2002 PROXY PRESENTATION - ELECT TRUSTEES
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PROPOSAL 1:
o Applies to All 109 Funds
o Seven Nominees for Trustee
--Six Trustees will be "independent"
o Each Nominee Currently Serves as Trustee
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2002 PROXY PRESENTATION - INVESTMENT IN OTHER FUNDS
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PROPOSAL 2:
o Applies to 88 out of 109 Funds
o Enable Funds to Invest Cash Reserves in Dedicated MM & Short- term
Bond Funds
o Similar Program Used by Other Firms
o Goals: Better Diversification, Moderately Higher Returns
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2002 PROXY PRESENTATION - AUTHORIZE TRUSTEES TO CHANGE TARGET INDEXES
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PROPOSAL 3:
o Applies to 8 Index Funds
--Other funds have policy now
o Funds Tracking S&P 500 Index Not Included
o Fund Would Track Same Market Segment
o Why Give Trustees This Authority?
-- Act quickly in shareholder best interest
-- Avoid future proxy costs ($1 per account)
-- Avoid/minimize harm from front runners
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2002 PROXY PRESENTATION - WHY CHANGE A FUND'S TARGET INDEX?
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o Not All Indexes Created Equal
o Differences in Characteristics & Methodologies:
--Objective vs. Subjective Rules
--Completeness of Coverage
--Investability
--Market Cap vs. Float Weighting
--Size and Style Determination
--Turnover and Transaction Costs
--Available History
--Acceptance
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2002 PROXY PRESENTATION - INDEX METHODOLOGIES VANGUARD DEEMS BEST PRACTICES
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o Rely on Objective, Not Subjective Rules
o Adjust Weightings for Cross-Holdings/Float
o Define Market Capitalization as a Band, Not a Line in the Sand
o Determine Style in Two Dimensions
o Manage Stock Migration
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2002 PROXY PRESENTATION - MSCI U.S. INDEXES - CONSTRUCTION METHODOLOGIES
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o Objectively Constructed Indexes
o Capitalization Adjusted for Float
o Reasonable Capitalization Delineation
o Two Dimensional Style Indexes
o Bands Around Capitalization and Style Cutoffs
o Annual Rebalance of Capitalization and Semi- annual Rebalance of Style
o Liquidity Screens
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2002 PROXY PRESENTATION 7 COMPARISON OF US INDEX CHARACTERISTICS
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- -----Characteristic -------- MSCI ----- S&P ----- Russell ----- Wilshire--------
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o Objective Rules YES NO YES YES
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o Float Adjustment YES NO YES NO
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o Market Cap & Style
Buffers YES NO NO NO
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o Two- Dimensional Style
Segmentation YES NO NO NO
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o Manage Stock Migration NO YES NO NO
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2002 PROXY PRESENTATION - DIVERSIFICATION STATUS
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PROPOSAL 4:
o Applies to Stock Index-Oriented Funds
o Same as 2001 Growth Index Fund Proposal
--Reclassify Fund as Non-Diversified
o Goal: Eliminate Potential Conflict Between Statutory Limit & Indexing
Objective
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2002 PROXY PRESENTATION - INDUSTRY CONCENTRATION
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PROPOSAL 5:
o Applies to Prime MM & VVIF - MM
o Financial Services Dominant Supplier of MM Securities
o Funds Will Invest More Than 25% in Financial Industry
o Some Competitors Have Policy
o Maintain Stable $1 per Share Price
o Goal: Take Advantage of Available Investment Opportunities
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2002 PROXY PRESENTATION - BORROWING POLICY
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PROPOSAL 6:
o Applies to All Bond & Certain Balanced Funds
o Current Policy: "Temporary & Emergency"
-- After 5%, No Additional Purchases
o Proposed Policy:Eliminates these Conditions to Permit Investment
Activities Defined as "Borrowing"
o Up to 15% of assets (SEC limit is 33 1/3%)
o Funds Would Not Borrow to Leverage. No Change to Investment Objective
or Risk Profile
o Goal: Permit Investment Activities that May Benefit the Fund
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2002 Proxy Presentation - Change Investment Objective (7a)
Industry Concentration (7b) Proposals 7a and 7b:
o Apply to Utilities Income Fund Only
o Contingent Proposals
o Current Utilities Industry vs. Investor Profile
o Implement New Objective & Name, No Industry Concentration
o Goals: Enable Fund to Invest in a Diverse Group of Companies that
Provide Stable or Increasing Dividends and Reduce Risk
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2002 PROXY PRESENTATION - FOR MORE INFORMATION
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o Prior to September 23, 2002, a preliminary version of the proxy
statement is available without charge from the Securities and Exchange
Commission at www. sec. gov or by calling the SEC at 1- 202- 942-
8090.
o Beginning September 23, 2002, copies of the proxy statement will be
available without charge online at www. vanguard. com or by calling
Vanguard at 1- 800- 992- 0833. Note: This slide must be included when
discussing the Proxy.
NOTE: THIS SLIDE MUST BE INCLUDED WHEN DISCUSSING THE PROXY.
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