AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 2002
File No. 33-64845
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
VANGUARD WHITEHALL FUNDS
(Exact Name of Registrant as Specified in Declaration of Trust)
P.O. Box 2600
Valley Forge, PA 19482
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (610) 669-1000
(Name and Address of Agent for Service)
R. Gregory Barton, Esquire
P.O. Box 876
Valley Forge, PA 19482
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities of Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
It is proposed that this filing will become effective on April 15, 2002,
pursuant to Rule 488.
PIC INVESTMENT TRUST
PROVIDENT INVESTMENT COUNSEL MID CAP FUND A
Dear Shareholder:
A special meeting of shareholders of Provident Investment Counsel Mid Cap
Fund A series (the "PIC Fund") of PIC Investment Trust, a Delaware business
trust, has been scheduled for ________, ________, 2002. If you are a shareholder
of record as of the close of business on _______, ________, 2002, you are
entitled to vote at the meeting and at any adjournment of the meeting.
The meeting is being held to consider the approval of the proposed
reorganization of the PIC Fund into Vanguard Mid-Cap Growth Fund (the "Vanguard
Fund"), a series of Vanguard Whitehall Funds, a Delaware business trust (the
"Vanguard Trust"). The attached combined prospectus/proxy statement is designed
to give you information relating to the proposal upon which you will be asked to
vote. THE BOARD OF TRUSTEES OF THE PIC TRUST RECOMMENDS THAT YOU APPROVE THE
PROPOSED REORGANIZATION.
Provident Investment Counsel, Inc. serves as investment adviser to the PIC
Mid Cap Portfolio, the New York trust in which all assets of the PIC Fund are
invested, and will become the investment adviser to the Vanguard Fund after the
proposed reorganization. The Vanguard Fund was created to facilitate the
proposed transaction and has a substantially similar investment objective and
substantially similar investment strategies and policies as the PIC Fund. After
the reorganization, the assets of the PIC Fund will be invested in the same
manner by the same portfolio managers. Each shareholder of the PIC Fund will
receive shares of the Vanguard Fund equal in value to the shares of the PIC Fund
such shareholder owns at the time of the reorganization. We encourage you to
support the Trustees' recommendation to approve the proposal.
While you are, of course, welcome to join us at the meeting, most
shareholders will cast their votes by filling out and signing the enclosed proxy
card. Whether or not you plan to attend the meeting, we need your vote. Please
mark, sign, and date the enclosed proxy card and return it promptly in the
enclosed, post-paid envelope so that the maximum number of shares may be voted.
You can also vote over the telephone or the internet by following the enclosed
instructions. Your vote is important to us. Please do not hesitate to call
1-800-618-7643 if you have any questions about the proposal. Thank you for
taking the time to consider this important matter and for your investment in the
PIC Fund.
Sincerely,
/s/ Thomas M. Mitchell
Thomas M. Mitchell
President, PIC Investment Trust
KEY POINTS ABOUT THE PROPOSED REORGANIZATION
Provident Investment Counsel Mid Cap Fund A (the "PIC Fund"), a series of
PIC Investment Trust, will host a special meeting of shareholders on ________,
2002, at the offices of Provident Investment Counsel, Inc. ("Provident") in
Pasadena, California. The purpose of this meeting is to vote on a proposal to
reorganize the PIC Fund into a substantially similar fund called Vanguard
Mid-Cap Growth Fund (the "Vanguard Fund"), which is being created within The
Vanguard Group of Investment Companies ("The Vanguard Group").
The first two pages of this booklet highlight key points about the proposed
reorganization and explain the proxy process - including how to cast your votes.
Before you vote, please read the full text of the combined proxy
statement/prospectus for a complete understanding of our proposal.
PURPOSE OF THE PROPOSED REORGANIZATION
The purpose of the proposed reorganization is to make the PIC Fund a part
of The Vanguard Group, the second largest mutual fund complex in the United
States. Under this proposal, the assets and liabilities of the PIC Fund would be
transferred to the Vanguard Fund, a substantially similar fund that is being
created just for this purpose. Provident would continue to serve as investment
adviser, carrying out an investment program for the Vanguard Fund that is
substantially similar to the PIC Fund. The Vanguard Group, Inc. ("Vanguard"),
however, would replace Provident as overall manager of your fund, subject to the
direction of a Vanguard Board of Trustees. After the reorganization, the
Vanguard Fund would continue investing your portfolio, and the PIC Fund (which
will have no remaining assets) will be dissolved. Your existing Board of
Trustees believes that the reorganization is in shareholders' best interests for
the following reasons:
LOWER SHAREHOLDER COSTS
Because they jointly own their management company, the funds within The
Vanguard Group operate on an "at-cost" basis. This operating structure, combined
with the efficiencies inherent in Vanguard's size, will result in lower
operating expenses for the Vanguard Fund than for the PIC Fund. The Vanguard
Fund expects to feature a total expense ratio of 0.65% for its first full year
of operations following the proposed reorganization - an annual cost to
shareholders of $6.50 for each $1,000 invested. By contrast, the PIC Fund's
total expense ratio for the year ended October 31, 2001 was 1.39% (after fees
waived and expenses reimbursed by Provident) - an annual cost to shareholders of
$13.90 for each $1,000 invested.
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EXPANDED SHAREHOLDER SERVICES
As a shareholder of the Vanguard Fund, you will have access to a wide range
of shareholder services, including 24-hour access to your account, the ability
to transact through Vanguard's website, exchange privileges with more than 100
other Vanguard funds, and access to Vanguard's comprehensive investor education
programs.
FUTURE GROWTH OF THE PIC FUND
Joining The Vanguard Group should enable the PIC Fund (as reorganized into
the Vanguard Fund) to grow assets due to Vanguard's strong market penetration
and reputation as a low-cost provider. Provident expects that assets in the
reorganized PIC Fund will grow considerably once it joins The Vanguard Group. As
a result, expenses will be shared by a larger group of shareholders and expenses
for existing shareholders will be reduced.
HOW THE REORGANIZATION WILL AFFECT YOUR ACCOUNT
If shareholders approve the proposed reorganization, your PIC Fund shares
will be exchanged, on a tax-free basis, for an equivalent dollar amount of
Vanguard Fund shares. Your account registration and account options will remain
the same unless you change them. In addition, your aggregate cost basis in the
account will remain the same.
TAX-FREE NATURE OF THE REORGANIZATION
The proposed reorganization will be accomplished on a tax-free basis,
meaning that you won't realize any capital gains when your PIC Fund shares are
exchanged for shares of the Vanguard Fund.
QUESTIONS AND ANSWERS
Q. I'm a small investor. Why should I bother to vote?
A. Your vote makes a difference. If numerous shareholders just like you fail to
vote their proxies, the PIC Fund may not receive enough votes to go forward with
its meeting. If this happens, we'll need to mail proxies again - a costly
proposition for your fund!
Q. Who gets to vote?
A. Any person who owned shares of the PIC Fund on the "record date," which was
_________, 2002, gets to vote - even if the investor later sold the shares.
Shareholders are entitled to cast one vote for each PIC Fund share held on the
record date.
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Q. How can I vote?
A. You can vote by mail, using the enclosed ballot. Or, you can vote in person
at the meeting. You may also vote by telephone. Please follow the enclosed
instructions to use these methods of voting. Whichever method you choose, please
take the time to read the full text of our combined proxy statement and
prospectus before you vote.
Q. I plan to vote by mail. How should I sign my proxy card?
A. If you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match one that appears on the card. You
should sign proxy cards for other types of accounts in a way that indicates your
authority (for instance, "John Brown, Custodian").
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
PROVIDENT INVESTMENT COUNSEL MID CAP FUND A
Provident Investment Counsel Mid Cap Fund A will host a special meeting of
shareholders on ______, ________, 2002, at ____, Pacific time. The meeting will
be held at Provident Investment Counsel's offices at 300 North Lake Avenue,
Pasadena, California 91101. At the meeting, we will ask shareholders to vote on:
1. A proposal to reorganize Provident Investment Counsel Mid Cap Fund
A into Vanguard Mid-Cap Growth Fund.
2. Any other business properly brought before the meeting.
All shareholders are cordially invited to attend the meeting. However, if
you are unable to attend the meeting, please mark, sign and date the enclosed
proxy card and return it promptly in the enclosed, postage-paid envelope so that
the meeting may be held and a maximum number of shares may be voted. Please see
the enclosed materials for telephone voting instructions.
Shareholders of record at the close of business on ________, 2002, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Trustees
/s/ Aaron W.L. Eubanks, Sr.
Aaron W.L. Eubanks, Sr., Secretary
__________, 2002
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YOUR VOTE IS IMPORTANT!
You can vote easily and quickly. Just follow the simple instructions that
appear on your enclosed proxy card. Please help your fund avoid the expense
to shareholders of a follow-up mailing by voting today!
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COMBINED PROSPECTUS/PROXY STATEMENT
This combined prospectus/proxy statement dated ________, 2002, relates to
the special meeting of shareholders of Provident Investment Counsel Mid Cap Fund
A (the "PIC Fund"), a series of PIC Investment Trust (the "PIC Trust"), to be
held on ________, 2002 concerning the acquisition of the assets and liabilities
of the PIC Fund, by and in exchange for shares of Vanguard Mid-Cap Growth Fund
(the "Vanguard Fund"), a series of Vanguard Whitehall Funds (the "Vanguard
Trust"). The address of the PIC Trust is 300 North Lake Avenue, Pasadena,
California 91101. The address of the Vanguard Trust is P.O. Box 2600, Valley
Forge, Pennsylvania 19482.
Please read this entire prospectus/proxy statement, along with the Vanguard
Fund's preliminary prospectus dated ________, 2002, before casting your vote.
This prospectus/proxy statement sets forth concisely the information about the
Vanguard Fund that a prospective investor ought to know before investing. The
Vanguard Fund's preliminary prospectus is incorporated by reference, is
considered part of and accompanies this prospectus/proxy statement. A statement
of additional information (the "Reorganization SAI") dated ________ __, 2002,
relating to this prospectus/proxy statement is available by calling Provident at
800-618-7643. The PIC Fund's prospectus dated February 28, 2002, is incorporated
by reference, is considered part of this prospectus/proxy statement, and is
available by calling Provident. These documents contain information that is
important to your voting decision, and you should keep them for future
reference.
The Vanguard Fund is being organized as a separate investment portfolio of
the Vanguard Trust, which filed an amended registration statement with the U.S.
Securities and Exchange Commission (the "SEC") on ________, 2002, in order to
create the Vanguard Fund. The Vanguard Trust's amended registration statement
has not yet been declared effective by the SEC. However, you can obtain copies
of its preliminary statement of additional information without charge by calling
Vanguard at 800-662-7447 or visiting the SEC's website (http://www.sec.gov). The
PIC Fund's statement of additional information (dated February 28, 2002) and its
most recent annual report to shareholders are incorporated by reference into the
Reorganization SAI and are also available without charge from Provident or at
the SEC's website.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OF THIS COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
----
1. OVERVIEW................................................................
2. DETAILS OF REORGANIZATION PROPOSAL......................................
Why We Want to Reorganize Your Fund................................
How We Plan to Accomplish the Reorganization.......................
How The Reorganization Will Affect Your Fund.......................
How Many Shareholder Votes We Need to Approve the Reorganization...
3. INVESTMENT ADVISORY ARRANGEMENTS........................................
4. MANAGEMENT OF VANGUARD MID-CAP GROWTH FUND..............................
5. GENERAL INFORMATION.....................................................
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION........................... A-1
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1. OVERVIEW
PROPOSAL SUMMARY. This combined prospectus/proxy statement describes a
proposal to reorganize Provident Investment Counsel Mid Cap Fund A (the "PIC
Fund') into a substantially similar fund called Vanguard Mid-Cap Growth Fund
(the "Vanguard Fund"), which is being created within The Vanguard Group of
Investment Companies ("The Vanguard Group"). The proposed reorganization
involves a few basic steps. First, your fund will redeem all of its interests in
PIC Mid Cap Portfolio (the "PIC Portfolio") in exchange for its share of the
underlying investment securities held by the PIC Portfolio. This step is
necessary because your fund currently invests all of its assets in the PIC
Portfolio. Second, your fund will simultaneously transfer all of its portfolio
securities and other assets to the Vanguard Fund, and the Vanguard Fund will
assume your fund's liabilities. Third, and simultaneously with step two, the
Vanguard Fund will open an account for you, crediting it with shares of the
Vanguard Fund that are equivalent in value to your investment in the PIC Fund at
the time of the proposed reorganization. Fourth, the PIC Fund will be dissolved.
At their meeting on ______ __, 2002, your Board of Trustees approved the
proposed reorganization. We believe that the reorganization is in the best
interests of your fund and its shareholders (more on this further into this
prospectus/proxy statement). Also, the proposed reorganization will not dilute
the interests of the PIC Fund's shareholders. If we do not win shareholder
approval of the proposed reorganization, the PIC Fund will simply continue in
existence unless the Board of Trustees decides otherwise.
FORM OF ORGANIZATION. For legal purposes, your fund, Provident Investment
Counsel Mid Cap Fund A, is organized as series of PIC Investment Trust, a
Delaware business trust (the "PIC Trust"). Vanguard Mid-Cap Growth Fund is being
organized as a new series of Vanguard Whitehall Funds, a Delaware business trust
(the "Vanguard Trust"). Additional information on organizational matters is
discussed below in the section entitled "Details of the Reorganization Proposal
- - How the Reorganization will Affect the PIC Fund."
NEW BOARD OF TRUSTEES. The Vanguard Trust has a different Board of Trustees
than the PIC Trust. We describe the backgrounds and compensation of the
individuals who serve as trustees of Vanguard Trust in the section below
entitled "Management of Vanguard Mid-Cap Growth Fund."
INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES OF EACH FUND. The Vanguard
Fund is being created with an investment objective and investment strategies and
policies that are substantially similar to those of the PIC Fund. Additional
information comparing your fund to the Vanguard Fund is provided below in the
section entitled "Details of the Reorganization Proposal - How the
Reorganization will Affect the PIC Fund."
INVESTMENT ADVISER. Provident Investment Counsel ("Provident"), the
investment adviser to the PIC Portfolio (in which all of the PIC Fund's assets
are invested), will also serve as investment adviser to the Vanguard Fund,
continuing a substantially similar investment program. Details of the advisory
arrangements for your fund and the Vanguard Fund are provided below in the
section entitled "Investment Advisory Arrangements." The Board of Trustees of
the Vanguard Trust has the flexibility to make advisory changes in shareholders'
best interests, without a shareholder vote, pursuant to an exemption received
1
from the SEC by Vanguard. Although there are no current plans to do so, one or
more new advisers could be added to the Vanguard Fund in the future, as either
additions to or replacements for Provident.
SHARE DISTRIBUTION ARRANGEMENTS. Unlike the PIC Fund, shareholders of the
Vanguard Fund do not pay a sales commission to a distributor when they purchase
Vanguard Fund shares. In addition, the Vanguard Fund does not pay annual 12b-1
(distribution) expenses. Although the Vanguard Fund has higher requirements than
the Provident Fund for minimum initial purchases, additional investments, and
account balances, Provident Fund shareholders who join the Vanguard Fund as a
result of the reorganization will continue to be subject to the lower Provident
Fund minimum initial purchase and account balance requirements.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP will serve as
independent auditors to the Vanguard Fund, as they do for all other Vanguard
funds. Pricewaterhouse-Coopers LLP also serves as independent auditors to the
PIC Fund and the PIC Portfolio.
2. DETAILS OF REORGANIZATION PROPOSAL
The Board of Trustees of PIC Investment Trust has approved a plan to
reorganize Provident Investment Counsel Mid Cap Fund A into a substantially
similar fund that is being created within Vanguard Whitehall Funds, called
Vanguard Mid-Cap Growth Fund. A copy of the Agreement and Plan of Reorganization
is attached as Appendix A to this combined prospectus/proxy statement. To
proceed with the proposed reorganization, we need shareholder approval. The next
few pages of this prospectus/proxy statement discuss important details of the
reorganization plan, including the following:
* Why we want to reorganize your fund.
* How we plan to accomplish the reorganization.
* How the reorganization will affect your fund.
* How many shareholder votes we need to approve the reorganization.
WHY WE WANT TO REORGANIZE YOUR FUND
The Board of Trustees of your fund believes that the proposed
reorganization will provide substantial benefits to the shareholders of your
fund because, as shareholders of the Vanguard Fund, they will obtain access to
Vanguard's expansive client service capabilities and will have exchange
privileges with more than 100 other Vanguard funds. In addition, Provident
expects that assets in the reorganized PIC Fund will grow considerably once it
joins the Vanguard Group, and that shareholders will gain significant
efficiencies in the form of lower fees.
Vanguard management believes that the reorganized PIC Fund will fit well
within The Vanguard Group. If the proposed reorganization is approved by
shareholders, the PIC Fund will provide Vanguard investors with another proven
fund, and broaden the array of actively-managed funds available through
Vanguard.
2
The Vanguard Group, Inc. ("Vanguard") and Provident have entered into a
Sponsorship Agreement, which generally provides that Provident will use
reasonable efforts to facilitate the proposed reorganization. However, neither
Provident nor any other party is being compensated by Vanguard in consideration
of the PIC Fund joining The Vanguard Group through the reorganization.
HOW WE PLAN TO ACCOMPLISH THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The PIC Trust intends to enter into
an Agreement and Plan of Reorganization with the Vanguard Trust that spells out
the terms and conditions that will apply to the reorganization of the PIC Fund
into the Vanguard Fund (assuming that shareholders approve this proposal). For a
complete description of these terms and conditions, please see the agreement,
which is Appendix A to this prospectus/proxy statement.
FOUR STEPS TO REORGANIZE. After shareholder approval, the proposed
reorganization will be accomplished in a four-step process. First, your fund
will redeem all of its interests in the PIC Portfolio in exchange for its share
of the underlying investment securities held by the PIC Portfolio. This step is
necessary because your fund currently invests all of its assets in the PIC
Portfolio. Second, your fund will transfer all of its assets to the Vanguard
Fund, and the Vanguard Fund will assume all of your fund's liabilities. Third,
and simultaneously with step two, the Vanguard Fund will open an account for
you, crediting it with shares of the Vanguard Fund equal in value to the shares
of the PIC Fund owned by you at the time of the reorganization. Fourth, the PIC
Fund will be dissolved.
EFFECTIVE AS SOON AS PRACTICABLE. If approved by shareholders, the proposed
reorganization will take place as soon as practicable after all necessary
regulatory approvals and legal opinions are received. We think the
reorganization will be accomplished by early July, 2002.
We expect that the proposed reorganization will have no federal income tax
consequences for the PIC Fund or its shareholders. The reorganization will not
proceed until this point is confirmed by an opinion of counsel. Following the
proposed reorganization, the adjusted tax basis of your fund shares will be the
same as before. We do not expect shareholders to incur any personal state or
local taxes as a result of the proposed reorganization, but you should consult
your own tax adviser regarding those matters. More information about the opinion
of counsel required as a condition of the reorganization appears in the
Agreement and Plan of Reorganization.
HOW THE REORGANIZATION WILL AFFECT THE PIC FUND
COMPARING INVESTMENT OBJECTIVES, STRATEGIES, AND POLICIES. The PIC Fund's
investment objective and its investment strategies and policies will be
substantially similar to those of the Vanguard Fund, and Provident intends to
manage the Vanguard Fund in the same general manner that it currently manages
the PIC Fund.
As reorganized, the Vanguard Fund will continue to seek to provide
long-term capital appreciation. It will continue to invest primarily in the
common stock of medium size companies whose market capitalizations at the time
3
of the initial purchase are within the capitalization range of the Russell Mid
Cap Growth Index ($1 billion to $12.5 billion as of January 31, 2002).
In selecting investments for the Vanguard Fund, Provident will continue to
invest in those medium-capitalization companies which it believes have the best
prospects for future growth. Provident will continue to focus on individual
companies rather than trying to identify the best market sectors going forward.
This is often referred to as a "bottom-up" approach to investing. Provident will
seek companies that have displayed strong profitability, market share, return on
equity, reinvestment rates and sales and dividend growth. Companies with sound
management, plans and controls, and leading proprietary positions in given
market segments are especially attractive. Finally, the valuation of each
company will continue to be assessed relative to its industry, earnings growth
and the market in general. In determining whether to sell a security, Provident
will continue to consider various factors such as fundamental changes within a
particular company or its industry. These considerations will continue to be
based on Provident's research, including analytical procedures, market research
or discussions with company management.
Provident and your Board of Trustees believe that there is adequate
capacity in the mid-cap sector of the stock markets to absorb any additional
assets which the PIC Fund may obtain as a result of joining The Vanguard Group
and that the reorganization will not impair Provident's flexibility in managing
the assets of the Vanguard Fund.
Currently, the PIC Fund invests all of its assets in the PIC Portfolio, and
the PIC Portfolio in turn invests its assets directly in investment securities;
after the proposed reorganization, the Vanguard Fund will invest all of its
assets directly in investment securities. Your Board of Trustees believes this
change is more a matter of form than substance. The investment objective of the
PIC Fund is "fundamental," meaning that it can be changed only with shareholder
approval. The investment objective of the Vanguard Fund is substantially similar
but is non-fundamental. This is consistent with the non-fundamental approach
taken by most of the other funds in the Vanguard Group (the "Vanguard Group
Funds"), and is also consistent with the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which does not require a fund's
objective to be fundamental. The Board of Trustees of the Vanguard Trust has no
plans to change the investment objective of the Vanguard Fund in the foreseeable
future.
Certain investment policies of the Vanguard Fund are different than those
of the PIC Fund. These differences conform to the limitations on other Vanguard
Group Funds, and will not have a material impact on Provident's management of
the Vanguard Fund. The most significant differences are as follows:
* The PIC Fund and the Vanguard Fund have different policies regarding
borrowing. As a fundamental investment policy (which cannot be changed
without shareholder approval), the PIC Fund may not borrow money or
issue senior securities, other than borrowings from banks for
temporary or emergency purposes or for the clearance of transactions
in amounts up to 10% of the Fund's total assets. The Vanguard Fund may
borrow up to 15% of the Fund's net assets only through banks, reverse
repurchase agreements, or Vanguard's interfund lending program; this
limitation may be changed by the Board of Trustees of the Vanguard
4
Trust without shareholder approval. The Vanguard interfund lending
program permits the Vanguard Group Funds to borrow money from and lend
money to each other for temporary or emergency purposes, subject to
certain conditions. One condition is that the Vanguard Fund must
receive a more favorable interest rate through the program than is
available from a typical bank for a comparable transaction.
* The PIC Fund and the Vanguard Fund have different policies regarding
lending. As a fundamental policy, the PIC Fund may not make loans
other than loans of portfolio securities in an amount not exceeding
25% of the fund's total assets. The Vanguard Fund may lend up to 50%
of its total assets (the current limit under the Investment Company
Act) and may participate in Vanguard's interfund lending program;
these limitations may be changed by the Board of Trustees of the
Vanguard Trust without shareholder approval. In both cases, the
purchase of fixed income securities issued by unaffiliated third
parties is not considered to be lending.
* The PIC Fund and the Vanguard Fund have different policies regarding
the pledging of assets. As a fundamental policy, the PIC Fund may not
pledge its assets. The Vanguard Fund may pledge up to 15% of its
assets to secure borrowings, and this limitation may be changed by the
Board of Trustees of the Vanguard Trust without shareholder approval.
* The PIC Fund and the Vanguard Fund have different policies regarding
the use of commodity futures contracts. As a fundamental policy, the
PIC Fund may only purchase stock index futures contracts. The Vanguard
Fund may engage in a wider range of futures contracts, and its current
limitations may be changed by the Board of Trustees of the Vanguard
Trust without shareholder approval.
Considered individually and in the aggregate, Provident does not expect the
investment policy differences between the PIC Fund and the Vanguard Fund
described above to have a material impact on either Provident's day-to-day
investment decision making process or on your investment portfolio as it is
reorganized into the Vanguard Fund.
COMPARING RISK FACTORS. The Vanguard Fund is subject to the same principal
risk factors as the PIC Fund because it has substantially similar investment
strategies and policies and invests principally in the same types of securities.
An investment in the Vanguard Fund could lose money over short or even long
periods. You should expect the Vanguard Fund's share price and total return to
fluctuate within a wide range like the overall stock market. The Vanguard fund's
performance could be hurt by:
* INVESTMENT STYLE RISK, which is the chance that returns from
mid-capitalization stocks will trail returns from the overall stock
market. Historically, these stocks have been more volatile in price
than the large-cap stocks that dominate the overall stock market, and
they often perform quite differently.
* MANAGER RISK, which is the chance that poor security selection will
cause the Vanguard Fund to underperform other funds with similar
investment objectives.
5
COMPARING SHAREHOLDER FEES. The following table compares the fees and
expenses of buying and holding shares of the PIC Fund and the Vanguard Fund. As
illustrated, the PIC Fund imposes a sales charge on most share purchases, while
the Vanguard Fund has no sales charges. This means that the Vanguard Fund will
be able to invest your entire purchase price in portfolio securities, rather
than only a portion.
Shareholder Fees (fees paid directly from your investment)
Expense Category PIC Fund Vanguard Fund
---------------- -------- -------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5.75% 0.00%
Redemption fee 0.00%(1) 0.00%
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(1) Shareholders who buy $1 million of PIC Fund shares without paying a sales
charge will be charged a 1% fee on redemptions made within one year of
purchase.
COMPARING FUND EXPENSES. The following table compares the expenses the PIC
Fund expects to incur in its current fiscal year and the estimated expenses of
the Vanguard Fund for the first full year after the proposed reorganization
(assuming current asset levels remain the same). As shown below, the Vanguard
Fund has no 12b-1 fees, no administration fees, and considerably lower other
expenses, and we expect that the Vanguard Fund's annual operating expenses will
be lower than those of the PIC Fund even without any growth in your fund's
assets.
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Expense Category PIC Fund Vanguard Fund
---------------- -------- -------------
Management Fees 0.70% 0.50%
Distribution (12b-1) Fees 0.25% 0.00%
Other Expenses 0.87% 0.15%
Administration Fees 0.20% 0.00%
Shareholder Service Fee 0.15% 0.00%
----- -----
Total Annual Fund Operating Expenses 2.17% 0.65%
Expense Reimbursements (0.78%)(1) 0.00%
===== =====
Net Expenses 1.39% 0.65%
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(1) This table reflects the aggregate expenses of both the PIC Fund and a PRO
RATA portion of the expenses of the PIC Portfolio. Provident has
contractually agreed to waive fees and reimburse expenses in order to keep
total operating expenses from exceeding 1.39% until March 1, 2011.
Provident reserves the right to be reimbursed for any waiver of its fees or
expenses paid on behalf of the PIC Fund if, within three years following
the fiscal year in which such reimbursement were made, the PIC Fund's
expenses are less than the limit agreed to by Provident. Any reimbursements
to Provident are subject to approval by the Board of Trustees of the PIC
Trust.
EXPENSE EXAMPLE. The following expense example is intended to help you
compare the cost of investing in the PIC Fund with the cost of investing in the
Vanguard Fund. The example assumes that you invest $10,000 in each fund for the
time periods indicated and that you sell your shares at the end of each period.
The example also assumes that each year your investment has a 5% return and fund
expenses remain the same as shown above. Although your actual costs and returns
might be different based on these assumptions, your costs would be:
6
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
PIC Fund $708 $990 $1,292 $2,148
Vanguard Fund $___ $___ $_____ $_____
NET ASSET VALUE. The PIC Fund calculates its net asset value per share
("NAV") once each business day at the regularly-scheduled close of normal
trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time).
Similarly, the Vanguard Fund calculates its NAV after the close of regular
trading on the New York Stock Exchange.
The proposed reorganization will have no impact on your fund's NAV. As
indicated below, the proposed reorganization will not cause your fund's share
price to go up or down, and you will own shares of the Vanguard Fund equal in
value to the shares of the PIC Fund you own at the time of the reorganization.
Any declared but undistributed dividends or capital gains will carry over in the
proposed reorganization.
Capitalization Table
_________, 2002
(unaudited)
Pro Forma
PIC Fund Vanguard Fund Capitalization
-------- ------------- --------------
Total Net Assets $____ $0 $____
Total Number of Shares Outstanding
on the Record Date ____ 0 ____
NAV on the Record Date $____ $0 $____
TRUSTEES. The Vanguard Trust has a different Board of Trustees than the PIC
Trust. A brief description of the backgrounds and compensation of the
individuals who serve as trustees of the Vanguard Trust is set forth below in
the section entitled "Management of Vanguard Mid-Cap Growth Fund." Following the
reorganization, the Board of Trustees of the PIC Trust will have no oversight
over, or other involvement with, the Vanguard Fund.
PURCHASE, REDEMPTION, AND EXCHANGE INFORMATION. Shares of the PIC Fund are
sold to individuals and institutional investors, including retirement and other
plans, and after the proposed reorganization shares of the Vanguard Fund will be
sold to the same types of investors. This chart highlights the purchase,
redemption and exchange features of your fund as compared to the Vanguard Fund.
7
Purchase, Redemption and Exchange Features PIC Fund Vanguard Fund(1)
- ------------------------------------------ -------- ----------------
Minimum initial purchase/Additional ............ $2,000 / $250 / $1,000 $10,000/$100 by mail or exchange
investments/Minimum balance and $1,000 by wire(2)
Purchases ...................................... By mail, wire, or systematic By mail, wire, systematic
investment plan investment plan, Vanguard Fund
Express(R)and Vanguard Direct
Deposit Service(SM)
Redemptions .................................... In person, by mail, wire or By mail, 24-hour telephone, or
telephone (business hours Vanguard's website
only), or through a
financial institution
Free exchange privileges ....................... Yes, with three other series Yes, with other Vanguard Funds
of PIC Investment Trust -- -- by mail, 24-hour telephone,
in person, by mail or or Vanguard's website, subject
telephone (business hours to share class eligibility and
only) other conditions(3)
- ----------
(1) Explanations of each of the services available through the Vanguard Fund
can be found in the preliminary prospectus of the Vanguard Fund that
accompanies this prospectus/proxy statement.
(2) Shareholders of the PIC Fund at the closing of the reorganization will
continue to be subject to the PIC Fund's minimum initial purchase and
account balance requirements.
(3) Explanations of exchange privileges of Vanguard Fund shareholders can be
found in the preliminary prospectus of the Vanguard Fund that accompanies
this prospectus/proxy statement.
SALES CHARGES. The Vanguard Fund does not impose any sales charge on your
purchase of shares. Your fund does impose a front-end sales charge.
Shares of the PIC Fund are purchased at the NAV calculated after your
investment is received by the PIC Fund's transfer agent plus the shares charge.
The sales charge for the PIC Fund declines with the size of your purchase, as
shown below:
Sales Charge as a % of Sales Charge as a % of
Your Investment Offering Price Your Investment
--------------- -------------- ---------------
Up to $49,999 5.75% 6.10%
$50,000 to $99,999 4.50% 4.71%
$100,000 to $249,999 3.50% 3.63%
$250,000 to $499,999 2.50% 2.56%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 and over None(1) None(1)
- ----------
(1) Shareholders who buy $1 million of PIC Fund shares without paying a sales
charge will be charged a 1% fee on redemptions made within one year of
purchase.
COMPARING FISCAL YEAR ENDS. The fiscal years of the Provident Fund and the
Vanguard Fund end on October 31st.
8
COMPARING SERVICE PROVIDERS. PricewaterhouseCoopers, LLP, the independent
auditor for the PIC Fund, also serves as the independent auditor for the
Vanguard Fund and all other funds in The Vanguard Group (the "Vanguard Group
Funds"). In this role, PricewaterhouseCoopers audits and certifies the financial
statements of all Vanguard Group Funds. PricewaterhouseCoopers also reviews the
annual reports to shareholders of the Vanguard Group Funds and their filings
with the SEC. Neither PricewaterhouseCoopers nor any of its partners have any
direct or material indirect financial interest in the Vanguard Group Funds. If
you wish to request the attendance of a PricewaterhouseCoopers representative at
the shareholder meeting, you should contact the PIC Fund's Secretary at 300
North Lake Avenue, Pasadena, California 91101.
Your fund's custodian, Provident National Bank, 200 Stevens Drive, Lester,
Pennsylvania 19113, is responsible for holding your fund's assets. Following the
reorganization, The Bank of New York, One Wall Street, New York, New York 10286,
will serve as the Vanguard Fund's custodian.
Provident Financial Processing Corporation, 400 Bellevue Parkway,
Wilmington, Delaware 19809, acts as your fund's transfer agent. U.S. Bancorp
Fund Services, LLC acts as your fund's administrator. Following the
reorganization, The Vanguard Group, Inc., P.O. Box 2600, Valley Forge,
Pennsylvania 19482, will serve as the Vanguard Fund's transfer agent and
administrator.
Quasar Distributors, LLC, 615 E. Michigan Street, Milwaukee, Wisconsin
53202, an affiliate of U.S. Bancorp Fund Services, LLC, is your fund's principal
underwriter. Following the reorganization, Vanguard Marketing Corporation, a
wholly-owned subsidiary of The Vanguard Group, Inc., will serve as the Vanguard
Fund's principal underwriter.
SHARES. The shares to be issued by the Vanguard Fund will be substantially
similar to the shares issued by the PIC Fund. The material differences between
the shares are that (1) the PIC Trust provides for the indemnification of any
shareholder found liable for any claim relating to such shareholder's status as
a shareholder, and the Vanguard Trust has no similar provision, and (2) 40% of
shares entitled to vote at a shareholders meeting constitute a quorum of the PIC
Trust, while 50% constitutes a quorum of the Vanguard Trust.
HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE REORGANIZATION
To go forward with the proposed reorganization, a majority of your fund's
shares outstanding on ________, 2002 (the "Record Date"), must vote in favor of
this proposal. YOUR FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU APPROVE THE
PROPOSED REORGANIZATION.
3. INVESTMENT ADVISORY ARRANGEMENTS
The PIC Fund invests all of its assets in the PIC Portfolio. The PIC
Portfolio in turn invests its assets in investment securities to achieve the PIC
Fund's investment objective. Following the proposed reorganization, the Vanguard
Fund will invest its assets directly in such investment securities. This will
have no impact on the Vanguard Fund's investment strategies and policies.
9
The PIC Portfolio contracts with Provident to provide investment advisory
and other services. Under its investment advisory agreement dated ________ with
the PIC Portfolio, Provident is responsible for managing the investment and
reinvestment of the PIC Portfolio's assets, and for continuously reviewing,
supervising and directing the PIC Portfolio's investment program. Provident will
similarly serve as investment adviser to the Vanguard Fund, continuing the PIC
Fund's investment program. Provident will have the same responsibilities under
its investment advisory agreement with the Vanguard Fund as it does under its
agreement with the PIC Portfolio.
INVESTMENT ADVISER. Provident's address is 300 North Lake Avenue, Pasadena,
California 91101. Provident traces its origins to an investment partnership
formed in 1951. It is now an indirect, wholly owned subsidiary of Old Mutual
plc. Old Mutual is a United Kingdom-based financial services group with
substantial asset management, insurance and banking businesses. An investment
committee of Provident formulates and implements an investment program for the
PIC Portfolio, including determining which securities should be bought and sold.
As of December 31, 2001, Provident had discretionary management authority with
respect to approximately $__ billion of assets.
INVESTMENT MANAGEMENT AGREEMENT. The investment advisory agreement between
Provident and the PIC Portfolio is substantially similar to the investment
advisory agreement between Provident and the Vanguard Fund, including the
services to be provided and the duration and termination provisions. Under the
PIC Portfolio advisory agreement, the PIC Portfolio holds Provident harmless for
any losses other than losses due to Provident's bad faith, gross negligence,
willful misconduct or reckless disregard of its obligations under the agreement,
and the PIC Portfolio indemnifies Provident for any losses Provident incurs
other than losses due to Provident's bad faith, gross negligence, willful
misconduct or reckless disregard of its obligations under the agreement. The
Vanguard Fund advisory agreement does not provide that the Vanguard Fund will
hold Provident harmless under any circumstances, nor does it have an
indemnification provision.
The principal difference between the two agreements is the compensation
structure. In the PIC Portfolio agreement, Provident is entitled to a fee of
0.70% of the PIC Portfolio's (and therefore the PIC Fund's) average daily net
assets. In contrast, the Vanguard Fund agreement has certain breakpoints and a
performance component.
The Vanguard Fund will pay Provident a quarterly advisory fee that is based
on certain annual percentage rates applied to the PIC Fund's average month-end
assets for each quarter. In addition, after April 30, 2003, the quarterly fee
will be increased or decreased based upon the PIC Fund's performance in
comparison to its benchmark index. For these purposes, the PIC Fund's cumulative
investment performance over a trailing 36-month period will be compared to the
cumulative total return of the Russell Midcap Growth Index. Please consult the
preliminary Statement of Additional Information for the Vanguard Fund for a
complete explanation of how Provident's advisory fees will be calculated.
Based on the PIC Fund's current size, the maximum possible fee payable by
the Vanguard Fund to Provident under the advisory agreement during the first
year of operations would be 0.50% of the PIC Fund's net assets. This compares
favorably with the maximum fee payable to Provident by the PIC Fund, which is
0.70% of the PIC Fund's average daily net assets.
10
Last year, the PIC Portfolio paid Provident a fee equal to 0.41% of its
average daily net assets, net of fee waivers. For the fiscal year ended October
31, 2001, the PIC Portfolio paid Provident fees of $133,569, net of a waiver of
$93,892. For the fiscal year ended October 31, 2000, the PIC Portfolio paid
Provident fees of $121,216, net of a waiver of $104,920. For the fiscal year
ended October 31, 1999, the PIC Portfolio accrued advisory fees of $58,869, all
of which were waived.
DURATION AND TERMINATION OF PROVIDENT'S INVESTMENT ADVISORY AGREEMENT WITH
THE VANGUARD FUND. Provident's investment advisory agreement with the Vanguard
Fund will become effective immediately following the reorganization. The
agreement will remain in effect for an initial two-year period, and may be
continued beyond that for successive one-year periods, if approved at least
annually by the vote of the Board of Trustees of the Vanguard Trust. Board
approval must include the votes of a majority of those trustees who are not
parties to the contract or "interested persons" (as defined under the Investment
Company Act) of any party to the contract. In addition, the trustees must vote
in person on Provident's investment advisory agreement, at a meeting called for
that purpose. The agreement is automatically terminated if assigned, and may be
terminated without penalty at any time (i) either by vote of the Vanguard
Trust's trustees or by vote of the outstanding shares of the Vanguard Fund on 60
days' written notice, or (ii) by Provident on 90 days' written notice to the
Vanguard Fund.
FUTURE CHANGES TO THE VANGUARD FUND'S ADVISORY ARRANGEMENTS. Although there
are no current plans to do so, one or more new investment advisers could be
added to the Vanguard Fund in the future, as either additions to or replacements
for Provident. The Board of Trustees of the Vanguard Trust has the flexibility
to make advisory changes - including changes to the contract of an existing
investment adviser - without a shareholder vote, pursuant to an exemption
obtained from the SEC by The Vanguard Group. This exemption was granted pursuant
to certain representations made by The Vanguard Group, including that each fund
to which the exemption is applicable continues to operate as a member of The
Vanguard Group, with management and distribution services provided on an at-cost
basis.
4. MANAGEMENT OF VANGUARD MID-CAP GROWTH FUND
OFFICERS AND TRUSTEES. The officers of the Vanguard Mid-Cap Growth Fund and
the other Vanguard Group Funds manage their day-to-day operations under the
direction of a Board of Trustees. The trustees set broad policies for, and
choose the officers of, the Vanguard Group Funds. Each trustee serves the
relevant Vanguard Group Fund until its termination; until the trustee's
retirement, resignation, or death; or otherwise as specified in the relevant
organizational documents. Any trustee of the Vanguard Trust may be removed at a
meeting of shareholders by a vote representing two-thirds of the total net asset
value of all shares of the various series of the Vanguard Trust, voting without
regard to series. Each trustee also serves as a director of Vanguard.
11
The following chart shows information for each trustee and executive
officer of the Vanguard Trust and, except as noted, all the other Vanguard Group
Funds. The mailing address of the trustees and officers is P.O. Box 876, Valley
Forge, PA 19482.
NUMBER OF
VANGUARD
POSITION(S) HELD PRINCIPAL OCCUPATION(S) GROUP FUNDS
WITH VANGUARD TRUSTEE/OFFICER DURING OVERSEEN BY
NAME, DATE OF BIRTH GROUP FUNDS SINCE THE PAST FIVE YEARS TRUSTEE/OFFICER
- ------------------- ----------- ----- ------------------- ---------------
John J. Brennan* Chairman of the May, 1987 Chairman of the Board, Chief 108
(July 29, 1954) Board, Chief Executive Officer, and
Executive Officer Director (Trustee) of The
and Trustee Vanguard Group, Inc. and
each of the investment
companies served by The
Vanguard Group, Inc.
INDEPENDENT TRUSTEES
Charles D. Ellis Trustee January, 2001 The Partners of '63 (pro 108
(October 23, 1937) bono ventures in education);
Senior Advisor to Greenwich
Associates (international
business strategy consulting);
Successor Trustee of Yale
University; Overseer of the
Stern School of Business
at New York University;
Trustee of the Whitehead
Institute for
Biomedical Research.
Rajiv L. Gupta Trustee December, 2001 Chairman and Chief Executive 86
(December 23, 1945) Officer (since October,
1999), Vice Chairman
(January-September 1999),
and Vice President (prior to
September, 1999) of Rohm and
Haas Co. (chemicals);
Director of Technitrol, Inc.
(electronic components) and
AgereSystems (communication
components); Board Member of
American Chemistry Council;
Trustee of Drexel University.
JoAnn Heffernan Heisen Trustee July, 1998 Vice President, Chief 108
(January 25, 1950) Information Officer, and
Member of the Executive
Committee of Johnson &
Johnson (pharmaceuticals/
consumer products); Director
of the Medical Center at
Princeton and Women's
Research and Education
Institute.
12
NUMBER OF
VANGUARD
POSITION(S) HELD PRINCIPAL OCCUPATION(S) GROUP FUNDS
WITH VANGUARD TRUSTEE/OFFICER DURING OVERSEEN BY
NAME, DATE OF BIRTH GROUP FUNDS SINCE THE PAST FIVE YEARS TRUSTEE/OFFICER
- ------------------- ----------- ----- ------------------- ---------------
Burton G. Malkiel Trustee May, 1977 Chemical Bank Chairman's 106
(October 8, 1941) Professor of Economics,
Princeton University;
Director of Prudential
Insurance Co. of America,
BKF Capital (investment
management), The Jeffrey Co.
(holding company), and
NeuVis, Inc. (software
company).
Alfred M. Rankin, Jr. Trustee January, 1993 Chairman, President, Chief 108
(October 8, 1941) Executive Officer, and
Director of NACCO Industries,
Inc.(forklift
trucks/housewares/lignite);
Director of Goodrich Corporation
(industrial products/aircraft
systems and services).
Director of the Standard
Products Company (supplier
for automotive industry)
until 1998.
J. Lawrence Wilson Trustee April, 1985 Retired Chairman and Chief 108
(March 2, 1936) Executive Officer of Rohm
and Haas Co. (chemicals);
Director of Cummins Inc.
(diesel engines), The Mead
Corp. (paper products), and
AmerisourceBergen Corp.
(pharmaceutical
distribution); Trustee of
Vanderbilt University.
EXECUTIVE OFFICERS
R. Gregory Barton* Secretary June, 2001 Managing Director and 108
(April 25, 1951) General Counsel of The
Vanguard Group, Inc. (since
September, 1997); Secretary
of The Vanguard Group, Inc.
and of each of the
investment companies served
by The Vanguard Group, Inc.
(since June, 2001);
Principal of The Vanguard
Group, Inc. (prior to
September, 1997).
13
NUMBER OF
VANGUARD
POSITION(S) HELD PRINCIPAL OCCUPATION(S) GROUP FUNDS
WITH VANGUARD TRUSTEE/OFFICER DURING OVERSEEN BY
NAME, DATE OF BIRTH GROUP FUNDS SINCE THE PAST FIVE YEARS TRUSTEE/OFFICER
- ------------------- ----------- ----- ------------------- ---------------
Thomas J. Higgins* Treasurer July, 1998 Principal of The Vanguard 108
(May 21, 1957) Group, Inc.; Treasurer of
each of the investment
companies served by The
Vanguard Group, Inc. (since
July, 1998).
* Officers of the Vanguard Group Funds are "interested persons" as defined in
the Investment Company Act.
Mr. Ellis is a Senior Advisor to Greenwich Associates, a firm that consults
on business strategy to professional financial service organizations in markets
around the world. A large number of financial service providers, including
Vanguard, subscribe to programs of research-based consulting. Vanguard has paid
Greenwich subscription fees amounting to less than $200,000 since January 1,
1999. Vanguard's subscription rates are similar to those of other subscribers.
TRUSTEES' OWNERSHIP OF VANGUARD GROUP FUND SHARES. All trustees allocate
their investments among the various Vanguard Group Funds based on their own
investment needs. The following table shows each trustee's ownership of shares
of the Vanguard Group Funds and of all Vanguard Group Funds served by the
trustee as of December 31, 2001. As a group, the Vanguard Group Funds' trustees
and officers own less than 1% of the outstanding shares of the Vanguard Mid-Cap
Growth Fund.
DOLLAR RANGE OF AGGREGATE DOLLAR RANGE OF
VANGUARD MID-CAP GROWTH FUND VANGUARD GROUP FUND SHARES
NAME OF TRUSTEE SHARES OWNED BY TRUSTEE OWNED BY TRUSTEE
- --------------- ----------------------- ----------------
John J. Brennan None Over $100,000
Charles D. Ellis None Over $100,000
Rajiv L. Gupta None Over $100,000
JoAnn Heffernan Heisen None Over $100,000
Burton G. Malkiel None Over $100,000
Alfred M. Rankin, Jr. None Over $100,000
J. Lawrence Wilson None Over $100,000
14
TRUSTEE COMPENSATION. The same individuals serve as trustees of all
Vanguard Group Funds (with three exceptions, which are noted in the table in the
section above entitled "Officers and Trustees"), and (with those exceptions)
each fund pays a proportionate share of the trustees' compensation. The Vanguard
Group Funds employ their officers on a shared basis as well. However, officers
are compensated by Vanguard, not the Vanguard Group Funds.
INDEPENDENT TRUSTEES. The Vanguard Group Funds compensate their independent
trustees--that is, the ones who are not also officers of the fund--in three
ways:
* The independent trustees receive an annual fee for their service to
the funds, which is subject to reduction based on absences from
scheduled board meetings.
* The independent trustees are reimbursed for the travel and other
expenses that they incur in attending board meetings.
* Upon retirement (after attaining age 65 and completing five years of
service), the independent trustees who began their service prior to
January 1, 2001, receive a retirement benefit under a separate account
arrangement. As of January 1, 2001, the opening balance of each
eligible trustee's separate account was generally equal to the net
present value of the benefits he or she had accrued under the
trustees' former retirement plan. Each eligible trustee's separate
account will be credited annually with interest at a rate of 7.5%
until the trustee receives his or her final distribution. Those
independent trustees who began their service on or after January 1,
2001, are not eligible to participate in the plan.
"INTERESTED" TRUSTEES. Mr. Brennan serves as a trustee, but is not paid in
this capacity. He is, however, paid in his role as officer of Vanguard.
COMPENSATION TABLE. The following table provides compensation details for
each of the trustees. The amounts paid as compensation and accrued as retirement
benefits by the Vanguard Group Funds for each trustee are listed. The first two
columns relate to amounts that have been paid from the assets of Vanguard
Selected Value Fund, the sole investment portfolio currently offered by the
Vanguard Trust. In addition, the table shows the total amount of benefits that
the Vanguard Trust expects each trustee to receive from all Vanguard Group Funds
upon retirement, and the total amount of compensation paid to each trustee by
all Vanguard Group Funds.
15
VANGUARD WHITEHALL FUNDS
COMPENSATION TABLE
AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION
COMPENSATION FROM BENEFITS ACCRUED AS PART ESTIMATED ANNUAL FROM ALL
VANGUARD SELECTED OF VANGUARD SELECTED VALUE BENEFITS UPON VANGUARD GROUP FUNDS
NAMES OF TRUSTEE VALUE FUND(1) FUND'S EXPENSES(1) RETIREMENT PAID TO TRUSTEES(2)
- ---------------- ------------- ------------------ ---------- -------------------
John J. Brennan None None None None
Charles D. Ellis(3) $ 81 None None $104,000
Rajiv L. Gupta(4) N/A N/A N/A N/A
JoAnn Heffernan Heisen 100 $11 $23,607 $104,000
Bruce K. MacLaury(5) 104 10 78,176 $ 99,000
Burton G. Malkiel 100 10 90,680 $104,000
Alfred M. Rankin, Jr. 100 7 46,267 $104,000
James O. Welch, Jr.(5) 100 12 97,720 $104,000
J. Lawrence Wilson 100 4 67,240 $119,000
(1) The amounts shown in this column are based on the fund's fiscal year ended
October 31, 2001.
(2) The amounts reported in this column reflect the total compensation paid to
each trustee for his or her service as trustee of 108 Vanguard Group Funds
(106 in the case of Mr. Malkiel, 88 in the case of Mr. MacLaury, and 86 in
the case of Mr. Gupta) for the 2001 calendar year.
(3) Mr. Ellis joined the fund's board effective January 1, 2001.
(4) Mr. Gupta joined the fund's board effective December 31, 2001.
(5) Mr. MacLaury and Mr. Welch retired from the fund's board effective December
31, 2001.
THE VANGUARD GROUP. The Vanguard Mid-Cap Growth Fund will be organized as a
member of The Vanguard Group of Investment Companies, which consists of more
than 100 mutual funds. The Vanguard Group, Inc., located at P.O. Box 2600,
Valley Forge, Pennsylvania 19482-6200, which is a jointly owned subsidiary of
the Vanguard Group Funds, provides corporate management, administrative and
distribution services to the Vanguard Group Funds on an at-cost basis. Vanguard
also provides investment advisory services on an at-cost basis to many of the
Vanguard Group Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Vanguard Group Funds
and also furnishes the funds with necessary office space, furnishings, and
equipment. Each Vanguard Group fund pays its share of Vanguard's total expenses,
which are allocated among the funds under methods approved by the Board of
Trustees of each Vanguard Group fund. In addition, each Vanguard Group fund
bears its own direct expenses, such as legal, auditing and custodian fees.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement that was approved by the shareholders of each of the Vanguard
Group Funds. The amount that each Vanguard Group fund has invested in Vanguard
16
is adjusted from time to time in order to maintain the proportionate
relationship between each fund's relative net assets and its contribution to
Vanguard's capital. Under the Amended and Restated Service Agreement, no fund
can be called on to invest more than 0.40% of its current assets in Vanguard.
5. GENERAL INFORMATION
This section provides information on a number of topics relating to proxy
voting and shareholder meetings.
PROXY SOLICITATION METHODS. The PIC Fund will solicit shareholder proxies
in a variety of ways. All shareholders that are entitled to vote will receive
these proxy materials by mail. In addition, Provident employees and officers may
solicit shareholder proxies in person or by telephone.
PROXY SOLICITATION COSTS. Provident will pay all costs of soliciting
proxies from the PIC Fund's shareholders, including costs relating to the
printing, mailing, and tabulation of proxies.
QUORUM. In order for the shareholder meeting to go forward, the PIC Fund
must achieve a quorum. This means that a majority of your fund's shares must be
represented at the meeting - either in person or by proxy. All returned proxies
count towards a quorum, regardless of how they are voted ("For," "Against," or
"Abstain"). Your fund will count broker non-votes toward a quorum, but not
toward the approval of any proposals. Broker non-votes are shares for which (i)
the underlying owner has not voted and (ii) the broker holding the shares does
not have discretionary authority to vote on the particular matter.
REVOKING YOUR PROXY. You may revoke your proxy at any time up until voting
results are announced at the shareholder meeting. You can do this by writing to
your fund's Secretary, c/o Provident Investment Counsel, 300 North Lake Avenue,
Pasadena, California 91101, or by voting in person at the meeting.
SHAREHOLDER PROPOSALS. Any shareholder proposals to be included in the
proxy statement for the PIC Fund's next meeting of shareholders must be received
by the PIC Fund within a reasonable period of time prior to that meeting. Your
fund has no current plans to hold other meetings of shareholders.
NOMINEE ACCOUNTS. Upon request, Provident will reimburse nominees for their
reasonable expenses in forwarding proxy materials to beneficial owners of the
PIC Fund's shares. Please submit invoices for our review to Provident Investment
Counsel, 300 North Lake Avenue, Pasadena, California 91101.
ANNUAL/SEMI-ANNUAL REPORTS. The PIC Fund's most recent annual and
semi-annual reports to shareholders are available at no cost. To request a
report, please call Provident toll-free at 1-800-618-7643 or write us at 300
North Lake Avenue, Pasadena, California 91101.
PRINCIPAL SHAREHOLDERS. As of March __, 2002, the PIC Fund had
approximately $_______ million in net assets and _______ outstanding shares. As
of the same date, each of the following persons was known to be the record owner
of more than 5% of the outstanding shares of the PIC Fund:
17
Shareholder Total Number Of Shares Percentages
- ----------- ---------------------- -----------
OTHER MATTERS. At this point, we know of no other business to be brought
before the shareholder meeting. However, if additional matters do arise, we will
use our best judgment to vote on your behalf. If you object to our voting other
matters on your behalf, please tell us so in writing before the meeting.
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES. YOU MAY ALSO VOTE OVER THE INTERNET OR BY
TELEPHONE. PLEASE FOLLOW THE ENCLOSED INSTRUCTIONS TO USE THESE METHODS OF
VOTING.
18
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _________, 2002, between on Vanguard Whitehall Funds, a
business trust formed under the laws of the State of Delaware with its principal
place of business at on P.O. Box 2600, Valley Forge, PA 19482 (the "Vanguard
Trust"), on behalf of Vanguard Mid-Cap Fund, a series of the Vanguard Trust (the
"Acquiring Fund"), and PIC Investment Trust, a business trust formed under the
laws of the State of Delaware with its principal place of business at 300 North
Lake Avenue, Pasadena, California 91101-4106 (the "Provident Trust"), on behalf
of the Provident Investment Counsel Mid Cap Fund A, a series of the Provident
Trust (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(F) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization of the Selling Fund on (the "Reorganization") will consist of (i)
the transfer of all of the assets of the Selling Fund in exchange solely for
units of on beneficial interest (the "Shares") of the Acquiring Fund (the
"Acquiring Fund Shares"), (ii) the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date (as defined in paragraph 1.2 on of this Agreement), of
Acquiring Fund Shares to the shareholders of the Selling Fund in liquidation of
the Selling Fund as provided on in this Agreement, all upon the terms and
conditions set out below.
WHEREAS, the Vanguard Trust and the Provident Trust are each registered as
an open-end management investment company under on the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Selling Fund, in reliance on Section 12(d)(1)(E) of the 1940
Act, invests substantially all of its assets in on Shares of the PIC Mid Cap
Portfolio, a New York trust that is registered as an investment company under
the 1940 Act (the "Master on Fund");
WHEREAS, the Acquiring Fund and the Selling Fund are authorized to issue
shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined in the on 1940 Act), of the Vanguard
Trust has determined with respect to the Acquiring Fund that the exchange of all
of the assets of the on Selling Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund and its shareholders;
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the 1940 Act), of the Provident
Trust has determined with respect to the Selling Fund that the exchange of all
the assets of, and certain identified liabilities of, the Selling Fund for
Acquiring Fund Shares is in the best interests of the Selling Fund and its on
shareholders; and
WHEREAS, The purpose and effect of the Reorganization is to change the form
of organization of the Selling Fund from a on series of Provident Trust to a
series of the Vanguard Trust, and the parties anticipate that the Reorganization
will provide on long-term benefits to the Selling Fund and its shareholders by
immediately reducing expenses and providing access to a larger, more on diverse
complex of funds, which can appeal to a broader spectrum of investors, and thus
increase the size and efficiency of the on Acquiring Fund and increase the
likelihood of the realization of economies of scale.
NOW THEREFORE, in consideration of the mutual promises contained in this
Agreement, the Vanguard Trust and the Provident on Trust agree as follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND ASSUMPTION OF CERTAIN IDENTIFIED SELLING FUND LIABILITIES;
LIQUIDATION OF THE SELLING FUND
1.1 Subject to the terms and conditions set out in this Agreement and on
the basis of the representations and on warranties contained in this Agreement,
the Provident Trust agrees to transfer the Selling Fund's assets in the manner
set out in on paragraph 1.2 of this Agreement to the Acquiring Fund, and the
Vanguard Trust agrees in exchange for such assets: (a) to deliver to on the
Selling Fund the number of Acquiring Fund Shares, including fractional Acquiring
Fund Shares, determined by dividing the value of the Selling Fund's net assets,
computed in the manner and as of the time and date set out in paragraph 2.1 of
this Agreement, by the net asset value of one Acquiring Fund Share, computed in
the manner and as of the time and date set out in paragraph 2.2 of this on
Agreement; and (b) to assume certain identified liabilities of the Selling Fund,
as set out in paragraph 1.3 of this Agreement. Each of these transactions will
take place at the closing provided for in paragraph 3.1 of this Agreement (the
"Closing").
1.2 The assets of the Selling Fund to be acquired by the Acquiring Fund
will consist of all property of the Selling on Fund including, without
limitation, all cash, securities, commodities and futures interests, and
dividend or interest receivables on that are owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the on closing date described in paragraph 3.1 of this Agreement (the
"Closing Date").
The Provident Trust, on behalf of the Selling Fund, shall have
provided on or before the date hereof the Vanguard on Trust with (a) the
financial statements of the Selling Fund as of and for its most recently
completed fiscal year (the "Financial on Statements"), and (b) a list of all of
the Selling Fund's assets as of the date of execution of this Agreement. The
Provident on Trust, on behalf of the Selling Fund, represents that as of the
date of the execution of this Agreement no changes have occurred in on its
financial position as reflected in its Financial Statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Provident Trust, on behalf of the Selling Fund, reserves the right to sell any
of the Selling Fund's assets but will not, without the prior written approval of
the Vanguard Trust, acquire any additional assets for the Selling Fund other
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than instruments of the type in which the Acquiring Fund is permitted to invest.
The Provident Trust, on behalf of the Selling Fund, will, within a reasonable
time prior to the Closing on Date, furnish the Vanguard Trust with a list of the
assets, if any, on the Selling Fund's list referred to in the first sentence of
on this paragraph that do not conform to the Acquiring Fund's investment
objectives, policies and restrictions. In the event that the on Selling Fund
holds any assets that the Acquiring Fund may not hold, the Selling Fund will use
its best efforts to dispose of such on assets prior to the Closing Date.
1.3 The Provident Trust, on behalf of the Selling Fund, will seek to
discharge all of the Selling Fund's known on liabilities and obligations prior
to the Closing Date, other than those liabilities and obligations that would
otherwise be on discharged at a later date in the ordinary course of the Selling
Fund's business. Except as specifically provided in this paragraph on 1.3, the
Acquiring Fund will assume the liabilities, expenses, costs, charges and
reserves reflected on the Audited Statements of on Assets and Liabilities (as
defined in paragraph 4.1(g)) and the Unaudited Financial Statements (as defined
in paragraph 7.8), as on well as liabilities incurred in the ordinary course of
the Selling Fund's business occurring after the date of the Unaudited on
Financial Statements (collectively, the "Liabilities"). The Acquiring Fund will
assume only the Liabilities and will not, except as on specifically provided in
this paragraph 1.3, assume any other contingent, unknown, or unaccrued
liabilities, all of which will remain the obligation of the Selling Fund.
1.4 As provided in paragraph 3.4 of this Agreement, as soon after the
Closing Date as is practicable (the "Liquidation Date"), the Selling Fund will
liquidate and distribute on a proportionate basis to the Selling Fund's
shareholders of record on determined as of the close of business on the Closing
Date (the "Selling Fund Shareholders") the Acquiring Fund Shares it receives on
pursuant to paragraph 1.1 of this Agreement. This liquidation and distribution
will be accomplished by the transfer of the Acquiring Fund Shares then credited
to the account of the Selling Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Selling
Fund Shareholders representing the respective proportionate number of Acquiring
on Fund Shares due those shareholders. All issued and outstanding Shares of the
Selling Fund ("Selling Fund Shares") will on simultaneously be canceled on the
books of the Selling Fund and all certificates relating to the Selling Fund
Shares, if any, will be marked "Cancelled." The Acquiring Fund will not issue
certificates representing the Acquiring Fund's Shares in connection with the on
exchange of Acquiring Fund Shares for shares of the Selling Fund.
1.5 After the Reorganization, ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's on transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and on statement of additional information.
1.6 As soon as practicable after distribution of the Acquiring Fund Shares
pursuant to paragraph 1.4 of this Agreement but in any event within 180 calendar
days after the Closing Date the Selling Fund will be terminated as a series of
the Provident on Trust ("Termination Date"). In addition, the Provident Trust
will as soon as practicable after the Termination Date take all other on actions
in connection with the termination of the Selling Fund as required by applicable
law.
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1.7 Any reporting responsibility of the Selling Fund to any public
authority is and will remain the responsibility of on the Selling Fund up to and
including the Closing Date and the Termination Date.
1.8 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of Selling Fund Shares on the books
of the Selling Fund as of that time will, as a condition of the issuance and
transfer, be paid by on the person to whom the Acquiring Fund Shares are to be
issued and transferred.
ARTICLE II
VALUATION
2.1 The value of the Selling Fund's assets to be acquired under this
Agreement will be the value of the assets computed as of the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") on the Closing Date
(the time and date being on referred to as the "Valuation Date" for purposes of
this Agreement), using the valuation procedures set out in the Selling Fund's on
then-current prospectus and/or statement of additional information.
2.2 The net asset value of the Acquiring Fund Shares will be the net asset
value per share computed as of the Valuation Date, using the valuation
procedures set out in the Acquiring Fund's then-current prospectus and/or
statement of additional on information.
2.3 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Selling Fund's net assets will be determined
by dividing the value of the net assets of the Selling Fund determined using the
same valuation procedures referred to in paragraph 2.1 of this Agreement by the
net asset value per share of the Acquiring Fund determined in on accordance with
paragraph 2.2 of this Agreement.
2.4 All computations of value will be made in accordance with the regular
practices of the Vanguard Trust, subject to on this Article II.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 The Closing Date for the Reorganization will be June 14, 2002, or such
other date agreed to in writing by the on Vanguard Trust and the Provident
Trust. All acts taking place at the Closing will be deemed to take place
simultaneously as of the on close of business on the Closing Date unless
otherwise provided. The Closing will be held as of 4:00 p.m., at the offices of
the on Vanguard Trust, 100 Vanguard Blvd., Malvern, PA 19355, or at such other
time and/or place agreed to by the Vanguard Trust and the on Provident Trust.
3.2 The Acquiring Fund will arrange for its custodian to deliver at the
Closing a certificate of an authorized officer stating that: (a) the Selling
Fund's portfolio securities, cash and any other assets will have been delivered
in proper form to the on Acquiring Fund prior to or on the Closing Date, and (b)
all necessary taxes, including all applicable federal and state stock on
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transfer stamps, if any, will have been paid, or provision for payment has been
made, in conjunction with the delivery of portfolio on securities.
3.3 In the event that on the Valuation Date (a) the NYSE or another primary
trading market for portfolio securities of the Acquiring Fund or the Selling
Fund is closed to trading or trading on the market is restricted; or (b) trading
or the reporting on of trading on the NYSE or elsewhere is disrupted so that
accurate appraisal of the value of the net assets of the Acquiring
Fund or the Selling Fund is impracticable, the Closing Date will be postponed
until the first business day after the day when normal trading has fully resumed
and reporting has been restored.
3.4 The Provident Trust, on behalf of the Selling Fund, will deliver at the
Closing a list of the names and addresses of the Selling Fund Shareholders and
the number of outstanding Selling Fund Shares owned by each such shareholder
immediately prior on to the Closing or provide evidence that the information has
been provided to the Acquiring Fund's transfer agent. The Vanguard on Trust, on
behalf of the Acquiring Fund, will issue and deliver a confirmation evidencing
the Acquiring Fund Shares to be credited to the Selling Fund's account on the
Closing Date to the Secretary of the Provident Trust or provide evidence
satisfactory to the on Provident Trust that the Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. on At
the Closing, each party to this Agreement will deliver to the other party such
bills of sale, checks, assignments, share on certificates, if any, receipts or
other documents as the other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 The Provident Trust, on behalf of the Selling Fund, represents and
warrants to the Vanguard Trust as follows:
(a) The Selling Fund is a series of the Provident Trust, a business
trust duly organized, validly existing, and in good standing under the laws of
the State of Delaware;
(b) The Provident Trust is a registered open-end management investment
company and its registration with the on Securities and Exchange Commission (the
"Commission") as an investment company under the 1940 Act is in full force and
on effect;
(c) The Provident Trust is not, and the execution, delivery, and
performance of this Agreement (subject to on approval of the Selling Fund
Shareholders) will not result, in a violation of any provision of its
Declaration of Trust or on any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Provident Trust on behalf on
of itself or on behalf of the Selling Fund is a party or by which its property
is bound;
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(d) The Provident Trust will turn over all of the books and records
relating to the Selling Fund (including all on books and records required to be
maintained under the 1940 Act and the Code and the rules and regulations under
the 1940 Act and the Code) to the Vanguard Trust at the Closing;
(e) The Provident Trust has no contracts or other commitments (other
than this Agreement) with respect to the on Selling Fund that will be terminated
with liability to the Selling Fund prior to the Closing Date;
(f) Except as previously disclosed in writing to and accepted by the
Vanguard Trust, no litigation or on administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to the
Provident Trust's knowledge threatened, against the Provident Trust in
connection with the Selling Fund or any of its properties or assets that, if
adversely determined, would materially and adversely affect the Selling Fund's
financial condition or the conduct of its business. The Provident Trust knows of
no facts that might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body that materially and adversely affects its
business or the business of the Selling Fund or the Provident Trust's ability to
consummate the transactions contemplated by this Agreement;
(g) The statements of assets and liabilities of the Provident Trust
relating to the Selling Fund for each annual period beginning with commencement
of the Selling Fund and ending on October 31, 2001 (the "Audited Statements of
Assets and Liabilities") have been audited by McGladrey & Pullen, LLP or
PricewaterhouseCoopers LLP, as applicable, each certified public accountants,
and are in accordance with generally accepted accounting principles consistently
applied, and those statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Selling Fund as of
such dates, and no known contingent liabilities of the Selling Fund exist as of
such dates that are not disclosed in those statements;
(h) Since October 31, 2001, no material adverse change has occurred in
the Selling Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Selling Fund of indebtedness maturing more than one year from the date that
such indebtedness was incurred, except as otherwise disclosed in writing to the
Vanguard Trust prior to the Closing Date. For the purposes of this subparagraph
(h), a decline in net asset value per share or the total assets of the Selling
Fund in the ordinary course of business does not constitute a material adverse
change;
(i) At the Closing Date, all federal and other tax returns and other
reports or filings with respect to the Selling Fund required by law to have been
filed by the Closing Date will have been filed, and all federal and other taxes
will have been paid so far as due, or provision will have been made for the
payment of those taxes and, to the best of the Provident Trust's knowledge, no
such tax return is currently under audit and no assessment has been asserted
with respect to such a return;
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(j) For each of its prior fiscal years of operation and for each
subsequent quarter end of the current fiscal year, the Provident Trust has met
the requirements of Subchapter M of the Code for qualification and treatment of
the Selling Fund as a regulated investment company; and all of the Selling
Fund's issued and outstanding shares have been offered and sold in compliance in
all material respects with applicable federal and state securities laws;
(k) At the date of this Agreement, all issued and outstanding Selling
Fund Shares are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of the issued and outstanding
Selling Fund Shares will, at the time of Closing, be held by the persons and in
the amounts set out in the records of the Provident Trust's transfer agent as
provided in paragraph 3.4 of this Agreement. The Provident Trust does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the Selling Fund's Shares, nor is any security convertible into any of
the Selling Fund's shares currently outstanding (other than by exchange from
other series of Provident Trust);
(l) At the Closing Date, (i) the Provident Trust, on behalf of the
Selling Fund, will have redeemed all Shares of the Master Fund held by the
Selling Fund and received in-kind a distribution of a pro rata portion of the
assets of the Master Fund in accordance with applicable law, (ii) the assets of
the Selling Fund will not be composed, in whole or in part, of Shares of the
Master Fund, and (iii) the Provident Trust will have good and marketable title
to the Selling Fund's assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.2 of this Agreement, and full right, power and authority to sell,
assign, transfer and deliver the assets under the terms and conditions of this
Agreement and, upon delivery and payment for the assets, the Acquiring Fund will
acquire good and marketable title to them, subject to no restrictions on the
full transfer of the assets, including such restrictions as might arise under
the Securities Act of 1933, as amended (the "1933 Act"), other than as disclosed
to the Vanguard Trust;
(m) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary actions on the part of the Provident Trust's
Board of Trustees and, subject to the approval of the Selling Fund Shareholders,
this Agreement will constitute a valid and binding obligation of the Provident
Trust, enforceable against the Provident Trust in accordance with its terms,
subject to the effect of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(n) The information to be furnished by the Provident Trust for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents that may be necessary in connection with the
transactions contemplated by this Agreement will be accurate and complete in all
material respects and will comply in all material respects with federal
securities and other laws and regulations under those laws applicable to those
transactions;
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(o) The proxy statement of the Selling Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in paragraph 5.7 of this
Agreement (insofar as it relates to the Selling Fund) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated in the Proxy Statement or necessary to make the statements in the
Proxy Statement, in light of the circumstances under which such statements were
made, not materially misleading; and
(p) The current prospectus and statement of additional information
filed with the Commission as part of the Provident Trust's registration
statement on Form N-1A, insofar as they relate to the Selling Fund (the
"Provident Trust Registration Statement") conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated in the Provident
Trust Registration Statement or necessary to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading.
4.2 The Vanguard Trust, on behalf of the Acquiring Fund, represents and
warrants to the Provident Trust as follows:
(a) The Acquiring Fund is a series of the Vanguard Trust, a business
trust duly organized, validly existing and in good standing under the laws of
the State of Delaware;
(b) The Vanguard Trust is a registered open-end management investment
company and its registration with the Commission as an investment company under
the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information
filed with the Commission as part of the Vanguard Trust's registration statement
on Form N-1A, which will become effective prior to the Closing Date, insofar as
they relate to the Acquiring Fund (the "Vanguard Trust Registration Statement")
conform in all material respects to the applicable requirements of the 1933 Act
and the 1940 Act and the rules and regulations of the Commission thereunder and
do not include any untrue statement of a material fact or omit to state any
material fact required to be stated in the Vanguard Trust Registration Statement
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(d) The Vanguard Trust is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of its Declaration
of Trust or any material agreement, indenture, instrument, contract, lease or
other undertaking to which the Vanguard Trust on behalf of itself or on behalf
of the Acquiring Fund is a party or by which its property is bound;
(e) The current prospectus and statement of additional information
filed with the Commission as part of the Vanguard Trust's registration statement
on Form N-1A relating to the Acquiring Fund conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a material
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fact or omit to state any material fact required to be stated in that
registration statement or necessary to make the statements in the registration
statement, in light of the circumstances under which they were made, not
misleading.
(f) Except as previously disclosed in writing to and accepted by the
Provident Trust, no litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to the
Vanguard Trust's knowledge, threatened against the Vanguard Trust in connection
with the Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect the Acquiring Fund's financial
condition or the conduct of its business. The Vanguard Trust knows of no facts
that might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body that materially and adversely affects its business or
the business of the Acquiring Fund or the Vanguard Trust's ability to consummate
the transactions contemplated in this Agreement;
(g) The Acquiring Fund has had no material business operations, and
has no material assets or liabilities since [DATE], the date of its
organization;
(h) At the Closing Date, all federal and other tax returns and reports
with respect to the Acquiring Fund required by law to have been filed by the
Closing Date will have been filed, and all federal and other taxes will have
been paid so far as due, or provision will have been made for the payment of
those taxes;
(i) The Vanguard Trust intends to meet the requirements of Subchapter
M of the Code for qualification and treatment of the Acquiring Fund as a
regulated investment company in the future;
(j) At the date of this Agreement, all issued and outstanding
Acquiring Fund Shares are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership of those shares. The Vanguard Trust does
not have outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund Shares, nor is any security convertible into any
Acquiring Fund Shares currently outstanding;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary actions on the part of the Vanguard Trust's
Board of Trustees, and this Agreement will constitute a valid and binding
obligation of the Vanguard Trust enforceable against the Vanguard Trust in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, under the terms
of this Agreement, will at the Closing Date have been duly authorized and, when
so issued and delivered, will be duly and validly issued Acquiring Fund Shares,
and will be fully paid and non-assessable with no personal liability attaching
to the ownership of those shares;
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(m) The information to be furnished by the Vanguard Trust for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents that may be necessary in connection with the
transactions contemplated by this Agreement will be accurate and complete in all
material respects and will comply in all material respects with federal
securities and other laws and regulations under those laws applicable to those
transactions;
(n) The Proxy Statement to be included in the Registration Statement
referred to in paragraph 5.7 of this Agreement (insofar as it relates to the
Acquiring Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated in the Proxy Statement or necessary
to make the statements in the Proxy Statement, in light of the circumstances
under which such statements were made, not materially misleading; and
(o) The Vanguard Trust agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and the 1940 Act as it
may deem appropriate in order to continue the operations of the Acquiring Fund
after the Closing Date.
ARTICLE V
COVENANTS OF THE VANGUARD TRUST AND THE PROVIDENT TRUST
5.1 The Vanguard Trust will operate the business of the Acquiring Fund, and
the Provident Trust will operate the business of the Selling Fund, in the
ordinary course between the date of this Agreement and the Closing Date. The
Vanguard Trust and the Provident Trust agree for purposes of this Agreement that
the declaration and payment of customary dividends and distributions will be
considered to have been paid in the ordinary course of business.
5.2 The Provident Trust, on behalf of the Selling Fund, will call a meeting
of its shareholders to consider and act upon this Agreement and to take all
other actions in coordination with the Vanguard Trust necessary to obtain
approval of the transactions contemplated by this Agreement.
5.3 The Provident Trust, on behalf of the Selling Fund, covenants that the
Acquiring Fund Shares to be issued under this Agreement are not being acquired
for the purpose of making any distribution other than in accordance with the
terms of this Agreement.
5.4 The Provident Trust, on behalf of the Selling Fund, will assist the
Vanguard Trust in obtaining all information that the Vanguard Trust reasonably
requests concerning the beneficial ownership of the Selling Fund's Shares.
5.5 Subject to the provisions of this Agreement, the Vanguard Trust and the
Provident Trust each will take, or cause to be taken, all action, and do, or
cause to be done, all actions, reasonably necessary, proper or advisable to
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consummate and make effective the transactions contemplated by this Agreement,
including any actions required to be taken after the Closing Date.
5.6 As promptly as practicable, but in any case within forty-five calendar
days after the Closing Date, the Provident Trust will furnish the Vanguard
Trust, in such form as is reasonably satisfactory to the Vanguard Trust, a
statement of the earnings and profits of the Selling Fund for federal income tax
purposes that will be carried over to the Acquiring Fund as a result of Section
381 of the Code, and that will be certified by the Selling Fund's President and
its Treasurer.
5.7 The Provident Trust, on behalf of the Selling Fund, will provide the
Vanguard Trust with information reasonably necessary for the preparation of a
prospectus (the "Prospectus") that will include the Proxy Statement referred to
in paragraphs 4.1(o) and 4.2(m) of this Agreement, all to be included in a
registration statement on Form N-14 of the Vanguard Trust (the "Registration
Statement"), in compliance with the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act in connection with the meeting of the
Selling Fund's shareholders to consider approval of this Agreement and the
transactions contemplated by this Agreement.
5.8 As promptly as practicable, but in any case within thirty days after
the Closing Date, the Provident Trust, on behalf of the Selling Fund, will
furnish the Vanguard Trust with a statement containing information required for
purposes of complying with Rule 24f-2 under the 1940 Act. A notice pursuant to
Rule 24f-2 will be filed by the Acquiring Fund offsetting redemptions by the
Selling Fund during the fiscal year ending on or after the Closing Date against
sales of the Acquiring Fund Shares; and the Provident Trust agrees that it will
not net redemptions during that period by the Selling Fund against sales of
shares of any other series of the Provident Trust.
5.9 As promptly as practicable, but in any case within the period required
by applicable law or regulation, the Provident Trust, on behalf of the Selling
Fund, will file all federal and other tax returns and other reports or filings
with respect to the Selling Fund required by applicable law or regulation to be
filed.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PROVIDENT TRUST
The obligations of the Provident Trust to consummate the transactions
provided for in this Agreement will be subject, at its election, to the
performance by the Vanguard Trust of all obligations to be performed by it under
this Agreement on or before the Closing Date and, in addition to those
obligations to the following specific conditions:
6.1 All representations and warranties of the Vanguard Trust contained in
this Agreement will be true and correct in all material respects as of the date
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of this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 The Vanguard Trust will have delivered to the Provident Trust a
certificate executed in its name, and on behalf of the Acquiring Fund, by its
Chief Executive Officer, President or Vice President and its Secretary,
Treasurer or Assistant Treasurer, in form and substance reasonably satisfactory
to the Provident Trust and dated as of the Closing Date, to the effect that the
representations and warranties of the Vanguard Trust made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as the Provident Trust may reasonably request.
6.3 The Provident Trust will have received on the Closing Date a favorable
opinion from Morgan, Lewis & Bockius, LLP, counsel to the Vanguard Trust, dated
as of the Closing Date, in form and substance reasonably satisfactory to the
Provident Trust, and based upon customary certificates with respect to matters
of fact from the officers of the Vanguard Trust, covering the following points:
(a) the Acquiring Fund is a separate series of the Vanguard Trust, a
business trust duly organized, validly existing and in good standing under the
laws of the State of Delaware and the Vanguard Trust has the trust power to own
all of the Acquiring Fund's properties and assets and to carry on the Acquiring
Fund's business as presently conducted;
(b) the Vanguard Trust is registered as an investment company under
the 1940 Act, and, to such counsel's knowledge, the Vanguard Trust's
registration with the Commission as an investment company under the 1940 Act is
in force and effect with respect to the Acquiring Fund;
(c) this Agreement has been duly authorized, executed and delivered by
the Vanguard Trust and, assuming that the Prospectus, Registration Statement and
Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations under those laws and, assuming due authorization,
execution and delivery of the Agreement by the Provident Trust, is a valid and
binding obligation of the Vanguard Trust enforceable against the Vanguard Trust
in accordance with its terms, subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles;
(d) the Acquiring Fund Shares to be issued to the Selling Fund's
shareholders as provided by this Agreement are duly authorized and upon delivery
will be validly issued and outstanding and are fully paid and non-assessable
with no personal liability attaching to ownership of the Shares, and no
shareholder of the Acquiring Fund has any preemptive rights to subscription or
purchase in respect of the Shares;
(e) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Vanguard Trust's Declaration of Trust or in a material
violation of any provision of any agreement relating to the Acquiring Fund
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(known to such counsel) to which the Vanguard Trust is a party or by which it or
its properties are bound or, to the knowledge of such counsel, result in the
acceleration of any obligation or the imposition of any penalty, under any
agreement, judgment, or decree to which the Vanguard Trust is a party or by
which it or its properties are bound;
(f) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or State of Delaware is required for the consummation by the Vanguard
Trust of the actions contemplated in this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act;
(g) the descriptions in the Proxy Statement, insofar as they relate to
the Vanguard Trust or the Acquiring Fund, of statutes, legal and governmental
proceedings, investigations, orders, decrees or judgments of any court or
governmental body in the United States, and contracts and other documents, if
any, are accurate and fairly present the information required to be shown;
(h) such counsel does not know of any legal, administrative or
governmental proceeding, investigation, order, decree or judgment of any court
or governmental body, insofar as they relate to the Vanguard Trust or the
Acquiring Fund or its assets or properties, pending, threatened or otherwise
existing on or before the effective date of the Registration Statement or the
Closing Date, which are required to be described in the Registration Statement
or to be filed as exhibits to the Registration Statement that are not described
and filed as required or that materially and adversely affect the Acquiring
Fund's business; and
(i) the Vanguard Trust Registration Statement is effective under the
1933 Act and the 1940 Act and no stop-order suspending its effectiveness or
order pursuant to section 8(e) of the 1940 Act has been issued.
Counsel also will state that they have participated in conferences
with officers and other representatives of the Vanguard Trust at which the
contents of the Proxy Statement, the Vanguard Trust Registration Statement and
related matters were discussed and, although they are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Proxy Statement and the Vanguard Trust Registration
Statement (except to the extent indicated in paragraph (g) of their above
opinion), on the basis of the foregoing information (relying as to materiality
upon the opinions of officers and other representatives of the Vanguard Trust),
they do not believe that the Proxy Statement and the Vanguard Trust Registration
Statement as of their respective dates, as of the date of the Selling Fund's
shareholders' meeting, and as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated in
the Proxy Statement and the Vanguard Trust Registration Statement or necessary
to make the statements in the Proxy Statement and the Vanguard Trust
Registration Statement in the light of the circumstances under which they were
made not misleading.
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The opinion may state that counsel does not express any opinion or belief
as to the Financial Statements or other financial data, or as to the information
relating to the Provident Trust or the Selling Fund, contained in the Proxy
Statement or the Vanguard Trust Registration Statement, and that such opinion is
solely for the benefit of the Provident Trust and its trustees and officers.
Such counsel may rely as to matters governed by the laws of the State of
Delaware on an opinion of local counsel and/or certificates of officers or
trustees of the Acquiring Fund. The opinion also will include such other matters
incident to the transaction contemplated by this Agreement as the Provident
Trust may reasonably request.
In this paragraph 6.3, references to the Proxy Statement include and relate
only to the text of such Proxy Statement and not, except as specifically stated
above, to any exhibits or attachments to the Proxy Statement or to any documents
incorporated by reference in the Proxy Statement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE VANGUARD TRUST
The obligations of the Vanguard Trust to complete the transactions provided
for in this Agreement will be subject, at its election, to the performance by
the Provident Trust of all the obligations to be performed by it under this
Agreement on or before the Closing Date and, in addition to those obligations,
the following conditions:
7.1 All representations and warranties of the Provident Trust contained in
this Agreement will be true and correct in all material respects as of the date
of this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
7.2 The Provident Trust will have delivered to the Vanguard Trust a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs bases (and, if
different from tax costs, book costs) of those securities by lot and the holding
periods of those securities as of the Closing Date, certified by the Treasurer
or Assistant Treasurer of the Provident Trust. Such list of tax cost bases and
holding periods shall reflect any allocations and adjustments which may arise
under the Code and/or Treasury Regulations as a result of the in-kind redemption
from the Master Fund to the Selling Fund (including, but not limited to, any
allocations and adjustments in accordance with Sections 732(b) and 732(c) of the
Code and any wash sale adjustments) and will be in such a form as to enable the
Vanguard Fund to accurately determine the tax cost bases for the securities
received from the Selling Fund on a lot basis without the need to consult any
additional schedules of allocation or adjustment.
7.3 The Provident Trust will have delivered to the Vanguard Trust on the
Closing Date a certificate executed in its name, and on behalf of the Selling
Fund, by its Chief Executive Officer, President or Vice President and its
Secretary, Treasurer or Assistant Treasurer, in form and substance reasonably
satisfactory to the Vanguard Trust and dated as of the Closing Date, to the
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effect that the representations and warranties of the Provident Trust made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Vanguard Trust shall reasonably request; and
7.4 The Vanguard Trust will have received on the Closing Date a favorable
opinion of Paul, Hastings, Janofsky & Walker LLP, counsel to the Provident
Trust, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Vanguard Trust, and based upon customary certificates with
respect to matters of fact from the officers of the Provident Trust, covering
the following points:
(a) the Selling Fund is a separate series of the Provident Trust, a
business trust that is duly organized, validly existing and in good standing
under the laws of the State of Delaware and the Provident Trust has the trust
power to own all of the Selling Fund's properties and assets and to carry on the
Selling Fund's business as presently conducted;
(b) the Provident Trust is registered as an investment company under
the 1940 Act and, to such counsel's knowledge, the Provident Trust's
registration with the Commission as an investment company under the 1940 Act is
in force and effect with respect to the Selling Fund;
(c) this Agreement has been duly authorized, executed and delivered by
the Provident Trust and, assuming that the Prospectus, the Registration
Statement and the Proxy Statement comply with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations under those laws and, assuming due
authorization, execution and delivery of the Agreement by the Vanguard Trust, is
a valid and binding obligation of the Provident Trust enforceable against the
Provident Trust in accordance with its terms, subject to the effect of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other laws relating to or affecting creditors, rights generally and to general
equity principles;
(d) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not, result
in a violation of the Provident Trust's Declaration of Trust or in a material
violation of any provision of any agreement relating to the Selling Fund (known
to such counsel) to which the Provident Trust is a party or by which it or its
properties are bound or, to the knowledge of such counsel, result in the
acceleration of any obligation or the imposition of any penalty, under any
agreement, judgment or decree to which the Provident Trust is a party or by
which it or its properties are bound;
(e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or State of Delaware is required for the consummation by the Provident
Trust of the transactions contemplated in this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act;
(f) the descriptions in the Proxy Statement, insofar as they relate to
the Provident Trust or the Selling Fund, of statutes, legal and governmental
proceedings, investigations, orders, decrees or judgments of any court or
governmental body in the United States, and contracts and other documents, if
any, are accurate and fairly present the information required to be shown; and
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(g) such counsel does not know of any legal, administrative or
governmental proceeding, investigation, order, decree or judgment of any court
or governmental body, insofar as they relate to the Provident Trust, the Selling
Fund or its assets or properties, pending, threatened or otherwise existing on
or before the effective date of the Registration Statement or the Closing Date,
which are required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement that are not described and filed as
required or that materially and adversely affect the Selling Fund's business.
Counsel also will state that they have participated in conferences with
officers and other representatives of the Provident Trust at which the contents
of the Proxy Statement and related matters were discussed and, although they are
not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Proxy Statement
(except to the extent indicated in paragraph (f) of their above opinion), on the
basis of the foregoing information (relying as to materiality upon the opinions
of officers and other representatives of the Provident Trust), they do not
believe that the Proxy Statement as of its date, as of the date of the Selling
Fund's shareholder meeting, and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated in the Proxy Statement regarding the Selling Fund or necessary to make
the statements in the Proxy Statement regarding the Selling Fund not misleading
in the light of the circumstances under which they were made.
The opinion may state that counsel does not express any opinion or belief
as to the Financial Statements or other financial data, or as to the information
relating to the Vanguard Trust or the Acquiring Fund, contained in the Proxy
Statement, and that such opinion is solely for the benefit of the Vanguard Trust
and its trustees and officers. The opinion also will include such other matters
incident to the transaction contemplated by this Agreement as the Vanguard Trust
may reasonably request. Such counsel may rely as to matters governed by the laws
of the State of Delaware on an opinion of local counsel and/or certificates of
officers or directors of the Provident Trust.
In this paragraph 7.4, references to the Proxy Statement include and relate
only to the text of the Proxy Statement and not to any exhibits or attachments
to the Proxy Statement or to any documents incorporated by reference in the
Proxy Statement.
7.5 The Vanguard Trust will have received on the Closing Date a favorable
opinion of Paul, Hastings, Janofsky & Walker LLP, addressed to, and in form and
substance reasonably satisfactory to the Vanguard Trust substantially to the
effect that, provided the redemption in-kind of all Shares of the Master Fund by
the Selling Fund, as contemplated hereby, is carried out as described herein,
and based upon customary certificates with respect to matters of fact from the
officers of the Provident Trust, that for federal income tax purposes:
(a) the Selling Fund will recognize no gain or loss on the redemption
in-kind of all of its Shares of the Master Fund in accordance with Section 731
of the Code;
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(b) the basis of assets received by the Selling Fund on the redemption
in-kind of all of its Shares of the Master Fund will be the same basis as the
basis which the Selling Fund had in its Shares of the Master Fund immediately
prior to the redemption, less any cash distributed, and will be allocated to
such assets in accordance with Section 732(b) and Section 732(c) of the Code;
(c) the holding period of the assets received by the Selling Fund on
the redemption in-kind of its Shares of the Master Fund will include the period
during which the Master Fund held those Shares under Section 735(b) of the Code.
7.6 The Vanguard Trust will have received from PricewaterhouseCoopers LLP a
letter addressed to the Vanguard Trust dated as of the effective date of the
Registration Statement in form and substance satisfactory to the Vanguard Trust,
to the effect that:
(a) they are independent public accountants with respect to the
Provident Trust within the meaning of the 1933 Act and the applicable
regulations under the 1933 Act;
(b) in their opinion, the Financial Statements and per share income
and capital changes of the Selling Fund included or incorporated by reference in
the Registration Statement and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the rules and regulations under the 1933 Act;
(c) on the basis of limited procedures agreed upon by the Vanguard
Trust and the Provident Trust and described in the letter (but not an audit in
accordance with generally accepted auditing standards) with respect to the
unaudited pro forma financial statements of the Selling Fund included in the
Registration Statement and the Proxy Statement, and inquiries of appropriate
officials of the Provident Trust or the officers of the Provident Trust
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (i) the unaudited pro forma financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the rules and regulations under the
1933 Act, or (ii) the unaudited pro forma financial statements are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with those of the audited Financial Statements;
and
(d) on the basis of limited procedures agreed upon by the Vanguard
Trust and the Provident Trust and described in the letter (but not an
examination in accordance with generally accepted auditing standards), the
information relating to the Selling Fund appearing in the Registration Statement
and the Proxy Statement that is expressed in dollars or percentages of dollars
(with the exception of performance comparisons) has been obtained from the
accounting records of the Selling Fund or from schedules prepared by officers of
the Provident Trust having responsibility for financial and reporting matters
and the information is in agreement with these records, schedules or
computations made from those documents.
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7.7 The Provident Trust will have delivered to the Vanguard Trust,
pursuant to paragraph 4.1(g) of this Agreement, copies of Financial Statements
of the Selling Fund as of and for its most recently completed fiscal year.
7.8 The Vanguard Trust will have received from PricewaterhouseCoopers
LLP a letter addressed to the Vanguard Trust and dated as of the Valuation Date
stating that as of a date no more than three business days prior to the
Valuation Date, PricewaterhouseCoopers LLC performed limited procedures in
connection with the Provident Trust's most recent unaudited financial statements
relating to the Selling Fund (the "Unaudited Financial Statements") and that (a)
nothing came to their attention in performing the limited procedures or
otherwise that led them to believe that any changes had occurred in the assets,
liabilities, net assets, net investment income, net increase (decrease) in net
assets from operations or net increase (decrease) in net assets as compared with
amounts as of the Selling Fund's most recent audited fiscal year end or the
corresponding period in the Selling Fund's most recent audited fiscal year,
other than changes occurring in the ordinary course of business and (b) based on
the limited procedures, no change has occurred in their report on the most
recent audited Financial Statements of the Provident Trust relating to the
Selling Fund.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
SELLING FUND
The obligations of the Vanguard Trust and the Provident Trust, respectively, to
complete the transactions provided for in this Agreement are subject to the
performance by the other party of such other party's obligations, and the
following conditions:
8.1 This Agreement and the transactions contemplated in this Agreement will
have been approved by the requisite vote of the holders of the outstanding
shares of the Selling Fund in accordance with the provisions of the Provident
Trust's Declaration of Trust and applicable law and certified copies of the
votes evidencing the approval will have been delivered to the Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding will be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated by this Agreement. On the Closing
Date, the Commission will not have issued an unfavorable report under Section
25(b) of the 1940 Act, nor instituted any proceeding seeking to enjoin the
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act, and no action, suit or other proceeding will be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated by this Agreement.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state blue sky and securities authorities, including
no-action positions of and exemptive orders from federal and state authorities)
deemed necessary by the Vanguard Trust or the Provident Trust to permit
consummation, in all material respects, of the transactions contemplated by this
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Agreement will have been obtained, except if the failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either the Vanguard Trust or the Provident Trust may for itself waive any
of the conditions in this paragraph 8.3.
8.4 The Vanguard Trust Registration Statement and the Registration
Statement will each have become effective under the 1933 Act and no stop orders
suspending the effectiveness of the Vanguard Trust Registration Statement or the
Registration Statement will have been issued and, to the best knowledge of the
Vanguard Trust or the Provident Trust, no investigation or proceeding for that
purpose will have been instituted or be pending, threatened or contemplated
under the 1933 Act.
8.5 The parties will have received a favorable opinion of Morgan, Lewis &
Bockius, LLP, addressed to, and in form and substance reasonably satisfactory to
the Provident Trust substantially to the effect that, provided the acquisition
contemplated hereby is carried out in accordance with this Agreement and based
upon customary certificates with respect to matters of fact from the officers of
the Provident Trust and the Vanguard Trust, that for federal income tax
purposes:
(a) the transfer of all or substantially all of the Selling Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the Acquiring
Fund of the Liabilities of the Selling Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(F) of the Code and the Acquiring Fund
and the Selling Fund are each a "party to a reorganization" within the meaning
of Section 368(b) of the Code;
(b) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Liabilities of the
Selling Fund; however, no opinion will be expressed as to whether any accrued
market discount will be required to be recognized as ordinary income;
(c) no gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund's assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
Liabilities of the Selling Fund or upon the distribution of the Acquiring Fund
Shares to the Selling Fund's shareholders in exchange for their shares of the
Selling Fund;
(d) no gain or loss will be recognized by shareholders of the Selling
Fund upon the exchange of their Selling Fund Shares for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Liabilities of the
Selling Fund;
(e) the aggregate tax basis for the Acquiring Fund Shares received by
each of the Selling Fund Shareholders pursuant to the Reorganization will be the
same as the aggregate tax basis of the Selling Fund Shares held by the
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund shareholder will
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include the period during which the Selling Fund Shares exchanged for the
Acquiring Fund Shares were held by the shareholder (provided that the Selling
Fund Shares were held as capital assets on the date of the Reorganization); and
(f) the tax basis of the Selling Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of the assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything in this Agreement to the contrary, neither the
Vanguard Trust nor the Provident Trust may waive the conditions set out in this
paragraph 8.5.
ARTICLE IX
BROKERAGE FEES AND EXPENSES; OTHER AGREEMENTS
9.1 The Vanguard Trust represents and warrants to the Provident Trust, and
the Provident Trust represents and warrants to the Vanguard Trust, that no
brokers or finders or other entities are entitled to receive any payments in
connection with the transactions provided for in this Agreement.
9.2 The Vanguard Group, Inc. ("The Vanguard Group") and Provident
Investment Counsel, Inc. each agree to bear the fees, costs, and expenses
incurred in connection with the transactions contemplated by this Agreement in
the manner set forth in the Fund Sponsorship Agreement, dated February 7, 2002,
to which each is a party; provided, however, that The Vanguard Group shall also
bear the fees, costs, and expenses of PricewaterhouseCoopers LLP in performing
the audit of the financial statements of the Selling Fund and the Acquiring Fund
for the fiscal year ending October 31, 2002, and the Selling Fund or Provident
Investment Counsel, Inc. ("Provident"), as mutually agreed between such two
parties, shall bear the fees, costs, and expenses of PricewaterhouseCoopers LLP
in performing the limited procedures required under paragraph 7.8.
9.3 (a) Provident will indemnify and hold harmless the Vanguard Trust, the
Acquiring Fund, The Vanguard Group, Inc., their trustees, directors, officers,
employees, and affiliates (each, a "Vanguard Indemnified Party"), from and
against any and all damages, costs and expenses (including reasonable attorney's
fees and costs) incurred by any of them as a result of any breach or failure of
the Provident Trust's representations or warranties under this Agreement, or as
a result of any willful misconduct or negligence by the Provident Trust in the
performance (or failure to perform) of the Provident Trust's obligations under
this Agreement.
(b) Provident's agreement to indemnify a Vanguard Indemnified Party
pursuant to this paragraph 9.3 is expressly conditioned upon Provident's being
notified of any action or claim brought against any Vanguard Indemnified Party
within thirty (30) days after that party receives notice of the action or claim.
The failure of a Vanguard Indemnified Party to notify Provident will not relieve
Provident from any liability that Provident may have otherwise than on account
of this indemnification agreement.
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(c) In case any action or claim is brought against any Vanguard
Indemnified Party and that party timely notifies Provident of the commencement
of the action or claim, Provident will be entitled to participate in and, to the
extent that it wishes to do so, to assume the defense of the action or claim.
Provident shall be entitled to select and engage counsel reasonably satisfactory
to the Vanguard Indemnified Party to handle and defend against any action or
claim. In the event Provident does not assume full control over the handling and
defense of any action or claim, the Vanguard Indemnified Party shall have the
right to handle, defend, and/or settle any such action or claim as it may deem
appropriate, at the cost and expense of Provident. Provident shall not enter
into the settlement of any action or claim on behalf of a Vanguard Indemnified
Party without the prior written consent of the Vanguard Indemnified Party.
9.4 (a) The Vanguard Group will indemnify and hold harmless the Provident
Trust, the Selling Fund, Provident Investment Counsel, Inc., their trustees,
directors, officers, employees and affiliates (each, a "Provident Indemnified
Party"), from and against any and all damages, costs and expenses (including
reasonable attorney's fees and costs) incurred by any of them as a result of any
breach or failure of the Vanguard Trust's representations or warranties under
this Agreement, or as a result of any willful misconduct or negligence by the
Vanguard Trust in the performance (or failure to perform) of the Vanguard
Trust's obligations under this Agreement.
(b) Vanguard's agreement to indemnify a Provident Indemnified Party
pursuant to this paragraph 9.4 is expressly conditioned upon Vanguard's being
notified of any action or claim brought against any Provident Indemnified Party
within thirty (30) days after that party receives notice of the action or claim.
The failure of a Provident Indemnified Party to notify Vanguard will not relieve
Vanguard from any liability that Vanguard may have otherwise than on account of
this indemnification agreement.
(c) In case any action or claim is brought against any Provident
Indemnified Party and that party timely notifies Vanguard of the commencement of
the action or claim, Vanguard will be entitled to participate in and, to the
extent that it wishes to do so, to assume the defense of the action or claim.
Vanguard shall be entitled to select and engage counsel reasonably satisfactory
to the Provident Indemnified Party to handle and defend against any action or
claim. In the event Vanguard does not assume full control over the handling and
defense of any action or claim, the Provident Indemnified Party shall have the
right to handle, defend, and/or settle any such action or claim as it may deem
appropriate, at the cost and expense of Vanguard. Vanguard shall not enter into
the settlement of any action or claim on behalf of a Provident Indemnified Party
without the prior written consent of the Provident Indemnified Party.
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ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 The Vanguard Trust and the Provident Trust agree that neither of them
has made any representation, warranty or covenant not set forth in this
Agreement and that this Agreement represents the entire agreement among them
with respect to the Reorganization.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered in accordance with its terms will survive
the consummation of the transactions contemplated under this Agreement.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated at any time at or prior to the
Closing Date by: (i) mutual agreement of the Provident Trust and the Vanguard
Trust; (ii) the Provident Trust, in the event the Vanguard Trust has, or the
Vanguard Trust in the event the Provident Trust has, materially breached any
representation, warranty or agreement contained in this Agreement to be
performed at or prior to the Closing Date; or (iii) the Provident Trust or the
Vanguard Trust in the event a condition included in this Agreement expressed to
be precedent to the obligations of the terminating party or parties has not been
met and it reasonably appears that it will not or cannot be met.
11.2 In the event of any such termination, neither the Vanguard Trust, nor
the Provident Trust, nor any series thereof other than the Selling Fund and the
Acquiring Fund, nor their respective trustees or officers, will be liable to the
other party or parties.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified or supplemented in writing in such
manner as may be mutually agreed upon by the authorized officers of the Vanguard
Trust and the Provident Trust; provided, however, that following the meeting of
the Selling Fund's shareholders called pursuant to paragraph 5.2 of this
Agreement, no amendment may have the effect of changing the provisions for
determining the number of the Acquiring Fund Shares to be issued to the Selling
Fund's Shareholders under this Agreement to the detriment of the shareholders
without their further approval.
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ARTICLE XIII
NOTICES
13.1 Any notice, report, statement or demand required or permitted by any
provisions of this Agreement will be in writing and given by prepaid telegraph,
telecopy, or certified mail as follows:
If to the Vanguard Trust, at:
Vanguard Whitehall Funds
P.O. Box 2600
Valley Forge, PA 19482
Attention: Joel M. Dickson
Telephone: 610-669-5846
Facsimile: 610-503-5855
If to the Provident Trust, at:
Provident Investment Counsel
300 North Lake Avenue
Pasadena, California 91101-4106
Attention:
Telephone:
Facsimile:
A-23
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws (without giving effect to the conflicts-of-law principles thereof) of
the State of Delaware.
14.4 This Agreement will bind and inure to the benefit of the parties to
the Agreement and their respective successors and assigns, but no assignment or
transfer of the Agreement or of any rights or obligations under the Agreement
may be made by either party without the written consent of the other party.
Nothing expressed or implied in this Agreement is intended or may be construed
to confer upon or give any person, firm or corporation, other than the parties
to the Agreement and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Reorganization to be executed as of the date first set forth herein.
PIC INVESTMENT TRUST VANGUARD WHITEHALL FUNDS
- ----------------------------------- ------------------------------------
Signature Date Signature Date
- ----------------------------------- ------------------------------------
Print Name Title Print Name Title
PROVIDENT INVESTMENT COUNSEL, INC. THE VANGUARD GROUP (as to the
(as to the provisions of Paragraphs provisions of Paragraphs 9.2 and
9.2 and 9.5 only) 9.3 only)
- ----------------------------------- ------------------------------------
Signature Date Signature Date
- ----------------------------------- ------------------------------------
Print Name Title Print Name Title
A-24
PROXY
The proxy is being solicited by the Board of Trustees of PIC Investment Trust
(the "PIC Trust") for the Special Meeting of Shareholders of Provident
Investment Counsel Mid Cap Fund A of the PIC Trust (the "Meeting"). The
undersigned, revoking previous proxies with respect to the Shares (defined
below), hereby appoints ______ as proxies and each of them, each with full power
of substitution, to vote at the Meeting to be held in the offices of Provident
Investment Counsel ("Provident"), 300 North Lake Avenue, Pasadena, California
91101, on ______, April __, 2002, at ____ p.m., and any adjournments or
postponements thereof (the "Meeting") all shares of beneficial interest of said
Trust that the undersigned would be entitled to vote if personally present at
the Meeting ("Shares") on the proposal set forth below, and in accordance with
their own discretion, any other matters properly brought before the Meeting.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS A VOTE "FOR" THE PROPOSAL:
PROPOSAL 1. Approval of the reorganization of Provident Investment Counsel Mid
Cap Fund A into Vanguard Mid-Cap Growth Fund.
____For ____Against ____Abstain
This proxy will, when properly executed, be voted as directed herein by the
signing Shareholder. If no direction is given when the duly executed Proxy is
returned, this Proxy will be voted FOR the foregoing proposal and will be voted
in the appointed proxies' discretion upon such other business as may properly
come before the Meeting.
The undersigned acknowledges receipt with this Proxy of a copy of the Notice of
Special Meeting and the Proxy Statement of the Board of Trustees. Your
signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
Dated: ________ , 2002
____________________________________
Signature of Shareholder
____________________________________
Signature (Joint owners)
PLEASE DATE, SIGN AND RETURN PROMPTLY USING THE ENCLOSED, POSTAGE-PAID ENVELOPE
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING; YOU MAY, NEVERTHELESS, VOTE IN
PERSON IF YOU DO ATTEND.
2
Telephone Voting Instructions:
1) Read the Proxy Statement and have this Proxy card at hand.
2) Call ___________
3) Enter the 12-digit control number set forth on this Proxy card and follow
the simple instructions.
3
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets and Liabilities of
PROVIDENT INVESTMENT COUNSEL MID CAP FUND A
A Series of
PIC INVESTMENT TRUST
300 North Lake Avenue
Pasadena, California 91101
800-618-7643
By and In Exchange for Shares of
VANGUARD MID-CAP GROWTH FUND
A Series of
VANGUARD WHITEHALL FUNDS
P.O. Box 2600
Valley Forge, Pennsylvania 19482
610-669-1000
This Statement of Additional Information, relating specifically to the proposed
transfer of the assets and liabilities of Provident Investment Counsel Mid Cap
Fund A, a series of PIC Investment Trust, in exchange for shares of beneficial
interest of Vanguard Mid-Cap Growth Fund, a series of Vanguard Whitehall Funds,
consists of this cover page and the following described documents.
The Provident Investment Counsel Mid Cap Fund A Prospectus and Statement of
Additional Information dated March 1, 2002 and the Annual Report of Provident
Investment Counsel Mid Cap Fund A for the fiscal year ended October 31, 2001 are
on file with the U.S. Securities and Exchange Commission and are hereby
incorporated by reference:
(1) The Provident Investment Counsel Mid Cap Fund A Prospectus dated March
1, 2002;
(2) PIC Investment Trust Statement of Additional Information dated March 1,
2002;
(3) The Vanguard Mid-Cap Growth Fund Preliminary Prospectus dated ____________,
2002; - attached hereto
(4) The Vanguard Whitehall Funds Statement of Additional Information dated
_________ ___, 2002; - attached hereto
(5) Annual Report of Provident Investment Counsel Mid Cap Fund A for the fiscal
year ended October 31, 2001
This Statement of Additional Information contains information that may be of
interest to shareholders but which is not included in the Prospectus/Proxy
Statement dated ______, 2002, of the Vanguard Mid-Cap Growth Fund. This
Statement of Additional Information is not a prospectus and should be read in
conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy Statement
has been filed with the Securities and Exchange Commission and is available upon
request and without charge by call or writing PIC Investment Trust.
The date of this Statement of additional Information is _________ ___, 2002.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
DATED MARCH 15, 2002 VANGUARD(R) MID-CAP GROWTH FUND
INVESTOR SHARES * *, 2002
This prospectus contains financial data for the Fund through the fiscal year
ended October 31, 2001.
PROSPECTUS STOCK
[GRAPHIC]
Information contained in this prospectus is subject to completion or amendment.
A registration statement for Vanguard Mid-Cap Growth Fund has been filed with
the U.S. Securities and Exchange Commission but has not yet become effective.
This new fund is being formed in connection with the proposed reorganization of
an existing fund, known as Provident Mid Cap Growth Fund A. Shareholders of
Provident Mid Cap Growth Fund A may or may not approve the reorganization
proposal. If the proposal is not approved by those shareholders, the
registration statement previously filed for Vanguard Mid-Cap Growth Fund will be
withdrawn.
Shares of Vanguard Mid-Cap Growth Fund may not be sold, nor may offers to
buy be accepted, prior to the time the registration statement becomes effective.
This communication shall not constitute an offer to sell, nor shall there be any
sale of these securities in any state in which such offer, solicitation, or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE VANGUARD GROUP(R)
VANGUARD MID-CAP GROWTH FUND
Prospectus
*, 2002
A GROWTH STOCK MUTUAL FUND
CONTENTS
* FUND PROFILE
* ADDITIONAL INFORMATION
* MORE ON THE FUND
* THE FUND AND VANGUARD
* INVESTMENT ADVISER
* DIVIDENDS, CAPITAL GAINS, AND TAXES
* SHARE PRICE
* FINANCIAL HIGHLIGHTS
* INVESTING WITH VANGUARD
* Buying Shares
* Converting Shares
* Redeeming Shares
* Exchanging Shares
* Other Rules You Should Know
* Fund and Account Updates
* Contacting Vanguard
GLOSSARY (INSIDE BACK COVER)
- --------------------------------------------------------------------------------
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the investment objective, policies, strategies, and
risks associated with the Fund. To highlight terms and concepts important to
mutual fund investors, we have provided "Plain Talk(R)" explanations along the
way. Reading the prospectus will help you decide whether the Fund is the right
investment for you. We suggest that you keep this prospectus for future
reference.
- --------------------------------------------------------------------------------
1
FUND PROFILE
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Fund invests at least 80% of its net assets primarily in the common stock of
medium size companies whose market capitalizations fall within the
capitalization range of the companies included in the Russell MidCap Growth
Index (currently approximately $1-$14 billion). In selecting investments, the
adviser invests in those medium-capitalization companies which, based on its
analysis, it believes have the best prospects for future growth.
PRIMARY RISKS
An investment in the Fund could lose money over short or even long periods. You
should expect the Fund's share price and total return to fluctuate within a wide
range like the overall stock market. The Fund's performance could be hurt by:
- - INVESTMENT STYLE RISK, which is the chance that returns from
mid-capitalization stocks will trail returns from the overall stock market.
Historically, these stocks have been more volatile in price than the
large-cap stocks that dominate the overall stock market, and they often
perform quite differently.
- - MANAGER RISK, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The following bar chart and table are intended to help you understand the risks
of investing in the Fund. The bar chart shows how the Fund's performance
(including operating expenses but excluding shareholder fees) has varied from
one calendar year to another for the past five years. The table shows how the
Fund's average annual total returns (including operating expenses and any
applicable shareholder fees) compare with those of a relevent market index over
set periods of time. Keep in mind that the Fund's past performance does not
indicate how it will perform in the future.*
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's year-to-date return as of the most recent calendar quarter, which
ended March 31, 2002, was *%.
- --------------------------------------------------------------------------------
- ----------
* Prior to *, 2002, Vanguard Mid-Cap Growth Fund was organized as Provident
Investment Counsel Mid Cap Fund A and was sponsored by Provident Investment
Counsel, its investment adviser. The reorganization brought the Fund into
The Vanguard Group, while maintaining the same adviser and substantially
similar investment objective and strategies.
2
During the period shown in the bar chart, the highest return for a calendar
quarter was *% (quarter ended *), and the lowest return for a quarter was *%
(quarter ended *).
The table shows how the Fund's average annual total returns (including
operating expenses and any applicable shareholder fees) compare with those of a
relevent market index. The table also presents the impact of taxes on the Fund's
returns. To calculate these figures, we assumed that, at the time of each
distribution of income or capital gains, the shareholder was in the highest
federal tax bracket. We did not take into consideration state or local income
taxes.
In certain cases the figure representing "Return After Taxes on
Distributions and Sale of Fund Shares" may be HIGHER than the other return
figures for the same period. A higher after-tax return results when a capital
loss occurs upon redemption and translates into an assumed tax deduction that
benefits the shareholder. Please note that your after-tax returns depend on your
tax situation and may differ from those shown.
Also note that if you own the Fund in a tax-deferred account, such as an
individual retirement account or a 401(k) plan, this information does not apply
to your investment, because such accounts are subject to taxes only upon
distribution.
Finally, keep in mind that the Fund's performance--whether before taxes or
after taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2001
1 YEAR SINCE INCEPTION*
------ ----------------
VANGUARD MID-CAP GROWTH FUND
Return Before Taxes *% *%
Return After Taxes on Distributions * *
Return After Taxes on Distributions
and Sale of Fund Shares * *
- --------------------------------------------------------------------------------
RUSSELL MIDCAP GROWTH INDEX (reflects no
deduction for fees, expenses, or taxes) *% *%
- --------------------------------------------------------------------------------
* December 31, 1997.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold Shares of the Fund. The expenses shown under ANNUAL FUND OPERATING EXPENSES
are based on amounts now in effect.*
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
Management Expenses: *%
12b-1 Distribution Fee: None
Other Expenses: *%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.65%
- ----------
* The information in the table has been restated to reflect current expenses
rather than last year's expenses because these amounts changed when the
Fund became a member of The Vanguard Group on *, 2002.
3
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund's shares. The example assumes that the Fund provides a
return of 5% a year, that operating expenses match our estimates, and that you
redeem your shares at the end of the given period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$* $* $* $*
THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Mid-Cap Growth Fund's estimated expense ratio for its first
full year of operation as a Vanguard fund is 0.65%, or $6.50 per $1,000 of
average net assets. The average midcap growth mutual fund had expenses in 2001
of *%, or $* per $1,000 of average net assets (derived from data provided by
Lipper Inc., which reports on the mutual fund industry). Management expenses,
which are one part of operating expenses, include investment advisory fees as
well as other costs of managing a fund--such as account maintenance, reporting,
accounting, legal, and other administrative expenses.
PLAIN TALK ABOUT
COSTS OF INVESTING
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Distributed annually in December
INVESTMENT ADVISER
Provident Investment Counsel, Pasadena, Calif., since inception
INCEPTION DATE
December 31, 1997
NET ASSETS AS OF OCTOBER 31, 2001
$* million
SUITABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
$10,000; $1,000 for IRAs and custodial accounts for minors
NEWSPAPER ABBREVIATION
*
VANGUARD FUND NUMBER
*
CUSIP NUMBER
*
TICKER SYMBOL
*
4
MORE ON THE FUND
This prospectus describes the primary risks you would face as a Fund
shareholder. It is important to keep in mind one of the main axioms of
investing: The higher the risk of losing money, the higher the potential reward.
The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in any mutual fund, you should
take into account your personal tolerance for daily fluctuations in the
securities markets. Look for this [FLAG] symbol throughout the prospectus. It is
used to mark detailed information about the more significant risks that you
would confront as a Fund shareholder.
The following sections explain the primary investment strategies and
policies that the Fund uses in pursuit of its objective. The Fund's board of
trustees, which oversees the Fund's management, may change investment strategies
or policies in the interest of shareholders without a shareholder vote, unless
those strategies or policies are designated as fundamental. Note that the
investment objective of the Fund is not fundamental and may be changed without a
shareholder vote.
Finally, you'll find information on other important features of the Fund.
MARKET EXPOSURE
The Fund's primary strategy is to invest at least 80% of its net assets in the
common stocks of mid-cap companies that offer strong growth potential. However,
the Fund has flexibility to invest the balance in other market capitalizations
and security types. Investing in medium capitalization stocks may involve
greater risk than investing in large capitalization stocks, since they can be
subject to more abrupt or erratic movements in value. However, they tend to
involve less risk than stocks of small companies.
PLAIN TALK ABOUT
GROWTH FUNDS AND VALUE FUNDS
Growth investing and value investing are two styles employed by stock fund
managers. GROWTH FUNDS generally focus on companies believed to have
above-average potential for growth in revenue and earnings. Reflecting the
market's high expectations for superior growth, such stocks typically have low
dividend yields and above-average prices in relation to such measures as
revenue, earnings, and book value. VALUE FUNDS generally emphasize stocks of
companies from which the market does not expect strong growth. The prices of
value stocks typically are below-average in comparison with such measures as
earnings and book value, and these stocks typically pay above-average dividend
yields. Growth and value stocks have, in the past, produced similar long-term
returns, though each category has periods when it outperforms the other. In
general, GROWTH FUNDS appeal to investors who will accept more volatility in
hopes of a greater increase in share price. Growth funds also may appeal to
investors with taxable accounts who want a higher proportion of returns to come
as capital gains (which may be taxed at lower rates than dividend income). VALUE
FUNDS, by contrast, are appropriate for investors who want some dividend income
and the potential for capital gains, but are less tolerant of share-price
fluctuations.
[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK, WHICH IS THE CHANCE THAT
STOCK PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS.
STOCK MARKETS TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING PRICES
AND PERIODS OF FALLING PRICES.
5
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Index, a widely used barometer
of market activity. (Total returns consist of dividend income plus change in
market price.) Note that the returns shown do not include the costs of buying
and selling stocks or other expenses that a real-world investment portfolio
would incur. Note, also, that the gap between best and worst tends to narrow
over the long term.
U.S. STOCK MARKET RETURNS (1926-2001)
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
Best 54.2% 28.6% 19.9% 17.8%
Worst -43.1 -12.4 -0.8 3.1
Average 12.6 11.1 11.2 11.4
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 2001. You can see, for example, that while the average return on common
stocks for ALL of the 5-year periods was 11.1%, average returns for INDIVIDUAL
5-year periods ranged from -12.4% (from 1928 through 1932) to 28.6% (from 1995
through 1999). These average returns reflect PAST performance on common stocks;
you should not regard them as an indication of FUTURE returns from either the
stock market as a whole or this Fund in particular.
[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM THE TYPES OF STOCKS IN WHICH IT INVESTS WILL TRAIL
RETURNS FROM THE OVERALL MARKET. AS A GROUP, MID-CAP STOCKS TEND TO GO
THROUGH CYCLES OF DOING BETTER--OR WORSE--THAN THE STOCK MARKET IN
GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS
SEVERAL YEARS.
SECURITY SELECTION
The investment adviser focuses on individual companies rather than trying to
identify the best market sectors going forward. This is often referred to as a
"bottom-up" approach to investing. The adviser seeks companies that have
displayed exceptional profitability, market share, return on equity,
reinvestment rates and sales and dividend growth. Companies with significant
management goals, plans and controls, and leading proprietary positions in given
market niches are especially attractive. Finally, the valuation of each company
is assessed relative to its industry, earnings growth and the market in general.
In determining whether to sell a security, the adviser considers various
factors such as fundamental changes within a particular company or its industry.
These considerations are based on the adviser's research, including analytical
procedures, market research or discussions with company management.
The Fund is generally managed without regard to tax ramifications.
[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE
ADVISER WILL DO A POOR JOB OF SELECTING THE SECURITIES OR COUNTRIES IN
WHICH THE FUND INVESTS.
OTHER INVESTMENT POLICIES AND RISKS
The Fund may also invest in stock index futures and options contracts, which are
types of derivative. Losses (or gains) involving futures can sometimes be
substantial--in part because a relatively small price movement in a futures
contract may result in an immediate and substantial loss (or gain) for the Fund.
6
[FLAG] THE FUND MAY INVEST, TO A LIMITED EXTENT, IN DERIVATIVES. DERIVATIVES
MAY INVOLVE RISKS DIFFERENT FROM, AND POSSIBLY GREATER THAN, THOSE OF
TRADITIONAL INVESTMENTS.
The Fund will not use derivatives for speculative purposes or as leveraged
investments that magnify gains or losses. In addition, the Fund's obligation
under futures contracts will not exceed 20% of its total assets.
PLAIN TALK ABOUT
DERIVATIVES
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Some forms
of derivatives, such as exchange-traded futures and options on securities,
commodities, or indexes, have been trading on regulated exchanges for more than
two decades. These types of derivatives are standardized contracts that can
easily be bought and sold, and whose market values are determined and published
daily. Nonstandardized derivatives (such as swap agreements), on the other hand,
tend to be more specialized or complex, and may be harder to value. If used for
speculation or as leveraged investments, derivatives can carry considerable
risks.
The reasons for which the Fund will invest in futures and options are:
- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
- - To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
Although the Fund typically does not make significant investments in
foreign securities, it reserves the right to invest up to 20% of its assets this
way. Foreign securities may be traded in U.S. or foreign markets. To the extent
that it owns foreign securities, the Fund is subject to (1) COUNTRY RISK, which
is the chance that domestic events--such as political upheaval, financial
troubles, or a natural disaster--will weaken a country's securities markets; and
(2) CURRENCY RISK, which is the chance that a foreign investment will decrease
in value because of unfavorable changes in currency exchange rates.
The Fund may temporarily depart from its normal investment policies--for
instance, by allocating substantial assets to cash investments--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.
COSTS AND MARKET-TIMING
Some investors try to profit from a strategy called market-timing--switching
money into mutual funds when they expect prices to rise and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by ALL fund
shareholders, including the long-term investors who do not generate the costs.
This is why all Vanguard funds have adopted special policies to discourage
short-term trading or to compensate the funds for the costs associated with it.
Specifically:
7
- - Each Vanguard fund reserves the right to reject any purchase
request--including exchanges from other Vanguard funds--that it regards as
disruptive to efficient portfolio management. A purchase request could be
rejected because of the timing of the investment or because of a history of
excessive trading by the investor.
- - Each Vanguard fund (except the money market funds) limits the number of
times that an investor can exchange into and out of the fund.
- - Each Vanguard fund reserves the right to stop offering shares at any time.
- - Certain Vanguard funds charge purchase and/or redemption fees on
transactions.
See the INVESTING WITH VANGUARD section of this prospectus for further details
on Vanguard's transaction policies.
THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST WITH VANGUARD
IF YOU ARE A MARKET-TIMER.
TURNOVER RATE
The Fund retains the right to sell securities regardless of how long the
securities have been held. Historically, due to its investment strategy, the
Fund has had a HIGH turnover rate. The Fund's average turnover rate since
inception has been about *%. (A turnover rate of 100% would occur, for example,
if the Fund sold and replaced securities valued at 100% of its net assets within
a one-year period.
PLAIN TALK ABOUT
TURNOVER RATE
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as taxable
income. As of October 31, 2001, the average turnover rate for all mid-cap growth
funds was approximately *%, according to Morningstar, Inc.
THE FUND AND VANGUARD
The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 funds holding assets in excess of $500 billion. All
of the Vanguard funds share in the expenses associated with business operations,
such as personnel, office space, equipment, and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.
8
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE
The Vanguard Group is truly a MUTUAL mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
INVESTMENT ADVISER
Provident Investment Counsel (Provident), 300 North Lake Avenue, Pasadena, CA
91101, adviser to the Fund, traces its origins to an investment advisory
partnership formed in 1951. It is now an indirect, wholly owned subsidiary of
Old Mutual plc, a United Kingdom based financial services group with substantial
asset management, insurance and banking businesses. As of October 31, 2001,
Provident managed about $* million in assets. The firm manages the Fund subject
to the control of the trustees and officers of the Fund. Its advisory fee is
paid quarterly and is based on certain annual percentage rates applied to the
Fund's average month-end assets for each quarter. In addition, the quarterly fee
is increased or decreased based upon Provident's performance in comparison to
its benchmark index. For these purposes, Provident's cumulative investment
performance over a trailing 36-month period is compared to the cumulative total
return of the Russell Midcap Growth Index. Please consult the Fund's STATEMENT
OF ADDITIONAL INFORMATION for a complete explanation of how advisory fees are
calculated.
For the fiscal year ended October 31, 2001, the investment advisory fees
paid to Provident represented an effective annual rate of *% of the Fund's
average net assets. (Please note that these fees were calculated under a prior
advisory agreement. Had the current fee schedule been in place for fiscal 2001,
the investment advisory fee would have represented an effective annual rate of
*% of the Fund's average net assets.)
The adviser is authorized to choose broker-dealers to handle the purchase
and sale of the Fund's portfolio securities, and to obtain the best available
price and most favorable execution for all transactions. Also, the Fund may
direct the adviser to use a particular broker for certain transactions in
exchange for commission rebates or research services provided to the Fund.
In the interest of obtaining better execution of a transaction, the adviser
may at times choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and most favorable execution, then
the adviser is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to the adviser or the Fund.
The board of trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.
9
PLAIN TALK ABOUT
THE FUND'S ADVISER
Provident Investment Counsel employs a team-oriented approach, with a group of
investment professionals responsible for the day-to-day management of the Fund.
DIVIDENDS, CAPITAL GAINS, AND TAXES
FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.
PLAIN TALK ABOUT
DISTRIBUTIONS
As a shareholder, you are entitled to your portion of a fund's income from
interest and dividends as well as gains from the sale of investments. You
receive such earnings as either an INCOME or a CAPITAL GAINS DISTRIBUTION.
INCOME consists of both the dividends that the fund earns from any stock
holdings and the interest it receives from any money market and bond
investments. CAPITAL GAINS are realized whenever the fund sells securities for
higher prices than it paid for them. These capital gains are either short-term
or long-term, depending on whether the fund held the securities for one year or
less or for more than one year.
BASIC TAX POINTS
Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:
- - Distributions are taxable to you for federal income tax purposes whether or
not you reinvest these amounts in additional Fund shares.
- - Distributions declared in December--if paid to you by the end of
January--are taxable for federal income tax purposes as if received in
December.
- - Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
- - Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.
- - Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.
- - A sale or exchange of Fund shares is a taxable event. This means that you
may have a capital gain to report as income, or a capital loss to report as
a deduction, when you complete your federal income tax return.
- - Dividend and capital gains distributions that you receive, as well as your
gains or losses from any sale or exchange of Fund shares, may be subject to
state and local income taxes.
- - Any conversion between classes of shares of the SAME fund is a nontaxable
event. By contrast, an exchange between classes of shares of DIFFERENT
funds IS a taxable event.
10
PLAIN TALK ABOUT
"BUYING A DIVIDEND"
Unless you are investing through a tax-deferred retirement account (such as an
IRA), you should consider avoiding a purchase of fund shares of a fund shortly
before the fund makes a distribution, because doing so can cost you money in
taxes. This is known as "buying a dividend." For example: On December 15, you
invest $5,000, buying 250 shares for $20 each. If the fund pays a distribution
of $1 per share on December 16, its share price will drop to $19 (not counting
market change). You still have only $5,000 (250 shares x $19 = $4,750 in share
value, plus 250 shares x $1 = $250 in distributions), but you OWE TAX on the
$250 distribution you received--even if you reinvest it in more shares. To avoid
"buying a dividend," check a fund's distribution schedule before you invest.
GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 30% of any taxable
distributions or redemptions from your account if you do not:
- - Provide us with your correct taxpayer identification number;
- - Certify that the taxpayer identification number is correct; and
- - Confirm that you are not subject to backup withholding.
Similarly, Vanguard must withhold taxes from your account if the IRS instructs
us to do so. FOREIGN INVESTORS. Vanguard funds generally are not sold outside
the United States, except to certain qualifying investors. If you reside outside
the United States, please consult our website at VANGUARD.COM and review
"Non-U.S. Investors." Foreign investors should be aware that U.S. withholding
and estate taxes may apply to any investments in Vanguard funds.
INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.
SHARE PRICE
The Fund's share price, called its NET ASSET VALUE, or NAV, is calculated each
business day after the close of regular trading on the New York Stock Exchange,
generally 4 p.m., Eastern time. Net asset value per share is computed by
dividing the net assets of the Fund by the number of Fund shares outstanding. On
holidays or other days when the Exchange is closed, the NAV is not calculated,
and the Fund does not transact purchase or redemption requests. However, on
those days the value of the Fund's assets may be affected to the extent that the
Fund holds foreign securities that trade on foreign markets that are open.
Stocks held by a Vanguard fund are valued at their MARKET VALUE when
reliable market quotations are readily available. Certain short-term debt
instruments used to manage a fund's cash are valued on the basis of amortized
cost. The values of any foreign securities held by a fund are converted into
U.S. dollars using an exchange rate obtained from an independent third party.
When reliable market quotations are not readily available, securities are
priced at their FAIR VALUE, calculated according to procedures adopted by the
board of trustees. A fund also may use fair-value pricing if the value of a
security it holds is materially affected by events occurring after the close of
11
the primary markets or exchanges on which the security is traded. This most
commonly occurs with foreign securities, but may occur in other cases as well.
When fair-value pricing is employed, the prices of securities used by a fund to
calculate its net asset value may differ from quoted or published prices for the
same securities.
Vanguard fund share prices can be found daily in the mutual fund listings
of most major newspapers under various "Vanguard" headings.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Fund's financial performance for the periods shown, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each period
on an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). The information for the two years in the period ended
October 31, 2000, has been derived from the financial statements audited by
Price-waterhouseCoopers LLP, independent accountants, whose report--along with
the Fund's financial statements--is included in the Fund's most recent annual
report to shareholders. For the prior period, the Fund employed other auditors.
You may have the annual report sent to you without charge by contacting
Vanguard.
- -----------------------------------------------------------------------------------------------
VANGUARD MID-CAP GROWTH FUND
PERIODS ENDED OCTOBER 31,*
-------------------------------------------
2001 2000 1999 1997**
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ * $ 15.87 $ 10.53 $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss * (0.22) (0.11) (0.03)
Net Realized and Unrealized Gain on Investments * 15.13 5.45 0.56
- -----------------------------------------------------------------------------------------------
Total from Investment Operations * 14.91 5.34 0.53
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From Net Realized Gains * (0.94) 0.00 0.00
Total Distributions * (0.94) 0.00 0.00
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ * $ 29.84 $ 15.87 $ 10.53
===============================================================================================
TOTAL RETURN *% 97.09% 50.71% 5.30%***
===============================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ * $ 36.0 $ 11.9 $ 5.7
RATIOS TO AVERAGE NET ASSETS+
Expenses *% 1.39% 1.39% 1.04%++
Net investment loss *% -1.03% -1.03% -0.43%++
Portfolio Turnover Rate+++ *% 185.88% 144.64% 166.89%
===============================================================================================
- ----------
* The Fund was organized as Provident Investment Counsel Mid Cap Fund A, and
was not a member of The Vanguard Group. On o, 2002, the Fund acquired all
assets and liabilities of Provident Investment Counsel Mid Cap Fund A in a
tax-free reorganization. The Fund had no operations prior to the
reorganization.
** For the period ended December 31, 1997 (Commencement of Operations) through
October 31, 1998.
*** Not annualized.
+ Includes the Fund's share of expenses, net of fees waived and expenses
absorbed, allocated from the related Portfolio. The combined fees waived
and expenses absorbed were 0.80%, 2.60%, and 4.11%, respectively.
++ Annualized.
+++ Portfolio turnover rate of Provident Mid Cap Portfolio, in which all of the
Fund's assets are invested.
12
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
The Fund began fiscal year 2001 with a net asset value (price) of $* per share.
During the year, the Fund earned $* from investment income (interest and
dividends). There was a decline of $* per share in the value of investments held
or sold by the Fund, resulting in a net decline of $* per share from investment
operations.
Shareholders received $* per share in the form of dividend distributions. A
portion of each year's distributions may come from the prior year's dividends or
capital gains.
The share price at the end of the year was $*, reflecting losses of $* per share
and distributions of $* per share. This was a decrease of $* per share (from $*
at the beginning of the year to $* at the end of the year). For a shareholder
who reinvested the distributions in the purchase of more shares, the total
return was *% for the year.
As of October 31, 2001, the Fund had $* million in net assets. For the year, the
expense ratio was *% ($* per $* of net assets), and the net investment income
amounted to *% of average net assets. The Fund sold and replaced securities
valued at *% of its net assets.
13
INVESTING WITH VANGUARD
This section of the prospectus explains the basics of doing business with
Vanguard. A special booklet, THE VANGUARD SERVICE DIRECTORY, provides details of
our many shareholder services for individual investors. A separate booklet, THE
COMPASS, does the same for institutional investors. You can request either
booklet by calling or writing Vanguard, using the CONTACTING VANGUARD
instructions found at the end of this section.
BUYING SHARES
REDEEMING SHARES
EXCHANGING SHARES
OTHER RULES YOU SHOULD KNOW
FUND AND ACCOUNT UPDATES
CONTACTING VANGUARD
BUYING SHARES
ACCOUNT MINIMUMS FOR INVESTOR SHARES
TO OPEN AND MAINTAIN AN ACCOUNT: $10,000 for regular accounts; $1,000 for IRAs,
and custodial accounts for minors. (Shareholders who invested in the Fund prior
to * 2002, will continue to be subject to a minimum account balance of $1,000
for regular accounts; $500 for retirement accounts.) TO ADD TO AN EXISTING
ACCOUNT: $100 by mail or exchange; $1,000 by wire.
Vanguard reserves the right to increase or decrease the minimum amount
required to open and maintain an account, or to add to an existing account,
without prior notice.
HOW TO BUY SHARES
BY CHECK: Mail your check and a completed account registration form to Vanguard.
When adding to an existing account, send your check with an Invest-By-Mail form
detached from your last account statement. Make your check payable to: THE
VANGUARD GROUP-- *. For a list of addresses, see CONTACTING VANGUARD.
BY EXCHANGE PURCHASE: You can purchase shares with the proceeds of a redemption
from another Vanguard fund under our exchange privilege. SEE EXCHANGING SHARES.
BY WIRE: Call Vanguard to purchase shares by wire. See CONTACTING VANGUARD.
YOUR PURCHASE PRICE
You buy shares at a fund's next-determined NAV after Vanguard receives your
purchase request. As long as your request is received before the close of
regular trading on the New York Stock Exchange (generally 4 p.m., Eastern time),
you will buy your shares at that day's NAV. This is known as your TRADE DATE.
14
PURCHASE RULES YOU SHOULD KNOW
[CHECKMARK] THIRD PARTY CHECKS. To protect the funds from check fraud,
Vanguard will not accept checks made payable to third parties.
[CHECKMARK] U.S. CHECKS ONLY. All purchase checks must be written in U.S.
dollars and drawn on a U.S. bank.
[CHECKMARK] LARGE PURCHASES. Vanguard reserves the right to reject any
purchase request that may disrupt a fund's operation or
performance. Please call us BEFORE attempting to invest a large
dollar amount.
[CHECKMARK] NO CANCELLATIONS. Place your transaction requests carefully.
Vanguard will NOT cancel any transaction once it has been
initiated and a confirmation number has been assigned (if
applicable).
[CHECKMARK] FUTURE PURCHASES. All Vanguard funds reserve the right to stop
selling shares at any time, or to reject specific purchase
requests, including purchases by exchange from another Vanguard
fund, at anytime, for any reason.
REDEEMING SHARES
HOW TO REDEEM SHARES
Be sure to check OTHER RULES YOU SHOULD KNOW before initiating your request.
ONLINE: Request a redemption through our website at VANGUARD.COM.
BY TELEPHONE: Contact Vanguard by telephone to request a redemption. For
telephone numbers, see CONTACTING VANGUARD.
BY MAIL: Send your written redemption instructions to Vanguard. For addresses,
see CONTACTING VANGUARD.
YOUR REDEMPTION PRICE
You redeem shares at a fund's next-determined NAV after Vanguard receives your
redemption request, INCLUDING ANY SPECIAL DOCUMENTATION REQUIRED UNDER THE
CIRCUMSTANCES. As long as your request is received before the close of regular
trading on the New York Stock Exchange (generally 4 p.m., Eastern time), your
shares are redeemed at that day's NAV. This is known as your TRADE DATE.
TYPES OF REDEMPTIONS
[CHECKMARK] CHECK REDEMPTIONS: Unless instructed otherwise, Vanguard will
mail you a check, normally within two business days of your trade
date.
[CHECKMARK] EXCHANGE REDEMPTIONS: You may instruct Vanguard to apply the
proceeds of your redemption to purchase shares of another
Vanguard fund under our exchange privilege. SEE EXCHANGING
SHARES.
[CHECKMARK] WIRE REDEMPTIONS: When redeeming from a money market fund or a
bond fund, you may instruct Vanguard to wire your redemption
proceeds to a previously designated bank account. Wire
redemptions are not available for
15
Vanguard's other funds. The wire redemption option is NOT
AUTOMATIC; you must establish it by completing a special form or
the appropriate section of your account registration. Also, wire
redemptions must be requested in writing or by telephone, NOT
online. For these funds, a $5 fee applies to wire redemptions
under $5,000.
MONEY MARKET FUNDS: For telephone requests received at Vanguard
by 10:45 a.m., Eastern time, the redemption proceeds will arrive
at your bank by the close of business that same day. For other
requests received before 4 p.m., Eastern time, the redemption
proceeds will arrive at your bank by the close of business on the
following business day.
BOND FUNDS: For requests received at Vanguard by 4 p.m., Eastern
time, the redemption proceeds will arrive at your bank by the
close of business on the following business day.
REDEMPTION RULES YOU SHOULD KNOW
[CHECKMARK] SPECIAL ACCOUNTS. Special documentation may be required to redeem
from certain types of accounts, such as trust, corporate,
nonprofit, or retirement accounts. Please call us BEFORE
attempting to redeem from these types of accounts.
[CHECKMARK] POTENTIALLY DISRUPTIVE REDEMPTIONS. Vanguard reserves the right
to pay all or part of your redemption in-kind--that is, in the
form of securities--if we believe that a cash redemption would
disrupt the Fund's operation or performance. Under these
circumstances, Vanguard also reserves the right to delay payment
of your redemption proceeds for up to seven days. By calling us
BEFORE you attempt to redeem a large dollar amount, you are more
likely to avoid in-kind or delayed payment of your redemption.
[CHECKMARK] RECENTLY PURCHASED SHARES. While you can redeem shares at any
time, proceeds will not be made available to you until the Fund
collects payment for your purchase. This may take up to ten
calendar days for shares purchased by check or Vanguard Fund
Express(R).
[CHECKMARK] SHARE CERTIFICATES. If share certificates have been issued for
your account, those shares cannot be redeemed until youU return
the certificates (unsigned) to Vanguard by registered mail. For
the correct address, see CONTACTING VANGUARD.
[CHECKMARK] PAYMENT TO A DIFFERENT PERSON OR ADDRESS. We can make your
redemption check payable to a different person or send it to a
different address. However, this requires the written consent of
all registered account owners, which must be provided under
signature guarantees. You can obtain a signature guarantee from
most commercial and savings banks, credit unions, trust
companies, or member firms of a U.S. stock exchange.
[CHECKMARK] NO CANCELLATIONS. Place your transaction requests carefully.
Vanguard will NOT cancel any transaction once it has been
initiated and a confirmation number has been assigned (if
applicable).
16
[CHECKMARK] EMERGENCY CIRCUMSTANCES. Vanguard funds can postpone payment of
redemption proceeds for up to seven calendar days at any time. In
addition, Vanguard funds can suspend redemptions and/or postpone
payments of redemption proceeds at times when the New York Stock
Exchange is closed or during emergency circumstances, as
determined by the U.S. Securities and Exchange Commission.
EXCHANGING SHARES
All Vanguard funds accept exchange requests by Web, telephone or mail. However,
because excessive exchanges can disrupt management of a fund and increase the
fund's costs for all shareholders, Vanguard places certain limits on the
exchange privilege. For the U.S. STOCK INDEX FUNDS, INTERNATIONAL STOCK INDEX
FUNDS, REIT INDEX FUND, BALANCED INDEX FUND, CALVERT SOCIAL INDEX FUND,
INTERNATIONAL GROWTH FUND, INTERNATIONAL VALUE FUND, INTERNATIONAL EXPLORER FUND
AND GROWTH AND INCOME FUND these limits generally are as follows:
- - No telephone or Web exchanges between 2:30 p.m. and 4 p.m., Eastern time on
business days. ANY EXCHANGE REQUEST PLACED DURING THESE HOURS WILL BE
REJECTED. On days when the New York Stock Exchange is scheduled to close
early, this end-of-day restriction will be adjusted to 1.5 hours prior to
the scheduled close. (For example, if the NYSE is scheduled to close at 1
p.m., Eastern time, the cut-off for phone and Web exchanges will be 11:30
a.m. Eastern time.)
- - No more than two exchanges OUT of a fund may be requested by telephone or
Web within any 12-month period.
- - Each fund reserves the right to reject exchanges considered excessive.
For ALL OTHER VANGUARD FUNDS, the following limits generally apply:
- - No more than two substantive "round trips" through a non-money-market fund
during any 12-month period.
- - A "round trip" is a redemption OUT of a fund (by any means) followed by a
purchase back INTO the same fund (by any means).
- - Round trips must be at least 30 days apart.
17
- - "Substantive" means a dollar amount that Vanguard determines, in its sole
discretion, could adversely affect management of the fund.
- - Each fund reserves the right to reject exchanges considered excessive.
Please note that Vanguard reserves the right to revise or terminate the exchange
privilege, limit the amount of any exchange, or reject an exchange, at any time,
for any reason.
ALSO, IN THE EVENT OF A CONFLICT BETWEEN THE EXCHANGE PRIVILEGES OF TWO FUNDS,
THE STRICTER POLICY WILL APPLY TO THE TRANSACTION.
OTHER RULES YOU SHOULD KNOW
TELEPHONE TRANSACTIONS
[CHECKMARK] AUTOMATIC. In setting up your account, we'll automatically enable
you to do business with us by regular telephone, UNLESS YOU
INSTRUCT US OTHERWISE IN WRITING.
[CHECKMARK] TELE-ACCOUNT(R). To conduct account transactions through
Vanguard's automated telephone service, you must first obtain a
personal identification number (PIN). Call Tele-Account to obtain
a PIN, and allow seven days before using this service.
[CHECKMARK] PROOF OF A CALLER'S AUTHORITY. We reserve the right to refuse a
telephone request if the caller is unable to provide the
following information EXACTLY AS REGISTERED ON THE ACCOUNT:
- Ten-digit account number.
- Complete owner name and address.
- Primary Social Security or employer identification number.
- Personal Identification Number (PIN), if applicable.
[CHECKMARK] SUBJECT TO REVISION. We reserve the right to revise or terminate
Vanguard's telephone transaction service at any time, without
notice.
[CHECKMARK] SOME VANGUARD FUNDS DO NOT PERMIT TELEPHONE EXCHANGES BETWEEN
2:30 P.M. AND 4 P.M. To discourage market-timing, the following
Vanguard funds generally do not permit telephone exchanges
between 2:30 p.m. and 4 p.m. on business days: the U.S. Stock
Index Funds, the International Stock Index Funds, REIT Index
Fund, Balanced Index Fund, Cal-vert Social Index Fund,
International Growth Fund, International Value Fund,
International Explorer Fund, and Growth and Income Fund. Funds
may be added to or deleted from this list at any time without
prior notice to shareholders.
VANGUARD.COM
[CHECKMARK] REGISTRATION. You can use your personal computer to review your
account holdings, to sell or exchange shares of most Vanguard
funds, and to perform other transactions. To establish this
service, you can register online.
18
[CHECKMARK] SOME VANGUARD FUNDS DO NOT PERMIT ONLINE EXCHANGES BETWEEN 2:30
P.M. AND 4 P.M. To discourage market-timing, the following
Vanguard funds generally do not permit online exchanges between
2:30 p.m. and 4 p.m. on business days: the U.S. Stock Index
Funds, the International Stock Index Funds, REIT Index Fund,
Balanced Index Fund, Calvert Social Index Fund, International
Growth Fund, International Value Fund, International Explorer
Fund and Growth and Income Fund. Funds may be added to or deleted
from this list at any time without prior notice to shareholders.
WRITTEN INSTRUCTIONS
[CHECKMARK] "GOOD ORDER" REQUIRED. We reserve the right to reject any written
transaction instructions that are not in "good order." This means
that your instructions must include:
- The fund name and account number.
- The amount of the transaction (in dollars or shares).
- Signatures of all owners EXACTLY as registered on the
account.
- Signature guarantees, if required for the type of
transaction.*
- Any supporting legal documentation that may be required.
- ----------
* For instance, signature guarantees must be provided by all registered
account shareholders when redemption proceeds are to be sent to a different
person or address. Call uVanguard for specific signature guarantee
requirements.
RESPONSIBILITY FOR FRAUD
Vanguard will not be responsible for any account losses due to fraud, so long as
we reasonably believe that the person transacting on an account is authorized to
do so. Please take precautions to protect yourself from fraud. Keep your account
information private and immediately review any account statements that we send
to you. Contact Vanguard immediately about any transactions you believe to be
unauthorized.
UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
UNUSUAL CIRCUMSTANCES
If you experience difficulty contacting Vanguard online, by telephone, or by
Tele-Account, you can send us your transaction request by regular or express
mail. See CONTACTING VANGUARD for addresses.
INVESTING WITH VANGUARD THROUGH OTHER FIRMS
You may purchase or sell Investor Shares of most Vanguard funds through a
financial intermediary, such as a bank, broker, or investment adviser. If you
invest with Vanguard through an intermediary, please read that firm's program
materials carefully to learn of any special rules that may apply. For example,
special terms may apply to additional service features, fees, or other policies.
19
LOW-BALANCE ACCOUNTS
All Vanguard funds reserve the right to close any investment-only
retirement-plan account or any nonretirement account whose balance falls below
the minimum initial investment. If a fund has a redemption fee, that fee will
apply to shares that are redeemed upon closure of the account.
Vanguard deducts a $10 fee in June from each nonretire-ment account whose
balance at that time is below $2,500 ($500 for Vanguard STAR(TM) Fund). The fee
is waived if your total Vanguard account assets are $50,000 or more.
FUND AND ACCOUNT UPDATES
PORTFOLIO SUMMARIES
We will send you quarterly portfolio summaries to help you keep track of your
accounts throughout the year. Each summary shows the market value of your
account at the close of the statement period, as well as all distributions,
purchases, sales, and exchanges for the current calendar year.
AVERAGE COST REVIEW STATEMENTS
For most taxable accounts, average cost review statements will accompany the
quarterly portfolio summaries. These statements show the average cost of shares
that you redeemed during the current calendar year, using the average cost
single category method, which is one of the methods established by the IRS.
CONFIRMATION STATEMENTS
Each time you buy, sell, or exchange shares, we will send you a statement
confirming the trade date and amount of your transaction.
TAX STATEMENTS
We will send you annual tax statements to assist in preparing your income tax
returns. These statements, which are generally mailed in January, will report
the previous year's dividend and capital gains distributions, proceeds from the
sale of shares, and distributions from IRAs or other retirement plans.
ANNUAL AND SEMIANNUAL REPORTS
Financial reports about Vanguard Mid-Cap Growth Fund will be mailed twice a
year, in June and December. These comprehensive reports include overviews of the
financial markets and specific information concerning the Fund:
- - Performance assessments with comparisons to industry benchmarks.
- - Reports from the adviser.
- - Financial statements with detailed listings of the Fund's holdings.
20
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of its investment earnings), Vanguard attempts to
eliminate duplicate mailings to the same address. When we find that two or more
shareholders have the same last name and address, we send just one copy of the
Fund report to that address, instead of mailing separate reports to each
shareholder. If you want us to send separate reports, however, you may notify
our Client Services Department.
CONTACTING VANGUARD
ONLINE VANGUARD.COM
- Your best source of Vanguard news
- For fund, account, and service information
- For most account transactions
- For literature requests
- 24 hours per day, 7 days per week
VANGUARD TELE-ACCOUNT(R) - For automated fund and account information
1-800-662-6273 - For redemptions by check, exchange (subject
(ON-BOARD) to certain limitations), or wire
- Toll-free, 24 hours per day, 7 days per week
INVESTOR INFORMATION - For fund and service information
1-800-662-7447 (SHIP) - For literature requests
(TEXT TELEPHONE AT - Business hours only
1-800-952-3335)
CLIENT SERVICES - For account information
1-800-662-2739 (CREW) - For most account transactions
(TEXT TELEPHONE AT - Business hours only
1-800-749-7273)
INSTITUTIONAL DIVISION - For information and services for large
1-888-809-8102 institutional investors
- Business hours only
VANGUARD ADDRESSES REGULAR MAIL (INDIVIDUALS--CURRENT CLIENTS):
The Vanguard Group
P.O. Box 1110
Valley Forge, PA 19482-1110
REGULAR MAIL (INSTITUTIONS):
The Vanguard Group
P.O. Box 2900
Valley Forge, PA 19482-2900
21
REGULAR MAIL (GENERAL INQUIRIES):
The Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482-2600
REGISTERED OR EXPRESS MAIL:
The Vanguard Group 455 Devon
Park Drive Wayne, PA 19087-1815
FUND NUMBER Please use the specific fund number when
contacting us about Vanguard Mid-Cap Growth
Fund--*.
22
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GLOSSARY OF INVESTMENT TERMS
CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized on securities that a fund
has sold at a profit, minus any realized losses.
CASH INVESTMENTS
Cash deposits, short-term bank deposits, and money market instruments that
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
COMMON STOCK
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
COUNTRY RISK
The chance that domestic events--such as political upheaval, financial troubles,
or a natural disaster--will weaken a country's securities markets.
CURRENCY RISK
The chance that a foreign investment will decrease in value because of
unfavorable changes in currency exchange rates.
DIVIDEND INCOME
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.
GROWTH STOCK FUND
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth in revenue and earnings. Reflecting market expectations for
superior growth, these stocks typically have low dividend yields and
above-average prices in relation to such measures as revenue, earnings, and book
value.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a fund's
investments.
MUTUAL FUND
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is also called its
share value or share price.
PRICE/EARNINGS (P/E) RATIO
The current share price of a stock, divided by its per-share earnings (profits).
A stock selling for $20, with earnings of $2 per share, has a price/earnings
ratio of 10.
PRINCIPAL
The amount of money you put into an investment.
SECURITIES
Stocks, bonds, money market instruments, and other investment vehicles.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, assuming the reinvestment of all distributions of dividends and capital
gains.
VALUE STOCK FUND
A mutual fund that emphasizes stocks of companies whose growth prospects are
generally regarded as subpar by the market. Reflecting these market
expectations, the prices of value stocks typically are below-average in
comparison with such measures as earnings and book value, and these stocks
typically pay above-average dividend yields.
VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations in its returns.
YIELD
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
[SHIP]
THE VANGUARD GROUP(R)
Post Office Box 2600
Valley Forge, PA 19482-2600
FOR MORE INFORMATION
If you'd like more information about Vanguard Mid-Cap Growth Fund, the following
documents are available free upon request:
ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Fund.
THE CURRENT ANNUAL AND SEMIANNUAL REPORTS AND THE SAI ARE INCORPORATED BY
REFERENCE INTO (AND ARE THUS LEGALLY A PART OF) THIS PROSPECTUS.
ALL MARKET INDEXES REFERENCED IN THIS PROSPECTUS ARE THE EXCLUSIVE PROPERTY OF
THEIR RESPECTIVE OWNERS.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Fund or other Vanguard funds, please
contact us as follows:
THE VANGUARD GROUP
INVESTOR INFORMATION
DEPARTMENT P.O. BOX 2600
VALLEY FORGE, PA 19482-2600
TELEPHONE:
1-800-662-7447 (SHIP)
TEXT TELEPHONE:
1-800-952-3335
WORLD WIDE WEB:
WWW.VANGUARD.COM
If you are a current Fund shareholder and would like information about your
account, account transactions, and/or account statements, please call:
CLIENT SERVICES DEPARTMENT TELEPHONE:
1-800-662-2739 (CREW)
TEXT TELEPHONE:
1-800-749-7273
INFORMATION PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC)
You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, DC. To find out more about this
public service, call the SEC at 1-202-942-8090. Reports and other information
about the Fund are also available on the SEC's Internet site at
http://www.sec.gov, or you can receive copies of this information, for a fee, by
electronic request at the following e-mail address: publicinfo@sec.gov, or by
writing the Public Reference Section, Securities and Exchange Commission,
Washington, DC 20549-0102.
Fund's Investment Company Act file number: 811-07443
(C)2002 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
P* *2002
PART B
VANGUARD(R) WHITEHALL FUNDS
(THE TRUST)
STATEMENT OF ADDITIONAL INFORMATION
*, 2002
This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectuses (dated February 26, 2002, for Vanguard Selected
Value Fund, and *, 2002, for Vanguard Mid-Cap Growth Fund). To obtain, without
charge, the Prospectuses or the most recent Annual Reports to Shareholders,
which contain the Trust's financial statements as hereby incorporated by
reference, please call:
INVESTOR INFORMATION DEPARTMENT:
1-800-662-7447
TABLE OF CONTENTS
Page
----
DESCRIPTION OF THE TRUST ................................................ B-1
INVESTMENT POLICIES ..................................................... B-3
INVESTMENT LIMITATIONS .................................................. B-8
YIELD AND TOTAL RETURN .................................................. B-11
SHARE PRICE ............................................................. B-15
PURCHASE OF SHARES ...................................................... B-15
REDEMPTION OF SHARES .................................................... B-15
MANAGEMENT OF THE FUNDS ................................................. B-16
INVESTMENT ADVISORY SERVICES ............................................ B-21
PORTFOLIO TRANSACTIONS .................................................. B-27
FINANCIAL STATEMENTS .................................................... B-28
COMPARATIVE INDEXES ..................................................... B-28
DESCRIPTION OF THE TRUST
ORGANIZATION
The Trust was organized as a Maryland corporation in 1995, and was
reorganized as a Delaware business trust in June, 1998. Prior to its
reorganization as a Delaware business trust, the Trust was known as Vanguard
Whitehall Funds, Inc. The Trust is registered with the United States Securities
and Exchange Commission (the Commission) under the Investment Company Act of
1940 (the 1940 Act) as an open-end, diversified management investment company.
It currently offers the following funds, each of which offers a single class of
shares:
Vanguard Selected Value Fund
Vanguard Mid-Cap Growth Fund
(individually, a Fund; collectively, the Funds)
The Trust has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that each Fund may
issue.
SERVICE PROVIDERS
CUSTODIAN. The Bank of New York, One Wall Street, New York, NY 10286 serves
as the custodian for Vanguard Selected Value Fund. and o serves as the custodian
for Vanguard Mid-Cap Growth Fund. The
B-1
custodians are responsible for maintaining the Funds' assets and keeping all
necessary accounts and records of Fund assets.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, Two Commerce Square,
Suite 1700, 2001 Market Street, Philadelphia, PA 19103, serves as the Funds'
independent accountants. The accountants audit the Funds' annual financial
statements and provide other related services.
TRANSFER AND DIVIDEND-PAYING AGENT. The Funds' transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, PA 19355.
CHARACTERISTICS OF THE FUNDS' SHARES
RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of the Funds' shares, other
than the possible future termination of the Funds. The Trust or any of its
fund(s) may be terminated by reorganization into another mutual fund or by
liquidation and distribution of the assets of the affected fund. Unless
terminated by reorganization or liquidation, the Funds will continue
indefinitely.
SHAREHOLDER LIABILITY. The Trust is organized under Delaware law, which
provides that shareholders of a business trust are entitled to the same
limitations of personal liability as shareholders of a corporation organized
under Delaware law. Effectively, this means that a shareholder of a Fund will
not be personally liable for payment of the Fund's debts except by reason of his
or her own conduct or acts. In addition, a shareholder could incur a financial
loss on account of a Fund obligation only if the Fund itself had no remaining
assets with which to meet such obligation. We believe that the possibility of
such a situation arising is extremely remote.
DIVIDEND RIGHTS. The shareholders of a Fund are entitled to receive any
dividends or other distributions declared for such Fund. No shares have priority
or preference over any other shares of the same Fund with respect to
distributions. Distributions will be made from the assets of a Fund, and will be
paid ratably to all shareholders of the Fund according to the number of shares
of such Fund held by shareholders on the record date.
VOTING RIGHTS. Shareholders are entitled to vote on a matter if: (i) a
shareholder vote is required under the 1940 Act; (ii) the matter concerns an
amendment to the Declaration of Trust that would adversely affect to a material
degree the rights and preferences of the shares of any class or fund; or (iii)
the trustees determine that it is necessary or desirable to obtain a shareholder
vote. The 1940 Act requires a shareholder vote under various circumstances,
including to elect or remove trustees upon the written request of shareholders
representing 10% or more of a Fund's net assets, and to change any fundamental
policy of a Fund. Unless otherwise required by applicable law, shareholders of
each Fund receive one vote for each dollar of net asset value owned on the
record date, and a fractional vote for each fractional dollar of net asset value
owned on the record date. However, only the shares of the fund affected by a
particular matter are entitled to vote on that matter. Voting rights are
non-cumulative and cannot be modified without a majority vote.
LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be
entitled to receive a pro rate share of the applicable Fund's net assets.
PREEMPTIVE RIGHTS. There are no preemptive rights associated with each
Fund's shares.
CONVERSION RIGHTS. There are no conversion rights associated with each
Fund's shares.
REDEMPTION PROVISIONS. Each Fund's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional
Information.
SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.
CALLS OR ASSESSMENT. Each Fund's shares, when issued, are fully paid and
non-assessable.
TAX STATUS OF THE FUND
Vanguard Selected Value Fund intends to continue to qualify, and Vanguard
Mid-Cap Growth Fund expects to qualify, as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. This special tax status means
that a Fund will not be liable for federal tax on income and capital gains
distributed to shareholders. In order to preserve its tax status, each Fund must
comply with certain requirements. If a Fund
B-2
fails to meet these requirements in any taxable year, it will be subject to tax
on its taxable income at corporate rates, and all distributions from earnings
and profits, including any distributions of net tax-exempt income and net
long-term capital gains, will be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest, and make substantial distributions before
regaining its tax status as a regulated investment company.
INVESTMENT POLICIES
The following policies supplement the Funds' investment policies set forth
in the Prospectuses:
Vanguard Mid-Cap Growth Fund invests at least 80% of its assets (net assets
plus any borrowings for investment purposes) in common stocks of medium size
companies. This policy may only be changed upon 60 days notice to shareholders.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements with
commercial banks, brokers, or dealers either for defensive purposes due to
market conditions or to generate income from its excess cash balances. A
repurchase agreement is an agreement under which the Fund acquires a money
market instrument (generally a security issued by the U.S. Government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). A repurchase agreement
may be considered a loan by the Fund collateralized by securities. The resale
price reflects an agreed upon interest rate effective for the period the
instrument is held by the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by the
Fund (including accrued interest earned thereon) must have a total value in
excess of the value of the repurchase agreement and are held by a custodian bank
until repurchased. In addition, the Funds' board of trustees will monitor the
Funds' repurchase agreement transactions generally and will establish guidelines
and standards for review by the investment adviser of the creditworthiness of
any bank, broker, or dealer party to a repurchase agreement.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under bankruptcy or other laws, a court may determine that the underlying
security is collateral for a loan by a Fund not within the control of the Fund
and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that a Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the adviser
acknowledges these risks, it is expected that they can be controlled through
careful monitoring procedures.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities are securities hat may not be sold or
disposed of in the ordinary course of business within seven business days at
approximately the value at which they are being carried on a Fund's books.
Each Fund may invest in restricted, privately placed securities that, under
the Commission's rules, may be sold only to qualified institutional buyers.
Because these securities can be resold only to qualified institutional buyers,
or after they have been held for a number of years, they may be considered
illiquid securities--meaning that they would be difficult for a Fund to convert
to cash if needed.
If a substantial market develops for a restricted security held by a Fund,
it may be treated as a liquid security, in accordance with procedures and
guidelines approved by the Funds' board of trustees. This generally includes
securities that are unregistered than can be sold to qualified institutional
buyers in accordance with Rule 144A under the Securities Act of 1933. While each
Fund's investment adviser determines the liquidity of restricted securities on a
daily basis, the board oversees and retains ultimate responsibility for the
adviser's decisions. Several factors that the board considers in monitoring
these decisions include the valuation of a security, the availability of
qualified institutional buyers, and the availability of information about the
security's issuer.
FOREIGN INVESTMENTS. Each Fund may invest up to 20% of its assets in
securities of foreign companies. Investors should recognize that investing in
foreign companies involves certain special considerations which are not
typically associated with investing in U.S. companies.
B-3
CURRENCY RISK. Since the stocks of foreign companies are frequently
dominated in foreign currencies, and since each fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Funds will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of the Mid-Cap Growth Fund permit
them to enter into forward foreign currency exchange contracts in order to hedge
holdings and commitments against changes in the level of future currency rates.
Such contracts involve an obligation to purchase or sell a specific currency at
a future date at a price set at the time of the contract.
COUNTRY RISK. As foreign companies are not generally subject to uniform
accounting, auditing, and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although each Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions, commissions on many foreign stock exchanges are
generally higher than commissions on U.S. exchanges. In addition, it is expected
that the expenses for custodial arrangements of a Fund's foreign securities will
be somewhat greater than the expenses for custodial arrangements for handling
U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from foreign companies held by a Fund. However, these
foreign withholding taxes are not expected to have a significant impact on the
Funds, since the Funds seek long-term capital appreciation and any income should
be considered incidental.
FEDERAL TAX TREATMENT OF NON-U.S. TRANSACTIONS. Special rules govern the
Federal income tax treatment of certain transactions denominated in foreign
currency or determined by reference to the value of one or more foreign
currencies. The types of transactions covered by the special rules include the
following: (i) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option, or similar financial instrument if such
instrument is not marked to market. The disposition of a currency other than the
U.S. dollar by a taxpayer whose functional currency is the U.S. dollar is also
treated as a transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules if they are or would be treated as
sold for their fair market value at year-end under the marking-to-market rules
applicable to other futures contracts unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary income or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts, and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle.
The Treasury Department issued regulations under which certain transactions
subject to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Internal Revenue Code of 1986, as amended, and
the Treasury regulations) will be integrated and treated as a single transaction
or otherwise treated consistently for purposes of the Code. Any gain or loss
attributable to the foreign currency component of a transaction engaged in by a
fund which is not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction. It is anticipated that some of the non-U.S. dollar-denominated
investments and foreign currency contracts the Fund may make or enter into will
be subject to the special currency rules described above.
FOREIGN TAX CREDIT. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. If shareholders meet certain
holding period requirements with respect to Fund shares, an offsetting tax
credit may be available. If shareholders do not meet the holding period
requirements, they may
B-4
still be entitled to a deduction for certain foreign taxes. In either case, a
shareholder's tax statement will show more taxable income or capital gains than
were actually distributed by the Fund, but will also show the amount of the
available offsetting credit or deduction.
FUTURES AND OPTIONS CONTRACTS. Each Fund may enter into stock futures
contracts, options, and options on futures contracts for several reasons: to
maintain cash investments while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher investment returns when
a futures contract is priced more attractively than the underlying equity
security or index. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. Government agency. To the extent required by law, a fund will establish a
segregated account containing liquid assets at least equal in value to the
amount of any obligation assumed by the fund under a futures contract.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position (buying a
contract which has previously been sold, or selling a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin which
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. Each Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. Each Fund intends to use futures contracts
only for bona fide hedging purposes.
Regulations of the CFTC applicable to the Funds require that all of their
futures transactions constitute bona fide hedging transactions except to the
extent that the aggregate initial margins and premiums required to establish any
non-hedging positions do not exceed five percent of the value of a Fund's
portfolio. The Funds will only sell futures contracts to protect securities they
own against price declines or purchase contracts to protect against an increase
in the price of securities they intend to purchase. As evidence of this hedging
interest, the Funds expect that approximately 75% of all futures contract
purchases will be "completed;" that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Funds upon sale of open
futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Funds' exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
a Fund will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of portfolio securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. A Fund will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the
B-5
Fund's total assets. In addition, the Fund will not enter into futures contracts
to the extent that its outstanding obligations to purchase securities under
these contracts would exceed 20% of the Fund's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an Exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge. Each Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Funds are engaged in only for hedging purposes, the investment
advisers do not believe that the Funds are subject to the risks of loss
frequently associated with futures transactions. A Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Each Fund is required for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts held as of the end of
the year as well as those actually realized during the year. In these cases, any
gain or loss recognized with respect to a futures contract is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Gains and losses on
certain other futures contracts (primarily non-U.S. futures contracts) are not
recognized until the contracts are closed and are treated as long-term or
short-term depending on the holding period of the contract. Sales of futures
contracts which are intended to hedge against a change in the value of
securities held by a Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition. The Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Fund.
In order for a Fund to continue to qualify for Federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income; i.e., dividends, interest,
income derived from loans of securities, gains from the sale of securities or
foreign
B-6
currencies or other income derived with respect to the Fund's business of
investing in such securities or currencies. It is anticipated that any net gain
recognized on futures contracts will be considered qualifying income for
purposes of the 90% requirement.
Each Fund will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Fund's other investments and shareholders will be advised
on the nature of the transactions.
LENDING OF SECURITIES. Each Fund may lend its investment securities to
qualified institutional investors (typically brokers, dealers, banks or other
financial institutions) who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its securities, a Fund
will be attempting to increase its net investment income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. The terms and the structure and the aggregate amount of such loans
must be consistent with the 1940 Act, and the Rules or interpretations of the
Commission thereunder. These provisions limit the amount of securities a fund
may lend to 33 1/3% of the Fund's total assets (although Vanguard Mid-Cap Growth
Fund has an operating policy of limiting the amount of loans to not more than
25% of the value of the total assets of the Fund), and require that (a) the
borrower pledge and maintain with the Fund collateral consisting of cash, an
irrevocable letter of credit or securities issued or guaranteed by the United
States Government having a value at all times not less than 100% of the value of
the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by the Fund at
any time and (d) the Fund receive reasonable interest on the loan which may
include the Fund's investing any cash collateral in interest bearing short-term
investments, any distribution on the loaned securities and any increase in their
market value. Loan arrangements made by each Fund will comply with all other
applicable regulatory requirements, including the rules of the New York Stock
Exchange, which rules presently require the borrower, after notice, to redeliver
the securities within the normal settlement time of three business days. All
relevant facts and circumstances, including the creditworthiness of the broker,
dealer, or institution, will be considered in making decisions with respect to
the lending of securities, subject to review by the Funds' board of trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company trustees. In addition, voting rights pass
with the loaned securities, but if a material event occurs that affects the
securities on loan, the fund must call the loan and vote the securities.
VANGUARD INTERFUND LENDING PROGRAM. The Commission has issued an exemptive
order permitting the Funds and other Vanguard funds to participate in Vanguard's
interfund lending program. This program allows the Vanguard funds to borrow
money from and loan money to each other for temporary or emergency purposes. The
program is subject to a number of conditions, including the requirement that no
fund may borrow or lend money through the program unless it receives a more
favorable interest rate than is available from a typical bank for a comparable
transaction. In addition, a fund may participate in the program only if and to
the extent that such participation is consistent with the fund's investment
objective and other investment policies. The boards of trustees of the Vanguard
funds are responsible for ensuring that the interfund lending program operates
in compliance with all conditions of the Commission's exemptive order.
WHEN-ISSUED SECURITIES. When-issued or delayed delivery securities are
subject to market fluctuations due to changes in market interest rates, and it
is possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities for
its investment portfolio, a Fund may dispose of a when-issued security or
forward commitment prior to settlement if it deems this to be appropriate.
TEMPORARY INVESTMENTS. Each Fund may take temporary defensive measures that
are inconsistent with the Fund's normal investment policies and strategies in
response to adverse market, economic, political or other conditions. Such
measures could include investments in (a) highly liquid short-term fixed income
securities
B-7
issued by or on behalf of municipal or corporate issuers, obligations of the
U.S. Government and its agencies, commercial paper, and bank certificates of
deposit; (b) shares of other investment companies which have investment
objectives consistent with those of the Funds; (c) repurchase agreements
involving any such securities; and (d) other money market instruments. There is
no limit on the extent to which a Fund may take temporary defensive measures. In
taking such measures, the Fund may fail to achieve its investment objective.
INVESTMENT LIMITATIONS
VANGUARD SELECTED VALUE FUND
The Fund is subject to the following FUNDAMENTAL investment limitations, which
cannot be changed in any material way without the approval of the holders of a
majority of the Fund's shares. For these purposes, a "majority" of shares means
the lesser of: (i) 67% or more of the shares voted so long as more than 50% of
the Fund's outstanding shares are present or represented by proxy; or (ii) more
than 50% of the Fund's outstanding shares.
BORROWING. The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 15% of the Fund's net assets. The Fund may
borrow money through banks, reverse repurchase agreements, or Vanguard's
interfund lending program only, and must comply with all applicable regulatory
conditions. The Fund may not make any additional investments whenever its
outstanding borrowings exceed 5% of net assets.
COMMODITIES. The Fund may not invest in commodities, except that the Fund
may invest in stock futures contracts, stock options, and options on stock
futures contracts. No more than 5% of the Fund's total assets may be used as
initial margin deposit for futures contracts. Additionally, no more than 20% of
the Fund's total assets may be invested in swap agreements at any time.
DIVERSIFICATION. With respect to 75% of its total assets, the Fund may not:
(i) purchase more than 10% of the outstanding voting securities of any one
issuer; or (ii) purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets would be invested in that issuer's securities. This
limitation does not apply to obligations of the United States Government, its
agencies, or instrumentalities.
ILLIQUID SECURITIES. The Fund may not acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid.
INDUSTRY CONCENTRATION. The Fund may not invest more than 25% of its total
assets in any one industry.
INVESTING FOR CONTROL. The Fund may not invest in a company for purposes of
controlling its management.
INVESTMENT COMPANIES. The Fund may not invest in any other investment
company, except through a merger, consolidation or acquisition of assets
approved by the Fund's shareholders, or to the extent permitted by Section 12 of
the 1940 Act. Investment companies whose shares the Fund acquires pursuant to
Section 12 must have investment objectives and investment policies consistent
with those of the Fund.
LOANS. The Fund may not lend money to any person except by purchasing fixed
income securities that are publicly distributed or customarily purchased by
institutional investors, by lending its portfolio securities, or through
Vanguard's interfund lending program.
MARGIN. The Fund may not purchase securities on margin or sell securities
short, except as permitted by the Fund's investment policies relating to
commodities.
PLEDGING ASSETS. The Fund may not pledge, mortgage, or hypothecate more
than 15% of its net assets.
REAL ESTATE. The Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate and bonds secured
by real estate.
SENIOR SECURITIES. The Fund may not issue senior securities, except in
compliance with the 1940 Act.
UNDERWRITING. The Fund may not engage in the business of underwriting
securities issued by other persons. The Fund will not be considered an
underwriter when disposing of its investment securities.
UNSEASONED COMPANIES. The Fund may not invest more than 5% of its assets in
companies that have less than three years operating history (including the
operating history of any predecessors).
B-8
PUTS AND CALLS. The Fund may not purchase or sell put options or call
options, except as provided in the prospectus.
VANGUARD MID-CAP GROWTH FUND
The Fund is subject to the following FUNDAMENTAL investment limitations, which
cannot be changed in any material way without the approval of the holders of a
majority of the Fund's shares. For these purposes, a "majority" of shares means
the lesser of: (i) 67% or more of the shares voted so long as more than 50% of
the Fund's outstanding shares are present or represented by proxy; or (ii) more
than 50% of the Fund's outstanding shares.
BORROWING. The Fund may borrow money or issue senior securities only as
permitted under the Investment Company Act of 1940, as amended, and as
interpreted, modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
COMMODITIES. The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments. This
limitation shall not prevent the Fund from purchasing, selling or entering into
securities or other instruments backed by physical commodities, foreign
currencies, foreign currency forward contracts, foreign currency options,
futures contracts, options on futures contracts, swap agreements, or other
derivative instruments, subject to compliance with applicable provisions of the
federal securities and commodities laws.
DIVERSIFICATION. The Fund may not change its classification as a
"management company" or its subclassifications as an "open-end company" and as a
"diversified company" as each such term is defined in the Investment Company Act
of 1940, as amended, and as interpreted, modified, or otherwise permitted by
regulatory authority having jurisdiction, from time to time.
INDUSTRY CONCENTRATION. The Fund may not concentrate its investments in a
particular industry or group of industries, within the meaning of the Investment
Company Act of 1940, as amended, and as interpreted, modified, or otherwise
permitted by regulatory authority having jurisdiction, from time to time.
LOANS. The Fund may make loans only as permitted under the Investment
Company Act of 1940, as amended, and as interpreted, modified, or otherwise
permitted by regulatory authority having jurisdiction, from time to time.
REAL ESTATE. The Fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments. This limitation
shall not prevent the Fund from investing in securities or other instruments
backed by real estate or securities issued by any company engaged in the real
estate business.
SENIOR SECURITIES. The Fund may borrow money or issue senior securities
only as permitted under the Investment Company Act of 1940, as amended, and as
interpreted, modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
UNDERWRITING. The Fund may not act as an underwriter of another issuer's
securities, except to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933, as amended, in
connection with the purchase and sale of portfolio securities.
The Fund also has the following operational, NON-FUNDAMENTAL policies:
INDUSTRY CONCENTRATION. The fundamental investment limitation governing
concentration of the Fund's investments in a particular industry or group of
industries shall not be deemed to (1) limit the ability of the Fund to invest in
securities issued by any company or group of companies located in any country or
group of countries, or (2) limit the ability of the Fund to invest in
obligations issued or guaranteed by any government, or any agency or
instrumentality of any government, of any country.
ILIQUID SECURITIES. The Fund may not acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid.
INVESTING FOR CONTROL. The Fund may not investment in a company for
purposes of controlling its management.
B-9
INVESTMENT COMPANIES. The Fund may invest in any other investment company
only as permitted under the Investment Company Act of 1940, as amended, and as
interpreted, modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
PURCHASES ON MARGIN. The Fund may not purchase securities on margin.
SHORT SALES. The Fund may not sell securities short.
The above-mentioned investment limitations for each Fund are considered at
the time investment securities are purchased. If a percentage restriction is
adhered to at the time the investment is made, a later increase in percentage
resulting from a change in the market value of assets will not constitute a
violation of such restriction. None of these limitations prevents a Fund from
participating in The Vanguard Group, Inc. (Vanguard). As a member of The
Vanguard Group of Investment Companies, each Fund may own securities issued by
Vanguard, make loans to Vanguard, and contribute to Vanguard's costs or other
financial requirements. See "Management of the Funds" for more information.
YIELD AND TOTAL RETURN
The yield of Vanguard Selected Value Fund and Vanguard Mid-Cap Growth Fund
for the 30-day period ended October 31, 2001, was x.xx% and x.xx%, respectively.
The average annual total returns (both before and after taxes) of each Fund for
certain periods ended October 31, 2001, are set forth below:
1 YEAR ENDED 5 YEARS ENDED SINCE
10/31/2001 10/31/2001 INCEPTION**
---------- ---------- -----------
VANGUARD SELECTED VALUE FUND*
Return Before Taxes x.xx% x.xx% x.xx%
Return After Taxes on Distributions x.xx x.xx x.xx
Return After Taxes on Distributions and Sale of Fund Shares x.xx x.xx x.xx
VANGUARD MID-CAP GROWTH FUND
Return Before Taxes x.xx% x.xx% x.xx%
Return After Taxes on Distributions x.xx x.xx x.xx
Return After Taxes on Distributions and Sale of Fund Shares x.xx x.xx x.xx
- ----------
* Reflective of the 1% fee that is assessed on redemptions of shares
purchased on or after August 7, 2001, and held for less than five years.
** February 15, 1996, for Selected Value Fund; and December 31, 1997, for
Mid-Cap Growth Fund.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is the average annual compounded rate of return
for the periods of one year, five years, ten years or the life of the fund, all
ended on the last day of a recent month. Average annual total return quotations
will reflect changes in the price of the fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in fund shares. Average annual total returns are quoted to the
nearest hundredth of one percent.
AVERAGE ANNUAL TOTAL RETURN (BEFORE TAXES)
Average annual total return is calculated by finding the average annual
compounded rates of return over the 1-, 5-, and 10-year periods (or for the
periods of the fund's operations) that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
1/n
T = (ERV/P) - 1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
B-10
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1-, 5-, or 10-year periods at the end of
the 1-, 5-, and 10-year periods (or fraction portion thereof)
INSTRUCTIONS:
1. Assume the maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 investment.
2. Assume all distributions by the fund are reinvested at the price stated in
the prospectus (including any sales load imposed upon reinvestment of
dividends) on the reinvestment dates during the period. Adjustments may be
made for subsequent re-characterizations of distributions.
3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the fund's mean (or median) account size. Reflect, as
appropriate, any recurring fees charged to shareholder accounts that are
paid other than by redemption of the fund's shares.
4. Determine the ending value by assuming a complete redemption at the end of
the 1-, 5-, or 10-year periods (or fractional portion thereof) and the
deduction of all nonrecurring charges deducted at the end of each period.
If shareholders are assessed a deferred sales load, assume the maximum
deferred sales load is deducted at the times, in the amounts, and under the
terms disclosed in the prospectus.
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS)
We calculate a fund's average annual total return (after taxes on
distributions) by finding the average annual compounded rates of return over the
1-, 5-, and 10-year periods (or for the periods of the fund's operations) that
would equate the initial amount invested to the after-tax ending value,
according to the following formulas:
1/n
T = (ATVD/P) - 1
Where:
T = average annual total return (after taxes on distributions)
P = a hypothetical initial investment of $1,000
n = number of years
ATVD = ending value of a hypothetical $1,000 investment made at the
beginning of the 1-, 5-, or 10-year periods at the end of the
1-, 5-, or 10-year periods (or fractional portion thereof),
after taxes on fund distributions but not after taxes on
redemption
INSTRUCTIONS:
1. Assume the maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 investment.
2. Assume all distributions by the fund--less the taxes due on such
distributions--are reinvested at the price stated in the prospectus
(including any sales load imposed upon reinvestment of dividends) on the
reinvestment dates during the period.
3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the fund's mean (or median) account size. Assume that
no additional taxes or tax credits result from any redemption of shares
required to pay such fees. Reflect, as appropriate, any recurring fees
charged to shareholder accounts that are paid other than by redemption of
the fund's shares.
4. Calculate the taxes due on any distributions by the fund by applying the
highest individual marginal federal income tax rates in effect on the
reinvest date, to each component of the distributions on the reinvestment
date (e.g., ordinary income, short-term capital gain, long-term capital
gain). For periods after December 31, 1997, the federal marginal tax rates
used for the calculations are 39.6% for ordinary income and short-term
capital gains and 20% for long-term capital gains. Note that the applicable
tax rates may vary over the measurement period. Distributions should be
adjusted to reflect the federal tax impact the distribution would have on
an individual taxpayer on the reinvestment date. Assume no taxes are due on
the portion of any distribution that would not result in federal income tax
on an individual, e.g., tax-exempt interest or non-taxable returns of
capital. The effect of applicable tax credits, such as the foreign tax
credit, should be taken
B-11
into account in accordance with federal tax law. Disregard any potential
tax liabilities other than federal tax liabilities (e.g., state and local
taxes); the effect of phaseouts of certain exemptions, deductions, and
credits at various income levels; and the impact of the federal alternative
minimum tax.
5. Determine the ending value by assuming a complete redemption at the end of
the 1-, 5-, or 10-year periods (or fractional portion thereof) and the
deduction of all nonrecurring charges deducted at the end of each period.
If shareholders are assessed a deferred sales load, assume the maximum
deferred sales load is deducted at the times, in the amounts, and under the
terms disclosed in the prospectus. Assume that the redemption has no tax
consequences.
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
We calculate a fund's average annual total return (after taxes on
distributions and redemption) by finding the average annual compounded rates of
return over the 1-, 5-, and 10-year periods (or for the periods of the fund's
operations) that would equate the initial amount invested to the after-tax
ending value, according to the following formulas:
1/n
T = (ATVDR/P) - 1
Where:
T = average annual total return (after taxes on distributions and
redemption)
P = a hypothetical initial investment of $1,000
n = number of years
ATVDR = ending value of a hypothetical $1,000 investment made at the
beginning of the 1-, 5-, or 10-year periods at the end of the
1-, 5-, or 10-year periods (or fractional portion thereof),
after taxes on fund distributions and redemption
INSTRUCTIONS:
1. Assume the maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 investment.
2. Assume all distributions by the fund--less the taxes due on such
distributions--are reinvested at the price stated in the prospectus
(including any sales load imposed upon reinvestment of dividends) on the
reinvestment dates during the period.
3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the fund's mean (or median) account size. Assume that
no additional taxes or tax credits result from any redemption of shares
required to pay such fees. Reflect, as appropriate, any recurring fees
charged to shareholder accounts that are paid other than by redemption of
the fund's shares.
4. Calculate the taxes due on any distributions by the fund by applying the
highest individual marginal federal income tax rates in effect on the
reinvest date, to each component of the distributions on the reinvestment
date (e.g., ordinary income, short-term capital gain, long-term capital
gain). For periods after December 31, 1997, the federal marginal tax rates
used for the calculations are 39.6% for ordinary income and short-term
capital gains and 20% for long-term capital gains. Note that the applicable
tax rates may vary over the measurement period. Distributions should be
adjusted to reflect the federal tax impact the distribution would have on
an individual taxpayer on the reinvestment date. Assume no taxes are due on
the portion of any distribution that would not result in federal income tax
on an individual, e.g., tax-exempt interest or non-taxable returns of
capital. The effect of applicable tax credits, such as the foreign tax
credit, should be taken into account in accordance with federal tax law.
Disregard any potential tax liabilities other than federal tax liabilities
(e.g., state and local taxes); the effect of phaseouts of certain
exemptions, deductions, and credits at various income levels; and the
impact of the federal alternative minimum tax.
5. Determine the ending value by assuming a complete redemption at the end of
the 1-, 5-, or 10-year periods (or fractional portion thereof) and the
deduction of all nonrecurring charges deducted at the end of each period.
If shareholders are assessed a deferred sales load, assume the maximum
deferred sales load is deducted at the times, in the amounts, and under the
terms disclosed in the prospectus.
B-12
6. Determine the ending value by subtracting capital gains taxes resulting
from the redemption and adding the tax benefit from capital losses
resulting from the redemption.
(a) Calculate the capital gain or loss upon redemption by subtracting the
tax basis from the redemption proceeds (after deducting any
nonrecurring charges as specified by Instruction 5).
(b) The fund should separately track the basis of shares acquired through
the $1,000 initial investment and each subsequent purchase through
reinvested distributions. In determining the basis for a reinvested
distribution, include the distribution net of taxes assumed paid from
the distribution, but not net of any sales loads imposed upon
reinvestment. Tax basis should be adjusted for any distributions
representing returns of capital and any other tax basis adjustments
that would apply to an individual taxpayer, as permitted by applicable
federal tax law.
(c) The amount and character (e.g., short-term or long-term) of capital
gain or loss upon redemption should be separately determined for
shares acquired through the $1,000 initial investment and each
subsequent purchase through reinvested distributions. The fund should
not assume that shares acquired through reinvestment of distributions
have the same holding period as the initial $1,000 investment. The tax
character should be determined by the length of the measurement period
in the case of the initial $1,000 investment and the length of the
period between reinvestment and the end of the measurement period in
the case of reinvested distributions.
(d) Calculate the capital gains taxes (or the benefit resulting from tax
losses) using the highest federal individual capital gains tax rate
for gains of the appropriate character in effect on the redemption
date and in accordance with federal tax law applicable on the
redemption date. For example, applicable federal tax law should be
used to determine whether and how gains and losses from the sale of
shares with different holding periods should be netted, as well as the
tax character (e.g., short-term or long-term) of any resulting gains
or losses. Assume that a shareholder has sufficient capital gains of
the same character from other investments to offset any capital losses
from the redemption so that the taxpayer may deduct the capital losses
in full.
CUMULATIVE TOTAL RETURN
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rates of a return of a hypothetical investment over such periods, according to
the following formula (cumulative total return is then expressed as a
percentage):
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period
SEC YIELD
Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
6
YIELD = 2[((A-B)/CD+1) - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
B-13
d = the maximum offering price per share on the last day of the period
SHARE PRICE
Each Fund's share price, called its NET ASSET VALUE, or NAV, is calculated
each business day after the close of regular trading on the New York Stock
Exchange, generally 4 p.m., Eastern time. Net asset value per share is computed
by dividing the net assets of the Fund by the number of Fund shares outstanding.
On holidays or other days when the Exchange is closed, the NAV is not
calculated, and the Fund does not transact purchase or redemption requests.
However, on those days the value of the Fund's assets may be affected to the
extent that the Fund holds foreign securities that trade on foreign markets that
are open.
Stocks held by a Vanguard fund are valued at their MARKET VALUE when
reliable market quotations are readily available. Certain short-term debt
instruments used to manage a fund's cash are valued on the basis of amortized
cost. The values of any foreign securities held by a fund are converted into
U.S. dollars using an exchange rate obtained from an independent third party.
When reliable market quotations are not readily available, securities are
priced at their FAIR VALUE, calculated according to procedures adopted by the
board of trustees. A fund also may use fair-value pricing if the value of a
security it holds is materially affected by events occurring after the close of
the primary markets or exchanges on which the security is traded. This most
commonly occurs with foreign securities, but may occur in other cases as well.
When fair-value pricing is employed, the prices of securities used by a fund to
calculate its net asset value may differ from quoted or published prices for the
same securities.
Vanguard fund share prices can be found daily in the mutual fund listings
of most major newspapers under various "Vanguard" headings.
PURCHASE OF SHARES
The purchase price of shares of each Fund is the net asset value per share
next determined after the order is received. The net asset value per share is
calculated as of the regular close of the Exchange on each day the Exchange is
open for business. An order received prior to the close of the Exchange will be
executed at the price computed on the date of receipt; and an order received
after the close of the Exchange will be executed at the price computed on the
next day the Exchange is open.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum investment for or any other restrictions on initial
and subsequent investments for certain fiduciary accounts, such as employee
benefit plans, or under circumstances where certain economies can be achieved in
sales of the Fund's shares.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Commission, (ii) during any
period when an emergency exists as defined by the Commission as a result of
which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Each Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period.
There is no charge for share redemptions from Mid-Cap Growth Fund. For
Selected Value Fund, there is a 1% fee assessed on redemptions of shares
purchased on or after August 7, 2001, and held for less than five years, and
there is a 2% fee assessed on redemptions of shares purchased on or after August
7, 2001, and held for less than one year. Shares redeemed may be worth more or
less than what was paid for them, depending on the market value of the
securities held by the Fund.
B-14
We will always redeem your oldest shares first. In addition, in the event
that you transfer your shares to a different account registration, the shares
will retain their redemption fee status. If you transfer less than 100% of your
account, we will carry over the redemption fee status of your shares on a
proportionate basis.
For example, assume that John and Mary Doe hold 200 Fund shares in a
jointly registered account, with 150 shares (75% of the total shares) currently
subject to the redemption fee, and 50 shares (25% of the total shares) currently
exempt from the redemption fee. If the Does transfer 50 of their 200 shares to
an account registered in one of their individual names, 25% of the transferred
shares (or, 12.5 shares) will be exempt from the redemption fee, and 75% of the
transferred shares (or 37.5 shares) will continue to be subject to the
redemption fee. Following the share transfer, the jointly registered account
will hold 150 shares, with 25% of those shares (or, 37.5 shares) exempt from the
redemption fee, and 75% of those shares (or, 112.5 shares) still subject to the
redemption fee. This same procedure would apply if, rather than transferring
shares to a different account registration, the Does were to convert a portion
of their shares to a different share class.
All shares become exempt from the redemption fee based on their initial
purchase date, regardless of whether such shares are subsequently transferred to
a different account registration or converted to a different share class.
From time to time, the Fund may waive or modify redemption fees for certain
categories of investors.
MANAGEMENT OF THE FUNDS
THE VANGUARD GROUP
Each Fund is a member of The Vanguard Group of Investment Companies which
consists of more than 100 funds. Through their jointly-owned subsidiary, The
Vanguard Group, Inc. (Vanguard), the Funds and the other funds in The Vanguard
Group obtain at cost virtually all of their corporate management,
administrative, and distribution services. Vanguard also provides investment
advisory services on an at-cost basis to several of the Vanguard funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the funds and also
furnishes the funds with necessary office space, furnishings, and equipment.
Each fund pays its share of Vanguard's total expenses which are allocated among
the funds under procedures approved by the trustees of each fund. In addition,
each fund bears its own direct expenses such as legal, auditing, and custodian
fees.
The Funds' officers are also officers and employees of Vanguard. No officer
or employee owns, or is permitted to own any securities of any external adviser
for the funds.
Vanguard, Vanguard Marketing Corporation, the funds' advisers, and the
funds have adopted Codes of Ethics designed to prevent employees who may have
access to nonpublic information about the trading activities of the funds
(access persons) from profiting from that information. The Codes permit access
persons to invest in securities for their own accounts, including securities
that may be held by the funds, but places substantive and procedural
restrictions on their trading activities. For example, the Codes require that
access persons of the funds receive advance approval for every securities trade
to ensure that there is no conflict with the trading activities of the funds.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the funds.
The amounts which each of the funds has invested are adjusted from time to time
in order to maintain the proportionate relationship between each fund's relative
net assets and its contribution to Vanguard's capital. The Amended and Restated
Funds' Service Agreement provides as follows: (a) each Vanguard fund may be
called upon to invest up to 0.40% of its current net assets in Vanguard, and (b)
there is no other limitation on the dollar amount that each Vanguard fund may
contribute to Vanguard's capitalization. At October 31, 2001, Vanguard Selected
Value Fund had contributed capital of $185,000, to Vanguard, representing 0.02%,
of the Fund's net assets, and 0.20% of Vanguard's capitalization. Vanguard
Mid-Cap Growth Fund had not commenced operations as a Vanguard fund as of
October 31, 2001.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and
B-15
control of custodian relationships; (6) shareholder reporting; and (7) review
and evaluation of advisory and other services provided to the Vanguard funds by
third parties.
DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc., provides all distribution and marketing activities for
the funds in the Group. The principal distribution expenses are for advertising,
promotional materials, and marketing personnel. Distribution services may also
include organizing and offering to the public, from time to time, one or more
new investment companies which will become members of The Vanguard Group. The
trustees review and approve the amount to be spent annually on distribution
activities and the manner and amount to be spent on each fund. The trustees also
determine whether to organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the funds based upon their relative net assets. The remaining
one half of these expenses is allocated among the funds based upon each fund's
sales for the preceding 24 months relative to the total sales of the funds as a
Group. Provided, however, that no fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for The Vanguard
Group, and that no fund shall incur annual distribution expenses in excess of
0.20 of 1% of its average month-end net assets.
During the fiscal years ended October 31, 1999, 2000, and 2001, Vanguard
Selected Value Fund incurred approximately $854,000, $706,000, and $2,304,000,
respectively, of The Vanguard Group's management and administrative (including
transfer agency), distribution, and marketing expenses.
Prior to joining the Vanguard Group, Vanguard Mid-Cap Growth Fund was party
to an administrative agreement, under which, for the fiscal years ended October
31, 1999, 2000, and 2001, the Fund paid the following administrative fees:
$45,625, $45,552, and $*, respectively.
Prior to joining the Vanguard Group, Vanguard Mid-Cap Growth Fund was party
to a distribution agreement, under which, for the fiscal year ended October 31,
2001, the aggregate sales commissions received by the Distributor were $*. For
the fiscal year ended October 31, 2001, the Fund paid $* under its distribution
plan, of which $* was paid as compensation to broker-dealers, $* was
compensation to sales personnel, $* was for reimbursement of advertising and
marketing materials, $* was for reimbursement of printing and postage expenses,
and $* was for miscellaneous other expenses.
Prior to joining the Vanguard Group, Vanguard Mid-Cap Growth Fund was party
to a shareholder services plan under which, for the fiscal year ended October
31, 2001, the Fund paid $* in shareholder servicing fees.
The Fund has asked its investment adviser to direct certain security
trades, subject to obtaining the best price and execution, to brokers who have
agreed to rebate to the Fund part of the commissions generated. Such rebates are
used solely to reduce the Fund's management and administrative expenses and are
not reflected in these totals.
INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to many Vanguard funds. These services are provided on an at-cost basis
from a money management staff employed directly by Vanguard.
OFFICERS AND TRUSTEES
The officers of the Funds manage their day-to-day operations under the
direction of the Funds' board of trustees. The trustees set broad policies for
the Funds and choose the Funds' officers. Each trustee serves each Fund until
its termination; until the trustee's retirement, resignation, death; or
otherwise as specified in the Trust's organizational documents. Any trustee may
be removed at a meeting of shareholders by a vote representing two-thirds of the
total net asset value of all shares of each Fund. Each trustee also serves as a
director of The Vanguard Group, Inc.
B-16
The following chart shows information for each trustee and executive
officer of the Funds. The mailing address of the trustees and officers is P.O.
Box 876, Valley Forge, PA 19482.
NUMBER OF
VANGUARD FUNDS
POSITION(S) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY
NAME, DATE OF BIRTH WITH FUNDS SINCE THE PAST FIVE YEARS TRUSTEE/OFFICER
- ------------------- ---------- ----- ------------------- ---------------
John J. Brennan* Chairman of the May, 1987 Chairman of the Board, Chief Executive 108
(July 29, 1954) Board, Chief Officer, and Director (Trustee) of The
Executive Officer Vanguard Group, Inc. and each of the
and Trustee investment companies served by The
Vanguard Group, Inc.
INDEPENDENT TRUSTEES
Charles D. Ellis Trustee January, 2001 The Partners of '63 (pro bono ventures in 108
(October 23, 1937) education); Senior Advisor to Greenwich
Associates (international business strategy
consulting); Successor Trustee of Yale
University; Overseer of the Stern School
of Business at New York University; Trustee
of the Whitehead Institute for Biomedical
Research.
Rajiv L. Gupta Trustee December, 2001 Chairman and Chief Executive Officer 86
(December 23, 1945) (since October, 1999), Vice Chairman
(January-September 1999), and Vice
President (prior to September, 1999) of
Rohm and Haas Co. (chemicals); Director
of Technitrol, Inc. (electronic
components) and AgereSystems
(communication components); Board
Member of American Chemistry Council;
Trustee of Drexel University.
JoAnn Heffernan Heisen Trustee July, 1998 Vice President, Chief Information Officer, and 108
(January 25, 1950) Member of the Executive Committee of Johnson &
Johnson (pharmaceuticals/consumer products);
Director of the Medical Center at Princeton
and Women's Research and Education Institute.
Burton G. Malkiel Trustee May, 1977 Chemical Bank Chairman's Professor of 106
(August 28, 1932) Economics, Princeton University; Director of
Prudential Insurance Co. of America, BKF
Capital (investment management), The Jeffrey
Co. (holding company), and NeuVis, Inc.
(software company).
Alfred M. Rankin, Jr. Trustee January, 1993 Chairman, President, Chief Executive 108
(October 8, 1941) Officer, and Director of NACCO Industries,
Inc.(forklift trucks/housewares/lignite);
Director of Goodrich Corporation (industrial
products/aircraft systems and services).
Director of the Standard Products Company
(supplier for automotive industry) until
1998.
- ----------
* Officers of the Funds are "Interested persons" as defined in the 1940 Act.
B-17
NUMBER OF
VANGUARD FUNDS
POSITION(S) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY
NAME, DATE OF BIRTH WITH FUNDS SINCE THE PAST FIVE YEARS TRUSTEE/OFFICER
- ------------------- ---------- ----- ------------------- ---------------
J. Lawrence Wilson Trustee April, 1985 Retired Chairman and Chief Executive 108
(March 2, 1936) Officer of Rohm and Haas Co. (chemicals);
Director of Cummins Inc. (diesel engines),
The Mead Corp. (paper products), and
AmerisourceBergen Corp. (pharmaceutical
distribution); Trustee of Vanderbilt
University.
EXECUTIVE OFFICERS
R. Gregory Barton* Secretary June, 2001 Managing Director and General Counsel 108
(April 25, 1951) of The Vanguard Group, Inc. (since
September, 1997); Secretary of The
Vanguard Group, Inc. and of each of the
investment companies served by The
Vanguard Group, Inc. (since June, 2001);
Principal of The Vanguard Group, Inc.
(prior to September, 1997).
Thomas J. Higgins* Treasurer July, 1998 Principal of The Vanguard Group, Inc.; 108
(May 21, 1957) Treasurer of each of the investment
companies served by The Vanguard
Group, Inc. (since July, 1998).
- ----------
* Officers of the Funds are "Interested persons" as defined in the 1940 Act.
Mr. Ellis is a Senior Advisor to Greenwich Associates, a firm that consults
on business strategy to professional financial services organizations in markets
around the world. A large number of financial service providers, including The
Vanguard Group, Inc., subscribe to programs of research-based consulting.
Vanguard has paid Greenwich subscription fees amounting to less than $200,000
since January 1, 1999. Vanguard's subscription rates are similar to those of
other subscribers.
Board Committees: Each Fund's board has the following committees:
- - Audit Committee: This committee oversees the accounting and financial
reporting policies, the systems of internal controls, and the independent
audits of the Funds and The Vanguard Group, Inc. All independent trustees
serve as members of the committee. The committee held three meetings during
the Funds' last fiscal year.
- - Compensation Committee: This committee oversees the compensation programs
established by the Funds and The Vanguard Group, Inc., for the benefit of
their employees, officers, and trustees/directors. All independent trustees
serve as members of the committee. The committee held two meetings during
the Funds' last fiscal year.
- - Nominating Committee: This committee nominates candidates for election to
the board of directors of The Vanguard Group, Inc. and the board of
trustees of the Funds (collectively, the "Vanguard boards"). The committee
also has the authority to recommend the removal of any director or trustee
from the Vanguard boards. All independent trustees serve as members of the
committee. The committee held two meetings during the Fund's last fiscal
year.
The Nominating Committee will consider shareholder recommendations for
trustee nominees. Shareholders may send recommendations to Mr. Wilson, Chairman
of the Committee.
B-18
TRUSTEES' OWNERSHIP OF FUND SHARES
All trustees allocate their investments among the various Vanguard funds
based on their own investment needs. The following table shows each trustee's
ownership of shares of the Funds and of all Vanguard funds served by the trustee
as of December 31, 2001. As a group, the Funds' trustees and officers own less
than 1% of the outstanding shares of the Fund.
DOLLAR RANGE OF FUND AGGREGATE DOLLAR RANGE OF
SHARES OWNED BY VANGUARD FUND SHARES OWNED BY
NAME OF FUND NAME OF TRUSTEE TRUSTEE TRUSTEE
- ------------ --------------- ------- -------
VANGUARD SELECTED VALUE FUND John J. Brennan None Over $100,000
Charles D. Ellis None Over $100,000
Rajiv L. Gupta None Over $100,000
JoAnn Heffernan Heisen None Over $100,000
Burton G. Malkiel None Over $100,000
Alfred M. Rankin, Jr. None Over $100,000
J. Lawrence Wilson None Over $100,000
TRUSTEE COMPENSATION
The same individuals serve as trustees of all Vanguard funds (with three
exceptions, which are noted in the table on page B-20), and each fund pays a
proportionate share of the trustees' compensation. The funds employ their
officers on a shared basis, as well. However, officers are compensated by The
Vanguard Group, Inc., not the funds.
INDEPENDENT TRUSTEES. The funds compensate their independent trustees--that
is, the ones who are not also officers of the fund--in three ways:
- - The independent trustees receive an annual fee for their service to the
funds, which is subject to reduction based on absences from scheduled board
meetings.
- - The independent trustees are reimbursed for the travel and other expenses
that they incur in attending board meetings.
- - Upon retirement (after attaining age 65 and completing five years of
service), the independent trustees who began their service prior to January
1, 2001, receive a retirement benefit under a separate account arrangement.
As of January 1, 2001, the opening balance of each eligible trustee's
separate account was generally equal to the net present value of the
benefits he or she had accrued under the trustees' former retirement plan.
Each eligible trustee's separate account will be credited annually with
interest at a rate of 7.5% until the trustee receives his or her final
distribution. Those independent trustees who began their service on or
after January 1, 2001, are not eligible to participate in the plan.
"INTERESTED" TRUSTEES. Mr. Brennan serves as a trustee, but is not paid in
this capacity. He is, however, paid in his role as officer of The Vanguard
Group, Inc.
COMPENSATION TABLE. The following table provides compensation details for
each of the trustees. We list the amounts paid as compensation and accrued as
retirement benefits by the Funds for each trustee. In addition, the table shows
the total amount of benefits that we expect each trustee to receive from all
Vanguard funds upon retirement, and the total amount of compensation paid to
each trustee by all Vanguard funds.
B-19
VANGUARD WHITEHALL FUNDS
COMPENSATION TABLE
PENSION OR
RETIREMENT BENEFITS TOTAL COMPENSATION
AGGREGATE ACCRUED AS PART OF ESTIMATED ANNUAL FROM ALL
COMPENSATION FROM THIS FUND'S BENEFITS UPON VANGUARD FUNDS
NAMES OF TRUSTEE THIS FUND(1) EXPENSES(1) RETIREMENT PAID TO TRUSTEES(2)
- ---------------- ------------ ----------- ---------- -------------------
John J. Brennan None None None None
Charles D. Ellis(3) $ 81 None None $104,000
Rajiv L. Gupta(4) N/A N/A N/A N/A
JoAnn Heffernan Heisen 100 $ 11 $23,607 104,000
Bruce K. MacLaury(5) 104 10 78,176 99,000
Burton G. Malkiel 100 10 90,680 104,000
Alfred M. Rankin, Jr. 100 7 46,267 104,000
James O. Welch, Jr.(5) 100 12 97,720 104,000
J. Lawrence Wilson 100 4 67,240 119,000
- ----------
(1) The amounts shown in this column are based on the Fund's fiscal year ended
October 31, 2001.
(2) The amounts reported in this column reflect the total compensation paid to
each trustee for his or her service as trustee of 108 Vanguard funds (106
in the case of Mr. Malkiel; 88 in the case of Mr. MacLaury; and 86 in the
case of Mr. Gupta) for the 2001 calendar year.
(3) Mr. Ellis joined the Fund's board, effective January 1, 2001.
(4) Mr. Gupta joined the Fund's board, effective December 31, 2001.
(5) Mr. MacLaury and Mr. Welch retired from the Fund's board, effective
December 31, 2001.
INVESTMENT ADVISORY SERVICES
VANGUARD SELECTED VALUE FUND
Vanguard Selected Value Fund is managed by Barrow, Hanley, Mewhinney &
Strauss, Inc. (Barrow, Hanley), One McKinney Plaza, 3232 McKinney Avenue, 15th
Floor, Dallas, TX 75204 under the terms of an agreement. The investment
philosophy of Barrow, Hanley is to use fundamental research to identify
undervalued stocks. James P. Barrow has been designated as portfolio manager for
the assets of the Fund. Jim has managed portfolio investments since 1963; with
Barrow, Hanley since 1979.
For the services rendered by Barrow, Hanley, the Fund pays Barrow, Hanley a
base advisory fee (the basic fee), at the end of each quarter, adjusted by a
performance fee adjustment reflecting the investment performance of the Fund
relative to the total return of the Russell Midcap Index and the Russell Midcap
Value Index. The Russell Midcap Index and the Russell Midcap Value Index are
prepared by Frank Russell Company (which is not affiliated with the Fund or any
of the Fund's affiliates). The Russell Midcap Index is composed of the 800
smallest stocks (by market capitalization) in the Russell 1000 Index. The
Russell Midcap Value Index measures the performance of those companies in the
Russell Midcap Index with lower price-to-book ratios and lower forecasted growth
values. Barrow, Hanley's fees are calculated according to the following rules:
(a) TOTAL QUARTERLY FEE PAYABLE. The total quarterly fee payable by the
Fund to Barrow, Hanley is the basic fee for the quarter plus the adjustment
(which may be negative).
(b) BASIC FEE FOR THE QUARTER. The basic fee for the quarter is 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:
NET ASSETS ANNUAL RATE
---------- -----------
First $100 million ............................. 0.40%
Next $200 million .............................. 0.35%
Next $300 million .............................. 0.25%
Next $400 million .............................. 0.20%
Over $1 billion ................................ 0.15%
B-20
(c) PERFORMANCE ADJUSTMENT. The adjustment is based on the cumulative
investment performance of the Fund over a trailing 36-month period relative to
that of the Russell Midcap Index (the Prior Index), prior to August 1, 2001, and
the Russell Midcap Value Index (the Index), on and after August 1, 2001, over
the same period. The adjustment, which will be based upon the relative
applicability of the Prior Index and the Index (such applicable performance
index, the Benchmark), applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE ADJUSTMENT AS A PERCENTAGE
BHMS PORTFOLIO VS. BENCHMARK OF BASIC FEE*
- ---------------------------- -------------
Equal to or greater than +12% .............................. +50%
Equal to or greater than +6% but less than +12% ............ +25%
Equal to or greater than -6% but less than +6% ............. 0%
Greater than -12% but less than -6% ........................ -25%
Equal to or less than -12% ................................. -50%
- ----------
* FOR PURPOSES OF THE ADJUSTMENT CALCULATION, THE BASIC FEE IS CALCULATED BY
APPLYING THE ABOVE RATE SCHEDULE AGAINST THE AVERAGE NET ASSETS OF THE FUND
OVER THE SAME PERIOD FOR WHICH THE PERFORMANCE IS MEASURED.
The Index will not be fully operable as the sole Benchmark used to
determine the adjustment until the quarter ending July 31, 2004. Until that
date, the adjustment will be determined by linking the investment performance of
the Prior Index with that of the Index over a trailing 36-month period as
follows:
(a) QUARTER ENDED OCTOBER 31, 2001. The adjustment was determined by
linking the investment performance of the Prior Index for the eleven quarters
ended July 31, 2001, with that of the Index for the one quarter ending October
31, 2001.
(b) QUARTER ENDED JANUARY 31, 2002. The adjustment was determined by
linking the investment performance of the Prior Index for the ten quarters ended
July 31, 2001, with that of the Index for the two quarters ended January 31,
2002.
(c) QUARTER ENDING APRIL 30, 2002. The adjustment will be determined by
linking the investment performance of the Prior Index for the nine quarters
ended July 31, 2001, with that of the Index for the three quarters ending April
30, 2002.
(d) QUARTER ENDING JULY 31, 2002. The adjustment will be determined by
linking the investment performance of the Prior Index for eight quarters ended
July 31, 2001, with that of the Index for the four quarters ending July 31,
2002.
(e) QUARTER ENDING OCTOBER 31, 2002. The adjustment will be determined by
linking the investment performance of the Prior Index for the seven quarters
ended July 31, 2001, with that of the Index for the five quarters ending October
31, 2002.
(f) QUARTER ENDING JANUARY 31, 2003. The adjustment will be determined by
linking the investment performance of the Prior Index for the six quarters ended
July 31, 2001, with that of the Index for the six quarters ending January 31,
2003.
(g) QUARTER ENDING APRIL 30, 2003. The adjustment will be determined by
linking the investment performance of the Prior Index for the five quarters
ended July 31, 2001, with that of the Index for the seven quarters ending April
30, 2003.
(h) QUARTER ENDING JULY 31, 2003. The adjustment will be determined by
linking the investment performance of the Prior Index for four quarters ended
July 31, 2001, with that of the Index for the eight quarters ending July 31,
2003.
(i) QUARTER ENDING OCTOBER 31, 2003. The adjustment will be determined by
linking the investment performance of the Prior Index for the three quarters
ended July 31, 2001, with that of the Index for the nine quarters ending October
31, 2003.
(j) QUARTER ENDING JANUARY 31, 2004. The adjustment will be determined by
linking the investment performance of the Prior Index for the two quarters ended
July 31, 2001, with that of the Index for the ten quarters ending January 31,
2004.
B-21
(k) QUARTER ENDING APRIL 30, 2004. The adjustment will be determined by
linking the investment performance of the Prior Index for the one quarter ended
July 31, 2001, with that of the Index for the eleven quarters ending April 30,
2004.
(l) QUARTER ENDING JULY 31, 2004. The Index will be fully operable as the
sole Benchmark for determining the adjustment.
CALCULATING RELATIVE INVESTMENT PERFORMANCE. The investment performance of
the Fund for a period, expressed as a percentage of the net asset value per
share of the Fund at the beginning of such period, shall be the sum of: (i) the
change in the net asset value per share of the Fund during such period; (ii) the
value of the cash distributions per share of the Fund having an ex-dividend date
occurring within such period; and (iii) the value of capital gains taxes per
share paid or payable by the Fund on undistributed realized long-term capital
gains accumulated to the end of such period. The investment record of the
Russell Midcap Index, or the Russell Midcap Value Index, for a period will be
calculated by adding (i) the change in the level of the Index during the period,
and (ii) the value of cash distributions having an ex-dividend date occurring
within such period made by companies within the Index. For the fiscal years
ended October 31, 1999, 2000, and 2001, the Fund incurred investment advisory
fees of $668,000, $622,000, and $1,841,000 (before a performance-based decrease
of $294,000, $358,000, and $156,000, respectively).
RELATED INFORMATION CONCERNING BARROW, HANLEY. Barrow, Hanley, a Nevada
corporation, is an investment management firm founded in 1979 which provides
investment advisory services to individuals, employee benefit plans, investment
companies, and other institutions. Barrow, Hanley is a subsidiary of Old Mutual
Asset Managers (US) LLC, which is a subsidiary of Old Mutual plc. As of October
31, 2001, Barrow, Hanley provided investment advisory services to clients having
assets with an approximate value of $27 billion.
VANGUARD MID-CAP GROWTH FUND
The Fund employs Provident Investment Counsel (Provident), 300 North Lake
Avenue, Pasadena, CA 91101, under the terms of an agreement.
For the services rendered by Provident, the Fund pays to Provident at the
end of each of the Fund's fiscal quarters an amount (the adjusted fee) equal to
a basic fee plus a performance adjustment amount (the adjustment amount). For
purposes of the calculations, both the basic fee and the adjustment amount will
incorporate an asset-based fee (the asset fee) that is determined by applying a
quarterly rate, calculated based on the following annual percentage rate
schedule, to the average month-end net assets of the Provident Portfolio over
the applicable time period:
ANNUAL
PERCENTAGE AVERAGE MONTH-END
RATE NET ASSETS
---- ----------
0.500% On the first $50 million
0.250% On the next $200 million
0.175% On the next $750 million
0.125% Over $1 billion
The basic fee is equal to the asset fee as computed over the fiscal quarter
for which the adjusted fee is being calculated (the relevant fiscal quarter).
Subject to the transition rules described below, the adjustment amount is
equal to the product of an adjustment percentage and the asset fee as computed
over the 36-month period ending with the relevant fiscal quarter (the relevant
36-month period). The adjustment percentage will change proportionately with the
investment performance of the Fund relative to the investment performance of the
Russell Mid-Cap Growth Index (the Index) as determined for the relevant 36-month
period.
The adjustment percentage applies as follows:
B-22
CUMULATIVE PERFORMANCE OF PROVIDENT PORTFOLIO ADJUSTMENT
VS. INDEX OVER RELEVANT 36-MONTH PERIOD PERCENTAGE
- --------------------------------------- ----------
Less than -7.5% -60%
From -7.5% up to and including 0% ........... Linear increase from -60% to 0%
Greater than 0% and up to +7.5% ............. Linear increase from 0% to +60%
More than +7.5% ............................. +60%
The adjustment amount will not be fully incorporated into the determination
of the adjusted fee until the close of the quarter ending July 31, 2005. Until
that date, the following transition rules will apply:
(a) DATE OF REORGANIZATION THROUGH APRIL 30, 2003. The adjusted fee will be
equal to the basic fee. No adjustment amount will apply during this period.
(b) MAY 1, 2003 THROUGH JULY 31, 2005. Beginning May 1, 2003, the adjusted
fee will be equal to the basic fee plus the adjustment amount as calculated on
the following basis. The adjustment amount for the relevant fiscal quarter will
be determined on a progressive basis with regards to the number of months
elapsed between July 31, 2002, and the end of the relevant fiscal quarter
(progressive adjustment period). During the progressive adjustment period, the
asset fee for purposes of calculating the adjustment amount will be determined
with respect to the period from July 31, 2002, through and including the end of
the relevant fiscal quarter. Similarly, the adjustment percentage will be
calculated with respect to the cumulative performance of the Fund and the Index
from August 1, 2002, through and including the end of the relevant fiscal
quarter. For these purposes, the endpoints and size of the range over which a
positive or negative adjustment percentage applies and the corresponding maximum
adjusted percentage will be multiplied by a fractional time-elapsed adjustment
percentage. The fraction will equal the number of months elapsed since July 31,
2002, divided by thirty-six.
EXAMPLE: Assume that Provident's compensation is being calculated for the
quarter ended January 31, 2004, and that the cumulative performance of the Fund
versus the Index for the applicable period is +3%. In this case, an adjustment
percentage of 24% of the asset fee calculated over the 18-month period would
apply. This would be calculated as [(A/C) x D], where A equals the percentage
amount by which the performance of the Fund has exceeded the Index (e.g., 3%), C
equals the size of the ADJUSTED range over which the linear adjustment applies,
and D is the ADJUSTED maximum adjustment percentage. The adjusted range in this
case is determined as [(18/36) x 0%] to [(18/36) x 7.5%] = 0% to 3.75%. The size
of the adjusted range is then 3.75% minus 0% = C. The maximum adjustment
percentage is determined as [(18/36) x 60%] = 30% = d. The adjustment amount as
a percentage of the basic fee is then computed as [(3/3.75) x 30%] = 24%. (Note
that this example reflects rounding. In practice, calculations will be extended
to the eighth decimal point. Performance shortfalls versus the Index are treated
in a symmetric manner to the example provided.)
(c) ON AND AFTER AUGUST 1, 2005. The adjusted fee will be equal to the
basic fee plus the adjustment amount as determined for the relevant 36-month
period.
During the fiscal years ended October 31, 1999, 2000, and 2001, Vanguard
Mid-Cap Growth Fund incurred the following investment advisory fees:**
1999 2000 2001
-------- -------- --------
Basic Fee ...................... $ 58,869 $226,136 $ xx,xxx
Advisory Fee Waived ............ 58,869 104,920 xx,xxx
The adviser formerly provided certain administrative services to the Fund
pursuant to Administration Agreements, and earned a fee for providing such
services. During the fiscal years ended October 31, 1999, 2000, and 2001, the
adviser earned $16,589, $52,271, and $*, respectively.
- ----------
** THESE ADVISORY AND ADMINISTRATIVE FEES WERE PAID UNDER PRIOR FEE STRUCTURES.
RELATED INFORMATION CONCERNING PROVIDENT. Provident is an indirect, wholly
owned subsidiary of Old Mutual plc, a public limited company based in the United
Kingdom. Old Mutual is a financial services group with a substantial life
assurance business in South Africa and other southern African countries and an
integrated,
B-23
international portfolio of activities in asset management, banking, and general
insurance. As of December 31, 2001, Provident had under management assets of
approximately $xxx billion.
DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENTS.
Each Fund's current agreement with its adviser is renewable for successive
one-year periods, only if (1) each renewal is specifically approved by a vote of
the Fund's board of trustees, including the affirmative votes of a majority of
the trustees who are not parties to the agreement or "interested persons" (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of considering such approval, or (2) each renewal is
specifically approved by a vote of a majority of the Fund's outstanding voting
securities. An agreement is automatically terminated if assigned, and may be
terminated without penalty at any time (1) by vote of the board of trustees of
the Fund on sixty (60) days' written notice to the adviser, (2) by a vote of a
majority of the Fund's outstanding voting securities, or (3) by the adviser upon
ninety (90) days' written notice to the Fund.
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT.
Each fund's board of trustees is responsible for overseeing the performance
of the fund's investment advisers and determining whether to renew the fund's
investment advisory arrangements. The board has a standing request that Vanguard
and the advisers provide the board with certain information the board has deemed
important to evaluating the short- and long-term performance of the advisers.
This information includes a monthly fund performance analysis and status report
from Vanguard and quarterly self-evaluations by the advisers. Vanguard also
provides the board with written analyses of each adviser's performance on a
periodic basis. Each fund's portfolio managers also meet with the board from
time to time to discuss the management and performance of the fund and respond
to the board's questions concerning the performance of the advisers.
When the board considers whether to renew an investment advisory contract,
the board takes into account numerous factors, including:
- - The nature, extent and quality of the services provided by the adviser.
- - The investment performance of the fund's assets managed by the adviser.
- - The fair market value of the services provided by the adviser.
- - A comparative analysis of expense ratios of, and advisory fees paid by,
similar funds.
- - The extent to which the adviser has realized or will realize economies of
scale as the fund grows.
- - Other sources of revenue to the adviser or its affiliates from its
relationship with the fund and intangible or "fall-out" benefits that
accrue to the adviser and its affiliates, if relevant.
- - The adviser's control of the operating expenses of the fund, such as
transaction costs, including ways in which portfolio transactions for the
fund are conducted and brokers are selected.
The primary factors underlying the board's determination to renew each
Fund's advisory agreements were as follows:
VANGUARD SELECTED VALUE FUND (BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.):
The board determined that the performance results of the Fund were
reasonable, as compared with relevant performance standards, including: (a) the
Russell Midcap Index; (b) the average mid-cap value fund (derived from data
provided by Lipper Inc.); and (c) other appropriate market indexes.
- - The board assessed that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for the Fund's Lipper peer group. The
board also took into account the nature of the fee arrangements which
include breakpoints that will adjust the fee downward as the size of the
Fund increases and a performance adjustment that is designed to benefit
shareholders by aligning the adviser's fee with the investment returns
delivered to shareholders.
- - The board evaluated the adviser's investment staff and portfolio management
process, and reviewed the composition and overall performance of the Fund
on both a short-term and long-term basis. The board considered whether the
Fund should obtain alternative portfolio management services and concluded
that,
B-24
under all the circumstances and based on its informed business judgement, the
most appropriate course of action in the best interest of the Fund's
shareholders was to renew the agreement with Barrow, Hanley. Vanguard has
adopted specific policies regarding the adviser's selection of brokers. For
additional information, please see the Portfolio Transactions section of this
Statement of Additional Information.
VANGUARD MID-CAP GROWTH FUND (PROVIDENT INVESTMENT COUNSEL):
- - The board determined that performance results Provident Investment Counsel
Mid Cap Fund A, the name of the Fund prior to *, 2002, when the Fund was
reorganized and became a member of The Vanguard Group, were reasonable as
compared with the relevant performance standards, including the performance
results of: (a) Russell Midcap Growth Index for the same periods; (b) the
average mid-cap growth mutual fund (derived from data provided by Lipper
Inc.), and (c) other appropriate market indexes.
- - The board assessed that the advisory fee to be paid by the Fund was
reasonable based on the average advisory fee for the Fund's Lipper peer
group. The board also took into account the nature of the fee arrangements
which include breakpoints that will adjust the fee downward as the size of
the adviser's portfolio increases and a performance adjustment that is
designed to benefit shareholders by aligning the adviser's fee with the
investment returns delivered to shareholders.
- - The board evaluated the adviser's investment staff and portfolio management
process and concluded that, under all the circumstances and based on its
informed business judgement, the most appropriate course of action in the
best interest of the Fund's shareholders was to approve the agreement with
Provident.
PORTFOLIO TRANSACTIONS
Barrow, Hanley, Schroder, and Provident are authorized to (with the
approval of the board of trustees) select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the respective Fund.
The investment advisory agreements direct the advisers to use their best efforts
to obtain the best available price and most favorable execution as to all
transactions. Each investment adviser has undertaken to execute each investment
transaction at a price and commission which provides the most favorable total
cost or proceeds reasonably obtainable under the circumstances.
In placing portfolio transactions, each investment adviser will use its
best judgment to choose the broker most capable of providing the brokerage
services necessary to obtain the best available price and most favorable
execution. The full range and quality of brokerage services available will be
considered in making these determinations. In those instances where it is
reasonably determined that more than one broker can offer the brokerage services
needed to obtain the best available price and most favorable execution,
consideration may be given to those brokers which supply investment research and
statistical information and provide other services in addition to execution
services to the Fund and/or the investment adviser. Each investment adviser
considers such information useful in the performance of its obligations under
the agreement, but is unable to determine the amount by which such services may
reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the board of trustees, each investment adviser may cause the Fund to
pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the adviser to the Funds and the other funds in the Group.
Currently, it is each Fund's policy that each investment adviser may at
times pay higher commissions in recognition of brokerage services felt necessary
for the achievement of better execution of certain securities transactions that
otherwise might not be available. An investment adviser will only pay such
higher commissions if it believes this to be in the best interest of the Fund.
Some brokers or dealers who may receive such higher commissions in recognition
of brokerage services related to execution of securities transactions are also
providers of research information to an investment adviser and/or the Fund.
However, the investment advisers have informed the Fund that they generally will
not pay higher commission rates specifically for the purpose of obtaining
research services.
B-25
Some securities that are considered for investment by a Fund may also be
appropriate for other Vanguard funds or for other clients served by the
advisers. If such securities that are compatible with the investment policies of
the Funds and one or more of an adviser's other clients and are considered for
purchase or sale at or about the same time, then transactions in such securities
will be aggregated by that adviser and the purchased securities or sale proceeds
will be allocated among the participating Vanguard funds and the other
participating clients of the adviser in a manner deemed equitable by the
adviser. Although there may be no specified formula for allocating such
transactions, the allocation methods used, and the results of such allocations,
will be subject to periodic review by the Fund's board of trustees.
During the fiscal years ended October 31, 1999, 2000, and 2001, the Funds
paid the following approximate amounts in brokerage commissions.
FUND 1999 2000 2001
---- ---------- ---------- ----------
Selected Value Fund ...... $ 717,000 $ 343,000 $2,710,000
Mid-Cap Growth Fund ...... 22,000 53,000 xx,000
5% SHAREHOLDERS
As of March 31, 2002, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the outstanding shares of the Vanguard Mid-Cap Growth Fund. The Trust
believes that most of the shares referred to below were held by the persons
indicated in accounts for their fiduciary, agency, or custodial customers:
SHAREHOLDER PERCENTAGE
----------- ----------
Larry D Tashjian and Karen D Tashjian, x.x%
Trustees for Tashjian Family Trust
La Canada, CA 91011
George E. Handtmann III Trustee, x.x%
For Handtmann Family Trust
Carpinteria, CA 93013
Thomas J & Julie H Condon x.x%
Trustee For the Condon Family Trust
San Marino, CA 91108
Merrill Lynch, Attn Fund Admin x.x%
Jacksonville, FL 32246
FINANCIAL STATEMENTS
Vanguard Selected Value Fund's Financial Statements for the fiscal year
ended October 31, 2001, appearing in the Fund's 2001 Annual Report Shareholders,
and the report thereon of PricewaterhouseCoopers LLP, independent accountants,
also appearing therein, are incorporated by reference in this Statement of
Additional Information. The financial statements of Provident Mid Cap Fund A for
the fiscal year ended October 31, 2001, including notes thereto and the report
of PricewaterhouseCoopers LLP, independent accountants, also appearing therein,
are also incorporated by reference in this Statement of Additional Information.
(Prior to *, 2002, Vanguard Mid-Cap Growth Fund was organized as Provident Mid
Cap Fund A.) For a more complete discussion of the performance, please see each
Fund's Annual Report to Shareholders, which may be obtained without charge.
COMPARATIVE INDEXES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group of Investment Companies.
B-26
Each of the investment company members of The Vanguard Group, including
Vanguard Selected Value Fund use one or more of the following unmanaged indexes
for comparative performance purposes.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX--includes stocks selected by
Standard & Poor's Index Committee to include leading industries and to reflect
the U.S. stock market.
STANDARD & POOR'S MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.
STANDARD & POOR'S SMALL CAP 600/BARRA VALUE INDEX--contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.
STANDARD & POOR'S SMALL CAP 600/BARRA GROWTH INDEX--contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.
WILSHIRE 5000 TOTAL MARKET INDEX--consists of more than 6,100 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 COMPLETION INDEX--consists of all stocks in the Wilshire 5000
except for the 500 stocks in the Standard & Poor's 500 Index.
RUSSELL 3000 STOCK INDEX--a diversified portfolio of approximately 3,000 common
stocks accounting for over 90% of the market value of publicly traded stocks in
the U.S.
RUSSELL 2000 STOCK INDEX--composed of the 2,000 smallest stocks contained in the
Russell 3000 Index, representing approximately 7% of the Russell 3000 total
market capitalization.
RUSSELL 2000 VALUE INDEX--contains stocks from the Russell 2000 Index with a
less-than-average growth orientation.
RUSSELL 1000 VALUE INDEX--consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.
RUSSELL MIDCAP INDEX--composed of all medium and medium/small companies in the
Russell 1000 Index.
RUSSELL MIDCAP GROWTH INDEX--measures the performance of those Russell Midcap
Index companies with higher price/book ratios and higher predicted growth rates.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic average of the
performance of over 1,000 securities listed on the stock exchanges of countries
in Europe, Australia, Asia, and the Far East.
SALOMON SMITH BARNEY EXTENDED MARKET EPAC INDEX--tracks the bottom 20% by total
market capitalization of the Europe Pan Asia Index.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX--is a market weighted index that
contains individually priced U.S. Treasury securities with maturities of ten
years or greater.
LEHMAN BROTHERS CREDIT (BAA) BOND INDEX--all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than one year and with more than $100 million outstanding. This index
includes over 1,500 issues.
LEHMAN BROTHERS LONG CREDIT BOND INDEX--is a subset of the Lehman Brothers
Credit Bond Index.
STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average yield
of four high-grade, non-callable preferred stock issues.
B-27
NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It is
a value-weighted index calculated on price change only and does not include
income.
LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated Baa- or better. The Index has a market value of over
$5 trillion.
LEHMAN BROTHERS CREDIT A OR BETTER BOND INDEX--consists of all publicly issued,
investment-grade corporate bonds rated A or better, of all maturity levels.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CREDIT INDEX--is a market
weighted index that contains individually priced U.S. Treasury, agency, and
corporate investment grade bonds rated BBB- or better with maturities between
one and five years. The index has a market value of over $1.6 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CREDIT INDEX--is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between five and
ten years. The index has a market value of over $800 billion.
LEHMAN BROTHERS LONG (10+) GOVERNMENT/CREDIT INDEX--is a market weighted index
that contains individually priced U.S. Treasury, agency, and corporate
securities rated BBB- or better with maturities greater than ten years. The
index has a market value of over $1.1 trillion.
LIPPER SMALL-CAP GROWTH FUND AVERAGE--an industry benchmark of average mutual
funds that by prospectus or portfolio practice invest primarily in growth
companies with market capitalizations less than $1 billion at the time of
purchase.
LIPPER BALANCED FUND AVERAGE--an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Inc.
B-28
VANGUARD WHITEHALL FUNDS
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FORM N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
The Registrant's organizational documents contain provisions indemnifying
Trustees and Officers against liability incurred in their official capacity.
Article VII, Section 2 of the Declaration of Trust provides that the Registrant
may indemnify and hold harmless each and every Trustee and Officer from and
against any and all claims, demands, costs, losses, expenses, and damages
whatsoever arising out of or related to the performance of his or her duties as
a Trustee or Officer. However, this provision does not cover any liability to
which a Trustee or Officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Article VI of the By-Laws
generally provides that the Registrant shall indemnify its Trustees and Officers
from any liability arising out of their past or present service in that
capacity. Among other things, this provision excludes any liability arising by
reason of willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the Trustee's or Officer's
office with the Registrant.
ITEM 16. EXHIBITS.
(1) Declaration of Trust of the Vanguard Whitehall Funds is herein
incorporated by reference to Exhibit 1 of Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form
N-1A filed on June 30, 1998.
(2) By-laws of the Vanguard Whitehall Funds are herein incorporated
by reference to Exhibit 2 of Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A filed on June
30, 1998.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization and Liquidation is
filed herewith.
(5) Not applicable.
(6) Investment advisory agreement between Vanguard Whitehall Funds
and Provident Investment Counsel, dated o, 2002 is filed
herewith.
(7) Amended and Restated Fund's Service Agreement is herein
incorporated by reference to Registrant's Registration Statement
on Form N-1A.
(8) Not applicable.
ITEM 16. EXHIBITS.
(9) Custodian Agreement is herein incorporated by reference to
Registrant's Registration Statement on Form N-1A.
(10) Not applicable.
(11) Opinion and Consent of Morgan Lewis that shares will be validly
issued, fully paid and non-assessable
(12)(a) Form of Opinion and Consent of Morgan Lewis as to certain tax
matters and consequences is filed herewith.
(12)(b) Form of Opinion and Consent of Paul, Hastings, Janofsky & Walker
LLP as to certain tax matters and consequences is filed
herewith.
(13) Not applicable.
(14) Consent of PricewaterhouseCoopers LLP is filed herewith.
(15) Not applicable.
(16) Power of Attorney for Heidi Stam is herein incorporated by
reference to Post-Effective Amendment No. 21 to the Registration
Statement of Vanguard Variable Insurance Fund (File No.
33-32216) filed on January 28, 2002.
(17)(a) Prospectus for Provident Investment Counsel Mid Cap Fund A
dated March 1, 2002 is filed herewith.
(17)(b) Statement of Additional Information for Provident Investment
Counsel Mid Cap Fund A dated March 1, 2002 is filed herwith.
(17)(c) Annual Report to Shareholders including the Audited
Financial Statements dated October 31, 2001 for the Provident
Investment Counsel Mid Cap Fund A are filed herewith.
(17)(d) Preliminary Prospectus for Vanguard Mid-Cap Growth Fund is
filed herewith.
(17)(e) Preliminary Statement of Additional Information for Vanguard
Mid-Cap Growth Fund is filed herewith.
ITEM 17. UNDERTAKINGS.
Not applicable.
SIGNATURES
As required by the Securities Act of 1933 this Registration Statement has
been signed on behalf of the Registrant in Philadelphia on the 18th day of
March, 2002.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacity on the dates
indicated.
VANGUARD WHITEHALL FUNDS
Registrant
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ JOHN J. BRENNAN President, Chairman, Chief March 18, 2002
-------------------------- Executive Officer, and
(Heidi Stam) Trustee
John J. Brennan*
By: /s/ CHARLES D. ELLIS Trustee March 18, 2002
--------------------------
(Heidi Stam)
Charles D. Ellis*
By: /s/ RAJIV L. GUPTA Trustee March 18, 2002
--------------------------
(Heidi Stam)
Rajiv L. Gupta*
By: /s/ JOANN HEFFERNAN HEISEN Trustee March 18, 2002
--------------------------
(Heidi Stam)
JoAnn Heffernan Heisen*
By: /s/ BURTON G. MALKIEL Trustee March 18, 2002
--------------------------
(Heidi Stam)
Burton G. Malkiel*
By: /s/ ALFRED M. RANKIN, JR. Trustee March 18, 2002
--------------------------
(Heidi Stam)
Alfred M. Rankin, Jr.*
By: /s/ J. LAWRENCE WILSON Trustee March 18, 2002
--------------------------
(Heidi Stam)
J. Lawrence Wilson*
By: /s/ THOMAS J. HIGGINS Treasurer and Principal March 18, 2002
-------------------------- Financial Officer and
(Heidi Stam) Principal Accounting Officer
Thomas J. Higgins*
* BY POWER OF ATTORNEY. SEE FILE NUMBER 33-32216, FILED ON JANUARY 29, 2002.
INCORPORATED BY REFERENCE.
INDEX TO EXHIBITS
Form of Agreement and Plan of Reorganization and Liquidation EX-99.B4
Investment advisory agreement between Vanguard Whitehall Funds and EX-99.B6
Provident Investment Counsel
Opinion and Consent of Morgan Lewis that shares will be validly EX-99.B11
issued, fully paid and non-assessable
Form of Opinion and Consent of Morgan Lewis as to certain tax matters EX-99.B12(a)
and consequences
Form of Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP as EX-99.B12(b)
to certain tax matters and consequences is filed herewith
Consent of PricewaterhouseCoopers is filed herewith EX-99.B14
Prospectus for Provident Investment Counsel Mid Cap Fund A dated EX-99.B17(a)
February 28, 2002
Statement of Additional Information for Provident Investment Counsel Mid EX-99.B17(b)
Cap Fund A dated February 28, 2002
Annual Report to Shareholders including the Audited Financial Statements EX-99.B17(c)
dated October 31, 2001 for Provident Investment Counsel Mid Cap Fund A
Preliminary Prospectus for Vanguard Mid-Cap Growth Fund EX-99.B17(d)
Preliminary Statement of Additional Information for Vanguard Mid-Cap EX-99.B17(e)
Growth Fund