© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 1 Success in taking the road less traveled….

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 2 About Vanguard Founded May 1, 1975 One of the world's largest investment management companies Approximately $950 billion in U.S. mutual funds (as of December 31, 2005) 130 domestic funds (including variable annuity portfolios) 40 additional funds in international markets “…the client-owned investment management company built to put your interests first®”

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 3 What are mutual funds? “A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds).” First started in 1924 by 3 Boston executives Industry has grown tremendously over the years –55 million households –96 million individuals –$7 trillion in net assets

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 4 John Bogle Princeton Years Wellington Management Company Philosophy: No commissions + Low overhead = maximized growth Principle: clarity, candor and disclosure

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 5 Growth of Vanguard 1929: Vanguard Wellington Fund - Endures 1929 crash through diversification 1975: Vanguard begins its operations - 28 employees, 11 funds, 1.8 billion in net assets, 1976: Vanguard index fund opens 1977: Eliminates sales commission (“loads”) 1990: Creates first international index funds

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 6 Growth of Vanguard (Cont’d ….) 1995: Vanguard.com opens for business 1996: Vanguard begins offering financial planning for individuals 1997: Vanguard begins offering investments to investors outside U.S 2003: Vanguard.com reaches 3 million registered users 2004: Offers one-step auto pilot program for 401(k) plans

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 7 Appeal of Vanguard Commitment to low-expenses

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 8 Appeal of Vanguard (Cont…) Excellent Customer Service –Executives help man the phones during peak Call Periods –Vanguard funds dominate Forbes "Best Buy" rankings every year

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 9 Why Price Perceived Quality is not applicable in this case? Class discussion

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 10 Vanguard’s low expenses Differentiates itself from competition Reluctant to Advertise No mass sales force Prohibits frequent trading of its funds Passive Investing Still has an extremely loyal, cult-like customer base

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 11 Class discussion Do you think that Bogle’s idea of advertisement avoidance is good?

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 12 Word of mouth advertising Believing in and sticking to its mission statement Publicity from books, and Bogle’s appearances in media How did Vanguard manage to gain such loyal customer base?

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 13 Take away lessons Marketing can be overdone The Power of differentiation Word of mouth publicity can be very powerful Benefits of frugality and passing the value to the customer

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 14 Class discussion Do you think there is an analogy between the success of Wal-Mart and Vanguard?

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 15 Competitors of Vanguard Fidelity –Founded in 1943 by Edward C. Johnson II –Attracted crowd through their innovative ideas –First to sell through a 800 number Capital research management –Founded in 1931 by Jonathan Bell Lovelace –Manages US$850 billion in mutual funds and US$300 billion for institutions TIAA CREF –Largest pension plan provider –Launched 6 no-load mutual funds in 1997 –Minimum investment $250

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 16 Customer base that Vanguard doesn’t attract Those who do not have studied statistics & publications Naïve investors Those who are carried away by advertisements Those who have faith in price-quality perception

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 17 Top ten mutual fund companies by assets, 2006 ($000)

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 18 Class discussion Should Vanguard continue as is?

© 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor 19