Vanguard To Launch Exchange-Traded Shares Of Total Stock Market Index Fund

Total Stock Market VIPERS To Feature Expense Ratio of 0.15%

VALLEY FORGE, PA, May 24, 2001 – The world's largest, all-market equity index mutual fund—the $24 billion Vanguard Total Stock Market Index Fund—will commence trading its exchange-traded class of shares on May 31, 2001. The new class of shares, called Vanguard Total Stock Market VIPERs™, will begin trading at 9:30 AM on the American Stock Exchange under the symbol VTI.

Vanguard Total Stock Market VIPERs (for Vanguard Index Participation Equity Receipts) are the first in an expected series of Vanguard exchange-traded offerings and the only exchange-traded vehicles in the industry to track the Wilshire 5000 Total Market Index. In keeping with Vanguard's low-cost leadership, Total Stock Market VIPERs will have an annual expense ratio of 0.15% ($15 per year on a $10,000 investment)—the lowest expense ratio of any exchange-traded offering tracking the broad U.S. stock market.

"Vanguard's Total Stock Market VIPER Shares offer investors a convenient, low-cost means of obtaining the most broadly diversified exposure to domestic stocks, along with the trading flexibility and continual pricing of an individual security," said Vanguard Chairman and CEO John J. Brennan. "As the industry's index fund leader for the past 25 years, we're pleased to offer investors another means of investing in our best-in-class, low-cost index offerings."

Vanguard pioneered the equity index mutual fund in 1976, and now offers 32 traditional index mutual funds—the widest and lowest-cost array of index mutual funds for retail and institutional investors. The Total Stock Market Index Fund was introduced in 1992 as the industry's first fund tracking the Wilshire 5000 Total Market Index, a benchmark of the entire U.S. stock market. Recognized as a low-cost, tax-efficient way to diversify across more than 6,600 large-, mid-, and small-cap stocks, the Total Stock Market Index Fund is currently Vanguard's best-selling equity fund and the mutual fund industry's third best-selling equity fund for the past 5 years.

Unlike existing exchange-traded vehicles that operate as stand-alone investment products, Total Stock Market VIPERs are uniquely structured as a new share class of an existing Vanguard index fund. In contrast to Vanguard's conventional index fund shares, VIPER Shares can be bought and sold through a broker at any time during the trading day. Conventional mutual fund shares are bought and sold at the shares' net asset value at the end of the day.

Given this trading flexibility, VIPER Shares are expected to appeal primarily to investors with an established brokerage relationship who recognize the intrinsic attributes of indexing, including low-costs, tax-efficiency, diversification, and market-tracking performance, but prefer the convenience of intraday pricing. Vanguard believes that, over time, shareholders in the Fund's traditional class of shares will benefit from a reduction of the transaction costs and potential tax liabilities created by more active investors, who are likely to be attracted to the VIPER Shares and away from traditional shares.

Shareholders in the traditional shares of the Total Stock Market Index Fund will be eligible to convert to VIPER Shares on a tax-free basis (although a small fraction of the conversion transaction may be taxable, depending on the broker). Vanguard charges a $50 fee for the conversion, and some brokers may assess an additional fee. Shareholders may begin converting shares on May 31.

To help investors understand the benefits and risks of exchange-traded investments, Vanguard has prepared a new educational guide—Plain Talk About Exchange-Traded Funds. Investors may request a free copy of this six-page bulletin by calling Vanguard toll free (1-800-890-8507) or read it on Vanguard's website (www.vanguard.com) upon its posting on May 30.

"We will bring our characteristic candor and disclosure regarding costs, taxes, and risks to the marketplace along with the launch of this new class of shares. Since Vanguard is the only firm to offer a full range of index investments—traditional index fund shares, tax-managed funds, and exchange-traded shares—we can offer objective information to investors to help them decide what type of investment is best for them," said Gus Sauter, Managing Director, Vanguard Quantitative Equity Group, which oversees nearly $220 billion in assets.

The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is the nation's second largest mutual fund firm and a leading provider of company sponsored retirement plan services. Vanguard serves 15 million shareholder accounts and manages more than $580 billion in U.S. mutual fund assets, including more than $170 billion in participant-directed defined contribution plans. Vanguard offers 109 funds to U.S. investors and 29 additional funds in international markets.