VANGUARD
WELLINGTON FUND
SEMIANNUAL
REPORT
MAY 31,1999
[A MEMBER OF THE VANGUARD GROUP LOGO]
<PAGE>
AT VANGUARD, WE BELIEVE
THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
Our report cover pays homage to three anniversaries, each of great significance
to The Vanguard Group:
o The 200th anniversary of the Battle of the Nile, which commenced on August
1, 1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto- "Leading the way"-serves as a guiding principle
for our company.
o The 100th birthday, on July 23, 1998, of Walter L. Morgan, founder of
Wellington Fund, the oldest member of what became The Vanguard Group. Mr.
Morgan was friend and mentor to Vanguard founder John C. Bogle, and helped
to shape the standards and business principles that Mr. Bogle laid down for
Vanguard at its beginning nearly 25 years ago: a stress on balanced,
diversified investments; insistence on fair dealing and candor with
clients; and a focus on long-term investing. To our great regret, Mr.
Morgan died on September 2, 1998.
o The 70th anniversary, on December 28, 1998, of the incorporation of
Vanguard Wellington Fund. It is the nation's oldest balanced mutual fund,
and one of only a handful of funds created in the 1920s that are still in
operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[COMPASS GRAPHIC]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
3
REPORT FROM
THE ADVISER
5
PERFORMANCE SUMMARY
7
FUND PROFILE
8
FINANCIAL STATEMENTS
12
For an update on our Year 2000
preparedness, see page 23.
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE>
FELLOW SHAREHOLDER,
[PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Vanguard Wellington Fund returned +5.6% during the six months ended May 31,
1999, the first half of its fiscal year. The gain was respectable by absolute
standards but slightly trailed the +6.3% return earned by both of our
performance benchmarks-the average balanced mutual fund and an unmanaged
composite stock/bond index.
The table below compares our total return (capital change plus reinvested
dividends) for the half-year with those of the average balanced fund (as
calculated by Lipper) 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. For reference, the S&P 500 Index gained
+12.6% during the six months, while the Lehman Long Corporate AA or Better Index
declined -4.6%.
The fund's return is based on a decrease in net asset value from $32.29 per
share on November 30, 1998, to $30.70 per share on May 31, 1999, and is adjusted
for dividends of $0.72 per share paid from net investment income and a
distribution of $2.44 per share paid from net realized capital gains. The fund's
yield as of May 31 was 3.4%.
<TABLE>
<CAPTION>
- --------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
MAY 31, 1999
- --------------------------------------------------
<S> <C>
Vanguard Wellington Fund +5.6%
- --------------------------------------------------
Average Balanced Fund +6.3%
- --------------------------------------------------
Wellington Composite Index* +6.3%
- --------------------------------------------------
S&P 500 Index +12.6%
- --------------------------------------------------
Lehman Long Corporate AA or
Better Bond Index -4.6%
- --------------------------------------------------
*Weighted 65% S&P 500 Index and 35% Lehman Long
Corporate AA or Better Index.
</TABLE>
THE PERIOD IN REVIEW
Continued strong expansion of the U.S. economy helped boost stock prices but
also resulted in higher interest rates and lower bond prices during the six
months ended May 31. Led by a surge in consumer spending, which in turn was
fueled by high employment and rising incomes, the economy grew at an annualized
rate of 6.0% during the fourth quarter of 1998 and at a 4.3% rate during the
first quarter of 1999.
The overall U.S. stock market, as measured by the Wilshire 5000 Equity
Index, gained +13.2% for the six months ended May 31. However, there were
significant divergences within the market. During the first four months of the
new fiscal year, the stock market's advance was led by large-capitalization
growth stocks--the sector that had dominated market performance for the past
several years. During April and May, there was a distinct switch in market
leadership, as small-cap stocks as well as value stocks--those characterized by
below-average prices in relation to such fundamental measures as book value,
earnings, and dividends--outperformed the large-cap growth stocks. The strength
of the U.S. economy and signs of improvement in many foreign economies boosted
prospects and share prices of such value-stock sectors as energy, machinery, and
basic materials producers. For the half-year, returns on large- and small-cap
stocks and on growth and value stocks diverged by only 1 to 2 percentage points.
Bond prices declined during the six months as interest rates moved higher
in response to the economy's strength and to a worrisome inflation report for
April.
1
<PAGE>
Yields on U.S. Treasury bonds rose by about 75 to 90 basis points (0.75 to 0.90
percentage point). The benchmark 30-year U.S. Treasury bond's yield rose from
5.06% at the beginning of the fiscal year to 5.83% as of May 31. The Lehman
Aggregate Bond Index, which has an intermediate-term average maturity and is a
good measure of the overall taxable bond market, returned -0.8%, as a -3.8%
price decline offset interest income of +3.0%. Long-term bonds, which are most
sensitive to changes in interest rates, had larger declines (-7.8% in the price
of the Lehman Long Corporate AA or Better Index, for a total return--including a
half-year's interest income--of -4.6%).
PERFORMANCE OVERVIEW
Wellington Fund's +5.6% return was 0.7 percentage point behind the +6.3% total
return of both the average balanced fund and our theoretical stock/bond index.
Our modest shortfall versus our average peer was due primarily to the longer
maturity and duration of our bond holdings. At 18.0 years, our bond holdings'
average maturity is nearly double that of the holdings in the typical balanced
fund, making the price of our holdings nearly twice as sensitive as the average
fund to changes in interest rates. This factor worked against us during the
half-year, but aids our performance when interest rates are stable or declining.
Our return was hurt in comparison both with other funds and with the S&P
500 Index by our light commitment to technology stocks--5.7% on average during
the half- year, versus 17.0% for the index. The tech sector earned about +26%
during the six months, so being underweighted was a negative for us. Also, our
performance was hurt by subpar returns on our stock selections in the utilities
and producer-durables sectors. On a positive note, our adviser's selections in
the health-care sector performed quite well.
As always, Wellington Fund benefited from its low operating costs. Your
fund's expense ratio (an annualized 0.32% of average net assets during the
half-year) is nearly a full percentage point lower than that of the average
balanced fund (1.31% of assets).
IN SUMMARY
Wellington Fund will mark 70 years of operation on July 1, 1999. It is the
oldest balanced mutual fund in the nation, and we are proud not only of its
longevity but also of the contribution the fund has made toward meeting the
needs of millions of investors over the past seven decades.
The fund's original formulation as a balanced portfolio of both stocks and
bonds has stood the test of time quite well. Balance--holding a mixture of
stocks, bonds, and cash reserves appropriate to your investment time horizon,
goals, and tolerance for risk--is the foundation for successful investment
programs. This is so because financial markets are unpredictable--as illustrated
by the divergence of stock and bond returns during the first half of Wellington
Fund's fiscal 1999. A balanced approach helps investors to ride out the
inevitable turbulence in the markets and to adhere to their long-term goals and
plans. Similarly, we pledge that Wellington Fund will continue "staying the
course" in its balanced investment strategy.
/S/ /S/
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
June 14, 1999
2
<PAGE>
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 1999
Sentiment shifted on the world's financial markets during the six months ended
May 31, 1999. The period began amid lingering anxiety over the state of the
world economy. Japan was in recession, economic growth was only sluggish in
Europe, and many developing nations were crisis-ridden. The United States was
just about the sole bright spot.
However, as the period progressed and reports showed rapid growth in U.S.
business activity, there was an evident reduction in anxiety. Midway through the
period, leadership in the U.S. stock market shifted away from a relatively
narrow group of large growth stocks regarded as relatively recession-proof and
toward cyclical stocks that had been depressed by fears of recession and by
falling demand from overseas markets. As confidence in global economic growth
grew, interest rates rose and bond prices declined in the United States due to
expectations that the Federal Reserve Board would raise interest rates to ward
off a potential surge in inflation. Internationally, however, a growing
conviction that the worst was over led to solid gains for stock markets in Japan
and several emerging markets.
U.S. STOCK MARKETS
Stock prices climbed during the half-year, reflecting the healthy domestic
economy and investors' confidence in future growth of corporate profits. The
overall market, as measured by the Wilshire 5000 Index, rose 13.2% during the
period, while the S&P 500 Index, a barometer for large-capitalization stocks,
gained 12.6%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1999
-----------------------------
6 MONTHS 1 YEAR 5 YEARS*
- --------------------------------------------------------------------------------
STOCKS
<S> <C> <C> <C> <C>
S&P 500 Index 12.6% 21.0% 25.9%
Russell 2000 Index 11.0 -2.7 13.6
Wilshire 5000 Index 13.2 17.7 23.8
MSCI EAFE Index 4.2 4.7 8.0
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -0.8% 4.4% 7.8%
Lehman 10 Year Municipal Bond Index 0.4 4.6 7.2
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.2 4.8 5.2
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.3% 2.1% 2.4%
- --------------------------------------------------------------------------------
*Annualized.
</TABLE>
During the early part of the semiannual period, stock investors favored
large-cap growth stocks-- a group perceived as less subject to harm during an
economic downturn. In the United States, the Federal Reserve had already cut
short-term rates by a total of 0.75 percentage point in the autumn. Foreign
central banks continued cutting rates into the new year to combat sluggish
economic conditions in Europe, Asia, and Latin America. Late in the semiannual
period, U.S. investors were rewarded for their earlier optimism with a series of
surprisingly strong gains in corporate earnings--a record percentage of
companies in the S&P 500 reported earnings that beat analysts' estimates.
3
<PAGE>
Throughout the period, U.S. consumers provided support for the global
economy: Spending by consumers continued to set records, and American households
on average spent nearly every dollar of income they earned. The upbeat mood
stemmed from a bright employment picture (unemployment hovered near 30-year
lows) and rising incomes.
Improved prospects for global economic growth propelled several formerly
lackluster areas of the stock market, particularly commodity-related companies
and "cyclical" companies such as machinery, chemical, and paper manufacturers.
Higher oil prices, boosted by firmer demand and by agreement among oil-producing
nations to limit production, revived the "other energy" and integrated-oils
sectors, which gained about 36% and 16%, respectively. Technology stocks, up 26%
for the six months, were the market's leaders, but most of the sector's gains
came during the first three months of the period. Consumer-staples companies,
beset by tough price competition and hurt by the stronger U.S. dollar in Europe,
were the worst-performing group in the half-year, down about 7%.
U.S. BOND MARKETS
For bond investors, the powerful economic expansion evident during the half-year
was too much of a good thing. Although the inflation rate did not get out of
hand--consumer prices rose 1.3% during the six months and were up 2.1% for the
twelve months ended May 31--investors were worried that low unemployment (4.2%
of the labor force in May) would trigger an acceleration in wages and push up
prices.
Yields on U.S. Treasury bonds, which had fallen during the summer and early
fall of 1998 as investors flocked to what they regarded as a haven from
instability in other markets, rose by three-quarters of a percentage point or
more. The yield of the 30-year Treasury bond rose 77 basis points, to 5.83% on
May 31 from 5.06% on November 30, 1998. The yield of the 10-year Treasury rose
91 basis points, to 5.62% from 4.71%. Short-term rates didn't rise as far:
Yields on 3-month T-bills were up on balance by only 15 basis points, to 4.63%
on May 31. Bond prices, which move in the opposite direction from interest
rates, fell. The Lehman Aggregate Bond Index, a benchmark for investment-grade
taxable bonds, declined 0.8% on a total-return basis, as bond prices declined an
average of 3.8%, outweighing the 3.0% in interest income for the period.
Municipal bonds suffered only modest price declines and outperformed
Treasury securities during the period--a switch from the previous six months,
when Treasuries were the strongest segment of the bond market.
INTERNATIONAL STOCK MARKETS
Most overseas stock markets generated positive returns during the six months,
despite lingering economic weakness in Asia and sluggish growth in most of
Europe's developed economies. However, the strong rise in the value of the U.S.
dollar against European currencies negated most of the advances in that region
for U.S. investors. Emerging markets generally rebounded strongly, having
suffered steep losses in 1997 and 1998.
Overall, the developed markets outside the United States gained 4.2% in
U.S.-dollar terms, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index. The biggest increases were in the
Pacific region and in emerging markets, where investors saw hopeful signs of
economic recovery. The MSCI Pacific Index rose 14.2% in U.S.-dollar terms,
despite a continuing recession in Japan. The MSCI Select Emerging Markets Free
Index climbed 19.0%. European stocks were up a scant 0.3% in dollar terms, as
gains of about 8% in local currencies were diminished by the dollar's rise
against the euro--a common currency adopted by 11 nations--and other regional
currencies.
4
<PAGE>
REPORT FROM THE ADVISER
Vanguard Wellington Fund's return for the six months ended May 31, 1999, was
5.6%. During this period, the average balanced fund and the unmanaged 65%
stock/35% bond composite index both returned 6.3%. The fund's equities, which
made up 67% of assets at the end of May, gained 10.9% during the period,
compared with a 12.6% total return for the S&P 500 Index. Our fixed-income
securities, 31% of assets, declined -3.5% before expenses, compared with a -4.6%
decline for the long-term bond component of our benchmark index.
The stock market rose impressively during the half-year, notwithstanding a
general rise in interest rates. Within the stock market, performance through
late March was dominated by a small group of high-priced growth stocks,
particularly in the technology and telecommunications sectors. In April, value
stocks--lower-priced companies with lower growth prospects--made a stunning
comeback. Wellington Fund, which emphasizes conservatively managed,
dividend-paying companies with relatively low valuation parameters, is
predominantly exposed to the value group. The fund's stock holdings trailed the
S&P 500 by 9 percentage points during the first three months of the fiscal year
and exceeded the index by 7.9 points during the second three months.
The underperformance of the value sector, which started in 1997 and became
more severe in 1998, is tied to the economic environment in a number of ways.
First, the Asian economic crisis hurt many U.S. basic-commodity producers and
manufacturers, as orders from Asia dried up and Asian countries tried to
stimulate their economies by exporting more products. Second, low-priced imports
to the U.S. market, combined with productivity gains and wage moderation in the
United States, led to low inflation and declining interest rates until late
1998. Finally, substantial worries about the world financial system led the
Federal Reserve Board to implement three interest rate cuts late in 1998. These
developments, at least until year-end 1998, were quite favorable for growth
stocks, which do relatively well when the prevailing interest rate that
investors use to discount future earnings is low. The recovery in value stocks
since early April similarly can be attributed to the uptrend in interest rates
and to growing confidence among investors that the world economy will grow at a
somewhat faster pace, thus reducing the specter of deflation.
During the period, turnover of our stock holdings continued at an annual
rate in the 20% to 30% range. Positive contributors to the fund's performance
during the half-year included stocks in the health, energy, and basic materials
sectors. However, our performance relative to our benchmarks was hurt by our
underweighting in the information-technology and utilities sectors. We continue
to emphasize the financial- services, materials, energy, industrial and
commercial, and health sectors.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
New names include Ace, an insurance company; Alcatel, the French
telecommunications firm; Black &
5
<PAGE>
Decker, a power-tool manufacturer; and Emerson Electric, an electric-equipment
manufacturer. Although stock market indexes set new records this spring, there
have been sharp divergences in relative valuations, which has enabled us to find
companies--such as the ones mentioned here--with attractive prices. We continue
to have an above-average exposure to the basic materials and energy sectors,
where leading companies such as Alcoa and BP Amoco handled the 1998 downturn in
energy prices quite well, and are well positioned to participate in the
improving environment we see developing in 1999.
Turning to the bond portion of the fund, interest rates rose sharply during
the six months, reflecting the strength of the U.S. economy and prospects for
economic recovery in Asia and Latin America. The primary strategic change within
our fixed- income holdings during the half-year was to raise our commitment to
high-quality corporate bonds, while reducing our U.S. Treasury holdings. We had
maintained a large position in Treasuries last year because we believed that
corporate bonds were not attractively priced. But during the second half of
1998, Treasuries outperformed corporate bonds, and corporates became
substantially more attractive. Our Treasury position has been reduced to about
9% of the bond portion of the fund to take advantage of the more attractive
yields on corporate bonds.
We have been pleasantly surprised by how stable the stock market has been,
given the change in market leadership and the sharp correction in the
speculative Internet sector since April. Vanguard Wellington Fund is well
positioned if we are correct in our view that world economic growth will pick up
later in 1999 and that inflation will remain stable or increase only modestly
going forward.
Ernst H. von Metzsch, Senior Vice President and Portfolio Manager
Wellington Management Company, LLP
June 10, 1999
6
<PAGE>
PERFORMANCE SUMMARY
WELLINGTON FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1978-MAY 31, 1999
- --------------------------------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
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 9.6 4.2 13.8 20.1
1999** 3.1 2.5 5.6 6.3
- --------------------------------------------------------------------------------
*Weighted 65% S&P 500 Index and 35% Lehman Long Corporate AA or Better Index.
**Six months ended May 31, 1999.
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 MARCH 31, 1999*
- --------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wellington Fund 7/1/1929 4.01% 17.18% 8.46% 5.15% 13.61%
- --------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
</TABLE>
7
<PAGE>
FUND PROFILE
WELLINGTON FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 10 and 11.
TOTAL FUND CHARACTERISTICS
- -------------------------------
Yield 3.4%
Turnover Rate 23%*
Expense Ratio 0.32%*
Cash Reserves 2.1%
*Annualized.
FUND ASSET ALLOCATION
- -------------------------------
[GRAPH]
Cash Reserves 2%
Stocks 67%
Bonds 31%
TOTAL FUND VOLATILITY MEASURES
- --------------------------------
WELLINGTON S&P 500
- --------------------------------
R-Squared 0.82 1.00
Beta 0.59 1.00
TEN LARGEST STOCKS (% OF EQUITIES)
- ---------------------------------------------------
Citigroup, Inc. 3.1%
International Business Machines Corp. 2.6
Motorola, Inc. 2.6
CIGNA Corp. 2.5
Xerox Corp. 2.5
Pharmacia & Upjohn, Inc. 2.4
Ford Motor Co. 2.3
Alcoa Inc. 2.2
Dow Chemical Co. 2.1
Union Pacific Corp. 2.0
- ---------------------------------------------------
Top Ten 24.3%
- ---------------------------------------------------
Top Ten as % of Total Net Assets 16.2%
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- --------------------------------------------------------------------------------
MAY 31, 1998 MAY 31, 1999
-------------------------------------------------
WELLINGTON WELLINGTON S&P 500
-------------------------------------------------
Auto & Transportation ......... 8.3% 10.9% 2.6%
Consumer Discretionary ........ 5.2 7.1 12.6
Consumer Staples .............. 2.6 2.5 8.2
Financial Services ............ 19.0 16.1 16.7
Health Care ................... 11.9 9.8 11.1
Integrated Oils ............... 10.0 10.0 5.7
Other Energy .................. 1.3 2.1 1.2
Materials & Processing ........ 17.2 14.6 3.7
Producer Durables ............. 9.1 8.2 4.0
Technology .................... 1.2 6.4 17.1
Utilities ..................... 8.8 8.1 11.9
Other ......................... 5.4 4.2 5.2
- --------------------------------------------------------------------------------
8
<PAGE>
EQUITY CHARACTERISTICS
- -----------------------------------------------
WELLINGTON S&P 500
- -----------------------------------------------
Number of Stocks 102 500
Median Market Cap $21.4B $61.1B
Price/Earnings Ratio 24.0x 28.3x
Price/Book Ratio 3.0x 4.9x
Dividend Yield 2.2% 1.3%
Return on Equity 19.0% 22.0%
Earnings Growth Rate 10.5% 14.9%
Foreign Holdings 12.5% 1.5%
EQUITY INVESTMENT FOCUS
- -----------------------------------------------
[GRID]
Market Cap Large
Style Value
FIXED-INCOME CHARACTERISTICS
- ---------------------------------------------
LEHMAN
WELLINGTON INDEX*
- ---------------------------------------------
Number of Bonds 224 7,524
Yield to Maturity 7.0 6.4%
Average Coupon 7.1% 6.8%
Average Maturity 18.0 years 9.0 years
Average Quality Aa3 Aaa
Average Duration 8.9 years 4.9 years
*Lehman Aggregate Bond Index.
FIXED-INCOME INVESTMENT FOCUS
- -----------------------------------------------
[GRID]
Credit Quality Investment-Grade Corporte
Average Maturity Long
DISTRIBUTION BY ISSUER (% OF BONDS)
- -------------------------------------------
Asset-Backed 0.0%
Commercial Mortgage-Backed 2.9
Finance 24.1
Foreign 10.5
Government Mortgage-Backed 3.9
Industrial 32.5
Treasury/Agency 9.0
Utilities 16.2
Other 0.9
- -------------------------------------------
Total 100.0%
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- -------------------------------------------
Treasury/Agency 9.0%
Aaa 11.6
Aa 23.3
A 43.9
Baa 11.9
Ba 0.0
B 0.0
Not Rated 0.3
- -------------------------------------------
Total 100.0%
9
<PAGE>
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average duration
of five years would decline by about 5%. If rates decrease by a percentage
point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies assign ratings after appraising an issuer's ability to meet its
obligations. U.S. Treasury securities are considered to have the highest credit
quality.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock and
bond investments.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a fund's holdings by type of issuer or
type of instrument.
DIVIDEND YIELD. The current, annualized rate of dividends paid on a share of
stock, divided by its current share price. For a fund, the weighted average
yield for stocks it holds.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a fund's equity
holdings in terms of two attributes: market capitalization (large, medium, or
small) and relative valuation (growth, value, or a blend).
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FIXED-INCOME INVESTMENT FOCUS. This grid indicates the focus of a fund's
fixed-income holdings in terms of two attributes: average maturity (short,
medium, or long) and average credit quality (Treasury/agency, investment-grade
corporate, or below investment-grade).
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
FUND ASSET ALLOCATION. This chart shows the proportions of a fund's holdings
allocated to different types of assets.
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
10
<PAGE>
NUMBER OF BONDS. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular bond issuer.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a fund holds,
the more diversified it is and the more likely to perform in line with the
overall stock market.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a fund's common stocks that come from
each of the major industry groups that compose the stock market.
TEN LARGEST STOCKS. The percentage of equity assets that a fund has invested in
its ten largest stocks. As this percentage rises, a fund's returns are likely to
be more volatile because they are more dependent on the fortunes of a few
companies.
TURNOVER RATE. An indication of trading activity during the period. Funds with
high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
11
<PAGE>
FINANCIAL STATEMENTS
MAY 31, 1999 (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, 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.
- --------------------------------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (66.9%)
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION (7.3%)
Ford Motor Co. 7,089,515 $ 404,545
Union Pacific Corp. 6,195,500 353,531
General Motors Corp. 3,791,000 261,579
Norfolk Southern Corp. 5,000,100 163,753
KLM Royal Dutch Air Lines
NV ADR 5,142,857 149,143
CSX Corp. 3,000,000 140,812
Canadian NationalRailway Co. 2,200,000 140,800
o Delphi Automotive
Systems Corp. 8,653,700 169,829
TRW, Inc. 2,231,600 111,719
British Airways PLC 689,200 49,967
---------
1,945,678
---------
CONSUMER DISCRETIONARY (4.8%)
Kimberly-Clark Corp. 5,600,000 328,650
Sears,Roebuck & Co. 3,671,300 175,534
Whirlpool Corp. 2,420,000 156,090
May Department Stores Co. 3,462,000 149,948
Eastman Kodak Co. 2,129,600 144,014
Black & Decker Corp. 2,342,300 133,365
J.C. Penney Co., Inc. 2,041,700 105,530
Gillette Co. 1,605,000 81,855
---------
1,274,986
---------
CONSUMER STAPLES (1.6%)
Philip Morris Cos., Inc. 5,000,000 192,813
H.J. Heinz Co. 3,000,000 144,938
Bestfoods 2,000,000 100,000
---------
437,751
---------
FINANCIAL SERVICES (10.8%)
Citigroup, Inc. 8,264,000 547,490
CIGNA Corp. 4,800,000 447,600
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Wachovia Corp. 4,000,000 $ 353,000
U.S. Bancorp 8,430,300 273,985
Marsh & McLennan Cos., Inc. 3,442,500 250,442
MBIA, Inc. 2,677,600 182,914
Bank of America Corp. 2,102,680 136,017
Jefferson-Pilot Corp. 1,950,000 131,991
Ace, Ltd. 4,000,000 122,000
Fannie Mae 1,700,000 115,600
Spieker Properties, Inc.REIT 2,000,000 81,875
Equity Office Properties
Trust REIT 2,500,000 70,625
Archstone Communities Trust REIT 3,000,000 67,500
Equity Residential Properties
Trust REIT 1,300,000 62,319
Starwood Hotels & Resorts
Worldwide, Inc. 1,126,500 36,893
---------
2,880,251
---------
HEALTH CARE (6.6%)
Pharmacia & Upjohn, Inc. 7,865,400 436,038
Johnson & Johnson 3,600,000 333,450
Bristol-Myers Squibb Co. 3,800,000 260,775
Abbott Laboratories 5,400,000 244,012
Baxter International, Inc. 3,398,200 219,396
American Home
Products Corp. 2,500,000 144,062
Columbia/HCA Healthcare Corp. 5,000,000 117,812
---------
1,755,545
---------
INTEGRATED OILS (6.7%)
Royal Dutch Petroleum
Co. ADR 5,412,048 306,119
BP Amoco PLC ADR 2,646,666 283,524
12
<PAGE>
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Repsol SA ADR 10,493,100 $ 188,876
Chevron Corp. 2,000,000 185,375
o Total SA ADR 2,533,999 154,099
USX-Marathon Group 5,000,000 149,688
Texaco Inc. 1,800,000 117,900
Phillips Petroleum Co. 2,200,000 115,363
Unocal Corp. 2,865,000 113,884
Sunoco, Inc. 3,000,000 91,313
Exxon Corp. 1,000,000 79,875
---------
1,786,016
---------
OTHER ENERGY (1.4%)
Schlumberger Ltd. 3,000,000 180,563
Halliburton Co. 2,509,000 103,810
Baker Hughes, Inc. 3,000,000 93,375
---------
377,748
---------
MATERIALS & PROCESSING (9.8%)
Alcoa Inc. 7,242,200 398,321
Dow Chemical Co. 3,038,400 369,166
E.I. du Pont de Nemours & Co. 5,145,200 336,689
(1)Phelps Dodge Corp. 3,604,900 186,779
o Rhone-Poulenc SA ADR 3,122,316 146,359
BOC Group PLC ADR 4,000,000 137,000
PPG Industries, Inc. 2,200,000 133,513
Temple-Inland Inc. 1,984,600 132,968
Willamette Industries, Inc. 3,071,000 130,134
British Steel PLC ADR 6,000,000 130,125
Imperial Chemical Industries
PLC ADR 2,515,000 110,503
International Paper Co. 1,811,000 90,550
Reynolds Metals Co. 1,600,000 85,100
Lubrizol Corp. 2,500,000 68,750
Weyerhaeuser Co. 862,600 53,535
Cabot Corp. 2,238,300 52,880
Witco Chemical Corp. 2,714,200 47,498
---------
2,609,870
---------
PRODUCER DURABLES (5.5%)
Xerox Corp. 7,800,000 438,262
Caterpillar, Inc. 3,720,000 204,135
Northrop Grumman Corp. 3,000,000 202,500
Alcatel SA ADR 5,900,000 139,756
United Technologies Corp. 2,000,000 124,125
Pall Corp. 4,923,700 98,782
Thomas & Betts Corp. 2,284,500 97,805
Emerson Electric Co. 1,300,000 83,037
Parker Hannifin Corp. 1,704,800 74,478
---------
1,462,880
---------
TECHNOLOGY (4.3%)
International Business
Machines Corp. 4,020,000 467,576
Motorola, Inc. 5,500,000 455,469
Hewlett-Packard Co. 2,410,800 227,369
---------
1,150,414
---------
UTILITIES (5.4%)
Bell Atlantic Corp. 5,136,000 281,196
AT&T Corp. 4,349,700 241,408
ALLTEL Corp. 2,723,400 195,234
Duke Energy Corp. 2,500,000 150,781
SBC Communications Inc. 2,872,600 146,862
Texas Utilities Co. 2,490,000 112,050
Cinergy Corp. 3,155,000 107,664
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Carolina Power & Light Co. 2,000,000 $ 87,500
Pinnacle West Capital Corp. 1,763,600 73,851
PacifiCorp 3,150,000 57,291
---------
1,453,837
---------
OTHER (2.7%)
(1)Cooper Industries, Inc. 5,085,700 252,060
Minnesota Mining &
Manufacturing Co. 2,000,000 171,500
Canadian Pacific Ltd. 7,000,800 160,143
Norsk Hydro AS ADR 3,556,300 142,474
---------
726,177
---------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $11,286,901) 17,861,153
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
CORPORATE BONDS (22.6%)
- --------------------------------------------------------------------------------
FINANCE (7.5%)
Allstate Corp.
6.75%, 5/15/2018 $ 45,000 43,444
Ambac, Inc.
7.50%, 5/1/2023 25,000 25,605
American ReCorp
7.45%, 12/15/2026 54,000 56,044
Associates Corp. of North America
6.875%, 11/15/2008 50,000 50,423
BB&T Corp.
7.25%, 6/15/2007 36,900 37,522
Banc One Corp.
7.625%, 10/15/2026 20,000 20,851
9.875%, 3/1/2019 20,000 24,675
BankBoston Corp.
6.625%, 12/1/2005 27,000 26,703
BankAmerica Corp.
7.20%, 4/15/2006 20,000 20,331
British Gas Finance
6.625%, 6/1/2018 50,000 47,736
CIGNA Corp.
7.875%, 5/15/2027 50,000 51,796
The Chase Manhattan Corp.
6.50%, 1/15/2009 10,000 9,775
6.50%, 1/15/2009 20,000 19,550
Chubb Corp.
6.15%, 8/15/2005 20,000 19,720
6.60%, 8/15/2018 22,000 21,224
Cincinnati Financial Corp.
6.90%, 5/15/2028 40,000 38,388
Citigroup, Inc.
6.625%, 1/15/2028 50,000 46,337
Citicorp
6.75%, 8/15/2005 40,000 40,246
Comerica Bank
7.875%, 9/15/2026 20,000 21,514
8.375%, 7/15/2024 20,500 21,614
Dean Witter, Discover & Co.
6.75%, 10/15/2013 24,275 23,681
7.07%, 2/10/2014 17,500 17,338
Equitable Companies Inc.
7.00%, 4/1/2028 50,000 48,881
13
<PAGE>
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- --------------------------------------------------------------------------------
Farmers Exchange Capital
7.05%, 7/15/2028 $ 50,750 $ 47,303
First Chicago Corp.
6.375%, 1/30/2009 48,500 47,146
First Colony Corp.
6.625%, 8/1/2003 34,605 34,838
First Union Corp.
7.50%, 4/15/2035 30,000 31,411
Fleet Financial Group
6.875%, 1/15/2028 50,000 47,436
General Electric Global Insurance
Holdings Corp.
7.00%, 2/15/2026 35,000 34,979
General Electric Capital Services
7.50%, 8/21/2035 11,000 11,867
General Electric Capital Corp.
8.125%, 5/15/2012 30,000 33,325
General Motors Acceptance Corp.
6.00%, 4/1/2011 27,370 25,456
General Re Corp.
9.00%, 9/12/2009 32,000 37,866
John Hancock Mutual Life
Insurance Co.
7.375%, 2/15/2024 45,000 45,720
Jackson National Life Insurance Co.
8.15%, 3/15/2027 50,000 53,557
Liberty Mutual Insurance Co.
7.875%, 10/15/2026 56,210 56,907
Lumbermens Mutual Casualty Co.
9.15%, 7/1/2026 55,000 59,790
Metropolitan Life Insurance Co.
7.70%, 11/1/2015 51,000 53,509
NBD Bancorp, Inc.
7.125%, 5/15/2007 25,000 25,550
National City Columbus
7.25%, 7/15/2010 25,000 25,764
National City Bank Pennsylvania
7.25%, 10/21/2011 20,000 20,740
NationsBank Corp.
7.80%, 9/15/2016 50,000 53,271
Norwest Financial Inc.
6.25%, 12/15/2007 35,000 33,940
Pacific Mutual Life
7.90%, 12/30/2023 35,000 37,870
Provident Cos., Inc.
7.25%, 3/15/2028 40,000 39,832
Prudential Insurance Co.
8.30%, 7/1/2025 40,000 45,225
Frank Russell Co.
5.625%, 1/15/2009 50,000 46,492
Sears Roebuck & Co. Acceptance Corp.
6.875%, 10/15/2017 30,000 28,736
SunTrust Bank Atlanta
7.25%, 9/15/2006 35,000 36,046
Torchmark Corp.
7.875%, 5/15/2023 45,000 45,685
Toyota Motor Credit Corp.
5.50%, 12/15/2008 50,000 46,414
Transamerica Financial Corp.
6.40%, 9/15/2008 29,265 28,490
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
UNUM Corp.
6.75%, 12/15/2028 $ 30,000 $ 28,239
US Bank NA Minnesota
5.625%, 11/30/2005 50,000 47,389
Wachovia Corp.
5.625%, 12/15/2008 55,000 50,766
---------
1,994,957
---------
INDUSTRIAL (10.1%)
Airtouch Communications Inc.
6.65%, 5/1/2008 50,000 49,758
Albertson's Inc.
7.75%, 6/15/2026 50,000 53,984
Aluminum Co. of America
6.50%, 6/15/2018 50,000 46,677
Amoco Corp.
6.50%, 8/1/2007 25,000 25,120
Anheuser-Busch Cos., Inc.
7.00%, 12/1/2025 30,000 28,669
Archer-Daniels-Midland Co.
7.50%, 3/15/2027 50,000 52,505
Autozone Inc.
6.50%, 7/15/2008 50,000 48,325
Baxter International, Inc.
7.65%, 2/1/2027 40,000 41,532
Becton, Dickinson & Co.
7.00%, 8/1/2027 25,000 24,445
8.70%, 1/15/2025 20,000 22,162
The Boeing Co.
8.75%, 8/15/2021 40,200 47,178
Bristol-Myers Squibb Co.
6.80%, 11/15/2026 50,000 49,851
CPC International, Inc.
7.25%, 12/15/2026 45,000 46,231
CSX Corp.
7.90%, 5/1/2017 40,000 41,988
Caterpillar Inc.
6.625%, 7/15/2028 50,000 46,318
Champion International Corp.
7.35%, 11/1/2025 40,140 39,116
Coca-Cola Enterprises, Inc.
8.50%, 2/1/2022 50,000 57,425
Continental Airlines
6.648%, 3/15/2019 19,795 19,024
6.90%, 7/2/2019 20,000 19,607
Dean Foods Co.
6.90%, 10/15/2017 38,000 36,943
Diageo PLC
6.125%, 8/15/2005 40,000 39,131
Dover Corp.
6.65%, 6/1/2028 50,000 46,995
E.I. du Pont de Nemours & Co.
6.50%, 1/15/2028 60,000 56,001
Englehard Corp.
6.95%, 6/1/2028 6,175 5,665
Federal Express Corp.
6.72%, 1/15/2022 42,987 42,084
Fluor Corp.
6.95%, 3/1/2007 42,000 41,766
Ford Motor Co.
8.90%, 1/15/2032 45,000 53,622
14
<PAGE>
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
Fortune Brands Inc.
6.25%, 4/1/2008 $ 40,000 $ 39,353
General Motors Corp.
7.70%, 4/15/2016 25,000 26,322
Georgia-Pacific Corp.
9.625%, 3/15/2022 22,000 24,132
International Business
Machines Corp.
6.50%, 1/15/2028 25,000 23,597
8.375%, 11/1/2019 25,000 28,632
Johnson Controls, Inc.
7.125%, 7/15/2017 27,300 26,892
KN Energy, Inc.
7.25%, 3/1/2028 40,000 39,126
Kimberly-Clark Corp.
6.375%, 1/1/2028 50,000 46,367
Eli Lilly & Co.
7.125%, 6/1/2025 50,000 51,450
Lockheed Martin Corp.
7.65%, 5/1/2016 40,000 41,447
Lucent Technologies Inc.
7.25%, 7/15/2006 35,000 36,591
Masco Corp.
6.625%, 4/15/2018 52,500 49,283
Massachusetts Institute
of Technology
7.125%, 11/2/2026 22,000 22,843
Mattel Inc.
6.125%, 7/15/2005 35,000 33,766
McDonald's Corp.
6.375%, 1/8/2028 40,000 37,609
7.375%, 7/15/2033 15,000 14,816
Merck & Co.
6.40%, 3/1/2028 50,000 47,520
Minnesota Mining &
Manufacturing Corp.
6.375%, 2/15/2028 60,000 55,981
Mobil Corp.
8.625%, 8/15/2021 20,000 24,033
Monsanto Co.
6.75%, 12/15/2027 40,000 37,312
Morton International, Inc.
9.25%, 6/1/2020 21,000 24,548
Motorola, Inc.
7.50%, 5/15/2025 51,500 53,525
News America Holdings Inc.
8.00%, 10/17/2016 44,856 47,260
Norfolk Southern Corp.
7.70%, 5/15/2017 50,000 52,217
PPG Industries, Inc.
6.875%, 2/15/2012 13,600 13,511
9.00%, 5/1/2021 19,750 23,677
Phillips Petroleum Co.
9.375%, 2/15/2011 20,000 23,674
Procter & Gamble Co.
9.36%, 1/1/2021 40,000 49,665
Raytheon Co.
7.20%, 8/15/2027 32,000 31,904
7.375%, 7/15/2025 18,000 17,673
Rockwell International Corp.
6.70%, 1/15/2028 40,000 37,891
7.875%, 2/15/2005 17,000 18,017
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
Rohm & Haas Co.
3)9.80%, 4/15/2020 $ 15,000 $ 17,997
Sears, Roebuck & Co.
9.375%, 11/1/2011 14,000 16,544
Southwest Airlines Co.
7.54%, 6/29/2015 30,772 32,347
Stanford University
6.875%, 2/1/2024 24,045 24,245
7.65%, 6/15/2026 30,000 32,881
Tenneco Inc.
7.875%, 4/15/2027 35,000 35,436
Texaco Capital, Inc.
9.75%, 3/15/2020 15,000 19,413
The Timken Co.
6.875%, 5/8/2028 40,000 36,777
Tosco Corp.
7.80%, 1/1/2027 35,000 35,744
Tyco International Group
7.00%, 6/15/2028 40,000 38,635
USA Waste Services Inc.
7.00%, 7/15/2028 40,000 38,031
Ultramar Diamond Shamrock
7.20%, 10/15/2017 40,000 38,144
United Technologies Corp.
6.70%, 8/1/2028 15,000 14,328
8.75%, 3/1/2021 32,000 37,944
Wal-Mart Stores, Inc.
7.25%, 6/1/2013 30,000 31,646
Wendy's International, Inc.
6.35%, 12/15/2005 25,500 24,710
Weyerhaeuser Co.
6.95%, 8/1/2017 40,000 38,857
---------
2,696,435
---------
UTILITIES (5.0%)
AT&T Corp.
7.75%, 3/1/2007 40,000 42,719
Ameritech Capital Funding
6.875%, 10/15/2027 47,250 46,902
Atlantic City Electric Co.
(2)7.00%, 9/1/2023 18,000 17,126
BellSouth Telecommunications
5.875%, 1/15/2009 15,000 14,469
7.50%, 6/15/2033 30,000 30,058
Carolina Power & Light Co.
8.625%, 9/15/2021 31,000 36,701
Central Illinois Public Service
6.125%, 12/15/2028 49,000 44,329
Chesapeake & Potomac
Telephone Co. (MD)
7.15%, 5/1/2023 10,000 9,961
Chesapeake & Potomac
Telephone Co. (VA)
7.625%, 12/1/2012 16,400 17,930
Cincinnati Bell, Inc.
6.30%, 12/1/2028 50,000 45,007
Consolidated Edison Co. of
New York, Inc.
6.45%, 12/1/2007 20,000 19,843
7.50%, 6/15/2023 25,000 24,851
Duke Energy Corp.
6.00%, 12/1/2028 50,000 43,058
7.00%, 7/1/2033 10,000 9,290
15
<PAGE>
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- --------------------------------------------------------------------------------
El Paso Natural Gas Co.
7.50%, 11/15/2026 $ 35,000 $ 35,598
Florida Power Corp.
6.75%, 2/1/2028 44,755 43,299
GTE North, Inc.
6.90%, 11/1/2008 30,000 30,575
GTE Southwest, Inc.
6.00%, 1/15/2006 30,000 29,214
Illinois Bell Telephone Co.
6.625%, 2/1/2025 27,725 25,464
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 50,000 52,856
NGC Corp.
7.125%, 5/15/2018 35,000 32,765
National Rural Utilities
5.75%, 12/1/2008 50,000 46,964
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 34,019 37,948
New York Telephone Co.
6.50%, 4/15/2028 20,000 18,922
7.25%, 2/15/2024 20,000 19,740
Northern States Power Co.
7.125%, 7/1/2025 55,000 56,256
Ohio Bell Telephone Co.
7.85%, 12/15/2022 20,000 20,468
Oklahoma Gas & Electric Co.
6.50%, 4/15/2028 25,545 23,867
Pacific Bell
7.125%, 3/15/2026 40,000 40,674
Pacific Gas & Electric Co.
7.05%, 3/1/2024 25,000 25,342
PacifiCorp
6.625%, 6/1/2007 20,500 20,441
6.71%, 1/15/2026 21,000 19,943
Duke Energy Corp.
7.00%, 10/15/2006 25,000 25,324
Southwestern Bell Telephone Co.
7.25%, 7/15/2025 25,000 24,471
7.60%, 4/26/2007 7,000 7,464
Sprint Capital Corp.
6.125%, 11/15/2008 50,000 47,169
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 40,000 41,459
U S WEST Communications Group
6.875%, 9/15/2033 30,000 27,995
Washington Gas Light Co.
6.15%, 1/26/2026 43,500 43,177
Wisconsin Electric Power Co.
6.50%, 6/1/2028 20,000 18,922
7.70%, 12/15/2027 29,100 28,821
Wisconsin Gas Co.
6.60%, 9/15/2013 13,100 12,894
Wisconsin Public Service
6.08%, 12/1/2028 45,000 39,793
WorldCom Inc.
6.40%, 8/15/2005 48,000 47,143
---------
1,347,212
---------
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $6,054,796) 6,038,604
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
FOREIGN BONDS (U.S. Dollar-Denominated)(3.2%)
Abbey National PLC
6.69%, 10/17/2005 $ 25,000 $ 25,077
Abbey National First Capital
8.20%, 10/15/2004 20,000 21,428
Amoco Canada Petroleum Co.
7.95%, 10/1/2022 20,000 21,004
BBV International Finance
7.00%, 12/1/2025 37,500 35,836
BHP Finance USA Ltd.
7.25%, 3/1/2016 35,000 33,262
Bank of Montreal
7.80%, 4/1/2007 15,000 15,895
Banque Nationale de Paris-NY
7.20%, 1/15/2007 35,000 35,627
Banque Paribas NY
6.95%, 7/22/2013 40,000 38,870
Bayerische Landesbank-NY
6.375%, 10/15/2005 25,000 24,834
Husky Oil Ltd.
7.55%, 11/15/2016 30,000 28,248
KFW International Finance
7.00%, 3/1/2013 10,000 10,428
7.20%, 3/15/2014 25,000 26,590
Province of Manitoba
9.125%, 1/15/2018 20,000 24,686
9.25%, 4/1/2020 20,000 25,535
Province of New Brunswick
6.75%, 8/15/2013 20,400 20,805
Norsk Hydro AS
7.15%, 11/15/2025 30,000 28,852
9.00%, 4/15/2012 20,000 23,036
Province of Nova Scotia
8.25%, 7/30/2022 30,000 34,592
Province of Ontario
7.00%, 8/4/2005 40,000 41,158
Petro-Canada
7.875%, 6/15/2026 32,000 33,442
Province of Quebec
6.86%, 4/15/2026 20,000 19,629
Royal Bank of Scotland
6.375%, 2/1/2011 30,000 28,698
Scotland International Finance
8.85%, 11/1/2006 24,000 26,867
SmithKline Beecham
7.375%, 4/15/2005 15,000 15,730
Societe Generale - NY
7.40%, 6/1/2006 25,000 25,863
Southern Investments UK PLC
6.80%, 12/1/2006 35,000 34,255
Sun Canada Financial Co.
6.625%, 12/15/2007 40,000 39,678
Talisman Energy, Inc.
7.125%, 6/1/2007 20,000 19,694
Toronto Dominion Bank-NY
6.45%, 1/15/2009 14,000 13,713
6.50%, 8/15/2008 10,000 9,848
16
<PAGE>
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
Westdeutsche Landesbank-NY
6.75%, 6/15/2005 $ 40,000 $ 39,950
Zeneca Wilmington Inc.
7.00%, 11/15/2023 50,000 50,443
- --------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $844,128) 873,573
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.0%)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (2.5%)
Aid-Israel State
(U.S. Government Guaranteed)
5.89%, 8/15/2005 23,000 22,948
U.S. Treasury Bond
7.25%, 5/15/2016 75,000 83,821
U.S. Treasury Notes
5.625%, 2/15/2006 95,000 94,141
5.625%, 5/15/2008 85,000 84,212
6.50%, 8/15/2005 100,000 103,728
6.50%, 10/15/2006 100,000 104,059
6.625%, 5/15/2007 100,000 105,160
7.875%, 11/15/2004 50,000 54,923
--------
652,992
--------
AGENCY BONDS & NOTES (0.3%)
Federal Home Loan Bank
5.24%, 12/18/2008 45,000 41,397
Tennessee Valley Authority
Global Bond
6.75%, 11/1/2025 50,000 51,683
--------
93,080
--------
MORTGAGE-BACKED SECURITIES (1.2%)
Federal National
Mortgage Association
5.735%, 1/1/2009 39,851 38,605
Government National
Mortgage Association
(3)6.00%, 9/15/2028 482 457
(3)6.00%, 11/15/2028 4,503 4,271
(3)6.00%, 12/15/2028 97,833 92,785
(3)6.00%, 1/15/2029 145,260 137,775
(3)6.00%, 2/15/2029 50,269 47,670
--------
321,563
--------
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,073,032) 1,067,635
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.9%)
- --------------------------------------------------------------------------------
Asset Securitization Corp.
(3)6.75%, 2/14/2041 35,000 34,944
(3)7.49%, 4/14/2029 34,000 35,340
Credit Suisse First Boston Mortgage
Securities Corp.
(3)7.24%, 6/20/2029 35,000 35,875
DLJ Mortgage Acceptance Corp.
(3)6.82%, 10/15/2030 25,000 25,055
(3)7.60%, 5/15/2030 36,000 37,102
Morgan Stanley Capital I Inc.
(3)7.22%, 7/15/2029 35,000 36,083
Nomura Asset Securities Corp.
(3)6.69%, 3/15/2030 34,000 33,363
- --------------------------------------------------------------------------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $238,994) 237,762
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(OOO) (000)
- --------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (0.3%)
- --------------------------------------------------------------------------------
Oakland CA Pension Obligation
6.98%, 12/15/2009 20,000 20,616
Chelan County Washington Public
Utility District
7.07%, 6/1/2007 10,000 10,245
7.10%, 6/1/2008 12,000 12,304
Southern California Public
Power Auth
6.93%, 5/15/2017 30,000 30,745
- --------------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS
(COST $72,000) 73,910
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.5%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.83%, 6/1/1999 311,917 311,917
4.83%-4.84%, 6/1/1999--Note G 84,331 84,331
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $396,248) 396,248
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(COST $19,966,099) 26,548,885
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.6%)
- --------------------------------------------------------------------------------
Other Assets--Note C 289,785
Liabilities--Note G (135,930)
--------
153,855
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 869,856,162 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $ 26,702,740
================================================================================
NET ASSET VALUE PER SHARE $30.70
================================================================================
*See Note A in Notes to Financial Statements.
o Non-Income-Producing Security.
(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 $438,839,000.
(2)Scheduled principal and interest payments are guaranteed by MBIA (Municipal
Bond Insurance Association).
(3)The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
ADR--American Depositary Receipt.
REIT--Real Estate Investment Trust.
- --------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
Paid in Capital $ 19,447,548 $ 22.36
Undistributed Net
Investment Income 148,214 .17
Accumulated Net
Realized Gains 524,192 .60
Unrealized Appreciation--
Note F 6,582,786 7.57
- --------------------------------------------------------------------------------
NET ASSETS $ 26,702,740 $ 30.70
================================================================================
17
<PAGE>
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, 1999
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C>
Dividends* $ 185,381
Interest 301,028
Security Lending 961
--------
Total Income 487,370
--------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 4,810
Performance Adjustment (1,195)
The Vanguard Group--Note C
Management and Administrative 35,282
Marketing and Distribution 2,372
Custodian Fees 70
Auditing Fees 13
Shareholders' Reports 471
Trustees' Fees and Expenses 21
--------
Total Expenses 41,844
Expenses Paid Indirectly--Note D (1,106)
--------
Net Expenses 40,738
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 446,632
- --------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD* 528,617
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES 433,134
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,408,383
================================================================================
*Dividend income and realized net gain from affiliated companies were
$10,406,000 and $9,037,000, respectively.
</TABLE>
18
<PAGE>
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, 1999 NOV. 30, 1998
(000) (000)
- ---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
OPERATIONS
<S> <C> <C>
Net Investment Income $ 446,632 $ 874,690
Realized Net Gain 528,617 1,953,295
Change in Unrealized Appreciation (Depreciation) 433,134 214,437
--------------------------
Net Increase in Net Assets Resulting from Operations 1,408,383 3,042,422
--------------------------
DISTRIBUTIONS
Net Investment Income (593,363) (871,468)
Realized Capital Gain (1,954,156) (1,082,884)
--------------------------
Total Distributions (2,547,519) (1,954,352)
--------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 2,264,789 4,860,919
Issued in Lieu of Cash Distributions 2,429,911 1,853,402
Redeemed (2,682,045) (3,313,452)
--------------------------
Net Increase from Capital Share Transactions 2,012,655 3,400,869
- ---------------------------------------------------------------------------------------
Total Increase 873,519 4,488,939
- ---------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 25,829,221 21,340,282
--------------------------
End of Period $ 26,702,740 $ 25,829,221
=======================================================================================
1Shares Issued (Redeemed)
Issued 75,718 157,319
Issued in Lieu of Cash Distributions 84,175 62,577
Redeemed (89,929) (107,318)
--------------------------
Net Increase in Shares Outstanding 69,964 112,578
=======================================================================================
</TABLE>
19
<PAGE>
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>
- -----------------------------------------------------------------------------------------------------------------
WELLINGTON FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $32.29 $31.05 $28.34 $24.57 $19.33 $20.78
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .52 1.13 1.11 1.02 .96 .88
Net Realized and Unrealized Gain (Loss)
on Investments 1.05 2.86 3.77 4.00 5.19 (1.03)
--------------------------------------------------------
Total from Investment Operations 1.57 3.99 4.88 5.02 6.15 (.15)
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.72) (1.18) (1.06) (.97) (.88) (.92)
Distributions from Realized Capital Gains (2.44) (1.57) (1.11) (.28) (.03) (.38)
--------------------------------------------------------
Total Distributions (3.16) (2.75) (2.17) (1.25) (.91) (1.30)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $30.70 $32.29 $31.05 $28.34 $24.57 $19.33
=================================================================================================================
TOTAL RETURN 5.57% 13.84% 18.60% 21.26% 32.70% -0.82%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $26,703 $25,829 $21,340 $16,505 $12,333 $8,638
Ratio of Total Expenses to
Average Net Assets 0.32%* 0.31% 0.29% 0.31% 0.33% 0.35%
Ratio of Net Investment Income to
Average Net Assets 3.44%* 3.68% 3.97% 4.08% 4.37% 4.35%
Portfolio Turnover Rate 23%* 29% 27% 30% 24% 32%
=================================================================================================================
*Annualized.
</TABLE>
20
<PAGE>
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
for the preceding three years 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, 1999, the advisory fee represented an effective
annual basic rate of 0.04% of the fund's average net assets before a decrease of
$1,195,000 (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. The fund has
committed to provide up to 0.40% of its net assets in capital contributions to
Vanguard. At May 31, 1999, the fund had contributed capital of $4,180,000 to
Vanguard (included in Other Assets), representing 0.02% of the fund's net assets
and 6.0% of Vanguard's capitalization. The fund's Trustees and officers are also
Directors and officers of Vanguard.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
D. 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 management and administrative expenses. For the
six months ended May 31, 1999, these arrangements reduced the fund's expenses by
$1,106,000 (an annual rate of 0.01% of average net assets).
E. During the six months ended May 31, 1999, the fund purchased $2,139,726,000
of investment securities and sold $1,839,912,000 of investment securities, other
than U.S. government securities and temporary cash investments. Purchases and
sales of U.S. government securities were $389,675,000 and $856,205,000,
respectively.
F. At May 31, 1999, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $6,582,786,000,
consisting of unrealized gains of $6,977,204,000 on securities that had risen in
value since their purchase and $394,418,000 in unrealized losses on securities
that had fallen in value since their purchase.
G. The market value of securities on loan to broker/dealers at May 31, 1999, was
$324,379,000, for which the fund had received as collateral cash of $84,331,000
and U.S. Treasury securities with a market value of $252,828,000. 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>
NOTICE TO SHAREHOLDERS ABOUT Y2K
As is well known by now, the approaching calendar change to 2000 has posed a
challenge to many computer systems worldwide. Computers that are not modified
could interpret "00" as 1900 rather than 2000 and produce errors in
date-dependent calculations, including bond interest payments, stock trade
settlements, retirement benefits, and other financial transactions.
OUR APPROACH
Vanguard has taken this challenge seriously. We have had a Year 2000 Project
under way since 1996 to fulfill our responsibility to safeguard our business
relationships and the security of our investors' accounts.
Our internal systems are Year 2000-compliant. They have been renovated and
thoroughly tested and are ready for the date change. As for the external systems
that connect with ours, we have been working for many months with clients,
business partners, and providers of products and services to assess their
compliance. We have analyzed the external services we require and have developed
contingency plans--including provision for alternative providers where
appropriate.
On New Year's Day, our telephone centers will be staffed and ready for
shareholder calls. However, we expect the volume of inquiries over the New
Year's weekend to be high, and we encourage shareholders to check their accounts
via our website or automated telephone systems, which offer much greater service
capacity and efficiency. This will also help our live representatives to provide
a higher level of service to those with specific transaction or other
service-related needs.
WHAT YOU CAN DO
We assure you we will protect our shareholders' records, so account records will
not be lost. Nevertheless, keeping copies of current records is always
advisable. You should keep at least your third-quarter statement and any
confirmations you receive from us between October 1, 1999, and year-end.
If you are a registered user of Access Vanguard(TM) (www.vanguard.com), you
can retrieve this information through the secure "Your Accounts" section and
print copies for your files. If you are not registered for Access Vanguard and
wish to have this flexibility, you should register as soon as possible so that
you can receive your password and become familiar with this service before the
New Year's weekend. Likewise, you may need personal identification numbers to
use our automated telephone services: Vanguard Tele-Account(R) for individual
investors (1-800-662-6273) and The VOICE(TM) Network for participants in
employer-sponsored retirement plans (1-800-523-1188).
Our Year 2000 Project's primary goal from the start has been to prepare our
systems for business as usual on behalf of our shareholders into 2000 and
beyond. We remain confident we will meet that goal, and we look forward to
serving you in the years to come.
23
<PAGE>
THE VANGUARD FAMILY OF FUNDS
STOCK FUNDS
- --------------------------------------------------------------------------------
500 Index Fund
Aggressive Growth Fund
Capital Opportunity Fund
Convertible Securities Fund
Emerging Markets Stock
Index Fund
Energy Fund
Equity Income Fund
European Stock Index Fund
Explorer Fund
Extended Market Index Fund*
Global Equity Fund
Gold and Precious Metals Fund
Growth and Income Fund
Growth Index Fund*
Health Care Fund
Institutional Index Fund*
International Growth Fund
International Value Fund
Mid-Cap Index Fund*
Morgan Growth Fund
Pacific Stock Index Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund*
Small-Cap Index Fund*
Small-Cap Value Index Fund*
Tax-Managed Capital
Appreciation Fund*
Tax-Managed Growth and
Income Fund*
Tax-Managed Small-Cap Fund*
Total International Stock
Index Fund
Total Stock Market Index Fund*
U.S. Growth Fund
Utilities Income Fund
Value Index Fund*
Windsor Fund
Windsor II Fund
BALANCED FUNDS
- --------------------------------------------------------------------------------
Asset Allocation Fund
Balanced Index Fund
Global Asset Allocation Fund
LifeStrategy Conservative
Growth Fund
LifeStrategy Growth Fund
LifeStrategy Income Fund
LifeStrategy Moderate
Growth Fund
STAR Fund
Tax-Managed Balanced Fund
Wellesley Income Fund
Wellington Fund
BOND FUNDS
- --------------------------------------------------------------------------------
Admiral Intermediate-Term
Treasury Fund
Admiral Long-Term Treasury Fund
Admiral Short-Term Treasury Fund
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Insured Long-Term Tax-Exempt Fund
Intermediate-Term Bond
Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Preferred Stock Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund*
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida,
Massachusetts, New Jersey,
New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Admiral Treasury Money
Market Fund
Federal Money Market Fund
Prime Money Market Fund*
State Tax-Exempt Money Market Funds
(California, New Jersey, New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY PLAN
- --------------------------------------------------------------------------------
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High-Grade Bond Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
*Offers Institutional Shares.
24
<PAGE>
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and
Director/Trustee of The Vanguard Group, Inc.,
and each of the investment companies in The
Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer,
and Director/Trustee of The Vanguard Group, Inc.,
and each of the investment companies in
The Vanguard Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson
& Johnson; Director of Johnson& Johnson*Merck
Consumer Pharmaceuticals Co., Women First
HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St.
Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of
Economics, Princeton University; Director of
Prudential Insurance Co. of America, Banco Bilbao
Gestinova, Baker Fentress & Co., The Jeffrey Co.,
and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer
of NACCO Industries, Inc.; Director of NACCO
Industries, The BFGoodrich Co., and The Standard
Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of
McKinsey & Co. and President of New York University;
Director of Pacific Gas and Electric Co., Procter &
Gamble Co., NACCO Industries, and Newfield
Exploration Co.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired
Vice Chairman and Director of RJR Nabisco; Director
of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas
Co.; Director of Cummins Engine Co. and The Mead
Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary
of The Vanguard Group, Inc.; Secretary of
each of the investment companies in
The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.;
Treasurer of each of the investment companies in
The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company is
the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE>
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[SHIP LOGO]
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
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.
Q212--07/12/1999
(C) 1999 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
