Vanguard Press Release

Vanguard's money market funds will apply for the U.S. Treasury Department's program to support the account values of money market mutual funds. Trustees of the funds decided to participate in the program because they believe it is a helpful step toward stabilizing the credit markets in general, which should benefit investors in all money market funds.

Vanguard Chief Investment Officer Gus Sauter addressed a number of questions about the program.

Why is Vanguard participating in the program?

The program is one part of broader efforts to get the credit markets functioning more normally. It will remove some uncertainty in the minds of investors, and we think our shareholders will agree that taking part is the right thing to do. Frankly, Vanguard does not anticipate ever needing the Treasury's coverage, because we've always managed our money market funds with extreme prudence.

However, the current global financial climate is extremely uncertain, and we believe it is important to take part in the Treasury's temporary program and support efforts to bring stability to the credit markets, including short-term securities held by money market funds.

Money market funds are important participants in the short-term credit markets. The U.S. government, banks, and corporations rely on money market funds for their short-term funding needs. The Treasury program provides a "shot of confidence" to money market fund investors and enables funds to continue to play the critical role of funding the nation's banks and businesses.

Which funds will participate in the Treasury program?

All of our money market funds have applied for coverage.

Do money market funds still provide a sound place for investing cash?

Yes. Money market funds have a long record of serving investors well—trillions of dollars of assets have been managed successfully for years. In the very challenging times that we have faced in the money markets since the summer of 2007, Vanguard's Fixed Income Group has prepared for this risk in the market by emphasizing the most liquid and highest-quality securities.

Because the key issue in the money markets today is investor confidence—not the structure of money market funds—the Treasury designed the program to be temporary. Treasury will review the need for it after three months. So will Vanguard; after the initial three-month period, the Trustees will weigh the benefits of continued participation, the costs of the program, and other factors to decide whether to remain in it.

What are the basics of the Treasury's program?

The program is intended to forestall a "run on the bank" mentality that has caused problems at some money market funds, in particular those used by corporations and other large institutions as cash-management accounts. It provides coverage to shareholders for amounts that they held in participating taxable and tax-exempt money market mutual funds as of the close of business on September 19, 2008. Coverage would run for three months, with Vanguard money market funds required to pay an upfront fee of 0.01% ($1 per $10,000) of net assets.

For any fund participating in the program, the coverage will be triggered if a fund comes under duress as a result of a credit problem or the inability to meet shareholder redemptions. Specifically, for the coverage to kick in, a participating fund's net asset value must fall below $0.995, forcing it to liquidate, which means selling all of its assets and redeeming all investors' shares.

Who is covered?

The temporary program provides coverage to shareholders for amounts that they held in participating money market mutual funds as of the close of business on September 19. In addition, if an investor redeems shares of a participating fund after September 19, the coverage extends only to the balance in the fund on the date it "breaks the buck." In other words, you are covered for the lesser of two amounts: the balance in the fund account as of September 19 or the balance in the fund on the day the fund failed to maintain its stable $1 per share price. The Treasury has frequently asked questionsOpen new browser window on its website that offer greater detail on the coverage. How do I find my balance as of September 19?

Once you're logged on to your accounts,

* Go to Accounts and Activity.
* Select the Transaction History link.
* Select the Find Balance By Date link.
* Choose a fund from the Select a holding dropdown menu.
* Use the calendar to enter the date (09/19/2008).
* Select Calculate.

It is also important to point out that subsequent share purchases of participating funds are not covered, nor are purchases into a fund made by new investors. Thus, coverage is grandfathered for balances in money market funds as of September 19 but does not cover any new money invested in a fund.

Vanguard has been saying its money market funds are safe. If so, why take part in the Treasury program?

Vanguard has always managed its funds with care, knowing that diversification and the prudent management of credit risks and liquidity are the best protections for a money market fund. Our low operating costs have enabled us to provide competitive returns without taking undue risks to get higher yields. We will continue to manage all of our money market funds in that manner. And we remain confident in our funds' ability to continue meeting their objective of maintaining a stable net asset value of $1 a share.

So, while we can "control the controllables" in our portfolios (that is, credit quality, diversification, maturity, etc.), we cannot control the credit markets and the effects that investor behavior may have on them. Again, given the uncertainties in the market at this point and potential investor reaction to possible problems with money market funds at other firms, we believe opting into the Treasury program is a prudent step to protect our shareholders at this time.

Notes

* An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

* Investments are subject to risks.

* The Department of the Treasury link will open in a new browser window. Vanguard accepts no responsibility for content on third-party websites.