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VANGUARD/
WELLINGTON FUND
Semiannual Report - May 31, 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>
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CONTENTS
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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.
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FELLOW SHAREHOLDER,
The U.S. financial markets continued to bask in a favorable
environment during the six months ended May 31, 1998, the first half of
Vanguard/Wellington Fund's fiscal year. The Fund's return of +10.2% during the
period was excellent both by historical standards and in comparison with
competing balanced funds, but trailed our unmanaged composite stock/bond index.
The adjacent table presents the total return (capital change plus
reinvested dividends) for the half-year for Wellington Fund and our two
performance benchmarks--the average balanced fund (as calculated by Lipper
Analytical Services) and the Composite Index, which is weighted 65% in the
Standard & Poor's 500 Composite Stock Price Index and 35% in the Lehman Brothers
Long Corporate AA or Better Bond Index.
<TABLE>
<CAPTION>
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TOTAL RETURNS
SIX MONTHS ENDED
MAY 31, 1998
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<S> <C>
Vanguard/Wellington Fund +10.2%
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Average Balanced Fund + 8.8%
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Wellington Composite Index* +11.8%
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</TABLE>
*Weighted 65% S&P 500 Index and 35% Lehman Long Corporate AA or Better Bond
Index.
The Fund's return is based on an increase in net asset value from
$31.05 per share on November 30, 1997, to $31.69 per share on May 31, 1998, with
the latter figure adjusted for dividends of $0.74 per share paid from net
investment income and a distribution of $1.57 per share paid from net realized
capital gains.
THE PERIOD IN REVIEW
The U.S. economy kept growing at a robust pace, inflation remained tame, and
interest rates declined during the six months ended May 31. Consumer spending,
fueled by plentiful jobs and rising wages, was the engine powering the economy.
Stock prices advanced strongly through the first five months of the period, then
retreated a bit during May. Large-capitalization stocks were the strongest
performers, and the large-cap-dominated S&P 500 Index earned +15.1%, more than
double the +6.5% return of the small-cap Russell 2000 Index.
Bond investors also enjoyed solid returns during the six months. The
Lehman Aggregate Bond Index, a good measure of the overall taxable bond market,
returned +4.1%. Long-term bonds, which benefited more than other bonds from
declining interest rates, did even better: the Lehman Long Corporate AA or
Better Bond Index returned +5.6%.
Yields on long-term U.S. Treasury bonds declined on balance during
the half-year by approximately 25 to 30 basis points (0.25 to 0.30 percentage
point). The yield on the 30-year Treasury bond ended the period at 5.80%, down
from 6.05% on November 30, 1997, while rates on 3-month T-bills declined by 19
basis points, from 5.20% to 5.01%. The rate decline stemmed from remarkably good
inflation news--consumer prices were up just 0.8% during the period--and a
conviction among market participants that one consequence of Asia's continuing
economic crisis would be to keep a lid on inflation and interest rates in the
United States.
Wellington Fund's +10.2% return was 1.4 percentage points above the
+8.8% earned by the average balanced fund. We lagged the +11.8% return of our
theoretical stock/bond
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index by a similar margin of 1.6 percentage points. Much of our margin of
superiority over other balanced funds was due to Wellington's higher allocation
to stocks. Your Fund held 61% to 63% of assets in stocks during the half-year,
while the average balanced fund's commitment to equities was between 55% and
60%. Wellington Fund also benefits from its lower operating costs. Your Fund's
expense ratio (an annualized 0.31% during the period) is more than 1 percentage
point below the expenses charged by the average competing fund.
Two factors were largely responsible for our shortfall versus the
Composite Index. One was the slightly defensive stance taken by our adviser,
Wellington Management Company, LLP in light of the historically high valuations
for common stocks. As mentioned, our allocation to stocks during the half-year
was at the lower end of our policy range of 60%-70% of net assets. The Composite
Index, of course, has a rigid 65% allocation to stocks, which was an advantage
during the period. The second factor was the market's bias during the six months
toward large-cap growth stocks over large-cap value stocks, which are
Wellington's bread and butter. The growth component of the S&P 500 Index earned
+16.3% during the half-year, well above the +13.8% return on the value component
of the Index. Wellington's stock holdings--emphasizing value stocks, in keeping
with the Fund's objective--earned a very respectable net return of +13.2%.
IN SUMMARY
The excellent returns from financial markets during the first half of Wellington
Fund's fiscal year marked a continuance of a long-term bull market for stocks
and bonds that began more than 15 years ago. For perspective, it may be useful
to consider that Wellington Fund's return for the last six months comfortably
surpassed the average annual return of 9% that a 65% stock/35% bond portfolio
would have produced over the past seven decades.
Clearly, such superb returns will not continue indefinitely. There
will be bumps along the road from time to time. History--and common
sense--teaches that to reap the rewards of financial markets, investors must
endure risks that can be considerable. A balanced approach to investing--holding
stocks, bonds, and cash reserves in proportions that fit each investor's time
horizon, financial situation, and objectives--is a proven strategy for balancing
the risks and rewards of the markets. Wellington's strategy of holding a
balanced portfolio of stocks and bonds has served it well since its founding
almost 70 years ago by Walter L. Morgan, the Fund's Honorary Chairman (who,
we're happy to say, will celebrate his 100th birthday on July 23!). In the years
ahead, we will certainly continue to "stay the course" he set for us when he
founded the Fund in 1928.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
June 10, 1998
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Notice to Shareholders
At a special meeting on May 29, 1998, shareholders of Vanguard/Wellington Fund
overwhelmingly approved three 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 more than $1.7 million.
Approved by 97.52% of the shares voted, as follows:
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<CAPTION>
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FOR AGAINST ABSTAIN
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<S> <C> <C>
440,251,254 4,632,510 6,561,235
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</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This permits
Wellington 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
94.63% of the shares voted, as follows:
<TABLE>
<CAPTION>
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FOR AGAINST ABSTAIN
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<S> <C> <C>
427,222,029 12,190,965 12,032,005
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</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 92.91% of the shares voted,
as follows:
<TABLE>
<CAPTION>
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FOR AGAINST ABSTAIN
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<S> <C> <C>
419,440,948 18,677,990 13,326,061
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</TABLE>
3
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THE MARKETS IN PERSPECTIVE
Six Months Ended May 31, 1998
The U.S. financial markets turned in another excellent performance during the
half-year ended May 31. The stock market's gains would have been good even for
a full year, and the bond market chalked up solid returns.
Consumer spending was the economy's locomotive. Americans spent
freely on houses, automobiles, and just about everything else. Their spirits
were buoyed by a very strong job market--the nation's unemployment rate was 4.3%
in May, tying a 28-year low--and by higher wages (average hourly earnings in May
were 4.3% higher than a year before). Growth in the consumer sector, which
accounts for two-thirds of all economic activity, was more than enough to offset
the negative effects of Asia's financial and economic crisis. A strong rise in
the value of the U.S. dollar since mid-1997 in relation to most Asian currencies
has cut into U.S. exports to Asia while lowering the cost of Asian goods for
American buyers. The upshot is intensifying competition for U.S. companies, some
of which have blamed the Asian crisis for reduced profits.
The silver lining in the Asian cloud is that, by offsetting some of
the strength elsewhere in the U.S. economy, it has reduced inflationary
pressures. Ordinarily, low unemployment, rising wages, and a rapidly growing
economy might be expected to push up consumer prices. But thanks in part to
lower-priced Asian imports, inflation has been remarkably well behaved--the
Consumer Price Index rose just 0.8% during the six months ended May 31. Benign
inflation and a conviction that the Asian situation will keep the Federal
Reserve Board from raising interest rates anytime soon allowed interest rates to
decline.
<TABLE>
<CAPTION>
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TOTAL RETURNS
PERIODS ENDED MAY 31, 1998
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6 MONTHS 1 YEAR 5 YEARS*
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<S> <C> <C> <C>
EQUITY
S&P 500 Index 15.1% 30.7% 22.2%
Russell 2000 Index 6.5 21.2 16.1
MSCI EAFE Index 16.2 11.4 9.8
- --------------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 4.1% 10.9% 7.1%
Lehman 10-Year Municipal Bond Index 3.8 9.3 6.9
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.7 5.3 4.9
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 0.8% 1.7% 2.5%
- --------------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
Stock prices rose in each of the first five months of the period before
declining in May. Gains were largest for large-capitalization stocks. The S&P
500 Index, which is dominated by large-cap stocks, earned a total return of
15.1%, while the rest of the stock market, as measured by the Wilshire 4500
Equity Index, returned 10.4%. The Russell 2000 Index, focusing on small-cap
stocks, gained 6.5%.
Stock prices were supported by declining interest rates and the
surprisingly low inflation rate, which led to an expansion of price/earnings
multiples investors were willing to pay for stocks. The news on corporate
earnings, another key fundamental in stock valuation, was not so positive.
Corporate earnings in the January-March quarter were up by less than 5% from the
previous year, and securities analysts steadily reduced their estimates
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of earnings for the full year. Concern about meager growth in profits--partly
because of increased competition from Asia--was a factor in the stock market's
decline from record highs set in late April.
The consumer spending boom was reflected in the stock market's
performance. The best-performing sector was auto & transportation stocks. This
segment of the S&P 500 Index earned 28.6% for the six months. The consumer
discretionary sector, which makes up 10% of the Index, was up 23.0% for the
half-year, and health-care stocks, which make up nearly 12% of the S&P 500,
gained 22.2%. Lower oil prices were to blame for the two weakest
sectors--integrated oil companies (up 8.2%) and the "other energy" group (down
6.3%).
U.S. FIXED-INCOME MARKETS
The decline in interest rates during the period meant that bond investors saw
modest price increases along with their interest income. The Lehman Brothers
Aggregate Bond Index, a yardstick for the overall taxable bond market, earned
4.1%, bringing its return over the past 12 months to 10.9%, a superb
inflation-adjusted return of 9.2%. Bonds benefited from both an easing of
inflation fears and, reportedly, from a "flight to quality" by Asian investors
who some analysts believe bought U.S. Treasury securities to protect themselves
from further declines in their currencies versus the U.S. dollar.
The rate decline was more pronounced for longer-term bonds. While
yields on 3-month Treasury bills declined 19 basis points (0.19 percentage
point) during the half-year, yields on 10- and 30-year Treasuries fell by 32 and
25 basis points, respectively, to 5.55% and 5.80%. The flattening of the yield
curve during the period signaled that market participants expect interest rates
to remain stable or to decline further. No one knows whether that expectation
will prove correct, but investors certainly are being paid very little to bear
the higher risk of price fluctuations that comes with longer-term bonds. As of
May 31, the yield on 10-year Treasuries was only 2 basis points higher than the
5.53% yield on 3-year Treasuries, even though the price of a 10-year note is
three times more sensitive to changes in interest rates than that of a 3-year
note.
INTERNATIONAL EQUITY MARKETS
Europe's stock markets made Wall Street's bull market look like a mere calf
during the first half of the fiscal year, while Asian markets slumped under the
weight of falling currencies and weakening economic activity. Overall, the
Morgan Stanley Capital International Europe, Australasia, Far East Index rose
16.2% in U.S. dollar terms. Its European component was up a remarkable 29.7% in
U.S. dollar terms and an even-stronger 32.7% in local currencies. A
strengthening in the dollar versus other currencies slightly cut returns for
American investors.
Several factors were credited for Europe's bull market, including a
recovery in economic activity across the continent and an increase in U.S.-style
efforts to boost shareholder value, including share repurchases, corporate
restructurings, and mergers. In addition, investors seemed pleased at the smooth
progress toward the January 1, 1999, adoption by 11 countries of a common
currency, the euro.
In the Pacific, stock markets were, on balance, down 2.7% in
local-currency terms. But a weakening of the Japanese yen and several other
currencies versus the U.S. dollar resulted in a decline of 9.9% in U.S. dollar
terms. Japan, the dominant Pacific Rim economy and stock market, officially
acknowledged that its economy had fallen into a recession. A number of
investors, analysts, and others criticized the Japanese government for being
slow to adopt economic reforms and other measures to spur business activity.
5
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REPORT FROM THE ADVISER
Vanguard/Wellington Fund's return during the first six months of fiscal 1998 was
10.2%. In comparison, the average balanced fund returned 8.8%, while the unman-
aged 65% stock/35% bond Composite Index gained 11.8%. Our stocks, which as of
May 31 made up 61% of the Fund's assets, provided a return of 13.2% during the
half-year, compared with the 15.1% advance of the S&P 500 Index. The Fund's
fixed-income securities, accounting for 39% of assets, returned 5.5%, in line
with our long-term bond benchmark.
The rise in the equity market continued unabated in 1998, as the
economy showed continued strength with low inflation. However, corporate profits
started to flatten out early in the year, and we expect only a nominal gain in
earnings this year compared to 1997. Our performance in the equity sector
continued to lag the S&P 500 by a modest margin, due to our focus on
dividend-paying securities and our value orientation, which keeps us out of
certain growth stocks. The average dividend yield of our equities at the end of
May was 2.3%, compared with 1.5% for the S&P 500. During the first half of our
fiscal year, performance was positively influenced by corporate activity that
affected stocks we owned in many sectors. Merger activity involving both
Chrysler and Citicorp, and the internal restructuring of DuPont, Ford, and
Xerox, for instance, had quite a positive impact on the prices of these
securities. Union Pacific's post-merger operational difficulties held back not
only this stock but the entire railroad sector. And the impact of the Asian
crisis on the demand for oil and metals hurt the Fund's performance in these
groups.
During the six months, major new additions to the Fund's stock
holdings included CSX, the rail and shipping company, and Waste Management, the
waste collection and disposal company. In the energy sector, we added
USX-Marathon and Halliburton. We reduced our exposure to the financial-services
and health-care sectors, where valuations in some cases became quite high. Going
forward, we have heavier weights than the S&P 500 Index in the materials &
processing, energy, and industrial sectors. In the financial-services and
health-care sectors, our positions are roughly similar to the Index's
weightings.
Interest rates declined modestly during the last six months, largely
as a result of continued slowing in the rate of price inflation in the U.S.
economy. We think long-term bonds are quite attractive, as the yield of the bond
portfolio, at about 6%, is quite generous compared with an inflation rate just
over 1%. We continued during the first half of the year to add to the Fund's
positions in high-quality corporate bonds, and we retain a healthy commitment to
U.S. Treasuries in order to maintain the bond portfolio's high credit quality
and significant call protection.
Looking forward, we are somewhat skeptical about the stock market's
ability to show continued sharp gains as corporate earnings growth slows. We
believe that
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Wellington Fund is well positioned for an environment in which the
Asian financial problems are gradually resolved, the U.S. economy slows to a
more sustainable growth rate, and inflation remains under control.
Ernst H. von Metzsch, Senior Vice President and Portfolio Manager
Wellington Management Company, LLP
June 10, 1998
INVESTMENT PHILOSOPHY
The adviser believes that a reasonable level of current income and long-term
growth in capital can be achieved without undue risk by holding 60% to 70% of
assets in equities and the balance in fixed-income securities. Consistent with
this approach, dividend- paying stocks dominate the Fund's equity segment, while
long-term, high-quality corporate, U.S. Treasury, and mortgage-backed securities
make up the bond segment.
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PORTFOLIO PROFILE
Wellington Fund
This Profile provides a snapshot of the Fund's characteristics as of May 31,
1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
<TABLE>
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TOTAL FUND CHARACTERISTICS
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<S> <C>
Yield 3.6%
Turnover Rate 24%*
Expense Ratio 0.31%*
Cash Reserves 1.0%
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- -------------------------------
<S> <C>
Stocks 61%
Bonds 38%
Cash Reserves 1%
</TABLE>
<TABLE>
<CAPTION>
TOTAL FUND VOLATILITY MEASURES
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WELLINGTON S&P 500
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<S> <C> <C>
R-Squared 0.87 1.00
Beta 0.65 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- -------------------------------------------------
<S> <C>
Citicorp 2.8%
First Union Corp. 2.7
Pharmacia & Upjohn, Inc. 2.6
E.I. du Pont de Nemours & Co. 2.4
Ford Motor Co. 2.3
CIGNA Corp. 2.2
U.S. Bancorp 2.2
Xerox Corp. 2.0
Dow Chemical Co. 1.9
General Electric Co. 1.8
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Top Ten 22.9%
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Top Ten as % of Total Net Assets 13.9%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
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MAY 31, 1997 MAY 31, 1998
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WELLINGTON WELLINGTON S&P 500
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<S> <C> <C> <C>
Auto & Transportation 7.3% 8.3% 3.4%
Consumer Discretionary 3.2 5.2 10.3
Consumer Staples 2.7 2.6 10.8
Financial Services 20.6 19.0 18.3
Health Care 13.2 11.9 11.7
Integrated Oils 9.4 10.0 6.8
Other Energy 0.0 1.3 1.2
Materials & Processing 19.7 17.2 5.7
Producer Durables 8.9 9.1 3.9
Technology 1.2 1.2 12.1
Utilities 8.1 8.8 10.3
Other 5.7 5.4 5.5
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</TABLE>
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<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
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WELLINGTON S&P 500
- ------------------------------------------------------------
<S> <C> <C>
Number of Stocks 105 500
Median Market Cap $21.8B $46.8B
Price/Earnings Ratio 20.0x 23.9x
Price/Book Ratio 3.1x 4.4x
Dividend Yield 2.3% 1.5%
Return on Equity 17.9% 21.3%
Earnings Growth Rate 13.8% 15.7%
Foreign Holdings 8.6% 1.9%
</TABLE>
EQUITY INVESTMENT FOCUS
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[GRAPH]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
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<S> <C>
Number of Bonds 221
Yield to Maturity 6.4%
Average Coupon 7.1%
Average Maturity 19.2 years
Average Quality Aa2
Average Duration 9.7 years
</TABLE>
FIXED-INCOME INVESTMENT FOCUS
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[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF BONDS)
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<S> <C>
Asset-Backed 0.0%
Finance 17.5
Foreign 11.5
Industrial 25.2
Mortgage 3.9
U.S. Government and Agency 1.3
U.S. Treasury 27.9
Utilities 11.9
Other 0.8
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Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- -------------------------------------------
<S> <C>
Treasury/Agency 28.4%
Aaa 10.7
Aa 16.9
A 34.9
Baa 8.3
Ba 0.4
B 0.0
Not Rated 0.4
- -------------------------------------------
Total 100.0%
</TABLE>
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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 one 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 credit-
worthy 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 and
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.
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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.
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 portfolios'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>
WELLINGTON FUND
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1977-MAY 31, 1998
- -----------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1978 -0.3% 6.2% 5.9% 3.7%
1979 4.9 7.9 12.8 10.1
1980 18.1 9.2 27.3 21.8
1981 -5.6 8.4 2.8 -0.4
1982 10.1 9.7 19.8 22.4
1983 17.0 8.7 25.7 19.2
1984 0.6 7.7 8.3 7.2
1985 18.3 8.2 26.5 27.5
1986 17.3 7.0 24.3 26.4
1987 -7.1 2.8 -4.3 -2.0
1988 13.8 7.2 21.0 19.3
1989 13.4 6.6 20.0 25.7
1990 -8.4 5.8 -2.6 -0.2
1991 10.2 6.6 16.8 19.2
1992 9.2 5.8 15.0 15.9
1993 8.4 5.2 13.6 11.8
1994 -5.2 4.4 -0.8 -1.6
1995 27.3 5.4 32.7 33.0
1996 16.7 4.6 21.3 19.8
1997 14.2 4.4 18.6 21.6
1998** 7.6 2.6 10.2 11.8
- -----------------------------------------------------------
</TABLE>
*65% S&P 500 Index, 35% Lehman Long Corporate AA or Better Bond Index.
**Six months ended May 31, 1998.
See Financial Highlights table on page 21 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998*
- ---------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wellington Fund 7/1/1929 32.24% 17.12% 9.35% 5.43% 14.78%
- ---------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
FINANCIAL STATEMENTS
May 31, 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>
- ---------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (60.4%)
- ---------------------------------------------------------
AUTO & TRANSPORTATION (5.0%)
CSX Corp. 2,000,000 $ 95,250
Canadian National Railway Co. 2,000,000 118,250
Chrysler Corp. 1,246,500 69,337
Ford Motor Co. 6,589,515 341,831
General Motors Corp. 2,091,000 150,421
KLM Royal Dutch Air Lines NV 4,000,000 155,750
Norfolk Southern Corp. 2,000,100 62,628
Union Pacific Corp. 5,195,500 251,332
-----------
1,244,799
-----------
CONSUMER DISCRETIONARY (3.1%)
Eastman Kodak Co. 1,929,600 137,725
May Department Stores Co. 1,508,000 96,983
J.C. Penney Co., Inc. 1,791,700 128,666
Sears, Roebuck & Co. 3,171,300 196,026
Waste Management Inc. 3,344,800 108,706
Whirlpool Corp. 1,500,000 102,469
-----------
770,575
-----------
CONSUMER STAPLES (1.6%)
American Stores Co. 2,200,000 54,862
General Mills, Inc. 1,000,000 68,250
H.J. Heinz Co. 3,000,000 159,187
Philip Morris Cos., Inc. 3,000,000 112,125
-----------
394,424
-----------
FINANCIAL SERVICES (11.5%)
Allstate Corp. 441,700 41,575
Associates First Capital Corp. 1,227,013 91,796
BankAmerica Corp. 2,300,000 190,181
CIGNA Corp. 4,800,000 328,800
Citicorp 2,805,600 418,385
Equity Residential Properties
Trust REIT 1,000,000 48,938
Fannie Mae 3,256,300 194,971
First Union Corp. 7,206,399 398,604
Jefferson-Pilot Corp. 1,950,000 111,637
MBIA, Inc. 1,677,600 125,086
Marsh & McLennan Cos., Inc. 2,095,000 183,443
Security Capital Pacific,
Inc. REIT 2,000,000 45,125
Spieker Properties, Inc. REIT 1,162,800 46,294
Starwood Hotels &
Resorts REIT 1,000,000 47,188
U.S. Bancorp 8,400,000 328,650
Wachovia Corp. 3,000,000 240,187
-----------
2,840,860
-----------
HEALTH CARE (7.2%)
Abbott Laboratories 2,700,000 200,306
American Home
Products Corp. 2,000,000 96,625
C.R. Bard, Inc. 2,437,000 84,533
Baxter International, Inc. 3,200,000 183,000
Bristol-Myers Squibb Co. 2,100,000 225,750
Columbia/HCA
Healthcare Corp. 3,000,000 98,062
Johnson & Johnson 3,100,000 214,094
Pfizer, Inc. 1,000,000 104,812
Pharmacia & Upjohn, Inc. 8,865,400 391,740
Rhone-Poulenc SA ADR 3,122,316 171,727
-----------
1,770,649
-----------
INTEGRATED OILS (6.1%)
Amoco Corp. 4,600,000 192,337
Ashland, Inc. 1,000,000 49,875
Atlantic Richfield Co. 400,000 31,550
Chevron Corp. 1,300,000 103,837
(1)Equitable Resources, Inc. 2,000,000 57,000
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
Exxon Corp. 1,300,000 $ 91,650
Kerr-McGee Corp. 500,000 31,625
Phillips Petroleum Co. 2,200,000 110,137
Repsol SA ADR 3,197,700 175,074
Royal Dutch Petroleum Co. ADR 3,112,048 174,469
Sun Co., Inc. 1,234,788 52,478
Texaco Inc. 900,000 51,975
Total SA ADR 1,999,999 124,625
USX-Marathon Group 5,000,000 175,000
Unocal Corp. 2,050,000 73,031
-----------
1,494,663
-----------
OTHER ENERGY (0.8%)
Baker Hughes, Inc. 395,000 14,220
Halliburton Co. 2,000,000 94,750
Occidental Petroleum Corp. 3,000,000 82,875
-----------
191,845
-----------
MATERIALS & PROCESSING (10.4%)
Aluminum Co. of America 3,500,000 242,812
BOC Group PLC ADR 3,350,000 107,200
British Steel PLC ADR 5,000,000 127,187
Cabot Corp. 2,200,000 73,287
Dow Chemical Co. 3,000,000 290,625
E.I. du Pont de Nemours & Co. 4,645,200 357,680
Imperial Chemical Industries
PLC ADR 1,015,000 75,744
International Paper Co. 1,800,000 82,800
Kimberly-Clark Corp. 5,300,000 262,681
Lubrizol Corp. 2,500,000 86,875
Norsk Hydro AS ADR 2,000,000 89,875
PPG Industries, Inc. 1,700,000 123,887
(1)Phelps Dodge Corp. 3,304,900 201,599
Reynolds Metals Co. 1,600,000 92,800
Temple-Inland Inc. 1,984,600 116,595
Westvaco Corp. 2,028,900 57,824
Willamette Industries, Inc. 3,071,000 105,374
Witco Chemical Corp. 1,714,200 65,032
-----------
2,559,877
-----------
PRODUCER DURABLES (5.5%)
AMP, Inc. 3,500,000 133,000
The Boeing Co. 3,500,000 166,688
Caterpillar, Inc. 2,720,000 149,430
Honeywell, Inc. 2,701,000 226,715
Lockheed Martin Corp. 2,000,000 224,500
United Technologies Corp. 1,700,000 159,800
Xerox Corp. 2,900,000 297,975
-----------
1,358,108
-----------
TECHNOLOGY (0.7%)
International Business
Machines Corp. 1,510,000 177,236
-----------
UTILITIES (5.3%)
AT&T Corp. 3,300,000 200,887
ALLTEL Corp. 723,400 28,529
Bell Atlantic Corp. 2,067,999 189,480
BellSouth Corp. 2,500,000 161,250
Carolina Power & Light Co. 2,000,000 82,000
Cinergy Corp. 3,155,000 101,946
Duke Energy Corp. 2,500,000 144,062
PacifiCorp 3,150,000 72,647
Pinnacle West Capital Corp. 1,763,600 79,252
SBC Communications Inc. 2,872,600 111,672
Texas Utilities Co. 2,490,000 98,355
U S WEST Communications
Group 964,856 48,966
-----------
1,319,046
-----------
OTHER (3.2%)
Canadian Pacific Ltd. 5,000,000 145,312
Cooper Industries, Inc. 3,572,800 229,999
General Electric Co. 3,200,000 266,800
Minnesota Mining &
Manufacturing Co. 1,708,500 158,250
-----------
800,361
-----------
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $8,891,386) 14,922,443
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.1%)
- ---------------------------------------------------------
Cyprus Amax Minerals Co. $4.00
Cvt. Pfd. Series A
(COST $20,880) 480,000 22,920
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
CORPORATE BONDS (21.0%)
- ---------------------------------------------------------
<S> <C> <C>
FINANCE (6.7%)
Allstate Corp.
6.75%, 5/15/2018 $ 45,000 45,468
Ambac, Inc.
7.50%, 5/1/2023 25,000 27,615
American Re Corp.
7.45%, 12/15/2026 45,000 49,543
Associates Corp. of North America
6.875%, 11/15/2008 45,000 46,691
BB&T Corp.
7.25%, 6/15/2007 36,900 39,061
Banc One Corp.
7.625%, 10/15/2026 20,000 22,127
9.875%, 3/1/2009 20,000 26,011
BankAmerica Corp.
7.20%, 4/15/2006 20,000 21,106
BankBoston Corp.
6.625%, 12/1/2005 27,000 27,374
BankBoston NA
6.375%, 3/25/2008 13,000 12,960
CIGNA Corp.
7.875%, 5/15/2027 50,000 55,629
The Chase Manhattan Corp.
6.50%, 1/15/2009 30,000 30,143
Cincinnati Financial Corp.
6.90%, 5/15/2028 40,000 40,381
Citicorp
6.75%, 8/15/2005 40,000 40,919
Comerica Bank
7.875%, 9/15/2026 20,000 22,806
8.375%, 7/15/2024 20,500 23,408
Dean Witter, Discover & Co.
6.75%, 10/15/2013 24,275 24,679
7.07%, 2/10/2014 MTN 17,500 18,216
Equitable Companies Inc.
7.00%, 4/1/2028 40,000 40,676
Exxon Capital Corp.
6.00%, 7/1/2005 13,500 13,447
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
First Chicago Corp.
6.375%, 1/30/2009 $ 15,000 $ 14,963
First Colony Corp.
6.625%, 8/1/2003 31,550 32,355
First Union Corp.
7.50%, 4/15/2035 30,000 33,807
Fleet Financial Group
6.875%, 1/15/2028 50,000 50,565
General Electric Capital Corp.
8.125%, 5/15/2012 30,000 34,920
General Electric Capital Services
7.50%, 8/21/2035 11,000 12,560
General Electric Global
Insurance Holdings Corp.
7.00%, 2/15/2026 35,000 37,019
General Motors Acceptance Corp.
6.00%, 4/1/2011 27,370 26,060
General Re Corp.
9.00%, 9/12/2009 32,000 39,021
John Hancock Mutual Life
Insurance Co.
7.375%, 2/15/2024 45,000 47,973
Jackson National Life Insurance Co.
8.15%, 3/15/2027 40,000 45,904
Liberty Mutual Insurance Co.
7.875%, 10/15/2026 46,210 51,499
Lumbermens Mutual Casualty Co.
9.15%, 7/1/2026 45,000 53,854
Metropolitan Life Insurance Co.
7.70%, 11/1/2015 45,000 48,922
NBD Bancorp, Inc.
7.125%, 5/15/2007 25,000 26,330
National City Bank Pennsylvania
7.25%, 10/21/2011 20,000 21,314
National City Columbus
7.25%, 7/15/2010 25,000 26,605
NationsBank Corp.
7.80%, 9/15/2016 50,000 56,052
Norwest Financial Inc.
6.25%, 12/15/2007 35,000 34,909
Pacific Mutual Life
7.90%, 12/30/2023 35,000 39,704
Provident Cos., Inc.
7.25%, 3/15/2028 40,000 40,858
Prudential Insurance Co.
8.30%, 7/1/2025 40,000 45,707
Sears, Roebuck & Co.
Acceptance Corp.
6.875%, 10/15/2017 30,000 30,382
SunTrust Bank Atlanta
7.25%, 9/15/2006 35,000 37,148
Torchmark Corp.
7.875%, 5/15/2023 36,800 39,634
TransAmerica Financial
6.50%, 3/15/2011 29,265 28,748
Travelers Group Inc.
6.625%, 1/15/2028 40,000 39,738
Wachovia Corp.
6.375%, 2/1/2009 35,000 35,154
---------
1,659,965
---------
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
INDUSTRIAL (9.7%)
Air Products & Chemicals, Inc.
8.75%, 4/15/2021 $ 26,650 $ 33,231
Albertson's Inc.
7.75%, 6/15/2026 50,000 58,120
Aluminum Co. of America
6.75%, 1/15/2028 24,640 24,939
Amoco Corp.
6.50%, 8/1/2007 25,000 25,947
Anheuser-Busch Cos., Inc.
7.00%, 12/1/2025 30,000 30,111
Archer-Daniels-Midland Co.
7.50%, 3/15/2027 40,000 44,915
Baxter International, Inc.
7.65%, 2/1/2027 40,000 45,058
Becton, Dickinson & Co.
7.00%, 8/1/2027 25,000 26,503
8.70%, 1/15/2025 20,000 22,660
The Boeing Co.
8.75%, 8/15/2021 40,200 50,981
Bristol-Myers Squibb Co.
6.80%, 11/15/2026 50,000 52,976
CPC International, Inc.
7.25%, 12/15/2026 45,000 49,073
CSX Corp.
7.90%, 5/1/2017 40,000 44,963
Champion International Corp.
7.35%, 11/1/2025 40,140 41,315
Coca-Cola Enterprises, Inc.
8.50%, 2/1/2022 40,000 48,616
Continental Airlines, Inc.
(Equipment Trust Certificates)
6.648%, 3/15/2019 20,000 20,233
Dean Foods Co.
6.90%, 10/15/2017 38,000 39,422
E.I. du Pont de Nemours & Co.
6.50%, 1/15/2028 48,000 47,963
Eastman Chemical Co.
7.60%, 2/1/2027 40,000 43,180
Eaton Corp.
7.625%, 4/1/2024 15,000 16,902
Englehard Corp.
6.95%, 6/1/2028 38,000 37,953
Fluor Corp.
6.95%, 3/1/2007 30,000 31,484
Ford Motor Co.
8.875%, 1/15/2022 45,000 56,806
Fortune Brands Inc.
6.25%, 4/1/2008 40,000 40,181
General Motors Corp.
7.70%, 4/15/2016 25,000 27,899
Georgia-Pacific Corp.
9.625%, 3/15/2022 22,000 24,594
International Business
Machines Corp.
6.50%, 1/15/2028 25,000 24,722
8.375%, 11/1/2019 25,000 30,559
Johnson & Johnson
6.73%, 11/15/2023 15,000 16,000
Johnson Controls, Inc.
7.125%, 7/15/2017 27,300 29,071
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- ---------------------------------------------------------
<S> <C> <C>
KN Energy, Inc.
7.25%, 3/1/2028 $ 40,000 $ 40,459
Kimberly-Clark Corp.
6.375%, 1/1/2028 40,000 39,733
Eli Lilly & Co.
7.125%, 6/1/2025 50,000 54,458
Lockheed Martin Corp.
7.65%, 5/1/2016 40,000 43,928
Lucent Technologies Inc.
7.25%, 7/15/2006 35,000 37,353
Masco Corp.
6.625%, 4/15/2018 40,000 40,261
McDonald's Corp.
6.375%, 1/8/2028 40,000 39,838
7.375%, 7/15/2033 15,000 15,522
Mead Corp.
7.35%, 3/1/2017 16,250 17,447
Merck & Co.
6.40%, 3/1/2028 50,000 50,560
Minnesota Mining &
Manufacturing Corp.
6.375%, 2/15/2028 50,000 49,795
Mobil Corp.
8.625%, 8/15/2021 20,000 25,233
Monsanto Co.
6.75%, 12/15/2027 40,000 40,538
Morton International, Inc.
9.25%, 6/1/2020 21,000 27,693
Motorola, Inc.
7.50%, 5/15/2025 51,500 58,328
News America Holdings Inc.
8.00%, 10/17/2016 35,000 38,105
Norfolk Southern Corp.
7.70%, 5/15/2017 40,000 44,786
PPG Industries, Inc.
6.875%, 2/15/2012 13,600 14,533
9.00%, 5/1/2021 19,750 25,575
J.C. Penney Co., Inc.
7.95%, 4/1/2017 35,000 39,253
Phillips Petroleum Co.
9.375%, 2/15/2011 20,000 25,204
Procter & Gamble Co. ESOP
9.36%, 1/1/2021 20,000 26,201
Raytheon Co.
7.20%, 8/15/2027 25,000 26,539
7.375%, 7/15/2025 18,000 18,224
Rockwell International Corp.
6.70%, 1/15/2028 40,000 40,750
7.875%, 2/15/2005 17,000 18,704
Rohm & Haas Co.
9.80%, 4/15/2020 15,000 19,393
Sears, Roebuck & Co.
9.375%, 11/1/2011 14,000 17,484
Southwest Airlines Co.
7.54%, 6/29/2015 30,772 33,464
Stanford Univ.
7.65%, 6/15/2026 30,000 35,275
Tenneco Inc.
7.875%, 4/15/2027 35,000 38,746
Texaco Capital, Inc.
9.75%, 3/15/2020 15,000 20,646
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
The Timken Co.
6.875%, 5/8/2028 $ 27,500 $ 27,924
Tosco Corp.
7.80%, 1/1/2027 35,000 38,553
Ultramar Diamond Shamrock
7.20%, 10/15/2017 40,000 41,020
United Technologies Corp.
8.75%, 3/1/2021 32,000 39,751
Wal-Mart Stores, Inc.
7.25%, 6/1/2013 24,000 26,301
Wendy's International, Inc.
6.35%, 12/15/2005 25,500 25,366
Weyerhaeuser Co.
6.95%, 8/1/2017 40,000 41,043
---------
2,390,363
---------
UTILITIES (4.6%)
AT&T Corp.
7.75%, 3/1/2007 40,000 44,341
Ameritech Capital Funding
6.875%, 10/15/2027 40,000 41,387
Atlantic City Electric Co.
(2)7.00%, 9/1/2023 18,000 18,291
BellSouth Telecommunications
5.875%, 1/15/2009 15,000 14,869
7.50%, 6/15/2033 30,000 31,724
Carolina Power & Light Co.
8.625%, 9/15/2021 31,000 38,172
Chesapeake & Potomac
Telephone Co. (MD)
7.15%, 5/1/2023 10,000 10,534
Chesapeake & Potomac
Telephone Co. (VA)
7.625%, 12/1/2012 16,400 18,352
Consolidated Edison Co.
of New York, Inc.
6.45%, 12/1/2007 20,000 20,360
7.50%, 6/15/2023 25,000 25,997
Duke Energy Corp.
7.00%, 10/15/2006 25,000 26,278
7.00%, 7/1/2033 10,000 10,058
El Paso Natural Gas Co.
7.50%, 11/15/2026 35,000 37,714
Florida Power Corp.
6.75%, 2/1/2028 44,755 45,766
GTE North, Inc.
6.90%, 11/1/2008 30,000 31,459
GTE Southwest, Inc.
6.00%, 1/15/2006 30,000 29,537
Illinois Bell Telephone Co.
6.625%, 2/1/2025 27,725 27,011
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 50,000 55,237
NGC Corp.
7.125%, 5/15/2018 35,000 35,484
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 34,019 40,247
New York Telephone Co.
6.50%, 4/15/2028 20,000 19,932
7.25%, 2/15/2024 20,000 20,553
Northern States Power Co.
7.125%, 7/1/2025 48,000 51,762
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
Ohio Bell Telephone Co.
7.85%, 12/15/2022 $ 20,000 $ 21,718
Oklahoma Gas & Electric Co.
6.50%, 4/15/2028 25,545 25,526
Pacific Bell
7.125%, 3/15/2026 40,000 43,162
Pacific Gas & Electric Co.
7.05%, 3/1/2024 25,000 26,692
PacifiCorp
6.625%, 6/1/2007 MTN 20,500 20,943
6.71%, 1/15/2026 MTN 21,000 20,828
Southern California Edison Co.
6.90%, 10/1/2018 20,750 20,598
Southwestern Bell Telephone Co.
7.25%, 7/15/2025 25,000 25,829
7.60%, 4/26/2007 MTN 7,000 7,659
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 40,000 43,053
U S WEST Capital Funding, Inc.
7.90%, 2/1/2027 35,000 41,457
U S WEST Communications Group
6.875%, 9/15/2033 30,000 29,526
Washington Gas Light Co.
6.15%, 1/26/2026 MTN 43,500 43,753
Wisconsin Electric Power Co.
6.50%, 6/1/2028 20,000 19,920
7.70%, 12/15/2027 29,100 30,813
Wisconsin Gas Co.
6.60%, 9/15/2013 13,100 13,435
---------
1,129,977
---------
- ---------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $4,817,697) 5,180,305
- ---------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(4.4%)
- ---------------------------------------------------------
ABN-AMRO BK NV (Chicago)
7.25%, 5/31/2005 40,000 41,961
Abbey National PLC
6.69%, 10/17/2005 25,000 25,413
Abbey National First Capital
8.20%, 10/15/2004 20,000 21,965
Amoco Canada Petroleum Co.
7.95%, 10/1/2022 20,000 21,348
BBV International Finance
7.00%, 12/1/2025 37,500 38,262
BHP Finance USA Ltd.
7.25%, 3/1/2016 35,000 35,360
Bank of Montreal
7.80%, 4/1/2007 15,000 16,518
Banque Nationale de Paris-NY
7.20%, 1/15/2007 35,000 36,579
Banque Paribas-NY
6.875%, 3/1/2009 35,000 35,442
Bayerische Landesbank-NY
6.375%, 10/15/2005 25,000 25,457
Deutsche Bank Financial Inc.
6.70%, 12/13/2006 40,000 40,920
Enersis SA
7.40%, 12/1/2016 35,000 34,463
Husky Oil Ltd.
7.55%, 11/15/2016 30,000 30,736
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
KFW International Finance
7.00%, 3/1/2013 $ 10,000 $ 10,708
7.20%, 3/15/2014 25,000 27,344
Norsk Hydro AS
7.15%, 11/15/2025 30,000 31,315
9.00%, 4/15/2012 20,000 24,427
Province of Manitoba
9.125%, 1/15/2018 20,000 26,078
9.25%, 4/1/2020 20,000 26,723
Province of New Brunswick
6.75%, 8/15/2013 20,400 21,335
Province of Nova Scotia
8.25%, 7/30/2022 30,000 36,287
Province of Ontario
7.00%, 8/4/2005 40,000 42,236
Petro-Canada
7.875%, 6/15/2026 32,000 36,083
Province of Quebec
6.86%, 4/15/2026 MTN 20,000 21,047
7.50%, 7/15/2023 25,000 27,656
Royal Bank of Scotland
6.375%, 2/1/2011 30,000 29,534
Saga Petroleum ASA
7.25%, 9/23/2027 38,000 38,527
Province of Saskatchewan
(3)7.125%, 3/15/2008 11,000 11,857
Scotland International Finance
8.85%, 11/1/2006 24,000 27,542
SmithKline Beecham
7.375%, 4/15/2005 MTN 15,000 16,130
Societe Generale-NY
7.40%, 6/1/2006 25,000 26,328
Southern Investments UK PLC
6.80%, 12/1/2006 35,000 35,751
Sun Canada Financial Co.
6.625%, 12/15/2007 40,000 40,691
Talisman Energy, Inc.
7.125%, 6/1/2007 20,000 20,681
Toronto-Dominion Bank
6.45%, 1/15/2009 14,000 14,131
6.50%, 8/15/2008 10,000 10,128
Westdeutsche Landesbank-NY
6.75%, 6/15/2005 40,000 41,309
Zeneca Wilmington Inc.
7.00%, 11/15/2023 45,000 47,634
- ---------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $1,022,390) 1,095,906
- ---------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (11.2%)
- ---------------------------------------------------------
Agency for International
Development (Israel)
(U.S. Government Guaranteed)
5.89%, 8/15/2005 23,000 23,071
Federal Home Loan Bank
7.66%, 7/20/2004 10,000 10,935
Federal Home Loan Mortgage Corp.
6.19%, 1/21/2004 15,000 14,907
Federal National Mortgage Assn.
6.28%, 2/3/2004 25,000 24,830
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- ----------------------------------------------------------
<S> <C> <C>
Tennessee Valley Authority
Global Bond
6.75%, 11/1/2025 $ 50,000 $ 54,262
U.S. Treasury Bonds
6.00%, 2/15/2026 150,000 152,282
6.25%, 8/15/2023 1,031,000 1,078,344
7.25%, 5/15/2016 350,000 402,672
7.50%, 11/15/2016 135,000 159,139
U.S. Treasury Notes
6.50%, 8/15/2005 154,000 161,689
6.50%, 10/15/2006 400,000 421,508
6.625%, 5/15/2007 200,000 213,050
7.875%, 11/15/2004 50,000 56,012
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $2,606,443) 2,772,701
- ----------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.5%)
- ----------------------------------------------------------
Asset Securitization Corp.
(4)6.75%, 2/14/2041 35,000 36,192
(4)7.49%, 4/14/2029 34,000 36,640
Chase Commercial Mortgage
Securities Corp.
(4)6.60%, 12/12/2029 49,000 49,903
Credit Suisse First Boston Mortgage
Securities Corp.
(4)7.24%, 6/20/2029 35,000 36,991
DLJ Mortgage Acceptance Corp.
(4)6.82%, 10/15/2030 25,000 25,617
(4)7.60%, 5/15/2030 36,000 38,689
First Union-Lehman Brothers
Commercial Mortgage Trust
(4)6.65%, 11/18/2029 33,000 33,681
(4)7.38%, 4/18/2029 35,000 37,308
Morgan Stanley Capital Inc.
(4)7.22%, 7/15/2029 35,000 36,859
Nomura Asset Securities Corp.
(4)6.69%, 3/15/2030 34,000 34,406
- ----------------------------------------------------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $357,408) 366,286
- ----------------------------------------------------------
TAXABLE MUNICIPAL BONDS (0.3%)
- ----------------------------------------------------------
Oakland CA Pension Obligation
6.98%, 12/15/2009 20,000 21,052
Southern CA Public Power Auth.
(Power Project)
6.93%, 5/15/2017 30,000 32,040
Chelan County Washington
Public Utility Dist.
7.07%, 6/1/2007 10,000 10,601
7.10%, 6/1/2008 12,000 12,907
- ----------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS
(COST $72,000) 76,600
- ----------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- ----------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (3.0%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.55%-5.56%, 6/1/1998--Note F $533,220 $ 533,220
5.57%, 6/1/1998 190,953 190,953
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $724,173) 724,173
- ----------------------------------------------------------
TOTAL INVESTMENTS (101.9%)
(COST $18,512,377) 25,161,334
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.9%)
- ----------------------------------------------------------
Other Assets--Notes C and F 243,357
Liabilities--Note F (715,504)
- ----------------------------------------------------------
(472,147)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 779,030,576 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $24,689,187
==========================================================
NET ASSET VALUE PER SHARE $31.69
==========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
(1)Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of the company. The total market value of
investments in affiliated companies was $258,599,000.
(2)Scheduled principal and interest payments are guaranteed by MBIA (Municipal
Bond Insurance Association).
(3)Scheduled principal and interest payments are guaranteed by FSA (Financial
Security Assurance).
(4)The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
ADR--American Depositary Receipt.
MTN--Medium-Term Note.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- --------------------------------------------------------
AT MAY 31, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------
<S> <C> <C>
Paid in Capital $16,777,605 $21.54
Undistributed Net
Investment Income 188,655 .24
Accumulated Net
Realized Gains 1,073,970 1.38
Unrealized Appreciation--
Note E 6,648,957 8.53
- --------------------------------------------------------
NET ASSETS $24,689,187 $31.69
========================================================
</TABLE>
18
<PAGE> 21
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
WELLINGTON FUND
SIX MONTHS ENDED MAY 31, 1998
(000)
- --------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 163,346
Interest 294,882
-------------
Total Income 458,228
-------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 4,430
Performance Adjustment (1,103)
The Vanguard Group--Note C
Management and Administrative 28,449
Marketing and Distribution 2,747
Taxes (other than income taxes) 857
Custodian Fees 127
Auditing Fees 14
Shareholders' Reports 318
Annual Meeting and Proxy Costs 83
Trustees' Fees and Expenses 23
-------------
Total Expenses 35,945
Expenses Paid Indirectly--Note C (779)
-------------
Net Expenses 35,166
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 423,062
- --------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 1,077,542
- --------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 713,742
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,214,346
========================================================================================================
</TABLE>
*Dividend income from affiliated companies was $4,501,000.
19
<PAGE> 22
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>
- -------------------------------------------------------------------------------------------------------------------------
WELLINGTON FUND
---------------------------------
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 1998 NOV. 30, 1997
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 423,062 $ 738,661
Realized Net Gain 1,077,542 1,079,218
Change in Unrealized Appreciation (Depreciation) 713,742 1,409,192
---------------------------------
Net Increase in Net Assets Resulting from Operations 2,214,346 3,227,071
---------------------------------
DISTRIBUTIONS
Net Investment Income (526,130) (661,099)
Realized Capital Gain (1,082,892) (647,264)
---------------------------------
Total Distributions (1,609,022) (1,308,363)
---------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 2,722,974 4,070,135
Issued in Lieu of Cash Distributions 1,529,611 1,236,753
Redeemed (1,509,004) (2,390,687)
---------------------------------
Net Increase from Capital Share Transactions 2,743,581 2,916,201
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 3,348,905 4,834,909
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 21,340,282 16,505,373
---------------------------------
End of Period $ 24,689,187 $21,340,282
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 88,433 143,031
Issued in Lieu of Cash Distributions 52,125 46,059
Redeemed (48,841) (84,173)
---------------------------------
Net Increase in Shares Outstanding 91,717 104,917
=========================================================================================================================
</TABLE>
20
<PAGE> 23
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. Finally, the table lists the Fund's Average Commission Rate
Paid, a disclosure required by the Securities and Exchange Commission beginning
in 1996. This rate is calculated by dividing total commissions paid on portfolio
securities by the total number of shares purchased and sold on which commissions
were charged.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
WELLINGTON FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $31.05 $28.34 $24.57 $19.33 $20.78 $19.34
=======================================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .56 1.11 1.02 .96 .88 .92
Net Realized and Unrealized Gain (Loss)
on Investments 2.39 3.77 4.00 5.19 (1.03) 1.62
-----------------------------------------------------------------------
Total from Investment Operations 2.95 4.88 5.02 6.15 (.15) 2.54
-----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.74) (1.06) (.97) (.88) (.92) (.94)
Distributions from Realized Capital Gains (1.57) (1.11) (.28) (.03) (.38) (.16)
-----------------------------------------------------------------------
Total Distributions (2.31) (2.17) (1.25) (.91) (1.30) (1.10)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $31.69 $31.05 $28.34 $24.57 $19.33 $20.78
=======================================================================================================================
TOTAL RETURN 10.15% 18.60% 21.26% 32.70% -0.82% 13.62%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $24,689 $21,340 $16,505 $12,333 $8,638 $7,917
Ratio of Total Expenses to
Average Net Assets 0.31%* 0.29% 0.31% 0.33% 0.35% 0.34%
Ratio of Net Investment Income to
Average Net Assets 3.65%* 3.97% 4.08% 4.37% 4.35% 4.55%
Portfolio Turnover Rate 24%* 27% 30% 24% 32% 34%
Average Commission Rate Paid $.0553 $.0571 $.0572 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
Vanguard/Wellington Fund is registered under the Investment Company Act of 1940
as a diversified open-end investment company, or mutual fund.
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 and 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 S&P 500 Index and the Lehman
Brothers Long Corporate AA or Better Bond Index. For the six months ended May
31, 1998, the advisory fee represented an effective annual basic rate of 0.04%
of the Fund's average net assets before a decrease of $1,103,000 (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 Trustees. At May 31, 1998,
the Fund had contributed capital of $1,395,000 to Vanguard (included in Other
Assets), representing 7.0% of Vanguard's capitalization. The Fund's Trustees and
officers are also Directors and officers of Vanguard.
Vanguard has asked the Fund's investment adviser to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate to the Fund part of the commissions generated. Such
rebates are used solely to reduce the Fund's administrative expenses. For the
six months ended May 31, 1998, directed brokerage arrangements reduced the
Fund's expenses by $779,000 (an annual rate of 0.01% of average net assets).
22
<PAGE> 25
D. During the six months ended May 31, 1998, the Fund purchased $3,035,179,000
of investment securities and sold $2,125,727,000 of investment securities, other
than U.S. government securities and temporary cash investments. Purchases and
sales of U.S. government securities were $1,402,319,000 and $610,118,000,
respectively.
E. At May 31, 1998, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $6,648,957,000,
consisting of unrealized gains of $6,741,137,000 on securities that had risen in
value since their purchase and $92,180,000 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 May 31, 1998,
was $929,922,000, for which the Fund had received as collateral cash of
$533,220,000 and U.S. Treasury securities with a market value of $422,352,000.
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.
23
<PAGE> 26
HONORARY CHAIRMAN
WALTER L. MORGAN, Founder.
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.
ROBERT E. CAWTHORN
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
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> 27
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
Q212-5/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[THE VANGUARD LOGO GROUP]
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.
