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Vanguard Changes Benchmark for Extended Market Index Fund

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May 3, 2005 — Vanguard Group said it is changing the benchmark for its $9 billion Vanguard Extended Market Index/Inv (VEXMX), replacing the Dow Jones Wilshire 4500 Completion index with the Standard & Poor’s Completion index.

The S&P index is composed of mid-cap and small-cap stocks and is designed to complement the big-cap S&P 500 index, the bogey tracked by Vanguard’s largest fund, the $102 billion Vanguard 500 Index/Inv (VFINX).

Adopting the S&P index for the Extended Market fund “will compliment the Vanguard 500 Index fund since the index’s construction methodology parallels that of the S&P 500 index,” said Gus Sauter, Vanguard’s chief investment officer.

Sauter said the S&P Completion index incorporates many of the methodologies Vanguard endorses, including adjusting for a stock’s “float,” or the number of shares held by the public and available for trading. Also, the index includes domestic and foreign companies whose stock trading, shareholders and operations are predominantly in the U.S., Vanguard said. In addition, the index excludes limited partnerships.

Vanguard said it does not expect the change to result in “meaningful capital gains” or to “generate capital gains distributions for shareholders.

The change, however, will require some turnover of holdings that may generate transaction costs. Vanguard said it will attempt to minimize these, and believes the “potential costs will be reasonable to incur in order to track a better constructed benchmark.”

The company expects to make the switch to the new benchmark between May 31 and December 31.

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