<PAGE> 1
VANGUARD WELLINGTON FUND
ANNUAL REPORT
NOVEMBER 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success
is built, including integrity, hardwork, thrift, teamwork, and fair dealing
on behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - 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.
- - The 100th birthday, on July 23, 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.
- - The 70th anniversary, on December 28, of the incorporation of
Vanguard Wellington Fund. It was the nation's first balanced mutual
fund, and is 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.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
5
REPORT FROM
THE ADVISOR
7
PERFORMANCE SUMMARY
9
FUND PROFILE
10
FINANCIAL STATEMENTS
14
REPORT OF
INDEPENDENT ACCOUNTANTS
25
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Vanguard Wellington Fund achieved a generous +13.8% return during the
fiscal year ended November 30, 1998, our 70th year of operation. During
this eventful year, U.S. stock prices soared, fell sharply, then rose
again, while bond prices increased as interest rates declined. Your fund
sailed through the market turbulence in fine fashion, and our return
exceeded that of the average balanced fund for the seventh consecutive
fiscal year. Our shortfall against our unmanaged stock/bond index was
explained largely by the fact that the equity market's advance was led by
growth stocks, not the value stocks that Wellington Fund emphasizes.
<TABLE>
<CAPTION>
- --------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED
NOVEMBER 30, 1998
- --------------------------------------------
<S> <C>
Vanguard Wellington Fund +13.8%
- --------------------------------------------
Average Balanced Fund +11.3%
- --------------------------------------------
Wellington Composite Index* +20.1%
- --------------------------------------------
S&P 500 Index +23.7%
- --------------------------------------------
Lehman Long Corporate AA or
Better Bond Index +12.1%
- --------------------------------------------
</TABLE>
*Weighted 65% S&P 500 Index and 35% Lehman Long Corporate AA or Better Bond
Index.
The table at right compares our total return (capital change plus
reinvested dividends) for the fiscal year with those of the average
balanced mutual fund and the composite index. This benchmark allots 65% to
the Standard & Poor's 500 Composite Stock Price Index, which returned
+23.7% during the fiscal year, and 35% to the Lehman Brothers Long
Corporate AA or Better Bond Index, which earned 12.1%.
The fund's return is based on an increase in net asset value from
$31.05 per share on November 30, 1997, to $32.29 per share on November 30,
1998, adjusted for dividends totaling $1.18 per share paid from net
investment income and a distribution of $1.57 per share paid from net
realized capital gains. (Net realized capital gains totaling $2.44 per
share were distributed in December 1998 along with our fourth-quarter
income dividend.) The fund's yield as of November 30 was 3.5%.
FINANCIAL MARKETS IN REVIEW
The U.S. economy expanded at a robust pace during the fiscal year,
overcoming repercussions from the serious financial troubles that beset
Asia, Russia, and Latin America. The domestic economy's growth was fueled
primarily by big increases in consumer spending encouraged by low
unemployment (4.4% as the fiscal year ended) and strong wage growth (about
4%, well in excess of the 1.5% inflation rate).
The same optimistic spirit that sent consumers flocking to automobile
showrooms and shopping malls pervaded the nation's financial markets. Stock
prices rose strongly through the first half of the fiscal year, even though
corporate earnings slid a bit from their levels a year earlier. By July 17,
the S&P 500 Index was up 25% from where it began the fiscal year. However,
stock prices fell sharply in the ensuing six weeks: The S&P 500 Index
declined -19.2%, hitting bottom with a -6.8% drop on August 31. Smaller
stocks, whose prices had peaked back in April, fared worse: The Russell
2000 Index of small-capitalization stocks was down nearly -40% before it
began to bounce back.
1
<PAGE> 4
The market's revival began in September, and stock prices rose sharply
during the final quarter of our fiscal year. By November 30, the S&P 500
Index was back in near-record territory. However, that index's +23.7%
return for the year was far from indicative of the overall market. Stocks
outside the S&P 500 Index, as represented by the Wilshire 4500 Equity
Index, returned just +2.6% for the fiscal year. And the small-cap Russell
2000 Index posted a decline of -6.6%. It was a good period to be invested
in large stocks.
Interest rates fell during the fiscal year, with the yield of the
30-year U.S. Treasury bond declining on balance by about 1 percentage point
to end at 5.06%. Bond prices, moving inversely, rose nicely, aided by
demand from investors seeking a haven from volatility in U.S. stocks as
well as in overseas securities and currency markets. Concerns about the
impact of the international economic situation on world markets and the
U.S. economy were cited by the Federal Reserve Board as a factor in its
decision to cut short-term interest rates. The Fed shaved rates by
one-quarter of a percentage point on three occasions--September 29, October
15, and November 17. The Lehman Aggregate Bond Index, a benchmark for the
overall bond market, achieved a +9.5% return during the fiscal year, with
approximately 6.8% coming from interest income and 2.7% in price
appreciation.
FISCAL 1998 PERFORMANCE OVERVIEW
Vanguard Wellington Fund's +13.8% return during fiscal 1998 was 2.5
percentage points higher than the +11.3% earned by the average balanced
fund. Four factors accounted for most of our performance edge.
First, our adviser, Wellington Management Company, did a fine job of
selecting individual securities. We salute the work of managers Ernst von
Metzsch, who makes the fund's stock selections, and Paul Kaplan, who
invests the fund's bond segment. Second, Wellington Fund's equity segment
invests primarily in large-cap stocks, while many balanced funds hold
sizable stakes in mid- and small-cap stocks. During the past year,
large-cap stocks far outperformed smaller stocks. We note that smaller
stocks can be expected to outperform large stocks from time to time, so our
large-cap bias won't always be a plus. The third factor in our edge over
our peers is more durable--our low operating costs. Our operating expenses
during fiscal 1998 amounted to a razor-thin 0.31% of average net assets, or
$3.10 per $1,000 in assets. This was a fraction of the 1.34% expense ratio
($13.40 per $1,000 in assets) charged by the average balanced fund, giving
us a "head start" of more than 1 full percentage point. The fourth factor
in our margin over the average fund was Wellington Fund's minimal holdings
of cash equivalents--about 2% of assets at the fiscal year-end. By
contrast, the average balanced fund keeps about 10% of its assets in cash,
which acts as a drag on returns during periods when stock and bond prices
are rising.
Our shortfall versus our composite stock/bond index, which earned
+20.1% during the year, is mostly due to the unusually wide disparity in
returns of growth and value stocks. Wellington Fund's equities earned
+14.6% during the year, which compares favorably with the +13.2% earned by
the value stocks within the S&P 500 Index. However, the growth stocks
within the S&P 500 provided an amazing +33.7% return, far ahead of the
value stocks. Because Wellington Fund seeks to provide long-term growth of
both income and capital, we emphasize value stocks, which typically feature
higher dividend yields, lower price/earnings ratios, and lower price
volatility than growth stocks. Over very long periods, growth and value
stocks have provided similar returns, although we
2
<PAGE> 5
acknowledge that growth stocks have been the market's leaders for the past
several years. Our allocation to equities during fiscal 1998 was in the
lower half of our customary 60%-70% range. This slight underweighting in
stocks hurt us in comparison with the composite index, which has a static
65% weighting in stocks. The fund's bond holdings earned +11.7%, in line
with the +12.1% return of the Lehman Long Corporate AA or Better Bond
Index, the fixed-income component in our index benchmark.
Wellington Fund's income dividends totaled $1.18 per share during
fiscal 1998, an increase of 11% from the $1.06 paid out during the previous
year. Boosting income over time is one of our objectives, but we don't
expect the growth rate always to be as rapid as during 1998.
LONG-TERM PERFORMANCE OVERVIEW
The table below presents the returns during the past decade for Wellington
Fund, the average balanced fund, and our composite stock/bond index. It
also shows the final value of hypothetical $10,000 investments in the fund
and our two benchmarks, assuming the reinvestment of income and capital
gains distributions. Our average annual margin of 1.8 percentage points
over the average balanced fund amounts to a very substantial difference
over a full decade: A $10,000 investment in Wellington Fund would have
grown to $38,406, or $5,664 more than the $32,742 that would have
accumulated in the average balanced fund. We concede that our return has
trailed that of the composite index by similar margins--1.7 percentage
points annually or $5,963 on a $10,000 investment.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED NOVEMBER 30, 1998
---------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RATE INITIAL INVESTMENT
- -----------------------------------------------------------------------
<S> <C> <C>
Vanguard Wellington Fund +14.4% $38,406
- -----------------------------------------------------------------------
Average Balanced Fund +12.6% $32,742
- -----------------------------------------------------------------------
Wellington Composite Index +16.1% $44,369
- -----------------------------------------------------------------------
</TABLE>
More than half of our long-term advantage over real-world competitors
stems from our cost advantage, which has averaged nearly 1 percentage point
annually over the past decade. This is a significant factor in our
consistently strong performance--we have outdistanced the average balanced
fund for 7 years in a row and in 15 of the past 20 years. We also have
benefited over the past decade from maintaining, on average, a slightly
larger commitment to stocks than our peers do. Finally, our adviser has
done an excellent job of managing the fund.
Our return trailed that of the index during the past decade largely
because growth stocks were far stronger performers than value stocks, our
staple. While the S&P 500 Index as a whole earned +18.7% per year during
the decade ended November 30, its growth component earned +20.7%, versus
+16.4% for its value component.
Returns from Wellington Fund--and from stocks and bonds generally--were
unusually high during the past decade. The average annual return of +18.7%
from the S&P 500 Index during the period was 70% above the long-term
average return of about +11% annually. Bond yields ten years ago were
considerably higher than today's yields, and bond prices have risen
considerably as interest rates fell on balance during the decade. Today's
investors cannot count on a repeat of the golden decade just concluded.
That said, with inflation below 2% annually, it does not take extraordinary
gains to produce satisfactory real, or inflation-adjusted, returns.
3
<PAGE> 6
IN SUMMARY
Wellington Fund's shareholders enjoyed another banner year during fiscal
1998--the fourth consecutive year of double-digit returns. We're thankful
for such bounteous returns, but we remind our fellow shareholders that
reaping the long-term rewards of investing entails enduring the
accompanying risks. These risks can be considerable--as was demonstrated
during the summer 1998 downturn in stocks.
But we believe there is a sensible way to manage the risks and rewards
of investing--by balancing your personal portfolio through holding a mix of
stocks, bonds, and cash reserves that suits your own goals, investment time
horizon, personal situation, and tolerance for risk.
Vanguard Wellington Fund, the nation's first and oldest balanced mutual
fund, epitomizes our balanced investment philosophy. In the 70 years since
its incorporation by founder Walter L. Morgan on December 28, 1928, the
fund has seen the greatest economic depression in our nation's history, the
world's greatest military conflict, and the unimaginable prosperity of the
postwar world. The fund's conservative, balanced approach has truly stood
the test of time, and we pledge to "stay the course" through the years to
come.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
December 11, 1998
4
<PAGE> 7
THE MARKETS IN PERSPECTIVE
YEAR ENDED NOVEMBER 30, 1998
[PHOTO]
U.S. financial markets produced solid overall gains during the fiscal year
ended November 30. The S&P 500 Index gained 23.7% for the 12-month period,
overcoming a sharp summer setback. Bond prices rose as interest rates
declined. Returns from overseas stock markets varied widely, with big gains
in Europe and losses in most other markets.
U.S. STOCK MARKETS
The stock market's gains during the fiscal year were concentrated in
large-capitalization growth stocks. Within the S&P 500 Index, the growth
stocks rose 33.7%, while the value stocks were up 13.2%. The market's
overall bias toward large-caps showed starkly in the contrast between the
S&P 500 and other indexes. While the S&P 500 was rising 23.7%, the rest of
the market returned a paltry 2.6%, as measured by the Wilshire 4500 Equity
Index. Small-cap stocks, as represented by the Russell 2000 Index, did even
worse--a negative return of 6.6%.
The market's ascent was not without incident, even for large-cap stocks.
After rising strongly to a record high on July 17, the S&P 500 fell by
19.2% during the following six weeks, just shy of the 20% mark generally
considered the boundary distinguishing a bear market from a mere
"correction." Declines were certifiably bearish for smaller stocks,
however.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1998
--------------------------------
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 23.7% 26.7% 23.0%
Russell 2000 Index -6.6 10.3 11.3
MSCI EAFE Index 16.8 9.3 10.2
- ---------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 9.5% 7.7% 7.3%
Lehman 10 Year Municipal Bond Index 8.1 6.9 6.8
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.1 5.2 5.1
- ---------------------------------------------------------------------
OTHER
Consumer Price Index 1.5% 2.2% 2.4%
- ---------------------------------------------------------------------
</TABLE>
The July-August tumble in stock prices reflected a number of factors
that collectively raised the anxiety level for many investors. Among these
were deteriorating corporate earnings reports and forecasts, Russia's
default on its debts, and a continuance of economic weakness in Asia. The
persistence of Asia's economic troubles--which first surfaced in
mid-1997--began to slow the economic expansions in the United States and
Europe.
The rebound in stocks late in the fiscal year occurred even though
several sources of uncertainty remained, including doubts about global
economic growth and reductions in securities analysts' forecasts of future
corporate earnings. Stock prices got considerable help from the decline in
interest rates. (Low inflation and low interest rates help stock prices by
raising the estimated value of future dividends and earnings.)
Three forces clearly shaped the performance of industry sectors. They
could be summarized as faith (the buoyant confidence of consumers), fear
(related to the effects of economic troubles abroad), and fortresses
(companies somewhat protected from competition).
5
<PAGE> 8
In contrast to the cautious stance of investors during fiscal 1998, U.S.
consumers threw caution to the wind. Feeling flush because of plentiful
jobs (the nation's unemployment rate was 4.4% at fiscal year-end) and
rising wages, consumers spent a record proportion of their income. Not
surprisingly, then, two big gainers among sectors of the S&P 500 Index were
consumer discretionary firms, such as retailers (+26%) and consumer staples
(+22%).
Fear was a factor in the lagging returns in industry groups considered
to be vulnerable to slowing global growth, falling commodity prices, and
tougher price competition from foreign suppliers. Among these--all
traditional value sectors--were firms in the "other energy" category
(-37%); chemical and other materials & processing firms (essentially a zero
return); and makers of producer durables such as airplanes and machinery
(+2%). Conversely, utilities did well (+35%) in part because they are seen
as relatively insulated from foreign competition or economic woes.
Fortresses are companies perceived as relatively safe from competitors
because of patented products or brands. Such companies led the year's
best-performing sectors: technology (+49%) and health care (+43%).
U.S. BOND MARKETS
Interest rates declined during the fiscal year, especially for U.S.
Treasury securities, which benefited from heightened aversion to risk among
investors and from a slight decrease in supply, thanks to a $70 billion
federal budget surplus. The Federal Reserve Board had the flexibility to
cut short-term rates in three quarter-point steps in the autumn because
inflation was remarkably tame--consumer prices rose just 1.5% for our
fiscal year.
In this bond-friendly environment, yields on long-term Treasury issues
fell by roughly 100 basis points (1 percentage point), with the 30-year
Treasury bond ending the fiscal year at 5.06%. Lower rates mean higher
prices for bonds, and the Lehman Brothers Long U.S. Treasury Bond Index
earned a total return of 15.7%, an astounding margin of some 14 percentage
points over the inflation rate.
Reflecting investors' flight to quality and worries about slowing
economic growth, prices fell for high-yield "junk" bonds. Even
high-quality corporate bonds and mortgage-backed securities did not rise in
price as far as Treasury securities. Mortgage bonds tend to lag Treasuries
during periods when falling rates lead to greater refinancing activity by
homeowners, resulting in unwanted prepayments of principal. The Lehman
Aggregate Bond Index, which comprises high-quality corporate and
mortgage-backed bonds as well as Treasuries, and has an intermediate-term
average maturity, earned 9.5%.
Yields on long-term municipal bonds declined only modestly during the
fiscal year, and by November 30 were only slightly lower than yields on
comparable Treasury securities. This was striking because the interest on
municipals is exempt from federal income tax.
INTERNATIONAL STOCK MARKETS
Europe's stock markets outdistanced even the S&P 500 Index, but Asian and
Latin American markets were generally down during the fiscal year. As a
group, European stocks earned 27.8% in U.S.-dollar terms. Europe's bull
market was fueled by continuing economic growth, lower interest rates,
increased corporate merger activity, and optimism about the effects of the
euro, a common currency due to be adopted in 1999 by 11 nations.
Japan's stock market continued to suffer from the effects of a severe
recession and a shaky banking system. Stocks in Tokyo fell 4.5% in
U.S.-dollar terms. Elsewhere in Asia, returns were mixed, ranging from a
rebound of 21% in South Korea, through Australia's 11% gain, to big losses
in Indonesia (-52%), Malaysia (-42%), New Zealand (-25%), and Singapore
(-18%). Losses were steep throughout Latin America, including Mexico
(-32%), Venezuela (-59%), Brazil (-20%), and Chile (-22%).
6
<PAGE> 9
REPORT FROM THE ADVISER [PHOTO]
Vanguard Wellington Fund returned 13.8% for the fiscal year ended November
30, 1998. This compares with returns of 11.3% for the average balanced fund
and 20.1% for the unmanaged 65% stock/35% bond index, which represent our
competitive benchmarks.
Our shortfall to the unmanaged composite index is largely due to the
fact that its stock component is the S&P 500 Index, whose performance
during the year was dominated by growth stocks, not the value stocks that
Wellington Fund emphasizes. Growth stocks, which typically pay low (or no)
dividends, were the market's favorites during fiscal 1998. The value
approach that we use in selecting stocks considers dividends an important
attribute. But value stocks were not in vogue. Returns from the
fixed-income portion of the fund were in line with returns for that part of
our benchmark index during the past 12 months.
The equity portion of your fund accounted for 60%-65% of assets during
the year, at the low end of our 60%-70% target range for common stocks.
Wellington's net equity return was 14.6%, well behind the 23.7% return of
the S&P 500, which--as noted--was fueled by high-P/E, low-yielding growth
stocks. Wellington Fund's value orientation is illustrated by the fact that
the average dividend yield of our equity holdings was 2.4%, versus 1.4% for
the index.
Ironically, the market achieved high returns for a remarkable fourth
consecutive year at a time when earnings growth was coming to a halt. We
estimate that aggregate earnings reported by S&P 500 companies for 1998 and
1999 will not exceed the level reached in 1997. This slowdown in earnings
growth has particularly affected companies that compete internationally in
the basic material, energy, and industrial sectors. "Defensive"
consumer-oriented growth companies that have been able to generate higher
earnings saw their stocks gain as P/E multiples rose in response to the
decline in interest rates during 1998. Lower interest rates boost the value
investors place on stocks' future earnings.
With respect to equities, we kept turnover low in 1998, and kept our
focus on the sectors we have emphasized in recent years: financial
services, energy, materials & processing, and health care. Our stake in
financial-services stocks was reduced from 23% of equity assets to 17%,
which brought the allocation to this sector in line with that of the S&P
500 Index. We took some gains in cases where our price targets were met and
valuations were high. However, we were hurt by our exposure to Citicorp,
which declined sharply after its merger with Travelers to form Citigroup.
Generally speaking, the financial-services sector has greatly benefited
from the decline in interest rates and massive restructurings of the 1990s.
We think most of this activity is behind us now. The contribution of the
financial-services sector to Wellington Fund's return was modestly positive
in 1998.
7
<PAGE> 10
The materials & processing sector (about 15% of the fund's equities
versus 5% for the S&P 500) suffered badly as the Asian problems worsened
during the year along with concern that, after the financial collapse in
Russia, Brazil would turn out to be a major problem, too. We maintained our
position in stocks such as Alcoa, Phelps Dodge, and DuPont, all of which
are low-cost operators in industries where excess capacity is not great. We
believe concerns about overcapacity should ease when prospects improve for
world economic growth, a development we expect sometime in 1999.
The fund's allocation to the energy sector had been reduced in 1997,
but we increased it in fiscal 1998 as oil and gas prices declined. Our view
is that we are not entering a new era of low oil and gas prices, but a new
phase in which large amounts of capital will be taken out of the energy
sector, through mergers and acquisitions, to improve returns.
In the health-care sector, we reduced our average exposure to about
10%, compared with 13% for the S&P 500. We cut our holdings in some stocks
that had risen nicely in price, which reduced their dividend yields to low
levels. Our large holding in Pharmacia & Upjohn, which we augmented in
1998, finally worked out quite well.
The producer-durables sector suffered from the concerns about economic
growth overseas. The performance of our holdings generally trailed the
market, but we think that prospects for companies such as Cooper Industries
are above average. We have increased our exposure to the technology sector
from about 1% of equities to about 5%, and remain active in auto and
transportation stocks. Our telephone utilities, led by BellSouth, provided
handsome returns during the year.
In the bond market, interest rates fell sharply during the past 12
months as investors continued to recognize the ongoing decline in
inflation. Yields declined despite the period's robust economic growth.
Wellington Fund's bond segment benefited from both the long average
maturity of our holdings and our significant position in U.S. Treasury
bonds. Recent events have unsettled the corporate bond market, and
investors have flocked to Treasuries. Because of the resulting changes in
relative valuation, we reduced our holdings of Treasuries in favor of
corporate bonds that offer more attractive yields. With long-term Treasury
bonds now yielding about 5%, we have a difficult time envisioning further
substantial declines in interest rates. We therefore expect to shorten the
portfolio's average maturity over the next several quarters.
The financial markets became quite volatile toward the end of 1998.
There are reasons for concern, such as the growing U.S. trade deficit and
the implications for the dollar (lower versus other currencies) and
interest rates (higher). We expect the U.S. economy's growth to slow, but
not to reverse into recession. World economic growth will be muted as well,
but we are hopeful that toward the end of 1999 a more positive outlook will
emerge. We believe our balanced style will prove to be an attractive way of
investing as we approach the new millennium.
Ernst H. von Metzsch, Senior Vice President and Portfolio Manager
Wellington Management Company, LLP
December 11, 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.
8
<PAGE> 11
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.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1978-NOVEMBER 30, 1998
- -------------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
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 9.6 4.2 13.8 20.1
- -------------------------------------------------------------
</TABLE>
* Weighted 65% S&P 500 Index and 35% Lehman Long Corporate AA or Better Bond
Index.
See Financial Highlights table on page 22 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: NOVEMBER 30, 1988-NOVEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------
Wellington Fund Average Balanced Fund Wellington Composite Index* S&P 500 Index
<S> <C> <C> <C> <C>
198811 10000 10000 10000 10000
198902 10544 10446 10463 10647
198905 11393 11291 11506 11925
198908 12219 12040 12465 13180
198911 11998 12031 12565 13084
199002 11782 11700 12214 12659
199005 12337 12333 13072 13906
199008 11486 11644 12234 12524
199011 11680 11810 12535 12630
199102 12968 13041 13947 14516
199105 13677 13694 14711 15546
199108 13955 14079 15155 15893
199111 13643 13996 14947 15199
199202 14678 15180 16155 16837
199205 15147 15236 16434 17077
199208 15364 15371 16779 17152
199211 15689 15965 17320 18007
199302 16444 16542 18156 18630
199305 17067 16919 18489 19060
199308 17865 17650 19392 19762
199311 17825 17611 19358 19825
199402 18134 18005 19566 20183
199405 17919 17465 18999 19872
199408 18716 17979 19728 20842
199411 17678 17321 19048 20032
199502 19116 18220 20538 21670
199505 20964 19479 22543 23884
199508 21946 20486 23584 25313
199511 23460 21537 25334 27440
199602 24295 22303 26245 29189
199605 24873 22901 26841 30676
199608 25151 22704 26591 30053
199611 28448 25049 30357 35086
199702 28968 25498 31117 36826
199705 30309 26551 32782 39699
199708 32029 28096 34711 42269
199711 33738 29071 36928 45090
199802 35798 30850 39728 49717
199805 37162 31600 41276 51881
199808 33925 28825 38310 45691
199811 38406 32742 44369 55761
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Weighted 65% S&P 500 Index and 35% Lehman Long Corporate AA or Better Bond
Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1998
--------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wellington Fund 13.84% 16.59% 14.40% $38,406
Average Balanced Fund 11.31 13.00 12.59 32,742
Wellington Composite Index* 20.15 18.04 16.07 44,369
S&P 500 Index 23.66 22.98 18.75 55,761
- ---------------------------------------------------------------------------------
</TABLE>
* Weighted 65% S&P 500 Index and 35% Lehman Long Corporate AA or Better Bond
Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1998*
- ---------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wellington Fund 7/1/1929 7.29% 15.04% 8.40% 5.29% 13.69%
- ---------------------------------------------------------------------------------------------
</TABLE>
* SEC rules require that we provide this average annual total return
information through the latest calendar quarter.
9
<PAGE> 12
FUND PROFILE
WELLINGTON FUND
This Profile provides a snapshot of the fund's characteristics as of
November 30, 1998, compared where appropriate to an unmanaged index. Key
elements of this Profile are defined on pages 12 and 13.
<TABLE>
<CAPTION>
TOTAL FUND CHARACTERISTICS
- -----------------------------------------
<S> <C>
Yield 3.5%
Turnover Rate 29%
Expense Ratio 0.31%
Cash Reserves 1.8%
</TABLE>
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
- -----------------------------------------
<S> <C>
STOCKS 63%
BONDS 35%
CASH RESERVES 2%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------
WELLINGTON FUND S&P 500
- -----------------------------------------
<S> <C> <C>
R-Squared 0.90 1.00
Beta 0.59 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- -------------------------------------------
<S> <C>
Pharmacia & Upjohn, Inc. 2.7%
Xerox Corp. 2.6
Citigroup, Inc. 2.6
Ford Motor Co. 2.4
International Business Machines Corp. 2.3
CIGNA Corp. 2.3
Wachovia Corp. 2.2
Motorola, Inc. 2.1
U.S. Bancorp 1.9
Dow Chemical Co. 1.9
- -------------------------------------------
Top Ten 23.0%
- -------------------------------------------
Top Ten as % of Total Net Assets 14.4%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ----------------------------------------------------------------------------
NOVEMBER 30, 1997 NOVEMBER 30, 1998
--------------------------------------------
WELLINGTON WELLINGTON S&P 500
--------------------------------------------
<S> <C> <C> <C>
Auto & Transportation . . . . 8.3% 10.1% 2.6%
Consumer Discretionary . . . . 3.4 6.4 11.0
Consumer Staples . . . . . . . 3.2 3.7 10.3
Financial Services . . . . . . 22.6 17.0 16.8
Health Care . . . . . . . . . 11.3 10.2 12.7
Integrated Oils . . . . . . . 8.5 10.5 6.2
Other Energy . . . . . . . . . 0.7 1.9 1.0
Materials & Processing . . . . 18.2 15.1 4.1
Producer Durables . . . . . . 8.0 7.0 3.3
Technology . . . . . . . . . . 1.2 5.5 15.3
Utilities . . . . . . . . . . 9.4 8.9 11.1
Other . . . . . . . . . . . . 5.2 3.7 5.6
- ----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- -------------------------------------------------
WELLINGTON S&P 500
- -------------------------------------------------
<S> <C> <C>
Number of Stocks 105 500
Median Market Cap $21.6B $58.4B
Price/Earnings Ratio 23.7x 26.5x
Price/Book Ratio 3.0x 4.6x
Dividend Yield 2.4% 1.4%
Return on Equity 18.7% 22.4%
Earnings Growth Rate 14.3% 16.8%
Foreign Holdings 9.7% 1.6%
</TABLE>
EQUITY INVESTMENT FOCUS
- -----------------------------
[GRAPH]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- -------------------------------------------
LEHMAN
WELLINGTON INDEX*
- -------------------------------------------
<S> <C> <C>
Number of Bonds 229 7,218
Yield to Maturity 6.2% 5.7%
Average Coupon 7.2% 6.9%
Average Maturity 17.6 years 8.8 years
Average Quality Aa3 Aaa
Average Duration 9.1 years 4.6 years
</TABLE>
*Lehman Aggregate Bond Index.
FIXED-INCOME INVESTMENT FOCUS
- ----------------------------------
[GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF BONDS)
- -----------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 20.9
Foreign 11.3
Industrial 32.4
Mortgage 4.1
Treasury/Agency 16.6
Utilities 13.9
Other 0.8
- -----------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- -------------------------------------------
<S> <C>
Treasury/Agency 16.6%
Aaa 8.5
Aa 22.9
A 39.8
Baa 11.3
Ba 0.0
B 0.0
Not Rated 0.9
- -------------------------------------------
Total 100.0%
</TABLE>
11
<PAGE> 14
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 1 percentage point, the share price of a fund with
an average duration of five years would decline by about 5%. If rates
decrease by a percentage point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund
reach maturity (or are called) and are repaid. In general, the longer the
average maturity, the more a fund's share price will fluctuate in response
to changes in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of
the ratings assigned to a fund's securities holdings by credit-rating
agencies. The agencies make their judgment after appraising an issuer's
ability to meet its obligations. Quality is graded on a scale, with Aaa or
AAA indicating the most creditworthy bond issuers and A-1 or MIG-1
indicating the most creditworthy issuers of money market securities.
BETA. A measure of the magnitude of a fund's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate
market index). The market (or index) is assigned a beta of 1.00, so a fund
with a beta of 1.20 would have seen its share price rise or fall by 12%
when the overall market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate
stock and bond investment.
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 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 fund.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a fund 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 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 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.
12
<PAGE> 15
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 issue.
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 past year.
Funds with high turnover rates incur higher transaction costs and are more
likely to distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a fund's income from interest and dividends. The
yield, expressed as a percentage of the fund's net asset value, is based on
income earned over the past 30 days and is annualized, or projected forward
for the coming year. The index yield is based on the current annualized
rate of dividends paid on stocks in the index.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
13
<PAGE> 16
FINANCIAL STATEMENTS
NOVEMBER 30, 1998
[PHOTO]
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (62.8%)
- ---------------------------------------------------------------------
AUTO & TRANSPORTATION (6.3%)
CSX Corp. 3,000,000 $ 125,062
Canadian National Railway Co. 2,000,000 108,000
Ford Motor Co. 7,089,515 391,696
General Motors Corp. 3,991,000 279,370
KLM Royal Dutch Air Lines NV ADR 4,285,357 121,061
Norfolk Southern Corp. 4,879,200 148,206
TRW, Inc. 3,000,000 165,188
Union Pacific Corp. 6,195,500 301,256
----------
1,639,839
----------
CONSUMER DISCRETIONARY (4.0%)
Eastman Kodak Co. 2,129,600 154,529
Gillette Co. 1,605,000 73,730
Kimberly-Clark Corp. 5,600,000 294,700
May Department Stores Co. 1,508,000 90,951
J.C. Penney Co., Inc. 2,291,700 126,044
Sears, Roebuck & Co. 3,671,300 174,157
Whirlpool Corp. 2,200,000 123,200
----------
1,037,311
----------
CONSUMER STAPLES (2.3%)
American Stores Co. 2,200,000 73,838
General Mills, Inc. 1,000,000 75,500
H.J. Heinz Co. 3,000,000 174,938
Philip Morris Cos., Inc. 5,000,000 279,687
----------
603,963
----------
FINANCIAL SERVICES (10.7%)
Archstone Communities Trust REIT 2,500,000 52,188
BankAmerica Corp. 2,602,680 169,662
CIGNA Corp. 4,800,000 373,500
Citigroup, Inc. 8,264,000 414,749
Equity Office Properties Trust REIT 2,000,000 50,250
Equity Residential Properties Trust REIT 1,300,000 55,006
Fannie Mae 2,756,300 200,521
First Union Corp. 4,206,400 255,539
Jefferson-Pilot Corp. 1,950,000 133,087
MBIA, Inc. 1,677,600 108,625
Marsh & McLennan Cos., Inc. 3,442,500 200,310
Spieker Properties, Inc. REIT 1,500,000 54,188
Starwood Hotels & Resorts REIT 1,000,000 30,375
U.S. Bancorp 8,430,300 310,340
Wachovia Corp. 4,000,000 349,250
----------
2,757,590
----------
HEALTH CARE (6.4%)
Abbott Laboratories 5,400,000 259,200
American Home Products Corp. 2,500,000 133,125
Baxter International, Inc. 3,200,000 203,400
Bristol-Myers Squibb Co. 1,900,000 232,869
Columbia/HCA Healthcare Corp. 3,502,300 86,244
Johnson & Johnson 3,600,000 292,500
Pharmacia & Upjohn, Inc. 8,514,700 443,297
----------
1,650,635
----------
INTEGRATED OILS (6.6%)
Amoco Corp. 4,000,000 235,750
Ashland, Inc. 1,500,000 72,937
Atlantic Richfield Co. 715,000 47,548
Chevron Corp. 2,000,000 167,250
(1)Equitable Resources, Inc. 2,000,000 58,875
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Exxon Corp. 1,000,000 $ 75,062
Phillips Petroleum Co. 2,200,000 92,400
Repsol SA ADR 3,497,700 196,308
Royal Dutch Petroleum Co. ADR 5,412,048 254,366
Sunoco, Inc. 1,734,788 58,766
Texaco Inc. 900,000 51,806
Total SA ADR 2,533,999 154,891
USX-Marathon Group 5,000,000 141,875
Unocal Corp. 3,050,000 103,319
----------
1,711,153
----------
OTHER ENERGY (1.2%)
Baker Hughes, Inc. 3,000,000 54,938
Halliburton Co. 2,000,000 58,750
Occidental Petroleum Corp. 3,000,000 60,750
Schlumberger Ltd. 3,000,000 134,062
----------
308,500
----------
MATERIALS & PROCESSING (9.5%)
Aluminum Co. of America 3,621,100 268,414
BOC Group PLC ADR 4,000,000 117,750
British Steel PLC ADR 6,000,000 102,750
Cabot Corp. 2,200,000 66,275
Dow Chemical Co. 3,138,400 305,602
E.I. du Pont de Nemours & Co. 5,145,200 302,280
Imperial Chemical Industries PLC ADR 2,515,000 95,256
International Paper Co. 1,500,000 65,156
Lubrizol Corp. 2,500,000 67,813
Norsk Hydro AS ADR 3,050,000 111,706
PPG Industries, Inc. 2,127,700 130,189
(1)Phelps Dodge Corp. 3,804,900 215,690
Reynolds Metals Co. 1,600,000 87,800
Rhone-Poulenc SA ADR 3,122,316 156,116
Temple-Inland Inc. 1,984,600 106,548
Westvaco Corp. 1,686,400 47,430
Weyerhaeuser Co. 862,600 43,238
Willamette Industries, Inc. 3,071,000 107,293
Witco Chemical Corp. 2,714,200 51,739
----------
2,449,045
----------
PRODUCER DURABLES (4.4%)
Caterpillar, Inc. 3,720,000 183,907
Lockheed Martin Corp. 2,000,000 207,500
Northrop Grumman Corp. 659,200 53,560
Parker Hannifin Corp. 1,644,900 57,160
Thomas & Betts Corp. 2,284,500 98,947
United Technologies Corp. 1,000,000 107,187
Xerox Corp. 3,900,000 419,250
----------
1,127,511
----------
TECHNOLOGY (3.5%)
AMP, Inc. 527,520 25,519
Hewlett-Packard Co. 2,410,800 151,278
International Business Machines Corp. 2,310,000 381,150
Motorola, Inc. 5,500,000 341,000
----------
898,947
----------
UTILITIES (5.6%)
AT&T Corp. 3,300,000 205,631
ALLTEL Corp. 2,223,400 117,840
Bell Atlantic Corp. 4,136,000 230,065
BellSouth Corp. 1,000,000 87,250
Carolina Power & Light Co. 2,000,000 92,750
Cinergy Corp. 3,155,000 109,045
Duke Energy Corp. 2,500,000 156,406
PacifiCorp 3,150,000 59,062
Pinnacle West Capital Corp. 1,763,600 80,354
SBC Communications Inc. 2,872,600 137,705
Texas Utilities Co. 2,490,000 110,961
U S West, Inc. 964,856 60,062
----------
1,447,131
----------
OTHER (2.3%)
Canadian Pacific Ltd. 7,000,800 154,455
Cooper Industries, Inc. 4,085,700 200,710
General Electric Co. 800,000 72,400
Minnesota Mining & Manufacturing Co. 2,000,000 160,625
----------
588,190
----------
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $10,789,606) 16,219,815
- ---------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (23.8%)
- ---------------------------------------------------------------------
FINANCE (7.4%)
Allstate Corp.
6.75%, 5/15/2018 $ 45,000 $ 46,846
Ambac, Inc.
7.50%, 5/1/2023 25,000 27,136
American Re Corp.
7.45%, 12/15/2026 45,000 51,258
Associates Corp. of North America
6.875%, 11/15/2008 50,000 53,885
BB&T Corp.
7.25%, 6/15/2007 36,900 39,985
Banc One Corp.
7.625%, 10/15/2026 20,000 23,227
9.875%, 3/1/2009 20,000 26,988
BankAmerica Corp.
7.20%, 4/15/2006 20,000 21,740
BankBoston Corp.
6.625%, 12/1/2005 27,000 27,640
British Gas Finance
6.625%, 6/1/2018 50,000 49,738
CIGNA Corp.
7.875%, 5/15/2027 50,000 53,244
The Chase Manhattan Corp.
6.50%, 1/15/2009 30,000 31,392
Chubb Corp.
6.15%, 8/15/2005 20,000 20,688
6.60%, 8/15/2018 22,000 22,416
Cincinnati Financial Corp.
6.90%, 5/15/2028 40,000 40,614
Citigroup, Inc.
6.625%, 1/15/2028 50,000 50,621
6.75%, 8/15/2005 40,000 41,922
Comerica Bank
7.875%, 9/15/2026 20,000 23,286
8.375%, 7/15/2024 20,500 23,053
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- --------------------------------------------------------------------
<S> <C> <C>
Dean Witter, Discover & Co.
6.75%, 10/15/2013 $ 24,275 $ 25,000
7.07%, 2/10/2014 17,500 18,231
Equitable Companies Inc.
7.00%, 4/1/2028 40,000 40,102
Farmers Exchange Capital
7.05%, 7/15/2028 40,000 39,857
First Chicago Corp.
6.375%, 1/30/2009 48,500 50,485
First Colony Corp.
6.625%, 8/1/2003 31,550 32,861
First Union Corp.
7.50%, 4/15/2035 30,000 32,773
Fleet Financial Group
6.875%, 1/15/2028 50,000 53,262
General Electric Global Insurance
Holdings Corp.
7.00%, 2/15/2026 35,000 38,760
General Electric Capital Corp.
8.125%, 5/15/2012 30,000 36,501
General Electric Capital Services
7.50%, 8/21/2035 11,000 13,008
General Motors Acceptance Corp.
6.00%, 4/1/2011 27,370 27,405
General Re Corp.
9.00%, 9/12/2009 32,000 39,579
John Hancock Mutual Life Insurance Co.
7.375%, 2/15/2024 45,000 49,973
Jackson National Life Insurance Co.
8.15%, 3/15/2027 50,000 57,179
Liberty Mutual Insurance Co.
7.875%, 10/15/2026 46,210 50,059
Lumbermens Mutual Casualty Co.
9.15%, 7/1/2026 45,000 53,424
Metropolitan Life Insurance Co.
7.70%, 11/1/2015 45,000 47,958
NBD Bancorp, Inc.
7.125%, 5/15/2007 25,000 27,302
National City Columbus
7.25%, 7/15/2010 25,000 27,406
National City Bank Pennsylvania
7.25%, 10/21/2011 20,000 21,966
NationsBank Corp.
7.80%, 9/15/2016 50,000 58,074
Norwest Financial Inc.
6.25%, 12/15/2007 35,000 36,259
Pacific Mutual Life
7.90%, 12/30/2023 35,000 39,241
Provident Cos., Inc.
7.25%, 3/15/2028 40,000 42,118
Prudential Insurance Co.
8.30%, 7/1/2025 40,000 44,771
Sears, Roebuck & Co. Acceptance Corp.
6.875%, 10/15/2017 30,000 30,950
SunTrust Bank Atlanta
7.25%, 9/15/2006 35,000 38,061
Torchmark Corp.
7.875%, 5/15/2023 45,000 45,224
Transamerica Financial Corp.
6.40%, 9/15/2008 29,265 29,016
US Bank N.A./Minnesota
5.625%, 11/30/2005 50,000 50,000
Wachovia Corp.
6.375%, 2/1/2009 35,000 36,789
----------
1,909,273
----------
INDUSTRIAL (11.5%)
Air Products & Chemicals, Inc.
8.75%, 4/15/2021 26,650 33,192
Airtouch Communications Inc.
6.65%, 5/1/2008 48,000 50,803
Albertson's Inc.
7.75%, 6/15/2026 50,000 58,841
Aluminum Co. of America
6.50%, 6/15/2018 40,000 40,315
Amoco Corp.
6.50%, 8/1/2007 25,000 26,873
Anheuser-Busch Cos., Inc.
7.00%, 12/1/2025 30,000 31,392
Archer-Daniels-Midland Co.
7.50%, 3/15/2027 50,000 58,926
AutoZone Inc.
6.50%, 7/15/2008 50,000 50,587
Baxter International, Inc.
7.65%, 2/1/2027 40,000 45,177
Becton, Dickinson & Co.
7.00%, 8/1/2027 25,000 27,849
8.70%, 1/15/2025 20,000 23,431
The Boeing Co.
8.75%, 8/15/2021 40,200 51,546
Bristol-Myers Squibb Co.
6.80%, 11/15/2026 50,000 55,912
CPC International, Inc.
7.25%, 12/15/2026 45,000 50,731
CSX Corp.
7.90%, 5/1/2017 40,000 45,360
Caterpillar Inc.
6.625%, 7/15/2028 50,000 51,290
Champion International Corp.
7.35%, 11/1/2025 40,140 40,473
Coca-Cola Enterprises, Inc.
8.50%, 2/1/2022 50,000 62,953
Continental Airlines
6.90%, 7/2/2019 20,000 20,753
Continental Airlines, Inc.
(Equipment Trust Certificates)
6.648%, 3/15/2019 20,000 20,344
Dean Foods Co.
6.90%, 10/15/2017 38,000 39,726
Diageo PLC
6.125%, 8/15/2005 40,000 41,321
Dover Corp.
6.65%, 6/1/2028 50,000 52,481
E.I. du Pont de Nemours & Co.
6.50%, 1/15/2028 60,000 63,428
Eastman Chemical Co.
7.60%, 2/1/2027 40,000 41,281
Englehard Corp.
6.95%, 6/1/2028 38,000 38,341
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Federal Express Corp.
6.72%, 1/15/2022 $ 43,000 $ 44,960
Fluor Corp.
6.95%, 3/1/2007 42,000 45,170
Ford Motor Co.
8.90%, 1/15/2032 45,000 59,547
Fortune Brands Inc.
6.25%, 4/1/2008 40,000 41,765
General Motors Corp.
7.70%, 4/15/2016 25,000 28,723
Georgia-Pacific Corp.
9.625%, 3/15/2022 22,000 24,782
International Business Machines Corp.
6.50%, 1/15/2028 25,000 26,358
8.375%, 11/1/2019 25,000 31,743
Johnson Controls, Inc.
7.125%, 7/15/2017 27,300 28,735
KN Energy, Inc.
7.25%, 3/1/2028 40,000 40,098
Kimberly-Clark Corp.
6.375%, 1/1/2028 50,000 51,317
Stanford Univ.
7.65%, 6/15/2026 30,000 36,264
Eli Lilly & Co.
7.125%, 6/1/2025 50,000 56,847
Lockheed Martin Corp.
7.65%, 5/1/2016 40,000 44,694
Lucent Technologies Inc.
7.25%, 7/15/2006 35,000 38,834
Masco Corp.
6.625%, 4/15/2018 52,500 51,911
Mattel Inc.
6.125%, 7/15/2005 35,000 35,966
McDonald's Corp.
6.375%, 1/8/2028 40,000 41,888
7.375%, 7/15/2033 15,000 16,078
Merck & Co.
6.40%, 3/1/2028 50,000 53,615
Minnesota Mining & Manufacturing Corp.
6.375%, 2/15/2028 60,000 63,004
Mobil Corp.
8.625%, 8/15/2021 20,000 25,347
Monsanto Co.
6.75%, 12/15/2027 40,000 41,146
Morton International, Inc.
9.25%, 6/1/2020 21,000 27,702
Motorola, Inc.
7.50%, 5/15/2025 51,500 58,833
News America Holdings Inc.
8.00%, 10/17/2016 35,000 38,540
Norfolk Southern Corp.
7.70%, 5/15/2017 40,000 45,921
PPG Industries, Inc.
6.875%, 2/15/2012 13,600 14,889
9.00%, 5/1/2021 19,750 25,735
J.C. Penney Co., Inc.
7.95%, 4/1/2017 50,200 56,596
Phillips Petroleum Co.
9.375%, 2/15/2011 20,000 25,810
Procter & Gamble Co. ESOP
9.36%, 1/1/2021 20,000 26,662
Raytheon Co.
7.20%, 8/15/2027 25,000 27,334
7.375%, 7/15/2025 18,000 18,901
Rockwell International Corp.
6.70%, 1/15/2028 40,000 41,689
7.875%, 2/15/2005 17,000 19,069
Rohm & Haas Co.
(4) 9.80%, 4/15/2020 15,000 19,668
Sears, Roebuck & Co.
9.375%, 11/1/2011 14,000 17,932
Southwest Airlines Co.
7.54%, 6/29/2015 30,772 31,603
Tenneco Inc.
7.875%, 4/15/2027 35,000 36,620
Texaco Capital, Inc.
9.75%, 3/15/2020 15,000 20,954
The Timken Co.
6.875%, 5/8/2028 40,000 40,485
Tosco Corp.
7.80%, 1/1/2027 35,000 37,609
Tyco International Group SA
7.00%, 6/15/2028 40,000 40,508
USA Waste Services Inc.
7.00%, 7/15/2028 40,000 40,607
Ultramar Diamond Shamrock
7.20%, 10/15/2017 40,000 41,164
United Technologies Corp.
6.70%, 8/1/2028 15,000 16,164
8.75%, 3/1/2021 32,000 42,109
Wal-Mart Stores, Inc.
7.25%, 6/1/2013 30,000 33,959
Wendy's International, Inc.
6.35%, 12/15/2005 25,500 26,075
Weyerhaeuser Co.
6.95%, 8/1/2017 40,000 40,504
----------
2,965,760
----------
UTILITIES (4.9%)
AT&T Corp.
7.75%, 3/1/2007 40,000 45,942
Ameritech Capital Funding
6.875%, 10/15/2027 47,250 51,450
Atlantic City Electric Co.
(2) 7.00%, 9/1/2023 18,000 18,405
BellSouth Telecommunications
5.875%, 1/15/2009 15,000 15,403
7.50%, 6/15/2033 30,000 32,447
Carolina Power & Light Co.
8.625%, 9/15/2021 31,000 38,432
Chesapeake & Potomac
Telephone Co. (MD)
7.15%, 5/1/2023 10,000 10,791
Chesapeake & Potomac
Telephone Co. (VA)
7.625%, 12/1/2012 16,400 19,532
Cincinnati Bell Telephone, Inc.
6.30%, 12/1/2028 42,000 42,983
Consolidated Edison Co. of
New York, Inc.
6.45%, 12/1/2007 20,000 21,431
7.50%, 6/15/2023 25,000 26,429
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Duke Energy Corp.
7.00%, 10/15/2006 $ 25,000 $ 26,653
7.00%, 7/1/2033 10,000 10,172
El Paso Natural Gas Co.
7.50%, 11/15/2026 35,000 36,784
Florida Power Corp.
6.75%, 2/1/2028 44,755 48,509
GTE North, Inc.
6.90%, 11/1/2008 30,000 32,900
GTE Southwest, Inc.
6.00%, 1/15/2006 30,000 30,811
Illinois Bell Telephone Co.
6.625%, 2/1/2025 27,725 27,882
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 50,000 57,387
NGC Corp.
7.125%, 5/15/2018 35,000 34,623
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 34,019 41,164
New York Telephone Co.
6.50%, 4/15/2028 20,000 20,054
7.25%, 2/15/2024 20,000 21,004
Northern States Power Co.
7.125%, 7/1/2025 48,000 53,351
Ohio Bell Telephone Co.
7.85%, 12/15/2022 20,000 22,319
Oklahoma Gas & Electric Co.
6.50%, 4/15/2028 25,545 26,828
Pacific Bell
7.125%, 3/15/2026 40,000 44,958
Pacific Gas & Electric Co.
7.05%, 3/1/2024 25,000 27,768
PacifiCorp
6.625%, 6/1/2007 20,500 21,715
6.71%, 1/15/2026 21,000 21,480
Southern California Edison Co.
6.90%, 10/1/2018 20,750 20,596
Southwestern Bell Telephone Co.
7.25%, 7/15/2025 25,000 26,442
7.60%, 4/26/2007 7,000 7,986
Sprint Capital Corp.
6.125%, 11/15/2008 50,000 50,896
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 40,000 42,133
U S WEST Communications Group
6.875%, 9/15/2033 30,000 30,181
Washington Gas Light Co.
6.15%, 1/26/2026 43,500 45,484
Wisconsin Electric Power Co.
6.50%, 6/1/2028 20,000 20,729
7.70%, 12/15/2027 29,100 31,620
Wisconsin Gas Co.
6.60%, 9/15/2013 13,100 13,693
WorldCom Inc.
6.40%, 8/15/2005 48,000 49,638
----------
1,269,005
----------
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,678,736) 6,144,038
- ---------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS (U.S. Dollar-Denominated)(4.0%)
- ---------------------------------------------------------------------
ABN-AMRO BK NV (Chicago)
7.25%, 5/31/2005 $ 40,000 $ 43,079
Abbey National First Capital
8.20%, 10/15/2004 20,000 22,467
Abbey National PLC
6.69%, 10/17/2005 25,000 26,314
Amoco Canada Petroleum Co.
7.95%, 10/1/2022 20,000 21,811
BBV International Finance
7.00%, 12/1/2025 37,500 35,849
BHP Finance USA Ltd.
7.25%, 3/1/2016 35,000 35,413
Bank of Montreal
7.80%, 4/1/2007 15,000 16,575
Banque Nationale de Paris-NY
7.20%, 1/15/2007 35,000 37,632
Banque Paribas NY
6.95%, 7/22/2013 40,000 38,630
Bayerische Landesbank-NY
6.375%, 10/15/2005 25,000 26,173
Husky Oil Ltd.
7.55%, 11/15/2016 30,000 29,483
KFW International Finance
7.00%, 3/1/2013 10,000 11,220
7.20%, 3/15/2014 25,000 28,420
Province of Manitoba
9.125%, 1/15/2018 20,000 26,970
9.25%, 4/1/2020 20,000 27,373
Province of New Brunswick
6.75%, 8/15/2013 20,400 22,438
Norsk Hydro AS
7.15%, 11/15/2025 30,000 31,370
9.00%, 4/15/2012 20,000 25,281
Province of Nova Scotia
8.25%, 7/30/2022 30,000 36,805
Province of Ontario
7.00%, 8/4/2005 40,000 43,695
Petro-Canada
7.875%, 6/15/2026 32,000 34,456
Province of Quebec
6.86%, 4/15/2026 20,000 21,123
7.50%, 7/15/2023 25,000 28,119
Royal Bank of Scotland
6.375%, 2/1/2011 30,000 30,227
Saga Petroleum ASA
7.25%, 9/23/2027 32,410 30,447
Province of Saskatchewan
(3) 7.125%, 3/15/2008 11,000 12,390
Scotland International Finance
8.85%, 11/1/2006 24,000 27,504
SmithKline Beecham
7.375%, 4/15/2005 15,000 16,497
Societe Generale-NY
7.40%, 6/1/2006 25,000 27,076
Southern Investments UK PLC
6.80%, 12/1/2006 35,000 35,837
Sun Canada Financial Co.
6.625%, 12/15/2007 40,000 41,450
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------
<S> <C> <C>
Talisman Energy, Inc.
7.125%, 6/1/2007 $ 20,000 $ 20,198
Toronto-Dominion Bank
6.45%, 1/15/2009 14,000 14,111
6.50%, 8/15/2008 10,000 10,120
Westdeutsche Landesbank-NY
6.75%, 6/15/2005 40,000 41,798
Zeneca Wilmington Inc.
7.00%, 11/15/2023 50,000 53,853
- --------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $953,148) 1,032,204
- --------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (5.9%)
- --------------------------------------------------------------------
Aid-Israel State
5.89%, 8/15/2005 23,000 24,278
Tennessee Valley Authority Global Bond
6.75%, 11/1/2025 50,000 55,851
U.S. Treasury Bonds
7.25%, 5/15/2016 350,000 427,798
7.50%, 11/15/2016 85,000 106,434
U.S. Treasury Notes
5.625%, 5/15/2008 200,000 212,802
6.125%, 8/15/2007 100,000 109,028
6.50%, 8/15/2005 100,000 110,121
6.50%, 10/15/2006 269,000 298,262
6.625%, 5/15/2007 100,000 112,267
7.875%, 11/15/2004 50,000 58,022
- --------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,361,282) 1,514,863
- --------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.4%)
- --------------------------------------------------------------------
Asset Securitization Corp.
(4) 6.75%, 2/14/2041 35,000 36,488
(4) 7.49%, 4/14/2029 34,000 36,907
Chase Commercial Mortgage
Securities Corp.
(4) 6.60%, 12/12/2029 49,000 49,865
Credit Suisse First Boston Mortgage
Securities Corp.
(4) 7.24%, 6/20/2029 35,000 37,242
DLJ Mortgage Acceptance Corp.
(4) 6.82%, 10/15/2030 25,000 26,203
(4) 7.60%, 5/15/2030 36,000 39,161
First Union-Lehman Brothers
Commercial Mortgage Trust
(4) 6.65%, 11/18/2029 33,000 34,702
(4) 7.38%, 4/18/2029 35,000 37,877
Morgan Stanley Capital Inc.
(4) 7.22%, 7/15/2029 35,000 37,614
Nomura Asset Securities Corp.
(4) 6.69%, 3/15/2030 34,000 35,317
- --------------------------------------------------------------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $357,209) 371,376
- --------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (0.3%)
- --------------------------------------------------------------------
Chelan County WA Public Util. Dist.
7.07%, 6/1/2007 10,000 10,718
7.10%, 6/1/2008 12,000 12,923
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------
<S> <C> <C>
Oakland CA Pension Obligation
6.98%, 12/15/2009 $ 20,000 $ 21,703
Southern California Public
Power Auth.
6.93%, 5/15/2017 30,000 33,993
- --------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS
(COST $72,000) 79,337
- --------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.9%)
- --------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.27%, 12/1/1998 234,811 234,811
5.29%-5.30%, 12/1/1998--Note F 514,284 514,284
- --------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $749,095) 749,095
- --------------------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(COST $19,961,076) 26,110,728
- --------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
- --------------------------------------------------------------------
Other Assets--Note C 383,467
Liabilities--Note F (664,974)
----------
(281,507)
- --------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------
Applicable to 799,891,865 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $25,829,221
====================================================================
NET ASSET VALUE PER SHARE $32.29
====================================================================
</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 $274,565,000.
(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.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
AT NOVEMBER 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $17,434,893 $21.80
Undistributed Net
Investment Income 294,945 .37
Accumulated Net
Realized Gains 1,949,731 2.43
Unrealized Appreciation--
Note E 6,149,652 7.69
- --------------------------------------------------------------------
NET ASSETS $25,829,221 $32.29
====================================================================
</TABLE>
19
<PAGE> 22
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
YEAR ENDED NOVEMBER 30, 1998
(000)
- -------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends* $ 352,161
Interest 593,408
Security Lending 1,591
-----------
Total Income 947,160
-----------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 9,157
Performance Adjustment (2,102)
The Vanguard Group--Note C
Management and Administrative 60,543
Marketing and Distribution 5,216
Taxes (other than income taxes) 869
Custodian Fees 219
Auditing Fees 26
Shareholders' Reports 534
Annual Meeting and Proxy Costs 117
Trustees' Fees and Expenses 46
-----------
Total Expenses 74,625
Expenses Paid Indirectly--Note C (2,155)
-----------
Net Expenses 72,470
- -------------------------------------------------------------------------------------
NET INVESTMENT INCOME 874,690
- -------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 1,953,295
- -------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 214,437
- -------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,042,422
=====================================================================================
</TABLE>
* Dividend income from affiliated companies was $9,480,000.
20
<PAGE> 23
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
YEAR ENDED NOVEMBER 30,
-------------------------------
1998 1997
(000) (000)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 874,690 $ 738,661
Realized Net Gain 1,953,295 1,079,218
Change in Unrealized Appreciation (Depreciation) 214,437 1,409,192
-------------------------------
Net Increase in Net Assets Resulting from Operations 3,042,422 3,227,071
-------------------------------
DISTRIBUTIONS
Net Investment Income (871,468) (661,099)
Realized Capital Gain (1,082,884) (647,264)
-------------------------------
Total Distributions (1,954,352) (1,308,363)
-------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 4,860,919 4,070,135
Issued in Lieu of Cash Distributions 1,853,402 1,236,753
Redeemed (3,313,452) (2,390,687)
-------------------------------
Net Increase from Capital Share Transactions 3,400,869 2,916,201
- -------------------------------------------------------------------------------------------
Total Increase 4,488,939 4,834,909
- -------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 21,340,282 16,505,373
----------------------------
End of Year $25,829,221 $21,340,282
===========================================================================================
(1)Shares Issued (Redeemed)
Issued 157,319 143,031
Issued in Lieu of Cash Distributions 62,577 46,059
Redeemed (107,318) (84,173)
-------------------------------
Net Increase in Shares Outstanding 112,578 104,917
===========================================================================================
</TABLE>
21
<PAGE> 24
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 THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $31.05 $28.34 $24.57 $19.33 $20.78
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income 1.13 1.11 1.02 .96 .88
Net Realized and Unrealized Gain (Loss) on Investments 2.86 3.77 4.00 5.19 (1.03)
--------------------------------------------------------
Total from Investment Operations 3.99 4.88 5.02 6.15 (.15)
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (1.18) (1.06) (.97) (.88) (.92)
Distributions from Realized Capital Gains (1.57) (1.11) (.28) (.03) (.38)
--------------------------------------------------------
Total Distributions (2.75) (2.17) (1.25) (.91) (1.30)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $32.29 $31.05 $28.34 $24.57 $19.33
=====================================================================================================================
TOTAL RETURN 13.84% 18.60% 21.26% 32.70% -0.82%
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $25,829 $21,340 $16,505 $12,333 $8,638
Ratio of Total Expenses to Average Net Assets 0.31% 0.29% 0.31% 0.33% 0.35%
Ratio of Net Investment Income to Average Net Assets 3.68% 3.97% 4.08% 4.37% 4.35%
Portfolio Turnover Rate 29% 27% 30% 24% 32%
=====================================================================================================================
</TABLE>
22
<PAGE> 25
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 year ended November 30, 1998, the advisory fee
represented an effective annual basic rate of 0.04% of the fund's average
net assets before a decrease of $2,102,000 (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 November 30, 1998, the fund had
contributed capital of $4,656,000 to Vanguard (included in Other Assets),
representing 0.02% of the fund's net assets and 6.6% of Vanguard's
capitalization. The fund's Trustees and officers are also Directors and
officers of Vanguard.
23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended November 30, 1998, directed brokerage
arrangements reduced the fund's expenses by $2,155,000 (an annual rate of
0.01% of average net assets).
D. During the year ended November 30, 1998, the fund purchased
$7,351,177,000 of investment securities and sold $4,520,120,000 of
investment securities, other than U.S. government securities and temporary
cash investments. Purchases and sales of U.S. government securities were
$1,720,850,000 and $2,301,414,000, respectively.
E. At November 30, 1998, net unrealized appreciation of investment
securities for financial reporting and federal income tax purposes was
$6,149,652,000, consisting of unrealized gains of $6,537,598,000 on
securities that had risen in value since their purchase and $387,946,000 in
unrealized losses on securities that had fallen in value since their
purchase.
F. The market value of securities on loan to broker/dealers at November
30, 1998, was $513,329,000, for which the fund had received as collateral
cash of $514,284,000 and U.S. Treasury securities with a market value of
$9,018,000. 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.
24
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS [PHOTO]
To the Shareholders and
Board of Trustees of
Vanguard Wellington Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of Vanguard Wellington Fund (the "Fund") at November 30, 1998, the results
of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at November 30, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 6, 1999
25
<PAGE> 28
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD WELLINGTON FUND
This information for the fiscal year ended November 30, 1998, is included
pursuant to provisions of the Internal Revenue Code.
The fund distributed $920,797,000 as capital gain dividends (from
net long-term capital gains) to shareholders in December 1997. Of the
$920,797,000 capital gain dividends, the fund designates $529,275,000 as a
20% rate gain distribution.
For corporate shareholders, 34.9% of investment income (dividend income
plus short-term gains, if any) qualifies for the dividends-received deduction.
26
<PAGE> 29
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.
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.
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.
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> 30
VANGUARD
MILESTONES
[PHOTO]
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."
[PHOTO]
Walter L. Morgan, founder of Wellington Fund, the nation's first 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.
[PHOTO]
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.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain
more complete information on advisory fees, distribution charges, and other
expenses and should be read carefully before you invest or send money.
Prospectuses can be obtained directly from The Vanguard Group.
Q210-1/12/1999
(C) 1999 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[PHOTO]
