DEFA14A 1 proxypresentation.txt VANGUARD FUNDS DEFINITIVE MATERIALS 2002 PROXY PRESENTATION - ELECT TRUSTEES -------------------------------------------------------------------------------- PROPOSAL 1: o Applies to All 109 Funds o Seven Nominees for Trustee --Six Trustees will be "independent" o Each Nominee Currently Serves as Trustee 1 2002 PROXY PRESENTATION - INVESTMENT IN OTHER FUNDS -------------------------------------------------------------------------------- PROPOSAL 2: o Applies to 88 out of 109 Funds o Enable Funds to Invest Cash Reserves in Dedicated MM & Short- term Bond Funds o Similar Program Used by Other Firms o Goals: Better Diversification, Moderately Higher Returns 2 2002 PROXY PRESENTATION - AUTHORIZE TRUSTEES TO CHANGE TARGET INDEXES -------------------------------------------------------------------------------- PROPOSAL 3: o Applies to 8 Index Funds --Other funds have policy now o Funds Tracking S&P 500 Index Not Included o Fund Would Track Same Market Segment o Why Give Trustees This Authority? -- Act quickly in shareholder best interest -- Avoid future proxy costs ($1 per account) -- Avoid/minimize harm from front runners 3 2002 PROXY PRESENTATION - WHY CHANGE A FUND'S TARGET INDEX? -------------------------------------------------------------------------------- o Not All Indexes Created Equal o Differences in Characteristics & Methodologies: --Objective vs. Subjective Rules --Completeness of Coverage --Investability --Market Cap vs. Float Weighting --Size and Style Determination --Turnover and Transaction Costs --Available History --Acceptance 4 2002 PROXY PRESENTATION - INDEX METHODOLOGIES VANGUARD DEEMS BEST PRACTICES -------------------------------------------------------------------------------- o Rely on Objective, Not Subjective Rules o Adjust Weightings for Cross-Holdings/Float o Define Market Capitalization as a Band, Not a Line in the Sand o Determine Style in Two Dimensions o Manage Stock Migration 5 2002 PROXY PRESENTATION - MSCI U.S. INDEXES - CONSTRUCTION METHODOLOGIES -------------------------------------------------------------------------------- o Objectively Constructed Indexes o Capitalization Adjusted for Float o Reasonable Capitalization Delineation o Two Dimensional Style Indexes o Bands Around Capitalization and Style Cutoffs o Annual Rebalance of Capitalization and Semi- annual Rebalance of Style o Liquidity Screens 6 2002 PROXY PRESENTATION 7 COMPARISON OF US INDEX CHARACTERISTICS -------------------------------------------------------------------------------- -----Characteristic -------- MSCI ----- S&P ----- Russell ----- Wilshire-------- -------------------------------------------------------------------------------- o Objective Rules YES NO YES YES -------------------------------------------------------------------------------- o Float Adjustment YES NO YES NO -------------------------------------------------------------------------------- o Market Cap & Style Buffers YES NO NO NO -------------------------------------------------------------------------------- o Two- Dimensional Style Segmentation YES NO NO NO -------------------------------------------------------------------------------- o Manage Stock Migration NO YES NO NO -------------------------------------------------------------------------------- 7 2002 PROXY PRESENTATION - DIVERSIFICATION STATUS -------------------------------------------------------------------------------- PROPOSAL 4: o Applies to Stock Index-Oriented Funds o Same as 2001 Growth Index Fund Proposal --Reclassify Fund as Non-Diversified o Goal: Eliminate Potential Conflict Between Statutory Limit & Indexing Objective 8 2002 PROXY PRESENTATION - INDUSTRY CONCENTRATION -------------------------------------------------------------------------------- PROPOSAL 5: o Applies to Prime MM & VVIF - MM o Financial Services Dominant Supplier of MM Securities o Funds Will Invest More Than 25% in Financial Industry o Some Competitors Have Policy o Maintain Stable $1 per Share Price o Goal: Take Advantage of Available Investment Opportunities 9 2002 PROXY PRESENTATION - BORROWING POLICY -------------------------------------------------------------------------------- PROPOSAL 6: o Applies to All Bond & Certain Balanced Funds o Current Policy: "Temporary & Emergency" -- After 5%, No Additional Purchases o Proposed Policy:Eliminates these Conditions to Permit Investment Activities Defined as "Borrowing" o Up to 15% of assets (SEC limit is 33 1/3%) o Funds Would Not Borrow to Leverage. No Change to Investment Objective or Risk Profile o Goal: Permit Investment Activities that May Benefit the Fund 10 2002 Proxy Presentation - Change Investment Objective (7a) Industry Concentration (7b) Proposals 7a and 7b: o Apply to Utilities Income Fund Only o Contingent Proposals o Current Utilities Industry vs. Investor Profile o Implement New Objective & Name, No Industry Concentration o Goals: Enable Fund to Invest in a Diverse Group of Companies that Provide Stable or Increasing Dividends and Reduce Risk 11 2002 PROXY PRESENTATION - FOR MORE INFORMATION -------------------------------------------------------------------------------- o Prior to September 23, 2002, a preliminary version of the proxy statement is available without charge from the Securities and Exchange Commission at www. sec. gov or by calling the SEC at 1- 202- 942- 8090. o Beginning September 23, 2002, copies of the proxy statement will be available without charge online at www. vanguard. com or by calling Vanguard at 1- 800- 992- 0833. Note: This slide must be included when discussing the Proxy. NOTE: THIS SLIDE MUST BE INCLUDED WHEN DISCUSSING THE PROXY. 12