VALLEY FORGE, Pa.--()--Vanguard is implementing measures to curtail cash flow into two widely held funds: Vanguard WellingtonTM Fund and Vanguard Intermediate-Term Tax-Exempt Fund. Effective immediately, the two funds will no longer accept new accounts from financial advisor or institutional clients, but will remain open to these clients for additional purchases.* Retail clients may continue to establish new accounts and make additional purchases without limitation.
“Vanguard is proactively taking steps to reduce cash flow into the Wellington and Intermediate-Term Tax-Exempt Funds to ensure that their investment advisors can continue to effectively manage the portfolios”
“Vanguard is proactively taking steps to reduce cash flow into the Wellington and Intermediate-Term Tax-Exempt Funds to ensure that their investment advisors can continue to effectively manage the portfolios,” said Vanguard CEO Bill McNabb. “Our commitment is to protect the interests of the funds’ current shareholders, and as we’ve done in the past, we are demonstrating the conviction to do this by partially closing two of our largest funds.”
Vanguard has a long history of acting preemptively to restrict cash inflows to maintain fund assets at reasonable levels. Currently, seven Vanguard funds are closed to most new accounts: Admiral™ Treasury Money Market Fund, Federal Money Market Fund, High Yield Corporate Fund, Convertible Securities Fund, Capital Opportunity Fund, PRIMECAP Core Fund, and PRIMECAP Fund.
Vanguard Wellington Fund
Wellington Fund is Vanguard’s oldest mutual fund and the largest balanced fund in the industry with $68 billion in assets (source: Lipper, Inc.). Wellington Management Company LLP has served as the fund’s advisor since its inception in 1929. The fund invests approximately 65% of its assets in stocks and the remaining 35% in investment-grade corporate bonds, with some holdings in U.S. Treasury, government agency, and mortgage-backed securities.
For investors seeking a fund with similar broad asset class exposure, Vanguard offers its Balanced Index Fund and Vanguard STAR Fund. Vanguard Balanced Index Fund is passively managed and seeks—with approximately 60% of its assets—to track the investment performance of a benchmark index that measures the investment return of the overall U.S. stock market. With approximately 40% of its assets, the fund seeks to track the investment performance of a broad, market-weighted bond index.
Vanguard STAR Fund is a balanced fund-of-funds that invests approximately 60% of its assets in stocks and 40% in bonds. It is comprised of eleven actively managed Vanguard funds—including domestic and international stock funds and U.S. bond funds—each of which has its own distinct investment approach.
Vanguard Intermediate-Term Tax-Exempt Fund
The $39 billion Vanguard Intermediate-Term Tax-Exempt Fund is Vanguard’s largest municipal bond fund and the largest tax-exempt fund in its category (source: Lipper, Inc.). The fund invests in high-quality municipal bonds and has an average duration of 5 years. Introduced in 1977, the fund is managed by Vanguard’s Fixed Income Group, which oversees more than $720 billion in assets.
Vanguard offers a series of 19 national and state tax-exempt funds. While no single fund offers the same risk/reward profile as the Intermediate-Term Tax-Exempt Fund, two national funds are managed using the same investment philosophy and process. Vanguard Limited-Term Tax-Exempt Fund offers a shorter average duration (2.4 years) and may be considered by investors willing to forego some income for greater interest rate risk protection. For investors who are seeking higher income and willing to accept greater share price risk, Vanguard Long-Term Tax-Exempt Fund (average duration of 6.1 years) may be an alternative.
Vanguard will continue to monitor cash flows of both the Wellington and Intermediate-Term Tax-Exempt Funds and will take additional steps to limit the size of the funds if needed. Similarly, should conditions change, Vanguard may reopen the funds.
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages nearly $2.1 trillion in U.S. mutual fund assets, including more than $260 billion in ETF assets. The firm offers more than 170 funds to U.S. investors and more than 70 additional funds in non-U.S. markets. For more information, visit vanguard.com.
*Advisor and Institutional clients may contact Vanguard for details on establishing new accounts and making additional purchases.
All asset figures are as of January 31, 2013.
For more information, visit vanguard.com, or call 800-662-7447 to obtain a fund prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
Mutual funds are subject to risks, including possible loss of principal. Investments in bond funds are subject to interest rate, credit, and inflation risk. Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.
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