Vanguard to Offer Admiral Shares on Bond Funds By IndexFunds.com Staff January 24, 2001

The Vanguard Group today registered with the Securities and Exchange Commission (SEC) to offer Admiral Shares on 13 taxable and tax-exempt bond funds.

Admiral Shares are designed to reward shareholders with larger investments and longer holding periods for the cost savings they generate for the fund. To be eligible for Admiral Shares, retail investors must meet one of the following criteria:

• The shareholder's fund account has a balance of $250,000 or more.
• The shareholder established the fund account at least three years ago and has a balance of $150,000 or more, and is registered for online account access with Vanguard.com.
• The shareholder established the fund account at least ten years ago and has a balance of $50,000 or more, and is registered for online account access with Vanguard.com.

Both regular and IRA shareholders are eligible for Admiral Shares.

The Admiral Shares to be introduced to the 13 Vanguard Bond Funds have lower expense ratios compared to Investor Shares, as can be seen in the table below:

Vanguard Bond Fund	Admiral Shares	Investor Shares
Vanguard Short-Term Treasury	0.15%	0.29%
Vanguard Short-term Federal	0.24%	0.30%
Vanguard Short-term Corporate	0.18%	0.26%
Vanguard Intermediate-Term Treasury	0.15%	0.29%
Vanguard Intermediate-Term Corporate	0.13%	0.21%
Vanguard GNMA	0.19%	0.27%
Vanguard Long-Term Treasury	0.15%	0.29%
Vanguard Long-term Corporate	0.24%	0.32%
Vanguard Municipal Short-term	0.13%	0.19%
Vanguard Municipal Limited-Term	0.13%	0.19%
Vanguard Municipal Intermediate-Term	0.13%	0.19%
Vanguard Municipal Long-term	0.13%	0.19%
Vanguard Municipal Insured Long-term	0.13%	0.19%

Source: The Vanguard Group

This is the second wave of Admiral Shares to be offered on Vanguard funds. The first group of Admiral Shares was introduced in November 2000 with the launch of a new share class for seven domestic index funds. According to Vanguard, approximately $13 billion has flowed into Admiral Shares to date, mostly by shareholders who converted from Investor Shares.

Furthermore, Vanguard said it plans to introduce Admiral Shares for most of its equity, balanced, and bond funds during 2001.

The move sparks further debate on whether larger, long-tenured fund investors should pay for the ineffeciencies of smaller investors and investors who move in and out of funds. Judging by today's announcement, Vanguard's answer appears to be "no."

"What our fee structure does is recognize the efficiencies of the larger accounts," said Brian Mattes, a Principal at Vanguard Group, in an interview for a November article comparing fees at Vanguard and TIAA-CREF. "Those responsible for efficiencies should be the beneficiaries of them. As it is, it takes the fund years to break even at the lower account levels. The point of our fees is that it's a fairer allocation of cost. You're really subsidizing the smaller investor. If you incur costs, you should have to pay for them."