Vanguard Malvern Funds, et al. – ‘PRES14A’ for 5/1/98

As of:  Tuesday, 1/27/98   ·   For:  5/1/98   ·   Accession #:  893220-98-111   ·   File #s:  811-00121, 811-00834, 811-01766, 811-02601, 811-04526, 811-05445, 811-05628

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Preliminary Proxy Solicitation Material — Special Meeting   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Vanguard Combined Proxy Statement                     54    164K 

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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:                                            

 [x] Preliminary Proxy Statement        [ ] Confidential, for Use of the
                                                Commission Only (as permitted by
                                 Rule 14a-6(e)(2))
[ ] 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:   

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(2) Aggregate number of securities to which transaction applies:      

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(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):    

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(4) Proposed maximum aggregate value of transaction:                  

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(5) Total fee paid:                                                   

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[ ] 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:                                           

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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, which begins on page __, 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]

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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)

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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, 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 --, 1998                                                               

YOUR VOTE IS IMPORTANT! 
YOU CAN VOTE EARLY AND QUICKLY BY TOLL-FREE TELEPHONE CALL, AT OUR WEBSITE, OR  
BY MAIL. JUST FOLLOW THE EASY INSTRUCTIONS THAT APPEAR ON YOUR ENCLOSED PROXY   
CARD. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW UP MAILING BY VOTING  
TODAY!                                                                          

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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 

 PRELIMINARY 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:        

                                                                [Download Table]
                                                           
Part 1-- An Overview begins on page 2.                     
Part 2-- Your Fund's Proposals--the longest part--begins on
        page 2.                                            
Part 3-- More on Voting and Shareholder Meetingsbegins on  
        page 13.                                           
Part 4-- Fund Information begins on page 15.               
Part 5-- Director/Trustee Information begins on page 19.   

     Please be sure to read the entire proxy statement before casting your vote.
Questions? Call us at 1-800-xxx-xxxx (individual investors) or 1-800-xxx-xxxx   
(participants in company-sponsored retirement plans administered by Vanguard).  
This proxy statement was first mailed to shareholders the week of February --,  
1998.                                                                           

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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.                                          

                                                                [Download Table]

                  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 benefits   
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. That's why we occasionally note special considerations  
for your Fund.                                                                  

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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, most Pennsylvania counties 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 is reinstated, or any similar state tax is 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.                    

                                                                [Download Table]

                                        LAST YEAR'S     SAME BILL AS A
                 FUND                   PA 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 anticipated  
tax savings to a limited extent. These costs, which primarily relate to the     
printing, mailing and tabulation of proxies, are estimated as $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.                                                                             

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    DELAWARE LAW IS FAVORABLE TO MUTUAL FUNDS.  We are proposing to reorganize
your Fund as a DELAWARE business trust because that state business trust law    
contains provisions that are well-suited to mutual funds. The "move" to Delaware
would be largely on paper; your Fund would 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 would 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 its single, outstanding shares 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 business 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             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     

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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 the address shown on page   .                               

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     

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particular Fund have the same share price. However, unfairness arises 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. In other
words, at current share prices, Windsor Fund shareholders will cede voting power
to Windsor II shareholders--in the name of equity.)                             

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:                                      

      1. They present opportunities for theft, loss and fraud--and therefore
offer less protection to shareholders, rather than more.  

        2. They're especially inconvenient--you must return your certificates to
the fund before your shares can be redeemed or exchanged. 

   In light of these problems 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 laws and documents currently governing your Fund  
with the state law and documents that will apply if it reorganizes as a Delaware
business trust. We do not intend this discussion to be a comprehensive review of
all technical distinctions between the different legal structures. (You would   
need to review the laws and Fund documents first-hand for that sort of          
analysis.) We                                                                   

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simply want you to know how a Delaware business trust compares in certain key   
areas to a Maryland corporation--your Fund's present legal structure. (Preferred
Stock Fund's present legal structure is a Pennsylvania business 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. However, 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 are based on the number of shares that they own. As we explained on page 
, under a Delaware business trust shareholders' voting rights would be      
proportionate to their financial interests. As a Maryland corporation, the 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  
business trust, 20% is the required percentage.                                 

 SHARE CERTIFICATES.  Funds organized as Maryland corporations generally
issue share certificates to their investors upon request. Funds organized as    
Pennsylvania business trusts or Delaware business trusts are not required to    
issue share certificates. As explained on page   , 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 the 
proposal.) YOUR FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE  
THE REORGANIZATION.                                                             

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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                                      

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conditions for this program. By dealing with each other instead of banks, the   
Funds should 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.)                           

A complete list of the Vanguard Funds expected to participate in this 
program (assuming approval by their shareholders) appears on page      .        

    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. A   
complete list of the Vanguard Funds expected to participate in this program     
(assuming approval by their shareholders) appears on page   .                   

  THESE SEC-APPROVED 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  
it would 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; taxable 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
7 calendar days;                                          

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    (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; and                             

   (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 are still appropriate.

YOUR FUND WILL ADOPT A NEW INVESTMENT POLICY TO PROVIDE FOR INTERFUND 
LOANS.  Your Fund's existing investment limitations on borrowing and lending do 
not allow for interfund lending. If shareholders approve this proposal, we'll   
adopt a new investment limitation 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 limitation 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 AND OUR COMPLIANCE PROGRAMS. As you can see from the  
following table, currently there is a good deal of variation in the Funds'      
stated                                                                          

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borrowing and pledge limitations (these are expressed as a percentage of each   
Fund's net assets or total assets):                                             

                                                                [Download Table]

            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 
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. 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 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 state          
securities regulators who sought 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  
securi-                                                 

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ties, 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 strict 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 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 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 YOUR FUND'S INVESTMENT PROGRAM.
"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.                                         

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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 companies--are among the most active issuers of preferred      
stocks. Your Fund wishes to adapt 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.                                                      

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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 quorum, regardless of how they are voted ("For," "Against" or     
"Abstain"). Your Fund will count broker non-votes towards quorum, but not       
towards the approval of any proposals. (Broker non-votes are shares for which   
(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.                                 

 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-xxx-xxxx 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 are unaware of any 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 with their corporate management, administrative and          
distribution services on an at-cost basis.                                      

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PART 4--FUND INFORMATION                                                        

This section contains background information about your Fund and its  
investment adviser(s), along with a list of the Vanguard Funds that we expect to
participate in the interfund lending program (see proposal 2a. for details).    

A.  INFORMATION ABOUT YOUR FUND (AS OF 12/31/98)                                

                                                                [Download Table]

                                                     OUTSTANDING      5%   
       FUND NAME         ORGANIZATION   NET ASSETS     SHARES      OWNERS* 
------------------------ ------------   ----------   -----------   --------
                                                                           
Asset Allocation Fund        1988                                          
Equity Income Fund           1988                                          
Growth and Income                                                          
  Portfolio                  1986                                          
Preferred Stock Fund         1982                                          
Wellesley Income Fund        1970                                          
Wellington Fund              1928                                          
Windsor Funds                                                              
--Windsor Fund               1959                                          
--Windsor II                 1985                                          

*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.                                                

B.  YOUR FUND'S INVESTMENT ADVISER(S)                                           

                                                                [Download Table]

         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                                  

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                                                                [Download Table]

         FUND NAME                    ADVISER NAME AND ADDRESS         
----------------------------  -----------------------------------------
                                                                       
Preferred Stock Fund          Wellington Management Company, LLP       
                                75 State Street, Boston, MA 02109      
Wellesley Income Fund         Wellington Management Company, LLP       
Wellington Fund               Wellington Management Company, LLP       
Windsor Fund                  Wellington Management Company, LLP       
Windsor II                    Barrow, Hanley, Mewwhinney & Strauss,    
                                Inc.                                   
                              Tuckman Capital Management, Inc.         
                              Equinox Capital Management, Inc.         
                              The Vanguard Group, Inc.                 

C.  INTERFUND LENDING PROGRAM                                                   

     All current Vanguard Funds will be eligible to participate in the interfund
lending program (assuming approval by their shareholders). Future Vanguard Funds
will be eligible to participate, as well. The current Funds are:                

VANGUARD ADMIRAL FUNDS                                                          
Intermediate-Term U.S. Treasury Portfolio                             
Long-Term U.S. Treasury Portfolio                                     
Short-Term U.S. Treasury Portfolio                                    
U.S. Treasury Money Market Portfolio                                  
VANGUARD ASSET ALLOCATION FUND                                                  
VANGUARD BALANCED INDEX FUND                                                    
VANGUARD BOND INDEX FUND                                                        
Intermediate-Term Bond Portfolio                                      
Long-Term Bond Portfolio                                              
Short-Term Bond Portfolio                                             
Total Bond Market Portfolio                                           
VANGUARD CALIFORNIA TAX-FREE FUND                                               
Insured Intermediate-Term Portfolio                                   
Insured Long-Term Portfolio                                           
Money Market Portfolio                                                
VANGUARD CONVERTIBLE SECURITIES FUND                                            
VANGUARD EQUITY INCOME FUND                                                     
VANGUARD EXPLORER FUND                                                          

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VANGUARD FIXED INCOME SECURITIES FUND                                           
GNMA Portfolio                                                        
High Yield Portfolio                                                  
Intermediate-Term Corporate Portfolio                                 
Intermediate-Term U.S. Treasury Portfolio                             
Long-Term Corporate Portfolio                                         
Long-Term U.S. Treasury Portfolio                                     
Short-Term Corporate Portfolio                                        
Short-Term Federal Portfolio                                          
Short-Term U.S. Treasury Portfolio                                    
VANGUARD FLORIDA INSURED TAX-FREE FUND                                          
VANGUARD GROWTH AND INCOME PORTFOLIO                                            
VANGUARD HORIZON FUND                                                           
Aggressive Growth Portfolio                                           
Capital Opportunity Portfolio                                         
Global Asset Allocation Portfolio                                     
Global Equity Portfolio                                               
VANGUARD INDEX TRUST                                                            
500 Portfolio                                                         
Extended Market Portfolio                                             
Growth Portfolio                                                      
Small Capitalization Stock Portfolio                                  
Total Stock Market Portfolio                                          
Value Portfolio                                                       
VANGUARD INTERNATIONAL EQUITY INDEX FUND                                        
Emerging Markets Portfolio                                            
European Portfolio                                                    
Pacific Portfolio                                                     
VANGUARD MONEY MARKET RESERVES                                                  
Federal Portfolio                                                     
Prime Portfolio                                                       
VANGUARD MORGAN GROWTH FUND                                                     
Vanguard Municipal Bond Fund                                          
High-Yield Portfolio                                                  
Insured Long-Term Portfolio                                           
Intermediate-Term Portfolio                                           
Limited-Term Portfolio                                                
Long-Term Portfolio                                                   
Money Market Portfolio                                                
Short-Term Portfolio                                                  
VANGUARD NEW JERSEY TAX-FREE FUND                                               
Insured Long-Term Portfolio                                           
Money Market Portfolio                                                

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VANGUARD NEW YORK TAX-FREE FUND                                                 
Insured Long-Term Portfolio                                           
Money Market Portfolio                                                
VANGUARD OHIO TAX-FREE FUND                                                     
Insured Long-Term Portfolio                                           
Money Market Portfolio                                                
VANGUARD PREFERRED STOCK FUND                                                   
VANGUARD PRIMECAP FUND                                                          
VANGUARD SELECTED VALUE PORTFOLIO                                               
VANGUARD SPECIALIZED PORTFOLIOS                                                 
Energy Portfolio                                                      
Gold & Precious Metals Portfolio                                      
Health Care Portfolio                                                 
REIT Index Portfolio                                                  
Utilities Income Portfolio                                            
VANGUARD STAR FUND                                                              
LifeStrategy-Conservative Growth Portfolio                            
LifeStrategy-Growth Portfolio                                         
LifeStrategy-Income Portfolio                                         
LifeStrategy-Moderate Growth Portfolio                                
STAR Portfolio                                                        
Total International Portfolio                                         
VANGUARD TAX-MANAGED FUND                                                       
Balanced Portfolio                                                    
Capital Appreciation Portfolio                                        
Growth and Income Portfolio                                           
VANGUARD TREASURY FUND                                                          
VANGUARD TRUSTEES' EQUITY FUND                                                  
International Value Portfolio                                         
U.S. Growth Portfolio                                                 
VANGUARD WELLESLEY INCOME FUND                                                  
VANGUARD WELLINGTON FUND                                                        
VANGUARD WINDSOR FUNDS                                                          
Windsor Fund                                                          
Windsor II                                                            
VANGUARD WORLD FUND                                                             
International Growth Portfolio                                        
U.S. Growth Portfolio                                                 

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PART 5--DIRECTOR/TRUSTEE INFORMATION                                            

     Your "yes" vote on the reorganization proposal (see page *) 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 would serve until the next election or until   
their terms were for some reason terminated.                                    

     This section of the proxy statement provides detailed information about the
individual Directors/Trustees. The information presented includes:              

- The background 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.                                                                          

                                                                [Download Table]

                                       PRINCIPAL OCCUPATION DURING THE  
                                       LAST 5 YEARS AND OTHER           
            NAME               AGE     DIRECTORSHIPS                    
----------------------------   ---     ---------------------------------
                                                                        
John C. Bogle(1)               *       Senior Chairman of the Board and 
                                         Director of The Vanguard Group,
                                         Inc., and all Vanguard Funds   
John J. Brennan(1)             *       Chairman of the Board, Director, 
                                         President and Chief Executive  
                                         Officer of The Vanguard Group, 
                                         Inc., and all Vanguard Funds   
Robert E. Cawthorn(2)          *       Chairman Emeritus and Director of
                                         Rhone-Poulenc Rorer, Inc.;     
                                         Managing Director of Global    
                                         Health Care Partners/DLJ       
                                         Merchant Banking Partners;     
                                         Director of Sun Company, Inc., 
                                         and Westinghouse Electric Corp.
Barbara Barnes Hauptfuhrer     *       Director of The Great Atlantic   
                                         and Pacific Tea Co., IKON      
                                         Office Solutions, Inc.,        
                                         Raytheon Co., Knight-Ridder,   
                                         Inc., Massachusetts Mutual Life
                                         Insurance Co., and Ladies      
                                         Professional Golf Association; 
                                         Trustee Emerita of Wellesley   
                                         College                        

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                                                                [Download Table]

                                       PRINCIPAL OCCUPATION DURING THE  
                                       LAST 5 YEARS AND OTHER           
            NAME               AGE     DIRECTORSHIPS                    
----------------------------   ---     ---------------------------------
                                                                        
Bruce K. MacLaury(3)           *       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)           *       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.          *       Chairman, President, and Chief   
                                         Executive Officer of NACCO     
                                         Industries, Inc.; Director of  
                                         NACCO Industries, The          
                                         BFGoodrich Co., and the        
                                         Standard Products Co.          
John C. Sawhill                *       President and Chief Executive    
                                         Officer of The Nature          
                                         Conservancy; formerly, Director
                                         and Senior Partner of McKinsey 
                                         & Co. and President of New York
                                         University; Director of Pacific
                                         Gas and Electric Co., Procter &
                                         Gamble Co., and NACCO          
                                         Industries                     
James O. Welch, Jr.            *       Retired Chairman of Nabisco      
                                         Brands, Inc.; retired Vice     
                                         Chairman and Director of RJR   
                                         Nabisco; Director of TECO      
                                         Energy, Inc., and Kmart Corp.  
J. Lawrence Wilson             *       Chairman and Chief Executive     
                                         Officer of Rohm & Haas Co.;    
                                         Director of Cummins Engine Co.,
                                         and The Mead Corp.; Trustee of 
                                         Vanderbilt University          

---------------                                                                 
(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.                              

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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 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.           

                                                                [Download Table]

        NAME           AGE                      OFFICE                 
--------------------   ---     ----------------------------------------
                                                                       
John C. Bogle          *       Senior Chairman of the Board            
John J. Brennan        *       Chairman of the Board, President and    
                                 Chief Executive Officer               
Raymond J. Klapinsky   *       Secretary                               
Richard F. Hyland      *       Treasurer                               
Karen E. West          *       Controller                              

C.  FUND SHARES OWNED BY DIRECTORS/TRUSTEES                                     

 Your Fund's Directors/Trustees are committed to investing a significant
portion of their assets in the Vanguard Funds. The Directors/Trustees allocate  
their investments among more than 90 Vanguard Funds based on their own          
investment needs. Their aggregate investments in the Vanguard Funds totaled over
$* million as of December 31, 1997. The following tables show, as of that date, 
the total amount of Fund shares beneficially owned by each Director/ Trustee,   
along with the year in which each individual became a Director/Trustee of the   
Vanguard Funds.                                                                 

                                                                [Download Table]

                     BOGLE   BRENNAN   CAWTHORN   HAUPTFUHRER   MACLAURY 
       FUND           19**     19**      19**         19**        19**   
-------------------  ------  --------  ---------  ------------  ---------
                                                                         
Asset Allocation                                                         
  Fund                                                                   
Equity Income Fund                                                       
Growth and Income                                                        
  Portfolio                                                              
Preferred Stock                                                          
  Fund                                                                   
Wellesley Inc. Fund                                                      
Wellington Fund                                                          
Windsor Fund                                                             
Windsor II                                                               
ALL VANGUARD FUNDS                                                       

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                                                                [Download Table]

                      MALKIEL     RANKIN     SAWHILL     WELCH     WILSON 
        FUND            19**       19**        19**       19**      19**  
--------------------  --------    -------    --------    ------    -------
                                                                          
Asset Allocation                                                          
  Fund                                                                    
Equity Income Fund                                                        
Growth and Income                                                         
  Portfolio                                                               
Preferred Stock Fund                                                      
Wellesley Inc. Fund                                                       
Wellington Fund                                                           
Windsor Fund                                                              
Windsor II                                                                
ALL VANGUARD                                                              
  FUNDS                                                                   

    As of December 31, 1997, your Fund's Directors/Trustees and officers owned
less than 1% of each Fund's total outstanding shares.                           

D.  BOARD AND COMMITTEE MEETINGS                                                

During 1997, your Fund's Board of Directors/Trustees held   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   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 and compensate their officers on a shared basis, as well.      

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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 of
$          for their service to the Funds.                            

          - 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
     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.                                 

"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.                                                                   

OFFICERS.  The Directors/Trustees set the compensation of the Funds'  
officers. Officers participate in a retirement plan that provides contributions 
equal to 10% of annual compensation, plus 5.7% of compensation in excess of the 
Social Security Taxable Wage Base then in effect. In addition, officers may make
pre-tax contributions of up to 4% of total compensation to a thrift plan; these 
elective contributions are matched on a 100% basis.                             

     COMPENSATION TABLES.  The following tables provide compensation details for
each of the Directors/Trustees and the most highly paid Fund officers. 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 and   
officer. 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.                                                        

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                                                        [Enlarge/Download Table]

                      ASSET ALLOCATION FUND                   EQUITY INCOME FUND          
 DIRECTORS/     AGGREGATE        ACCRUED PENSION/      AGGREGATE        ACCRUED PENSION/  
  TRUSTEES    COMPENSATION     RETIREMENT BENEFITS   COMPENSATION     RETIREMENT BENEFITS 
------------  -------------    --------------------  -------------    --------------------
                                                                                          
Bogle                                                                                     
Brennan                                                                                   
Hauptfuhrer                                                                               
Cawthorn                                                                                  
MacLaury                                                                                  
Malkiel                                                                                   
Rankin                                                                                    
Sawhill                                                                                   
Welch                                                                                     
Wilson                                                                                    
Officers*                                                                                 
------------                                                                              
Bogle                                                                                     
Brennan                                                                                   
Klapinsky                                                                                 
Hyland                                                                                    
West                                                                                      

---------------------                                                           
*SEC rules require this information only if the Fund's share of an officer's    
total compensation exceeds $60,000.                                             

                                                        [Enlarge/Download Table]

                    GROWTH & INCOME PORTFOLIO                PREFERRED STOCK FUND         
 DIRECTORS/     AGGREGATE        ACCRUED PENSION/      AGGREGATE        ACCRUED PENSION/  
  TRUSTEES    COMPENSATION     RETIREMENT BENEFITS   COMPENSATION     RETIREMENT BENEFITS 
------------  -------------    --------------------  -------------    --------------------
                                                                                          
Bogle                                                                                     
Brennan                                                                                   
Hauptfuhrer                                                                               
Cawthorn                                                                                  
MacLaury                                                                                  
Malkiel                                                                                   
Rankin                                                                                    
Sawhill                                                                                   
Welch                                                                                     
Wilson                                                                                    
Officers*                                                                                 
------------                                                                              
Bogle                                                                                     
Brennan                                                                                   
Klapinsky                                                                                 
Hyland                                                                                    
West                                                                                      

---------------------                                                           

*SEC rules require this information only if the Fund's share of an officer's    
total compensation exceeds $60,000.                                             

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                                                        [Enlarge/Download Table]

                      WELLESLEY INCOME FUND                     WELLINGTON FUND           
 DIRECTORS/     AGGREGATE        ACCRUED PENSION/      AGGREGATE        ACCRUED PENSION/  
  TRUSTEES    COMPENSATION     RETIREMENT BENEFITS   COMPENSATION     RETIREMENT BENEFITS 
------------  -------------    --------------------  -------------    --------------------
                                                                                          
Bogle                                                                                     
Brennan                                                                                   
Hauptfuhrer                                                                               
Cawthorn                                                                                  
MacLaury                                                                                  
Malkiel                                                                                   
Rankin                                                                                    
Sawhill                                                                                   
Welch                                                                                     
Wilson                                                                                    
Officers*                                                                                 
------------                                                                              
Bogle                                                                                     
Brennan                                                                                   
Klapinsky                                                                                 
Hyland                                                                                    
West                                                                                      

---------------------                                                           
*SEC rules require this information only if the Fund's share of an officer's    
total compensation exceeds $60,000.                                             

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                                                        [Enlarge/Download Table]

                          WINDSOR FUND                            WINDSOR II              
 DIRECTORS/     AGGREGATE        ACCRUED PENSION/      AGGREGATE        ACCRUED PENSION/  
  TRUSTEES    COMPENSATION     RETIREMENT BENEFITS   COMPENSATION     RETIREMENT BENEFITS 
------------  -------------    --------------------  -------------    --------------------
                                                                                          
Bogle                                                                                     
Brennan                                                                                   
Hauptfuhrer                                                                               
Cawthorn                                                                                  
MacLaury                                                                                  
Malkiel                                                                                   
Rankin                                                                                    
Sawhill                                                                                   
Welch                                                                                     
Wilson                                                                                    
Officers*                                                                                 
------------                                                                              
Bogle                                                                                     
Brennan                                                                                   
Klapinsky                                                                                 
Hyland                                                                                    
West                                                                                      

---------------------                                                           
*SEC rules require this information only if the Fund's share of an officer's    
total compensation exceeds $60,000.                                             

                                                                [Download Table]

              ALL VANGUARD FUNDS*                        
 DIRECTORS/    ESTIMATED ANNUAL/      TOTAL COMPENSATION 
  TRUSTEES    RETIREMENT BENEFITS     AS DIRECTOR/TRUSTEE
------------  --------------------    -------------------
                                                         
Bogle                                                    
Brennan                                                  
Hauptfuhrer                                              
Cawthorn                                                 
MacLaury                                                 
Malkiel                                                  
Rankin                                                   
Sawhill                                                  
Welch                                                    
Wilson                                                   

---------------------                                                           
The Directors/Trustees serve as such for 34 Vanguard Funds, except for Messrs.  
Malkiel and MacLaury, who serve on the Boards of 33 and 27 Vanguard Funds,      
respectively.                                                                   

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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").                              

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[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                                                              

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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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                                                       

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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.    

                                                        [Enlarge/Download Table]

                                                                                   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.  (Asset Allocation Fund,     [ ]    [ ]      [ ] 2c.
       Equity Income Fund,  Growth and Income Portfolio, 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

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 FORM OF

AGREEMENT AND PLAN OF REORGANIZATION

  This Agreement and Plan of Reorganization ("Agreement") is made as of this
___ day of ___________, 1998 by and between _______________________(the "Fund"),
and ___________________, a business trust created under the laws of the State of
Delaware (the "Trust").                                                         

  In consideration of the mutual promises contained herein, and intending to
be legally bound, the parties hereto agree as follows:                          

1.  PLAN OF REORGANIZATION.                                                     

(a) Upon satisfaction of the conditions precedent described in Section 3
hereof, the Fund will convey, transfer and delivery to the Trust at the 
   closing provided for in Section 2 (hereinafter referred to a the "Closing")
all of the then-existing assets belonging to the Fund to be conveyed,   
   transferred and delivered to the Trust. In consideration thereof, the Trust
  agrees at the Closing (i) to assume and pay, to the extent that they exist
   on or after the Effective Date of the Reorganization (as defined in Section
   2 hereof), all of the Fund's obligations and liabilities, whether absolute,
accrued, contingent or otherwise, including all fees and expenses in    
  connection with the Agreement, including without limitation costs of legal
advice, accounting, printing, mailing, proxy solicitation and transfer  
taxes, if any, the obligations and liabilities allocated to the Fund to 
   become the obligations and liabilities of the Trust, and (ii) to deliver to
    the Fund full and fractional shares of beneficial interest of the Trust, par
    value $0.001, equal in number to the number of full and fractional shares of
common stock, with $0.001 par value, of the Fund. The transactions      
  contemplated hereby are intended to qualify as a reorganization within the
  meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
("Code").                                                               

   (b) The Trust will effect such delivery by establishing an open account for
each shareholder of the Fund and by crediting to such account, the exact
  number of full and fractional shares of the Trust such shareholder held in
 the Fund on the Effective Date of the Reorganization, the net asset value
    per share of beneficial interest of the Trust shall be deemed to be the same
 as the net asset value per share of the Fund. On such date, the number of
outstanding shares of the Fund will be identical to the number of       
   outstanding shares of the Trust. Each shareholder of the Fund will have the
right to exchange his (her) shares for shares of the Trust. However, a  
shareholder need not make this exchange unless he (she) so desires.     
Simultaneously with the crediting of the shares of the Trust to the     
 shareholders of record, the shares of the U.S. Treasury Portfolio held by
such shareholder shall be canceled.                                     

  (c) As soon as practicable after the Effective Date of the Reorganization,
   the Fund shall take all necessary steps to effect a complete dissolution of
the _________ and to reclassify the shares of common stock of the       
   ____________ as authorized, unissued and unallocated shares of common stock
of the Fund under ________law.                                          

2.  CLOSING AND EFFECTIVE DATE OF THE REORGANIZATION. The Closing shall occur   
    either on (i) the business day immediately following the later of receipt of
  all necessary regulatory approvals or the final adjournment of the meeting
  of shareholders of the Fund at which this Agreement will be considered, or
   (ii) such later date as the parties may mutually agree (the "Effective Date
of the                                                                  

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Reorganization").                                                       

1)  CONDITIONS PRECEDENT. The obligations of the Fund and the Trust to          
    effectuate the Reorganization hereunder shall be subject to the satisfaction
of each of the following conditions:                                    

 (a) Such authority and orders from the Securities and Exchange Commission
  (the "Commission") and state securities commissions as may be necessary to
permit the parties to carry out the transactions contemplated by this   
Agreement shall have been received;                                     

(b)(i) one or more post-effective amendments to the Fund's Registration 
  Statement on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, containing appropriate revisions as a result of the
   Agreement; and (ii) an initial Registration Statement for the Trust on Form
    N-1A, which has been filed, shall have become effective with the Commission;
and (iii) no stop order suspending the effectiveness of each of the     
   foregoing Registration Statements shall have been issued, and no proceeding
  for that purpose shall have been initiated or threatened by the Commission
  (other than any such stop order, proceeding or threatened proceeding which
shall have been withdrawn or terminated);                               

  (c) Confirmation shall have been received from the Commission or the Staff
    thereof that the Trust shall, effective upon or before the Effective Date of
   the Reorganization, be duly registered as an open-end management investment
company under the Investment Company Act of 1940, as amended;           

(d) Each party shall have received a ruling from the Internal Revenue   
 Service or an opinion from Messrs. Stradley, Ronon, Stevens & Young, LLP,
Philadelphia, Pennsylvania, to the effect that the reorganization       
    contemplated by this Agreement qualified as a "reorganization" under Section
368(a) of the Code, and, thus, will not give rise to the recognition of 
   income, gain or loss for federal income tax purposes to the Fund, the Trust
or shareholders of the Fund or the Trust;                               

   (e) Each party shall have received an opinion from Messrs. Stradley, Ronon,
Stevens & Young, LLP, dated the Effective Date of the Reorganization,   
addressed to and in form and substance satisfactory to it, to the effect
   that (i) this Agreement and the reorganization provided for herein, and the
 execution of this Agreement, has been duly authorized and approved by the
  Fund and the Trust and constitutes a legal, valid and binding agreement of
  each such party in accordance with its terms; (ii) the shares of the Trust
   to be issued pursuant to the term of this Agreement, will have been validly
    issued and fully paid and will be non-assessable by the Trust; and (iii) the
   Trust is duly organized and validly existing under the laws of the State of
Delaware;                                                               

  (f) The shares of the Trust shall have been duly qualified for offering to
 the public in all states of the United States, the Commonwealth of Puerto
    Rico and the District of Columbia so as to permit the transfers contemplated
by this Agreement to be consummated;                                    

(g) This Agreement and the reorganization contemplated hereby shall have
  been adopted by an affirmative vote of a majority of all votes entitled to
be cast at a meeting of the shareholders of the Fund;                   

(h) The Fund shall have voted, as sole shareholder of the Trust, to:    

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         (1) Elect as Trustees of the Trust (the "Trustees") the following
              individuals: Messrs. John C. Bogle, John J. Brennan, Robert E.
         Cawthorn, Bruce K. MacLaury, Burton G. Malkiel, Alfred M.
              Rankin, Jr., John C. Sawhill, James O. Welch, Jr., J. Lawrence
Wilson and Ms. Barbara B. Hauptfuhrer; and      

         (2) Select Price Waterhouse as the independent public accountants
           for the Trust for the fiscal year ending ___________, 1998.

(i) The Trustees shall have taken the following action at a meeting duly
called for such purposes:                                               

(1) Approval of the Trust's Custodian Agreement;        

           (2) Selection of Price Waterhouse as the Trust's independent public
         accountants for the fiscal year ending November 30, 1997;

         (3) Approval of the Amended and Restated Funds' Service Agreement
            between The Vanguard Group, Inc. and the member Funds of the
Vanguard Group of Investment Companies;         

    (4) Authorization of the issuance by the Trust, prior to the
              Effective Date of the Reorganization, of one share to the Fund
           in consideration for the payment of $1.00 per share for the
              purpose of enabling the Fund to vote on matters referred to in
paragraph (h) of this Section 3;                

          (5) Submission of the matters referred to in paragraph (h) of this
           Section 3 to the Fund as sole shareholder of the Trust; and

       (6) Authorization of the issuance by the Trust of shares of the
             Trust on the Effective Date of the Reorganization in exchange
         for the Fund pursuant to the terms and provisions of this
Agreement.                                      

         At any time prior to the Closing, any of the foregoing conditions
      may be waived by the Board of Directors of the Fund if, in the
      judgment of the Director, such waiver will not have a material
           adverse effect on the benefits intended under this Agreement to the
shareholders of the Fund.                               

4.  TERMINATION. The Board of Directors of the Fund may terminate this Agreement
    and abandon the reorganization contemplated hereby, notwithstanding approval
   thereof by the shareholders of the Fund, at any time prior to the Effective
  Date of the Reorganization if, in the judgment of the Directors, the facts
and circumstances make proceeding with the Agreement inadvisable.       

5.  ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the  
parties and there are no agreements, understandings, restrictions or    
warranties among the parties other than those set forth herein or herein
provided for.                                                           

6.  FURTHER ASSURANCES. The Fund and the Trust shall take such further action as
may be necessary or desirable and proper to consummate the transactions 
contemplated hereby.                                                    

7.  COUNTERPARTS. This Agreement may be executed simultaneously in two or more  
 counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.                           

8.  GOVERNING LAW. This Agreement and the transactions contemplated hereby shall
    be governed by and construed and enforced in accordance with the laws of the
State of Delaware.                                                      

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  IN WITNESS WHEREOF, the Trust and the Fund have each caused this Agreement
and Plan of Reorganization to be executed on its behalf by its President and    
Chief Executive Officer and its seal to be affixed hereto and attested by its   
Secretary, all as of the day and year first above written.                      

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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                            

PRES14A
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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                            

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PRES14A’ Filing		Date		First		Last			Other Filings
For Period End:		5/1/98		2		47			DEFS14A
		2/16/98		3		17
		1/31/98		25
Filed on:		1/27/98
		12/31/97		25		26			24F-2NT,  N-30D,  NSAR-B
		11/30/97		51					24F-2NT,  N-30D,  NSAR-B
									List all Filings