1. Index or Managed Fund Presentation by Kerri Mills 9/10/2002

2. Problem Info 58 year old, retiring in 4 years $600,000 in company 403(b) plan –Invested in Fidelity Magellan Recently switched to Vanguard –500 index fund $150,000 in various individual stocks, owns home, and no debt

3. 403(b) Tax-sheltered retirement plans available to employees of government agencies and non-profit organizations such as hospitals and universities. A 403(b) account is established by an individual and is similar to an individual retirement account (IRA)

4. Index Funds Uses an investment approach that seeks to track the investment returns of a specified stock or bond market benchmark, or index Low cost is a key advantage of index funds –Pays only minimal advisory fees –Keeps operating expenses at the lowest possible level –Keeps portfolio transaction costs at minimal level Investors can implement a wide range of distinctive investment strategies through indexing

5. Managed Funds A unit trust which allows investors to pool their money with that of other investors so that the fund can buy a wide range of investments Managed by a professional fund manager who makes the investment decisions

6. Compare Funds (Average Annual Total Return) Fidelity Magellan -21.20%-24.70%-10.68%9.95% Vanguard 500 Index -19.93%-23.68%-10.67%10.01% Year to Date 1 Year 3 Years 10 Years As of 7/31/2002 based on figures from www.morningstar.com

7. Compare Funds Similar –Price/Earnings Ratio –Price/Book Ratio –Earning Growth Rate Advantage Vanguard –Return on Equity –Less fees Advantage Magellan –Rough Proxy for the Vanguard 500 Index

8. Fees and Expenses Fidelity Magellan 0.88%None$35 3% Sales Charge None Vanguard 500 Index 0.18%NoneNoneNoneNone Expense Ratio 12b-1 Fee Transaction Fee Purchase Fee Redemption Fee

9. Solution Overall, the Vanguard 500 Index is the better option –Considering age –Risk involved –Fees assessed –Amount of return on investment