<PAGE> 1
VANGUARD/
WELLESLEY INCOME
FUND
Semiannual Report - June 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly
motivated men and women--who form the cornerstone of our operations. We could
not survive long--let alone prosper--without them. That's why we chose this
fiscal year's fund reports to celebrate the spirit, enthusiasm, and achievements
of our crew. (We call those who work at Vanguard crew members, not employees,
because they operate as a team to accomplish our mission of serving you, our
clients.)
But while we prize the collective contributions of our crew, we also
take time to recognize the importance of the individual. Each calendar quarter,
we present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to
serving you in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Senior Chairman Chairman & CEO
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS ...... 1
THE MARKETS IN PERSPECTIVE ......... 4
REPORT FROM THE ADVISER ............ 6
PORTFOLIO PROFILE .................. 8
PERFORMANCE SUMMARY ................12
FINANCIAL STATEMENTS ...............13
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
Amid a stellar performance by the stock market and a solid showing
by bonds, Vanguard/Wellesley Income Fund earned a very respectable +6.6% return
during the first six months of 1998. While the fund's return exceeded that of
the average income-oriented mutual fund, it did not match that earned by its
unmanaged index benchmark.
The adjacent table compares the fund's total return (capital change
plus reinvested dividends) with those of the average income fund, as calculated
by Lipper Analytical Services, and a hypothetical Composite Index constructed
from other indexes to reflect the fund's typical balance of 65% bonds and 35%
high-yielding stocks. We also have provided, by way of context, the returns of
two indexes that are representative of the broad markets in which we invest: for
bonds, the Lehman Brothers Long Corporate AA or Better Bond Index, and for
stocks, the Standard & Poor's 500 Composite Stock Price Index. Wellesley Income
Fund's yield as of June 30 was 5.10%.
<TABLE>
<CAPTION>
- ----------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1998
- ----------------------------------------------------
<S> <C>
Vanguard/Wellesley Income Fund + 6.6%
- ----------------------------------------------------
Average Income Fund + 5.9%
- ----------------------------------------------------
Lehman Long Corporate AA or
Better Bond Index + 5.2%
- ----------------------------------------------------
S&P 500 Index + 17.7%
- ----------------------------------------------------
Wellesley Composite Index* + 7.4%
- ----------------------------------------------------
</TABLE>
*65% Lehman Long Corporate AA or Better Bond Index, 26% S&P/BARRA Value Index,
4.5% S&P Utilities Index, and 4.5% S&P Telephone Index.
Wellesley's return is based on an increase in net asset value from
$21.86 per share on December 31, 1997, to $227.50 per share on June 30, 1998,
with the latter figure adjusted for dividends totaling $0.56 per share paid from
net investment income (which matched the dividends paid during the first half of
1997) and a distribution of $0.24 per share paid from net realized capital
gains.
THE PERIOD IN REVIEW
The U.S. economy grew vigorously, inflation was subdued, and interest rates
declined during the first half of 1998. Strong consumer spending, triggered by
high employment and rising wages, was the economy's propellant and was more than
enough to offset the negative effects of Asia's severe economic slump.
Asia's troubles were partly responsible for the benign behavior of
inflation--consumer prices rose only 1.1% for the six months and 1.7% for the
twelve months ended June 30. And low inflation soothed the bond market, where
prices rose and interest rates declined: The yield on the 30-year U.S. Treasury
bond was 5.63% on June 30, down 29 basis points (0.29 percentage point) from its
yield at the start of the year. Wellesley's bond holdings returned +5.3%, after
expenses, for the period.
Stock prices rose in five of the period's six months, with the market
rebounding strongly in June from a modest setback in May. The stock market's
advance was--once again--led by a relatively narrow segment of blue-chip growth
companies. More than half of the S&P 500 Index's remarkable +17.7% return during
the period was accounted for by fewer than 20 very large-capitalization stocks.
The growth component of the S&P 500 Index returned +23.1%, nearly double the
+12.1% earned by the S&P/BARRA
1
<PAGE> 4
Value Index, which consists of the value stocks within the S&P 500 Index. The
Wilshire 5000 Index, comprising essentially all the stocks traded in the United
States, earned +15.4%.
Because value stocks are the core of Wellesley's equity holdings,
that portion of the fund naturally fell short of the growth-stock-dominated S&P
500 Index (+8.8%, after expenses, for Wellesley versus +17.7%). In total,
however, the fund's return of +6.6% for the period was marginally higher than
the +5.9% gain of our income fund peers, albeit a fraction short of the +7.4%
gain of our composite market index. In all, a very close range of returns during
this interim period.
IN SUMMARY
We confess to having been surprised--though quite gratified--by the continuing
strength of the stock market during the first half of 1998. Though we claim no
predictive powers, we feel safe in saying that such outsized returns can't
continue indefinitely. And we reiterate our long-standing recommendation that
investors hold balanced portfolios--consisting of bond and money market funds in
addition to stock funds--appropriate to their unique financial situations,
goals, and temperament. Such portfolios--Wellesley Income Fund among them--are
time-tested vehicles for reaping the rewards of financial markets as well as for
"staying the course" toward your long-term objectives.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
July 17, 1998
2
<PAGE> 5
Notice to Shareholders
At a special meeting on May 1, 1998, shareholders of Vanguard/Wellesley Income
Fund overwhelmingly approved four proposals. The proposals and voting results
were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. This change will reduce the
amount of state taxes the fund pays annually by approximately $587,000 at
current asset levels. Approved by 96.68% of the shares voted, as follows:
<TABLE>
<CAPTION>
---------------------------------------
FOR AGAINST ABSTAIN
---------------------------------------
<S> <C> <C>
214,513,737 2,586,004 4,771,474
---------------------------------------
</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This permits
Vanguard/Wellesley Income Fund to participate in Vanguard's interfund lending
program, which allows funds to loan money to each other if--and only if--it
makes good financial sense to do so on both sides of the transaction. The
interfund lending program won't be an integral part of your fund's investment
program; it is a contingency arrangement for managing unusual cash flows.
Approved by 93.96% of the shares voted, as follows:
<TABLE>
<CAPTION>
------------------------------------
FOR AGAINST ABSTAIN
------------------------------------
<S> <C> <C>
208,461,339 6,997,375 6,412,501
------------------------------------
</TABLE>
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This
change sets standard limits of 15% of net assets on the amount of money Vanguard
funds can borrow from all sources and on the amount of assets that can be
pledged to secure any loans. Approved by 92.62% of the shares voted, as follows:
<TABLE>
<CAPTION>
-----------------------------------
FOR AGAINST ABSTAIN
-----------------------------------
<S> <C> <C>
205,501,702 8,791,804 7,577,709
-----------------------------------
</TABLE>
2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY
AFFILIATES. This change eliminated the fund's policy of avoiding investments in
securities that are owned in certain amounts by Directors, officers, and key
advisory personnel. This policy was well-intentioned, but wrongly focused and
unnecessary in light of the fund's Code of Ethics and other regulatory
protections against conflicts of interest on the part of fund management.
Approved by 93.18% of the shares voted, as follows:
<TABLE>
<CAPTION>
------------------------------------
FOR AGAINST ABSTAIN
------------------------------------
<S> <C> <C>
206,748,798 8,192,015 6,930,401
------------------------------------
</TABLE>
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE
Six Months Ended June 30, 1998
Blue skies predominated for U.S. financial markets during the first
six months of 1998, and even the occasional clouds had silver linings. The bond
market provided solid returns during the half-year, while the stock market's
performance was extraordinarily strong.
After expanding at a 5.4% annual pace during the first quarter, the
U.S. economy kept steaming along through June, fueled by powerful increases in
household spending. Consumers had reason to be upbeat: plentiful jobs
(unemployment fell to 4.3% of the workforce in May); rising wages (personal
income in May was 5.9% higher than in May 1997); and tame inflation (consumer
prices in June were up only 1.7% from a year before).
The economic push provided by consumers more than compensated for the
drag caused by Asia's severe economic problems. Weakening currencies and
business slowdowns in Asia cut into U.S. exports and lowered the cost of Asian
imports, causing the U.S. trade deficit to hit record levels. Ominously, Asia's
problems appear to be more serious and enduring than many economists expected.
Yet for Americans this "Asian contagion" has a bright side: It serves as an
escape valve for the inflationary pressures that ordinarily would be expected to
build up with the U.S. economy humming along at high speed.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998
----------------------------
6 MONTHS 1 YEAR 5 YEARS*
- ------------------------------------------------------------------------
EQUITY
<S> <C> <C> <C>
S&P 500 Index 17.7% 30.2% 23.1%
Russell 2000 Index 4.9 16.5 16.0
MSCI EAFE Index 16.1 6.4 10.3
- ------------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 3.9% 10.5% 6.9%
Lehman 10-Year Municipal Bond Index 2.6 8.5 6.6
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.9
- ------------------------------------------------------------------------
OTHER
Consumer Price Index 1.1% 1.7% 2.5%
- ------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
The mixture of robust economic growth and anemic inflation was a tonic for the
U.S. stock market. Although prices generally rose, there were striking
disparities in returns between large-capitalization and small-cap stocks and
between growth and value stocks. The large-cap-dominated S&P 500 earned 17.7%
during the six months, nearly double the 9.4% return on the rest of the market
(as measured by the Wilshire 4500 Index) and more than triple the 4.9% return on
the small-cap Russell 2000 Index. Within the S&P 500 Index, growth stocks were
up 23.1%, while value stocks rose 12.1%.
A decline in interest rates contributed to the stock market's rise,
as falling rates on bonds tend to make equities more attractive and to boost the
price investors will pay for each dollar of a stock's earnings or dividends. Yet
growth in earnings and dividends--the long-term underpinning of stock
prices--was unimpressive during the first half of 1998.
Corporate earnings estimates were reduced in June, the tenth
consecutive month in which securities analysts have cut their earnings
estimates, according to I/B/E/S International, a financial research group.
Earnings by the S&P 500 companies were expected to
4
<PAGE> 7
rise by only about 2% for the first half of 1998, I/B/E/S reported. With gains
in prices outstripping increases in earnings and dividends, stock valuations are
at or near all-time highs, an indication that investors expect ideal conditions
to continue.
Technology stocks were the best-performing sector during the first
half of 1998, generating a 32.7% return. Three other sectors of the stock
market--health care, consumer discretionary stocks such as retailers, and auto &
transportation--each provided returns of about 25% for the six months. Companies
involved in energy, chemicals, or other commodity-based businesses were
generally laggards. Prices of many commodities have declined as Asia's economic
funk cuts demand for energy and other industrial materials in the face of
plentiful supplies.
U.S. FIXED-INCOME MARKETS
Investors in fixed-income securities enjoyed a moderate rise in the market value
of their holdings because of declining interest rates. This price appreciation,
added to coupon interest income, resulted in solid total returns. The 3.9% total
return of the Lehman Aggregate Bond Index during the half-year brought its
return for the 12 months ended June 30 to 10.5%, or a very generous 8.8% after
adjustment for inflation.
Yields on 10-year and 30-year U.S. Treasury bonds declined by 29
basis points (0.29 percentage point) to 5.45% and 5.63%, respectively, during
the first half of 1998, with most of the drop occurring during the second
quarter. The yield on 3-month Treasury bills declined 36 basis points to 4.99%.
Mild inflation--consumer prices were up 1.1% for the half-year--enabled rates to
decline despite the economy's strong growth.
Yields on corporate and municipal bonds did not decline as far as
those on Treasury securities because of a large increase in the supply of new
bonds issued by companies and municipalities taking advantage of lower rates to
refinance old debt. Similarly, mortgage-backed securities did not match
Treasuries' performance because of expectations that large numbers of homeowners
would pay off old, higher-coupon mortgage loans and refinance with new,
lower-rate loans.
INTERNATIONAL EQUITY MARKETS
Stock markets in Europe soared while those in Asia and most emerging economies
suffered steep declines in U.S.-dollar terms. The 16.1% overall return from
international markets, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East Index, masked the divergence between Europe and
other regions.
Europe's markets were up 27.1% when measured in local currencies and
26.5% in U.S. dollars, after adjusting for a slight overall rise in the dollar's
value. Stocks benefited from an upswing in most European economies, from signs
that corporate managers are increasingly focused on shareholder value, and from
optimism concerning next year's planned adoption of the euro as a single
European currency.
In the Pacific, which is dominated by Japan's stock market, stocks
were buffeted by several problems: slowing growth in economic activity;
continued instability in currencies; political upheavals; and widespread worries
about corporate and banking insolvencies. On balance, the region's stocks fell
6.0% in U.S.-dollar terms. Japanese stocks were down 2.5%, but losses were more
severe in the region's smaller markets.
Emerging markets were, on balance, down sharply. Asian stock markets
were hurt by continued weakness in the currency values of several countries, by
Japan's recession, and by a growing conviction that the region's economic
troubles are far from transitory. Venezuela and Mexico, both key oil-producing
nations, were hard hit by falling oil prices.
5
<PAGE> 8
REPORT FROM THE ADVISER
Vanguard/Wellesley Income Fund underperformed its unmanaged benchmark
for the first half of 1998, although it bested the average income fund. For the
six months ended June 30, the fund returned 6.6%, versus 7.4% for the benchmark
and 5.9% for the average competing fund.
The fund's stock segment returned 8.8%, after expenses, which follows
full-year increases of 32.4% in 1997, 23.8% in 1996, and 36.6% in 1995. These
equity returns are well above historical averages and have enabled the fund to
enjoy strong returns over the last 31/2 years. However, the 8.8% return on
Wellesley's stocks trailed the 11.4% return for the equity portion of our
composite benchmark, a lag attributable primarily to stock selection in the
utility, materials & processing, and energy sectors. The benchmark's equity
segment is weighted 75% in the S&P/BARRA Value Index, 12.5% in the S&P Utilities
Index, and 12.5% in the S&P Telephone Index.
Our bond segment's net return of 5.3% for the first half of the year
was in line with the 5.2% return of the Lehman Long Corporate AA or Better
Index, which is the fixed-income segment of our benchmark. We increased the
duration of the Wellesley bond portfolio throughout the year, and the duration
remains slightly longer than that of the Index. This relatively longer duration
helped performance as long-term rates fell sharply during the first half of this
year. A duration longer than that of the benchmark implies that the fund's bond
segment will be subject to comparatively greater price fluctuations in response
to a given change in interest rates. This strategy will benefit the fund if
rates stay flat or decline, but we note that both our relative and absolute
performance will be hurt if rates should rise.
The fund has maintained its traditional posture of keeping 60%-65% of
assets invested in longer-term, investment-grade bonds and 35%-40% invested in
dividend-paying equities. In general, Wellesley's performance is extremely
sensitive to the direction of long-term interest rates because of the long
average maturity of our bonds and because of our meaningful weighting in
high-yielding, interest-rate-sensitive stocks.
SECOND-HALF OUTLOOK
The U.S. economy will continue to be characterized by healthy consumer demand, a
widening trade gap, and eventual deceleration in capital spending. Inflation-
adjusted gross domestic product will grow 3% on average in 1998 and 2.5% in
1999--a slowing from the 3.8% growth rate in 1997. Weak commodity prices and
falling import prices will put further downward pressure on inflation. The
Consumer Price Index is expected to increase 1.3% in 1998. Corporate profits are
slowing as we anticipated, reflecting slower global growth and pressure on
margins. We continue to believe that corporate earnings will grow more slowly
than the consensus forecasts.
6
<PAGE> 9
Increasing evidence of slower U.S. economic activity, coupled with
persistent instability in Asian financial markets, has put the Federal Reserve
Board on the sidelines for the foreseeable future. We expect that the next
monetary policy move will be to reduce short-term interest rates. The stock
market's rise is especially noteworthy in the context of the earnings slowdown.
And, while earnings disappointments may unsettle the market in the quarters
ahead, the low level of bond yields should act as an important offset. We retain
our positive long-run view of the U.S. equity markets. Strong structural support
comes from demographics (baby boomers saving for retirement), a rising
preference for stocks, Social Security as a potential customer for stocks, and
positive economic fundamentals (technology-driven growth, low inflation, falling
bond yields).
We believe the positive environment for long-term U.S. Treasury bonds
will continue. The government's fiscal situation continues to improve, which has
important implications for the future supply of U.S. government bonds. This
reinforces our conviction that yields on long-term Treasuries will fall to about
5%.
STRATEGY IN 1998
Our strategy remains consistent. The percentages in stocks and bonds will vary
only marginally. The maturity of the bonds will remain long-term, with call
protection to maintain the income stream. We purchase only investment-grade,
U.S.-dollar-denominated bonds with an emphasis on stable to improving credit
fundamentals. As of June 30, about 85% of the bond portfolio sported a credit
rating of A or better.
The strategy for the stock portfolio is to purchase companies with
above-market yields across different industries. We have continued to increase
our exposure to utilities, both electrics and telephones, because we believe the
prices of these stocks reflect the competitive uncertainty in their industries.
Also, the fundamentals for utilities should improve as a result of
consolidation. Most of the stock sales we make are to dispose of issues that
reach our target prices.
The majority of Wellesley's stocks are New York Stock Exchange-listed
issues with above-average dividend yields. The average yield on our stocks is
3.4%, which is 143% higher than the yield on the S&P 500 Index.
The dominant theme guiding the fund's investment strategy is our
ongoing obligation to shareholders to achieve an attractive absolute level of
income by holding high-quality securities. Our long-term goal is to achieve
increases in Wellesley's dividend by purchasing stocks of strong companies that
are able to pass on to shareholders higher dividends generated from rising
earnings. Since we wrote to you six months ago, there have been 24 dividend
increases on stocks we hold. We avoid stocks with ultrahigh dividends because
these payouts may not be sustainable over the longer term.
SUMMING UP
If rates continue to decline and risk premiums increase, Wellesley should
perform well versus more aggressive bond and stock funds. We will continue to
focus on maintaining the charter of the fund and on trying to outperform the
composite benchmark. Income improvement remains a key objective.
Earl E. McEvoy, Senior Vice President
John R. Ryan, Senior Vice President
Wellington Management Company, LLP
July 13, 1998
INVESTMENT PHILOSOPHY
The fund reflects a belief that relatively high current income and moderate
long-term growth in income and capital can be achieved without undue risk by
holding 60% to 65% of assets in fixed-income securities and the balance in
income-oriented common stocks. Consistent with this approach, the fund's bond
segment comprises intermediate- and long-term U.S. Treasury securities and
high-quality corporate bonds; its equity segment is dominated by stocks with
above-average dividend yields and strong potential for dividend increases.
7
<PAGE> 10
PORTFOLIO PROFILE
Wellesley Income Fund
This Profile provides a snapshot of the fund's characteristics as of June 30,
1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
<TABLE>
<CAPTION>
TOTAL FUND CHARACTERISTICS
- -----------------------------
<S> <C>
Yield 5.1%
Turnover Rate 30%*
Expense Ratio 0.32%*
Cash Reserves 1.2%
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- -----------------------------
<S> <C>
BONDS 63%
STOCKS 36%
CASH RESERVES 1%
</TABLE>
<TABLE>
<CAPTION>
TOTAL FUND VOLATILITY MEASURES
- ------------------------------
WELLESLEY S&P 500
- ------------------------------
<S> <C> <C>
R-Squared 0.57 1.00
Beta 0.40 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- -------------------------------------------------------
<S> <C>
First Union Corp. 5.5%
J.C. Penney Co., Inc. 5.0
Bell Atlantic Corp. 4.9
Ford Motor Co. 4.5
National City Corp. 3.7
GTE Corp. 3.5
Amoco Corp. 3.3
USX-Marathon Group 3.2
KeyCorp 3.1
Royal Dutch Petroleum Co. ADR 3.1
- -------------------------------------------------------
Top Ten 39.8%
- -------------------------------------------------------
Top Ten as % of Total Net Assets 14.4%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- --------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1998
---------------------------------
WELLESLEY WELLESLEY S&P 500
---------------------------------
<S> <C> <C> <C>
Auto & Transportation. . . . 5.0% 4.5% 3.3%
Consumer Discretionary . . . 3.4 8.5 10.2
Consumer Staples . . . . . . 6.1 5.0 10.7
Financial Services . . . . . 25.9 24.6 18.5
Health Care. . . . . . . . . 3.5 4.6 12.1
Integrated Oils. . . . . . . 13.6 15.5 6.5
Other Energy . . . . . . . . 0.0 0.0 1.0
Materials & Processing . . . 12.8 7.4 5.2
Producer Durables. . . . . . 0.0 0.0 3.5
Technology . . . . . . . . . 0.0 0.9 13.0
Utilities. . . . . . . . . . 25.5 27.6 10.3
Other. . . . . . . . . . . . 4.2 1.4 5.7
- --------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- -----------------------------------------------------------
WELLESLEY S&P 500
- -----------------------------------------------------------
<S> <C> <C>
Number of Stocks 66 500
Median Market Cap $18.3B $50.0B
Price/Earnings Ratio 19.8x 24.8x
Price/Book Ratio 2.7x 4.5x
Dividend Yield 3.5% 1.4%
Return on Equity 17.0% 21.6%
Earnings Growth Rate 7.8% 16.4%
Foreign Holdings 2.0% 1.7%
</TABLE>
EQUITY INVESTMENT FOCUS
- ------------------------------
[GRAPH]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- ------------------------------
<S> <C>
Number of Bonds 177
Yield to Maturity 6.4%
Average Coupon 7.3%
Average Maturity 19.2 years
Average Quality Aa3
Average Duration 9.6 years
</TABLE>
FIXED-INCOME INVESTMENT FOCUS
- ------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF BONDS)
- ----------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 24.0
Foreign 6.5
Industrial 33.8
Mortgage 0.0
U.S. Government and Agency 0.0
U.S. Treasury 19.7
Utilities 16.0
- ----------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- ------------------------------------------
<S> <C>
Treasury/Agency 19.7%
Aaa 5.1
Aa 16.6
A 42.9
Baa 15.2
Ba 0.0
B 0.0
Not Rated 0.5
- ------------------------------------------
Total 100.0%
</TABLE>
9
<PAGE> 12
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the portfolio's duration by the change in rates. If interest
rates rise by 1 percentage point, the share price of a portfolio with an average
duration of five years would decline by about 5%. If rates decrease by a
percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) and are repaid. In general, the longer the
average maturity, the more a portfolio's share price will fluctuate in response
to changes in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. Quality is graded on a scale, with Aaa or AAA indicating the
most creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities.
BETA. A measure of the magnitude of a portfolio'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 portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio'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 or
bond investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a portfolio's holdings by type of issuer
or type of instrument.
DIVIDEND YIELD. The current, annualized rate of dividends paid on a share of
stock, divided by its current share price. For a portfolio, the weighted average
yield for stocks it holds.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a portfolio.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a portfolio 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 portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FIXED-INCOME INVESTMENT FOCUS. This grid indicates the focus of a portfolio in
terms of two attributes: average maturity (short, medium, or long) and average
credit quality (high, medium, or low).
FOREIGN HOLDINGS. The percentage of a portfolio's net assets represented by
stocks or American Depositary Receipts of companies based outside the United
States.
MEDIAN MARKET CAP. An indicator of the size of companies in which a portfolio
invests; the midpoint of market capitalization (market price x shares
outstanding) of a portfolio's stocks, weighted by the proportion of the
portfolio's assets invested in each stock. Stocks representing half of the
portfolio's assets have market capitalizations above the median, and the rest
are below it.
NUMBER OF BONDS. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from the
problems of a particular bond issuer.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a portfolio
holds, the more diversified it is and the more likely to perform in line with
the overall stock market.
10
<PAGE> 13
PORTFOLIO ASSET ALLOCATION. This chart shows the proportions of a portfolio's
holdings allocated to different types of assets.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a portfolio, 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 portfolio, 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 portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio'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 portfolio, the weighted average return
on equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a portfolio's common stocks that come
from each of the major industry groups that compose the stock market.
TEN LARGEST STOCKS. The percentage of equity assets that a portfolio has
invested in its ten largest stocks. As this percentage rises, a portfolio'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. Portfolios
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 portfolio's income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based on
income earned over the past 30 days and is annualized, or projected forward for
the coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
11
<PAGE> 14
PERFORMANCE SUMMARY
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
WELLESLEY INCOME FUND
TOTAL INVESTMENT RETURNS: DECEMBER 31, 1977-JUNE 30, 1998
- -----------------------------------------------------------
WELLESLEY INCOME FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1978 -4.6% 8.2% 3.6% 2.2%
1979 -2.6 8.8 6.2 3.5
1980 0.9 11.0 11.9 9.4
1981 -3.1 11.8 8.7 -1.7
1982 10.1 13.2 23.3 36.3
1983 7.1 11.5 18.6 13.2
1984 4.9 11.7 16.6 13.8
1985 16.0 11.4 27.4 29.4
1986 9.2 9.1 18.3 19.9
1987 -8.1 6.2 -1.9 2.5
1988 4.7 8.9 13.6 13.7
1989 11.8 9.1 20.9 21.0
1990 -4.3 8.1 3.8 2.5
1991 12.9 8.7 21.6 20.5
1992 1.6 7.1 8.7 9.2
1993 8.2 6.4 14.6 14.6
1994 -10.2 5.8 -4.4 -4.6
1995 21.6 7.3 28.9 30.7
1996 3.3 6.1 9.4 6.8
1997 13.8 6.4 20.2 19.4
1998** 4.0 2.6 6.6 7.4
- -----------------------------------------------------------
</TABLE>
*65% Lehman Long-Term Corporate Bond Index and 35% S&P 500 Index through
December 31, 1985; 65% Lehman Long Corporate AA or Better Bond Index, 26%
S&P/BARRA Value Index, and 9% S&P Utilities Index through June 30, 1996, when
the S&P Utilities component was separated into the S&P Utilities Index and the
S&P Telephone Index.
**Six months ended June 30, 1998.
See Financial Highlights table on page 20 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wellesley Income Fund 7/1/1970 20.33% 12.46% 6.00% 7.08% 13.08%
- --------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
FINANCIAL STATEMENTS
June 30, 1998 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the 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, preferred stocks, bonds,
etc.) and by industry sector. 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. 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>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLESLEY INCOME FUND (000) (000)
- ---------------------------------------------------------------------
CORPORATE BONDS (46.2%)
- ---------------------------------------------------------------------
<S> <C> <C>
FINANCE (15.0%)
Allstate Corp.
6.75%, 5/15/2018 $ 30,000 $ 30,620
7.50%, 6/15/2013 20,000 21,909
Ambac, Inc.
7.50%, 5/1/2023 5,500 6,208
American Re Corp.
7.45%, 12/15/2026 34,095 37,926
Banc One Corp.
7.75%, 7/15/2025 50,000 56,571
8.00%, 4/29/2027 15,000 17,490
BankBoston Corp.
6.625%, 12/1/2005 15,000 15,240
6.875%, 7/15/2003 15,000 15,451
Boatmen's Bancshares Inc.
7.625%, 10/1/2004 10,000 10,702
CIGNA Corp.
7.875%, 5/15/2027 25,000 28,059
Cincinnati Financial Corp.
6.90%, 5/15/2028 25,000 25,700
Citicorp
6.65%, 12/15/2010 MTN 25,000 25,807
7.125%, 9/1/2005 15,000 15,742
7.625%, 5/1/2005 10,000 10,747
CoreStates Capital Corp.
6.625%, 3/15/2005 20,000 20,394
Equitable Companies Inc.
7.00%, 4/1/2028 25,000 25,724
Fifth Third Bancorp
6.75%, 7/15/2005 25,000 25,718
First Bank N.A.
7.55%, 6/15/2004 8,000 8,554
First Bank System
6.625%, 5/15/2003 10,000 10,204
7.625%, 5/1/2005 7,500 8,052
First Chicago Corp.
7.625%, 1/15/2003 15,000 15,862
First Union Corp.
6.00%, 10/30/2008 15,000 14,647
7.50%, 4/15/2035 11,000 12,708
Fleet Financial Group, Inc.
6.875%, 3/1/2003 30,000 30,874
6.875%, 1/15/2028 25,000 25,586
General Electric Capital Corp.
8.125%, 5/15/2012 10,000 11,698
General Electric Capital Services
7.50%, 8/21/2035 14,000 16,349
General Electric Global Insurance
Holdings Corp.
7.00%, 2/15/2026 60,000 64,373
GMAC
7.00%, 9/15/2002 30,000 31,017
John Hancock Mutual Life
Insurance Co.
7.375%, 2/15/2024 50,000 54,480
Liberty Mutual Group
8.50%, 5/15/2025 35,000 42,184
Lumbermens Mutual Casualty Co.
9.15%, 7/1/2026 45,000 54,484
MBIA Inc.
7.00%, 12/15/2025 19,500 20,683
Massachusetts Mutual Life
7.50%, 3/1/2024 8,690 9,566
7.625%, 11/15/2023 14,500 16,233
Metropolitan Life Insurance Co.
7.80%, 11/1/2025 40,000 44,384
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLESLEY INCOME FUND (000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
J.P. Morgan & Co., Inc.
5.75%, 10/15/2008 $ 20,000 $ 19,142
6.25%, 1/15/2009 20,000 19,859
NBD Bank N.A.
6.25%, 8/15/2003 20,000 20,144
National City Bank Pennsylvania
7.25%, 10/21/2011 22,000 23,630
National City Cleveland Bank
6.50%, 5/1/2003 10,000 10,193
National City Corp.
7.20%, 5/15/2005 20,000 21,009
NationsBank Corp.
7.25%, 10/15/2025 20,000 21,547
7.75%, 8/15/2004 20,000 21,614
Republic New York Corp.
5.875%, 10/15/2008 15,000 14,552
SunTrust Banks, Inc.
6.00%, 2/15/2026 25,000 24,661
6.125%, 2/15/2004 20,000 19,962
Travelers Group Inc.
6.625%, 1/15/2028 25,000 25,042
Travelers Property Casualty Corp.
7.75%, 4/15/2026 25,000 28,280
Wachovia Corp.
6.375%, 4/15/2003 20,000 20,263
6.605%, 10/1/2025 30,000 31,661
---------
1,203,505
---------
INDUSTRIAL (21.2%)
Air Products & Chemicals, Inc.
7.375%, 5/1/2005 15,000 16,052
8.75%, 4/15/2021 12,550 15,807
Aluminum Co. of America
6.75%, 1/15/2028 25,000 25,577
Baxter International, Inc.
7.65%, 2/1/2027 25,000 28,525
Bestfoods
6.625%, 4/15/2028 30,000 30,243
Bristol-Myers Squibb Co.
6.80%, 11/15/2026 40,000 43,060
Burlington Northern Santa Fe Corp.
6.375%, 12/15/2005 12,500 12,555
6.875%, 12/1/2027 25,000 25,486
CPC International, Inc.
7.25%, 12/15/2026 30,000 32,809
CSX Corp.
7.95%, 5/1/2027 35,000 39,726
Champion International Corp.
7.35%, 11/1/2025 30,000 31,336
Chrysler Corp.
7.45%, 3/1/2027 25,000 27,884
The Walt Disney Co.
6.75%, 3/30/2006 15,000 15,760
E.I. du Pont de Nemours & Co.
6.50%, 1/15/2028 25,000 25,257
6.75%, 9/1/2007 25,000 26,300
Eastman Chemical Co.
7.25%, 1/15/2024 25,000 25,823
7.60%, 2/1/2027 15,000 16,121
Eaton Corp.
6.50%, 6/1/2025 10,000 10,478
7.625%, 4/1/2024 10,000 11,366
Ferro Corp.
7.125%, 4/1/2028 10,000 10,279
Fluor Corp.
6.95%, 3/1/2007 20,000 21,071
Ford Motor Co.
7.50%, 8/1/2026 20,000 22,364
8.90%, 1/15/2032 20,000 25,939
General Motors Corp.
7.40%, 9/1/2025 30,000 32,800
9.40%, 7/15/2021 20,000 26,548
Georgia-Pacific Group
7.25%, 6/1/2028 25,000 25,455
Gillette Co.
5.75%, 10/15/2005 35,000 34,481
6.25%, 8/15/2003 10,000 10,186
Hershey Foods Corp.
6.95%, 3/1/2007 13,000 13,785
Hubbell Inc.
6.625%, 10/1/2005 10,000 10,371
International Business Machines
Corp.
7.00%, 10/30/2025 60,000 64,031
International Paper Co.
7.625%, 1/15/2007 15,000 16,304
Johnson & Johnson
6.73%, 11/15/2023 15,000 16,065
Eli Lilly & Co.
7.125%, 6/1/2025 50,000 55,159
Lockheed Corp.
6.75%, 3/15/2003 7,000 7,145
Masco Corp.
6.625%, 4/15/2018 20,000 20,226
Mead Corp.
7.35%, 3/1/2017 10,350 11,325
Merck & Co.
6.30%, 1/1/2026 30,000 30,506
Minnesota Mining & Manufacturing
Corp.
6.375%, 2/15/2028 35,000 35,434
Mobil Corp.
8.625%, 8/15/2021 20,000 25,739
Monsanto Co.
6.75%, 12/15/2027 25,000 25,742
Motorola, Inc.
7.50%, 5/15/2025 50,000 57,278
New York Times Co.
8.25%, 3/15/2025 26,000 28,809
News America Holdings Inc.
8.00%, 10/17/2016 50,000 55,426
Norfolk Southern Corp.
7.80%, 5/15/2027 35,000 40,174
PPG Industries, Inc.
6.875%, 2/15/2012 10,200 10,892
9.00%, 5/1/2021 15,000 19,554
J.C. Penney Co., Inc.
7.95%, 4/1/2017 15,000 16,979
Phelps Dodge Corp.
7.125%, 11/1/2027 12,500 13,215
Phillips Petroleum Co.
9.375%, 2/15/2011 10,000 12,506
Praxair, Inc.
6.75%, 3/1/2003 25,000 25,553
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Procter & Gamble Co.
6.45%, 1/15/2026 $ 30,000 $ 30,896
Procter & Gamble Co. ESOP
9.36%, 1/1/2021 30,000 39,820
Raytheon Co.
7.20%, 8/15/2027 25,000 26,718
7.375%, 7/15/2025 25,000 25,615
Rohm & Haas Co.
(1) 9.80%, 4/15/2020 10,000 13,029
E.W. Scripps Co.
6.625%, 10/15/2007 20,000 20,759
Tenneco Inc.
7.625%, 6/15/2017 30,000 32,166
7.875%, 4/15/2027 20,000 22,308
Texaco Capital
8.625%, 4/1/2032 30,000 38,661
Tribune Co.
6.875%, 11/1/2006 20,000 21,062
USX Corp.
6.85%, 3/1/2008 40,000 40,354
Ultramar Diamond Shamrock
7.20%, 10/15/2017 25,000 25,638
Weyerhaeuser Co.
8.50%, 1/15/2025 10,000 12,017
Whirlpool Corp.
9.00%, 3/1/2003 10,000 11,077
Witco Corp.
6.875%, 2/1/2026 15,000 15,135
Worthington Industries Inc.
6.70%, 12/1/2009 20,500 20,789
7.125%, 5/15/2006 20,000 21,184
---------
1,698,734
---------
UTILITIES (10.0%)
Arizona Public Service Co.
6.625%, 3/1/2004 10,000 10,159
Baltimore Gas & Electric Co.
7.25%, 7/1/2002 15,000 15,699
BellSouth Telecommunications
6.25%, 5/15/2003 12,000 12,210
7.00%, 10/1/2025 10,000 10,765
Chesapeake & Potomac Telephone
Co. (VA)
7.875%, 1/15/2022 16,000 18,802
Cincinnati Gas & Electric Co.
6.90%, 6/1/2025 9,500 9,982
Coastal Corp.
7.75%, 10/15/2035 10,000 11,042
Consolidated Edison Co. of
New York, Inc.
6.375%, 4/1/2003 20,000 20,285
El Paso Natural Gas Co.
7.50%, 11/15/2026 25,000 27,550
Enron Corp.
6.875%, 10/15/2007 20,000 20,666
Florida Power Corp.
6.75%, 2/1/2028 22,380 22,955
GTE California Inc.
6.70%, 9/1/2009 25,000 25,745
GTE Southwest, Inc.
6.00%, 1/15/2006 10,000 9,915
Illinois Power Co.
6.50%, 8/1/2003 10,000 10,098
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 30,000 33,618
Kentucky Utilities Co.
7.92%, 5/15/2007 5,000 5,618
MCI Communications Corp.
7.50%, 8/20/2004 15,000 15,945
Michigan Bell Telephone Co.
7.50%, 2/15/2023 35,000 37,721
7.85%, 1/15/2022 25,000 29,646
NGC Corp.
7.125%, 5/15/2018 20,000 20,434
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 40,000 47,770
New York Telephone Co.
6.50%, 3/1/2005 30,000 30,551
Northern States Power Co.
6.375%, 4/1/2003 8,000 8,130
7.125%, 7/1/2025 30,000 32,486
Ohio Bell Telephone Co.
6.125%, 5/15/2003 15,000 15,127
Oklahoma Gas & Electric Co.
6.50%, 4/15/2028 12,770 13,072
Pacific Bell
7.125%, 3/15/2026 25,000 27,191
PacifiCorp
6.625%, 6/1/2007 MTN 10,000 10,292
6.71%, 1/15/2026 MTN 12,500 12,686
Pennsylvania Power & Light Co.
6.50%, 4/1/2005 15,000 15,318
PECO Energy Co.
6.50%, 5/1/2003 30,000 30,503
Southern California Edison Co.
6.25%, 6/15/2003 6,050 6,101
Southwestern Bell Telephone Co.
7.20%, 10/15/2026 25,000 25,855
Southwestern Public Service Co.
7.25%, 7/15/2004 10,000 10,541
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 25,000 27,053
Texas Utilities Electric Co.
6.75%, 7/1/2005 10,000 10,246
Union Electric Co.
6.875%, 8/1/2004 10,000 10,427
US West Capital Funding Inc.
6.875%, 7/15/2028 25,000 25,104
U S WEST Communications Group
7.50%, 6/15/2023 45,000 47,079
Wisconsin Electric Power Co.
6.50%, 6/1/2028 25,000 25,526
---------
799,913
---------
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,456,792) 3,702,152
- ---------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED) (4.1%)
- ---------------------------------------------------------------------
ABN AMRO Bank NV
(Chicago Branch)
7.55%, 6/28/2006 25,000 26,967
Banque Paribas--NY
6.875%, 3/1/2009 10,000 10,213
Province of British Columbia
6.50%, 1/15/2026 35,000 36,654
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLESLEY INCOME FUND (000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Husky Oil Ltd.
7.55%, 11/15/2016 $ 20,000 $ 20,868
Province of Manitoba
6.125%, 1/19/2004 7,000 7,056
8.875%, 9/15/2021 24,041 31,888
Province of Ontario
6.00%, 2/21/2006 25,000 25,051
Petro-Canada
7.875%, 6/15/2026 11,840 13,650
Province of Quebec
7.50%, 7/15/2023 50,000 56,128
Saga Petroleum ASA
7.25%, 9/23/2027 25,000 25,923
Province of Saskatchewan
8.50%, 7/15/2022 19,000 24,135
Talisman Energy, Inc.
7.125%, 6/1/2007 20,000 20,831
7.25%, 10/15/2027 25,000 26,346
- ---------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $303,626) 325,710
- ---------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (12.3%)
- ---------------------------------------------------------------------
U.S. Treasury Bonds
6.25%, 8/15/2023 250,000 267,640
7.25%, 5/15/2016 250,000 292,928
12.00%, 8/15/2013 70,000 103,806
U.S. Treasury Notes
6.25%, 8/31/2002 50,000 51,266
6.875%, 5/15/2006 250,000 270,763
- ---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (COST $894,529) 986,403
- ---------------------------------------------------------------------
SHARES
- ---------------------------------------------------------------------
COMMON STOCKS (36.2%)
- ---------------------------------------------------------------------
AUTO & TRANSPORTATION (1.6%)
Ford Motor Co. 2,209,900 130,384
---------
CONSUMER DISCRETIONARY (3.1%)
Eastman Kodak Co. 916,000 66,925
May Department Stores Co. 540,000 35,370
J.C. Penney Co., Inc. 1,992,600 144,090
---------
246,385
---------
CONSUMER STAPLES (1.8%)
Flowers Industries, Inc. 2,522,300 51,550
Gallaher Group PLC ADR 1,207,100 26,405
H.J. Heinz Co. 650,800 36,526
Philip Morris Cos., Inc. 760,000 29,925
---------
144,406
---------
FINANCIAL SERVICES (8.9%)
BankAmerica Corp. 540,000 46,676
Brandywine Realty Trust REIT 484,500 10,841
CBL & Associates Properties,
Inc. REIT 1,050,400 25,472
Camden Property Trust REIT 920,172 27,375
Colonial Properties Trust REIT 1,004,900 31,152
Felcor Suite Hotels, Inc. REIT 480,000 15,060
First Union Corp. 2,750,400 160,211
General Growth Properties
Inc. REIT 802,600 29,997
HSB Group Inc. 83,000 4,440
Highwood Properties, Inc. REIT 245,000 7,917
IPC Holdings Ltd. 155,300 4,708
KeyCorp 2,558,100 91,132
Kimco Realty Corp. REIT 218,700 8,967
The Macerich Co. REIT 719,100 21,079
National City Corp. 1,495,000 106,145
Nationwide Health
Properties, Inc. 616,000 14,707
PNC Bank Corp. 226,800 12,205
Sun Communities, Inc. REIT 320,600 10,620
Urban Shopping Centers,
Inc. REIT 617,000 19,435
Wachovia Corp. 766,900 64,803
---------
712,942
---------
HEALTH CARE (1.7%)
Baxter International, Inc. 1,147,700 61,761
Pharmacia & Upjohn, Inc. 1,548,500 71,425
---------
133,186
---------
INTEGRATED OILS (5.6%)
Amoco Corp. 2,320,000 96,570
Atlantic Richfield Co. 736,000 57,500
Equitable Resources, Inc. 1,396,200 42,584
Mobil Corp. 300,000 22,987
Royal Dutch Petroleum Co. ADR 1,613,000 88,412
Texaco Inc. 799,000 47,690
USX-Marathon Group 2,720,200 93,337
---------
449,080
---------
MATERIALS & PROCESSING (2.7%)
BOC Group PLC ADR 900,000 24,412
Consolidated Papers 503,200 13,712
Dow Chemical Co. 360,000 34,807
Eastman Chemical Co. 633,400 39,429
The Timber Company 1,350,000 31,134
Union Camp Corp. 303,500 15,061
Weyerhaeuser Co. 784,000 36,211
Witco Chemical Corp. 635,900 18,600
---------
213,366
---------
TECHNOLOGY (0.3%)
AMP, Inc. 750,000 25,781
---------
UTILITIES (10.0%)
American Electric Power
Co., Inc. 600,000 27,225
Ameritech Corp. 666,000 29,887
Bell Atlantic Corp. 3,106,399 141,729
BellSouth Corp. 422,000 28,327
Central & South West Corp. 2,162,300 58,112
Consolidated Edison Inc. 627,400 28,900
DQE Inc. 1,357,050 48,854
DTE Energy Co. 1,238,200 49,992
Duke Energy Corp. 724,000 42,897
GPU, Inc. 2,258,000 85,381
GTE Corp. 1,827,700 101,666
New England Electric System 550,000 23,787
NICOR, Inc. 582,300 23,365
Questar Corp. 1,140,000 22,373
SBC Communications Inc. 299,000 11,960
Southern Co. 1,300,000 35,994
Telecom Corporation of
New Zealand Ltd. 4,400,000 18,135
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Telecom Corporation of
New Zealand Ltd. IR 703,200 $ 1,504
U S West, Inc. 405,000 19,035
-----------
799,123
-----------
OTHER (0.5%)
Cooper Industries, Inc. 775,900 42,626
-----------
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $1,991,959) 2,897,279
- ---------------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.4%)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.67%, 7/1/1998 $78,697 78,697
5.76%, 7/1/1998--Note F 35,713 35,713
- ---------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $114,410) 114,410
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(COST $6,761,316) 8,025,954
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- ---------------------------------------------------------------------
Other Assets--Note C 112,781
Liabilities--Note F (129,882)
-----------
(17,101)
- ---------------------------------------------------------------------
NET ASSETS (100.0%)
- ---------------------------------------------------------------------
Applicable to 356,021,549 outstanding
$.001 par value shares of beneficial interest
(unlimited authorization) $8,008,853
=====================================================================
NET ASSET VALUE PER SHARE $22.50
=====================================================================
</TABLE>
* See Note A in Notes to Financial Statements.
(1)The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
ADR--American Depositary Receipt.
IR--Installment Receipt.
MTN--Medium-Term Note.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $6,534,291 $18.36
Undistributed Net
Investment Income 2,247 .01
Accumulated Net Realized Gains 207,677 .58
Unrealized Appreciation--
Note E 1,264,638 3.55
- ---------------------------------------------------------------------
NET ASSETS $8,008,853 $22.50
=====================================================================
</TABLE>
17
<PAGE> 20
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by the 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.
- ------------------------------------------------------------
WELLESLEY INCOME FUND
SIX MONTHS ENDED JUNE 30, 1998
(000)
- ------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 49,271
Interest 165,958
---------
Total Income 215,229
---------
EXPENSES
Investment Advisory Fee--Note B
Basic Fee 1,998
Performance Adjustment 368
The Vanguard Group
Management and Administrative 8,608
Marketing and Distribution 862
Taxes (other than income taxes) 294
Custodian Fees 49
Auditing Fees 4
Shareholders' Reports 101
Annual Meeting and Proxy Costs 27
Trustees' Fees and Expenses 8
---------
Total Expenses 12,319
- ------------------------------------------------------------
NET INVESTMENT INCOME 202,910
- ------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 208,194
- ------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES 91,460
- ------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $502,564
============================================================
18
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the 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>
- ---------------------------------------------------------------------------------------------------------
WELLESLEY INCOME FUND
- ---------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1998 DEC. 31, 1997
(000) (000)
- ---------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
OPERATIONS
<S> <C> <C>
Net Investment Income $ 202,910 $ 391,105
Realized Net Gain 208,194 512,072
Change in Unrealized Appreciation (Depreciation) 91,460 425,482
-------------------------------
Net Increase in Net Assets Resulting from Operations 502,564 1,328,659
-------------------------------
DISTRIBUTIONS
Net Investment Income (196,696) (395,073)
Realized Capital Gain (83,774) (476,586)
-------------------------------
Total Distributions (280,470) (871,659)
-------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 563,058 803,337
Issued in Lieu of Cash Distributions 238,270 759,182
Redeemed (660,469) (1,386,341)
-------------------------------
Net Increase from Capital Share Transactions 140,859 176,178
- ---------------------------------------------------------------------------------------------------------
Total Increase 362,953 633,178
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 7,645,900 7,012,722
-------------------------------
End of Period $8,008,853 $7,645,900
=========================================================================================================
(1)Shares Issued (Redeemed)
Issued 25,207 37,413
Issued in Lieu of Cash Distributions 10,656 35,385
Redeemed (29,532) (65,083)
-------------------------------
Net Increase in Shares Outstanding 6,331 7,715
=========================================================================================================
</TABLE>
19
<PAGE> 22
FINANCIAL HIGHLIGHTS
This table summarizes the 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>
- -------------------------------------------------------------------------------------------------------------------------
WELLESLEY INCOME FUND
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.86 $20.51 $20.44 $17.05 $19.24 $18.16
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .58 1.190 1.17 1.13 1.11 1.14
Net Realized and Unrealized Gain (Loss)
on Investments .86 2.805 .66 3.68 (1.95) 1.48
----------------------------------------------------------------------
Total from Investment Operations 1.44 3.995 1.83 4.81 (.84) 2.62
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.56) (1.200) (1.16) (1.14) (1.11) (1.14)
Distributions from Realized Capital Gains (.24) (1.445) (.60) (.28) (.24) (.40)
----------------------------------------------------------------------
Total Distributions (.80) (2.645) (1.76) (1.42) (1.35) (1.54)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.50 $21.86 $20.51 $20.44 $17.05 $19.24
=========================================================================================================================
TOTAL RETURN 6.64% 20.19% 9.42% 28.91% -4.44% 14.65%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $8,009 $7,646 $7,013 $7,181 $5,681 $6,011
Ratio of Total Expenses to
Average Net Assets 0.32%* 0.31% 0.31% 0.35% 0.34% 0.33%
Ratio of Net Investment Income to
Average Net Assets 5.16%* 5.47% 5.74% 5.96% 6.16% 5.79%
Portfolio Turnover Rate 30%* 36% 26% 32% 32% 21%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
20
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
Vanguard/Wellesley Income Fund is registered under the Investment Company Act of
1940 as a diversified open-end investment company, or mutual fund. Certain of
the fund's investments are in long-term corporate debt instruments; the issuers'
abilities to meet these obligations may be affected by economic developments in
their respective industries.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The fund consistently follows such
policies in preparing its 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. Bonds 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. Temporary cash investments are valued at 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. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: The fund, along with other members of The
Vanguard Group, transfers 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.
4. 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.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold. Premiums and discounts on debt
securities purchased are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. Wellington Management Company, LLP provides investment advisory services to
the fund for a fee calculated at an annual percentage rate of average net
assets. The basic fee is subject to quarterly adjustments based on performance
relative to a combined index comprising the Lehman Brothers Long Corporate AA or
Better Bond Index, the S&P/BARRA Value Index, the S&P Utilities Index, and the
S&P Telephone Index. For the six months ended June 30, 1998, the advisory fee
represented an effective annual basic rate of 0.05% of the Fund's average net
assets before an increase of $368,000 (0.01%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the fund under methods approved by the Board of Directors. At June 30, 1998,
the fund had contributed capital of $1,568,000 to Vanguard (included in Other
Assets), representing 2.2% of Vanguard's capitalization. The fund's Trustees and
officers are also Directors and officers of Vanguard.
21
<PAGE> 24
D. During the six months ended June 30, 1998, the fund purchased $1,008,729,000
of investment securities and sold $1,020,869,000 of investment securities, other
than U.S. government securities and temporary cash investments. Purchases and
sales of U.S. government securities were $215,754,000 and $140,405,000,
respectively.
E. At June 30, 1998, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $1,264,638,000,
consisting of unrealized gains of $1,286,614,000 on securities that had risen in
value since their purchase and $21,976,000 in unrealized losses on securities
that had fallen in value since their purchase.
F. The market value of securities on loan to brokers/dealers at June 30, 1998,
was $93,693,000, for which the fund held cash collateral of $35,713,000 and U.S.
Treasury securities with a market value of $60,218,000. Cash collateral received
is invested in repurchase agreements. Security loans are required to be secured
at all times by collateral at least equal to the market value of securities
loaned; 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.
22
<PAGE> 25
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Senior Chairman of the Board and Director of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc., and
of each of the investment companies in The Vanguard Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., and
NACCO Industries.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes."Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 26
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Mid Capitalization Stock
Portfolio
Small Capitalization Growth
Stock Portfolio
Small Capitalization Stock
Portfolio
Small Capitalization Value
Stock Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
Money Market Reserves
Federal Portfolio
Prime Portfolio
Municipal Bond Fund
Money Market Portfolio
State Tax-Free Funds
(CA, NJ, NY, OH, PA)
Treasury Money Market Portfolio
BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
Short-Term Portfolio
Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
Q272-6/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
