<PAGE> 1
VANGUARD(R)
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, 2000
[THE VANGUARD GROUP LOGO]
<PAGE> 2
[PHOTO]
John C. Bogle
FELLOW SHAREHOLDERS:
Two roads diverged in a wood, and I--I took the one less traveled by, and
that has made all the difference.
I can think of no better words than those of Robert Frost to begin this
special letter to our shareholders, who have placed such extraordinary trust in
me and in Vanguard over the past quarter century. When the firm was founded 25
years ago, we deliberately took a new road to managing a mutual fund enterprise.
Instead of having the funds controlled by an outside management company with its
own financial interests, the Vanguard funds--there were only 11 of them
then--would be controlled by their own shareholders and operate solely in their
financial interests. The outcome of our unprecedented decision was by no means
certain. We described it then as "The Vanguard Experiment."
Well, I guess it's fair to say it's an experiment no more. During the past
25 years, the assets we hold in stewardship for investors have grown from $1
billion to more than $500 billion, and I believe that our reputation for
integrity, fair-dealing, and sound investment principles is second to none in
this industry. Our staggering growth--which I never sought--has come in
important part as a result of the simple investment ideas and basic human values
that are the foundation of my personal philosophy. I have every confidence that
they will long endure at Vanguard, for they are the right ideas and right
values, unshakable and eternal.
While Emerson believed that "an institution is the lengthened shadow of one
man," Vanguard today is far greater than any individual. The Vanguard crew has
splendidly implemented and enthusiastically supported our founding ideas and
values, and deserves the credit for a vital role in forging our success over the
years. It is a dedicated crew of fine human beings, working together in an
organization that is well prepared to press on regardless long after I am gone.
Creating and leading this enterprise has been an exhilarating run. Through it
all, I've taken the kudos and the blows alike, enjoying every moment to the
fullest, and even getting a second chance at life with a heart transplant four
years ago. What more could a man ask?
While I shall no longer be serving on the Vanguard Board, I want to assure
you that I will remain vigorous and active in a newly created Vanguard unit,
researching the financial markets, writing, and speaking. I'll continue to focus
whatever intellectual power and ethical strength I possess on my mission to
assure that mutual fund investors everywhere receive a fair shake. In the spirit
of Robert Frost:
But I have promises to keep, and miles to go before I sleep, and miles to go
before I sleep.
You have given me your loyalty and friendship over these long years, and I
deeply appreciate your thousands of letters of support. For my part, I will
continue to keep an eagle eye on your interests, for you deserve no less. May
God bless you all, always.
/s/ JCB
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
REPORT FROM THE CHAIRMAN................... 1
AFTER-TAX RETURNS REPORT................... 8
THE MARKETS IN PERSPECTIVE................. 10
REPORTS FROM THE ADVISERS.................. 12
FUND PROFILES.............................. 16
PERFORMANCE SUMMARIES...................... 25
FINANCIAL STATEMENTS....................... 30
REPORT OF INDEPENDENT ACCOUNTANTS.......... 52
</TABLE>
<PAGE> 3
REPORT FROM THE CHAIRMAN
[PHOTO]
JOHN J. BRENNAN
The overall U.S. stock market posted solid gains during the 12 months ended
January 31, 2000, the fiscal year for the Vanguard Specialized Funds. However,
results varied widely for various market sectors during the period, a fact that
was reflected in the returns for the five funds. These ranged from a -1.0%
decline for the REIT Index Fund to a 25.8% advance for the Energy Fund. The
table at right presents the 12-month total returns (capital change plus
reinvested dividends) of each fund, along with those of its comparative fund
group and a relevant unmanaged index. It also presents the return of the
Standard & Poor's 500 Index, which represents about 80% of the market value of
U.S. stocks.
Details on each fund, including per-share net asset values, income
dividends, and any capital gains distributions, appear in the table that
follows this letter.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED
JANUARY 31, 2000
- --------------------------------------------------------------
<S> <C>
VANGUARD HEALTH CARE FUND 10.6%
Average Health/Biotechnology Fund* 29.0
S&P Health Sector Index -2.9
- --------------------------------------------------------------
VANGUARD ENERGY FUND 25.8%
Average Natural Resources Fund* 31.2
S&P Energy Sector Index 26.0
- --------------------------------------------------------------
S&P 500 Index 10.3%
- --------------------------------------------------------------
VANGUARD REIT INDEX FUND -1.0%
Average Real Estate Fund* -2.3
Morgan Stanley REIT Index -1.2
- --------------------------------------------------------------
VANGUARD UTILITIES INCOME FUND 2.8%
Average Utility Fund* 17.1
Utilities Composite Index** 3.3
- --------------------------------------------------------------
VANGUARD GOLD AND PRECIOUS METALS FUND 17.5%
Average Gold-Oriented Fund* -4.6
Salomon Smith Barney World Equity
Gold Index 14.2
- --------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
**Weighted 63.75% S&P Utilities Index, 21.25%
S&P Telephone Index, and 15% Lehman Utility
Bond Index.
FINANCIAL MARKETS IN REVIEW
The U.S. economic expansion tied an all-time endurance record and stock
prices rose during the 12 months ended January 31. The Wilshire 5000 Total
Market Index, which tracks the entire U.S. market, posted a 14.4% return, led
by a surge in technology stocks (the tech-heavy Nasdaq Composite Index gained
58.8%).
Big mergers were in vogue around the world, touching nearly every market
sector. Among the pairings: Consolidated Edison took over Northeast Utilities
(electric utilities); MCI WorldCom won a bidding battle for Sprint
(long-distance phone service); Exxon acquired Mobil (oil); and Glaxo Wellcome
and SmithKline Beecham agreed to a merger (pharmaceuticals). Among media
companies, Internet service provider America Online took over Time Warner. In
wireless communications, Vodafone AirTouch won a long battle to acquire
Mannesmann.
The stock market's advance was surprising, given the weakness of bonds
during fiscal 2000. Bond prices fell as interest rates rose sharply. Yields of
10-year U.S. Treasury notes rose more than 2 percentage points, and the
benchmark 30-year Treasury bond's yield increased 1.4 percentage points to
6.49%. The overall bond market, as measured by the Lehman Brothers Aggregate
Bond Index, recorded a total return of -1.9%.
1
<PAGE> 4
FISCAL 2000 PERFORMANCE OVERVIEW
Four of the five Vanguard Specialized Funds posted positive returns during the
12 months. The Energy Fund and the Gold and Precious Metals Fund enjoyed strong
gains of 25.8% and 17.5%, respectively. The Health Care Fund's 10.6% return was
in line with that of the large-capitalization-dominated Standard & Poor's 500
Index. The Utilities Income Fund managed only a small positive return (2.8%),
while the REIT Index Fund posted a -1.0% decline, for its second consecutive
down year. A detailed look at each fund's performance during fiscal 2000 and
over the longer term follows.
HEALTH CARE FUND
Health-care stocks had a weak first half but revived during the second half of
our fiscal year. Vanguard Health Care Fund posted a 12-month total return of
10.6%--its seventh consecutive fiscal year of positive returns. Your fund
topped the S&P 500 Index by 0.3 percentage point and was well ahead of the
- -2.9% return of the S&P Health Sector Index, although it lagged the 29.0%
average return for health/biotechnology funds.
It was a disappointing year for the stocks of most large pharmaceutical and
managed-care companies. There was one very bright spot in the health-care
group--biotechnology stocks soared, with a number of individual issues doubling
in price during the 12-month period. The Health Care Fund held a number of
biotech stocks--including Immunex, a developer of genetically engineered drugs,
which soared 152% in the last three months of 1999--but had a smaller stake in
the group than a number of competing funds. Our investment adviser, Wellington
Management Company, LLP, maintains a relatively conservative, diversified
portfolio. As of January 31, the fund held more than 130 stocks, including
major pharmaceutical firms, specialty pharmaceutical companies,
medical-products providers, health-services providers, and international
health-care concerns. About 9% of total assets were in cash investments at our
fiscal year-end.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED JANUARY 31, 2000
----------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ---------------------------------------------------------------------------
<S> <C> <C>
Vanguard Health Care Fund 22.6% $76,462
- ---------------------------------------------------------------------------
Average Health/Biotechnology Fund 21.1% $68,015
- ---------------------------------------------------------------------------
S&P Health Sector Index 21.4% $69,304
S&P 500 Index 18.4 54,242
- ---------------------------------------------------------------------------
</TABLE>
Being diversified within the sector has worked well over the long haul for
the Health Care Fund. As the table below shows, our average annual return
during the past decade was 22.6%, or 1.5 percentage points better, on average,
than the return posted by the average peer fund. We achieved this result with
less volatility, too, thanks to our more diversified character. A $10,000
investment made ten years ago in our fund would have grown to $76,462, assuming
the reinvestment of all dividends and capital gains distributions. This was
nearly $8,500 more than would have resulted from an identical investment in the
average fund in our peer group, an advantage equal to roughly 85% of the
initial investment.
Our fine record stems from both the skill of our adviser and the head start
provided year after year by our lower operating costs. The fund's expense ratio
in fiscal 2000 amounted to 0.41%, or $4.10 per $1,000 of assets, one-fourth the
expense ratio of 1.67%, or $16.70 per $1,000, charged by the average
health/biotechnology fund. In any given year, of
2
<PAGE> 5
course, factors such as concentration in a particular sector or fortuitous
stock-picking can overwhelm the effects of low operating costs. But over the
long run, it is extremely difficult to overcome an annual cost differential of
1 percentage point or more.
As you know, the Board of Trustees closed the Health Care Fund to new
investors between February and December. We took the step--and two related
measures--to avert large cash inflows, which followed the fund's stunning
performance in 1998 and threatened to crimp our adviser's investment approach.
The cooling of the sector in 1999 dampened the fervor over health-care stocks,
enabling us to reopen the fund. Its new $10,000 minimum initial investment
requirement for nonretirement accounts and the extension of the 1% redemption
fee to shares held less than five years (for shares purchased on or after April
19, 1999) should also serve long-term investors well.
ENERGY FUND
Vanguard Energy Fund had a robust total return of 25.8% during the fiscal year,
a rebound from the steep decline it suffered the previous year. The average
natural resources fund did even better, gaining 31.2%. Both your fund and its
average peer far outdistanced the return of the S&P 500 Index, which includes
stocks from every economic sector. The return of the Energy Fund, however, fell
just short of that of the S&P Energy Sector Index.
Sharp increases in prices for oil and natural gas pumped up shares in
energy companies during the 12 months, boosting your fund's performance. Crude
oil prices more than doubled--from less than $12 per barrel to nearly $30--due
to increased demand from an expanding global economy and production cutbacks by
oil-producing nations. Prices for natural gas increased more than 40%.
The Energy Fund lagged its average competitor mainly because it held a
larger share of assets in domestic integrated-oil companies. Stocks of these
large firms--which participate in every stage of the business, from exploration
and drilling to refining and marketing--did well, but not as well as those of
oil-services firms. As of January 31, the fund had roughly one-quarter of its
assets in domestic integrated-oil companies, with the remainder in providers of
energy equipment and services, exploration companies, refining and marketing
companies, and foreign energy stocks.
Over the past decade, Vanguard Energy Fund has performed much better than
its average peer, although the entire group has trailed the broad stock market.
The table at right presents the average annual returns of our fund, the average
natural resources fund, the S&P Energy Sector Index, and the S&P 500 Index for
the decade ended January 31. It also shows the final value of hypothetical
$10,000 investments made ten years ago in each, assuming the reinvestment of
dividends and capital gains distributions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED JANUARY 31, 2000
----------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- -------------------------------------------------------------------------
<S> <C> <C>
Vanguard Energy Fund 9.2% $24,199
- -------------------------------------------------------------------------
Average Natural Resources Fund 6.0% $17,936
- -------------------------------------------------------------------------
S&P Energy Sector Index 13.1% $34,162
S&P 500 Index 18.4 54,242
- -------------------------------------------------------------------------
</TABLE>
As you can see, the Energy Fund topped the return for its peer group by an
average of 3.2 percentage points annually during the decade. This advantage
amounted to more than $6,200, or 62% of the initial investment. However, the
S&P 500 Index, which is broadly diversified, earned a return twice as high.
3
<PAGE> 6
Roughly one-third of the Energy Fund's advantage over its average
competitor was due to our low operating costs. For the past fiscal year, our
expense ratio (operating costs as a percentage of average net assets) was
0.48%, or $4.80 per $1,000 invested. This was less than one-third the expense
ratio of 1.68%, or $16.80 per $1,000 invested, charged by the average natural
resources fund.
REIT INDEX FUND
Vanguard REIT Index Fund had a total return of -1.0% during the 12 months ended
January 31. The decline was disappointing, especially in light of the broad
stock market's double-digit gain. Your fund's return was in line, however, with
the -1.2% return of its unmanaged benchmark, the Morgan Stanley Real Estate
Investment Trust Index, and it outpaced the average real estate fund by 1.3
percentage points.
Prices for real estate investment trusts enjoyed a springtime rally, which
apparently stemmed from news of an investment in REITs by Berkshire Hathaway,
the insurance and investment company led by legendary investor Warren E.
Buffett. But on the whole, it was a frustrating year for real estate stocks.
Although REITs offer a high level of current income, most investors were
focused on fast-growing companies, especially those engaged in technology and
wireless telephony. In addition, the rise in interest rates over the course of
the year hurt REITs in two ways. First, higher yields on bonds provide
increased competition for high-yielding stocks. Second, higher rates result in
higher operating costs for REITs with variable-rate debt. Finally, despite weak
demand for REITs during the period, there was a modest increase in their
supply, which put downward pressure on prices.
Since its inception in May 1996, Vanguard REIT Index Fund has provided an
average annual return of 6.2%. Though this result badly trailed the overall
stock market, it was 0.5 percentage point higher than the return of the average
real estate fund, and 0.3 point better than the return of the unmanaged Morgan
Stanley REIT Index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
TOTAL RETURNS
MAY 13, 1996, TO JANUARY 31, 2000
-------------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ----------------------------------------------------------------------
<S> <C> <C>
Vanguard REIT Index Fund 6.2% $12,485
- ----------------------------------------------------------------------
Average Real Estate Fund 5.7% $12,270
- ----------------------------------------------------------------------
Morgan Stanley REIT Index 5.9% $12,391
- ----------------------------------------------------------------------
</TABLE>
While we cannot predict the total returns of REITs, we believe that they
will continue to offer an attractive level of current income. For its part,
Vanguard REIT Index Fund will at all times provide investors with broad
exposure to commercial real estate at low cost. In fiscal 2000, the fund's
expense ratio was 0.33%, or $3.30 per $1,000 of assets, less than one-quarter
the average expense ratio of 1.51%, or $15.10 per $1,000 of assets, charged by
competing REIT funds.
UTILITIES INCOME FUND
Vanguard Utilities Income Fund returned 2.8% in fiscal 2000, trailing the
return of the Utilities Composite Index--an unmanaged benchmark that reflects
your fund's 85% stock/15% bond target asset allocation--by 0.5 percentage
point.
Our customarily heavy weighting in electric utilities--about half of the
fund's equity assets were invested in the group during the year--was a key
factor in our shortfall versus the average utility fund, which returned 17.1%.
Electric companies as a group declined by more than 10%. Another factor was
that we did not hold a number of
4
<PAGE> 7
strong-performing stocks in companies connected with wireless
telecommunications and Internet access. Many of these stocks were off-limits to
the fund because they pay little or no dividends and thus aren't in keeping
with our objective of providing a relatively high level of current income.
A third factor in our shortfall versus our peers stemmed from the fund's
bond component, which had a total return of -5.3% during the fiscal year. This
decline was due to rising interest rates, which depress the prices of existing
bonds. Our stake in bonds--which averaged about 10% of net assets--was roughly
twice as large as that of the average utility fund. As of January 31, the
fund's current annualized yield was 3.1%, the same as one year earlier. The
Utilities Income Fund's asset allocation remained fairly constant during the
fiscal year. At year-end, the fund had approximately 87% in stocks, 9% in
bonds, and 4% in short-term reserves.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
TOTAL RETURNS
MAY 15, 1992, TO JANUARY 31, 2000
-------------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- -----------------------------------------------------------------------
<S> <C> <C>
Vanguard Utilities Income Fund 13.0% $25,656
- -----------------------------------------------------------------------
Average Utility Fund 13.6% $26,800
- -----------------------------------------------------------------------
Utilities Composite Index* 13.9% $27,317
- -----------------------------------------------------------------------
</TABLE>
*Weighted 80% S&P Utilities Index, 20% Lehman Utility Bond Index through June
30, 1996; 40% S&P Utilities Index, 40% S&P Telephone Index, 20% Lehman Utility
Bond Index through April 30, 1999; 63.75% S&P Utilities Index, 21.25% S&P
Telephone Index, and 15% Lehman Utility Bond Index thereafter.
Within the U.S. utilities industry, deregulation and market forces have led
to a gradual shift of corporate emphasis toward growth--and away from
dividends. In light of this trend, we have modified the fund's investment
guidelines, effective April 1, 2000, to allow the adviser, Wellington
Management Company, to invest up to 25% of the fund's assets in stocks of
foreign-based utility companies. In general, international utility companies
exhibit a strong commitment to dividends, so this change will help to maintain
the fund's emphasis on conservative, high-yielding stocks.
We also have eliminated, effective April 1, 2000, the guideline that the
fund should invest at least 10% of assets in utility bonds. The fund's bond
holdings had not substantially increased the fund's income or reduced the
volatility of its returns.
The changes in the fund's investment guidelines are not expected to alter
its yield substantially. We believe these steps will serve shareholders well
over the long term without changing the fund's character as a relatively
conservative stock fund providing a relatively high level of current income and
the opportunity for moderate long-term growth of capital and income.
The fund's long-term record has been solid. Its average annual return of
13.0% since inception on May 15, 1992, would have increased a $10,000
investment made then to $25,656 as of January 31, assuming the reinvestment of
income and capital gains. This result is just a bit behind the 13.6% return of
the average utility fund, even though our larger commitment to bonds proved
detrimental during the 1990s. Returns for both your fund and its real-world
competitors trailed that of the Utilities Composite Index. An index is a tough
benchmark because it bears no operating expenses or trading costs.
Nevertheless, we'll continue striving to outperform the index and our peer
funds. Our low operating costs will help us in this endeavor. In fiscal 2000,
the expense ratio of the Utilities Income Fund was 0.40%, or $4 per $1,000 in
net assets, 1.1 percentage points below the 1.50% expense ratio, or $15 per
$1,000 in assets, charged by the average utility fund.
5
<PAGE> 8
GOLD AND PRECIOUS METALS FUND
Vanguard Gold and Precious Metals Fund gained 17.5% during the fiscal year, a
result that was very welcome to long-term gold investors, who had endured three
consecutive years of negative returns. Our fund came in 3.3 percentage points
ahead of the unmanaged Salomon Smith Barney World Gold Index and more than 20
percentage points above the average gold-oriented mutual fund, which returned
- -4.6%.
Prices for precious metals were mixed during the fiscal year. The price of
gold bullion fluctuated from a low of $253 per troy ounce (one-twelfth of a
pound) in early July to $325 in late September. However, gold ended the year
down by only about $3, at $283 per troy ounce. The low point was reached after
the Bank of England began to auction off half of its gold reserves and the
Swiss central bank said it would do the same in 2000. Prices rebounded when 15
European central banks said that they would limit gold sales over the next five
years. Share prices of gold-mining companies, which are typically more volatile
than the price of the metal itself, soared.
Among other precious metals, prices of palladium and platinum surged 44%
and 30%, respectively, during the 12-month period, in part because political
and economic turmoil in Russia, a major producer of both metals, raised
questions about future supplies. The price of copper, a "base metal" often
produced in association with precious metals, rose about 30% during the fiscal
year.
The Gold and Precious Metals Fund outperformed its peers and its index
benchmark during fiscal 2000 both because of our investment adviser's emphasis
on well-established companies with solid management teams and because of the
fund's solid stake in companies that produced a mix of precious metals. M&G
Investment Management, our adviser, kept about one-quarter of the fund's assets
in platinum producers, including Impala Platinum and Anglo American Platinum,
both of whose share prices more than doubled.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
TOTAL RETURNS
TEN YEARS ENDED JANUARY 31, 2000
-----------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ----------------------------------------------------------------------
<S> <C> <C>
Vanguard Gold and Precious
Metals Fund -2.7% $7,569
- ----------------------------------------------------------------------
Average Gold-Oriented Fund -6.8% $4,953
- ----------------------------------------------------------------------
Salomon Smith Barney World
Gold Index -4.4% $6,349
- ----------------------------------------------------------------------
</TABLE>
The long-term record of gold-mining stocks has been poor for a variety of
reasons, including relatively benign inflation, the end of Cold War tensions,
and large sales of gold by central banks around the world. During the ten years
ended January 31, our fund's average return was -2.7% per year. As
disappointing as that result has been, it was far better than the -6.8% average
annual return of the average gold-oriented mutual fund and a good sight better
than the -4.4% average annual return of the Salomon Smith Barney World Gold
Index.
The chart above presents these results, along with the ending value of
hypothetical investments of $10,000 in our fund and its comparative standards
made a decade ago. Even with dividends and capital gains distributions
reinvested, the $10,000 investment in our fund would have shrunk to $7,569.
This decline of nearly 25% of the original capital compared with declines of
about 50% and 36%, respectively, in identical investments in the average
gold-oriented fund and our index benchmark. M&G Investment Management deserves
recognition for having avoided some of the damage in the precious-metals
markets during the past decade.
6
<PAGE> 9
IN SUMMARY
The 12-month period ended January 31 provided abundant evidence of the
volatility inherent in the stock market and, in particular, the wide divergence
in returns among discrete industry groups. When you invest in a sector mutual
fund, such as one of our five Specialized Funds, you incur industry-specific
risks--such as exposure to rapid swings in the price of oil or gold--that are
less apparent in a diversified stock portfolio. Given these extra risks, we
encourage you, as always, to maintain a balanced mix of stock funds, bond
funds, and short-term reserves appropriate for your risk tolerance, time
horizon, and financial resources. As part of such a balanced program, low-cost
sector funds are the best way to gain additional exposure to specific market
niches.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer February 15, 2000
- -------------------------------------------------------------------------------
A Note of Thanks to Our Founder
- -------------------------------------------------------------------------------
As you may have read on the inside cover of our report, our founder, John C.
Bogle, retired on December 31, 1999, as Senior Chairman of our Board after
nearly 25 years of devoted service to Vanguard and our shareholders. Vanguard
investors have Jack to thank for creating a truly mutual mutual fund company
that operates solely in the interest of its fund shareholders. And mutual fund
investors everywhere have benefited from his energetic efforts to improve this
industry. Finally, on a personal note, I am forever grateful to Jack for giving
me the opportunity to join this great company in 1982.
<TABLE>
<CAPTION>
FUND STATISTICS
- ---------------------------------------------------------------------------------------------------------------------
TWELVE MONTHS
NET ASSET VALUE PER SHARE --------------------------------------------------
-------------------------------- INCOME CAPITAL GAINS RETURN OF TOTAL
VANGUARD SPECIALIZED FUND JAN. 31, 1999 JAN. 31, 2000 DIVIDENDS DISTRIBUTIONS* CAPITAL RETURN**
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Health Care $97.32 $98.83 $0.970 $7.14 -- 10.6%
Energy 17.16 21.24 0.355 -- -- 25.8
REIT Index 10.81 9.91 0.670 -- $0.11 -1.0
Utilities Income 16.27 14.93 0.510 1.20 -- 2.8
Gold and Precious Metals 6.61 7.67 0.100 -- -- 17.5
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes both long-term and short-term capital gains distributions.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held less than one year in the Energy, Gold and Precious Metals, and
REIT Index Funds, or the 1% fee assessed on redemptions of Health Care Fund
shares held less than five years. (For shares in the Health Care Fund
purchased before April 19, 1999, the 1% fee applies only to redemptions of
shares held less than one year.)
7
<PAGE> 10
A REPORT ON THE FUNDS' AFTER-TAX RETURNS
Beginning with this annual report, Vanguard is pleased to provide a review of
the after-tax performance of four of our five Specialized Funds. We exclude the
REIT Index Fund because after-tax return data for comparable funds are
unavailable.
The figures in this report demonstrate the considerable impact that federal
income taxes can have on a fund's return--an important consideration for
investors who own mutual funds in taxable accounts. While the pretax return is
most often used to tally a fund's performance, the fund's after-tax return,
which accounts for taxes on distributions of capital gains and income
dividends, is a better representation of the return that many investors
actually received. If you own a fund in a tax-deferred account such as an
individual retirement account or a 401(k), this information does not apply to
you. Such accounts are not subject to current taxes.
The table below presents the pretax and after-tax returns for your fund and
an appropriate peer group of mutual funds. Two things to keep in mind:
- The after-tax return calculations use the top federal income tax rates in
effect at the time of each distribution. The tax burden, therefore, would be
somewhat less, and the after-tax return somewhat more, for those in lower tax
brackets.
- The peer funds' returns are provided by Morningstar, Inc. (Elsewhere in
this report, returns for comparable mutual funds are derived from data provided
by Lipper Inc., which differ somewhat.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS: PRETAX AND AFTER-TAX
PERIODS ENDED JANUARY 31, 2000*
---------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS**
------------------ ----------------- ------------------
PRETAX AFTER-TAX PRETAX AFTER-TAX PRETAX AFTER-TAX
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VANGUARD ENERGY FUND 25.8% 25.0% 13.2% 11.9% 9.2% 7.4%
Average Specialty Natural
Resources Fund+ 32.7 32.4 8.8 7.4 6.9 5.5
- ---------------------------------------------------------------------------------------------
VANGUARD GOLD AND PRECIOUS
METALS FUND 17.5% 16.9% -4.9% -5.5% -2.7% -3.5%
Average Specialty Precious
Metals Fund+ -5.0 -5.1 -10.2 -10.7 -7.3 -7.8
- ---------------------------------------------------------------------------------------------
VANGUARD HEALTH CARE FUND 10.6% 8.2% 27.7% 26.0% 22.6% 20.6%
Average Specialty Health
Care Fund+ 29.4 28.2 21.2 18.6 19.1 16.5
- ---------------------------------------------------------------------------------------------
VANGUARD UTILITIES
INCOME FUND 2.8% -0.3% 15.7% 13.0% 13.0% 10.4%
Average Specialty
Utilities Fund+ 17.4 14.6 17.9 15.3 -- --
- ---------------------------------------------------------------------------------------------
</TABLE>
*Performance figures do not reflect the funds' transaction fees.
**Since inception (May 15, 1992) for the Utilities Income Fund.
+Based on data from Morningstar, Inc.
As you can see, the tax efficiency of the four funds varied considerably
during fiscal 2000. For example, the Utilities Income Fund's pretax total
return of 2.8% for the 12 months ended January 31, 2000, was reduced by taxes
to -0.3%. In other words, for investors in the highest bracket, taxes cut the
fund's pretax return by 3.1 percentage points. The after-tax return for our
Gold and Precious Metals Fund was only 0.6 percentage point lower than its
17.5% pretax return. Over the full decade ended January 31, 2000, the Energy,
Health Care, and Gold and Precious Metals Funds each delivered higher average
annual returns--both before and after taxes--than their average peers.
(Unfortunately, the Gold and Precious Metals Fund topped the average precious
8
<PAGE> 11
metals fund by losing less money.) The Utilities Income Fund, which commenced
operations in 1992, has provided lower average annual returns--both before and
after taxes--than the average utilities fund over the past five years.
We stress that because many interrelated factors affect how tax-friendly a
fund may be, it's very difficult to predict tax efficiency. A fund's tax
efficiency can be influenced by its turnover rate, the types of securities it
holds, the accounting practices it uses when selling shares, and the net cash
flow it receives.
Finally, it's important to understand that our calculation does not reflect
the tax effect of your own investment activities. Specifically, you may incur
additional capital gains taxes--thereby lowering your after-tax return--if you
decide to sell all or some of your shares.
A NOTE ABOUT OUR CALCULATIONS: Pretax total returns assume that all
distributions received (income dividends, short-term capital gains, and
long-term capital gains) are reinvested in new shares, while our after-tax
returns assume that distributions are reduced by any taxes owed on them before
reinvestment. Neither pretax nor after-tax returns account for redemption fees
(which apply to each of the funds, except the Utilities Income Fund). When
calculating the taxes due, we used the highest individual federal income tax
rates at the time of the distributions. Those rates are currently 39.6% for
dividends and short-term capital gains and 20% for long-term capital gains. The
calculation does not account for state and local income taxes, nor does it take
into consideration any tax adjustments that a shareholder may claim for foreign
taxes paid by any of the funds. The competitive group returns provided by
Morningstar are calculated in a manner consistent with that used for Vanguard
funds.
9
<PAGE> 12
THE MARKETS IN PERSPECTIVE
YEAR ENDED JANUARY 31, 2000
The surprising strength of global economic growth was something of a tonic for
stocks but seemed toxic for bonds during the fiscal year ended January 31,
2000.
Interest rates soared--causing bond prices to fall--as investors and
central banks worried that the rapid expansion in economic activity would cause
inflation to worsen. Financial markets were anything but boring, as day-to-day
price fluctuations for bonds and stocks were pronounced during the period.
U.S. STOCK MARKETS
The U.S. economy's performance was superlative during the fiscal year. Economic
output grew at an inflation-adjusted rate of about 4%, a very rapid pace for a
huge economy that has been expanding without pause for a record 107
months--nearly nine years. Growth also picked up in Asia and Europe. U.S.
unemployment fell to 4.0% of the workforce, the lowest rate in 30 years.
Inflation accelerated a bit--largely due to a 125% increase in oil prices--but
the 2.7% increase in the Consumer Price Index (CPI) was hardly extreme.
Corporate profits rose at a double-digit rate, providing some support for stock
prices, which ordinarily are hurt by rising interest rates. Even so, some of the
biggest gains were in stocks of companies with no profits at all.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
PERIODS ENDED JANUARY 31, 2000
-------------------------------
1 YEAR 3 YEARS 5 YEARS
- -------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 10.3% 22.9% 26.6%
Russell 2000 Index 17.7 11.7 16.6
Wilshire 5000 Index 14.4 22.2 25.5
MSCI EAFE Index 19.6 14.9 12.6
- -------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -1.9% 5.5% 7.2%
Lehman 10 Year Municipal Bond Index -3.1 4.5 6.5
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.8 5.0 5.2
- -------------------------------------------------------------------------
OTHER
Consumer Price Index 2.7% 2.0% 2.3%
- -------------------------------------------------------------------------
</TABLE>
The overall market, as measured by the Wilshire 5000 Total Market Index,
recorded a 14.4% return, despite a -4.1% decline in the final month of the
fiscal year. Small- and mid-capitalization stocks, which had lagged large-cap
stocks for most of the previous five years, were the star performers. The 10.3%
return of the large-cap S&P 500 Index, which represents more than 75% of the
total market's value, badly trailed the 31.7% return of the rest of the market,
as measured by the Wilshire 4500 Completion Index.
The rise in the market averages obscured extremely wide variations in
returns for various sectors. The small "other energy" category, home to oil
exploration and services companies that benefited from pricier oil, soared 56%.
But the consumer-staples group, which includes a number of big beverage, food,
and tobacco companies, posted a horrid -19% return. Technology companies, which
have become the market's largest sector, returned 38%. So did the
producer-durables group, which includes several fast-growing makers of
high-technology and telecommunications equipment. Higher fuel prices were a
factor in the -13% decline for the auto & transportation group.
10
<PAGE> 13
In general, the market rewarded rapid growth and even the prospect of rapid
growth while punishing sectors where actual or expected growth was subpar. This
wide disparity based on expectations is reflected in the price/earnings (P/E)
ratios for various sectors. For example, as of January 31, technology stocks in
the S&P 500 Index had a market-cap weighted average P/E ratio of 56, more than
five times the average P/E of 10 for auto & transportation stocks.
U.S. BOND MARKETS
Bond prices, which move in the opposite direction from interest rates, dropped
almost continuously throughout the fiscal year. In part, the rise in rates
reflected more borrowing by corporations and individuals. But a major factor
was the anticipation that the U.S. economy's strong expansion would either
rekindle inflation or force the Federal Reserve Board to keep boosting rates to
counter that threat.
Official inflation gauges sent ambiguous signals. The CPI rose 2.7% during
the 12 months ended January 31, versus 1.7% during the previous 12 months.
However, the CPI's "core rate," which excludes energy and food prices, gained a
relatively modest 1.9%.
The Fed, trying to cool the economy, raised its target for short-term
interest rates on June 30 by one-quarter percentage point. It did so by a
quarter-point again in August and November and, just after the end of our
fiscal year, on February 2--a total increase of 1 full point in just over seven
months.
For the year, the Lehman Aggregate Bond Index, which has an
intermediate-term average maturity and is a proxy for the entire taxable bond
market, posted a -1.9% decline. On balance, yields rose by about 2 percentage
points for intermediate-term U.S. Treasury securities. The 10-year Treasury's
yield was 6.67% on January 31, 202 basis points above its 4.65% yield a year
earlier. The rate increase was less pronounced--140 basis points--for 30-year
Treasury bonds, which benefited because the federal government's growing budget
surplus is reducing the supply of long-term securities.
This led late in the fiscal year to an unusual "inversion" of the yield
curve--instead of the usual upward-sloping curve, with yields rising steadily
along with the maturity of Treasury bonds, the highest yields were for
shorter-term bonds. As of January 31, for example, the yield of 3-year Treasury
notes was 6.69%, while 30-year bonds yielded 6.49%. Short-term rates, which are
most influenced by the Fed's moves, increased about 125 basis points; the yield
on 3-month Treasury bills rose to 5.69% on January 31, 124 basis points above
the level when the fiscal year began.
INTERNATIONAL STOCK MARKETS
Expanding economic activity and increased merger and acquisition activity were
foundations of a strong year in international stock markets, which generally
outperformed Wall Street. The biggest returns were from Pacific-region and
emerging markets that bounced back from severe slumps in the previous two
years.
The overall return for U.S. investors from developed markets was 19.6%, as
measured by the Morgan Stanley Capital International Europe, Australasia, Far
East Index. The MSCI Pacific Free Index was up 48.0% in U.S.-dollar terms, as
returns of 38.5% in local currencies were boosted nearly 10 percentage points
due to a rise in the value of the Japanese yen versus the dollar. In Europe,
currency fluctuations had the opposite effect: A 20.8% local return was reduced
to 8.3% for U.S. investors because the value of European currencies generally
slumped versus the dollar.
Emerging stock markets enjoyed a remarkable rebound. The Select Emerging
Markets Free Index returned 57.8%, making up almost all the ground lost in the
two previous years.
11
<PAGE> 14
REPORT FROM WELLINGTON MANAGEMENT
COMPANY, LLP
ENERGY FUND
During the past year, the energy sector recovered somewhat from its
relatively poor performance in the previous year. Vanguard Energy Fund returned
25.8% during the 12 months ended January 31, 2000, compared with returns of
10.3% for the S&P 500 Index and 31.2% for the average natural resources fund.
Oil markets made a robust recovery after the Organization of Petroleum
Exporting Countries (OPEC) implemented production cutbacks in March 1999. The
price of a barrel of crude oil (42 gallons) increased from about $12 to $28
during the year. Natural gas markets also were firm, averaging $2.10 per
thousand cubic feet, despite the fact that 1999 was bracketed by two mild
winters. Profit margins for oil-refining operations were poor, due to both the
increase in oil prices and the presence of excess oil product inventories that
had to be reduced. The oil-services sector suffered from low levels of activity
by oil companies, which cut back on drilling after the collapse in oil prices
that took place during 1998.
The best gains in the energy sector were concentrated in large oil
companies and in oil-services companies whose results are most sensitive to
developments outside the United States. Examples include Royal Dutch, Total
Fina, and Schlumberger. The stocks of domestic oil-producing companies and of
integrated-oil companies with heavy exposure to developments in the United
States fared poorly, even though the profits of these companies typically are
more influenced by higher oil and gas prices than are results for companies
with heavy foreign exposure. One possible reason for this disparity in
performance is that it is becoming increasingly difficult to find new reserves
to replace oil and gas production in the United States. Another weight on
oil-sector stocks may have been sales by value investment managers facing
redemptions from mutual fund shareholders and other investors.
As world economic activity picks up in 2000, we expect oil demand to grow
by 2.4%. A large portion of the increased demand during 1999 was met by a
reduction of inventories, which are now quite low. As a result, demand for oil
from OPEC will be about 2 million barrels a day higher in 2000 than last year.
It should not be difficult for the cartel to increase production without
causing prices to fall significantly. Therefore, we think it is reasonable to
expect that oil's price will average well above $20 per barrel for some time to
come. Natural gas markets in North America also will remain firm, and we expect
gas prices to continue rising.
Rising demand and rising prices create a very positive environment for
energy companies. In last year's annual report, written when oil was selling
for about $12 per barrel, we concluded that conditions were setting up for "a
strong recovery in the not-too-distant future." This recovery has taken place.
However, energy stocks, in our view, reflect only part of this improvement in
conditions. More gains are possible once the market concludes, as we have, that
the oil-price collapse of 1998 is not likely to be repeated soon.
Ernst H. von Metzsch, Senior Vice President and
Portfolio Manager
February 15, 2000
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 M&G INVESTMENT
MANAGEMENT LTD.
GOLD AND PRECIOUS METALS FUND
Vanguard Gold and Precious Metals Fund posted a 17.5% return during the fiscal
year ended January 31, 2000, despite a difficult environment for gold-mining
stocks. This result compared quite favorably with the -4.6% return of the
average gold-oriented mutual fund and the 14.2% gain recorded by the Salomon
Smith Barney World Gold Index.
On balance, the price of gold bullion declined about 1% during the 12
months. This small change disguised significant interim volatility. Gold prices
fell sharply in May after the Bank of England announced that it would sell more
than half its gold reserves. Prices recovered dramatically in September when
European central banks announced restrictions on sales, but this brief period
of euphoria ended when it became evident that a number of gold companies were
being hurt by their own hedging programs (selling gold in anticipation of
future production). Finally, gold prices were hurt by the uneventful transition
to 2000, as those investors who had bought gold shares as a safe haven sold
them when doomsday scenarios didn't come to pass.
The fund outperformed its benchmarks largely due to its high exposure to
platinum producers (around 25% of holdings), most notably Impala Platinum and
Anglo American Platinum. Demand for platinum increased markedly during the year
due to concerns about supply from Russia--one of the world's major producers.
Companies with well-diversified mining interests (which as a group constitute
about 20% of the fund), such as M.I.M. Holdings, Rio Tinto, and
Freeport-McMoRan, also performed well.
Our performance relative to our benchmarks also was helped by our
below-market exposure to companies that are solely gold producers. The Salomon
Smith Barney World Gold Index is dominated by four large gold producers, only
one of which, Newmont Mining, had a good performance. Our 6% stake in Newmont
helped the fund's performance, as did our small exposure to the three other
firms.
Holdings that hindered our performance included Aurora Gold and Lihir Gold,
whose results were hurt by political unrest in Indonesia, and several smaller,
more speculative issues.
We continued to increase the portfolio's exposure to mining's blue chip
companies through purchases of WMC and Lonmin. We added a stake in Harmony Gold
Mining, a relatively cheap "pure play" on gold that will benefit from any
recovery in the metal's price. Our main sales were a few small, speculative
positions, such as Golden Star Resources and Greenstone Resources, which we were
able to jettison thanks to increased liquidity in the market. In addition, we
took profits on Euro-Nevada Mining after its price rose.
We are reasonably optimistic that the problems afflicting gold prices in
1999 will be overcome and that demand for gold shares will improve. However, we
don't expect a material, lasting rebound until gold companies demonstrate a
greater willingness to restructure. In the meantime, we will generally avoid
smaller exploration stocks while concentrating on larger companies that have
strong management. In the current environment, we expect this approach to
reward our shareholders.
Graham E. French, Portfolio Manager
February 15, 2000
13
<PAGE> 16
REPORT FROM WELLINGTON MANAGEMENT
COMPANY, LLP
HEALTH CARE FUND
Vanguard Health Care Fund gained 10.6% during the fiscal year ended January 31,
2000. This result well exceeded the -2.9% decline for the S&P Health Sector
Index and even surpassed the 10.3% return for the full S&P 500. However, our
return trailed the 29.0% gain of the average health/biotechnology mutual fund.
After three years in which the best returns came from stocks with the
largest market capitalization, the market shifted dramatically in 1999 to favor
technology companies. In the health-care sector, this shift was manifested by
explosive gains for biotechnology companies, which, after four years of poor
performance, dominated returns during the final quarter of the fiscal year.
Consequently, the best-performing health-care mutual funds for the fiscal
year were those that focused on biotechnology. Your fund's return was among the
best achieved by a diversified health-care fund.
By far the biggest contribution to the fund's performance during the 12
months was that of Immunex, which soared due to the great success of its
blockbuster product Enbrel, a therapy for treating rheumatoid arthritis. Two
other biotech companies, Human Genome Sciences and IDEC Pharmaceuticals, also
were major contributors to the fund.
Our Japanese holdings were positive performers this year, especially
Fujisawa Pharmaceutical and Takeda Chemical Industries. Among the major
pharmaceutical stocks, which as a group had a weak year, Warner-Lambert was a
standout for us. Its outstanding cholesterol drug, Lipitor, drove the company's
growth rate to the top of the industry. Warner-Lambert's bright prospects
prompted a takeover battle that appears to have been won by Pfizer.
The health-services group was the most difficult. We added significantly to
our holdings in this area during the second half of the fiscal year because we
anticipate much better results going forward.
The extraordinary move in biotechnology stocks late in our fiscal year left
the valuations for this group stretched. Consequently, we are shifting a
portion of our investment there to less-exploited sectors such as European
stocks. We remain committed to our strategy of broad diversification across
health-care stocks, a strategy that has resulted in the fund's record of good
long-term performance with relatively low volatility.
The health-care industry faces numerous challenges in the year ahead, not
the least of which is the extended valuation of the stock market in general.
However, we believe that over the long term the health-care sector will be one
of the most attractive in the stock market due to two factors: new discoveries
in biomedical research and increased demand caused by favorable demographic
trends.
Edward P. Owens, Senior Vice President and Portfolio Manager
February 15, 2000
14
<PAGE> 17
REPORT FROM WELLINGTON MANAGEMENT
COMPANY, LLP
UTILITIES INCOME FUND
Vanguard Utilities Income Fund returned 2.8% for the fiscal year ended January
31, 2000. Although this result was in line with the 3.3% gain of the fund's
composite index benchmark, it was well behind the 17.1% return of the average
utility fund.
Within the utility sector, performance during the year varied widely by
type of company. Negative returns came from both electric utilities (-10.7%)
and the S&P Telephone Index (-0.7%). But natural gas utilities returned an
astounding 46.8% due to takeover activity and big gains for Enron, which
expanded its telecommunications business.
Utilities--especially electric companies--have traditionally been interest
rate sensitive, and the sharp rise in rates during the fiscal year was
decidedly harmful for the group. Another big negative during the past
year--which was dominated by fast-growing technology and telecommunications
companies--was the market's view that utilities are not a growth industry. By
far the best performers among utility stocks were companies that attracted some
of the excitement surrounding the changing telecom business. For instance,
several electric and natural gas utilities have built fiber-optic networks
along rights-of-way that they control, thus transforming existing assets into
infrastructure for telecommunications.
Our shortfall in performance versus the average utility fund was primarily
a reflection, we believe, of our income-oriented policies. In addition to
holding a stake in long-term bonds, we have hewed to a guideline that every
common stock we own must pay a dividend. This guideline keeps us from
participating in the more volatile, higher-growth segments of the market, where
few companies pay dividends.
We have responded to the recent trends in the market by making some
changes: We reduced the fund's bond holdings to about 10% of assets and have
looked for higher growth in both domestic and international telephone companies
that pay dividends. (As a result of recent modifications to the fund's
investment guidelines, we intend to further reduce our bond holdings and to
increase our exposure to international utility companies. See the Report From
The Chairman for more details.) Our current exposure to non-U.S. utilities is
approximately 13% of equity assets. In terms of relative values, electric
utilities look incredibly inexpensive now. However, money is continuing to move
toward growth stocks, even though interest rates are rising.
Our holdings were not without some notable winners during the fiscal year.
Among those that benefited from market trends were Enron (which returned
+107%), Montana Power (+63%), Sprint (+51%), and DQE (+23%). Enron's stock shot
up as the market recognized the successful development of its Enron Energy
Services subsidiary and embraced its announcement of a new business in trading
broadband fiber capacity. Sprint's stock soared because of its takeover by MCI
WorldCom. Both Montana Power and DQE are electric utilities that developed
profitable and valuable nonregulated businesses.
We will continue to identify and invest in companies benefiting from the
important trends within the utility industry as deregulation accelerates.
Utility stocks provide both steady income and diversification, attributes that
are currently out of favor but that will be particularly valued when the
overall market environment turns less friendly. We appreciate your continued
support.
Mark J. Beckwith, Vice President and Portfolio Manager February 15, 2000
15
<PAGE> 18
FUND PROFILE
ENERGY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 2000, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 17 and 18.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -------------------------------------------
ENERGY S&P 500
- -------------------------------------------
<S> <C> <C>
Number of Stocks 53 500
Median Market Cap $6.9B $84.8B
Price/Earnings Ratio 26.3x 27.1x
Price/Book Ratio 2.4x 5.3x
Yield 1.4% 1.2%
Return on Equity 10.9% 23.5%
Earnings Growth Rate 8.5% 16.4%
Foreign Holdings 24.5% 1.2%
Turnover Rate 18% --
Expense Ratio 0.48% --
Cash Reserves 5.0% --
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
- --------------------------------------------
<S> <C>
STYLE Value
MARKET CAP Medium
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
ENERGY S&P 500
- -------------------------------------------
<S> <C> <C>
R-Squared 0.29 1.00
Beta 0.77 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
- -----------------------------------------
<S> <C>
Exxon Mobil Corp. 4.3%
Unocal Corp. 3.5
Chevron Corp. 3.4
Texaco Inc. 3.4
Baker Hughes, Inc. 3.2
Schlumberger Ltd. 3.1
USX-Marathon Group 2.9
Weatherford International, Inc. 2.9
Suncor Energy, Inc. 2.9
Vastar Resources, Inc. 2.8
- -----------------------------------------
Top Ten 32.4%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- -------------------------------------------------------------------------------------
JANUARY 31, 1999 JANUARY 31, 2000
----------------------------------------
ENERGY ENERGY
----------------------------------------
<S> <C> <C>
Energy Miscellaneous............................ 4.2% 6.3%
International................................... 27.1 24.5
Machinery--Oil Well Equipment & Services........ 13.4 18.9
Materials & Processing.......................... 2.1 0.5
Offshore Drilling............................... 0.0 1.2
Oil--Crude Producers............................ 12.4 11.9
Oil--Integrated Domestic........................ 24.5 24.4
Oil--Integrated International................... 14.2 8.1
Utilities--Gas Pipelines........................ 0.0 2.7
Other........................................... 2.1 1.5
- -------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
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 indi-cating 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.
17
<PAGE> 20
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.
18
<PAGE> 21
FUND PROFILE
GOLD AND PRECIOUS METALS FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 2000, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 17 and 18.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ---------------------------------------------------
GOLD AND
PRECIOUS METALS S&P 500
- ---------------------------------------------------
<S> <C> <C>
Number of Stocks 34 500
Median Market Cap $2.6B $84.8B
Price/Earnings Ratio 35.0x 27.1x
Price/Book Ratio 4.0x 5.3x
Return on Equity 3.9% 23.5%
Earnings Growth Rate 15.2% 16.4%
Foreign Holdings 72.4% 1.2%
Turnover Rate 28% --
Expense Ratio 0.77% --
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
- ----------------------------------------------
<S> <C>
Impala Platinum Holdings Ltd. ADR 10.7%
Anglo American Platinum Corp. ADR 8.3
Stillwater Mining Co. 7.8
Franco-Nevada Mining Corp., Ltd. 7.4
M.I.M. Holdings Ltd. 7.2
Newcrest Mining Ltd. 6.5
Newmont Mining Corp. 5.6
Freeport-McMoRan Copper & Gold, Inc.
Class A 4.7
WMC Ltd. 4.6
Homestake Mining Co. 4.1
- ----------------------------------------------
Top Ten 66.9%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
GOLD AND
PRECIOUS METALS S&P 500
- -------------------------------------------
<S> <C> <C>
R-Squared 0.13 1.00
Beta 0.82 1.00
</TABLE>
<TABLE>
<CAPTION>
COUNTRY DIVERSIFICATION
(% OF TOTAL NET ASSETS)
- -----------------------------------------
<S> <C>
Australia 32.9%
Canada 10.1
South Africa 22.7
United Kingdom 5.1
United States 27.0
- -----------------------------------------
Subtotal 97.8%
Bullion 0.3
Cash Reserves 1.9
- -----------------------------------------
Total 100.0%
</TABLE>
19
<PAGE> 22
FUND PROFILE
HEALTH CARE FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 2000, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 17 and 18.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -------------------------------------------
HEALTH CARE S&P 500
- -------------------------------------------
<S> <C> <C>
Number of Stocks 137 500
Median Market Cap $21.5B $84.8B
Price/Earnings Ratio 30.5x 27.1x
Price/Book Ratio 3.8x 5.3x
Yield 0.6% 1.2%
Return on Equity 16.5% 23.5%
Earnings Growth Rate 2.4% 16.4%
Foreign Holdings 24.5% 1.2%
Turnover Rate 27% --
Expense Ratio 0.41% --
Cash Reserves 9.0% --
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
- -----------------------
<S> <C>
STYLE Growth
MARKET CAP Large
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------
HEALTH CARE S&P 500
- -------------------------------------------
<S> <C> <C>
R-Squared 0.68 1.00
Beta 0.69 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
- -----------------------------------------
<S> <C>
Immunex Corp. 5.8%
Warner-Lambert Co. 4.1
Pharmacia & Upjohn, Inc. 4.1
AstraZeneca Group PLC 3.8
American Home Products Corp. 3.5
Monsanto Co. 3.4
McKesson HBOC, Inc. 2.8
Columbia/HCA Healthcare Corp. 2.7
Fujisawa Pharmaceutical Co., Ltd. 2.5
United Healthcare Corp. 2.2
- -----------------------------------------
Top Ten 34.9%
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- -------------------------------------------------------------------------------------
JANUARY 31, 1999 JANUARY 31, 2000
----------------------------------------
HEALTH CARE HEALTH CARE
----------------------------------------
<S> <C> <C>
Biotech Research & Production................... 2.0% 3.5%
Consumer Discretionary.......................... 1.1 0.0
Consumer Staples................................ 0.0 0.1
Drugs & Pharmaceuticals......................... 47.9 41.4
Electronics--Medical Systems.................... 1.3 1.3
Health & Personal Care.......................... 0.7 3.4
Health Care Facilities.......................... 4.0 6.4
Health Care Management Services................. 7.5 6.1
International................................... 22.6 24.5
Materials & Processing.......................... 2.9 1.7
Medical & Dental Instruments & Supplies......... 7.0 5.9
Medical Services................................ 1.2 0.8
Miscellaneous Health Care....................... 0.6 0.4
Producer Durables............................... 0.8 0.1
Other........................................... 0.4 4.4
- -------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
FUND PROFILE
UTILITIES INCOME FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 17 and 18.
<TABLE>
<CAPTION>
TOTAL FUND CHARACTERISTICS
- ----------------------------------------------------------
<S> <C>
Yield 3.1%
Turnover Rate 47%
Expense Ratio 0.40%
Cash Reserves 3.6%
</TABLE>
<TABLE>
<CAPTION>
TOTAL FUND VOLATILITY MEASURES
- ----------------------------------------------------------
UTILITIES
INCOME S&P 500
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.24 1.00
Beta 0.31 1.00
</TABLE>
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
- ----------------------------------------------------------
<S> <C>
CASH RESERVES 4%
BONDS 9%
STOCKS 87%
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS
(% OF EQUITIES)
- ----------------------------------------------------------
<S> <C>
Enron Corp. 5.4%
DQE Inc. 5.2
Montana Power Co. 5.1
Unicom Corp. 4.2
Pinnacle West Capital Corp. 4.1
New England Electric System 3.3
Duke Energy Corp. 2.9
Edison International 2.9
El Paso Energy Corp. 2.8
AT&T Corp. 2.7
- ----------------------------------------------------------
Top Ten 38.6%
- ----------------------------------------------------------
Top Ten as % of Total Net Assets 33.6%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ----------------------------------------------------------
JANUARY 31, 1999 JANUARY 31, 2000
--------------------------------------
UTILITIES INCOME UTILITIES INCOME
--------------------------------------
<S> <C>
Electrical ....... 43.9% 49.0%
Gas Distribution . 4.5 5.7
Gas Pipelines .... 0.0 14.7
Integrated Oils .. 4.1 0.9
Other Energy ..... 4.8 0.0
Technology ....... 2.4 0.0
Telecommunications 35.2 24.3
Water ............ 0.5 3.4
Other ............ 4.6 2.0
- ----------------------------------------------------------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- -----------------------------------------------------------
UTILITIES
INCOME S&P 500
- -----------------------------------------------------------
<S> <C> <C>
Number of Stocks 56 500
Median Market Cap $7.4B $84.8B
Price/Earnings Ratio 20.2x 27.1x
Price/Book Ratio 2.4x 5.3x
Dividend Yield 3.3% 1.2%
Return on Equity 14.3% 23.5%
Earnings Growth Rate 7.4% 16.4%
Foreign Holdings 12.1% 1.2%
</TABLE>
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- -----------------------------------------------------------
UTILITIES LEHMAN
INCOME INDEX*
- -----------------------------------------------------------
<S> <C> <C>
Number of Bonds 41 5,567
Yield to Maturity 7.7% 7.4%
Average Coupon 6.7% 6.8%
Average Maturity 8.3 years 8.8 years
Average Quality A1 Aaa
Average Duration 5.3 years 4.9 years
*Lehman Aggregate Bond Index.
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF BONDS)
- ------------------------------------------------------
<S> <C>
Electric 66.9%
Foreign 2.3
Gas 2.4
Telephone 28.4
Treasury/Agency 0.0
- -----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
- ----------------------------------------------------------
<S> <C>
STYLE Value
MARKET CAP Medium
</TABLE>
<TABLE>
<CAPTION>
FIXED-INCOME INVESTMENT FOCUS
- ----------------------------------------------------------
<S> <C>
AVERAGE MATURITY Long
CREDIT QUALITY Investment-Grade Corporate
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF BONDS)
- -------------------------------------------------------
<S> <C>
Treasury/Agency 0.0%
Aaa 0.0
Aa 39.9
A 46.0
Baa 14.1
Ba 0.0
B 0.0
Not Rated 0.0
- -------------------------------------------------------
Total 100.0%
</TABLE>
23
<PAGE> 26
FUND PROFILE
REIT INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 17 and 18.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -----------------------------------------------------------
REIT INDEX S&P 500
- -----------------------------------------------------------
<S> <C> <C>
Number of Stocks 135 500
Median Market Cap $1.5B $84.8B
Price/Earnings Ratio 14.8x 27.1x
Price/Book Ratio 1.2x 5.3x
Dividend Yield 8.3%* 1.2%
Return on Equity 13.0% 23.5%
Earnings Growth Rate 20.6% 16.4%
Foreign Holdings 0.0% 1.2%
Turnover Rate 12% --
Expense Ratio 0.33% --
Cash Reserves 1.6% --
</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.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------------
REIT INDEX S&P 500
- -----------------------------------------------------------
<S> <C> <C>
R-Squared 0.25 1.00
Beta 0.38 1.00
</TABLE>
<TABLE>
<CAPTION>
FUND ALLOCATION BY REIT TYPE
- ----------------------------------------------------------
<S> <C>
Office 23.0%
Apartments 21.9
Retail 20.8
Industrial 15.0
Diversified 13.5
Hotels 5.8
- ----------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
- ----------------------------------------------------------
<S> <C>
STYLE Value
MARKET CAP Small
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
- ----------------------------------------------------------
<S> <C>
Equity Office Properties Trust REIT 5.8%
Equity Residential Properties Trust REIT 4.6
Simon Property Group, Inc. REIT 3.8
Public Storage, Inc. REIT 2.8
ProLogis Trust REIT 2.8
Archstone Communities Trust REIT 2.5
Vornado Realty Trust REIT 2.3
Apartment Investment & Management
Co. Class A REIT 2.3
Spieker Properties, Inc. REIT 2.2
Duke Realty Investments, Inc. REIT 2.2
- ----------------------------------------------------------
Top Ten 31.3%
</TABLE>
24
<PAGE> 27
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JANUARY 31, 2000
ENERGY FUND S&P 500
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
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
2000 23.8 2.0 25.8 10.3
- ----------------------------------------------------------
</TABLE>
See Financial Highlights table on page 45 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- --------------------------------------------------------------------------
Energy Average Natural S&P 500 S&P Energy
Fund Resources Fund Index Sector Index
<S> <C> <C> <C> <C>
1990 01 10000 10000 10000 10000
1990 04 9843 9561 10138 9895
1990 07 11248 10638 11016 11401
1990 10 10329 9530 9492 10532
1991 01 9836 9353 10839 10468
1991 04 10897 10020 11924 11727
1991 07 11016 10183 12422 11756
1991 10 11164 10356 12671 11933
1992 01 9961 9834 13299 10935
1992 04 10392 9890 13597 11537
1992 07 10941 10220 14010 12145
1992 10 10893 10017 13933 11889
1993 01 11258 10096 14706 12007
1993 04 13693 11551 14853 13309
1993 07 14215 12157 15233 13617
1993 10 14842 12504 16015 14205
1994 01 14332 12531 16600 14219
1994 04 14176 11855 15643 13823
1994 07 14733 12243 16019 14265
1994 10 15081 12538 16634 14976
1995 01 13021 11120 16688 14375
1995 04 15096 12540 18375 16113
1995 07 15484 13039 20202 16708
1995 10 14719 12404 21032 16581
1996 01 16756 14007 23140 18414
1996 04 19417 15935 23927 19962
1996 07 18413 15126 23549 19645
1996 10 21269 17118 26100 22075
1997 01 23512 18232 29235 24357
1997 04 21743 17058 29940 24768
1997 07 25839 19501 35827 29442
1997 10 27542 19932 34481 29712
1998 01 24405 17263 37102 27472
1998 04 27514 19201 42236 31704
1998 07 23164 14950 42736 28619
1998 10 22484 14515 42064 29294
1999 01 19231 12811 49157 27106
1999 04 25296 16897 51453 35415
1999 07 26238 17368 51370 35317
1999 10 24847 16651 52861 33948
2000 01 24199 17936 54242 34162
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000 FINAL VALUE OF A
--------------------------------- $10,000 INVESTMENT
1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Energy Fund* 25.83% 13.20% 9.24% $24,199
Average Natural Resources Fund** 31.24 8.99 6.02 17,936
S&P 500 Index 10.35 26.59 18.42 54,242
S&P Energy Sector Index 26.03 18.90 13.07 34,162
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
**Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- --------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Energy Fund** 5/23/1984 20.98% 13.15% 7.10% 2.15% 9.25%
- --------------------------------------------------------------------------------------------------------------------------
</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.
25
<PAGE> 28
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JANUARY 31, 2000
- ----------------------------------------------------------
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
2000 16.0 1.5 17.5 14.2
- ----------------------------------------------------------
</TABLE>
*MSCI Gold Mines Index through December 31, 1994; Salomon Smith Barney World
Gold Index thereafter. See Financial Highlights table on page 46 for dividend
and capital gains information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- -----------------------------------------------------------------------------
Gold and Precious Average Gold- Salomon Smith Barney
Metals Fund Oriented Fund World Gold Index
<S> <C> <C> <C>
1990 01 10000 10000 10000
1990 04 7870 7917 7076
1990 07 8367 8398 7275
1990 10 7430 7147 6664
1991 01 6879 6535 5889
1991 04 7468 6798 5752
1991 07 8231 7430 6871
1991 10 8124 7213 6622
1992 01 8026 7130 6531
1992 04 7318 6222 5442
1992 07 7753 6988 5974
1992 10 6627 6216 5086
1993 01 6374 5947 5010
1993 04 8945 8128 7782
1993 07 11621 10380 10784
1993 10 10484 9660 10270
1994 01 12063 10650 11099
1994 04 11163 9543 9899
1994 07 11600 9553 10264
1994 10 12669 10243 11338
1995 01 9747 8092 8755
1995 04 10831 9337 9705
1995 07 11432 9781 9804
1995 10 10357 8878 9277
1996 01 12987 11292 11794
1996 04 12978 12020 11934
1996 07 11468 10766 10486
1996 10 11552 10686 10634
1997 01 10324 9744 10036
1997 04 9710 8753 9533
1997 07 9162 7987 9298
1997 10 7896 7063 7870
1998 01 7243 6114 6901
1998 04 8129 6791 8000
1998 07 6046 4960 5572
1998 10 6856 5464 6207
1999 01 6442 5074 5559
1999 04 7506 5615 6871
1999 07 7096 4720 6242
1999 10 7681 5386 7000
2000 01 7569 4953 6349
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold and Precious Metals Fund* 17.49% -4.93% -2.75% $7,569
Average Gold-Oriented Fund** -4.55 -9.72 -6.79 4,953
Salomon Smith Barney World Gold Index+ 14.20 -6.22 -4.44 6,349
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
**Derived from data provided by Lipper Inc.
+MSCI Gold Mines Index through December 31, 1994; Salomon Smith Barney World
Gold Index thereafter.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- -------------------------------------------------------------------------------------------------------------------------
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 28.82% -6.44% -3.22% 1.99% -1.23%
- -------------------------------------------------------------------------------------------------------------------------
</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.
26
<PAGE> 29
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JANUARY 31, 2000
- ----------------------------------------------------------
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
2000 9.5 1.1 10.6 10.3
- ----------------------------------------------------------
</TABLE>
See Financial Highlights table on page 46 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JANUARY 31, 1990-JANUARY 31, 2000
- ----------------------------------------------------------------------------------------
Health Care Average Health/ S&P Health
Fund Biotechnology Fund S&P 500 Index Sector Index
<S> <C> <C> <C> <C>
1990 01 10000 10000 10000 10000
1990 04 10263 10541 10138 10221
1990 07 11788 12410 11016 12550
1990 10 10765 11233 9492 11731
1991 01 13009 14076 10839 13595
1991 04 14662 16378 11924 15801
1991 07 15386 17616 12422 17160
1991 10 16644 20513 12671 18237
1992 01 17429 22931 13299 19126
1992 04 16498 19349 13597 17848
1992 07 17055 20255 14010 18098
1992 10 16897 19380 13933 17118
1993 01 16919 20250 14706 15882
1993 04 16426 18300 14853 15202
1993 07 16638 18767 15233 13886
1993 10 18953 20750 16015 15140
1994 01 20507 22856 16600 15905
1994 04 18873 20705 15643 14673
1994 07 19330 20142 16019 15367
1994 10 21722 22489 16634 17713
1995 01 22515 22972 16688 19240
1995 04 23993 24206 18375 20627
1995 07 26621 27057 20202 22929
1995 10 28585 29173 21032 25483
1996 01 32752 34109 23140 29667
1996 04 34696 35603 23927 28687
1996 07 33631 31837 23549 29138
1996 10 35482 34482 26100 33016
1997 01 39515 38417 29235 38004
1997 04 40507 35724 29940 38843
1997 07 47862 42951 35827 46052
1997 10 47558 44329 34481 45238
1998 01 50331 45216 37102 52660
1998 04 57372 49774 42236 58911
1998 07 58906 47847 42736 62331
1998 10 62311 46737 42064 64141
1999 01 69152 53949 49157 71342
1999 04 69809 50383 51453 69525
1999 07 70975 53527 51370 66681
1999 10 71245 53505 52861 71338
2000 01 76462 68015 54242 69304
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
------------------------------------ FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care Fund* 9.47% 27.70% 22.56% $76,462
Average Health/Biotechnology Fund** 28.96 24.33 21.13 68,015
S&P 500 Index 10.35 26.59 18.42 54,242
S&P Health Sector Index -2.86 29.21 21.36 69,304
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Reflective of the 1% fee assessed on redemptions of shares held less than five
years. For shares purchased before April 19, 1999, the 1% fee is assessed
only on redemptions of shares held less than one year.
**Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- -----------------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Health Care Fund 5/23/1984 7.05% 27.84% 19.77% 1.77 %21.54%
Fee-Adjusted Returns** 5.98 27.84 19.77 1.77 21.54
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Reflective of the 1% fee assessed on redemptions of shares held less than five
years. For shares purchased before April 19, 1999, the 1% fee is assessed
only on redemptions of shares held less than one year.
27
<PAGE> 30
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 15, 1992-JANUARY 31, 2000
- ----------------------------------------------------------
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
2000 -0.5 3.3 2.8 3.3
- ----------------------------------------------------------
</TABLE>
*80% S&P Utilities Index, 20% Lehman Utility Bond Index through June 30, 1996;
40% S&P Utilities Index, 40% S&P Telephone Index, 20% Lehman Utility Bond Index
through April 30, 1999; 63.75% S&P Utilities Index, 21.25% S&P Telephone Index,
15% Lehman Utility Bond Index thereafter. See Financial Highlights table on
page 47 for dividend and capital gains information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MAY 15, 1992-JANUARY 31, 2000
- -------------------------------------------------------------------------------------------
Utilities Income Average Utility Utilities Composite
Fund Fund Index S&P 500 Index
<S> <C> <C> <C> <C>
1992 05 10000 10000 10000 10000
1992 07 10700 10430 10762 10397
1992 10 10750 10392 10688 10340
1993 01 11451 10899 11219 10913
1993 04 12220 11543 11899 11022
1993 07 12952 12103 12638 11305
1993 10 13392 12427 13158 11885
1994 01 12949 12183 12670 12319
1994 04 12143 11490 11843 11609
1994 07 12112 11345 11950 11888
1994 10 11942 11246 11693 12344
1995 01 12371 11440 12421 12384
1995 04 12924 11772 12847 13636
1995 07 13687 12486 13627 14992
1995 10 14851 13220 14908 15608
1996 01 16016 14309 16178 17172
1996 04 15540 14036 15409 17756
1996 07 15462 13913 15239 17476
1996 10 16310 14730 16002 19369
1997 01 16899 15737 16912 21696
1997 04 16477 15326 16676 22219
1997 07 17981 17043 18055 26587
1997 10 18491 17353 18624 25588
1998 01 20814 19281 21370 27534
1998 04 22101 20807 22564 31344
1998 07 21872 20721 22666 31715
1998 10 23593 21152 24785 31216
1999 01 24960 22885 26455 36480
1999 04 25431 23464 26874 38183
1999 07 25697 24414 27511 38122
1999 10 25421 25027 27080 39228
2000 01 25656 26800 27317 40254
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
-------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS SINCE INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities Income Fund 2.79% 15.71% 12.99% $25,656
Average Utility Fund* 17.11 18.56 13.63 26,800
Utilities Composite Index** 3.26 17.07 13.92 27,317
S&P 500 Index 10.35 26.59 19.79 40,254
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
**80% S&P Utilities Index, 20% Lehman Utility Bond Index through June 30, 1996;
40% S&P Utilities Index, 40% S&P Telephone Index, 20% Lehman Utility Bond
Index through April 30, 1999; 63.75% S&P Utilities Index, 21.25% S&P
Telephone Index, 15% Lehman Utility Bond Index thereafter.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- -----------------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Utilities Income Fund 5/15/1992 -2.96% 15.85% 7.73% 4.81% 12.54%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
28
<PAGE> 31
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 13, 1996-JANUARY 31, 2000
- ----------------------------------------------------------
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
2000 -8.3 7.3 -1.0 -1.2
- ----------------------------------------------------------
</TABLE>
See Financial Highlights table on page 47 for dividend, capital gains, and
return of capital information since the fund's inception.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MAY 13, 1996-JANUARY 31, 2000
- ---------------------------------------------------------------
REIT Index Average Real Morgan Stanley
Fund Estate Fund REIT Index
<S> <C> <C> <C>
1996 05 10000 10000 10000
1996 07 10270 10074 10276
1996 10 11186 10932 11201
1997 01 13032 12618 13066
1997 04 12636 12184 12664
1997 07 14067 13968 14081
1997 10 14825 14683 14842
1998 01 15258 14981 15217
1998 04 14873 14916 14797
1998 07 13719 13685 13644
1998 10 12963 12620 12913
1999 01 12616 12554 12546
1999 04 13544 13514 13442
1999 07 13174 13288 13057
1999 10 12224 12101 12131
2000 01 12485 12270 12391
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
--------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REIT Index Fund* -1.04% 6.15% $12,485
Average Real Estate Fund** -2.26 5.66 12,270
Morgan Stanley REIT Index -1.24 5.93 12,391
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
**Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- --------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REIT Index Fund** 5/13/1996 -4.04% -0.27% 6.39% 6.12%
- --------------------------------------------------------------------------------------------------------------------------
</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.
29
<PAGE> 32
FINANCIAL STATEMENTS
JANUARY 31, 2000
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 in descending market value order. 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 (000)
- ------------------------------------------------------------
COMMON STOCKS (95.0%)
- ------------------------------------------------------------
UNITED STATES (71.7%)
- ------------------------------------------------------------
<S> <C> <C>
ENERGY MISCELLANEOUS (6.0%)
Ashland, Inc. 600,000 $ 19,537
Sunoco, Inc. 639,967 14,759
Tosco Corp. 500,000 12,844
Valero Energy Corp. 500,000 11,344
-----------
58,484
-----------
- ------------------------------------------------------------
MACHINERY--OIL WELL EQUIPMENT &
SERVICES (17.9%)
Baker Hughes, Inc. 1,250,000 30,781
Schlumberger Ltd. 497,300 30,366
- - Weatherford International, Inc. 759,999 28,547
Halliburton Co. 600,000 21,600
- - Noble Drilling Corp. 700,000 20,519
- - Rowan Cos., Inc. 778,800 17,669
- - Nabors Industries, Inc. 427,500 12,665
- - Cooper Cameron Corp. 250,300 12,390
-----------
174,537
-----------
MATERIALS & PROCESSING (0.5%)
Fluor Corp. 125,000 4,992
-----------
OFFSHORE DRILLING (1.2%)
ENSCO International, Inc. 500,000 11,437
-----------
OIL--CRUDE PRODUCERS (11.3%)
Vastar Resources, Inc. 487,200 27,101
Pogo Producing Co. 685,000 15,455
Anadarko Petroleum Corp. 400,000 13,125
EOG Resources, Inc. 654,400 10,389
Ultramar Diamond
Shamrock Corp. 431,900 9,448
- - Ocean Energy, Inc. 1,000,000 8,938
- - Santa Fe Snyder Corp. 1,077,900 7,882
Devon Energy Corp. 220,000 7,727
Union Pacific Resources
Group, Inc. 500,000 5,500
- - Barrett Resources Corp. 163,700 4,839
-----------
110,404
-----------
OIL--INTEGRATED DOMESTIC (23.2%)
Unocal Corp. 1,200,000 34,350
Chevron Corp. 400,000 33,425
USX-Marathon Group 1,114,200 28,621
Kerr-McGee Corp. 455,500 25,223
Phillips Petroleum Co. 600,000 24,525
Murphy Oil Corp. 395,100 22,669
Amerada Hess Corp. 400,000 21,275
Occidental Petroleum Corp. 1,000,000 19,875
Atlantic Richfield Co. 200,000 15,400
-----------
225,363
-----------
OIL--INTEGRATED INTERNATIONAL (7.7%)
Exxon Mobil Corp. 500,000 41,750
Texaco Inc. 628,388 33,226
-----------
74,976
-----------
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- ------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ------------------------------------------------------------
<S> <C> <C>
UTILITIES--GAS PIPELINES (2.6%)
Equitable Resources, Inc. 719,300 $ 24,816
OTHER (1.3%)
McDermott International, Inc. 1,284,200 12,681
-----------
- ------------------------------------------------------------
TOTAL UNITED STATES 697,690
- ------------------------------------------------------------
INTERNATIONAL (23.3%)
- ------------------------------------------------------------
CANADA (12.2%)
Suncor Energy, Inc. 658,700 28,050
Alberta Energy Co., Ltd. 750,000 22,000
Imperial Oil Ltd. 900,000 17,486
- - Petro-Canada 1,100,000 16,399
- - Anderson Exploration Ltd. 1,012,401 11,879
- - Paramount Resources Ltd. 1,080,900 10,817
PanCanadian Petroleum Ltd. 283,400 4,372
- - Talisman Energy, Inc. 155,000 4,119
Burlington Resources Canada 100,000 3,158
----------
118,280
----------
FRANCE (2.2%)
- - Total Fina SA ADR 350,000 21,788
----------
ITALY (2.1%)
ENI SpA ADR 430,500 20,368
----------
NORWAY (2.2%)
Norsk Hydro ASA ADR 550,000 21,862
----------
SPAIN (1.1%)
Repsol SA ADR 577,500 10,973
----------
UNITED KINGDOM (3.5%)
Shell Transport & Trading
Co. ADR 600,000 26,325
Burmah Castrol PLC 249,962 3,877
Lasmo PLC 2,000,000 3,420
----------
33,622
----------
- ------------------------------------------------------------
TOTAL INTERNATIONAL 226,893
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $768,450) 924,583
- ------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------
FACE
AMOUNT
(000)
- ------------------------------------------------------------
TEMPORARY CASH INVESTMENT (4.8%)
- ------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.73%, 2/1/2000
(COST $47,181) $47,181 47,181
- ------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $815,631) 971,764
- ------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- ------------------------------------------------------------
Other Assets--Note C 4,560
Liabilities (2,833)
----------
1,727
- ------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------
Applicable to 45,842,871 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $973,491
============================================================
NET ASSET VALUE PER SHARE $21.24
============================================================
*See Note A in Notes to Financial Statements.
- Non-Income-Producing Security.
ADR--American Depositary Receipt.
- ------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------
Paid in Capital $817,094 $17.82
Overdistributed Net Investment
Income--Note G (404) (.01)
Accumulated Net Realized
Gains--Note G 668 .02
Unrealized Appreciation--Note F 156,133 3.41
- ------------------------------------------------------------
NET ASSETS $973,491 $21.24
============================================================
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
- ------------------------------------------------------------
MARKET
GOLD AND PRECIOUS VALUE*
METALS FUND SHARES (000)
- ------------------------------------------------------------
COMMON STOCKS (97.8%)
- ------------------------------------------------------------
AUSTRALIA (32.9%)
<S> <C> <C>
M.I.M. Holdings Ltd. 28,000,000 $ 24,644
- - Newcrest Mining Ltd. 9,000,000 22,214
WMC Ltd. 3,050,000 15,496
Delta Gold Ltd. 9,500,000 12,578
Sons of Gwalia Ltd. 3,500,000 10,715
- - Lihir Gold Ltd. 17,000,000 8,457
Ashton Mining Ltd. 13,000,000 6,218
Rio Tinto Ltd. 300,000 5,329
Goldfields Ltd. 5,163,227 3,392
- - Aurora Gold Ltd. 9,950,000 1,967
- - Star Mining Corp. NL 26,000,000 547
- - Tanami Gold NL 3,600,000 298
- - Bougainville Copper Ltd. 2,000,000 223
- - Masmindo Mining Corp. NL 127,230 12
- - Australian Resources Ltd. 16,250,000 0
---------
112,090
---------
CANADA (10.1%)
Franco-Nevada Mining
Corp., Ltd. 1,750,000 25,364
- - Aber Resources Ltd. 980,000 5,479
Placer Dome Inc. 300,000 2,609
- - Geomaque Explorations Ltd. 3,000,000 828
- - Vengold, Inc. 100,000 25
- - Princess Resources Ltd. 5,684,000 0
---------
34,305
---------
SOUTH AFRICA (22.7%)
Impala Platinum Holdings
Ltd. ADR 850,000 36,550
Anglo American Platinum
Corp. ADR 953,400 28,125
Anglogold Ltd. ADR 450,000 10,800
Harmony Gold Mining Co.
Ltd. ADR 348,000 1,870
---------
77,345
---------
UNITED KINGDOM (5.1%)
Lonmin PLC 900,000 9,847
Rio Tinto PLC 400,000 7,495
---------
17,342
---------
UNITED STATES (27.0%)
- - Stillwater Mining Co. 750,000 26,719
Newmont Mining Corp. 928,125 18,911
- - Freeport-McMoRan Copper &
Gold, Inc. Class A 1,010,000 16,160
Homestake Mining Co. 2,100,000 13,912
Barrick Gold Corp. 575,000 9,416
- - Royal Gold, Inc. 800,000 3,200
Freeport-McMoRan Copper &
Gold, Inc. Gold Denomination
Shares Pfd. 150,000 3,009
- - Crown Resources Corp. 600,000 619
- - Atlas Corp. 1,000,000 30
---------
91,976
---------
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $366,814) 333,058
- -----------------------------------------------------------
FACE
AMOUNT
(000) (0000)
- -----------------------------------------------------------
PRECIOUS METALS (0.3%)
- -----------------------------------------------------------
- - Platinum Bullion (2,009 Ounces)
(COST $1,213) 985
- -----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (6.8%)
- -----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.73%, 2/1/2000 $ 8,256 8,256
5.73%, 2/1/2000--Note H 14,879 14,879
- -----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $23,135) 23,135
- -----------------------------------------------------------
TOTAL INVESTMENTS (104.9%)
(COST $391,162) 357,178
- -----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-4.9%)
- -----------------------------------------------------------
Other Assets--Note C 528
Security Lending Collateral Payable
to Brokers--Note H (14,879)
Other Liabilities (2,300)
---------
(16,651)
- -----------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------
Applicable to 44,410,322 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $340,527
===========================================================
NET ASSET VALUE PER SHARE $7.67
===========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
- -----------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------
Paid in Capital $489,581 $11.02
Undistributed Net Investment
Income--Note G 170 --
Accumulated Net Realized
Losses--Note G (115,239) (2.59)
Unrealized Depreciation--Note F
Investment Securities (33,984) (.76)
Foreign Currencies (1) --
- -----------------------------------------------------------
NET ASSETS $340,527 $ 7.67
===========================================================
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET
VALUE*
HEALTH CARE FUND SHARES (000)
- -----------------------------------------------------------
COMMON STOCKS (90.8%)
- -----------------------------------------------------------
UNITED STATES (68.5%)
- -----------------------------------------------------------
BIOTECH RESEARCH & PRODUCTION (3.2%)
<S> <C> <C>
- - IDEC Pharmaceuticals Corp. 1,325,000 $ 167,198
- - Human Genome Sciences, Inc. 873,000 85,554
- - Quintiles Transnational Corp. 2,037,200 53,858
IDEXX Laboratories Corp. 1,070,000 16,117
- - Cephalon, Inc. 290,000 10,295
Baxter International, Inc. 67,500 4,312
---------
337,334
---------
CONSUMER STAPLES (0.1%)
Rite Aid Corp. 1,000,000 7,062
---------
DRUGS & PHARMACEUTICALS (37.5%)
- - Immunex Corp. 4,770,200 623,704
Warner-Lambert Co. 4,683,577 444,647
Pharmacia & Upjohn, Inc. 9,377,800 440,757
American Home Products Corp. 8,011,000 377,018
Abbott Laboratories 7,154,500 233,416
Johnson & Johnson 2,551,000 219,545
Pfizer, Inc. 5,815,000 211,521
Merck & Co., Inc. 2,490,000 196,243
Allergan, Inc. 3,418,600 194,860
Bristol-Myers Squibb Co. 2,884,500 190,377
- - Genzyme Corp. 3,027,920 157,452
Cardinal Health, Inc. 3,174,472 151,779
- - Gilead Sciences, Inc. 2,012,481 94,209
- -(1)Vertex Pharmaceuticals, Inc. 1,927,700 79,036
- -(1)AmeriSource Health Corp. 3,346,600 60,657
- -(1)Perrigo Co. 5,322,320 45,739
Eli Lilly & Co. 670,000 44,806
Mylan Laboratories, Inc. 1,445,000 38,473
- - Pharmacyclics, Inc. 738,000 36,946
Bergen Brunswig Corp. Class A 5,568,412 36,543
Alpharma, Inc. Class A 848,313 28,843
Glaxo Wellcome PLC ADR 500,000 26,375
- - Forest Laboratories, Inc. 326,400 22,032
- - Alliance Pharmaceutical Corp. 1,727,588 19,975
Schering-Plough Corp. 340,000 14,960
- - Cor Therapeutics, Inc. 530,000 14,045
- - Triangle Pharmaceuticals, Inc. 564,800 11,084
- - Magainin Pharmaceuticals, Inc. 1,328,100 3,984
- - BioCryst Pharmaceuticals, Inc. 151,400 3,189
- - Scios, Inc. 491,750 2,551
- - Crescendo Pharmaceuticals Corp. 51,500 914
- - ALZA Corp. 18,800 671
-----------
4,026,351
-----------
ELECTRONICS--MEDICAL SYSTEMS (1.2%)
- -(1)Haemonetics Corp. 1,983,900 51,705
- - IDX Systems Corp. 1,109,200 42,219
Datascope Corp. 342,100 12,358
Varian Medical Systems, Inc. 253,000 9,646
- - SpaceLabs Medical, Inc. 326,200 5,423
- - Protocol Systems, Inc. 273,000 2,576
- - ADAC Laboratories 196,000 2,572
-----------
126,499
-----------
FINANCIAL SERVICES
- - American Medical Security
Group, Inc. 678,000 3,814
-----------
HEALTH & PERSONAL CARE (3.1%)
(1) McKesson HBOC, Inc. 14,495,250 298,059
- -(1)Syncor International Corp. 856,559 20,772
Omnicare, Inc. 1,000,000 10,563
- - American Retirement Corp. 637,000 4,459
-----------
333,853
-----------
HEALTH CARE FACILITIES (5.8%)
Columbia/HCA
Healthcare Corp. 10,667,620 291,359
- - Tenet Healthcare Corp. 7,835,000 178,246
- -(1)Quest Diagnostics, Inc. 2,312,000 78,608
- - HEALTHSOUTH Corp. 6,000,000 33,000
- - Laboratory Corp. of America 3,796,216 12,575
Triad Hospitals, Inc. 691,715 11,846
- - Beverly Enterprises, Inc. 3,030,000 11,173
LifePoint Hospitals, Inc. 691,715 9,338
-----------
626,145
-----------
HEALTH CARE MANAGEMENT SERVICES (5.5%)
United Healthcare Corp. 4,510,000 239,030
- -(1)Humana, Inc. 11,445,000 91,560
Aetna Inc. 1,455,000 77,479
Shared Medical Systems Corp. 1,100,000 48,675
- -(1)Cerner Corp. 2,006,600 39,881
- - Quorum Health Group, Inc. 2,145,000 20,579
- - Wellpoint Health Networks Inc.
Class A 300,000 20,400
- -(1)Sierra Health Services 2,189,600 15,738
- - Trigon Healthcare, Inc. 300,000 9,131
- - Universal Health Services
Class B 200,000 8,938
- - Foundation Health Systems
Class A 863,100 8,847
- - Mid Atlantic Medical
Services, Inc. 500,000 5,000
- - Pediatrix Medical Group, Inc. 414,100 3,779
United Wisconsin Services, Inc. 678,000 3,221
-----------
592,258
-----------
MATERIALS & PROCESSING (1.5%)
Sigma-Aldrich Corp. 4,686,300 156,991
Delta & Pine Land Co. 307,300 5,070
-----------
162,061
-----------
MEDICAL & DENTAL INSTRUMENTS &
SUPPLIES (5.3%)
Becton, Dickinson & Co. 5,174,900 135,518
C.R. Bard, Inc. 1,937,900 86,721
- - Boston Scientific Corp. 3,371,500 69,959
Beckman Coulter, Inc. 1,244,700 65,113
- - St. Jude Medical, Inc. 2,551,300 63,304
Biomet, Inc. 1,345,300 53,560
(1)Owens & Minor, Inc. Holding
Co. 2,006,100 18,180
- - Ventana Medical Systems, Inc. 614,400 15,130
- - PSS World Medical, Inc. 2,000,000 12,625
DENTSPLY International Inc. 500,000 12,375
- - STERIS Corp. 1,150,000 12,075
- - Henry Schein, Inc. 721,500 9,515
Varian, Inc. 253,000 7,274
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET
VALUE*
HEALTH CARE FUND SHARES (000)
- -----------------------------------------------------------
<S> <C> <C>
- -(1)Cohesion Technologies, Inc. 525,800 $ 5,061
- -(1)E-Z-EM, Inc. Class B 304,344 2,435
- -(1)E-Z-EM, Inc. Class A 219,258 1,699
-----------
570,544
-----------
MEDICAL SERVICES (0.8%)
- - Covance, Inc. 2,495,100 34,464
- -(1)Coventry Health Care Inc. 3,785,000 27,441
- -(1)PAREXEL International Corp. 1,388,200 18,394
-----------
80,299
-----------
MISCELLANEOUS HEALTH CARE (0.4%)
Mallinckrodt, Inc. 1,397,900 40,277
-----------
PRODUCER DURABLES (0.1%)
Pall Corp. 704,600 12,991
-----------
TECHNOLOGY
- - DAOU Systems, Inc. 513,500 1,829
-----------
OTHER (4.0%)
Monsanto Co. 10,292,300 363,447
- - Thermo Electron Corp. 3,300,000 57,131
Carter-Wallace, Inc. 230,000 4,384
Carter-Wallace, Inc. Class B 24,000 457
-----------
425,419
-----------
- -----------------------------------------------------------
TOTAL UNITED STATES 7,346,736
- -----------------------------------------------------------
INTERNATIONAL (22.3%)
- -----------------------------------------------------------
JAPAN (10.0%)
Fujisawa Pharmaceutical
Co., Ltd. 9,123,000 263,356
Takeda Chemical
Industries Ltd. 2,450,000 132,752
Eisai Co., Ltd. 6,806,000 127,165
Chugai Pharmaceutical
Co., Ltd. 6,981,000 101,739
Yamanouchi
Pharmaceuticals Co., Ltd. 2,180,000 95,720
Banyu Pharmaceutical Co. 5,750,000 94,972
Shionogi & Co., Ltd. 4,753,000 69,269
Sankyo Co., Ltd. 2,450,000 57,450
Tanabe Seiyaku Co., Ltd. 5,825,000 40,433
Daiichi Pharmaceutical
Co., Ltd. 2,900,000 39,148
Olympus Optical Co., Ltd. 2,600,000 34,856
Terumo Corp. 326,000 8,010
Ono Pharmaceutical Co., Ltd. 200,000 5,942
-----------
1,070,812
-----------
UNITED KINGDOM (6.9%)
AstraZeneca Group PLC ADR 7,086,372 269,282
- - SmithKline Beecham PLC ADR 3,624,500 221,095
AstraZeneca Group PLC 3,731,500 137,419
Nycomed Amersham PLC 12,565,820 79,180
SSL International PLC 2,000,000 20,261
- - Oxford GlycoSciences PLC 375,000 5,045
Boots Co. PLC 603,342 4,880
Celltech Group PLC 97,845 1,308
-----------
738,470
-----------
OTHER (5.4%)
Aventis SA ADR 2,052,615 110,841
Novartis AG (Registered) 71,747 88,564
Roche Holdings AG 8,000 86,633
Bayer AG ADR 1,921,500 75,419
Novo Nordisk A/S B Shares 500,000 61,125
Bayer AG 1,328,300 51,880
Aventis SA 675,168 35,737
Schering AG 213,470 24,227
Sanofi-Synthelabo SA 615,004 23,166
Gambro AB 1,000,000 7,961
The Ares-Serono Group 3,000 7,666
Axcan Pharma Inc. 1,200,000 6,791
-----------
580,010
-----------
- -----------------------------------------------------------
TOTAL INTERNATIONAL 2,389,292
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $6,748,583) 9,736,028
- -----------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.2%)
- -----------------------------------------------------------
Laboratory Corp. 8.50% Cvt. Pfd.
(COST $23,484) 358,721 22,420
- -----------------------------------------------------------
FACE
AMOUNT
(000)
- -----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (9.1%)
- -----------------------------------------------------------
COMMERCIAL PAPER (3.1%)
Associates Corp.
5.593%, 2/9/2000 $ 75,000 74,905
5.593%, 2/10/2000 105,000 104,856
General Electric Capital Corp.
5.724%, 2/16/2000 50,000 49,883
General Electric Co.
5.724%, 2/16/2000 100,000 99,766
-----------
329,410
-----------
REPURCHASE AGREEMENTS (4.6%)
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.73%, 2/1/2000--Note H 22,215 22,215
J. P. Morgan Securities Inc.
5.66%, 2/1/2000
(Dated 1/31/2000, Repurchase
Value $477,584,000, collateralized
by U.S. Treasury Bonds,
6.00%-11.25%,
2/15/2015-8/15/2027) 477,509 477,509
-----------
499,724
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (1.4%)
Federal Home Loan Bank
5.608%, 2/7/2000 150,000 149,862
- -----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $978,999) 978,996
- -----------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(COST $7,751,066) 10,737,444
- -----------------------------------------------------------
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET
VALUE*
(000)
- -----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-0.1%)
Other Assets--Note C 61,999
Liabilities--Note H (72,964)
-----------
(10,965)
- -----------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------
Applicable to 108,532,485 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $10,726,479
===========================================================
NET ASSET VALUE PER SHARE $98.83
===========================================================
*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 $854,965,000.
ADR--American Depositary Receipt.
- -----------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------
Paid in Capital $ 7,057,207 $65.02
Undistributed Net Investment
Income--Note G 2,213 .02
Accumulated Net Realized
Gains--Note G 677,358 6.24
Unrealized Appreciation--Note F
Investment Securities 2,986,378 27.52
Foreign Currencies and
Forward Currency Contracts 3,323 .03
- -----------------------------------------------------------
NET ASSETS $10,726,479 $98.83
===========================================================
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET
VALUE*
UTILITIES INCOME FUND SHARES (000)
- -----------------------------------------------------------
COMMON STOCKS (87.0%)
- -----------------------------------------------------------
<S> <C> <C>
ELECTRICAL (42.6%)
DQE Inc. 827,930 $ 38,602
Montana Power Co. 934,400 37,843
Unicom Corp. 800,000 31,300
Pinnacle West Capital Corp. 994,300 30,699
New England Electric System 467,100 24,698
Duke Energy Corp. 377,220 21,784
Edison International 750,000 21,750
DPL Inc. 983,000 18,861
PECO Energy Corp. 375,000 15,609
Northeast Utilities 750,000 15,375
CMS Energy Corp. 500,000 15,000
NiSource, Inc. 631,000 11,595
Endesa S.A. ADR 599,800 11,246
Constellation Energy Group 350,000 10,544
GPU, Inc. 358,700 10,402
Texas Utilities Co. 275,000 9,728
ScottishPower PLC ADR 319,000 8,832
PowerGen PLC ADR 254,500 7,667
CH Energy Group, Inc. 216,300 6,705
Cinergy Corp. 200,000 4,975
Minnesota Power, Inc. 230,000 3,867
National Power PLC ADR 150,000 3,600
Public Service Co. of
New Mexico 200,000 3,175
-----------
363,857
-----------
GAS DISTRIBUTION (5.0%)
National Fuel Gas Co. 400,000 17,825
KeySpan Corp. 450,000 10,547
Sempra Energy 224,071 4,159
ONEOK, Inc. 145,400 3,799
MCN Energy Group Inc. 104,800 2,699
Peoples Energy Corp. 75,000 2,344
Public Service Co. of
North Carolina, Inc. 39,300 1,282
-----------
42,655
-----------
GAS PIPELINES (12.7%)
Enron Corp. 600,000 40,463
El Paso Energy Corp. 636,400 20,524
Dynegy, Inc. 500,000 15,500
Williams Cos., Inc. 400,000 15,500
Columbia Energy Group 237,500 15,437
Westcoast Energy Inc. 100,000 1,488
-----------
108,912
-----------
INTEGRATED OILS (0.7%)
Coastal Corp. 175,000 6,453
-----------
TELECOMMUNICATIONS (21.2%)
AT&T Corp. 375,000 19,781
British Telecommunications
PLC ADR 99,000 19,404
Sprint Corp. 284,200 18,384
ALLTEL Corp. 255,000 17,021
SBC Communications Inc. 367,200 15,836
GTE Corp. 200,000 14,663
Bell Atlantic Corp. 220,000 13,626
Vodafone AirTouch PLC ADR 225,000 12,600
BCE, Inc. 120,000 12,262
BroadWing Inc. 300,000 11,400
BellSouth Corp. 230,200 10,834
Telecom Corp. of New Zealand
Ltd. ADR 250,800 8,402
U S WEST, Inc. 100,000 6,650
-----------
180,863
-----------
WATER (3.0%)
Suez Lyonnaise des Eaux 125,000 18,039
American Water Works Co., Inc. 296,300 7,185
-----------
25,224
-----------
OTHER (1.8%)
MDU Resources Group, Inc. 300,000 5,944
UtiliCorp United, Inc. 285,750 5,590
BCT.Telus Communications, Inc. 100,912 2,647
BCT.Telus Communications, Inc.
(non-voting) 33,637 841
-----------
15,022
-----------
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $602,836) 742,986
- -----------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- -----------------------------------------------------------
CORPORATE BONDS (9.2%)
- -----------------------------------------------------------
ELECTRIC (6.3%)
Alabama Power Co.
5.35%, 11/15/2003 $2,000 1,858
Appalachian Power Co.
6.60%, 5/1/2009 2,000 1,804
Arizona Public Service Co.
6.25%, 1/15/2005 2,000 1,868
Baltimore Gas & Electric Co.
7.50%, 1/15/2007 4,000 3,949
Carolina Power & Light Co.
8.625%, 9/15/2021 2,000 2,182
Central Power & Light Co.
7.25%, 10/1/2004 2,000 1,946
Consolidated Edison Co. of
New York, Inc.
6.45%, 12/1/2007 4,000 3,705
Duke Energy Corp.
6.625%, 2/1/2003 4,000 3,910
Florida Power & Light Corp.
6.00%, 6/1/2008 4,000 3,613
Florida Power Corp.
6.75%, 2/1/2028 2,000 1,773
GTE Southwest Inc.
6.23%, 1/1/2007 1,000 926
Kentucky Utilities Co.
7.92%, 5/15/2007 2,000 2,005
Louisville Gas & Electric Energy Corp.
6.00%, 8/15/2003 2,000 1,912
Northern States Power Co.
5.75%, 10/1/2003 2,000 1,886
Oklahoma Gas & Electric Co.
6.50%, 4/15/2028 1,275 1,091
PECO Energy
6.50%, 5/1/2003 3,000 2,900
PP&L Capital Funding Inc.
6.79%, 11/22/2004 2,000 1,904
Pennsylvania Electric Co.
6.125%, 4/1/2009 2,000 1,775
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
- ------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------
<S> <C> <C>
Potomac Electric Power Co.
6.50%, 9/15/2005 1,000 944
Public Service Co. of Colorado
7.125%, 6/1/2006 2,000 1,938
Puget Sound Energy Inc.
6.46%, 3/9/2009 1,000 919
Virginia Electric & Power Co.
6.00%, 8/1/2001 2,000 1,961
West Texas Utilities Co.
7.75%, 6/1/2007 1,500 1,502
Wisconsin Electric Power Co.
6.625%, 11/15/2006 2,000 1,891
Wisconsin Power & Light
5.70%, 10/15/2008 2,000 1,750
Wisconsin Public Service Corp.
6.80%, 2/1/2003 2,000 1,972
-----------
53,884
-----------
GAS (0.2%)
Atlanta Gas & Light Co.
5.90%, 10/6/2003 2,000 1,901
-----------
TELEPHONE (2.7%)
AT&T Corp.
7.00%, 5/15/2005 2,000 1,958
Bell Atlantic Pennsylvania, Inc.
6.625%, 9/15/2002 3,500 3,443
Chesapeake & Potomac
Telephone Co.
8.30%, 8/1/2031 1,000 1,029
GTE California Inc.
6.70%, 9/1/2009 2,000 1,877
GTE Corp.
7.51%, 4/1/2009 1,000 988
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 2,000 1,895
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 2,000 2,053
New York Telephone Co.
8.625%, 11/15/2010 1,000 1,062
Pacific Bell
6.625%, 11/1/2009 2,000 1,874
Southwestern Bell Telephone Co.
6.625%, 4/1/2005 3,000 2,883
Sprint Capital Corp.
5.70%, 11/15/2003 1,000 940
United Telephone Co. of Florida
6.25%, 5/15/2003 2,000 1,923
WorldCom Inc.
6.40%, 8/15/2005 1,000 948
-----------
22,873
-----------
- -----------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $82,954) 78,658
- -----------------------------------------------------------
FOREIGN BOND (U.S. DOLLAR-DENOMINATED)(0.2%)
- -----------------------------------------------------------
United Utilities PLC
6.45%, 4/1/2008
(COST $1,999) 2,000 1,819
- -----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (6.3%)
- -----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.73%, 2/1/2000 14,203 14,203
5.73%, 2/1/2000--Note H 39,668 39,668
- -----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $53,871) 53,871
- -----------------------------------------------------------
TOTAL INVESTMENTS (102.7%)
(COST $741,660) 877,334
- -----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.7%)
- -----------------------------------------------------------
Other Assets--Note C 19,877
Security Lending Collateral Payable
to Brokers--Note H (39,668)
Other Liabilities (3,270)
-----------
(23,061)
- -----------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------
Applicable to 57,201,398 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $854,273
- -----------------------------------------------------------
NET ASSET VALUE PER SHARE $14.93
- -----------------------------------------------------------
*See Note A in Notes to Financial Statements.
ADR--American Depositary Receipt.
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------
<S> <C> <C>
Paid in Capital $695,021 $12.15
Undistributed Net
Investment Income 890 .01
Accumulated Net Realized Gains 22,688 .40
Unrealized Appreciation--Note F 135,674 2.37
- -----------------------------------------------------------
NET ASSETS $854,273 $14.93
===========================================================
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
MARKET
VALUE*
REIT INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (98.4%)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Equity Office Properties
Trust REIT 2,010,201 $ 51,386
Equity Residential Properties
Trust REIT 981,491 40,732
Simon Property Group, Inc. REIT 1,382,876 34,140
Public Storage, Inc. REIT 1,086,936 24,660
ProLogis Trust REIT 1,288,390 24,560
Archstone Communities
Trust REIT 1,119,027 22,450
Vornado Realty Trust REIT 657,382 20,584
Apartment Investment &
Management Co. Class A REIT 529,150 20,041
Spieker Properties, Inc. REIT 497,500 19,340
Duke Realty Investments,
Inc. REIT 973,011 19,278
Avalonbay Communities,
Inc. REIT 512,727 17,689
Crescent Real Estate, Inc. REIT 959,400 17,269
Kimco Realty Corp. REIT 486,600 17,153
Boston Properties, Inc. REIT 541,350 16,241
Host Marriott Corp. REIT 1,825,600 16,202
Cornerstone Properties,
Inc. REIT 1,039,200 14,939
AMB Property Corp. REIT 690,100 14,104
Rouse Co. REIT 573,700 12,765
Liberty Property Trust REIT 533,900 12,447
Mack-Cali Realty Corp. REIT 469,700 11,948
Post Properties, Inc. REIT 306,513 11,762
CarrAmerica Realty Corp. REIT 532,700 11,553
General Growth Properties
Inc. REIT 405,300 11,551
New Plan Excel Realty
Trust REIT 700,961 11,478
Highwood Properties, Inc. REIT 499,300 11,359
Arden Realty Group, Inc. REIT 505,000 10,668
Franchise Finance Corp. of
America REIT 441,300 10,591
FelCor Lodging Trust, Inc. REIT 525,600 9,461
Regency Realty Corp. REIT 478,400 9,359
Hospitality Properties Trust REIT 457,700 8,954
Cousins Properties, Inc. REIT 248,265 8,891
HRPT Properties Trust REIT 886,500 8,311
Camden Property Trust REIT 320,526 8,294
First Industrial Realty Trust REIT 299,100 8,038
Weingarten Realty
Investors REIT 212,800 7,940
United Dominion Realty
Trust REIT 821,076 7,903
BRE Properties Inc. Class A REIT 356,100 7,834
Westfield America, Inc. REIT 593,700 7,755
Storage USA, Inc. REIT 226,900 6,764
Federal Realty Investment
Trust REIT 326,600 6,512
Prentiss Properties Trust REIT 306,800 6,443
Cabot Industrial Trust REIT 328,800 6,412
MeriStar Hospitality Corp. REIT 387,096 6,315
Developers Diversified Realty
Corp. REIT 476,400 6,193
The Macerich Co. REIT 271,600 6,128
Chateau Communities, Inc. REIT 226,240 5,939
Reckson Associates Realty
Corp. REIT 296,500 5,856
CenterPoint Properties Corp. REIT 154,200 5,464
Charles E. Smith Residential
Realty, Inc. REIT 153,400 5,446
Shurgard Storage Centers, Inc.
Class A REIT 236,100 5,253
Brandywine Realty Trust REIT 307,100 5,029
Essex Property Trust, Inc. REIT 141,300 4,804
Walden Residential Properties,
Inc. REIT 203,200 4,572
Realty Income Corp. REIT 213,800 4,543
Washington REIT 289,500 4,487
Colonial Properties Trust REIT 181,000 4,446
Taubman Co. REIT 396,200 4,432
JDN Realty Corp. REIT 269,800 4,418
Manufactured Home
Communities, Inc. REIT 181,800 4,363
Kilroy Realty Corp. REIT 224,300 4,360
PS Business Parks, Inc. REIT 191,300 4,304
Gables Residential Trust REIT 198,100 4,296
Summit Properties, Inc. REIT 225,200 4,279
Sun Communities, Inc. REIT 136,300 4,225
CBL & Associates Properties,
Inc. REIT 200,500 4,223
SL Green Realty Corp. REIT 192,700 4,191
Home Properties of New York,
Inc. REIT 153,800 4,162
Starwood Financial Inc. REIT 237,015 4,118
Urban Shopping Centers,
Inc. REIT 142,900 3,983
Prison Realty Trust, Inc. REIT 798,800 3,545
Chelsea GCA Realty, Inc. REIT 120,500 3,382
Glenborough Realty Trust,
Inc. REIT 247,600 3,374
Koger Equity, Inc. REIT 213,300 3,359
Mid-America Apartment
Communities, Inc. REIT 151,000 3,341
Alexandria Real Estate
Equities, Inc. REIT 112,200 3,310
Bradley Real Estate Inc. REIT 191,840 3,261
Mills Corp. REIT 186,853 3,258
Pacific Gulf Properties, Inc. REIT 162,600 3,171
Pan Pacific Retail Properties,
Inc. REIT 170,400 3,057
Bedford Property Investors,
Inc. REIT 183,400 3,049
Cornerstone Realty Income
Trust, Inc. REIT 313,900 2,962
AMLI Residential Properties
Trust REIT 133,700 2,858
JP Realty Inc. REIT 143,000 2,520
Commercial Net Lease
Realty REIT 246,000 2,506
Glimcher Realty Trust REIT 189,500 2,452
EastGroup Properties, Inc. REIT 126,450 2,418
RFS Hotel Investors, Inc. REIT 204,300 2,337
Burnham Pacific Properties,
Inc. REIT 256,100 2,305
National Golf Properties,
Inc. REIT 103,100 2,294
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Innkeepers USA Trust REIT 281,000 $ 2,248
Parkway Properties Inc. REIT 82,100 2,222
IRT Property Co. REIT 269,200 2,221
Reckson Associates Realty
Corp. Class B REIT 108,899 2,219
Great Lakes, Inc. REIT 134,900 2,175
Equity Inns, Inc. REIT 301,400 2,034
Center Trust, Inc. REIT 208,600 2,008
Town & Country Trust REIT 116,000 1,972
Sovran Self Storage, Inc. REIT 101,000 1,913
U.S. Restaurant Properties,
Inc. REIT 124,600 1,908
Pennsylvania REIT 109,700 1,865
Capital Automotive REIT 160,000 1,850
Boykin Lodging Co. REIT 143,200 1,718
Entertainment Properties
Trust REIT 122,700 1,718
Prime Group Realty Trust REIT 122,700 1,710
Lexington Corporate Properties
Trust REIT 145,500 1,537
Saul Centers, Inc. REIT 102,100 1,532
Western Properties Trust REIT 150,300 1,522
American Industrial
Properties REIT 143,500 1,498
LaSalle Hotel Properties REIT 123,600 1,491
Associated Estates Realty
Corp. REIT 177,400 1,452
First Washington Realty
Trust, Inc. REIT 73,200 1,450
Tanger Factory Outlet Centers,
Inc. REIT 64,300 1,358
Crown American Realty
Trust REIT 218,900 1,313
Investors Real Estate Trust REIT 158,200 1,275
Konover Property Trust, Inc. REIT 247,100 1,251
Winston Hotels, Inc. REIT 143,075 1,216
Mid Atlantic Realty Trust REIT 119,300 1,178
Golf Trust of America, Inc. REIT 63,000 1,126
Corporate Office Properties
Trust, Inc. REIT 120,400 956
Phillips International Realty
Corp. REIT 56,000 928
Equity One, Inc. REIT 88,300 872
Grove Property Trust REIT 68,900 857
Jameson Inns, Inc. REIT 114,500 844
Mission West Properties
Inc. REIT 109,500 821
Prime Retail, Inc. REIT 351,208 812
Ramco-Gershenson Properties
Trust REIT 59,000 797
Correctional Properties Trust REIT 58,400 715
Kranzco Realty Trust REIT 86,500 714
Captec Net Lease Realty, Inc. REIT 77,600 621
Tarragon Realty Investors,
Inc. REIT 24,100 250
Wyndham International, Inc.
Class A REIT 86,444 200
- - Interstate Hotels Corp. REIT 52,528 194
Prime Retail Inc. 8.5% Series B
Cvt. Pfd. REIT 16,100 151
- - Merry Land Properties, Inc. REIT 16,985 81
- - Horizon Group Properties,
Inc. REIT 22,070 60
- --------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $1,010,039) 873,202
- --------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.7%)
- --------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.73%, 2/1/2000 $13,725 13,725
5.73%, 2/1/2000--Note H 1,741 1,741
- --------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $15,466) 15,466
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(COST $1,025,505) 888,668
- --------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.1%)
- --------------------------------------------------------------------------------------
Other Assets--Note C 4,662
Liabilities--Note H (5,708)
---------
(1,046)
- --------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------
Applicable to 89,552,361 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $ 887,622
======================================================================================
NET ASSET VALUE PER SHARE $ 9.91
======================================================================================
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
- --------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------
Paid in Capital $1,070,271 $ 11.96
Overdistributed Net
Investment Income (515) (.01)
Accumulated Net Realized
Losses--Note G (45,297) (.51)
Unrealized Depreciation--Note F (136,837) (1.53)
- --------------------------------------------------------------------------------------
NET ASSETS $ 887,622 $ 9.91
======================================================================================
</TABLE>
39
<PAGE> 42
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, 2000
-----------------------------------------------------------------------
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C> <C> <C> <C>
Dividends $ 18,611 $ 6,736* $ 83,262** $ 24,777
Interest 2,241 516 52,587 7,760
Security Lending 94 153 656 290
-----------------------------------------------------------------------
Total Income 20,946 7,405 136,505 32,827
-----------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 646 739 6,662 587
The Vanguard Group--Note C
Management and Administrative 3,776 1,683 32,496 2,980
Marketing and Distribution 150 48 1,508 125
Custodian Fees 148 92 1,527 28
Auditing Fees 7 6 12 6
Shareholders' Reports 45 26 271 32
Trustees' Fees and Expenses 2 1 15 1
-----------------------------------------------------------------------
Total Expenses 4,774 2,595 42,491 3,759
Expenses Paid Indirectly--Note D (126) -- (2,037) (177)
-----------------------------------------------------------------------
Net Expenses 4,648 2,595 40,454 3,582
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 16,298 4,810 96,051 29,245
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 15,813 (21,445) 1,182,676** 72,354
Foreign Currencies and Forward Currency Contracts 7 (181) (1,675) --
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 15,820 (21,626) 1,181,001 72,354
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 169,016 69,959 (218,558) (79,341)
Foreign Currencies and Forward Currency Contracts -- (1) (2,873) --
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 169,016 69,958 (221,431) (79,341)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $201,134 $ 53,142 $ 1,055,621 $ 22,258
===================================================================================================================================
</TABLE>
*Dividends are net of foreign withholding taxes of $177,000.
**Dividend income and realized net gain from affiliated companies were
$6,558,000 and $334,087,000, respectively.
40
<PAGE> 43
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
REIT INDEX FUND
YEAR ENDED JANUARY 31, 2000
(000)
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C>
Dividends $ 59,936
Interest 833
Security Lending 48
-----------
Total Income 60,817
EXPENSES -----------
Investment Advisory Fees--Note B 80
The Vanguard Group--Note C
Management and Administrative 2,729
Marketing and Distribution 180
Custodian Fees 10
Auditing Fees 6
Shareholders' Reports 44
Trustees' Fees and Expenses 1
-----------
Total Expenses 3,050
Expenses Paid Indirectly--Note D --
-----------
Net Expenses 3,050
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 57,767
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (5,512)
Foreign Currencies and Forward Currency Contracts --
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (5,512)
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (67,660)
Foreign Currencies and Forward Currency Contracts --
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (67,660)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (15,405)
================================================================================================================================
</TABLE>
41
<PAGE> 44
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,
----------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 16,298 $ 14,666 $ 4,810 $ 4,302
Realized Net Gain (Loss) 15,820 470 (21,626) (36,317)
Change in Unrealized Appreciation (Depreciation) 169,016 (231,896) 69,958 (6,079)
----------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 201,134 (216,760) 53,142 (38,094)
DISTRIBUTIONS
Net Investment Income (16,330) (15,275) (4,548) (4,222)
Realized Capital Gain -- (18,471) -- --
----------------------------------------------------------------------
Total Distributions (16,330) (33,746) (4,548) (4,222)
----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 302,829 283,737 100,273 134,740
Issued in Lieu of Cash Distributions 15,187 31,524 4,175 3,874
Redeemed* (289,658) (394,911) (122,334) (113,797)
----------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 28,358 (79,650) (17,886) 24,817
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 213,162 (330,156) 30,708 (17,499)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 760,329 1,090,485 309,819 327,318
----------------------------------------------------------------------
End of Year $ 973,491 $ 760,329 $ 340,527 $ 309,819
=================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 14,340 13,075 13,115 19,282
Issued in Lieu of Cash Distributions 710 1,690 522 568
Redeemed (13,512) (18,532) (16,093) (16,479)
----------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 1,538 (3,767) (2,456) 3,371
=================================================================================================================================
</TABLE>
*Net of redemption fees of $835,000, $654,000, $348,000, and $461,000,
respectively.
42
<PAGE> 45
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE UTILITIES INCOME
FUND FUND
------------------------------------------------------------------
YEAR ENDED JANUARY 31,
------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 96,051 $ 78,548 $ 29,245 $ 27,934
Realized Net Gain (Loss) 1,181,001 417,148 72,354 65,412
Change in Unrealized Appreciation (Depreciation) (221,431) 1,684,504 (79,341) 52,370
------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,055,621 2,180,200 22,258 145,716
------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (101,180) (74,779) (30,217) (29,408)
Realized Capital Gain (749,950) (253,199) (68,750) (53,436)
------------------------------------------------------------------
Total Distributions (851,130) (327,978) (98,967) (82,844)
------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,663,504 3,680,601 189,941 268,167
Issued in Lieu of Cash Distributions 808,980 311,662 85,243 70,652
Redeemed* (1,834,838) (679,962) (295,885) (148,945)
------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 637,646 3,312,301 (20,701) 189,874
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 842,137 5,164,523 (97,410) 252,746
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 9,884,342 4,719,819 951,683 698,937
------------------------------------------------------------------
End of Year $ 10,726,479 $ 9,884,342 $ 854,273 $ 951,683
==============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 17,173 42,315 12,024 16,838
Issued in Lieu of Cash Distributions 8,699 3,515 5,792 4,463
Redeemed (18,902) (8,032) (19,101) (9,519)
------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 6,970 37,798 (1,285) 11,782
==============================================================================================================================
</TABLE>
*Health Care Fund amounts are net of redemption fees of $3,360,000 and $418,000,
respectively.
43
<PAGE> 46
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
REIT INDEX
FUND
YEAR ENDED JANUARY 31,
----------------------------------
2000 1999
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 57,767 $ 57,718
Realized Net Gain (Loss) (5,512) (39,785)
Change in Unrealized Appreciation (Depreciation) (67,660) (236,893)
----------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (15,405) (218,960)
----------------------------------
DISTRIBUTIONS
Net Investment Income (57,949) (57,832)
Realized Capital Gain -- --
Return of Capital (9,481) (12,496)
-----------------------------------
Total Distributions (67,430) (70,328)
----------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 316,761 374,461
Issued in Lieu of Cash Distributions 59,804 63,043
Redeemed* (310,380) (560,676)
----------------------------------
Net Increase (Decrease) from Capital Share Transactions 66,185 (123,172)
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (16,650) (412,460)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 904,272 1,316,732
----------------------------------
End of Year $ 887,622 $ 904,272
===============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 29,923 29,719
Issued in Lieu of Cash Distributions 5,923 5,251
Redeemed (29,977) (45,501)
----------------------------------
Net Increase (Decrease) in Shares Outstanding 5,869 (10,531)
===============================================================================================================================
</TABLE>
*Net of redemption fees of $439,000 and $1,252,000, respectively.
44
<PAGE> 47
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,
----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 17.16 $ 22.68 $ 23.44 $ 17.19 $ 13.82
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .355 .33 .32 .25 .27
Net Realized and Unrealized Gain (Loss) on Investments 4.080 (5.08) .57 6.64 3.68
----------------------------------------------------------------
Total from Investment Operations 4.435 (4.75) .89 6.89 3.95
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.355) (.35) (.32) (.24) (.28)
Distributions from Realized Capital Gains -- (.42) (1.33) (.40) (.30)
----------------------------------------------------------------
Total Distributions (.355) (.77) (1.65) (.64) (.58)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 21.24 $ 17.16 $ 22.68 $ 23.44 $ 17.19
=================================================================================================================================
TOTAL RETURN* 25.83% -21.20% 3.80% 40.32% 28.68%
=================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 973 $ 760 $ 1,090 $ 989 $ 505
Ratio of Total Expenses to Average Net Assets 0.48% 0.41% 0.38% 0.39% 0.51%
Ratio of Net Investment Income to Average Net Assets 1.63% 1.46% 1.36% 1.36% 1.55%
Portfolio Turnover Rate 18% 22% 19% 15% 21%
=================================================================================================================================
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
45
<PAGE> 48
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GOLD AND PRECIOUS METALS FUND
YEAR ENDED JANUARY 31,
------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 6.61 $ 7.53 $ 10.94 $ 14.07 $ 10.71
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .11 .10 .14 .13 .17
Net Realized and Unrealized Gain (Loss) on Investments 1.05 (.93) (3.42) (2.98) 3.36
------------------------------------------------------------------
Total from Investment Operations 1.16 (.83) (3.28) (2.85) 3.53
------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.10) (.09) (.13) (.21) (.17)
Distributions from Realized Capital Gains -- -- -- (.07) --
------------------------------------------------------------------
Total Distributions (.10) (.09) (.13) (.28) (.17)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 7.67 $ 6.61 $ 7.53 $ 10.94 $ 14.07
==================================================================================================================================
TOTAL RETURN* 17.49% -11.06% -29.85% -20.51% 33.24%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 341 $ 310 $ 327 $ 463 $ 648
Ratio of Total Expenses to Average Net Assets 0.77% 0.77% 0.62% 0.50% 0.60%
Ratio of Net Investment Income to Average Net Assets 1.42% 1.33% 1.41% 1.07% 1.38%
Portfolio Turnover Rate 28% 23% 26% 19% 5%
==================================================================================================================================
</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 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 97.32 $ 74.02 $ 60.65 $ 52.09 $ 37.01
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .92 .86 .80 .71 .61
Net Realized and Unrealized Gain (Loss) on Investments 8.70 26.36 15.49 9.88 16.06
-----------------------------------------------------------------
Total from Investment Operations 9.62 27.22 16.29 10.59 16.67
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.97) (.84) (.78) (.74) (.57)
Distributions from Realized Capital Gains (7.14) (3.08) (2.14) (1.29) (1.02)
-----------------------------------------------------------------
Total Distributions (8.11) (3.92) (2.92) (2.03) (1.59)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 98.83 $ 97.32 $ 74.02 $ 60.65 $ 52.09
===================================================================================================================================
TOTAL RETURN* 10.57% 37.39% 27.37% 20.65% 45.47%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 10,726 $ 9,884 $ 4,720 $ 2,846 $ 1,654
Ratio of Total Expenses to Average Net Assets 0.41% 0.36% 0.40% 0.38% 0.46%
Ratio of Net Investment Income to Average Net Assets 0.92% 1.13% 1.28% 1.41% 1.57%
Portfolio Turnover Rate 27% 11% 10% 7% 13%
===================================================================================================================================
</TABLE>
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than five years (or less than one year in the case of
shares purchased prior to April 19, 1999).
46
<PAGE> 49
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
UTILITIES INCOME FUND
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 16.27 $ 14.97 $ 12.93 $ 12.84 $ 10.42
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .49 .55 .58 .58 .56
Net Realized and Unrealized Gain (Loss) on Investments (.12) 2.35 2.32 .09 2.42
----------------------------------------------------------------
Total from Investment Operations .37 2.90 2.90 .67 2.98
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.51) (.59) (.60) (.56) (.56)
Distributions from Realized Capital Gains (1.20) (1.01) (.26) (.02) --
----------------------------------------------------------------
Total Distributions (1.71) (1.60) (.86) (.58) (.56)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 14.93 $ 16.27 $ 14.97 $ 12.93 $ 12.84
================================================================================================================================
TOTAL RETURN 2.79% 19.92% 23.17% 5.51% 29.47%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $ 854 $ 952 $ 699 $ 644 $ 781
Ratio of Total Expenses to Average Net Assets 0.40% 0.38% 0.44% 0.40% 0.44%
Ratio of Net Investment Income to Average Net Assets 3.13% 3.51% 4.30% 4.63% 4.88%
Portfolio Turnover Rate 47% 55% 41% 38% 35%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
REIT INDEX FUND
YEAR ENDED JANUARY 31, MAY 13,
------------------------------------ 1996,* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2000 1999 1998 JAN. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.81 $ 13.98 $ 12.64 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .660 .666 .590 .341
Net Realized and Unrealized Gain (Loss) on Investments (.780) (3.026) 1.520 2.659
--------------------------------------------------------
Total from Investment Operations (.120) (2.360) 2.110 3.000
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.670) (.666) (.590) (.341)
Distributions from Realized Capital Gains -- -- (.086) (.005)
Return of Capital (.110) (.144) (.094) (.014)
--------------------------------------------------------
Total Distributions (.780) (.810) (.770) (.360)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 10.81 $ 13.98 $ 12.64
===========================================================================================================================
TOTAL RETURN** -1.04% -17.31% 17.08% 30.33%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 888 $ 904 $ 1,317 $ 655
Ratio of Total Expenses to Average Net Assets 0.33% 0.26% 0.24% 0.36%+
Ratio of Net Investment Income to Average Net Assets 5.98% 5.19% 4.66% 5.55%+
Portfolio Turnover Rate 12% 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.
47
<PAGE> 50
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. 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. The funds may also invest directly in repurchase agreements.
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.
5. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
48
<PAGE> 51
6. 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,
2000, the investment advisory fees of the Energy, Health Care, and Utilities
Income Funds represented an effective annual rate of 0.06% 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, 2000, 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, 2000, 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 $ 202 0.02% 0.2%
Gold and Precious Metals 76 0.02 0.1
Health Care 2,066 0.02 2.1
Utilities Income 167 0.02 0.2
REIT Index 173 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 security
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' management and administrative expenses. The
funds' custodian banks have also agreed to reduce their fees when the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
year ended January 31, 2000, these arrangements reduced expenses by:
49
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
EXPENSE REDUCTION TOTAL EXPENSE
(000) REDUCTION AS
---------------------------- A PERCENTAGE
MANAGEMENT AND CUSTODIAN OF AVERAGE
SPECIALIZED FUND ADMINISTRATIVE FEES NET ASSETS
-----------------------------------------------------------------------
<S> <C> <C> <C>
Energy $ 119 $ 7 0.01%
Health Care 2,015 22 0.02
Utilities Income 177 -- 0.02
-----------------------------------------------------------------------
</TABLE>
E. During the year ended January 31, 2000, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
(000)
----------------------------------
SPECIALIZED FUND PURCHASES SALES
-----------------------------------------------------------------------
<S> <C> <C>
Energy $ 201,196 $ 173,584
Gold and Precious Metals 93,050 107,328
Health Care 2,781,544 2,498,978
Utilities Income 426,931 519,063
REIT Index 173,557 106,067
-----------------------------------------------------------------------
</TABLE>
F. At January 31, 2000, 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>
Energy $ 221,084 $ (64,951) $ 156,133
Gold and Precious Metals* 79,946 (114,002) (34,056)
Health Care 3,565,220 (578,842) 2,986,378
Utilities Income 166,426 (30,752) 135,674
REIT Index 15,305 (152,142) (136,837)
-----------------------------------------------------------------------
*See Note G.
</TABLE>
At January 31, 2000, 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:
4/25/2000 JPY 20,770,000 $200,092 $196,695 $3,397
------------------------------------------------------------------------------------
JPY--Japanese yen.
</TABLE>
Net unrealized appreciation on open futures contracts is required to be treated
as realized gain for tax purposes.
50
<PAGE> 53
At January 31, 2000, the Gold and Precious Metals and Health Care Funds had
net unrealized foreign currency losses resulting from the translation of other
assets and liabilities of $1,000 and $74,000, respectively.
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, 2000, 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 $ 7
Gold and Precious Metals (181)
Health Care 111
-----------------------------------------------------------------------
</TABLE>
At January 31, 2000, the Gold and Precious Metals Fund had available
realized losses of $115,176,000 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, $13,355,000 through January 31, 2008, and $11,810,000
through January 31, 2009. 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,
2000, the fund included $40,000 of unrealized appreciation on passive foreign
investment companies in taxable income. The fund also realized gains on the sale
of passive foreign investment companies of $3,188,000, 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, 2000, was $72,000, and is
reflected in the balance of undistributed net investment income.
At January 31, 2000, the REIT Index Fund had available realized losses of
$45,297,000 to offset future net capital gains of $7,982,000 through January 31,
2007, and $37,315,000 through January 31, 2008.
H. The market value of securities on loan to broker/dealers at January 31, 2000,
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>
Gold and Precious Metals $14,628 $14,879
Health Care 20,750 22,215
Utilities Income 39,031 39,668
REIT Index 1,666 1,741
-----------------------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements.
51
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Vanguard Specialized Funds
In our opinion, the accompanying statements of net assets 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, 2000, 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 accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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, 2000 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 10, 2000
52
<PAGE> 55
SPECIAL 2000 TAX INFORMATION (UNAUDITED) FOR
VANGUARD SPECIALIZED FUNDS
This information for the fiscal year ended January 31, 2000, 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, 2000, all of
which are designated as 20% rate gain distributions, as follows:
<TABLE>
<CAPTION>
------------------------------------------------------
CAPITAL GAIN
DIVIDENDS DISTRIBUTED
SPECIALIZED FUND (000)
------------------------------------------------------
<S> <C>
Health Care $576,299
Utilities Income 58,869
------------------------------------------------------
</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, 2000, are as follows:
<TABLE>
<CAPTION>
---------------------------------------------
GROSS FOREIGN FOREIGN
COUNTRY DIVIDENDS TAX
---------------------------------------------
<S> <C> <C>
Australia $.0653 $.0025
Canada .0091 .0010
Ghana .0058 .0000
South Africa .0634 .0000
United Kingdom .0053 .0005
---------------------------------------------
</TABLE>
The pass-through of foreign tax credit affected only shareholders on the
dividend record date in December 1999. Shareholders received more detailed
information along with their Form 1099-DIV in January 2000.
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 77.1%
Gold and Precious Metals 5.8
Health Care 20.0
Utilities Income 67.7
REIT Index 0.0
------------------------------------------------
</TABLE>
53
<PAGE> 56
THE VANGUARD FAMILY OF FUNDS
<TABLE>
<S> <C> <C>
STOCK FUNDS
- -------------------------------------------------------------------------------------------------------------------------
500 Index Fund Growth Index Fund* Tax-Managed Capital
Aggressive Growth Fund Health Care Fund Appreciation Fund*
Capital Opportunity Fund Institutional Index Fund* Tax-Managed Growth and
Convertible Securities Fund International Growth Fund Income Fund*
Emerging Markets Stock International Value Fund Tax-Managed International Fund*
Index Fund Mid-Cap Index Fund* Tax-Managed Small-Cap Fund*
Energy Fund Morgan Growth Fund Total International Stock
Equity Income Fund Pacific Stock Index Fund Index Fund
European Stock Index Fund PRIMECAP Fund Total Stock Market Index Fund*
Explorer Fund REIT Index Fund U.S. Growth Fund
Extended Market Index Fund* Selected Value Fund Utilities Income Fund
Global Equity Fund Small-Cap Growth Index Fund* Value Index Fund*
Gold and Precious Metals Fund Small-Cap Index Fund* Windsor Fund
Growth and Income Fund Small-Cap Value Index Fund* Windsor II Fund
BALANCED FUNDS
- -------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund LifeStrategy Growth Fund STAR Fund
Balanced Index Fund LifeStrategy Income Fund Tax-Managed Balanced Fund
Global Asset Allocation Fund LifeStrategy Moderate Wellesley Income Fund
LifeStrategy Conservative Growth Fund Wellington Fund
Growth Fund
BOND FUNDS
- -------------------------------------------------------------------------------------------------------------------------
Admiral Intermediate-Term Intermediate-Term Corporate Fund Short-Term Corporate Fund*
Treasury Fund Intermediate-Term Tax-Exempt Short-Term Federal Fund
Admiral Long-Term Treasury Fund Fund Short-Term Tax-Exempt Fund
Admiral Short-Term Treasury Fund Intermediate-Term Treasury Fund Short-Term Treasury Fund
GNMA Fund Limited-Term Tax-Exempt Fund State Tax-Exempt Bond Funds
High-Yield Corporate Fund Long-Term Bond Index Fund (California, Florida,
High-Yield Tax-Exempt Fund Long-Term Corporate Fund Massachusetts, New Jersey,
Insured Long-Term Tax-Exempt Long-Term Tax-Exempt Fund New York, Ohio, Pennsylvania)
Fund Long-Term Treasury Fund Total Bond Market Index Fund*
Intermediate-Term Bond Preferred Stock Fund
Index Fund Short-Term Bond Index Fund
MONEY MARKET FUNDS
- -------------------------------------------------------------------------------------------------------------------------
Admiral Treasury Money State Tax-Exempt Money Market Tax-Exempt Money Market Fund
Market Fund Funds (California, New Jersey, Treasury Money Market Fund
Federal Money Market Fund New York, Ohio, Pennsylvania)
Prime Money Market Fund*
VARIABLE ANNUITY PLAN
- -------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio High-Grade Bond Portfolio Money Market Portfolio
Diversified Value Portfolio High Yield Bond Portfolio REIT Index Portfolio
Equity Income Portfolio International Portfolio Short-Term Corporate Portfolio
Equity Index Portfolio Mid-Cap Index Portfolio Small Company Growth Portfolio
Growth Portfolio
</TABLE>
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group,
P.O. Box 2600, Valley Forge, PA 19482-2600.
Read it carefully before you invest or send money.
54
<PAGE> 57
THE PEOPLE WHO GOVERN YOUR FUND
The Trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Seven of Vanguard's eight board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's professional
affiliations. Noted in parentheses is the year in which the Trustee joined the
Vanguard Board.
TRUSTEES
JOHN J. BRENNAN - (1987) 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 - (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY - (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL - (1977) 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 Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. - (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JOHN C. SAWHILL - (1991) 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. - (1971) 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 - (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON - Legal Department.
ROBERT A. DISTEFANO - Information Technology.
JAMES H. GATELY - Individual Investor Group.
KATHLEEN C. GUBANICH - Human Resources.
IAN A. MACKINNON - Fixed Income Group.
F. WILLIAM MCNABB, III - Institutional Investor Group.
MICHAEL S. MILLER - Planning and Development.
RALPH K. PACKARD - Chief Financial Officer.
GEORGE U. SAUTER - Core Management Group.
<PAGE> 58
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"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.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q510-03/24/2000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
