Aug. 27, 2002 — Vanguard is seeking to change the investment objective of its $573.6-million Vanguard Utilities Income Fund (VGSUX), as well as adopt a policy allowing trustees to alter benchmark indexes on eight other existing funds.

Under the proposals, the Utility fund’s objective will change to allow it to invest “across a diversified spectrum of companies whose stocks will typically offer reasonable dividend income and attractive earnings and dividend growth,” according to a proxy statement filed with the SEC. Moreover, the fund will not invest any more than 25% of its assets in any single industry.

The fund currently is required to invest at least 80% of its assets in stocks of utility companies. Should shareholders approve the change, the fund will be renamed Vanguard Dividend Growth fund.

Explaining the decision, Vanguard noted in the filing that “in the past, utility stocks were considered to be conservative investments because of close industry regulation,” and that they “also tended to have relatively consistent and modestly increasing earnings and dividend-paying capacity,” but that “times have changed, and deregulation within the various utility sectors has led to far less stability in earnings and to an overall decline in dividend payments.”

Brian Mattes, a spokesman for Vanguard, said that the fund will continue to be managed by Mark Beckwith and Earl E. McEvoy of Boston-based Wellington Management Co. The Utilities Income fund declined 17.4% year to date through July 31.

If the proposal is approved, the fund’s adviser expects to “transition approximately in excess of 95% of the current portfolio.” Despite this high turnover, Vanguard said, it is expected that tax losses carried forward by the fund would be sufficient to offset any gains in the transition.

In addition, Vanguard is seeking to permit the trustees of eight of its index funds to funds to change their respective target indexes if the trustees determine that doing so would be in “shareholders’ best interests.”

The funds under this provision are Vanguard Extended Market Index/Inv (VEXMX), Vanguard Growth Index/Inv (VIGRX), Vanguard Mid Cap Index/Inv (VIMSX), Vanguard Small Cap Index/Inv (NAESX), Vanguard Small Cap Growth Index/Inv (VISGX), Vanguard Small Cap Growth Index/Inv (VISGX), Vanguard Total Stock Market Index/Inv (VTSMX) and Vanguard Value Index/Inv (VIVAX). Vanguard noted that this policy already exists for most Vanguard index funds.

Vanguard said it secured the right to use new indexes developed by Morgan Stanley Capital International (MSCI), and that while the agreement would enable the fund complex to use the new MSCI indexes expected to be available in early 2003, the trustees are not obligated to adopt them as benchmarks.

Vanguard said the new policy would not apply to the Vanguard 500 Index/Inv (VFINX) or the Vanguard Institutional Index/Instl (VINIX), both of which target the Standard & Poor’s 500 Index.

The changes are subject to shareholder approval at a meeting scheduled for December 3.