UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 2-11444 Name of Registrant: VANGUARD WELLINGTON FUND Address of Registrant: P.O. BOX 2600, VALLEY FORGE, PA 19482 Name and address of agent for service: R. GREGORY BARTON P.O. BOX 876 VALLEY FORGE, PA 19482 Registrant's telephone number, including area code: (610) 669-1000 Date of fiscal year end: November 30 Date of reporting period: December 1, 2002 - November 30, 2003 ITEM 1: Reports to Shareholders VANGUARD(R) WELLINGTON(TM) FUND NOVEMBER 30, 2003 ANNUAL REPORT THE VANGUARD GROUP(R) LOGO HOW TO READ YOUR FUND REPORT This report contains information that can help you evaluate your investment. It includes details about your fund's return and presents data and analysis that provide insight into the fund's performance and investment approach. By reading the letter from Vanguard's chairman, John J. Brennan, together with the letter from the managers who select securities for your fund, you'll get an understanding of how the fund invests and how the market environment affected its performance. The statistical information that follows can help you understand how the fund's performance and characteristics stack up against those of similar funds and market benchmarks. It's important to keep in mind that the opinions expressed by Vanguard's investment managers are just that: informed opinions. They should not be considered promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. As things change--and in the financial markets you can be certain only of change--an investment manager's job is to evaluate new information and make adjustments, if necessary. Of course, the risks of investing in the fund are spelled out in the prospectus. Frequent updates on the fund's performance and information about some of its holdings are available on Vanguard.com(R). - -------------------------------------------------------------------------------- CONTENTS 1 letter from the chairman 7 report from the advisor 10 fund profile 12 glossary of investment terms 14 performance summary 16 your fund's after-tax returns 17 about your fund's expenses 18 financial statements 34 advantages of vanguard.com - -------------------------------------------------------------------------------- SUMMARY * The Investor Shares of Vanguard Wellington Fund returned 12.9% in the 2003 fiscal year, driven by strong gains from the fund's value-oriented stock portfolio and a solid performance from its bond holdings. * The bounce in the stock market that began with the onset of the Iraqi conflict boosted the fund's stock portfolio. All 12 of the fund's stock sectors saw positive returns. * The fund's long-term performance record is excellent, surpassing not only those of Wellington's comparative benchmarks but also that of the all-stock Standard & Poor's 500 Index. - -------------------------------------------------------------------------------- Want less clutter in your mailbox? Just register with VANGUARD.COM and opt to get fund reports online. LETTER FROM THE CHAIRMAN Fellow Shareholder, Fueled by a widespread rally in the stock market, Vanguard Wellington Fund's Investor Shares returned 12.9% during the 12 months ended November 30, 2003. The fund's Admiral Shares gained 13.1%. A welcome turnabout from 2002's results, the fund's gains also outperformed those of its main comparative measures. [PICTURES OF JOHN J. BRENNAN] - -------------------------------------------------- 2003 TOTAL RETURNS FISCAL YEAR ENDED NOVEMBER 30 - -------------------------------------------------- VANGUARD WELLINGTON FUND Investor Shares 12.9% Admiral Shares 13.1 Wellington Composite Index* 12.7 Average Balanced Fund** 12.2 - -------------------------------------------------- *Weighted 65% S&P 500 Index and 35% Lehman Credit A or Better Index. **Derived from data provided by Lipper Inc. As stocks emerged from a three-year slump in the second half of the period, the fund's advisor stuck to its time-tested emphasis on reasonably valued dividend-paying stocks and investment-grade corporate and government bonds-- an approach that yielded solid returns in a volatile environment. Your fund's income orientation was reflected in its yield at the close of the fiscal year: 2.4% for the Investor Shares. The table above shows total returns (capital change plus reinvested income dividends) for your fund and its main comparative measures. Details about the fund's changes in net asset value and per-share distributions during the period appear on page 6. If you hold Wellington in a taxable account, you may wish to review the fund's after-tax returns on page 16. - -------------------------------------------------------------------------------- ADMIRAL(TM) SHARES A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund - -------------------------------------------------------------------------------- 1 STOCKS SURGED ON POSITIVE ECONOMIC AND FINANCIAL REPORTS The prospect of war with Iraq and a spate of weak economic reports depressed U.S. stock prices in the opening months of the fiscal year. Once the start of combat eliminated some uncertainties, however, investors' mood turned upbeat, igniting a robust stock market rally. In the fiscal year's final weeks, stocks were propelled by reports that productivity and manufacturing activity were growing rapidly, while profits at U.S. corporations rose nearly 30% in the third calendar quarter from their year-earlier levels. For the 12 months, the broad U.S. stock market, as measured by the Wilshire 5000 Total Market Index, returned 19.0%. Within market-capitalization ranges, gains were substantially similar for growth and value stocks (i.e., stocks that sport premium prices for their earnings growth potential versus those having bargain-basement price tags relative to earnings, book value, or other measures). A large divergence between small- and large-company stock returns, however, suggested that investors had a renewed interest in riskier stocks. The 36.3% return of the small-cap Russell 2000 Index was more than double the result of the large- and mid-cap Russell 1000 Index. - ------------------------------------------------------------------------------ MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 2003 -------------------------------- ONE THREE FIVE YEAR YEARS YEARS - ------------------------------------------------------------------------------ STOCKS Russell 1000 Index (Large-caps) 16.9% -4.9% 0.2% Russell 2000 Index (Small-caps) 36.3 8.5 8.0 Wilshire 5000 Index (Entire market) 19.0 -3.3 0.8 MSCI All Country World Index Free ex USA (International) 27.1 -2.3 0.7 - ------------------------------------------------------------------------------ BONDS Lehman Aggregate Bond Index 5.2% 7.9% 6.5% (Broad taxable market) Lehman Municipal Bond Index 6.7 7.2 5.7 Citigroup 3-Month Treasury Bill Index 1.1 2.4 3.6 ============================================================================== CPI Consumer Price Index 1.8% 2.0% 2.4% - ------------------------------------------------------------------------------ Stock gains were equally impressive in many international markets, particularly those in the Pacific Rim nations and emerging-markets countries. For U.S.-based investors, the weakening of the dollar relative to most major currencies boosted returns from abroad. BOND INVESTORS WERE REWARDED FOR TAKING GREATER RISKS As in the stock market, the best returns in the bond market came from the riskiest securities. Returns of corporate bonds exceeded those of U.S. Treasury securities with comparable maturities, while below-investment-grade bonds posted spectacular results, even topping the 2 gain of the broad stock market. The Lehman Brothers High Yield Bond Index, which tracks the performance of bonds issued by companies with "junk" credit ratings, surged 27.9%. The yield of the benchmark 10-year Treasury note rose 12 basis points (0.12 percentage point) during the period to 4.33%. For the 12 months, the Lehman Aggregate Bond Index, a measure of the taxable investment-grade bond market, returned 5.2%, as rising interest income offset falling bond prices. The story was different among the shortest-maturity debt securities, whose yields are influenced more strongly by the Federal Reserve Board's actions than by open-market forces. In June, the Fed reduced its target federal-funds rate by 25 basis points to 1.00%, the lowest level since 1958. The yield of the 3-month Treasury bill, a fair proxy for money market interest rates, fell to 0.81% in mid-June, then rose modestly to end the fiscal year at 0.93%, 28 basis points lower than its year-ago level. THE RESURGENCE OF STOCKS DROVE THE FUND'S SUCCESS The widespread gains in the stock market that began in the first quarter of calendar year 2003 were, of course, a boon to Wellington Fund's stock portfolio. For the full fiscal year, the fund's stock holdings returned 16.7%, better than the 15.1% result for the Standard & Poor's 500 Index, Wellington's stock benchmark. Of the 12 economic sectors in which the fund was invested, all advanced during the fiscal year, with ten posting double-digit gains. The fund's three largest sectors at the close of the fiscal year (representing more than 40% of stock assets) were financial services, utilities, and materials & processing, all traditional havens for the reasonably priced, income-producing stocks that are consistent with the advisor's investment focus. At 19% of stock assets on November 30, the fund's financial services holdings contributed more than one-fifth of the stock portfolio's gain. The advisor, Wellington Management Company, also enjoyed good performance from the utilities sector and other cyclical industrial groups, such as integrated oils, producer durables, and auto & transportation. On the negative side, the poor performance of several of our large holdings dampened performance, as did our underweighting in tech stocks. Also, the fund's weighting in suppliers of basic manufacturing inputs such as aluminum, chemicals, paper, and the like was more than three times that of the S&P 500, but the fund's performance in the sector fell nearly 5 percentage points short of the benchmark's return. 3 The fund's fixed income portfolio, which represented about 35 cents of every dollar invested on November 30, returned a strong 7.1%. However, this was slightly short of the 7.4% return of the fund's bond benchmark, the Lehman Credit A or Better Index. For more details about the fund's positioning and performance during the fiscal year, read the Report from the Advisor, which begins on page 7. THE FUND'S LONG-TERM RECORD IS STELLAR Although the stock market has finally emerged from the three-year bear market, many funds' long-term records have been ravaged by the downturn. Vanguard Wellington Fund certainly did not emerge unscathed from those bear-market years, but the fund's long-term record has remained impressive relative to its benchmarks. As the table below shows, a hypothetical initial investment of $10,000 on November 30, 1993, would have grown over ten years to $27,766, substantially higher than the $20,503 result of the same investment in the average peer fund and better than the $25,428 result of the unmanaged Wellington Composite Index. - ---------------------------------------------------------------- TOTAL RETURNS TEN YEARS ENDED NOVEMBER 30, 2003 - ---------------------------------------------------------------- AVERAGE FINAL VALUE OF ANNUAL A $10,000 RETURN INITIAL INVESTMENT - ---------------------------------------------------------------- Wellington Fund Investor Shares 10.8% $27,766 Wellington Composite Index 9.8 25,428 Average Balanced Fund 7.4 20,503 - ---------------------------------------------------------------- I am also pleased to note, as I did last year, that Wellington Fund's average annual return beats the return of the all-stock S&P 500 Index, which, for the ten years ended November 30, averaged 10.6%. This noteworthy accomplishment for a fund with a target asset mix of 65% stocks/35% bonds is an affirmation of the skill with which Wellington Management has navigated the changing seas of the financial markets over the past decade. Along with the advisor's skills, another key contributor to your fund's long-term success is its significant cost advantage over similar mutual funds. (For a comparison of the costs of your fund with the average cost of its competitors, see page 17.) 4 INVEST FOR YOUR FUTURE WITH CONFIDENCE As the recent years of tumult in the stock market have shown, the greatest certainty in investing is uncertainty. That's why Vanguard continues to emphasize maintaining a balanced investment program of stocks, bonds, and short-term reserves that is consistent with your goals and circumstances. Wellington Fund, the nation's oldest balanced mutual fund, epitomizes the long-term virtues of such an approach, offering the benefits of both the growth potential of stocks and the current income of bonds. Founded a few months before the stock market's 1929 crash, the fund will celebrate its 75th anniversary in July 2004. Its survival, not to mention its success through almost the entire history of our modern financial markets, is a testament to the value of balance and diversification as governing principles. In light of the shocking allegations about market-timing and late trading at some investment management firms, I feel compelled to close this letter with an assurance that Vanguard has policies and procedures in place to identify and deter such behavior. In addition, I have great confidence in the ethics, integrity, and character of the Vanguard crew--values that receive strong institutional support from our client-owned corporate structure, which channels all our efforts into the creation of wealth for our shareholders. Sincerely, /S/JOHN J. BRENNAN John J. Brennan CHAIRMAN AND CHIEF EXECUTIVE OFFICER DECEMBER 9, 2003 5 - -------------------------------------------------------------------------------- YOUR FUND'S PERFORMANCE AT A GLANCE NOVEMBER 30, 2002-NOVEMBER 30, 2003 DISTRIBUTIONS PER SHARE -------------------------- STARTING ENDING INCOME CAPITAL SHARE PRICE SHARE PRICE DIVIDENDS GAINS - -------------------------------------------------------------------------------- Wellington Fund Investor Shares $25.27 $27.69 $0.770 $0.00 Admiral Shares 43.66 47.84 1.386 0.00 - -------------------------------------------------------------------------------- 6 REPORT FROM THE ADVISOR The Investor Shares of Vanguard Wellington Fund returned 12.9% in the fiscal year ended November 30, 2003, compared with gains of 12.2% for the average balanced fund and 12.7% for our benchmark composite index, weighted 65% in large-cap stocks and 35% in high-quality corporate bonds. THE INVESTMENT ENVIRONMENT There has been little doubt in 2003 that the lengthy bear market is truly over. The stock market rallied in anticipation of stronger corporate earnings growth, which we are beginning to see in quarterly reports. With economic stimulus coming from lower tax rates, low interest rates, a weak dollar, and deficit spending, we are confident that the economy has in fact finally responded. This confidence was reinforced by the strong 8.2% annualized growth in gross domestic product in the third calendar quarter. The weak dollar has made U.S. manufacturers more competitive and helped other multinational companies by boosting earnings translated from abroad. Economic expansion in the States has been influenced by a burgeoning recovery in Asia; although it was led by China, Japan has also participated. Stocks of smaller, more speculative companies have benefited disproportionately from investors' newfound confidence in the economic recovery. Economic sectors that suffered the most during the downturn, most notably technology, have led the rebound. Although the Federal Reserve again lowered short-term interest rates during the fiscal year to spur a return to healthy economic growth, the general level of interest rates was virtually unchanged. What did change during these 12 months was the huge recovery in the corporate bond market relative to Treasury issues. Bond investors became much more comfortable with corporate bonds as the "post-bubble" shakeout 7 ground to a halt. Once the fear of negative credit events receded, investors rushed to purchase these higher-yielding issues. Looking ahead, we do not expect the Fed to raise short-term interest rates soon; however, it will ultimately do so as the economy continues to strengthen. OUR SUCCESSES The fund's stock holdings outperformed the S&P 500 Index largely because of our positioning and stock selection within the industrial and energy sectors. Stocks that performed well included McDonald's, Caterpillar, Canadian National Railway, and EnCana, the large Canadian energy provider. McDonald's rebounded from its March lows as a result of the successful launch of its premium salad line, which helped to increase same-store sales and earnings. Caterpillar announced stronger-than-expected earnings due to a nice pickup in its business and a more effective cost structure. Canadian National Railway had solid execution amid better grain markets, while EnCana had good exploration success. Within the fund's fixed income holdings, perfor-mance was strongest among the lowest-quality securities, and we took the opportunity to lessen our exposure in this area. OUR SHORTFALLS Our biggest shortfall in the stock portfolio was in the telecommunications sector, as Verizon Communications faced competitive pressures that affected its earnings growth. Our underweighting in technology stocks also modestly detracted from relative results, though EMC and Texas Instruments performed well. Finally, Schering-Plough was a major disappointment, as earnings fell sharply after patents for two of its important drugs expired. However, the new CEO has announced a dividend cut and a series of cost-cutting measures intended to improve the company's operating performance. In addition, we feel the potential for the company's new high-cholesterol drug, Zetia, is greater than the market has factored into the stock's valuation. THE FUND'S POSITIONING Sector weightings in the stock portfolio did not change much during the year, though we did increase our exposure to the financial and telecommunications sectors and trim our stakes in the utilities and consumer discretionary groups. While we remain concerned about valuations in the financial sector, we are finding some attractive stocks 8 in the insurance industry. We also added to positions in several telecom stocks on weakness, as we are attracted to their ability to generate strong cash flows for shareholders. Several of our utilities stocks began to reach fair value, so we opportunistically reduced our holdings. Within the consumer discretionary group, many retailers appreciated beyond fair value and we took profits. We believe that the fund is well positioned for an economic recovery. Our largest overweightings are in the most attractively priced cyclical sectors: industrials, basic materials, and energy. We remain significantly underweighted in technology and consumer staples, as much of the recovery is already reflected in these stocks' valuations. I am now completing my first year as manager of the fund's stock portion, working with Paul Kaplan on the fixed income side. We have remained true to Vanguard Wellington Fund's traditional approach, which is to invest with a long-term view in attractively priced value stocks and, to a lesser extent, growth stocks that are out of favor, as well as in investment-grade corporate bonds. We are pleased to have outperformed our 65% stock/35% bond benchmark in the 2003 fiscal year, as our bias toward companies with strong balance sheets and established business models is generally a hindrance in more-speculative markets. Edward P. Bousa, VICE PRESIDENT AND PORTFOLIO MANAGER WELLINGTON MANAGEMENT COMPANY, LLP DECEMBER 15, 2003 NEW HOLDLINGS - -------------------------------------------------------------------------------- EQUITY PORTFOLIO CHANGES FISCAL YEAR ENDED NOVEMBER 30, 2003 COMMENTS - -------------------------------------------------------------------------------- UBS Leading global investment bank and wealth manager has an attractive valuation with improving returns. - -------------------------------------------------------------------------------- Nokia Major global wireless handset manufacturer has significant exposure to China and new wireless technologies. - -------------------------------------------------------------------------------- Coca-Cola Enterprises Major soft-drink bottler is producing better margins. - -------------------------------------------------------------------------------- ELIMINATED - -------------------------------------------------------------------------------- PNC Financial Services Group Large bank has limited prospects to benefit from an improving economy. - -------------------------------------------------------------------------------- DaimlerChrysler Major automaker is seeing increased competition across its product line. - -------------------------------------------------------------------------------- SEE PAGE 18 FOR A COMPLETE LISTING OF THE FUND'S HOLDINGS. 9 FUND PROFILE This Profile provides a snapshot of the fund's characteristics, compared where indicated with both an appropriate market index and a broad market index. Key terms are defined on pages 12 and 13. WELLINGTON FUND - ----------------------------------------- TOTAL FUND CHARACTERISTICS Yield Investor Shares 2.4% Admiral Shares 2.5% Turnover Rate 28% Expense Ratio Investor Shares 0.36% Admiral Shares 0.23% Short-Term Reserves 3% - ----------------------------------------- - --------------------------------------------------- TEN LARGEST STOCKS (% OF STOCK PORTFOLIO) Citigroup, Inc. 3.3% (banking) International Business Machines Corp. 2.2 (computer hardware) Alcoa Inc. 2.0 (metals and mining) Abbott Laboratories 1.9 (pharmaceuticals) Bank One Corp. 1.9 (banking) Union Pacific Corp. 1.8 (railroad) EnCana Corp. 1.8 (energy) Verizon Communications 1.8 (telecommunications) Wachovia Corp. 1.6 (banking) Exelon Corp. 1.6 (electric utilities) - --------------------------------------------------- Top Ten 19.9% - --------------------------------------------------- Top Ten as % of Total Net Assets 12.9% - --------------------------------------------------- The "Ten Largest Stocks" excludes any equity index products. - ---------------------------------------------------------------- TOTAL FUND VOLATILITY MEASURES COMPOSITE BROAD FUND INDEX* FUND INDEX** - ---------------------------------------------------------------- R-Squared 0.83 1.00 0.80 1.00 Beta 0.83 1.00 0.50 1.00 - ---------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION (% OF STOCK PORTFOLIO) COMPARATIVE BROAD FUND INDEX** INDEX+ - -------------------------------------------------------------------------------- Auto & Transportation 8% 3% 3% Consumer Discretionary 9 14 16 Consumer Staples 5 8 7 Financial Services 19 22 22 Health Care 10 13 13 Integrated Oils 7 4 3 Other Energy 3 1 2 Materials & Processing 11 3 4 Producer Durables 6 4 5 Technology 9 16 15 Utilities 12 7 6 Other 1 5 4 - -------------------------------------------------------------------------------- - ----------------------------------------- FUND ASSET ALLOCATION BONDS 32% STOCKS 65% SHORT-TERM RESERVES 3% - ----------------------------------------- * Wellington Composite Index, weighted 65% S&P 500 Index and 35% Lehman Credit A or Better Index. **S&P 500 Index. +Wilshire 5000 Index. 10 - ------------------------------------------------------------------------ STOCK CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** - ------------------------------------------------------------------------ Number of Stocks 106 500 5,237 Median Market Cap $27.6B $49.5B $27.5B Price/Earnings Ratio 20.6x 21.7x 22.7x Price/Book Ratio 2.4x 3.0x 2.9x Dividend Yield 2.1% 1.7% 1.5% Return on Equity 19.0% 21.2% 19.4% Earnings Growth Rate 2.9% 7.6% 8.1% Foreign Holdings 9.7% 0.0% 0.8% - ------------------------------------------------------------------------ - ---------------------------------------- STOCK INVESTMENT FOCUS STYLE VALUE MARKET CAP LARGE - ---------------------------------------- - -------------------------------------------------------------------------- FIXED INCOME CHARACTERISTICS COMPARATIVE BROAD FUND INDEXY INDEX++ - -------------------------------------------------------------------------- Number of Bonds 214 1,888 6,703 Yield to Maturity 4.2%+ 4.0% 4.4% Average Coupon 6.0% 5.9% 5.7% Average Effective Maturity 7.7 years 8.4 years 7.7 years Average Quality Aa2 Aa3 Aaa Average Duration 5.2 years 5.4 years 4.6 years - -------------------------------------------------------------------------- - ---------------------------------------------------------------- FIXED INCOME INVESTMENT FOCUS CREDIT QUALITY INVESTMENT-GRADE CORPORATE AVERAGE MATURITY MEDIUM - ---------------------------------------------------------------- - ------------------------------------------------------ SECTOR DIVERSIFICATION (% OF FIXED INCOME PORTFOLIO) Asset-Backed 2% Commercial Mortgage-Backed 1 Finance 30 Foreign 3 Government Mortgage-Backed 10 Industrial 32 Treasury/Agency 13 Utilities 8 Other 1 - ------------------------------------------------------ Total 100% - ------------------------------------------------------ - ------------------------------------------------------------ DISTRIBUTION BY CREDIT QUALITY (% OF FIXED INCOME PORTFOLIO) Treasury/Agency/GSEsyy 23% Aaa 11 Aa 17 A 38 Baa 9 Ba 0 B 0 Not Rated 2 - ------------------------------------------------------------ Total 100% - ------------------------------------------------------------ *S&P 500 Index. **Wilshire 5000 Index. +Lehman Credit A or Better Index. ++Lehman Aggregate Bond Index. +Before expenses. ++Includes government mortgage-backed bonds along with debt issued by government-sponsored enterprises. VISIT OUR WEBSITE AT VANGUARD.COM FOR REGULARLY UPDATED FUND INFORMATION. 11 GLOSSARY OF INVESTMENT TERMS AVERAGE COUPON. The average interest rate paid on the fixed income securities held by a fund. It is expressed as a percentage of face value. - -------------------------------------------------------------------------------- AVERAGE DURATION. An estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. To see how the value could change, multiply the average duration by the change in rates. If interest rates rise by 1 percentage point, the value of the bonds in a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the value would rise by 5%. - -------------------------------------------------------------------------------- AVERAGE EFFECTIVE MATURITY. The average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date. The figure reflects the proportion of fund assets represented by each security; it also reflects any futures contracts held. In general, the longer the average effective 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 fixed income 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. 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 a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see definition on the next page). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility. - -------------------------------------------------------------------------------- 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. The index yield is based on the current annualized rate of dividends paid on stocks in the index. - -------------------------------------------------------------------------------- EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the past five years for the stocks now in a fund. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks or depositary receipts of companies based outside the United States. - -------------------------------------------------------------------------------- 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 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 market in general, as measured by a given index. If a fund's total returns were precisely synchronized with an index's returns, its R-squared would be 1.00. If the fund's returns bore no relationship to the index'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. - -------------------------------------------------------------------------------- SHORT-TERM RESERVES. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash. - -------------------------------------------------------------------------------- TURNOVER RATE. An indication of the fund's trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be 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 fixed income securities held by a fund were held to their maturity dates. - -------------------------------------------------------------------------------- 13 PERFORMANCE SUMMARY All of the returns in this report represent past performance, which cannot be used to predict future returns that may be achieved by the fund. (For current performance, which may be higher or lower than that cited, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so that an investor's shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. WELLINGTON FUND - -------------------------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE NOVEMBER 30, 1993-NOVEMBER 30, 2003 WILSHIRE S&P WELLINGTON AVERAGE WELLINGTON FUND 5000 500 COMPOSITE BALANCED INVESTOR SHARES INDEX INDEX INDEX* FUND** 199311 10000 10000 10000 10000 10000 199402 10173 10265 10181 10107 10224 199405 10053 9991 10024 9814 9913 199408 10500 10455 10513 10191 10205 199411 9918 10038 10105 9840 9826 199502 10724 10807 10930 10609 10337 199505 11761 11753 12047 11645 11071 199508 12312 12750 12768 12183 11652 199511 13161 13658 13841 13087 12243 199602 13630 14503 14723 13558 12685 199605 13954 15434 15473 13866 13030 199608 14110 14945 15159 13736 12912 199611 15959 17018 17698 15682 14256 199702 16251 17719 18575 16074 14513 199705 17003 18926 20025 16934 15135 199708 17968 20516 21321 17931 16002 199711 18927 21690 22744 19076 16551 199802 20083 23828 25078 20523 17587 199805 20848 24644 26170 21322 18048 199808 19032 21064 23047 19790 16447 199811 21546 25627 28126 22920 18423 199902 21046 27245 30027 23688 18811 199905 22745 29003 31672 24373 19620 199908 22537 29252 32226 24420 19511 199911 22316 31314 34003 25442 20068 200002 20666 33016 33549 25205 20171 200005 22662 31997 34990 25844 20677 200008 23354 35102 37484 27651 21902 200011 23862 29495 32568 25419 20542 200102 25257 28214 30799 25144 20633 200105 26101 28764 31298 25470 20868 200108 25557 26132 28342 24414 19926 200111 25679 26255 28587 24688 20028 200202 26196 25852 27869 24420 19783 200205 26374 25364 26964 23873 19645 200208 24327 21805 23242 22155 18069 200211 24584 22391 23866 22768 18272 200302 23311 20269 21548 21864 17444 200305 26058 23534 24790 24515 19197 200308 26512 25045 26047 24608 19699 200311 27766 26648 27468 25428 20503 - -------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 2003 ------------------------------------- FINAL VALUE ONE FIVE TEN OF A $10,000 YEAR YEARS YEARS INVESTMENT - -------------------------------------------------------------------------------- Wellington Fund Investor Shares 12.94% 5.20% 10.75% $27,766 Wilshire 5000 Index 19.01 0.78 10.30 26,648 S&P 500 Index 15.09 -0.47 10.63 27,468 Wellington Composite Index* 12.67 2.10 9.78 25,428 Average Balanced Fund** 12.21 2.16 7.44 20,503 - -------------------------------------------------------------------------------- FINAL VALUE ONE SINCE OF A $250,000 YEAR INCEPTION+ INVESTMENT - -------------------------------------------------------------------------------- Wellington Fund Admiral Shares 13.09% 3.16% $270,655 Wilshire 5000 Index 19.01 -2.58 233,864 S&P 500 Index 15.09 -4.76 220,799 Wellington Composite Index* 12.67 0.60 253,843 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) NOVEMBER 30, 1993-NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- WELLINGTON FUND COMPOSITE INVESTOR SHARES INDEX* FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN - ----------------------------------------------------------- 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 - ----------------------------------------------------------- WELLINGTON FUND COMPOSITE INVESTOR SHARES INDEX* FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN - ----------------------------------------------------------- 1999 -0.5% 4.1% 3.6% 11.0% 2000 2.6 4.3 6.9 -0.1 2001 3.8 3.8 7.6 -3.4 2002 -7.4 3.1 -4.3 -8.1 2003 9.6 3.3 12.9 12.7 - -------------------------------------------------------------------------------- * Weighted 65% S&P 500 Index and 35% Lehman Long Credit AA or Better Index through February 29, 2000; and 65% S&P 500 Index and 35% Lehman Credit A or Better Index thereafter. **Derived from data provided by Lipper Inc. +May 14, 2001. Note: See Financial Highlights tables on pages 28 and 29 for dividend and capital gains information. 14 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003 This table presents average annual total returns through the latest calendar quarter--rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information. TEN YEARS ONE FIVE ----------------------- INCEPTION DATE YEAR YEARS CAPITAL INCOME TOTAL - -------------------------------------------------------------------------------- Wellington Fund Investor Shares 7/1/1929 17.07% 5.79% 6.19% 4.13% 10.32% Admiral Shares 5/14/2001 17.21 1.51* -- -- -- - -------------------------------------------------------------------------------- *Return since inception. 15 YOUR FUND'S AFTER-TAX RETURNS This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund's distributions, and (2) assuming that an investor paid taxes on the fund's distributions and sold all shares at the end of each period. Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect the reduced tax rates on ordinary income (including qualified dividend income) and short-term capital gains that became effective as of January 1, 2003, and on long-term capital gains realized on or after May 6, 2003. Qualified dividend income is based on estimates for calendar year 2003. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.) The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes. Finally, keep in mind that a fund's performance--whether before or after taxes--does not indicate how it will perform in the future. - ------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 2003 ONE YEAR FIVE YEARS TEN YEARS -------------------------------------- WELLINGTON FUND INVESTOR SHARES Returns Before Taxes 12.94% 5.20% 10.75% Returns After Taxes on Distributions 11.94 2.87 8.28 Returns After Taxes on Distributions and Sale of Fund Shares 8.52 3.24 8.01 - ------------------------------------------------------------------------------ 16 ABOUT YOUR FUND'S EXPENSES All mutual funds have operating expenses. These expenses include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of the fund. A fund's expenses are expressed as a percentage of its net assets. This figure is known as the expense ratio. a hypothetical example We believe it is important for you to understand the impact of costs on your investment. The following example illustrates the costs that you would incur over a 12-month period if you invested $10,000 in the fund, using the fund's actual return and operating expenses for the fiscal year ended November 30, 2003. The cost in dollars is calculated by applying the expense ratio to the average balance in the hypothetical account. For comparative purposes, we also list the average expense ratio for the fund's peer group, which is derived from data provided by Lipper Inc. - -------------------------------------------------------------------------------- COST OF $10,000 FUND PEER GROUP* INVESTMENT IN FUND EXPENSE RATIO EXPENSE RATIO - -------------------------------------------------------------------------------- Wellington Fund Investor Shares $38 0.36% 1.31% Admiral Shares 25 0.23 -- - -------------------------------------------------------------------------------- *Average Balanced Fund. The calculation assumes no shares were sold. Your actual costs may have been higher or lower, depending on the amount of your investment and your holding period. Peer-group ratio captures data through year-end 2002. You can find more information about the fund's expenses, including annual expense ratios for the past five years, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the fund's prospectus. The prospectus presents hypothetical shareholder costs over various time periods based upon a $10,000 investment and a return of 5% a year. This standardized example, which appears in all mutual fund prospectuses, may be useful to you in comparing the costs of investing in different funds. 17 FINANCIAL STATEMENTS 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. 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 (65.0%) - ------------------------------------------------------------------------- AUTO & Transportation (5.1%) Union Pacific Corp. 5,000,000 $ 318,400 Canadian National Railway Co. 4,000,000 237,400 CSX Corp. 6,532,800 221,396 FedEx Corp. 2,168,500 157,650 * British Airways PLC ADR 3,000,000 117,900 General Motors Corp. 2,715,800 116,182 Norfolk Southern Corp. 4,709,000 100,820 Canadian Pacific Railway Ltd. 2,755,700 75,065 Delta Air Lines, Inc. 2,500,000 31,350 -------- $ 1,376,163 -------- CONSUMER DISCRETIONARY (6.0%) Waste Management, Inc. 8,623,500 $ 253,617 McDonald's Corp. 8,503,500 217,945 Kimberly-Clark Corp. 3,590,300 194,666 * Accenture Ltd. 7,000,000 174,300 Gillette Co. 4,943,600 166,748 * Time Warner, Inc. 10,231,000 166,561 Omnicom Group Inc. 1,606,000 127,934 Dollar General Corp. 4,302,400 90,867 Gannett Co., Inc. 1,000,000 86,600 * Staples, Inc. 2,817,600 76,498 Target Corp. 1,612,700 62,444 ------------- $ 1,618,180 ------------- CONSUMER STAPLES (3.2%) Altria Group, Inc. 4,955,300 257,676 PepsiCo, Inc. 3,484,900 167,693 Sara Lee Corp. 5,172,900 106,303 Kraft Foods Inc. 3,237,500 102,532 Kellogg Co. 2,836,000 101,444 General Mills, Inc. 2,000,000 90,020 Coca-Cola Enterprises, Inc. 1,939,800 40,057 ------------- $ 865,725 ------------- FINANCIAL SERVICES (12.2%) Citigroup, Inc. 12,174,300 572,679 Bank One Corp. 7,488,700 324,710 Wachovia Corp. 6,270,300 286,866 ACE Ltd. 7,270,200 264,999 MBIA, Inc. 3,729,700 216,770 Merrill Lynch & Co., Inc. 3,709,000 210,486 Freddie Mac 3,605,500 196,211 American International Group, Inc. 3,219,800 186,587 The Hartford Financial Services Group Inc. 3,274,000 180,070 KeyCorp 5,866,100 163,019 Marsh & McLennan Cos., Inc. 3,515,000 156,207 UBS AG 2,340,000 150,181 U.S. Bancorp 4,464,200 123,703 Ambac Financial Group, Inc. 1,482,900 101,949 18 - ------------------------------------------------------------------------- MARKET VALUE* WELLINGTON FUND SHARES (000) - ------------------------------------------------------------------------- Morgan Stanley 1,794,500 $ 99,200 Archstone-Smith Trust REIT 2,480,900 68,175 ------------- $ 3,301,812 ------------- HEALTH CARE (6.6%) Abbott Laboratories 7,485,000 330,837 Eli Lilly & Co. 3,120,400 213,935 Pfizer Inc. 6,321,000 212,069 Cardinal Health, Inc. 3,327,900 203,468 Schering-Plough Corp. 12,504,700 200,700 Baxter International, Inc. 5,717,800 159,069 Aventis SA ADR 2,671,800 154,029 AstraZeneca Group PLC ADR 3,204,600 147,251 Becton, Dickinson & Co. 2,266,200 90,716 Wyeth 1,883,200 74,198 ------------- $ 1,786,272 ------------- INTEGRATED OILS (4.6%) BP PLC ADR 6,023,600 257,147 Total SA ADR 2,958,300 238,942 Royal Dutch Petroleum Co. ADR 5,090,910 228,582 ExxonMobil Corp. 4,000,000 144,680 ChevronTexaco Corp. 1,897,000 142,465 ConocoPhillips Co. 1,619,900 91,913 Petrol Brasil ADR 3,000,000 72,210 Repsol YPF, SA ADR 3,206,900 56,089 ------------- $ 1,232,028 ------------- OTHER ENERGY (2.2%) EnCana Corp. 8,567,708 314,692 Schlumberger Ltd. 3,500,000 164,220 Burlington Resources, Inc. 2,164,500 108,658 Anadarko Petroleum Corp. 66,600 2,992 --------- $ 590,562 ------------- MATERIALS & PROCESSING (6.9%) Alcoa Inc. 10,838,700 355,618 Alcan Inc. 6,515,000 276,822 E.I. du Pont de Nemours & Co. 5,754,700 238,590 Weyerhaeuser Co. 3,921,500 223,525 Dow Chemical Co. 4,222,100 158,540 Rohm & Haas Co. 3,895,000 156,384 Avery Dennison Corp. 2,376,500 130,898 International Paper Co. 3,448,400 128,315 PPG Industries, Inc. 2,006,000 117,291 Temple-Inland Inc. 1,416,600 80,080 ------------- $ 1,866,063 ------------- PRODUCER DURABLES (3.9%) Caterpillar, Inc. 2,998,300 228,021 Parker Hannifin Corp. 3,844,000 211,381 Pitney Bowes, Inc. 4,833,300 192,124 Emerson Electric Co. 2,283,500 139,385 Nokia Corp. ADR 5,334,600 95,916 The Boeing Co. 2,371,100 91,026 Pall Corp. 3,224,000 82,599 ------------- $ 1,040,452 ------------- TECHNOLOGY (5.9%) International Business Machines Corp. 4,345,800 393,469 General Dynamics Corp. 2,821,900 228,207 Microsoft Corp. 7,652,400 196,667 Hewlett-Packard Co. 8,967,500 194,505 Texas Instruments, Inc. 5,588,100 166,302 Motorola, Inc. 11,660,900 163,719 * Apple Computer, Inc. 5,758,100 120,459 Sony Corp. ADR 2,917,000 100,199 * Corning, Inc. 2,658,500 30,466 ------------- $ 1,593,993 ------------- UTILITIES (7.7%) Verizon Communications 9,411,500 308,415 Exelon Corp. 4,572,000 282,641 * Comcast Corp. Class A 6,481,800 203,399 FPL Group, Inc. 3,181,000 202,152 Cinergy Corp. 4,509,000 164,804 Pinnacle West Capital Corp. 4,048,600 159,393 Progress Energy, Inc. 3,000,000 131,460 BellSouth Corp. 4,789,100 124,660 AT&T Corp. 5,470,300 108,476 * Deutsche Telekom AG ADR 6,471,800 106,655 SBC Communications Inc. 4,563,400 106,236 TXU Corp. 3,970,000 87,896 ALLTEL Corp. 1,844,400 83,754 ------------- $ 2,069,941 ------------- OTHER (0.7%) Honeywell International Inc. 4,397,500 130,562 Tyco International Ltd. 2,587,000 59,372 ------------- $ 189,934 ------------- - ------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $13,545,912) $ 17,531,125 - ------------------------------------------------------------------------- FACE AMOUNT (000) - ------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS (7.6%) - ------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (4.3%) Private Export Funding Corp. (U.S. Government Guaranteed) 5.75%, 1/15/2008 $ 40,385 44,005 U.S. Treasury Bond 6.25%, 8/15/2023 100,000 112,875 U.S. Treasury Notes 1.50%, 7/31/2005 400,000 398,000 2.00%, 8/31/2005 200,000 200,468 4.00%, 11/15/2012 400,000 393,752 ------------- $ 1,149,100 ------------- MORTGAGE-BACKED SECURITIES (3.3%) Federal National Mortgage Assn.** (3) 4.51%, 5/1/2013 20,972 20,690 19 GOVERNMENT NATIONAL MORTGAGE ASSN. (3) 5.00%, 5/15/2033-7/15/2033 195,538 192,644 (3) 5.50%, 2/15/2029-10/15/2033 368,514 373,353 (3) 6.00%, 3/15/2028-1/22/2033 131,834 136,823 (3) 6.50%, 1/15/2031-1/15/2032 74,363 78,333 (3) 7.00%, 4/15/2023-8/15/2032 85,724 91,323 (3) 8.00%, 6/15/2017 58 64 ------------- $ 893,230 ------------- - ------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $2,054,761) $ 2,042,330 - ------------------------------------------------------------------------- CORPORATE BONDS (22.4%) - ------------------------------------------------------------------------- ASSET-BACKED SECURITIES (0.5%) Bank One Issuance Trust (3) 3.86%, 6/15/2011 40,000 40,140 Bear Stearns Commercial Mortgage Securities Inc. (3) 4.74%, 3/15/2040 25,000 24,781 (3) 5.61%, 11/15/2033 17,250 18,203 California Infrastructure Econ. Dev. Bank Special Purpose Trust SDG&E (3) 6.31%, 9/25/2008 11,180 11,849 California Infrastructure Southern California Edison SCU (3) 6.42%, 12/26/2009 16,110 17,754 Morgan Stanley Dean Witter Capital I (3) 4.74%, 11/13/2036 26,000 25,831 ------------- $ 138,558 ------------- FINANCE (9.5%) BANKING (3.3%) Abbey National First Capital 8.20%, 10/15/2004 20,000 21,140 Abbey National PLC 6.69%, 10/17/2005 25,000 26,996 BB&T Corp. 7.25%, 6/15/2007 36,900 41,674 Bank of America Corp. 7.80%, 2/15/2010 30,000 35,362 BankBoston Corp. 6.625%, 12/1/2005 27,000 29,250 Bank of Montreal 7.80%, 4/1/2007 21,000 23,701 Bank One Corp. 7.875%, 8/1/2010 15,000 17,898 Banque Nationale de Paris-NY 7.20%, 1/15/2007 40,000 44,508 Banque Paribas NY 6.95%, 7/22/2013 40,000 45,524 Citicorp 6.75%, 8/15/2005 25,000 26,815 Credit Suisse First Boston USA Inc. 5.875%, 8/1/2006 40,000 43,002 Inter-American Development Bank 4.375%, 9/20/2012 40,000 40,141 NBD Bancorp, Inc. 7.125%, 5/15/2007 35,000 38,936 National City Bank Pennsylvania 7.25%, 10/21/2011 20,000 23,203 Northern Trust Corp. 4.60%, 2/1/2013 5,925 5,801 6.65%, 11/9/2004 25,000 26,147 Royal Bank of Scotland 6.375%, 2/1/2011 40,775 45,354 Scotland International Finance (4)8.85%, 11/1/2006 28,000 31,892 Societe Generale - NY 7.40%, 6/1/2006 40,000 44,398 SunTrust Bank 7.25%, 9/15/2006 54,000 59,835 US Bank NA Minnesota 5.625%, 11/30/2005 50,000 53,364 Wachovia Corp. 5.625%, 12/15/2008 55,000 59,149 Washington Mutual, Inc. 7.50%, 8/15/2006 40,000 44,764 Wells Fargo & Co. 6.375%, 8/1/2011 15,000 16,645 Wells Fargo Bank NA 6.45%, 2/1/2011 35,000 39,100 BROKERAGE (0.2%) Dean Witter, Discover & Co. 6.75%, 10/15/2013 25,775 28,562 Dean Witter, Discover & Co. MTN 7.07%, 2/10/2014 17,500 19,949 FINANCE COMPANIES (2.3%) American Express Credit Corp. 3.00%, 5/16/2008 30,000 29,148 American General Financial 7.45%, 1/15/2005 55,000 58,188 20 - ------------------------------------------------------------------------- FACE MARKET AMOUNT VALUE* WELLINGTON FUND (000) (000) - ------------------------------------------------------------------------- Boeing Capital Corp. 6.50%, 2/15/2012 30,000 32,771 Caterpillar Financial Services Corp. 7.59%, 12/10/2003 40,000 40,050 Countrywide Home Loan 5.50%, 8/1/2006 30,000 31,918 John Deere Capital Corp. 5.10%, 1/15/2013 20,000 20,311 General Electric Capital Corp. 8.125%, 5/15/2012 30,000 35,902 General Motors Acceptance Corp. 6.00%, 4/1/2011 27,370 27,278 Heller Financial Inc. 8.00%, 6/15/2005 40,000 43,475 Household Finance Corp. 6.375%, 10/15/2011 50,000 54,811 LB-UBS Commerical Mortgage Trust 6.462%, 3/15/2031 16,325 18,189 Mercury General Corp. 7.25%, 8/15/2011 20,000 22,124 Norwest Financial, Inc. 6.25%, 12/15/2007 35,000 39,125 Pitney Bowes Credit Corp. 8.55%, 9/15/2009 41,890 51,155 Frank Russell Co. (4)5.625%, 1/15/2009 30,000 32,005 SLM Corp. MTN 5.375%, 1/15/2013 30,000 30,603 Toyota Motor Credit Corp. 5.50%, 12/15/2008 50,000 54,224 INSURANCE (3.3%) ACE Capital Trust II 9.70%, 4/1/2030 20,000 25,913 ACE INA Holdings, Inc. 8.20%, 8/15/2004 39,000 40,715 Allstate Corp. 7.20%, 12/1/2009 40,000 46,071 Ambac, Inc. 7.50%, 5/1/2023 25,000 27,904 American International Group, Inc. (4)6.30%, 5/10/2011 60,000 65,981 Aon Corp. 6.90%, 7/1/2004 48,000 49,303 Cincinnati Financial Corp. 6.90%, 5/15/2028 40,500 42,457 Farmers Exchange Capital (4) 7.05%, 7/15/2028 25,000 22,750 Florida Windstorm Underwriters (4) 7.125%, 2/25/2019 55,000 63,415 General Re Corp. 9.00%, 9/12/2009 32,000 39,967 John Hancock Financial Services 5.625%, 12/1/2008 16,080 17,195 Hartford Financial Services Group Inc. 7.90%, 6/15/2010 35,000 41,192 Jackson National Life Insurance Co. (4) 8.15%, 3/15/2027 39,480 44,990 Liberty Mutual Insurance Co. (4)7.875%, 10/15/2026 56,210 53,962 Marsh & McLennan Cos. Inc. 6.25%, 3/15/2012 50,000 54,136 Metropolitan Life Insurance Co. (4)7.70%, 11/1/2015 51,000 60,629 Protective Life Secured Trust 3.70%, 11/24/2008 35,000 34,597 Prudential Insurance Co. (4)7.65%, 7/1/2007 20,000 22,567 St. Paul Cos. Inc. 5.75%, 3/15/2007 20,000 21,435 Torchmark Corp. 7.875%, 5/15/2023 45,000 51,762 XL Capital Ltd. 6.50%, 1/15/2012 50,000 54,236 FINANCIAL OTHER (0.4%) Mellon Funding Corp. 5.00%, 12/1/2014 30,000 29,935 National City Bank Columbus 7.25%, 7/15/2010 25,000 28,463 Spieker Properties LP Corp. 7.65%, 12/15/2010 25,000 28,560 Transamerica Financial Corp. 6.40%, 9/15/2008 29,265 31,260 ------------- $ 2,553,782 ------------- INDUSTRIAL (9.8%) BASIC INDUSTY (1.5%) Alcan Inc. 4.50%, 5/15/2013 20,000 19,274 7.25%, 3/15/2031 14,425 16,933 Alcoa Inc. 7.375%, 8/1/2010 40,000 46,500 Archer-Daniels-Midland 7.00%, 2/1/2031 29,700 33,862 Avon Products Inc. 4.20%, 7/15/2018 30,000 26,795 21 - ------------------------------------------------------------------------- FACE MARKET AMOUNT VALUE* WELLINGTON FUND (000) (000) - ------------------------------------------------------------------------- BHP Finance USA Ltd. 7.25%, 3/1/2016 $15,000 $17,717 Cardinal Health Inc. 4.00%, 6/15/2015 30,000 27,208 Coca-Cola HBC Finance BV (4)5.50%, 9/17/2015 17,440 17,731 E.I. du Pont de Nemours & Co. 6.75%, 10/15/2004 40,000 41,796 First Data Corp. 4.70%, 8/1/2013 40,000 39,220 Gannett Co. Inc. 5.50%, 4/1/2007 19,250 20,622 Keyspan Corp. 4.65%, 4/1/2013 9,000 8,730 PPG Industries, Inc. 6.875%, 2/15/2012 13,600 15,399 Rohm & Haas Co. (3) 9.80%, 4/15/2020 12,375 15,965 U.S. Trading Corp. (4)4.26%, 11/15/2014 28,023 28,019 Weyerhaeuser Co. 6.00%, 8/1/2006 30,000 31,982 CAPITAL GOODS (1.1%) Deere & Co. 6.55%, 7/15/2004 16,005 16,494 Emerson Electric Co. 6.30%, 11/1/2005 13,875 14,913 General Dynamics 4.25%, 5/15/2013 40,000 38,122 Honeywell International Inc. 7.50%, 3/1/2010 41,000 47,762 Masco Corp. 6.75%, 3/15/2006 40,000 43,462 Minnesota Mining & Manufacturing Corp. 6.375%, 2/15/2028 30,000 32,422 Rockwell International Corp. 7.875%, 2/15/2005 17,000 18,110 Snap-On Inc. 6.25%, 8/15/2011 34,990 38,562 United Technologies Corp. 6.625%, 11/15/2004 36,500 38,164 COMMUNICATION (0.8%) AT&T Corp. 7.00%, 11/15/2006 40,000 44,161 BellSouth Corp. 6.00%, 10/15/2011 25,000 26,952 BellSouth Telecommunications 5.875%, 1/15/2009 15,000 16,255 Chesapeake & Potomac Telephone Co. (MD) 7.15%, 5/1/2023 10,000 10,789 Comcast Cable Communications, Inc. 6.875%, 6/15/2009 20,000 22,148 Cox Communications, Inc. 7.75%, 8/15/2006 30,000 33,642 Illinois Bell Telephone Co. 6.625%, 2/1/2025 27,725 28,015 New York Telephone Co. 7.25%, 2/15/2024 20,000 20,463 Southwestern Bell Telephone Co. MTN 7.60%, 4/26/2007 7,000 7,945 Telecomunicaciones de Puerto Rico 6.65%, 5/15/2006 13,000 14,101 CONSUMER CYCLICAL (1.2%) DaimlerChrysler North America Holding Corp. 7.40%, 1/20/2005 30,000 31,663 Walt Disney Co. 6.375%, 3/1/2012 20,000 21,815 7.30%, 2/8/2005 30,000 31,793 Harley Davidson Funding (4) 3.625%, 12/15/2008 33,450 33,142 Lowe's Co. Inc. 8.25%, 6/1/2010 10,195 12,407 Target Corp. 7.50%, 2/15/2005 45,000 47,989 Time Warner Inc. 6.95%, 1/15/2028 15,000 15,754 7.57%, 2/1/2024 20,000 22,329 Viacom Inc. 7.70%, 7/30/2010 40,000 47,339 Wal-Mart Stores, Inc. 4.55%, 5/1/2013 23,000 22,558 6.875%, 8/10/2009 12,000 13,725 Wendy's International, Inc. 6.35%, 12/15/2005 25,500 27,266 CONSUMER NONCYCLICAL (2.6%) Abbott Laboratories 5.625%, 7/1/2006 20,000 21,410 Anheuser-Busch Cos., Inc. 7.00%, 12/1/2025 30,000 32,323 Becton, Dickinson & Co. 8.70%, 1/15/2025 20,000 22,310 22 - ------------------------------------------------------------------------- FACE MARKET AMOUNT VALUE* WELLINGTON FUND (000) (000) - ------------------------------------------------------------------------- Bristol-Myers Squibb 5.75%, 10/1/2011 $ 51,000 $ 54,726 CPC International, Inc. 6.15%, 1/15/2006 6,790 7,299 The Coca-Cola Co. 4.00%, 6/1/2005 40,000 41,197 Coca-Cola Enterprises, Inc. 6.125%, 8/15/2011 30,000 32,924 Conagra Foods Inc. 6.75%, 9/15/2011 30,000 33,789 Diageo PLC 3.50%, 11/19/2007 30,000 30,064 Fortune Brands Inc. 6.25%, 4/1/2008 40,000 43,862 Kimberly-Clark Corp. 6.375%, 1/1/2028 30,000 31,690 Kraft Foods Inc. 4.625%, 11/1/2006 50,000 51,850 Pepsi Bottling Holdings Inc. (4) 5.625%, 2/17/2009 40,000 43,122 Pharmacia Corp. 6.60%, 12/1/2028 12,000 13,426 Procter & Gamble Co. ESOP 9.36%, 1/1/2021 60,945 82,143 SmithKline Beecham MTN 7.375%, 4/15/2005 15,000 15,877 Uniliver Capital Corp. 7.125%, 11/1/2010 33,000 38,210 UnitedHealth Group Inc. 4.875%, 4/1/2013 30,000 29,929 Warner Lambert 6.00%, 1/15/2008 20,000 21,767 Wyeth 6.70%, 3/15/2011 30,000 33,260 Zeneca Wilmington Inc. 7.00%, 11/15/2023 26,000 30,125 ENERGY (0.7%) Amoco Corp. 6.50%, 8/1/2007 25,000 27,863 Anadarko Petroleum Corp. 3.25%, 5/1/2008 30,000 29,338 ChevronTexaco Capital Co. 3.50%, 9/17/2007 12,566 12,671 Conoco Inc. 6.35%, 4/15/2009 40,000 44,558 Norsk Hydro A/S 9.00%, 4/15/2012 20,000 25,121 Phillips Petroleum Co. 8.50%, 5/25/2005 15,000 16,464 9.375%, 2/15/2011 20,000 25,351 Talisman Energy, Inc. 7.125%, 6/1/2007 10,000 10,813 TECHNOLOGY (0.4%) Hewlett-Packard Co. 7.15%, 6/15/2005 50,000 53,799 International Business Machines Corp. 5.875%, 11/29/2032 15,000 14,964 8.375%, 11/1/2019 25,000 32,473 TELECOMMUNICATIONS (0.1%) Vodafone Group PLC 5.375%, 1/30/2015 35,000 35,053 TRANSPORTATION (0.8%) CSX Corp. 7.45%, 5/1/2007 29,460 33,198 ERAC USA Finance Co. (4) 7.35%, 6/15/2008 21,805 24,563 Federal Express Corp. 6.72%, 1/15/2022 44,260 49,958 Norfolk Southern Corp. 8.375%, 5/15/2005 25,000 27,128 PSA Corp. Ltd. (4) 7.125%, 8/1/2005 50,000 54,014 Southwest Airlines Co. 7.54%, 6/29/2015 30,772 34,770 INDUSTRIAL OTHER (0.6%) Fortune Brands Inc. 4.875%, 12/1/2013 35,000 34,942 Johnson Controls, Inc. 7.125%, 7/15/2017 36,300 41,688 Stanford University 6.875%, 2/1/2024 34,745 39,785 7.65%, 6/15/2026 29,000 34,860 ------------- $ 2,662,692 ------------- UTILITIES (2.6%) ELECTRIC UTILITIES (1.8%) Alabama Power Co. 2.80%, 12/1/2006 23,090 22,971 Carolina Power & Light Co. 5.95%, 3/1/2009 20,000 21,758 Central Illinois Public Service 6.125%, 12/15/2028 54,000 53,269 Consolidated Edison Co. of New York, Inc. 6.45%, 12/1/2007 20,000 22,019 Exelon Generation Co. LLC 6.95%, 6/15/2011 45,000 50,374 23 - ------------------------------------------------------------------------- FACE MARKET AMOUNT VALUE* WELLINGTON FUND (000) (000) - ------------------------------------------------------------------------- Indiana Michigan Power Co. 6.875%, 7/1/2004 $ 30,000 $ 30,782 Kansas City Power & Light 7.125%, 12/15/2005 40,000 43,610 National Rural Utilities Cooperative Finance Corp. 5.75%, 12/1/2008 50,000 53,910 PacifiCorp 6.625%, 6/1/2007 20,500 22,289 Public Service Electric & Gas 4.00%, 11/1/2008 40,500 40,720 Southern Investments UK PLC 6.80%, 12/1/2006 35,000 36,833 Virginia Electric & Power Co. 5.75%, 3/31/2006 25,000 26,668 7.625%, 7/1/2007 16,200 18,476 Wisconsin Electric 4.50%, 5/15/2013 21,565 20,909 Wisconsin Power & Light Co. 7.625%, 3/1/2010 20,000 23,280 Natural Gas (0.4%) British Transco Finance 6.625%, 6/1/2018 50,000 53,971 PanEnergy Corp. 7.00%, 10/15/2006 25,000 27,087 Wisconsin Gas Co. 6.60%, 9/15/2013 13,100 14,380 UTILITY OTHER (0.4%) Atlantic City Electric Co. (1) 7.00%, 9/1/2023 18,000 18,147 Washington Gas Light Co. 6.15%, 1/26/2026 43,500 45,213 Wisconsin Public Service 6.08%, 12/1/2028 45,000 45,861 ------------- $ 692,527 ------------- - ------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost $5,648,202) $ 6,047,559 - ------------------------------------------------------------------------- SOVEREIGN BONDS (U.S. Dollar-Denominated) (1.1%) - ------------------------------------------------------------------------- Bayerische Landesbank - NY 6.375%, 10/15/2005 25,000 26,838 British Columbia 4.30%, 5/30/2013 40,000 39,158 Deutsche Ausgleichbank 7.00%, 6/23/2005 50,000 53,832 KFW International Finance 7.00%, 3/1/2013 10,000 11,549 Kredit Fuer Wiederaufbau 3.375%, 1/23/2008 30,000 30,135 Province of Ontario 4.375%, 2/15/2013 40,000 39,400 Quebec Hydro Electric 6.30%, 5/11/2011 40,000 44,711 Westdeutsche Landesbank - NY 6.75%, 6/15/2005 50,000 53,430 - ------------------------------------------------------------------------- TOTAL SOVEREIGN BONDS (Cost $292,604) $ 299,053 - ------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES (0.4%) - ------------------------------------------------------------------------- Asset Securitization Corp. (3) 7.49%, 4/14/2029 20,000 22,334 Bank of America Mortgage Securities Mortgage Certificates (3) 4.875%, 1/25/2033 20,000 19,853 DLJ Mortgage Acceptance Corp. (3)(4) 6.82%, 10/15/2030 23,849 25,835 (3)(4) 7.60%, 5/15/2030 31,660 34,678 Nomura Asset Securities Corp. (3) 6.69%, 3/15/2030 13,000 14,651 - ------------------------------------------------------------------------- TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $110,946) $ 117,351 - ------------------------------------------------------------------------- TAXABLE MUNICIPAL BONDS (0.3%) - ------------------------------------------------------------------------- Chelan County Washington Public Utility District (1) 7.07%, 6/1/2007 10,000 11,265 (1) 7.10%, 6/1/2008 12,000 13,686 Oakland CA Pension Obligation (1) 6.98%, 12/15/2009 7,801 8,944 Southern California Public Power Auth. (2) 6.93%, 5/15/2017 30,000 34,632 - ------------------------------------------------------------------------- TOTAL TAXABLE MUNICIPAL BONDS (Cost $59,801) $ 68,527 - ------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (5.2%) - ------------------------------------------------------------------------- REPURCHASE AGREEMENTS Collateralized by U.S.Government Obligations in a Pooled Cash Account 1.05%, 12/1/2003 746,697 746,697 1.05%, 12/1/2003--Note G 660,218 660,218 - ------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,406,915) $ 1,406,915 - ------------------------------------------------------------------------- TOTAL INVESTMENTS (102.0%) (Cost $23,119,141) $ 27,512,860 - ------------------------------------------------------------------------- 24 - ------------------------------------------------------------------------- MARKET VALUE* (000) - ------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-2.0%) - ------------------------------------------------------------------------- Other Assets--Note C 592,301 Security Lending Collateral Payable to Brokers--Note G (660,218) Other Liabilities (459,687) ------------- (527,604) ------------- - ------------------------------------------------------------------------- NET ASSETS (100%) $ 26,985,256 ========================================================================= *See Note A in Notes to Financial Statements. *Non-income-producing security. ** The issuer is a publicly-traded company that operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. (1) Scheduled principal and interest payments are guaranteed by MBIA (Municipal Bond Insurance Association). (2) Scheduled principal and interest payments are guaranteed by FSA (Financial Security Assurance). (3) The average maturity is shorter than the final maturity shown due to scheduled interim principal payments and prepayments. (4) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2003, the aggregate value of these securities was $659,295,000, representing 2.4% of net assets. ADR--American Depositary Receipt. MTN--Medium-Term Note. REIT--Real Estate Investment Trust. - ----------------------------------------------------------------------------- AMOUNT (000) - ----------------------------------------------------------------------------- AT NOVEMBER 30, 2003, NET ASSETS CONSISTED OF: - ----------------------------------------------------------------------------- Paid-in Capital $22,602,535 Undistributed Net Investment Income 123,064 Accumulated Net Realized Losses (134,062) Unrealized Appreciation 4,393,719 - ----------------------------------------------------------------------------- NET ASSETS $26,985,256 ============================================================================= Investor Shares--Net Assets Applicable to 834,508,171 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $23,107,727 - ----------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $27.69 ============================================================================= Admiral Shares--Net Assets Applicable to 81,053,194 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $3,877,529 - ----------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $47.84 ============================================================================= See Note E in Notes to Financial Statements for the tax-basis components of net assets. 25 STATEMENT OF OPERATIONS This Statement shows the types of income earned by the fund during the reporting period, and details the operating expenses charged to each class of its shares. These expenses directly reduce the amount of investment income available to pay to shareholders as income 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) of investments during the period. - -------------------------------------------------------------------------------- WELLINGTON FUND YEAR ENDED NOVEMBER 30, 2003 (000) - -------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends $ 359,175 Interest 439,197 Security Lending 1,902 - -------------------------------------------------------------------------------- Total Income 800,274 - -------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees--Note B Basic Fee 9,006 Performance Adjustment 2,651 The Vanguard Group--Note C Management and Administrative Investor Shares 60,282 Admiral Shares 5,574 Marketing and Distribution Investor Shares 2,484 Admiral Shares 348 Custodian Fees 185 Auditing Fees 14 Shareholders' Reports and Proxies Investor Shares 913 Admiral Shares 13 Trustees' Fees and Expenses 31 - -------------------------------------------------------------------------------- Total Expenses 81,501 Expenses Paid Indirectly--Note D (4,176) - -------------------------------------------------------------------------------- Net Expenses 77,325 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 722,949 - -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (99,852) - -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 2,382,197 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,005,294 ================================================================================ 26 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 net amount shareholders invested in or redeemed from the fund. Distributions and Capital Share Transactions are shown separately for each class of shares. - -------------------------------------------------------------------------------- WELLINGTON FUND -------------------------------- YEAR ENDED NOVEMBER 30, -------------------------------- 2003 2002 (000) (000) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 722,949 $ 760,194 Realized Net Gain (Loss) (99,852) (32,965) Change in Unrealized Appreciation (Depreciation) 2,382,197 (1,822,934) - -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 3,005,294 (1,095,705) - -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (616,943) (688,391) Admiral Shares (98,947) (92,614) Realized Capital Gain* Investor Shares -- (857,749) Admiral Shares -- (98,110) - -------------------------------------------------------------------------------- Total Distributions (715,890) (1,736,864) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--NOTE H Investor Shares 1,129,921 638,277 Admiral Shares 636,806 973,488 - -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 1,766,727 1,611,765 - -------------------------------------------------------------------------------- Total Increase (Decrease) 4,056,131 (1,220,804) - -------------------------------------------------------------------------------- NET ASSETS Beginning of Period 22,929,125 24,149,929 - -------------------------------------------------------------------------------- End of Period $26,985,256 $22,929,125 ================================================================================ * Includes fiscal 2003 and 2002 short-term gain distributions totaling $0 and $138,987,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes. 27 financial highlights This table summarizes the fund's investment results and distributions to shareholders on a per-share basis for each class of shares. It also presents the 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. WELLINGTON FUND INVESTOR SHARES - --------------------------------------------------------------------------------------------------- YEAR ENDED NOVEMBER 30, ------------------------------------------------ FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $25.27 $28.41 $28.83 $29.62 $32.29 - --------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .77 .837 .97 1.07 1.13 Net Realized and Unrealized Gain (Loss) on Investments 2.42 (1.986) 1.10 .79 (.14) - --------------------------------------------------------------------------------------------------- Total from Investment Operations 3.19 (1.149) 2.07 1.86 .99 - --------------------------------------------------------------------------------------------------- Distribution Dividends from Net Investment Income (.77) (.870) (1.01) (1.15) (1.22) Distributions from Realized Capital Gains -- (1.121) (1.48) (1.50) (2.44) - --------------------------------------------------------------------------------------------------- Total Distributions (.77) (1.991) (2.49) (2.65) (3.66) - --------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $27.69 $25.27 $28.41 $28.83 $29.62 =================================================================================================== Total Return 12.94% -4.27% 7.62% 6.93% 3.58% =================================================================================================== RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $23,108 $20,007 $21,864 $22,524 $25,846 Ratio of Total Expenses to Average Net Assets* 0.36% 0.36% 0.36% 0.31% 0.30% Ratio of Net Investment Income to Average Net Assets 3.00% 3.18% 3.42% 3.77% 3.74% Portfolio Turnover Rate 28% 25% 33% 33% 22% =================================================================================================== * Includes performance-based investment advisory fee increases (decreases) of 0.01%, 0.01%, 0.01%, (0.01%), and (0.01%). 28 WELLINGTON FUND ADMIRAL SHARES - -------------------------------------------------------------------------------- YEAR ENDED NOVEMBER 30, MAY 14* TO ---------------------- NOV. 30, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $43.66 $49.08 $50.00 - -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income 1.383 1.494 .940 Net Realized and Unrealized Gain (Loss) on Investments 4.183 (3.425) (1.045) - -------------------------------------------------------------------------------- Total from Investment Operations 5.566 (1.931) (.105) - -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (1.386) (1.552) (.815) Distributions from Realized Capital Gains -- (1.937) -- - -------------------------------------------------------------------------------- Total Distributions (1.386) (3.489) (.815) - -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $47.84 $43.66 $49.08 ================================================================================ TOTAL RETURN 13.09% -4.15% -0.12% ================================================================================ RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $3.878 $2,922 $2,286 Ratio of Total Expenses to Average Net Assets+ 0.23% 0.26% 0.28%** Ratio of Net Investment Income to Average Net Assets 3.12% 3.30% 3.44%** Portfolio Turnover Rate 28% 25% 33% ================================================================================ *Inception. **Annualized. +Includes performance-based investment advisory fee increases (decreases) of 0.01%, 0.01%, and 0.01%. SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 29 NOTES TO FINANCIAL STATEMENTS Vanguard Wellington Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares, Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund's minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria. Certain of the portfolio's investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements. 1. SECURITY VALUATION: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Bonds, and temporary cash investments acquired over 60 days to maturity, are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund's pricing time but after the close of the securities' primary markets, are valued by methods deemed by the board of trustees to represent fair value. 2. 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. 3. 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. 4. DISTRIBUTIONS: Distributions to shareholders are recorded on the ex-dividend date. 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. Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses), shareholder reporting, and proxies. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets. 30 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 the fund's performance for the preceding three years relative to a combined index comprising the S&P 500 Index and the Lehman Brothers Credit A or Better Bond Index. For the year ended November 30, 2003, the investment advisory fee represented an effective annual basic rate of 0.04% of the fund's average net assets before an increase of $2,651,000 (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, 2003, the fund had contributed capital of $4,301,000 to Vanguard (included in Other Assets), representing 0.02% of the fund's net assets and 4.30% of Vanguard's capitalization. The fund's trustees and officers are also directors and officers of Vanguard. D. The fund has asked its investment advisor 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. The fund's custodian bank has also agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the year ended November 30, 2003, directed brokerage and custodian fee offset arrangements reduced expenses by $4,120,000 and $56,000, respectively. The total expense reduction represented an effective annual rate of 0.02% of the fund's average net assets. E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. For tax purposes, at November 30, 2003, the fund had $155,570,000 of ordinary income available for distribution. The fund had available realized losses of $132,817,000 to offset future net capital gains of $32,965,000 through November 30, 2010, and $99,852,000 through November 30, 2011. At November 30, 2003, net unrealized appreciation of investment securities for tax purposes was $4,393,719,000, consisting of unrealized gains of $4,959,240,000 on securities that had risen in value since their purchase and $565,521,000 in unrealized losses on securities that had fallen in value since their purchase. F. During the year ended November 30, 2003, the fund purchased $6,984,308,000 of investment securities and sold $5,925,545,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $1,356,320,000 and $447,694,000, respectively. G. The market value of securities on loan to broker/dealers at November 30, 2003, was $985,898,000, for which the fund held as collateral cash of $660,218,000 and U.S. government and agency securities with a market value of $351,503,000. The fund invests cash collateral received in repurchase agreements, and records a liability for the return of the collateral, during the period the securities are on loan. 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. 31 NOTES TO FINANCIAL STATEMENTS (CONTINUED) H. Capital share transactions for each class of shares were: - -------------------------------------------------------------------------------- YEAR ENDED NOVEMBER 30, ---------------------------------------- 2003 2002 ----------------------------------------- AMOUNT SHARES AMOUNT SHARES (000) (000) (000) (000) - -------------------------------------------------------------------------------- INVESTOR SHARES Issued $ 3,292,641 127,791 $ 3,461,399 130,767 Issued in Lieu of Cash Distributions 583,124 23,002 1,474,734 55,452 Redeemed (2,745,844) (108,093) (4,297,856) (164,084) Net Increase (Decrease)-- ---------------------------------------------- Investor Shares 1,129,921 42,700 638,277 22,135 ---------------------------------------------- ADMIRAL SHARES Issued 962,241 21,589 1,207,851 25,812 Issued in Lieu of Cash Distributions 88,510 2,019 173,723 3,792 Redeemed (413,945) (9,482) (408,086) (9,254) Net Increase (Decrease)-- ---------------------------------------------- Admiral Shares 636,806 14,126 973,488 20,350 - -------------------------------------------------------------------------------- 32 REPORT OF INDEPENDENT AUDITORS To the Shareholders and 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, 2003, 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 accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania January 6, 2004 - -------------------------------------------------------------------------------- SPECIAL 2003 TAX INFORMATION (UNAUDITED) FOR VANGUARD WELLINGTON FUND This information for the fiscal year ended November 30, 2003, is included pursuant to provisions of the Internal Revenue Code. For corporate shareholders, 42.4% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction. The fund intends to distribute the maximum amount of qualified dividend income allowable. The amount of qualified dividend income distributed by the fund will be provided to individual shareholders on their 2003 Form 1099-DIV. - -------------------------------------------------------------------------------- 33 INVESTING IS FAST, EASY, AND SECURE ON VANGUARD.COM If you're like many Vanguard investors, you believe in planning and taking control of your own investments. Vanguard.com was built for you--and it keeps getting better. research and plan your investments with confidence Use our PLANNING & ADVICE and RESEARCH FUNDS & STOCKS sections to: * Determine what asset allocation might best suit your needs--by taking our Investor Questionnaire. * Find out how much to save for retirement and your children's college education-- by using our planning tools. * Learn how to achieve your goals--by reading our PlainTalk(R) investment guides. * Find your next fund--by using the Compare Funds, Compare Costs, and Narrow Your Fund Choices tools. * Look up fund price, performance history, and distribution information--in a snap. INVEST AND MANAGE ACCOUNTS WITH EASE Log on to VANGUARD.COM to: * See what you own (at Vanguard and elsewhere) and how your investments are doing. * Elect to receive online statements, fund reports (like this one), prospectuses, and tax forms. * Analyze your portfolio's holdings and performance. * Open new accounts, buy and sell shares, and exchange money between funds--securely and easily. * Sign up to receive electronic newsletters from Vanguard informing you of news on our funds, products, and services, as well as on investing and the financial markets. Find out what Vanguard.com can do for you. Log on today! 34 CAPITALIZE ON YOUR IRA Are you taking full advantage of your individual retirement account? You really should be. The contribution limits on IRAs were recently raised, making these tax-deferred accounts more powerful options for retirement savers. Here's how you can exploit your IRA--and improve your chances of having the retirement of your dreams. CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR It may be an obvious point, but if you invest as much in your IRA as the law allows--currently $3,000 per tax year if you are under age 50 and $3,500 if you are age 50 or over--you will increase the odds of meeting your retirement goals. "Max out" every year you can. MAKE IT AUTOMATIC Put your IRA on autopilot by taking advantage of Vanguard's Automatic Investment Plan. Your IRA contributions will be deducted from your bank account on a schedule of your choosing, making retirement investing a healthy habit. CONSIDER COST The owners of low-cost investments keep a larger portion of their gross returns than the owners of high-cost investments. Over the long term, avoiding costlier mutual funds and brokerage commissions could significantly boost your retirement savings. Our low costs are one reason a Vanguard IRA(R) is such a smart choice. REQUEST A DIRECT ROLLOVER WHEN YOU CHANGE JOBS Don't spend your retirement assets before you've retired. When you change jobs, roll your 401(k) or other employer-sponsored retirement plan assets directly into your IRA. If you have questions about your IRA, want to transfer an IRA from another institution to Vanguard, or need help with any other IRA transaction, call our Retirement Resource Center at 1-800-205-6189 or visit VANGUARD.COM. You can open or fund your IRA on our website and have a confirmation in your hand within minutes. 35 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 a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides services to them on an at-cost basis. A majority of Vanguard's 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. Our independent board members 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 - ------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME FUND (NUMBER OF (YEAR OF BIRTH) VANGUARD FUNDS TRUSTEE/OFFICER OVERSEEN BY SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------ JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee (1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies May 1987 Executive Officer, served by The Vanguard Group. and Trustee (112) - ------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor (1937) (112) to Greenwich Associates (international business strategy consulting); January 2001 Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. - ------------------------------------------------------------------------------------------------------------ RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice (1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of Technitrol, Inc. (electronic components), and Agere Systems (communications components); Board Member of the American Chemistry Council; and Trustee of Drexel University. - ------------------------------------------------------------------------------------------------------------ JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer (1950) products); Director of the Medical Center at Princeton and Women's July 1998 Research and Education Institute. - ------------------------------------------------------------------------------------------------------------ BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University; (1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund) May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish investment management firm)(since November 2001),Prudential Insurance Co. of America, BKF Capital (investment management), The Jeffrey Co. (holding company), and NeuVis, Inc.(software company). - ------------------------------------------------------------------------------------------------------------ the funds. Among board members' responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers. Each trustee serves a fund until its termination; or until the trustee's retirement, resignation, or death; or otherwise as specified in the fund's organizational documents. Any trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. POSITION(S) HELD WITH NAME FUND (NUMBER OF (YEAR OF BIRTH) VANGUARD FUNDS TRUSTEE/OFFICER OVERSEEN BY SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------ Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO (1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of January 1993 Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998. - ------------------------------------------------------------------------------------------------------------ J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal distribution); Trustee of Vanderbilt University. - ------------------------------------------------------------------------------------------------------------ EXECUTIVE OFFICERS* R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.; (1951) (112) Secretary of The Vanguard Group and of each of the investment June 2001 companies served by The Vanguard Group. - ------------------------------------------------------------------------------------------------------------ Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the (1957) (112) investment companies served by The Vanguard Group. July 1998 - ------------------------------------------------------------------------------------------------------------ *Officers of the funds are "interested persons" as defined in the Investment Company Act of 1940. More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group. - ------------------------------------------------------------------------------------------------------------ VANGUARD SENIOR MANAGEMENT TEAM MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development. JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance. KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer. F. WILLIAM MCNABB, III, Client Relationship Group. - ------------------------------------------------------------------------------------------------------------ JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996. - ------------------------------------------------------------------------------------------------------------ [SHIP] [THE VANGUARD GROUP(R) LOGO] Post Office Box 2600 Valley Forge, PA 19482-2600 Vanguard, The Vanguard Group, Vanguard.com, Vanguard IRA, Admiral, Wellington, and the ship logo are trademarks of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners. ABOUT OUR COVER The photographs that appear on the cover of this report are copyrighted by Michael Kahn. FOR MORE INFORMATION 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. To receive a free copy of the prospectus or the Statement of Additional Information, or to request additional information about the fund or other Vanguard funds, please contact us at one of the adjacent telephone numbers or by e-mail through VANGUARD.COM. Prospectuses may also be viewed online. All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc., unless otherwise noted. WORLD WIDE WEB www.vanguard.com FUND INFORMATION 1-800-662-7447 DIRECT INVESTOR ACCOUNT SERVICES 1-800-662-2739 INSTITUTIONAL INVESTOR SERVICES 1-800-523-1036 TEXT TELEPHONE 1-800-952-3335 (C) 2004 THE VANGUARD GROUP, INC. ALL RIGHTS RESERVED. VANGUARD MARKETING CORPORATION, DISTRIBUTOR. Q210 012004 ITEM 2: Code of Ethics. The Board of Trustees has adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller of the Registrant and The Vanguard Group, Inc., and to persons performing similar functions. ITEM 3: Audit Committee Financial Expert. All of the members of the Audit Committee have been determined by the Registrant's Board of Trustees to be Audit Committee Financial Experts. The members of the Audit Committee are: Charles D. Ellis, Rajiv L. Gupta, JoAnn Heffernan Heisen, Burton G. Malkiel, Alfred M. Rankin, Jr., and J. Lawrence Wilson. All Audit Committee members are independent under applicable rules. ITEM 4: Not applicable. ITEM 5: Not applicable. ITEM 6: Reserved. ITEM 7: Not applicable. ITEM 8: Reserved. ITEM 9: CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) Internal Control Over Financial Reporting. There were no significant changes in Registrant's internal control over financial reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10: EXHIBITS. The following exhibits are attached hereto: (a) code of ethics (b) certifications Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VANGUARD WELLINGTON FUND BY:_____________(signature)________________ (HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER Date: January 22, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. VANGUARD WELLINGTON FUND BY:_____________(signature)________________ (HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER Date: January 22, 2004 VANGUARD WELLINGTON FUND BY:_____________(signature)________________ (HEIDI STAM) THOMAS J. HIGGINS* TREASURER Date: January 22, 2004 *By Power of Attorney. See File Number 2-57689, filed on December 26, 2002. Incorporated by Reference.