<PAGE> 1
VANGUARD
SPECIALIZED FUNDS
VANGUARD ENERGY FUND
VANGUARD GOLD AND PRECIOUS METALS FUND
VANGUARD HEALTH CARE FUND
VANGUARD UTILITIES INCOME FUND
VANGUARD REIT INDEX FUND
[PHOTO]
ANNUAL
REPORT
JANUARY 31, 1999
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to
The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto--"Leading the way"--serves as a guiding principle
for our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape the
standards and business principles that Mr. Bogle laid down for Vanguard at
its beginning nearly 25 years ago: a stress on balanced, diversified
investments; insistence on fair dealing and candor with clients; and a focus
on long-term investing. To our great regret, Mr. Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
9
REPORTS FROM
THE ADVISERS
11
PERFORMANCE SUMMARIES
15
FUND PROFILES
20
FINANCIAL STATEMENTS
28
REPORT OF
INDEPENDENT ACCOUNTANTS
51
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO SENIOR Chairman
Financial markets were far from placid during the twelve months ended January
31, 1999, the fiscal year for the Vanguard Specialized Funds, and the funds'
performance fully reflected the markets' volatility.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED
JANUARY 31, 1999
- ---------------------------------------------------------
<S> <C>
VANGUARD ENERGY FUND -21.2%
Average Natural Resources Fund -24.6
- ---------------------------------------------------------
VANGUARD HEALTH CARE FUND +37.4%
Average Health-Care Fund +17.9
- ---------------------------------------------------------
S&P 500 Index +32.5%
- ---------------------------------------------------------
VANGUARD GOLD AND PRECIOUS METALS FUND -11.1%
Average Gold Fund -17.1
Salomon Smith Barney Global Gold
Equity Index -19.4
- ---------------------------------------------------------
VANGUARD UTILITIES INCOME FUND +19.9%
Average Utility Fund +18.7
Utilities Composite Index* +23.8
- ---------------------------------------------------------
VANGUARD REIT INDEX FUND -17.3%
Average Real Estate Fund -16.2
Morgan Stanley REIT Index -17.6
- ---------------------------------------------------------
</TABLE>
*Weighted 40% S&P Utilities Index, 40% S&P Telephone
Index, and 20% Lehman Brothers Utility Bond Index.
While large-capitalization stocks in the United States and Europe had a
banner year, the stocks of oil, gold, and real estate companies fell in response
to slumping commodity prices and concerns about overcapacity. Each of the five
Vanguard Specialized Funds earned a return reflecting the fate of its sector of
the market: strong gains for the health-care and utility sectors, declines for
energy, precious metals, and real estate investment trusts. The table at right
presents the total return (capital change plus reinvested dividends) for each
fund compared with those of its average peer and an unmanaged index benchmark.
Detailed per-share figures, including net asset values at the beginning
and end of the year, income dividends, and any capital gains distributions, are
presented in the table that follows this letter.
FINANCIAL MARKETS IN REVIEW
The U.S. economy advanced powerfully during the twelve months ended January 31.
U.S. consumers provided the economic fuel with their free spending, encouraged
by a strong labor market (unemployment was just 4.3% at fiscal year-end) and
rising wages (up about 4%). Economic woes continued to beset Asia, where Japan,
the world's second-largest economy, remained mired in recession, and stagnation
afflicted several smaller economies. Latin America caught the "Asian contagion,"
and Brazil, the world's eighth-largest economy, was forced to devalue its
currency late in the fiscal year. Yet for American consumers, troubles abroad
translated into low prices at home. Consumer prices rose just +1.7%, restrained
by sharply lower energy prices, which were depressed in part by weak demand from
sluggish foreign economies.
The optimism reflected in consumer spending was evident in U.S. financial
markets, too. True, there was a steep midsummer slump that saw stock prices
decline by -20% or more from mid-July through August. However, the market
bounced back strongly, aided by lower interest rates and a lack of evidence that
the weakness overseas would pull the U.S. economy into recession. By fiscal
year-end, the Standard & Poor's 500 Composite Stock Price Index had not only
recovered its midyear losses but had climbed to an all-
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time high, achieving a remarkable +32.5% return for the twelve months ended
January 31. Within the S&P 500, there was a huge gap between returns of growth
stocks (+45.9%) and value stocks (+18.5%). The total U.S. stock market, as
measured by the Wilshire 5000 Equity Index, gained +27.4%. However, small-cap
stocks, as measured by the Russell 2000 Index, earned a scant +0.3% return.
Interest rates declined on balance during the fiscal year, reflecting the
subdued level of inflation. Rates fell furthest for U.S. Treasury securities,
which benefited from a midyear "flight to quality" by investors eager to escape
the global gyrations of equity and currency markets. The yield on the 30-year
U.S. Treasury bond fell by 71 basis points (0.71 percentage point), from 5.80%
when the fiscal year began to 5.09% as of January 31, 1999. Prices of existing
bonds--which move in the opposite direction from interest rates-- rose,
accounting for 1.5 percentage points of the +8.1% return of the Lehman Aggregate
Bond Index.
Short-term interest rates also fell by about 70 basis points, with the
yield on 3-month Treasury bills ending the fiscal year at 4.45%. The "yield
curve" remained relatively flat throughout the year--the spread between yields
on 3-month T-bills and 30-year Treasury bonds was a narrow 0.64 percentage point
at fiscal year-end.
FISCAL 1999 PERFORMANCE OVERVIEW
Our funds turned in decidedly mixed results during the fiscal year. The Health
Care and Utilities Income Funds achieved large gains, while our Energy, Gold and
Precious Metals, and REIT Index Funds suffered sizable declines. When measured
against our competitors, however, our results were pretty consistently
favorable: Four of our five funds outperformed their average peers, and the lone
exception, the REIT Index Fund, trailed its average competitor by about 1
percentage point. A detailed look at each fund's performance during fiscal 1999
and over the longer term follows.
ENERGY FUND
The Energy Fund's -21.2% return in fiscal 1999 was disappointing. However, we
note that it was 3.4 percentage points better than the -24.6% decline for the
average natural resources fund, making fiscal 1999 the seventh consecutive year
in which we outperformed our average peer. What made the energy sector's decline
especially painful was that it occurred while the S&P 500 Index was gaining
+32.5%.
Energy stocks suffered because their earnings fell along with prices for
oil, refined petroleum products, and natural gas, all of which plummeted for a
second consecutive year. Prices for crude oil and refined products such as
gasoline and heating oil fell by 30%-35% during the fiscal year, while natural
gas prices fell by more than 20%. These price declines forced energy companies
to slash spending on capital projects, thereby depressing the revenues and stock
prices of oil-services, exploration, and pipeline companies. Our fund
outperformed its average peer largely because several stocks chosen by our
adviser, Wellington Management Company, benefited from takeover activity.
As always, we also benefited from our low operating costs. Our expenses
amounted to 0.41%, or $4.10 per $1,000 in assets, which was less than
one-quarter the 1.68% ($16.80 per $1,000) expense ratio of the average natural
resources fund. This advantage of nearly 1.3 percentage points accounts for
about one-third of our fund's average margin of 4.5 percentage points per year
over peers during the past decade.
The table at the top of page 3 presents the average annual return for the
decade ended January 31, 1999, for our fund, the average natural resources fund,
and the S&P 500 Index. It also shows the final value of hypothetical $10,000
investments made in
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each ten years ago, assuming that dividends and capital gains distributions had
been reinvested. The energy sector trailed far behind the overall stock market.
However, it is some consolation that a $10,000 investment in our fund would have
grown to $24,804, $8,482 more than the $16,322 ending value of a $10,000
investment in our average peer. Our margin is equal to nearly 85% of the initial
capital invested.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED
JANUARY 31, 1999
----------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- ----------------------------------------------------------------------
<S> <C> <C>
Vanguard Energy Fund + 9.5% $24,804
- ----------------------------------------------------------------------
Average Natural Resources Fund + 5.0% $16,322
- ----------------------------------------------------------------------
S&P 500 Index +18.9% $56,267
- ----------------------------------------------------------------------
</TABLE>
We caution against viewing the past decade's results as an indicator of
the next decade's. The past ten years were an unusually favorable period for the
S&P 500 Index, and a so- so period for energy stocks. As demonstrated by events
during fiscal 1999--and, indeed, during the past decade--prices of energy
products and energy stocks do not necessarily move in sync with overall stock
market prices. Indeed, it is precisely because the fortunes of energy companies
aren't in lockstep with those of other firms that some investors choose to
diversify by holding energy stocks.
GOLD AND PRECIOUS METALS FUND
The Gold and Precious Metals Fund declined -11.1% during fiscal 1999, a result
that was favorable only in comparison with our peers and our market sector, both
of which lagged far behind us: The average gold mutual fund fell -17.1% and the
Salomon Smith Barney Global Gold Equity Index fell -19.4%. The sector suffered
because gold and other precious metals became less precious. An ounce of gold
fetched about $290 as of January 31, down $14, or about 5%, from an
already-depressed price of $304 a year ago. Prices of silver and platinum fell
on balance by about 8% during the fiscal year. The prices of mining company
stocks tend to move even more--lower or higher--than the prices of the metals
the companies produce.
Gold prices rallied early in the fiscal year, but headed lower for a
variety of reasons. Serious economic troubles dented the demand for gold in
Asia, a region where many individuals have traditionally held their personal
wealth in the form of jewelry and bullion. Inflation fears dissipated,
eliminating another traditional reason some investors own gold and gold-mining
stocks. Also, the possibility that central bankers around the world will
continue to liquidate their stockpiles of gold weighs on the market.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED
JANUARY 31, 1999
-------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- -------------------------------------------------------------------
<S> <C> <C>
Vanguard Gold and Precious
Metals Fund -1.5% $8,592
- -------------------------------------------------------------------
Average Gold Fund -4.0% $6,632
- -------------------------------------------------------------------
Salomon Smith Barney Global
Gold Equity Index -0.4% $9,576
- -------------------------------------------------------------------
</TABLE>
Over the decade ended January 31, 1999, gold and precious-metals stocks
have produced negative returns, reflecting the falling prices for metals. Our
fund's average annual return was -1.5%, which meant that a $10,000 investment in
the fund a decade ago would have shrunk, even with dividend and capital gains
distributions reinvested, to $8,592, a -14% decline in the initial capital
invested. As disappointing as it was, this result was considerably better than
that of the average gold fund, which produced an average annual decline of
- -4.0%. A $10,000 investment made ten years ago in our average peer would now be
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<PAGE> 6
worth $6,632, nearly $2,000 less than the ending value of the same investment in
our fund. Neither our fund nor the average gold fund kept pace with the index
benchmark, which declined an average of -0.4% annually during the decade.
Our 2.5-percentage-point annual edge over our average peer was due both to
our wide cost advantage over the typical gold fund and to the solid job done by
our investment adviser, M&G Investment Management. Our fund's fiscal 1999
expense ratio of 0.77%, or $7.70 per $1,000 in assets, is more than 1 percentage
point below the 1.90% ($19 per $1,000) charged by the average gold fund. The
unmanaged index, which exists only on paper, has no operating or transaction
costs, accounting for virtually all of its margin of superiority over our fund's
return.
With the benefit of hindsight, it is abundantly clear that gold and
precious metals were not the sector to be in during the past decade, and
especially during the past three fiscal years, when the index lost more than
half its value. Unfortunately, the past does not illuminate the future, and no
one knows what is in store for the prices of precious metals and stocks of
mining companies in coming years. However, we can say that our strategy of
providing exposure to this sector through broad diversification and at the
lowest reasonable cost will not change.
HEALTH CARE FUND
The Health Care Fund had another superb year during fiscal 1999, both in an
absolute sense (our +37.4% return was the second best in our history) and in
relation to comparative standards. We earned more than twice the return of the
average health-care fund and beat even the S&P 500 Index by nearly 5 percentage
points.
Large growth stocks, including the pharmaceutical companies that make up a
sizable portion of our fund, were the stock market's strongest performers. This
fact worked in our favor in comparison with some health-care funds, since we
held more large-cap stocks than our average competitor. But even among smaller
stocks, the selections of our adviser, Wellington Management Company, generally
performed very well.
The fund's long-term record is, in a word, excellent. As the table at left
shows, our average annual return of +23.6% during the past decade was more than
double the long-term average return of about 11% a year from common stocks. Such
remarkable gains were, in large part, the result of owning companies in a growth
sector where tremendous scientific and technological advances are occurring. Of
course, other health-care funds also have had this fair wind at their backs, yet
our return has exceeded that of our average peer by an average of 2.8 percentage
points a year. When compounded over a decade, this performance advantage looms
large: Identical $10,000 investments made a decade ago in our fund and its
average peer, with dividends and capital gain distributions reinvested, would
have grown to $83,135 and $66,148, respectively. The difference of $16,987 is
equivalent to an astounding 170% of the initial investment.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED
JANUARY 31, 1999
------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- -------------------------------------------------------------------
<S> <C> <C>
Vanguard Health Care Fund +23.6% $83,135
- -------------------------------------------------------------------
Average Health-Care Fund +20.8% $66,148
- -------------------------------------------------------------------
S&P 500 Index +18.9% $56,267
- -------------------------------------------------------------------
</TABLE>
Our superiority stemmed from both the skilled investment management
provided by Wellington Management Company and our wide cost advantage. Our
operating costs in
4
<PAGE> 7
fiscal 1999 amounted to 0.36% of average net assets, or $3.60 per $1,000 of
assets, less than one-fourth the expense ratio of 1.67%, or $16.70 per $1,000,
charged by the average health-care fund. Costs clearly matter: Our cost
advantage of 1.3 percentage points accounted for nearly half our margin over
peers during the past decade.
We expect to maintain a large cost advantage over our peers. But we do not
expect either health-care stocks or our fund to indefinitely earn more than 20%
a year. The past decade was an extraordinary period for the health-care sector
and stocks in general. But there surely will be disappointing periods from time
to time, so we urge investors to maintain a long-term outlook and to avoid the
temptation to concentrate too much in any one sector, even one where past
returns have been so generous.
UTILITIES INCOME FUND
Utility stocks--especially those of telecommunications companies--performed well
during fiscal 1999, boosting the Utilities Income Fund to a +19.9% return. Our
return outpaced that of the average utility fund by 1.2 percentage points, but
neither our fund nor our average peer matched the +23.8% gain for our composite
index. The index is weighted to reflect our traditional allocation of 80% to
utility stocks (half in the S&P Utilities Index and half in the S&P Telephone
Index) and 20% to utility bonds.
Our shortfall versus the composite index was primarily due to our
underweighting in telecommunications stocks, which earned far more than other
utility stocks during the period. The composite index has a 40% weighting in
this sector, while we held about 25% to 30% of assets in telecom stocks. Some of
the biggest gainers among telecommunications companies during fiscal 1999 paid
too little in dividends to fit within our mandate to provide a good income
stream.
The fund outperformed its average peer, despite our policy of holding at
least 10% of our assets in long-term utility bonds, roughly three times the bond
allocation of the average utility fund. Although bonds performed well in fiscal
1999--the Lehman Utility Bond Index earned +9.2%--they lagged far behind stocks.
In nearly seven years of operation, our Utilities Income Fund has
achieved comfortably higher returns than the average utility fund, even though
our higher bond allocation has been a modest hindrance during a bullish period
for stocks. A $10,000 investment in the fund at its inception on May 15, 1992,
would have grown to $24,960 as of January 31, more than $2,000 higher than the
$22,885 that would have resulted from an identical investment in our average
competitor. Neither we nor our peers matched the composite index, though
outperforming the index remains our goal.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
TOTAL RETURNS
MAY 15, 1992, TO
JANUARY 31, 1999
------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- -------------------------------------------------------------------
<S> <C> <C>
Vanguard Utilities Income Fund +14.6% $24,960
- -------------------------------------------------------------------
Average Utility Fund +13.1% $22,885
- -------------------------------------------------------------------
Utilities Composite Index* +15.6% $26,455
- -------------------------------------------------------------------
</TABLE>
*Weighted 40% S&P Utilities Index, 40% S&P Telephone Index, and 20% Lehman
Utility Bond Index.
Our shortfall versus the index is partly due to the fact that the index
exists only on paper and has none of the operating or transaction costs that any
real-world fund incurs. However, we work hard to minimize the bite that
operating costs take from the returns our shareholders receive. Our operating
expenses in fiscal 1999 equaled a slender 0.38% of average net assets, more than
1 percentage point below the 1.50% expense ratio charged by the
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<PAGE> 8
average utility fund. Lower costs, then, explain about two-thirds of the margin
we have achieved over our average peer. Costs matter, especially over the long
term.
The past returns of our fund are no indication of future returns, which
could be lower or higher than those earned by the fund in its relatively short
lifetime.
REIT INDEX FUND
Share prices of real estate investment trusts (REITs) fell sharply during the
twelve months ended January 31, reversing gains achieved during the previous
year. Our REIT Index Fund declined -17.3%, a far cry from the returns of +30.3%
and +17.1% it earned in its first two fiscal years of operation. Our result was
slightly better than the -17.6% decline for our unmanaged benchmark, the Morgan
Stanley REIT Index, but slightly behind the -16.2% decline for the average real
estate fund.
Analysts cited a number of reasons for the sector's disappointing
performance, including investor worries that too many new properties were being
developed, that some property prices had become inflated, and that some
individual REITs may have borrowed too much. In its role as banking regulator,
the Federal Reserve Board in June told bankers that rapid increases in loans to
REITs could indicate that lending standards had become too lax. Also, the stock
market had to absorb an increase in the supply of REIT shares, as some trusts
issued additional shares and others made their first public offerings of shares.
On the other hand, the U.S. economy kept expanding and millions of new jobs were
created, boosting the demand for office space and other real estate.
Our fund has not yet reached its third birthday, so it's far too early to
judge its success or failure. However, we are encouraged that the fund's
lifetime return--an annualized average of +8.9%--is slightly ahead of the +8.7%
average earned by both the average real estate fund and our benchmark index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
TOTAL RETURNS
MAY 13, 1996, TO
JANUARY 31, 1999
------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- -------------------------------------------------------------------
<S> <C> <C>
Vanguard REIT Index Fund +8.9% $12,617
- -------------------------------------------------------------------
Average Real Estate Fund +8.7% $12,554
- -------------------------------------------------------------------
Morgan Stanley REIT Index +8.7% $12,546
- -------------------------------------------------------------------
</TABLE>
We noted one year ago that our fund's performance to that point-- an
annualized return of +27.9%--was "far higher than should be expected over the
long run from any investment; future returns will surely be lower." Of course,
we had no idea that our statement would be proven correct so quickly. The point
we sought to make then--and want to reiterate now after a period that brought
very different results--is that investors should have both realistic
expectations for returns and a long-term investment horizon. Just as we
cautioned against euphoria after a period of abnormally high returns, we suggest
today that investors avoid overreaction to a single year's downturn. We believe
that exposure to commercial real estate can add diversification to a
well-balanced portfolio and that an indexed approach to REITs is sound because
it entails broad diversification and low cost.
Our fund's 0.26% expense ratio during fiscal 1999 was less than one-fifth
the 1.51% expense ratio charged by the average real estate fund. While cost is
only one factor in mutual fund returns, we believe it is an important element in
long-term results.
IN SUMMARY
We have consistently reminded our shareholders that wide fluctuations in returns
are an unavoidable risk of investing in narrow sectors of the stock market.
Events during fiscal
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1999 demonstrated this fact once again, as returns of our five funds ranged from
very rewarding to very disappointing.
For investors focused on the long term and willing to endure these
fluctuations, investing in discrete market segments can be a sensible way to add
diversification to a broadly balanced investment program based on a core of
mainstream stock funds, bond funds, and money market funds. Once an investor
adopts such a plan, suited to individual objectives, time horizon, and tolerance
for risk, we believe in "staying the course" toward long-term financial goals.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
February 17, 1999
NOTE: You'll observe that we have made a minor change in the name of each of the
Vanguard Specialized Funds. We replaced "portfolio" with "fund" as part of a
broader effort to clarify the names in our fund lineup.
VANGUARD HEALTH CARE FUND'S NEW REDEMPTION FEE POLICY
The Board of Trustees of Vanguard Health Care Fund has decided to implement a
new redemption fee policy that takes effect for shares purchased after Friday,
April 16, 1999: We will extend from one to five years the period during which
shareholders will be assessed the 1% redemption fee, which aims to discourage
short-term trading and is paid directly to the fund to compensate long-term
shareholders for trading costs.
Your Trustees took this step to better protect the fund's long-term
shareholders from the potentially negative effects of speculative investing in
the fund. The fund's remarkable performance in recent years generated a dramatic
increase in new investments. We were concerned that some of this cash flow was
from investors who were chasing "hot" performance and who intended to redeem
their shares quickly when the fund's performance cools, as it no doubt will at
some point.
Your Trustees also decided to temporarily close the fund to new
shareholder accounts as Vanguard implements the new policy. The closure began at
the close of business on February 25, 1999, and is expected to last between six
months and one year. During this period, existing Health Care Fund shareholders
will be allowed to invest up to $25,000 in the fund and to maintain periodic
contributions to the fund through automatic investment or retirement plans.
The current redemption fee policy, which continues for all shares
purchased on or before April 16, 1999 (no matter when redeemed), applies the 1%
fee to shares held less than one year, and no fee thereafter.
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PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
12 MONTHS
NET ASSET VALUE PER SHARE ----------------------------------------------------
------------------------------ INCOME CAPITAL RETURN OF
VANGUARD SPECIALIZED FUND JAN. 31, 1998 JAN. 31, 1999 DIVIDENDS GAINS* CAPITAL TOTAL RETURN**
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Energy $22.68 $17.16 $0.35 $0.42 -- -21.2%
Gold and Precious Metals 7.53 6.61 0.09 -- -- -11.1
Health Care 74.02 97.32 0.84 3.08 -- +37.4
Utilities Income 14.97 16.27 0.59 1.01 -- +19.9
REIT Index 13.98 10.81 0.666 -- $0.144 -17.3
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes both long-term and short-term capital gains distributions.
**Total returns do not reflect the 1% fee assessed on redemptions of shares held
less than one year in the Energy, Gold and Precious Metals, Health Care, and
REIT Index Funds.
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<PAGE> 11
THE MARKETS IN PERSPECTIVE
YEAR ENDED JANUARY 31, 1999
[PHOTO]
The twelve months ended January 31, 1999, were a volatile yet generally
rewarding period for financial markets. Despite a sharp midsummer slump, the
U.S. stock market closed the year with large gains: The overall market, as
measured by the Wilshire 5000 Equity Index, was up 27.4%. Stocks got a boost
from low inflation and generally declining interest rates, which also buoyed the
bond market. Overseas, gains were concentrated in Europe's developed markets,
while stocks fell in Asia and in most emerging markets.
U.S. STOCK MARKETS
The equity rise was concentrated to an unusual degree in large-capitalization
growth stocks. Large-cap stocks, as measured by the S&P 500 Index, gained
+32.5%, while the small-cap Russell 2000 Index eked out only a 0.3% return.
Growth stocks far outpaced value stocks within both large- and small-cap
indexes. The S&P 500's growth stocks earned +45.9%, versus 18.5% for the value
stocks in the index, while the growth component of the Russell 2000 earned 7.2%,
versus -6.9% for the value-stock component.
In part, this growth-stock bias reflected the market's infatuation with
technology stocks. The technology sector led others by a wide margin, with tech
stocks in the S&P 500 gaining an extraordinary 97%. The sector benefited both
from its rapid growth and from investors' belief that consumers and businesses
will keep spending freely on computer hardware, software, and services. There
was more than a hint of speculation in the air, too, as stocks related to the
burgeoning activity on the Internet skyrocketed.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED JANUARY 31, 1999
-----------------------------------
1 YEAR 3 YEARS 5 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 32.5% 28.6% 24.3%
Russell 2000 Index 0.3 12.1 11.5
Wilshire 5000 Index 27.4 25.7 21.9
MSCI EAFE Index 14.7 9.1 7.7
- -----------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 8.1% 7.3% 7.1%
Lehman 10-Year Municipal Bond Index 7.2 7.0 6.4
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.0 5.2 5.1
- -----------------------------------------------------------------------------
OTHER
Consumer Price Index 1.7% 2.1% 2.4%
- -----------------------------------------------------------------------------
</TABLE>
Other strong sectors included utilities (+49%), particularly
telecommunications stocks, which are seen as big beneficiaries of the Internet
boom and of rising demand for such services as wireless communications. The
strength of consumer spending--Americans spent nearly every dollar of after-tax
income they earned--boosted the stocks of retailers and other companies in the
consumer-discretionary sector (+37%). Good earnings growth and higher product
prices led to gains for pharmaceutical companies and others in the health-care
sector (+35%).
The worst-performing sectors were those directly affected by falling
commodity prices: the "other energy" category (-33%) and materials & processing
firms (-2%), such
9
<PAGE> 12
as paper, steel, and chemical makers. Integrated oil companies gained 7% as a
group, largely because merger activity boosted share prices.
The midyear slide in stocks seemed to be part of a global reevaluation of
risk that affected fixed-income securities as well. Investors grew wary about
the impact of Asia's lingering economic troubles, which slowed activity for U.S.
and European manufacturers and dried up capital flows to emerging markets not
only in Asia but in Latin America.
The S&P 500 Index fell by nearly 20% over six weeks in July and August
before making its impressive comeback. Small-cap stocks fell by nearly 40%
before they began to recover. Curiously, the rebound occurred even though the
international economic troubles did not disappear and U.S. corporate earnings
were essentially flat. The rise in stock prices, combined with a lack of
earnings growth, pushed up the price/earnings ratio for the S&P 500 to about 32
by fiscal year-end, a level roughly twice its long-term average.
U.S. BOND MARKETS
Interest rates for most fixed-income securities declined on balance during the
fiscal year, falling most steeply for U.S. Treasury securities. Bond prices move
in the opposite direction from interest rates, so Treasuries enjoyed the biggest
price increases. Bonds gener-ally were helped by low inflation--consumer prices
rose by 1.7% from January 1998 to January 1999.
Treasury securities in particular benefited from the summertime shakeup
in global markets because they are regarded as safe from defaults. Treasury
prices also got a boost from a slight shrinkage in supply due to the federal
government's growing budget surplus. Yields on Treasury securities fell on
balance by approximately 70 to 80 basis points (0.7 to 0.8 percentage point). At
fiscal year-end, Treasury yields ranged from 5.09% for the benchmark 30-year
bond to 4.45% for 3-month T-bills.
Yields did not fall as far for high-quality corporate and municipal
bonds. Yields for lower-quality bonds increased and their prices declined,
reflecting investors' increased aversion to risk. Mortgage-backed bonds
generally did not benefit from falling rates because investors feared that this
would lead to rapid prepayments by homeowners refinancing their home loans.
INTERNATIONAL STOCK MARKETS
European stocks as a group gained 22.8% in U.S.-dollar terms, with about 5.5
percentage points of the gain due to a fall in the dollar's value versus
European currencies during the fiscal year. However, pickings were slim
elsewhere for U.S. investors venturing abroad. Pacific-region stocks, which are
dominated by recession-wracked Japan, fell by more than 7% in local currencies.
This decline was cushioned by the effect of a weaker dollar, so that for U.S.
investors the decline in Pacific-region stocks amounted to 2.1% for the fiscal
year. Overall, the Morgan Stanley Capital International Europe, Australasia, Far
East (EAFE) Index, a gauge of developed international markets, rose 14.7%.
Investors in emerging markets were hit by a double whammy: lower stock
prices and a decline in the value of local currencies in relation to the U.S.
dollar. The result was an average decline of 14.2% for emerging markets, even
though several Asian markets (the Philippines, Indonesia, and Hong Kong) began
to rebound from sharp losses that occurred during 1997 and 1998. Latin American
stocks were the big losers, with declines of 53% for Brazil and 24% for Mexico.
10
<PAGE> 13
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
ENERGY FUND
[PHOTO]
Returns in the energy sector again fell well short of the overall stock market's
gains during the fiscal year ended January 31, 1999. Vanguard Energy Fund
declined 21.2% during the period, compared with the 32.5% gain of the S&P 500
Index.
The energy market has been severely depressed by four events: first, the
decision late in 1997 by the Organization of Petroleum Exporting Countries
(OPEC) to increase its members' production quotas; second, the sharp decline in
economic activity in Asia; third, unusually mild winter weather; and finally,
the rapid return of Iraqi oil to the world market. The OPEC cartel, with the
help of some other producers, tried to stabilize the market in 1998, but the
production cuts agreed upon were not large enough to absorb the excess
inventories created in 1997 and early 1998.
Large, integrated companies such as Amoco, which merged with British
Petroleum, and Exxon provided positive returns during our fiscal year, but there
were declines in all other sectors, including refining, production, and oil
services. The price of oil, currently around $12 per barrel, is too low to
provide acceptable returns, and toward the end of 1998, production outside of
OPEC began to decline. Growth in petroleum demand has been lackluster because of
Asia's economic slump and the mild winters, and we expect oil production outside
of OPEC to continue declining during 1999 and 2000. Falling output ultimately
should stabilize the market if the cartel does nothing to reduce the inventory
overhang.
Natural-gas markets in North America have also been unusually weak, but
should recover as well, given the short reserve life of most fields and sharp
reductions in drilling for new supplies.
The decline in oil prices has been more severe and longer-lasting than we
expected, but we are encouraged by recent projections from the International
Energy Agency (IEA). The agency said that, with oil demand growing at about 2%
annually, massive investments will have to be made in the near future to provide
enough supplies. A 2% growth rate in demand would require 2 million barrels per
day of new capacity in the Middle East every year for the foreseeable future.
The IEA estimates that, even if oil prices were to rise 50% from current levels,
oil production outside of OPEC will decline by about 1% per year over the next
two decades.
Our conclusion is that the current low prices of oil and gas and the
sharply reduced level of oil-field activity are caused by an unusual set of
circumstances. Low prices and cutbacks in production capacity are incompatible
with the increased volumes of oil and gas that will be needed in the future. We
are confident that, as in the past, booms and busts will alternate in this
industry, and we are being set up for a strong recovery in the not-too-distant
future.
Ernst H. von Metzsch, Senior Vice President and
Portfolio Manager
February 11, 1999
11
<PAGE> 14
REPORT FROM M&G INVESTMENT
MANAGEMENT LTD.
GOLD AND PRECIOUS METALS FUND
The fiscal year ended January 31 was an unrewarding period for gold investing.
Although the Gold and Precious Metals Fund declined by 11.1%, we are pleased
that the fund once again did much better than its comparative benchmarks: the
Salomon Smith Barney Global Gold Equity Index and the average gold mutual fund,
which declined by 19.4% and 17.1%, respectively.
While the drop in the price of gold bullion reflected a lack of investor
interest in gold during the past year, gold shares were extremely volatile
nonetheless. The year's low point for gold stocks came at the end of August, but
it was followed by a strong rally over the next six weeks, as many of the
world's equity markets suffered from concern about hedge-fund collapses and
problems in Brazil and Russia. However, once the equity markets resumed their
march toward all-time highs, gold equities began to retreat, and the flat price
of bullion provided little support. By the end of our fiscal year, the gold
sector was once again subdued.
The fund's strong performance in comparison with its peers and the index
was due to three factors. First, we largely avoided the speculative end of the
market, which continued to drop steeply. The few speculative stocks that we held
illustrated the point; for example, Princess Resources fell by 86% and
Greenstone Resources slid 91%. Second, we maintained the fund's significant
exposure to companies that produce platinum and paladium or diversified metals.
Such stocks included Stillwater Mining and Impala Platinum ADR, which rose by
100% and 64%, respectively. Rio Tinto and Anglo American Platinum ADR also
recorded strong gains. Third, a corporate turnaround instigated by new
management in Newcrest Mining, a major holding of ours, and a bid for our
holding in Getchell Gold led to impressive rises in both stocks.
These positive factors were partly offset by the fund's comparatively low
exposure to Barrick Gold Corp., which continued to outperform the overall
precious-metals market, and by the weakness of the Australian dollar, which
diminished the value of our Australian holdings. Our stakes in Australian
diamond producer Ashton Mining and in Freeport-McMoRan Copper & Gold also hurt
our relative performance.
We continued to raise the fund's exposure to blue chip companies during
the period by initiating holdings in two major Australasian producers, Lihir
Gold and Delta Gold. We liquidated shares of Philippine Gold, Ashanti
Goldfields, IAMGOLD, and TVX Gold. A number of our South African holdings have
consolidated into Anglogold ADR or Gold Fields ADR.
The volatility of international stock markets during the past year
demonstrated that gold still can play a role as a hedge against slumping prices
for equities and bonds. Although the rally experienced by gold shares lasted
just six weeks, it showed that some investors still view gold as a safe haven in
times of extreme turbulence and that it has a role in a well-diversified
portfolio.
Graham E. French, Portfolio Manager
February 9, 1999
INVESTMENT PHILOSOPHY
Each fund reflects a belief that investors who seek to emphasize a given
economic sector as part of a long-term, balanced investment program are best
served by holding a portfolio of securities well-diversified across that sector.
12
<PAGE> 15
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
HEALTH CARE FUND
Vanguard Health Care Fund had very positive results--a total return of 37.4%--in
the fiscal year ended January 31, 1999. This gain exceeded the returns of both
the S&P 500 Index (32.5%) and the S&P Health Sector Index (35.5%). It also
dramatically outpaced the 17.9% return of the average health-care mutual fund.
This was the third year in a row that large-capitalization companies
dominated investment returns. The Health Care Fund benefited generally from this
trend, and particularly from standout performances from Warner-Lambert,
Pharmacia & Upjohn, and Pfizer.
Surprisingly, however, the three largest contributors to the fund's
return during the fiscal year were smaller companies. DEKALB Genetics, acquired
at a significant premium by Monsanto, was our best-performing stock. Immunex,
now launching a breakthrough drug for rheumatoid arthritis, was our next-best
holding. Rejuvenated ophthalmic specialist Allergan was the third-largest
contributor to our return.
Stock price appreciation and significant cash flow from new investors
have combined to more than double the size of the fund over the past year. It
reached $9.9 billion in assets as of January 31.
We hope our new investors are not chasing after the fund's recent strong
performance, but rather are committed to participation in the long-term growth
of the health-care industry. Current stock valuations are much higher than
historical averages, so we may now face a more difficult period that will try
the patience of investors who are not focused on the long term.
Our management style has not changed over the years. We take a relatively
conservative approach to portfolio management by maintaining broad
diversification across all areas of health care; paying close attention to
"value"--that is, the prices of stocks, not merely the current growth rate of
earnings; and taking a long-term view, as reflected in our low turnover. We
believe this approach will result in good returns relative to the health-care
market during periods of weakness, while providing full participation in the
growth of the sector over the long term.
We remain confident that the health-care industry is one of the
best-positioned sectors in the economy for the long-term investor.
Edward P. Owens, Senior Vice President and Portfolio Manager
February 12, 1999
13
<PAGE> 16
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
UTILITIES INCOME FUND
Vanguard Utilities Income Fund earned 19.9% for the fiscal year ended January
31, 1999. The fund's return was modestly higher than the 18.7% return for the
average utility fund, but fell behind the 23.8% return of the fund's unmanaged
benchmark, a composite weighted 40% in the S&P Utilities Index, 40% in the S&P
Telephone Index, and 20% in the Lehman Utility Bond Index.
Once again, the telecommunications sector was the star performer among
utility stocks, as the group benefited from booming growth in Internet, data,
and wireless communications. Productivity gains and merger-and-acquisition
activity also had a hand in the 41.2% gain in the S&P Telephone Index for the
fiscal year.
During the past 12 months, we saw WorldCom complete its merger with MCI
Communications; AT&T announce a landmark transaction with Tele-Communications
Inc. (TCI), one of the nation's largest cable companies; and the merger of
AirTouch Communications and Vodafone to form by far the world's largest wireless
telecommunications company. As can be expected in a strong market focused on
technology, the slow-growth electric and natural-gas utilities were relatively
poor performers during the year.
As noted in previous reports, we have gradually reduced the fund's
weighting in bonds, which declined over the past six months from 15% of assets
to 12%. Most of the proceeds of these sales were put into the telecommunications
sector. We initiated a large position in AT&T and added to existing holdings in
Sprint, BellSouth, and Ameritech. We believe that through its proposed merger
with TCI, AT&T has made a bold move to potentially bypass the local telephone
companies. AT&T's new management is clearly changing the way the company is
perceived by the marketplace. Execution will be the telling factor for AT&T over
the next two years as the company digests recent acquisitions and improves its
global position in data, Internet, cable, and voice telecommunications. We
anticipate more consolidation in this fast-changing telecom environment, since
we do not expect Ma Bell's competitors to stand still.
Stocks of electric utilities have been plagued by a lack of technological
change and the slow pace of state-by-state industry restructuring. The electric
sector has not had a significant technological development in decades--unlike
the telecom sector, where technology has raised productivity and demand. In the
natural-gas sector, disappointing exploration and production results, excess gas
storage, and another mild winter have depressed the near-term outlook. Both the
electric and gas industries look historically cheap versus the market and the
telephone utilities, but it is tough to see a catalyst that would spark investor
interest and an expansion in price/earnings multiples.
Despite the bias toward growth in today's market--a tilt that favors the
telecom sector--the electric and gas companies provide a great number of
investment opportunities, and we will continue to take advantage of them,
particularly to meet our income goal. On a measured basis, we are also taking
advantage of foreign stock ideas that fit the fund's investment criteria:
quality and reasonable dividend income. Our exposure to non-U.S. names is
currently 10% of assets.
Mark J. Beckwith, Vice President and Portfolio Manager
February 11, 1999
14
<PAGE> 17
PERFORMANCE SUMMARY
ENERGY FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JANUARY 31, 1999
- ------------------------------------------------------------
ENERGY FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1985 -1.9% 0.0% -1.9% 21.1%
1986 2.0 1.4 3.4 22.9
1987 25.8 6.1 31.9 33.9
1988 -5.7 6.5 0.8 -3.3
1989 20.3 3.9 24.2 20.1
1990 26.1 2.9 29.0 14.5
1991 -4.7 3.1 -1.6 8.4
1992 -1.9 3.2 1.3 22.7
1993 10.0 3.0 13.0 10.6
1994 25.0 2.3 27.3 12.9
1995 -10.6 1.5 -9.1 0.5
1996 26.6 2.1 28.7 38.7
1997 38.8 1.5 40.3 26.3
1998 2.4 1.4 3.8 26.9
1999 -22.6 1.4 -21.2 32.5
- ------------------------------------------------------------
</TABLE>
See Financial Highlights table on page 43 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- ---------------------------------------------------------
Energy Average Natural
Fund Resources Fund S&P 500 Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 11041 10443 10496
1989 07 11619 11028 11840
1989 10 11790 11112 11743
1990 01 12898 11943 11446
1990 04 12695 11418 11604
1990 07 14507 12704 12609
1990 10 13322 11382 10865
1991 01 12687 11170 12407
1991 04 14054 11967 13648
1991 07 14207 12162 14218
1991 10 14399 12368 14504
1992 01 12847 11745 15222
1992 04 13403 11812 15563
1992 07 14111 12205 16037
1992 10 14050 11964 15948
1993 01 14520 12058 16833
1993 04 17661 13796 17001
1993 07 18334 14519 17437
1993 10 19143 14934 18331
1994 01 18485 14965 19000
1994 04 18283 14159 17906
1994 07 19002 14622 18336
1994 10 19450 14974 19040
1995 01 16794 13280 19101
1995 04 19471 14976 21033
1995 07 19970 15572 23124
1995 10 18984 14814 24074
1996 01 21611 16728 26487
1996 04 25043 19031 27387
1996 07 23748 18065 26955
1996 10 27432 20444 29874
1997 01 30325 21775 33464
1997 04 28044 20372 34271
1997 07 33326 23290 41009
1997 10 35522 23804 39468
1998 01 31476 20617 42469
1998 04 35487 22932 48345
1998 07 29876 17855 48917
1998 10 28999 17335 48147
1999 01 24804 16322 56267
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
---------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Energy Fund* -21.20% 6.06% 9.51% $24,804
Average Natural Resources Fund -24.62 0.65 5.02 16,322
S&P 500 Index 32.49 24.25 18.86 56,267
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Energy Fund** 5/23/1984 -20.53% 8.57% 8.87% 2.26% 11.13%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
15
<PAGE> 18
PERFORMANCE SUMMARY
GOLD AND PRECIOUS METALS FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JANUARY 31, 1999
- -------------------------------------------------------
GOLD AND PRECIOUS METALS FUND SALOMON*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------
<S> <C> <C> <C> <C>
1985 -34.0% 0.0% -34.0% -34.4%
1986 15.2 1.1 16.3 3.6
1987 38.2 4.0 42.2 12.4
1988 -1.6 4.1 2.5 4.5
1989 3.2 2.9 6.1 -9.3
1990 29.4 4.0 33.4 72.3
1991 -33.6 2.4 -31.2 -41.1
1992 13.5 3.2 16.7 10.9
1993 -22.5 1.9 -20.6 -23.3
1994 86.3 2.9 89.2 121.5
1995 -21.1 1.9 -19.2 -21.1
1996 31.4 1.8 33.2 34.7
1997 -21.9 1.4 -20.5 -14.9
1998 -31.2 1.4 -29.8 -31.2
1999 -12.2 1.1 -11.1 -19.4
- -------------------------------------------------------
</TABLE>
*MSCI Gold Mines Index through December 31,1994; Salomon Smith Barney Global
Gold Index thereafter.
See Financial Highlights table on page 44 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- ------------------------------------------------------------
Gold & Prec Average Gold Salomon S. Barney
Metals Fund Fund Gold Equity Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 9770 9850 10306
1989 07 10250 10197 10895
1989 10 10907 10749 12501
1990 01 13338 12782 17227
1990 04 10497 10119 12189
1990 07 11159 10733 12532
1990 10 9910 9135 11479
1991 01 9175 8352 10145
1991 04 9961 8689 9909
1991 07 10979 9497 11837
1991 10 10835 9219 11407
1992 01 10705 9113 11250
1992 04 9761 7953 9376
1992 07 10341 8931 10291
1992 10 8839 7945 8762
1993 01 8502 7601 8631
1993 04 11931 10388 13406
1993 07 15499 13267 18577
1993 10 13983 12347 17693
1994 01 16089 13612 19120
1994 04 14888 12197 17053
1994 07 15471 12210 17682
1994 10 16898 13092 19532
1995 01 13001 10343 15081
1995 04 14446 11934 16719
1995 07 15248 12502 16889
1995 10 13814 11348 15981
1996 01 17322 14433 20317
1996 04 17309 15363 20558
1996 07 15296 13760 18064
1996 10 15408 13659 18319
1997 01 13770 12454 17288
1997 04 12951 11187 16421
1997 07 12220 10208 16018
1997 10 10532 9027 13558
1998 01 9660 7815 11888
1998 04 10843 8680 13781
1998 07 8065 6339 9600
1998 10 9145 6984 10693
1999 01 8592 6632 9576
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
---------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold and Precious Metals Fund* -11.06% -11.79% -1.51% $8,592
Average Gold Fund -17.09 -13.78 -4.02 6,632
Salomon Smith Barney Global Gold Index** -19.44 -12.92 -0.43 9,576
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
**MSCI Gold Mines Index through December 31,1994; Salomon Smith Barney Global
Gold Index thereafter.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- ----------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gold and Precious Metals Fund** 5/23/1984 -3.91% -12.05% -3.28% 2.17% -1.11%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
16
<PAGE> 19
PERFORMANCE SUMMARY
HEALTH CARE FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JANUARY 31, 1999
- -------------------------------------------------------------
HEALTH CARE FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1985 18.5% 0.0% 18.5% 21.1%
1986 32.9 0.8 33.7 22.9
1987 30.8 1.0 31.8 33.9
1988 -2.7 3.0 0.3 -3.3
1989 19.3 2.1 21.4 20.1
1990 17.7 2.5 20.2 14.5
1991 27.4 2.7 30.1 8.4
1992 32.0 2.0 34.0 22.7
1993 -4.8 1.9 -2.9 10.6
1994 18.7 2.5 21.2 12.9
1995 8.1 1.7 9.8 0.5
1996 43.8 1.7 45.5 38.7
1997 19.1 1.5 20.6 26.3
1998 26.0 1.4 27.4 26.9
1999 36.2 1.2 37.4 32.5
- -------------------------------------------------------------
</TABLE>
See Financial Highlights table on page 44 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1989-JANUARY 31, 1999
- -----------------------------------------------------------------
Health Care Average Health
Fund Care Fund S&P 500 Index
<S> <C> <C> <C>
1989 01 10000 10000 10000
1989 04 10831 11022 10496
1989 07 11780 12219 11840
1989 10 11624 12815 11743
1990 01 12022 12542 11446
1990 04 12338 13221 11604
1990 07 14171 15565 12609
1990 10 12942 14089 10865
1991 01 15639 17654 12407
1991 04 17626 20542 13648
1991 07 18497 22095 14218
1991 10 20009 25727 14504
1992 01 20953 28760 15222
1992 04 19834 24268 15563
1992 07 20503 25404 16037
1992 10 20314 24306 15948
1993 01 20340 25397 16833
1993 04 19747 22952 17001
1993 07 20002 23537 17437
1993 10 22785 26025 18331
1994 01 24654 28666 19000
1994 04 22690 25969 17906
1994 07 23239 25262 18336
1994 10 26114 28206 19040
1995 01 27067 28812 19101
1995 04 28845 30359 21033
1995 07 32004 33936 23124
1995 10 34364 36589 24074
1996 01 39375 42780 26487
1996 04 41711 44654 27387
1996 07 40432 39930 26955
1996 10 42656 43248 29874
1997 01 47505 48182 33464
1997 04 48698 44805 34271
1997 07 57539 53869 41009
1997 10 57175 55598 39468
1998 01 60508 56710 42469
1998 04 68973 62426 48345
1998 07 70816 60010 48917
1998 10 74910 58618 48147
1999 01 83135 66148 56267
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
---------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care Fund* 37.39% 27.52% 23.59% $83,135
Average Health-Care Fund 17.92 18.74 20.80 66,148
S&P 500 Index 32.49 24.25 18.86 56,267
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Health Care Fund** 5/23/1984 40.80% 28.43% 22.26% 1.94% 24.20%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
17
<PAGE> 20
PERFORMANCE SUMMARY
UTILITIES INCOME FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 15, 1992-JANUARY 31, 1999
- ---------------------------------------------------------
UTILITIES INCOME FUND UTILITIES
COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1993 12.0% 2.5% 14.5% 12.2%
1994 8.0 5.1 13.1 12.9
1995 -9.7 5.2 -4.5 -2.0
1996 23.2 6.3 29.5 30.2
1997 0.9 4.6 5.5 4.5
1998 17.8 5.4 23.2 26.4
1999 15.6 4.3 19.9 23.8
- ---------------------------------------------------------
</TABLE>
*80% S&P Utilities Index, 20% Lehman Utility Bond Index through June 30, 1996,
when the S&P Utilities component was separated into the S&P Utilities Index and
the S&P Telephone Index.
See Financial Highlights table on page 45 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MAY 15, 1992-JANUARY 31, 1999
- --------------------------------------------------------
Utilities Average Utilities
Income Utilities Composite S&P 500
Fund Fund Index Index
<S> <C> <C> <C> <C>
5/15/92 10000 10000 10000 10000
1992 07 10700 10430 10762 10397
1992 10 10750 10392 10688 10340
1993 01 11451 10899 11219 10915
1993 04 12220 11543 11899 11024
1993 07 12952 12103 12638 11307
1993 10 13392 12427 13158 11886
1994 01 12949 12183 12670 12320
1994 04 12143 11490 11843 11611
1994 07 12112 11345 11950 11890
1994 10 11942 11246 11693 12345
1995 01 12371 11440 12421 12385
1995 04 12924 11772 12847 13638
1995 07 13687 12486 13627 14995
1995 10 14851 13220 14908 15610
1996 01 16016 14309 16178 17175
1996 04 15540 14036 15409 17759
1996 07 15462 13913 15239 17478
1996 10 16310 14730 16002 19371
1997 01 16899 15737 16912 21699
1997 04 16477 15326 16676 22222
1997 07 17981 17043 18055 26591
1997 10 18491 17353 18624 25592
1998 01 20814 19281 21370 27538
1998 04 22101 20807 22564 31348
1998 07 21872 20721 22666 31719
1998 10 23593 21152 25126 31220
1999 01 24960 22885 26455 36,480
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities Income Fund 19.92% 14.03% 14.60% $24,960
Average Utility Fund 18.69 13.44 13.12 22,885
Utilities Composite Index* 23.79 15.86 15.59 26,455
S&P 500 Index 32.49 24.25 21.26 36,480
- ------------------------------------------------------------------------------------------------------
</TABLE>
*80% S&P Utilities Index, 20% Lehman Utility Bond Index through June 30, 1996,
when the S&P Utilities component was separated into the S&P Utilities Index
and the S&P Telephone Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- --------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Utilities Income Fund 5/15/1992 21.83% 14.48% 9.99% 5.09% 15.08%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
18
<PAGE> 21
PERFORMANCE SUMMARY
REIT INDEX FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 13, 1996-JANUARY 31, 1999
- ---------------------------------------------------------
REIT INDEX FUND MORGAN
STANLEY
REIT INDEX
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1997 26.6% 3.7% 30.3% 30.7%
1998 11.0 6.1 17.1 16.5
1999 -22.7% 5.4% -17.3% -17.6%
- ---------------------------------------------------------
</TABLE>
See Financial Highlights table on page 45 for dividend and capital gains
information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MAY 13, 1996-JANUARY 31, 1999
- -----------------------------------------------------
REIT Average Morgan Stanley
Index Real Estate REIT
Fund Fund Index
<S> <C> <C> <C>
5/13/96 10000 10000 10000
1996 07 10270 10074 10276
1996 10 11186 10932 11201
1997 01 13033 12618 13066
1997 04 12637 12184 12664
1997 07 14067 13968 14081
1997 10 14825 14683 14842
1998 01 15258 14981 15217
1998 04 14873 14916 14797
1998 07 13720 13685 13644
1998 10 12964 12620 12913
1999 01 12617 12554 12,546
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------
PERIODS ENDED JANUARY 31, 1999 FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REIT Index Fund* -17.31% 8.93% $12,617
Average Real Estate Fund -16.20 8.73 12,554
Morgan Stanley REIT Index -17.55 8.69 12,546
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REIT Index Fund** 5/13/1996 -16.32% 4.17% 6.08% 10.25%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return
information through the latest calendar quarter.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
19
<PAGE> 22
FUND PROFILE
ENERGY FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 21 and 22.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ----------------------------------------------------------
ENERGY S&P 500
- ----------------------------------------------------------
<S> <C> <C>
Number of Stocks 54 500
Median Market Cap $6.9B $65.1B
Price/Earnings Ratio 23.1x 28.3x
Price/Book Ratio 2.1x 5.1x
Yield 1.9% 1.3%
Return on Equity 11.5% 22.7%
Earnings Growth Rate 17.5% 17.5%
Foreign Holdings 27.1% 1.3%
Turnover Rate 22% --
Expense Ratio 0.41% --
Cash Reserves 6.3% --
</TABLE>
EQUITY INVESTMENT FOCUS
- ----------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------------
ENERGY S&P 500
- --------------------------------------------------------
<S> <C> <C>
R-Squared 0.34 1.00
Beta 0.80 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -------------------------------------------------------
<S> <C>
Unocal Corp. 4.5%
Shell Transport & Trading Co. ADR 4.3
Chevron Corp. 3.9
Ashland, Inc. 3.7
Halliburton Co. 3.6
USX-Marathon Group 3.6
Schlumberger Ltd. 3.5
Mobil Corp. 3.5
Texaco Inc. 3.3
Phillips Petroleum Co. 3.0
- -------------------------------------------------------
Top Ten 36.9%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ----------------------------------------------------------------------------------------
JANUARY 31, 1998 JANUARY 31, 1999
--------------------------------------------
ENERGY ENERGY
--------------------------------------------
<S> <C> <C>
Auto & Transportation 0.6% 0.0%
Energy Miscellaneous 6.6 4.2
International 24.5 27.1
Machinery--Oil Well Equipment & Services 11.8 13.4
Materials & Processing 1.9 2.1
Offshore Drilling 4.7 0.0
Oil--Crude Producers 19.4 12.4
Oil--Integrated Domestic 20.7 24.5
Oil--Integrated International 7.2 14.2
Other 2.6 2.1
- ----------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock and
bond investment.
COUNTRY DIVERSIFICATION. The percentages of a fund's total net assets invested
in securities of various countries.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a fund's holdings by type of issuer or
type of instrument.
DIVIDEND YIELD. The current, annualized rate of dividends paid on a share of
stock, divided by its current share price. For a fund, the weighted average
yield for stocks it holds.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a fund's equity
holdings in terms of two attributes: market capitalization (large, medium, or
small) and relative valuation (growth, value, or a blend).
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FIXED-INCOME INVESTMENT FOCUS. This grid indicates the focus of a fund's
fixed-income holdings in terms of two attributes: average maturity (short,
medium, or long) and average credit quality (Treasury/agency, investment-grade
corporate, or below investment-grade). FOREIGN HOLDINGS. The percentage of a
fund's equity assets represented by stocks or American Depositary Receipts of
companies based outside the United States.
FUND ALLOCATION BY REIT TYPE. An indicator of diversification, this table shows
the percentage of the fund's noncash holdings invested in various real estate
investment trusts, classified according to the types of property they emphasize.
21
<PAGE> 24
FUND ASSET ALLOCATION. This chart shows the proportions of a fund's holdings
allocated to different types of assets.
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
NUMBER OF BONDS. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular bond issuer.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a fund holds,
the more diversified it is and the more likely to perform in line with the
overall stock market.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a fund's common stocks that come from
each of the major industry groups that compose the stock market.
TEN LARGEST HOLDINGS/STOCKS. The percentage of equity assets or of total net
assets that a fund has invested in its ten largest stocks. As this percentage
rises, a fund's returns are likely to be more volatile because they are more
dependent on the fortunes of a few companies.
TURNOVER RATE. An indication of trading activity during the past year. Funds
with high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
22
<PAGE> 25
FUND PROFILE
GOLD AND PRECIOUS METALS FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 21 and 22.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ----------------------------------------------------------
GOLD AND
PRECIOUS METALS S&P 500
- ----------------------------------------------------------
<S> <C> <C>
Number of Stocks 43 500
Median Market Cap $3.0B $65.1B
Price/Earnings Ratio 38.7x 28.3x
Price/Book Ratio 3.1x 5.1x
Return on Equity 4.3% 22.7%
Earnings Growth Rate -7.4% 17.5%
Foreign Holdings 72.7% 1.3%
Turnover Rate 23% --
Expense Ratio 0.77% --
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -------------------------------------------------------
<S> <C>
Euro-Nevada Mining Corp. 6.9%
Newcrest Mining Ltd. 6.7
Anglogold Ltd. ADR 6.5
Stillwater Mining Co. 6.4
Normandy Mining Ltd. 5.4
Newmont Mining Corp. 5.3
Franco-Nevada Mining Corp., Ltd. 4.6
Anglo American Platinum Corp ADR 4.5
Impala Platinum Holdings Ltd. ADR 4.3
Lihir Gold Ltd. 3.6
- -------------------------------------------------------
Top Ten 54.2%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
GOLD AND
PRECIOUS METALS S&P 500
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.14 1.00
Beta 0.79 1.00
</TABLE>
<TABLE>
<CAPTION>
COUNTRY DIVERSIFICATION (% OF TOTAL NET ASSETS)
- -------------------------------------------------------
<S> <C>
Australia 32.3%
Canada 16.4
Ghana 0.0
South Africa 15.3
United Kingdom 1.2
United States 24.5
- -------------------------------------------------------
Subtotal 89.7%
Bullion 7.1
Cash Reserves 3.2
- -------------------------------------------------------
Total 100.0%
</TABLE>
23
<PAGE> 26
FUND PROFILE
HEALTH CARE FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 21 and 22.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ----------------------------------------------------------
HEALTH CARE S&P 500
- ----------------------------------------------------------
<S> <C> <C>
Number of Stocks 136 500
Median Market Cap $12.9B $65.1B
Price/Earnings Ratio 34.4x 28.3x
Price/Book Ratio 4.7x 5.1x
Yield 1.1% 1.3%
Return on Equity 21.4% 22.7%
Earnings Growth Rate 6.7% 17.5%
Foreign Holdings 22.6% 1.3%
Turnover Rate 11% --
Expense Ratio 0.36% --
Cash Reserves 13.9% --
</TABLE>
EQUITY INVESTMENT FOCUS
- ----------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
HEALTH CARE S&P 500
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.80 1.00
Beta 0.74 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -------------------------------------------------------
<S> <C>
Pharmacia & Upjohn, Inc. 4.2%
Warner-Lambert Co. 3.9
Johnson & Johnson 3.2
Bristol-Myers Squibb Co. 3.1
Abbott Laboratories 3.1
Immunex Corp. 3.1
Allergan, Inc. 2.8
Pfizer, Inc. 2.5
SmithKline Beecham PLC ADR 2.2
Merck & Co., Inc. 2.0
- -------------------------------------------------------
Top Ten 30.1%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- --------------------------------------------------------------------------------------------------------
JANUARY 31, 1998 JANUARY 31, 1999
------------------------------------------------------
HEALTH CARE HEALTH CARE
------------------------------------------------------
<S> <C> <C>
Biotech Research & Production 2.9% 2.0%
Consumer Discretionary 0.1 1.1
Drugs & Pharmaceuticals 50.9 47.9
Electronics--Medical Systems 1.6 1.3
Health & Personal Care 0.3 0.7
Health Care Facilities 3.9 4.0
Health Care Management Services 5.2 7.5
International 21.5 22.6
Materials & Processing 1.6 2.9
Medical & Dental Instruments & Supplies 8.7 7.0
Medical Services 1.3 1.2
Miscellaneous Health Care 1.1 0.6
Other 0.2 0.4
Producer Durables 0.7 0.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
FUND PROFILE
UTILITIES INCOME FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 21 and 22.
<TABLE>
<CAPTION>
TOTAL FUND CHARACTERISTICS
- ---------------------------------------------
<S> <C>
Yield 3.1%
Turnover Rate 55%
Expense Ratio 0.38%
Cash Reserves 3.0%
</TABLE>
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
- -------------------------
<S> <C>
Stocks 85%
Bonds 12%
Cash Reserves 3%
</TABLE>
<TABLE>
<CAPTION>
TOTAL FUND VOLATILITY MEASURES
- ----------------------------------------------------------
UTILITIES
INCOME S&P 500
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.37 1.00
Beta 0.38 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- -------------------------------------------------------
<S> <C>
Sprint Corp. 5.3%
AT&T Corp. 4.5
Ameritech Corp. 4.0
Pinnacle West Capital Corp. 3.9
BellSouth Corp. 3.6
DQE Inc. 3.5
Bell Atlantic Corp. 3.3
Enron Corp. 3.3
New England Electric System 3.1
GPU, Inc. 2.9
- -------------------------------------------------------
Top Ten 37.4%
- -------------------------------------------------------
Top Ten as % of Total Net Assets 31.9%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ---------------------------------------------------------------------------------------------------------
JANUARY 31, 1998 JANUARY 31, 1999
------------------------------------------------------
UTILITIES INCOME UTILITIES INCOME
------------------------------------------------------
<S> <C> <C>
Electrical 46.1% 43.9%
Gas Distribution 9.4 4.5
Integrated Oils 2.4 4.1
Other 6.5 4.6
Other Energy 1.8 4.8
Technology 0.0 2.4
Telecommunications 32.9 35.2
Water 0.9 0.5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- ----------------------------------------------------------
UTILITIES
INCOME S&P 500
- ----------------------------------------------------------
<S> <C> <C>
Number of Stocks 61 500
Median Market Cap $9.3B $65.1B
Price/Earnings Ratio 21.3x 28.3x
Price/Book Ratio 2.7x 5.1x
Dividend Yield 3.0% 1.3%
Return on Equity 15.4% 22.7%
Earnings Growth Rate 5.1% 17.5%
Foreign Holdings 10.4% 1.3%
</TABLE>
EQUITY INVESTMENT FOCUS
- ---------------------------
[GRAPH]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- ----------------------------------------------------------
UTILITIES LEHMAN
INCOME INDEX*
- ----------------------------------------------------------
<S> <C> <C>
Number of Bonds 43 7,294
Yield to Maturity 5.7% 5.7%
Average Coupon 6.9% 6.9%
Average Maturity 10.2 years 8.6 years
Average Quality A1 Aaa
Average Duration 6.4 years 4.4 years
</TABLE>
*Lehman Aggregate Bond Index.
FIXED-INCOME INVESTMENT FOCUS
- ------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF BONDS)
- -------------------------------------------------
<S> <C>
Electric 60.8%
Foreign 1.9
Gas 2.3
Telephone 35.0
Treasury/Agency 0.0
- -------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- --------------------------------------------------
<S> <C>
Treasury/Agency 0.0%
Aaa 0.0
Aa 40.8
A 46.1
Baa 13.1
Ba 0.0
B 0.0
Not Rated 0.0
- --------------------------------------------------
Total 100.0%
</TABLE>
26
<PAGE> 29
FUND PROFILE
REIT INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 21 and 22.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ----------------------------------------------------------
REIT INDEX S&P 500
- ----------------------------------------------------------
<S> <C> <C>
Number of Stocks 138 500
Median Market Cap $1.6B $65.1B
Price/Earnings Ratio 18.3x 28.3x
Price/Book Ratio 1.4x 5.1x
Dividend Yield 7.2%* 1.3%
Return on Equity 10.3% 22.7%
Earnings Growth Rate 27.9% 17.5%
Foreign Holdings 0.0% 1.3%
Turnover Rate 29% --
Expense Ratio 0.26% --
Cash Reserves 1.8% --
</TABLE>
*This dividend yield includes some payments that represent a return of capital
by the underlying REITs. The amount of such return of capital is only
determined by each REIT after its fiscal year ends.
EQUITY INVESTMENT FOCUS
- -----------------------------
[GRAPH]
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -------------------------------------------------------
<S> <C>
Equity Office Properties Trust REIT 5.7%
Equity Residential Properties Trust REIT 4.2
Simon Property Group, Inc. REIT 3.7
Public Storage, Inc. REIT 2.7
Vornado Realty Trust REIT 2.5
Archstone Communities Trust REIT 2.4
ProLogis Trust REIT 2.2
Crescent Real Estate, Inc. REIT 2.2
Host Marriott Corp. REIT 2.0
Kimco Realty Corp. REIT 1.9
- -------------------------------------------------------
Top Ten 29.5%
</TABLE>
<TABLE>
<CAPTION>
FUND ALLOCATION BY REIT TYPE
- -----------------------------------------------
<S> <C>
Retail 21%
Apartments 21
Office 20
Industrial 17
Diversified 13
Hotels 8
- -----------------------------------------------
Total 100%
</TABLE>
27
<PAGE> 30
FINANCIAL STATEMENTS
JANUARY 31, 1999
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by sector
within the fund's designated industry; international securities, if significant,
may be presented in a separate group. The REIT Index Fund lists its security
holdings alphabetically. Other assets are added to, and liabilities are
subtracted from, the value of Total Investments to calculate the fund's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the fund to
arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the fund's net assets on both a dollar and
per-share basis. Because all income and any realized gains must be distributed
to shareholders each year, the bulk of net assets consists of Paid in Capital
(money invested by shareholders). The amounts shown for Undistributed Net
Investment Income and Accumulated Net Realized Gains usually approximate the
sums the fund had available to distribute to shareholders as income dividends or
capital gains as of the statement date, but may differ because certain
investments or transactions may be treated differently for financial statement
and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess
of distributions over net income or net realized gains, will appear as negative
balances. Unrealized Appreciation (Depreciation) is the difference between the
market value of the fund's investments and their cost, and reflects the gains
(losses) that would be realized if the fund were to sell all of its investments
at their statement-date values.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
ENERGY FUND SHARES SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (93.7%)
- ----------------------------------------------------------
UNITED STATES (68.3%)
- ----------------------------------------------------------
<S> <C> <C>
ENERGY MISCELLANEOUS (3.9%)
Tosco Corp. 500,000 $ 10,875
Ultramar Diamond
Shamrock Corp. 431,900 9,502
Valero Energy Corp. 500,000 9,406
----------
29,783
----------
MACHINERY--OIL WELL EQUIPMENT & SERVICES (12.6%)
Baker Hughes, Inc. 900,000 15,188
- - Cooper Cameron Corp. 160,000 3,740
Halliburton Co. 925,000 27,461
- - Noble Drilling Corp. 700,000 9,363
- - Rowan Cos., Inc. 778,800 6,863
Schlumberger Ltd. 563,400 26,832
- - Weatherford International, Inc. 349,999 6,169
----------
95,616
----------
MATERIALS & PROCESSING (2.0%)
Fluor Corp. 200,000 7,625
- - J. Ray McDermott SA 320,000 7,600
----------
15,225
----------
OIL--CRUDE PRODUCERS (11.6%)
Anadarko Petroleum Corp. 300,000 8,119
- - Barrett Resources Corp. 163,700 2,844
Devon Energy Corp. 220,000 5,761
Enron Oil & Gas Co. 654,400 11,288
Noble Affiliates, Inc. 200,000 3,938
Occidental Petroleum Corp. 750,000 11,297
- - Oryx Energy Co. 1,000,000 12,188
Pogo Producing Co. 685,000 7,449
- - Santa Fe Energy
Resources, Inc. 1,165,200 6,773
Vastar Resources, Inc. 487,200 18,727
----------
88,384
----------
OIL--INTEGRATED DOMESTIC (23.0%)
Amerada Hess Corp. 400,000 19,000
Ashland, Inc. 600,000 28,500
Kerr-McGee Corp. 86,500 2,936
Murphy Oil Corp. 370,100 13,509
Phillips Petroleum Co. 600,000 23,175
- - Seagull Energy Corp. 1,000,000 4,813
Sunoco, Inc. 604,467 21,232
USX-Marathon Group 1,200,000 27,300
Unocal Corp. 1,200,000 34,200
----------
174,665
----------
OIL--INTEGRATED INTERNATIONAL (13.3%)
Chevron Corp. 400,000 29,900
Exxon Corp. 280,000 19,722
Mobil Corp. 300,000 26,306
Texaco Inc. 528,388 25,032
----------
100,960
----------
OTHER (1.9%)
McDermott International, Inc. 700,000 14,481
----------
- ----------------------------------------------------------
TOTAL UNITED STATES 519,114
- ----------------------------------------------------------
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
INTERNATIONAL (25.4%)
- ----------------------------------------------------------
<S> <C> <C>
CANADA (12.5%)
Alberta Energy Co., Ltd. 897,870 $ 19,019
- - Anderson Exploration Ltd. 1,012,401 8,846
Imperial Oil Ltd. 1,000,900 15,205
PanCanadian Petroleum Ltd. 283,400 3,142
Paramount Resources Ltd. 1,080,900 10,017
Penn West Petroleum Ltd. 352,143 3,683
Petro-Canada 1,300,000 15,532
Poco Petes Ltd. 400,000 2,992
Suncor Energy, Inc. 508,700 13,688
Talisman Energy, Inc. 155,000 2,770
----------
94,894
----------
FRANCE (2.4%)
Total SA ADR 358,989 18,376
----------
ITALY (2.0%)
ENI SpA ADR 250,500 15,030
----------
NORWAY (1.8%)
Norsk Hydro ASA ADR 340,000 12,240
Saga Petroleum ASA A Shares 190,000 1,803
----------
14,043
----------
SPAIN (1.4%)
Repsol SA ADR 192,500 10,455
----------
UNITED KINGDOM (5.3%)
Burmah Castrol PLC 299,955 3,858
Lasmo PLC 2,000,000 3,433
Shell Transport & Trading
Co. ADR 1,080,000 32,940
----------
40,231
----------
- ----------------------------------------------------------
TOTAL INTERNATIONAL 193,029
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $725,026) 712,143
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (8.3%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.72%, 2/1/1999--Note H $16,397 16,397
4.73%, 2/1/1999 47,262 47,262
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $63,659) 63,659
- ----------------------------------------------------------
TOTAL INVESTMENTS (102.0%)
(COST $788,685) 775,802
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (-2.0%) (15,473)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 44,305,351 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $760,329
==========================================================
NET ASSET VALUE PER SHARE $17.16
==========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
- ----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------
ASSETS
Investments in Securities, at Value $775,802
Receivables for Investment Securities
Sold 62,150
Other Assets--Note C 1,810
----------
Total Assets 839,762
----------
LIABILITIES
Payables for Investment Securities
Purchased 59,833
Other Liabilities--Note H 19,600
----------
Total Liabilities 79,433
- ----------------------------------------------------------
NET ASSETS $760,329
==========================================================
- ----------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
Paid in Capital $788,736 $17.80
Overdistributed Net Investment
Income--Note G (379) (.01)
Accumulated Net Realized
Losses--Note G (15,145) (.34)
Unrealized Depreciation--Note F (12,883) (.29)
- ----------------------------------------------------------
NET ASSETS $760,329 $17.16
==========================================================
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
GOLD AND PRECIOUS VALUE*
METALS FUND SHARES SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (89.7%)
- ----------------------------------------------------------
<S> <C> <C>
AUSTRALIA (32.3%)
Ashton Mining Ltd. 6,500,000 $ 2,777
- - Aurora Gold Ltd. 8,000,000 5,529
- - Australian Resources Ltd. 16,250,000 2,552
- - Bougainville Copper Ltd. 2,000,000 258
Delta Gold NL 1,000,000 1,552
Goldfields Ltd. 7,000,000 6,157
Homestake Mining Co. 400,000 3,606
- - Lihir Gold Ltd. 11,000,000 11,195
- - Masmindo Mining Corp. NL 127,230 10
Mount Isa Mines Holdings Ltd. 26,000,000 11,107
- - Newcrest Mining Ltd. 13,000,000 20,663
Normandy Mining Ltd. 19,000,000 16,496
- - Normandy Mining Ltd.
Warrants Exp. 4/30/2001 1,800,000 136
Rio Tinto Ltd. 600,000 7,424
Sons of Gwalia Ltd. 3,500,000 10,205
- - Star Mining Corp. NL 26,000,000 65
- - Tanami Gold NL 3,600,000 226
- - Tanami Gold NL Options Exp.
11/30/2001 1,200,000 53
----------
100,011
----------
CANADA (16.4%)
Aber Resources Ltd. 510,000 3,376
Barrick Gold Corp. 200,000 3,819
Euro-Nevada Mining Corp. 1,360,000 21,516
Franco-Nevada Mining
Corp., Ltd. 760,000 14,312
- - Geomaque Explorations Ltd. 3,000,000 2,383
Golden Star Resources Ltd. 102,000 79
Greenstone Resources Ltd. 750,000 397
Placer Dome Inc. 380,000 4,301
Princess Resources Ltd. 6,000,000 40
- - Vengold, Inc. 1,250,000 662
----------
50,885
----------
SOUTH AFRICA (15.3%)
Anglo American Platinum
Corp. ADR 953,400 14,044
Anglogold Ltd. ADR 1,000,000 20,000
Impala Platinum Holdings
Ltd. ADR 850,000 13,286
----------
47,330
----------
UNITED KINGDOM (1.2%)
Rio Tinto PLC 300,000 3,608
----------
UNITED STATES (24.5%)
- - Atlas Corp. 1,000,000 59
Barrick Gold Corp. 575,000 10,961
- - Crown Resources Corp. 600,000 1,312
Freeport-McMoRan Copper &
Gold, Inc. Class A 850,000 8,128
Freeport-McMoRan Copper &
Gold, Inc. Gold Denomination
Shares Pfd. 150,000 2,550
- - Getchell Gold Corp. 400,000 10,600
Newmont Mining Corp. 928,125 16,416
Placer Dome, Inc. 350,000 3,916
- - Royal Gold, Inc. 600,000 2,325
- - Stillwater Mining Co. 750,000 19,688
----------
75,955
----------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $371,912) 277,789
- ----------------------------------------------------------
PRECIOUS METALS (7.1%)
- ----------------------------------------------------------
- - Gold Bullion (74,868 Ounces) 21,405
- - Platinum Bullion (2,009 Ounces) 693
- ----------------------------------------------------------
TOTAL PRECIOUS METALS
(COST $31,918) 22,098
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.1%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.72%, 2/1/1999--Note H $ 13 13
4.73%, 2/1/1999 6,533 6,533
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $6,546) 6,546
- ----------------------------------------------------------
TOTAL INVESTMENTS (98.9%)
(COST $410,376) 306,433
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- ----------------------------------------------------------
Other Assets--Note C 4,369
Liabilities--Note H (983)
----------
3,386
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 46,866,676 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $309,819
==========================================================
NET ASSET VALUE PER SHARE $6.61
==========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
- ----------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
Paid in Capital $507,467 $10.83
Overdistributed Net Investment
Income--Note G (3,099) (.07)
Accumulated Net Realized
Losses--Note G (90,606) (1.93)
Unrealized Depreciation--Note F (103,943) (2.22)
- ----------------------------------------------------------
NET ASSETS $309,819 $ 6.61
==========================================================
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
HEALTH CARE FUND SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (85.9%)
- ----------------------------------------------------------
UNITED STATES (66.5%)
- ----------------------------------------------------------
<S> <C> <C>
BIOTECH RESEARCH & PRODUCTION (1.7%)
- - Allergan Specialty
Therapeutics, Inc. 157,395 $ 1,535
Baxter International, Inc. 300,000 21,281
- - Genentech, Inc. Special
Common Stock 1,406,900 114,486
- - Genzyme Molecular Oncology 220,562 593
- - IDEXX Laboratories Corp. 1,100,000 28,600
----------
166,495
----------
CONSUMER DISCRETIONARY (0.9%)
Kimberly-Clark Corp. 1,750,000 87,172
- -(1)Paragon Trade Brands, Inc. 1,124,100 5,691
----------
92,863
----------
DRUGS & PHARMACEUTICALS (41.1%)
Abbott Laboratories 6,540,000 303,701
- - Agouron Pharmaceuticals, Inc. 1,501,200 89,040
(1)Allergan, Inc. 3,579,300 275,159
- - Alliance Pharmaceutical Corp. 1,002,388 3,195
(1)Alpharma, Inc. Class A 1,383,713 47,911
- - ALZA Corp. 1,030,000 52,079
American Home Products Corp. 2,710,000 159,043
- - AmeriSource Health Corp. 82,400 6,386
- - Amgen, Inc. 910,000 116,309
- - Amylin Pharmaceuticals, Inc. 1,500,000 1,500
- - Anergen Inc. 275,000 137
Bergen Brunswig Corp. Class A 4,116,250 115,255
- - BioCryst Pharmaceuticals, Inc. 340,100 3,316
- - Biogen, Inc. 465,000 45,686
Bristol-Myers Squibb Co. 2,385,000 305,727
- - Cephalon, Inc. 270,000 2,413
- - Cor Therapeutics, Inc. 500,000 5,594
- - Crescendo
Pharmaceuticals Corp. 51,500 727
- - Forest Laboratories, Inc. 130,000 6,004
- - Genzyme Corp. 2,186,620 119,171
- - Gilead Sciences, Inc. 1,500,000 64,500
- -(1)Human Genome Sciences, Inc. 1,206,800 40,277
- -(1)IDEC Pharmaceuticals Corp. 1,043,100 52,677
- - Immunex Corp. 1,937,400 302,477
Johnson & Johnson 3,740,000 317,900
Eli Lilly & Co. 710,000 66,518
- -(1)Magainin Pharmaceuticals, Inc. 1,278,100 4,314
- - Matrix Pharmaceutical, Inc. 200,500 432
McKesson HBOC, Inc. 1,797,850 135,063
Merck & Co., Inc. 1,380,000 202,515
Mylan Laboratories, Inc. 445,000 13,573
- -(1)Perrigo Co. 5,095,690 46,498
Pfizer, Inc. 1,940,000 249,533
Pharmacia & Upjohn, Inc. 7,303,300 419,940
- -(1)Pharmacyclics, Inc. 800,000 17,700
Schering-Plough Corp. 440,000 23,980
- - Scios, Inc. 491,750 4,856
- - Triangle Pharmaceuticals, Inc. 564,800 7,572
- -(1)Vertex Pharmaceuticals, Inc. 1,571,300 49,496
Warner-Lambert Co. 5,380,000 388,369
----------
4,066,543
----------
ELECTRONICS--MEDICAL SYSTEMS (1.1%)
- - Datascope Corp. 340,100 6,930
DENTSPLY International Inc. 500,000 13,750
- -(1)Haemonetics Corp. 1,721,900 34,438
Medtronic, Inc. 563,936 44,939
- - SpaceLabs Medical, Inc. 326,200 7,095
----------
107,152
----------
HEALTH & PERSONAL CARE (0.6%)
- - American Retirement Corp. 637,000 10,471
- - PharMerica, Inc. 3,689,683 26,750
- -(1)Syncor International Corp. 856,559 25,161
----------
62,382
----------
HEALTH CARE FACILITIES (3.4%)
- - Beverly Enterprises, Inc. 3,030,000 17,233
Columbia/HCA
Healthcare Corp. 8,723,720 158,117
- - Laboratory Corp. of America 3,796,216 6,643
- -(1)Quest Diagnostics, Inc. 1,907,300 36,119
- - Tenet Healthcare Corp. 5,800,000 120,350
----------
338,462
----------
HEALTH CARE MANAGEMENT SERVICES (6.4%)
Aetna Inc. 1,232,000 111,034
American Medical Security
Group, Inc. 678,000 10,763
- - Cerner Corp. 906,600 22,098
- - Humana, Inc. 7,645,000 136,654
- - MedPartners, Inc. 3,379,350 18,164
- - Mid Atlantic Medical
Services, Inc. 500,000 5,094
- - PacifiCare Health Systems Inc.
Class A 42,893 2,751
- - PacifiCare Health Systems, Inc.
Class B 762,300 53,933
- - Quorum Health Group, Inc. 1,930,000 16,405
Shared Medical Systems Corp. 1,100,000 51,700
- - Sierra Health Services 89,600 1,691
United Healthcare Corp. 4,400,000 196,900
United Wisconsin Services, Inc. 678,000 5,848
----------
633,035
----------
MATERIALS & PROCESSING (2.5%)
Delta & Pine Land Co. 307,300 11,370
Monsanto Co. 1,775,000 84,423
Pioneer Hi-Bred
International, Inc. 1,370,700 38,808
Sigma-Aldrich Corp. 3,985,000 113,573
----------
248,174
----------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (6.0%)
- - ADAC Laboratories 255,000 5,626
Allegiance Corp. 2,371,200 107,000
(1)C.R. Bard, Inc. 3,373,100 170,763
Bausch & Lomb, Inc. 100,000 6,137
Beckman Coulter, Inc. 1,244,700 62,079
Becton, Dickinson & Co. 138,500 4,951
Biomet, Inc. 1,345,300 49,272
- - Boston Scientific Corp. 3,132,700 76,555
- -(1)Cohesion Technologies, Inc. 525,800 3,056
(1)Collagen Aesthetics, Inc. 525,800 6,835
- -(1)E-Z-EM, Inc. Class A 219,258 1,535
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
HEALTH CARE FUND SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
- - E-Z-EM, Inc. Class B 304,344 $ 1,902
(1)Owens & Minor, Inc.
Holding Co. 2,006,100 26,330
- - Protocol Systems, Inc. 273,000 2,048
- - ReSound Corp. 300,000 1,163
- - Safeskin Corp. 50,000 1,169
- - St. Jude Medical, Inc. 1,451,300 37,825
- - Sonosite, Inc. 204,166 2,348
- - Ventana Medical Systems, Inc. 320,200 5,664
- - Xomed Surgical Products Inc. 514,950 18,474
----------
590,732
----------
MEDICAL SERVICES (1.1%)
- - Covance, Inc. 2,184,500 68,812
- -(1)Coventry Health Care Inc. 3,737,400 36,440
----------
105,252
----------
MISCELLANEOUS HEALTH CARE (0.5%)
Mallinckrodt, Inc. 1,397,900 48,839
----------
PRODUCER DURABLES (0.7%)
Pall Corp. 250,000 5,797
Perkin-Elmer Corp. 654,545 62,223
----------
68,020
----------
TECHNOLOGY
- - DAOU Systems, Inc. 513,500 3,675
----------
OTHER (0.5%)
Carter-Wallace, Inc. 266,000 4,888
Carter-Wallace, Inc. Class B 24,000 441
- - Thermo Electron Corp. 2,498,000 41,529
----------
46,858
----------
- ----------------------------------------------------------
TOTAL UNITED STATES 6,578,482
- ----------------------------------------------------------
INTERNATIONAL (19.4%)
- ----------------------------------------------------------
JAPAN (7.5%)
Banyu Pharmaceutical Co. 4,895,000 85,246
Chugai Pharmaceutical Co., Ltd. 6,360,000 67,987
Daiichi Pharmaceutical Co., Ltd.2,850,000 43,922
Eisai Co., Ltd. 6,506,000 123,092
Fujisawa Pharmaceutical
Co., Ltd. 7,370,000 104,896
Olympus Optical Co., Ltd. 2,500,000 27,606
Ono Pharmaceutical Co., Ltd. 200,000 7,602
Sankyo Co., Ltd. 2,450,000 51,200
Shionogi & Co., Ltd. 4,603,000 33,648
Takeda Chemical Industries Ltd. 2,750,000 98,147
Tanabe Seiyaku Co., Ltd. 5,625,000 31,492
Terumo Corp. 200,000 4,300
Yamanouchi
Pharmaceuticals Co., Ltd. 1,930,000 58,922
----------
738,060
----------
SWITZERLAND (2.4%)
Roche Holdings AG
(Dividend-Right Certificates) 8,000 104,217
Novartis AG (Registered) 71,747 134,259
----------
238,476
----------
UNITED KINGDOM (4.9%)
Medeva PLC 277,400 451
Nycomed Amersham PLC 12,565,820 82,418
- - Oxford GlycoSciences PLC 375,000 1,910
SmithKline Beecham PLC ADR 3,224,500 218,661
Zeneca Group PLC ADR 3,948,072 185,559
----------
488,999
----------
OTHER (4.6%)
Astra AB A Shares 5,000,000 107,942
Bayer AG 1,328,300 50,760
Bayer AG ADR 1,850,000 70,994
Gambro AB 227,000 2,196
Hoechst AG 900,000 38,634
Novo Nordisk A/S B Shares 130,000 15,978
Rhone-Poulenc SA ADR 2,052,615 106,095
Schering AG 213,470 28,763
Synthelabo SA 118,270 30,086
----------
451,448
----------
- ----------------------------------------------------------
TOTAL INTERNATIONAL 1,916,983
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $5,283,391) 8,495,465
- ----------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.2%)
- ----------------------------------------------------------
Laboratory Corp. 8.50% Cvt. Pfd.
(COST $23,448) 358,021 16,290
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (15.2%)
- ----------------------------------------------------------
COMMERCIAL PAPER (5.9%)
American Express Credit Corp.
4.92%, 2/18/1999 $150,000 149,657
Associates Corp.
4.919%, 2/24/1999 120,000 119,630
4.936%, 2/25/1999 100,000 99,677
General Electric Capital Corp.
5.66%, 2/25/1999 185,000 184,406
Metlife Funding
4.919%, 2/17/1999 30,278 30,214
----------
583,584
----------
REPURCHASE AGREEMENTS (6.7%)
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.72% 2/1/1999--Note H 17,113 17,113
Credit Suisse First Boston Corp.
4.70%, 2/1/1999
(Dated 1/29/1999, Repurchase
Value $339,407,000, collateralized
by U.S. Treasury Bond
11.25%, 2/15/2015) 339,274 339,274
J.P. Morgan Securities Inc.
4.70%, 2/1/1999
(Dated 1/29/1999, Repurchase
Value $308,121,000, collateralized
by U.S. Treasury Bonds
8.875%-14.25%,
2/15/2001-8/15/2017) 308,000 308,000
----------
664,387
----------
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ----------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (2.6%)
<S> <C> <C>
Federal Home Loan Bank
5.083%, 3/3/1999 $ 50,000 $ 49,805
Federal Home Loan Mortgage Corp.
5.114%, 3/5/1999 35,000 34,840
5.156%, 2/26/1999 120,000 119,581
Federal National Mortgage Assn.
5.084%, 3/5/1999 53,000 52,779
----------
257,005
----------
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $1,504,956) 1,504,976
- ----------------------------------------------------------
TOTAL INVESTMENTS (101.3%)
(COST $6,811,795) 10,016,731
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.3%)
- ----------------------------------------------------------
Other Assets--Note C 50,828
Liabilities--Note H (183,217)
----------
(132,389)
----------
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 101,562,977 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $9,884,342
==========================================================
NET ASSET VALUE PER SHARE $97.32
==========================================================
</TABLE>
*See Note A in Notes to Financial Statements.
-Non-Income-Producing Security.
(1)Considered an affiliated company as the fund owns more
than 5% of the outstanding voting securities of such
company. The total market value of investments in affiliated
companies was $880,400,000.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ----------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
<S> <C> <C>
Paid in Capital $6,419,561 $63.20
Undistributed Net Investment
Income--Note G 7,231 .07
Accumulated Net Realized
Gains--Note G 246,418 2.43
Unrealized Appreciation--
Note F
Investment Securities 3,204,936 31.56
Foreign Currencies and
Forward Currency Contracts 6,196 .06
- ----------------------------------------------------------
NET ASSETS $9,884,342 $97.32
==========================================================
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
UTILITIES INCOME FUND SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (85.3%)
- ----------------------------------------------------------
<S> <C> <C>
ELECTRICAL (37.4%)
CMS Energy Corp. 300,000 $ 12,844
Central & South West Corp. 250,000 6,609
Central Hudson Gas &
Electric Corp. 216,300 8,720
Cilcorp, Inc. 85,000 4,898
Consolidated Edison Inc. 188,600 9,324
DPL Inc. 533,000 10,094
DQE Inc. 727,930 28,708
DTE Energy Co. 150,000 6,075
Edison International 550,000 15,297
Endesa SA ADR 399,800 11,244
FirstEnergy Corp. 300,000 9,319
GPU, Inc. 558,700 23,815
Minnesota Power, Inc. 115,000 4,650
Montana Power Co. 357,200 18,753
National Power PLC ADR 150,000 4,913
New England Electric System 517,100 25,306
NIPSCO Industries, Inc. 781,000 21,185
Northern States Power Co. 397,800 10,716
PECO Energy Corp. 475,000 18,139
Pinnacle West Capital Corp. 794,300 31,772
PowerGen PLC ADR 254,500 14,316
Public Service Co. of
New Mexico 200,000 3,763
Public Service Enterprise
Group, Inc. 450,000 17,859
Texas Utilities Co. 300,000 13,181
Unicom Corp. 550,000 19,594
Wisconsin Energy Corp. 200,000 5,200
----------
356,294
----------
GAS DISTRIBUTION (3.8%)
Energen Corp. 200,000 3,413
KN Energy, Inc. 187,500 3,703
MCN Energy Group Inc. 187,000 3,319
National Fuel Gas Co. 200,000 8,463
ONEOK, Inc. 145,400 4,253
Peoples Energy Corp. 75,000 2,588
Public Service Co. of North
Carolina, Inc. 39,300 911
Sempra Energy 424,071 9,754
----------
36,404
----------
INTEGRATED OILS (3.5%)
Coastal Corp. 100,000 2,981
Enron Corp. 400,000 26,400
Equitable Resources, Inc. 150,000 3,909
----------
33,290
----------
OTHER ENERGY (4.1%)
Columbia Energy Group 337,500 17,466
El Paso Energy Corp. 586,400 19,351
Westcoast Energy Inc. 100,000 2,006
----------
38,823
----------
TECHNOLOGY (2.1%)
Lucent Technologies, Inc. 175,000 19,698
----------
TELECOMMUNICATIONS (30.0%)
AT&T Corp. 400,000 36,300
ALLTEL Corp. 130,000 8,393
Ameritech Corp. 500,000 32,562
BCE, Inc. 100,000 4,463
Bell Atlantic Corp. 445,000 26,700
BellSouth Corp. 655,200 29,238
British Telecommunications
PLC ADR 100,000 15,588
Frontier Corp. 270,200 9,761
SBC Communications Inc. 389,200 21,017
Sprint Corp. 442,100 37,081
- - Sprint Corp. (PCS Group) 178,550 5,691
Telecom Corp. of New Zealand
Ltd. ADR 300,800 11,618
Telefonica SA 85,772 11,858
U S West, Inc. 332,000 20,480
Vodafone Group PLC ADR 75,000 14,644
----------
285,394
----------
WATER (0.5%)
American Water Works Co., Inc. 146,300 4,343
----------
OTHER (3.9%)
Duke Energy Corp. 327,220 20,226
MDU Resources Group, Inc. 300,000 6,900
TELUS Corp. 173,100 3,552
UtiliCorp United, Inc. 190,500 6,668
----------
37,346
----------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $603,681) 811,592
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
CORPORATE BONDS (11.5%)
- ----------------------------------------------------------
ELECTRIC (7.1%)
Alabama Power Co.
5.35%, 11/15/2003 $ 2,000 2,005
Arizona Public Service Co.
6.25%, 1/15/2005 2,000 2,047
Baltimore Gas & Electric Co.
7.50%, 1/15/2007 4,000 4,534
Carolina Power & Light Co.
8.625%, 9/15/2021 3,000 3,852
Central Power & Light Co.
7.25%, 10/1/2004 2,000 2,176
Consolidated Edison Co. of
New York, Inc.
6.45%, 12/1/2007 4,000 4,283
Duke Energy Corp.
6.625%, 2/1/2003 4,000 4,194
Florida Power Corp.
6.75%, 2/1/2028 2,900 3,122
GTE Southwest Inc.
6.23%, 1/1/2007 1,000 1,050
Kentucky Utilities Co.
7.92%, 5/15/2007 2,000 2,281
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ----------------------------------------------------------
<S> <C> <C>
Louisville Gas & Electric
6.00%, 8/15/2003 $ 2,000 $ 2,043
NRG Energy, Inc.
7.50%, 6/15/2007 1,000 1,053
Northern States Power Co.
5.75%, 10/1/2003 4,000 4,081
Oklahoma Gas & Electric Co.
6.50%, 4/15/2028 1,275 1,330
PECO Energy
6.50%, 5/1/2003 3,000 3,112
PP&L Capital Funding Inc.
6.79%, 11/22/2004 2,000 1,986
Potomac Electric Power Co.
6.50%, 9/15/2005 1,000 1,049
Public Service Co. of Colorado
7.125%, 6/1/2006 4,000 4,310
Southern California Edison Co.
6.25%, 6/15/2003 3,000 3,109
Southern Indiana Gas & Electric Co.
8.875%, 6/1/2016 3,400 4,240
Virginia Electric & Power Co.
6.00%, 8/1/2001 2,000 2,033
West Texas Utilities Co.
7.75%, 6/1/2007 1,500 1,733
Wisconsin Electric Power Co.
6.625%, 11/15/2006 2,000 2,153
Wisconsin Power & Light
5.70%, 10/15/2008 1,000 1,018
Wisconsin Public Service Corp.
6.80%, 2/1/2003 4,500 4,746
----------
67,540
----------
GAS (0.3%)
Atlanta Gas Light Co.
5.90%, 10/6/2003 2,000 2,044
Wisconsin Gas Co.
5.50%, 1/15/2009 535 532
----------
2,576
----------
TELEPHONE (4.1%)
AT&T Corp.
7.00%, 5/15/2005 2,000 2,168
Bell Atlantic Pennsylvania, Inc.
6.625%, 9/15/2002 3,500 3,621
Chesapeake & Potomac
Telephone Co. (MD)
8.30%, 8/1/2031 1,000 1,279
Chesapeake & Potomac
Telephone Co. (VA)
7.875%, 1/15/2022 2,000 2,441
GTE California Inc.
6.70%, 9/1/2009 2,000 2,192
GTE Corp.
7.51%, 4/1/2009 2,000 2,298
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 2,000 2,333
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 3,000 3,648
New York Telephone Co.
8.625%, 11/15/2010 2,500 3,131
Pacific Bell
6.625%, 11/1/2009 3,000 3,276
Southwestern Bell Telephone Co.
6.625%, 4/1/2005 3,000 3,212
Sprint Capital Corp.
5.70%, 11/15/2003 3,000 3,028
US West Capital Funding, Inc.
6.375%, 7/15/2008 3,000 3,189
United Telephone Co. of Florida
6.25%, 5/15/2003 2,000 2,052
WorldCom Inc.
6.40%, 8/15/2005 1,000 1,044
----------
38,912
----------
- ----------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $102,002) 109,028
- ----------------------------------------------------------
FOREIGN BOND (U.S. DOLLAR-DENOMINATED)(0.2%)
- ----------------------------------------------------------
United Utilities PLC
6.45%, 4/1/2008
(COST $1,999) 2,000 2,077
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.1%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.72%, 2/1/1999--Note H 12,028 12,028
4.73%, 2/1/1999 27,682 27,682
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $39,710) 39,710
- ----------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(COST $747,392) 962,407
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
- ----------------------------------------------------------
Other Assets--Note C 12,506
Liabilities--Note H (23,230)
----------
(10,724)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 58,486,139 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $951,683
==========================================================
NET ASSET VALUE PER SHARE $16.27
==========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
- ----------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
Paid in Capital--Note A $715,722 $12.23
Undistributed Net Investment
Income--Notes A and G 1,862 .03
Accumulated Net Realized
Gains--Note G 19,084 .33
Unrealized Appreciation--
Note F 215,015 3.68
- ----------------------------------------------------------
NET ASSETS $951,683 $16.27
==========================================================
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
MARKET
VALUE*
REIT INDEX FUND SHARES (000)
- ---------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (98.2%)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Alexandria Real Estate Equities, Inc. REIT 99,500 $ 2,842
AMB Property Corp. REIT 666,500 14,746
American Industrial Properties REIT 60,000 705
AMLI Residential Properties Trust REIT 133,700 2,799
Apartment Investment & Management Co.
Class A REIT 373,350 13,954
Archstone Communities Trust REIT 1,109,327 21,701
Arden Realty Group, Inc. REIT 478,500 10,766
Associated Estates Realty Corp. REIT 157,500 1,851
Avalonbay Communities, Inc. REIT 480,227 15,397
Bedford Property Investors, Inc. REIT 179,500 2,793
Berkshire Realty Co., Inc. REIT 289,900 2,827
Boston Properties, Inc. REIT 492,850 16,018
Boykin Lodging Co. REIT 143,200 1,978
Bradley Real Estate Inc. REIT 192,440 3,873
Brandywine Realty Trust REIT 301,200 4,970
BRE Properties Inc. Class A REIT 342,100 8,210
Burnham Pacific Properties, Inc. REIT 257,100 3,053
Cabot Industrial Trust REIT 97,000 1,916
Camden Property Trust REIT 348,226 8,662
Capital Automotive REIT 110,000 1,499
Captec Net Lease Realty, Inc. REIT 45,000 591
CarrAmerica Realty Corp. REIT 514,100 11,310
CBL & Associates Properties, Inc. REIT 191,000 4,703
CenterPoint Properties Corp. REIT 151,300 4,936
Centertrust Retail Properties, Inc. REIT 182,500 2,007
Chateau Communities, Inc. REIT 216,640 6,242
Chelsea GCA Realty, Inc. REIT 124,300 4,063
Colonial Properties Trust REIT 203,300 5,565
Commercial Net Lease Realty REIT 231,800 3,042
Cornerstone Properties, Inc. REIT 889,400 14,008
Cornerstone Realty Income Trust, Inc. REIT 338,900 3,431
Correctional Properties Trust REIT 15,000 291
Cousins Properties, Inc. REIT 248,249 7,758
Crescent Real Estate, Inc. REIT 922,100 19,537
Crown American Realty Trust REIT 217,400 1,698
Developers Diversified Realty Corp. REIT 447,600 7,441
Duke Realty Investments, Inc. REIT 626,513 14,410
EastGroup Properties, Inc. REIT 131,450 2,407
Entertainment Properties Trust REIT 105,800 1,746
Equity Inns, Inc. REIT 290,300 2,867
Equity Office Properties Trust REIT 2,020,701 51,528
Equity Residential Properties Trust REIT 935,178 38,050
Essex Property Trust, Inc. REIT 129,800 3,716
Federal Realty Investment Trust REIT 313,000 7,199
FelCor Lodging Trust, Inc. REIT 521,800 11,382
First Industrial Realty Trust REIT 296,000 7,603
First Union Real Estate REIT 249,500 1,248
First Washington Realty Trust, Inc. REIT 68,800 1,535
Franchise Finance Corp. of America REIT 408,900 9,405
Gables Residential Trust REIT 201,500 4,622
General Growth Properties Inc. REIT 277,400 9,605
Glenborough Realty Trust, Inc. REIT 250,700 4,403
Glimcher Realty Trust REIT 191,200 2,892
Golf Trust of America, Inc. REIT 51,000 1,297
Great Lakes, Inc. REIT 121,800 1,934
Highwood Properties, Inc. REIT 453,900 10,950
Home Properties of New York, Inc. REIT 123,900 3,214
- - Horizon Group Properties, Inc. REIT 22,070 99
Hospitality Properties Trust REIT 331,600 8,850
Host Marriott Corp. REIT 1,589,000 17,678
Innkeepers USA Trust REIT 275,800 3,206
IRT Property Co. REIT 267,900 2,646
Irvine Apartment Communities, Inc. REIT 157,700 5,066
Jameson Inns, Inc. REIT 114,500 1,066
JDN Realty Corp. REIT 244,500 5,196
JP Realty Inc. REIT 138,500 2,424
Kilroy Realty Corp. REIT 216,400 4,720
Kimco Realty Corp. REIT 438,800 17,113
Koger Equity, Inc. REIT 212,600 3,242
- - Konover Property Trust, Inc. REIT 134,100 872
Kranzco Realty Trust REIT 82,700 1,168
LaSalle Hotel Properties REIT 117,000 1,463
Lexford Residential Trust REIT 45,000 807
Lexington Corporate Properties Trust REIT 144,600 1,744
Liberty Property Trust REIT 467,700 11,049
The Macerich Co. REIT 241,400 5,944
Mack-Cali Realty Corp. REIT 448,500 13,399
Manufactured Home
Communities, Inc. REIT 205,300 4,863
Meridian Industrial Trust, Inc. REIT 251,000 5,820
MeriStar Hospitality Corp. REIT 356,596 6,864
- - MeriStar Hotels & Resorts, Inc. REIT 400 1
- - Merry Land Properties, Inc. REIT 16,985 72
Mid Atlantic Realty Trust REIT 119,300 1,260
Mid-America Apartment
Communities, Inc. REIT 145,900 3,383
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Mills Corp. REIT 190,553 $ 3,609
National Golf Properties, Inc. REIT 98,100 2,526
New Plan Excel Realty Trust REIT 698,761 14,674
Pacific Gulf Properties, Inc. REIT1 56,800 3,273
Pan Pacific Retail Properties, Inc. REIT 117,600 2,293
Parkway Properties Inc. REIT 81,500 2,583
Patriot American Hospitality, Inc. REIT 1,463,444 7,866
Pennsylvania REIT 109,700 2,194
Phillips International Realty Corp. REIT 32,900 494
Post Properties, Inc. REIT 272,813 10,162
Prentiss Properties Trust REIT 312,600 6,623
Prime Group Realty Trust REIT 116,300 1,708
Prime Retail, Inc. REIT 330,208 2,972
Prime Retail, Inc. REIT Series B 8.50% Cvt. Pfd. 16,100 257
Prison Realty Corp. REIT 680,000 13,940
ProLogis Trust REIT 951,443 20,159
PS Business Parks, Inc. REIT 135,000 3,063
Public Storage, Inc. REIT 953,300 24,250
Ramco-Gershenson Properties Trust REIT 57,500 888
Realty Income Corp. REIT 211,600 5,052
Reckson Associates Realty Corp. REIT 309,500 6,809
- - Reckson Service Industries, Inc. REIT 179,296 717
Regency Realty Corp. REIT 202,700 4,320
RFS Hotel Investors, Inc. REIT 204,300 2,592
Rouse Co. REIT 530,500 12,533
Saul Centers, Inc. REIT 101,400 1,470
Shurgard Storage Centers, Inc. Class A REIT 227,900 5,797
Simon Property Group, Inc. REIT 1,288,276 33,898
SL Green Realty Corp. REIT 184,000 3,726
Charles E. Smith Residential Realty, Inc. REIT 121,900 3,672
Sovran Self Storage, Inc. REIT 104,000 2,581
Spieker Properties, Inc. REIT 495,800 16,857
Storage Trust Realty REIT 127,600 2,791
Storage USA, Inc. REIT 217,400 6,767
Summit Properties, Inc. REIT 197,900 3,463
Sun Communities, Inc. REIT 132,000 4,439
Sunstone Hotel Investors, Inc. REIT 296,600 2,465
Tanger Factory Outlet Centers, Inc. REIT 64,300 1,294
Taubman Co. REIT 416,100 5,409
Tower Realty Trust, Inc. REIT 130,200 2,531
Town & Country Trust REIT 133,600 2,046
Trinet Corporate Realty Trust, Inc. REIT 193,600 5,155
U.S. Restaurant Properties, Inc. REIT 43,100 932
United Dominion Realty Trust REIT 794,476 7,845
Urban Shopping Centers, Inc. REIT 140,400 4,344
- - Vornado Operating Inc. REIT 3,249 24
Vornado Realty Trust REIT 639,782 22,592
Walden Residential Properties, Inc. REIT 142,700 2,836
Washington REIT 286,500 5,121
Weeks Corp. REIT 150,800 4,147
Weingarten Realty Investors REIT 209,000 8,229
Western Investment Real Estate Trust REIT 150,300 1,804
Westfield America, Inc. REIT 576,300 9,869
Winston Hotels, Inc. REIT 150,175 1,445
- ---------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $957,494) 888,317
- ---------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.9%)
- ---------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.72%, 2/1/1999--Note H $ 3,245 3,245
4.73%, 2/1/1999 14,089 14,089
- ---------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $17,334) 17,334
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(COST $974,828) 905,651
- ---------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.1%)
- ---------------------------------------------------------------------------------
Other Assets--Note C 5,651
Liabilities--Note H (7,030)
---------
(1,379)
- ---------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------
Applicable to 83,683,085 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $ 904,272
=================================================================================
NET ASSET VALUE PER SHARE $ 10.81
=================================================================================
*See Note A in Notes to Financial Statements
- -Non-Income-Producing Security.
- ---------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------------------
Paid in Capital $ 1,013,567 $ 12.11
Overdistributed Net
Investment Income (333) --
Accumulated Net
Realized Losses--Note G (39,785) (.47)
Unrealized Depreciation--
Note F (69,177) (.83)
- ---------------------------------------------------------------------------------
NET ASSETS $ 904,272 $ 10.81
=================================================================================
</TABLE>
37
<PAGE> 40
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by each fund during the
reporting period, and details the operating expenses charged to the fund. These
expenses directly reduce the amount of investment income available to pay to
shareholders as dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period--these
amounts include the effect of foreign currency movements on the value of a
fund's securities. Currency gains (losses) on the translation of other assets
and liabilities are shown separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
GOLD AND UTILITIES
ENERGY PRECIOUS HEALTH CARE INCOME
FUND METALS FUND FUND FUND
---------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1999
---------------------------------------------------------------------
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 16,315 $ 6,046 $ 56,774** $ 22,449
Interest 2,329 632 45,614 8,296
Security Lending 144 110 651 84
---------------------------------------------------------------------
Total Income 18,788 6,788 103,039 30,829
---------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 688 712 4,847 550
The Vanguard Group--Note C
Management and Administrative 2,933 1,524 17,268 2,278
Marketing and Distribution 267 74 1,382 139
Taxes (other than income taxes) 36 10 185 23
Custodian Fees 156 120 856 23
Auditing Fees 7 6 10 6
Shareholders' Reports 63 35 236 36
Annual Meeting and Proxy Costs 7 4 28 4
Trustees' Fees and Expenses 2 1 13 1
---------------------------------------------------------------------
Total Expenses 4,159 2,486 24,825 3,060
Expenses Paid Indirectly--Note D (37) -- (334) (165)
---------------------------------------------------------------------
Net Expenses 4,122 2,486 24,491 2,895
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 14,666 4,302 78,548 27,934
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 483 (36,209) 424,185** 65,412
Foreign Currencies and Forward
Currency Contracts (13) (108) (7,037) --
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 470 (36,317) 417,148 65,412
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities (231,902) (6,080) 1,678,304 52,370
Foreign Currencies and Forward
Currency Contracts 6 1 6,200 --
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (231,896) (6,079) 1,684,504 52,370
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (216,760) $ (38,094) $ 2,180,200 $ 145,716
=========================================================================================================================
</TABLE>
* Gold and Precious Metals Fund dividends are net of foreign withholding taxes
of $224,000.
** Dividend income and realized net loss from affiliated companies were
$6,621,000 and $4,874,000, respectively.
38
<PAGE> 41
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
REIT INDEX FUND
YEAR ENDED JANUARY 31, 1999
(000)
- ------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends $ 58,582
Interest 996
Security Lending 1,083
-------------
Total Income 60,661
-------------
EXPENSES
Investment Advisory Fees--Note B 53
The Vanguard Group--Note C
Management and Administrative 2,428
Marketing and Distribution 346
Taxes (other than income taxes) 39
Custodian Fees 15
Auditing Fees 7
Shareholders' Reports 47
Annual Meeting and Proxy Costs 6
Trustees' Fees and Expenses 2
-------------
Total Expenses 2,943
Expenses Paid Indirectly--Note D --
-------------
Net Expenses 2,943
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 57,718
- ------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (39,785)
Foreign Currencies and Forward Currency Contracts --
- ------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (39,785)
- ------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (236,893)
Foreign Currencies and Forward Currency Contracts --
- ------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (236,893)
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (218,960)
======================================================================================================
</TABLE>
39
<PAGE> 42
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ENERGY GOLD AND PRECIOUS
FUND METALS FUND
---------------------------------- ----------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 14,666 $ 14,677 $ 4,302 $ 5,747
Realized Net Gain (Loss) 470 54,583 (36,317) (47,861)
Change in Unrealized Appreciation (Depreciation) (231,896) (41,233) (6,079) (99,396)
---------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (216,760) 28,027 (38,094) (141,510)
---------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (15,275) (14,815) (4,222) (5,466)
Realized Capital Gain (18,471) (60,830) -- --
---------------------------------------------------------------------
Total Distributions (33,746) (75,645) (4,222) (5,466)
---------------------------------------------------------------------
NET EQUALIZATION CHARGES--Note A -- -- -- --
---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 283,737 374,120 134,740 159,325
Issued in Lieu of Cash Distributions 31,524 71,118 3,874 5,078
Redeemed* (394,911) (296,584) (113,797) (152,618)
---------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions (79,650) 148,654 24,817 11,785
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (330,156) 101,036 (17,499) (135,191)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,090,485 989,449 327,318 462,509
---------------------------------------------------------------------
End of Year $ 760,329 $ 1,090,485 $ 309,819 $ 327,318
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 13,075 15,493 19,282 17,750
Issued in Lieu of Cash Distributions 1,690 3,106 568 750
Redeemed (18,532) (12,742) (16,479) (17,263)
---------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding (3,767) 5,857 3,371 1,237
=========================================================================================================================
</TABLE>
*Net of redemption fees of $654,000, $1,077,000, $461,000, and $408,000,
respectively.
40
<PAGE> 43
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
HEALTH CARE UTILITIES INCOME
FUND FUND
--------------------------------- ----------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 78,548 $ 48,482 $ 27,934 $ 26,745
Realized Net Gain (Loss) 417,148 171,361 65,412 22,544
Change in Unrealized Appreciation (Depreciation) 1,684,504 666,900 52,370 79,184
---------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,180,200 886,743 145,716 128,473
---------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (74,779) (46,289) (29,408) (27,443)
Realized Capital Gain (253,199) (121,343) (53,436) (11,501)
---------------------------------------------------------------------
Total Distributions (327,978) (167,632) (82,844) (38,944)
---------------------------------------------------------------------
NET EQUALIZATION CHARGES--Note A -- -- -- (644)
---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 3,680,601 1,378,304 268,167 105,388
Issued in Lieu of Cash Distributions 311,662 160,547 70,652 31,731
Redeemed* (679,962) (384,219) (148,945) (170,921)
---------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 3,312,301 1,154,632 189,874 (33,802)
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 5,164,523 1,873,743 252,746 55,083
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 4,719,819 2,846,076 698,937 643,854
---------------------------------------------------------------------
End of Year $9,884,342 $ 4,719,819 $951,683 $ 698,937
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 42,315 20,122 16,838 7,656
Issued in Lieu of Cash Distributions 3,515 2,370 4,463 2,322
Redeemed (8,032) (5,652) (9,519) (13,079)
---------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 37,798 16,840 11,782 (3,101)
=========================================================================================================================
</TABLE>
*Health Care Fund amounts are net of redemption fees of $418,000 and $1,083,000,
respectively.
41
<PAGE> 44
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- -------------------------------------------------------------------------------------------------------------------------
REIT INDEX FUND
YEAR ENDED JANUARY 31,
-------------------------------
1999 1998
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 57,718 $ 46,066
Realized Net Gain (Loss) (39,785) 6,711
Change in Unrealized Appreciation (Depreciation) (236,893) 104,420
--------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (218,960) 157,197
--------------------------------
DISTRIBUTIONS
Net Investment Income (57,832) (46,253)
Realized Capital Gain -- (6,711)
Return of Capital (12,496) (7,411)
--------------------------------
Total Distributions (70,328) (60,375)
--------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 374,461 637,888
Issued in Lieu of Cash Distributions 63,043 52,704
Redeemed* (560,676) (125,350)
--------------------------------
Net Increase (Decrease) from Capital Share Transactions (123,172) 565,242
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (412,460) 662,064
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,316,732 654,668
--------------------------------
End of Year $ 904,272 $1,316,732
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 29,719 48,033
Issued in Lieu of Cash Distributions 5,251 3,915
Redeemed (45,501) (9,538)
--------------------------------
Net Increase (Decrease) in Shares Outstanding (10,531) 42,410
=========================================================================================================================
*Net of redemption fees of $1,252,000 and $766,000, respectively.
</TABLE>
42
<PAGE> 45
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the
fund; and the extent to which the fund tends to distribute capital gains. The
table also shows the Portfolio Turnover Rate, a measure of trading activity. A
turnover rate of 100% means that the average security is held in the fund for
one year.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ENERGY FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $22.68 $23.44 $17.19 $13.82 $15.77
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .33 .32 .25 .27 .23
Net Realized and Unrealized Gain (Loss) on Investments (5.08) .57 6.64 3.68 (1.65)
-------------------------------------------------------------
Total from Investment Operations (4.75) .89 6.89 3.95 (1.42)
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.35) (.32) (.24) (.28) (.24)
Distributions from Realized Capital Gains (.42) (1.33) (.40) (.30) (.29)
-------------------------------------------------------------
Total Distributions (.77) (1.65) (.64) (.58) (.53)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.16 $22.68 $23.44 $17.19 $13.82
=========================================================================================================================
TOTAL RETURN* -21.20% 3.80% 40.32% 28.68% -9.15%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $760 $1,090 $989 $505 $433
Ratio of Total Expenses to Average Net Assets 0.41% 0.38% 0.39% 0.51% 0.30%
Ratio of Net Investment Income to Average Net Assets 1.46% 1.36% 1.36% 1.55% 1.66%
Portfolio Turnover Rate 22% 19% 15% 21% 13%
=========================================================================================================================
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
43
<PAGE> 46
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- ---------------------------------------------------------------------------------------------------------------------------
GOLD AND PRECIOUS METALS FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.53 $10.94 $14.07 $10.71 $13.58
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT OPERATIONS
Net Investment Income .10 .14 .13 .17 .27
Net Realized and Unrealized Gain (Loss) on Investments (.93) (3.42) (2.98) 3.36 (2.83)
--------------------------------------------------------------
Total from Investment Operations (.83) (3.28) (2.85) 3.53 (2.56)
--------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.09) (.13) (.21) (.17) (.31)
Distributions from Realized Capital Gains -- -- (.07) -- --
--------------------------------------------------------------
Total Distributions (.09) (.13) (.28) (.17) (.31)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.61 $ 7.53 $10.94 $14.07 $10.71
===========================================================================================================================
TOTAL RETURN* -11.06% -29.85% -20.51% 33.24% -19.20%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $310 $327 $463 $648 $531
Ratio of Total Expenses to Average Net Assets 0.77% 0.62% 0.50% 0.60% 0.25%
Ratio of Net Investment Income to Average Net Assets 1.33% 1.41% 1.07% 1.38% 2.04%
Portfolio Turnover Rate 23% 26% 19% 5% 4%
===========================================================================================================================
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
HEALTH CARE FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $74.02 $60.65 $52.09 $37.01 $36.51
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .86 .80 .71 .61 .55
Net Realized and Unrealized Gain (Loss) on Investments 26.36 15.49 9.88 16.06 2.83
-------------------------------------------------------------
Total from Investment Operations 27.22 16.29 10.59 16.67 3.38
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.84) (.78) (.74) (.57) (.57)
Distributions from Realized Capital Gains (3.08) (2.14) (1.29) (1.02) (2.31)
-------------------------------------------------------------
Total Distributions (3.92) (2.92) (2.03) (1.59) (2.88)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $97.32 $74.02 $60.65 $52.09 $37.01
==========================================================================================================================
TOTAL RETURN* 37.39% 27.37% 20.65% 45.47% 9.79%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $9,884 $4,720 $2,846 $1,654 $771
Ratio of Total Expenses to Average Net Assets 0.36% 0.40% 0.38% 0.46% 0.40%
Ratio of Net Investment Income to Average Net Assets 1.13% 1.28% 1.41% 1.57% 1.58%
Portfolio Turnover Rate 11% 10% 7% 13% 25%
==========================================================================================================================
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
44
<PAGE> 47
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
UTILITIES INCOME FUND
YEAR ENDED JANUARY 31,
-------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.97 $12.93 $12.84 $10.42 $11.67
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .55 .58 .58 .56 .56
Net Realized and Unrealized Gain (Loss) on Investments 2.35 2.32 .09 2.42 (1.10)
-------------------------------------------------------------
Total from Investment Operations 2.90 2.90 .67 2.98 (.54)
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.59) (.60) (.56) (.56) (.59)
Distributions from Realized Capital Gains (1.01) (.26) (.02) -- (.12)
-------------------------------------------------------------
Total Distributions (1.60) (.86) (.58) (.56) (.71)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.27 $14.97 $12.93 $12.84 $10.42
==========================================================================================================================
TOTAL RETURN 19.92% 23.17% 5.51% 29.47% -4.47%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $952 $699 $644 $781 $593
Ratio of Total Expenses to Average Net Assets 0.38% 0.44% 0.40% 0.44% 0.50%
Ratio of Net Investment Income to Average Net Assets 3.51% 4.30% 4.63% 4.88% 5.43%
Portfolio Turnover Rate 55% 41% 38% 35% 35%
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
REIT INDEX FUND
YEAR ENDED JANUARY 31,
---------------------- MAY 13, 1996,* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1999 1998 JAN. 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.98 $12.64 $10.00
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .666 .590 .341
Net Realized and Unrealized Gain (Loss) on Investments (3.026) 1.520 2.659
------------------------------------------------
Total from Investment Operations (2.360) 2.110 3.000
------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.666) (.590) (.341)
Distributions from Realized Capital Gains -- (.086) (.005)
Return of Capital (.144) (.094) (.014)
------------------------------------------------
Total Distributions (.810) (.770) (.360)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.81 $13.98 $12.64
==========================================================================================================================
TOTAL RETURN** -17.31% 17.08% 30.33%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $904 $1,317 $655
Ratio of Total Expenses to Average Net Assets 0.26% 0.24% 0.36%+
Ratio of Net Investment Income to Average Net Assets 5.19% 4.66% 5.55%+
Portfolio Turnover Rate 29% 2% 0%
==========================================================================================================================
</TABLE>
*Inception.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
+Annualized.
45
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
Vanguard Specialized Funds comprise the Energy, Gold and Precious Metals, Health
Care, Utilities Income, and REIT Index Funds, each of which is registered under
the Investment Company Act of 1940 as a diversified open-end investment company,
or mutual fund. The Energy, Gold and Precious Metals, Health Care, and Utilities
Income Funds 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 Fund 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 conform to generally
accepted accounting principles for mutual funds. The funds consistently follow
such policies in preparing their financial statements.
1. SECURITY VALUATION: Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on the valuation date; such securities not
traded on the valuation date are valued at the mean of the latest quoted bid and
asked prices. Prices are taken from the primary market in which each security
trades. Precious metals are valued at the mean of the latest quoted bid and
asked prices. Bonds, and temporary cash investments acquired over 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temporary cash investments are valued at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued by methods deemed by the Board of Trustees to
represent fair value.
2. FOREIGN CURRENCY: Securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at the
exchange rates on the valuation date as employed by Morgan Stanley Capital
International in the calculation of its indexes.
Realized gains (losses) and unrealized appreciation (depreciation) on
investment securities include the effects of changes in exchange rates since
the securities were purchased, combined with the effects of changes in security
prices. Fluctuations in the value of other assets and liabilities resulting
from changes in exchange rates are recorded as unrealized foreign currency
gains (losses) until the asset or liability is settled in cash, when they are
recorded as realized foreign currency gains (losses).
3. FORWARD CURRENCY CONTRACTS: The Health Care Fund enters into forward
currency contracts to protect the value of securities and related receivables
and payables against changes in future foreign exchange rates. The fund's risks
in using these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the ability of the counterparties to
fulfill their obligations under the contracts.
Forward currency contracts are valued at their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized forward currency contract gains
(losses).
4. EQUALIZATION: Prior to February 1998, the Utilities Income Fund
followed 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, was credited or
charged to undistributed income. As a result, undistributed income per share
was unaffected by capital share transactions. As of February 1, 1998, the fund
has discontinued equalization accounting and has reclassified accumulated net
equalization credits of $5,366,000 from undistributed net investment income to
paid in capital. This reclassification has no effect on the fund's net assets,
results of operations, or net asset value per share.
46
<PAGE> 49
5. REPURCHASE AGREEMENTS: The funds, along with other members of The
Vanguard Group, transfer uninvested cash balances to a Pooled Cash Account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other
party to the agreement, retention of the collateral may be subject to legal
proceedings.
6. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
7. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold. Premiums and discounts on debt
securities purchased are amortized and accreted, respectively, to interest
income over the lives of the respective securities. Fees assessed on
redemptions of capital shares are credited to paid in capital.
B. Wellington Management Company, LLP, provides investment advisory services
to the Energy, Health Care, and Utilities Income Funds for fees calculated at
an annual percentage rate of average net assets. For the year ended January 31,
1999, the investment advisory fees of the Energy, Health Care, and Utilities
Income Funds represented an effective annual rate of 0.07% of each fund's
average net assets.
M&G Investment Management Ltd. provides investment advisory services to
the Gold and Precious Metals Fund for a fee calculated at an annual percentage
rate of average net assets. For the year ended January 31, 1999, the investment
advisory fee represented an effective annual rate of 0.22% of the fund's
average net assets.
The Vanguard Group furnishes investment advisory services to the REIT
Index Fund on an at-cost basis.
C. The Vanguard Group furnishes at cost corporate management,
administrative, marketing, and distribution services. The costs of such
services are allocated to each fund under methods approved by the Board of
Trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At January 31, 1999, the funds had
contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF
TO VANGUARD OF FUND VANGUARD'S
SPECIALIZED FUND (000) NET ASSETS CAPITALIZATION
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy $ 140 0.02% 0.2%
Gold and Precious Metals 56 0.02 0.1
Health Care 1,589 0.02 2.3
Utilities Income 161 0.02 0.2
REIT Index 161 0.02 0.2
--------------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
D. Vanguard has asked the funds' investment advisers to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate to the funds part of the commissions generated. Such
rebates are used solely to reduce the funds' administrative expenses. The
funds' custodian banks have also agreed to reduce their fees when the funds
maintain cash on
47
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (continued)
deposit in their non-interest-bearing custody accounts. For the year ended
January 31, 1999, directed brokerage and custodian fee offset arrangements
reduced expenses by:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
EXPENSE
REDUCTION TOTAL EXPENSE
(000) REDUCTION AS
--------------------------------------- A PERCENTAGE
DIRECTED CUSTODIAN OF AVERAGE
SPECIALIZED FUND BROKERAGE FEES NET ASSETS
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy $ 32 $ 5 --
Health Care 256 78 0.01%
Utilities Income 164 1 0.02
------------------------------------------------------------------------------------------------
</TABLE>
E. During the year ended January 31, 1999, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
-----------------------------------
SPECIALIZED FUND PURCHASES SALES
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Energy $ 213,687 $322,551
Gold and Precious Metals 97,721 73,399
Health Care 2,796,735 678,837
Utilities Income 540,683 421,305
REIT Index 315,319 429,067
-----------------------------------------------------------------------------------------------
</TABLE>
F. At January 31, 1999, net unrealized appreciation (depreciation) of
investment securities for federal income tax purposes was:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(000)
------------------------------------------------------------
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION
SPECIALIZED FUND SECURITIES SECURITIES (DEPRECIATION)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy $ 94,217 $(107,100) $ (12,883)
Gold and Precious Metals* 45,435 (152,598) (107,163)
Health Care 3,420,168 (215,232) 3,204,936
Utilities Income 220,488 (5,473) 215,015
REIT Index 35,484 (104,661) (69,177)
-------------------------------------------------------------------------------------------------
*See Note G.
</TABLE>
At January 31, 1999, the Health Care Fund had open forward currency
contracts to deliver foreign currency in exchange for U.S. dollars as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(000)
---------------------------------------------------------
CONTRACT AMOUNT
---------------------
FOREIGN U.S. MARKET VALUE IN UNREALIZED
CONTRACT SETTLEMENT DATE CURRENCY DOLLARS U.S. DOLLARS APPRECIATION
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deliver:
4/16/1999 JPY 17,832,450 $160,942 $154,775 $6,167
---------------------------------------------------------------------------------------------------
JPY--Japanese yen.
</TABLE>
48
<PAGE> 51
Net unrealized appreciation on open futures contracts is required to be treated
as realized gain for tax purposes.
At January 31, 1999, the Health Care Fund had net unrealized foreign
currency gains resulting from the translation of other assets and liabilities
of $29,000.
G. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
During the year ended January 31, 1999, the funds realized net foreign
currency gains (losses) that increased (decreased) distributable net income for
tax purposes; accordingly such gains (losses) have been reclassified from
accumulated net realized gains (losses) to undistributed net investment income
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(000)
----------------------------------
INCREASE (DECREASE) UNDISTRIBUTED
SPECIALIZED FUND NET INVESTMENT INCOME
---------------------------------------------------------------------------------------------------
<S> <C>
Energy $ (13)
Gold and Precious Metals (108)
Health Care 4
---------------------------------------------------------------------------------------------------
</TABLE>
For federal tax purposes, Energy Fund capital gains required to be
distributed in December 1998 included net gains realized through October 31,
1998. Subsequently, the fund realized capital losses of $15,102,000 which are
available to offset future net capital gains.
At January 31, 1999, the Gold and Precious Metals Fund had available
realized losses of $90,606,000 to offset future net capital gains of $2,873,000
through January 31, 2005, $19,472,000 through January 31, 2006, $67,666,000
through January 31, 2007, and $595,000 through January 31, 2008. Certain of the
fund's investments are 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 income for tax purposes.
During the year ended January 31, 1999, the Gold and Precious Metals Fund
realized gains on the sale of passive foreign investment companies of $965,000,
which were included in prior years' distributable net income for tax purposes;
accordingly, such gains have been reclassified from accumulated net realized
losses to undistributed net investment income. The cumulative total of
distributions related to passive foreign investment company holdings at January
31, 1999, was $3,220,000, and is reflected in the balance of overdistributed net
investment income.
The Utilities Income Fund had gains of $1,050,000 on securities held for
less than one year which are treated as ordinary income for tax purposes and
have been included in income dividends to shareholders; accordingly, such gains
have been reclassified from accumulated net realized gains to undistributed net
investment income.
At January 31, 1999, the REIT Index Fund had available realized losses of
$39,785,000 to offset future net capital gains of $7,983,000 through January 31,
2007, and $31,802,000 through January 31, 2008.
49
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (continued)
H. The market value of securities on loan to broker/dealers at January 31, 1999,
and collateral received with respect to such loans were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
------------------------------------
MARKET VALUE CASH
OF LOANED COLLATERAL
SPECIALIZED FUND SECURITIES RECEIVED
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Energy $16,335 $16,397
Gold and Precious Metals 12 13
Health Care 11,158 17,113
Utilities Income 11,615 12,028
REIT Index 3,042 3,245
-----------------------------------------------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements.
50
<PAGE> 53
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees of
Vanguard Specialized Funds
In our opinion, the accompanying statements of net assets (and statements of
assets and liabilities for Vanguard Energy Fund) and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Vanguard Energy
Fund, Vanguard Gold and Precious Metals Fund, Vanguard Health Care Fund,
Vanguard Utilities Income Fund and Vanguard REIT Index Fund (constituting
Vanguard Specialized Funds, hereafter referred to as the "Funds") at January
31, 1999, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at January 31, 1999 by correspondence with the custodians and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 11, 1999
51
<PAGE> 54
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD SPECIALIZED FUNDS
This information for the fiscal year ended January 31, 1999, is included
pursuant to provisions of the Internal Revenue Code.
The funds distributed capital gain dividends (from net long-term
capital gains) to shareholders during the fiscal year ended January 31, 1999,
all of which are designated as 20% rate gain distributions, as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
CAPITAL GAIN
DIVIDENDS DISTRIBUTED
SPECIALIZED FUND (000)
-----------------------------------------------------------------------------
<S> <C>
Energy $ 18,471
Health Care 237,133
Utilities Income 46,735
-----------------------------------------------------------------------------
</TABLE>
The Gold and Precious Metals Fund has elected to pass through credit
for taxes paid in foreign countries. The foreign income and foreign tax per
share outstanding on January 31, 1999, are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
GROSS FOREIGN FOREIGN
COUNTRY DIVIDENDS TAX
----------------------------------------------------------------------
<S> <C> <C>
Australia $.0435 $.0025
Canada .0073 .0011
Ghana .0069 .0007
South Africa .0617 .0000
United Kingdom .0035 .0005
----------------------------------------------------------------------
</TABLE>
The pass-through of foreign tax credit affected only shareholders on
the dividend record date in December 1998. Shareholders received more detailed
information along with their Form 1099-DIV in January 1999.
For corporate shareholders, the percentage of investment income
(dividend income plus short-term gains, if any) that qualifies for the
dividends-received deduction is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
QUALIFYING
SPECIALIZED FUND PERCENTAGE
----------------------------------------------------------------------
<S> <C>
Energy 75.6%
Gold and Precious Metals 11.3
Health Care 41.6
Utilities Income 49.8
REIT Index 0.0
----------------------------------------------------------------------
</TABLE>
52
<PAGE> 55
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & Johnson-Merck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress
& Co., The Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
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 Co., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
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 Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"STANDARD & POOR'S(R)," "S&P(R)," "S&P 500(R)," "STANDARD & POOR'S 500," AND
"500" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. FRANK RUSSELL
COMPANY IS THE OWNER OF TRADEMARKS AND COPYRIGHTS RELATING TO THE
RUSSELL INDEXES. "WILSHIRE 4500" AND "WILSHIRE 5000" ARE
TRADEMARKS OF WILSHIRE ASSOCIATES.
<PAGE> 56
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago,
on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
Q510-03/22/1999
(C) 1999 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.
