A word on Vanguard money market funds

The recent bankruptcy filing by Lehman Brothers Holdings Inc. and widespread turbulence in the financial markets have prompted a number of questions about the impact on Vanguard funds, including money market funds.

Vanguard is confident in the stability of its money market funds, all of which are managed with the objective of maintaining a stable net asset value of $1 a share. Vanguard continues to manage its money market funds very conservatively and with extreme prudence, focusing on high quality, short-term money market instruments. All of the investments in our money market funds are closely examined by our Fixed Income Group's highly skilled and experienced credit analysts.

Our largest money market fund is Vanguard Prime Money Market Fund, which currently holds more than half of its assets in U.S. Treasury and federal agency securities. In addition, Prime Money Market Fund has no exposure to money market instruments issued by securities dealers, including Lehman Brothers. It also has no exposure to securities of AIG, the insurance concern that is being supported by loans from the federal government.

Vanguard Prime Money Market Fund
* Most conservative type of mutual fund; goal is to maintain the $1 value of its shares while providing income.
* Invests in high-quality, short-term securities.
* Appropriate place for savings that you want to preserve, but also want to earn income on.
* Has typically offered higher yields than bank accounts.
* Provides convenient access to your savings; write checks or transfer money electronically to and from your bank account.

Vanguard announces
The following changes will take effect in early August for retirement plan investors:

* Vanguard Treasury Money Market Fund will merge into the lower cost Vanguard Admiral™ Treasury Money Market Fund (or another Vanguard money market fund if your plan sponsor chooses). * Vanguard Federal Money Market Fund will be closing to new contributions and exchanges into the fund in your plan. If your plan offers Vanguard Federal Money Market Fund, you may continue to make additional purchases of, or exchanges into the fund, until early August. If you are investing in either fund, you will receive a letter from Vanguard with more details, including an outline of your options.

Why are these changes being made?
"Taking these preventive measures will protect fund shareholders and help to ensure that the funds' yields remain competitive," said Bill McNabb, Vanguard CEO. "It is possible that yields on government-backed securities and, consequently, Vanguard Admiral Treasury Money Market and Vanguard Federal Money Market Funds will remain quite low for the foreseeable future. Shareholders may wish to consider switching to alternative Vanguard fund options that are consistent with their goals and risk tolerance."

The merger of Vanguard Treasury Money Market Fund, which has an expense ratio of 0.28%, into the Admiral Treasury Money Market Fund, with its lower expense ratio of 0.15%, will reduce expenses for Treasury Fund shareholders while continuing to keep yields at competitive levels. After the merger, Admiral Treasury Money Market Fund is expected to maintain an expense ratio of 0.15%. Additionally, reducing new cash flow into Vanguard Federal Money Market Fund may slow the decline of that fund's yield.

Vanguard's actions come amid continuing strong demand for government-backed securities, which have served as a safe haven during the global financial crisis. This increased demand, coupled with cuts to prevailing interest rates by the Federal Reserve, has driven yields of government-backed securities to record lows, with current 1- and 3-month Treasury bills yielding less than 0.20%. As securities in Vanguard money market funds mature, the reinvestment of assets into new, lower-yielding securities decreases the funds' yields.