VANGUARD TAX-MANAGED FUNDS
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 22, 1999
VANGUARD TAX-MANAGED SMALL-CAP FUND
Vanguard Tax-Managed Small-Cap Fund is holding a subscription period from
February 22 through March 24, 1999. During this period, the Fund will invest in
money market securities rather than follow its normal investment policies. This
strategy should allow the Fund to accumulate enough assets to purchase most of
the stocks in its target index on a single day--March 25, 1999--which is
expected to significantly reduce initial trading costs.
During the subscription period, you may purchase shares of the Fund by
wire or check. You may also instruct Vanguard in writing to exchange assets into
the Fund from a different Vanguard account. Assets to be exchanged will remain
in the originating account until the close of the subscription (March 24, 1999).
VANGUARD WILL COMPLETE YOUR EXCHANGE ONLY IF THERE ARE SUFFICIENT ASSETS IN THE
ORIGINATING ACCOUNT ON MARCH 24 TO MEET THE FUND'S MINIMUM INITIAL INVESTMENT
REQUIREMENT OF $10,000 ($10 MILLION FOR THE INSTITUTIONAL CLASS).
The Fund's 1% purchase fee will not apply to shares purchased during
the subscription period. However, these purchases will still incur their fair
share of trading costs associated with buying stocks. These costs--roughly
equivalent to the purchase fee--will be fully reflected in the Fund's share
price on March 25, when the Fund begins its normal investment program.
PS87N-02/22/1999
