Vanguard has closed two widely held mutual funds -- its $68 billion Wellington Fund and $39 billion Intermediate-Term Tax-Exempt Fund -- to new accounts from financial advisors and institutions.

The firm announced today that it made the decision to close the funds, effective immediately, to those customers in particular, who represent most new accounts. In a separate announcement, the company said that by the end of the second quarter it would introduce an emerging-markets government-bond index mutual fund and exchange-traded shares.

“Vanguard is proactively taking steps to reduce cash flow into the Wellington and Intermediate-Term Tax-Exempt funds to ensure that their investment advisors can continue to effectively manage the portfolios,” said Vanguard CEO Bill McNabb in a release. “Our commitment is to protect the interests of the funds’ current shareholders, and as we’ve done in the past, we are demonstrating the conviction to do this by partially closing two of our largest funds.”

Both funds will remain open to advisors and institutions with existing accounts, and retail clients, whether new or existing, can still invest in both. "Our analysis indicates that share purchases from our retail clients are both modest and manageable, and importantly, can help offset fund redemptions," said David Hoffman, a Vanguard spokesman.

Seven other Vanguard funds are closed to most new accounts: the Admiral Treasury Money Market Fund, the Federal Money Market Fund, the High Yield Corporate Fund, the Convertible Securities Fund, the Capital Opportunity Fund, the PRIMECAP Core Fund and the PRIMECAP Fund. Hoffman added it's not that unusual for the company to close funds -- the first one it closed was the Windsor Fund in 1985, but it is now open.

The Wellington Fund is Vanguard’s oldest mutual fund and the largest balanced fund in the industry. Since it was opened in 1929, it has been managed by the Wellington Management Co. The fund invests approximately 65 percent of its assets in stocks and 35 percent in investment-grade corporate bonds, with some holdings in U.S. Treasury, government agency and mortgage-backed securities.

The Vanguard Intermediate-Term Tax-Exempt Fund is Vanguard’s largest municipal bond fund and the largest tax-exempt fund in its category, according to Lipper Inc. The fund invests in high-quality municipal bonds and has an average duration of five years. Introduced in 1977, the fund is managed by Vanguard’s Fixed Income Group.

In its other announcement, Vanguard said its new Vanguard Emerging Markets Government Bond Index Fund and ETF shares would expand the company's family of low-cost bond offerings. The expense ratios for the ETF, investor, Admiral and institutional shares will range from 0.30 percent to 0.50 percent. The company manages more than $720 billion in fixed-income assets, including 13 bond funds and ETFs.

“Our research shows that emerging-markets bonds have presented low correlations with domestic and developed market bonds, and have the potential to add value for certain risk-tolerant investors holding an otherwise broadly diversified portfolio,” McNabb said.