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VANGUARD WELLINGTON (TM) FUND
[PHOTO]
SEMIANNUAL REPORT
May 31, 2000
[THE VANGUARD GROUP LOGO]
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HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment.
Valuations of market indexes are at or near historic highs. The strength and
duration of the bull market in U.S. stocks have inflated people's expectations
and diminished their recognition of the market's considerable risks. And the
incredible divergence in stock returns--many technology-related stocks gained
100% or more in 1999, yet prices fell for more than half of all stocks--has made
some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not
the same as wisdom. Indeed, much of the information, opinion, and rumor that
swirl about financial markets each day amounts to "noise" of no lasting
significance. And the fact that rapid-fire trading is easy does not make it
beneficial. Frequent trading is almost always counterpro-ductive because
costs--even at low commission rates--and taxes detract from the returns that the
markets provide. Sadly, many investors jump into a "hot" mutual fund just in
time to see it cool off. Meanwhile, long-term fund investors are hurt by
speculative trading activity because they bear part of the costs involved in
accommodating purchases and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
o Invest for the long term. Pursuing your long-term investment goals is more
like a marathon than a sprint.
o Diversify your investments with holdings in stocks, bonds, and cash
investments.
Remember that, at any moment, some part of a diversified portfolio will lag
other parts,and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
o Step back from the daily frenzy of the markets; focus on your overall asset
allocation.
o Capture as much of the market's return as possible by minimizing costs and
taxes.
Costs and taxes diminish long-term returns while doing nothing to reduce the
risks you incur as an investor.
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CONTENTS
REPORT FROM THE CHAIRMAN 1 PERFORMANCE SUMMARY 9
THE MARKETS IN PERSPECTIVE 5 FUND PROFILE 10
REPORT FROM THE ADVISER 7 FINANCIAL STATEMENTS 14
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All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"Standard & Poor's (R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc.
Frank Russell Company is the owner of trademarks and copyrights relating to
the Russell Indexes.
"Wilshire 5000(R)" and "Wilshire 4500" are trademarks of Wilshire Associates
Incorporated.
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REPORT FROM THE CHAIRMAN
[PHOTO]
JOHN J. BRENNAN
Vanguard Wellington Fund recorded a 1.6% return during the six months ended
May 31, 2000. This modest gain was achieved amid extremely volatile markets.
Value stocks--Wellington Fund's main fare--plummeted early in the period and
then vigorously rebounded.
Wellington's return trailed those of its unmanaged index benchmark and the
average balanced mutual fund during the six-month period. The table at right
presents the total return (capital change plus reinvested dividends) for
Wellington and these comparative standards. The composite index is based on a
65% allocation to the Standard & Poor's 500 Index and a 35% weighting in the
Lehman Brothers Corporate A or Better Bond Index. Returns for these two indexes
also appear in the table.
The fund's return is based on a decrease in net asset value from $29.62 per
share on November 30, 1999, to $27.89 per share on May 31, 2000, and is adjusted
for dividends of $0.64 per share paid from net investment income and a
distribution of $1.50 per share paid from net realized capital gains. The fund's
income yield as of May 31 was 4.0%.
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TOTAL RETURNS
SIX MONTHS ENDED
MAY 31, 2000
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Vanguard Wellington Fund 1.6%
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Average Balanced Fund* 2.8%
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Wellington Composite Index** 2.0%
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S&P 500 Index 2.9%
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Lehman Corporate A or Better Index+ -0.3%
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*Derived from data provided by Lipper Inc.
**Weighted 65% S&P 500 Index; 35% Lehman Long
Corporate AA or Better Index through February
2000; and 35% Lehman Corporate A or Better Index
thereafter.
+Lehman Long Corporate AA or Better Index through
February 2000; Lehman Corporate A or Better Index
thereafter.
THE PERIOD IN REVIEW
The U.S. economy continued a remarkably strong advance during the first half of
our fiscal year. The total output of the economy during the first quarter of
calendar 2000 was 5.0% higher--after adjusting for inflation--than in the first
quarter of 1999. And May marked the 110th month of uninterrupted expansion for
the U.S. economy--the longest expansion ever.
A growing economy generally means good news for corporate profits and
for stocks. However, during the past six months, markets were concerned that the
economy might be too robust and that its rapid growth, combined with a very low
unemployment rate (around 4% of the workforce), could light a fire under
inflation. To cool things off, the Federal Reserve Board raised its target for
short-term interest rates three times for a total of 1 percentage point from
February 2 through May 16.
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TOTAL RETURNS
---------------------
NOV. 30, 1999, FEB. 29 TO
TO FEB. 29, 2000 MAY 31, 2000
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Vanguard Wellington Fund -7.4% 9.7%
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S&P 500/BARRA
Growth Index 2.4% -0.4%
S&P 500/BARRA
Value Index -5.8 10.0
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Russell 2000 Growth Index 43.6% -26.6%
Russell 2000 Value Index 6.5 -0.5
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Nasdaq Composite Index 41.1% -27.4%
----------------------------------------------------------------
The stock market, as measured by the Wilshire 5000 Total Market Index, rose
1
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2.4% during the six months. However, there were frequent, wide swings in stock
prices, especially among small-capitalization and technology issues, where
valuations had reached very high levels. The small-cap Russell 2000 Growth
Index, which is heavily weighted in technology stocks, saw a 43.6% gain from
November 30 through February 29, followed by a -26.6% decline from March through
May, resulting in a 5.4% return for the half-year. The table on page 1 shows the
striking shift in Wellington Fund's returns during the period, and the flip-flop
in market leadership from growth stocks to value stocks.
When the dust cleared, nearly all the major stock indexes registered gains.
However, in contrast to recent years, value stocks slightly outpaced growth
stocks over the six months ended May 31.
For fixed income investors, the Fed's efforts to boost interest rates had
mixed results. In response to the Fed's 1-percentage-point increase in its
target federal funds rate, the yield on 3-month U.S. Treasury bills climbed as
much as 91 basis points (0.91 percentage point), to 6.21% as of May 16. However,
in the final two weeks of the period, rates fell. Apparently, many market
participants thought that the Fed's 0.5-percentage-point increase in rates on
May 16 might slow the economy enough to preempt inflation. By May 31, the 90-day
T-bill yield was 5.62%, up 32 basis points during the half-year.
Prices of longer-term Treasury securities benefited from a shrinking
supply, as the growing federal budget surplus has resulted in reduced issuance
of new bonds and the repurchase of some outstanding bonds. The yield of the
30-year Treasury bond fell 28 basis points, on balance, ending the half-year at
6.01%. The yield for the 10-year Treasury note rose 8 basis points during the
period, to 6.27%. Prices of most corporate and municipal bonds declined during
the half-year. The overall taxable bond market, as measured by the Lehman
Brothers Aggregate Bond Index, recorded a 1.4% total return, as an average price
decline of about 2% was offset by six-month income of 3.4%.
PERFORMANCE OVERVIEW
The 1.6% return for Wellington Fund during the half-year lagged the 2.0% return
from our composite stock/bond index and the 2.8% return for the average balanced
fund. The fund's comeback from the early months of the fiscal year was due
largely to the recovery of value stocks, although it also was aided by a small
rise in corporate bond prices from the lows they recorded early in the fiscal
half-year.
For Wellington Fund shareholders, the market's renewed interest in value
stocks was welcome. For much of the past two years, it seemed that investors
were so excited about the potential of "new economy" stocks that they overlooked
the reality of many "old economy" companies with excellent operations. We firmly
believe that Wellington's value investing approach is sound, and that stock
prices ultimately depend on actual earnings and dividends, not just on
potential. And we thank our shareholders for their loyalty.
The stock portion of Wellington Fund, which accounted for about two-thirds
of assets during the six months, earned 2.3%, a bit behind the 2.9% return for
the S&P 500 Index, the equity portion of our benchmark. The bond portion of the
fund returned -0.8% for the half-year, versus a -0.3% return for our bond
benchmark.
Our shortfall versus the S&P 500 Index was due mainly to differences in
emphasis in two sectors: the fund's lighter stake in technology and its heavier
stake in materials & processing. The S&P 500's technology stocks, even after a
-12% tumble in the March-May fiscal quarter, gained 12% for the half-year. This
hurt the fund's relative performance because the index had a much heavier
allocation to tech stocks--about 27%, on average, versus 7% for Wellington Fund.
This factor also hurt our results versus
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the average balanced fund, which holds approximately 14% of assets in
technology.The materials group, where Wellington's average stake of 14% of
assets was more than three times the index weighting, was one of the market's
laggards, declining about -6%.
On the plus side, our holdings in the financial services and utilities
groups, which together account for about one-fourth of the fund's stock
position, outperformed those segments of the index. Wellington Fund's financial
stocks earned a bit more than 10%, versus 4% for the S&P 500's financial sector.
And our utility holdings returned -1%, versus -14% for those in the index.
IN SUMMARY
This spring's sudden rise of downtrodden value stocks and the sharp declines in
high- flying technology-related stocks demonstrated the short-term
unpredictability and volatility of financial markets. Sudden shifts in market
psychology and in the economic environment happen periodically, although the
timing and duration of such episodes are impossible to foretell with precision.
Such unpredictability is precisely why we advocate diversification and a
long-term orientation--the hallmarks of Vanguard Wellington Fund, the nation's
oldest balanced mutual fund. Investors who maintain exposure to the major asset
classes through balanced, well-diversified portfolios are in a strong position
to withstand market turbulence. So, once you've crafted an investment plan based
on your own goals, time horizon, and risk tolerance, we suggest that you stick
with it.
/S/
John J. Brennan
Chairman and Chief Executive Officer
June 15, 2000
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NOTICE TO SHAREHOLDERS
In the past, Vanguard Wellington Fund's quarterly income dividend to
shareholders was paid at a "set rate" (most recently $0.25 per share). Income
the fund earned in excess of the set rate was distributed in the December income
dividend. Going forward, the fund will distribute income on a "pay as you go"
basis, rather than according to a set rate. This change provides for a more even
distribution of income throughout the year.
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3
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In Memory
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the fund and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
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4
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THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 2000
Strong crosscurrents pushed and tugged at financial markets during the six
months ended May 31, 2000. Positive influences included very strong economic
growth and rising corporate profits. Negative factors included tighter monetary
policy, higher inflation, and concerns about stock valuations.
Interest rates rose in most segments of the bond market, and bond
prices slipped. Stock prices rose slightly, on balance, although wide day-to-day
price swings were frequent.
Uncertainty in both the bond and stock markets centered on the
surprising performance of the U.S. economy, which grew at a torrid 7.3% pace in
the final three months of 1999 and at a still-robust 5.4% during the first
quarter of 2000. With U.S. unemployment at around 4.0% of the workforce, the
Federal Reserve Board continued to be concerned that inflation would worsen
unless the economic expansion slowed. The Fed raised short-term interest rates
by 0.25 percentage point in February and again in March, before boosting rates
by 0.50 percentage point in mid-May. These boosts, following three
quarter-percentage-point increases in 1999, took the Fed's target for short-term
rates to 6.5%. By the end of May, some signs of slowing had emerged in the
economy, although it was not certain that the Fed had finished applying the
brakes.
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TOTAL RETURNS
PERIODS ENDED MAY 31, 2000
-------------------------------
6 MONTHS 1 YEAR 5 YEARS*
----------------------------------------------------------------------
STOCKS
S&P 500 Index 2.9% 10.5% 23.8%
Russell 2000 Index 5.5 9.9 13.5
Wilshire 5000 Index 2.4 10.7 22.3
MSCI EAFE Index 0.7 17.4 10.4
----------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 1.4% 2.1% 6.0%
Lehman 10 Year Municipal Bond Index 0.7 -0.2 5.3
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.7 5.2 5.2
----------------------------------------------------------------------
OTHER
Consumer Price Index 1.8% 3.1% 2.4%
----------------------------------------------------------------------
*Annualized.
Evidence on inflation was ambiguous. The Consumer Price Index increased
1.8% and 3.1%, respectively, for the six- and twelve-month periods ended May 31,
but much of the increase was due to higher energy and food prices. Core
inflation, which excludes those sectors, was up a less-scary 2.4% during the
twelve months ended May 31.
U.S. STOCK MARKETS
Optimism about long-term prospects for technology, media, and telecommunications
companies dominated the equity markets through the first three months of the
period. But sentiment shifted suddenly in mid-March, sending the tech and
telecom groups sharply lower. The tech-heavy Nasdaq Composite Index, for
example, registered a 41.1% return from November 30 through February 29, only to
give back most of the gains over the next three months. End result: a 2.4%
return for the six months ended May 31.
The overall stock market, as measured by the Wilshire 5000 Index, also
returned 2.4%. Value stocks, those characterized by above-average dividend
yields and below-average price/earnings and price/book value ratios, enjoyed a
resurgence beginning in mid-March.
5
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For the full six months, the value components of both the large-capitalization
S&P 500 Index and the small-cap Russell 2000 Index outperformed the indexes'
growth components.
Within the S&P 500, the half-year's best return was the 48% gain
recorded by "other energy" stocks, including oil-drilling and services companies
that benefited from a continuing rise in oil prices. The producer-durables
sector gained 18%, largely because of big gains for a number of manufacturers of
telecommunications gear and semiconductor testing and fabrication equipment.
Technology stocks, which now account for about one-quarter of the total stock
market's value, gained about 12% for the six months.
Poor performers included the utilities sector (-14% return), which was
hurt by downturns in several large telephone stocks, and many consumer staples
(-9%) and consumer-discretionary (-6%) companies. Prices fell steeply for a
number of high-profile retailers, beverage and food makers, tobacco companies,
and entertainment enterprises.
U.S. BOND MARKETS
The Federal Reserve's influence on interest rates is strongest for short-term
securities.Over the six months, the Fed pushed up the rate charged on overnight
loans between banks by 1 percentage point to 6.5%. Yields of 3-month U.S.
Treasury bills rose only one-third as far (0.32 percentage point, or 32 basis
points), to 5.62%. And long-term Treasury yields moved even less. The 10-year
Treasury note rose just 8 basis points to 6.27% as of May 31, and yields fell
for very long-term Treasury bonds due to a cutback in issuance of new bonds. As
a result of the shrinking supply of long-term bonds, the yield of the 30-year
Treasury bond declined 28 basis points--from 6.29% to 6.01%--during the
half-year.
Because short-term rates moved higher while long-term rates declined,
there was an unusual "inversion" in the yield curve. Instead of sloping
upward--with yields increasing along with the maturity of Treasury
securities--the curve sloped down. The 6.01% yield of 30-year Treasuries on May
31 was 70 basis points below the 6.71% yield on 3-year Treasury notes.
Corporate and municipal bonds did not perform as well as Treasury
securities, and the yield curve for these sectors remained positive--yields of
long-term bonds remained higher than those of short-term securities. The Lehman
Aggregate Bond Index, a proxy for the overall taxable bond market, returned
1.4%, as a price decline of 2% offset most of the 3.4% income provided by bonds
during the half-year.
INTERNATIONAL STOCK MARKETS
A stronger U.S. dollar and weak Asian markets made the half-year a lackluster
one for U.S. investors in foreign stocks. Improving economic growth in most of
the world helped a number of markets in Europe, Asia, and Latin America to
produce good gains in their local currencies. However, the U.S. dollar increased
in value versus most currencies, significantly reducing the returns received by
dollar-based investors. (Conversely, when the dollar falls in value, returns
from abroad are enhanced for U.S. investors.)
The overall return in dollars from developed foreign markets was a scant
0.7%, as measured by the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index. However, in local currencies, the EAFE Index
return for the six months was a very respectable 7.8%.
In Europe, where stocks benefited from a continuance of corporate
acquisitions, an average 12.8% gain in local-currency terms was reduced to 4.7%
for U.S. investors because of the dollar's strength. Stocks in the Pacific
region, which is dominated by Japan, returned -7.0% in dollars, as a -2.0%
return in local-currency terms was further diminished by the dollar's gains. The
Select Emerging Markets Free Index returned -2.8% in U.S. dollars.
6
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REPORT FROM THE ADVISER
Vanguard Wellington Fund returned 1.6% during the six months ended May 31, 2000.
This was a bit behind the 2.8% return for the average balanced fund and the 2.0%
gain recorded by the unmanaged Wellington Composite Index, which is weighted 65%
in the S&P 500 Index and 35% in the Lehman Corporate A or Better Index.
The equity portion of the Wellington Fund, with about 68% of assets at
the end of May, gained 2.3% during the first half of our fiscal year, compared
with a 2.9% return for the S&P 500 Index. The fixed income portion of your fund
posted a -0.8% return, half a percentage point behind the -0.3% return for the
bond index.
The stock market was quite volatile during the six months of the
period, especially in the technology sector. During the first three months, when
tech stocks were at their hottest, Wellington Fund underperformed its benchmarks
by a rather wide margin. But during the final three months of the half-year, the
fund outpaced its benchmarks and nearly closed the gap.
The sharp rise in technology stocks through early March, and the
subsequent severe correction in the sector, occurred against the backdrop of a
very high economic growth rate--an annual pace well over 6.0% during the winter.
The strong economic expansion raised the prospect of higher inflation, which
unsettled the market. We believe that inflation will pick up some as a result of
increased labor costs for employers and that rising interest rates will slow the
economy. Even so, we expect corporate earnings growth to remain healthy, in part
because of economic growth in Asia and Europe.
During the past six months, we slightly reduced the fund's exposure to
the financial services sector, because we think earnings among these companies
could be hurt by the combination of a slowing economy and somewhat higher
inflation. We also reduced our exposure to some of our holdings in the
technology sector, after some of these stocks rose to levels that made them
quite expensive by our standards. Stocks added to the fund during the period
include Albertson's (the food retailer) and Honeywell (a diversified technology
and manufacturing company). Our exposure to the health care sector increased
because a number of holdings, such as Pharmacia, made sharp gains after a
lackluster 1999.
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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
high-quality corporate, U.S. Treasury, and mortgage-backed securities make up
the bond segment.
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The past half-year was a difficult period for the corporate bond
market. The Federal Reserve Board raised short-term interest rates to head off
inflation. But prices of Treasury securities were supported by the perception
that most of the U.S. Treasury's growing budget surplus will be used to retire
outstanding Treasury bonds. Corporate bond prices weren't as firm as those of
Treasuries. However, the credit condition of corporate bond issuers is still
quite strong, and we believe that corporate bond yields are attractive when
compared with the expected rate of inflation.
Although our "value" style of investing fared much better in the final
months of the half-year, the markets remain volatile. We are encouraged by what
appears to be more rational behavior by the market in
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recent months. And we expect that, as the world economy continues to show good
strength, the securities your fund holds will do relatively well.
ERNST H. VON METZSCH, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
WELLINGTON MANAGEMENT COMPANY, LLP
June 12, 2000
8
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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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1979-MAY 31, 2000
--------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
--------------------------------------------------------
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
--------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
--------------------------------------------------------
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 -0.5 4.1 3.6 11.0
2000** -0.7 2.3 1.6 2.0
--------------------------------------------------------
*Weighted 65% S&P 500 Index; 35% Lehman Long Corporate AA or Better
Index through February 2000; and 35% Lehman Corporate A or Better Index
thereafter.
**Six months ended May 31, 2000.
See Financial Highlights table on page 22 for dividend and capital gains
information for the past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 2000
--------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
------------------------------------------------------- ------------------------
Wellington Fund 7/1/1929 2.82% 15.15% 7.86% 4.92% 12.78%
--------------------------------------------------------------------------------
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
9
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FUND PROFILE
WELLINGTON FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on pages 12 and 13.
TOTAL FUND CHARACTERISTICS FUND ASSET ALLOCATION*
--------------------------------- ----------------------------------
Yield 4.0% CASH RESERVES 1%
Turnover Rate 26%* BONDS 31%
Expense Ratio 0.30%* STOCKS 68%
Cash Reserves 1.5%
*Annualized.
TOTAL FUND VOLATILITY MEASURES
------------------------------------------
WELLINGTON S&P 500
------------------------------------------
R-Squared 0.75 1.00
Beta 0.57 1.00
TEN LARGEST STOCKS
(% OF EQUITY ASSETS)
-----------------------------------------------
Citigroup, Inc. 3.4%
Pharmacia Corp. 3.4
Alcoa Inc. 2.7
CIGNA Corp. 2.7
Marsh & McLennan Cos., Inc. 2.5
International Business Machines Corp. 2.4
Dow Chemical Co. 2.0
Kimberly-Clark Corp. 2.0
Johnson & Johnson 1.8
Wachovia Corp. 1.8
-----------------------------------------------
Top Ten 24.7%
-----------------------------------------------
Top Ten as % of Total Net Assets 16.6%
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
--------------------------------------------------------------------------------
MAY 31, 1999 MAY 31, 2000
--------------------------------------------
WELLINGTON WELLINGTON S&P 500
--------------------------------------------
Auto & Transportation 10.9% 9.0% 1.9%
Consumer Discretionary 7.1 6.8 12.0
Consumer Staples 2.5 3.4 5.9
Financial Services 16.1 17.6 14.7
Health Care 9.8 10.7 10.5
Integrated Oils 10.0 9.9 4.9
Other Energy 2.1 1.8 1.9
Materials & Processing 15.4 12.5 2.5
Producer Durables 8.2 9.7 3.9
Technology 6.4 4.9 25.8
Utilities 8.1 8.7 9.1
Other 3.4 5.0 6.9
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10
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EQUITY CHARACTERISTICS
-----------------------------------------------
WELLINGTON S&P 500
-----------------------------------------------
Number of Stocks 99 500
Median Market Cap $21.4B $86.0B
Price/Earnings Ratio 18.7x 28.0x
Price/Book Ratio 2.5x 5.0x
Dividend Yield 2.5% 1.2%
Return on Equity 18.6% 23.7%
Earnings Growth Rate 7.3% 16.2%
Foreign Holdings 12.4% 1.3%
FIXED INCOME CHARACTERISTICS
-----------------------------------------------
LEHMAN
WELLINGTON INDEX*
-----------------------------------------------
Number of Bonds 204 5,629
Yield to Maturity 8.0% 7.5%
Average Coupon 7.0% 6.8%
Average Maturity 12.2 years 8.9 years
Average Quality Aa3 Aaa
Average Duration 6.5 years 5.0 years
*Lehman Aggregate Bond Index.
DISTRIBUTION BY ISSUER
(% OF BONDS)
-----------------------------------------------
Asset-Backed 0.0%
Commercial Mortgage-Backed 3.2
Finance 25.1
Foreign 10.8
Government Mortgage-Backed 3.0
Industrial 30.1
Treasury/Agency 14.2
Utilities 12.6
Other 1.0
-----------------------------------------------
Total 100.0%
EQUITY INVESTMENT FOCUS
----------------------------
[GRID]
STYLE VALUE
MARKET CAP LARGE
FIXED INCOME INVESTMENT FOCUS
----------------------------
[GRID]
AVERAGE MATURITY MEDIUM
CREDIT QUALITY INVESTMENT-GRADE CORPORATE
DISTRIBUTION BY CREDIT QUALITY
(% OF BONDS)
------------------------------
Treasury/Agency 14.2%
Aaa 11.4
Aa 20.0
A 40.0
Baa 13.6
Ba 0.5
B 0.0
Not Rated 0.3
------------------------------
Total 100.0%
11
<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 make their judgment 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 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 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.
12
<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.
13
<PAGE>
FINANCIAL STATEMENTS
MAY 31, 2000 (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, but may differ because certain investments or
transactions may be treated differently for financial statement and tax
purposes. Any Accumulated Net Realized Losses, and any cumulative excess of
distributions over net income or net realized gains, will appear as negative
balances. Unrealized Appreciation (Depreciation) is the difference between the
market value of the fund's investments and their cost, and reflects the gains
(losses) that would be realized if the fund were to sell all of its investments
at their statement-date values.
--------------------------------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
--------------------------------------------------------------------------------
COMMON STOCKS (67.8%)
--------------------------------------------------------------------------------
AUTO & TRANSPORTATION (6.1%)
Ford Motor Co. 5,449,700 $ 264,651
Union Pacific Corp. 6,195,500 262,147
General Motors Corp. 2,004,208 141,547
Delphi Automotive
Systems Corp. 8,649,643 156,234
British Airways PLC ADR 2,600,000 146,413
Canadian National Railway Co. 4,000,000 107,250
Norfolk Southern Corp. 5,500,100 97,971
CSX Corp. 3,984,200 86,656
KLM Royal Dutch Air Lines
NV ADR 3,958,646 86,101
Genuine Parts Co. 1,032,400 24,649
----------
1,373,619
----------
CONSUMER DISCRETIONARY (4.6%)
Kimberly-Clark Corp. 5,000,000 302,500
Whirlpool Corp. 2,700,000 153,056
Gillette Co. 4,500,000 150,188
Black & Decker Corp. 3,500,000 127,750
Sears, Roebuck & Co. 3,000,000 110,812
May Department Stores Co. 3,462,000 104,076
Eastman Kodak Co. 1,600,000 95,600
----------
1,043,982
----------
CONSUMER STAPLES (2.3%)
Albertson's, Inc. 4,000,000 146,500
Philip Morris Cos., Inc. 5,000,000 130,625
Bestfoods 2,000,000 129,000
H.J. Heinz Co. 3,000,000 117,563
----------
523,688
----------
FINANCIAL SERVICES (11.9%)
Citigroup, Inc. 8,500,000 528,594
CIGNA Corp. 4,596,600 408,236
Marsh & McLennan Cos., Inc. 3,442,500 378,890
Wachovia Corp. 4,000,000 276,500
U.S. Bancorp 8,430,300 219,188
MBIA, Inc. 2,677,600 154,799
Bank of America Corp. 2,102,680 116,830
Ace, Ltd. 4,000,000 107,250
Equity Office Properties
Trust REIT 4,000,000 106,250
Jefferson-Pilot Corp. 1,450,000 99,506
Spieker Properties, Inc. REIT 2,000,000 92,875
Archstone Communities
Trust REIT 4,000,000 89,750
Bank One Corp. 1,547,400 51,161
Starwood Hotels & Resorts
Worldwide, Inc. 1,126,500 33,302
Kimco Realty Corp. REIT 794,900 32,193
----------
2,695,324
----------
HEALTH CARE (7.3%)
Pharmacia Corp. 9,954,826 517,029
Johnson & Johnson 3,100,000 277,450
Baxter International, Inc. 3,874,700 257,668
Abbott Laboratories 6,000,000 244,125
American Home Products Corp. 4,174,700 224,912
Aventis SA ADR 2,000,000 127,875
----------
1,649,059
----------
INTEGRATED OILS (6.7%)
Royal Dutch Petroleum Co. ADR 4,100,000 255,994
BP Amoco PLC ADR 4,000,000 217,500
Repsol SA ADR 9,105,000 191,774
14
<PAGE>
--------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
--------------------------------------------------------------------------------
Chevron Corp. 2,000,000 184,875
Conoco Inc. Class B 5,706,267 162,629
Total Fina Elf SA ADR 2,000,000 157,875
Texaco Inc. 2,477,000 142,273
USX-Marathon Group 5,000,000 135,937
Unocal Corp. 1,945,000 74,761
----------
1,523,618
----------
OTHER ENERGY (1.2%)
Halliburton Co. 2,000,000 102,000
Sunoco, Inc. 3,000,000 96,937
Schlumberger Ltd. 1,000,000 73,562
----------
272,499
----------
MATERIALS & PROCESSING (8.5%)
Alcoa Inc. 7,000,000 409,063
Dow Chemical Co. 2,838,400 303,886
Phelps Dodge Corp. 3,604,900 161,770
PPG Industries, Inc. 2,700,000 133,819
E.I. du Pont de Nemours & Co. 2,710,872 132,833
Alcan Aluminium Ltd. 4,000,000 131,250
Willamette Industries, Inc. 3,171,000 103,057
Temple-Inland Inc. 1,984,600 98,610
Corus Group PLC ADR 6,000,000 90,000
International Paper Co. 2,500,000 87,031
Imperial Chemical
Industries PLC ADR 2,515,000 78,594
Weyerhaeuser Co. 1,362,600 67,619
Cabot Corp. 2,238,300 58,336
Lubrizol Corp. 1,387,100 32,077
Crompton Corp. 2,508,463 30,415
----------
1,918,360
----------
PRODUCER DURABLES (6.6%)
Alcatel SA ADR 5,000,000 272,813
(1)Northrop Grumman Corp. 3,500,000 268,187
Xerox Corp. 7,800,000 211,575
Emerson Electric Co. 3,500,000 206,500
Caterpillar, Inc. 3,000,000 114,750
Pall Corp. 4,923,700 103,398
United Technologies Corp. 1,500,000 90,656
Pitney Bowes, Inc. 2,000,000 87,000
Parker Hannifin Corp. 1,704,800 71,069
Thomas & Betts Corp. 2,284,500 64,823
----------
1,490,771
----------
TECHNOLOGY (3.3%)
International Business
Machines Corp. 3,400,000 364,863
Hewlett-Packard Co. 1,500,000 180,188
Motorola, Inc. 1,653,500 155,016
oGeneral Motors Corp. Class H 528,018 51,977
----------
752,044
----------
UTILITIES (5.9%)
Bell Atlantic Corp. 5,136,000 271,566
Duke Energy Corp. 4,000,000 233,000
ALLTEL Corp. 2,523,400 165,125
SBC Communications Inc. 3,072,600 134,234
Unicom Corp. 3,000,000 125,062
Cinergy Corp. 4,355,000 115,952
TXU Corp. 2,490,000 89,017
Pinnacle West Capital Corp. 2,263,600 80,924
Carolina Power & Light Co. 2,200,000 75,625
FPL Group, Inc. 957,000 47,372
----------
1,337,877
----------
OTHER (3.4%)
Minnesota Mining &
Manufacturing Co. 2,000,000 171,500
(1)Cooper Industries, Inc. 5,085,700 170,371
Canadian Pacific Ltd. 6,000,800 144,769
Norsk Hydro AS ADR 3,131,700 119,200
Raytheon Co. Class A 4,500,000 106,031
Honeywell International Inc. 1,000,000 54,688
----------
766,559
----------
--------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $10,779,889) 15,347,400
--------------------------------------------------------------------------
Face
Amount
(000)
--------------------------------------------------------------------------
CORPORATE BONDS (20.8%)
--------------------------------------------------------------------------
FINANCE (7.7%)
Ace INA Holdings Inc.
8.20%, 8/15/2004 19,000 18,771
Allstate Corp.
6.75%, 5/15/2018 40,000 33,242
Ambac, Inc.
7.50%, 5/1/2023 25,000 22,503
American Re Corp.
7.45%, 12/15/2026 46,345 41,489
Aon Corp.
6.90%, 7/1/2004 48,000 45,373
Associates Corp. of North America
6.875%, 11/15/2008 50,000 46,041
BB&T Corp.
7.25%, 6/15/2007 36,900 34,938
Banc One Corp.
9.875%, 3/1/2019 20,000 21,928
Bank of America Corp.
7.20%, 4/15/2006 20,000 19,226
Bank of America Corp.
7.80%, 2/15/2010 29,000 28,263
BankBoston Corp.
6.625%, 12/1/2005 27,000 25,201
British Gas Finance
6.625%, 6/1/2018 50,000 42,594
The Chase Manhattan Corp.
6.50%, 1/15/2009 50,000 45,184
Cincinnati Financial Corp.
6.90%, 5/15/2028 43,500 35,462
Citicorp
6.75%, 8/15/2005 40,000 38,142
Comerica Bank
8.375%, 7/15/2024 20,500 19,939
Dean Witter, Discover & Co.
6.75%, 10/15/2013 24,275 21,283
7.07%, 2/10/2014 17,500 15,703
Farmers Exchange Capital
7.05%, 7/15/2028 34,000 26,559
First Chicago Corp.
6.375%, 1/30/2009 48,500 42,778
First Colony Corp.
6.625%, 8/1/2003 34,805 33,614
First Union Corp.
7.50%, 4/15/2035 30,000 29,323
Fleet Financial Group
6.875%, 1/15/2028 50,000 41,506
15
<PAGE>
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
--------------------------------------------------------------------------------
Ford Motor Credit
6.70%, 7/16/2004 $ 45,000 $ 43,133
General Electric Capital Corp.
7.25%, 2/1/2005 25,000 24,737
8.125%, 5/15/2012 30,000 31,121
General Motors Acceptance Corp.
6.00%, 4/1/2011 27,370 23,115
General Re Corp.
9.00%, 9/12/2009 32,000 33,949
IBM Credit Corp.
7.00%, 1/28/2002 14,500 14,411
Jackson National Life Insurance Co.
8.15%, 3/15/2027 25,730 23,975
Liberty Mutual Insurance Co.
7.875%, 10/15/2026 56,210 46,835
Lumbermens Mutual Casualty Co.
9.15%, 7/1/2026 55,000 48,214
Metropolitan Life Insurance Co.
7.70%, 11/1/2015 51,000 48,805
NBD Bancorp, Inc.
7.125%, 5/15/2007 25,000 23,519
National City Bank Columbus
7.25%, 7/15/2010 25,000 23,318
National City Bank Pennsylvania
7.25%, 10/21/2011 20,000 18,317
NationsBank Corp.
7.80%, 9/15/2016 50,000 47,756
Northern Trust Corp.
6.65%, 11/9/2004 28,000 26,694
Norwest Financial Inc.
6.25%, 12/15/2007 35,000 31,272
Pacific Mutual Life
7.90%, 12/30/2023 20,000 18,603
Pitney Bowes Credit Corp.
8.55%, 9/15/2009 41,890 43,672
Provident Cos., Inc.
7.25%, 3/15/2028 40,000 30,538
Prudential Insurance Co.
7.65%, 7/1/2007 20,000 19,209
Frank Russell Co.
5.625%, 1/15/2009 50,000 43,065
SAFECO Corp.
7.875%, 3/15/2003 33,285 32,794
SunTrust Bank Atlanta
7.25%, 9/15/2006 54,000 51,532
Torchmark Corp.
7.875%, 5/15/2023 45,000 38,674
Toyota Motor Credit Corp.
5.50%, 12/15/2008 50,000 43,634
Transamerica Financial Corp.
6.40%, 9/15/2008 29,265 26,234
UNUM Corp.
6.75%, 12/15/2028 30,000 21,431
US Bank NA Minnesota
5.625%, 11/30/2005 50,000 44,873
Wachovia Corp.
5.625%, 12/15/2008 55,000 46,666
Washington Mutual, Inc.
7.50%, 8/15/2006 50,000 48,009
----------
1,747,167
----------
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------------
INDUSTRIAL (9.2%)
Airtouch Communications Inc.
6.65%, 5/1/2008 $ 50,000 $ 45,519
Albertson's Inc.
7.75%, 6/15/2026 45,000 41,458
American General Financial
7.45%, 1/15/2005 45,000 43,792
Amoco Corp.
6.50%, 8/1/2007 25,000 23,564
Anheuser-Busch Cos., Inc.
7.00%, 12/1/2025 30,000 25,933
Archer-Daniels-Midland Co.
7.50%, 3/15/2027 30,000 27,414
Autozone Inc.
6.50%, 7/15/2008 50,000 44,027
Baxter International, Inc.
7.65%, 2/1/2027 40,000 36,957
Becton, Dickinson & Co.
8.70%, 1/15/2025 20,000 19,786
The Boeing Co.
8.75%, 8/15/2021 40,200 42,416
CPC International, Inc.
6.15%, 1/15/2006 6,790 6,330
7.25%, 12/15/2026 10,185 9,343
CSX Corp.
7.90%, 5/1/2017 40,000 36,514
Champion International Corp.
7.35%, 11/1/2025 20,000 16,974
Continental Airlines, Inc.
6.90%, 1/2/2018 28,546 25,805
Continental Airlines, Inc.
(Equipment Trust Certificates)
6.648%, 3/15/2019 32,016 28,461
Cox Communications, Inc.
7.75%, 8/15/2006 28,000 27,234
DaimlerChrysler North America
Holding Corp. Global Notes
7.40%, 1/20/2005 48,000 47,120
Dean Foods Co.
6.90%, 10/15/2017 38,000 32,664
Diageo PLC
6.125%, 8/15/2005 50,530 47,019
Walt Disney Co.
7.30%, 2/8/2005 45,000 44,666
Federal Express Corp.
6.72%, 1/15/2022 48,850 44,941
Fluor Corp.
6.95%, 3/1/2007 42,000 39,230
Fortune Brands Inc.
6.25%, 4/1/2008 40,000 36,043
General Motors Corp.
7.70%, 4/15/2016 25,000 23,844
Georgia-Pacific Corp.
9.625%, 3/15/2022 22,000 22,315
Honeywell International Inc.
7.50%, 3/1/2010 50,000 49,343
International Business
Machines Corp.
8.375%, 11/1/2019 25,000 26,668
Johnson Controls, Inc.
7.125%, 7/15/2017 36,300 32,539
Kimberly-Clark Corp.
6.375%, 1/1/2028 50,000 42,089
16
<PAGE>
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------------
Eli Lilly & Co.
7.125%, 6/1/2025 $ 30,000 $ 28,018
Lockheed Martin Corp.
7.65%, 5/1/2016 28,000 25,233
7.95%, 12/1/2005 17,500 17,183
Lucent Technologies Inc.
7.25%, 7/15/2006 35,000 34,656
Masco Corp.
6.625%, 4/15/2018 52,500 42,362
Massachusetts Institute
of Technology
7.125%, 11/2/2026 22,000 20,380
Mattel Inc.
6.125%, 7/15/2005 35,000 29,872
McDonald's Corp.
7.375%, 7/15/2033 15,000 13,370
Merck & Co.
6.40%, 3/1/2028 50,000 43,582
Minnesota Mining &
Manufacturing Corp.
6.375%, 2/15/2028 30,000 25,604
Mobil Corp.
8.625%, 8/15/2021 20,000 21,902
Motorola, Inc.
7.50%, 5/15/2025 51,500 48,388
News America Holdings Inc.
8.00%, 10/17/2016 29,876 26,694
8.50%, 2/15/2005 16,070 16,044
Norfolk Southern Corp.
7.35%, 5/15/2007 25,000 23,711
8.375%, 5/15/2005 25,000 25,137
PPG Industries, Inc.
6.875%, 2/15/2012 13,600 12,477
9.00%, 5/1/2021 19,750 21,429
Phillips Petroleum Co.
9.375%, 2/15/2011 20,000 21,077
Procter & Gamble Co. ESOP
9.36%, 1/1/2021 59,145 66,319
Raytheon Co.
7.375%, 7/15/2025 18,000 14,570
8.20%, 3/1/2006 20,675 20,509
Rockwell International Corp.
7.875%, 2/15/2005 17,000 17,088
Rohm & Haas Co.
(3) 9.80%, 4/15/2020 15,000 16,876
Joseph Seagram & Sons, Inc.
6.625%, 12/15/2005 50,000 45,790
Southwest Airlines Co.
7.54%, 6/29/2015 30,772 29,884
Stanford Univ.
6.875%, 2/1/2024 24,045 21,525
7.65%, 6/15/2026 30,000 29,222
Target Corp.
7.50%, 2/15/2005 45,000 44,665
Tenneco Packaging
8.375%, 4/15/2027 35,000 29,396
The Timken Co.
6.875%, 5/8/2028 40,000 33,002
Tosco Corp.
7.80%, 1/1/2027 35,000 31,834
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------------
USA Waste Services Inc.
7.00%, 7/15/2028 $ 46,500 $ 33,855
Ultramar Diamond Shamrock
7.20%, 10/15/2017 40,000 34,556
United Technologies Corp.
6.625%, 11/15/2004 10,000 9,626
8.75%, 3/1/2021 22,000 23,616
Vastar Resources, Inc.
6.50%, 4/1/2009 49,095 45,361
Warner Lambert
6.00%, 1/15/2008 20,000 18,044
Wendy's International, Inc.
6.35%, 12/15/2005 25,500 23,773
Weyerhaeuser Co.
6.95%, 8/1/2017 20,000 17,024
----------
2,093,662
----------
UTILITIES (3.9%)
AT&T Corp.
7.75%, 3/1/2007 40,000 39,578
Atlantic City Electric Co.
(2)7.00%, 9/1/2023 18,000 15,512
BellSouth Telecommunications
5.875%, 1/15/2009 15,000 13,091
Carolina Power & Light Co.
5.95%, 3/1/2009 20,000 17,350
Central Illinois Public Service
6.125%, 12/15/2028 54,000 44,468
Chesapeake & Potomac
Telephone Co. (MD)
7.15%, 5/1/2023 10,000 8,823
Chesapeake & Potomac
Telephone Co. (VA)
7.625%, 12/1/2012 16,400 16,248
Cincinnati Bell, Inc.
6.30%, 12/1/2028 60,000 42,746
Consolidated Edison Co.
of New York, Inc.
6.45%, 12/1/2007 20,000 18,078
7.50%, 6/15/2023 25,000 22,136
Duke Energy Corp.
7.00%, 7/1/2033 10,000 8,437
El Paso Natural Gas Co.
7.50%, 11/15/2026 47,030 41,857
GTE North, Inc.
6.90%, 11/1/2008 30,000 27,847
GTE Southwest, Inc.
6.00%, 1/15/2006 30,000 27,409
Illinois Bell Telephone Co.
6.625%, 2/1/2025 27,725 22,866
Indiana Michigan Power Co.
6.875%, 7/1/2004 45,000 42,706
NGC Corp.
7.125%, 5/15/2018 35,000 29,085
National Rural Utilities
5.75%, 12/1/2008 50,000 43,158
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 34,019 32,876
New York Telephone Co.
7.25%, 2/15/2024 20,000 17,274
PacifiCorp
6.625%, 6/1/2007 20,500 18,765
17
<PAGE>
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
--------------------------------------------------------------------------------
Pan Energy Corp.
7.00%, 10/15/2006 $ 25,000 $ 23,695
Southwestern Bell Telephone Co.
7.25%, 7/15/2025 25,000 21,995
7.60%, 4/26/2007 7,000 6,803
Sprint Capital Corp.
6.125%, 11/15/2008 50,000 43,566
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 40,000 36,595
U S WEST Communications Group
6.875%, 9/15/2033 30,000 24,465
Washington Gas Light Co.
6.15%, 1/26/2026 43,500 40,113
Wisconsin Electric Power Co.
6.50%, 6/1/2028 20,000 16,281
Wisconsin Gas Co.
6.60%, 9/15/2013 13,100 11,477
Wisconsin Power & Light Co.
7.625%, 3/1/2010 20,000 19,182
Wisconsin Public Service
6.08%, 12/1/2028 45,000 37,094
WorldCom Inc.
6.40%, 8/15/2005 48,000 44,871
----------
876,447
----------
--------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $5,175,800) 4,717,276
--------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(3.3%)
--------------------------------------------------------------------------
Abbey National First Capital
8.20%, 10/15/2004 20,000 20,459
Abbey National PLC
6.69%, 10/17/2005 25,000 23,675
Amoco Canada Petroleum Co.
7.95%, 10/1/2022 20,000 20,236
BBV International Finance
7.00%, 12/1/2025 37,500 33,687
BHP Finance USA Ltd.
7.25%, 3/1/2016 35,000 30,403
Bank of Montreal
7.80%, 4/1/2007 15,000 14,926
Banque Paribas NY
6.95%, 7/22/2013 40,000 34,941
Banque Nationale de Paris-NY
7.20%, 1/15/2007 40,000 38,001
Bayerische Landesbank-NY
6.375%, 10/15/2005 25,000 23,985
The Development Bank of
Singapore Ltd.
7.875%, 8/10/2009 31,620 30,388
Inter-American Dev. Bank
8.875%, 6/1/2009 50,000 54,568
KFW International Finance
7.00%, 3/1/2013 10,000 9,505
7.20%, 3/15/2014 25,000 24,410
Norsk Hydro AS
9.00%, 4/15/2012 20,000 20,961
Province of New Brunswick
6.75%, 8/15/2013 20,400 18,511
Province of Ontario
7.00%, 8/4/2005 40,000 39,300
--------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------------
Royal Bank of Scotland
6.375%, 2/1/2011 $ 40,775 $ 36,207
Scotland International Finance
8.85%, 11/1/2006 28,000 29,099
SmithKline Beecham
7.375%, 4/15/2005 15,000 15,015
Societe Generale-NY
7.40%, 6/1/2006 40,000 38,596
Southern Investments UK PLC
6.80%, 12/1/2006 35,000 32,305
Sun Canada Financial Co.
6.625%, 12/15/2007 40,000 37,902
Talisman Energy, Inc.
7.125%, 6/1/2007 10,000 9,365
Toronto-Dominion Bank
6.45%, 1/15/2009 14,000 12,553
6.50%, 8/15/2008 10,000 9,031
Westdeutsche Landesbank-NY
6.75%, 6/15/2005 50,000 47,407
Zeneca Wilmington Inc.
7.00%, 11/15/2023 50,000 45,594
--------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $780,356) 751,030
--------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (5.3%)
--------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (3.8%)
Aid-Israel State
5.89%, 8/15/2005 23,000 22,010
U.S. Treasury Notes
5.50%, 5/31/2003 200,000 193,606
5.625%, 12/31/2002 300,000 292,182
6.00%, 8/15/2004 350,000 342,335
----------
850,133
----------
AGENCY BONDS & NOTES (0.6%)
Federal Home Loan Bank
5.24%, 12/18/2008 45,000 38,407
Federal National Mortgage Assn.
6.50%, 8/15/2004 100,000 96,723
----------
135,130
----------
MORTGAGE-BACKED SECURITIES (0.9%)
Federal National Mortgage Assn.
(3)5.735%, 1/1/2009 39,384 34,787
(3)6.032%, 1/1/2009 60,117 56,299
(3)6.504%, 7/1/2009 60,297 55,746
(3)6.79%, 7/1/2009 62,978 59,376
----------
206,208
----------
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,216,985) 1,191,471
--------------------------------------------------------------------------
18
<PAGE>
--------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
--------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.0%)
--------------------------------------------------------------------------
Asset Securitization Corp.
(3)6.75%, 2/14/2041 $ 35,000 $ 32,528
(3)7.49%, 4/14/2029 34,000 33,240
Credit Suisse First Boston
Mortgage Securities Corp.
7.24%, 6/20/2029 35,000 33,627
DLJ Mortgage Acceptance Corp.
(3)6.82%, 10/15/2030 25,000 23,484
(3)7.60%, 5/15/2030 36,000 35,145
Morgan Stanley Capital I Inc.
(3)7.22%, 7/15/2029 35,000 33,890
Nomura Asset Securities Corp.
(3)6.69%, 3/15/2030 34,000 30,722
--------------------------------------------------------------------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $238,664) 222,636
--------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (0.3%)
--------------------------------------------------------------------------
Chelan County Washington
Public Utility District
7.07%, 6/1/2007 10,000 9,695
7.10%, 6/1/2008 12,000 11,583
Oakland CA Pension Obligation
6.98%, 12/15/2009 20,000 18,923
Southern California Public
Power Auth.
6.93%, 5/15/2017 30,000 26,591
--------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS
(COST $72,000) 66,792
--------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.9%)
--------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.38%, 6/1/2000 265,275 265,275
6.43%, 6/1/2000--Note G 384,509 384,509
--------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $649,784) 649,784
--------------------------------------------------------------------------
TOTAL INVESTMENTS (101.4%)
(COST $18,913,478) 22,946,389
--------------------------------------------------------------------------
--------------------------------------------------------------------------
MARKET
VALUE*
(000)
--------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.4%)
--------------------------------------------------------------------------
Other Assets--Note C $ 289,521
Liabilities--Note G (606,682)
----------
(317,161)
--------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------
Applicable to 811,488,638 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $22,629,228
==========================================================================
NET ASSET VALUE PER SHARE $27.89
==========================================================================
* 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 $438,558,000.
(2)Scheduled principal and interest payments are guaran-
teed 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, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------
Paid in Capital $17,882,164 $22.04
Undistributed Net
Investment Income 145,427 .18
Accumulated Net
Realized Gains 568,726 .70
Unrealized Appreciation--
Note F 4,032,911 4.97
--------------------------------------------------------------------------
NET ASSETS $22,629,228 $27.89
==========================================================================
19
<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.
--------------------------------------------------------------------------------
WELLINGTON FUND
SIX MONTHS ENDED MAY 31, 2000
(000)
--------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends* $440,780
Interest 41,623
Security Lending 2,210
---------
Total Income 484,613
---------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 4,373
Performance Adjustment (1,340)
The Vanguard Group--Note C
Management and Administrative 30,395
Marketing and Distribution 1,764
Custodian Fees 89
Auditing Fees 11
Shareholders' Reports 469
Trustees' Fees and Expenses 16
---------
Total Expenses 35,777
Expenses Paid Indirectly--Note D (359)
---------
Net Expenses 35,418
--------------------------------------------------------------------------------
NET INVESTMENT INCOME 449,195
--------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 567,448
--------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES (744,039)
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $272,604
================================================================================
*Dividend income from affiliated companies was $6,258,000.
20
<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, 2000 NOV. 30, 1999
(000) (000)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 449,195 $ 977,857
Realized Net Gain 567,448 1,305,304
Change in Unrealized Appreciation (Depreciation) (744,039) (1,372,702)
--------------------------------
Net Increase in Net Assets Resulting from Operations 272,604 910,459
--------------------------------
DISTRIBUTIONS
Net Investment Income (547,384) (1,029,186)
Realized Capital Gain (1,299,612) (1,954,145)
--------------------------------
Total Distributions (1,846,996) (2,983,331)
--------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 1,298,132 4,178,637
Issued in Lieu of Cash Distributions 1,759,446 2,839,521
Redeemed (4,700,271) (4,928,194)
--------------------------------
Net Increase(Decrease)from Capital Share Transactions (1,642,693) 2,089,964
-----------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (3,217,085) 17,092
-----------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 25,846,313 25,829,221
--------------------------------
End of Period $22,629,228 $25,846,313
===========================================================================================================
1Shares Issued (Redeemed)
Issued 47,498 139,191
Issued in Lieu of Cash Distributions 64,018 97,975
Redeemed (172,653) (164,432)
--------------------------------
Net Increase (Decrease) in Shares Outstanding (61,137) 72,734
===========================================================================================================
</TABLE>
21
<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, 2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $29.62 $32.29 $31.05 $28.34 $24.57 $19.33
---------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income 0.54 1.13 1.13 1.11 1.02 .96
Net Realized and Unrealized Gain (Loss)
on Investments (0.13) (0.14) 2.86 3.77 4.00 5.19
-----------------------------------------------------------------
Total from Investment Operations 0.41 0.99 3.99 4.88 5.02 6.15
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (0.64) (1.22) (1.18) (1.06) (.97) (.88)
Distributions from Realized Capital Gains (1.50) (2.44) (1.57) (1.11) (.28) (.03)
-----------------------------------------------------------------
Total Distributions (2.14) (3.66) (2.75) (2.17) (1.25) (.91)
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $27.89 $29.62 $32.29 $31.05 $28.34 $24.57
=================================================================
TOTAL RETURN 1.55% 3.58% 13.84% 18.60% 21.26% 32.70%
=================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $22,629 $25,846 $25,829 $21,340 $16,505 $12,333
Ratio of Total Expenses to
Average Net Assets 0.30%* 0.30% 0.31% 0.29% 0.31% 0.33%
Ratio of Net Investment Income to
Average Net Assets 3.80%* 3.74% 3.68% 3.97% 4.08% 4.37%
Portfolio Turnover Rate 26%* 22% 29% 27% 30% 24%
=================================================================
*Annualized.
</TABLE>
22
<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 A or Better Bond Index (AA or
Better Index for periods prior to March 1, 2000). For the six months ended May
31, 2000, the advisory fee represented an effective annual basic rate of 0.04%
of the fund's average net assets before a decrease of $1,340,000 (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, 2000, the fund had contributed capital of $4,409,000 to
Vanguard (included in Other Assets), representing 0.02% of the fund's net assets
and 4.4% of Vanguard's capitalization. The fund's trustees and officers are also
directors and officers of Vanguard.
23
<PAGE>
D. The fund has asked its investment adviser to direct certain security 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, 2000, these arrangements reduced the fund's expenses by
$359,000.
E. During the six months ended May 31, 2000, the fund purchased $1,619,950,000
of investment securities and sold $4,224,275,000 of investment securities, other
than U.S. government securities and temporary cash investments. Purchases and
sales of U.S. government securities were $880,113,000 and $1,208,444,000,
respectively.
F. At May 31, 2000, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $4,032,911,000,
consisting of unrealized gains of $5,438,587,000 on securities that had risen in
value since their purchase and $1,405,676,000 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, 2000, was
$521,728,000, for which the fund had received as collateral cash of $384,509,000
and U.S. Treasury securities with a market value of $146,341,000. 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>
--------------------------------------------------------------------------------
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Six of Vanguard's seven board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new trustees/directors; and electing
Vanguard officers.
The list below provides a brief description of each trustee's professional
affiliations. Noted in parentheses is the year in which the trustee joined the
Vanguard board.
TRUSTEES
JOHN J. BRENNAN (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JAMES O. WELCH, JR. (1971) Retired Chairman of Nabisco Brands, Inc.; retired
Vice Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc., and
Kmart Corp.
J. LAWRENCE WILSON (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, Cummins Engine Co., and The Mead Corp.; Trustee
of Vanderbilt University.
--------------------------------------------------------------------------------
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY Secretary; Managing Director and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
THOMAS J. HIGGINS Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON Legal Department.
ROBERT A. DISTEFANO Information Technology.
JAMES H. GATELY Individual Investor Group.
KATHLEEN C. GUBANICH Human Resources.
IAN A. MACKINNON Fixed Income Group.
F. WILLIAM MCNABB, III Institutional Investor Group.
MICHAEL S. MILLER Planning and Development.
RALPH K. PACKARD Chief Financial Officer.
GEORGE U. SAUTER Quantitative Equity Group.
<PAGE>
[SHIP LOGO]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a
reproduction of Leading the Way, a 1984 work created
and copyrighted by noted naval artist Tom Freeman,
of Forest Hill, Maryland.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the fund's
shareholders. It may not be distributed
to prospective investors unless it
is preceded or accompanied by the
current fund prospectus.
Q212 072000
(C)2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.