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VANGUARD/WINDSOR FUNDS, INC.
VANGUARD/ WINDSOR FUND
Prospectus Supplement
May 17, 1996
The Board of Directors of Vanguard/Windsor Fund (the "Fund") has approved a
revised investment advisory agreement with Wellington Management Company
("WMC"), the Fund's investment adviser. The new agreement involves a reduction
in the annual rate of advisory fees to be paid to WMC.
Under the terms of the new agreement, the Fund will pay WMC a basic
advisory fee at the end of each fiscal quarter, calculated by applying the
following annual percentage rates to the Fund's average month-end net assets for
the quarter:
Net Assets Annual Basic Fee Rate
---------- ---------------------
First $17.5 billion 0.125%
Over $17.5 billion 0.100
Both the current and revised agreements provide that the Basic Fee may be
increased or decreased by applying an incentive/penalty fee adjustment based on
the investment performance of the Fund relative to the investment record of the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") for the same
period.
The following table sets forth the incentive/penalty adjustment to the
basic advisory fee payable by the Fund to WMC under the new advisory agreement:
Cumulative 36-Month Performance Fee
Performance versus the S&P 500 Index Adjustment
------------------------------------ -----------
First $17.5 Billion of Assets:
Less than -12% -0.67 x Basic Fee*
Between -12% and -6% -0.33 x Basic Fee
Between -6% and 6% 0 x Basic Fee
Between 6% and 12% 0.33 x Basic Fee
More than 12% 0.67 x Basic Fee
Assets Over $17.5 Billion:
Less than -12% -0.90 x Basic Fee
Between -12% and -6% -0.45 x Basic Fee
Between -6% and 6% 0 x Basic Fee
Between 6% and 12% 0.45 x Basic Fee
More than 12% 0.90 x Basic Fee
*For purposes of this calculation, the Basic Fee is calculated by applying a
quarterly rate based on the Annual Basic Fee Rate using average assets over the
same 36-month period over which the performance is measured.
Under the rules of the Securities and Exchange Commission, the new
incentive/penalty fee will not be fully operable until the quarter ending July
31, 1999, and until that date, will be calculated according to certain
transition rules. This revised investment advisory agreement replaces the Fund's
existing agreement with the adviser dated as of June 19, 1985, and will go into
effect on or about August 1, 1996. Until this date, the adviser has agreed to
waive its advisory fees to the extent necessary to abide by the new fee
schedule.
AFWN
