[SHIP LOGO]
[THE VANGUARD GROUP/(R)/LOGO]]
March 16, 2006
Christian Sandoe, Esq.
Division of Investment Management
U.S. Securities and Exchange Commission via electronic filing
450 Fifth Street,
N.W., Fifth Floor
Washington, D.C. 20549
RE: VANGUARD WELLINGTON FUND
Dear Mr. Sandoe:
The following responds to your comments of February 17, 2006 on the
post-effective amendment of the registration statement of the Vanguard
Wellington Fund (the "Trust"). You commented on Post-Effective Amendment No. 88
that was filed on January 3, 2006.
COMMENT 1: PRIMARY INVESTMENT STRATEGY
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Comment: Identify how Vanguard Wellington Fund (the "Fund") defines
medium and large capitalization companies by market
capitalization range.
Response: The Fund's prospectus states that the Fund invests in
medium-size and large companies, and lists among the Fund's
primary risks, the risks of mid-cap stocks. The prospectus
also states on page 6 that market capitalization ranges change
over time and that there are no "official" definitions of
small- mid- or large-cap, even among Vanguard advisers. We
note that the asset-weighted medium market cap of the Fund's
stock portfolio as of November 30, 2005 was $55.1 billion. We
believe this, as well as the other disclosure contained in the
Fund's prospectus, adequately describes the Fund's investment
strategies.
COMMENT 2: PRIMARY RISK
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Comment: Since investment in mortgage-backed securities is listed as a
primary risk, please include prepayment risk as a
primary risk.
Response: We have added call/prepayment risk to the primary risk bullet
that describes the risks of investing in bonds. In
addition, we have a risk flag on prepayment risk in our
Item 4 disclosure.
March 16, 2006
Christian Sandoe
Page 2 of 6
COMMENT 3: MANAGEMENT FEES
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Comment: Confirm to the SEC that the investment management fee
differences between the Fund's share classes are not the
result of a difference in fees paid to the Fund's advisor.
Response: The investment management fee differences between the Fund's
share classes are not the result of a difference in
advisory fees.
COMMENT 4: INTEREST RATE RISK FLAG
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Comment: Please revise the text in the interest rate risk flag. The
Prospectus states that interest rate risk is moderate since
the duration of the Fund's bond holdings is intermediate-term.
This text should be revised since "term" is used to describe
maturity, not duration.
Response: The text has been revised as follows:
Interest rate risk should be moderate because the
average term of the Fund's bond portfolio is generally
intermediate-term, and because the Fund's bond holdings
represent less than 40% of the Fund's assets.
COMMENT 5: DEFINITION OF DURATION
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Comment: The Fund's Prospectus Glossary includes a definition of
duration. Please put the example used in the Glossary
definition in the risk section of the Fund's Prospectus.
Response: We believe the Fund's discussion in Item 2 and Item 4
regarding bond holdings and the risks associated with
investment in bonds presents the appropriate level of
disclosure.
COMMENT 6: PORTFOLIO MANAGER DISCLOSURE
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Comment: Describe the separate roles of each portfolio manager.
Response: We have disclosed that each portfolio manager who manages the
bond portion of the Fund is a "co-manager" of the
Fund.
COMMENT 7: STATEMENT OF ADDITIONAL INFORMATION: ADVISORY FEE DISCLOSURE
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Comment: The detail regarding the Fund's advisory fee structure (base
and performance fee structure) should be included in
the SAI
Response: We currently have the appropriate level of disclosure.
Vanguard operates a multi-manager structure for certain funds
pursuant to an exemptive order granted by the Commission in
2003 (the "2003 Order").(1) The funds are
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1 In the Matter of Vanguard Convertible Securities Fund, et al., File no.
812-12380, Inv. Co Act Release Nos. 26062 (May 29, 2003)(Notice) and 26089
(June 25, 2003) (order).
March 16, 2006
Christian Sandoe
Page 3 of 6
permitted under the 2003 Order to enter into and amend
investment advisory agreements with unaffiliated third-party
advisors without shareholder approval, provided certain
conditions are met. The 2003 Order exempts multi-managed
Vanguard funds from certain disclosure requirements so that
they are only required to disclose advisory fees (as both a
dollar amount and as a percentage of a fund's net assets) as
follows: (1) aggregate fees paid by a fund to Vanguard
and any affiliated advisors; (2) aggregate fees paid by the
fund to unaffiliated third-party advisors; and (3)
aggregate fees paid by the fund to all investment advisors
(collectively, the "Aggregate Fee Disclosure"). A fund
using Aggregate Fee Disclosure does not have to include
additional details, including asset-based and performance
fee schedules, about its advisory fees and fee arrangements.
An Aggregate Fee Disclosure regime is in the best interests of
fund shareholders. In a recent proposal to codify
multi-manager exemptive orders, the Commission said that fund
sponsors (including Vanguard) have represented that they "are
able to negotiate lower fees with subadvisers if they do not
have to disclose those fees separately, and in our orders we
have provided them relief from our disclosure requirements. We
are proposing to codify this relief, which permits a manager
of managers fund to disclose only the aggregate amount of
advisory fees that it pays to subadvisers as a group."(2)
COMMENT 8: STATEMENT OF ADDITIONAL INFORMATION: MATERIALS CONFLICT OF
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INTEREST
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Comment: Please clarify what the material conflicts of interest are
that the adviser seeks to eliminate.
Response: The following is added to the disclosure under Material
Conflicts of Interest:
Individual investment professionals at Wellington Management
manage multiple portfolios for multiple clients. These
accounts may include mutual funds, separate accounts (assets
managed on behalf of institutions such as pension funds,
insurance companies, foundations), bank common trust accounts,
and hedge funds. The portfolio managers listed in the Fund's
prospectus (Portfolio Managers) generally manage portfolios in
several different investment styles. These portfolios may have
investment objectives, strategies, and risk profiles that
differ from those of the Fund. The Portfolio Manager makes
investment decisions for the Fund based on the investment
objectives, policies, practices, benchmarks, cash flows, tax,
and other relevant investment considerations applicable to the
Fund. Consequently, the Portfolio Manager may purchase or sell
securities,
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(2) Exemption from Shareholder Approval for Certain Subadvisory Contracts,
Securities Act Release No. 8312 (Oct 23, 2003).
March 16, 2006
Christian Sandoe
Page 4 of 6
including IPOs, for one Fund and not another Fund,
and the performance of securities purchased for the relevant
Fund may vary from the performance of securities purchased for
other Funds. The Portfolio Manager or other investment
professionals at Wellington Management may place transactions
on behalf of other accounts that are directly or indirectly
contrary to investment decisions made on behalf the Fund, or
make investment decisions that are similar to those made for
the Portfolio, both of which have the potential to adversely
impact the Portfolio depending on market conditions. For
example, the Portfolio Manager may purchase a security in one
Fund while appropriately selling that same security in another
portfolio. In addition, some of these Portfolios have fee
structures, including performance fees, that are or have the
potential to be higher, in some cases significantly higher,
than the fees paid by the Fund to Wellington Management.
Because incentive payments are tied to revenues earned by
Wellington Management, and where noted, to the performance
achieved by the manager in each account, the incentives
associated with any given fund may be significantly higher or
lower than those associated with other accounts managed by a
given Portfolio Manager. Finally, the Portfolio Manager may
hold shares or investment vehicles and/or other accounts
identified above.
Wellington Management's goal is to meet its fiduciary
obligation to treat all clients fairly while at the same time
providing high quality investment services to all of its
clients. Wellington Management has adopted and implemented
policies and procedures, including brokerage and trade
allocation policies and procedures, that it believes address
the conflicts associated with managing multiple accounts for
multiple clients. In addition, Wellington Management monitors
a variety of areas, including compliance with primary Fund
guidelines, the allocation of IPOs, and compliance with the
firm's Code of Ethics, and places additional investment
restrictions on investment professionals who manage hedge
funds and certain other accounts. Furthermore, senior
investment and business personnel at Wellington Management
periodically review the performance of the Portfolio Managers.
Although Wellington Management does not track the time a
Portfolio Manager spends on a single portfolio, Wellington
Management does periodically assess whether a Portfolio
Manager has adequate time and resources to effectively manage
the Portfolio Manager's overall book of business.
COMMENT 9: STATEMENT OF ADDITIONAL INFORMATION: COMPENSATION
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Comment: Please describe how compensation is made to the Fund's
portfolio managers.
Response: The revised disclosure under Description of Compensation
states:
March 16, 2006
Christian Sandoe
Page 5 of 6
The Fund pays Wellington Management a fee based on the assets
under management of the Fund as set forth in the Investment
Advisory Agreement with Wellington Management. Wellington
Management pays its investment professionals out of its total
revenues and other resources, including the advisory fees
earned with respect to the Fund. Wellington Management's
compensation structure is designed to attract and retain
high-caliber investment professionals necessary to deliver
high quality investment management services to our clients.
Wellington Management's compensation of the Portfolio Managers
includes a base salary and incentive components. Each
Portfolio Manager's base salary is determined by the Managing
Partners of Wellington Management. It is generally a fixed
amount that may change as a result of an annual review. Each
Portfolio Manager is eligible to receive an incentive payment
based on the revenues earned by Wellington Management from
portfolios for which they have portfolio management
responsibility, including the Fund. With respect to the Fund,
the overall revenues to Wellington Management vary with the
performance of the Fund relative to the S&P 500 Index
(65%)/Lehman Credit A or Better Bond Index (35%) over rolling
three year periods. Mr. Bousa's incentive on the Fund is
additionally linked to the gross pre-tax performance of the
equity portion of the Fund compared to the S&P 500 Index over
one and three year periods, with an emphasis on three year
results. Wellington Management applies similar incentive
compensation structures to other portfolios managed by Mr.
Bousa. Mr. Kaplan's incentive on the Fund is based solely on
the revenues earned by Wellington Management and has no
additional performance link. Wellington Management applies
similar incentive structures to other portfolios managed by
Mr. Kaplan. Mr. Keogh did not receive an incentive payment
linked directly to the Fund during the Fund's fiscal year.
Portfolio-based incentives across all portfolios managed by an
investment professional can, and typically do, represent a
significant portion of an investment professional's overall
compensation; incentive compensation varies significantly by
individual and can vary significantly from year to year. The
Portfolio Managers may also be eligible for bonus payments
based on their overall contribution to Wellington Management's
business operations. Senior management at Wellington
Management may reward individuals as it deems appropriate
based on factors other than portfolio performance. The
Portfolio Managers, all partners of Wellington Management, are
also eligible to participate in a partner-funded tax qualified
retirement plan, the contributions to which are made pursuant
to an actuarial formula.
COMMENT 10: STATEMENT OF ADDTIONAL INFORMATION: PORTFOLIO MANAGERS'
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HOLDINGS
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Comment: Disclose each portfolio manager's ownership of fund securities.
March 16, 2006
Christian Sandoe
Page 6 of 6
Response: The revised text states:
As of November 30, 2005, Mr. Bousa, Mr. Kaplan, and Mr. Keogh
each owned shares of the Fund in an amount exceeding
$1 million.
COMMENT 11: TANDY REQUIREMENTS
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Comment: The SEC is now requiring all registrants to provide at the
end of response letters to registration statement
comments, the following statements:
o The Trust is responsible for the adequacy and accuracy of
the disclosure in the filing.
o Staff comments or changes in response to staff comments in
the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the
filing.
o The Trust may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
Response: As required by the SEC, we will provide the foregoing
acknowledgements.
* * * * *
As required by the SEC, the Trust acknowledges that:
o The Trust is responsible for the adequacy and accuracy
of the disclosure in the filing.
o Staff comments or changes in response to staff comments in
the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the
filing.
o The Trust may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under
the federal securities laws of the United States.
Please contact me at (610) 669-5284 with any questions or comments
regarding the above responses. Thank you.
Sincerely,
/s/ Lisa Matson
Lisa Matson
Associate Counsel