------------------------------------------------------------------------------------------------------------
1985 11.85 -- -- 11.85 + 18.5% + 21.1%
- - --------------------------------------------------------------------------------------------------------------------------------
1986 15.61 $ .07 $ .11 15.84 + 33.7 + 22.9
- - --------------------------------------------------------------------------------------------------------------------------------
1987 19.53 .13 .80 20.89 + 31.9 + 33.9
- - --------------------------------------------------------------------------------------------------------------------------------
1988 17.53 .57 1.39 20.96 + 0.4 - 3.2
- - --------------------------------------------------------------------------------------------------------------------------------
1989 19.46 .34 1.29 25.45 + 21.4 + 19.9
- - --------------------------------------------------------------------------------------------------------------------------------
1990 22.16 .49 .72 30.60 + 20.2 + 14.4
- - --------------------------------------------------------------------------------------------------------------------------------
1991 27.32 .55 .84 39.81 + 30.1 + 8.4
- - --------------------------------------------------------------------------------------------------------------------------------
1992 35.54 .53 .53 53.33 + 34.0 + 22.6
- - --------------------------------------------------------------------------------------------------------------------------------
1993 32.66 .70 1.20 51.77 - 2.9 + 10.6
- - --------------------------------------------------------------------------------------------------------------------------------
1994 36.51 .76 1.97 62.75 + 21.2 + 12.9
- - --------------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 33.86 .05 .51 59.15 - 5.7 - 3.5
- - --------------------------------------------------------------------------------------------------------------------------------
LIFETIME $4.19 $9.36 +491.5% +322.1%
- - --------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
RATE OF RETURN + 19.1% + 15.2%
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
TOTAL INVESTMENT RETURN (continued)
<TABLE>
<CAPTION>
ENERGY PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- - -----------------------------------------------------------------------------------------------------------------
Annual Percentage Change
Value with Income ----------------------------
Year Ended Net Asset Income Capital Gains Dividends & Capital Energy S&P 500
January 31 Value Dividends Distributions Gains Reinvested Portfolio Index
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL (5/84) $10.00 -- -- $10.00 -- --
- - -----------------------------------------------------------------------------------------------------------------
1985 9.81 -- -- 9.81 - 1.9% + 21.1%
- - -----------------------------------------------------------------------------------------------------------------
1986 9.93 $ .14 $ .08 10.15 + 3.4 + 22.9
- - -----------------------------------------------------------------------------------------------------------------
1987 12.42 .44 .05 13.38 + 31.9 + 33.9
- - -----------------------------------------------------------------------------------------------------------------
1988 10.22 .76 1.41 13.48 + 0.8 - 3.2
- - -----------------------------------------------------------------------------------------------------------------
1989 12.29 .37 -- 16.74 + 24.2 + 19.9
- - -----------------------------------------------------------------------------------------------------------------
1990 14.94 .36 .57 21.59 + 29.0 + 14.4
- - -----------------------------------------------------------------------------------------------------------------
1991 13.39 .46 .88 21.24 - 1.6 + 8.4
- - -----------------------------------------------------------------------------------------------------------------
1992 12.73 .42 .42 21.51 + 1.3 + 22.6
- - -----------------------------------------------------------------------------------------------------------------
1993 13.82 .36 .18 24.31 + 13.0 + 10.6
- - -----------------------------------------------------------------------------------------------------------------
1994 15.77 .29 1.38 30.94 + 27.3 + 12.9
- - -----------------------------------------------------------------------------------------------------------------
1994 (7/31) 16.12 .02 .07 31.81 + 2.8 - 3.5
- - -----------------------------------------------------------------------------------------------------------------
LIFETIME $3.62 $5.04 +218.1% +322.1%
- - -----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
RATE OF RETURN + 12.0% + 15.2%
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
GOLD & PRECIOUS METALS PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- - ----------------------------------------------------------------------------------------------------------------------------------
Annual Percentage Change
Value with Income ----------------------------------------
Year Ended Net Asset Income Capital Gains Dividends & Capital Gold & Precious MSCI Gold
January 31 Value Dividends Distributions Gains Reinvested Metals Portfolio Mines Index
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL (5/84) $10.00 -- -- $10.00 -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
1985 6.60 -- -- 6.60 -34.9% - 35.3%
- - ----------------------------------------------------------------------------------------------------------------------------------
1986 7.60 $ .06 -- 7.67 +16.3 + 3.6
- - ----------------------------------------------------------------------------------------------------------------------------------
1987 10.50 .21 -- 10.91 +42.2 + 12.4
- - ----------------------------------------------------------------------------------------------------------------------------------
1988 9.35 .48 $1.14 11.18 + 2.5 + 4.5
- - ----------------------------------------------------------------------------------------------------------------------------------
1989 9.65 .26 -- 11.87 + 6.1 - 9.2
- - ----------------------------------------------------------------------------------------------------------------------------------
1990 12.49 .34 -- 15.83 +33.4 + 72.3
- - ----------------------------------------------------------------------------------------------------------------------------------
1991 8.29 .32 -- 10.89 -31.2 - 41.1
- - ----------------------------------------------------------------------------------------------------------------------------------
1992 9.41 .25 -- 12.70 +16.7 + 10.9
- - ----------------------------------------------------------------------------------------------------------------------------------
1993 7.29 .18 -- 10.09 -20.6 - 23.3
- - ----------------------------------------------------------------------------------------------------------------------------------
1994 13.58 .21 -- 19.09 +89.2 +121.5
- - ----------------------------------------------------------------------------------------------------------------------------------
1994 (7/31) 13.01 .05 -- 18.37 - 3.8 - 7.5
- - ----------------------------------------------------------------------------------------------------------------------------------
LIFETIME* $2.36 $1.14 +81.1% + 26.3%
- - ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
RATE OF RETURN + 6.0% + 2.3%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return performance for Gold & Precious Metals and the MSCI Gold Mines
Index begins on May 31, 1984.
11
<PAGE> 12
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
July 31, 1994
<TABLE>
<CAPTION>
Market
Value
HEALTH CARE PORTFOLIO Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.1%)
- - -----------------------------------------------------------------------------
MEDICAL TECHNOLOGY AND SERVICE (32.0%)
- - -----------------------------------------------------------------------------
HEALTH SERVICES (16.6%)
Bergen Brunswig Corp. Class A 100,000 $ 1,412
Columbia/HCA Healthcare Corp. 284,347 11,516
*FHP International Corp. 450,000 10,800
*Healthcare Services Group, Inc. 336,700 4,125
*Healthdyne, Inc. 296,700 1,966
Hillhaven Corp. 186,740 3,361
Humana, Inc. 730,400 13,695
*(1)MDL Information Systems, Inc. 528,300 3,632
McKesson Corp. 220,000 21,890
*Medic Computer Systems, Inc. 200,000 3,400
National Health Laboratories 300,000 3,412
National Medical Enterprises, Inc. 580,000 9,860
Owens & Minor Holdings Co., Inc. 202,500 3,038
*Salick Health Care, Inc. 76,900 1,346
*Syncor International Corp. 307,559 2,614
*Tokos Medical Corp. 344,100 1,290
----------
97,357
----------
- - -----------------------------------------------------------------------------
MEDICAL PRODUCTS (15.4%)
Abbott Laboratories, Inc. 580,000 16,312
*(1)Advanced Technologies
Laboratories, Inc. 661,200 9,422
Allergan, Inc. 340,000 8,202
Beckman Instruments 890,000 22,918
*Datascope Corp. 140,100 2,137
*Haemonetics Corp. 100,000 1,500
Kinetic Concepts, Inc. 716,000 2,596
*Lifequest Medical 100,000 750
*Medisense, Inc. 250,000 3,656
*Nellcor Inc. 180,000 4,770
Perkin-Elmer Corp. 122,720 3,452
*Protocol Systems Inc. 273,000 1,979
*Sci-Med Life Systems, Inc. 200,000 6,000
*Spacelabs Medical 280,000 6,090
----------
89,784
----------
GROUP TOTAL 187,141
----------
- - -----------------------------------------------------------------------------
PHARMACEUTICALS (65.1%)
- - -----------------------------------------------------------------------------
MAJOR PHARMACEUTICALS (26.4%)
American Cyanamid Co. 100,000 6,062
American Home Products Corp. 85,000 4,877
Bristol-Myers Squibb Co. 350,000 18,419
Johnson & Johnson 676,000 31,772
Eli Lilly & Co. 300,000 14,587
Marion Merrell Dow, Inc. 362,300 7,020
Merck & Co., Inc. 235,225 6,969
Pfizer, Inc. 490,000 30,380
Rhone-Poulenc Rorer, Inc. 237,000 8,295
Schering-Plough Corp. 73,600 4,720
Syntex Corp. 277,000 6,509
Warner-Lambert Co. 230,000 14,950
----------
154,560
----------
- - -----------------------------------------------------------------------------
SPECIALTY PHARMACEUTICALS (18.8%)
(1)A.L. Laboratories, Inc. 847,700 11,550
*Alliance Pharmaceutical Corp. 738,388 6,646
*Amylin Pharmaceuticals, Inc. 280,000 1,680
*Applied Immune Sciences 383,500 2,685
*Athena Neurosciences, Inc. 700,000 4,113
*Biogen, Inc. 500,000 21,750
Carter-Wallace, Inc. 266,000 4,156
Carter-Wallace, Inc. Class B 24,000 375
*Celtrix Labs 183,500 1,078
*Collagen Corp. 70,000 1,243
Dekalb Genetics Corp. Class B 370,050 11,657
(1)E-Z-EM Inc. Class A 219,258 1,096
(1)E-Z-EM Inc. Class B 245,961 1,168
*Genetics Institute Depository
Shares 216,960 8,461
*Immunex Corp. 400,000 5,200
*Lynx Therapeutic 86,130 17
*Lynx Therapeutic Pfd. 125,280 125
*(1)Magainin Pharmaceuticals 694,400 1,996
Mallinckrodt Group, Inc. 470,000 14,335
*Marsam Pharmaceuticals, Inc. 340,800 4,175
*Scios Nova, Inc. 491,750 3,012
*Telios Pharmaceutical Inc. 688,000 1,376
*Theratech, Inc. 140,000 1,575
*Xoma Corp. 353,000 838
----------
110,307
----------
- - -----------------------------------------------------------------------------
INTERNATIONAL (19.9%)
Amersham International PLC 175,000 2,794
Bayer AG ADR 35,000 7,989
Ciba-Geigy 40,760 23,650
Fisons PLC 500,000 1,000
Fujisawa Pharmaceutical 400,000 4,278
*London International Group PLC 300,000 396
*Pharmacia AB Series A Free 592,000 9,071
Sandoz 17,670 8,888
Schering AG 31,347 18,451
Smithkline Beecham Unit ADR 324,800 9,176
Synthelabo 10,270 373
Takeda Chemical Industries 200,000 2,479
Zeneca Group ADR 814,524 27,999
----------
116,544
----------
GROUP TOTAL 381,411
----------
- - -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $492,460) 568,552
- - -----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (3.2%)
- - -----------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 4.23%, 8/1/94
(Cost $18,658) $18,658 $ 18,658
- - -----------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(Cost $511,118) 587,210
- - -----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.3%)
- - -----------------------------------------------------------------------------
Other Assets--Notes C and E 17,819
Liabilities--Note E (19,729)
----------
(1,910)
- - -----------------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------------
Applicable to 17,285,270 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $585,300
- - -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $33.86
=============================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
(1)Considered an affiliated company as the Portfolio owns more than 5%
of the outstanding voting securities of such company.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $491,275 $28.42
Undistributed Net Investment
Income 5,445 .32
Accumulated Net Realized Gains 12,488 .72
Unrealized Appreciation of
Investments--Note D 76,092 4.40
- - -----------------------------------------------------------------------------
NET ASSETS $585,300 $33.86
- - -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
ENERGY PORTFOLIO Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.9%)
- - -----------------------------------------------------------------------------
PETROLEUM (50.4%)
- - -----------------------------------------------------------------------------
INTERNATIONAL OIL (7.8%)
Chevron Corp. 150,000 $ 6,656
Exxon Corp. 310,000 18,445
Texaco, Inc. 160,000 10,160
----------
35,261
----------
- - -----------------------------------------------------------------------------
DOMESTIC INTEGRATED OIL (21.7%)
Amerada Hess Corp. 240,000 12,480
Amoco Corp. 220,000 13,173
Atlantic Richfield Co. 110,000 11,866
Kerr-McGee Corp. 200,000 10,050
Murphy Oil Corp. 60,200 2,679
Pennzoil Co. 150,000 7,556
Phillips Petroleum Co. 340,000 11,135
USX-Marathon Group 800,000 13,900
Unocal Corp. 546,000 15,834
----------
98,673
----------
- - -----------------------------------------------------------------------------
DOMESTIC REFINING AND MARKETING (5.1%)
Ashland Oil, Inc. 370,000 13,228
Castle Energy Corp. 100,000 1,250
Diamond Shamrock, Inc. 200,000 5,400
Ultramar Corp. 120,000 3,285
----------
23,163
----------
- - -----------------------------------------------------------------------------
DOMESTIC PRODUCERS (15.8%)
Apache Corp. 200,000 5,125
*Benton Oil & Gas Co. 429,300 3,112
Cabot Oil & Gas Corp. 138,100 2,676
*Dekalb Energy Co. Class B 375,000 5,719
Devon Energy Corp. 250,000 5,062
*Maxus Energy Corp. 1,500,000 8,250
Mitchell Energy &
Development Corp. Class B 220,000 4,070
Oryx Energy Co. 550,000 8,456
Pogo Producing Co. 400,000 8,650
Santa Fe Energy Resources Inc. 500,000 4,688
*Transtexas Gas Corp. 375,000 4,266
*Triton Energy Corp. 150,000 5,100
*Vastar Resources, Inc. 240,000 6,360
----------
71,534
----------
GROUP TOTAL 228,631
----------
- - -----------------------------------------------------------------------------
ENERGY EQUIPMENT AND SERVICES (14.6%)
- - -----------------------------------------------------------------------------
*Arethusa Offshore Ltd. 65,000 764
BJ Services Co. 200,000 4,200
Baker Hughes, Inc. 420,000 8,872
Dresser Industries, Inc. 288,000 6,084
Energy Services 127,850 2,221
*Enterra Corp. 173,300 3,466
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
*Global Marine Inc. 400,000 $ 1,850
Halliburton Co. 130,000 4,420
Helmerich & Payne, Inc. 90,000 2,509
*Nabors Industries, Inc. 220,000 1,512
*Noble Drilling Corp. 600,000 4,125
Nowsco Well Service, Ltd. 250,000 4,294
*Parker Drilling Co. 380,000 2,233
*Rowan Cos., Inc. 300,000 2,475
Schlumberger Ltd. 100,000 5,900
*Smith International, Inc. 70,000 1,199
*Taro Industries, Ltd. 1,000,000 955
*Varco International, Inc. 750,000 4,969
*Weatherford International, Inc. 350,000 4,419
----------
GROUP TOTAL 66,467
----------
- - -----------------------------------------------------------------------------
ENERGY TRANSPORTATION AND
DISTRIBUTION (5.4%)
- - -----------------------------------------------------------------------------
ENSERCH Corp. 169,880 2,676
London & Overseas Freighter
Ltd. ADR 290,000 4,132
*OMI Corp. 700,000 4,725
Overseas Shipholding Group Inc. 270,000 5,434
Seagull Energy Corp. 200,000 4,925
Smedvig Tankships 300,000 2,771
----------
GROUP TOTAL 24,663
----------
- - -----------------------------------------------------------------------------
FOREIGN ENERGY (24.5%)
- - -----------------------------------------------------------------------------
Anderson Exploration Ltd. 60,000 738
*Barrington Petroleum 300,000 1,465
Burmah Castrol PLC 350,000 4,599
*C S Resources Ltd. 500,000 2,622
*Cabre Exploration 310,000 3,419
*(1)Canadian Natural Resources 300,000 4,258
*Elan Energy Inc. 150,000 1,166
Enerflex Systems Ltd. 226,200 3,067
*Home Oil Co. Ltd. 497,000 7,010
*International Petroleum Corp. 200,000 239
*Jordan Petroleum Ltd. 531,000 4,225
Lasmo PLC 3,857,142 8,714
*(1)Mark Resources, Inc. 800,000 5,497
*Morgan Hydrocarbons 600,000 2,387
Morrison Petroleum 268,000 2,011
Norcen Energy Resources Inc. 200,000 2,278
Norsk Hydro AS ADR 231,111 8,522
*Northern Reef Exploration
Warrants Exp. 2/18/95 250,000 1,266
Northstar Energy Corp. 220,000 2,387
Paramount Resources Ltd. 160,300 2,000
Petro-CDA 272,300 2,240
*Pinnacle Resources Ltd. 200,000 3,255
Poco Petes Ltd. 500,000 3,390
*Ranchmens Resource 500,000 2,712
Repsol SA ADR 160,000 5,080
*Rigel Energy Corp. 70,290 1,004
*Rio Alto Exploration Ltd. 300,000 1,899
Saga Petroleum B 207,000 2,465
*Talisman Energy, Inc. 255,000 5,325
Tarragon Oil & Gas Ltd. 280,000 3,696
Total Co. Francaise Petro-ADR 300,000 8,625
*Wascana Energy Inc. 470,000 3,484
----------
GROUP TOTAL 111,045
----------
- - -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $405,104) 430,806
- - -----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.1%)
- - -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 4.23%, 8/1/94
(Cost $27,399) $27,399 27,399
- - -----------------------------------------------------------------------------
TOTAL INVESTMENTS (101.0%)
(Cost $432,503) 458,205
- - -----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.0%)
- - -----------------------------------------------------------------------------
Other Assets--Notes C and E 12,176
Liabilities--Note E (16,655)
--------
(4,479)
- - -----------------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------------
Applicable to 28,150,926 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $453,726
- - -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $16.12
=============================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
(1) Considered an affiliated company as the Portfolio owns more than 5%
of the outstanding voting securities of such company.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $419,319 $14.90
Undistributed Net Investment
Income 3,251 .12
Accumulated Net Realized Gains 5,454 .19
Unrealized Appreciation of
Investments--Note D 25,702 .91
- - -----------------------------------------------------------------------------
NET ASSETS $453,726 $16.12
- - -----------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Market
Value
GOLD & PRECIOUS METALS PORTFOLIO Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (89.5%)
- - -----------------------------------------------------------------------------
AUSTRALIA (23.1%)
- - -----------------------------------------------------------------------------
GOLD MINES (18.9%)
Dominion Mining 12,000,000 $ 3,636
Emperor Mines 2,000,000 3,991
Gold Mines of Australia 5,000,000 2,069
Golden Shamrock Mines Ltd. 8,000,000 7,390
*Great Central Mines 500,000 4,028
Highlands Gold 12,000,000 13,214
Kidston Gold Mines 3,000,000 9,423
Newcrest Mining Ltd. 4,000,000 18,240
Perseverance Corp. 1,500,000 466
Placer Pacific Ltd. 3,500,000 8,924
Plutonic Resources 2,250,000 10,642
Poseidon Gold 4,000,000 9,992
Renison Goldfields
Consolidated Ltd. 3,000,000 10,243
Resolute Resources Ltd. 7,000,000 6,208
Samantha Gold 2,000,000 7,390
*Star Mining Corp. 15,000,000 4,213
----------
120,069
----------
- - -----------------------------------------------------------------------------
OTHER (4.2%)
Bougainville Copper 2,000,000 1,404
CRA Ltd. 600,000 7,911
Normandy Poseidon Ltd. 4,000,000 6,415
Western Mining Corp. 2,000,000 10,642
----------
26,372
----------
GROUP TOTAL 146,441
----------
- - -----------------------------------------------------------------------------
NORTH AMERICA (27.2%)
- - -----------------------------------------------------------------------------
GOLD MINES (27.0%)
Agnico-Eagle Mines Ltd. 150,000 1,819
Amax Gold, Inc. 1,500,000 9,937
*Amax Gold Warrants
Exp. 1/8/96 51,550 26
American Barrick Resources 425,000 9,509
*Atlas Corp. 700,000 3,850
Cambior Inc. 700,000 9,113
*Campbell Resources 5,000,000 2,187
*Crown Resource Corp. 600,000 2,700
Euro Nevada 500,000 11,844
Franco Nevada 275,000 14,569
Freeport McMoRan Copper &
Gold Inc. Class A 400,000 9,250
Freeport McMoRan Copper &
Gold Inc. 7% Convertible
Preferred Shares 150,000 3,863
Freeport McMoRan Copper &
Gold Inc. Gold
Denomination Shares 150,000 5,513
*Golden Star Resources Ltd. 350,000 3,291
Homestake Mining Co. 500,000 9,375
Lac Minerals Ltd. 800,000 8,300
*Nelson Trade & Finance 125,000 235
Newmont Gold Co. 125,000 4,859
Newmont Mining Corp. 249,620 9,860
Placer Dome Group, Inc. 500,000 10,375
*Prime Resources 1,250,000 8,476
*Rayrock Yellowknife 750,000 8,137
*Royal Oak Mines Ltd. 2,000,000 8,500
*Santa Fe Pacific Gold Corp. 175,000 2,516
*TVX Gold Mining 2,000,000 12,115
*Vengold Inc. 400,000 1,215
----------
171,434
----------
- - -----------------------------------------------------------------------------
OTHER (.2%)
*Texas Star Resources Corp. 900,000 1,432
----------
GROUP TOTAL 172,866
----------
- - -----------------------------------------------------------------------------
SOUTH AFRICA (35.2%)
- - -----------------------------------------------------------------------------
GOLD MINES (22.4%)
Beatrix Gold Mines ADR 1,350,000 6,584
Driefontein Consolidated
Ltd. ADR 1,000,000 14,375
Elandsrand Gold Mining
Ltd. ADR 1,500,000 9,375
Free State Consolidated Gold
Mines Ltd. ADR 1,875,000 25,078
Hartebeestfontein Gold
Mining Co. Ltd. ADR 2,300,000 10,695
Kinross ADR 425,000 6,534
Kloof Gold Mining Ltd. ADR 850,000 10,519
Randfontein Estates Gold
Mining Co. Ltd. ADR 1,725,000 17,897
Southvaal Holdings ADR 330,000 9,405
Vaal Reefs Exploration &
Mining Co. Ltd. ADR 2,000,000 17,250
Western Deeplevel ADR 350,000 14,569
----------
142,281
----------
- - -----------------------------------------------------------------------------
OTHER (12.8%)
Anglo American Corp.
ADR 275,000 14,644
De Beers/Centenary Units
Ltd. ADR 675,000 16,031
Gold Fields of South Africa ADR 400,000 10,850
Impala Platinum Holdings
Ltd. ADR 750,000 16,594
Minorco Ltd. ADR 400,000 9,250
Rustenberg Platinum Holdings
Ltd. ADR 625,000 13,906
----------
81,275
----------
GROUP TOTAL 223,556
----------
- - -----------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (2.9%)
- - -----------------------------------------------------------------------------
GOLD MINES (1.4%)
*Ashanti Goldfields 400,000 $ 7,960
*Bakyrchik Gold 222,000 1,024
----------
8,984
----------
- - -----------------------------------------------------------------------------
OTHER (1.5%)
RTZ Corp. 700,000 9,278
----------
GROUP TOTAL 18,262
----------
- - -----------------------------------------------------------------------------
JAPAN (1.1%)
- - -----------------------------------------------------------------------------
Sumitomo Metal Mining 750,000 6,972
----------
- - -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $454,368) 568,097
- - -----------------------------------------------------------------------------
CONVERTIBLE BONDS (.3%)
- - -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
------
<S> <C> <C>
Canyon Resources Corp.
6.00% 6/1/98 $1,000 850
Renison Goldfields
Consolidated, Ltd.
8.00% 11/30/96 200 1,448
- - -----------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost $2,120) 2,298
- - -----------------------------------------------------------------------------
PRECIOUS METALS (5.6%)
- - -----------------------------------------------------------------------------
* Gold (89,872 ounces) 34,448
* Platinum (2009 ounces) 850
- - -----------------------------------------------------------------------------
TOTAL PRECIOUS METALS
(Cost $37,012) 35,298
- - -----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.4%)
- - -----------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 4.23%, 8/1/94
(Cost $34,090) 34,090 34,090
- - -----------------------------------------------------------------------------
TOTAL INVESTMENTS (100.8%)
(Cost $527,590) 639,783
- - -----------------------------------------------------------------------------
</TABLE>
<TABLE> Market
<CAPTION> Value
(000)+
- - -----------------------------------------------------------------------------
<S> <C>
- - -----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.8%)
- - -----------------------------------------------------------------------------
Other Assets--Notes C and E $ 17,900
Liabilities--Note E (23,263)
----------
(5,363)
- - -----------------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------------
Applicable to 48,766,998 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $ 634,420
- - -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.01
=============================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $541,953 $11.11
Undistributed Net Investment
Income 3,839 .08
Accumulated Net Realized Losses (23,565) (.48)
Unrealized Appreciation of
Investments--Note D 112,193 2.30
- - -----------------------------------------------------------------------------
NET ASSETS $634,420 $13.01
- - -----------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
UTILITIES INCOME PORTFOLIO Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (77.9%)
- - -----------------------------------------------------------------------------
ELECTRIC (32.7%)
CMS Energy Corp. 60,000 $ 1,357
Carolina Power & Light Co. 57,500 1,531
Central Hudson Gas &
Electric Corp. 216,300 5,786
Central Maine Power Co. 187,600 2,204
Cincinnati Gas & Electric Co. 273,150 6,112
Commonwealth Edison Co. 449,100 10,666
Consolidated Edison Co. of
New York, Inc. 146,600 4,215
DQE, Inc. 476,500 14,355
Detroit Edison Co. 421,000 11,104
Eastern Utilities Associates 244,200 6,044
Entergy Corp. 366,600 9,348
General Public Utilities Corp. 310,700 8,000
Houston Industries, Inc. 265,400 9,322
Long Island Lighting Co. 349,300 6,462
Montana Power Co. 524,100 12,251
Niagara Mohawk Power Corp. 381,800 6,300
PECO Energy Corp. 105,400 2,754
PSI Resources, Inc. 156,600 3,465
Pacific Gas & Electric Co. 726,700 17,532
Pacificorp 80,000 1,420
Pinnacle West Capital Corp. 440,200 7,758
Public Service Co. of Colorado 244,600 6,604
Puget Sound Power & Light Co. 182,600 3,561
SCE Corp. 338,000 4,563
Sierra Pacific Resources 624,900 12,107
Southern Co. 100,000 1,950
Texas Utilities Co. 171,817 5,648
United Illuminating Co. 185,200 6,250
Western Resources, Inc. 257,700 7,248
Wisconsin Energy Corp. 200,600 5,216
----------
GROUP TOTAL 201,133
----------
- - -----------------------------------------------------------------------------
NATURAL GAS (10.3%)
Consolidated Natural Gas Co. 111,900 4,336
Equitable Resources, Inc. 55,600 1,876
Mitchell Energy & Development
Corp. Class B 70,000 1,295
National Fuel Gas Co. 225,800 6,774
NICOR, Inc. 177,600 4,462
Nova Corp. of Alberta 495,800 4,276
ONEOK, Inc. 185,400 3,430
Pacific Enterprises 167,200 3,428
Questar Corp. 142,300 4,732
Sonat, Inc. 125,000 4,141
Tenneco, Inc. 87,400 4,195
TransCanada Pipelines 407,500 5,047
Washington Energy Co. 383,500 5,848
Westcoast Energy, Inc. 571,900 9,307
----------
GROUP TOTAL 63,147
----------
- - -----------------------------------------------------------------------------
TELEPHONE (33.5%)
AT&T Corp. 399,900 21,845
BCE, Inc. 307,600 10,151
Bell Atlantic Corp. 383,000 21,687
Comsat Corp. 571,800 14,938
GTE Corp. 724,100 22,990
NYNEX Corp. 714,200 27,497
Pacific Telesis Group 337,300 11,047
Rochester Telephone Corp. 269,200 6,495
Royal PTT 152,400 4,248
Southern New England
Telecom Corp. 373,700 12,846
Southwestern Bell Corp. 585,700 24,599
*Tele Danmark Class B ADR 140,000 3,640
Telus Corp. 333,100 3,764
U.S. West Corp. 503,400 20,262
----------
GROUP TOTAL 206,009
----------
- - -----------------------------------------------------------------------------
WATER & OTHER (1.4%)
American Water Works Co., Inc. 206,000 5,742
Southern California Water Co. 150,700 2,732
----------
GROUP TOTAL 8,474
----------
- - -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $517,569) 478,763
- - -----------------------------------------------------------------------------
BONDS (18.5%)
- - -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
------
<S> <C> <C>
ELECTRIC (10.7%)
Atlanta Gas Light Co.
5.90%, 10/6/03 $5,000 4,383
Carolina Power & Light Co.
8.625%, 9/15/21 3,000 3,193
Central Power & Light Co.
7.25%, 10/1/04 2,000 1,909
Dayton Power & Light Co.
8.15%, 1/15/26 3,000 2,975
Duke Power Co.
6.625%, 2/1/03 4,000 3,782
Florida Power & Light Co.
7.00%, 9/1/25 6,000 5,209
Houston Lighting & Power Co.
7.50%, 7/01/23 2,000 1,828
8.75%, 3/1/22 2,000 2,077
Hydro-Quebec Electric
8.00%, 2/1/13 2,000 1,914
</TABLE>
17
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
Kansas Gas & Electric Co.
7.60%, 12/15/03 $4,000 $ 3,948
Northern States Power Co.
5.75%, 10/1/03 6,000 5,310
Pacific Gas & Electric Co.
5.375%, 8/1/98 3,000 2,830
8.375%, 5/1/25 2,000 1,984
Southern California Electric & Gas
8.75%, 10/1/21 3,000 3,102
Tampa Electric Co.
7.75%, 11/1/22 3,000 2,779
Union Electric Power Co.
8.75%, 12/1/21 2,000 2,062
U.S. West Communications
6.125%, 11/15/05 4,000 3,542
Virginia Electric & Power Co.
6.00%, 8/1/01 6,000 5,544
West Texas Utilities
7.75%, 6/1/07 1,500 1,464
Wisconsin Electric Power Co.
7.75%, 1/15/23 2,000 1,907
Wisconsin Public Service Co.
6.80%, 2/1/03 4,500 4,277
----------
GROUP TOTAL 66,019
----------
- - -----------------------------------------------------------------------------
TELECOMMUNICATIONS (1.5%)
AT&T Corp.
7.50%, 6/1/06 5,000 4,965
BellSouth Telecommunication
6.75%, 10/15/33 5,000 4,189
----------
GROUP TOTAL 9,154
----------
- - -----------------------------------------------------------------------------
TELEPHONE (6.3%)
Bell Telephone Co. of Pennsylvania
6.625%, 9/15/02 3,500 3,335
Carolina Telephone & Telegraph
5.75%, 8/15/00 5,000 4,625
GTE Northwest
6.125%, 2/15/99 5,000 4,775
Illinois Bell Telephone Co.
7.25%, 3/15/24 2,000 1,838
Michigan Bell Telephone Co.
6.375%, 9/15/02 2,000 1,870
New Jersey Bell Telephone Co.
8.00%, 6/1/22 3,000 3,027
New York Telephone &
Telegraph Co.
8.625%, 11/15/10 2,500 2,662
Ohio Bell Telephone Co.
7.85%, 12/15/22 2,000 1,990
Pacific Bell Telephone Co.
7.25%, 7/1/02 4,000 3,947
Southwestern Bell
6.625%, 4/1/05 3,000 2,788
United Telephone Florida
6.25%, 5/15/03 3,000 2,733
United Telephone Ohio
6.625%, 10/1/02 2,000 1,871
Wisconsin Bell
6.75%, 8/15/24 4,000 3,384
----------
38,845
----------
- - -----------------------------------------------------------------------------
TOTAL BONDS
(Cost $121,495) 114,018
- - -----------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION (1.4%)
- - -----------------------------------------------------------------------------
U.S. TREASURY NOTE
5.50%, 4/15/00 (Cost $8,792) 9,000 8,470
- - -----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.3%)
- - -----------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 4.23%, 8/1/94
(Cost $7,765) 7,765 7,765
- - -----------------------------------------------------------------------------
TOTAL INVESTMENTS (99.1%)
(Cost $655,621) 609,016
- - -----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.9%)
- - -----------------------------------------------------------------------------
Other Assets--Notes C and E 34,250
Liabilities--Note E (28,433)
----------
5,817
- - -----------------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------------
Applicable to 58,707,010 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $614,833
- - -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.47
=============================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
AT JULY 31, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------------
Amount Per
(000) Share
--------- ------
<S> <C> <C>
Paid in Capital $ 659,580 $11.23
Undistributed Net
Investment Income 8,093 .14
Accumulated Net
Realized Losses (6,235) (.11)
Unrealized Depreciation
of Investments--Note D (46,605) (.79)
- - -----------------------------------------------------------------------------
NET ASSETS $ 614,833 $10.47
- - -----------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HEALTH CARE ENERGY
PORTFOLIO PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1994 July 31, 1994
(000) (000)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . $ 5,856 $ 3,134
Interest . . . . . . . . . . . . . . . . . . . . . 472 537
- - -------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . 6,328 3,671
- - -------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . 395 268
The Vanguard Group--Note C . . . . . . . . . . . . 244 --
Taxes (other than income taxes)--Note A . . . . . . 22 14
Custodians' Fees . . . . . . . . . . . . . . . . . 57 43
Auditing Fees . . . . . . . . . . . . . . . . . . . 3 3
Shareholders' Reports . . . . . . . . . . . . . . . 40 44
Annual Meeting and Proxy Costs . . . . . . . . . . 1 34
Directors' Fees and Expenses . . . . . . . . . . . 1 1
- - -------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . 775 377
- - -------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 5,553 3,294
- - -------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON
INVESTMENT SECURITIES SOLD . . . . . . . . . . . . . 12,431 5,566
- - -------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES . . . . . . . . . . . . . . (54,565) 2,836
- - -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations . . . . . $(36,581) $11,696
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
GOLD & PRECIOUS UTILITIES INCOME
METALS PORTFOLIO PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1994 July 31, 1994
(000) (000)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . $ 6,694 $ 13,984
Interest . . . . . . . . . . . . . . . . . . 743 4,717
- - -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . 7,437 18,701
- - -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . 548 390
The Vanguard Group--Note C . . . . . . . . . . . -- 951
Taxes (other than income taxes)--Note A . . . . 23 27
Custodians' Fees . . . . . . . . . . . . . . . . 109 19
Auditing Fees . . . . . . . . . . . . . . . . . 3 3
Shareholders' Reports . . . . . . . . . . . . . 63 77
Annual Meeting and Proxy Costs . . . . . . . . . 4 14
Directors' Fees and Expenses . . . . . . . . . . 1 1
- - -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 751 1,482
- - -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 6,686 17,219
- - -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON
INVESTMENT SECURITIES SOLD . . . . . . . . . . . . 644 (6,209)
- - -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES . . . . . . . . . . . . . (33,567) (58,029)
- - -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations $(26,237) $(47,019)
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HEALTH CARE PORTFOLIO ENERGY PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JULY 31, 1994 January 31, 1994 JULY 31, 1994 January 31, 1994
(000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . $ 5,553 $ 12,884 $ 3,294 $ 4,621
Realized Net Gain (Loss) . . . . . . . . . . . . . 12,431 30,424 5,566 22,730
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (54,565) 63,279 2,836 23,473
- - -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . (36,581) 106,587 11,696 50,824
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . (852) (12,384) (468) (4,161)
Realized Net Gain . . . . . . . . . . . . . . . . . (8,693) (31,623) (1,638) (19,802)
- - -----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (9,545) (44,007) (2,106) (23,963)
- - -----------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION
CREDITS (CHARGES)--Note A . . . . . . . . . . . . . -- -- -- --
- - -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . 25,202 85,116 64,899 101,220
-- In Lieu of Cash Distributions . . . . . 9,165 42,105 1,957 22,424
-- Exchange . . . . . . . . . . . . . . . 31,905 150,660 102,839 222,492
Redeemed -- Regular . . . . . . . . . . . . . . . . (23,304) (62,573) (19,599) (38,474)
-- Exchange . . . . . . . . . . . . . . . (49,508) (201,763) (45,229) (158,967)
- - -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . . . . (6,540) 13,545 104,867 148,695
- - -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . (52,666) 76,125 114,457 175,556
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . 637,966 561,841 339,269 163,713
- - -----------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . $ 585,300 $ 637,966 $ 453,726 $ 339,269
=============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . $ .05 $ .76 $ .02 $ .29
Realized Net Gain . . . . . . . . . . . . . . . $ .51 $ 1.97 $ .07 $ 1.38
- - -----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . 1,691 7,171 10,703 19,803
Issued in Lieu of Cash Distributions . . . . . 268 1,277 124 1,553
Redeemed . . . . . . . . . . . . . . . . . . . (2,146) (8,180) (4,189) (11,687)
- - -----------------------------------------------------------------------------------------------------------------------------
. . . . . . . . . . . . . . . . . . . . . (187) 268 6,638 9,669
- - -----------------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income . . . . . . . . . . . . $ 5,445 $ 744 $ 3,251 $ 425
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
GOLD & PRECIOUS METALS PORTFOLIO UTILITIES INCOME PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JULY 31, 1994 January 31, 1994 JULY 31, 1994 January 31, 1994
(000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . $ 6,686 $ 8,682 $ 17,219 $ 31,371
Realized Net Gain (Loss) . . . . . . . . . 644 6,931 (6,209) 31,762
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . (33,567) 200,021 (58,029) (5,047)
- - -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . (26,237) 215,634 (47,019) 58,086
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . (2,434) (9,095) (19,559) (29,934)
Realized Net Gain . . . . . . . . . . . . . -- -- (7,108) (25,584)
- - -----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (2,434) (9,095) (26,667) (55,518)
- - -----------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION
CREDITS (CHARGES)--Note A . . . . . . . . . -- -- (981) 4,629
- - -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . 59,014 175,749 41,419 339,906
-- In Lieu of Cash Distributions . 2,156 8,030 21,848 46,953
-- Exchange . . . . . . . . . . . 168,251 584,688 47,7242 54,384
Redeemed -- Regular . . . . . . . . . . . . (50,555) (57,064) (41,802) (52,584)
-- Exchange . . . . . . . . . . . (128,320) (480,684) (118,095) (218,225)
- - -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . 50,546 230,719 (48,906) 370,434
- - -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . 21,875 437,258 (123,573) 377,631
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . 612,545 175,287 738,406 360,775
- - -----------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . $ 634,420 $ 612,545 $ 614,833 $ 738,406
=============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $ .05 $ .21 $ .33 $ .56
Realized Net Gain . . . . . . . . . . . -- -- $ .12 $ .40
- - -----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . 17,594 67,267 8,454 49,884
Issued in Lieu of Cash Distributions . 160 608 2,057 4,010
Redeemed . . . . . . . . . . . . . . . (14,089) (46,829) (15,077) (22,891)
- - -----------------------------------------------------------------------------------------------------------------------------
3,665 21,046 (4,566) 31,003
- - -----------------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income . . . . . . . $ 3,839 $ (413) $ 8,093 $ 11,414
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HEALTH CARE PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ---------------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $36.51 $32.66 $35.54 $27.32 $22.16 $19.46
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . .32 .79 .70 .53 .52 .48
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . (2.41) 5.79 (1.68) 8.75 6.03 3.43
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . (2.09) 6.58 (.98) 9.28 6.55 3.91
- - -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.05) (.76) (.70) (.53) (.55) (.49)
Distributions from Realized Capital Gains . . . . . . . . (.51) (1.97) (1.20) (.53) (.84) (.72)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.56) (2.73) (1.90) (1.06) (1.39) (1.21)
- - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $33.86 $36.51 $32.66 $35.54 $27.32 $22.16
===================================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . . . . -5.74% +21.21% -2.92% +33.97% +30.09% +20.22%
- - -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $585 $638 $562 $553 $189 $76
Ratio of Expenses to Average Net Assets . . . . . . . . . . .25%* .19% .22% .30% .36% .39%
Ratio of Net Investment Income
to Average Net Assets . . . . . . . . . . . . . . . . . . 1.84%* 2.37% 2.06% 1.98% 2.54% 2.34%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 27%* 19% 15% 7% 17% 28%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ENERGY PORTFOLIO
- - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ---------------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $15.77 $13.82 $12.73 $13.39 $14.94 $12.29
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . .12 .31 .34 .42 .45 .38
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . .32 3.31 1.29 (.24) (.66) 3.20
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . .44 3.62 1.63 .18 (.21) 3.58
- - -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.02) (.29) (.36) (.42) (.46) (.36)
Distributions from Realized Capital Gains . . . . . . . . (.07) (1.38) (.18) (.42) (.88) (.57)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . (.09) (1.67) (.54) (.84) (1.34) (.93)
- - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $16.12 $15.77 $13.82 $12.73 $13.39 $14.94
===================================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . . . . . +2.80% +27.31% +13.02% +1.27% -1.64% +28.98%
- - -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $454 $339 $164 $124 $114 $80
Ratio of Expenses to Average Net Assets . . . . . . . . . . .19%* .17% .21% .30% .35% .38%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . 1.67%* 1.87% 2.47% 2.78% 3.24% 3.05%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 12%* 41% 37% 42% 40% 44%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total return figures do not reflect the redemption fee equaling 1% of the
value of shares redeemed, which is withheld from the redemption proceeds and
paid directly to the Portfolio.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
GOLD & PRECIOUS METALS PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED ----------------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1994 1994 1993 1992 1991 1990
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $13.58 $ 7.29 $9.41 $8.29 $12.49 $ 9.65
------ ------ ----- ----- ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .14 .20 .19 .24 .29 .27
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . (.66) 6.30 (2.13) 1.13 (4.17) 2.91
------ ------ ----- ----- ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . (.52) 6.50 (1.94) 1.37 (3.88) 3.18
- - ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.05) (.21) (.18) (.25) (.32) (.34)
Distributions from Realized Capital Gains. . . . -- -- -- -- -- --
------ ------ ----- ----- ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . (.05) (.21) (.18) (.25) (.32) (.34)
- - ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $13.01 $13.58 $7.29 $9.41 $ 8.29 $12.49
=================================================================================================================================
TOTAL RETURN** . . . . . . . . . . . . . . . . . . - 3.84% +89.24% -20.58% +16.67% -31.21% +33.38%
- - ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . $634 $613 $175 $178 $144 $223
Ratio of Expenses to Average Net Assets. . . . . . .24%* .26% .36% .35% .42% .45%
Ratio of Net Investment Income to. . . . . . . . .
Average Net Assets . . . . . . . . . . . . . . . 2.08%* 2.04% 2.50% 2.54% 2.78% 3.01%
Portfolio Turnover Rate . . . . . . . . . . . . . 7%* 14% 2% 3% 10% 17%
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total return figures do not reflect the redemption fee equaling 1% of the
value of shares redeemed, which is withheld from the redemption proceeds and
paid directly to the Portfolio.
<TABLE>
<CAPTION>
UTILITIES INCOME PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended May 15, 1992, to
For a Share Outstanding Throughout Each Period JULY 31, 1994 January 31, 1994 January 31,1993
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.67 $11.18 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . .28 .57 .41
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . . . (1.03) .881 .03
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . (.75) 1.451 .44
- - ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . (.33) (.56) (.24)
Distributions from Realized Capital Gains . . . . . . . . . . . . (.12) (.40) (.02)
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . (.45) (.96) (.26)
- - ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . $10.47 $11.67 $11.18
==================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6.46% +13.08% +14.51%
- - ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . $615 $738 $361
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . .44%* .42% .45%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . 5.15%* 4.82% 4.70%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . 41%* 46% 20%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
Vanguard Specialized Portfolios is registered under the Investment Company Act
of 1940 as a diversified open-end investment company and consists of the Health
Care, Energy, Gold & Precious Metals, and Utilities Income Portfolios. The
Portfolios may invest in securities of foreign issuers which may subject them
to investment risks not normally associated with investing in securities of
United States corporations. Certain investments of the Utilities Income
Portfolio are in debt instruments for which the issuers' abilities to meet
their obligations may be affected by economic developments in the utilities
industry.
* A.The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Market values for securities listed on the New York
Stock Exchange or other U.S. exchanges are based upon the latest quoted sales
prices for such securities on the appropriate exchange as of 4:00 PM on the
valuation date; such securities not traded are valued at the mean of the latest
quoted bid and asked prices. Securities listed on foreign exchanges are valued
at the latest quoted sales prices. Securities (including precious metals) not
listed are valued at the latest quoted bid prices. Bonds are valued utilizing
the latest bid prices and on the basis of a matrix system (which considers such
factors as security prices, yields, maturities and ratings), both as furnished
by independent pricing services. Temporary cash investments are valued at cost
which approximates market value. Foreign currency amounts are translated into
U.S. dollars at the bid prices of such currencies against U.S. dollars quoted
by major banks as of 4:00 PM Central Europe Time.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for federal income taxes is required in the
financial statements.
3. EQUALIZATION: The Utilities Income Portfolio follows the accounting
practice known as "equalization," under which a portion of the price of capital
shares issued and redeemed, equivalent to undistributed net investment income
per share on the date of the transaction, is credited or charged to
undistributed income. As a result, undistributed income per share is unaffected
by Portfolio share sales or redemptions.
4. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group of Investment Companies, transfers uninvested cash balances into a Pooled
Cash Account, the daily aggregate of which is invested in repurchase agreements
secured by U.S. Government obligations. Securities pledged as collateral for
repurchase agreements are held by the Fund's custodian banks until maturity of
each repurchase agreement. Provisions of each agreement ensure that the market
value of the collateral is sufficient in the event of default; however, in the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
5. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes. In the Gold & Precious Metals Portfolio, such differences relate to
investments in securities considered to be
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (continued)
"passive foreign investment companies," for which any unrealized appreciation
and/or realized gains are required to be included in distributable net
investment income for tax purposes. Distributions from passive foreign
investment company income totalled $1,755,000 during the six months ended July
31, 1994.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses on
the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Discounts and premiums on debt securities purchased are
amortized to interest income over the lives of the respective securities.
* B. Under the terms of a contract which expires May 30, 1995, Wellington
Management Company provides investment advisory services to the Health Care,
Energy, and Utilities Income Portfolios in return for a fee calculated at an
annual percentage rate of average net assets. For the six months ended July 31,
1994, the investment advisory fees of the Health Care and Energy Portfolios
represent an effective annual rate of .14 of 1% of average net assets. The
investment advisory fee of the Utilities Income Portfolio represents an
effective annual rate of .12 of 1% of average net assets.
Under the terms of a contract which expires January 31, 1995, M&G Investment
Management Ltd. provides investment advisory services to the Gold & Precious
Metals Portfolio in return for a fee calculated at an annual percentage rate of
average net assets. For the six months ended July 31, 1994, the investment
advisory fee of the Gold & Precious Metals Portfolio represents an effective
annual rate of .18 of 1% of average net assets after giving effect to a fee
waiver of $197,000 (.06 of 1%).
* C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing and distribution services. The costs of such services
are allocated to each Portfolio of the Fund under methods approved by the Board
of Directors. Prior to June 3, 1994, fees charged to shareholders of the Health
Care, Energy, and Gold & Precious Metals Portfolios in the redemption of
capital shares were credited by Vanguard to the respective Portfolio and were
utilized to offset administrative expenses. Under a new fee policy effective
June 3, 1994, redemption fees are instead credited to paid in capital. At July
31, 1994, the Fund had contributed capital of $351,000 to Vanguard (included in
Other Assets), representing 1.8% of Vanguard's capitalization. The Fund's
directors and officers are also directors and officers of Vanguard.
Vanguard has requested the Fund's investment advisers to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate or credit the Fund for a portion of the commissions
generated. Such rebates or credits are used solely to reduce the Fund's
administrative expenses. For the six months ended July 31, 1994, directed
brokerage arrangements reduced the expenses of the Health Care, Energy, and
Utilities Income Portfolios by $25,000, $26,000, and $123,000, respectively
(annual rates of .01, .01, and .04 of 1% of average nets assets, respectively).
* D. During the six months ended July 31, 1994, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were:
<TABLE>
<CAPTION>
- - -------------------------------------------------------
(000)
-----------------------
Portfolio Purchases Sales
- - -------------------------------------------------------
<S> <C> <C>
HEALTH CARE $ 79,090 $ 75,809
- - -------------------------------------------------------
ENERGY 127,915 22,251
- - -------------------------------------------------------
GOLD & PRECIOUS METALS 69,462 19,051
- - -------------------------------------------------------
UTILITIES INCOME 129,110 180,595
- - -------------------------------------------------------
</TABLE>
26
<PAGE> 27
At January 31, 1994, the Gold & Precious Metals Portfolio had available a
capital loss carryforward of $24,209,000 to offset future net capital gains of
$6,596,000, $3,836,000, $4,525,000, $5,781,000, and $3,471,000 through January
31, 1997, 1998, 1999, 2000, and 2001, respectively.
At July 31, 1994, unrealized appreciation (depreciation) for Federal income tax
purposes was:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------
(000)
---------------------------------------------------------
Net
Unrealized
Appreciated Depreciated Appreciation
Portfolio Securities Securities (Depreciation)
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE $119,807 $(43,715) $ 76,092
- - ----------------------------------------------------------------------------------
ENERGY 39,623 (13,921) 25,702
- - ----------------------------------------------------------------------------------
GOLD & PRECIOUS METALS 136,465 (26,776) 109,689
- - ----------------------------------------------------------------------------------
UTILITIES INCOME 11,422 (58,027) (46,605)
- - ----------------------------------------------------------------------------------
</TABLE>
* E. The market values of securities on loan to broker/dealers at July 31,
1994, and the cash collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
(000)
--------------------------------
Market Value Cash
of Loaned Collateral
Portfolio Securities Received
- - ------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE $ 8,592 $ 8,940
- - ------------------------------------------------------------------------------
ENERGY 4,239 4,920
- - ------------------------------------------------------------------------------
GOLD & PRECIOUS METALS 11,139 12,526
- - ------------------------------------------------------------------------------
UTILITIES INCOME 15,801 16,108
- - ------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q512-07/94
VANGUARD
SPECIALIZED PORTFOLIOS
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
JULY 31, 1994
<PAGE> 29
EDGAR APPENDIX
The back cover of the printed version of this report features the flags of
the United States of America and Vanguard flying from a halyard.
