-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SH4pEZ7dxlnreCinvooUdHxdCnbAcd5OtJX11yCMQEubTQ2oYNiuD/+B6U/whbY/ sNVqNgPRcETbAhk51NKvLQ== 0000893220-98-000343.txt : 19980227 0000893220-98-000343.hdr.sgml : 19980227 ACCESSION NUMBER: 0000893220-98-000343 CONFORMED SUBMISSION TYPE: DEFS14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980501 FILED AS OF DATE: 19980213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD ASSET ALLOCATION FUND INC CENTRAL INDEX KEY: 0000836906 STANDARD INDUSTRIAL CLASSIFICATION: FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-05628 FILM NUMBER: 98536854 BUSINESS ADDRESS: STREET 1: P.O. BOX 2600 STREET 2: VM #V34 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106691000 MAIL ADDRESS: STREET 1: P.O. BOX 2600 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD PREFERRED STOCK FUND CENTRAL INDEX KEY: 0000081391 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 231976122 FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-02601 FILM NUMBER: 98536855 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: VM #V34 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106691000 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD QUALIFIED DIVIDEND PORTFOLIO II INC DATE OF NAME CHANGE: 19871001 FORMER COMPANY: FORMER CONFORMED NAME: QUALIFIED DIVIDEND PORTFOLIO II INC DATE OF NAME CHANGE: 19840229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD/WELLESLEY INCOME FUND INC CENTRAL INDEX KEY: 0000105544 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 231711688 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-01766 FILM NUMBER: 98536856 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: VM #V34 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 610-669-6289 MAIL ADDRESS: ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: WELLESLEY INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: RICHWILL INCOME FUND DATE OF NAME CHANGE: 19700608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD/WELLINGTON FUND INC CENTRAL INDEX KEY: 0000105563 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 510071687 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-00121 FILM NUMBER: 98536857 BUSINESS ADDRESS: STREET 1: PO BOX 2600 VM #V34 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106691000 FORMER COMPANY: FORMER CONFORMED NAME: WELLINGTON FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD/WINDSOR FUNDS INC CENTRAL INDEX KEY: 0000107606 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 510082711 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-00834 FILM NUMBER: 98536858 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLD STREET 2: P O BOX 2600 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUNDS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUNDS DATE OF NAME CHANGE: 19851031 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUND INC DATE OF NAME CHANGE: 19850424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD QUANTITATIVE PORTFOLIOS INC CENTRAL INDEX KEY: 0000799127 STANDARD INDUSTRIAL CLASSIFICATION: FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-04526 FILM NUMBER: 98536859 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLVD STREET 2: P O BOX 2600 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 MAIL ADDRESS: ZIP: 19482 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD EQUITY INCOME FUND INC CENTRAL INDEX KEY: 0000826473 STANDARD INDUSTRIAL CLASSIFICATION: FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: SEC FILE NUMBER: 811-05445 FILM NUMBER: 98536860 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: PO BOX 2600 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106691000 MAIL ADDRESS: STREET 1: P O BOX 2600 CITY: VALLEY FORGE STATE: PA ZIP: 19482 DEFS14A 1 VANGUARD COMBINED PROXY STATEMENT 1 SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [ ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Vanguard Asset Allocation Fund Vanguard Equity Income Fund Vanguard Growth and Income Portfolio Vanguard Preferred Stock Fund Vanguard/Wellesley Income Fund Vanguard/Wellington Fund Vanguard/Windsor Fund Vanguard/Windsor II - - - - - - - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - - - - - - - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - - - - - - - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - - - - - - - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - - - - - - - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - - - - - - - -------------------------------------------------------------------------------- (5) Total fee paid: - - - - - - - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: - - - - - - - -------------------------------------------------------------------------------- (2) Form, schedule or registration statement no.: - - - - - - - -------------------------------------------------------------------------------- (3) Filing party: - - - - - - - -------------------------------------------------------------------------------- (4) Date filed: - - - - - - - -------------------------------------------------------------------------------- 2 Important News for Vanguard Shareholders proxy information VANGUARD ASSET ALLOCATION FUND VANGUARD EQUITY INCOME FUND VANGUARD GROWTH AND INCOME PORTFOLIO VANGUARD PREFERRED STOCK FUND VANGUARD/WELLESLEY INCOME FUND VANGUARD/WELLINGTON FUND VANGUARD/WINDSOR FUND VANGUARD/WINDSOR II Your Vanguard Fund will host a Special Meeting of Shareholders on May 1, 1998, at our headquarters in Malvern, Pennsylvania. The purpose is to vote on some important proposals affecting the Fund. The first few pages of this booklet summarize Vanguard's proposals and explain the proxy process -- including how to cast your votes. Before you vote, please read the full text of the proxy statement, for a complete understanding of our proposals. PROPOSAL 1: REORGANIZATION INTO A DELAWARE BUSINESS TRUST We want to reorganize your Fund from a Maryland corporation into a Delaware business trust. (For Preferred Stock Fund, the reorganization is from a Pennsylvania common law trust into a Delaware business trust.) WHY? We expect this administrative change TO SAVE MOST FUNDS (AND, ULTIMATELY, THEIR SHAREHOLDERS) A SUBSTANTIAL AMOUNT OF MONEY IN STATE TAXES EACH YEAR -- $228,000 for Asset Allocation Fund, $122,000 for Equity Income Fund, $129,000 for Growth and Income Portfolio, $537,000 for Wellesley Income Fund, $1,409,000 for Wellington Fund, $1,438,000 for Windsor Fund, and $1,426,000 for Windsor II, at current Fund levels. The savings realized would reduce each Fund's expenses. Preferred Stock Fund would not realize tax savings as a result of the change, but it would benefit from the efficiency of being organized the same way as all other Vanguard Funds. KEY POINTS: The reorganization would not change your Fund's investment objective or policies (except for any changes approved by shareholders under Proposal 2). Your Fund also would keep the same Directors or Trustees, officers, investment advisers, and auditors. Please Vote Immediately! You can vote by mail, telephone, or our website... details can be found on the enclosed proxy insert. (continued on inside front cover) [LOGO] 3 PROPOSAL 2: FIVE CHANGES TO INVESTMENT LIMITATIONS We want to make a number of minor changes to the Vanguard Funds' fundamental investment limitations. Not all of these changes relate to your Fund, but you will have the opportunity to vote separately on each change that does apply. Proposal 2a is the most important of these. It concerns an interfund lending program that we would like to establish for all Funds. This program would permit your Fund to borrow money from other Vanguard Funds as needed to make redemptions while awaiting payment for securities that it has sold. In addition, your Fund could lend its cash reserves to other Vanguard Funds to meet their temporary borrowing needs. WHY: Normally, your Fund has sufficient cash on hand to meet redemption requests. If not, however, the Fund can either delay paying shareholders for up to seven days or pay them immediately by taking out a temporary loan. Borrowing through the interfund lending program could be cheaper and easier for your Fund than borrowing from a bank. By lending money to other Funds through this program, your Fund could earn a better rate of interest on its cash reserves than it might receive from a bank. KEY POINTS: The interfund lending program would feature a number of safeguards to make sure it is fair and beneficial to all Vanguard Funds. One especially important safeguard is this: No Fund could borrow or lend money in the program unless it would get a more favorable interest rate than a typical bank would offer. -- Q&A -- Q. I'm a small investor. Why should I bother to vote? A. Your vote makes a difference. If numerous shareholders just like you fail to vote their proxies, your Fund may not receive enough votes to go forward with its meeting. If this happens, we'll need to mail proxies again -- a costly proposition for your Fund! Q. I've owned shares of Vanguard Funds for several years. Why is this the first notice I've received about a shareholder meeting? A. Unlike publicly traded companies, most mutual funds do not hold shareholder meetings every year. Instead, they undertake this expensive process only when significant issues requiring shareholder approval come up -- such as your Fund's plan to save on taxes by changing its form of organization. The last time all Vanguard Funds held shareholder meetings was in 1993. Q. Who gets to vote? A. Any person who owned shares of your Fund on the "record date," which was February 16, 1998, gets to vote -- even if the investor later sold the shares. Shareholders are entitled to cast one vote for each Fund share owned on the record date. (continued on inside back cover) 4 Q. How can I vote? A. You can vote in any one of four ways: o Through the Internet at www.proxyvote.com (or by going to www.vanguard.com and clicking on "Proxy Voting"). o By telephone, with a toll-free call to the number listed on your proxy card. o By mail, with the enclosed ballot. o In person at the meeting. We encourage you to vote by Internet or telephone, using the 12-digit "control" number that appears on your proxy card. These voting methods will save your Fund a good deal of money (no return-mail postage!). Whichever method you choose, please take the time to read the full text of our proxy statement before you vote. Q. Is it hard to vote by Internet? A. Not at all! If you have not yet visited Vanguard's website -- at www.vanguard.com -- this is a great opportunity to check it out. Scan our website and, when you're ready, click on the "Proxy Voting" link on our homepage to access www.proxyvote.com (the voting location). Problems? Please call us at 1-800-662-2739. Q. I plan to vote by mail. How should I sign my proxy card? A. If you are an individual account owner, please sign exactly as your name appears on the proxy card. Either owner of a joint account may sign the proxy card, but the signer's name must exactly match one that appears on the card. You should sign proxy cards for other types of accounts in a way that indicates your authority (for instance, "John Brown, Custodian"). 5 VANGUARD ASSET ALLOCATION FUND VANGUARD EQUITY INCOME FUND VANGUARD GROWTH AND INCOME PORTFOLIO VANGUARD PREFERRED STOCK FUND VANGUARD/WELLESLEY INCOME FUND VANGUARD/WELLINGTON FUND VANGUARD/WINDSOR FUND VANGUARD/WINDSOR II NOTICE OF SPECIAL MEETING OF SHAREHOLDERS Your Vanguard Fund will host a Special Meeting of Shareholders on FRIDAY, MAY 1, 1998, AT 9:30 A.M., EASTERN TIME. This will be a joint meeting for all the Vanguard Funds listed above. It will be held at Vanguard's Malvern, Pennsylvania headquarters, at 100 Vanguard Boulevard, in the Majestic Building. At the meeting, we'll ask shareholders to vote on: 1. A proposal to reorganize your Fund into a Delaware business trust. 2. Five proposed changes to your Fund's fundamental investment limitations (none of which would alter your Fund's current investment objective). 3. Any other business properly brought before the meeting. By Order of the Board of Directors (Trustees) Raymond J. Klapinsky, Secretary 100 Vanguard Boulevard Malvern, PA 19355 February 16, 1998 YOUR VOTE IS IMPORTANT! YOU CAN VOTE EASILY AND QUICKLY BY TOLL-FREE TELEPHONE CALL, AT OUR WEBSITE, OR BY MAIL. JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON YOUR ENCLOSED PROXY CARD. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW UP MAILING BY VOTING TODAY! 6 VANGUARD ASSET ALLOCATION FUND VANGUARD EQUITY INCOME FUND VANGUARD GROWTH AND INCOME PORTFOLIO VANGUARD PREFERRED STOCK FUND VANGUARD/WELLESLEY INCOME FUND VANGUARD/WELLINGTON FUND VANGUARD/WINDSOR FUND VANGUARD/WINDSOR II SPECIAL MEETING OF SHAREHOLDERS MAY 1, 1998 PROXY STATEMENT INTRODUCTION ------------ This is a combined proxy statement for the eight Vanguard Funds listed at the top of this page. We've divided the proxy statement into five parts: Part 1-- An Overview begins on page 2. Part 2-- Your Fund's Proposals--the longest part--also begins on page 2. Part 3-- More on Proxy Voting and Shareholder Meetings begins on page 13. Part 4-- Fund Information begins on page 14. Part 5-- Director/Trustee Information begins on page 17.
Please be sure to read the entire proxy statement before casting your vote. Questions? Call us at 1-800-662-2739 (individual investors) or 1-800-523-1188 (participants in company-sponsored retirement plans administered by Vanguard). This proxy statement was first mailed to shareholders the week of February 16, 1998. 1 7 PART 1--AN OVERVIEW The Board of Directors/Trustees has sent you this proxy statement to ask for your vote on several proposals affecting your Fund. This table summarizes the proposals and how they apply to the eight Vanguard Funds that have scheduled a shareholder meeting for May 1, 1998.
PROPOSAL FUNDS AFFECTED - - - - - - - --------------------------------------------- ----------------------------- 1. Reorganization into a Delaware Business Trust All 2. Investment Limitation Changes a. Interfund lending program All b. Borrowing money and pledging assets All but Preferred Stock Fund c. Investments in securities owned by affiliates Wellesley Income Fund, Windsor Fund, Windsor II d. Investments in assessable securities Windsor Fund, Windsor II e. Industry concentration Preferred Stock Fund
- - - - - - - -------------------------------------------------------------------------------- PART 2--YOUR FUND'S PROPOSALS PROPOSAL 1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST (ALL FUNDS) The Board of Directors/Trustees has approved a plan to reorganize your Fund into a Delaware business trust. THE PURPOSE OF THE REORGANIZATION IS TO REDUCE THE AMOUNT OF STATE TAXES THAT YOUR FUND PAYS ANNUALLY. Preferred Stock Fund won't realize any tax savings as a result of the change, but it will benefit from the efficiency of being organized the same way as all other Vanguard Funds. To proceed with the reorganization plan, we need shareholder approval. The next few pages of this proxy statement discuss important details of the reorganization plan, including the following: - Why we want to reorganize your Fund. - How we plan to accomplish the reorganization. - How the reorganization will affect your Fund. - How a Delaware business trust compares to your Fund's current legal structure. - How many shareholder votes we need to approve the reorganization. A SPECIAL NOTE TO SHAREHOLDERS OF PREFERRED STOCK FUND: Your Fund currently operates under a different form of organization than the other Vanguard Funds covered by this proxy statement. Your Fund is a common law trust under Pennsylvania law, while the other Funds are Maryland corporations. This difference is why we will occasionally note special considerations for Preferred Stock Fund shareholders. 2 8 A. WHY WE WANT TO REORGANIZE YOUR FUND YOUR FUND WILL PAY LESS TAXES AS A BUSINESS TRUST. Your Fund (but not Preferred Stock Fund) currently pays foreign franchise taxes to the Commonwealth of Pennsylvania. This tax applies to your Fund because it is headquartered in Pennsylvania and is a "foreign" corporation--that is, organized as a corporation under the laws of a different state, Maryland. If your Fund were instead organized in the form of a business trust (as many mutual funds are) it would be exempt from the Pennsylvania foreign franchise tax. As a business trust, your Fund would be subject to a different tax, the Pennsylvania county personal property tax. However, Pennsylvania counties generally have stopped assessing personal property taxes. This is because the Pennsylvania Supreme Court is expected to declare the personal property tax unconstitutional. (The U.S. Supreme Court declared a similar North Carolina tax unconstitutional in 1996.) We believe it unlikely that your Fund, as reorganized, would become subject to the personal property tax in the foreseeable future. If the personal property tax were reinstated, or any similar state tax were imposed, we would re-evaluate your Fund's options at that time. The following table shows (i) the amount of Pennsylvania foreign franchise taxes paid by your Fund for its last fiscal year; and (ii) the amount of Pennsylvania personal property taxes that your Fund would have paid if it had been organized as a business trust for the last fiscal year.
LAST YEAR'S SAME BILL AS A FUND PENNSYLVANIA TAX BILL BUSINESS TRUST - - - - - - - ------------------------------ --------------------- -------------- Asset Allocation Fund $ 228,000 $ 0 Equity Income Fund $ 122,000 $ 0 Growth and Income Portfolio $ 129,000 $ 0 Preferred Stock Fund $ 0 $ 0 Wellesley Income Fund $ 537,000 $ 0 Wellington Fund $ 1,409,000 $ 0 Windsor Fund $ 1,438,000 $ 0 Windsor II $ 1,426,000 $ 0
"Last Year's Pennsylvania Tax Bill" is the approximate amount that we expect to save your Fund ANNUALLY by reorganizing it into a Delaware business trust. These anticipated savings are based on the size of your Fund during its last fiscal year. If your Fund grows, so will the amount of its tax savings. Of course, the ONE-TIME costs of reorganizing will offset your Fund's tax savings to a limited extent. These costs, which mostly relate to the printing, mailing and tabulation of proxies, are estimated at $84,000 for Asset Allocation Fund, $66,000 for Equity Income Fund, $69,000 for Growth and Income Portfolio, $10,000 for Preferred Stock Fund, $210,000 for Wellesley Income Fund, $640,000 for Wellington Fund, $377,000 for Windsor Fund and $616,000 for Windsor II. 3 9 DELAWARE LAW IS FAVORABLE TO MUTUAL FUNDS. We have proposed to reorganize your Fund as a DELAWARE business trust because that state's business trust law contains provisions that are well-suited to mutual funds. The "move" to Delaware will be largely on paper; your Fund will continue to operate out of Pennsylvania, just as it does now. PREFERRED STOCK FUND SHAREHOLDERS: Your Fund currently pays no foreign franchise taxes to Pennsylvania because it is already organized as a trust under Pennsylvania law. We propose to reorganize your Fund as a Delaware business trust to take advantage of Delaware's more favorable mutual fund climate, and to gain the administrative convenience of having it organized the same way as all other Vanguard Funds. B. HOW WE PLAN TO ACCOMPLISH THE REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION. The Board of Directors/Trustees has approved a written Agreement and Plan of Reorganization for your Fund. This document spells out the terms and conditions that will apply to your Fund's reorganization into a Delaware business trust. THREE STEPS TO REORGANIZE. In essence, the reorganization will be a three- step process. The first step is already taken: We have established a Delaware business trust especially for your Fund. Prior to the reorganization, this trust will issue a single share--to your Fund. Second, if this proposal is approved, your Fund will transfer all of its assets and liabilities to the trust. As part of this second step, the trust will open an account for each Fund shareholder. The trust will then credit these accounts with the exact number of full and fractional shares that each shareholder owned in the Fund on the reorganization date. And third, we will dissolve your Fund's Maryland corporate entity (or, for the Preferred Stock Fund, the Pennsylvania common law trust entity). EFFECTIVE AS SOON AS PRACTICABLE. If approved by shareholders, the reorganization will take place as soon as feasible after your Fund receives the necessary regulatory approvals and legal opinions. We think this could be accomplished by September of 1998. However, at any time prior to the reorganization, the Board of Directors/Trustees may decide that it is in the best interest of your Fund and its shareholders not to go forward with this project. If that happens, your Fund will continue to operate as it is currently organized. C. HOW THE REORGANIZATION WILL AFFECT YOUR FUND YOUR FUND'S INVESTMENT OBJECTIVE, POLICIES, INVESTMENT ADVISERS AND FISCAL YEAR WILL STAY THE SAME. The reorganization will not change any of these. However, we are asking shareholders to waive temporarily any existing investment restrictions that would otherwise prohibit the reorganization. (For instance, many mutual funds are prohibited from acquiring control of any company. As part of the reorganization, however, your Fund would be acquiring control of the 4 10 newly-formed trust.) Your vote in favor of the reorganization will operate as a temporary waiver of any such restrictions. THE REORGANIZATION WILL HAVE NO IMPACT ON YOUR FUND'S SHARE PRICE. On the day of the reorganization, the newly-formed trust's share price will be the same as that of your Fund. The reorganization will not cause your Fund's share price to go up or down, and you will own the same number of shares. Any declared but undistributed dividends or capital gains for your Fund will carry over in the reorganization. YOUR FUND'S EXISTING DIRECTORS/TRUSTEES WILL BE REELECTED. Federal securities laws require that at least one-half of your Fund's Directors/Trustees be elected by shareholders. While your Fund more than meets this standard now, that technically will not be true once it reorganizes as a trust. Rather than call another shareholder meeting to vote on Trustees after the reorganization, we will treat shareholder approval of this proposal as authorization to elect your Fund's current Board members to the same positions with the trust. This approach will avoid the considerable expense of printing, mailing and tabulating more proxies after the reorganization. (Please refer to Part 5 of this proxy statement for detailed information concerning your Directors/Trustees.) YOUR FUND'S EXISTING INDEPENDENT AUDITORS WILL BE RATIFIED. We will treat shareholder approval of the reorganization as ratification of your Fund's existing independent auditors, Price Waterhouse, LLP. Price Waterhouse is the independent auditor for all Vanguard Funds. In this role, Price Waterhouse audits and certifies the Funds' financial statements. Price Waterhouse also reviews the Funds' Annual Reports to Shareholders and their filings with the U.S. Securities and Exchange Commission. Neither Price Waterhouse nor any of its partners has any direct or material indirect financial interest in the Vanguard Funds. If you wish to request the attendance of a Price Waterhouse representative at the shareholder meeting, you should contact the Fund's Secretary at 100 Vanguard Boulevard, Malvern, PA 19355. THE REORGANIZATION IS CONDITIONED ON TAX FREE TREATMENT AT THE FEDERAL LEVEL. We fully expect that the reorganization will have no federal income tax consequences for you or your Fund. We will not proceed with the reorganization until this point is confirmed by an IRS ruling or opinion of counsel. Following the reorganization, from a tax standpoint, the adjusted basis of your Fund shares will be the same as before. We do not expect shareholders to incur any personal state or local taxes as a result of the reorganization, but you should consult your own tax adviser to be sure. VOTING RIGHTS WILL BE BASED ON THE DOLLAR AMOUNT OF YOUR INVESTMENT. After the reorganization, your voting rights will become "dollar-based"--which is a different voting rights system than your Fund uses now. Currently, all Vanguard Funds provide shareholders with one vote for each share that they own. This share-based system treats shareholders equitably so long as all shares of a 5 11 particular Fund have the same share price. However, fairness tends to erode when a Fund offers more than one series of shares (we often refer to these as "portfolios"). The share prices of a Fund's different portfolios inevitably diverge over time due to their different investment programs. As a result, when issues are voted at the Fund level, the owners of lower-priced shares have relatively greater voting clout than the owners of higher-priced shares. The change to dollar-based voting will ensure that shareholders' voting rights remain proportionate to their financial interests. While your Fund currently offers only one series of shares, dollar-based voting rights will apply to any additional portfolios that your Fund may offer in the future. (An exception here is that Windsor Fund and Windsor II are actually separate portfolios of Vanguard/Windsor Funds, Inc. The reorganization will accord shareholders of Windsor II--which has the higher share price at this time--voting rights that are financially equal to those enjoyed by shareholders of Windsor Fund.) YOUR FUND WILL STOP ISSUING SHARE CERTIFICATES AND WILL CONVERT ANY OUTSTANDING SHARE CERTIFICATES TO RECORD ENTRY FORM. In today's financial world, very few investors hold share certificates as physical evidence of their mutual fund investments. Instead, investors' mutual fund holdings are maintained and accounted for as "record entries" on the fund's computer system. The main problems with share certificates are that: - They present opportunities for theft, loss and fraud--and therefore offer less protection to shareholders, rather than more. - They're especially inconvenient--you must return your certificates to the fund before your shares can be redeemed or exchanged. In light of these downsides and the minimal demand for share certificates, your Fund will stop issuing them after the reorganization. In addition, your Fund will convert any outstanding share certificates to record entry form. This will not happen automatically; we will arrange conversion details separately with the Fund's certificate holders. D. HOW A DELAWARE BUSINESS TRUST COMPARES TO YOUR FUND'S CURRENT LEGAL STRUCTURE Federal securities laws have much to say about the way that mutual funds operate, but they do not cover every aspect of a fund's existence. State law and each fund's governing documents fill in most of the gaps. The following discussion compares the state law and documents currently governing your Fund with the state law and documents that will apply if it reorganizes as a Delaware business trust. This discussion is not a comprehensive review of all technical distinctions between the different legal structures. (You or your attorney would need to review the laws and Fund documents first-hand for that sort of analysis.) We simply want you to know how a Delaware business trust compares in certain 6 12 key areas to a Maryland corporation--your Fund's present legal structure. (Preferred Stock Fund's present legal structure is a Pennsylvania common law trust.) SHAREHOLDER LIABILITY. Shareholders of a Fund organized as a Maryland corporation generally have no personal liability for the Fund's obligations. By contrast, shareholders of a Fund organized as a Pennsylvania common law trust theoretically could have this type of liability if the Fund itself had no remaining assets to pay its obligations. With a Delaware business trust, shareholders generally have the same protection from personal liability that they would have as shareholders of a Maryland corporation. DIRECTOR/TRUSTEE LIABILITY AND INDEMNIFICATION. With a Maryland corporation, Directors cannot be held liable for their activities in that role so long as they perform their duties in good faith, prudently and in the Fund's best interests. The same is generally true for the Trustees of a Pennsylvania common law trust or Delaware business trust, if so provided in the Fund's governing documents. Under all three legal structures, the Fund can indemnify its Directors/Trustees from claims and expenses arising out of their service to the Fund--unless, that is, a Director/Trustee has acted improperly in a particular matter. SHAREHOLDER VOTING RIGHTS AND MEETINGS. Under a Fund organized as either a Maryland corporation or Pennsylvania common law trust, shareholders' voting rights currently are based on the number of shares that they own. As we explained on page 5, as a Delaware business trust, your Fund would shift to a dollar-based voting rights system. As a Maryland corporation, a Fund generally must call a shareholder meeting if one is requested in writing by investors entitled to cast 25% or more of the Fund's votes. For a Pennsylvania common law trust, 20% is the required percentage. As Delaware business trusts, the Funds will adopt a 25% standard. SHARE CERTIFICATES. Funds organized as Maryland corporations generally issue share certificates to their investors upon request. Funds organized as Pennsylvania common law trusts or Delaware business trusts are not required to issue share certificates. As explained on page 6, following the reorganization, your Fund will stop issuing share certificates and will convert any outstanding certificates to record entry form. E. HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE REORGANIZATION To go forward with the reorganization, a majority of your Fund's outstanding shares on February 16, 1998 must vote in favor of this proposal. (Shareholders of Windsor Fund and Windsor II will vote as separate funds on this proposal.) YOUR FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE THE REORGANIZATION. 7 13 PROPOSAL 2. FIVE CHANGES TO FUNDAMENTAL INVESTMENT LIMITATIONS 2a. INTERFUND LENDING PROGRAM (ALL FUNDS) We want to establish an interfund lending program for all Vanguard Funds, including the ones that are not covered in this proxy statement. The program will allow the Vanguard Funds to loan money to each other if--and only if--it makes good financial sense to do so on both sides of the transaction. THE FUNDS WILL NOT USE THIS PROGRAM TO LEVERAGE THEIR INVESTMENTS. The U.S. Securities and Exchange Commission has granted permission for the Vanguard Funds to participate in this program, subject to several conditions. We need shareholder approval, as well. In the following paragraphs we explain these important points: - Why your Fund would want to borrow money. - Why your Fund would want to lend money. - How the interfund lending program will work. - What safeguards will ensure fair and beneficial treatment of your Fund. - What your Fund's new investment limitation will say. - How many shareholder votes we need to approve the interfund lending program. YOUR FUND WOULD BORROW MONEY TO MEET REDEMPTION REQUESTS WHILE AWAITING THE PROCEEDS OF SECURITIES SALES. Normally, your Fund has sufficient cash on hand to satisfy all redemption requests. However, at times your Fund could be short on cash while awaiting settlement of its securities trades (typically a three business day process). While the law permits your Fund to defer redemption payments for up to seven days, we know that shareholders prefer to be paid immediately. This is the sole circumstance--and an unusual one, at that--under which your Fund would want to borrow money. YOUR FUND ROUTINELY LENDS MONEY TO BANKS--THROUGH REPURCHASE AGREEMENTS--TO GENERATE INCOME ON ITS CASH RESERVES. All Funds--including your own--maintain cash reserves to satisfy day-to-day redemption requests. Funds put their cash reserves to work by entering into repurchase agreements with banks (and other institutions, as well). In essence, these transactions are loans from the Fund to a bank. The Fund acquires a short-term, high quality security from the bank, who, in turn, agrees to buy that same security back from the Fund the next day--at a higher price. The difference between the purchase and resale prices represents the Fund's "interest" on the loan. THE NEW PROGRAM WILL LET VANGUARD MATCH THE BORROWING AND LENDING NEEDS OF DIFFERENT FUNDS--TO EVERYONE'S BENEFIT. On a given day, some Vanguard Funds may wish to meet redemptions by borrowing money from banks, and other Vanguard Funds may wish to generate additional income by lending money to banks. Under the interfund lending program, Vanguard could match borrowing Funds with lending Funds. Vanguard would then arrange loans between the matched Funds, in keeping with a master loan agreement and the SEC's 8 14 conditions for this program. By dealing with each other instead of banks, the Funds will be able to borrow money more cheaply and loan money more profitably. This is because (i) there will be no bank fees for these transactions, and (ii) we will have eliminated the banks' spread--that is, the difference between the rates that they typically charge borrowers and pay lenders. In addition, the interfund lending program will allow the Funds to forego the otherwise prudent--but expensive--step of maintaining a committed line of credit with a bank to cover any emergency borrowing needs. (We estimate that, altogether, the Vanguard Funds will save more than $800,000 annually by eliminating the need for a committed line of credit.) INTERFUND LOANS WILL PRESENT VERY LITTLE CREDIT RISK. When it lends money to another Fund, your Fund would be subject to credit risk--the possibility that the other Fund might fail to repay the loan. But your Fund faces this same type of risk when it lends money to a bank, through a repurchase agreement. And we believe that the risk is extremely small in both cases. Below we describe various safeguards designed to minimize the credit risk of interfund loans. THESE SAFEGUARDS ARE IN PLACE TO ENSURE FAIR AND BENEFICIAL TREATMENT OF ALL VANGUARD FUNDS. No Vanguard Fund will be permitted to borrow or lend through the program unless it gets a more favorable interest rate than is available from a typical bank. Other important protections for your Fund include these points: (i) Interfund loan rates will be determined by a pre-established formula based on quotations from independent banks. (ii) Funds that borrow money must fully secure their interfund loans OR have total assets at least 10 times greater than the amount of the loan. (iii) Equity Funds will be permitted to loan no more than 5% of their net assets through the interfund lending program; bond Funds could lend no more than 7.5%; and money market Funds could lend no more than 10%. (iv) All interfund loans will be very short-term. They must be repaid within the time it takes for securities trades to settle, not to exceed seven days. (v) No Fund can use the interfund lending program to borrow an amount larger than 125% of its total net cash redemptions for the preceding seven calendar days. (vi) A lending Fund may call in its loans on one business day's notice to the borrowing Fund. (vii) Each Fund will continue to maintain non-committed loan arrangements with banks to provide for situations where an interfund loan is not possible or beneficial. 9 15 (viii) Each Fund's Board of Directors/Trustees will monitor the interfund lending program to make sure that the interfund loan rate formula and the Fund's participation in the program continue to be appropriate. YOUR FUND WILL ADOPT A NEW INVESTMENT POLICY TO PROVIDE FOR INTERFUND LOANS. Your Fund's existing investment policies on borrowing and lending do not allow for interfund loans. If shareholders approve this proposal, we'll adopt a new investment policy which states that your Fund can borrow and lend money through the interfund loan program so long as it complies with SEC conditions. We'll designate this new policy as "fundamental," meaning that your Fund will not be able to change it in the future without shareholder approval. HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE INTERFUND LENDING. Your Fund's participation in the interfund lending program must be approved by the lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of the shares actually vote. (Shareholders of Windsor Fund and Windsor II will vote as separate funds on this proposal.) YOUR FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE THE INTERFUND LENDING PROGRAM. 2b. BORROWING MONEY AND PLEDGING ASSETS (ALL FUNDS BUT PREFERRED STOCK FUND) We want to establish standard limits on (i) the total amount of money that each Vanguard Fund can borrow from all sources and (ii) assets that each Fund can pledge to secure any loans. This proposal ties in with proposal 2a., concerning the interfund lending program. BY STANDARDIZING THE FUNDS' BORROWING AND PLEDGE LIMITS, WE EXPECT TO SIMPLIFY VANGUARD'S ADMINISTRATION OF THE INTERFUND LENDING PROGRAM. As you can see from the following table, currently there is a good deal of variation in the Funds' stated borrowing and pledge limitations (these are expressed as a percentage of each Fund's net assets or total assets):
FUND BORROWING LIMIT PLEDGE LIMIT - - - - - - - ----------------------------- -------------------- -------------------- Asset Allocation Fund 15% of net assets 5% of total assets Equity Income Fund 15% of total assets 5% of total assets Growth and Income Portfolio 10% of net assets 5% of total assets Preferred Stock Fund 15% of net assets 15% of net assets Wellesley Income Fund 10% of net assets 5% of total assets Wellington Fund 10% of total assets no stated limit Windsor Fund 10% of net assets no stated limit Windsor II 10% of net assets no stated limit
The Funds' different investment objectives do not explain the variations in their borrowing and pledge limits. Rather, these variations arise from the fact 10 16 that many different attorneys and regulators have worked with the Funds over the years. We would like to realign the Funds' limits by establishing a uniform 15% OF NET ASSETS limitation on any money borrowed or assets pledged. Any future changes to this policy would require shareholder approval. Keep in mind that borrowing money and pledging assets are not integral parts of your Fund's investment program. As we explained in the interfund lending discussion, your Fund would borrow money only to meet redemptions while awaiting the proceeds of securities sales. HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE 15% BORROWING AND PLEDGE LIMIT. The change to a uniform 15% borrowing and pledge limitation must be approved by the lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of the shares actually vote. (Shareholders of Windsor Fund and Windsor II will vote as separate funds on this proposal. Preferred Stock Fund shareholders will not vote on this proposal because their Fund already meets the new standard.) YOUR FUND'S BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE THE STANDARD BORROWING AND PLEDGE LIMITS. 2c. INVESTMENTS IN SECURITIES OWNED BY AFFILIATES (WELLESLEY INCOME FUND, WINDSOR FUND, AND WINDSOR II, ONLY) We want to eliminate your Fund's policy of avoiding investments in securities that are owned in certain amounts by Directors, officers, and key advisory personnel. THIS POLICY IS WELL-INTENTIONED, BUT WRONGLY FOCUSED AND UNNECESSARY FOR YOUR FUND. Having originated many years ago with now obsolete state securities laws, which were intended to prevent conflicts of interest in the management of mutual funds, the policy states that your Fund will not: "Purchase or retain securities of any company in which those officers and Directors of the Fund and/or its investment advisers owning more than 1/2 of 1% of such securities, own in the aggregate more than 5% of such securities." Confused? You're not alone. Preventing conflicts of interest in fund management is, of course, a critically important objective. For this reason, your Fund has adopted a stringent Code of Ethics that restricts the private investment activities of Directors, officers, key advisory personnel and a wide range of Vanguard employees. Our Code of Ethics supplements management's separate fiduciary obligation to act with the Fund's best interests at heart. It places the burden of avoiding potential conflicts squarely on those who would stand to gain by inappropriately influencing or benefiting from your Fund's investment program. The current policy takes the opposite approach--it potentially restricts your Fund's investments. In other words, the current policy subordinates your 11 17 Fund's investment interests to those of its Directors, officers and key advisory personnel. We believe that this is wrong. HOW MANY SHAREHOLDER VOTES WE NEED TO ELIMINATE THE POLICY CONCERNING INVESTMENTS IN SECURITIES OWNED BY AFFILIATES. Elimination of this policy will require approval by the lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of the shares actually vote. (Shareholders of Windsor Fund and Windsor II will vote as separate funds on this proposal.) YOUR FUND'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO ELIMINATE THIS POLICY. 2d. INVESTMENTS IN ASSESSABLE SECURITIES (WINDSOR FUND AND WINDSOR II, ONLY) We want to eliminate your Fund's policy of not purchasing assessable securities. THIS POLICY HAS NO APPARENT RELEVANCE TO YOUR FUND'S INVESTMENT PROGRAM; ITS ELIMINATION WOULD HAVE NO EFFECT ON THE WAY THAT YOUR FUND OPERATES. "Assessable security" is a legal term, not an investment term. It refers to situations where a person fully pays for securities but could be required to contribute additional sums of money to the person who issued the securities, or its creditors. Assessable securities are unheard of in the world of publicly traded securities, where your Fund focuses its investments. Your Fund has carried this arcane policy on its books for many years--for no real reason--and we would now like to eliminate it. HOW MANY SHAREHOLDER VOTES WE NEED TO ELIMINATE THE POLICY CONCERNING INVESTMENTS IN ASSESSABLE SECURITIES. Elimination of this policy will require approval by the lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of the shares actually vote. (Shareholders of Windsor Fund and Windsor II will vote as separate funds on this proposal.) YOUR FUND'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO ELIMINATE THIS POLICY. 2E. INDUSTRY CONCENTRATION (PREFERRED STOCK FUND, ONLY) We want to restate your Fund's industry concentration policy. OUR PROPOSED CHANGES WILL ALLOW YOUR FUND TO TAKE FULL ADVANTAGE OF AVAILABLE PREFERRED STOCK OFFERINGS. Your Fund's current industry concentration policy states that it will not invest more than 25% of its assets in any one industry, except for the "electric and/or gas industries." (The SEC requires mutual funds to identify any specific industries in which they will "concentrate"--that is, invest more than 25% of their assets.) However, the market for preferred stocks has changed over the years. Today, financial-services companies are dominant issuers of new preferred stocks. In addition, other sorts of utilities companies--not just electric and gas 12 18 companies--are among the most active issuers of preferred stocks. Your Fund wishes to adapt its concentration policy to this changed environment. The new concentration policy states that your Fund will invest more than 25% of its assets in the financial-services industry and more than 25% of its assets in the utilities industry. By concentrating its investments in particular industries, your Fund assumes the risk that those industries will not perform as well as the market at large. However, the market at large does not issue preferred stocks--only companies in certain industries do (for the most part, industries subject to regulations that make preferred stock an attractive financing tool). In today's securities markets, industry concentration is unavoidable for a fund that invests primarily in preferred stocks. HOW MANY SHAREHOLDER VOTES WE NEED TO RESTATE YOUR FUND'S CONCENTRATION POLICY. Restating your Fund's concentration policy will require approval by the lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of the shares actually vote. YOUR FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO RESTATE THE CONCENTRATION POLICY. - - - - - - - -------------------------------------------------------------------------------- PART 3--MORE ON PROXY VOTING AND SHAREHOLDER MEETINGS This section provides information on a number of topics relating to proxy voting and shareholder meetings. PROXY SOLICITATION METHODS. Your Fund will solicit shareholder proxies in a variety of ways. All shareholders who are entitled to vote will receive these proxy materials by mail. In addition, Vanguard employees and officers may solicit shareholder proxies in person, by telephone or through the Internet. We may also arrange for an outside firm, Shareholder Communications Corporation, to solicit shareholder votes by telephone on the Fund's behalf. This procedure, which is expected to cost the Fund approximately $4 per shareholder vote, will be employed only after all more cost-effective means of soliciting shareholder votes have been exhausted. PROXY SOLICITATION COSTS. Your Fund will pay all costs of soliciting proxies from its own shareholders, including costs relating to the printing, mailing and tabulation of proxies. By voting immediately, you can help your Fund avoid the considerable expense of a second solicitation. QUORUM. In order for the shareholder meeting to forward, your Fund must achieve a quorum. This means that a majority of your Fund's shares must be represented at the meeting--either in person or by proxy. All returned proxies count towards a quorum, regardless of how they are voted ("For," "Against" or "Abstain"). Your Fund will count broker non-votes towards a quorum, but not towards the approval of any proposals. (Broker non-votes are shares for which 13 19 (i) the underlying owner has not voted and (ii) the broker holding the shares does not have discretionary authority to vote on the particular matter.) REVOKING YOUR PROXY. You may revoke your proxy at any time up until voting results are announced at the shareholder meeting. You can do this by writing to your Fund's Secretary, Raymond J. Klapinsky, at 100 Vanguard Boulevard, Malvern, PA 19355 or by voting in person at the meeting. In addition, you can revoke a prior proxy simply by voting again--using your original proxy card, by toll-free telephone call, or at our website. SHAREHOLDER PROPOSALS. Any shareholder proposals to be included in the proxy statement for your Fund's next annual or special meeting must be received by the Fund within a reasonable period of time prior to that meeting. Your Fund has no current plans to hold an annual or special meeting in 1999. NOMINEE ACCOUNTS. Upon request, the Vanguard Funds will reimburse nominees for their reasonable expenses in forwarding proxy materials to beneficial owners of the Funds' shares. Please submit invoices for our review to Vanguard Financial Center, P.O. Box 2600, Valley Forge, PA 19482. ANNUAL/SEMI-ANNUAL REPORTS. Your Fund's most recent annual and semi-annual reports to shareholders are available at no cost. To request a report, please call us toll-free at 1-800-662-2739 or write us at Vanguard Financial Center, P.O. Box 2600, Valley Forge, PA 19482. LITIGATION. Your Fund is not involved in any litigation. OTHER MATTERS. At this point, we know of no other business to be brought before the shareholder meeting. However, if any other matters do come up, we will use our best judgment to vote on your behalf. If you object to our voting other matters on your behalf, please tell us so in writing before the meeting. THE VANGUARD GROUP, INC. Your Fund is a member of The Vanguard Group, Inc., the only mutual mutual fund company. Vanguard is owned jointly by the Funds it oversees (and therefore by the shareholders of those Funds). Vanguard provides the Funds--more than 95 distinct investment portfolios-- with their corporate management, administrative and distribution services on an at-cost basis. - - - - - - - -------------------------------------------------------------------------------- PART 4--FUND INFORMATION This section contains background information about your Fund and its investment adviser(s). 14 20 A. YOUR FUND (AS OF JANUARY 23, 1998)
OUTSTANDING 5% FUND NAME ORGANIZATION NET ASSETS SHARES OWNERS* - - - - - - - ------------------- ------------ --------------- ------------- ------- Asset Allocation Fund 1988 $ 4,183,793,632 199,133,443 (1) Equity Income Fund 1988 $ 2,121,054,107 96,105,759 None Growth and Income Portfolio 1986 $ 2,197,588,747 85,809,791 (2)(3) Preferred Stock Fund 1982 $ 338,119,710 32,668,571 (4) Wellesley Income Fund 1970 $ 7,585,407,306 351,013,758 None Wellington Fund 1928 $21,822,688,346 749,920,562 None Windsor Funds - - - - - - - --Windsor Fund 1959 $20,280,827,560 1,224,687,655 (5) - - - - - - - --Windsor II 1985 $23,762,311,723 860,329,896 (6)
- - - - - - - ------------------------------------------ *SEC rules require each Fund to tell you name and address of any person known to be the beneficial owner of more than 5% of the Fund's outstanding shares. The Fund must also tell you how many shares such persons own and what percentage of the Fund these shares represent. (1) Vanguard STAR Fund--Moderate Growth Portfolio, 100 Vanguard Boulevard, Malvern, PA 19355, owns approximately 17,179,000 shares, (8.6%) of the Fund, and Vanguard STAR Fund--Growth Portfolio owns approximately 14,215,000 shares (7.1%) of the Fund. (2) EDS Deferred Compensation Plan, 5400 Legacy Drive, Plano, TX 75024, owns approximately 6,952,000 shares (8.1%) of the Fund. (3) BP America Savings Plans Master Trust, 34 Exchange Place, Jersey City, N.J. 07302, owns approximately 6,423,000 shares (7.5%) of the Fund. (4) Johnson & Higgins Retirement Plan, 111 Wall Street, New York, NY 10005, owns approximately 2,260,000 shares (6.9%) of the Fund. (5) Vanguard STAR Portfolio, 100 Vanguard Boulevard, Malvern, PA 19355, owns approximately 65,570,000 shares (5.4%) of the Fund. (6) Vanguard STAR Portfolio, 100 Vanguard Boulevard, Malvern, PA 19355, owns approximately 71,846,000 shares (8.4%) of the Fund. 15 21 B. YOUR FUND'S INVESTMENT ADVISER(S)
FUND NAME ADVISER NAME AND ADDRESS - - - - - - - ---------------------------- ----------------------------------------- Asset Allocation Fund Mellon Capital Management Corporation 595 Market Street, Suite 3000, San Francisco, CA 94194 Equity Income Fund Newell Associates 525 University Avenue, Palo Alto, CA 94301 Spare, Kaplan, Bischel & Associates 44 Montgomery Street, Suite 3500, San Francisco, CA 94194 John A. Levin & Co. One Rockefeller Plaza, 25th Floor, New York, NY 10020 The Vanguard Group, Inc. 100 Vanguard Boulevard, Malvern, PA 19355 Growth and Income Portfolio Franklin Portfolio Associates LLC Two International Place, Boston, MA 02110 Preferred Stock Fund Wellington Management Company, LLP 75 State Street, Boston, MA 02109 Wellesley Income Fund Wellington Management Company, LLP See above Wellington Fund Wellington Management Company, LLP See above Windsor Fund Wellington Management Company, LLP See above Windsor II Barrow, Hanley, Mewwhinney & Strauss, Inc. One McKinney Avenue, 15th Floor, Dallas, TX 75204 Tuckman Capital Management, Inc. 60 East Sir Francis Drake Boulevard, Larkspur, CA 94939 Equinox Capital Management, Inc. 590 Madison Avenue, 41st Floor, New York, NY 10022 The Vanguard Group, Inc. See above
- - - - - - - -------------------------------------------------------------------------------- 16 22 PART 5--DIRECTOR/TRUSTEE INFORMATION Your "yes" vote on the reorganization proposal (see page 2) will be treated as a vote to elect each of your Fund's current Directors/Trustees to the position of Trustee with the newly-organized Delaware business trust. Following the reorganization, the Trustees will serve until the next election or until their terms are for some reason terminated. This section provides detailed information about the individual Directors/Trustees. The information presented includes: - The backgrounds and qualifications of the Directors/Trustees. - The identity of your Fund's principal executive officers. - How many Fund shares are owned by management. - How often the Board and its committees meet. - How Directors/Trustees are compensated. A. THE BACKGROUNDS AND QUALIFICATIONS OF DIRECTORS/TRUSTEES Except as otherwise noted, the individuals listed below currently serve as Directors/Trustees of The Vanguard Group, Inc. and all Vanguard Funds. The mailing of address of the Directors/Trustees is P.O. Box 876, Valley Forge, PA 19482.
PRINCIPAL OCCUPATION DURING THE NAME AGE LAST 5 YEARS AND OTHER DIRECTORSHIPS - - - - - - - -------------------------- --- ------------------------------------- John C. Bogle(1) 68 Senior Chairman of the Board and Director of The Vanguard Group, Inc., and all Vanguard Funds; Director of The Mead Corporation, General Accident Insurance Company, and Chris-Craft Industries, Inc. John J. Brennan(1) 43 Chairman of the Board, Director, President and Chief Executive Officer of The Vanguard Group, Inc., and all Vanguard Funds Robert E. Cawthorn(2) 62 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.
17 23
PRINCIPAL OCCUPATION DURING THE NAME AGE LAST 5 YEARS AND OTHER DIRECTORSHIPS - - - - - - - -------------------------- --- ------------------------------------- Barbara Barnes Hauptfuhrer 69 Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc., Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and Ladies Professional Golf Association; Trustee Emerita of Wellesley College Bruce K. MacLaury(3) 66 President Emeritus of The Brookings Institution; Director of American Express Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp. Burton G. Malkiel(2) 65 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 Telecommunications Co. Alfred M. Rankin, Jr. 56 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 61 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. 66 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 61 Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins Engine Co., and The Mead Corporation; Trustee of Vanderbilt University
18 24 - - - - - - - --------------- (1) Messrs. Bogle and Brennan are considered "interested persons" because they serve as Fund officers, as well as Directors/Trustees. (2) Messrs. Cawthorn and Malkiel do not serve as Directors of Vanguard Equity Income Fund. (3) Mr. MacLaury does not serve as Director/Trustee of Vanguard Municipal Bond Fund or the Vanguard State Tax-Free Funds. B. PRINCIPAL EXECUTIVE OFFICERS The following individuals are the principal executive officers of The Vanguard Group, Inc., and all Vanguard Funds. Each principal executive officer has held substantially the same position with the Funds for the last five years or more (except that Mr. Brennan succeeded Mr. Bogle as Chairman of the Board on January 31, 1998). Their mailing address is P.O. Box 876, Valley Forge, PA 19482.
NAME AGE OFFICE - - - - - - - -------------------- --- ---------------------------------------- John C. Bogle 68 Senior Chairman of the Board John J. Brennan 43 Chairman of the Board, President and Chief Executive Officer Raymond J. Klapinsky 59 Secretary Richard F. Hyland 60 Treasurer Karen E. West 51 Controller
C. FUND SHARES OWNED BY DIRECTORS/TRUSTEES Messrs. Bogle and Brennan each have invested substantially all of their assets in the Vanguard Funds. The independent Directors/Trustees are also committed to investing a significant portion of their assets in the Funds. All Directors/Trustees allocate their investments among more than 95 Vanguard Funds based on their own investment needs. Their aggregate Vanguard investments totaled over $79.5 million as of December 31, 1997. The total amount of Fund shares beneficially owned by each Director/Trustee as of that date, along with the year in which each individual became a Director/Trustee of the Vanguard Funds appears below. As of December 31, 1997, the Directors/ Trustees and officers owned less than 1% of each Fund's total outstanding shares. JOHN C. BOGLE (1966) Asset Allocation Fund -- 18,601 shares (32,783 shares); Equity Income Fund -- (18,284 shares); Growth and Income Portfolio -- 35,487 shares; Preferred Stock Fund -- 14,798 shares; Wellesley Income Fund -- 32,005 shares; Wellington Fund -- 23,967 shares (4,622 shares); Windsor Fund -- 148,865 19 25 shares (92,101 shares); All Vanguard Funds -- 1,655,037 shares (701,163 shares). NOTE: The bracketed amounts represent shares held by charitable and related trusts in which Mr. Bogle disclaims ownership, control or voting power. JOHN J. BRENNAN (1987) Asset Allocation Fund -- 26,827 shares; Equity Income Fund -- 47 shares; Growth and Income Portfolio -- 889 shares; Wellesley Income Fund -- 2,768 shares; Wellington Fund -- 5,247 shares; Windsor Fund -- 184,121 shares; Windsor II -- 40 shares; All Vanguard Funds -- 684,779 shares. ROBERT E. CAWTHORN (1992) All Vanguard Funds -- 8,369,629 shares. BARBARA B. HAUPTFUHRER (1972) Asset Allocation Fund -- 3,501 shares; Equity Income Fund -- 661 shares; Wellesley Income Fund -- 999 shares; Wellington Fund -- 1,410 shares; Windsor Fund -- 55,956 shares; Windsor II -- 27,188 shares; All Vanguard Funds -- 1,910,269 shares. BRUCE K. MACLAURY (1989) Wellington Fund -- 16,239 shares; All Vanguard Funds -- 20,373 shares. BURTON G. MALKIEL (1977) Wellesley Income Fund -- 1,040 shares; Windsor Fund -- 124,797 shares; All Vanguard Funds -- 520,104 shares. ALFRED M. RANKIN, JR. (1992) All Vanguard Funds -- 396,002 shares. JOHN C. SAWHILL (1991) Asset Allocation Fund -- 3,865 shares; All Vanguard Funds -- 790,828 shares. JAMES O. WELCH, JR. (1971) Asset Allocation Fund -- 5,864 shares; Wellesley Income Fund -- 587 shares; Wellington Fund -- 517 shares; Windsor Fund -- 31,392 shares; Windsor II -- 50,780 shares; All Vanguard Funds -- 144,797 shares. J. LAWRENCE WILSON (1985) All Vanguard Funds -- 311,590 shares. 20 26 D. BOARD AND COMMITTEE MEETINGS During 1997, your Fund's Board of Directors/Trustees held 11 meetings. Your Board has a standing Compensation, Nomination and Audit Committee, which consists of all Directors/Trustees who are not "interested persons" of the Fund (that is, all but Messrs. Bogle and Brennan). During 1997, the Committee held 2 meetings. The Committee's role is to: 1. Evaluate the performance of your Fund's officers and employees. 2. Develop and approve the compensation arrangements for your Fund's officers and employees. 3. Interview, evaluate and recommend to shareholders candidates for election your Fund's Board of Directors/Trustees. (The Committee will consider shareholder nominations for Director/Trustee; please write to Mr. Wilson, Chairman of the Committee.). 4. Select your Fund's independent accountants and review their fees. 5. Oversee your Fund's internal controls. Following the reorganization, your Fund's Board of Trustees will form a similar committee. E. DIRECTOR/TRUSTEE COMPENSATION The same individuals serve as Directors/Trustees of all Vanguard Funds, and each Fund pays a proportionate share of the Directors'/Trustees' compensation. The Funds employ their officers on a shared basis, as well. However, officers are compensated by The Vanguard Group, Inc., not the Funds. The reorganization (Proposal 1) will not change the compensation arrangements described in this section. INDEPENDENT DIRECTORS/TRUSTEES. The Funds compensate their independent Directors/Trustees -- that is, the ones who are not also officers of the Fund -- in three ways: - The independent Directors/Trustees receive an annual fee for their service to the Funds, which is subject to reduction based on absences from scheduled Board meetings. - The independent Directors/Trustees are reimbursed for the travel and other expenses that they incur in attending Board meetings. - Upon retirement, the independent Directors/Trustees receive an aggregate annual fee of $1,000 for each year served on the Board, up to fifteen years of service. This annual fee is paid for ten years following retirement, or until the Director's/Trustee's death. 21 27 "INTERESTED" DIRECTORS/TRUSTEES. The Funds' interested Directors/Trustees -- Messrs. Bogle and Brennan -- receive no compensation for their service in that capacity. However, they are paid in their role as officers of the Funds. COMPENSATION TABLES. The following tables provide compensation details for each of the Directors/Trustees. For each Fund covered in this proxy statement, we list the amounts paid as compensation and accrued as retirement benefits by that Fund for each Director/Trustee. In addition, the last table shows the total amount of benefits that we expect each Director/Trustee to receive from all Vanguard Funds upon retirement, and the total amount of compensation paid to each Director/Trustee by all Vanguard Funds. All information shown in this section relates to each Fund's most recent fiscal year.
ASSET ALLOCATION FUND EQUITY INCOME FUND DIRECTORS/ AGGREGATE ACCRUED PENSION/ AGGREGATE ACCRUED PENSION/ TRUSTEES COMPENSATION RETIREMENT BENEFITS COMPENSATION RETIREMENT BENEFITS - - - - - - - --------------- ------------ ------------------- ------------ ------------------- Bogle None None None None Brennan None None None None Cawthorn $807 $ 97 $517 $61 Hauptfuhrer $807 $ 116 $517 $74 MacLaury $861 $ 112 $547 $70 Malkiel $812 $ 78 None None Rankin $807 $ 61 $517 $39 Sawhill $807 $ 73 $517 $46 Welch $807 $ 90 $517 $57 Wilson $807 $ 65 $517 $41
GROWTH & INCOME PORTFOLIO PREFERRED STOCK FUND DIRECTORS/ AGGREGATE ACCRUED PENSION/ AGGREGATE ACCRUED PENSION/ TRUSTEES COMPENSATION RETIREMENT BENEFITS COMPENSATION RETIREMENT BENEFITS - - - - - - - --------------- ------------ ------------------- ------------ ------------------- Bogle None None None None Brennan None None None None Cawthorn $429 $52 $ 84 $10 Hauptfuhrer $429 $62 $ 84 $12 MacLaury $455 $58 $ 88 $12 Malkiel $431 $41 $ 85 $ 8 Rankin $429 $33 $ 84 $ 6 Sawhill $429 $39 $ 84 $ 8 Welch $429 $48 $ 84 $ 9 Wilson $429 $34 $ 84 $ 7
22 28
WELLESLEY INCOME FUND WELLINGTON FUND DIRECTORS/ AGGREGATE ACCRUED PENSION/ AGGREGATE ACCRUED PENSION/ TRUSTEES COMPENSATION RETIREMENT BENEFITS COMPENSATION RETIREMENT BENEFITS - - - - - - - --------------- ------------ ------------------- ------------ ------------------- Bogle None None None None Brennan None None None None Cawthorn $1,940 $ 233 $4,870 $ 585 Hauptfuhrer $1,940 $ 280 $4,870 $ 702 MacLaury $2,068 $ 268 $5,180 $ 672 Malkiel $1,953 $ 188 $4,900 $ 471 Rankin $1,940 $ 147 $4,870 $ 370 Sawhill $1,940 $ 175 $4,870 $ 439 Welch $1,940 $ 215 $4,870 $ 540 Wilson $1,940 $ 155 $4,870 $ 390
ALL VANGUARD FUNDS(1) WINDSOR FUNDS TOTAL COMPENSATION DIRECTORS/ AGGREGATE ACCRUED PENSION/ ESTIMATED ANNUAL/ AS TRUSTEES COMPENSATION RETIREMENT BENEFITS RETIREMENT BENEFITS DIRECTOR/TRUSTEE - - - - - - - ------------- ------------ ------------------- ------------------- ------------------ Bogle None None None None Brennan None None None None Cawthorn $ 9,790 $ 1,177 $13,000 $ 70,000 Hauptfuhrer $ 9,790 $ 1,412 $15,000 $ 70,000 MacLaury $ 10,420 $ 1,348 $12,000 $ 65,000 Malkiel $ 9,852 $ 947 $15,000 $ 70,000 Rankin $ 9,790 $ 743 $15,000 $ 70,000 Sawhill $ 9,790 $ 883 $15,000 $ 70,000 Welch $ 9,790 $ 1,086 $15,000 $ 70,000 Wilson $ 9,790 $ 785 $15,000 $ 70,000
- - - - - - - --------------- (1) All Directors/Trustees serve as such for 35 Vanguard Funds, except for Messrs. Malkiel and MacLaury, who serve on the Boards of 34 and 28 Vanguard Funds, respectively. 23 29 [LOGO] Post Office Box 2600 Valley Forge, PA 19482 World Wide Web www.vanguard.com E-mail online@vanguard.com (C) 1998 Vanguard Marketing Corporation, Distributor PROX1 0198-2.5MB 30 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD ASSET ALLOCATION FUND ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 31 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 32 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD EQUITY INCOME FUND ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 33 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 34 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD GROWTH AND INCOME PORTFOLIO ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 35 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 36 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD PREFERRED STOCK FUND ("FUND") PROXY SOLICITED BY THE BOARD OF TRUSTEES By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 37 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 38 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD WELLESLEY INCOME FUND ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 39 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 40 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD WELLINGTON FUND ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 41 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 42 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD WINDSOR FUND ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 43 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 44 VOTE BY TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM 12-DIGIT CONTROL NUMBER: 021 345 678 912 (See enclosed insert for further instructions to vote by phone/internet) [THE VANGUARD GROUP LOGO] - - - - - - - - Please detach at perforation before mailing - VANGUARD WINDSOR II ("FUND") PROXY SOLICITED BY THE BOARD OF DIRECTORS By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date --------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. - - - - - - - ----------------------------------------------------------- - - - - - - - ----------------------------------------------------------- Signature (s) (and Title(s), if applicable) VAN-REG CONTINUED ON REVERSE SIDE 45 Please refer to the Proxy Statement discussion of these proposals. THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING: --- - Please detach at perforation before mailing - PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
FOR AGAINST ABSTAIN 1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1. 2. To change the Fund's fundamental investment limitations with regards to: (a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a. (b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b. (c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c. Windsor Fund, and Windsor II only) (d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d. (e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
PLEASE SIGN ON REVERSE SIDE VAN-REG 46 Two New Low-Cost Ways To Vote Your proxy IT'S FAST AND CONVENIENT. SAVE $! The accompanying Proxy Statement outlines important issues affecting your Vanguard fund. Help us save time and postage costs -- savings we pass along to you -- by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. Do not mail the Voting Instruction Form if you are voting by Internet or telephone. SAVE TIME ! TO VOTE BY INTERNET: 1. Read the Proxy Statement and have your Voting Instruction Form at hand. 2. Go to website WWW.PROXYVOTE.COM or to the "Proxy Voting" link on WWW.VANGUARD.COM. 3. Enter the 12-digit CONTROL NUMBER found on your Voting Instruction Form. 4. Follow the simple instructions. TO VOTE BY TELEPHONE: 1. Read the Proxy Statement and have your Voting Instruction Form at hand. 2. Call the toll-free number on your Voting Instruction Form. 3. Enter the 12-digit CONTROL NUMBER found on your Voting Instruction Form. 4. Follow the simple recorded instructions. YOUR PROXY VOTE IS IMPORTANT! [VANGUARD LOGO] (C) 1998 Vanguard Marketing Corporation, Distributor 47 Two New Low-Cost Ways To Vote Your proxy IT'S FAST AND CONVENIENT. SAVE $! The accompanying Proxy Statement outlines important issues affecting your Vanguard fund. Help us save time and postage costs -- savings we pass along to you -- by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. Do not mail the Proxy Card if you are voting by Internet or telephone. SAVE TIME! TO VOTE BY INTERNET: 1. Read the Proxy Statement and have your Proxy Card at hand. 2. Go to website WWW.PROXYVOTE.COM or to the "Proxy Voting" link on WWW.VANGUARD.COM. 3. Enter the 12-digit CONTROL NUMBER found on your Proxy Card. 4. Follow the simple instructions. TO VOTE BY TELEPHONE: 1. Read the Proxy Statement and have your Proxy Card at hand. 2. Call toll-free 1-800-690-6903. 3. Enter the 12-digit CONTROL NUMBER found on your Proxy Card. 4. Follow the simple recorded instructions. YOUR PROXY VOTE IS IMPORTANT! [VANGUARD LOGO] (C) 1998 Vanguard Marketing Corporation, Distributor
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