VANGUARD FUNDS
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
At special meetings of shareholders held May through July of 1998, shareholders
of each Vanguard fund approved a variety of proposals designed to update the
funds' investment policies. The policy changes are as follows:
VANGUARD INTERFUND LENDING PROGRAM. All funds will revise their borrowing and
lending policies to permit participation in Vanguard's interfund lending
program. This program will allow the funds to borrow money from each other--on a
temporary basis--if needed to meet redemption requests while awaiting payment
for portfolio securities that have been sold. The funds may participate in the
interfund lending program as borrowers or lenders, but only if this activity is
consistent with a fund's investment objective and other investment policies.
Under no circumstances will the funds use the interfund lending program to
leverage their investments.
BORROWING AND PLEDGE LIMITATIONS. In conjunction with the interfund lending
program, each fund will adopt standard limits on the total amount of money it
can borrow and the total amount of assets it can pledge to secure any
borrowings. The standard limits will be set at 15% of a fund's net assets for
each potential activity.
INVESTMENTS IN SECURITIES OWNED BY AFFILIATES. Several funds currently have a
special limitation on investments in securities issued by companies whose
securities are owned in certain amounts by the funds' trustees, officers, and
key advisory personnel. This limitation will be deleted.
INVESTMENTS IN ASSESSABLE SECURITIES. Each fund that currently prohibits
investments in assessable securities will delete this restriction.
INVESTMENTS IN UNSEASONED COMPANIES. Each fund that currently prohibits
investments in unseasoned companies will delete this restriction.
BONDS SECURED BY INTERESTS IN OIL, GAS OR MINERAL PROGRAMS. Vanguard Municipal
Bond Funds and the Vanguard state tax-exempt funds will revise their policies
concerning investments in oil, gas or mineral programs to clarify that each of
these funds may invest in bonds secured by interests in oil, gas, or mineral
programs.
INVESTING IN COMPANIES FOR CONTROL. Vanguard Municipal Bond Funds will delete a
prohibition on investing in companies for control. (Since the Funds do not
invest in companies but in fixed-income securities, elimination of this policy
will have no effect on the Funds.)
INVESTMENTS IN INDUSTRIAL REVENUE BONDS. The Vanguard state tax-exempt funds
currently have a special limitation on investments in industrial revenue and
development bonds. This limitation will be deleted.
PSBVG-10/02/1998
