<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 2-11444) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. /X/
POST-EFFECTIVE AMENDMENT NO. 76 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 76 /X/
VANGUARD/WELLINGTON FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
on March 12, 1996, pursuant to paragraph (b) of Rule 485.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective*.
REGISTRANT ELECTS TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. REGISTRANT FILED ITS
RULE 24F-2 NOTICE FOR THE PERIOD ENDED NOVEMBER 30, 1995 ON JANUARY 25, 1996.
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<PAGE> 2
VANGUARD/WELLINGTON FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<S> <C> <C>
Item 1. Cover Page.................................... Cover Page
Item 2. Synopsis...................................... Not Applicable
Item 3. Condensed Financial Information............... Financial Highlights; Fund
Expenses
Item 4. General Description of Registrant............. Investment Objective; Investment
Limitations; Investment
Policies; General Information;
Investment Risks
Item 5. Management of the Fund........................ Directors and Officers;
Management of the Fund;
Investment Adviser
Item 6. Capital Stock and Other Securities............ Opening an Account and
Purchasing Shares; Selling Your
Shares; The Fund's Share;
Dividends, Capital Gains and
Taxes; General Information
Item 7. Purchase of Securities Being Offered.......... Cover Page; Opening an Account
and Purchasing Shares
Item 8. Redemption or Repurchase...................... Selling your shares
Item 9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENTS
ITEM NUMBER OF ADDITIONAL INFORMATION
<S> <C> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Investment Objectives and
Policies; General Information
Item 13. Investment Objective and Policies............. Investment Objectives and
Policies; Investment Limitations
Item 14. Management of the Fund........................ Management of the Fund;
Investment Management
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund; General
Information
Item 16. Investment Advisory and Other Services........ Management of the Fund;
Investment Management
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ General Information; Financial
Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption
of Shares
Item 20. Tax Status.................................... Appendix
Item 21. Underwriters.................................. Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................... Not Applicable
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 3
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[VANGUARD WELLINGTON FUND LOGO]
A Member of The Vanguard Group
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PROSPECTUS -- MARCH 12, 1996
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT -- 1-800-662-7447
(SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT -- 1-800-662-2739
(CREW)
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INVESTMENT
OBJECTIVES &
POLICIES Vanguard/Wellington Fund, Inc. (the "Fund") is an open-end
diversified investment company designed to provide
conservative investors with a prudent investment program.
The objectives of the Fund include conservation of
principal, a reasonable income return, and profits without
undue risk. The Fund invests in a diversified portfolio of
common stocks and bonds, with common stocks expected to
represent 60% to 70% of the Fund's total assets. There is
no assurance that the Fund will achieve its stated
objectives. Shares of the Fund are neither insured nor
guaranteed by any agency of the U.S. Government, including
the FDIC.
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OPENING AN
ACCOUNT To open a regular (non-retirement) account, please
complete and return the Account Registration Form. If you
need assistance in completing this Form, please call the
Investor Information Department. To open an Individual
Retirement Account (IRA), please use the Vanguard IRA
Adoption Agreement. To obtain a copy of this form, call
1-800-662-7447, Monday through Friday, from 8:00 a.m. to
9:00 p.m. and Saturday from 9:00 a.m. to 4:00 p.m.
(Eastern time). The minimum initial investment is $3,000
for a non-retirement account or $1,000 for Uniform
Gifts/Transfers to Minors Act accounts. The Fund is
offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees). However, the Fund incurs
expenses for investment advisory, management,
administrative, and distribution services.
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ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Fund has been filed with
the Securities and Exchange Commission. This Statement is
dated March 12, 1996, and has been incorporated by
reference into this Prospectus. It may be obtained,
without charge, by writing to the Fund or by calling the
Investor Information Department.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page Page Page
Fund Expenses ..................... 2 Management of the Fund ............ 8 SHAREHOLDER GUIDE
Financial Highlights .............. 2 Investment Adviser ................ 9 Opening an Account and
Yield and Total Return ............ 3 Performance Record ................ 10 Purchasing Shares ................. 14
FUND INFORMATION Dividends, Capital Gains and When Your Account Will Be
Investment Objectives ............. 4 Taxes .............................. 11 Credited .......................... 17
Investment Policies ............... 4 The Share Price of the Selling Your Shares ................ 17
Investment Risks .................. 5 Fund .............................. 12 Exchanging Your Shares ............. 19
Who Should Invest ................. 6 General Information ............... 13 Important Information About
Implementation of Policies ........ 6 Telephone Transactions ............ 21
Investment Limitations ............ 8 Transferring Registration .......... 21
Other Vanguard Services ............ 22
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE> 4
FUND EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Fund. The expenses
set forth below are for the 1995 fiscal year.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------------------------------
Sales Load Imposed on Purchases............................... None
Sales Load Imposed on Reinvested Dividends.................... None
Redemption Fees............................................... None
Exchange Fees................................................. None
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------
Management & Administrative Expenses.......................... 0.24%
Investment Advisory Fees...................................... 0.05
12b-1 Fees.................................................... None
Other Expenses
Distribution Costs.......................................... 0.02%
Miscellaneous Expenses...................................... 0.02
----
Total Other Expenses.......................................... 0.04
-----
TOTAL OPERATING EXPENSES............................. 0.33%
=====
</TABLE>
The purpose of this table is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Fund.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C>
$3 $11 $19 $42
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
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FINANCIAL
HIGHLIGHTS The following financial highlights insofar as they relate
to each of the five years in the period ended November 30,
1995, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was
unqualified. This information should be read in
conjunction with the Fund's financial statements and notes
thereto, which, together with the remaining portions of
the Fund's 1995 Annual Report to Shareholders, are
incorporated by reference in the Statement of Additional
Information and this Prospectus, and which appear, along
with the report of Price Waterhouse LLP, in the Fund's
1995 Annual Report to Shareholders. The Fund's 1995 Annual
Report to Shareholders may be obtained without charge by
writing to the Fund or by calling our Investor Information
Department at 1-800-662-7447.
2
<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF
YEAR............ $19.33 $20.78 $19.34 $17.95 $16.29 $18.40 $16.82 $14.92 $16.06 $13.99
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT
OPERATIONS
Net Investment
Income........ .96 .88 .92 .93 .96 1.01 1.02 .96 .95 .94
Net Realized and
Unrealized
Gains
(Losses)...... 5.19 (1.03) 1.62 1.65 1.71 (1.46) 2.12 2.06 (1.55) 2.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM
INVESTMENT
OPERATIONS.. 6.15 (.15) 2.54 2.58 2.67 (.45) 3.14 3.02 (.60) 3.35
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from
Net
Investment
Income........ (.88) (.92) (.94) (.96) (1.01) (1.06) (.98) (.98) (.54) (.94)
Distributions
from Realized
Capital
Gains......... (.03) (.38) (.16) (.23) -- (.60) (.58) (.14) -- (.34)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
DISTRIBUTIONS.. (.91) (1.30) (1.10) (1.19) (1.01) (1.66) (1.56) (1.12) (.54) (1.28)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR..... $24.57 $19.33 $20.78 $19.34 $17.95 $16.29 $18.40 $16.82 $14.92 $16.06
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TOTAL RETURN...... 32.70% (0.82)% 13.62% 14.99% 16.81% (2.65)% 19.98% 21.03% (4.26)% 24.34%
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RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Year
(Millions)...... $12,333 $8,638 $7,917 $5,359 $3,473 $2,317 $2,035 $1,527 $1,274 $1,103
Ratio of Expenses
to
Average Net
Assets.......... .33% .35% .34% .33% .35% .43% .42% .47% .43% .53%
Ratio of Net
Investment
Income to
Average
Net Assets...... 4.37% 4.35% 4.55% 4.98% 5.39% 5.99% 5.77% 5.88% 5.56% 5.88%
Portfolio Turnover
Rate............ 24% 32% 34% 24% 35% 33% 30% 28% 27% 25%
</TABLE>
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YIELD AND TOTAL
RETURN From time to time the Fund may advertise its yield and
total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Fund refers to the average annual compounded rates of
return over one-, five- and ten-year periods or the life
of the Fund (as stated in the advertisement) that would
equate an initial amount invested at the beginning of a
stated period to the ending redeemable value of the
investment, assuming the reinvestment of all dividend and
capital gains distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of the Fund is calculated by dividing the net
investment income per share earned during a 30-day period
by the net asset value per share on the last day of the
period. Net investment income includes interest and
dividend income earned on the Fund's securities and is net
of all expenses and all recurring and nonrecurring charges
that have been applied to all shareholder accounts. The
yield calculation assumes that the net investment income
earned over 30 days is compounded monthly for six months
and then annualized. Methods used to calculate advertised
yields are standardized for all stock and bond mutual
funds. However, these methods differ from the accounting
3
<PAGE> 6
methods used by the Fund to maintain its books and
records, and so the advertised 30-day yield may not fully
reflect the income paid to an investor's account or the
yield reported in the Fund's reports to shareholders.
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INVESTMENT
OBJECTIVES
THE FUND IS DESIGNED
TO PROVIDE A PRUDENT
INVESTMENT PROGRAM The Fund is an open-end diversified investment company
designed to provide conservative investors with a prudent
investment program. The objectives of the Fund include
conservation of principal, a reasonable income return, and
profits without undue risk.
There is no assurance that the Fund will achieve its
stated objectives.
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INVESTMENT
POLICIES
THE FUND INVESTS IN
COMMON STOCKS AND
BONDS
The Fund seeks to achieve its objectives by investing in a
diversified portfolio of common stocks and bonds. Under
normal circumstances, it is expected that common stocks
and securities convertible into common stock will
represent 60% to 70% of the Fund's total assets. The
Fund's common stocks, in the aggregate, are held to
provide reasonable dividend income and long-term growth of
capital and income. These securities are primarily common
stocks but may also include securities convertible into
common stocks.
The remaining 30% to 40% of the Fund's assets will be
invested in investment grade corporate bonds (those rated
a minimum of Baa by Moody's Investors Service, Inc. or BBB
by Standard & Poor's Corporation), securities issued by
the U.S. Government, its agencies and instrumentalities,
including Government National Mortgage Association (GNMA)
mortgage pass-through certificates, asset-backed
securities, as well as U.S. dollar-denominated debt
securities issued by foreign governments, their agencies
and instrumentalities, supranational entities and
companies located outside the U.S. The Fund may also hold
certain short-term fixed income securities as cash
reserves.
The amount invested in stocks, bonds and cash reserves may
vary, depending upon the investment adviser's assessment
of business, economic and market conditions. The Fund
reserves the right to hold equity, fixed-income and cash
securities in whatever proportion deemed desirable at any
given time for defensive purposes. The Fund is managed
without regard to tax ramifications.
In addition, the Fund may invest up to 10% of its assets
in foreign common stocks and securities convertible into
foreign common stocks, and may engage in currency
transactions with respect to these investments. The Fund
may invest in stock and bond index futures and options to
a limited extent. The Fund is also authorized to invest in
preferred stocks. See "Implementation of Policies" for a
description of these and other investment practices of the
Fund.
The Fund is responsible for voting the shares of all
securities it holds.
The Fund's objectives and investment policies are not
fundamental and so may be changed by the Board of
Directors without shareholder approval. However,
shareholders would be notified prior to any material
change in either.
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4
<PAGE> 7
INVESTMENT RISKS
INVESTORS ARE EXPOSED
TO STOCK MARKET AND
INTEREST RATE RISK Like any investment program, the Fund entails certain
risks. As a mutual fund investing 60% to 70% of its assets
in common stocks, the Fund is subject to stock market
risk -- i.e., the possibility that stock prices in general
will decline over short or even extended periods. The
stock market tends to be cyclical, with periods when stock
prices generally rise and periods when stock prices
generally decline.
To illustrate the volatility of stock prices, the
following table sets forth the extremes for U.S. stock
market returns as well as the average return for the
period from 1926 to 1995, as measured by the Standard &
Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1995)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.5 +10.3 +10.7 +10.7
</TABLE>
As shown, common stocks have provided annual total returns
(capital appreciation plus dividend income) averaging
+10.7% for all 10-year periods from 1926 to 1995. The
return in individual years has varied from a low of -43.3%
to a high of +53.9%, reflecting the short-term volatility
of stock prices. While the average return can be used as a
guide for setting reasonable expectations for future stock
market returns, it may not be useful for forecasting
future returns in any particular period, as stock returns
are quite volatile from year to year.
Since the Fund also invests in bonds, investors in the
Fund are also exposed to interest rate risk -- i.e.,
fluctuations in the market value of bonds due to changing
interest rates. Bond prices are influenced primarily by
changes in the level of interest rates. When interest
rates rise, the prices of bonds generally fall;
conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in
price than stocks, there have been extended periods of
cyclical increases in interest rates that has caused
significant declines in bond prices. For example, bond
prices fell 48% from December 1976 to September 1981.
However, a decline in the market value of bonds may be
offset in whole or in part by the high level of income
that bonds provide.
To a limited extent, the Fund is also subject to credit
risk -- i.e., the likelihood that a bond issuer will fail
to make timely payments of interest and principal to the
Fund. Such credit risk is expected to be low, however, due
to the high credit quality and diversification of the
Fund's bond investments.
From time to time, the stock and bond markets may
fluctuate independently of one another. In other words, a
decline in the stock market may be offset by a rise in the
bond market, or vice versa. As a result, the Fund, with
its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially
lower return) than a mutual fund investing exclusively in
common stocks.
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5
<PAGE> 8
WHO SHOULD
INVEST
INVESTORS SEEKING
A BALANCE AMONG
STABILITY, INCOME
AND GROWTH The Fund is designed for conservative investors who are
seeking a prudent investment program that offers relative
capital stability, a reasonable level of income, and the
potential for capital appreciation. By balancing its
investments among common stocks and bonds, the Fund is
expected to provide lower investment risk and share price
volatility (and a lower total return in the long run) than
a mutual fund which invests exclusively in common stocks.
The Fund is thus suitable for investors who wish to gain
exposure to the potential capital growth provided by the
stock market, while limiting investment risk. The Fund is
intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating
on short-term market movements. Investors who engage in
excessive account activity generate additional costs which
are borne by all of the Fund's shareholders. In order to
minimize such costs the Fund has adopted the following
policies. The Fund reserves the right to reject any
purchase request (including exchange purchases from other
Vanguard portfolios) that is reasonably deemed to be
disruptive to efficient portfolio management, either
because of the timing of the investment or previous
excessive trading by the investor. Additionally, the Fund
has adopted exchange privilege limitations as described in
the section "Exchange Privilege Limitations." Finally, the
Fund reserves the right to suspend the offering of its
shares.
No assurance can be given that shareholders will be fully
protected from the market risks inherent in investing in
stocks and bonds. Only investors able to tolerate
short-term, possibly substantial fluctuations in the value
of their investment, brought about by generally declining
stock or bond prices, should contemplate an investment in
the Fund. The balanced investment approach of the Fund
tends to limit stock and bond market risks; it does not
eliminate them.
The Fund is intended as a balanced long-term investment
program. Investors may wish to reduce the potential risk
of investing in the Fund by purchasing shares on a
regular, periodic basis (dollar-cost averaging) rather
than making an investment in one lump sum.
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IMPLEMENTATION
OF POLICIES
THE FUND MAY INVEST
IN SHORT-TERM FIXED
INCOME SECURITIES In addition to investing primarily in common stocks and
bonds, the Fund uses a number of other investment vehicles
to achieve its objectives.
Although it normally seeks to remain fully invested in
equity common stocks and bonds, the Fund may invest in
certain short-term fixed income securities. Such
securities may be used to invest uncommitted cash
balances, to maintain liquidity to meet shareholder
redemptions, or to take a temporary defensive position
against potential stock market declines. These securities
include: obligations of the United States Government and
its agencies or instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and
repurchase agreements collateralized by these securities.
THE FUND MAY LEND
ITS SECURITIES The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term
periods to realize additional income. Loans of securities
by the Fund will be collateralized by cash, letters of
credit, or securities
6
<PAGE> 9
issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the
current market value of the loaned securities.
PORTFOLIO TURNOVER IS
NOT EXPECTED TO
EXCEED 50% The Fund retains the right to sell securities irrespective
of how long they have been held. However, it is
anticipated that the portfolio turnover rate for the Fund
will not exceed 50%. A turnover rate of 50% would occur,
for example, if one half of the Fund's securities were
replaced within one year.
DERIVATIVE
INVESTING
Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
THE FUND MAY
INVEST IN DERIVATIVE
SECURITIES
The Fund may invest in futures contracts and options, but
only to a limited extent. Specifically, the Fund may enter
into futures contracts provided that not more than 5% of
its assets are required as a futures contract deposit; in
addition, the Fund may enter into futures contracts and
options transactions only to the extent that obligations
under such contracts or transactions represent not more
than 20% of the Fund's assets.
Futures contracts and options may be used for several
common fund management strategies: to maintain cash
reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher
investment returns when a specific futures contract is
priced more attractively than other futures contracts or
the underlying security or index.
The Fund may use futures contracts for bona fide "hedging"
purposes. In executing a hedge, a manager sells, for
example, stock index futures to protect against a decline
in the stock market. As such, if the market drops, the
value of the futures position will rise, thereby
offsetting the decline in value of the Fund's stock
holdings.
THE FUND MAY
INVEST IN CMOS The Fund may also invest modestly in a fairly conservative
class of collateralized mortgage obligations (CMOs) which
feature a high degree of cash flow predictability and
moderate vulnerability to mortgage prepayment risk. To
reduce credit risk, Vanguard purchases these less risky
classes of collateralized mortgage obligations issued only
by agencies of the U.S. Government or privately-issued
collateralized mortgage obligations that carry
high-quality investment-grade ratings.
FUTURES CONTRACTS
AND OPTIONS POSE
CERTAIN RISKS
The primary risks associated with the use of futures
contracts and options are: (i) imperfect correlation
between the change in market value of the stocks or bonds
held by the Fund and the prices of futures contracts and
options; and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability
to close a futures position prior to its maturity date.
The risk of imperfect correlation will be minimized by
investing in those contracts whose price fluctuations are
expected to resemble those of the Fund's underlying
securities. The risk that the Fund will be unable to close
out a futures position will be minimized by entering into
such transactions on a national exchange with an active
and liquid secondary market.
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7
<PAGE> 10
INVESTMENT
LIMITATIONS
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS The Fund has adopted certain limitations in an attempt to
reduce its exposure to specific situations. Some of these
limitations are that the Fund will not:
(a) with respect to 75% of its assets invest more than 5%
of its assets in the securities of any single
company, excluding obligations of the U.S. Government
and its instrumentalities;
(b) with respect to 75% of its assets purchase more than
10% of the outstanding voting securities of any
issuer;
(c) invest more than 5% of its assets in the securities
of companies that have a continuous operating history
of less than three years;
(d) invest more than 25% of its assets in any one
industry; and
(e) borrow money except from banks for temporary or
emergency purposes, and then only in an amount not in
excess of 10% of total assets taken at the lower of
their market value or cost.
The above-mentioned investment limitations are considered
at the time investment securities are purchased. The
limitations described here and in the Statement of
Additional Information are fundamental and may be changed
only with the approval of a majority of the Fund's
shareholders.
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MANAGEMENT
OF THE FUND
VANGUARD
ADMINISTERS AND
DISTRIBUTES THE FUND The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $180 billion. Through their
jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other Funds in the Group
obtain at cost virtually all of their corporate
management, administrative, shareholder accounting and
distribution services. Vanguard also provides investment
advisory services on an at-cost basis to certain Vanguard
Funds. As a result of Vanguard's unique corporate
structure, the Vanguard Funds have costs substantially
lower than those of most competing mutual funds. In 1995,
the average expense ratio (annual costs including advisory
fees divided by total net assets) for the Vanguard Funds
amounted to approximately .31% compared to an average of
1.11% for the mutual fund industry (data provided by
Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for each fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the services to
the funds and also furnishes the funds with necessary
office space, furnishings and equipment. Each fund pays
its share of Vanguard's total expenses, which are
allocated among the funds under methods approved by the
Board of Directors (Trustees) of each fund. in addition,
each fund bears its own direct expenses, such as legal,
auditing and custodian fees.
8
<PAGE> 11
Vanguard also provides distribution and marketing services
to the Vanguard funds. The funds are available on a
no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER
WELLINGTON
MANAGEMENT
COMPANY MANAGES
THE FUND'S
INVESTMENTS The Fund employs Wellington Management Company ("WMC"), 75
State Street, Boston, MA 02109, under an investment
advisory agreement dated as of April 1, 1993, to manage
the investment and reinvestment of the assets of the Fund
and to continuously review, supervise and administer the
Fund's investment program. WMC discharges its
responsibilities subject to the control of the Officers
and Directors of the Fund.
WMC is a professional investment advisory firm which
globally provides services to investment companies,
institutions, and individuals. Among the clients of WMC
are more than 10 investment companies of The Vanguard
Group. As of December 31, 1995, WMC held discretionary
management authority with respect to more than $108
billion of assets. WMC and its predecessor organizations
have provided advisory services to investment companies
since 1933 and to investment counseling clients since
1960.
Ernst H. von Metzsch, Senior Vice President of WMC, serves
as portfolio manager of the Fund, a position he has held
since November, 1995. Mr. von Metzsch previously served as
the Fund's assistant portfolio manager for 20 years and
has more than 25 years of investment experience. Mr. von
Metzsch is assisted by Paul D. Kaplan, Senior Vice
President of WMC, who began managing the Fund's
fixed-income investments in 1994. Messrs. von Metzsch and
Kaplan are supported by research and other investment
services provided by the professional staff of WMC.
The Fund pays WMC an advisory fee at the end of each
fiscal quarter, calculated by applying a quarterly rate,
based on the following annual percentage rates, to the
Fund's average month-end net assets for the quarter:
<TABLE>
<CAPTION>
NET ASSETS
-------------------- RATE
----
<S> <C>
First $500 million .125%
Next $500 million .100%
Next $1 billion .075%
Next $1 billion .050%
Over $3 billion .040%
</TABLE>
The basic advisory fee may be increased or decreased by
applying an adjustment formula based on the investment
performance of the Fund relative to the investment record
of "a combined index" 65% of which shall be comprised of
the Standard & Poor's Composite Stock Price Index and 35%
of which shall be comprised of the Salomon Brothers High
Grade Corporate Bond Index. During the fiscal year ended
November 30, 1995, the total advisory fees paid by the
Fund to WMC represented an effective annual base rate of
.05 of 1% of average net assets.
The investment advisory agreement authorizes WMC (with
approval of the Fund's Board of Directors) to select the
brokers or dealers that will execute the purchases and
sales of portfolio securities for the Fund and directs WMC
to use its best efforts
9
<PAGE> 12
to obtain the best available price and most favorable
execution with respect to all transactions for the Fund.
The full range and quality of brokerage services available
are considered in making these determinations.
The Fund has authorized WMC to pay higher commissions in
recognition of brokerage services felt necessary for the
achievement of better execution, provided WMC believes
this to be in the best interest of the Fund. Although the
Fund does not market its shares through intermediary
brokers or dealers, the Fund may place portfolio orders
with qualified broker-dealers who recommend the Fund to
clients if the Officers of the Fund believe that the
quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Fund's Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days' prior written notice to
shareholders of the Fund which shall include substantially
the information concerning the adviser that would have
normally been included in a proxy statement.
- --------------------------------------------------------------------------------
PERFORMANCE
RECORD The table in this section provides investment results for
the Fund for several periods throughout the Fund's
lifetime. The results shown represent the Fund's "total
return" investment performance, which assumes the
reinvestment of all capital gains and income dividends for
the indicated periods. Also included is comparative
information with respect to two performance indexes: a
Composite Index, a measure of the investment performance
of a balanced portfolio of stocks and bonds, comprised of
the Standard & Poor's 500 Composite Stock Price Index
(65%) and the Lehman Long-Term Corporate AA or Better Bond
Index (35%); and the Consumer Price Index, a statistical
measure of changes in the prices of goods and services.
The table does not make any allowance for federal, state
or local income taxes, which shareholders must pay on a
current basis.
The results shown should not be considered a
representation of the total return from an investment made
in the Fund today. This information is provided to help
investors better understand the Fund and may not provide a
basis for comparison with other investments or mutual
funds which use a different method to calculate
performance.
10
<PAGE> 13
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
--------------------------------------------------------------------
<CAPTION>
FISCAL PERIODS VANGUARD/WELLINGTON COMPOSITE CONSUMER
ENDED 11/30/95 FUND INDEX PRICE INDEX
--------------- ------------------- --------- -----------
<S> <C> <C> <C>
1 Year +32.7% +33.0% +2.6%
5 Years +15.0 +15.1 +2.8
10 Years +13.0 +14.1 +3.5
Lifetime* + 8.1 + 8.7 +3.4
* July 1, 1929 to November 30, 1995.
NOTE: Prior to 1974, the bond component of the Composite Index was
represented by the Salomon High-Grade Bond Index (35%).
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS,
CAPITAL GAINS
AND TAXES
THE FUND WILL PAY
QUARTERLY DIVIDENDS The Fund expects to pay dividends quarterly from net
investment income. (The Fund has paid quarterly dividends
since 1930.) Net capital gains distributions, if any, will
be made annually.
Dividend and capital gains distributions may be
automatically reinvested or received in cash. See
"Choosing a Distribution Option" for a description of
these distribution methods.
In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains
distributions during December. Such distributions, if
received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on
December 31 of the prior year.
The Fund intends to continue to qualify for taxation as a
"regulated investment company" under the Internal Revenue
Code so that it will not be subject to federal income tax
to the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income,
whether received in cash or reinvested in additional
shares, will be taxable to shareholders as ordinary
income. For corporate investors, dividends from net
investment income will generally qualify in part for the
intercorporate dividends-received deduction. However, the
portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by
the Fund from domestic (U.S.) sources.
Distributions paid by the Fund from net long-term capital
gains, whether received in cash or reinvested in
additional shares, are taxable as long-term capital gains,
regardless of the length of time you have owned shares in
the Fund. Capital gains distributions are made when the
Fund realizes net capital gains on sales of portfolio
securities during the year. The Fund does not seek to
realize any particular amount of capital gains during a
year; rather, realized gains are a by-product of portfolio
management activities. Consequently, capital gains
distributions may be expected to vary considerably from
year to year; there will be no capital gains distributions
in years when the Fund realizes net capital losses.
Note that if you accept capital gains distributions in
cash, instead of reinvesting them in additional shares,
you are in effect reducing the capital at work for you in
11
<PAGE> 14
the Fund. In addition, keep in mind that if you purchase
shares in the Fund shortly before the record date for a
dividend or capital gains distribution, a portion of your
investment will be returned to you as a taxable
distribution, regardless of whether you are reinvesting
your distributions or receiving them in cash.
The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
A CAPITAL GAIN OR LOSS
MAY BE REALIZED UPON
EXCHANGE OR
REDEMPTION A sale of shares of the Fund is a taxable event and may
result in a capital gain or loss. A capital gain or loss
may be realized from an ordinary redemption of shares or
an exchange of shares between two mutual funds (or two
portfolios of a mutual fund).
Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges may
be subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer
identification regulations. You may avoid this withholding
requirement by certifying on the Account Registration Form
your proper Social Security or Taxpayer Identification
Number and by certifying that you are not subject to
backup withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania and does
business and maintains an office in that state. In the
opinion of counsel, the shares of the Fund are exempt from
Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of
an investment in the Fund. The Fund is managed without
regard to tax ramifications.
- --------------------------------------------------------------------------------
THE SHARE PRICE
OF THE FUND The Fund's share price or "net asset value" per share is
determined by dividing the total assets of the Fund, less
all liabilities, by the total number of shares
outstanding. Net asset value is determined at the close of
regular trading on the New York Stock Exchange (generally
4:00 p.m. Eastern time) each day the Exchange is open.
Portfolio securities that are listed on a securities
exchange are valued at the latest quoted sales price as of
the close of the Exchange on the day the valuation is
made. Price information on listed securities is taken from
the exchange where the security is primarily traded.
Listed securities which are not traded on the valuation
date and for which market quotations are available are
valued at the mean between the bid and asked prices.
Unlisted securities are valued at the latest bid price.
Bonds and other fixed-income securities may be valued on
the basis of prices provided by a pricing service when
such prices are believed to reflect the fair market value
of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale
prices of each security but take into account
institutional size transactions in similar groups of
securities as well as any developments related to specific
securities. Other securities, including restricted
12
<PAGE> 15
securities, for which no quotations are readily available
are valued at fair value as determined in good faith by
the Board of Directors. Short-term instruments that mature
within 60 days (often referred to as "cash" investments)
are valued at the price the Fund paid for them.
The Fund's price per share can be found daily in the
mutual fund section of most major newspapers under the
heading of Vanguard.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Fund is a Maryland corporation. The Fund's Articles of
Incorporation permit the Directors to issue 1,100,000,000
shares of common stock, with a $1.00 par value. The Board
of Directors has the power to designate one or more
classes ("Portfolios") of shares of common stock and to
classify or reclassify any unissued shares with respect to
such Portfolios. Currently the Fund is offering one class
of shares.
The shares of the Fund are fully paid and nonassessable;
have no preferences as to conversion, exchange, dividends,
retirement or other features; and have no pre-emptive
rights. Such shares have non-cumulative voting rights,
meaning that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they so choose. A shareholder is entitled to
one vote for each full share held (and a fractional vote
for each fractional share held).
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. If requested in writing by holders of not
less than 10% of the outstanding shares of the Fund, an
annual meeting will be held to vote on the removal of a
Director or Directors.
All securities and cash are held by Morgan Guaranty Trust
Company, New York, NY. CoreStates Bank, N.A., holds daily
cash balances that are used by the Fund to invest in
repurchase agreements or securities acquired in these
transactions. The Vanguard Group, Inc., Valley Forge, PA,
serves as the Fund's Transfer and Dividend Disbursing
Agent. Price Waterhouse LLP, serves as independent
accountants for the Fund and will audit its financial
statements annually. The Fund is not involved in any
litigation.
- --------------------------------------------------------------------------------
13
<PAGE> 16
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES You may open a regular (non-retirement) account, either by
mail or wire. Simply complete and return an Account
Registration Form and any required legal documentation,
indicating the amount you wish to invest. Your purchase
must be equal to or greater than the $3,000 minimum
initial investment requirement ($1,000 for Uniform
Gifts/Transfers to Minors Act accounts). You must open a
new Individual Retirement Account by mail (IRAs may not be
opened by wire) using a Vanguard IRA Adoption Agreement.
Your purchase must be equal to or greater than the $1,000
minimum initial investment requirement, but no more than
$2,000 if you are making a regular IRA contribution.
Rollover contributions are generally limited to the amount
withdrawn within the past 60 days from an IRA or other
qualified Retirement Plan. If you need assistance with the
forms or have any questions, please call our Investor
Information Department at 1-800-662-7447. Note: For other
types of account registrations (e.g., corporations,
associations, other organizations, trusts or powers of
attorney), please call us to determine which additional
forms you may need.
The Fund's shares are purchased at the next determined net
asset value after your investment has been received. The
Fund is offered on a no-load basis (i.e., there are no
sales commissions or 12b-1 fees).
PURCHASE RESTRICTIONS 1) Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide
investors with a means of speculating on short-term
stock market movements. Consequently, the Fund reserves
the right to reject any specific purchase (and exchange
purchase) request. The Fund also reserves the right to
suspend the offering of shares for a period of time.
2) Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check
is made payable to The Vanguard Group.
ADDITIONAL
INVESTMENTS Subsequent investments to regular accounts may be made by
mail ($100 minimum), wire ($1,000 minimum), exchange from
an existing Vanguard Fund account ($100 minimum) or
Vanguard Fund Express. Subsequent investments to
Individual Retirement Accounts may be made by mail ($100
minimum) or exchange from another Vanguard Fund account.
In some instances, contributions may be made by wire or
Vanguard Fund Express. Please call us for more information
on these options.
- --------------------------------------------------------------------------------
14
<PAGE> 17
<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of Additional investments should
your initial investment, make include the Invest-by-Mail
Complete and sign the your check payable to The remittance form attached to your
enclosed Account Vanguard Group-21, and mail to: Fund confirmation statements.
Registration Form VANGUARD FINANCIAL CENTER Please make your check payable
P.O. BOX 2600 to The Vanguard Group-21, write
VALLEY FORGE, PA 19482 your account number on your
check and, using the return
envelope provided, mail to the
address indicated on the Invest-
by-Mail Form.
For express or VANGUARD FINANCIAL CENTER All written requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do
not send registered or express
mail to the post office box
address.
--------------------------------------------------------------------------
PURCHASING BY WIRE CORESTATES BANK, N.A.
ABA 031000011
Money should be CORESTATES NO. 0101 9897
wired to: ATTN VANGUARD
VANGUARD/WELLINGTON FUND
BEFORE WIRING ACCOUNT NUMBER
ACCOUNT REGISTRATION
Please contact
Client Services
(1-800-662-2739) To assure proper receipt, please be sure your bank includes the name of
the Fund selected, the account number Vanguard has assigned to you and
the eight digit CoreStates number. If you are opening a new account,
please complete the Account Registration Form and mail it to the "New
Account" address after completing your wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the Fund and
Custodian Bank are open for business.
</TABLE>
- --------------------------------------------------------------------------------
PURCHASING BY
EXCHANGE (from a
Vanguard account) You may open a new account or purchase additional shares
by making an exchange from an existing Vanguard Fund
account. However, the Fund reserves the right to refuse
any exchange purchase request. Call our Client Services
Department at 1-800-662-2739 for more information. The new
account will have the same registration as the existing
account.
- --------------------------------------------------------------------------------
PURCHASING BY
FUND EXPRESS
Special Purchase and
Automatic Investment The Fund Express Special Purchase option lets you move
money from your bank account to your Vanguard account on
an "as needed" basis. Or if you choose the Automatic
Investment option, money will be moved automatically from
your bank account to your Vanguard account on the schedule
(monthly, bimonthly [every other month], quarterly or
yearly) you select. To establish these Fund Express
options, please provide the appropriate information on the
Account Registration
15
<PAGE> 18
Form. We will send you a confirmation of your Fund Express
service; please wait three weeks before using the service.
- --------------------------------------------------------------------------------
CHOOSING A
DISTRIBUTION
OPTION You must select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and
capital gains distributions will be reinvested in
additional Fund shares. This option will be selected
for you automatically unless you specify one of the
other options.
2. CASH DIVIDEND OPTION -- Your dividends will be paid in
cash and your capital gains will be reinvested in
additional Fund shares.
3. ALL CASH OPTION -- Both dividend and capital gains
distributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividends
and/or capital gains distributions in another Vanguard
Fund account is available. Please call our Client Services
Department (1-800-662-2739) for information. You may also
elect Vanguard Dividend Express which allows you to
transfer your cash dividends and/or capital gains
distributions automatically to your bank account. Please
see "Other Vanguard Services" for more information.
- --------------------------------------------------------------------------------
TAX CAUTION
INVESTORS SHOULD ASK
ABOUT THE TIMING OF
CAPITAL GAINS AND
DIVIDEND DISTRIBUTIONS
BEFORE INVESTING Under Federal tax laws, the Fund is required to distribute
net capital gains and dividend income to Fund
shareholders. These distributions are made to all
shareholders who own Fund shares as of the distribution's
record date, regardless of how long the shares have been
owned. Purchasing shares just prior to the record date
could have a significant impact on your tax liability for
the year. For example, if you purchase shares immediately
prior to the record date of a sizable capital gain or
income dividend distribution, you will be assessed taxes
on the amount of the capital gain and/or dividend
distribution even though you owned the Fund shares for
just a short period of time. (Taxes are due on the
distributions even if the dividend or gain is reinvested
in additional Fund shares.) While the total value of your
investment will be the same after the distribution -- the
amount of the distribution will offset the drop in the net
asset value of the shares -- you should be aware of the
tax implications the timing of your purchase may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's
annual capital gains distribution normally occurs in
December, while income dividends are generally paid
quarterly in March, June, September and December. For
additional information on distributions and taxes, see the
section titled "Dividends, Capital Gains, and Taxes."
- --------------------------------------------------------------------------------
16
<PAGE> 19
IMPORTANT
INFORMATION
ESTABLISHING
OPTIONAL SERVICES The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. If you wish to
add shareholder options later, you may need to provide
Vanguard with additional information and a signature
guarantee. Please call our Client Services Department
(1-800-662-2739) for further assistance.
SIGNATURE
GUARANTEES For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature, and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A
SIGNATURE GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace
it.
BROKER-DEALER
PURCHASES If you purchase shares in Vanguard Funds through a
registered broker-dealer or investment adviser, the
broker-dealer or adviser may charge a service fee.
CANCELLING TRADES The Fund will not cancel any trade (e.g., a purchase,
exchange or redemption) believed to be authentic, received
in writing or by telephone, once the trade request has
been received.
ELECTRONIC PROSPECTUS
DELIVERY If you would prefer to receive a prospectus for the Fund
or any of the Vanguard Funds in an electronic format,
please call 1-800-231-7870 for additional information. If
you elect to do so, you may also receive a paper copy of
the prospectus, by calling 1-800-662-7447.
- --------------------------------------------------------------------------------
WHEN YOUR
ACCOUNT WILL
BE CREDITED Your trade date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire, bank wire or exchange and is received by the close
of regular trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time), your trade date is the
day of receipt. If your purchase is received after the
close of the Exchange, your trade date is the next
business day. Your shares are purchased at the net asset
value determined on your trade date.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, Vanguard will only accept
a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S.
correspondent bank. The name of the U.S. correspondent
bank must be printed on the face of the foreign check.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES You may withdraw any portion of the funds in your account
by redeeming shares at any time. You generally may
initiate a request by writing or by telephoning. Your
redemption proceeds are normally mailed within two
business days after the receipt of the request in Good
Order.
- --------------------------------------------------------------------------------
SELLING BY MAIL Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD/WELLINGTON FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard/Wellington Fund,
455 Devon Park Drive, Wayne, PA 19087.)
17
<PAGE> 20
The redemption price of shares will be the Fund's net
asset value next determined after Vanguard has received
all required documents in Good Order.
- --------------------------------------------------------------------------------
DEFINITION OF
GOOD ORDER GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners EXACTLY as they are registered
on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required, in the case of estates, corporations, trusts,
and certain other accounts.
- --------------------------------------------------------------------------------
SELLING BY TELEPHONE To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at
1-800-662-2739. The proceeds will be sent to you by mail.
PLEASE NOTE: As a protection against fraud, your telephone
mail redemption privilege will be suspended for 10
calendar days following any expedited address change to
your account. An expedited address change is one that is
made by telephone, by Vanguard Online or, in writing,
without the signatures of all account owners. Please see
"Important Information About Telephone Transactions."
- --------------------------------------------------------------------------------
SELLING BY FUND
EXPRESS
Automatic
Withdrawal
& Special Redemption If you select the Fund Express Automatic Withdrawal
option, money will be automatically moved from your
Vanguard Fund account to your bank account according to
the schedule you have selected. The Special Redemption
option lets you move money from your Vanguard account to
your bank account on an "as needed" basis. To establish
these Fund Express options, please provide the appropriate
information on the Account Registration Form. We will send
you a confirmation of your Fund Express service; please
wait three weeks before using the service.
- --------------------------------------------------------------------------------
SELLING BY EXCHANGE You can sell shares of the Fund by making an exchange into
another Vanguard Fund account. Please see "Exchanging Your
Shares" for details.
- --------------------------------------------------------------------------------
IMPORTANT
REDEMPTION
INFORMATION
Shares purchased by check or Fund Express may be redeemed
at any time. However, your redemption proceeds will not be
paid until payment for the purchase is collected, which
may take up to ten calendar days.
- --------------------------------------------------------------------------------
DELIVERY OF
REDEMPTION PROCEEDS Redemption requests received by telephone prior to close
of regular trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) are processed on the
day of receipt and the redemption proceeds are normally
sent on the following business day.
Redemption requests received by telephone after close of
the Exchange (generally 4:00 p.m., Eastern time) are
processed on the business day following receipt and the
proceeds are normally sent on the second business day
following receipt.
Redemption proceeds must be sent to you within seven days
of receipt of your request in Good Order, except as
described above in "Important Redemption Information."
18
<PAGE> 21
If you experience difficulty in making a telephone
redemption during periods of drastic economic or market
changes, your redemption request may be made by regular or
express mail. It will be implemented at the net asset
value next determined after your request has been received
by Vanguard in Good Order. The Fund reserves the right to
revise or terminate the telephone redemption privilege at
any time.
The Fund may suspend the redemption right or postpone
payment at times when the New York Stock Exchange is
closed or under any emergency circumstances as determined
by the United States Securities and Exchange Commission.
If the Board of Directors determines that it would be
detrimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in excess of $250,000 in whole or in
part by a distribution in kind of readily marketable
securities.
- --------------------------------------------------------------------------------
VANGUARD'S AVERAGE
COST STATEMENT If you make a redemption from a qualifying account,
Vanguard will send you an Average Cost Statement which
provides you with the tax basis of the shares you
redeemed. Please see "Statements and Reports" for
additional information.
- --------------------------------------------------------------------------------
LOW BALANCE FEE AND
MINIMUM ACCOUNT
BALANCE
REQUIREMENT Due to the relatively high cost of maintaining smaller
accounts, the Fund will automatically deduct a $10 annual
fee from non-retirement accounts with balances falling
below $2,500 ($1,000 for Uniform Gifts/Transfers to Minors
Act accounts). This fee deduction will occur mid-year,
beginning in 1996. The fee generally will be waived for
investors whose aggregate Vanguard assets exceed $50,000.
In addition, the Fund reserves the right to liquidate any
non-retirement account that is below the minimum initial
investment amount of $3,000. If at any time your total
investment does not have a value of at least $3,000, you
may be notified that your account is below the Fund's
minimum account balance requirement. You would then be
allowed 60 days to make an additional investment before
the account is liquidated. Proceeds would be promptly paid
to the registered shareholder.
Vanguard will not liquidate your account if it has fallen
below $3,000 solely as a result of declining markets
(i.e., a decline in a Fund's net asset value).
- --------------------------------------------------------------------------------
EXCHANGING
YOUR SHARES
EXCHANGING BY
TELEPHONE
Call Client Services
(1-800-662-2739) Should your investment goals change, you may exchange your
shares of Wellington Fund for those of other available
Vanguard Funds.
When exchanging shares by telephone, please have ready the
Fund name, account number, Social Security number or
Employer Identification number listed on the account, and
the exact name and address in which the account is
registered. Requests for telephone exchanges received
prior to the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) are processed
at the close of business that same day. Requests received
after the close of the Exchange are processed the next
business day. TELEPHONE EXCHANGES ARE NOT ACCEPTED INTO OR
FROM VANGUARD BALANCED INDEX FUND, VANGUARD INDEX TRUST,
VANGUARD INTERNATIONAL EQUITY INDEX FUND AND VANGUARD
QUANTITATIVE PORTFOLIOS. If you experience difficulty in
19
<PAGE> 22
making a telephone exchange, your exchange request may be
made by regular or express mail, and it will be
implemented at the closing net asset value on the date
received by Vanguard provided the request is received in
Good Order.
- --------------------------------------------------------------------------------
EXCHANGING BY MAIL Please be sure to include on your exchange request the
name and account number of your current Fund, and the name
of the Fund you wish to exchange into, the amount you wish
to exchange, and the signatures of all registered account
holders. Send your request to VANGUARD FINANCIAL CENTER,
VANGUARD/WELLINGTON FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard/Wellington Fund,
455 Devon Park Drive, Wayne, PA 19087.)
- --------------------------------------------------------------------------------
IMPORTANT EXCHANGE
INFORMATION
Before you make an exchange, you should consider the
following:
- Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions
you may have, call our Investor Information Department
(1-800-662-7447).
- An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on
the transaction.
- Exchanges are accepted only if the registrations and the
Taxpayer Identification numbers of the two accounts are
identical.
- The shares to be exchanged must be on deposit and not
held in certificate form.
- New accounts are not currently accepted in
Vanguard/Windsor Fund or Vanguard/ PRIMECAP Fund.
- The redemption price of shares redeemed by exchange is
the net asset value next determined after Vanguard has
received the required documentation in Good Order.
- When opening a new account by exchange, you must meet
the minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange
privilege. However, the Fund reserves the right to revise
or terminate its provisions, limit the amount of or reject
any exchange, as deemed necessary, at any time.
The exchange privilege is only available in states in
which shares of the Fund are registered for sale. The
Fund's shares are currently registered for sale in all 50
states and the Fund intends to maintain such registration.
- --------------------------------------------------------------------------------
EXCHANGE
PRIVILEGE
LIMITATIONS The Fund's exchange privilege is not intended to afford
shareholders a way to speculate on short-term movements in
the market. Accordingly, in order to prevent excessive use
of the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the
Fund has established a policy of limiting excessive
exchange activity.
Exchange activity generally will not be deemed excessive
if limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT
LEAST 30 DAYS APART) from the Fund
20
<PAGE> 23
during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any
purchase request (including exchange purchases from other
Vanguard portfolios) that is reasonably deemed to be
disruptive to efficient portfolio management.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ABOUT TELEPHONE
TRANSACTIONS The ability to initiate redemptions (except wire
redemptions) and exchanges by telephone is automatically
established on your account unless you request in writing
that telephone transactions on your account not be
permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard adheres to the following security procedures:
1.SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio; (ii)
the 10-digit account number; (iii) the exact name and
address used in the registration; and (iv) the Social
Security or Taxpayer Identification number listed on the
account.
2.PAYMENT POLICY. The proceeds of any telephone redemption
made by mail will be made payable to the registered
shareowner and mailed to the address of record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures described above are reasonable, and that if
such procedures are followed, you will bear the risk of
any losses resulting from unauthorized or fraudulent
telephone transactions on your account. If Vanguard fails
to follow reasonable security procedures, it may be liable
for any losses resulting from unauthorized or fraudulent
telephone transactions on your account.
- --------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION You may transfer the registration of any of your Fund
shares to another person by completing a transfer form and
sending it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110,
VALLEY FORGE, PA 19482 ATTENTION: TRANSFER DEPARTMENT. The
request must be in Good Order. BEFORE MAILING YOUR
REQUEST, PLEASE CALL CLIENT SERVICES (1-800-662-2739) FOR
FULL INSTRUCTIONS.
- --------------------------------------------------------------------------------
STATEMENTS AND
REPORTS Vanguard will send you a confirmation statement each time
you initiate a transaction in your account except for
checkwriting redemptions from Vanguard money market
accounts. You will also receive a comprehensive account
statement at the end of each calendar quarter. The
fourth-quarter statement will be a year-end statement,
listing all transaction activity for the entire calendar
year.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using
the average cost single category method. This service is
available for most taxable accounts opened since January
1, 1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement along with their Fund Summary
Statement. Please call our Client Services Department
(1-800-662-2739) for information.
21
<PAGE> 24
Financial reports on the Fund will be mailed to you
semi-annually, according to the Fund's fiscal year-end.
- --------------------------------------------------------------------------------
OTHER VANGUARD
SERVICES For more information about any of these services, please
call our Investor Information Department at
1-800-662-7447.
VANGUARD DIRECT
DEPOSIT SERVICE With Vanguard's Direct Deposit Service, most U.S.
Government checks (including Social Security and military
pension checks) and private payroll checks may be
automatically deposited into your Vanguard Fund account.
Separate brochures and forms are available for direct
deposit of U.S. Government and private payroll checks.
VANGUARD AUTOMATIC
EXCHANGE SERVICE Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. Please
contact our Client Service Department at 1-800-662-2739
for additional information.
VANGUARD FUND
EXPRESS Vanguard's Fund Express allows you to transfer money
between your Fund account and your account at a bank,
savings and loan association, or a credit union that is a
member of the Automated Clearing House (ACH) system. You
may elect this service on the Account Registration Form or
call the Investor Information Department (1-800-662-7447)
for a Fund Express application.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition,
some services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
VANGUARD DIVIDEND
EXPRESS Vanguard's Dividend Express allows you to transfer your
dividends and/or capital gains distributions automatically
from your Fund account, one business day after the Fund's
payable date, to your account at a bank, savings and loan
association, or a credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our
Investor Information Department (1-800-662-7447) for a
Vanguard Dividend Express application.
VANGUARD
TELE-ACCOUNT Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change and yield
quotations on Vanguard Funds through any TouchToneTM
telephone. This service also lets you obtain information
about your account balance, your last transaction, and
your most recent dividend or capital gains payment. To
contact Vanguard's Tele-Account service, dial
1-800-ON-BOARD (1-800-662-6273). A brochure offering
detailed operating instructions is available from our
Investor Information Department (1-800-662-7447).
- --------------------------------------------------------------------------------
22
<PAGE> 25
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 26
[VANGUARD WELLINGTON FUND LOGO]
-----------------------------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON-BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
[FLAG LOGO]
[VANGUARD WELLINGTON FUND LOGO]
P R O S P E C T U S
MARCH 12, 1996
[VANGUARD GROUP LOGO]
P021
- --------------------------------------------------------------------------------
<PAGE> 27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[VANGUARD WELLINGTON FUND]
LOGO
A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- MARCH 12, 1996
- --------------------------------------------------------------------------------
FUND INFORMATION: PARTICIPANT SERVICES -- 1-800-523-1188
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES &
POLICIES Vanguard/Wellington Fund, Inc. (the "Fund") is an open-end
diversified investment company designed to provide
conservative investors with a prudent investment program.
The objectives of the Fund include conservation of
principal, a reasonable income return, and profits without
undue risk. The Fund invests in a diversified portfolio of
common stocks and bonds, with common stocks expected to
represent 60% to 70% of the Fund's total assets. There is
no assurance that the Fund will achieve its stated
objectives. Shares of the Fund are neither insured nor
guaranteed by any agency of the U.S. Government, including
the FDIC.
- --------------------------------------------------------------------------------
IMPORTANT NOTE This Prospectus is intended exclusively for participants
in employer-sponsored retirement or savings plans, such as
tax-qualified pension and profit-sharing plans and 401(k)
thrift plans, as well as 403(b) custodial accounts for
non-profit educational and charitable organizations.
Another version of this Prospectus, containing information
on how to open a personal investment account with the
Fund, is available for individual investors. To obtain a
copy of that version of the Prospectus, please call
1-800-662-7447.
- --------------------------------------------------------------------------------
OPENING AN
ACCOUNT The Fund is an investment option under a retirement or
savings program sponsored by your employer. The
administrator of your retirement plan or your employee
benefits office can provide you with detailed information
on how to participate in your plan and how to elect the
Fund as an investment option.
If you have any questions about the Fund, please contact
Participant Services at 1-800-523-1188. If you have any
questions about your plan account, contact your plan
administrator or the organization that provides
recordkeeping services for your plan.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Fund has been filed with
the Securities and Exchange Commission. This Statement is
dated March 12, 1996, and has been incorporated by
reference into this Prospectus. It may be obtained,
without charge, by writing to the Fund or by calling the
Investor Information Department.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page Page Page
Fund Expenses ..................... 2 Investment Risks ................... 5 Performance Record ................ 10
Financial Highlights .............. 2 Who Should Invest .................. 6 Dividends, Capital Gains and
Yield and Total Return ............ 3 Implementation of Policies ......... 6 Taxes ............................ 11
FUND INFORMATION Investment Limitations ............. 8 The Share Price of the Fund........ 11
Investment Policies ............... 4 Investment Adviser ................. 9 General Information ............... 12
SERVICE GUIDE
Participating in Your Plan ........ 13
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 28
FUND EXPENSES The following table illustrates ALL expenses and fees that
a shareholder of the Fund would incur. The expenses set
forth below are for the 1995 fiscal year.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------------------------------
Sales Load Imposed on Purchases............................... None
Sales Load Imposed on Reinvested Dividends.................... None
Redemption Fees............................................... None
Exchange Fees................................................. None
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------
Management & Administrative Expenses.......................... 0.24%
Investment Advisory Fees...................................... 0.05
12b-1 Fees.................................................... None
Other Expenses
Distribution Costs.......................................... 0.02%
Miscellaneous Expenses...................................... 0.02
----
Total Other Expenses.......................................... 0.04
------
TOTAL OPERATING EXPENSES............................. 0.33%
------
------
</TABLE>
The purpose of this table is to assist you in
understanding the various costs and expenses an investor
would bear directly or indirectly as a shareholder in the
Fund.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR
------ 3 YEARS 5 YEARS 10 YEARS
------- ------- --------
<S> <C> <C> <C>
$ 3 $ 11 $ 19 $ 42
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS The following financial highlights, insofar as they relate
to each of the five years in the period ended November 30,
1995, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was
unqualified. This information should be read in
conjunction with the Fund's financial statements and notes
thereto, which, together with the remaining portions of
the Fund's 1995 Annual Report to Shareholders, are
incorporated by reference in the Statement of Additional
Information and this Prospectus, and which appear, along
with the report of Price Waterhouse LLP, in the Fund's
1995 Annual Report to Shareholders. For a more complete
discussion of the Fund's performance, please see the
Fund's 1995 Annual Report to Shareholders, which may be
obtained without charge by writing to the Fund or by
calling Participant Services at 1-800-523-1188.
2
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
YEAR......... $ 19.33 $20.78 $19.34 $17.95 $16.29 $18.40 $16.82 $14.92 $16.06 $13.99
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT
OPERATIONS
Net
Investment
Income..... .96 .88 .92 .93 .96 1.01 1.02 .96 .95 .94
Net Realized
and
Unrealized
Gains
(Losses)... 5.19 (1.03) 1.62 1.65 1.71 (1.46) 2.12 2.06 (1.55) 2.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM
INVESTMENT
OPERATIONS... 6.15 (.15) 2.54 2.58 2.67 (.45) 3.14 3.02 (.60) 3.35
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends
from Net
Investment
Income..... (.88) (.92) (.94) (.96) (1.01) (1.06) (.98) (.98) (.54) (.94)
Distributions
from
Realized
Capital
Gains...... (.03) (.38) (.16) (.23) -- (.60) (.58) (.14) -- (.34)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
DISTRIBUTIONS.. (.91) (1.30) (1.10) (1.19) (1.01) (1.66) (1.56) (1.12) (.54) (1.28)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET
VALUE,
END OF
YEAR......... $ 24.57 $19.33 $20.78 $19.34 $17.95 $16.29 $18.40 $16.82 $14.92 $16.06
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN... 32.70% (0.82)% 13.62% 14.99% 16.81% (2.65)% 19.98% 21.03% (4.26)% 24.34%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Year
(Millions)... $12,333 $8,638 $7,917 $5,359 $3,473 $2,317 $2,035 $1,527 $1,274 $1,103
Ratio of
Expenses to
Average Net
Assets....... .33% .35% .34% .33% .35% .43% .42% .47% .43% .53%
Ratio of Net
Investment
Income to
Average
Net Assets... 4.37% 4.35% 4.55% 4.98% 5.39% 5.99% 5.77% 5.88% 5.56% 5.88%
Portfolio
Turnover
Rate......... 24% 32% 34% 24% 35% 33% 30% 28% 27% 25%
</TABLE>
- --------------------------------------------------------------------------------
YIELD AND TOTAL
RETURN From time to time the Fund may advertise its yield and
total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Fund refers to the average annual compounded rates of
return over one-, five- and ten-year periods or the life
of the Fund, (as stated in the advertisement) that would
equate an initial amount invested at the beginning of a
stated period to the ending redeemable value of the
investment, assuming the reinvestment of all dividend and
capital gains distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of the Fund is calculated by dividing the net
investment income per share earned during a 30-day period
by the net asset value per share on the last day of the
period. Net investment income includes interest and
dividend income earned on the Fund's securities and is net
of all expenses and all recurring and nonrecurring charges
that have been applied to all shareholder accounts. The
yield calculation assumes that the net investment income
earned over 30 days is compounded monthly for six months
and then
3
<PAGE> 30
annualized. Methods used to calculate advertised yields
are standardized for all stock and bond mutual funds.
However, these methods differ from the accounting methods
used by the Fund to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the
income paid to an investor's account or the yield reported
in the Fund's reports to shareholders.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES
THE FUND IS DESIGNED
TO PROVIDE A PRUDENT
INVESTMENT PROGRAM The Fund is an open-end diversified investment company
designed to provide conservative investors with a prudent
investment program. The objectives of the Fund include
conservation of principal, a reasonable income return, and
profits without undue risk.
There is no assurance that the Fund will achieve its
stated objectives.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
THE FUND INVESTS IN
COMMON STOCKS AND
BONDS The Fund seeks to achieve its objectives by investing in a
diversified portfolio of common stocks and bonds. Under
normal circumstances, it is expected that common stocks
and securities convertible into common stock will
represent 60% to 70% of the Fund's total assets. The
Fund's common stocks, in the aggregate, are held to
provide reasonable dividend income and long-term growth of
capital and income. These securities are primarily common
stocks but may also include securities convertible into
common stocks.
The remaining 30% to 40% of the Fund's assets will be
invested in investment grade corporate bonds (those rated
a minimum of Baa by Moody's Investors Service, Inc. or BBB
by Standard & Poor's Corporation), securities issued by
the U.S. Government, its agencies and instrumentalities,
including Government National Mortgage Association (GNMA)
mortgage pass-through certificates, asset-backed
securities, as well as U.S. dollar-denominated debt
securities issued by foreign governments, their agencies
and instrumentalities, supranational entities and
companies located outside the U.S. The Fund may also hold
certain short-term fixed income securities as cash
reserves.
The amount invested in stocks, bonds and cash reserves may
vary, depending upon the investment adviser's assessment
of business, economic and market conditions. The Fund
reserves the right to hold equity, fixed-income and cash
securities in whatever proportion deemed desirable at any
given time for defensive purposes. The Fund is managed
without regard to tax ramifications.
In addition, the Fund may invest up to 10% of its assets
in foreign common stocks and securities convertible into
foreign common stocks, and may engage in currency
transactions with respect to these investments. The Fund
may invest in stock and bond index futures and options to
a limited extent. The Fund is also authorized to invest in
preferred stocks. See "Implementation of Policies" for a
description of these and other investment practices of the
Fund.
The Fund is responsible for voting the shares of all
securities it holds.
4
<PAGE> 31
The Fund's objectives and investment policies are not
fundamental and so may be changed by the Board of
Directors without shareholder approval. However,
shareholders would be notified prior to any material
change in either.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
INVESTORS ARE EXPOSED
TO STOCK MARKET AND
INTEREST RATE RISK Like any investment program, the Fund entails certain
risks. As a mutual fund investing 60% to 70% of its assets
in common stocks, the Fund is subject to stock market
risk -- i.e., the possibility that stock prices in general
will decline over short or even extended periods. The
stock market tends to be cyclical, with periods when stock
prices generally rise and periods when stock prices
generally decline.
To illustrate the volatility of stock prices, the
following table sets forth the extremes for U.S. stock
market returns as well as the average return for the
period from 1926 to 1995, as measured by the Standard &
Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1995)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +53.9 % +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.5 +10.3 +10.7 +10.7
</TABLE>
As shown, common stocks have provided annual total returns
(capital appreciation plus dividend income) averaging
+10.7% for all 10-year periods from 1926 to 1995. The
return in individual years has varied from a low of -43.3%
to a high of +53.9%, reflecting the short-term volatility
of stock prices. While the average return can be used as a
guide for setting reasonable expectations for future stock
market returns. It may not be useful for forecasting
future returns in any particular period, as stock returns
are quite volatile from year to year.
Since the Fund also invests in bonds, investors in the
Fund are also exposed to interest rate risk -- i.e.,
fluctuations in the market value of bonds due to changing
interest rates. Bond prices are influenced primarily by
changes in the level of interest rates. When interest
rates rise, the prices of bonds generally fall;
conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in
price than stocks, there have been extended periods of
cyclical increases in interest rates that has caused
significant declines in bond prices. For example, bond
prices fell 48% from December 1976 to September 1981.
However, a decline in the market value of bonds may be
offset in whole or in part by the high level of income
that bonds provide.
To a limited extent, the Fund is also subject to credit
risk -- i.e., the likelihood that a bond issuer will fail
to make timely payments of interest and principal to the
Fund. Such credit risk is expected to be low, however, due
to the high credit quality and diversification of the
Fund's bond investments.
From time to time, the stock and bond markets may
fluctuate independently of one another. In other words, a
decline in the stock market may be offset by a rise in the
bond market, or vice versa. As a result, the Fund, with
its balance of common stock
5
<PAGE> 32
and bond investments, is expected to entail less
investment risk (and a potentially lower return) than a
mutual fund investing exclusively in common stocks.
- --------------------------------------------------------------------------------
WHO SHOULD INVEST
INVESTORS SEEKING A
BALANCE AMONG
STABILITY, INCOME AND
GROWTH The Fund is designed for conservative investors who are
seeking a prudent investment program that offers relative
capital stability, a reasonable level of income, and the
potential for capital appreciation. By balancing its
investments among common stocks and bonds, the Fund is
expected to provide lower investment risk and share price
volatility (and a lower total return in the long run) than
a mutual fund which invests exclusively in common stocks.
The Fund is thus suitable for investors who wish to gain
exposure to the potential capital growth provided by the
stock market, while limiting investment risk. The Fund is
intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating
on short-term market movements. Investors who engage in
excessive account activity generate additional costs which
are borne by all of the Fund's shareholders. In order to
minimize such costs the Fund has adopted the following
policies. The Fund reserves the right to reject any
purchase request (including exchange purchases from other
Vanguard portfolios) that is reasonably deemed to be
disruptive to efficient portfolio management, either
because of the timing of the investment or previous
excessive trading by the investor. Finally, the Fund
reserves the right to suspend the offering of its shares.
No assurance can be given that shareholders will be fully
protected from the market risks inherent in investing in
stocks and bonds. Only investors able to tolerate
short-term, possibly substantial fluctuations in the value
of their investment, brought about by generally declining
stock or bond prices, should contemplate an investment in
the Fund. The balanced investment approach of the Fund
tends to limit stock and bond market risks; it does not
eliminate them.
The Fund is intended as a balanced long-term investment
program. Investors may wish to reduce the potential risk
of investing in the Fund by purchasing shares on a
regular, periodic basis (dollar-cost averaging) rather
than making an investment in one lump sum.
- --------------------------------------------------------------------------------
IMPLEMENTATION OF
POLICIES
THE FUND MAY INVEST
IN SHORT-TERM FIXED
INCOME SECURITIES In addition to investing primarily in common stocks and
bonds, the Fund uses a number of other investment vehicles
to achieve its objectives.
Although it normally seeks to remain fully invested in
equity common stocks and bonds, the Fund may invest in
certain short-term fixed income securities. Such
securities may be used to invest uncommitted cash
balances, to maintain liquidity to meet shareholder
redemptions, or to take a temporary defensive position
against potential stock market declines. These securities
include: obligations of the United States Government and
its agencies or instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and
repurchase agreements collateralized by these securities.
THE FUND MAY LEND ITS
SECURITIES The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term
periods to realize additional income. Loans of securities
by the Fund will be collateralized by cash, letters of
credit, or securities
6
<PAGE> 33
issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the
current market value of the loaned securities.
PORTFOLIO TURNOVER IS
NOT EXPECTED TO
EXCEED 50% The Fund retains the right to sell securities irrespective
of how long they have been held. However, it is
anticipated that the portfolio turnover rate for the Fund
will not exceed 50%. A turnover rate of 50% would occur,
for example, if one half of the Fund's securities were
replaced within one year.
DERIVATIVE
INVESTING Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
THE FUND MAY
INVEST IN DERIVATIVE
SECURITIES The Fund may invest in futures contracts and options, but
only to a limited extent. Specifically, the Fund may enter
into futures contracts provided that not more than 5% of
its assets are required as a futures contract deposit; in
addition, the Fund may enter into futures contracts and
options transactions only to the extent that obligations
under such contracts or transactions represent not more
than 20% of the Fund's assets.
Futures contracts and options may be used for several
common fund management strategies: to maintain cash
reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher
investment returns when a specific futures contract is
priced more attractively than other futures contracts or
the underlying security or index.
The Fund may use futures contracts for bona fide "hedging"
purposes. In executing a hedge, a manager sells, for
example, stock index futures to protect against a decline
in the stock market. As such, if the market drops, the
value of the futures position will rise, thereby
offsetting the decline in value of the Fund's stock
holdings.
THE FUND MAY
INVEST IN CMOS The Fund may also invest modestly in a fairly conservative
class of collateralized mortgage obligations (CMOs) which
feature a high degree of cash flow predictability and
moderate vulnerability to mortgage prepayment risk. To
reduce credit risk, Vanguard purchases these less risky
classes of collateralized mortgage obligations issued only
by agencies of the U.S. Government or privately-issued
collateralized mortgage obligations that carry
high-quality investment-grade ratings.
FUTURES CONTRACTS
AND OPTIONS POSE
CERTAIN RISKS The primary risks associated with the use of futures
contracts and options are: (i) imperfect correlation
between the change in market value of the stocks or bonds
held by the Fund and the prices of futures contracts and
options; and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability
to close a futures position prior to its maturity date.
The risk of imperfect correlation will be minimized by
investing in those contracts whose price fluctuations are
expected to resemble those of the Fund's underlying
securities. The risk that the Fund will be unable to close
out a futures position will be minimized by entering into
such transactions on a national exchange with an active
and liquid secondary market.
- --------------------------------------------------------------------------------
7
<PAGE> 34
INVESTMENT
LIMITATIONS
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS The Fund has adopted certain limitations in an attempt to
reduce its exposure to specific situations. Some of these
limitations are that the Fund will not:
(a) with respect to 75% of its assets invest more than 5%
of its assets in the securities of any single
company, excluding obligations of the U.S. Government
and its instrumentalities;
(b) with respect to 75% of its assets purchase more than
10% of the outstanding voting securities of any
issuer;
(c) invest more than 5% of its assets in the securities
of companies that have a continuous operating history
of less than three years;
(d) invest more than 25% of its assets in any one
industry; and
(e) borrow money except from banks for temporary or
emergency purposes, and then only in an amount not in
excess of 10% of total assets taken at the lower of
their market value or cost.
The above-mentioned investment limitations are considered
at the time investment securities are purchased. The
limitations described here and in the Statement of
Additional Information are fundamental and may be changed
only with the approval of a majority of the Fund's
shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT
OF THE FUND
VANGUARD
ADMINISTERS AND
DISTRIBUTES THE
FUND The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $180 billion. Through their
jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other Funds in the Group
obtain at cost virtually all of their corporate
management, administrative, shareholder accounting and
distribution services. Vanguard also provides investment
advisory services on an at-cost basis to certain Vanguard
Funds. As a result of Vanguard's unique corporate
structure, the Vanguard Funds have costs substantially
lower than those of most competing mutual funds. In 1995,
the average expense ratio (annual costs including advisory
fees divided by total net assets) for the Vanguard Funds
amounted to approximately .31% compared to an average of
1.11% for the mutual fund industry (data provided by
Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for each fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the services to
the funds and also furnishes the funds with necessary
office space, furnishings and equipment. Each fund pays
its share of Vanguard's total expenses, which are
allocated among the funds under methods approved by the
Board of Directors (Trustees) of each fund. In addition,
each fund bears its own direct expenses, such as legal,
auditing and custodian fees.
8
<PAGE> 35
Vanguard also provides distribution and marketing services
to the Vanguard funds. The funds are available on a
no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER
WELLINGTON
MANAGEMENT
COMPANY MANAGES THE
FUND'S INVESTMENTS The Fund employs Wellington Management Company ("WMC"), 75
State Street, Boston, MA 02109, under an investment
advisory agreement dated as of April 1, 1993 to manage the
investment and reinvestment of the assets of the Fund and
to continuously review, supervise and administer the
Fund's investment program. WMC discharges its
responsibilities subject to the control of the Officers
and Directors of the Fund.
WMC is a professional investment advisory firm which
globally provides services to investment companies,
institutions, and individuals. Among the clients of WMC
are more than 10 investment companies of The Vanguard
Group. As of December 31, 1995, WMC held discretionary
management authority with respect to more than $108
billion of assets. WMC and its predecessor organizations
have provided advisory services to investment companies
since 1933 and to investment counseling clients since
1960.
Ernst H. von Metzsch, Senior Vice President of WMC, serves
as portfolio manager of the Fund, a position he has held
since November, 1995. Mr. von Metzsch previously served as
the Fund's assistant portfolio manager for 20 years and
has more than 25 years of investment experience. Mr. von
Metzsch is assisted by Paul D. Kaplan, Senior Vice
President of WMC, who began managing the Fund's
fixed-income investments in 1994. Messrs. von Metzsch and
Kaplan are supported by research and other investment
services provided by the professional staff of WMC.
The Fund pays WMC an advisory fee at the end of each
fiscal quarter, calculated by applying a quarterly rate,
based on the following annual percentage rates, to the
Fund's average month-end net assets for the quarter:
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
------------------- ------
<S> <C>
First $500 million .125%
Next $500 million .100%
Next $1 billion .075%
Next $1 billion .050%
Over $3 billion .040%
</TABLE>
The basic advisory fee may be increased or decreased by
applying an adjustment formula based on the investment
performance of the Fund relative to the investment record
of "a combined index" 65% of which shall be comprised of
the Standard & Poor's Composite Stock Price Index and 35%
of which shall be comprised of the Salomon Brothers High
Grade Corporate Bond Index. During the fiscal year ended
November 30, 1995, the total advisory fees paid by the
Fund to WMC represented an effective annual base rate of
.05 of 1% of average net assets.
The investment advisory agreement authorizes WMC (with
approval of the Fund's Board of Directors) to select the
brokers or dealers that will execute the purchases
9
<PAGE> 36
and sales of portfolio securities for the Fund and directs
WMC to use its best efforts to obtain the best available
price and most favorable execution with respect to all
transactions for the Fund. The full range and quality of
brokerage services available are considered in making
these determinations.
The Fund has authorized WMC to pay higher commissions in
recognition of brokerage services felt necessary for the
achievement of better execution, provided WMC believes
this to be in the best interest of the Fund. Although the
Fund does not market its shares through intermediary
brokers or dealers, the Fund may place portfolio orders
with qualified broker-dealers who recommend the Fund to
clients if the Officers of the Fund believe that the
quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Fund's Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days' prior written notice to
shareholders of the Fund which shall include substantially
the information concerning the adviser that would have
normally been included in a proxy statement.
- --------------------------------------------------------------------------------
PERFORMANCE
RECORD The table in this section provides investment results for
the Fund for several periods throughout the Fund's
lifetime. The results shown represent the Fund's "total
return" investment performance, which assumes the
reinvestment of all capital gains and income dividends for
the indicated periods. Also included is comparative
information with respect to two performance indexes: a
Composite Index, a measure of the investment performance
of a balanced portfolio of stocks and bonds, comprised of
the Standard & Poor's 500 Composite Stock Price Index
(65%) and the Lehman Long-Term Corporate AA or Better Bond
Index (35%); and the Consumer Price Index, a statistical
measure of changes in the prices of goods and services.
The table does not make any allowance for federal, state
or local income taxes, which shareholders must pay on a
current basis.
The results shown should not be considered a
representation of the total return from an investment made
in the Fund today. This information is provided to help
investors better understand the Fund and may not provide a
basis for comparison with other investments or mutual
funds which use a different method to calculate
performance.
10
<PAGE> 37
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
--------------------------------------------------------------------
<CAPTION>
FISCAL PERIODS VANGUARD/WELLINGTON COMPOSITE CONSUMER
ENDED 11/30/95 FUND INDEX PRICE INDEX
--------------- ------------------- --------- -----------
<S> <C> <C> <C>
1 Year +32.7% +33.0% +2.6%
5 Years +15.0 +15.1 +2.8
10 Years +13.0 +14.1 +3.5
Lifetime* + 8.1 + 8.7 +3.4
*July 1, 1929 to November 30, 1995.
NOTE: Prior to 1974, the bond component of the Composite Index was
represented by the Salomon High-Grade Bond Index (35%).
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS,
CAPITAL GAINS
AND TAXES The Fund expects to pay dividends quarterly. (The Fund has
paid quarterly dividends since 1930.) Net capital gains
distributions, if any, will be made annually. All dividend
and capital gains distributions are automatically
reinvested in additional shares of the Fund. In order to
satisfy certain distribution requirements of the IRS, the
Fund may also declare special year-end distributions
during December. The Fund intends to continue to qualify
as a "regulated investment company" under the Internal
Revenue Code so that it will not be subject to federal
income tax to the extent that its income is distributed to
its shareholders.
If you utilize the Fund as an investment option in an
employer-sponsored retirement savings plan, dividend and
capital gains distributions from the Fund will usually not
be subject to current taxation, but will accumulate on a
tax-deferred basis. Usually, employer-sponsored retirement
and savings plans are governed by a complex set of tax
rules. If you participate in such a plan, consult your
plan administrator, your plan's Summary Plan Description,
or a professional tax adviser regarding the tax
consequences of your participation in the plan and of any
plan contributions or withdrawals.
- --------------------------------------------------------------------------------
THE SHARE PRICE
OF THE FUND The Fund's share price or "net asset value" per share is
determined by dividing the total assets of the Fund, less
all liabilities, by the total number of shares
outstanding. Net asset value is determined at the close of
regular trading on the New York Stock Exchange (generally
4:00 p.m. Eastern time) each day the Exchange is open.
Portfolio securities that are listed on a securities
exchange are valued at the latest quoted sales price as of
the close of the Exchange on the day the valuation is
made. Price information on listed securities is taken from
the exchange where the security is primarily traded.
Listed securities which are not traded on the valuation
date and for which market quotations are available are
valued at the mean between the bid and asked prices.
Unlisted securities are valued at the latest bid price.
Bonds and other fixed-income securities may be valued on
the basis of prices provided by a pricing service when
such prices are believed to reflect the fair market value
of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale
prices of each security but take into account
11
<PAGE> 38
institutional size transactions in similar groups of
securities as well as any developments related to specific
securities. Other securities, including restricted
securities, for which no quotations are readily available
are valued at fair value as determined in good faith by
the Board of Directors. Temporary cash investments are
valued at cost which approximates market value.
The Fund's price per share can be found daily in the
mutual fund section of most major newspapers under the
heading of Vanguard. The Fund is managed without regard to
tax ramifications.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Fund is a Maryland corporation. The Fund's Articles of
Incorporation permit the Directors to issue 1,100,000,000
shares of common stock, with a $1.00 par value. The Board
of Directors has the power to designate one or more
classes ("Portfolios") of shares of common stock and to
classify or reclassify any unissued shares with respect to
such Portfolios. Currently the Fund is offering one class
of shares.
The shares of the Fund are fully paid and nonassessable;
have no preferences as to conversion, exchange, dividends,
retirement or other features; and have no pre-emptive
rights. Such shares have non-cumulative voting rights,
meaning that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they so choose. A shareholder is entitled to
one vote for each full share held (and a fractional vote
for each fractional share held).
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. If requested in writing by holders of not
less than 10% of the outstanding shares of the Fund, an
annual meeting will be held to vote on the removal of a
Director or Directors.
All securities and cash are held by Morgan Guaranty Trust
Company, New York, NY. CoreStates Bank, N.A., holds daily
cash balances that are used by the Fund to invest in
repurchase agreements or securities acquired in these
transactions. The Vanguard Group, Inc., Valley Forge, PA,
serves as the Fund's Transfer and Dividend Disbursing
Agent. Price Waterhouse LLP, serves as independent
accountants for the Fund and will audit its financial
statements annually. The Fund is not involved in any
litigation.
- --------------------------------------------------------------------------------
12
<PAGE> 39
SERVICE GUIDE
PARTICIPATING IN
YOUR PLAN The Fund is available as an investment option in your
retirement or savings plan. The administrator of your plan
or your employee benefits office can provide you with
detailed information on how to participate in your plan
and how to elect the Fund as an investment option.
If you have any questions about the Fund, including the
Fund's investment objective, policies, risk
characteristics or historical performance, please contact
Participant Services at 1-800-523-1188.
If you have questions about your account, contact your
plan administrator or the organization which provides
recordkeeping services for your plan.
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS
AND ALLOCATIONS You may be permitted to elect different investment
options, alter the amounts contributed to your plan, or
change how contributions are allocated among your
investment options in accordance with your plan's specific
provisions. See your plan administrator or employee
benefits office for more details.
- --------------------------------------------------------------------------------
TRANSACTIONS IN
FUND SHARES Contributions, exchanges or distributions of the Fund's
shares are effective when received in "good order" by
Vanguard. "Good order" means that complete information on
the contribution, exchange or redemption and the
appropriate signatures and monies have been received by
Vanguard.
- --------------------------------------------------------------------------------
MAKING EXCHANGES Your plan may allow you to exchange monies from one
investment option to another. However, the Fund reserves
the right to refuse any exchange purchase request. Check
with your plan administrator for details on the rules
governing exchanges in your plan. Certain investment
options, particularly company stock or guaranteed
investment contracts (GICs), may be subject to unique
restrictions.
Before making an exchange, you should consider the
following:
- If you are making an exchange to another Vanguard Fund
option, please read the Fund's prospectus. Contact
Participant Services at 1-800-523-1188 for a copy.
- Exchanges are accepted by Vanguard only as permitted by
your plan. Your plan administrator can explain how
frequently exchanges are allowed.
- --------------------------------------------------------------------------------
13
<PAGE> 40
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 41
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 42
LOGO
---------------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2900
Valley Forge, PA 19482
INSTITUTIONAL PARTICIPANT
SERVICE DEPARTMENT:
1-800-523-1188
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
LOGO
LOGO
I N S T I T U T I O N A L
P R O S P E C T U S
MARCH 12, 1996
LOGO
I021
- --------------------------------------------------------------------------------
<PAGE> 43
PART B
VANGUARD/WELLINGTON FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MARCH 12, 1996
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated March 12, 1996). To obtain the Prospectus
please call the Investor Information Department:
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.................................................... 1
Yield & Total Return.................................................................. 5
Purchase of Shares.................................................................... 5
Redemption of Shares.................................................................. 5
Investment Limitations................................................................ 6
Management of the Fund................................................................ 8
Investment Advisory Services.......................................................... 10
Portfolio Transactions................................................................ 11
Financial Statements.................................................................. 12
Performance Measures.................................................................. 12
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the Fund's investment objectives and
policies set forth in the Prospectus.
REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements with
commercial banks, brokers, or dealers either for defensive purposes due to
market conditions or to generate income from its excess cash balances. A
repurchase agreement is an agreement under which the Fund acquires a money
market instrument (generally a security issued by the U.S. Government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). A repurchase agreement
may be considered a loan collateralized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held by
the Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by a Custodian Bank until repurchased. In
addition, the Fund's Board of Directors will monitor the Fund's repurchase
agreement transactions generally and will establish guidelines and standards for
review by the investment adviser of the creditworthiness of any bank, broker or
dealer party to a repurchase agreement with the Fund. No more than an aggregate
of 15% of the Fund's assets, at the time of investment, will be invested in
repurchase agreements having maturities longer than seven days and securities
subject to legal or contractual restrictions on resale for which there are no
readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidations or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Fund's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
1
<PAGE> 44
LENDING OF SECURITIES The Fund may lend its portfolio securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. By lending its
portfolio securities, the Fund attempts to increase its income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. The Fund may lend its portfolio securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms,
the structure and the aggregate amount of such loans are not inconsistent with
the Investment Company Act of 1940, or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "Commission")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Fund collateral consisting of cash, a letter of credit issued by a
domestic U.S. bank, or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund receive reasonable interest on the loan (which may include the
Fund's investing any cash collateral in interest bearing short-term
investments), any distribution on the loaned securities and any increase in
their market value. Loan arrangements made by the Fund will comply with all
other applicable regulatory requirements, including the rules of the New York
Stock Exchange, which rules presently require the borrower, after notice, to
redeliver the securities within the normal settlement time of three business
days. All relevant facts and circumstances, including the creditworthiness of
the broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Fund's Board of
Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's directors. In addition, voting rights pass
with the loaned securities but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
ILLIQUID SECURITIES Illiquid securities are securities that may not be
sold or disposed of in the ordinary course of business within seven business
days at approximately the value at which they are being carried on a Fund's
books. An illiquid security includes repurchase agreements which have a maturity
of longer than seven days, securities which are illiquid by virtue of the
absence of a readily available market, and demand instruments with a demand
notice exceeding seven days. Illiquid securities may include securities that are
not registered under the Securities Act of 1933 (the "1933 Act"); however,
unregistered securities that can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act will not be considered illiquid so
long as it is determined by the Fund's advisor that an adequate trading market
exists for the security. From time to time, the Fund's Board of Directors may
determine that certain restricted securities known as Rule 144A securities are
liquid and not subject to the 15% limitation described above.
FOREIGN INVESTMENTS As indicated in the Prospectus, the Fund may include
foreign securities to a certain extent. Investors should recognize that
investing in foreign companies involves certain special considerations which are
not typically associated with investing in U.S. companies.
Country Risk As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although the Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of the Fund's foreign securities will be somewhat greater than the
expenses for the custodian arrangement for handling U.S. securities of equal
value.
2
<PAGE> 45
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income the Fund receives from its foreign investments.
Currency Risk Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since the Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of the Fund permit it to enter into
forward foreign currency exchange contracts in order to hedge holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
FUTURES CONTRACTS The Fund may enter into futures contracts, options, and
options on futures contracts for the purpose of simulating full investment and
reducing transactions costs. Futures contracts provide for the future sale by
one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. Futures contracts
which are standardized as to maturity date and underlying financial instrument
are traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"), a U.S. Government Agency. Assets committed to futures
contracts will be segregated at the Fund's custodian bank to the extent required
by law.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold which may range
upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker as long as the contract remains open. The Fund expects
to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures market primarily to offset unfavorable
changes in the value of securities otherwise held for investment purposes or
expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of underlying securities. The Fund intends to use futures contracts only
for bona fide hedging purposes.
Regulations of CFTC applicable to the Fund require that all of its futures
transactions constitute bona fide hedging transactions. The Fund will only sell
futures contracts to protect securities it owns against price declines or
purchase contracts to protect against an increase in the price of securities it
intends to purchase. As evidence of this hedging interest, the Fund expects that
approximately 75% of its futures contract purchases will be "completed," that
is, equivalent amounts of related securities will have been purchased or are
being purchased by the Fund upon sale of open futures contracts.
3
<PAGE> 46
Although techniques other than the sale and purchase of futures contracts
could be used to control the Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Fund will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transactions costs incurred in the
purchase and sale of underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS The Fund will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of the Fund's total assets. In addition, the Fund will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under these contracts would exceed 20% of the Fund's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge it.
The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Fund are engaged in only for hedging purposes, the Adviser
does not believe that the Fund is subject to the risks of loss frequently
associated with futures transactions. The Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contacts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund as an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS The Fund is required for
federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. In most cases, any gain
or loss recognized with
4
<PAGE> 47
respect to a futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Furthermore, sales of futures contracts which are
intended to hedge against a change in the value of securities held by the Fund
may affect the holding period of such securities and, consequently, the nature
of the gain or loss on such securities upon disposition. The Fund may be
required to defer the recognition of losses on futures contracts to the extent
of any unrecognized gains on related positions held by the Fund.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Fund's business of investing in securities. In addition, gains realized on the
sale or other disposition of securities held for less than three months must be
limited to less than 30% of the Fund's annual gross income. It is anticipated
that any net gain realized from the closing out of futures contracts will be
considered gain from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing excessive gains
on securities held less than three months, the Fund may be required to defer the
closing out of futures contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on futures
contracts, which have been open for less than three months as of the end of the
Fund's fiscal year and which are recognized for tax purposes, will not be
considered gains on sales of securities held less than three months for the
purpose of the 30% test.
The Fund will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures transaction. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised on the nature of
the transactions.
YIELD AND TOTAL RETURN
The yield of the Fund for the 30-day period ended November 30, 1995 was
+3.98%. Yields are calculated daily and premiums and discounts on asset-backed
accounts are not amortized.
The average annual total return of the Fund for the one-, five- and
ten-year periods ending November 30, 1995 was +32.70%, +14.97% and +12.95%,
respectively. Total return is computed by finding the average compounded rates
of return over the one-, five- and ten-year periods set forth above that would
equate an initial amount invested at the beginning of the periods to the ending
redeemable value of the investment.
PURCHASE OF SHARES
The purchase price of shares of the Fund is the net asset value next
determined after the order is received. The net asset value is calculated as of
the close of the New York Stock Exchange on each day the Exchange is open for
business. An order received prior to the close of the Exchange will be executed
at the price computed on the date of receipt: and an order received after the
close of the Exchange will be executed at the price computed on the next day the
Exchange is open.
The Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum investment for or any other restrictions on initial
and subsequent investments for certain fiduciary accounts such as employee
benefit plans or under circumstances where certain economies can be achieved in
sales of the Fund's shares.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Fund to dispose of securities
5
<PAGE> 48
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in investment securities or in cash, as the Directors
may deem advisable; however, payment will be made wholly in cash unless the
Directors believe that economic or market conditions exist which would make such
a practice detrimental to the best interest of the Fund. If redemptions are paid
in investment securities, such securities will be valued as set forth in the
Prospectus under "The Fund's Share Price" and a redeeming shareholder would
normally incur brokerage expenses if he converted these securities to cash.
No charge is made by the Fund for redemptions. Any redemption may be more
or less than the shareholder's cost depending on the market value of the Fund's
portfolio securities.
SIGNATURE GUARANTEES To protect your account, the Fund and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signatures
guarantees enable the Fund to verify the identity the person who has authorized
a redemption from your account. SIGNATURE GUARANTEES ARE REQUIRED IN CONNECTION
WITH: (1) ALL REDEMPTIONS, REGARDLESS OF THE AMOUNT INVOLVED, WHEN THE PROCEEDS
ARE TO BE PAID TO SOMEONE OTHER THAN THE REGISTERED OWNER(S) AND/OR TO AN
ADDRESS OTHER THAN THE ADDRESS OF RECORD; AND (2) SHARE TRANSFER REQUESTS. These
requirements are not applicable to redemptions in Vanguard's prototype plans
except in connection with: (1) distributions made when the proceeds are to be
paid to someone other than the plan participant; (2) certain authorizations to
effect exchanges by telephone; and (3) when proceeds are to be wired. These
requirements may be waived by the Fund in certain instances.
Signature guarantees may be provided by banks, brokers, or any other
guarantor institution that Vanguard deems acceptable. NOTARIES PUBLIC ARE NOT
ACCEPTABLE GUARANTORS.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter or stock power.
INVESTMENT LIMITATIONS
The Fund is subject to the following restrictions which may not be changed
without the approval of at least a majority of the outstanding voting securities
of the Fund. The Fund will not: (1) invest in commodities or real estate
although it may purchase and sell securities of companies which deal in real
estate or interests therein, and it may invest in stock and bond futures
contracts and options to the extent that not more than 5% of its assets are
required as deposit to secure obligations under futures contracts and not more
than 20% of the Fund's assets are invested in futures and options at any time;
(2) make loans except (i) by purchasing a portion of an issue of bonds,
debentures or similar obligations (including repurchase agreements) which are
publicly distributed or customarily purchased by institutional investors, and
(ii) as provided under "Lending of Securities" (See page 2); (3) with respect to
75% of the Fund's total assets, purchase the securities of any issuer (except
obligations of the United States Government and its instrumentalities) if as a
result the Fund would hold more than 10% of the outstanding voting securities of
the issuer, or more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer; (4) borrow money except up to a limit
of 10% of total assets for extraordinary or emergency purposes (the Fund has
never borrowed money and intends to limit any future borrowing to 5% of the
lower of the market value or cost of its assets); (5) the Fund will not engage
in the business of underwriting securities issued by other persons except to the
extent that the Fund may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of portfolio securities.
Additionally, the Fund will not purchase or otherwise acquire any security if,
as a result, more than 15% of its net assets would be invested in securities
that are illiquid (this limitation includes the Fund's investment in The
Vanguard Group, Inc.); (6) purchase securities on margin (except as provided for
above in (1)), or sell securities
6
<PAGE> 49
short; (7) invest in securities of other investment companies, except as may be
acquired as a part of a merger, consolidation or acquisition of assets or
otherwise to the extent permitted by Section 12 of the Investment Company Act of
1940. The Fund will invest only in investment companies which have investment
objectives and investment policies consistent with those of the Fund; (8) invest
to control other companies nor concentrate its investments in a particular
industry or group of industries.
The above-mentioned investment limitations are considered at the time
investment securities are purchased. Notwithstanding these limitations, the Fund
may own the securities of, or make loans to, or contribute to the costs or other
financial requirements of any company which will be wholly-owned by the Fund and
one or more other investment companies and is primarily engaged in the business
of providing, at cost, management, administrative or related services to the
Fund and other investment companies (See "The Vanguard Group", page 8). As a
non-fundamental policy, the Fund will not purchase or retain securities of an
issuer if (i) one or more officers or directors of the Fund or its investment
adviser individually own or would own, directly or beneficially, more than 1/2
of 1% of the securities of such issuer and (ii) such persons own or would own in
the aggregate 5% of such securities.
7
<PAGE> 50
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are responsible to
the Fund's Board of Directors. The Directors set broad policies for the Fund and
choose its Officers. The following is a list of Directors and Officers of the
Fund and a statement of their present positions and principal occupations during
the past five years. The mailing address of the Fund's Directors and Officers is
Post Office Box 876, Valley Forge, PA 19482.
JOHN C. BOGLE, Chairman and Director*
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group; Director of the Mead Corporation
and General Accident Insurance.
JOHN J. BRENNAN, President, Chief Executive Officer & Director*
President, Chief Executive Officer and Director of The Vanguard Group, Inc.
and of each of the other investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Director
Chairman of Rhone-Poulenc Rorer, Inc.; Director of Sun Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director
Director of The Great Atlantic and Pacific Tea Company, ALCO Standard Corp.,
Raytheon Company, Knight-Ridder, Inc., and Massachusetts Mutual Life Insurance
Co., and Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY, Director
President, The Brookings Institution; Director of American Express Bank, Ltd.,
The St. Paul Companies, Inc., and Scott Paper Company.
BURTON G. MALKIEL, Director
Chemical Bank Chairman's Professor of Economics, Princeton University;
Director of Prudential Insurance Co. of America, Amdahl Corporation, Baker
Fentress & Co., The Jeffrey Co., and Southern New England Communications
Company.
ALFRED M. RANKIN, Director
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of the BFGoodrich Company, and The Standard Products Company.
JOHN C. SAWHILL, Director
President and Chief Executive Officer, The Nature Conservancy; formerly,
Director and Senior Partner, McKinsey & Co.; President, New York University;
Director of Pacific Gas and Electric Company and NACCO Industries.
JAMES O. WELCH, JR., Director
Retired Chairman of Nabisco Brands Inc., retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc. and Kmart Corporation.
J. LAWRENCE WILSON, Director
Chairman and Chief Executive Officer of Rohm & Haas Company; Director of
Cummins Engine Company and Trustee of Vanderbilt University.
RAYMOND J. KLAPINSKY, Secretary*
Senior Vice President and Secretary of The Vanguard Group, Inc.; Secretary of
each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND, Treasurer*
Treasurer of The Vanguard Group, Inc., and of each of the investment companies
in The Vanguard Group.
KAREN E. WEST, Controller*
Vice President of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
- ------------
*Officers of the Fund are "interested persons" as defined in the Investment
Company Act of 1940.
THE VANGUARD GROUP
The Fund is a member of The Vanguard Group of Investment Companies. Through
their jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Fund
and the other Funds in the Group obtain at cost virtually all of their corporate
management, administrative and distribution services. Vanguard also provides
investment advisory services on an at-cost basis to several of the Vanguard
Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's total expenses which are allocated among the
Funds under methods approved by the Board of Directors (Trustees) of each Fund.
In addition, each Fund bears its own direct expenses such as legal, auditing and
custodian fees.
8
<PAGE> 51
The Fund's officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.
The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17j-1 under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts which each of the Funds has invested are adjusted from time to time in
order to maintain the proportionate relationship between each Fund's relative
net assets and its contribution to Vanguard's capital. At November 30, 1995, the
Fund had contributed capital of $1,421,000 to Vanguard, representing 7.1% of
Vanguard's capitalization. The Funds' Service Agreement provides as follows: (a)
each Vanguard Fund may invest up to .40% of its current assets in Vanguard, and
(b) there is no other limitation on the amount that each Vanguard Fund may
contribute to Vanguard's capitalization.
MANAGEMENT Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting, and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended November 30, 1995, the Fund's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $25,327,000.
DISTRIBUTION Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for shares of the
Funds, in connection with any sales made directly to investors in the states of
Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Directors and
Officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon their relative net assets. The remaining
one half of these expenses is allocated among the Funds based upon each Fund's
sales for the preceding 24 months relative to the total sales of the Funds as a
Group, provided, however, that no Fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for the Group, and
that no Fund shall incur annual distribution expenses in excess of 20/100 of 1%
of its average month end net assets. During the fiscal year ended November 30,
1995, the Fund paid approximately $1,999,000, of the Group's distribution and
marketing expenses.
INVESTMENT ADVISORY SERVICES Vanguard provides Vanguard Money Market
Reserves, Vanguard Admiral Funds, Vanguard Municipal Bond Fund, several
Portfolios of Vanguard Fixed Income Securities Fund, Vanguard International
Equity Index Fund, Vanguard Balanced Index Fund, Vanguard Institutional Index
Fund, Vanguard Bond Index Fund, Vanguard Index Trust, several Portfolios of
Vanguard Variable Insurance Fund, the Vanguard California Tax-Free Fund,
Vanguard Florida Insured Tax-Free Fund, Vanguard New York Insured Tax-Free Fund,
Vanguard New Jersey Tax-Free Fund, Vanguard Ohio Tax-Free Fund, Vanguard
Pennsylvania Tax-Free Fund, Vanguard Tax-Managed Fund, the Aggressive Growth
Portfolio of Vanguard Horizon Fund, a portion of Vanguard/Windsor II, a portion
of Vanguard/Morgan Growth Fund as well as several indexed separate accounts with
investment advisory services. These services are provided on an at-cost basis
from a money management staff employed directly by Vanguard. The compensation
and other expenses of this staff are paid by the Funds utilizing these services.
9
<PAGE> 52
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays each Director, who is not also an Officer an annual fee plus
travel and other expenses incurred in attending Board meetings. The Fund's
officers and employees are paid by Vanguard which, in turn, is reimbursed by the
Fund, and each other Fund in the Group, for its proportionate share of officers'
and employees' salaries and retirement benefits.
The following table provides detailed information with respect to the
amounts paid or accrued for the Directors and Officers of the Fund for whom the
Fund's proportionate share of remuneration exceeded $60,000 for the fiscal year
ended November 30, 1995.
VANGUARD/WELLINGTON FUND
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF DIRECTORS FROM FUND PART OF FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS(3)
- --------------------------- ------------ --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1),(2) -- -- -- --
John J. Brennan(2) -- -- -- --
Barbara Barnes Hauptfuhrer $4,492 $ 755 $15,000 $60,000
Robert E. Cawthorn $4,492 $ 629 $13,000 $60,000
Bruce K. MacLaury $4,870 $ 744 $12,000 $55,000
Burton G. Malkiel $4,492 $ 504 $15,000 $60,000
Alfred M. Rankin, Jr. $4,492 $ 398 $15,000 $60,000
John C. Sawhill $4,492 $ 472 $15,000 $60,000
James O. Welch, Jr. $4,492 $ 581 $15,000 $60,000
J. Lawrence Wilson $4,492 $ 420 $15,000 $60,000
</TABLE>
(1)For the period reported in this table, Mr. Bogle was the Fund's Chief
Executive Officer, and therefore an "Interested Director."
(2) As "Interested Directors," Messrs. Bogle and Brennan receive no compensation
for their service as Directors. Compensation amounts reported for Messrs.
Bogle and Brennan relate to their respective positions as Chief Executive
Officer and President of the Fund.
(3)The amounts reported in this column reflect the total compensation paid to
each Director for their service as Director or Trustee of 34 Vanguard Funds
(27 in the case of Mr. MacLaury).
INVESTMENT ADVISORY SERVICES
The Fund employs Wellington Management Company (WMC) under an investment
advisory agreement dated April 1, 1993 to manage the investment and reinvestment
of the assets of the Fund and to continuously review, supervise and administer
the Fund's investment program. WMC discharges its responsibilities subject to
the control of the Officers and Directors of the Fund.
The Fund pays WMC a Basic Fee at the end of each fiscal quarter, calculated
by applying a quarterly rate, based on the following annual percentage rates, to
the Fund's average month-end net assets for the quarter:
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------------------------------------ ----
<S> <C>
First $500 million.............................. .125%
Next $500 million............................... .100%
Next $1 billion................................. .075%
Next $1 billion................................. .050%
Over $3 billion................................. .040%
</TABLE>
10
<PAGE> 53
During the fiscal years ended November 30, 1993, 1994 and 1995, the Fund
paid the following advisory fees:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Basic Fee................................................ $3,913,000 $4,570,000 $5,261,000
Increase (Decrease) for Performance Adjustment........... (177,000) -- --
Total.................................................. $3,736,000 $4,570,000 $5,261,000
========= ========= =========
</TABLE>
The basic advisory fee may be increased or decreased by applying an
adjustment formula based on the investment performance of the Fund relative to
the investment record of "a combined index" 65% of which shall be comprised of
the Standard & Poor's Composite Stock Price Index and 35% of which shall be
comprised of the Salomon Brothers High Grade Corporate Bond Index.
The present agreement continues until March 31, 1996. The agreement is
renewable thereafter, for successive one-year periods, only if each renewal is
specifically approved by a vote of the Fund's Board of Directors, including the
affirmative votes of a majority of the directors who are not parties to the
contract or "interested persons" (as defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
considering such approval. The agreement is automatically terminated if
assigned, and may be terminated without penalty at any time (1) by vote of the
Board of Directors of the Fund on 60 days' written notice to WMC, or (2) by WMC
upon 90 days' written notice to the Fund.
The Fund's Board of Directors may, without the approval of shareholders,
provide for:
A. The employment of a new investment adviser pursuant to the terms of
a new advisory agreement, either as a replacement for an existing adviser
or as an additional adviser.
B. A change in the terms of an advisory agreement.
C. The continued employment of an existing adviser on the same
advisory contract terms where a contract has been assigned because of a
change in control of the adviser.
Any such change will only be made upon not less than 30 days' prior written
notice to shareholders, which shall include the information concerning the
adviser that would have normally been included in a proxy statement.
The agreement is automatically terminated if assigned, and may be
terminated without penalty at any time (1) by vote of the Board of Directors of
the Fund on 60 days' written notice to WMC, or (2) by WMC upon 90 days' written
notice to the Fund.
Because WMC provides only investment advisory services to the Fund and has
no control over the Fund's expenses, WMC has not undertaken to guarantee
expenses of the Fund. The officers of the Fund have worked out alternative
arrangements with state authorities which require an expense guarantee.
DESCRIPTION OF WMC. WMC is a Massachusetts general partnership of which
the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland, and John R. Ryan.
PORTFOLIO TRANSACTIONS
The investment advisory agreement authorizes WMC (with the approval of the
Fund's Board of Directors) to select the brokers or dealers that will execute
the purchases and sales of portfolio securities for the Fund and directs WMC to
use its best efforts to obtain the best available price and most favorable
execution as to all transactions for the Fund. WMC has undertaken to execute
each investment transaction at a price and commission which provides the most
favorable total cost or proceeds reasonably obtainable under the circumstances.
In placing portfolio transactions, WMC will use its best judgment to choose
the broker most capable of providing the brokerage services necessary to obtain
best available price and most favorable execution. The full range and quality of
brokerage services available will be considered in making these determinations.
In those instances where it is reasonably determined that more than one broker
can offer the brokerage services needed to
11
<PAGE> 54
obtain the best available price and most favorable execution, consideration may
be given to those brokers which supply investment research and statistical
information and provide other services in addition to execution services to the
Fund and/or WMC. WMC considers such information useful in the performance of its
obligations under the agreement but is unable to determine the amount by which
such services may reduce its expenses.
The investment advisory agreement also incorporates the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Fund's Board of Directors, WMC may cause the Fund to pay a
broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of WMC to the Fund and the other Funds in the Group.
Currently, it is the Fund's policy that WMC may at times pay higher
commissions in recognition of brokerage services felt necessary for the
achievement of better execution of certain securities transactions that
otherwise might not be available. WMC will only pay such higher commissions if
it believes this to be in the best interest of the Fund. Some brokers or dealers
who may receive such higher commissions in recognition of brokerage services
related to execution of securities transactions are also providers of research
information to WMC and/or the Fund. However, WMC has informed the Fund that it
will not pay higher commission rates specifically for the purpose of obtaining
research services.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be through such firms.
However, the Fund may place portfolio orders with qualified broker-dealers who
recommend the Fund to other clients, or who act as agent in the purchase of the
Fund's shares for their clients, and may, when a number of brokers and dealers
can provide comparable best price and execution on a particular transaction,
consider the sale of Fund shares by a broker or dealer in selecting among
qualified broker-dealers.
During the fiscal years ended November 30, 1993, 1994 and 1995 the Fund
paid $3,236,184, $2,583,152 and $2,478,087 in brokerage commissions,
respectively.
Some securities considered for investment by the Fund may also be
appropriate for other Funds and/or clients served by WMC. If purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these other Funds or clients served by WMC are considered at or about the
same time, transactions in such securities will be allocated among the several
Funds and clients in a manner deemed equitable by WMC.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended November 30, 1995,
including the financial highlights for each of the five years in the period
ended November 30, 1995, appearing in the Vanguard/Wellington Fund 1995 Annual
Report to Shareholders, and the report thereon of Price Waterhouse LLP,
independent accountants, also appearing therein, are incorporated by reference
in this Statement of Additional Information. The Fund's 1995 Annual Report to
Shareholders is enclosed with this Statement of Additional Information.
PERFORMANCE MEASURES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group of Investment Companies.
Each of the investment company members of The Vanguard Group Inc.,
including Vanguard/Wellington Fund, may from time to time, use one or more of
the following unmanaged indexes for comparative performance purposes.
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.
12
<PAGE> 55
WILSHIRE 5000 EQUITY INDEX -- consists of more than 6,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 3000 STOCK INDEX -- a diversified portfolio of approximately 3,000
common stocks accounting for over 90% of the market value of publicly-traded
stocks in the U.S.
RUSSELL 2000 STOCK INDEX -- a subset of approximately 2,000 of the smallest
stocks contained in the Russell 3000; a widely-used benchmark for small
capitalization common stocks.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly-issued,
nonconvertible corporate bonds rated Aa or Aaa. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (Baa) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.
BOND BUYER MUNICIPAL INDEX (20 YEAR) BOND -- is a yield index on current coupon
high-grade general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield of four high-grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 35% Standard & Poor's 500 Index and 65% Lehman Long-Term
Corporate Bond Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Salomon Brothers
High-Grade Bond Index.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB - or better. The Index has a market value of over
$4 trillion.
13
<PAGE> 56
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB - or better with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB - or better with maturities between 5 and 10
years. The index has a market value of over $600 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB - or better with maturities greater than 10
years. The index has a market value of over $900 billion.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)
LIPPER BALANCED FUND AVERAGE -- an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.
LIPPER GENERAL EQUITY FUND AVERAGE -- an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
LIPPER FIXED INCOME FUND AVERAGE -- an industry benchmark of average fixed
income funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
14
<PAGE> 57
PART C
VANGUARD/WELLINGTON FUND, INC.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
The Registrant's Financial Statements for the year ended November 30, 1995,
including Price Waterhouse LLP's report thereon, are incorporated by reference,
in the Statement of Additional Information, from the Registrant's 1995 Annual
Report to Shareholders which has been filed with the Commission. The Financial
Statements included in the Annual Report are:
1. Statement of Net Assets as of November 30, 1995.
2. Statement of Operations for the year ended November 30, 1995.
3. Statement of Changes in Net Assets for each of the two years in the
period ended November 30, 1995.
4. Financial Highlights for each of the five years in the period ended
November 30, 1995.
5. Notes to Financial Statements.
6. Report of Independent Accountants.
<TABLE>
<S> <C>
(B) EXHIBITS
Exhibit Number Description
1............... Articles of Incorporation**
2............... By-Laws of Registrant**
3............... Not Applicable
4............... Not Applicable
5............... Not Applicable
6............... Not Applicable
7............... Reference is made to the section entitled "Management of the Fund"
in the Registrant's Statement of Additional Information
8............... Form of Custody Agreement**
9............... Form of Vanguard Service Agreement**
10............... Opinion of Counsel**
11............... Consent of Independent Accountants*
12............... Financial Statements--reference is made to (a) above
13............... Not Applicable
14............... Not Applicable
15............... Not Applicable
16............... Schedule for Computation of Performance Quotations*
27............... Financial Data Schedule*
</TABLE>
- ------------
*Filed herewith
**Previously filed
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any person.
The officers of the Registrant, the investment companies in The Vanguard Group
of Investment Companies and The Vanguard Group, Inc. are identical. Reference is
made to the caption "The Vanguard Group" in the Prospectus constituting Part A
and "Management of the Fund" in the Statement of Additional Information
constituting Part B of this Registration Statement.
<PAGE> 58
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1995 there were 601,239 shareholders.
ITEM 27. INDEMNIFICATION
Reference is made to Article XI of Registrant's Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Investment Adviser" in each of the
prospectuses constituting Part A on this Registration Statement and "Investment
Advisory Services" in Part B of this Registration Statement.
Wellington Management Company is a Massachusetts general partnership of
which the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland and John B. Neff.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None.
(b) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent,
The Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley Forge,
Pennsylvania 19482; and the Registrant's Custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02105.
ITEM 31. MANAGEMENT SERVICES
Other than the Amended and Restated Funds Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described in
Part B hereof under "Management of the Fund;" the Registrant is not a party of
any management-related service contract.
ITEM 32. UNDERTAKINGS
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 ("1940 Act") or other applicable law. Registrant
hereby undertakes to comply with the provisions of Section 16(C) of the 1940 Act
in regard to shareholders' rights to call a meeting of shareholders for the
purpose of voting on the removal of Directors and to assist in shareholder
communications in such matters, to the extent required by law.
Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant hereby certifies that it meets all
the requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933 and, has duly caused this Post-Effective Amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the Town of Valley Forge and the Commonwealth of
Pennsylvania, on the 5th day of March, 1996.
VANGUARD/WELLINGTON FUND, INC.
BY: (Raymond J. Klapinsky) John C. Bogle*, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman of the Board and Director
March 5, 1996
BY: (Raymond J. Klapinsky)
John J. Brennan*, Director, Chief Executive Officer and President
March 5, 1996
BY: (Raymond J. Klapinsky)
Robert E. Cawthorn*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
Bruce K. MacLaury*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
Alfred M. Rankin*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
March 5, 1996
BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
March 5, 1996
*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE> 60
VANGUARD/WELLINGTON FUND, INC.
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Consent of Independent Accountants.............................................. EX-99. B11
Schedule for Computation of Performance Quotations.............................. EX-99. B16
Financial Data Schedule......................................................... EX-27
</TABLE>
<PAGE> 1
EX-99. B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
the Statement of Additional Information, constituting parts of this amended
Registration Statement on Form N-1A, of our report dated December 29, 1995
relating to the financial statements and financial highlights appearing in the
November 30, 1995 Annual Report to Shareholders of Vanguard/Wellington Fund,
Inc. We also consent to the references to us under the headings "Financial
Highlights" and "General Information" in the Prospectuses and "Financial
Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 4, 1996
<PAGE> 1
EX-99. B16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD/WELLINGTON FUND
1. Average Annual Total Return (As of November 30, 1995)
n
P (1 + T) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
</TABLE>
<TABLE>
<S> <C>
EXAMPLE:
One Year
P = $1,000
T = +32.70%
N = 1
ERV = $1,327.04
Five Years
P = $1,000
T = +14.97%
N = 5
ERV = $2,008.55
Ten Years
P = $1,000
T = +12.95%
N = 10
ERV = $3,380.33
</TABLE>
2. YIELD (30 Days Ended November 30, 1995)
<TABLE>
<S> <C> <C>
a - b
----- 6
Yield = 2[( c X d + 1) - 1]
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $43,042,849.12
b = $2,634,622.64
c = 500,023,423.011
d = $24.57
Yield = 3.98%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000105563
<NAME> VANGUARD/WELLINGTON FUND, INC.
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 9264268
<INVESTMENTS-AT-VALUE> 12245613
<RECEIVABLES> 341693
<ASSETS-OTHER> 1421
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12588727
<PAYABLE-FOR-SECURITIES> 52603
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203510
<TOTAL-LIABILITIES> 256113
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9037162
<SHARES-COMMON-STOCK> 501933
<SHARES-COMMON-PRIOR> 446803
<ACCUMULATED-NII-CURRENT> 174074
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 140033
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2981345
<NET-ASSETS> 12332614
<DIVIDEND-INCOME> 216903
<INTEREST-INCOME> 268279
<OTHER-INCOME> 0
<EXPENSES-NET> 34314
<NET-INVESTMENT-INCOME> 450868
<REALIZED-GAINS-CURRENT> 140850
<APPREC-INCREASE-CURRENT> 2303426
<NET-CHANGE-FROM-OPS> 2895144
<EQUALIZATION> 8922
<DISTRIBUTIONS-OF-INCOME> 407411
<DISTRIBUTIONS-OF-GAINS> 13409
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100558
<NUMBER-OF-SHARES-REDEEMED> 63856
<SHARES-REINVESTED> 18428
<NET-CHANGE-IN-ASSETS> 3694341
<ACCUMULATED-NII-PRIOR> 121695
<ACCUMULATED-GAINS-PRIOR> 12592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5261
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34314
<AVERAGE-NET-ASSETS> 10318899
<PER-SHARE-NAV-BEGIN> 19.33
<PER-SHARE-NII> 0.96
<PER-SHARE-GAIN-APPREC> 5.19
<PER-SHARE-DIVIDEND> 0.88
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.57
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
