LARRY WYSOCKI, a biologist from Denver, relies on "gut instincts" rather than classic investment knowledge.
When Wysocki received the Vanguard Group's 58-page proxy recently, his gut told him something was amiss.
Among the seven proposals the proxy asks shareholders to vote on are requests to change the status of several large funds to "non4diversified" and to give management the power to change the benchmarks used as the foundation for several big index funds.
"I don't know what it all means," says Wysocki. "It sounds like they're increasing risk, but I'm not a financial guy, and I don't fully understand it, and it makes me nervous."
Wysocki isn't alone. Vanguard has about 17 million accounts in 109 funds, representing about 12 million shareholders. All should have received the proxy, which must be voted by Dec. 3. Investors can view the proxy, and vote online, at www.vanguard.com.
"The proxy is pretty benign, but I can understand why people would be spooked by it," says Daniel P. Wiener, editor of the Independent Adviser for Vanguard Investors newsletter. "Given what has been happening in the stock market, every change looks scary, even when it really isn't."
Fund companies solicit shareholder votes only when customers' approval is needed for material changes. Because of the expense involved - a cost typically borne by shareholders - funds piggyback votes, trying to resolve all issues in one mailing. (That's how Janus produced a proxy roughly double the size of Vanguard's booklet in January.)
Because proxies are rare, they make mutual fund shareowners nervous.
Mike Krawec, a Vanguard shareholder from Roseville, Calif., was hoping that the moves hinted at by the Vanguard proxy "would rectify what has happened to us in the market and these funds over the last year and make the funds better."
That's wishful thinking. The important thing in any proxy vote is to make sure the moves won't make the funds worse.
Most of Vanguard's proxy is boilerplate, with the company handling housekeeping chores, bringing rules and language from older funds up to current standards. Only one proposal - election of trustees - applies to all funds; the rest hit anywhere from one fund to dozens.
Three issues appear to be fueling Vanguard investors' anxiety:
The election of new trustees.
Investors such as Wysocki and Krawec say any change in leadership makes them squirm. Wiener wishes for "more input from shareholders" in picking trustees but acknowledges that "it's probably more independent than most fund boards."
In Vanguard's case, the change is minimal. The trustees have been running the funds, though only four were previously elected by shareholders (the other three were appointed). Six of Vanguard's seven directors qualify as "independent," exceeding the Securities and Exchange standard for outside trustees. In short, this only looks like a leadership issue.
Allowing some index funds to become "nondiversified."
This sounds fishy because indexes represent lots of stocks, so index funds should be inherently diversified and because the typical nondiversified strategy can lead to a focused portfolio with above-average volatility.
Vanguard's request is based on the SEC's standard for "diversified."
Without delving too deeply into fund arcana, the issue here is that certain indexes sometimes get big concentrations in their top stocks. If a stock tops 5 percent of the index, it could run a fund afoul of the SEC's diversification standard, forcing management to veer from the index or break SEC rules.
"People buying a fund to track an index should want us to follow the index," says Vanguard's Brian Mattes. "This guarantees that we can."
In short, the nondiversified label won't change the funds and shouldn't scare investors.
Giving management the power to change benchmarks.
This is the issue with the most impact.
The proxy describes Vanguard's ideal index. What it leaves unsaid is that certain current benchmarks fall short.
Some indexes being created by Morgan Stanley Capital International - set to debut next year - seem more to Vanguard's liking. Vanguard has licensing rights on the new indexes; a change is likely if investors green-light the proposal.
The move could have an impact on many funds, but not onVanguard's flagship 500 Index. Vanguard officials say that all funds will stay in their current asset category and change benchmarks only if such a move would make the fund better.
That will sway the institutional vote and get this measure passed. Vote your conscience here, but keep an eye out for a notice next year that your fund is changing and monitor your portfolio extra carefully once the switch is complete.
Charles A. Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.