<PAGE> 1
VANGUARD CONVERTIBLE SECURITIES FUND
PROSPECTUS SUPPLEMENT
OCTOBER 2, 1996
On September 20, 1996, the Board of Directors of Vanguard Convertible
Securities Fund, Inc. (the "Fund") approved the appointment of Oaktree Capital
Management, LLC ("Oaktree") as investment adviser to the Fund effective
November 1, 1996. Oaktree replaces Desai Capital Management, Inc. ("DCMI"),
which served as adviser to the Fund since its inception in 1986. The
appointment of Oaktree as investment adviser of the Fund will not require
shareholder approval. This procedure was approved by the Fund's shareholders
at the March 17, 1993, Annual Meeting and was authorized by an exemptive order
issued by the Securities and Exchange Commission on May 12, 1993.
DESCRIPTION OF NEW INVESTMENT ADVISORY AGREEMENT
Under the terms of the new investment advisory agreement, the Fund will pay
Oaktree a basic advisory fee at the end of each quarter, calculated by applying
a quarterly rate--based on the following annual percentage rates--to the
average month-end assets of the Fund for the quarter:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL BASIC FEE RATE
---------- ---------------------
<S> <C>
First $100 million 0.425%
Next $100 million 0.400
Next $100 million 0.375
Next $100 million 0.350
Over $400 million 0.325
</TABLE>
INCENTIVE/PENALTY FEE. Beginning with the quarter ending February 28, 1998,
the basic fee paid to Oaktree, as provided above, may be increased or decreased
by applying a performance fee adjustment, based on the investment performance
of the Fund relative to the return of the First Boston Convertible Index (the
"Index") measured over a 36-month period.
The performance fee adjustment rate will change proportionately with the level
of the Fund's investment performance compared to the Index's investment record,
resulting in a maximum increase or decrease of 50% of the basic fee if the
Fund's investment performance for the 36 months is 200 basis points (two
percentage points) above or below the Index's investment record over the same
period. The following table sets forth an example of the performance fee
adjustment payable to Oaktree by the Fund under the new investment advisory
agreement at various levels of the Fund's investment performance relative to
that of the Index.
<TABLE>
<CAPTION>
CUMULATIVE 36-MONTH PERFORMANCE PERFORMANCE FEE
DIFFERENTIAL VERSUS THE INDEX ADJUSTMENT*
- -------------------------------------------- --------------------------
<S> <C>
200 basis points and less below -50% x Basic Fee
100 basis points below -25% x Basic Fee
Equal to the Index 0% x Basic Fee
100 basis points above +25% x Basic Fee
200 basis points and more above +50% x Basic Fee
</TABLE>
*For purposes of this calculation, the Basic Fee is calculated by applying the
quarterly rate against average assets over the same time period that the
performance is measured.
The incentive/penalty fee will not be fully operable until the quarter ended
November 30, 1999, and until that date, will be calculated according to certain
transition rules. The Fund's Statement of Additional Information, which is
available on request, provides a detailed description of the Index and the
applicable transition rules.
Established as a performance benchmark in 1982, the Index is valued monthly and
generally includes 250 to 300 issues of convertible securities rated B- or
better by Standard & Poor's, and a predominant proportion of the market
capitalization of the total value of all convertible securities.
RELATED INFORMATION CONCERNING OAKTREE
Oaktree, a limited liability California corporation established March 14, 1995,
is located at 550 South Hope Street, 22nd Floor, Los Angeles, California 90071.
Oaktree is a professional investment counseling firm that offers portfolio
management services for private accounts as well as advisory services to
limited partnerships and other pooled investment vehicles. Oaktree provides
overall discretionary management for these accounts and specializes in managing
accounts that invest in 1) domestic and international convertible securities,
2) below investment-grade fixed income securities, and 3) securities and other
obligations of entities undergoing, or that may undergo, reorganization under
the Federal bankruptcy law as well as entities engaged in other extraordinary
transactions, such as debt restructuring, reorganization or liquidation. At the
end of 1995, Oaktree managed more than $5 billion.
If you have any questions concerning the Fund's new adviser, call Vanguard's
Investor Information Department at 1-800-662-7447.
PS82
