September 2002


TRUSTEES OF VANGUARD(R)UTILITIES INCOME FUND TO ASK SHAREHOLDERS
TO APPROVE CHANGES TO FUND'S OBJECTIVE AND CONCENTRATION IN UTILITIES STOCKS


Dear Utilities Income Fund Shareholder:

After careful consideration,  the Board of Trustees of Vanguard Utilities Income
Fund is  proposing  significant  changes to the fund's  objective  and  industry
concentration policy. The trustees propose to replace the fund's single-industry
focus   with  a   broader   investment   mandate--specifically,   to  invest  in
dividend-paying companies across a diverse range of industries.  These proposals
are each contingent upon shareholder  approval of the other. This means that the
fund will implement the changes only if shareholders approve both proposals. The
fund's  board of  trustees  has  made  these  proposals  contingent  because  to
implement one without the other would be impractical.

THE REASON BEHIND THE PROPOSED CHANGES

Historically,  utility  companies have been closely regulated and tended to have
relatively modest but steady earnings growth and stable or increasing dividends.
The  deregulation of many  utilities,  such as those in the energy and telephone
sectors, has changed the character of the utilities industry and led to far less
stability in both earnings and dividend  payments.  Eliminating the fund's focus
on utility  companies would allow the fund manager to invest in  dividend-paying
companies  regardless  of  their  businesses  and  thereby  eliminate  the  risk
associated with the fund's narrow concentration.

IMPACT IF THE PROPOSALS ARE APPROVED

Vanguard  Utilities Income Fund's current  investment  objective is to provide a
high level of current income and,  secondarily,  to provide  moderate  long-term
growth of capital and income.  The fund's  proposed  investment  objective is to
provide  above-average  income and,  secondarily,  to provide moderate long-term
growth of capital and  income.  The fund  currently  invests at least 80% of its
assets in common  stocks  of  utility  companies.  While  this  industry-focused
approach was reasonable for conservative  investors when the utilities  industry
was less volatile, it is much less appropriate in today's environment. Under the
proposed industry  concentration  policy, the fund would invest no more than 25%
of its assets in any single industry. This change would substantially reduce the
current and future risks associated with industry concentration.  To reflect the
broader  objective  and  investments,  the  fund's  name  would  be  changed  to
Vanguard(R) Dividend Growth Fund.





Finally,  while  we  expect  that the  transition  of this  highly  concentrated
portfolio into a more diversified one would increase  portfolio  turnover in the
short  term,  we  estimate  that there  would be  minimal  or no  capital  gains
distributions.  Once the  transition  is  complete,  we expect  the  portfolio's
turnover to return to below-average levels.

PROPOSED CHANGES SUBJECT TO SHAREHOLDER APPROVAL

These  changes are subject to  shareholder  approval at a meeting  scheduled for
December 3, 2002. If you were a shareholder  in the Utilities  Income Fund as of
the close of  business  on  September  6, 2002,  you will be entitled to vote on
these proposals.  Proxy materials--including a ballot and additional information
regarding these proposals--will be mailed to you in late September 2002.

We hope you will vote in favor of the  proposals  because we  believe  they will
benefit you as a fund shareholder. If you have any questions, please visit us at
our web site, www.vanguard.com, or call us toll free at 1-800-523-1188.

Sincerely,


The Vanguard Group



Beginning  September 23, 2002,  copies of the proxy  statement will be available
without charge online at www.vanguard.com or by calling 1-800-523-1188. Prior to
September  23, 2002, a preliminary  version of the proxy  statement is available
without charge from the Securities and Exchange  Commission at www.sec.gov or by
calling the SEC at 1-202-942-8090.  We encourage you to read the proxy statement
because it contains important information about the proposals.

This  material  may be used in  conjunction  with the  offering of shares of any
member funds of The Vanguard  Group only if preceded or accompanied by a current
prospectus of each fund whose shares are being offered.


(C)2002  The  Vanguard  Group,  Inc.  All rights  reserved.  Vanguard  Marketing
Corporation, Distributor.