<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
Stock and bond markets diverged in the first half of Wellington Fund's 1996
fiscal year, with stocks continuing a remarkable surge to record heights, and
bond prices retreating from the peaks reached in January. Wellington Fund's
return, as you would expect, was between the strong positive return provided by
stocks during the half-year and the negative return provided by bonds.
During the six months ended May 31, 1996, Wellington Fund's total return
(capital change plus reinvested dividends) was +6.0%, reflecting its asset mix
comprising about 65% stocks and 35% long-term bonds. This return matched the
+6.0% theoretical return of our unmanaged composite index, which is weighted
65% in the Standard & Poor's 500 Composite Stock Price Index and 35% in the
Lehman Long-Term Corporate AA or Better Bond Index. We trailed slightly the
return of +6.4% on the average balanced mutual fund. This table compares our
results with these two benchmarks for the Fund:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
TOTAL RETURN
--------------------
SIX MONTHS ENDED
MAY 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
VANGUARD/WELLINGTON FUND +6.0%
- ----------------------------------------------------------------------------
AVERAGE BALANCED MUTUAL FUND +6.4%
COMPOSITE STOCK/BOND INDEX* +6.0
- ----------------------------------------------------------------------------
</TABLE>
*Weighted 65% in the Standard & Poor's 500 Stock Index and 35% in the Lehman
Long-Term Corporate AA or Better Bond Index.
The Fund's total return is based on net asset values of $24.57 per share on
November 30, 1995, and $25.17 per share on May 31, 1996, with the latter figure
adjusted to take into account the reinvestment of two dividends totaling $.57
per share from net investment income and a distribution of $.28 per share from
net capital gains realized during 1995. At May 31, 1996, Wellington's dividend
yield was 4.2%.
THE PERIOD IN REVIEW
The stock market continued its ascent during the first half of our 1996 fiscal
year, providing positive returns in each month and sending market indexes to
record after record. For the first six weeks of the period, stocks seemed to
get a lift from falling interest rates, including reductions in short-term
rates by the Federal Reserve in December and January. And yet, surprisingly,
the stock market shrugged off the subsequent sharp reversal in long-term
interest rates: the yield on the 30-year U.S. Treasury bond began the period at
6.1%, fell to below 6.0% in mid-January, and then bounded to more than 7.0% by
mid-May. In essence, both "good" and "bad" economic news were generally
interpreted as good news for stocks, suggesting that more than a little
speculative spirit was abroad in the land.
In any case, the result for the six months ended May 31 was a robust total
return of +11.8% on the Standard & Poor's 500 Index and a loss of -4.3% on the
Lehman Long-Term Corporate AA or Better Bond Index. This "decoupling" of the
stock and bond markets since late January raises the question of whether the
stock market has enough earnings growth momentum to withstand the competition
for investors' dollars that higher-yielding bonds might provide.
The equity portion of Wellington Fund earned a return of +12.0%, slightly
ahead of that of the Standard & Poor's 500 Index. As you know, Wellington
focuses on larger-capitalization stocks, while our peers maintain larger
concentrations in smaller stocks. This disparity proved to be a big advantage
versus other balanced mutual funds last year, when large-cap stocks dominated
the marketplace. But so far this year the tables have turned, as small- and
mid-capitalization stocks have outdistanced large-cap issues. For the six
months ended May 31, the Russell 2000 Index, a benchmark for small-cap stocks,
had a return of +18.1%, more than six percentage points ahead of the large-cap
Standard & Poor's 500 Index.
IN SUMMARY
Six months ago, our Annual Report on a bountiful 1995 fiscal year cautioned
that financial markets are not a one-way street, a fact demonstrated by the
bond market's recent downturn. Sooner or later, the stock market will also
illustrate this point. But successful long-term investors recognize that a
well-
<PAGE> 2
balanced portfolio of stocks, bonds, and short-term reserves makes it easier to
ride out the occasional rough seas encountered on the voyage toward their
investing goals. We will stay the course in managing Wellington Fund based on
conservative principles. We look forward to reporting to you in further detail
in our 1996 Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- --------------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- --------------------
John J. Brennan
President
June 11, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
AVERAGE ANNUAL TOTAL RETURNS--THE CURRENT YIELD QUOTED IN THE MESSAGE TO
SHAREHOLDERS IS CALCULATED IN ACCORDANCE WITH SEC GUIDELINES. THE AVERAGE
ANNUAL TOTAL RETURNS FOR THE FUND (PERIODS ENDED MARCH 31, 1996) ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
10 YEARS
---------------------------------
INCEPTION TOTAL CAPITAL INCOME
DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
--------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
VANGUARD/WELLINGTON FUND 7/1/29 +26.66% +13.59% +11.92% +6.21% +5.71%
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
2
<PAGE> 3
TOTAL INVESTMENT RETURN TABLE
The following table illustrates the results of a single-share investment in
Vanguard/Wellington Fund for the 25-year period ended May 31, 1996. During the
period illustrated, stock and bond prices fluctuated widely; these results
should not be considered a representation of the dividend income or capital
gain or loss that may be realized from an investment made in the Fund today.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- -----------------------------------------------------------------------------------------------------------------------------
Composite
Stock/Bond
Wellington Fund Index**
Value with Income ------------------------------------ ------------
November 30 Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Return
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1972 $12.37 $.25 $ .44 $ 13.09 +14.7% + 4.2% +18.9% +21.2%
- -----------------------------------------------------------------------------------------------------------------------------
1973 10.15 .25 .47 11.46 -16.0 + 3.6 -12.4 - 9.2
- -----------------------------------------------------------------------------------------------------------------------------
1974 7.84 .25 .50 9.67 -20.3 + 4.6 -15.7 -17.6
- -----------------------------------------------------------------------------------------------------------------------------
1975 8.78 .25 .48 11.76 +15.2 + 6.4 +21.6 +26.6
- -----------------------------------------------------------------------------------------------------------------------------
1976 9.76 .25 .49 14.10 +14.1 + 5.8 +19.9 +17.9
- -----------------------------------------------------------------------------------------------------------------------------
1977 8.87 .25 .50 13.90 - 6.5 + 5.1 - 1.4 + 0.5
- -----------------------------------------------------------------------------------------------------------------------------
1978 8.59 .25 .54 14.72 - 0.3 + 6.2 + 5.9 + 3.7
- -----------------------------------------------------------------------------------------------------------------------------
1979 9.01 -- .66 16.61 + 4.9 + 7.9 +12.8 +10.1
- -----------------------------------------------------------------------------------------------------------------------------
1980 10.64 -- .75 21.15 +18.1 + 9.2 +27.3 +21.8
- -----------------------------------------------------------------------------------------------------------------------------
1981 10.04 -- .84 21.75 - 5.6 + 8.4 + 2.8 - 0.4
- -----------------------------------------------------------------------------------------------------------------------------
1982 11.05 -- .87 26.07 +10.1 + 9.7 +19.8 +22.4
- -----------------------------------------------------------------------------------------------------------------------------
1983 12.49 .44 .91 32.76 +17.0 + 8.7 +25.7 +19.2
- -----------------------------------------------------------------------------------------------------------------------------
1984 12.08 .48 .92 35.47 + 0.6 + 7.7 + 8.3 + 7.2
- -----------------------------------------------------------------------------------------------------------------------------
1985 13.99 .30 .92 44.86 +18.3 + 8.2 +26.5 +27.5
- -----------------------------------------------------------------------------------------------------------------------------
1986 16.06 .34 .94 55.78 +17.3 + 7.0 +24.3 +26.4
- -----------------------------------------------------------------------------------------------------------------------------
1987 14.92 -- .54 53.50 - 7.1 + 2.8 - 4.3 - 2.0
- -----------------------------------------------------------------------------------------------------------------------------
1988 16.82 .14 .98 64.64 +13.8 + 7.2 +21.0 +19.3
- -----------------------------------------------------------------------------------------------------------------------------
1989 18.40 .58 .98 77.55 +13.4 + 6.6 +20.0 +25.7
- -----------------------------------------------------------------------------------------------------------------------------
1990 16.29 .60 1.06 75.49 - 8.4 + 5.8 - 2.6 - 0.2
- -----------------------------------------------------------------------------------------------------------------------------
1991 17.95 -- 1.01 88.18 +10.2 + 6.6 +16.8 +19.2
- -----------------------------------------------------------------------------------------------------------------------------
1992 19.34 .23 .96 101.40 + 9.2 + 5.8 +15.0 +15.9
- -----------------------------------------------------------------------------------------------------------------------------
1993 20.78 .16 .94 115.21 + 8.4 + 5.2 +13.6 +11.8
- -----------------------------------------------------------------------------------------------------------------------------
1994 19.33 .38 .92 114.27 - 5.2 + 4.4 - 0.8 - 1.6
- -----------------------------------------------------------------------------------------------------------------------------
1995 24.57 .03 .88 151.64 +27.3 + 5.4 +32.7 +33.0
- -----------------------------------------------------------------------------------------------------------------------------
1996 (5/31) 25.17 .28 .57 160.78 + 3.6 + 2.4 + 6.0 + 6.0
- -----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL +1,360.3% +1,393.9%
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +11.6% +11.7%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes reinvestment of income dividends and any capital gains
distributions for both the Fund and the Index.
** Composite index shown for comparative purposes is composed of the Standard
& Poor's 500 Stock Index (65%) and the Salomon Brothers High-Grade Bond
Index (35%) through 1973; thereafter, the fixed-income component is
represented by the Lehman Long-Term Corporate AA or Better Bond Index
(35%).
Note: The initial net asset value was $11.01 on November 30, 1971, the
beginning of the period illustrated. No adjustment has been made for income
taxes payable by shareholders on reinvested income dividends and capital gains
distributions.
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
During the first six months of the Fund's 1996 fiscal year, Wellington Fund
provided a total return of +6.0%, in line with the composite index against
which we compare the Fund (65% S&P 500/35% Lehman Long-Term Corporate AA or
Better Bond Index). In this period equities continued their advance, with the
S&P 500 rising +11.8%. This strong performance came about in the face of rising
long-term interest rates, which caused the bond market to decline. The Lehman
Long-Term Corporate AA or Better Bond Index declined -4.3%. The equity portion
of the Fund increased +12.0% and our fixed-income securities declined by -3.7%
during the past six months.
The ability of the equity market so far in 1996 to shrug off rising
interest rates is remarkable. The strong equity market in 1995 was fueled by
declining interest rates and surging profits. Now we are dealing with a weak
bond market, which provides more competition for stocks as the yield on
long-term bonds increases. On top of this, corporate earnings in 1996 and 1997
are expected to grow at single digit rates, well below the rate of growth in
1994 and 1995 when S&P 500 operating earnings grew around 20%. The explanations
for this phenomenon include the fact that the economy, after slowing at the end
of 1995, continues to grow, with no recession in sight. Also, inflation
expectations as expressed by the bond market may be rising, but the underlying
trend, excluding the unusual event-driven changes in energy and food prices,
appears moderate. Another factor that is often cited is the heavy volume of
equity mutual fund purchases in recent months.
During the first half of 1996, Wellington Fund's exposure to stocks
increased modestly from 63% to 64%. The basic material sector's contribution,
after a slow start, began to improve when it became evident in March that the
economy was improving more rapidly than generally perceived before. After the
strong performance of the financial sector in 1995, we have reduced our
exposure modestly, but remain well overweight relative to the S&P 500, as the
valuations remain attractive both from an earnings and yield viewpoint. Our
commitment to the health-care sector has remained about the same, while there
was a modest increase in our activity in the energy sector. In general there
was an effort to make the Fund somewhat more conservative by stressing quality
and dividend growth potential. As an example, we added substantially to our
holdings in Amoco and Union Pacific. New names include Rhone-Poulenc and CIGNA,
which are attractively priced relative to their respective peer groups. We
increased our weight in the utility sector during the first half of 1996, as in
our view a number of utilities, such as Texas Utilities and Carolina Power &
Light, are well-positioned to show reasonable earnings and dividend growth as
the industry becomes increasingly deregulated.
With respect to our fixed-income holdings, during the past six months the
yield decline which occurred during 1995 was sharply reversed. The yield of the
30-year U.S. Treasury bond rose during the period from 6.1% to 6.9%. The rise
in yields was the result of a change in bond market psychology, a change which
incorporated more rapid economic growth and the possibility of a higher
inflation rate accompanied by a tighter monetary policy from the Federal
Reserve. In our view, fears of accelerating inflation are overstated and do not
recognize that any pickup in the long-term rate of inflation is unlikely. We
have therefore begun to extend the average maturity of the bonds in the Fund in
order to capture the higher yield levels. We expect to retain our focus on
high-quality securities which are well call protected.
I mentioned in the 1995 Annual Report that we did not have strong views
about the direction of the stock market. This still holds true today. Prospects
for moderate economic growth remain good, and in 1997 we may witness better
growth in overseas economies as well. The outcome of the November elections may
affect some individual securities, but is unlikely to have a strong influence
on the direction of the market. We are mindful of the fact that valuations in
certain areas of the equity market, such as the technology sector, have become
quite high, and may be a sign of the general stock
4
<PAGE> 5
market reaching its "top." The future will tell whether we are currently
witnessing excessive speculation or not, but we believe that Wellington Fund is
well served by our approach, which emphasizes quality companies with valuation
parameters, such as price/earnings ratios, which are below those of the market
averages, and which provide above-average dividend yields.
Respectfully,
Ernst H. von Metzsch, Senior Vice President
Portfolio Manager
Wellington Management Company
June 12, 1996
5
<PAGE> 6
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
May 31, 1996
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (63.0%)
- ------------------------------------------------------------------------
BASIC MATERIALS (12.3%)
Aluminum Co. of America 2,500,000 $ 154,063
British Steel PLC ADR 4,500,000 120,937
Cabot Corp. 2,000,000 54,750
(2)Dow Chemical Co. 2,700,000 225,787
E.I. du Pont de Nemours & Co. 2,105,200 167,890
International Paper Co. 2,400,000 95,700
(2)Kimberly-Clark Corp. 2,700,000 196,762
Lubrizol Corp. 2,362,700 71,767
Norsk Hydro AS ADR 1,000,000 46,875
PPG Industries, Inc. 1,700,000 87,975
Phelps Dodge Corp. 1,459,100 99,948
Reynolds Metals Co. 1,075,000 58,050
Temple-Inland Inc. 1,984,600 97,742
Westvaco Corp. 3,300,000 105,600
Willamette Industries, Inc. 1,260,500 75,315
Witco Chemical Corp. 1,614,200 51,453
------------
SECTOR TOTAL 1,710,614
------------
- ------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (5.7%)
Browning-Ferris Industries, Inc. 2,700,000 82,350
(2)General Electric Co. 3,600,300 297,925
Honeywell, Inc. 3,047,900 154,681
(1)Northrop Grumman Corp. 2,636,800 165,129
United Technologies Corp. 850,000 92,969
------------
SECTOR TOTAL 793,054
------------
- ------------------------------------------------------------------------
CONSUMER CYCLICAL (5.7%)
Brunswick Corp. 2,500,000 55,938
Eastman Kodak Co. 804,600 59,842
(2)Ford Motor Co. 6,004,515 219,165
(2)General Motors Corp. 3,800,000 209,475
May Department Stores Co. 1,508,000 71,442
J.C. Penney Co., Inc. 1,600,000 83,000
Sears, Roebuck & Co. 1,807,017 91,932
------------
SECTOR TOTAL 790,794
------------
- ------------------------------------------------------------------------
CONSUMER STAPLES (.5%)
SuperValu Inc. 2,279,400 70,661
------------
- ------------------------------------------------------------------------
ENERGY (8.1%)
Amerada Hess Corp. 1,400,000 79,800
Amoco Corp. 1,500,000 108,750
Ashland Inc. 1,000,000 42,750
Atlantic Richfield Co. 400,000 47,850
Chevron Corp. 1,805,000 107,849
Exxon Corp. 1,900,000 161,025
Kerr-McGee Corp. 803,000 47,176
Mobil Corp. 350,000 39,506
Pennzoil Co. 433,400 18,744
Phillips Petroleum Co. 1,248,800 51,825
Repsol SA ADR 2,697,700 91,722
Royal Dutch Petroleum Co. ADR 535,512 80,327
Texaco Inc. 1,215,000 101,756
Total SA ADR 2,000,000 72,000
Unocal Corp. 2,512,000 81,640
------------
SECTOR TOTAL 1,132,720
------------
- ------------------------------------------------------------------------
FINANCIAL (12.2%)
(2)Allstate Corp. 5,687,168 240,283
Banc One Corp. 2,630,000 97,310
The Bank of New York Co., Inc. 3,300,000 171,187
BankAmerica Corp. 1,710,400 128,708
CIGNA Corp. 1,000,000 114,875
(2)Citicorp 3,377,000 283,668
CoreStates Financial Corp. 3,700,000 145,687
(2)First Bank System, Inc. 4,249,800 256,582
First Union Corp. 2,307,200 141,028
Jefferson-Pilot Corp. 97,500 5,009
Norwest Corp. 488,307 17,030
Wachovia Corp. 2,477,400 106,218
------------
SECTOR TOTAL 1,707,585
------------
- ------------------------------------------------------------------------
HEALTH CARE (8.2%)
Abbott Laboratories 2,750,000 118,594
American Home Products Corp. 3,250,000 173,875
C.R. Bard, Inc. 1,700,000 55,888
Baxter International, Inc. 2,954,700 130,745
Bristol-Myers Squibb Co. 1,470,000 125,501
Johnson & Johnson 1,700,000 165,538
(2)Pfizer, Inc. 2,800,000 198,100
Rhone-Poulenc SA ADR 3,000,000 73,875
U.S. Healthcare, Inc. 1,238,800 67,050
Zeneca Group ADR 650,000 41,681
------------
SECTOR TOTAL 1,150,847
------------
- ------------------------------------------------------------------------
TECHNOLOGY (1.5%)
(2)Xerox Corp. 1,293,100 203,502
------------
- ------------------------------------------------------------------------
TRANSPORT & SERVICES (2.9%)
Canadian National Railway Co. 2,382,900 44,084
Canadian Pacific Ltd. 5,392,300 110,542
Norfolk Southern Corp. 616,700 53,190
Union Pacific Corp. 2,754,000 193,124
------------
SECTOR TOTAL 400,940
------------
- ------------------------------------------------------------------------
UTILITIES (5.2%)
AT&T Corp. 2,000,000 124,750
Carolina Power & Light Co. 1,921,800 69,425
CINergy Corp. 2,155,000 63,842
Equitable Resources, Inc. 957,800 28,495
NYNEX Corp. 700,000 32,287
Pacific Gas & Electric Co. 3,000,000 69,750
PacifiCorp 3,150,000 63,394
Pinnacle West Capital Corp. 2,000,000 53,000
SBC Communications Inc. 1,036,300 51,167
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
Sonat, Inc. 1,000,000 $ 42,375
Texas Utilities Co. 2,490,000 101,779
U S WEST Communications Group 964,856 31,478
------------
SECTOR TOTAL 731,742
------------
- ------------------------------------------------------------------------
MISCELLANEOUS (.7%)
Minnesota Mining &
Manufacturing Co. 1,500,000 102,375
------------
- ------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $5,667,870) 8,794,834
- ------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (1.2%)
- ------------------------------------------------------------------------
Alumax, Inc. $4.00 240,000 33,060
Bethlehem Steel Corp. $3.50 500,000 21,125
Cyprus Amax Minerals Co. $4.00 480,000 26,040
Reynolds Metals Co. $3.31 634,000 30,115
Sun Co., Inc. $1.80 Series A 2,000,000 59,750
- ------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $147,893) 170,090
- ------------------------------------------------------------------------
CORPORATE BONDS (17.1%)
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
------------
<S> <C> <C>
FINANCIAL (5.7%)
Abbey National PLC
6.69%, 10/17/05 $ 25,000 23,738
Abbey National First Capital
8.20%, 10/15/04 15,000 15,745
H.F. Ahmanson & Co.
8.25%, 10/1/02 10,000 10,449
Allstate Corp.
7.50%, 6/15/13 15,000 14,641
AMBAC, Inc.
7.50%, 5/1/23 14,000 13,475
Associates Corp. NA
8.625%, 11/15/04 15,000 16,196
BHP Finance USA Ltd.
7.25%, 3/1/16 35,000 33,153
Banc One Corp.
9.875%, 3/1/09 20,000 23,613
Bank of Boston Corp.
6.625%, 12/1/05 27,000 25,308
Bank of Montreal
7.80%, 4/1/07 15,000 15,159
BankAmerica Corp.
7.20%, 4/15/06 20,000 19,513
The Chase Manhattan Corp.
6.50%, 1/15/09 30,000 27,269
Citicorp
6.75%, 8/15/05 30,000 28,516
Comerica, Inc.
7.125%, 12/1/13 7,000 6,394
8.375%, 7/15/24 20,500 20,853
Continental Bank Corp.
12.50%, 4/1/01 15,000 18,259
Dean Witter Discover & Co.
6.75%, 10/15/13 19,275 17,272
First Bank NA
7.55%, 6/15/04 16,000 16,041
First Bank System
7.625%, 5/1/05 4,000 4,016
First Chicago NBD Corp.
6.375%, 1/30/09 15,000 13,351
7.125%, 5/15/07 15,000 14,527
First Union Corp.
7.50%, 4/15/35 30,000 30,731
GE Global Insurance Holdings
7.00%, 2/15/26 35,000 32,207
General Electric Capital Services
7.50%, 8/21/35 11,000 10,854
General Electric Capital Corp.
8.125%, 5/15/12 30,000 32,057
General Motors Acceptance Corp.
6.00%, 4/1/11 19,870 16,445
General RE Corp.
9.00%, 9/12/09 15,000 16,663
Great Western Financial Corp.
6.125%, 6/15/08 20,000 19,820
John Hancock
7.375%, 2/15/24 29,000 26,641
Metropolitan Life Insurance Co.
7.70%, 11/1/15 30,000 28,909
National City Bank Northeast
7.25%, 7/15/10 10,000 9,578
National City Columbus
7.25%, 7/15/10 25,000 23,954
Norwest Financial Inc.
6.25%, 12/15/07 35,000 31,731
Republic New York Corp.
7.75%, 5/15/09 10,000 10,095
9.50%, 4/15/14 5,000 5,817
9.70%, 2/1/09 5,000 5,844
Royal Bank of Scotland
6.375%, 2/1/11 30,000 26,343
Sun Life Financial
6.625%, 12/15/07 30,000 27,627
Transamerica Finance
6.50%, 3/15/11 29,265 25,693
Wachovia Corp.
6.375%, 2/1/09 6,000 5,407
6.80%, 6/1/05 15,000 14,462
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
Wells Fargo & Co.
6.125%, 11/1/03 $ 22,000 $ 20,242
------------
SECTOR TOTAL 798,608
------------
- ------------------------------------------------------------------------
INDUSTRIAL (7.3%)
ARCO Chemical Co.
9.80%, 2/1/20 15,000 18,265
Air Products & Chemicals, Inc.
8.75%, 4/15/21 26,650 29,556
Amoco Canada Petroleum Co.
6.75%, 2/15/05 10,000 9,716
7.95%, 10/1/22 20,000 20,211
Anheuser-Busch Co.
7.00%, 12/1/25 30,000 27,323
BP America Inc.
7.875%, 5/15/02 20,000 20,780
Becton Dickinson
8.70%, 1/15/25 20,000 20,860
Boeing Co.
8.75%, 8/15/21 25,000 28,069
Browning-Ferris Industries, Inc.
6.375%, 1/15/08 34,000 31,109
Chevron Corp.
9.375%, 6/1/16 15,000 15,600
Coca-Cola Enterprises, Inc.
8.50%, 2/1/22 30,000 32,617
E.I. du Pont de Nemours & Co.
8.25%, 1/15/22 25,000 25,229
Eaton Corp.
7.00%, 4/1/11 10,600 9,815
7.625%, 4/1/24 15,000 14,625
Exxon Capital Corp.
6.00%, 7/1/05 13,500 12,389
Ford Motor Co.
8.875%, 1/15/22 25,000 27,671
General Motors Corp.
7.70%, 4/15/16 25,000 24,764
Georgia-Pacific Corp.
9.625%, 3/15/22 22,000 23,473
International Business
Machines Corp.
8.375%, 11/1/19 25,000 26,835
Johnson & Johnson
6.73%, 11/15/23 20,000 18,314
Eli Lilly & Co.
7.125%, 6/1/25 29,000 27,443
Lockheed Martin Corp.
7.65%, 5/1/16 30,000 29,567
McDonald's Corp.
7.375%, 7/15/33 15,000 14,048
Mobil Corp.
8.625%, 8/15/21 20,000 22,421
Morton International, Inc.
9.25%, 6/1/20 10,000 11,702
Motorola Inc.
7.50%, 5/15/25 30,000 29,873
Norfolk Southern Corp.
9.00%, 3/1/21 15,000 17,258
Norsk Hydro AS
7.75%, 6/15/23 9,000 8,914
9.00%, 4/15/12 20,000 22,305
PPG Industries, Inc.
9.00%, 5/1/21 19,750 22,558
J.C. Penney & Co. MTN
6.875%, 10/15/15 10,400 9,485
Phillips Petroleum Co.
9.375%, 2/15/11 20,000 22,843
Procter & Gamble Co.
9.36%, 1/1/21 20,000 23,473
Raytheon Co.
7.375%, 7/15/25 18,000 16,858
Rockwell International Corp.
7.875%, 2/15/05 17,000 17,616
Rohm & Haas Co.
9.80%, 4/15/20 15,000 17,698
Sears, Roebuck & Co.
9.375%, 11/1/11 14,000 16,222
SmithKline Beecham MTN
7.375%, 4/15/05 15,000 15,011
Standard Oil of Ohio
9.00%, 6/1/19 18,000 18,775
Talisman Energy
7.125%, 6/1/07 20,000 18,984
Tele-Communications, Inc.
9.80%, 2/1/12 20,000 21,348
Texaco Capital Inc.
9.75%, 3/15/20 15,000 18,353
Union Pacific Corp.
7.00%, 2/1/16 35,000 32,179
United Parcel Service
8.375%, 4/1/20 30,070 32,906
Wal-Mart Stores, Inc.
7.25%, 6/1/13 24,000 23,327
Waste Management
7.65%, 3/15/11 20,150 19,880
Wendy's International, Inc.
6.35%, 12/15/05 25,500 23,524
Whirlpool Corp.
9.10%, 2/1/08 6,715 7,482
Zeneca Wilmington
7.00%, 11/15/23 20,000 18,166
------------
SECTOR TOTAL 1,017,440
------------
- ------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------
<S> <C>
UTILITIES (4.1%)
AT&T Corp.
7.75%, 3/1/07 $ 40,000 $ 41,100
Arizona Public Service Co.
9.50%, 4/15/21 5,000 5,348
Atlantic City Electric
7.00%, 9/1/23(3) 18,000 15,913
BellSouth Telecommunications
5.875%, 1/15/09 15,000 13,265
7.50%, 6/15/33 30,000 28,547
Chesapeake & Potomac
Telephone MD
7.15%, 5/1/23 10,000 9,331
Chesapeake & Potomac
Telephone VA
7.625%, 12/1/12 9,400 9,472
Consolidated Edison of
New York, Inc.
7.50%, 6/15/23 25,000 23,401
Duke Power Co.
7.00%, 7/1/33 10,000 8,919
8.625%, 3/1/22 8,000 8,074
GTE Southwest Inc.
6.00%, 1/15/06 30,000 27,332
Illinois Bell Telephone Co.
6.625%, 2/1/25 27,725 24,193
New Jersey Bell Telephone Co.
8.00%, 6/1/22 19,000 19,866
New York Telephone Co.
6.70%, 11/1/23 11,000 9,632
7.25%, 2/15/24 20,000 18,490
Northern States Power Co.
7.125%, 7/1/25 45,000 42,478
Ohio Bell Telephone Co.
7.85%, 12/15/22 20,000 20,670
Pacific Bell Telephone Co.
7.125%, 3/15/26 40,000 37,385
Pacific Gas & Electric Co.
7.05%, 3/1/24 25,000 22,791
8.375%, 5/1/25 10,000 10,222
PacifiCorp
6.625%, 6/1/07 20,500 19,199
Southern Bell Telephone Co.
6.00%, 10/1/04 5,500 5,089
Southern California Edison Co.
6.90%, 10/1/18 20,750 18,595
Southern Indiana Gas & Electric Co.
8.875%, 6/1/16 5,000 5,562
Southwestern Bell Telephone Co.
7.25%, 7/15/25 25,000 23,221
7.60%, 4/26/07 7,000 7,078
Texas Utilities Electric Co.
7.875%, 4/1/24 14,000 13,404
U.S. WEST Communications Group
6.875%, 9/15/33 30,000 25,861
Washington Gas & Light
6.15%, 1/26/26 23,000 20,954
Wisconsin Electric Power Co.
7.70%, 12/15/27 29,100 28,082
Wisconsin Gas Co.
6.60%, 9/15/13 13,100 11,911
------------
SECTOR TOTAL 575,385
------------
- ------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $2,406,816) 2,391,433
- ------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR DENOMINATED) (4.0%)
- ------------------------------------------------------------------------
ABN AMRO Holding NV
7.25%, 5/31/05 40,000 39,516
Asian Development Bank
9.125%, 6/1/00 10,000 10,775
Bayerische Landesbank Girozentrale
6.375%, 10/15/05 25,000 23,413
European Investment Bank
9.125%, 6/1/02 10,000 11,003
Republic of Ireland MTN
7.64%, 1/2/02 30,000 30,606
Italy Global Bond
6.875%, 9/27/23 30,000 26,552
Japanese Financial Corp.
7.375%, 4/27/05 38,500 38,852
KFW International Finance
7.00%, 3/1/13 10,000 9,558
7.20%, 3/15/14 25,000 24,614
Landesbank Baden
7.625%, 2/1/23 40,700 40,830
Province of Manitoba
9.25%, 4/1/20 20,000 23,547
National Westminster Bank
9.45%, 5/1/01 10,000 10,973
Province of New Brunswick
6.75%, 8/15/13 10,000 9,294
Province of Nova Scotia
8.25%, 7/30/22 30,000 31,370
Province of Ontario
7.00%, 8/4/05 40,000 39,055
Philips Electronics NV
7.75%, 4/15/04 15,000 15,189
Province of Quebec
6.86%, 4/15/26 20,000 19,171
7.50%, 7/15/23 25,000 23,554
Province of Saskatchewan
7.125%, 3/15/08 11,000 10,846
Scotland International Finance
8.85%, 11/1/06 24,000 25,934
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------
<S> <C> <C>
Societe Generale
7.40%, 6/1/06 $ 25,000 $ 24,781
Toronto-Dominion Bank
6.45%, 1/15/09 14,000 12,811
6.50%, 8/15/08 10,000 9,214
Westdeutsche Landesbank
6.75%, 6/15/05 40,000 38,429
- ------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $551,415) 549,887
- ------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (9.7%)
- ------------------------------------------------------------------------
Agency For International
Development (Israel)
(U.S. Government Guaranteed)
5.89%, 8/15/05 23,000 21,041
Federal Home Loan Bank
7.66%, 7/20/04 10,000 10,339
Federal Home Loan Mortgage Corp.
6.19%, 1/21/04 15,000 14,004
Federal National Mortgage Assn.
6.28%, 2/3/04 25,000 23,295
National Archive
8.50%, 9/1/19 30,010 32,668
Tennessee Valley Authority
6.875%, 12/15/43 25,000 21,986
U.S. Treasury Bonds
7.25%, 5/15/16 175,000 176,230
7.50%, 11/15/16 150,000 155,038
U.S. Treasury Notes
5.875%, 2/15/04 100,000 94,406
6.125%, 9/30/00 40,000 39,269
6.25%, 2/15/03 100,000 97,328
6.375%, 8/15/02 250,000 245,780
6.50%, 8/15/05 50,000 48,703
7.25%, 8/15/04 200,000 205,000
7.875%, 11/15/04 154,000 163,890
- ------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $1,353,314) 1,348,977
- ------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (3.3%)
- ------------------------------------------------------------------------
Government National
Mortgage Assn.
6.50%, 4/15/23-3/15/26 100,261 92,610
Federal Home Loan Mortgage Corp.
6.50%, 7/1/25-4/1/26 402,907 374,000
- ------------------------------------------------------------------------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $484,599) 466,610
- ------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.9%)
- ------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.33%, 6/3/96
(Cost $117,962) 117,962 117,962
- ------------------------------------------------------------------------
TOTAL INVESTMENTS (99.2%)
(Cost $10,729,869) 13,839,793
- ------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.8%)
- ------------------------------------------------------------------------
Other Assets--Notes C and E 367,222
Liabilities--Note E (249,869)
------------
117,353
- ------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------
Applicable to 554,480,336 outstanding
$1.00 par value shares
(authorized 1,100,000,000 shares) $13,957,146
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $25.17
========================================================================
</TABLE>
+See Note A to Financial Statements.
(1) Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of the company.
(2) Ten largest common stock investments representing 16.7% of net assets.
(3) Scheduled principal and interest payments are guaranteed by MBIA
(Municipal Bond Insurance Association).
ADR--American Depository Receipt.
MTN--Medium-Term Note.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------- ---------
<S> <C> <C>
PAID IN CAPITAL $10,329,163 $18.62
UNDISTRIBUTED NET
INVESTMENT INCOME 147,942 .27
ACCUMULATED NET
REALIZED GAINS 370,117 .67
UNREALIZED APPRECIATION
OF INVESTMENTS--NOTE D 3,109,924 5.61
----------------------------------------------------------------------------
NET ASSETS $13,957,146 $25.17
----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1996
(000)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . $121,051
Interest . . . . . . . . . . . . . . . . . . . . 163,046
- ---------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . 284,097
- ---------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fee--Note B
Basic Fee . . . . . . . . . . . . . . . . . . . $ 2,919
Performance Adjustment . . . . . . . . . . . . . -- 2,919
--------
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . 16,804
Marketing and Distribution . . . . . . . . . . . 1,394 18,198
--------
Taxes (other than income taxes) . . . . . . . . . . . 474
Custodian Fees . . . . . . . . . . . . . . . . . . . 145
Auditing Fees . . . . . . . . . . . . . . . . . . . . 8
Shareholders' Reports . . . . . . . . . . . . . . . . 272
Annual Meeting and Proxy Costs . . . . . . . . . . . 113
Directors' Fees and Expenses . . . . . . . . . . . . 22
- ---------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . 22,151
Expenses Paid Indirectly--Note C . . . . . . (566)
- ---------------------------------------------------------------------------------------------------
Net Expenses . . . . . . . . . . . . . . 21,585
- ---------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 262,512
- ---------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD . . . . . . 371,283
- ---------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES . . . . . . . . . . . . . . . 128,579
- ---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . $762,374
===================================================================================================
</TABLE>
11
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
MAY 31, 1996 November 30, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . $ 262,512 $ 450,868
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . 371,283 140,850
Change in Unrealized Appreciation (Depreciation) . . . . . . 128,579 2,303,426
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations . . . . . . . . . . . . . . . . . 762,374 2,895,144
- -------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . (294,574) (407,411)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . (141,199) (13,409)
- -------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (435,773) (420,820)
- -------------------------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS--NOTE A . . . . . . . . . . . . . . . . 5,930 8,922
- -------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,740,011 2,183,536
Issued in Lieu of Cash Distributions . . . . . . . . . . . . 407,556 386,562
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (855,566) (1,359,003)
- -------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . 1,292,001 1,211,095
- -------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . 1,624,532 3,694,341
- -------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . 12,332,614 8,638,273
- -------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . $13,957,146 $12,332,614
=============================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . 70,587 100,558
Issued in Lieu of Cash Distributions . . . . . . . . . . 16,675 18,428
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . (34,715) (63,856)
- -------------------------------------------------------------------------------------------------------------
52,547 55,130
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> Year Ended November 30,
SIX MONTHS ENDED ----------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $ 24.57 $19.33 $20.78 $19.34 $17.95 $16.29
--------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .49 .96 .88 .92 .93 .96
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .96 5.19 (1.03) 1.62 1.65 1.71
--------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . 1.45 6.15 (.15) 2.54 2.58 2.67
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.57) (.88) (.92) (.94) (.96) (1.01)
Distributions from Realized Capital Gains . . (.28) (.03) (.38) (.16) (.23) --
--------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . (.85) (.91) (1.30) (1.10) (1.19) (1.01)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $ 25.17 $24.57 $19.33 $20.78 $19.34 $17.95
================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +6.02% +32.70% -0.82% +13.62% +14.99% +16.81%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------
Net Assets, End of Period (Millions) . . . . . . $13,957 $12,333 $8,638 $7,917 $5,359 $3,473
Ratio of Total Expenses to Average Net Assets . . .33%* .33% .35% .34% .33% .35%
Ratio of Net Investment Income
to Average Net Assets . . . . . . . . . . . . 3.96%* 4.37% 4.35% 4.55% 4.98% 5.39%
Portfolio Turnover Rate . . . . . . . . . . . . . 37%* 24% 32% 34% 24% 35%
Average Commission Rate Paid . . . . . . . . . . $.0270+ N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
+Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
This disclosure is required by the SEC beginning in 1996.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Vanguard/Wellington Fund is registered under the Investment Company Act of 1940
as a diversified open-end investment company. Certain of the Fund's
investments are in long-term corporate debt instruments; the issuers' abilities
to meet these obligations may be affected by economic developments in their
respective industries.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Common stocks listed on an exchange are valued at the
latest quoted sales prices as of the close of the New York Stock Exchange
(generally 4:00 PM) on the valuation date; such securities not traded are
valued at the mean of the latest quoted bid and asked prices; those
securities not listed are valued at the latest quoted bid prices. Bonds are
valued utilizing the latest bid prices and on the basis of a matrix system
(which considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Temporary cash
investments are valued at cost which approximates market value.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
3. EQUALIZATION: The Fund follows the accounting practice known as
"equalization," under which a portion of the price of capital shares issued
and redeemed, equivalent to undistributed net investment income per share
on the date of the transaction, is credited or charged to undistributed
income. As a result, undistributed income per share is unaffected by Fund
share sales or redemptions.
4. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group, transfers uninvested cash balances into a Pooled Cash Account, the
daily aggregate of which is invested in repurchase agreements secured by
U.S. Government obligations. Securities pledged as collateral for
repurchase agreements are held by a custodian bank until maturity of each
repurchase agreement. Provisions of the agreement require that the market
value of the collateral is sufficient in the event of default; however, in
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
5. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Discounts and premiums on debt securities purchased are
amortized to interest income over the lives of the respective securities.
B. Under the terms of a contract which expires March 1, 1998, the Fund pays
Wellington Management Company a basic investment advisory fee calculated at an
annual percentage rate of the average net assets of the Fund. The basic fee
thus computed is subject to quarterly adjustments based on performance relative
to a combined index comprised of the Standard & Poor's 500 Stock Index and the
Lehman Long-Term Corporate AA or Better Bond Index. For the six months ended
May 31, 1996, the investment advisory fee represented an effective annual base
rate of .04 of 1% of average net assets. No performance adjustments were
required during the period. The base fee reflects a fee waiver of $169,000 for
the period December 1, 1995, to February 29, 1996.
14
<PAGE> 15
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 Directors. At May 31, 1996,
the Fund had contributed capital of $1,442,000 to Vanguard (included in Other
Assets), representing 7.2% of Vanguard's capitalization. The Fund's directors
and officers are also directors and officers of Vanguard.
Vanguard has requested the Fund's investment adviser to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate or credit to the Fund a portion of the commissions
generated. Such rebates or credits are used solely to reduce the Fund's
administrative expenses. For the period ended May 31, 1996, directed brokerage
arrangements reduced the Fund's expenses by $566,000 (an annual rate of .01 of
1% of average net assets).
D. During the six months ended May 31, 1996, the Fund made purchases of
$2,233,548,000 and sales of $1,359,291,000 of investment securities other than
U.S. Government securities and temporary cash investments. Purchases and sales
of U.S. Government securities were $1,316,420,000 and $1,042,601,000,
respectively.
At May 31, 1996, unrealized appreciation for financial reporting and Federal
income tax purposes aggregated $3,109,924,000 of which $3,259,830,000 related
to appreciated securities and $149,906,000 related to depreciated securities.
E. The market value of securities on loan to broker/dealers at May 31, 1996,
was $546,340,000 for which the Fund had received as collateral cash of
$199,803,000 and U.S. Treasury securities with a market value of $364,608,000.
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, realization and/or
retention of the collateral may be subject to legal proceedings.
15
<PAGE> 16
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 1 (800) 662-2739
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
All Funds in the Vanguard Family are offered by prospectus only.
Q212-5/96
VANGUARD
WELLINGTON
FUND
SEMI-ANNUAL REPORT
MAY 31, 1996
16
