Vanguard Imposes Redemption Fees April 1st

Frequent trading drives up costs resulting in lower returns for long-term shareholders. Citing this fact, Vanguard is imposing mandatory redemption fees designed to require short-term shareholders to reimburse the fund for the costs that the fund incurs to redeem these investors’ shares.

Beginning April 1, exchanges of shares in the following funds could result in a redemption fee if held for less than the minimum holding period as follows:

The Vanguard Group, Inc. is the first manager in our Program to require redemption fees as allowed under a recent ruling by the Security and Exchange Commission (SEC). This ruling was prompted by the recent mutual fund trading investigations and allows redemption fees as long as they meet certain SEC guidelines.

In the past, these costs were typically incurred by the fund and its long-term shareholders. The redemption fee is a “user fee” to reimburse the fund for the cost of accommodating frequent traders. Because shares bought with new deferrals and certain other transactions are exempt from the redemption fees, most participants and their shares will not be affected by Vanguard’s new policy.

In determining whether and to what extent a redemption fee will apply to an exchange transaction, a participant’s shares that are exempt from the redemption fee will be exchanged first. After that, a first-in first-out method of accounting for purchases and redemptions will be used, meaning a participant’s oldest shares will be redeemed before more recently acquired shares.

Transactions Not Subject to Redemption Fees: No redemption fees will be assessed on:

1. Exchanges of shares purchased with participant payroll or employer contributions.

2. Exchanges of shares purchased with dividends or capital gains distributions.

3. Exchanges of shares purchased with rollover or in-service transfers into the plan.

4. Distributions or in-service withdrawals from a plan.

5. Redemptions or transfers of shares as part of a plan termination or at the direction of the plan.

6. Direct rollovers to individual retirement accounts (IRA’s).

7. Plan to Plan transfers within the plan.

The time holding periods and redemption fee percentages are effective as of April 1, 2006 and are subject to change without notice. The fund prospectus contains this and other important information. Read the prospectus(es) carefully before investing.