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VANGUARD(R)
SPECIALIZED FUNDS
Semiannual Report - July 31, 2000
[PHOTO]
VANGUARD HEALTH CARE FUND
VANGUARD ENERGY FUND
VANGUARD REIT
INDEX FUND
VANGUARD UTILITIES
INCOME FUND
VANGUARD GOLD AND PRECIOUS
METALS FUND
[MEMBERS OF THE VANGUARD GROUP(R) LOGO]
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HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not the
same as wisdom. Indeed, much of the information, opinion, and rumor that swirl
about financial markets each day amounts to "noise" of no lasting significance.
And the fact that rapid-fire trading is easy does not make it beneficial.
Frequent trading is almost always counterproductive because costs--even at low
commission rates--and taxes detract from the returns that the markets provide.
Sadly, many investors jump into a "hot" mutual fund just in time to see it cool
off. Meanwhile, long-term fund investors are hurt by speculative trading
activity because they bear part of the costs involved in accommodating purchases
and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
- Invest for the long term. Pursuing your long-term investment goals is more
like a marathon than a sprint.
- Diversify your investments with holdings in stocks, bonds, and cash
investments. Remember that, at any moment, some part of a diversified portfolio
will lag other parts, and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
- Step back from the daily frenzy of the markets; focus on your overall
asset allocation.
- Capture as much of the market's return as possible by minimizing costs and
taxes. Costs and taxes diminish long-term returns while doing nothing to reduce
the risks you incur as an investor.
<TABLE>
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CONTENTS
<S> <C>
REPORT FROM THE CHAIRMAN ...... 1
THE MARKETS IN PERSPECTIVE .... 7
REPORTS FROM THE ADVISERS ..... 9
PERFORMANCE SUMMARIES ......... 13
FUND PROFILES ................. 16
FINANCIAL STATEMENTS .......... 24
</TABLE>
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 5000(R)" and "Wilshire 4500" are trademarks of
Wilshire Associates Incorporated.>
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REPORT FROM THE CHAIRMAN
[PHOTO]
John J. Brennan
The overall U.S. stock market posted a modest gain during the six months
ended July 31, 2000, the first half of the fiscal year for the Vanguard
Specialized Funds. Results from different segments of the equity markets varied
widely, as they often do, and these variations were reflected in the returns of
our five funds.
It was a terrific half-year for our Health Care, Energy, and REIT Index
Funds and a subpar one for our Utilities Income and Gold and Precious Metals
Funds. Returns stretched across a wide band, ranging from a 27.6% gain for the
Health Care Fund to a decline of -12.4% for the Gold and Precious Metals Fund.
The table at right presents the six-month total returns (capital change plus
reinvested dividends) of each fund, along with those of its comparative fund
group and its benchmark index.
Details on each fund, including per-share net asset values, income
dividends, and any capital gains distributions, are presented in the table that
follows this letter.
<TABLE>
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TOTAL RETURNS
SIX MONTHS ENDED
JULY 31, 2000
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<S> <C>
VANGUARD HEALTH CARE FUND 27.6%
Average Health/Biotechnology Fund* 23.2
S&P Health Sector Index 9.4
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VANGUARD ENERGY FUND 17.8%
Average Natural Resources Fund* 12.3
S&P Energy Sector Index 8.9
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S&P 500 Index 3.2%
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VANGUARD REIT INDEX FUND 22.5%
Average Real Estate Fund* 21.6
Morgan Stanley REIT Index 22.4
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VANGUARD UTILITIES INCOME FUND -1.4%
Average Utility Fund* -1.2
Utilities Composite Index** 6.2
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VANGUARD GOLD AND PRECIOUS METALS FUND -12.4%
Average Gold-Oriented Fund* -11.7
Salomon Smith Barney World Equity
Gold Index -10.9
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</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 through March 31, 2000; 75% S&P Utilities Index and
25% S&P Telephone Index thereafter.
THE PERIOD IN REVIEW
The U.S. economy continued to exhibit impressive stamina during the six months
ended July 31. The economy expanded at a terrific pace and unemployment remained
low. Inflation stayed tame, though it showed signs of reigniting.
For the U.S. stock market, it was a topsy-turvy half-year. Investors,
worrying that the economy was growing too rapidly, seemed to be increasingly
concerned about the lofty valuations of many growth-oriented stocks,
particularly technology and Internet companies. Many high-flying tech stocks
nosedived, and market leadership flip-flopped between growth and value stocks
and small-capitalization and large-cap stocks.
The Wilshire 5000 Total Market Index, a measure of the entire U.S. market,
returned 1.5% for the half-year, while the large-cap-dominated Standard & Poor's
500 Index returned 3.2%. The S&P 500's growth stocks--those with prices that are
above average in relation to such measures as earnings and book value--returned
5.0% during the six months, versus 1.1% for the index's value component. Among
small stocks, the growth/value split was reversed--and much wider. The value
stocks within the
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Russell 2000 Index gained 12.3%, while its growth stocks declined -6.6%. The
tech-heavy Nasdaq Composite Index, which is packed with growth stocks, at one
point lost more than a third of its value before recovering somewhat to end with
a -3.9% return for the period.
Within the S&P 500, the "other energy" sector--a group that includes mining
and drilling companies--led the way with a return of 22.0%, helped along by a
sharp rise in oil and natural gas prices. The utilities group was the laggard,
dropping -15.1%, in part because of a steep decline among telephone companies,
particularly long-distance carriers. Banks and financial services firms bounced
back from a difficult 1999, as did real estate investments, which saw a
particularly strong six months.
Health care stocks within the S&P 500 returned a solid 9.4% for the six
months. Biotechnology stocks registered huge gains early in the period, then
plummeted from mid-March through May. Investors recoiled from the group because
of comments from President Bill Clinton and British Prime Minister Tony Blair
that were interpreted as meaning that their governments would cut into company
profits from genetic research. But biotech stocks recovered some of their losses
in June and July.
In the bond market, yields of short-term securities rose while those on
longer-term bonds declined. The Federal Reserve Board continued its
anti-inflation campaign, hiking its target for short-term interest rates three
times during the half-year by a total of 100 basis points (1 percentage point).
The decline in longer-term rates was due to the U.S. Treasury's cutbacks in
issuance of new securities and its decision to buy back some of its long-term
debt. The yield of the 30-year U.S. Treasury bond, which moves in the opposite
direction from its price, declined 71 basis points to 5.78% as of July 31. The
yield of the 10-year U.S. Treasury note slipped 64 basis points to 6.03%.
Overall, bonds outperformed stocks during the period. The Lehman Brothers
Aggregate Bond Index, a proxy for the entire U.S. taxable bond market,
registered a solid six-month total return of 5.3%.
HEALTH CARE FUND
During the six months ended July 31, health care stocks continued a rally that
began in late 1999. The Health Care Fund gained 27.6% for the period--a return
that would have been considered remarkable for a full year, let alone six
months. The fund's return surpassed that of its average peer by 4.4 percentage
points and was almost triple the S&P Health Sector Index's 9.4% return.
Our performance was aided considerably by a surge in prices for several
stocks, including Pharmacia, which constituted 7.7% of the fund's assets as of
July 31--by far the largest holding. The fund also expanded its position in
health services by buying such stocks as Quest Diagnostics and Cardinal Health,
which registered strong gains.
Early in the period, our investment adviser, Wellington Management Company,
trimmed the portfolio's position among biotechnology stocks. In particular,
Immunex, formerly the fund's largest holding, fell to the number-three position.
The move proved timely because it allowed our fund to avoid the worst of the
spring slump in biotech stocks. While Immunex itself ended up with a gain for
the period, some biotech stocks never recovered their early-March highs.
The Health Care Fund's strategy of diversifying its assets across various
segments of the health care industry and across national borders has helped
limit the fund's volatility. Roughly one-quarter of the fund's assets are
invested in companies based outside the United States.
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ENERGY FUND
Vanguard Energy Fund booked a terrific six months, both on an absolute basis and
relative to competing mutual funds. The fund earned 17.8% for the half-year,
doubling the return of the S&P Energy Sector Index and topping that of the
average energy mutual fund by more than 5 percentage points.
Increases in the price of oil and particularly natural gas, which rose more
than 60% during the six months, created an excellent environment for
energy-related companies. Oil prices began the period at about $25 a barrel but
rose to nearly $35 in the spring before receding a bit after the Organization of
Petroleum Exporting Countries decided to increase production modestly. Natural
gas prices were driven higher because supplies were low, owing primarily to a
cutback in gas production two years ago.
Of course, as oil and gas prices rose, drilling also increased rapidly.
Three of the fund's largest holdings--Baker Hughes, Noble Drilling, and
Weatherford International--advanced more than 40% during the period.
Over the past several years, the energy industry has become more global in
nature. In fact, U.S. oil companies, which in 1985 accounted for 70% of the
total market capitalization of the world's oil industry, now make up about 45%
of it. Over the past two years, for example, British Petroleum has purchased
Amoco and Arco. As a result of this shift, Vanguard Energy Fund's board of
trustees has approved an increase in the limit on international investments,
from 30% to 50% of fund assets. This increase provides our investment adviser,
Wellington Management Company, with more investment flexibility. We believe that
the change will have only a modest effect on the fund's overall risk level and
that any increase in risk will be more than offset by the benefits of increasing
the fund's exposure to international companies. As of July 31, more than
one-quarter of the fund's assets were invested in companies based outside the
United States.
REIT INDEX FUND
After two years of disappointing performance, real estate investment trusts
provided some of the most attractive returns among equities during the past six
months. The REIT Index Fund gained 22.5%, a result that was slightly higher than
that of its target index and almost a full percentage point better than that of
its average peer.
Unexpectedly strong second-quarter earnings reports from many REITs fueled
the gains, as did the continuing health of the real estate market. Demand for
commercial and residential property grew at a faster pace than the supply of
rental properties. The nation's office vacancy rate dropped to a record low of
around 9%. Higher mortgage rates prompted an uptick in renting over buying,
which heightened demand for apartments.
The relatively low prices and high yields of REITs also seemed to lure
investors during a period of high volatility in the stock market. Studies
indicate that there is very little correlation between real estate equities and
broader stock indexes in general. In other words, REITs often rise in value
while other stocks go down, and vice versa. Lately, that inverse relationship
seems especially true of REITs and growth tech stocks, such as those in the
Nasdaq Composite Index. Whether this relationship continues remains to be seen,
but REITs remain a good way to diversify a stock portfolio and to provide
healthy current income.
UTILITIES INCOME FUND
Vanguard Utilities Income Fund returned -1.4% for the half-year, falling just
short of the -1.2% return of its average peer. However, your fund's return was
far behind the 6.2% gain of its unmanaged benchmark index.
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The declines among utility stocks during the six months were mostly confined
to the telephone industry, which was hurt by intense competition between
long-distance and wireless carriers and higher regulatory hurdles for mergers.
Specifically, your fund was hurt by a decline in Sprint Corp., which fell
sharply after the government's decision to oppose Sprint's merger with WorldCom.
Montana Power, the fund's fifth-largest holding, which includes traditional
utility businesses as well as a telecommunications arm that has built
fiber-optics networks along property it owns, also had a difficult six months,
declining about -30%.
The tough environment for telephone stocks did not spill over into other
types of utilities. The fund's electric utilities performed well, and its
energy-related holdings--particularly those that benefited from the increasing
demand for natural gas--fared even better.
As we mentioned in our annual report to you six months ago, we modified the
fund's investment guidelines on April 1, 2000, to allow the investment adviser,
Wellington Management Company, to invest up to 25% of the fund's assets in
foreign-based utility companies. In addition, we eliminated the requirement that
the fund must invest at least 10% of its assets in utility bonds. As of July 31,
the fund held 16% of its assets in non-U.S. companies, and it owned no bonds.
GOLD AND PRECIOUS METALS FUND
Vanguard Gold and Precious Metals Fund returned -12.4% for the six months, a
disappointing result that fell slightly short of the -11.7% return of the fund's
average peer and the -10.9% return of its unmanaged benchmark index, the Salomon
Smith Barney World Equity Gold Index.
The fund performed poorly during the first four months of the fiscal
half-year, declining nearly -18% from February through May as platinum and
mining companies struggled. However, over the final two months of the period the
fund came on strong, gaining 6.3% in June and July and easily outpacing the
-3.1% decline for the Salomon Smith Barney World Gold Index for the same period.
During the half-year, gold bullion prices were little changed on balance,
despite a brief rally early in the summer. Therefore, much of the industry's
attention focused on a pickup in merger activity, which involved several of the
biggest producers.
In the platinum market, prices rose about 30% during the six months and
approached a record high earlier this summer. Decreased platinum production in
Russia and heavier demand from car manufacturers, who use the metal in some
emission-control devices, drove the increase. The Gold and Precious Metals Fund
holds a big stake in platinum companies, and the price surge boosted the fund's
performance late in the period. The fund's two largest holdings, which total
about 20% of assets, are platinum producers, as are several others in its
top-ten group.
The report from the fund's investment adviser, M&G Investment Management, on
page 12, includes more information about specific securities in which the fund
invested during the half-year.
It is important to note that the risk of investing in a particular market
sector or industry is increased by the fund's concentration within the gold and
precious metals segment. As of July 31, the fund's ten largest holdings
accounted for more than 60% of its total assets. Thus, investors in the fund
must be prepared for considerable volatility.
All of the Vanguard Specialized Funds are aided in their quest to provide
superior long-term returns by costs that are much lower than those of their
average peers. The
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expense ratio (annualized expenses as a percentage of net assets) of each of our
funds is just a fraction of the average for similar funds. In fact, the
difference between the expenses charged by two of our funds--the Energy Fund and
the Health Care Fund--and their average peers is about 1.35 percentage points,
or $13.50 per $1,000 invested. Such a big gap is difficult for competitors to
consistently overcome. While our expense ratios range from 0.34% to 0.66%, those
of our competitors range from 1.45% to 1.95%.
IN SUMMARY
The volatility of the past six months underscores the fact that unpredictability
is par for the course in financial markets. Funds that invest in particular
market sectors, as the Vanguard Specialized Funds do, can be especially
volatile. But for investors who understand the added risks that a concentrated
investment may entail--including wide swings in the prices of commodities such
as gold, gas, or oil--such funds can add to the diversification of a balanced
investment program.
As always, we recommend that you maintain a balanced and diversified
portfolio of low-cost stock, bond, and money market funds in a proportion that
is consistent with your goals, time horizon, risk tolerance, and financial
resources.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
August 21, 2000
IN MEMORY
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the funds and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
NOTICE TO SHAREHOLDERS
In the past, the quarterly income dividend that Vanguard Utilities Income Fund
distributed to shareholders during the first nine months of the year was paid
at a set rate of $0.13 per share. The remainder of the income for the calender
year was distributed in December. Beginning with the quarterly dividend of
$0.10 per share that was paid in March 2000, the fund is distributing income on
a "pay as you go" basis, rather than according to a set rate. This policy
change provides for a more even distribution of income throughout the year.
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FUND STATISTICS
<TABLE>
<CAPTION>
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SIX MONTHS ENDED JULY 31, 2000
NET ASSET VALUE PER SHARE --------------------------------------
------------------------------ INCOME CAPITAL GAINS TOTAL
VANGUARD SPECIALIZED FUND JAN. 31, 2000 JULY 31, 2000 DIVIDENDS DISTRIBUTIONS* RETURN**
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Health Care $98.83 $118.76 $0.07 $6.29 27.6%
Energy 21.24 24.98 0.01 0.02 17.8
REIT Index 9.91 11.78 0.32 -- 22.5
Utilities Income 14.93 14.12 0.21 0.41 -1.4
Gold and Precious Metals 7.67 6.70 0.02 -- -12.4
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</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 for less than one year in the Energy, REIT Index, and Gold and
Precious Metals Funds or the 1% fee assessed on redemptions of Health Care
Fund shares held less than five years.
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THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JULY 31, 2000
After playing second fiddle to stocks in the past several years, bonds provided
both a smoother and a more profitable ride than stocks during the six months
ended July 31, 2000. The Lehman Aggregate Bond Index--a proxy for the
investment-grade taxable bond market--recorded a 5.3% return, well ahead of the
1.5% return for the entire U.S. stock market, as measured by the Wilshire 5000
Index. Stock investors encountered considerable turbulence, as big day-to-day
fluctuations in stocks were commonplace. And outside of the United States,
stocks on average declined during the six months.
The economic backdrop was murky. Growth was quite robust--better than 5%
after inflation--in the United States. Overseas economies also were picking up
strength, and corporations generally registered solid profit gains. Still,
investors were uncertain whether the economic good times would keep rolling,
given that the Federal Reserve Board and other central banks were raising
interest rates during the period.
The Fed, with three rate increases totaling 1 percentage point, sought to
cool off the economy to keep it from overheating and pushing up inflation.
Because of sharply higher costs for oil and other energy products, the Consumer
Price Index gained 2.3% during the six months and 3.5% for the 12 months ended
July 31. Yet core inflation, which excludes energy and food items, registered a
moderate 2.4% gain during the 12 months ended July 31.
<TABLE>
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TOTAL RETURNS
PERIODS ENDED JULY 31, 2000
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6 MONTHS 1 YEAR 5 YEARS*
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STOCKS
S&P 500 Index 3.2% 9.0% 22.6%
Russell 2000 Index 1.3 13.8 12.3
Wilshire 5000 Index 1.5 11.2 21.1
MSCI EAFE Index -1.7 9.3 9.4
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BONDS
Lehman Aggregate Bond Index 5.3% 6.0% 6.5%
Lehman 10 Year Municipal Bond Index 5.8 5.2 5.9
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.8 5.4 5.2
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OTHER
Consumer Price Index 2.3% 3.5% 2.5%
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</TABLE>
*Annualized.
U.S. STOCK MARKETS
Rising profits, the powerful economy, and continued optimism--especially for the
"new economy" TMT stocks (technology, media, and telecommunications)--kept
market averages rising in February and early March. But in mid-March, value
stocks took charge and TMT stocks slumped. Market leadership flip-flopped again
in June, when growth stocks held sway, and in July, when value stocks
outperformed growth stocks.
The period was marked not only by volatility in market averages but also by
extreme moves in individual stocks. Wall Street was unforgiving: Companies that
disappointed market expectations saw their stock prices plunge. The
large-capitalization S&P 500 Index posted a 3.2% return, more than double that
of the overall market, and the small-cap Russell 2000 Index edged up 1.3%. The
Nasdaq Composite Index, which had stratospheric gains in 1999, lost some
altitude, registering a -3.9% return.
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The rise in oil and natural gas prices helped oil-exploration and services
companies in the "other energy" group to post the market's biggest gains: an
average of 22%. Financial services companies, whose stocks had been hurt by
rising interest rates in 1999, rebounded with a 13% return. Another 1999
laggard, the health care sector, posted gains exceeding 9% during the past
half-year. Big drops in regional Bell companies and AT&T caused a -15% return
for the utilities sector, the worst for any market group. The materials &
processing group fell -9%, largely because higher energy costs hurt
energy-intensive companies such as chemical and aluminum makers.
U.S. BOND MARKETS
The Fed's three increases in its target federal funds rate (charged on overnight
loans between banks) elevated the rate by 1 percentage point to 6.50% during the
six months. However, because the market had anticipated some tightening by the
Fed, yields of 3-month U.S. Treasury bills rose only half as far (0.53
percentage point, or 53 basis points, to 6.22%). And on longer-term Treasury
securities, yields actually fell and prices rose. In part, this was due to a
shrinking supply of Treasury debt: A large and growing federal budget surplus
allows the Treasury to issue fewer new bonds and to buy back billions of
dollars' worth of outstanding bonds. The 10-year Treasury note's yield declined
64 basis points to 6.03% on July 31, and the yield of the 30-year Treasury fell
71 basis points to 5.78%.
Because short-term rates moved higher while long-term rates slid, there was
an "inversion" in the U.S. Treasury yield curve. Instead of the usual upward
slope--with yields increasing along with maturity--the curve sloped downward. On
July 31, the 5.78% yield of 30-year Treasuries was 55 basis points lower than
the 6.33% yield of 3-year Treasury notes. Falling rates mean rising prices for
bonds, of course, and the 5.3% return of the Lehman Aggregate Bond Index during
the six months reflected a price gain of 1.7% in addition to an income return of
3.6%.
Corporate bonds didn't fare as well as Treasuries, in part because of a very
different supply situation--corporations were issuing large amounts of new debt.
Also, heavy borrowing by companies and the Fed's efforts to slow the economy
raised the chances that some companies would have trouble paying their debts.
Concern about credit quality was evident in the split between returns for low-
and high-quality corporate bonds: a zero return for the Lehman High Yield Index
of low-quality "junk" bonds, versus 4.8% for the high-quality Lehman Credit A or
Better Index. Mortgage-backed bonds and municipal bonds, which also boast high
credit quality, had solid returns: 5.6% for the Lehman GNMA Index and 4.8% for
the tax-exempt Lehman 7 Year Municipal Bond Index.
INTERNATIONAL STOCK MARKETS
Because of a rise in the value of the U.S. dollar against most other currencies
and a slump in Asian markets, international stocks were generally unprofitable
for U.S. investors during the past six months. Although the Morgan Stanley
Capital International Europe, Australasia, Far East (MSCI EAFE) Index of
developed foreign markets registered a 3.1% return in local currencies, the
stronger dollar resulted in a -1.7% return for U.S. investors.
The MSCI Europe Index generated an 8.4% return in euros, the common currency
of 11 European countries. However, this was cut to a 2.8% return for
dollar-based investors. The MSCI Pacific Free Index declined -10.6% in dollars
and -8.1% in local currencies due to a slump in Japanese stocks, which account
for more than 75% of the index.
The Select Emerging Markets Free Index fell -10.0% in U.S. dollars, stung by
weakness in South Korea (-18%), South Africa (-17%), Thailand (-50%), and Turkey
(-16%). Israel was the biggest gainer among emerging markets, with a 28% return.
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REPORT FROM WELLINGTON MANAGEMENT COMPANY, LLP
HEALTH CARE FUND
Vanguard Health Care Fund gained 27.6% in the fiscal half-year ended July 31.
This result well exceeded the 9.4% gain of the S&P Health Sector Index. It also
bettered the 23.2% return of the average health/biotechnology mutual fund. The
half-year was a tumultuous one in health care. A biotechnology investment bubble
burst in March, but biotech stocks substantially recovered in June and July. By
selling about half of our biotech stake into the bubble, we were able to
mitigate, to some degree, the volatility that rocked this sector. Biotech
holdings that significantly helped the fund's performance were Immunex, Vertex
Pharmaceuticals, Gilead Sciences, and Human Genome Sciences.
We significantly increased our holdings among health-services companies. We
believe that this area, which has been the weakest part of the health care
sector for the past seven years, now offers good upside potential with less risk
than exists elsewhere. This strategy has already begun to bear fruit, as
evidenced by the excellent returns from Quest Diagnostics, UnitedHealth Group,
and Cardinal Health.
Among major pharmaceutical companies, which as a group turned in a mixed
performance during the six months, Pharmacia, the fund's largest holding, was a
standout gainer.
We believe that the biggest factor in the strong relative performance of
health care stocks has been the heavy cash flow into health-sector mutual
funds--a development prompted by the genomics revolution. It is important to
note that the fundamental outlook for health care has not improved in any
significant way, yet stock prices in the sector have moved quite a bit higher.
It is also fair to say that we are entering a period during which political
uncertainty is increasing. In addition, a higher rate of patent expirations for
important drugs will slow overall profit growth. Consequently, we expect that a
headwind could dampen the sector's returns in the next few years. However, we
believe that Vanguard Health Care Fund, with its conservative diversified
stance, is well positioned for this environment. We also believe that, in the
long term, health care is one of the most attractive areas of the economy.
Edward P. Owens, Senior Vice President and Portfolio Manager
August 15, 2000
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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.
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REPORT FROM WELLINGTON MANAGEMENT COMPANY, LLP
ENERGY FUND
Vanguard Energy Fund returned 17.8% during the first six months of its 2001
fiscal year, compared with gains of 3.2% for the S&P 500 Index and 12.3% for the
average natural-resources fund. The fund's return was also well ahead of the
8.9% return of the S&P Energy Sector Index.
Energy markets continued to be quite strong during the period. The price of
oil remained within a range of $25 to $30 a barrel during most of the period.
However, high oil prices are beginning to have some impact on supply and demand.
Oil production is expected to rise in 2000, while growth in demand is expected
to decline worldwide. Because the supply-demand situation is improving and
because members of OPEC do not want to see higher prices, we expect that oil
prices will stabilize roughly around $25.
The price of natural gas in North America was also quite strong, increasing
from about $2.50 per thousand cubic feet at the end of January to about $4.00 on
July 31. Simply put, natural gas prices are high because drilling activity in
1998 was very low. The slump in oil prices during 1998 curtailed the
availability of funds for both oil and gas exploration. Three consecutive mild
winters across much of the United States have helped to keep gas prices from
rising even higher, but drilling for gas in North America has rebounded sharply
since early 1999. We expect the natural gas market to remain healthy for two
reasons: strong demand resulting from the start-up of new gas-fired electricity
generating plants and the possibility of more normal (i.e., colder) winter
weather.
Early in 2000, oil services companies provided the best returns in the
energy sector, but the market broadened in March and oil and gas producers also
appreciated in value. As more investors understand that the 1998 oil price
collapse is not likely to be repeated soon, energy stocks should provide
attractive returns. Furthermore, energy companies generally continue to be
cautious about expenditures and seem to be more focused on financial returns.
This is an important change from the energy boom of 1996-1997, when many
companies emphasized production growth at the expense of profits. We own
companies that have records of above-average financial returns, such as Exxon
Mobil, TotalFinaElf, and Alberta Energy, and companies whose financial returns
we expect to improve, such as Baker Hughes and Unocal.
Vanguard Energy Fund continues to seek exposure across the various segments
of the energy sector, with emphasis on companies that we expect will provide
above-average long-term appreciation.
Ernst H. von Metzsch, Senior Vice President and Portfolio Manager
August 15, 2000
10
<PAGE> 13
REPORT FROM WELLINGTON MANAGEMENT COMPANY, LLP
UTILITIES INCOME FUND
Vanguard Utilities Income Fund declined -1.4% for the six months ended July 31,
in line with the -1.2% return for the average utility mutual fund but behind the
fund's composite benchmark, which gained 6.2% during the period.
The top-performing sector within our investment universe was natural gas,
which advanced 16.0% during the period. Natural gas stocks benefited from
accelerating demand (mainly to fuel new electric generating capacity) and from
strong growth in energy trading and marketing of deregulated services. The
electric utility sector, which returned 6.6% during the period, benefited from
surging demand from the increasingly computerized economy. The sector's solid
gains can be attributed to relatively attractive valuations, particularly versus
more growth-oriented segments of the market.
The telephone sector held back the overall performance of utilities.
Telephone utilities declined -16.7% during the six months, reflecting negative
news on revenues and earnings from several large long distance carriers. Two
other factors also prompted severe selling pressure on telephone stocks:
accelerating competitive pricing in consumer long distance and the federal
government's surprising decision to block the Sprint/WorldCom merger. The
Utilities Income Fund was hurt by its holdings in Sprint and Montana Power, an
electric and natural gas utility that also has a telecommunications arm.
Declining revenue forecasts have raised the question of whether too much capital
is chasing the media/Internet demand for broadband capacity. One sign of this
phenomenon could be the rapid "commoditization" of the consumer long-distance
market. Another example is the bidding war now occurring in Europe for the next
generation of wireless spectrum--another delivery route for broadband
applications.
As we wrote to you six months ago, the fund's investment guidelines have
been modified so that we no longer must keep a portion of assets in bonds. This
change became effective in April, and the fund's bond position was eliminated by
early May. At the same time, the fund acquired more leeway for investments in
foreign-based utility companies, which now may account for up to 25% of assets.
As of July 31, about 16% of the fund's assets were invested in non-U.S. stocks,
up from about 12% six months ago.
The hot growth sector within utilities is the deregulated merchant
generation market--those companies that provide power and other services to
regional and local utilities. The group is represented in Vanguard Utilities
Income Fund by Calpine, Duke Energy, and Enron. This segment of the market has
benefited from higher-than-expected electricity prices stemming from both a
shortage of new generating capacity and the rapid rise in natural gas prices. We
believe this situation will persist for several years, mainly because of poor
regulatory initiatives, local transmission constraints, and shortages in natural
gas reserves, all of which will result in higher prices for both the capacity
and energy components in electricity bills.
Mark J. Beckwith, Vice President and Portfolio Manager
August 15, 2000
11
<PAGE> 14
REPORT FROM M&G INVESTMENT MANAGEMENT LTD.
GOLD AND PRECIOUS METALS FUND
Vanguard Gold and Precious Metals Fund returned -12.4% during the six months
ended July 31, 2000, falling short of the returns of both its average mutual
fund peer and its unmanaged benchmark index during what was an extremely
difficult period for precious metals investments.
Although disappointing, our results disguise the significant contrast
between the fund's performance during the first three months of the period and
its results for the final three months. During the first half of the period, a
sell-off in global equity markets and sustained profit-taking in diversified
mining and platinum shares--sectors that had rallied in the previous four
months--combined to produce an extremely weak quarter for mining companies.
Therefore, your fund, which has significant exposure to both platinum and
diversified mining companies, underperformed its comparative measures from
February through April. However, a subsequent sharp rally in these oversold
sectors enabled the fund to close out the half-year on a relatively positive
note.
During the six months, a number of the fund's core holdings in the
gold-mining sector performed well. Producers Goldfields, Sons of Gwalia, Barrick
Gold, and Newcrest Mining led the way. The rebound in diversified mining
companies from May through July resulted in solid performances for Ashton Mining
and Aber Resources. In addition, a strong rally in the price of platinum allowed
producers Lonmin and Anglo American Platinum to deliver good returns during the
final three months--and for the period as a whole.
Although the price of gold bullion rose sharply in June in response to a
weakening of the U.S. dollar, the rally proved unsustainable, and the bullion
price ended the half-year almost unchanged from the start of the period.
However, a significant positive theme emerged: the acceleration of the gold
sector's consolidation trend. During the period, Goldfields, the world's
third-largest gold producer, announced a merger with Franco-Nevada Mining. This
was quickly followed by the announcement that Newmont Mining, the world's
number-two gold producer, would merge with Battle Mountain Gold.
The fund had relatively few transactions during the six months ended July
31. We reduced our exposure to Franco-Nevada Mining and Newmont Mining after the
merger announcements. We invested the proceeds in two new mid-capitalization
companies, Iluka Resources, a diversified mining company based in Australia, and
Meridian Gold, a U.S. gold producer with assets in the United States and Chile.
We also increased our holding in Lonmin, which proved extremely timely given the
strength of platinum shares during the final three months of the period.
The fund continues to focus on quality mining companies that have a
diversified range of interests. We believe the prospects for these companies
remain extremely favorable. While the current spate of mergers may improve the
performance of gold shares in the short term, these mergers must attack the
problem of supply and overall gold marketing if they are to prove effective at
exacting a longer-lasting change in investor sentiment. We remain extremely
positive about both platinum demand and platinum shares and retain a significant
exposure in this area.
Graham E. French, Portfolio Manager August 17, 2000
12
<PAGE> 15
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the funds. 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>
HEALTH CARE FUND
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JULY 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
2001* 27.6 0.0 27.6 3.2
---------------------------------------------------------
</TABLE>
*Six months ended July 31, 2000.
See Financial Highlights table on page 39 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
ENERGY FUND
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JULY 31, 2000
-------------------------------------------------------
ENERGY FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
-------------------------------------------------------
<S> <C> <C> <C> <C>
1985 -1.9% 0.0% -1.9% 21.1%
1986 2.0 1.4 3.4 22.9
1987 25.8 6.1 31.9 33.9
1988 -5.7 6.5 0.8 -3.3
1989 20.3 3.9 24.2 20.1
1990 26.1 2.9 29.0 14.5
1991 -4.7 3.1 -1.6 8.4
1992 -1.9 3.2 1.3 22.7
1993 10.0 3.0 13.0 10.6
1994 25.0 2.3 27.3 12.9
1995 -10.6 1.5 -9.1 0.5
1996 26.6 2.1 28.7 38.7
1997 38.8 1.5 40.3 26.3
1998 2.4 1.4 3.8 26.9
1999 -22.6 1.4 -21.2 32.5
2000 23.8 2.0 25.8 10.3
2001* 17.7 0.1 17.8 3.2
-------------------------------------------------------
</TABLE>
*Six months ended July 31, 2000.
See Financial Highlights table on page 40 for dividend and capital gains
information for the past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Health Care Fund 5/23/1984 35.36% 31.14% 21.94% 1.79% 23.73%
Fee-Adjusted Returns** 34.00 31.14 21.94 1.79 23.73
-------------------------------------------------------------------------------------------
Energy Fund+ 5/23/1984 15.95% 14.49% 8.79% 2.17% 10.96%
-------------------------------------------------------------------------------------------
</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.
+Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
13
<PAGE> 16
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the funds. 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>
REIT INDEX FUND
TOTAL INVESTMENT RETURNS: MAY 13, 1996-JULY 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
2001 18.9 3.6 22.5 22.4
---------------------------------------------------------
</TABLE>
*Six months ended July 31, 2000.
See Financial Highlights table on page 40 for dividend, capital gains, and
return of capital information since the fund's inception.
<TABLE>
<CAPTION>
UTILITIES INCOME FUND
TOTAL INVESTMENT RETURNS: MAY 15, 1992-JULY 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
2001** -2.8 1.4 -1.4 6.2
-----------------------------------------------------------
</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 through March 31, 2000; 75%
S&P Utilities Index, 25% S&P Telephone Index thereafter.
**Six months ended July 31, 2000.
See Financial Highlights table on page 41 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
--------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REIT Index Fund** 5/13/1996 3.65% -- 2.08% 6.53% 8.61%
--------------------------------------------------------------------------------------------
Utilities Income Fund 5/15/1992 -1.79% 13.50% 7.50% 4.69% 12.19%
--------------------------------------------------------------------------------------------
</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.
14
<PAGE> 17
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>
GOLD AND PRECIOUS METALS FUND
TOTAL INVESTMENT RETURNS: MAY 23, 1984-JULY 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
2001** -12.6 0.2 -12.4 -10.9
--------------------------------------------------------
</TABLE>
*MSCI Gold Mines Index through December 31, 1994; Salomon Smith Barney World
Gold Index thereafter.
**Six months ended July 31, 2000.
See Financial Highlights table on page 41 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000*
----------------------------------------------------------------------------------------------------
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 -5.80% -9.04% -3.52% 2.02% -1.50%
----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return
information through the latest calendar quarter.
**Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.
15
<PAGE> 18
FUND PROFILE
HEALTH CARE FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 18 and 19.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
-------------------------------------------------------
HEALTH CARE S&P 500
-------------------------------------------------------
<S> <C> <C>
Number of Stocks 139 500
Median Market Cap $18.3B $97.4B
Price/Earnings Ratio 37.4x 29.1x
Price/Book Ratio 4.2x 5.1x
Yield 0.9% 1.1%
Return on Equity 15.5% 24.3%
Earnings Growth Rate 3.1% 17.2%
Foreign Holdings 24.1% 1.2%
Turnover Rate 26%* --
Expense Ratio 0.34%* --
Cash Investments 8.6% --
</TABLE>
*Annualized.
<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 0.60 1.00
Beta 0.66 1.00
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
-------------------------------------------------------
<S> <C>
Pharmacia Corp. 7.7%
Pfizer, Inc. 3.6
Immunex Corp. 3.3
American Home Products Corp. 3.2
HCA-The Healthcare Co. 2.6
UnitedHealth Group Inc. 2.6
McKesson HBOC, Inc. 2.5
Abbott Laboratories 2.4
Merck & Co., Inc. 2.4
Cardinal Health, Inc. 2.3
--------------------------------------------------------
Top Ten 32.6%
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
------------------------------------------------------------------------------------
JULY 31, 1999 JULY 31, 2000
-------------------------------------------------------
HEALTH CARE HEALTH CARE
-------------------------------------------------------
<S> <C> <C>
Biotech Research & Production............. 1.4% 2.2%
Consumer Discretionary.................... 0.6 0.1
Consumer Staples.......................... 0.2 0.2
Drugs & Pharmaceuticals................... 42.7 42.9
Electronics--Medical Systems.............. 1.2 0.6
Financial Services........................ 0.0 0.1
Health & Personal Care.................... 3.4 3.8
Health Care Facilities.................... 5.0 8.2
Health Care Management Services........... 7.6 8.6
International............................. 23.4 24.1
Materials & Processing.................... 2.2 1.0
Medical & Dental Instruments & Supplies... 7.7 6.0
Medical Services.......................... 0.9 0.9
Miscellaneous Health Care................. 0.5 0.5
Producer Durables......................... 0.2 0.1
Technology................................ 0.2 0.1
Other..................................... 2.8 0.6
------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
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 INVESTMENTS. 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
investment.
COUNTRY DIVERSIFICATION. The percentages of a fund's total net assets invested
in securities of various countries.
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.
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.
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 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 a broad industry group or the
stock market.
18
<PAGE> 21
TEN LARGEST HOLDINGS. The percentage of net assets that a fund has invested in
its ten largest holdings. (The average for stock mutual funds is about 35%.) 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 period. 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.
19
<PAGE> 22
FUND PROFILE
ENERGY FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 18 and 19.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
--------------------------------------------------------------------------------
ENERGY S&P 500
--------------------------------------------------------------------------------
<S> <C> <C>
Number of Stocks 53 500
Median Market Cap $7.3B $97.4B
Price/Earnings Ratio 18.9x 29.1x
Price/Book Ratio 2.5x 5.1x
Yield 1.5% 1.1%
Return on Equity 10.1% 24.3%
Earnings Growth Rate 7.8% 17.2%
Foreign Holdings 27.3% 1.2%
Turnover Rate 16%* --
Expense Ratio 0.40%* --
Cash Investments 5.3% --
</TABLE>
*Annualized.
<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 0.27 1.00
Beta 0.78 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
-----------------------------------------
<S> <C>
Baker Hughes, Inc. 4.0%
Exxon Mobil Corp. 3.4
Imperial Oil Ltd. 3.2
Unocal Corp. 3.1
Chevron Corp. 2.9
Equitable Resources, Inc. 2.9
Texaco Inc. 2.9
Noble Drilling Corp. 2.8
Phillips Petroleum Co. 2.8
Weatherford International, Inc. 2.8
-----------------------------------------
Top Ten 30.8%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
---------------------------------------------------------------------------
JULY 31, 1999 JULY 31, 2000
-----------------------------------------
ENERGY ENERGY
-----------------------------------------
<S> <C> <C>
Energy Miscellaneous ................. 7.2% 6.1%
International ........................ 25.2 25.6
Machinery--Oil Well Equipment
& Services ......................... 17.9 18.7
Materials & Processing ............... 0.8 1.5
Offshore Drilling .................... 1.0 1.7
Oil--Crude Producers ................. 8.9 12.0
Oil--Integrated Domestic ............. 23.8 21.2
Oil--Integrated International ........ 11.0 9.3
Utilities--Gas Pipelines ............. 2.5 3.1
Other ................................ 1.7 0.8
---------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
FUND PROFILE
REIT INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 18 and 19.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
----------------------------------------------------------------------
REIT INDEX S&P 500
----------------------------------------------------------------------
<S> <C> <C>
Number of Stocks 129 500
Median Market Cap $1.9B $97.4B
Price/Earnings 17.5x 29.1x
Price/Book Ratio 1.4x 5.1x
Yield 6.9%* 1.1%
Return on Equity 13.2% 24.3%
Earnings Growth Rate 13.2% 17.2%
Foreign Holdings 0.0% 1.2%
Turnover Rate 27%** --
Expense Ratio 0.34%** --
Cash Investments 2.5% --
</TABLE>
*This yield includes some payments that represent a return of capital by the
underlying REITs. The amount of the return of capital is determined by each
REIT only after its fiscal year ends.
**Annualized.
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-------------------------------------------------------
<S> <C>
STYLE VALUE
MARKET CAP SMALL
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
-------------------------------------------------------
REIT INDEX S&P 500
-------------------------------------------------------
<S> <C> <C>
R-Squared 0.15 1.00
Beta 0.32 1.00
</TABLE>
<TABLE>
<CAPTION>
FUND ALLOCATION BY REIT TYPE
-----------------------------------------------
<S> <C>
Apartments 23.3%
Office 21.0
Retail 20.0
Diversified 15.1
Industrial 14.5
Hotels 6.1
-----------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
----------------------------------------------------------------------
<S> <C>
Equity Office Properties Trust REIT 6.9%
Equity Residential Properties Trust REIT 4.8
Simon Property Group, Inc. REIT 3.4
ProLogis Trust REIT 2.9
Archstone Communities Trust REIT 2.7
Public Storage, Inc. REIT 2.6
Vornado Realty Trust REIT 2.6
Spieker Properties, Inc. REIT 2.5
Apartment Investment & Management
Co. Class A REIT 2.5
Avalonbay Communities, Inc. REIT 2.4
----------------------------------------------------------------------
Top Ten 33.3%
</TABLE>
21
<PAGE> 24
FUND PROFILE
UTILITIES INCOME FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 18 and 19.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
---------------------------------------------------
UTILITIES
INCOME S&P 500
---------------------------------------------------
<S> <C> <C>
Number of Stocks 64 500
Median Market Cap $8.1B $97.4B
Price/Earnings Ratio 18.7x 29.1x
Price/Book Ratio 2.1x 5.1x
Yield 2.8% 1.1%
Return on Equity 13.7% 24.3%
Earnings Growth Rate 6.1% 17.2%
Foreign Holdings 16.2% 1.2%
Turnover Rate 63%* --
Expense Ratio 0.37%* --
Cash Investments 1.8% --
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-------------------------------------------------------
<S> <C>
STYLE VALUE
MARKET CAP MEDIUM
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
----------------------------------------
<S> <C>
Pinnacle West Capital Corp. 4.9%
Enron Corp. 4.5
Unicom Corp. 4.1
FPL Group, Inc. 3.9
Montana Power Co. 3.4
El Paso Energy Corp. 3.2
ALLTEL Corp. 3.1
DQE Inc. 2.9
Sprint Corp. 2.8
DPL Inc. 2.7
----------------------------------------
Top Ten 35.5%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
-------------------------------------
UTILITIES
INCOME S&P 500
-------------------------------------
<S> <C> <C>
R-Squared 0.24 1.00
Beta 0.35 1.00
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
-------------------------------------------------------------------
JULY 31, 1999 JULY 31, 2000
-------------------------------------------
UTILITIES INCOME UTILITIES INCOME
-------------------------------------------
<S> <C> <C>
Electrical ................. 44.2% 43.3%
Gas Distribution ........... 4.7 5.9
Integrated Oils ............ 0.8 1.3
Other Energy ............... 10.7 15.8
International .............. 1.0 16.2
Technology ................. 0.0 1.2
Telecommunications ......... 35.4 13.8
Water ...................... 1.2 0.9
Other ...................... 2.0 1.6
-------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
FUND PROFILE
GOLD AND PRECIOUS METALS FUND
This Profile provides a snapshot of the fund's characteristics as of July 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 18 and 19.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
-----------------------------------------------------
GOLD AND
PRECIOUS METALS S&P 500
-----------------------------------------------------
<S> <C> <C>
Number of Stocks 37 500
Median Market Cap $1.4B $97.4B
Price/Earnings Ratio 43.1x 29.1x
Price/Book Ratio 2.9x 5.1x
Return on Equity 3.4% 24.3%
Earnings Growth Rate 0.7% 17.2%
Foreign Holdings 80.4% 1.2%
Turnover Rate 15%* --
Expense Ratio 0.66%* --
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
-------------------------------------------------------------
<S> <C>
Impala Platinum Holdings Ltd. ADR 10.2%
Anglo American Platinum Corp. ADR 9.7
Stillwater Mining Co. 6.8
Newcrest Mining Ltd. 6.4
M.I.M. Holdings Ltd. 5.8
Ashton Mining Ltd. 4.8
WMC Ltd. 4.7
Lonmin PLC 4.6
Homestake Mining Co. 3.9
Franco-Nevada Mining Corp., Ltd. 3.5
-------------------------------------------------------------
Top Ten 60.4%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
-----------------------------------------------------------
GOLD AND
PRECIOUS METALS S&P 500
-----------------------------------------------------------
<S> <C> <C>
R-Squared 0.15 1.00
Beta 0.86 1.00
</TABLE>
<TABLE>
<CAPTION>
COUNTRY DIVERSIFICATION
(% OF TOTAL NET ASSETS)
----------------------------------------
<S> <C>
Australia 35.5%
Canada 10.8
South Africa 24.9
United Kingdom 6.0
United States 18.8
----------------------------------------
Subtotal 96.0%
Bullion 0.4
Cash Investments 3.6
----------------------------------------
Total 100.0%
</TABLE>
23
<PAGE> 26
FINANCIAL STATEMENTS
JULY 31, 2000 (UNAUDITED)
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*
HEALTH CARE FUND SHARES (000)
--------------------------------------------------------------------------
COMMON STOCKS (91.4%)
--------------------------------------------------------------------------
UNITED STATES (69.3%)
--------------------------------------------------------------------------
<S> <C> <C>
BIOTECH RESEARCH & PRODUCTION (2.0%)
-(1)Quintiles Transnational Corp. 7,308,200 $ 114,647
- IDEC Pharmaceuticals Corp. 905,000 111,145
- BioChem Pharma Inc. 1,000,000 22,312
- IDEXX Laboratories Corp. 909,300 22,051
- Cephalon, Inc. 290,000 11,691
Baxter International, Inc. 67,500 5,248
- Kendle International Inc. 220,000 1,664
- Edwards Lifesciences Corp. 13,500 294
----------
289,052
----------
CONSUMER DISCRETIONARY (0.1%)
Kimberly-Clark Corp. 200,000 11,488
- Ventiv Health, Inc. 606,300 7,882
----------
19,370
----------
CONSUMER STAPLES (0.2%)
Procter & Gamble Co. 525,000 29,859
----------
DRUGS & PHARMACEUTICALS (39.2%)
Pharmacia Corp. 20,229,382 1,107,559
Pfizer, Inc. 11,929,836 514,474
- Immunex Corp. 9,250,100 468,864
American Home Products Corp. 8,611,000 456,921
Abbott Laboratories 8,254,500 343,594
Merck & Co., Inc. 4,740,000 339,799
Cardinal Health, Inc. 4,474,472 328,874
Johnson & Johnson 3,431,000 319,297
Allergan, Inc. 3,244,100 217,152
Bristol-Myers Squibb Co. 4,334,500 215,100
- Genzyme Corp. 3,027,920 210,251
Eli Lilly & Co. 1,920,000 199,440
-(1)Vertex Pharmaceuticals, Inc. 1,927,700 188,794
- Gilead Sciences, Inc. 2,012,481 149,175
-(1)AmeriSource Health Corp.
Class A 3,884,480 135,714
Schering-Plough Corp. 3,016,400 130,271
Alpharma, Inc. Class A 748,313 49,015
- Cor Therapeutics, Inc. 530,000 42,665
- Forest Laboratories, Inc. 357,400 38,242
Mylan Laboratories, Inc. 1,745,000 37,081
-(1)Perrigo Co. 5,322,320 35,926
- Pharmacyclics, Inc. 738,000 34,686
- Amgen, Inc. 280,000 18,183
- Alliance Pharmaceutical Corp. 1,327,588 14,023
- Triangle Pharmaceuticals, Inc. 564,800 5,118
- Magainin Pharmaceuticals, Inc. 1,328,100 4,648
- BioCryst Pharmaceuticals, Inc. 151,400 4,599
- Scios, Inc. 491,750 3,565
- ALZA Corp. 18,800 1,217
----------
5,614,247
----------
ELECTRONICS--MEDICAL SYSTEMS (0.5%)
-(1)Haemonetics Corp. 1,983,900 45,382
Datascope Corp. 342,100 12,914
- Varian Medical Systems, Inc. 253,000 10,879
- SpaceLabs Medical, Inc. 326,200 3,282
----------
72,457
----------
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES (0.1%)
- American Medical Security
Group, Inc. 678,000 $ 5,085
National Data Corp. 181,800 4,999
------------
10,084
------------
HEALTH & PERSONAL CARE (3.4%)
(1) McKesson HBOC, Inc. 14,495,250 352,416
- Express Scripts 1,000,000 64,250
-(1)Syncor International Corp. 856,559 62,101
Omnicare, Inc. 1,000,000 9,687
- American Retirement Corp. 637,000 3,742
------------
492,196
------------
HEALTH CARE FACILITIES (7.5%)
HCA-The Healthcare Co. 10,867,620 369,499
-(1)Quest Diagnostics, Inc. 2,443,000 246,590
Tenet Healthcare Corp. 7,835,000 238,478
-(1)Laboratory Corp. of America
Holdings 1,131,840 111,203
- HEALTHSOUTH Corp. 8,000,000 47,500
- LifePoint Hospitals, Inc. 1,041,715 27,866
- Triad Hospitals, Inc. 691,715 17,379
- Beverly Enterprises, Inc. 3,030,000 10,416
------------
1,068,931
------------
HEALTH CARE MANAGEMENT SERVICES (7.9%)
UnitedHealth Group Inc. 4,510,000 368,974
Aetna Inc. 5,832,700 323,715
IMS Health, Inc. 9,047,400 163,419
-(1)Humana, Inc. 11,495,000 84,057
-(1)Cerner Corp. 2,006,600 70,231
- Wellpoint Health Networks Inc.
Class A 300,000 26,156
- Quorum Health Group, Inc. 2,145,000 23,193
- Trigon Healthcare, Inc. 300,000 15,900
- Universal Health Services
Class B 200,000 13,475
- Foundation Health Systems
Class A 863,100 12,569
-(1)Sierra Health Services 2,189,600 6,979
- Mid Atlantic Medical
Services, Inc. 500,000 6,875
- Pediatrix Medical Group, Inc. 414,100 6,367
United Wisconsin Services, Inc. 678,000 3,898
------------
1,125,808
------------
MATERIALS & PROCESSING (1.0%)
(1) Sigma-Aldrich Corp. 4,686,300 127,702
Delta & Pine Land Co. 307,300 7,683
------------
135,385
------------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (5.5%)
Becton, Dickinson & Co. 7,624,900 192,529
- St. Jude Medical, Inc. 2,551,300 105,241
C.R. Bard, Inc. 1,937,900 97,016
Beckman Coulter, Inc. 1,264,700 84,261
Biomet, Inc. 1,545,300 69,152
- Boston Scientific Corp. 3,371,500 55,840
(1) Owens & Minor, Inc. Holding Co. 2,412,100 38,594
DENTSPLY International Inc. 961,800 32,521
Bausch & Lomb, Inc. 500,000 31,094
- PSS World Medical, Inc. 2,943,000 17,658
- Ventana Medical Systems, Inc. 614,400 12,634
- Varian, Inc. 253,000 10,658
- STERIS Corp. 1,150,000 10,350
- Henry Schein, Inc. 721,500 10,146
-(1)Cohesion Technologies, Inc. 525,800 4,535
- ADAC Laboratories 196,000 3,883
-(1)E-Z-EM, Inc. Class B 304,344 2,016
-(1)E-Z-EM, Inc. Class A 219,258 1,425
------------
779,553
------------
MEDICAL SERVICES (0.8%)
-(1)Coventry Health Care Inc. 3,785,000 63,399
-(1)Covance, Inc. 3,160,400 35,950
-(1)PAREXEL International Corp. 1,570,200 15,604
------------
114,953
------------
MISCELLANEOUS HEALTH CARE (0.4%)
Mallinckrodt, Inc. 1,397,900 63,954
------------
PRODUCER DURABLES (0.1%)
Pall Corp. 704,600 14,620
------------
TECHNOLOGY (0.1%)
- IDX Systems Corp. 1,109,200 16,707
- DAOU Systems, Inc. 513,500 1,027
------------
17,734
------------
OTHER (0.5%)
- Thermo Electron Corp. 3,300,000 68,475
Carter-Wallace, Inc. 230,000 4,916
Carter-Wallace, Inc. Class B 24,000 513
------------
73,904
------------
--------------------------------------------------------------------------------
TOTAL UNITED STATES 9,922,107
--------------------------------------------------------------------------------
INTERNATIONAL (22.1%)
--------------------------------------------------------------------------------
JAPAN (8.2%)
Fujisawa Pharmaceutical
Co., Ltd. 9,201,000 309,845
Eisai Co., Ltd. 7,006,000 174,548
Banyu Pharmaceutical Co. 5,975,000 134,957
Chugai Pharmaceutical Co., Ltd. 7,181,000 130,610
Yamanouchi
Pharmaceuticals Co., Ltd. 1,980,000 92,878
Takeda Chemical Industries Ltd. 1,500,000 88,979
Shionogi & Co., Ltd. 4,931,000 80,551
Daiichi Pharmaceutical Co., Ltd. 2,100,000 46,570
Tanabe Seiyaku Co., Ltd. 6,037,000 43,414
Olympus Optical Co., Ltd. 2,200,000 37,906
Sankyo Co., Ltd. 916,000 21,484
Ono Pharmaceutical Co., Ltd. 228,000 9,093
------------
1,170,835
------------
SWITZERLAND (2.2%)
Novartis AG (Registered) 101,747 157,099
Roche Holding AG 13,000 122,131
Serono SA Class B 27,175 28,770
- Givaudan 8,000 2,332
------------
310,332
------------
UNITED KINGDOM (7.4%)
AstraZeneca Group PLC ADR 7,386,372 315,767
SmithKline Beecham PLC ADR 3,724,500 238,368
AstraZeneca Group PLC 5,331,500 229,648
Nycomed Amersham PLC 13,565,820 129,321
Glaxo Wellcome PLC ADR 1,500,000 85,687
SmithKline Beecham PLC ADR 500,000 32,000
SSL International PLC 2,000,000 23,065
Boots Co. PLC 603,342 4,654
------------
1,058,510
------------
25
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
HEALTH CARE FUND SHARES (000)
--------------------------------------------------------------------------------
<S> <C>
OTHER (4.3%)
Aventis SA ADR 2,052,615 $ 154,972
Novo Nordisk A/S B Shares 500,000 97,487
Bayer AG ADR 1,921,500 80,943
Bayer AG 1,328,300 55,535
Aventis SA 675,168 51,990
Gambro AB B Shares 5,914,580 48,693
Schering AG 640,410 37,356
Sanofi-Synthelabo SA 615,004 32,796
Gambro AB A Shares 3,765,300 30,588
-(1)Axcan Pharma Inc. 1,356,900 10,777
Fresenius Medical Care AG ADR 645,400 9,641
Akzo Nobel NV 100,000 4,447
------------
615,225
------------
--------------------------------------------------------------------------------
TOTAL INTERNATIONAL 3,154,902
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $8,175,790) 13,077,009
--------------------------------------------------------------------------------
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (8.6%)
--------------------------------------------------------------------------------
COMMERCIAL PAPER (8.4%)
Associates Corp.
6.698%, 8/7/2000 $100,000 99,891
6.699%, 8/8/2000 100,000 99,873
General Electric Capital Corp.
6.647%, 8/4/2000 65,000 64,965
Gillette Co.
6.723%, 8/1/2000 166,000 166,000
Goldman Sachs Group
6.676%, 8/22/2000 160,000 159,391
6.684%, 8/18/2000 200,000 199,382
Morgan Stanley Dean Witter & Co.
6.731%, 8/17/2000 200,000 199,417
Sara Lee Corp.
6.703%, 8/1/2000 109,600 109,600
Wal-Mart Stores
6.718%, 8/15/2000 64,919 64,753
Washington Post Co.
6.67%, 8/1/2000 19,000 19,000
Yale University
6.75%, 10/2/2000 26,700 26,400
------------
1,208,672
------------
REPURCHASE AGREEMENT (0.2%)
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.60%, 8/1/2000--Note H 29,360 29,360
--------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $1,238,032) 1,238,032
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(COST $9,413,822) 14,315,041
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Other Assets--Note C $ 59,490
Liabilities--Note H (60,127)
------------
(637)
------------
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 120,535,764 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $14,314,404
================================================================================
NET ASSET VALUE PER SHARE $118.76
================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
oNon-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 $1,754,042,000.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 8,355,518 $ 69.32
Undistributed Net
Investment Income--Note G 65,502 .54
Accumulated Net
Realized Gains--Note G 985,618 8.18
Unrealized Appreciation--Note F
Investment Securities 4,901,219 40.66
Foreign Currencies and
Forward Currency Contracts 6,547 .06
--------------------------------------------------------------------------------
NET ASSETS $14,314,404 $ 118.76
================================================================================
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
ENERGY FUND SHARES (000)
--------------------------------------------------------------------------------
COMMON STOCKS (94.7%)
UNITED STATES (70.5%)
--------------------------------------------------------------------------------
<S> <C> <C>
ENERGY MISCELLANEOUS (5.7%)
Ashland, Inc. 614,100 $ 20,227
Sunoco, Inc. 654,967 15,965
Tosco Corp. 511,700 13,560
Valero Energy Corp. 511,700 13,272
------------
63,024
------------
MACHINERY--OIL WELL EQUIPMENT & SERVICES (17.7%)
Baker Hughes, Inc. 1,279,300 44,296
- Noble Drilling Corp. 716,400 31,208
- Weatherford International, Inc. 777,799 31,161
Halliburton Co. 614,100 28,325
- Rowan Cos., Inc. 797,100 20,127
- Nabors Industries, Inc. 437,500 18,211
- Cooper Cameron Corp. 256,200 16,557
Schlumberger Ltd. 66,400 4,908
------------
194,793
------------
MATERIALS & PROCESSING (1.4%)
- Grant Prideco, Inc. 777,799 15,653
------------
OFFSHORE DRILLING (1.6%)
ENSCO International, Inc. 511,700 17,270
------------
OIL--CRUDE PRODUCERS (11.4%)
Anadarko Petroleum Corp. 642,223 30,706
EOG Resources, Inc. 669,700 19,798
Cabot Oil & Gas Corp. Class A 861,000 15,929
- Ocean Energy, Inc. 1,023,500 12,410
- Santa Fe Snyder Corp. 1,103,200 11,032
Devon Energy Corp. 225,200 10,303
Ultramar Diamond Shamrock
Corp. 442,000 10,111
Pogo Producing Co. 317,900 6,318
- Barrett Resources Corp. 167,500 4,659
Burlington Resources, Inc. 102,300 3,338
------------
124,604
------------
OIL--INTEGRATED DOMESTIC (20.1%)
Unocal Corp. 1,125,800 34,054
Chevron Corp. 409,400 32,343
Phillips Petroleum Co. 614,100 31,204
Kerr-McGee Corp. 566,200 31,070
USX-Marathon Group 1,023,500 24,884
Amerada Hess Corp. 409,400 24,769
Murphy Oil Corp. 358,200 21,582
Occidental Petroleum Corp. 1,023,500 20,726
------------
220,632
------------
OIL--INTEGRATED INTERNATIONAL (8.8%)
Exxon Mobil Corp. 460,600 36,848
Texaco Inc. 643,088 31,793
BP Amoco PLC ADR 335,708 17,562
Conoco Inc. Class A 466,600 10,440
------------
96,643
------------
UTILITIES--GAS PIPELINES (2.9%)
Equitable Resources, Inc. 614,100 31,972
------------
OTHER (0.9%)
McDermott International, Inc. 1,314,300 9,775
--------------------------------------------------------------------------------
TOTAL UNITED STATES 774,366
--------------------------------------------------------------------------------
INTERNATIONAL (24.2%)
--------------------------------------------------------------------------------
CANADA (14.1%)
Imperial Oil Ltd. 1,432,800 35,006
Suncor Energy, Inc. 1,348,400 28,134
Alberta Energy Co., Ltd. 767,600 27,770
- Petro-Canada 1,125,800 21,671
- Anderson Exploration Ltd. 1,036,101 17,434
- Paramount Resources Ltd. 1,106,300 9,866
Shell Canada Ltd. Class A 436,700 9,626
PanCanadian Petroleum Ltd. 290,000 5,660
------------
155,167
------------
FRANCE (2.4%)
TotalFinaElf SA ADR 358,200 26,350
------------
ITALY (2.1%)
ENI SpA ADR 409,400 23,029
------------
NORWAY (2.0%)
Norsk Hydro ASA ADR 562,900 21,953
------------
SPAIN (1.0%)
Repsol SA ADR 591,000 11,155
------------
UNITED KINGDOM (2.6%)
Shell Transport & Trading
Co. ADR 511,700 24,690
Lasmo PLC 2,046,900 3,985
------------
28,675
------------
--------------------------------------------------------------------------------
TOTAL INTERNATIONAL 266,329
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $775,064) 1,040,695
--------------------------------------------------------------------------------
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (5.0%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.59%, 8/1/2000 $55,216 55,216
6.60%, 8/1/2000--Note H 203 203
--------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $55,419) 55,419
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(COST $830,483) 1,096,114
--------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
ENERGY FUND (000)
--------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (0.3%)
--------------------------------------------------------------------------------
Other Assets--Note C 14,588
Liabilities--Note H (11,363)
----------
3,225
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 44,010,080 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $1,099,339
================================================================================
NET ASSET VALUE PER SHARE $24.98
================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
o Non-income-producing security.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------------
<S> <C> <C>
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Paid in Capital $ 781,604 $17.76
Undistributed Net Investment
Income--Note G 9,430 .21
Accumulated Net Realized
Gains--Note G 42,674 .97
Unrealized Appreciation--Note F 265,631 6.04
--------------------------------------------------------------------------------
NET ASSETS $1,099,339 $24.98
================================================================================
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
REIT INDEX FUND SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (97.5%)
--------------------------------------------------------------------------------
Equity Office Properties
Trust REIT 2,400,330 $ 73,210
Equity Residential Properties
Trust REIT 1,034,454 51,593
Simon Property Group, Inc. REIT 1,373,956 35,895
ProLogis Trust REIT 1,307,768 30,487
Archstone Communities
Trust REIT 1,121,540 29,090
Public Storage, Inc. REIT 1,067,999 27,367
Vornado Realty Trust REIT 697,370 27,285
Spieker Properties, Inc. REIT 526,349 27,206
Apartment Investment &
Management Co. Class A REIT 542,123 26,225
Avalonbay Communities,
Inc. REIT 533,019 25,119
Duke Realty Investments,
Inc. REIT 1,021,150 25,018
Boston Properties, Inc. REIT 547,267 22,712
- Pinnacle Holdings Inc. REIT 390,480 21,940
Crescent Real Estate, Inc. REIT 931,456 20,550
Kimco Realty Corp. REIT 491,355 20,268
Host Marriott Corp. REIT 1,773,957 19,735
CarrAmerica Realty Corp. REIT 541,155 16,167
AMB Property Corp. REIT 676,392 16,149
Liberty Property Trust REIT 543,198 15,617
Rouse Co. REIT 566,950 14,776
Post Properties, Inc. REIT 317,317 14,716
General Growth Properties
Inc. REIT 419,473 14,210
Arden Realty Group, Inc. REIT 510,038 13,516
Highwood Properties, Inc. REIT 479,642 12,950
Mack-Cali Realty Corp. REIT 473,983 12,412
BRE Properties Inc. Class A REIT 361,164 11,715
Cousins Properties, Inc. REIT 261,634 11,414
Hospitality Properties Trust REIT 455,790 11,281
Regency Realty Corp. REIT 456,313 10,952
Franchise Finance Corp.
of America REIT 454,820 10,916
New Plan Excel Realty Trust REIT 706,848 10,912
First Industrial Realty Trust REIT 312,717 10,007
FelCor Lodging Trust, Inc. REIT 443,929 9,711
Camden Property Trust REIT 308,382 9,637
United Dominion Realty
Trust REIT 829,645 9,541
Westfield America, Inc. REIT 589,919 8,959
Weingarten Realty Investors REIT 215,973 8,936
MeriStar Hospitality Corp. REIT 372,508 8,265
Reckson Associates Realty
Corp. REIT 303,836 7,976
Developers Diversified Realty
Corp. REIT 496,156 7,814
Charles E. Smith Residential
Realty, Inc. REIT 169,037 7,469
Prentiss Properties Trust REIT 291,368 7,321
Essex Property Trust, Inc. REIT 146,068 7,194
CenterPoint Properties Corp. REIT 167,568 7,122
HRPT Properties Trust REIT 1,061,049 6,963
Storage USA, Inc. REIT 223,252 6,795
Federal Realty Investment
Trust REIT 317,614 6,789
Cabot Industrial Trust REIT 327,929 6,723
The Macerich Co. REIT 274,772 6,577
Chateau Communities, Inc. REIT 228,885 6,452
Brandywine Realty Trust REIT 291,702 6,399
SL Green Realty Corp. REIT 195,754 5,811
Washington REIT 288,457 5,697
Shurgard Storage Centers, Inc.
Class A REIT 236,899 5,656
Kilroy Realty Corp. REIT 210,899 5,589
Gables Residential Trust REIT 194,363 5,284
Realty Income Corp. REIT 214,234 5,195
Summit Properties, Inc. REIT 210,344 5,022
CBL & Associates Properties,
Inc. REIT 200,486 5,012
Home Properties of New York,
Inc. REIT 162,480 4,986
Colonial Properties Trust REIT 175,615 4,862
PS Business Parks, Inc. REIT 189,025 4,820
Glenborough Realty Trust,
Inc. REIT 239,312 4,756
Taubman Co. REIT 421,680 4,744
Urban Shopping Centers,
Inc. REIT 143,107 4,740
Chelsea GCA Realty, Inc. REIT 128,147 4,645
Sun Communities, Inc. REIT 140,762 4,452
Manufactured Home
Communities, Inc. REIT 177,294 4,255
Pacific Gulf Properties, Inc. REIT 165,818 4,228
Alexandria Real Estate Equities,
Inc. REIT 114,615 4,105
Bradley Real Estate Inc. REIT 177,835 3,824
Koger Equity, Inc. REIT 213,653 3,619
Pan Pacific Retail Properties,
Inc. REIT 171,171 3,584
Mills Corp. REIT 192,484 3,513
Mid-America Apartment
Communities, Inc. REIT 146,654 3,474
AMLI Residential Properties
Trust REIT 137,002 3,339
Cornerstone Realty Income
Trust, Inc. REIT 288,682 3,139
Reckson Associates Realty
Corp. Class B REIT 108,899 2,947
EastGroup Properties, Inc. REIT 126,385 2,938
Bedford Property Investors,
Inc. REIT 150,336 2,894
Innkeepers USA Trust REIT 276,782 2,872
JDN Realty Corp. REIT 272,241 2,859
Glimcher Realty Trust REIT 189,688 2,833
RFS Hotel Investors, Inc. REIT 198,405 2,654
Commercial Net Lease
Realty REIT 242,715 2,624
Parkway Properties Inc. REIT 80,649 2,581
Capital Automotive REIT 165,260 2,500
JP Realty Inc. REIT 130,088 2,455
Great Lakes, Inc. REIT 131,318 2,438
IRT Property Co. REIT 265,233 2,371
Town & Country Trust REIT 128,075 2,297
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
REIT INDEX FUND SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
National Golf Properties, Inc. REIT 107,926 $ 2,246
Sovran Self Storage, Inc. REIT 98,913 2,170
American Industrial
Properties REIT 150,380 2,021
Boykin Lodging Co. REIT 137,765 1,972
Prime Group Realty Trust REIT 126,479 1,968
LaSalle Hotel Properties REIT 134,890 1,947
Equity Inns, Inc. REIT 294,683 1,934
Pennsylvania REIT 107,443 1,894
Burnham Pacific Properties,
Inc. REIT 257,234 1,801
First Washington Realty Trust,
Inc. REIT 80,351 1,763
Saul Centers, Inc. REIT 108,641 1,731
Western Properties Trust REIT 138,626 1,698
Lexington Corporate Properties
Trust REIT 137,029 1,636
Entertainment Properties
Trust REIT 119,025 1,466
Tanger Factory Outlet Centers,
Inc. REIT 63,352 1,461
Associated Estates Realty
Corp. REIT 170,181 1,362
Corporate Office Properties
Trust, Inc. REIT 148,444 1,345
Crown American Realty
Trust REIT 209,225 1,282
Investors Real Estate Trust REIT 155,506 1,205
Konover Property Trust, Inc. REIT 246,071 1,184
Mid Atlantic Realty Trust REIT 107,876 1,173
Mission West Properties Inc. REIT 107,110 1,145
Center Trust, Inc. REIT 212,145 1,140
U.S. Restaurant Properties,
Inc. REIT 122,408 1,117
Golf Trust of America, Inc. REIT 63,987 1,000
Winston Hotels, Inc. REIT 134,531 992
Kramont Realty Trust REIT 104,306 984
Phillips International Realty
Corp. REIT 57,411 983
Equity One, Inc. REIT 92,847 917
Ramco-Gershenson Properties
Trust REIT 56,150 856
Captec Net Lease Realty, Inc. REIT 75,235 828
Public Storage, Inc.
Depositary Shares A REIT 34,524 747
Jameson Inns, Inc. REIT 91,561 732
Correctional Properties Trust REIT 55,577 604
- Interstate Hotels Corp. REIT 49,528 139
Prime Retail, Inc. 8.50%
Series B Cvt. Pfd. REIT 16,100 101
- Merry Land Properties, Inc. REIT 14,985 85
- Horizon Group Properties, Inc. REIT 20,070 70
--------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $998,662) 1,041,366
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.3%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.59%, 8/1/2000
(COST $24,236) $24,236 $ 24,236
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $1,022,898) 1,065,602
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
--------------------------------------------------------------------------------
Other Assets--Note C 7,999
Liabilities (5,392)
------------
2,607
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 90,650,097 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $ 1,068,209
================================================================================
NET ASSET VALUE PER SHARE $11.78
================================================================================
*See Note A in Notes to Financial Statements.
- Non-income-producing security.
--------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------------
Paid in Capital--Note G $1,091,919 $12.05
Undistributed Net
Investment Income 320 --
Accumulated Net Realized
Losses--Note G (66,734) (.74)
Unrealized Appreciation--
Note F 42,704 .47
--------------------------------------------------------------------------------
NET ASSETS $1,068,209 $11.78
================================================================================
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
UTILITIES INCOME FUND SHARES (000)
--------------------------------------------------------------------------------
COMMON STOCKS (98.2%)
--------------------------------------------------------------------------------
UNITED STATES (82.3%)
--------------------------------------------------------------------------------
<S> <C> <C>
ELECTRICAL (42.6%)
Pinnacle West Capital Corp. 994,300 $ 39,337
Unicom Corp. 800,000 32,850
FPL Group, Inc. 650,000 31,362
Montana Power Co. 944,400 27,329
DQE Inc. 627,930 23,273
DPL Inc. 891,693 21,512
Constellation Energy Group 550,000 18,322
CMS Energy Corp. 700,000 17,894
Northeast Utilities 750,000 16,594
PECO Energy Corp. 375,000 16,008
Duke Energy Corp. 227,220 14,017
Edison International 600,000 11,812
Dominion Resources, Inc. 250,000 11,359
GPU, Inc. 358,700 9,506
Cinergy Corp. 350,000 9,100
TXU Corp. 275,000 8,594
Entergy Corp. 300,000 8,137
CH Energy Group, Inc. 216,300 7,057
PG&E Corp. 200,000 5,175
Minnesota Power, Inc. 230,000 4,902
Southern Co. 150,000 3,666
Public Service Co. of
New Mexico 200,000 3,625
Energy East Corp. 100,000 1,887
SCANA Corp. 47,553 1,251
------------
344,569
------------
GAS DISTRIBUTION (5.8%)
National Fuel Gas Co. 400,000 19,725
KeySpan Corp. 450,000 14,287
Sempra Energy 224,071 4,201
ONEOK, Inc. 145,400 3,880
Peoples Energy Corp. 75,000 2,377
MCN Energy Group Inc. 104,800 2,266
------------
46,736
------------
INTEGRATED OILS (1.2%)
Coastal Corp. 175,000 10,106
------------
OTHER ENERGY (15.5%)
Enron Corp. 500,000 36,812
El Paso Energy Corp. 536,400 25,948
Williams Cos., Inc. 450,000 18,788
- Calpine Corp. 250,000 17,812
Columbia Energy Group 237,500 16,209
Dynegy, Inc. 120,000 8,445
Westcoast Energy Inc. 100,000 1,725
------------
125,739
------------
TECHNOLOGY (1.1%)
Nortel Networks Corp. 125,630 9,344
------------
TELECOMMUNICATIONS (13.6%)
ALLTEL Corp. 405,000 24,958
Sprint Corp. 634,200 22,593
SBC Communications Inc. 367,200 15,629
BellSouth Corp. 380,200 15,137
Verizon Communications 316,000 14,852
- Qwest Communications
International Inc. 200,000 9,388
AT&T Corp. 175,000 5,414
BCE, Inc. 80,000 1,825
------------
109,796
------------
WATER (0.9%)
American Water Works Co., Inc. 296,300 7,185
------------
OTHER (1.6%)
MDU Resources Group, Inc. 300,000 6,975
UtiliCorp United, Inc. 285,750 6,090
------------
13,065
------------
--------------------------------------------------------------------------------
TOTAL UNITED STATES 666,540
--------------------------------------------------------------------------------
INTERNATIONAL (15.9%)
--------------------------------------------------------------------------------
UNITED KINGDOM (6.0%)
Vodafone Airtouch PLC ADR 425,000 18,328
ScottishPower PLC ADR 319,000 10,567
PowerGen PLC ADR 254,500 9,226
National Grid Group PLC 750,000 6,156
National Power PLC ADR 150,000 4,247
------------
48,524
------------
OTHER (9.9%)
Suez Lyonnaise des Eaux 125,000 20,444
Endesa SA ADR 699,800 14,521
- Koninklijke KPN NV 250,000 9,037
Deutsche Telekom AG ADR 200,000 8,700
Tele Danmark AS ADR 275,000 8,611
Vivendi SA 100,000 7,987
Telecom Corp. of New Zealand
Ltd. ADR 250,800 6,458
TELUS Corp. 100,912 3,124
TELUS Corp. (Non-voting) 33,637 1,035
------------
79,917
------------
--------------------------------------------------------------------------------
TOTAL INTERNATIONAL 128,441
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $704,116) 794,981
--------------------------------------------------------------------------------
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (5.0%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.59%, 8/1/2000 $14,024 14,024
6.60%, 8/1/2000--Note H 26,544 26,544
--------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $40,568) 40,568
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.2%)
(COST $744,684) 835,549
--------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
VALUE*
UTILITIES INCOME FUND SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (-3.2%)
--------------------------------------------------------------------------------
Other Assets--Note C $ 2,858
Security Lending Collateral Payable
to Brokers--Note H (26,544)
Other Liabilities (2,359)
-----------
(26,045)
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 57,327,071 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $809,504
================================================================================
NET ASSET VALUE PER SHARE $14.12
================================================================================
*See Note A in Notes to Financial Statements.
- Non-income-producing security.
ADR--American Depositary Receipt.
--------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Paid in Capital $696,993 $12.16
Undistributed Net
Investment Income 1,952 .03
Accumulated Net Realized Gains 19,694 .34
Unrealized Appreciation--Note F 90,865 1.59
--------------------------------------------------------------------------------
NET ASSETS $809,504 $14.12
================================================================================
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MARKET
GOLD AND PRECIOUS VALUE*
METALS FUND SHARES (000)
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.0%)
--------------------------------------------------------------------------------
AUSTRALIA (35.5%)
- Newcrest Mining Ltd. 7,640,000 $ 18,473
M.I.M. Holdings Ltd. 28,000,000 16,698
Ashton Mining Ltd. 15,000,000 13,809
WMC Ltd. 3,050,000 13,638
Sons of Gwalia Ltd. 3,000,000 9,831
- Lihir Gold Ltd. 20,000,000 8,106
Delta Gold Ltd. 10,000,000 7,585
Rio Tinto Ltd. 400,000 5,985
Goldfields Ltd. 5,163,227 4,514
Iluka Resources Ltd. 1,000,000 2,739
- Aurora Gold Ltd. 9,950,000 951
- Tanami Gold NL 5,600,000 422
- Bougainville Copper Ltd. 2,000,000 197
- Star Mining Corp. NL 5,000,000 29
- Masmindo Mining Corp. NL 127,230 5
- Australian Resources Ltd. 16,250,000 0
------------
102,982
------------
CANADA (10.8%)
Franco-Nevada Mining
Corp., Ltd. 1,000,000 10,163
- Aber Resources Ltd. 1,350,000 8,632
Barrick Gold Corp. (U.S. Shares) 500,000 7,969
Placer Dome Inc. 300,000 2,544
Barrick Gold Corp. 100,000 1,592
- Geomaque Explorations Ltd. 3,000,000 505
- Itemus Inc. 100,000 86
- Princess Resources Ltd. 5,684,000 0
------------
31,491
------------
SOUTH AFRICA (24.9%)
Impala Platinum Holdings
Ltd. ADR 775,000 29,644
Anglo American Platinum
Corp. ADR 953,400 28,125
Anglogold Ltd. ADR 450,000 8,916
Harmony Gold Mining Co.
Ltd. ADR 1,100,000 5,500
------------
72,185
------------
UNITED KINGDOM (6.0%)
Lonmin PLC 1,078,455 13,342
Rio Tinto PLC 250,000 4,014
------------
17,356
------------
UNITED STATES (18.8%)
- Stillwater Mining Co. 750,000 19,688
Newmont Mining Corp. 500,000 8,875
- Freeport-McMoRan Copper &
Gold, Inc. Class A 700,000 5,994
Homestake Mining Co. 2,100,000 11,419
Royal Gold, Inc. 800,000 2,200
- Meridian Gold Co. 600,000 3,562
Freeport-McMoRan Copper &
Gold, Inc. Gold Denomination
Shares Pfd. 150,000 2,756
- Crown Resources Corp. 400,000 187
- Atlas Minerals Inc. 33,333 9
------------
54,690
------------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $357,760) 278,704
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------------
PRECIOUS METALS (0.4%)
--------------------------------------------------------------------------------
- Platinum Bullion (2,009 Ounces)
(COST $1,213) $ 1,155
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTs (4.7%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.59%, 8/1/2000 $11,160 11,160
6.60%, 8/1/2000--Note H 2,655 2,655
--------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $13,815) 13,815
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(COST $372,788) 293,674
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
--------------------------------------------------------------------------------
Other Assets--Note C 640
Liabilities--Note H (3,950)
------------
(3,310)
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 43,327,443 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $290,364
================================================================================
NET ASSET VALUE PER SHARE $6.70
================================================================================
*See Note A in Notes to Financial Statements.
- Non-income-producing security.
ADR--American Depositary Receipt.
--------------------------------------------------------------------------------
AT JULY 31, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------------
Paid in Capital $482,745 $11.14
Undistributed Net Investment
Income--Note G 2,124 .05
Accumulated Net Realized
Losses--Note G (115,392) (2.66)
Unrealized Appreciation
(Depreciation)--Note F
Investment Securities (79,114) (1.83)
Foreign Currencies 1 --
--------------------------------------------------------------------------------
NET ASSETS $290,364 $ 6.70
================================================================================
</TABLE>
33
<PAGE> 36
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>
--------------------------------------------------------------------------------------------------------
REIT UTILITIES
HEALTH CARE ENERGY INDEX INCOME
FUND FUND FUND FUND
--------------------------------------------------------------
SIX MONTHS ENDED JULY 31, 2000
--------------------------------------------------------------
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME $
Dividends 55,288* $ 10,827 $ 29,251 $ 12,289
Interest 34,422 1,384 551 1,973
Security Lending 1,021 129 27 141
--------------------------------------------------------------
Total Income 90,731 12,340 29,829 14,403
--------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B 3,855 327 9 257
The Vanguard Group--Note C
Management and Administrative 15,118 1,612 1,406 1,162
Marketing and Distribution 719 64 70 54
Custodian Fees 1,042 75 15 28
Auditing Fees 6 3 3 3
Shareholders' Reports 314 41 33 33
Trustees' Fees and Expenses 9 1 1 1
--------------------------------------------------------------
Total Expenses 21,063 2,123 1,537 1,538
Expenses Paid Indirectly--Note D (1,055) (68) (2) (78)
--------------------------------------------------------------
Net Expenses 20,008 2,055 1,535 1,460
--------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 70,723 10,285 28,294 12,943
--------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 977,090 42,881 (18,756) 19,906
Foreign Currencies and Forward
Currency Contracts 12,920 (14) -- --
--------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 990,010 42,867 (18,756) 19,906
--------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 1,914,841 109,498 179,541 (44,809)
Foreign Currencies and Forward
Currency Contracts 3,224 -- -- --
--------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 1,918,065 109,498 179,541 (44,809)
--------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,978,798 $162,650 $189,079 $(11,960)
========================================================================================================
</TABLE>
*Dividend income from affiliated companies was $2,748,000.
34
<PAGE> 37
<TABLE>
<CAPTION>
GOLD AND PRECIOUS METALS FUND
SIX MONTHS ENDED JULY 31, 2000
(000)
----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends $ 3,547*
Interest 261
Security Lending 83
------------
Total Income 3,891
------------
EXPENSES
Investment Advisory Fees--Note B 330
The Vanguard Group--Note C
Management and Administrative 598
Marketing and Distribution 21
Custodian Fees 15
Auditing Fees 3
Shareholders' Reports 21
Trustees' Fees and Expenses --
------------
Total Expenses 988
Expenses Paid Indirectly--Note D (1)
------------
Net Expenses 987
----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,904
----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (153)
Foreign Currencies and Forward Currency Contracts (63)
----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (216)
----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (45,130)
Foreign Currencies and Forward Currency Contracts 2
----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (45,128)
----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (42,440)
==========================================================================================================
</TABLE>
*Dividends are net of foreign withholding taxes of $151,000.
35
<PAGE> 38
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>
-----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE ENERGY
FUND FUND
------------------------------------ --------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000 JAN. 31, 2000
(000) (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 70,723 $ 96,051 $ 10,285 $ 16,298
Realized Net Gain (Loss) 990,010 1,181,001 42,867 15,820
Change in Unrealized Appreciation (Depreciation) 1,918,065 (221,431) 109,498 169,016
-------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,978,798 1,055,621 162,650 201,134
-------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (7,584) (101,180) (437) (16,330)
Realized Capital Gain (681,600) (749,950) (875) --
Return of Capital -- -- -- --
-------------------------------------------------------------------------
Total Distributions (689,184) (851,130) (1,312) (16,330)
-------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 1,353,871 1,663,504 141,723 302,829
Issued in Lieu of Cash Distributions 655,248 808,980 1,231 15,187
Redeemed (710,808)* (1,834,838)* (178,444)* (289,658)
-------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 1,298,311 637,646 (35,490) 28,358
-----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 3,587,925 842,137 125,848 213,162
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 10,726,479 9,884,342 973,491 760,329
-------------------------------------------------------------------------
End of Period $14,314,404 $10,726,479 $1,099,339 $973,491
===================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 12,315 17,173 5,647 14,340
Issued in Lieu of Cash Distributions 6,407 8,699 53 710
Redeemed (6,719) (18,902) (7,533) (13,512)
-------------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 12,003 6,970 (1,833) 1,538
===================================================================================================================================
</TABLE>
*Net of redemption fees of $637,000, $3,360,000, $390,000, and $835,000,
respectively.
36
<PAGE> 39
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
REIT INDEX UTILITIES INCOME
FUND FUND
--------------------------- -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JULY 31, 2000 JAN. 31, 2000 JULY 31, 2000 JAN. 31, 2000
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income 28,294 57,767 12,943 29,245
Realized Net Gain (Loss) (18,756) (5,512) 19,906 72,354
Change in Unrealized Appreciation (Depreciation) 179,541 (67,660) (44,809) (79,341)
----------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 189,079 (15,405) (11,960) 22,258
----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (27,459) (57,949) (11,881) (30,217)
Realized Capital Gain -- -- (22,900) (68,750)
Return of Capital -- (9,481) -- --
----------------------------------------------------------------------
Total Distributions (27,459) (67,430) (34,781) (98,967)
----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 175,253 316,761 61,557 189,941
Issued in Lieu of Cash Distributions 23,315 59,804 29,775 85,243
Redeemed (179,601)* (310,380)* (89,360) (295,885)
----------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 18,967 66,185 1,972 (20,701)
--------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 180,587 (16,650) (44,769) (97,410)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 887,622 904,272 854,273 951,683
----------------------------------------------------------------------
End of Period $1,068,209 $887,622 $809,504 $854,273
================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 16,597 29,923 4,181 12,024
Issued in Lieu of Cash Distributions 2,223 5,923 2,031 5,792
Redeemed (17,722) (29,977) (6,086) (19,101)
----------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 1,098 5,869 126 (1,285)
================================================================================================================================
</TABLE>
*Net of redemption fees of $117,000, and $439,000, respectively.
37
<PAGE> 40
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
--------------------------------------------------------------------------------------------------------
GOLD AND PRECIOUS
METALS FUND
------------------------------
SIX MONTHS YEAR
ENDED ENDED
JULY 31, 2000 JAN. 31, 2000
(000) (000)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 2,904 $ 4,810
Realized Net Gain (Loss) (216) (21,626)
Change in Unrealized Appreciation (Depreciation) (45,128) 69,958
------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (42,440) 53,142
------------------------------
DISTRIBUTIONS
Net Investment Income (887) (4,548)
Realized Capital Gain -- --
Return of Capital -- --
------------------------------
Total Distributions (887) (4,548)
------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 38,034 100,273
Issued in Lieu of Cash Distributions 816 4,175
Redeemed (45,686)* (122,334)*
------------------------------
Net Increase (Decrease) from Capital Share Transactions (6,836) (17,886)
--------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (50,163) 30,708
--------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 340,527 309,819
------------------------------
End of Period $290,364 $340,527
========================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,462 13,115
Issued in Lieu of Cash Distributions 117 522
Redeemed (6,662) (16,093)
------------------------------
Net Increase (Decrease) in Shares Outstanding (1,083) (2,456)
========================================================================================================
</TABLE>
*Net of redemption fees of $100,000, and $348,000, respectively.
38
<PAGE> 41
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>
--------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE FUND
YEAR ENDED JANUARY 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 98.83 $97.32 $74.02 $60.65 $52.09 $37.01
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .59 .92 .86 .80 .71 .61
Net Realized and Unrealized Gain (Loss)
on Investments 25.70 8.70 26.36 15.49 9.88 16.06
-------------------------------------------------------------------
Total from Investment Operations 26.29 9.62 27.22 16.29 10.59 16.67
-------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.07) (.97) (.84) (.78) (.74) (.57)
Distributions from Realized Capital Gains (6.29) (7.14) (3.08) (2.14) (1.29) (1.02)
-------------------------------------------------------------------
Total Distributions (6.36) (8.11) (3.92) (2.92) (2.03) (1.59)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $118.76 $98.83 $97.32 $74.02 $60.65 $52.09
================================================================================================================================
TOTAL RETURN* 27.64% 10.57% 37.39% 27.37% 20.65% 45.47%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $14,314 $10,726 $9,884 $4,720 $2,846 $1,654
Ratio of Total Expenses to
Average Net Assets 0.34%** 0.41% 0.36% 0.40% 0.38% 0.46%
Ratio of Net Investment Income to
Average Net Assets 1.14%** 0.92% 1.13% 1.28% 1.41% 1.57%
Portfolio Turnover Rate 26%** 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).
**Annualized.
39
<PAGE> 42
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
ENERGY FUND
YEAR ENDED JANUARY 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ------------------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.24 $17.16 $22.68 $23.44 $17.19 $13.82
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .23 .355 .33 .32 .25 .27
Net Realized and Unrealized Gain (Loss)
on Investments 3.54 4.080 (5.08) .57 6.64 3.68
-------------------------------------------------------------------------
Total from Investment Operations 3.77 4.435 (4.75) .89 6.89 3.95
-------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.01) (.355) (.35) (.32) (.24) (.28)
Distributions from Realized Capital Gains (.02) -- (.42) (1.33) (.40) (.30)
-------------------------------------------------------------------------
Total Distributions (.03) (.355) (.77) (1.65) (.64) (.58)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $24.98 $21.24 $17.16 $22.68 $23.44 $17.19
================================================================================================================================
TOTAL RETURN* 17.76% 25.83% -21.20% 3.80% 40.32% 28.68%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,099 $973 $760 $1,090 $989 $505
Ratio of Total Expenses to
Average Net Assets 0.40%** 0.48% 0.41% 0.38% 0.39% 0.51%
Ratio of Net Investment Income to
Average Net Assets 1.92%** 1.63% 1.46% 1.36% 1.36% 1.55%
Portfolio Turnover Rate 16%** 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.
**Annualized.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
REIT INDEX FUND
YEAR ENDED JANUARY 31, MAY 13,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ---------------------------------- 1996,* TO
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 JAN. 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91 $10.81 $13.98 $12.64 $10.00
----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .33 .660 .666 .590 .341
Net Realized and Unrealized Gain (Loss)
on Investments 1.86 (.780) (3.026) 1.520 2.659
---------------------------------------------------------------
Total from Investment Operations 2.19 (.120) (2.360) 2.110 3.000
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.32) (.670) (.666) (.590) (.341)
Distributions from Realized Capital Gains -- -- -- (.086) (.005)
Return of Capital -- (.110) (.144) (.094) (.014)
---------------------------------------------------------------
Total Distributions (.32) (.780) (.810) (.770) (.360)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.78 $ 9.91 $10.81 $13.98 $12.64
======================================================================================================================
TOTAL RETURN** 22.53% -1.04% -17.31% 17.08% 30.33%
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,068 $888 $904 $1,317 $655
Ratio of Total Expenses to
Average Net Assets 0.34%*** 0.33% 0.26% 0.24% 0.36%+
Ratio of Net Investment Income to
Average Net Assets 6.17%*** 5.98% 5.19% 4.66% 5.55%+
Portfolio Turnover Rate 27%***+ 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.
+The portfolio turnover rate excluding in-kind redemptions was 14%.
40
<PAGE> 43
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
UTILITIES INCOME FUND
YEAR ENDED JANUARY 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.93 $16.27 $14.97 $12.93 $12.84 $10.42
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .23 .49 .55 .58 .58 .56
Net Realized and Unrealized Gain (Loss)
on Investments (.42) (.12) 2.35 2.32 .09 2.42
------------------------------------------------------------------
Total from Investment Operations (.19) .37 2.90 2.90 .67 2.98
------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.21) (.51) (.59) (.60) (.56) (.56)
Distributions from Realized Capital Gains (.41) (1.20) (1.01) (.26) (.02) --
------------------------------------------------------------------
Total Distributions (.62) (1.71) (1.60) (.86) (.58) (.56)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.12 $14.93 $16.27 $14.97 $12.93 $12.84
=========================================================================================================================
TOTAL RETURN -1.40% 2.79% 19.92% 23.17% 5.51% 29.47%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $810 $854 $952 $699 $644 $781
Ratio of Total Expenses to
Average Net Assets 0.37%* 0.40% 0.38% 0.44% 0.40% 0.44%
Ratio of Net Investment Income to
Average Net Assets 3.11%* 3.13% 3.51% 4.30% 4.63% 4.88%
Portfolio Turnover Rate 63%* 47% 55% 41% 38% 35%
=========================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
GOLD AND PRECIOUS METALS FUND
YEAR ENDED JANUARY 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------
THROUGHOUT EACH PERIOD JULY 31, 2000 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $7.67 $6.61 $7.53 $10.94 $14.07 $10.71
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .07 .11 .10 .14 .13 .17
Net Realized and Unrealized Gain (Loss)
on Investments (1.02) 1.05 (.93) (3.42) (2.98) 3.36
-----------------------------------------------------------------
Total from Investment Operations (.95) 1.16 (.83) (3.28) (2.85) 3.53
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.02) (.10) (.09) (.13) (.21) (.17)
Distributions from Realized Capital Gains -- -- -- -- (.07) --
-----------------------------------------------------------------
Total Distributions (.02) (.10) (.09) (.13) (.28) (.17)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.70 $7.67 $6.61 $ 7.53 $10.94 $14.07
=========================================================================================================================
TOTAL RETURN* -12.40% 17.49% -11.06% -29.85% -20.51% 33.24%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $290 $341 $310 $327 $463 $648
Ratio of Total Expenses to
Average Net Assets 0.66%** 0.77% 0.77% 0.62% 0.50% 0.60%
Ratio of Net Investment Income to
Average Net Assets 1.93%** 1.42% 1.33% 1.41% 1.07% 1.38%
Portfolio Turnover Rate 15%** 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.
**Annualized.
41
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
Vanguard Specialized Funds comprise the Health Care, Energy, REIT Index,
Utilities Income, and Gold and Precious Metals Funds, each of which is
registered under the Investment Company Act of 1940 as a diversified open-end
investment company, or mutual fund. The Health Care, Energy, Utilities Income,
and Gold and Precious Metals 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.
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. 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. 1Fluctuations 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. 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.
42
<PAGE> 45
6. OTHER: Dividend income is recorded on the ex-dividend date. The REIT
Index Fund's dividend income is recorded at management's estimate of the income
included in distributions received from the REIT investments. Distributions
received in excess of this amount are recorded as a reduction of the cost of
investments. The actual amounts of income and return of capital are determined
by each REIT only after its fiscal year-end, and may differ from the estimated
amounts. 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 Health Care, Energy, and Utilities Income Funds for fees calculated at an
annual percentage rate of average net assets. For the six months ended July 31,
2000, the investment advisory fees of the Health Care, Energy, 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 six months ended July 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 July 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>
Health Care $2,698 0.02% 2.7%
Energy 220 0.02 0.2
REIT Index 183 0.02 0.2
Utilities Income 156 0.02 0.2
Gold and Precious Metals 57 0.02 0.1
-----------------------------------------------------------------------------------------------
</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
43
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (continued)
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 six months ended July 31, 2000,
these arrangements reduced expenses by:
<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>
Health Care $1,055 -- 0.02%*
Energy 60 $ 8 0.01*
REIT Index -- 2 --
Utilities Income 63 15 0.02*
Gold and Precious Metals -- 1 --
-----------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
E. During the six months ended July 31, 2000, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(000)
------------------------------
SPECIALIZED FUND PURCHASES SALES
-------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care $1,909,289 $1,482,651
Energy 80,130 116,396
REIT Index 130,683 122,783
Utilities Income 256,712 253,492
Gold and Precious Metals 22,590 31,491
-------------------------------------------------------------------------------------------
</TABLE>
F. At July 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> <C>
Health Care $5,285,926 $(384,707) $4,901,219
Energy 309,527 (43,896) 265,631
REIT Index 101,592 (58,888) 42,704
Utilities Income 134,996 (44,131) 90,865
Gold and Precious Metals* 50,031 (129,217) (79,186)
------------------------------------------------------------------------------------------------
</TABLE>
*See Note G.
44
<PAGE> 47
At July 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:
6/20/2002 JPY 18,600,000 $198,189 $191,847 $6,342
7/20/2002 JPY 10,385,000 108,188 107,868 320
------------------------------------------------------------------------------------------------------
</TABLE>
JPY--Japanese yen.
At July 31, 2000, the Health Care and Gold and Precious Metals Funds had net
unrealized foreign currency gains (losses) resulting from the translation of
other assets and liabilities of $(115,000) and $1,000, 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 six months ended July 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>
Health Care $150
Energy (14)
Gold and Precious Metals (63)
-------------------------------------------------------------------------------------------------
</TABLE>
During the six months ended July 31, 2000, the REIT Index Fund realized
$2,681,000 of net capital gains resulting from in-kind redemptions--in which
shareholders exchange fund shares for securities held by the fund rather than
for cash. Because such gains are not taxable to the fund, and are not
distributed to shareholders, they have been reclassified from accumulated net
realized gains to paid in capital.
Certain of the Gold and Precious Metals 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. The cumulative total of
distributions related to passive foreign investment company holdings at July
31, 2000, was $72,000, and is reflected in the balance of undistributed net
investment income.
At January 31, 2000, the funds had available realized losses to offset future
net capital gains through the following fiscal year-ends:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
EXPIRATION
FISCAL YEAR(s) ENDING AMOUNT
SPECIALIZED FUND JANUARY 31, (000)
-------------------------------------------------------------------------------------------
<S> <C> <C>
REIT Index 2007-2008 $ 45,297
Gold and Precious Metals 2005-2009 115,176
-------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (continued)
H. The market value of securities on loan to broker/dealers at July 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>
Health Care $23,561 $29,360
Energy 197 203
Utilities Income 25,901 26,544
Gold and Precious Metals 2,512 2,655
--------------------------------------------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements.
46
<PAGE> 49
THE VANGUARD(R) FAMILY OF FUNDS
<TABLE>
<CAPTION>
STOCK FUNDS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
500 Index Fund Growth Index Fund* Strategic Equity Fund
Calvert Social Index(TM) Fund* Health Care Fund Tax-Managed Capital
Capital Opportunity Fund Institutional Developed Markets Appreciation Fund*
Convertible Securities Fund Index Fund Tax-Managed Growth and
Developed Markets Index Fund Institutional Index Fund* Income Fund*
Emerging Markets Stock International Growth Fund Tax-Managed International Fund*
Index Fund* International Value Fund Tax-Managed Small-Cap Fund*
Energy Fund Mid-Cap Index Fund* Total International Stock
Equity Income Fund Morgan(TM) Growth Fund Index Fund
European Stock Index Fund* Pacific Stock Index Fund* Total Stock Market Index Fund*
Explorer(TM) Fund PRIMECAP Fund U.S. Growth Fund
Extended Market Index Fund* REIT Index Fund U.S. Value Fund
Global Equity Fund Selected Value Fund Utilities Income Fund
Gold and Precious Metals Fund Small-Cap Growth Index Fund* Value Index Fund*
Growth and Income Fund Small-Cap Index Fund* Windsor(TM) Fund
Growth Equity Fund Small-Cap Value Index Fund* Windsor(TM) II Fund
BALANCED FUNDS
------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund LifeStrategy(R) Growth Fund STAR(TM) Fund
Balanced Index Fund LifeStrategy(R) Income Fund Tax-Managed Balanced Fund
Global Asset Allocation Fund LifeStrategy(R) Moderate Wellesley(R) Income Fund
LifeStrategy(R) Conservative Growth Fund Wellington(TM) Fund
Growth Fund
BOND FUNDS
------------------------------------------------------------------------------------------------------------------
Admiral(TM) Intermediate-Term Intermediate-Term Bond Preferred Stock Fund
Treasury Fund Index Fund Short-Term Bond Index Fund
Admiral(TM) Long-Term Treasury Intermediate-Term Corporate Fund Short-Term Corporate Fund*
Fund Intermediate-Term Tax-Exempt Fund Short-Term Federal Fund
Admiral(TM) Short-Term Treasury Fund Intermediate-Term Treasury Fund Short-Term Tax-Exempt Fund
GNMA Fund Limited-Term Tax-Exempt Fund Short-Term Treasury Fund
High-Yield Corporate Fund Long-Term Bond Index Fund State Tax-Exempt Bond Funds
High-Yield Tax-Exempt Fund Long-Term Corporate Fund (California, Florida,
Inflation-Protected Securities Fund Long-Term Tax-Exempt Fund Massachusetts, New Jersey,
Insured Long-Term Tax-Exempt Fund Long-Term Treasury Fund New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
------------------------------------------------------------------------------------------------------------------
Admiral(TM) 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.
47
<PAGE> 50
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.
Six of Vanguard's seven 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.
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 * Quantitative Equity Group.
<PAGE> 51
[SHIP LOGO]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
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.
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.
Q512 092000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
