VANGUARD PINCHING PENNY UNTIL LINCOLN SAYS ‘OUCH!’

The Vanguard Group is seeking to make its funds even leaner.

The Valley Forge, Pa.-based mutual fund giant is asking investors to approve administrative measures intended to slash millions in fund expenses. Vanguard’s 95 no-load funds already have some of the lowest expense ratios in the industry, averaging 0.29% – far less than the 1.25% average for all open-end funds, according to Lipper Analytical Services Inc.

The company now has $340 billion under management, up 42% from 1996, and had record sales of $5 billion in January.

Vanguard is sending out proxies to shareholders asking them to approve an interfund lending program that will save an estimated $800,000 yearly by eliminating the need for an emergency line of credit to meet redemptions. A similar program is already in place at Boston-based Fidelity Investments.

The proxies also propose changing the structure of 35 funds, representing 94 portfolios, from corporations registered in Maryland to business trusts registered in Delaware. The move would save millions annually in Pennsylvania taxes levied against out-of-state corporations.

Final votes on both proposals will be taken at shareholder meetings held through the fall. Vanguard is in the process of updating its web site (www.vanguard.com) to allow shareholders to vote electronically.

The interfund lending program -already approved by the Securities and Exchange Commission – is expected to save money by allowing funds to borrow more cheaply from each other than they could from banks.

Investors aren’t likely to pass up an opportunity to put more money in their pockets.

“It makes life easier if you can act as your own banker in a sense,” says Daniel Wiener, editor of the Independent Advisers for Vanguard Investors, a monthly newsletter in Potomac, Md. “They’ve gotten big enough that it makes sense to put in the systems to be able to do this.”