Fourteen new VIPERs will trade on the American Stock Exchange on January 30th. Vanguard's VIPERS are ETF versions of their popular index funds. Read the full VIPER press release.

Vanguard Press Release VR-638

NEW VANGUARD EXCHANGE-TRADED VIPERs TO BEGIN TRADING

VALLEY FORGE, PA, January 29, 2004 — The exchange-traded class of shares of 14 Vanguard® index funds will commence trading on the American Stock Exchange on January 30, 2004, at 9:30 a.m. The new VIPER® Shares will feature some of the lowest expense ratios among similar exchange-traded funds tracking discrete market segments (large-, mid-, and small-capitalization stocks), and specific equity sectors.

“Indexing is core to Vanguard’s investment philosophy, and we have taken some innovative steps to make our index funds available to many different types of investors,” said Gus Sauter, Vanguard’s chief investment officer. “In the past year, we’ve introduced index-based Targeted Retirement Funds for retirement savers, age-based index funds to Vanguard’s 529 plan participants, and now, exchange-traded VIPER Shares of virtually our entire equity index fund lineup for investment advisors, financial intermediaries, and institutions.”

The 14 VIPERs, which track various domestic benchmarks developed by Morgan Stanley Capital International, Inc. (MSCI), are as follows:

Vanguard first launched its Total Stock Market Index VIPERs in 2001 (which is now among the largest ETFs in the market), followed a year later by Vanguard® Extended Market VIPERs. The two VIPERs have grown to a combined $2.6 billion in assets. Vanguard expects to launch six additional VIPERs — three additional sector VIPERs and VIPER Shares of the European, Pacific, and Emerging Markets Stock Index funds — later this year¹.

“The expansion of our VIPER family enables institutional investors and financial intermediaries who prefer an exchange-traded vehicle to have access to the portfolio management and trading techniques that Vanguard has refined over the past 25 years,” said Mr. Sauter.

VIPERs’ unique advantages

Unlike other ETFs that operate as “stand-alone” open-end funds or unit investment trusts, Vanguard VIPER Shares are the only ETFs structured as a separate share class of index funds that also offer a conventional, directly-distributed class of shares. The VIPER structure leads to specific advantages relative to its peers. Among them:

Greater Tax Efficiency Opportunities. All index funds — conventional shares and exchange-traded shares — are already highly tax-efficient due to indexing’s buy-and-hold, low-turnover approach. Conventional index funds and ETFs may also employ an in-kind redemption process, in which redemptions are paid in shares of the fund’s underlying stocks. In-kind redemptions do not trigger a capital gain or loss, unlike cash redemptions.

However, only VIPERs have an additional tax-management tool in their arsenal: Cash flows into and out of the conventional shares of the funds. Cash flows enable the manager to purchase stocks at current prices. When the manager needs to sell securities to meet redemptions, he can sell the highest cost lots first to realize a tax loss. These tax losses can be used to offset capital gains for many years to come.

Tracking Precision. Cash flows in the conventional share class of a fund also benefit the VIPER Shares when a stock is added to or deleted from the underlying benchmark. Stand-alone ETFs must completely rebalance their portfolios to adjust to this benchmark change. VIPERs, on the other hand, can frequently use cash flows from the conventional share classes to realign the fund, thereby incurring fewer transaction costs. Thus, the VIPER structure creates the potential for greater cost efficiency and greater tracking efficiency.

Asset Stability. Many stand-alone ETFs available today have less than a five-year track record, and a handful already have been eliminated by their sponsors because they did not attract enough assets to sustain the fund. As separate share classes of existing Vanguard funds, many of the Vanguard VIPERs have a critical mass of assets and a long-term track record. For example, Vanguard® Growth Index Fund has more than $9 billion in assets and an 11-year history.

VIPERs track indexes from MSCI, a leading index provider

Vanguard’s VIPER Shares are the only ETFs to track domestic indexes created by MSCI. Vanguard believes that MSCI’s U.S. stock indexes more accurately represent the target markets tracked by the funds than other existing benchmarks. The MSCI benchmarks also include segmentation, style, and construction methods that incorporate the best practices Vanguard seeks in market benchmarks, including:

· Objective, not subjective, rules for index construction.

· Market weightings that reflect only “floating” shares that are available and freely traded in the open market.

· Market capitalization definitions that slightly overlap.

· Identification of a stock as “growth” or “value” using a variety of factors.

Vanguard expects that over time, the MSCI indexes should experience lower turnover than other indexes tracking like market segments, resulting in modestly lower transaction costs.

A caveat about sector funds

While Vanguard has offered actively managed sector funds since 1984, including the $20 billion Vanguard® Health Care Fund and the $2.5 billion Vanguard® Energy Fund, the sector VIPERs represent the first series of conventional index funds based on discrete market segments. Vanguard believes that the sector VIPERs may help certain institutional and intermediary investors to manage complex investment hurdles, like the need to increase exposure to a sector unrepresented in a portfolio, or to mitigate overall portfolio risk. Vanguard cautions that sector funds are not for all investors.

“Our long-standing philosophy is that the majority of investors should use broadly diversified index funds as the core of their portfolio, and sector funds should represent only a small portion, if any, of a long-term, balanced investment program,” said Mr. Sauter. He noted that investing in narrowly focused market sectors carries additional risks and that sector funds’ performance can fluctuate significantly — for better or for worse — depending on the condition of their particular industry.

Vanguard—the index leader

Since introducing the industry’s first index mutual fund in 1976—now known as the $96 billion Vanguard® 500 Index Fund— Vanguard has established itself as the leader in the passive investment management approach, with 53 stock, balanced, and bond index funds, as well as 7 commingled index trusts. Vanguard offers 16 funds with VIPER Shares. In aggregate, Vanguard manages $290 billion in indexed 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 some 17 million shareholder accounts and manages more than $700 billion in U.S. mutual fund assets, including more than $205 billion in employer-sponsored retirement plans. Vanguard offers 126 funds to U.S. investors and 35 additional funds in foreign markets.

1A registration statement relating to the VIPER Shares has been filed with the Securities and Exchange Commission but has not yet become effective. These securities 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 or the solicitation of an offer to buy, 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.

For more information, including risks, charges and expenses, about VIPER Shares, obtain its prospectus or product brochure, and read it carefully before you invest or send money. Copies of the final prospectus, which is subject to change, can be obtained from The Vanguard Group 1-800-662-7447. VIPERs patent pending.