UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-00121

Name of Registrant: Vanguard Wellington Fund

Address of Registrant:
P.O. Box 2600
Valley Forge, PA 19482

Name and address of agent for service:
Heidi Stam, Esquire
P.O. Box 876
Valley Forge, PA 19482

Registrant’s telephone number, including area code: (610) 669-1000

Date of fiscal year end: November 30

Date of reporting period: December 1, 2012 – November 30, 2013

Item 1: Reports to Shareholders

Annual Report | November 30, 2013

Vanguard Wellington^™ Fund

 

Vanguard’s Principles for Investing Success

We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.

Goals. Create clear, appropriate investment goals.

Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.

Discipline. Maintain perspective and long-term discipline.

A single theme unites these principles: Focus on the things you can control.

We believe there is no wiser course for any investor.

 

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: The ship's wheel represents leadership and guidance, essential qualities in navigating difficult seas.
This one is a replica based on an 18th-century British vessel. The HMS Vanguard, another ship of that era, served as the flagship for Admiral Horatio Nelson when he defeated a French fleet at the Battle of the Nile.

 

Your Fund’s Total Returns

For a benchmark description, see the Glossary.

Mixed-Asset Target Allocation Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements.

 

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Chairman’s Letter

Dear Shareholder,

For the fiscal year ended November 30, 2013, Vanguard Wellington Fund returned almost 19%. The fund’s returns were slightly ahead of the return of its benchmark, the Wellington Composite Index, as well as the average return of peer funds.

Buoyed by the stock market’s robust performance, the equity portion of your fund posted gains in all ten market sectors for the period. Stocks in the financial, health care, and industrial sectors added most to returns.

The fund’s fixed income portfolio, on the other hand, finished the period in negative territory. When I wrote to you a year ago, I noted that we were anticipating a more challenging environment for bond investors, and that’s certainly what we’ve encountered in recent months.

On November 30, the fund’s 30-day SEC yield was 2.23% for Investor Shares and 2.31% for Admiral Shares, compared with 2.33% for Investor Shares and 2.41% for Admiral Shares a year earlier.

Despite some jolts, U.S. stocks notched an impressive 12-month gain
U.S. stocks powered to a return of about 32% for the 12 months ended November 30, despite encountering a few bumps along the way.

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Uncertainty surrounding Federal Reserve policy contributed to market declines in June and August. But stocks bounced back in September when, to the surprise of some investors, the Fed announced it had no immediate plans to scale back its stimulative bond-buying program. (In mid-December, the Fed ended several months of speculation by announcing that it would begin scaling back bond purchases in January 2014.) Corporate profit growth, though not robust, was generally solid during the fiscal year.

International stocks returned about 18% in aggregate. While the developed markets of Europe and the Pacific region performed well for the period, gains were modest for emerging-market stocks.

Bond prices fell as yields rose over the period’s second half
Bonds, which held onto slight gains through the first five months of the fiscal year, retreated in May. For the full period, the broad U.S. taxable bond market returned –1.61%. The yield of the 10-year Treasury note closed at 2.74%, up from 1.61% at the end of November 2012. (Bond yields and prices move in opposite directions.) Municipal bonds returned –3.51%.

International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –2.93%. Returns of money market funds and savings accounts continued to be restrained by the Fed’s 0%–0.25% target for short-term interest rates.

 

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The bond market’s downturn, coupled with the upswing in stocks, provides an occasion for investors to review their portfolio’s asset allocation. In a powerful stock market rally, a portfolio’s mix of stocks and bonds can drift away from its target allocation, as Fran Kinniry, a principal in our Investment Strategy Group, recently reminded clients in an article on our website.

“Buying stocks now may actually run counter to what many prudent investors should be doing,” he noted. “If you have an equity-heavy portfolio, you will most likely need to direct new cash flows to bond mutual funds, or sell stock mutual funds to maintain your target asset allocation.”

Diverging stock and bond results highlight the wisdom of balance

At Vanguard, we believe strongly in the benefits of balance and diversification. The Wellington Fund—which began operations in 1929, making it the nation’s oldest balanced fund— epitomizes these investment virtues. The fund is broadly diversified, with about 100 stocks and more than 600 bonds across all market sectors. In strong markets, like the one we’ve experienced in recent months, the equity portion of the fund can offer investors the opportunity for long-term growth. When stock prices fall, the fund’s bond portfolio can help provide a cushion.

 

The fund expense ratios shown are from the prospectus dated March 27, 2013, and represent estimated costs for the current fiscal year. For the fiscal year ended November 30, 2013, the fund’s expense ratios were 0.26% for Investor Shares and 0.18% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2012.

Peer group: Mixed-Asset Target Allocation Growth Funds.

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For the latest 12-month period, the fund’s stock portfolio returned about 31%, a hair above the return of its equity benchmark, the S&P 500 Index, which returned just over 30%. As I mentioned, financial, health care, and industrial stocks were key contributors to the fund’s performance. Together, these three sectors added more than 18 percentage points to the portfolio’s total return.

The advisor’s choices in financials and technology helped the fund most compared with the benchmark. Within financials, the advisor’s selections among insurance companies gave the fund an edge over the index, while in technology, less exposure to poorer performing computer hardware companies provided a comparative boost.

The bond market, as I mentioned, was unsettled during the period by what were perceived as mixed signals from the Fed about when it might start scaling back its bond-buying program. In this environment, the fund’s fixed income holdings returned –1.59%, slightly better than the benchmark, the Barclays U.S. Credit A or Better Bond Index, which returned –1.83%. At the beginning of the fiscal period, the fund’s advisor shortened the portfolio’s average duration, a measure of its sensitivity to changes in interest rates, which gave it a slight boost relative to the index.

For more on the fund’s positioning during the fiscal year, please see the Advisor’s Report that follows this letter.

For a benchmark description, see the Glossary.

Mixed-Asset Target Allocation Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.

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Your fund has delivered excellent long-term results
For the decade ended November 30, Vanguard Wellington Fund posted an average annual return of 8.46%, higher than that of both its index (6.96%) and its peer group (6.03%), as well as the broad U.S. stock market (8.09%).

This performance is especially impressive when you consider the extreme volatility that the fund had to contend with during the ten-year period, which included the worst global recession since the Great Depression.

The fund’s admirable track record is a credit to the experience and talent of its advisor, Wellington Management Company, llp, which has managed the fund since its inception.

The power of compounding can put time on your side
The purpose of my annual letter to you is, of course, to report on how your fund fared over the past year. But while it’s important to be aware of how your fund is doing in the latest market environment, short-term performance isn’t what matters most.

The focus on the preceding 12 months shouldn’t distract investors from the long-term commitment they need to help themselves be successful.

To be sure, there are many aspects of investing success that you can’t influence, overall market performance being the obvious example. But you can control how long you invest, and that’s important because it allows you to harness the power of compounding—the snowball effect that occurs when your earnings generate even more earnings. As Benjamin Franklin said, “Money makes money.”

A simple example illustrates the benefits of compounding that can potentially result from investing and then reinvesting your money over the long haul, putting time on your side. Suppose that you were able to put away $10,000 and earn 6% a year (keep in mind that this is hypothetical, and that actual returns would likely be different and a lot less predictable).

If you keep reinvesting the earnings (again, assuming a hypothetical return of 6% each year), after 10 years your investment will have grown to just under $18,000. But if you were able to invest that $10,000 for 30 years, your investment would grow to more than $57,000.

Compounding can make a real difference in your account balance over time, particularly when combined with Vanguard’s low expense ratios—which allow you to keep more of the return on your investment.

As always, thank you for entrusting your assets to Vanguard.

Sincerely,

F. William McNabb III
Chairman and Chief Executive Officer
December 19, 2013

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Advisor’s Report

Vanguard Wellington Fund returned nearly 19% for the 12 months ended November 30, 2013. The fund outperformed the peer group of mixed-asset target allocation growth funds and finished slightly ahead of the Wellington Composite Index, which is weighted 65% in large-capitalization stocks and 35% in high-quality (as determined by independent credit-rating agencies) corporate bonds. The fund’s equity and fixed income portfolios both contributed to the outperformance as each finished ahead of its benchmark component.

Investment environment
Stocks rose sharply during the course of the fund’s fiscal year. The S&P 500 Index, the benchmark for the stock portion of the fund, returned just over 30%. Favorable global liquidity dynamics and accommodative monetary policy from central banks boosted shares in the United States and throughout many developed markets in other parts of the world. Emerging-market equity returns were more muted.

The bond market declined during the period. Low yields did not generate enough income to offset the declines in most fixed income security prices. The benchmark for the bond portion of the fund, the Barclays U.S. Credit A or Better Bond Index, returned –1.83%, largely because of rising interest rates.

Our successes
The equity portion of the fund outper- formed the S&P 500 Index through a favorable combination of both security selection and sector allocation. The fund benefited from greater-than-market exposure to health care, one of the strongest equity sectors during the period (although individual stock selection in the sector detracted from relative performance). The fund’s underweight allocation to information technology, a sector that lagged during the period, also boosted relative returns.

Stock selection was strongest in financials; our positions in Prudential Financial, JPMorgan Chase, and Wells Fargo were among the key relative contributors in that sector. Our less-than-market-weight allocation to Apple was the top relative contributor to the fund’s performance.

Other individual stock positions that helped performance included Cardinal Health, AT&T, FedEx, Microsoft, Comcast, and Pfizer.

Wells Fargo shares rose on better-than-expected earnings and the market’s positive outlook for bank results in an environment of rising interest rates. The shares trade at an attractive normalized earnings multiple and should benefit from an improving economy, market share gains, and cost savings. Wells Fargo was our largest absolute contributor during the period; it was the fund’s largest equity position at the close of the period.

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We believe that Prudential Financial, an insurance services firm, has an attractive mix across both its individual life segment and its asset management business, which benefited from strong inflows. The stock rallied on strong and improved quality of earnings, driven by rising stock markets and higher long-term interest rates. We continue to like this holding; management appears to have made it a priority to increase the dividend, which we expect to be underpinned by both growing earnings and an increasing payout ratio.

Cardinal Health is a global pharmaceutical distributor. The stock has rebounded since the company lost its Walgreens business to AmerisourceBergen in mid-March. Investors bid up shares after the firm posted a 25% year-over-year quarterly profit jump and hiked its earnings forecast for next year. The company’s renewal of its CVS Caremark distribution contract reduced investor fear that increasing industry competition would lead to pricing pressure. We expect that Cardinal will benefit over the longer term from the implementation of the Affordable Care Act, which should lead to expanded insurance coverage and increased demand for pharmaceuticals. Shortly after the close of the period, Cardinal and CVS announced a joint venture that will become the largest purchaser of generic drugs. We expect the deal to be beneficial to shareholders of both firms.

In the fixed income portion of the fund, our shorter duration bias helped relative returns as interest rates rose. Security selection among industrial issuers was strong, particularly communications and technology bonds; we participated in the $49 billion record bond issuance by Verizon, which performed very well afterward. We remain underweighted in AT&T bonds. Security selection within certain noncorporate credit sectors—including supranational, local agency, and local authority bonds—also aided relative performance. This poorly defined group includes our long-duration taxable municipal bonds, which performed well as fiscal conditions improved for many states with the slowly improving economy. Our underweight allocation to corporate bonds also contributed to relative returns.

Our shortfalls
While the fixed income portion of the fund did its job in outpacing its reference benchmark, the fund’s bonds delivered a modestly negative return in absolute terms, as bond prices and interest rates move inversely.

In the equity portfolio, stock selection within the energy sector and, as mentioned earlier, health care, detracted from relative performance. Individual detractors in the equity portfolio included Goldcorp, IBM, and Exelon.

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Goldcorp, a senior gold producer with assets in North, Central, and South America, saw its shares plummet along with the sudden and steep drop in gold commodity prices. Fundamentals surprised us on the downside.

IBM, the global technology and business services provider, saw its shares decline modestly. Slowing global growth, combined with sluggish hardware sales, led to a disappointing performance during the period. We continue to view IBM as an attractive investment over the longer term and maintain a position. We believe the company has the ability to increase earnings in the high-single-digit range and view the valuation as attractive.

Equity portfolio changes

We established a number of new equity positions in the fund over the course of the year, including Verizon, EMC, Boeing, and Apple.

Verizon provides communications, information, and entertainment products and services to consumers, businesses, and government agencies worldwide. The company is well positioned competitively in the U.S. market, with the best brand strength, highest consumer loyalty, and broadest deployment of LTE wireless services. We expect that Verizon’s purchase of Vodafone’s stake in Verizon Wireless will accelerate earnings growth over the next few years.

We eliminated positions in AT&T, Air Products & Chemicals, General Mills, and Baker Hughes. We exited our position in AT&T, which represented our largest sale during the period, to establish the new position in Verizon, as we believe that Verizon is better positioned for future growth.

The fund’s positioning

We continue to look for moderate growth in the global economy. We are encouraged by the recent data out of Europe, which suggest that perhaps the continent’s economy has stabilized. The United States continues to improve, albeit at moderate growth rates. Continued momentum in housing and auto sales and sustained growth in the oil shale industry should benefit the economy. It is worth noting that we do not see as much upside in the equity market today as we did a couple of years ago.

From a sector perspective, the fund’s equity positioning remains fairly similar to this time last year. We continue to have an overweight position in financials, particularly large-cap U.S. banks. The strengthening housing market should provide a boost for the group, and rising interest rates should prove beneficial for longer-term profitability. We have also increased our exposure to insurance companies as many of them should also benefit from rising rates. We are focusing on high-quality financial institutions with solid balance sheets, strong management teams, and attractive valuations.

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We also have a meaningfully overweight position in health care, where we are targeting stocks that offer stable cash flows and high yields, and trade at attractive valuations. We favor large-cap pharmaceutical stocks. We believe many of these companies have solid pipelines that are underappreciated by investors.

The portfolio remains underweighted in information technology, consumer discretionary, and consumer staples stocks. Many consumer staples stocks are at historically high valuations compared to where they typically trade, and we are having a difficult time finding value. Our underweight allocation to Apple narrowed during the period as we bought more shares subsequent to initiating a small position.

We continue to search diligently for attractively valued companies with strong operating characteristics. We are particularly interested in stocks where business fundamentals are poised to improve.

As always, an above-average dividend is central to our stock selection process. Our discipline is focused on identifying industries with favorable supply-and-demand dynamics and, ultimately, the best stocks within those industries. We are positioned in companies that should benefit from global growth over time, though we remain cautious about the near term.

Bond prices may decline further, depending on how investors react to the Fed’s decision to begin tapering its extraordinary purchases of Treasuries and agency mortgage-backed securities, starting in January. We closed the period with a shorter-than-benchmark duration posture to mitigate bond principal losses that would be likely to result in a rising-rate environment.

Edward P. Bousa, CFA, Senior Vice President and Equity Portfolio Manager

John C. Keogh, Senior Vice President and Fixed Income Portfolio Manager Wellington Management Company, llp December 19, 2013

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Wellington Fund

Fund Profile
As of November 30, 2013

 

These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.

Ten Largest Stocks (% of equity portfolio)

The holdings listed exclude any temporary cash investments and equity index products.

Fund Asset Allocation

1 The expense ratios shown are from the prospectus dated March 27, 2013, and represent estimated costs for the current fiscal year. For the fiscal year ended November 30, 2013, the expense ratios were 0.26% for Investor Shares and 0.18% for Admiral Shares.

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Wellington Fund

Sector Diversification (% of equity exposure)

The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government.

 

For information about these ratings, see the Glossary entry for Credit Quality.

Equity Investment Focus

Fixed Income Investment Focus

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Wellington Fund

Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Cumulative Performance: November 30, 2003, Through November 30, 2013
Initial Investment of $10,000

For a benchmark description, see the Glossary.

Mixed-Asset Target Allocation Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

 

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Wellington Fund

Fiscal-Year Total Returns (%): November 30, 2003, Through November 30, 2013

Average Annual Total Returns: Periods Ended September 30, 2013
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.

 

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Wellington Fund

Financial Statements

Statement of Net Assets—Investments Summary

As of November 30, 2013

This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

 

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See Note A in Notes to Financial Statements.
* Non-income-producing security.
† Represents the aggregate value, by category, of securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
1 Securities with a value of $5,784,000 have been segregated as collateral for open swap contracts.
2 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
3 The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments and prepayments or the possibility of the issue being called.
4 Certain of the fund’s securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2013, the aggregate value of these securities was $2,777,441,000, representing 3.5% of net assets.
5 Cash of $35,196,000 has been segregated as initial margin for open futures contracts.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.

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1 Includes fiscal 2013 short-term gain distributions totaling $152,007,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed net investment income of $296,405,000 and $278,863,000.

See accompanying Notes, which are an integral part of the Financial Statements.

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1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of 0.00%, (0.02%), 0.00%, 0.01%, and 0.02%.
3 Includes 5%, 15%, and 9% attributable to mortgage-dollar-roll activity.

See accompanying Notes, which are an integral part of the Financial Statements.

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1 Includes performance-based investment advisory fee increases (decreases) of 0.00%, (0.02%), 0.00%, 0.01%, and 0.02%.
2 Includes 5%, 15%, and 9% attributable to mortgage-dollar-roll activity.

See accompanying Notes, which are an integral part of the Financial Statements.

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Wellington Fund

Notes to Financial Statements

Vanguard Wellington Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Certain of the fund’s investments are in corporate debt instruments; the issuers’ abilities to meet their obligations may be affected by economic developments in their respective industries. The fund offers two classes of shares: Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.

A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.

1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Bonds, and temporary cash investments acquired over 60 days to maturity, are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Structured debt securities, including mortgages and asset-backed securities, are valued using the latest bid prices or using valuations based on a matrix system that considers such factors as issuer, tranche, nominal or option-adjusted spreads, weighted average coupon, weighted average maturity, credit enhancements, and collateral. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities.

2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).

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Wellington Fund

3. Futures Contracts: The fund may use futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced, or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.

Futures contracts are valued at their quoted daily settlement prices. The aggregate notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

During the year ended November 30, 2013, the fund’s average investments in long and short futures contracts represented 0% and 1% of net assets, respectively, based on quarterly average aggregate settlement values.

4. Swap Contracts: The fund may invest in credit default swaps to adjust the overall credit risk of the fund or to actively overweight or underweight credit risk to a specific issuer or group of issuers. The fund may sell credit protection through credit default swaps to simulate investments in long positions that are either unavailable or considered to be less attractively priced in the bond market. The fund may purchase credit protection through credit default swaps to reduce credit exposure to a given issuer or issuers. Under the terms of the swaps, an up-front payment may be exchanged between the seller and buyer. In addition, the seller of the credit protection receives a periodic payment of premium from the buyer that is a fixed percentage applied to a notional amount. If, for example, the reference entity is subject to a credit event (such as bankruptcy, failure to pay, or obligation acceleration) during the term of the swap, the seller agrees to either physically settle or cash settle the swap contract. If the swap is physically settled, the seller agrees to pay the buyer an amount equal to the notional amount and take delivery of a debt instrument of the reference issuer with a par amount equal to such notional amount. If the swap is cash settled, the seller agrees to pay the buyer the difference between the notional amount and the final price for the relevant debt instrument, as determined either in a market auction or pursuant to a pre-agreed-upon valuation procedure.

The notional amounts of swap contracts are not recorded in the Statement of Net Assets. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is recorded as unrealized appreciation (depreciation) until the seller of credit protection is required to take delivery (or, in a cash settled swap, pay the settlement amount

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Wellington Fund

determined) upon occurrence of a credit event, periodic payments are made, or the swap terminates, at which time realized gain (loss) is recorded. The net premium to be received or paid by the fund under swap contracts is accrued daily and recorded as realized gain (loss) over the life of the contract.

The primary risk associated with selling credit protection is that, upon the occurrence of a defined credit event, the market value of the debt instrument received by the fund (or, in a cash settled swap, the debt instruments used to determine the settlement payment by the fund) will be significantly less than the amount paid by the fund and, in a physically settled swap, the fund may receive an illiquid debt instrument. A risk associated with all types of swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap contract. The fund mitigates its counter-party risk by entering into swaps only with a diverse group of pre-qualified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Statement of Net Assets. The value of collateral received or pledged is compared daily to the value of the swap contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.

During the year ended November 30, 2013, the fund’s average amounts of credit protection sold represented less than 1% of net assets, based on quarterly average notional amounts

5. To Be Announced (TBA) Transactions: A TBA transaction is an agreement to buy or sell mortgage-backed securities with agreed-upon characteristics (face amount, coupon, maturity) for settlement at a future date. The fund may enter into TBA sells to reduce its exposure to the mortgage-backed securities market or in order to dispose of mortgage-backed securities it owns under delayed-delivery arrangements. For TBA purchases, the fund maintains cash or short-term investments until settlement date in an amount sufficient to meet the purchase price.

6. Mortgage Dollar Rolls: The fund enters into mortgage-dollar-roll transactions, in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. The proceeds of the securities sold in mortgage-dollar-roll transactions are typically invested in high-quality short-term fixed income securities. The fund forgoes principal and interest paid on the securities sold, and is compensated by interest earned on the proceeds of the sale and by a lower price on the securities to be repurchased. The fund has also

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Wellington Fund

entered into mortgage-dollar-roll transactions in which the fund buys mortgage-backed securities from a dealer pursuant to a TBA transaction and simultaneously agrees to sell similar securities in the future at a predetermined price. The securities bought in mortgage-dollar-roll transactions are used to cover an open TBA sell position. The fund continues to earn interest on mortgage-backed security pools already held and receives a lower price on the securities to be sold in the future. The fund accounts for mortgage-dollar-roll transactions as purchases and sales; as such, these transactions may increase the fund’s portfolio turnover rate. Amounts to be received or paid in connection with open mortgage dollar rolls are included in Receivables for Investment Securities Sold (Other Assets) or Payables for Investment Securities Purchased (Liabilities) in the Statement of Net Assets. The primary risk associated with mortgage dollar rolls is that a counterparty will default on its obligations. This risk is mitigated by, among other things, performing a credit analysis of counterparties, allocating transactions among numerous counterparties, and monitoring exposure to each counterparty.

7. Repurchase Agreements: The fund may enter into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under 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. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counter-party’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.

8. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (November 30, 2010–2013) and has concluded that no provision for federal income tax is required in the fund’s financial statements.

9. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

10. Securities Lending: To earn additional income, the fund may lend its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral

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mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.

11. Other: Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. 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.

Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.

B. Wellington Management Company, LLP, provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. The basic fee is subject to quarterly adjustments based on the fund’s performance for the preceding three years relative to the combined index comprising the S&P 500 Index and the Barclays Capital U.S. Credit A or Better Bond Index. For the year ended November 30, 2013, the investment advisory fee represented an effective annual basic rate of 0.07% of the fund’s average net assets before a decrease of $3,074,000 (0.00%) based on performance.

C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At November 30, 2013, the fund had contributed capital of $8,867,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 3.55% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

Level 1—Quoted prices in active markets for identical securities.

Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).

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Wellington Fund

The following table summarizes the market value of the fund’s investments as of November 30, 2013, based on the inputs used to value them:

 

E. At November 30, 2013, the fair values of derivatives were reflected in the Statement of Net Assets as follows:

 

Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the year ended November 30, 2013, were:

 

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Wellington Fund

At November 30, 2013, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:

 

Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.

 

1 CSFBI—Credit Suisse First Boston International.
DBAG—Deutsche Bank AG.
GSI—Goldman Sachs International.
MSCS—Morgan Stanley Capital Services LLC.
UBSAG—UBS AG.
2 CMBX NA—North American Commercial Mortgage-Backed Index.

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Wellington Fund

The notional amount represents the maximum potential amount the fund could be required to pay as a seller of credit protection if the reference entity was subject to a credit event.

F. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

During the year ended November 30, 2013, the fund realized net foreign currency losses of $979,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized gains to undistributed net investment income.

Realized and unrealized gains (losses) on certain of the fund’s swap contracts are treated as ordinary income (loss) for tax purposes; the effect on the fund’s income dividends to shareholders is offset by a change in principal return. Realized gains of $523,000 on swap contracts have been reclassified from accumulated net realized gains to undistributed net investment income.

The fund used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from realized capital gains. Accordingly, the fund has reclassified $263,928,000 from accumulated net realized gains to paid-in capital.

For tax purposes, at November 30, 2013, the fund had $858,376,000 of ordinary income and $2,649,232,000 of long-term capital gains available for distribution.

At November 30, 2013, the cost of investment securities for tax purposes was $59,234,140,000. Net unrealized appreciation of investment securities for tax purposes was $19,004,140,000, consisting of unrealized gains of $19,345,460,000 on securities that had risen in value since their purchase and $341,320,000 in unrealized losses on securities that had fallen in value since their purchase.

G. During the year ended November 30, 2013, the fund purchased $18,264,819,000 of investment securities and sold $16,169,194,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $9,299,310,000 and $8,261,989,000, respectively.

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