Vanguard closes High-Yield Corporate Fund to curtail strong cash flows

By Toni Weeks

San Diego, May 24 - Vanguard announced in a 497 filing with the Securities and Exchange Commission that it is closing its Vanguard High-Yield Corporate Fund to most new accounts in an effort to curtail strong cash inflows.

The fund, which is the industry's third-largest high-yield corporate bond fund with $16.9 billion in net assets, has experienced cash flow of $2 billion over the past six months.

"In this prolonged low-rate environment, we continue to see investors turn to high-yielding alternatives - including money market fund holders moving to bond funds, U.S. Treasury bond fund holders moving to high-yield corporate funds and bond fund holders moving to dividend-paying stock funds. And we've cautioned investors accordingly about reaching for yield," Vanguard chief executive officer Bill McNabb said in a press release. "The flows into the High-Yield Corporate Fund have been particularly acute, so we are taking these proactive steps to preserve the ability of the advisor to manage the fund effectively and protect the interests of existing shareholders."

Effective immediately, the fund is closed until further notice to all new accounts other than for clients enrolled in Vanguard Flagship Services or Vanguard Asset Management Services. During the closed period, current shareholders may continue to purchase, exchange or redeem shares of the fund.

Vanguard said there is no specific timeframe for when the fund will reopen to other Vanguard clients. The fund was closed in June 2003 after receiving $1.4 billion in net cash flow in the first five months of that year. It was reopened in December 2003 after cash flow and investor interest had subsided.

Wellington Management Co. LLP has served as the fund's investment adviser since its inception in 1978.

Valley Forge, Pa.-based Vanguard is an investment management company.

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