<PAGE> 1
[PHOTO]
VANGUARD/
WELLINGTON FUND
Semiannual Report
May 31, 1997
[VANGUARD GROUP LOGO]
<PAGE> 2
[PHOTO]
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION At Vanguard, we treasure
our rich nautical heritage--even as we steer our course toward the twenty-first
century. Our Report cover reflects that blending of tradition and innovation, of
past, present, and future. The montage includes a bronze medallion with a
likeness of our namesake, HMS Vanguard (Lord Nelson's flagship at The Battle of
the Nile); a clock built circa 1816 in Scotland, featuring a portrait of Nelson;
and several views of our recently completed campus, which is steeped in nautical
imagery--from our buildings named after Nelson's warships (Victory, Majestic,
and Goliath are three shown), to our artwork and ornamental compass rose.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
3
Report From
The Adviser
5
Performance
Summary
6
Financial
Statements
7
Directors And
Officers
INSIDE BACK COVER
All comparative mutual fund data
are from Lipper Analytical Services, Inc.
or Morningstar unless otherwise noted.
<PAGE> 3
[PHOTO]
FELLOW SHAREHOLDER,
The stock market continued its remarkable surge during the first half of
Vanguard/Wellington Fund's 1997 fiscal year even while rising interest rates
pared the returns from the bond market. This divergence was reflected in our
return, which fell roughly midway between the strong gains of the stock market
and the losses registered by long-term bonds.
Wellington Fund's total return (capital change plus reinvested dividends)
was +6.5% for the six months ended May 31, 1997. We slightly outpaced the return
of the average balanced mutual fund but trailed the +8.0% theoretical return of
our unmanaged composite index, which is weighted 65% in the Standard & Poor's
500 Composite Stock Price Index and 35% in the Lehman Brothers Long-Term
Corporate AA or Better Bond Index. The adjacent table presents the returns for
the six-month period.
<TABLE>
<CAPTION>
- --------------------------------------------
TOTAL RETURN
SIX MONTHS ENDED
MAY 31, 1997
- --------------------------------------------
<S> <C>
Vanguard/Wellington Fund +6.5%
- --------------------------------------------
Average Balanced Fund +6.0%
- --------------------------------------------
Composite Stock/Bond Index* +8.0%
- --------------------------------------------
</TABLE>
*65% S&P 500 Index, 35% Lehman Long-Term
Corporate AA or Better Bond Index.
The Fund's return is based on a decrease in net asset value from $28.34 per
share on November 30, 1996, to $28.27 per share on May 31, 1997, with the latter
figure adjusted for dividends totaling $0.66 per share paid from net investment
income and distributions totaling $1.11 paid from net realized capital gains. As
of May 31, Wellington's dividend yield was 4.0%.
THE PERIOD IN REVIEW
Exuberance, whether irrational or not, was the dominant mood in the stock market
during the first half of our fiscal year. The climate was nearly ideal for
common stocks as strong economic growth, rising corporate profits, and
relatively low inflation prevailed during the six months. Yet the market's
strong advance was bumpy and top-heavy; large-capitalization growth stocks
significantly outpaced other sectors. Volatility was particularly evident in the
S&P 500 Index's decline of nearly -10% during the seven weeks following its
record high on February 18. To the surprise of many observers, however, the drop
was followed by an energetic rebound. All of the lost ground--and then some--was
regained during the final seven weeks of the period, pushing market averages to
record highs.
Jitters about interest rates apparently caused the brief slide. The
subsequent rebound stemmed from a combination of factors, including strong
earnings reports by many key companies, a lessening of inflation fears, and an
easing in interest rates from peaks reached in mid-April. Whatever their causes,
the price fluctuations served as a clear reminder of the volatility that is very
much a part of investing in stocks.
During the half-year, the bond market, as measured by the Lehman Long-Term
Corporate AA or Better Bond Index, provided a negative total return of -1.2%.
Bond prices were buffeted by swift reactions to each change in sentiment about
the strength of the U.S. economy and the possibility that inflation would
accelerate. Yields moved higher during the first four months of the period, then
retreated in April and May as concerns about inflation eased somewhat. On
balance, interest rates ended the period higher than
1
<PAGE> 4
they started, with the yield on the benchmark 30-year U.S. Treasury bond rising
from 6.35% on November 30, 1996, to 6.91% on May 31, 1997.
In the stock market, the S&P 500 Index registered a marvelous total return
of +13.1%. Wellington Fund's equity portion earned a return of +11.2%. Our
equity segment's shortfall versus the S&P 500 Index is more than explained by
the difference in returns for large-cap growth stocks (+15.8%) and large-cap
value stocks (+10.4%). Wellington's emphasis on dividend-paying stocks means
that we have a decided tilt toward value stocks and hold relatively few growth
issues. While long-term returns on growth and value stocks have generally been
similar, it is not at all unusual for returns on the two segments to differ over
shorter periods.
The rise in bond yields and the stock market's advance increased the
relative attractiveness of bonds, so our investment adviser, Wellington
Management Company, reduced the portion of Fund assets invested in equities from
64% to 62% during the period. This small shift put our equity holdings near the
lower end of our target range of 60% to 70% of assets and was a factor in our
modest shortfall versus our benchmark composite index. Our edge over competing
funds stemmed from our emphasis on larger-capitalization stocks, which
outperformed smaller stocks, and our low expense ratio (0.31% of assets in
fiscal 1996 versus 1.32% for the average balanced fund).
IN SUMMARY
Coming on top of extraordinary gains in the preceding two years, the stock
market's strong showing during the past six months was astonishing to us and,
it's safe to say, to most other market participants. At the risk of being
accused of "crying wolf," we repeat the comment we made six months ago in our
Annual Report: "The risks of investing in stocks and bonds are still very much
present."
We continue to believe that a balanced approach to investing--holding
stocks, bonds, and reserves in proportions appropriate to each investor's
needs--is the best way to ride out the ups and downs of the financial markets
and "stay the course" toward long-term objectives. Just such a balanced approach
has been Wellington's modus operandi for nearly 70 years and will remain our
strategy in the years ahead.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
June 13, 1997
2
<PAGE> 5
[PHOTO]
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 1997
U.S. EQUITY MARKETS
With the economy continuing to exhibit strong growth and modest levels of
inflation, investors in U.S. common stocks were rewarded with solid gains during
the past six months. The best performers were primarily larger-capitalization
issues, although the small-company indexes finally exhibited some strength in
May. For example, during the last six months, the Standard & Poor's 500
Composite Stock Price Index gained 13.1%, fueled by a 6.1% boost in May.
Reflecting the gains among smaller companies, the Russell 2000 Index posted an
8.4% increase for the six-month period, driven by an 11.1% jump in May. It was
particularly noteworthy that May's small-cap gains were led by a 15.0% surge
among small growth stocks, the worst segment of the U.S. market during the past
12 months.
Stocks benefited from the continued strength of corporate earnings, which
rose some 15% during the past year. The strength in earnings and the expectation
that income will increase at an attractive pace helped stocks to continue to
produce solid gains in the fiscal period, despite the 0.6% increase in the yield
of the 10-year U.S. Treasury bond over the past six months. What's more,
earnings have shown not only good strength but remarkable consistency in beating
the consensus forecasts of Wall Street analysts.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1997
----------------------------
6 MONTHS 1 YEAR 5 YEARS*
- ---------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 13.1% 29.4% 18.4%
Russell 2000 Index 8.4 7.0 15.8
MSCI-EAFE Index 4.2 7.9 10.9
- ---------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 0.9% 8.3% 7.2%
Lehman 10-Year Municipal
Bond Index 1.7 8.2 7.5
Salomon 90-Day U.S. Treasury Bills 2.6 5.3 4.5
- ---------------------------------------------------------------------
OTHER
Consumer Price Index 0.9% 2.2% 2.8%
- ---------------------------------------------------------------------
</TABLE>
*Average annual.
The strongest gains in the S&P 500 Index during the past six months came
from the technology sector (up 17.5%) and the consumer-staples sector (up
20.4%). By contrast, the more economically sensitive and less predictable
earnings of stocks in the materials & processing sector caused these issues to
lag the broad market, although, on an absolute basis, their 8.2% return over six
months is quite good.
U.S. FIXED-INCOME MARKETS
The general rise in interest rates during the past six months reflects the
economy's underlying momentum. The 10-year U.S. Treasury's yield increased from
6.04% at the end of November to 6.97% by the middle of April. Economic reports
released in the last several weeks of the period indicated a possible slowing in
economic growth, which reduced fears that inflation might accelerate and helped
interest rates fall to 6.66% by the end of May.
3
<PAGE> 6
Fueled by robust consumer spending, the U.S. economy expanded at a strong
3.8% annual rate in the fourth quarter of 1996 and a remarkable 5.8% rate in the
first three months of 1997. The nation's unemployment rate, at 4.8% in May, was
the lowest in a generation. Strong economic growth and tight labor markets often
lead bond investors to expect an acceleration in inflation because of increased
demand for goods and services. Reflecting this expectation, the Federal Reserve
raised its federal funds interest rate target by 0.25% on March 25 in a
"preemptive" strike against mounting inflationary pressures. Observed price
increases have been subdued in recent months, however. Wholesale prices have
fallen in each of the first four months of 1997, and so far this year consumer
prices have risen at a slower pace than last year.
Higher interest rates dampened returns for bond investors. The Lehman
Brothers Aggregate Bond Index gained 0.94% over the past six months, reflecting
an income return of 3.43% that was partially offset by a capital decline of
- -2.49%. During this period, investors who favored shorter-maturity and
lower-quality issues achieved somewhat better returns. Mortgage-backed
securities continued to perform well because refinancing activity has been
reduced to historically low levels as interest rates have risen. Municipal
issues also tended to perform better than their taxable counterparts.
INTERNATIONAL EQUITY MARKETS
International investors fared reasonably well over the past six months. As
measured by the broad Morgan Stanley Capital International-Europe, Australasia,
Far East Index, foreign markets gained 4.2%.
The period saw two major developments. First, the Japanese stock market
moved sharply higher in the spring, gaining 11% in May alone. Better tone in the
economy, plus strong earnings reported by export-oriented companies benefiting
from the weak yen, gave Japan a long-awaited boost. For the six months, however,
the Japanese market remained in negative territory (-5.5%). The competitive
benefits of a weak currency relative to the dollar extended to Germany, where
the export-driven capital goods and chemical manufacturers gained; overall, the
German market rose 12.4% during the six-month period.
Arguably the biggest news came from the French elections at the end of May.
The new government is considered to be less friendly toward the austerity
measures needed to meet the eligibility requirements for the European Monetary
Union (EMU) in 1999. The French elections also had a broad impact across the
continent. Although most investors appear to agree that the elections won't
jeopardize the continent's move toward the EMU, the timing and intensity of the
fiscal measures are now less certain. Market reaction to the new French
government was mixed. France lost -2.1% in May (in francs), while Germany gained
2.7% (in deutsche marks). For the six months, Europe gained 20.1% in local
currencies, which a strong dollar trimmed to 11.1% for U.S. investors.
4
<PAGE> 7
[PHOTO]
REPORT FROM THE ADVISER
During the first half of fiscal 1997, Vanguard/ Wellington Fund provided a
return of 6.5%, compared with returns of 6.0% for the average balanced fund and
8.0% for the unmanaged stock/bond composite index against which we compare
ourselves. The equity portion of your Fund, which represented 62% of assets on
May 31, provided a net return of 11.2% versus 13.1% for the Standard & Poor's
500 Composite Stock Price Index. Performance of our fixed-income securities,
which made up 38% of assets, was in line with the long-term bond index,
declining -1.2% during the six-month period.
The stock market has continued its advance in 1997 as a result of strong
economic growth, low levels of inflation, and favorable earnings trends. These
factors were powerful enough to overcome a rise in interest rates during the
last six months. The Fund's equities trailed the market somewhat, largely
because of our relatively light holdings of large-capitalization growth stocks,
where valuations are high and dividends are hard to come by. Our overweighting
in the financial-services area, which is sensitive to rising interest rates,
also held us back.
We increased our exposure to the information technology sector during the
market correction in early spring. We also added to our utility holdings. The
Fund's exposure to energy was reduced as the sector continued to perform quite
well even though commodity prices were declining. During the last six months, we
added a number of new companies, such as H.J. Heinz, IBM, and Fannie Mae, to the
Fund.
The bond market remained unsettled, with the yield on the benchmark 30-year
Treasury bond rising by approximately 50 basis points to 6.9% during the six
months. The strong U.S. economy has produced a fear of inflation that, though
unrealized, has hurt the bond market. Investors in long-term bonds enjoy a yield
that offers a substantial premium over the current inflation rate. We are
maintaining the long average maturity of the Fund's bond holdings at
approximately 20 years. Should economic growth continue to surprise on the
upside, inflationary pressures at some point will become a reality. We expect
that economic growth will slow down to a sustainable rate, with continued low
inflation.
In our view, the yield on long-term Treasuries provides powerful
competition with the stock market at current levels, and we expect in the near
term to keep our equity exposure at the low end of the 60% to 70% of assets
range. Given our defensive posture and emphasis on low valuations and income,
keeping up with an ebullient market that is willing to pay a large premium for
growth can be a challenge. We believe that Wellington Fund is well positioned to
participate in an economy that will continue to grow, albeit at a somewhat
slower pace than in recent times.
Ernst H. von Metzsch, Senior Vice President and
Portfolio Manager
Wellington Management Company, LLP
June 11, 1997
INVESTMENT PHILOSOPHY
The adviser believes that a reasonable level of current income and long-term
growth in capital can be achieved without undue risk by holding 60% to 70% of
assets in equities and the balance in fixed-income securities. Consistent with
this approach, dividend-paying stocks dominate the Fund's equity segment, while
long-term, high-quality corporate, U.S. Treasury, and mortgage-backed securities
make up the bond segment.
5
<PAGE> 8
PERFORMANCE SUMMARY
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Fund. Note, too, that both
share price and return can fluctuate widely so that an investment in the Fund
could lose money.
<TABLE>
<CAPTION>
WELLINGTON FUND
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1976-MAY 31, 1997
- ----------------------------------------------------------
WELLINGTON FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1977 -6.5% 5.1% -1.4% 0.5%
1978 -0.3 6.2 5.9 3.7
1979 4.9 7.9 12.8 10.1
1980 18.1 9.2 27.3 21.8
1981 -5.6 8.4 2.8 -0.4
1982 10.1 9.7 19.8 22.4
1983 17.0 8.7 25.7 19.2
1984 0.6 7.7 8.3 7.2
1985 18.3 8.2 26.5 27.5
1986 17.3 7.0 24.3 26.4
1987 -7.1 2.8 -4.3 -2.0
1988 13.8 7.2 21.0 19.3
1989 13.4 6.6 20.0 25.7
1990 -8.4 5.8 -2.6 -0.2
1991 10.2 6.6 16.8 19.2
1992 9.2 5.8 15.0 15.9
1993 8.4 5.2 13.6 11.8
1994 -5.2 4.4 -0.8 -1.6
1995 27.3 5.4 32.7 33.0
1996 16.7 4.6 21.3 19.8
1997** 4.0 2.5 6.5 8.0
- ----------------------------------------------------------
</TABLE>
*65% S&P 500 Index, 35% Lehman Long-Term Corporate AA or Better Bond Index.
**Six months ended May 31, 1997.
See Financial Highlights table on page 14 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1997*
- --------------------------------------------------------------------------
10 YEARS
INCEPTION -----------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wellington Fund 7/1/29 13.04% 13.97% 5.67% 5.49% 11.16%
- --------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
6
<PAGE> 9
[PHOTO]
FINANCIAL STATEMENTS
MAY 31, 1997 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the Fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, preferred stocks, bonds,
etc.) and by industry sector. Other assets are added to, and liabilities are
subtracted from, the value of Total Investments to calculate the Fund's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the Fund to
arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Fund's net assets on both a dollar and per-share basis.
Because all income and any realized gains must be distributed to shareholders
each year, the bulk of net assets consists of Paid in Capital (money invested by
shareholders). The amounts shown for Undistributed Net Investment Income and
Accumulated Net Realized Gains usually approximate the sums the Fund had
available to distribute to shareholders as income dividends or capital gains as
of the statement date. Any Accumulated Net Realized Losses, and any cumulative
excess of distributions over net income or net realized gains, will appear as
negative balances. Unrealized Appreciation (Depreciation) is the difference
between the market value of the Fund's investments and their cost, and reflects
the gains (losses) that would be realized if the Fund were to sell all of its
investments at their statement-date values.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
- ------------------------------------------------------------------------
COMMON STOCKS (61.4%)
- ------------------------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (4.9%)
Canadian National Railway Co. 2,000,000 $ 83,500
Chrysler Corp. 3,000,000 95,250
Ford Motor Co. 6,704,515 251,420
General Motors Corp. 2,000,000 114,500
KLM Royal Dutch Air Lines NV 3,000,000 88,125
Norfolk Southern Corp. 466,700 45,328
Union Pacific Corp. 3,395,500 230,045
---------
908,168
---------
CONSUMER DISCRETIONARY (2.0%)
Eastman Kodak Co. 1,304,600 108,119
May Department Stores Co. 1,508,000 71,064
J.C. Penney Co., Inc. 1,791,700 92,273
Sears, Roebuck & Co. 1,907,017 93,682
---------
365,138
---------
CONSUMER STAPLES (1.6%)
General Mills, Inc. 1,000,000 63,250
H.J. Heinz Co. 2,500,000 107,500
Philip Morris Cos., Inc. 1,200,000 52,800
SuperValu Inc. 2,279,400 76,075
---------
299,625
---------
FINANCIAL SERVICES (12.6%)
Allstate Corp. 5,500,000 404,937
BB&T Corp. 350,000 14,000
Banc One Corp. 500,000 21,625
BankAmerica Corp. 1,710,400 199,903
CIGNA Corp. 1,000,000 173,750
Citicorp 2,850,000 325,969
Compass Bancshares Inc. 449,950 14,398
CoreStates Financial Corp. 2,100,000 111,037
Fannie Mae 2,756,300 120,244
First Bank System, Inc. 4,249,800 348,484
First Union Corp. 2,307,200 198,131
Jefferson-Pilot Corp. 1,416,800 90,144
Marsh & McLennan Cos., Inc. 797,500 105,071
Summit Bancorp 200,000 9,875
Wachovia Corp. 2,977,400 181,249
---------
2,318,817
---------
HEALTH CARE (8.1%)
Abbott Laboratories 2,750,000 173,250
American Home Products Corp. 3,250,000 247,812
C.R. Bard, Inc. 2,437,000 77,984
Baxter International, Inc. 2,954,700 155,860
Bristol-Myers Squibb Co. 3,800,000 278,825
Johnson & Johnson 3,000,000 179,625
Pharmacia & Upjohn, Inc. 4,865,400 168,465
Pfizer, Inc. 1,400,000 144,025
Zeneca Group PLC ADR 650,000 59,556
---------
1,485,402
---------
INTEGRATED OILS (5.8%)
Amoco Corp. 1,300,000 116,186
Ashland Inc. 1,000,000 47,875
Atlantic Richfield Co. 200,000 29,100
Chevron Corp. 1,400,000 98,000
(1)Equitable Resources, Inc. 1,870,300 55,408
Exxon Corp. 1,400,000 82,950
Kerr-McGee Corp. 500,000 32,375
Norsk Hydro AS ADR 1,500,000 76,125
Phillips Petroleum Co. 2,200,000 93,500
Repsol SA ADR 3,197,700 134,703
Royal Dutch Petroleum Co. ADR 535,512 104,559
Texaco Inc. 500,000 54,563
Total SA ADR 2,000,000 91,250
Unocal Corp. 1,100,000 46,888
---------
1,063,482
---------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
MARKET
VALUE*
WELLINGTON FUND SHARES (000)
- ------------------------------------------------------------------------
<S> <C> <C>
MATERIALS & PROCESSING (12.1%)
Aluminum Co. of America 2,500,000 $ 184,062
British Steel PLC ADR 3,363,200 87,023
Cabot Corp. 2,200,000 56,375
Dow Chemical Co. 2,463,300 205,378
E.I. du Pont de Nemours & Co. 1,850,000 201,419
International Paper Co. 2,400,000 115,200
Kimberly-Clark Corp. 5,300,000 265,663
(1)Lubrizol Corp. 3,250,000 115,781
PPG Industries, Inc. 1,700,000 98,813
(1)Phelps Dodge Corp. 3,304,900 276,372
Reynolds Metals Co. 1,600,000 108,600
Rhone-Poulenc SA ADR 3,068,303 98,953
Temple-Inland Inc. 1,984,600 120,068
Westvaco Corp. 3,528,900 110,278
Willamette Industries, Inc. 1,460,500 108,807
Witco Chemical Corp. 1,714,200 63,425
---------
2,216,217
---------
PRODUCER DURABLES (5.5%)
AMP, Inc. 2,088,600 85,894
Caterpillar, Inc. 1,300,000 126,912
Honeywell, Inc. 2,747,900 199,910
Northrop Grumman Corp. 2,170,400 183,941
United Technologies Corp. 1,700,000 136,637
Xerox Corp. 3,979,300 269,598
---------
1,002,892
---------
TECHNOLOGY (0.7%)
International Business
Machines Corp. 1,510,000 130,615
---------
UTILITIES (5.0%)
AT&T Corp. 4,000,000 147,500
BellSouth Corp. 2,500,000 113,437
Carolina Power & Light Co. 2,000,000 69,500
CINergy Corp. 2,155,000 75,425
Duke Power Co. 2,000,000 90,000
NYNEX Corp. 1,000,000 53,750
PacifiCorp 3,150,000 62,606
Pinnacle West Capital Corp. 2,194,000 64,449
SBC Communications Inc. 1,436,300 84,024
Texas Utilities Co. 2,490,000 85,594
U S WEST Communications
Group 1,964,856 71,963
---------
918,248
---------
OTHER (3.1%)
Canadian Pacific Ltd. 5,592,300 148,196
General Electric Co. 4,600,000 277,725
Minnesota Mining &
Manufacturing Co. 1,500,000 137,625
---------
563,546
---------
- ------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $6,485,043) 11,272,150
- ------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.6%)
- ------------------------------------------------------------------------
Bethlehem Steel Corp. Cvt. $3.50 500,000 19,938
Cyprus Amax Minerals Co.
Cvt. $4.00 480,000 26,400
Sun Co., Inc. Cvt. $1.80 Series A 2,000,000 58,000
- ------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $102,770) 104,338
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ------------------------------------------------------------------------
CORPORATE BONDS (18.8%)
- ------------------------------------------------------------------------
<S> <C> <C>
FINANCE (5.7%)
Allstate Corp.
7.50%, 6/15/13 $ 15,000 $ 14,790
AMBAC, Inc.
7.50%, 5/1/23 25,000 24,506
American Re Corp.
7.45%, 12/15/26 41,500 40,268
Associates Corp. of North America
6.875%, 11/15/08 35,000 33,521
Banc One Corp.
7.625%, 10/15/26 20,000 19,479
9.875%, 3/1/09 20,000 23,763
BankAmerica Corp.
7.20%, 4/15/06 20,000 19,890
BankBoston Corp.
6.625%, 12/1/05 27,000 25,732
CIGNA Corp.
7.875%, 5/15/27 45,000 44,641
The Chase Manhattan Corp.
6.50%, 1/15/09 30,000 27,970
Citicorp
6.75%, 8/15/05 30,000 29,209
Comerica Bank
7.875%, 9/15/26 20,000 19,935
8.375%, 7/15/24 20,500 21,159
Dean Witter Discover
6.75%, 10/15/13 24,275 22,240
7.07%, 2/10/14 17,500 16,525
Exxon Capital Corp.
6.00%, 7/1/05 13,500 12,694
First Chicago Corp.
6.375%, 1/30/09 15,000 13,892
First Colony Corp.
6.625%, 8/1/03 31,550 30,853
First Union Bancorp
7.50%, 4/15/35 30,000 30,931
General Electric Capital Corp.
8.125%, 5/15/12 30,000 32,276
General Electric Capital Services
7.50%, 8/21/35 11,000 11,019
General Electric Global
Insurance Holdings
7.00%, 2/15/26 35,000 32,703
General Motors Acceptance Corp.
6.00%, 4/1/11 27,370 23,590
General Re Corp.
9.00%, 9/12/09 32,000 36,486
John Hancock
7.375%, 2/15/24 29,000 27,137
Jackson National Life Insurance Co.
8.15%, 3/15/27 40,000 39,568
Liberty Mutual Insurance Co.
7.875%, 10/15/26 30,000 29,256
Lumbermans Mutual Casualty
9.15%, 7/1/26 35,000 37,520
Metropolitan Life Insurance Co.
7.70%, 11/1/15 30,000 29,310
NBD Bancorp
7.125%, 5/15/07 15,000 14,786
National City Bank Pennsylvania
7.25%, 10/21/11 20,000 19,513
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ------------------------------------------------------------------------
<S> <C> <C>
National City Columbus
7.25%, 7/15/10 $ 25,000 $ 24,734
NationsBank Corp.
7.80%, 9/15/16 45,000 45,567
Norwest Financial Inc.
6.25%, 12/15/07 35,000 32,498
Republic New York Corp.
7.75%, 5/15/09 10,000 10,327
9.50%, 4/15/14 5,000 5,879
9.70%, 2/1/09 5,000 5,915
SunTrust Bank Atlanta
7.25%, 9/15/06 35,000 35,161
Texaco Capital, Inc.
9.75%, 3/15/20 15,000 18,349
TransAmerica Financial
6.50%, 3/15/11 29,265 26,696
U S WEST Capital Funding, Inc.
7.90%, 2/1/27 35,000 34,708
Wachovia Corp.
6.375%, 2/1/09 6,000 5,556
---------
1,050,552
---------
INDUSTRIAL (8.9%)
ARCO Chemical Co.
9.80%, 2/1/20 15,000 18,347
Air Products & Chemicals, Inc.
8.75%, 4/15/21 26,650 29,596
Albertson's Inc.
7.75%, 6/15/26 30,000 30,428
Amoco Canada Petroleum Co.
6.75%, 2/15/05 10,000 9,847
7.95%, 10/1/22 20,000 19,841
Anheuser-Busch Cos., Inc.
7.00%, 12/1/25 30,000 27,256
Archer-Daniels-Midland Co.
7.50%, 3/15/27 40,000 39,655
Baxter International, Inc.
7.65%, 2/1/27 35,000 34,502
Becton Dickinson & Co.
8.70%, 1/15/25 20,000 21,119
The Boeing Co.
8.75%, 8/15/21 38,200 43,400
Bristol-Myers Squibb Co.
6.80%, 11/15/26 45,000 41,844
Browning-Ferris Industries, Inc.
6.375%, 1/15/08 34,000 31,633
CPC International, Inc.
7.25%, 12/15/26 30,500 29,381
CSX Corp.
7.90%, 5/1/17 35,000 35,540
Coca-Cola Enterprises, Inc.
8.50%, 2/1/22 30,000 32,423
E.I. du Pont de Nemours & Co.
8.25%, 1/15/22 25,000 25,391
Eastman Chemical Co.
7.60%, 2/1/27 40,000 39,020
Eaton Corp.
7.00%, 4/1/11 10,600 9,903
7.625%, 4/1/24 15,000 14,909
Fluor Corp.
6.95%, 3/1/07 30,000 29,498
Ford Motor Co.
8.875%, 1/15/22 25,000 27,982
General Motors Corp.
7.70%, 4/15/16 25,000 25,240
Georgia-Pacific Corp.
9.625%, 3/15/22 22,000 23,629
Husky Oil Ltd.
7.55%, 11/15/16 30,000 29,102
International Business
Machines Corp.
8.375%, 11/1/19 25,000 26,902
Johnson & Johnson
6.73%, 11/15/23 15,000 13,886
Eli Lilly & Co.
7.125%, 6/1/25 29,000 27,785
Lockheed Martin Corp.
7.65%, 5/1/16 40,000 40,307
Lucent Technologies Inc.
7.25%, 7/15/06 35,000 35,324
McDonald's Corp.
7.375%, 7/15/33 15,000 14,188
Mead Corp.
7.35%, 3/1/17 16,250 15,870
Mobil Corp.
8.625%, 8/15/21 20,000 22,659
Morton International, Inc.
9.25%, 6/1/20 21,000 24,721
Motorola, Inc.
7.50%, 5/15/25 43,500 43,626
News America Holdings
8.00%, 10/17/16 25,000 24,392
Norfolk Southern Corp.
7.70%, 5/15/17 40,000 40,142
Norsk Hydro AS
7.15%, 11/15/25 30,000 28,123
9.00%, 4/15/12 20,000 22,590
PPG Industries, Inc.
6.875%, 2/15/12 13,600 13,107
9.00%, 5/1/21 19,750 22,716
J.C. Penney Co., Inc.
7.95%, 4/1/17 35,000 35,683
Petro-Canada
7.875%, 6/15/26 32,000 32,750
Phillips Petroleum Co.
9.375%, 2/15/11 20,000 23,200
Procter & Gamble Co. ESOP
9.36%, 1/1/21 20,000 23,636
Raytheon Co.
7.375%, 7/15/25 18,000 16,775
Rockwell International Corp.
7.875%, 2/15/05 17,000 17,790
Rohm & Haas Co.
9.80%, 4/15/20 15,000 17,868
Sears, Roebuck & Co.
9.375%, 11/1/11 14,000 16,307
SmithKline Beecham MTN
7.375%, 4/15/05 15,000 15,265
Stanford Univ.
7.65%, 6/15/26 29,000 29,399
Talisman Energy, Inc.
7.125%, 6/1/07 20,000 19,577
Tenneco, Inc. (New)
7.875%, 4/15/27 35,000 34,919
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
WELLINGTON FUND (000) (000)
- ------------------------------------------------------------------------
<S> <C> <C>
Tosco Corp.
7.80%, 1/1/27 $ 35,000 $ 34,868
Union Pacific Corp.
7.00%, 2/1/16 35,000 32,356
United Parcel Service
8.375%, 4/1/20 30,070 32,964
United Technologies Corp.
8.75%, 3/1/21 32,000 36,039
WMX Technologies, Inc.
7.65%, 3/15/11 20,150 20,607
Wal-Mart Stores, Inc.
7.25%, 6/1/13 24,000 23,785
Wendy's International, Inc.
6.35%, 12/15/05 25,500 23,979
WorldCom Inc.
7.75%, 4/1/27 30,000 30,104
Zeneca Wilmington
7.00%, 11/15/23 36,500 33,660
---------
1,637,355
---------
UTILITIES (4.2%)
AT&T Corp.
7.75%, 3/1/07 40,000 41,518
(2)Atlantic City Electric
7.00%, 9/1/23 18,000 16,495
BellSouth Telecommunications
5.875%, 1/15/09 15,000 13,640
7.50%, 6/15/33 30,000 28,621
Carolina Power & Light Co.
8.625%, 9/15/21 31,000 34,386
Chesapeake & Potomac
Telephone Co. (MD)
7.15%, 5/1/23 10,000 9,411
Chesapeake & Potomac
Telephone Co. (VA)
7.625%, 12/1/12 9,400 9,550
Consolidated Edison Co. of
New York, Inc.
7.50%, 6/15/23 25,000 23,833
Duke Power Co.
7.00%, 7/1/33 10,000 9,043
8.625%, 3/1/22 8,000 8,217
El Paso Natural Gas Co.
7.50%, 11/15/26 35,000 34,060
GTE North Inc.
6.90%, 11/1/08 30,000 29,240
GTE Southwest Inc.
6.00%, 1/15/06 30,000 27,682
Illinois Bell Telephone Co.
6.625%, 2/1/25 27,725 24,267
Indiana Bell Telephone Co. Inc.
7.30%, 8/15/26 30,000 29,386
New Jersey Bell Telephone Co.
8.00%, 6/1/22 25,519 26,784
New York Telephone Co.
6.70%, 11/1/23 11,000 9,736
7.25%, 2/15/24 20,000 18,681
Northern States Power Co.
7.125%, 7/1/25 45,000 43,160
Ohio Bell Telephone Co.
7.85%, 12/15/22 20,000 19,951
Pacific Bell Telephone Co./
SBC Communications Inc.
7.125%, 3/15/26 40,000 37,982
Pacific Gas & Electric Co.
7.05%, 3/1/24 25,000 23,677
PacifiCorp
6.625%, 6/1/07 20,500 19,518
6.71%, 1/15/26 21,000 18,653
PanEnergy Corp.
7.00%, 10/15/06 25,000 24,546
Southern California Edison Co.
6.90%, 10/1/18 20,750 18,672
Southwestern Bell Telephone Co.
7.25%, 7/15/25 25,000 23,504
Southwestern Bell
Telephone Co. MTN
7.60%, 4/26/07 7,000 7,134
Tennessee Gas Pipeline Co.
7.50%, 4/1/17 40,000 39,415
Texas Utilities Electric Co.
7.875%, 4/1/24 14,000 13,608
U S WEST Communications Group
6.875%, 9/15/33 30,000 26,128
Washington Gas & Light
6.15%, 1/26/26 23,000 21,357
Wisconsin Electric Power Co.
7.70%, 12/15/27 29,100 28,655
Wisconsin Gas Co.
6.60%, 9/15/13 13,100 11,835
---------
772,345
---------
- ------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $3,458,538) 3,460,252
- ------------------------------------------------------------------------
FOREIGN BONDS (4.7%)
- ------------------------------------------------------------------------
ABN AMRO Bank NV (Chicago)
7.25%, 5/31/05 40,000 40,104
Abbey National PLC
6.69%, 10/17/05 25,000 24,200
Abbey National First Capital
8.20%, 10/15/04 20,000 21,162
Asian Development Bank
9.125%, 6/1/00 10,000 10,688
BBV International Finance
7.00%, 12/1/25 27,500 24,783
BHP Finance USA Ltd.
7.25%, 3/1/16 35,000 33,372
Bank of Montreal
7.80%, 4/1/07 15,000 15,434
Banque Nationale de Paris-NY
7.20%, 1/15/07 35,000 34,313
Banque Paribas-NY
6.875%, 3/1/09 35,000 32,695
Bayerische Landesbank-NY
6.375%, 10/15/05 25,000 23,898
Deutsche Bank Financial
6.70%, 12/13/06 40,000 38,534
Enersis SA
7.40%, 12/1/16 35,000 33,035
Republic of Ireland MTN
7.64%, 1/2/02 30,000 30,752
Republic of Italy Global Bond
6.875%, 9/27/23 30,000 27,648
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ------------------------------------------------------------------------
<S> <C> <C>
Japan Financial Corp.
7.375%, 4/27/05 $ 38,500 $ 39,293
KFW International Finance
7.00%, 3/1/13 10,000 9,706
7.20%, 3/15/14 25,000 24,620
Province of Manitoba
9.125%, 1/15/18 20,000 23,191
9.25%, 4/1/20 20,000 23,618
Province of New Brunswick
6.75%, 8/15/13 20,400 19,147
Province of Nova Scotia
8.25%, 7/30/22 30,000 32,067
Province of Ontario
7.00%, 8/4/05 40,000 39,832
Province of Quebec
6.86%, 4/15/26 20,000 19,460
7.50%, 7/15/23 25,000 24,096
Royal Bank of Scotland
6.375%, 2/1/11 30,000 27,022
Province of Saskatchewan
7.125%, 3/15/08 11,000 11,033
Scotland International Finance 2 BV
8.85%, 11/1/06 24,000 26,370
Societe Generale-NY
7.40%, 6/1/06 25,000 24,969
Southern Investments UK
6.80%, 12/1/06 35,000 33,635
SunCanada Financial
6.625%, 12/15/07 40,000 38,038
Toronto Dominion Bank-NY
6.45%, 1/15/09 14,000 13,017
6.50%, 8/15/08 10,000 9,395
Westdeutsche Landesbank-NY
6.75%, 6/15/05 40,000 39,084
- ------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $875,421) 868,211
- ------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (9.9%)
- ------------------------------------------------------------------------
Agency for International
Development (Israel)
(U.S. Government Guaranteed)
5.89%, 8/15/05 23,000 21,435
Federal Home Loan Bank
7.66%, 7/20/04 10,000 10,459
Federal Home Loan Mortgage Corp.
6.19%, 1/21/04 15,000 14,269
Federal National Mortgage Assn.
6.28%, 2/3/04 25,000 23,969
Tennessee Valley Authority
6.875%, 12/15/43 25,000 22,262
U.S. Treasury Bonds
6.25%, 8/15/23 600,000 546,468
7.25%, 5/15/16 450,000 463,009
7.50%, 11/15/16 305,000 321,537
U.S. Treasury Notes
6.50%, 8/15/05 125,000 123,789
6.50%, 10/15/06 220,000 217,318
7.875%, 11/15/04 50,000 53,617
- ------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(COST $1,822,598) 1,818,132
- ------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES (2.6%)
- ------------------------------------------------------------------------
DLJ Mortgage Acceptance
7.60%, 5/15/30 $ 20,000 $ 20,436
Government National
Mortgage Assn.
6.50%, 4/15/23-3/15/26 97,786 92,815
Federal Home Loan
Mortgage Corp.
6.50%, 7/1/25-4/1/26 388,295 369,863
- ------------------------------------------------------------------------
TOTAL MORTGAGE BACKED SECURITIES
(COST $488,281) 483,114
- ------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (0.2%)
- ------------------------------------------------------------------------
Oakland CA Pension Obligation
6.98%, 12/15/09 20,000 19,543
Chelan County WA Public Utility Dist.
7.07%, 6/1/07 10,000 9,922
7.10%, 6/1/08 12,000 11,890
- ------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS
(COST $42,000) 41,355
- ------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.8%)
- ------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
5.561%, 6/2/97
(COST $138,291) 138,291 138,291
- ------------------------------------------------------------------------
TOTAL INVESTMENTS (99.0%)
(COST $13,412,942) 18,185,843
- ------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.0%)
- ------------------------------------------------------------------------
Other Assets--Notes C and F 505,297
Liabilities--Note F (315,555)
--------
189,742
- ------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------
Applicable to 649,932,701 outstanding
$1.00 par value shares
(authorized 1,100,000,000 shares) $18,375,585
========================================================================
NET ASSET VALUE PER SHARE $28.27
========================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1)Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of the company.
(2)Scheduled principal and interest payments are guaranteed by MBIA (Municipal
Bond Insurance Association).
(3)Scheduled principal and interest payments are guaranteed by FSA (Financial
Security Assurance).
ADR--American Depository Receipt.
MTN--Medium-Term Note.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
AT MAY 31, 1997, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $12,911,970 $19.87
Undistributed Net
Investment Income 163,960 .25
Accumulated Net Realized Gains 526,754 .81
Unrealized Appreciation--
Note E 4,772,901 7.34
- ------------------------------------------------------------------------
NET ASSETS $18,375,585 $28.27
========================================================================
</TABLE>
11
<PAGE> 14
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by the Fund during the
reporting period, and details the operating expenses charged to the Fund. These
expenses directly reduce the amount of investment income available to pay to
shareholders as dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
WELLINGTON FUND
SIX MONTHS ENDED MAY 31, 1997
(000)
- -----------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 143,180
Interest 228,904
-----------
Total Income 372,084
-----------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 3,480
Performance Adjustment (48)
The Vanguard Group--Note C
Management and Administrative 20,512
Marketing and Distribution 1,944
Taxes (other than income taxes) 630
Custodian Fees 156
Auditing Fees 8
Shareholders' Reports 238
Annual Meeting and Proxy Costs 32
Directors' Fees and Expenses 22
-----------
Total Expenses 26,974
Expenses Paid Indirectly--Note C (506)
-----------
Net Expenses 26,468
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 345,616
- ----------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 526,652
- ----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 246,878
- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,119,146
========================================================================================
</TABLE>
*Dividend income from affiliated companies was $5,212,000.
12
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the Fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information that is
detailed in the Statement of Operations. The amounts shown as Distributions to
shareholders from the Fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
Fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
WELLINGTON FUND
---------------------------
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 1997 NOV. 30, 1996
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 345,616 $ 572,006
Realized Net Gain 526,652 695,226
Change in Unrealized Appreciation (Depreciation) 246,878 1,544,678
--------------------------
Net Increase in Net Assets Resulting from Operations 1,119,146 2,811,910
--------------------------
DISTRIBUTIONS
Net Investment Income (395,817) (519,183)
Realized Capital Gain (647,264) (141,199)
--------------------------
Total Distributions (1,043,081) (660,382)
--------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 2,025,404 3,193,817
Issued in Lieu of Cash Distributions 988,677 617,054
Redeemed (1,219,934) (1,789,640)
--------------------------
Net Increase from Capital Share Transactions 1,794,147 2,021,231
- ----------------------------------------------------------------------------------------
Total Increase 1,870,212 4,172,759
- ----------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 16,505,373 12,332,614
--------------------------
End of Period $18,375,585 $16,505,373
========================================================================================
(1)Shares Issued (Redeemed)
Issued 75,253 126,321
Issued in Lieu of Cash Distributions 37,746 24,884
Redeemed (45,463) (70,741)
--------------------------
Net Increase in Shares Outstanding 67,536 80,464
========================================================================================
</TABLE>
13
<PAGE> 16
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's investment results and distributions to
shareholders on a per-share basis. It also presents the Fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the Fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the Fund's total return; how much it costs to operate the Fund;
and the extent to which the Fund tends to distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Fund for one year. Finally, the table lists the Fund's Average Commission Rate
Paid, a disclosure required by the SEC beginning in 1996. This rate is
calculated by dividing total commissions paid on portfolio securities by the
total number of shares purchased and sold on which commissions were charged.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
WELLINGTON FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $28.34 $24.57 $19.33 $20.78 $19.34 $17.95
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .54 1.02 .96 .88 .92 .93
Net Realized and Unrealized Gain (Loss)
on Investments 1.16 4.00 5.19 (1.03) 1.62 1.65
-----------------------------------------------------------------
Total from Investment Operations 1.70 5.02 6.15 (.15) 2.54 2.58
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.66) (.97) (.88) (.92) (.94) (.96)
Distributions from Realized Capital Gains (1.11) (.28) (.03) (.38) (.16) (.23)
-----------------------------------------------------------------
Total Distributions (1.77) (1.25) (.91) (1.30) (1.10) (1.19)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $28.27 $28.34 $24.57 $19.33 $20.78 $19.34
=========================================================================================================================
TOTAL RETURN 6.54% 21.26% 32.70% -0.82% 13.62% 14.99%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $18,376 $16,505 $12,333 $8,638 $7,917 $5,359
Ratio of Total Expenses to
Average Net Assets 0.32%* 0.31% 0.33% 0.35% 0.34% 0.33%
Ratio of Net Investment Income to
Average Net Assets 4.05%* 4.08% 4.37% 4.35% 4.55% 4.98%
Portfolio Turnover Rate 32%* 30% 24% 32% 34% 24%
Average Commission Rate Paid $.0571 $.0287 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Vanguard/Wellington Fund is registered under the Investment Company Act of 1940
as a diversified open-end investment company, or mutual fund.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Common stocks listed on an exchange are valued at
the latest quoted sales prices as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) on the valuation date; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities not listed on an exchange are valued at
the latest quoted bid prices. Bonds are valued using the latest bid prices and
using valuations based on a matrix system (which considers such factors as
security prices, yields, maturities, and ratings), both as furnished by
independent pricing services. Temporary cash investments are valued at cost,
which approximates market value.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The
Vanguard Group, transfers uninvested cash balances to a Pooled Cash Account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold. Premiums and discounts on debt
securities purchased are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
B. Wellington Management Company, LLP, provides investment advisory services to
the Fund for a fee calculated at an annual percentage rate of average net
assets. The basic fee is subject to quarterly adjustments based on performance
relative to a combined index comprising the S&P 500 Index and the Lehman
Long-Term Corporate AA or Better Bond Index. For the six months ended May 31,
1997, the advisory fee represented an effective annual basic rate of 0.04% of
the Fund's average net assets before a decrease of $48,000 based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the Fund under methods approved by the board of directors. At May 31, 1997,
the Fund had contributed capital of $1,415,000 to Vanguard (included in Other
Assets), representing 7.1% of Vanguard's capitalization. The Fund's directors
and officers are also directors and officers of Vanguard.
Vanguard has asked the Fund's investment adviser to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate to the Fund part of the commissions generated. Such
rebates are used solely to reduce the Fund's administrative expenses. For the
six months ended May 31, 1997, these arrangements reduced the Fund's expenses by
$506,000 (an annual rate of 0.01% of average net assets).
15
<PAGE> 18
D. During the six months ended May 31, 1997, the Fund purchased $2,368,855,000
of investment securities and sold $1,717,008,000 of investment securities, other
than U.S. government securities and temporary cash investments. Purchases and
sales of U.S. government securities were $1,386,150,000 and $960,739,000,
respectively.
E. At May 31, 1997, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $4,772,901,000,
consisting of unrealized gains of $4,901,966,000 on securities that had risen in
value since their purchase and $129,065,000 in unrealized losses on securities
that had fallen in value since their purchase.
F. The market value of securities on loan to broker/dealers at May 31, 1997, was
$500,773,000, for which the Fund had received as collateral cash of $287,775,000
and U.S. Treasury securities with a market value of $223,877,000. Security loans
are required to be secured at all times by collateral at least equal to the
market value of securities loaned; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
16
<PAGE> 19
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.;
Managing Director of Global Health Care Partners/DLJ Merchant Banking
Partners; Director of Sun Company, Inc. and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Ikon Business Solutions, Inc., Raytheon Co., Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.; Trustee Emerita of Wellesley
College.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National
Steel Corp.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England
Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and The
Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Co.,
Procter & Gamble Co., and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and
Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
HONORARY CHAIRMAN
WALTER L. MORGAN, Founder.
OTHER FUND OFFICERS
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; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President, Information Technology.
JAMES H. GATELY, Senior Vice President, Individual Investor Group.
IAN A. MACKINNON, Senior Vice President, Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President, Institutional Investor Group.
RALPH K. PACKARD, Senior Vice President and Chief Financial Officer.
[VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
http://www.vanguard.com [email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses may
be obtained directly from The Vanguard Group.
(C) 1997 Vanguard Marketing Corporation, Distributor
<PAGE> 20
[PHOTO]
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Growth and Income Portfolio
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard International Value Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Treasury Money Market Portfolio
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q212-5/97
