<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
During the six months ended July 31, 1995, the first half of the fiscal year
for Vanguard Specialized Portfolios, the stock market--led by large
capitalization blue-chip stocks--surged ahead to its best six-month performance
in recent memory. The breadth of the market's strength was particularly
striking, with virtually every major sector providing exceptionally strong
returns. As a result, all four of the Specialized Portfolios earned
double-digit gains.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Total Return
- ------------------------------------------------------------------
Six Months Ended
July 31, 1995
- ------------------------------------------------------------------
<S> <C>
HEALTH CARE PORTFOLIO +18.2%
AVERAGE HEALTH CARE FUND +17.8
- ------------------------------------------------------------------
ENERGY PORTFOLIO +18.9%
AVERAGE NATURAL RESOURCES FUND +17.2
- ------------------------------------------------------------------
UTILITIES INCOME PORTFOLIO +10.6%
AVERAGE UTILITY FUND + 8.9
- ------------------------------------------------------------------
STANDARD & POOR'S 500 INDEX +21.0%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
GOLD & PRECIOUS METALS PORTFOLIO +17.3%
AVERAGE GOLD FUND +20.5
- ------------------------------------------------------------------
SALOMON GOLD INDEX +12.0%
- ------------------------------------------------------------------
</TABLE>
Detailed per share figures for each Portfolio, including net asset values and
income dividends, are presented in a table that follows this letter.
After a moderately disappointing 1994, the stock market sprung to life
as the new year began. During the past six months, the market moved upward,
week after week, in virtually straight-line fashion, delighting the bulls and
astonishing the bears. On balance, the Dow Jones Industrial Average rose from
3844 as the fiscal year began to 4708 on July 31.
As usual, there were many opinions as to the source of the market's
surprising strength. In my view, it resulted from a combination of: (1) the
sharp decline in interest rates (the yield on the long-term U.S. Treasury bond
fell from 7.8% to 6.8% during the period, a dip of 100 basis points); (2) the
diminishing threat of additional increases in short-term interest rates by the
Federal Reserve Board; (3) a slight softening in U.S. economic growth,
resulting in continued optimism about the outlook for inflation; (4)
record-breaking corporate profits; and (5) a hint of speculative fever in the
marketplace. Whatever the reason, the strong market, as measured by the
Standard & Poor's 500 Stock Index, provided an outstanding six-month return of
+21.0%.
UTILITIES INCOME PORTFOLIO
During the past six months, the Utilities Income Portfolio continued to
provide an above-average yield and strong relative returns. As you know, the
conservative nature of utility stocks does not typically lend them to providing
market-leading performance in a strong bull market. The past six months has
been no exception, as our Portfolio achieved "only" a +10.6% return, compared
to +21.0% for the broad stock market. Nonetheless, we surpassed the
performance of the average utility fund, which earned an +8.9% return.
After raising the Federal funds rate (at which banks borrow from one
another) fully six times during 1994, the Fed began to observe slower economic
growth in 1995, and therefore lessened its upward pressure on interest rates.
In early July, the short-term rate was gently eased by 1/4 of 1%, bringing this
key rate to 53/4% versus 3% just one and one-half years ago. As a result, the
rising interest rate environment that had dampened our 1995 fiscal year results
gradually reversed course, and interest-rate-sensitive utility stocks garnered
solidly positive returns.
Since the inception of the Portfolio in May 1992, its annualized return
of +10.7% has been well above the +7.4% return of the average utility fund, a
highly favorable relative outcome. For investors seeking enhanced income and
willing to accept the risks associated with interest-sensitive stocks, the
Portfolio remains a prudent and relatively attractive investment.
HEALTH CARE PORTFOLIO
Health care stocks continued their rebound that began in the fourth
quarter of our prior fiscal year. The Portfolio's strong absolute return of
+18.2% was slightly better than the +17.8% return for the average health care
fund, albeit slightly behind the S&P 500 Index return of +21.0%. The turmoil
surrounding health care reform took a back seat during the past
1
<PAGE> 2
six months, as investors refocused on the long-term prospects of this
growing industry.
As you know, our Portfolio's investment adviser, Wellington Management
Company, utilizes a disciplined "bottom up" approach to stock selection that
relies on fundamental research to unearth undervalued companies. Over the past
ten years, this lower-risk approach has provided a solid average annual return
of +19.0%, compared to +18.9% for the average health care fund and +15.0% for
the S&P 500 Index.
ENERGY PORTFOLIO
The Energy Portfolio managed to keep pace with the broad market averages, as
energy stocks rebounded from last year's difficult environment. For the
six-month period, the Portfolio earned a return of +18.9% versus +17.2% for its
peer group of funds. The Portfolio's significant weighting in foreign companies
(26% of the Portfolio's net assets), which had nicely enhanced our returns in
the past, hampered our recent absolute performance, as the U.S. stock market
provided superior returns relative to all major international markets.
The long-term return of the Energy Portfolio shows a solid advantage
over comparable funds. For the past decade, the Energy Portfolio's ten-year
average annual total return (+12.3%) has surpassed the return of the average
natural resource fund (+8.7%) by a margin of +3.6% per year.
GOLD & PRECIOUS METALS PORTFOLIO
During the past six months, while gold prices remained in a tight trading
range, stocks of gold mining companies turned in healthy gains. In this
environment, the Gold & Precious Metals Portfolio achieved a return of +17.3%,
coming on the heels of two dramatically disparate fiscal years (+89.2% in 1994
and -19.2% in 1995). These wide fluctuations in performance exemplify the high
level of volatility inherent in owning a concentrated portfolio of gold stocks.
The Salomon Gold Index, our unmanaged performance standard, achieved a
return of +12.0% during the first half of the fiscal year. (You will note that
this Index represents a change from our customary benchmark, the Morgan Stanley
Capital International Gold Mines Index, which dramatically altered its
composition in February 1995.) The variation in return between the Portfolio
and the Index is largely attributable to our underweighting in South African
gold stocks, the worst-performing major sector in the precious metals market.
The long-term performance of the Gold & Precious Metals Portfolio
compares favorably with that of the average gold fund. For the past ten years,
the Portfolio provided an annual return of +9.5%, compared with +6.3% for our
peer group.
SUMMING UP
Given the concentrated risk of the Specialized Portfolios, they cannot be
considered typical "equity funds." Nevertheless, as part of a well-balanced
investment program, the Portfolios may add a beneficial element of
diversification.
That said, the bull market of the past six months has been so strong
and so swift that caution should continue to be the order of the day. What this
means is that long-term investors should balance their stock holdings with
holdings of bonds and cash reserves, and not attempt to outguess the market by
making major, precipitate reallocations among these three basic classes of
financial assets. In our Annual Report six months ago, we urged you to "stay
the course." That proved fine advice then; we reiterate it now.
We look forward to reporting to you on the full year's results, six
months from now in our Annual Report.
Sincerely,
/s/ JOHN C. BOGLE
- ----------------------
John C. Bogle
Chairman of the Board
August 24, 1995
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED JUNE 30,
1995) 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 5/23/84 +35.26% +16.74% +18.86% +16.84% +2.02%
ENERGY 5/23/84 + 5.86 + 7.55 +12.24 +9.00 +3.24
GOLD & PRECIOUS METALS 5/23/84 - 4.05 + 6.66 + 8.65 +5.90 +2.75
UTILITIES INCOME 5/15/92 +15.22 +10.12* +10.12* +4.86* +5.26*
</TABLE>
ALL OF 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 HEALTH CARE, ENERGY, AND GOLD & PRECIOUS METALS
PORTFOLIOS FOR LESS THAN ONE YEAR.
*PERFORMANCE FIGURES SINCE INCEPTION.
<TABLE>
<CAPTION>
Six-Month
Net Asset Value Per Share -------------------------
-------------------------------------- Income Capital Six-Month
Portfolio January 31, 1995 July 31, 1995 Dividends Gains* Total Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTH CARE $37.01 $43.66 $.02 $.07 +18.2%**
ENERGY 13.82 16.40 -- .03 +18.9**
GOLD & PRECIOUS METALS 10.71 12.55 -- -- +17.3**
UTILITIES INCOME 10.42 11.21 .30 -- +10.6
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes both long-term and short-term capital gains distributions.
**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.
3
<PAGE> 4
REPORT FROM WELLINGTON MANAGEMENT COMPANY
UTILITIES INCOME PORTFOLIO
The rally in utility stocks which began late last year continued into the first
half of the Fund's current fiscal year. Unlike last year's first half, there
were few negative surprises in the industry this year, and we experienced
a generally supportive background from interest rates and the general stock
market's exuberance. The positive performance in the first half ended July 31,
1995, provided a return of +10.6%.
One of the major reasons for the turnaround in utility stock performance
is the turnaround in the bond market. Because long-term interest rates fell over
100 basis points during the past nine months, utility stocks were able to
translate their interest-rate-sensitivity into higher stock prices. There were
no unexpected dividend cuts, such as we experienced last year when FPL
Corporation surprised electric utility investors with a discretionary reduction
in its dividend.
Importantly, regulators retreated somewhat from their most onerous
proposals for "retail wheeling," that is, retail competition for electric
utilities, and began to show concerns for issues important to shareholders,
including compensation schemes for stranded assets and the pace of competitive
entry. In general, current regulatory thinking would allow utilities to manage
and adjust operations toward a competitive environment over a several-year
transition period. This transition period would involve major challenges for
many utilities, but the stretching out of the time frame for the transition
period would avoid serious industry disruption, and it would allow utility
managements to implement creative solutions, to negotiate with their largest
customers, and to reduce costs to meet the new revenue streams. In summary, the
market decline last year resulted in improved valuation levels for electric
utility stocks, and the industry fundamentals improved this year, all of which
set the table for better performance in 1995.
Telephone industry fundamentals improved as well. First, the timetable
for competitive entry has been delayed as cable TV systems and others have
scaled back their capital spending plans, both in terms of dollars and timing,
to assess new technology and shifting alliances. Second, the latest legislative
proposals regarding long distance and cable are much friendlier than expected to
the Regional Bell Operating Companies. Third, line growth from core telephone
operations has surpassed expectations this year.
Finally, the natural gas industry also experienced a positive period.
Through mid-year, price realizations in the natural gas industry rebounded from
lows established during the extremely warm winter, allowing natural gas
utilities to post the best stock returns within the utility sector.
For the balance of the year, returns in the utility sector could
moderate from the first-half pace. Long-term interest rates have turned upward
again in July and the future direction is uncertain. Natural gas prices have
weakened over the past month. These factors are short term in nature, but are
negative developments.
On a longer-term basis, we believe that natural gas prices will head
substantially higher and gas utilities with exploration and production
subsidiaries will be advantaged. Accordingly, we plan to maintain a gas utility
position which is overweighted relative to the S&P Utility Index. The
competitive threat to electric utilities is widely recognized in market
valuations. Though this threat could be toxic to a few poorly positioned or
poorly managed electric utilities, the vast majority of companies probably will
navigate successfully through the transition period and resume growth
eventually. We are focusing our investments primarily on electric utilities
which should show above-average dividend growth, and secondarily on utilities
with stock prices that compensate investors for above-average industry risk.
We have a substantial commitment to telephone utilities (41% of
equities), but we are underweighted in that area relative to the S&P Utility
Index position (52%) because the anticipated competitive impact eventually could
be more disruptive than is currently anticipated by investors. PacTel's loss of
market share of in-region toll revenues to long distance carriers this year is
an example and a warning of the extent of competitive challenges ahead.
Furthermore, telephone companies could be forced, on a competitive basis, to
make extensive capital expenditures in broadband capability, which might not
provide adequate revenues to earn a compensatory return on capital.
4
<PAGE> 5
In any case, we are monitoring developments in the various utility
sectors to make adjustments in the Portfolio and to take advantage of
opportunities when they appear.
HEALTH CARE PORTFOLIO
The equity markets rebounded sharply during the first half of the fiscal year,
with the overall market, as measured by the S&P 500 Index, rising +21.0%. The
Health Care Portfolio enjoyed a strong absolute return of +18.2%, slightly
behind the S&P 500 Health Sector return of +19.2%, but in line with the average
performance of other health care funds.
Performance was good in all areas of health care, except health
services, which suffered from a cyclical setback in the HMO sector. As the
Portfolio was concentrated in hospital management and distribution companies,
the Portfolio's health service component performed satisfactorily, and we used
the general weakness to slightly increase our exposure to HMOs. The strongest
sectors of health care over the past six months were medical products and
biotechnology. The biotechnology sector rebounded from very depressed levels,
as a result of the success of a number of clinical developments. Cephalon,
purchased early in the year, and Magainin Pharmaceuticals were notable
examples. On the international front, Zeneca, one of our largest holdings did
well as the market began to refocus on the companies with deep product
pipelines. Major pharmaceutical stocks performed in line with the market.
Although the fear that paralyzed the health care sector over the past
few years seems to have subsided, the rationalization of health care delivery
will continue to be a driving force. While the sector has had a nice rebound, a
softening economy will likely provide relative support for this defensive
sector. As always, health care remains a growth industry longer term, shaped by
favorable demographics and advances in medical science. We continue to seek
companies that will benefit from these trends.
ENERGY PORTFOLIO
The Energy Portfolio achieved a total return of +18.9% during the first
half of the fiscal year, trailing the S&P 500 Index by -2.1%. The period was
characterized by a recovery of oil and gas prices from early February to the
beginning of May. Since then prices retreated to where they started the year,
at close to $17.50 per barrel for crude oil, and $1.50 per million cubic feet
for gas. Refining margins, which were poor in the early part of the year,
recovered some as the summer arrived. Many oil companies reported strong
earnings gains in this lackluster environment, benefiting from higher oil
prices and the effects of major cost reduction efforts.
Oil and gas demand is growing at a healthy rate, both in the U.S. and
in many foreign markets, and capacity utilization rates in all sectors of the
energy business are high. Pricing of oil, gas, and petroleum products is low,
however, reflecting the influence that small excesses of capacity can have on a
market driven by short-term transactions.
We continue to expect that concerns about inadequate long-term capacity
growth will result in more positive performance of energy-related securities,
and are encouraged by the relative performance of the oil service sector so far
this year.
The Portfolio continues to be structured to provide the investor with a
wide ranging exposure to the energy business, with the emphasis on companies
with above-average prospects for volume growth in oil and gas such as Exxon and
Unocal among the integrated companies, Vastar Resources in the independent
producer sector, and Schlumberger in the oil service industry.
Respectfully,
John R. Ryan, Senior Vice President
Utilities Income Portfolio Manager
Edward P. Owens, Senior Vice President
Health Care Portfolio Manager
Ernst H. von Metzsch, Senior Vice President
Energy Portfolio Manager
Wellington Management Company
August 20, 1995
5
<PAGE> 6
REPORT FROM M&G INVESTMENT MANAGEMENT LTD.
GOLD & PRECIOUS METALS PORTFOLIO
After the disappointment and poor performance of last year, the Portfolio has
begun its new fiscal year with a positive return of +17.3%. However, this was
slightly below the +18.1% return achieved by the F.T. Global Gold Mines Index
over the same period. The variation in performance is primarily due to the
Portfolio's holdings in physical bullion (5.7% of net assets) and cash (2.3% of
net assets).
During the period under review, the performance of gold bullion has
been particularly lackluster, as the metal has continued to trade in a very
narrow range. In fact, the price movement was less than $20 from the low of
$374.50 in early February, to the high of $393.40 in mid-April. However, the
supply/demand picture remains positive, with calendar 1994 witnessing the first
decrease in mine production since the late 1970s, while jewelry fabrication
demand continued to be firm, rising +2% during the year.
Despite this relatively poor environment for gold bullion, gold shares
worldwide have performed well. The North American shares have been the best
performers, aided in part by a generally strong Wall Street, but also by an
increase in corporate activity. In one of the larger deals, which impacts
directly on the Portfolio, RTZ in the UK has emerged as the major shareholder
in Freeport McMoRan Copper & Gold, in what is an excellent deal for both
companies. Also, Battle Mountain has made an initial approach to acquire Crown
Resources. One of the best individual share price performances came from our
relatively new holding of Stillwater Mining, North America's only quoted
platinum producer, which appreciated by +60% during the half year.
The Australian gold share market was generally firm during the period,
with good performances from the diversified mining companies such as CRA and
Western Mining. On the corporate front, Renison created a new company,
Goldfields Limited, which was offered pro rata to existing shareholders and
represents their pure gold assets. The Portfolio also increased its holding in
Star Mining, as the company raised additional capital to help fund the
feasibility study for its major gold project in Siberia.
The South African gold shares were the noticeable laggards, as concerns
increased over production shortfalls and the forthcoming wage negotiations. It
is always easy to be negative about South African gold stocks, but such an
outlook is often wrong. While it is undeniable that production is falling,
company managements are acutely aware of the challenges that face them, in
particular the issue of a seven-day working week. Should a breakthrough be made
on this issue, productivity gains should be impressive. We continue to remain
comfortable with the Portfolio's South African holdings at approximately 33%.
Even taking into account the recent production shortfalls, the country remains
the world's largest producer of gold, representing just over 25% of global
production in 1994.
Elsewhere in the world, the Portfolio's holding of Sumitomo Metal
Mining in Japan was sold, following a general improvement in the Japanese
market. Otherwise, there were no major changes in the Portfolio's geographical
distribution. With little momentum from the gold price, gold shares worldwide
have performed well, while it has been interesting to note the increase in
corporate activity, particularly in Australia and North America.
Respectfully,
David J. Hutchins
M&G Investment Management Ltd.
(Member of IMRO)
London, England
August 8, 1995
6
<PAGE> 7
TOTAL INVESTMENT RETURN TABLES
The following tables illustrate the results of single-share investments
in three of the four Portfolios since inception through July 31, 1995. The
percentage figures show results on a "total return" basis and assume the
reinvestment of both income dividends and any capital gains distributions.
During the period illustrated, stock prices fluctuated widely; these results
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
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care Portfolio
Value with Income ------------------------------ S&P 500
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Index Total
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (5/84) $10.00 -- -- $10.00 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1985 11.85 -- -- 11.85 +18.5% 0.0% +18.5% +21.1%
- -----------------------------------------------------------------------------------------------------------------------------------
1986 15.61 $ .11 $ .07 15.84 +32.9 +0.8 +33.7 +22.8
- -----------------------------------------------------------------------------------------------------------------------------------
1987 19.53 .80 .13 20.89 +30.8 +1.0 +31.8 +33.9
- -----------------------------------------------------------------------------------------------------------------------------------
1988 17.53 1.39 .57 20.96 - 2.7 +3.0 + 0.3 - 3.3
- -----------------------------------------------------------------------------------------------------------------------------------
1989 19.46 1.29 .34 25.45 +19.3 +2.1 +21.4 +19.9
- -----------------------------------------------------------------------------------------------------------------------------------
1990 22.16 .72 .49 30.60 +17.7 +2.5 +20.2 +14.4
- -----------------------------------------------------------------------------------------------------------------------------------
1991 27.32 .84 .55 39.81 +27.4 +2.7 +30.1 + 8.3
- -----------------------------------------------------------------------------------------------------------------------------------
1992 35.54 .53 .53 53.33 +32.0 +2.0 +34.0 +22.6
- -----------------------------------------------------------------------------------------------------------------------------------
1993 32.66 1.20 .70 51.77 - 4.8 +1.9 - 2.9 +10.6
- -----------------------------------------------------------------------------------------------------------------------------------
1994 36.51 1.97 .76 62.75 +18.7 +2.5 +21.2 +12.9
- -----------------------------------------------------------------------------------------------------------------------------------
1995 37.01 2.31 .57 68.89 + 8.1 +1.7 + 9.8 + 0.5
- -----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 43.66 .07 .02 81.46 +18.2 0.0 +18.2 +21.0
- -----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +714.6% +432.2%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN +20.6% +16.1%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
TOTAL INVESTMENT RETURN TABLES (continued)
<TABLE>
<CAPTION>
ENERGY PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Portfolio
Value with Income ------------------------------ S&P 500
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Index Total
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (5/84) $10.00 -- -- $10.00 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1985 9.81 -- -- 9.81 - 1.9% 0.0% - 1.9% +21.1%
- ------------------------------------------------------------------------------------------------------------------------------------
1986 9.93 $ .08 $.14 10.15 + 2.0 +1.4 + 3.4 +22.8
- ------------------------------------------------------------------------------------------------------------------------------------
1987 12.42 .05 .44 13.38 +25.8 +6.1 +31.9 +33.9
- ------------------------------------------------------------------------------------------------------------------------------------
1988 10.22 1.41 .76 13.48 - 5.7 +6.5 + 0.8 - 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
1989 12.29 -- .37 16.74 +20.3 +3.9 +24.2 +19.9
- ------------------------------------------------------------------------------------------------------------------------------------
1990 14.94 .57 .36 21.59 +26.1 +2.9 +29.0 +14.4
- ------------------------------------------------------------------------------------------------------------------------------------
1991 13.39 .88 .46 21.24 - 4.7 +3.1 - 1.6 + 8.3
- -----------------------------------------------------------------------------------------------------------------------------------
1992 12.73 .42 .42 21.51 - 1.9 +3.2 + 1.3 +22.6
- ------------------------------------------------------------------------------------------------------------------------------------
1993 13.82 .18 .36 24.31 +10.0 +3.0 +13.0 +10.6
- ------------------------------------------------------------------------------------------------------------------------------------
1994 15.77 1.38 .29 30.94 +25.0 +2.3 +27.3 +12.9
- ------------------------------------------------------------------------------------------------------------------------------------
1995 13.82 .29 .24 28.11 -10.6 +1.5 - 9.1 + 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 16.40 .03 -- 33.43 +18.9 0.0 +18.9 +21.0
- ------------------------------------------------------------------------------------------------------------------------------------
LIFETIME +234.3% +432.2%
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN +11.4% +16.1%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
GOLD & PRECIOUS METALS PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- -----------------------------------------------------------------------------------------------------------------------------------
Gold & Precious Metals Salomon
Value with Income ------------------------------ Gold Index
January 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Return**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (5/84) $10.00 -- -- $10.00 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1985 6.60 -- -- 6.60 -34.9% 0.0% -34.9% - 35.3%
- -----------------------------------------------------------------------------------------------------------------------------------
1986 7.60 -- $.06 7.67 +15.2 +1.1 +16.3 + 3.6
- -----------------------------------------------------------------------------------------------------------------------------------
1987 10.50 -- .21 10.91 +38.2 +4.0 +42.2 + 12.4
- -----------------------------------------------------------------------------------------------------------------------------------
1988 9.35 $1.14 .48 11.18 - 1.6 +4.1 + 2.5 + 4.5
- -----------------------------------------------------------------------------------------------------------------------------------
1989 9.65 -- .26 11.87 + 3.2 +2.9 + 6.1 - 9.3
- -----------------------------------------------------------------------------------------------------------------------------------
1990 12.49 -- .34 15.83 +29.4 +4.0 +33.4 + 72.3
- -----------------------------------------------------------------------------------------------------------------------------------
1991 8.29 -- .32 10.89 -33.6 +2.4 -31.2 - 41.1
- -----------------------------------------------------------------------------------------------------------------------------------
1992 9.41 -- .25 12.70 +13.5 +3.2 +16.7 + 10.9
- -----------------------------------------------------------------------------------------------------------------------------------
1993 7.29 -- .18 10.09 -22.5 +1.9 -20.6 - 23.3
- -----------------------------------------------------------------------------------------------------------------------------------
1994 13.58 -- .21 19.09 +86.3 +2.9 +89.2 +121.5
- -----------------------------------------------------------------------------------------------------------------------------------
1995 10.71 -- .31 15.42 -21.1 +1.9 -19.2 - 21.1
- -----------------------------------------------------------------------------------------------------------------------------------
1995 (7/31) 12.55 -- .01 18.10 +17.2 +0.1 +17.3 + 12.0
- -----------------------------------------------------------------------------------------------------------------------------------
LIFETIME +78.5% +20.6%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN +5.3% +1.7%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return performance for the Portfolio and the Index begins on May 31,
1984.
**MSCI Gold Mines Index through December 31, 1994; Salomon Gold Index
thereafter.
9
<PAGE> 10
FINANCIAL STATEMENTS
(unaudited)
July 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
HEALTH CARE PORTFOLIO Shares (000)+
- -------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.4%)
- -------------------------------------------------------------------
UNITED STATES (76.4%)
- -------------------------------------------------------------------
BASIC MATERIALS (4.0%)
Bayer AG ADR 350,000 $ 9,319
Mallinckrodt Group, Inc. 803,000 31,116
* Scios Nova, Inc. 491,750 2,059
------------
42,494
------------
CONSUMER STAPLES (1.7%)
Dekalb Genetics Corp. Class B 380,050 16,152
* Paragon Trade Brands, Inc. 140,000 2,100
------------
18,252
------------
DRUGS (19.4%)
American Home Products Corp. 180,000 14,220
Bristol-Myers Squibb Co. 660,000 45,705
Eli Lilly & Co. 310,000 24,258
Merck & Co., Inc. 270,225 13,950
Pfizer, Inc. 1,010,000 51,005
Rhone-Poulenc Rorer, Inc. 664,500 29,404
Schering-Plough Corp. 100,000 4,650
Upjohn Co. 50,000 1,925
Warner-Lambert Co. 240,000 20,160
------------
205,277
------------
FINANCIAL (1.1%)
United Wisconsin 580,000 11,600
------------
MEDICAL SERVICES (11.1%)
* Beverly Enterprises Inc. 400,000 5,650
Columbia/HCA Healthcare Corp. 314,347 15,403
* Coram Healthcare Corp. 547,600 7,187
* Humana, Inc. 730,400 14,152
* Laboratory Corp. of America 781,416 10,451
* Laboratory Corp. of America
Warrants Exp. 4/28/00 176,990 310
McKesson Corp. 800,000 35,300
Owens & Minor Inc. 202,500 2,886
* Physician Corp. of America 802,100 13,034
Salick Healthcare Inc. 38,450 1,375
*(1)Syncor International Corp. 718,359 6,555
* Tenet Healthcare Corp. 380,000 5,795
------------
118,098
------------
MEDICAL SUPPLIES (24.3%)
Abbott Laboratories, Inc. 700,000 28,000
*(1)Advanced Technology
Laboratories, Inc. 683,300 11,445
Allergan, Inc. 590,000 17,848
* Allergan Ligand Retinoid
Therapeutics Inc. Units 16,342 241
C.R. Bard, Inc. 382,800 12,058
Beckman Instruments 979,200 27,295
Collagen Corp. 383,100 6,608
* Datascope Corp. 340,100 6,547
*(1)E-Z-EM Inc. Class A 219,257 1,329
* E-Z-EM Inc. Class B 259,916 1,527
Guidant Corp. 800,000 20,700
* Haemonetics Corp. 576,000 12,744
* Healthdyne Inc. 296,700 1,632
* Healthdyne Technologies, Inc. 193,066 2,437
Johnson & Johnson 660,000 47,355
Kinetic Concepts, Inc. 716,000 6,086
* Medisense, Inc. 663,000 15,332
* Nellcor Inc. 170,000 8,840
* Protocol Systems Inc. 273,000 2,935
* Resound Corp. 249,400 2,151
* Spacelabs Medical 280,000 6,930
U.S. Healthcare, Inc. 350,000 11,069
United States Surgical Corp. 300,000 7,200
------------
258,309
------------
SPECIALITY PHARMACEUTICAL (13.6%)
A.L. Pharma Inc. Class A 949,040 17,557
* Alliance Pharmaceutical Corp. 967,388 9,069
* ALZA Corp. 320,000 8,240
* Amylin Pharmaceuticals, Inc. 650,000 4,713
* Applied Immune Sciences 383,500 2,828
* Athena Neurosciences, Inc. 700,000 6,213
* Biogen, Inc. 235,000 10,693
Carter-Wallace, Inc. 266,000 3,225
Carter-Wallace, Inc. Class B 24,000 291
* Cephalon Inc. 400,000 9,250
* Genentech Inc. 35,000 1,671
* Genetics Institute Inc.
Depository Shares 316,960 11,965
* Genzyme Corp. 111,000 5,411
* Immunex Corp. 880,100 11,881
* Lynx Therapeutic 211,410 21
*(1)Magainin Pharmaceuticals 694,400 5,295
* Marsam Pharmaceuticals, Inc. 340,800 7,029
* Perrigo Co. 2,259,900 27,966
* Xoma Corp. 353,000 596
------------
143,914
------------
TECHNOLOGY (1.2%)
*(1)MDL Information Systems, Inc. 588,300 8,677
Perkin-Elmer Corp. 122,720 4,157
------------
12,834
============
GROUP TOTAL 810,778
------------
- -------------------------------------------------------------------
INTERNATIONAL (16.0%)
- --------------------------------------------------------------------
Amersham International PLC 518,000 8,098
Ciba Geigy AG (Bearer) 40,760 30,290
Eisai Co., Ltd. 300,000 5,214
Fujisawa Pharmaceutical 950,000 10,154
Hafslund Nycomed AS A 344,000 8,602
Pharmacia AB Series A Free 592,000 14,323
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
Sandoz AG (Registered) 17,670 $ 12,314
Schering AG 193,470 14,909
Smithkline Beecham Unit ADR 324,800 14,616
Synthelabo 78,270 4,564
Takeda Chemical Industries 297,000 4,015
Zeneca Group ADR 794,524 42,408
-----------
GROUP TOTAL 169,507
-----------
- -------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $708,939) 980,285
- -------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (7.4%)
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
000
-------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $78,716) $78,716 78,716
- -------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $787,655) 1,059,001
- -------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.2%)
- -------------------------------------------------------------------
Other Assets--Notes C and G 22,710
Liabilities--Note G (20,565)
-----------
2,145
- -------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------
Applicable to 24,302,179 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $1,061,146
- -------------------------------------------------------------------
NET ASSET VALUE PER SHARE $43.66
===================================================================
</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.
ADR--American Depository Receipt
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AT JULY 31, 1995,
NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------
Amount Per
(000) Share
- -------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 756,485 $31.13
Undistributed Net
Investment Income 7,656 .31
Accumulated Net Realized Gains25,520 1.05
Unrealized Appreciation of
Investments--Note E 271,485 11.17
- -------------------------------------------------------------------
NET ASSETS $1,061,146 $43.66
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
ENERGY PORTFOLIO Shares (000)+
- -------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.4%)
- -------------------------------------------------------------------
UNITED STATES (66.1%)
- -------------------------------------------------------------------
COAL & GAS (5.4%)
Anadarko Petroleum Corp. 80,000 $ 3,400
Cabot Oil & Gas Corp. 138,100 1,933
ENSERCH Corp. 242,180 4,329
* Enterra Corp. 173,300 3,639
* Nabors Industries, Inc. 220,000 1,994
* Santa Fe Energy Resources, Inc. 500,000 4,688
* Seagull Energy Corp. 500,000 8,938
------------
28,921
------------
ENERGY--MISCELLANEOUS (.8%)
* Weatherford International, Inc. 350,000 4,463
------------
EXPLORATION & DRILLING (8.2%)
* BJ Services Co. 400,000 9,950
* Ensco International, Inc. 127,850 2,030
McDermott International, Inc. 170,000 4,186
Noble Affiliates, Inc. 150,000 3,750
* Noble Drilling Corp. 700,000 4,550
Pogo Producing Co. 400,000 8,850
* Reading & Bates Corp. 258,200 2,582
* Varco International, Inc. 750,000 7,500
------------
43,398
------------
OIL--DOMESTIC (34.9%)
Amerada Hess Corp. 270,000 12,893
Amoco Corp. 210,000 14,123
Apache Corp. 160,000 4,380
Ashland Inc. 380,000 13,063
* Barrett Resources Corp. 345,000 7,719
Devon Energy Corp. 250,000 4,906
Diamond Shamrock, Inc. 200,000 5,200
Kerr-McGee Corp. 300,000 17,063
Murphy Oil Corp. 200,100 8,179
* Oryx Energy Co. 850,000 12,219
Parker & Parsley Petroleum Co. 64,500 1,250
Pennzoil Co. 150,000 7,031
Phillips Petroleum Co. 280,000 9,905
* TransTexas Gas Corp. 550,000 8,181
USX-Marathon Group 850,000 17,106
Ultramar Corp. 120,000 3,195
Union Texas Petroleum
Holdings, Inc. 300,000 6,075
Unocal Corp. 646,000 18,169
Vastar Resources, Inc. 541,000 15,216
------------
185,873
------------
OIL--INTERNATIONAL (8.1%)
Chevron Corp. 150,000 7,406
Exxon Corp. 310,000 22,475
Texaco, Inc. 200,000 13,300
------------
43,181
------------
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
OIL SERVICES (6.4%)
Baker Hughes, Inc. 420,000 $ 9,293
Camco International, Inc. 199,000 4,552
Halliburton Co. 90,000 3,656
* Numar Corp. 100,000 1,013
* Rowan Cos., Inc. 300,000 2,175
Schlumberger Ltd. 200,000 13,400
------------
34,089
------------
TRANSPORT & SERVICE (2.3%)
* OMI Corp. 700,000 5,863
Overseas Shipholding Group Inc. 250,000 5,563
* Teekay Shipping Corp. 27,500 653
------------
12,079
============
GROUP TOTAL 352,004
------------
- -------------------------------------------------------------------
INTERNATIONAL (26.3%)
- -------------------------------------------------------------------
CANADA (15.6%)
Alberta Energy Co. 300,000 4,372
* Anderson Exploration Ltd. 600,000 6,066
* Barrington Petroleum 300,000 918
* C S Resources Ltd. 500,000 3,324
* Cabre Exploration 310,000 3,106
* Canadian Natural Resources 407,000 4,782
* Chauvco Resources Ltd. 222,300 2,268
Conwest Exploration Co. Ltd. 200,000 3,643
* Elan Energy Inc. 150,000 1,298
* Gulf Canada Resources Ltd. 154,000 683
Gulf Canada Resources Ltd.
1.00% Pfd. 500,000 1,403
* Home Oil Co. Ltd. 500,000 6,376
* Jordan Petroleum Ltd. 500,000 2,823
Mark Resources, Inc. 800,000 4,226
* Morgan Hydrocarbons 600,000 1,836
Morrison Petroleum 268,000 1,879
Norcen Energy Resources Ltd. 200,000 3,006
* Northern Reef Exploration Ltd. 325,000 355
* Northrock Resources Ltd. 70,000 414
* Northstar Energy Corp. 320,000 2,477
Nowsco Well Service, Ltd. 250,000 2,596
Paramount Resources Ltd. 360,300 3,938
* Penn West Petroleum 250,000 1,025
Petro-Canada 272,300 2,703
* Poco Petes Ltd. 750,000 5,191
* Rigel Energy Corp. 250,290 2,393
* Rio Alto Exploration Ltd. 700,000 1,810
* Talisman Energy, Inc. 255,000 5,156
Taro Industries, Ltd. 156,750 377
* Tarragon Oil & Gas Ltd. 280,000 2,703
------------
83,147
------------
- -------------------------------------------------------------------
OTHER (10.7%)
Burmah Castrol PLC 299,955 4,598
* International Colin Energy Corp. 531,150 2,789
Lasmo PLC 2,500,000 7,040
London & Overseas Freighter
Ltd. ADR 290,000 4,495
Norsk Hydro AS ADR 180,000 7,920
Repsol SA ADR 213,590 7,129
Saga Petroleum B (Free) 190,000 2,577
* Smedvig Tankships 300,000 2,206
Total SA ADR 305,418 9,506
YPF Sociedad Anonima ADR 480,000 8,340
------------
56,600
============
GROUP TOTAL 139,747
------------
- -------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $455,202) 491,751
- -------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.7%)
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
000
-------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $35,526) $35,526 35,526
- -------------------------------------------------------------------
TOTAL INVESTMENTS (99.1%)
(Cost $ $490,728) 527,277
- -------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.9%)
- -------------------------------------------------------------------
Other Assets--Note C 10,549
Liabilities (5,620)
------------
4,929
- -------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------
Applicable to 32,459,385 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $532,206
- -------------------------------------------------------------------
NET ASSET VALUE PER SHARE $16.40
===================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt
12
<PAGE> 13
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AT JULY 31, 1995,
NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------
Amount Per
(000) Share
-------- -------
<S> <C> <C>
Paid in Capital $485,915 $14.97
Undistributed Net
Investment Income 4,401 .14
Accumulated Net Realized Gains 5,341 .16
Unrealized Appreciation of
Investments--Note E 36,549 1.13
- -------------------------------------------------------------------
NET ASSETS $532,206 $16.40
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
GOLD & PRECIOUS Value
METALS PORTFOLIO Shares (000)+
- -----------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.7%)
- -----------------------------------------------------------------
SOUTH AFRICA (33.0%)
- -----------------------------------------------------------------
AngloAmerican Corp. ADR 250,000 $ 13,406
Beatrix Gold Mines ADR 1,350,000 10,969
De Beers Centenary Units ADR 700,000 17,238
Driefontein Consolidated
Ltd. ADR 1,000,000 14,250
Elandsrand Gold Mining
Ltd. ADR 1,500,000 6,938
Free State Consolidated
Gold Mines Ltd. ADR 1,650,000 19,800
Gold Fields South Africa ADR 400,000 10,500
Hartebeestfontein Gold Mining
Co. Ltd. ADR 2,300,000 8,165
Impala Platinum Holdings
Ltd. ADR 700,000 19,250
Kinross ADR 425,000 4,144
Kloof Gold Mining Ltd. ADR 850,000 10,413
Minorco Sponsored ADR 450,000 11,025
Randfontein Estates Gold Mining
Co. Ltd. ADR 1,800,000 12,375
Rustenberg Platinum Holdings
Ltd. ADR 600,000 12,900
Southvaal Holdings ADR 330,000 10,148
Vaal Reefs Exploration & Mining
Co. Ltd. ADR 2,000,000 13,625
Western Deeplevel ADR 350,000 10,631
----------
GROUP TOTAL 205,777
----------
- -----------------------------------------------------------------
AUSTRALIA (22.8%)
- -----------------------------------------------------------------
* Bougainville Copper 2,000,000 976
CRA Ltd. 600,000 9,315
Dominion Mining 12,000,000 2,395
* Emperor Mines 2,000,000 2,602
Gold Mines of Australia 7,000,000 1,501
* Golden Shamrock Mines Ltd. 8,000,000 6,032
* Goldfields Ltd. 914,029 2,365
Great Central Mines 4,000,000 9,019
Highlands Gold 15,000,000 11,976
Kidston Gold Mines 3,000,000 4,258
Newcrest Mining Ltd. 4,000,000 18,629
Plutonic Resources 2,250,000 10,978
Normandy Mining Ltd. 4,000,000 5,234
Perseverance Corp. 1,500,000 865
Placer Pacific Ltd. 3,500,000 7,943
Poseidon Gold 4,500,000 8,982
Renison Goldfields
Consolidated Ltd. 3,500,000 13,248
Resolute Samantha Ltd. 4,000,000 7,984
* Star Mining Corp. 25,000,000 5,175
Western Mining Corp. 2,000,000 12,981
----------
GROUP TOTAL 142,458
----------
- -----------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (18.8%)
- -------------------------------------------------------------------
* Amax Gold, Inc. 1,500,000 $ 9,375
* Amax Gold, Inc.
Warrants Exp. 1/8/96 51,550 5
*(1)Atlas Corp. 1,000,000 1,625
Barrick Gold Corp. 700,000 17,413
* Campbell Resources 5,000,000 3,750
* Crown Resources Corp. 600,000 2,850
Freeport McMoRan
Copper & Gold Inc. Class A 400,000 10,650
Freeport McMoRan
Copper & Gold Inc.
7.00% Convertible Pfd. 150,000 4,163
Freeport McMoRan
Copper & Gold Inc.
Gold Denomination Shares 150,000 5,250
Homestake Mining Co. 500,000 8,188
Newmont Gold Co. 125,000 5,125
Newmont Mining Corp. 275,000 11,756
Pioneer Group Inc. 250,000 7,188
Placer Dome Group, Inc. 450,000 11,306
* Royal Oak Mines Ltd. 2,000,000 6,375
Santa Fe Pacific Gold Corp. 500,000 6,250
* Stillwater Mining 250,000 6,063
----------
GROUP TOTAL 117,332
----------
- -------------------------------------------------------------------
CANADA (13.7%)
- -------------------------------------------------------------------
Cambior Inc. 700,000 8,990
Euro Nevada 500,000 18,945
Franco Nevada 275,000 17,082
Golden Star Resources Ltd. 350,000 2,231
* Guyanor Resources 70,000 163
* Nelson Trade & Finance 2,000,700 4,373
* Prime Resources 1,250,000 9,108
*(2)Princess Resources
A Warrants Exp. 1/31/96 571,200 199
*(2)Princess Resources
B Warrants Exp. 1/31/96 1,714,400 628
*(2)Princess Resources
C Warrants Exp. 1/31/96 1,714,400 628
* Rayrock Yellowknife 750,000 8,334
* TVX Gold Mining 2,000,000 13,662
* Texas Star Resources Corp. 800,000 227
* Vengold Inc. 750,000 1,093
----------
GROUP TOTAL 85,663
----------
- -------------------------------------------------------------------
UNITED KINGDOM (3.4%)
- -------------------------------------------------------------------
Ashanti Goldfields GDS 425,000 9,350
* Bakyrchik Gold 650,000 1,903
RTZ Corp. 700,000 $ 10,102
----------
GROUP TOTAL 21,355
----------
- -------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $488,590) 572,585
- -------------------------------------------------------------------
CONVERTIBLE BONDS (.3%)
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-------
<S> <C> <C>
Canyon Resources Corp.
6.00, 6/1/98 $1,000 740
Renison Goldfields
Consolidated, Ltd.
8.00%, 11/30/96 200 1,389
- -------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost $2,120) 2,129
- -------------------------------------------------------------------
PRECIOUS METALS (5.7%)
- -------------------------------------------------------------------
* Gold Bullion (89,872 ounces) 34,452
* Platinum Bullion (2,009 ounces) 845
- -------------------------------------------------------------------
TOTAL PRECIOUS METALS
(Cost $37,012) 35,297
- -------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.3%)
- -------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $14,277) 14,277 14,277
- -------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $541,999) 624,288
- -------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- -------------------------------------------------------------------
Other Assets--Notes C and G 16,563
Liabilities--Note G (16,490)
----------
73
- -------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------
Applicable to 49,767,779 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $624,361
- -------------------------------------------------------------------
NET ASSET VALUE PER SHARE $12.55
===================================================================
</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.
(2)Restricted securities represent .2 of 1% of net assets.
ADR--American Depository Receipt
GDS--Global Depository Share
14
<PAGE> 15
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AT JULY 31, 1995,
NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------
Amount Per
(000) Share
--------- ------
<S> <C> <C>
Paid in Capital $560,158 $11.26
Undistributed Net
Investment Income--Note F 828 .02
Accumulated Net Realized Losses (18,914) (.38)
Unrealized Appreciation of
Investments--Note E 82,289 1.65
- -------------------------------------------------------------------
NET ASSETS $624,361 $12.55
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
UTILITIES INCOME PORTFOLIO Shares (000)+
- -------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (76.5%)
- -------------------------------------------------------------------
DIVERSIFIED (.5%)
Tenneco, Inc. 67,400 $ 3,336
- -------------------------------------------------------------------
ELECTRICAL POWER (31.0%)
Allegheny Power System, Inc. 110,000 2,640
Baltimore Gas & Electric Co. 200,000 4,975
CMS Energy Corp. 200,000 5,000
Central Hudson Gas &
Electric Corp. 216,300 5,732
CINergy Corp. 213,321 5,546
Consolidated Edison Co. of
New York, Inc. 176,600 5,121
DPL, Inc. 192,000 4,272
DQE Inc. 619,750 14,874
Detroit Edison Co. 286,000 8,437
Entergy Corp. 201,600 4,788
FPL Group, Inc. 348,800 13,342
General Public Utilities Corp. 360,700 10,415
Houston Industries, Inc. 165,400 7,236
Illinova Corp. 160,000 4,000
New England Electric System 210,000 7,061
New York State Electric &
Gas Corp. 135,000 3,156
Niagara Mohawk Power Corp. 168,900 2,365
Northeast Utilities 109,000 2,453
PECO Energy Corp. 145,400 4,162
Pacific Gas & Electric Co. 461,700 13,620
PacifiCorp 160,000 2,940
Pinnacle West Capital Corp. 630,200 15,361
Public Service Co. of Colorado 194,600 6,154
Public Service Enterprise
Group Inc. 101,700 2,822
SCEcorp 258,000 4,418
Sierra Pacific Resources 399,900 8,648
TNP Enterprises, Inc. 30,900 506
Unicom Corp. 299,100 8,300
Union Electric Corp. 75,000 2,663
Western Resources, Inc. 220,600 6,728
Wisconsin Energy Corp. 330,600 9,257
----------
GROUP TOTAL 196,992
----------
- -------------------------------------------------------------------
ENERGY (4.9%)
Coastal Corp. 100,000 3,113
Nova Corp. of Alberta 295,800 2,551
Panhandle Eastern Corp. 130,000 3,169
Questar Corp. 142,300 4,091
Transcanada Pipelines 407,500 5,530
Metrogas ADS 210,000 2,074
Westcoast Energy, Inc. 721,900 10,915
----------
GROUP TOTAL 31,443
----------
- -------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------
<S> <C> <C>
NATURAL GAS (5.0%)
Equitable Resources, Inc. 125,000 $ 3,469
National Fuel & Gas Co. 250,000 7,000
NICOR, Inc. 147,600 3,745
ONEOK, Inc. 145,400 3,381
Pacific Enterprises 97,200 2,345
Public Service Co. of
North Carolina, Inc. 35,500 546
Sonat, Inc. 120,000 3,600
Washington Energy Co. 243,500 4,018
Westcoast Energy Inc. Class B 30,000 454
Williams Cos., Inc. 90,000 3,330
----------
GROUP TOTAL 31,888
----------
- -------------------------------------------------------------------
TECHNOLOGY (3.2%)
Comsat Corp. 646,800 14,957
Tele Danmark AS ADR 182,500 5,201
----------
GROUP TOTAL 20,158
----------
- -------------------------------------------------------------------
TELEPHONE (31.5%)
AT&T Corp. 408,900 21,570
ALLTEL Corp. 158,000 4,167
BCE, Inc. 307,600 9,574
Bell Atlantic Corp. 338,000 19,351
BellSouth Corp. 250,000 16,938
Frontier Corp. 184,200 4,950
GTE Corp. 698,200 24,786
NYNEX Corp. 530,200 21,871
Pacific Telesis Group 412,300 11,647
* Portugal Telecom SA ADR 158,300 3,126
Southern New England
Telecom Corp. 336,700 11,532
SBC Communications, Inc. 205,700 9,899
Sprint Corp. 340,000 11,645
Telus Corp. 333,100 4,065
U.S. West Inc. 587,900 25,206
----------
GROUP TOTAL 200,327
----------
- -------------------------------------------------------------------
MISCELLANEOUS (.4%)
Southern California Water Co. 150,700 2,750
- -------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $465,515) 486,894
- -------------------------------------------------------------------
BONDS (19.4%)
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-------
<S> <C> <C>
ELECTRIC (10.5%)
Carolina Power and Light Co.
8.625%, 9/15/21 $3,000 3,372
Central Power and Light Co.
7.25%, 10/1/04 2,000 2,001
Dayton Power & Light Co.
8.15%, 1/15/26 3,000 3,155
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------------
<S> <C> <C>
Duke Power Co.
6.625%, 2/1/03 $4,000 $ 3,939
Florida Power & Light Co.
7.00%, 9/1/25 6,000 5,555
Houston Lighting & Power Co.
7.50%, 7/1/23 2,000 1,922
8.75%, 3/1/22 2,000 2,192
Kansas Gas & Electric Co.
7.60%, 12/15/03 4,000 4,117
Northern States Power Co.
5.75%, 10/1/03 6,000 5,596
Pacific Gas & Electric Co.
5.375%, 8/1/98 3,000 2,902
8.375%, 5/1/25 2,000 2,075
Southern California Electric & Gas
8.75%, 10/1/21 3,000 3,166
Southern Indiana Gas & Electric Co.
8.875%, 6/1/16 3,400 3,882
Tampa Electric Co.
7.75%, 11/1/22 3,000 2,965
Union Electric Power Co.
8.75%, 12/1/21 2,000 2,144
U.S. West Communications
6.125%, 11/15/05 4,000 3,774
Virginia Electric & Power Co.
6.00%, 8/1/01 6,000 5,787
West Texas Utilities
7.75%, 6/1/07 1,500 1,542
Wisconsin Electric Power Co.
7.75%, 1/15/23 2,000 2,021
Wisconsin Public Service Co.
6.80%, 2/1/03 4,500 4,464
----------
GROUP TOTAL 66,571
----------
- -------------------------------------------------------------------
GAS (.7%)
Atlanta Gas & Light MTN
5.90%, 10/6/03 5,000 4,664
- -------------------------------------------------------------------
TELEPHONE (8.2%)
AT&T CORP.
7.50%, 6/1/06 5,000 5,156
Bell Telephone Co. of Pennsylvania
6.625%, 9/15/02 3,500 3,477
BellSouth Telecommunications
6.75%, 10/15/33 5,000 4,449
Carolina Telephone & Telegraph
5.75%, 8/15/00 5,000 4,802
GTE Northwest
6.125%, 2/15/99 5,000 4,912
Illinois Bell Telephone Co.
7.25%, 3/15/24 2,000 1,904
Michigan Bell Telephone Co.
6.375%, 9/15/02 4,000 3,907
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------------
<S> <C> <C>
New Jersey Bell Telephone Co.
8.00%, 6/1/22 $3,000 $ 3,197
New York Telephone
& Telegraph Co.
8.625%, 11/15/10 2,500 2,809
Ohio Bell Telephone Co.
7.85%, 12/15/22 2,000 2,093
Pacific Bell Telephone Co.
7.25%, 7/1/02 4,000 4,114
Southwestern Bell
6.625%, 4/1/05 3,000 2,914
United Telephone Florida
6.250%, 5/15/03 3,000 2,873
United Telephone Ohio
6.625%, 10/1/02 2,000 1,948
Wisconsin Bell
6.75%, 8/15/24 4,000 3,623
----------
GROUP TOTAL 52,178
----------
- -------------------------------------------------------------------
TOTAL BONDS
(Cost $124,811) 123,413
- -------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION (1.4%)
- -------------------------------------------------------------------
U.S. Treasury Note
5.50%, 4/15/00
(Cost $8,823) 9,000 8,766
- -------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.7%)
- -------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.86%, 8/1/95
(Cost $4,350) 4,350 4,350
- -------------------------------------------------------------------
TOTAL INVESTMENTS (98.0%)
(Cost $603,499) 623,423
- -------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.0%)
- -------------------------------------------------------------------
Other Assets--Notes C and G 27,368
Liabilities--Note G (14,386)
----------
12,982
- -------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------
Applicable to 56,790,808 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $636,405
- -------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.21
===================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt
ADS--American Depository Share
MTN--Medium-Term Note
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
AT JULY 31, 1995,
NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $640,219 $11.27
Undistributed Net
Investment Income 7,648 .14
Accumulated Net Realized
Losses (31,386) (.55)
Unrealized Appreciation of
Investments--Note E 19,924 .35
- -------------------------------------------------------------------
NET ASSETS $636,405 $11.21
- -------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HEALTH CARE ENERGY
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends ................................ $ 7,814 $ 4,903
Interest................................... 2,134 639
- -----------------------------------------------------------------------------------------------------
Total Income.................... 9,948 5,542
- -----------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B........... 602 331
The Vanguard Group--Note C
Management and Administrative.......... $1,345 $890
Marketing and Distribution ............ 72 1,417 52 942
------ ----
Taxes (other than income taxes)............ 34 19
Custodians' Fees .......................... 60 55
Auditing Fees ............................. 3 3
Shareholders' Reports...................... 39 24
Annual Meeting and Proxy Costs............. 14 5
Directors' Fees and Expenses............... 2 1
- -----------------------------------------------------------------------------------------------------
Total Expenses.................. 2,171 1,380
- -----------------------------------------------------------------------------------------------------
Net Investment Income........ 7,777 4,162
- -----------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold................. 25,603 5,728
Forward Currency Contracts................. -- --
- -----------------------------------------------------------------------------------------------------
Realized Net Gain (Loss)............... 25,603 5,728
- -----------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities...................... 121,850 72,972
Forward Currency Contracts................. 139 --
- -----------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation)....................... 121,989 72,972
- -----------------------------------------------------------------------------------------------------
Net Increase in Net
Assets Resulting from
Operations............... $155,369 $82,862
- -----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
GOLD & PRECIOUS UTILITIES INCOME
METALS PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) $ 4,971 $12,370
Interest 653 4,969
- -------------------------------------------------------------------------------------------------------------
Total Income 5,624 17,339
- -------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 532 393
The Vanguard Group--Note C
Management and Administrative $933 $995
Marketing and Distribution 65 998 75 1,070
---- ----
Taxes (other than income taxes) 23 27
Custodians' Fees 65 19
Auditing Fees 3 3
Shareholders' Reports 32 37
Annual Meeting and Proxy Costs 5 12
Directors' Fees and Expenses 1 1
- -------------------------------------------------------------------------------------------------------------
Total Expenses 1,659 1,562
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 3,965 15,777
- -------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 2,083 (6,889)
Forward Currency Contracts -- --
- -------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 2,083 (6,889)
- -------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 85,565 53,590
Forward Currency Contracts -- --
- -------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation) 85,565 53,590
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net
Assets Resulting from Operations $91,613 $62,478
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Gold & Precious Metals Portfolio dividends are net of foreign withholding
taxes of $731,000.
19
<PAGE> 20
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, 1995 January 31, 1995 JULY 31, 1995 January 31, 1995
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income......................... $ 7,777 $ 10,081 $ 4,162 $ 6,962
Realized Net Gain (Loss)...................... 25,603 34,818 5,728 7,354
Change in Unrealized Appreciation
(Depreciation)............................. 121,989 18,839 72,972 (59,289)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations........ 155,369 63,738 82,862 (44,973)
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income......................... (449) (10,497) -- (7,148)
Realized Net Gain............................. (1,572) (42,079) (949) (8,318)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions.................... (2,021) (52,576) (949) (15,466)
- -------------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION
CHARGES--Note A............................... -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular............................ 119,724 76,213 48,400 110,300
--In Lieu of Cash Distributions...... 1,937 50,271 887 14,334
--Exchange........................... 103,767 114,500 50,456 166,536
Redeemed --Regular............................ (35,060) (40,896) (29,767) (48,268)
--Exchange........................... (53,284) (78,502) (52,575) (88,840)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions.......... 137,084 121,586 17,401 154,062
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease).............. 290,432 132,748 99,314 93,623
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period........................... 770,714 637,966 432,892 339,269
- -------------------------------------------------------------------------------------------------------------------------------
End of Period (3)............................. $1,061,146 $770,714 $532,206 $ 432,892
===============================================================================================================================
(1) Distributions Per Share
Net Investment Income..................... $.02 $ .57 -- $.24
Realized Net Gain......................... $.07 $2.31 $.03 $.29
- -------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued ................................ 5,658 5,337 6,314 17,811
Issued in Lieu of Cash Distributions...... 50 1,430 60 992
Redeemed ................................. (2,229) (3,416) (5,248) (8,982)
- -------------------------------------------------------------------------------------------------------------------------------
3,479 3,351 1,126 9,821
- -------------------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income.................. $ 7,656 $ 328 $4,401 $ 239
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
GOLD & PRECIOUS METALS PORTFOLIO UTILITIES INCOME PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JULY 31, 1995 January 31, 1995 JULY 31, 1995 January 31, 1995
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income.......................... $ 3,965 $ 13,007 $ 15,777 $ 33,477
Realized Net Gain (Loss)....................... 2,083 3,212 (6,889) (24,471)
Change in Unrealized Appreciation
(Depreciation).............................. 85,565 (149,036) 53,590 (45,090)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............ 91,613 (132,817) 62,478 (36,084)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income.......................... (500) (15,231) (17,312) (34,340)
Realized Net Gain.............................. -- -- -- (7,108)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions..................... (500) (15,231) (17,312) (41,448)
- --------------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION
CHARGES--Note A................................ -- -- (22) (1,346)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular............................. 32,355 112,156 38,519 70,620
--In Lieu of Cash Distributions....... 458 13,866 13,603 33,422
--Exchange............................ 61,572 267,733 39,003 94,577
Redeemed --Regular............................. (32,282) (85,473) (33,153) (79,265)
--Exchange............................ (59,942) (241,692) (59,319) (186,274)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions.......... 2,161 66,590 (1,347) (66,920)
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease)............... 93,274 (81,458) 43,797 (145,798)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period........................... 531,087 612,545 592,608 738,406
- --------------------------------------------------------------------------------------------------------------------------------
End of Period (3).............................. $ 624,361 $ 531,087 $636,405 $ 592,608
================================================================================================================================
(1) Distributions Per Share
Net Investment Income...................... $.01 $.31 $.30 $.59
Realized Net Gain.......................... -- -- -- $.12
- --------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued .................................. 8,077 28,806 7,346 16,045
Issued in Lieu of Cash Distributions....... 41 1,096 1,287 3,226
Redeemed (7,940) (25,414) (8,721) (25,665)
- --------------------------------------------------------------------------------------------------------------------------------
178 4,488 (88) (6,394)
- --------------------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income--Note F........... $ 828 $ (2,637) $ 7,648 $ 9,205
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HEALTH CARE PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -----------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $37.01 $36.51 $32.66 $35.54 $27.32 $22.16
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income............................... .31 .55 .79 .70 .53 .52
Net Realized and Unrealized Gain (Loss)
on Investments................................... 6.43 2.83 5.79 (1.68) 8.75 6.03
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ........... 6.74 3.38 6.58 (.98) 9.28 6.55
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income............... (.02) (.57) (.76) (.70) (.53) (.55)
Distributions from Realized Capital Gains........... (.07) (2.31) (1.97) (1.20) (.53) (.84)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ......................... (.09) (2.88) (2.73) (1.90) (1.06) (1.39)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ........................ $43.66 $37.01 $36.51 $32.66 $35.54 $27.32
==============================================================================================================================
TOTAL RETURN** ........................................ +18.24% +9.79% +21.21% -2.92% +33.97% +30.09%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)................... $1,061 $771 $638 $562 $553 $189
Ratio of Expenses to Average Net Assets--Note C......... .48%* .40% .19% .22% .30% .36%
Ratio of Net Investment Income to
Average Net Assets................................. 1.70%* 1.58% 2.37% 2.06% 1.98% 2.54%
Portfolio Turnover Rate................................. 21%* 25% 19% 15% 7% 17%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ENERGY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED --------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... $13.82 $15.77 $13.82 $12.73 $13.39 $14.94
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income............................... .13 .23 .31 .34 .42 .45
Net Realized and Unrealized Gain (Loss)
on Investments................................... 2.48 (1.65) 3.31 1.29 (.24) (.66)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ............ 2.61 (1.42) 3.62 1.63 .18 (.21)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income................ -- (.24) (.29) (.36) (.42) (.46)
Distributions from Realized Capital Gains........... (.03) (.29) (1.38) (.18) (.42) (.88)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ......................... (.03) (.53) (1.67) (.54) (.84) (1.34)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ......................... $16.40 $13.82 $15.77 $13.82 $12.73 $13.39
=================================================================================================================================
TOTAL RETURN** ......................................... +18.91% -9.15% +27.31% +13.02% +1.27% -1.64%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions).................... $532 $433 $339 $164 $124 $114
Ratio of Expenses to Average Net Assets--Note C......... .55%* .30% .17% .21% .30% .35%
Ratio of Net Investment Income to
Average Net Assets................... .............. 1.66%* 1.66% 1.87% 2.47% 2.78% 3.24%
Portfolio Turnover Rate................................. 27%* 13% 41% 37% 42% 40%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total return figures do not reflect the 1% fee that is assessed on
redemptions of shares that are held in the Portfolios for less than one year.
22
<PAGE> 23
<TABLE>
<CAPTION>
GOLD & PRECIOUS METALS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED --------------------------------------------------
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $10.71 $13.58 $ 7.29 $9.41 $8.29 $12.49
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income.................................. .08 .27 .20 .19 .24 .29
Net Realized and Unrealized Gain (Loss)
on Investments...................................... 1.77 (2.83) 6.30 (2.13) 1.13 (4.17)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ............... 1.85 (2.56) 6.50 (1.94) 1.37 (3.88)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income................... (.01) (.31) (.21) (.18) (.25) (.32)
Distributions from Realized Capital Gains.............. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ............................ (.01) (.31) (.21) (.18) (.25) (.32)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ............................ $12.55 $10.71 $13.58 $7.29 $9.41 $ 8.29
=================================================================================================================================
TOTAL RETURN** ........................................... 17.29% -19.20% +89.24% -20.58% +16.67% -31.21%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)....................... $624 $531 $613 $175 $178 $144
Ratio of Expenses to Average Net Assets--Note C............ .57%* .25% .26% .36% .35% .42%
Ratio of Net Investment Income to
Average Net Assets..................................... .36%* 2.04% 2.04% 2.50% 2.54% 2.78%
Portfolio Turnover Rate.................................... 5%* 4% 14% 2% 3% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UTILITIES INCOME PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended January 31,
SIX MONTHS ENDED -------------------------- May 15, 1992, to
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 January 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..................... $10.42 $11.67 $11.18 $10.00
------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income................................. .28 .56 .57 .41
Net Realized and Unrealized Gain (Loss)
on Investments..................................... .81 (1.10) .88 1.03
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS .............. 1.09 (.54) 1.45 1.44
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income.................. (.30) (.59) (.56) (.24)
Distributions from Realized Capital Gains............. -- (.12) (.40) (.02)
------ ------ ------ ------
TOTAL DISTRIBUTIONS ........................... (.30) (.71) (.96) (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ........................... $11.21 $10.42 $11.67 $11.18
=================================================================================================================================
TOTAL RETURN ............................................. +10.64% -4.47% +13.08% +14.51%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)...................... $636 $593 $738 $361
Ratio of Expenses to Average Net Assets................... .50%* .50% .42% .45%*
Ratio of Net Investment Income to Average Net Assets...... 5.09%* 5.43% 4.82% 4.70%*
Portfolio Turnover Rate................................... 32%* 35% 46% 20%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total return figures do not reflect the 1% fee that is assessed on
redemptions of shares that are held in the Portfolios for less than one year.
23
<PAGE> 24
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 not
listed and precious metals 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 London
Time.
2. FORWARD CURRENCY CONTRACTS: The Health Care Portfolio enters into forward
foreign currency contracts to protect securities and related receivables and
payables against changes in future foreign exchange rates. Risks associated
with such contracts include movement in the value of the foreign currency
relative to the U.S. dollar and the ability of the counterparty to perform.
Fluctuations in the value of such contracts are recorded as unrealized
appreciation (depreciation) until terminated, at which time realized gains
(losses) are recognized.
3. 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.
4. 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.
5. 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 require 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.
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.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
portion arising from changes in market
24
<PAGE> 25
prices of securities. Such fluctuations are included in net realized gain
(loss) and unrealized appreciation (depreciation) on investments. 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, 1996, 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,
1995, the investment advisory fees of the Health Care and Energy Portfolios
represent an effective annual rate of .13 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, 1996, 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, 1995, 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 $182,000 (an annual rate of .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.
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 to the Fund 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, 1995, directed
brokerage arrangements reduced the expenses of the Health Care, Energy, and
Utilities Income Portfolios by $39,000, $84,000, and $62,000, respectively
(annual rates of .01, .03, and .02 of 1% of average net assets, respectively).
At July 31, 1995, the Fund had contributed capital of $365,000 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.
D. During the six months ended July 31, 1995, 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 $204,092 $89,881
- -------------------------------------------------------------------
ENERGY 64,750 76,992
- -------------------------------------------------------------------
GOLD & PRECIOUS METALS 20,410 12,719
- -------------------------------------------------------------------
UTILITIES INCOME 100,836 97,666
- -------------------------------------------------------------------
</TABLE>
At January 31, 1995, the Gold & Precious Metals and Utilities Income Portfolios
had available capital losses to offset future net capital gains through the
following fiscal year ends:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Expiration
Fiscal Year(s) Ending Amount
Portfolio January 31, (000)
- -------------------------------------------------------------------
<S> <C> <C>
GOLD & PRECIOUS METALS 1997-2001 $20,997
- -------------------------------------------------------------------
UTILITIES INCOME 2003-2004 24,471
- -------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (continued)
E. At July 31, 1995, unrealized appreciation for Federal income tax purposes
was:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(000)
----------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Appreciation
- -------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE $291,315 $(19,969) $271,346
- -------------------------------------------------------------------
ENERGY 57,196 (20,647) 36,549
- -------------------------------------------------------------------
GOLD & PRECIOUS METALS* 134,135 (54,761) 79,374
- -------------------------------------------------------------------
UTILITIES INCOME 32,977 (13,053) 19,924
- -------------------------------------------------------------------
</TABLE>
*See Note F.
Under the terms of open forward currency exchange contracts at July 31, 1995,
the Health Care Portfolio was obligated to receive foreign currencies in
exchange for U.S. dollars as follows.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(000)
-----------------------------------
Portfolio/ Foreign U.S. Unrealized
Contract Date Currency Dollars Appreciation
- -------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE 10/4/95 YEN 380,543 $4,361 $139
- -------------------------------------------------------------------
</TABLE>
F. 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 "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. The cumulative
distributions from passive foreign investment company income totalled $2,915,000
through January 31, 1995.
G. The market values of securities on loan to broker/dealers at July 31, 1995,
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>
HEALTH CARE $16,335 $18,430
- -------------------------------------------------------------------
GOLD & PRECIOUS METALS 13,777 14,336
- -------------------------------------------------------------------
UTILITIES INCOME 9,091 9,526
- -------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The Vanguard
Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc
Rorer, Inc.; Director of Sun Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great
Atlantic and Pacific Tea Company, Alco Standard Corp.,
Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings
Institution; Director of American Express Bank Ltd.
and The St. Paul Companies, Inc.
BURTON G. MALKIEL, Chemical Bank Chairman's
Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., The Jeffrey Co.,
and Southern New England Communications Company.
ALFRED M. RANKIN, JR., Chairman, President, and
Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich
Company, and The Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer
of The Nature Conservancy; formerly, Director and
Senior Partner of McKinsey & Co. and President of
New York University; Director of Pacific Gas and
Electric Company and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco
Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc. and
Kmart Corporation.
J. LAWRENCE WILSON, Chairman and Chief Executive
Officer of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt
University and the Culver Educational Foundation.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President
and Secretary of The Vanguard Group, Inc.; Secretary of
each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The
Vanguard Group, Inc., and of each of the investment
companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The
Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO IAN A. MACKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
27
<PAGE> 28
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
</TABLE>
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.
Q512-7/95
[VANGUARD SPECIALIZED PORTFOLIOS LOGO]
SEMI-ANNUAL REPORT
JULY 31, 1995
