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Mutual Funds: Building Blocks of Retirement Savings

Your Con Edison plan allows you to chose from a diversified lineup of investment choices. The chart below shows your investment options as of January 1, 2005. The Fidelity Worldwide Fund, which is currently offered by your plan, will be replaced by Vanguard International Value Fund. Click a fund name to learn more about the fund at Vanguard.com®

Even if you're familiar with some of the funds, this is also a good opportunity to brush up on mutual fund basics.
Fund NameDescription
Vanguard® Treasury Money Market FundSeeks current income while maintaining liquidity and a stable share price of $1 by investing solely in high-quality, short-term money market securities whose interest and principal payments are backed by the full faith and credit of the U.S. government. At least 80% of the fund's assets will always be invested in U.S. Treasury securities.
Consolidated Edison Fixed Income Fund*Seeks to provide high current and stable income, while maintaining a stable share value of $1 by investing primarily in investment contracts backed by high-quality fixed income securities, and in investment contracts issued directly by insurance companies, banks, or other financial institutions.
Vanguard® Total Bond Market Index FundSeeks a high level of interest income by attempting to track the performance of the Lehman Brothers Aggregate Bond Index, which is a widely recognized measure of the entire taxable U.S. bond market.
Vanguard® LifeStrategy® Moderate Growth FundSeeks capital appreciation and a low-to-moderate level of current income by investing in four Vanguard funds. The fund's asset allocation ranges are expected to be 45%–70% stocks, 30%–55% bonds, and 0%–25% short-term reserves.
Fidelity Magellan FundSeeks capital appreciation by investing primarily in common stocks. The fund may invest in securities of domestic and foreign issuers. It also may invest in growth or value stocks, or both.
Vanguard® 500 Index FundSeeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. The fund employs a “passive management”—or indexing—investment approach designed to track the performance of the Standard & Poor's 500 Index, which is dominated by the stocks of large U.S. companies. The fund attempts to replicate the target index by investing all or substantially all of its assets in the stocks that make up the index.
Vanguard® Growth and Income FundSeeks long-term growth of capital and income from dividends by investing in a diversified group of stocks chosen with the help of sophisticated computer models. The fund seeks stocks that appear to be undervalued by the market and that, as a group, appear likely to provide higher returns than the unmanaged Standard & Poor's 500 Index while having similar risk characteristics.
Vanguard® Windsor™ FundSeeks long-term capital appreciation and income by investing in stocks believed to be misunderstood or undervalued by the market.
Vanguard® PRIMECAP FundSeeks long-term capital appreciation by investing in stocks of companies with above-average prospects for continued earnings growth, strong industry positions, and skilled management teams. It may also invest in companies with below-average earnings but bright prospects for earnings growth.
Vanguard® Extended Market Index FundSeeks to track the performance of a benchmark index that measures the investment return of small- and mid-capitalization stocks. The fund employs a “passive management”—or indexing—investment approach designed to track the performance of the Dow Jones Wilshire 4500 Completion Index, a broadly diversified index of stocks of small and medium-sized U.S. companies. The Dow Jones Wilshire 4500 Index contains all of the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market, except those stocks included in the Standard & Poor's 500 Index. The fund invests all or substantially all of its assets in the 1,200 largest-capitalization stocks in its target index and a representative sample of the remainder.
Fidelity OTC PortfolioSeeks capital appreciation by investing primarily in common stocks principally traded on the Nasdaq or another over-the-counter (OTC) market that has more small and medium-sized companies than other markets.
Vanguard® Capital Opportunity FundSeeks long-term capital appreciation by investing in stocks of mid- and small-capitalization companies expected to have above-average growth of earnings.
Vanguard® Small-Cap Value Index FundSeeks to track the performance of a benchmark index that measures the investment return of small-capitalization value stocks. The fund employs a “passive management”—or indexing—investment approach designed to track the performance of the MSCI® US Small Cap Value Index, a broadly diversified index of value stocks of small U.S. companies. The fund attempts to replicate the target index by investing all or substantially all of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Vanguard® Explorer™ FundSeeks long-term capital appreciation by investing mainly in the stocks of smaller companies (which, at the time of purchase, typically have a market value of less than $2 billion). These companies are considered by the advisors to have above-average prospects for growth.
Artisan International FundSeeks long-term capital growth by investing in international equity markets, across capitalizations and regions, with a focus on well-managed growth companies.
Vanguard® International Value FundSeeks long-term growth of capital and income by investing in a diversified group of stocks of large and medium-sized companies based outside the United States. Stocks are selected through a “value” approach: seeking to identify companies that are generally out of favor with the market and are cheap in comparison to their own past valuations and the valuations of comparable companies.
Vanguard® Total International Stock Index FundSeeks long-term growth of capital. The fund does not buy securities directly; instead, it invests in three Vanguard international index funds: a European fund, a Pacific fund, and an emerging markets fund. This gives the fund exposure to stocks from more than 30 countries. The combination of the three underlying index funds, in turn, seeks to track the investment results of the Morgan Stanley Capital International (MSCI) Total International Composite Index.
Con Edison Company Stock Fund*Invests in Con Edison common stock to provide the possibility of long-term growth through increases in the value of the stock and the reinvestment of its dividends.
*Information about this fund can also be found at Vanguard.com if you are a registered user. Not registered? You can register in just a few minutes when you visit www.vanguard.com. To register, you'll need your plan number, which is 090041,090042, or 090404. Confirm your plan number by checking your account statement.

What Is a Mutual Fund?
A mutual fund is an investment company that pools money from many individuals and uses it to buy securities, such as stocks, bonds, and short-term reserves. This approach offers several advantages to investors:
  • Diversification. Because it invests in dozens or even hundreds of securities rather than just a few stocks and bonds, a mutual fund helps reduce—though it cannot entirely eliminate—the market risk that is simply part of investing.
  • Investment choice. Because mutual funds have different investment objectives and strategies, you can find funds that match your objective and risk tolerance.
  • Professional management. Knowledgeable investment professionals manage mutual funds, buying and selling investments for the fund's portfolio.
How Mutual Funds Are Sold
Mutual funds are sold in shares. The net asset value (NAV)—or price—of a fund's shares fluctuates daily depending on the total change in the value of the securities held by the fund. At the close of business each trading day, the current market value of all the securities and cash that the fund holds are calculated and any accrued expenses are deducted. This net value is then divided by the total number of shares outstanding to calculate the fund's NAV.

Pay Attention to Fund Costs
Fees are a necessary part of any fund. The cost of running a fund is expressed as a percentage of the fund's average net assets. This percentage is known as the fund's expense ratio. Many funds also charge a sales commission, or load, when you buy or sell shares.

Vanguard keeps operating costs at the lowest reasonable level because the higher a fund's expense ratio, the greater the drag on the fund's performance—and on your investments. The average expense ratio of Vanguard® funds in 2003 was 0.25%, which means only $0.25 out of every $100 you invested was used to pay the fund's costs. That's about one-fifth the industry average, according to fund tracker Lipper Inc. In addition, all Vanguard funds are no-load investments.

Questions?
Call a Vanguard® Participant Services associate at 1-800-523-1188 Monday through Friday from 8:30 a.m. to 9:00 p.m., Eastern time.

For more information about any fund, including investment objectives, risks, charges, and expenses, call The Vanguard Group at 1-800-523-1188 to obtain a prospectus. The prospectus contains this and other important information about the fund. Read and consider the prospectus information carefully before you invest. You can also download Vanguard fund prospectuses at www.vanguard.com.

The funds or securities referred to herein that are offered by The Vanguard Group and track an MSCI index are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For such funds or securities, the prospectus or the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group.

Vanguard, Vanguard.com, LifeStrategy, Windsor, and Explorer are trademarks of The Vanguard Group, Inc. 500 and Standard and Poor's 500 are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by The Vanguard Group, Inc. Vanguard mutual funds are not sponsored, endorsed, sold, or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the funds.

© 2004 The Vanguard Group, Inc. All rights reserved. Used with permission.


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