Vanguard Tax-Managed Funds - Definitive materials filed by investment companies. (497)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 33-53683) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 31

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

AMENDMENT NO. 34

VANGUARD TAX-MANAGED FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

HEIDI STAM, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE
ON JULY 29, 2008, PURSUANT TO PARAGRAPH (B) OF RULE 485.

VANGUARD TAX-MANAGED FUNDS/(R)/

> Prospectus

Investor Shares & Admiral/TM/ Shares

July 29, 2008

[Vanguard Ship Logo/R/]

VANGUARD TAX-MANAGED BALANCED FUND

VANGUARD TAX-MANAGED GROWTH AND INCOME FUND

VANGUARD TAX-MANAGED CAPITAL APPRECIATION FUND

VANGUARD TAX-MANAGED SMALL-CAP FUND

VANGUARD TAX-MANAGED INTERNATIONAL FUND

This prospectus contains financial data for the Funds through the fiscal year ended December 31, 2007.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Contents

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Vanguard Fund Profiles 1 Financial Highlights 44
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Tax-Managed Balanced Fund 1 Investing With Vanguard 52
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Tax-Managed Growth and Income Fund 6 Purchasing Shares 52
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Tax-Managed Capital Appreciation Fund 11 Converting Shares 55
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Tax-Managed Small-Cap Fund 16 Redeeming Shares 56
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Tax-Managed International Fund* 20 Exchanging Shares 61
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Investing in Tax-Managed Funds 24 Frequent-Trading Limits 61
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More on the Funds 25 Other Rules You Should Know 63
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The Funds and Vanguard 37 Fund and Account Updates 67
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Investment Advisor 38 Contacting Vanguard 69
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Dividends, Capital Gains, and Taxes 40 ETF Shares 71
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Share Price 42 Glossary of Investment Terms 76
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Why Reading This Prospectus Is Important This prospectus explains the investment objective, policies, strategies, and risks associated with each Fund. To highlight terms and concepts important to mutual fund investors, we have provided Plain Talk/(R)/ explanations along the way. Reading the prospectus will help you decide whether the Fund is the right investment for you. We suggest that you keep this prospectus for future reference.

Share Class Overview
This prospectus offers Investor Shares for all of the Funds as well as Admiral Shares for two of the Funds. Please note that Admiral Shares are not available for accounts maintained by financial intermediaries, except in limited circumstances.

A separate prospectus offers Institutional Shares of each Fund (except the Tax-Managed Balanced Fund). Institutional Shares are for investors who invest a minimum of $5 million. In addition, the Tax-Managed International Fund issues an exchange-traded class of shares (Vanguard Europe Pacific ETF), which is also offered through a separate prospectus. A brief description of ETF Shares and how to convert into them appears on pages 71 to 75 of this prospectus.

The Funds' separate share classes have different expenses; as a result, their investment performances will differ.

An investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Company or any other government agency.

*[INDEXED TO MSCI/R/]

FUND PROFILE--VANGUARD/(R)/ TAX-MANAGED BALANCED FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of federally tax-exempt income, long-term capital appreciation, and a modest amount of taxable current income.

Primary Investment Strategies
The Fund invests approximately 50% to 55% of its assets in municipal securities and the balance in common stocks. The fixed income portion of the Fund is concentrated in high-quality municipal securities with a dollar-weighted average maturity expected to be between 6 and 12 years. At least 75% of the municipal bonds purchased by the Fund will be rated in one of the top three credit-rating categories (Aaa, Aa, and A by Moody's Investors Service, Inc., or AAA, AA, and A by Standard & Poor's), as determined by an independent bond-rating agency. The Fund's stock holdings are chosen from the stocks that pay lower dividends within the Russell 1000 Index--an index that is made up of stocks of large- and mid-capitalization U.S. companies. The Fund uses statistical methods to "sample" the Index, aiming to minimize taxable dividends while approximating the other characteristics of the Index. The expected result of the stock portion is a portfolio that will loosely track the total return performance of the Index, but with lower taxable income distributions. For additional information on the Fund's investment strategies, please see More on the Funds.

Primary Risks
The Fund is subject to several stock and bond market risks, any of which could cause an investor to lose money. However, because stock and bond prices can move in different directions or to different degrees, the Fund's bond and short-term investment holdings may counteract some of the volatility experienced by the Fund's stock holdings.

. With 50% to 55% of its assets in municipal securities, the Fund is proportionately subject to bond risks, including: interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates; credit risk, which is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline; and call risk, which is the chance that during periods of falling interest rates, issuers of callable bonds may call (repay) securities with higher coupons or interest rates before their maturity dates. The Fund would then lose potential price appreciation and would be forced to reinvest the unanticipated proceeds at lower interest rates, resulting in a decline in the Fund's income. The Fund is also subject to income risk, which is the chance that the Fund's income will decline because of falling interest rates.

. With 45% to 50% of its assets in stocks, the Fund is proportionately subject to stock risks including: stock market risk, which is the chance that stock prices overall will decline; and investment style risk, which is the chance that returns from large- and mid-capitalization stocks will trail returns from the overall stock market. Historically, mid-cap stocks have been more volatile in price than the large-cap stocks that dominate the overall market, and they often perform quite differently.

For additional information on investment risks, see More on the Funds.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund (including operating expenses and any applicable shareholder fees) compare with those of its benchmark indexes and a composite bond/stock index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
1998 16.93%
1999 15.49
2000 -0.50
2001 -3.54
2002 -7.07
2003 17.05
2004 7.16
2005 4.80
2006 9.09
2007 5.11
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 12.32% (quarter ended December 31, 1998), and the lowest return for a quarter was -7.25 (quarter ended September 30, 2001).

Average Annual Total Returns for Periods Ended December 31, 2007
 1 Year 5 Years 10 Years
----------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Balanced Fund
----------------------------------------------------------------------------------------------------
Return Before Taxes 4.09% 8.55% 6.15%
----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 3.97 8.44 6.02
----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 3.58 7.71 5.62
----------------------------------------------------------------------------------------------------
Comparative Indexes
(reflect no deduction for fees, expenses, or taxes)
----------------------------------------------------------------------------------------------------
Russell 1000 Index 5.77% 13.43% 6.20%
----------------------------------------------------------------------------------------------------
Lehman Brothers 7 Year Municipal Bond Index 5.06 3.86 4.96
----------------------------------------------------------------------------------------------------
Tax-Managed Balanced Composite Index(1) 5.56 8.67 5.92
----------------------------------------------------------------------------------------------------
1 Weighted 50% Russell 1000 Index and 50% Lehman Brothers 7 Year Municipal
 Bond Index.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Fees and Expenses
The following table describes the fees and expenses you may pay if you buy and hold shares of the Fund. As is the case with all mutual funds, transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. However, these costs are reflected in the investment performance figures included in this prospectus. The expenses shown under Annual Fund Operating Expenses are based on those incurred in the fiscal year ended December 31, 2007.

Shareholder Fees
(Fees paid directly from your investment)
--------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None
--------------------------------------------------------------------------------
Purchase Fee None/1/
--------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None
--------------------------------------------------------------------------------
Redemption Fee 1%/2/
--------------------------------------------------------------------------------
Account Service Fee (for fund account balances below $10,000) $20/year/3/
--------------------------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
--------------------------------------------------------------------------------
Management Expenses 0.10%
--------------------------------------------------------------------------------
12b-1 Distribution Fee None
--------------------------------------------------------------------------------
Other Expenses 0.02%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.12%
--------------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund, or if
 your shares are redeemed because your Fund account balance falls below the
 minimum initial investment for any reason, including market fluctuation. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.
3 If applicable, the account service fee will be collected by redeeming fund
 shares in the amount of $20.

The following examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. They illustrate the hypothetical expenses that you would incur over various periods if you invest $10,000 in the Fund's shares. The first example assumes that the Fund provides a return of 5% a year, that operating expenses remain the same, and that you redeem your shares at the end of the given period.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$117 $154 $68 $154
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

The next example assumes that you did not redeem your shares at the end of the given period. Expenses for the one- and three-year periods are lower than in the first example, because the Fund's 1% redemption fee does not apply.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$12 $39 $68 $154
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
--------------------------------------------------------------------------------------------
Net Assets $722 million
--------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge, Pa., since inception
--------------------------------------------------------------------------------------------
Dividends and Capital Gains Dividends are distributed quarterly in March, June,
 September, and December; capital gains, if any, are
 distributed annually in December.
--------------------------------------------------------------------------------------------
Suitable for IRAs No
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Inception Date September 6, 1994
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Minimum Initial Investment $10,000
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Newspaper Abbreviation TxMBal
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Vanguard Fund Number 103
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CUSIP Number 921943304
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Ticker Symbol VTMFX
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FUND PROFILE--VANGUARD TAX-MANAGED
GROWTH AND INCOME FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of a moderate level of current income and long-term capital appreciation.

Primary Investment Strategies
The Fund purchases stocks included in the Standard & Poor's 500 Index--an index that contains stocks of the largest U.S. companies. The Fund will hold substantially all of the S&P 500 Index stocks. To minimize capital gains distributions caused by portfolio trades, the Fund sells portfolio securities with a higher tax basis. For additional information on the Fund's investment strategies, please see More on the Funds.

Primary Risks
An investment in the Fund could lose money over short or even long periods. You should expect the Fund's share price and total return to fluctuate within a wide range, like the fluctuations of the overall stock market. The Fund's performance could be hurt by:

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

. Investment style risk, which is the chance that returns from large-capitalization stocks will trail returns from the overall stock market. Specific types of stocks tend to go through cycles of doing better--or worse--than the stock market in general. These periods have, in the past, lasted for as long as several years.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Investor Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the share classes presented (including operating expenses and any applicable shareholder fees) compare with those of the Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Investor Shares/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
1998 28.67%
1999 21.12
2000 -9.03
2001 -11.93
2002 -21.95
2003 28.53
2004 10.83
2005 4.87
2006 15.73
2007 5.39
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 21.36% (quarter ended December 31, 1998), and the lowest return for a quarter was -17.10 (quarter ended September 30, 2002).

Average Annual Total Returns for Periods Ended December 31, 2007

 1 Year 5 Years 10 Years
----------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Growth and Income Fund Investor Shares
----------------------------------------------------------------------------------------------------
Return Before Taxes 4.35% 12.75% 5.91%
----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 4.07 12.45 5.52
----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 3.21 11.13 4.99
----------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Growth and Income Fund Admiral Shares(1)
----------------------------------------------------------------------------------------------------
Return Before Taxes 4.43% 12.81% --
----------------------------------------------------------------------------------------------------
S&P 500 Index
(reflects no deduction for fees, expenses, or taxes) 5.49% 12.83% 5.91%
----------------------------------------------------------------------------------------------------
1 From the inception of the Fund's Admiral Shares on November 12, 2001, through December 31,
 2007, the average annual total returns were 6.45% for the Admiral Shares and 6.43% for the
 S&P 500 Index.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns are shown only for the Investor Shares and will differ for each share class in an amount approximately equal to the difference in expense ratios. After-tax returns are not relevant for a shareholder who holds fund shares in a tax--

deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Fees and Expenses
The following table describes the fees and expenses you may pay if you buy and hold Investor Shares or Admiral Shares of the Fund. As is the case with all mutual funds, transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. However, these costs are reflected in the investment performance figures included in this prospectus. The expenses shown under Annual Fund Operating Expenses are based on those incurred in the fiscal year ended December 31, 2007.

Shareholder Fees
(Fees paid directly from your investment)
 Investor Shares Admiral Shares
--------------------------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None None
--------------------------------------------------------------------------------------------------
Purchase Fee None(1) None(1)
--------------------------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None None
--------------------------------------------------------------------------------------------------
Redemption Fee 1%(2) 1%(2)
--------------------------------------------------------------------------------------------------
Account Service Fee (for fund account balances below $10,000) $20/year(3) --
--------------------------------------------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
 Investor Shares Admiral Shares
--------------------------------------------------------------------------------------------------
Management Expenses 0.13% 0.07%
--------------------------------------------------------------------------------------------------
12b-1 Distribution Fee None None
--------------------------------------------------------------------------------------------------
Other Expenses 0.02% 0.02%
--------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.15% 0.09%
--------------------------------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund, or if
 your shares are redeemed because your Fund account balance falls below the
 minimum initial investment for any reason, including market fluctuation. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.
3 If applicable, the account service fee will be collected by redeeming fund
 shares in the amount of $20.

The following examples are intended to help you compare the cost of investing in the Fund's Investor Shares or Admiral Shares with the cost of investing in other mutual funds. They illustrate the hypothetical expenses that you would incur over various periods if you invest $10,000 in the Fund's shares. The first examples assume that the Shares provide a return of 5% a year, that operating expenses remain the same, and that you redeem your shares at the end of the given period.

 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
Investor Shares $120 $164 $85 $192
----------------------------------------------------------
Admiral Shares $114 $145 $51 $115
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

The next examples assume that you did not redeem your shares at the end of the given period. Expenses for the one- and three-year periods are lower than in the first examples, because the Fund's 1% redemption fee does not apply.

 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
Investor Shares $15 $48 $85 $192
----------------------------------------------------------
Admiral Shares $9 $29 $51 $115
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
------------------------------------------------------------------------------------------------
Net Assets (all share classes) $3.3 billion
------------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge, Pa., since inception
------------------------------------------------------------------------------------------------
Dividends and Capital Gains Dividends are distributed quarterly in March, June, September,
 and December; capital gains, if any, are distributed annually
 in December.
------------------------------------------------------------------------------------------------
Suitable for IRAs No
------------------------------------------------------------------------------------------------
 Investor Shares Admiral Shares
------------------------------------------------------------------------------------------------
Inception Date September 6, 1994 November 12, 2001
------------------------------------------------------------------------------------------------
Minimum Initial Investment $10,000 $100,000
------------------------------------------------------------------------------------------------
Conversion Features May be converted to Admiral May be converted to Investor
 Shares if you meet eligibility Shares if you are no longer
 requirements eligible for Admiral Shares
------------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMGI TxMGIAdml
------------------------------------------------------------------------------------------------
Vanguard Fund Number 101 5101
------------------------------------------------------------------------------------------------
CUSIP Number 921943106 921943874
------------------------------------------------------------------------------------------------
Ticker Symbol VTGIX VTGLX
------------------------------------------------------------------------------------------------

FUND PROFILE--VANGUARD TAX-MANAGED
CAPITAL APPRECIATION FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of long-term capital appreciation.

Primary Investment Strategies
The Fund purchases stocks that pay lower dividends and are included in the Russell 1000 Index--an index that is made up of the stocks of large- and mid-capitalization U.S. companies. The Fund uses statistical methods to "sample" the Index, aiming to minimize taxable dividends while approximating the other characteristics of the Index. The expected result is a portfolio that will loosely track the total return performance of the Index, but with lower taxable income distributions. For additional information on the Fund's investment strategies, please see More on the Funds.

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

. Investment style risk, which is the chance that returns from large- and mid-capitalization stocks will trail returns from the overall stock market. Historically, mid-cap stocks have been more volatile in price than the large-cap stocks that dominate the overall market, and they often perform quite differently.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Investor Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the share classes presented (including operating expenses and any applicable shareholder fees) compare with those of the Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Investor Shares/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
1998 27.95%
1999 33.50
2000 -10.13
2001 -15.34
2002 -23.45
2003 31.72
2004 11.75
2005 7.49
2006 14.40
2007 6.07
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 25.47% (quarter ended December 31, 1998), and the lowest return for a quarter was -18.58% (quarter ended September 30, 2001).

Average Annual Total Returns for Periods Ended December 31, 2007
 1 Year 5 Years 10 Years
--------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Capital Appreciation Fund Investor Shares
--------------------------------------------------------------------------------------------------
Return Before Taxes 5.03% 13.93% 6.68%
--------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 4.79 13.72 6.46
--------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 3.58 12.22 5.79
--------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares(1)
--------------------------------------------------------------------------------------------------
Return Before Taxes 5.06% 13.98% --
--------------------------------------------------------------------------------------------------
Russell 1000 Index
(reflects no deduction for fees, expenses, or taxes) 5.77% 13.43% 6.20%
--------------------------------------------------------------------------------------------------
1 From the inception of the Fund's Admiral Shares on November 12, 2001, through December 31,
 2007, the average annual total returns were 7.26% for the Admiral Shares and 7.06% for the
 Russell 1000 Index.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns are shown only for the Investor Shares and will differ for each share class in an amount approximately equal to the difference in expense ratios. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual

retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Shareholder Fees
(Fees paid directly from your investment)
 Investor Shares Admiral Shares
--------------------------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None None
--------------------------------------------------------------------------------------------------
Purchase Fee None/1/ None/1/
--------------------------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None None
--------------------------------------------------------------------------------------------------
Redemption Fee 1%/2/ 1%/2/
--------------------------------------------------------------------------------------------------
Account Service Fee (for fund account balances below $10,000) $20/year/3/ --
--------------------------------------------------------------------------------------------------

Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
 Investor Shares Admiral Shares
--------------------------------------------------------------------------------------------------
Management Expenses 0.13% 0.07%
--------------------------------------------------------------------------------------------------
12b-1 Distribution Fee None None
--------------------------------------------------------------------------------------------------
Other Expenses 0.02% 0.02%
--------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.15% 0.09%
--------------------------------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund, or if
 your shares are redeemed because your Fund account balance falls below the
 minimum initial investment for any reason, including market fluctuation. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.
3 If applicable, the account service fee will be collected by redeeming fund
 shares in the amount of $20.

 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
Investor Shares $120 $164 $85 $192
----------------------------------------------------------
Admiral Shares $114 $145 $51 $115
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
Investor Shares $15 $48 $85 $192
----------------------------------------------------------
Admiral Shares $9 $29 $51 $115
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
------------------------------------------------------------------------------------------------
Net Assets (all share classes) $4.4 billion
------------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge, Pa., since inception
------------------------------------------------------------------------------------------------
Dividends and Capital Gains Distributed annually in December
------------------------------------------------------------------------------------------------
Suitable for IRAs No
------------------------------------------------------------------------------------------------
 Investor Shares Admiral Shares
------------------------------------------------------------------------------------------------
Inception Date September 6, 1994 November 12, 2001
------------------------------------------------------------------------------------------------
Minimum Initial Investment $10,000 $100,000
------------------------------------------------------------------------------------------------
Conversion Features May be converted to Admiral May be converted to Investor
 Shares if you meet eligibility Shares if you are no longer
 requirements eligible for Admiral Shares
------------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMCap TxMCapAdml
------------------------------------------------------------------------------------------------
Vanguard Fund Number 102 5102
------------------------------------------------------------------------------------------------
CUSIP Number 921943205 921943866
------------------------------------------------------------------------------------------------
Ticker Symbol VMCAX VTCLX
------------------------------------------------------------------------------------------------

FUND PROFILE--VANGUARD TAX-MANAGED SMALL-CAP FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of long-term capital appreciation.

Primary Investment Strategies
The Fund purchases stocks included in the Standard & Poor's SmallCap 600 Index--an index that is made up of stocks of smaller U.S. companies--in approximately the same proportions as in the Index. To improve tax efficiency, the Fund may limit investments in Index securities that have undesirable tax characteristics, and may continue to hold securities no longer included in the Index. For additional information on the Fund's investment strategies, please see More on the Funds.

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

. Investment style risk, which is the chance that returns from small-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-cap stocks that dominate the overall market, and they often perform quite differently.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Investor Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund's Investor Shares (including operating expenses and any applicable shareholder fees) compare with those of the Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Investor Shares/1/
-------------------------------------------------------------------------------
{Bar Chart Range: 60% to -40%]
2000 13.44%
2001 5.44
2002 -14.44
2003 38.51
2004 22.84
2005 7.74
2006 14.15
2007 0.51
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 20.52% (quarter ended December 31, 2001), and the lowest return for a quarter was -18.41% (quarter ended September 30, 2002).

Average Annual Total Returns for Periods Ended December 31, 2007
 Since
 1 Year 5 Years Inception(1)
--------------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Small-Cap Fund Investor Shares
--------------------------------------------------------------------------------------------------------
Return Before Taxes -0.49% 16.03% 12.08%
--------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions -0.62 15.89 11.89
--------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -0.14 14.13 10.71
--------------------------------------------------------------------------------------------------------
S&P SmallCap 600 Index
(reflects no deduction for fees, expenses, or taxes) -0.30% 16.04% 11.85%
--------------------------------------------------------------------------------------------------------
1 Since-inception returns are from March 25, 1999--the inception date of the Investor
 Shares--through December 31, 2007.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns will differ for each share class in an amount approximately equal to the difference in expense ratios. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same

period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Fees and Expenses
The following table describes the fees and expenses you may pay if you buy and hold Investor Shares of the Fund. As is the case with all mutual funds, transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. However, these costs are reflected in the investment performance figures included in this prospectus. The expenses shown under Annual Fund Operating Expenses are based on those incurred in the fiscal year ended December 31, 2007.

Shareholder Fees
(Fees paid directly from your investment)
--------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None
--------------------------------------------------------------------------------
Purchase Fee None/1/
--------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None
--------------------------------------------------------------------------------
Redemption Fee 1%/2/
--------------------------------------------------------------------------------
Account Service Fee (for fund account balances below $10,000) $20/year/3/
--------------------------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
--------------------------------------------------------------------------------
Management Expenses 0.11%
--------------------------------------------------------------------------------
12b-1 Distribution Fee None
--------------------------------------------------------------------------------
Other Expenses 0.02%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.13%
--------------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund, or if
 your shares are redeemed because your Fund account balance falls below the
 minimum initial investment for any reason, including market fluctuation. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.
3 If applicable, the account service fee will be collected by redeeming fund
 shares in the amount of $20.

The following examples are intended to help you compare the cost of investing in the Fund's Investor Shares with the cost of investing in other mutual funds. They illustrate the hypothetical expenses that you would incur over various periods if you invest $10,000 in the Fund's shares. The first example assumes that the Shares provide a return of 5% a year, that operating expenses remain the same, and that you redeem your shares at the end of the given period.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$118 $157 $73 $166
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$13 $42 $73 $166
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
-----------------------------------------------------------------------------------------------
Net Assets (all share classes) $2.0 billion
-----------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge, Pa., since inception
-----------------------------------------------------------------------------------------------
Dividends and Capital Gains Distributed annually in December
-----------------------------------------------------------------------------------------------
Suitable for IRAs No
-----------------------------------------------------------------------------------------------
Inception Date March 25, 1999
-----------------------------------------------------------------------------------------------
Minimum Initial Investment $10,000
-----------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMSC
-----------------------------------------------------------------------------------------------
Vanguard Fund Number 116
-----------------------------------------------------------------------------------------------
CUSIP Number 921943403
-----------------------------------------------------------------------------------------------
Ticker Symbol VTMSX
-----------------------------------------------------------------------------------------------

FUND PROFILE--VANGUARD TAX-MANAGED INTERNATIONAL FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of long-term capital appreciation.

Primary Investment Strategies
The Fund purchases stocks included in the Morgan Stanley Capital International/(R) / Europe, Australasia, Far East (MSCI/(R) /EAFE/(R)/) Index, which is made up of approximately 1,211 common stocks of companies located in 21 countries in Europe, Australia, Asia, and the Far East. The Fund uses statistical methods to "sample" the Index, aiming to closely track its investment performance while limiting investments in Index securities that have undesirable tax characteristics in an attempt to minimize taxable income distributions. For additional information on the Fund's investment strategies, please see More on the Funds.

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. In addition, investments in foreign stock markets can be riskier than U.S. stock investments. The prices of foreign stocks and the prices of U.S. stocks have, at times, moved in opposite directions.

. Country/regional risk, which is the chance that world events--such as political upheaval, financial troubles, or natural disasters--will adversely affect the value of securities issued by companies in foreign countries or regions. Because the Fund may invest a large portion of its assets in securities of companies located in any one country or region, its performance may be hurt disproportionately by the poor performance of its investments in that area.

. Currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Investor Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund's Investor Shares (including operating expenses and any applicable shareholder fees) compare with those of the

Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Investor Shares/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
2000 -14.29%
2001 -21.94
2002 -15.62
2003 38.67
2004 20.25
2005 13.60
2006 26.27
2007 11.15
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 19.32% (quarter ended June 30, 2003), and the lowest return for a quarter was -20.00% (quarter ended September 30, 2002).

Average Annual Total Returns for Periods Ended December 31, 2007

 Since
 1 Year 5 Years Inception(1)
--------------------------------------------------------------------------------------------------------
Vanguard Tax-Managed International Fund Investor Shares
--------------------------------------------------------------------------------------------------------
Return Before Taxes 10.07% 21.60% 7.28%
--------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 9.85 21.37 6.95
--------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 7.16 19.31 6.28
--------------------------------------------------------------------------------------------------------
MSCI EAFE Index(2)
(reflects no deduction for fees or expenses) 11.17% 21.59% 7.28%
--------------------------------------------------------------------------------------------------------
1 Since-inception returns are from August 17, 1999--the inception date of the
 Investor Shares--through December 31, 2007.
2 Index returns are adjusted for withholding taxes applicable to Luxembourg
 holding companies.

shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Shareholder Fees
(Fees paid directly from your investment)
--------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None
--------------------------------------------------------------------------------
Purchase Fee None/1/
--------------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None
--------------------------------------------------------------------------------
Redemption Fee 1%/2/
--------------------------------------------------------------------------------
Account Service Fee (for fund account balances below $10,000) $20/year/3/
--------------------------------------------------------------------------------

Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
--------------------------------------------------------------------------------
Management Expenses 0.10%
--------------------------------------------------------------------------------
12b-1 Distribution Fee None
--------------------------------------------------------------------------------
Other Expenses 0.05%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.15%
--------------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund, or if
 your shares are redeemed because your Fund account balance falls below the
 minimum initial investment for any reason, including market fluctuation. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.
3 If applicable, the account service fee will be collected by redeeming fund
 shares in the amount of $20.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$120 $164 $85 $192
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$15 $48 $85 $192
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
-----------------------------------------------------------------------------------------------
Net Assets (all share classes) $3.1 billion
-----------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge, Pa., since inception
-----------------------------------------------------------------------------------------------
Dividends and Capital Gains Distributed annually in December
-----------------------------------------------------------------------------------------------
Suitable for IRAs No
-----------------------------------------------------------------------------------------------
Inception Date August 17, 1999
-----------------------------------------------------------------------------------------------
Minimum Initial Investment $10,000
-----------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMln
-----------------------------------------------------------------------------------------------
Vanguard Fund Number 127
-----------------------------------------------------------------------------------------------
CUSIP Number 921943809
-----------------------------------------------------------------------------------------------
Ticker Symbol VTMGX
-----------------------------------------------------------------------------------------------

INVESTING IN TAX-MANAGED FUNDS

Most mutual funds seek to maximize pre-tax total returns, without regard to the personal tax consequences for investors. Yet most investors stand to lose a significant portion of their investment returns to federal, state, and local taxes. Fund dividends and short-term capital gains are now taxed at federal income tax rates as high as 35%; for long-term capital gains, the rates can be up to 15%. The Vanguard Tax-Managed Funds aim to minimize the impact of taxes on investors' total returns by operating in a tax-efficient manner. Each Fund uses these tax-management techniques:

. Low turnover. Each Fund seeks to minimize turnover by employing an index-oriented approach to stock investing. Frequent trading--a hallmark of many actively managed funds--causes the Fund to realize capital gains, which must then be distributed to shareholders, reducing after-tax returns.

. A disciplined sell-selection method. When selling specific securities, each Fund will select a specific share lot--more often than not, the highest-cost shares--in order to minimize realized capital gains. In addition, the Fund may sell securities at a loss in order to offset realized capital gains that would otherwise have to be distributed to shareholders.

. Bias against taxable dividend income. The Tax-Managed Balanced and Tax-Managed Capital Appreciation Funds minimize taxable dividend income by focusing on the lower-yielding stocks in their shared benchmark index (the Russell 1000 Index). In addition, the bond portion of the Tax-Managed Balanced Fund is made up of municipal securities, which generate tax-exempt dividends.

Each Fund imposes a redemption fee on short-term investors, whose in-and-out activity can reduce the Fund's tax efficiency by causing it to realize capital gains. The fee is 1% for shares held less than five years. This fee is paid to the Fund to help cover transaction costs it incurs when selling securities to meet redemptions.

MORE ON THE FUNDS

This prospectus describes the primary risks you would face as a Fund shareholder. It is important to keep in mind one of the main axioms of investing: The higher the risk of losing money, the higher the potential reward. The reverse, also, is generally true: The lower the risk, the lower the potential reward. As you consider an investment in any mutual fund, you should take into account your personal tolerance for fluctuations in the securities markets. Look for this [FLAG] symbol throughout the prospectus. It is used to mark detailed information about the more significant risks that you would confront as a Fund shareholder.

The following sections explain the primary investment strategies and policies that each Fund uses in pursuit of its objective. The Fund's board of trustees, which oversees the Fund's management, may change investment strategies or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental. Note that each Fund's investment objective is not fundamental and may be changed without a shareholder vote.

Vanguard Tax-Managed Small-Cap Fund will invest all, or substantially all (but in no event less than 80%), of its assets in small-cap stocks, which include those stocks in the S&P SmallCap 600 Index. This policy may be changed only upon 60 days' notice to shareholders. The Fund's investment in small-cap stocks generally will be within the capitalization range of the companies included in the S&P SmallCap 600 Index ($65 million to $5 billion as of March 31, 2008). In the future, the Index's market capitalization range may be higher or lower, and the Fund's investment may track another small-cap index. Such changes may occur at any time and without notice to Fund shareholders.

Market Exposure
The following grid shows, at a glance, the types of investments made by each Fund as its primary investment strategy, as well as the percentage of assets that each Fund expects to commit to these investments. Market exposure is expected to play the most important role in achieving a Fund's investment objective.

 Vanguard Tax-Managed Fund
 ----------------------------------------------------------------------------
 Growth and Capital
Market Exposure Balanced Income Appreciation Small-Cap International
---------------------------------------------------------------------------------------------
Common stocks 45%-50% 100% Dominated 100% Large- 100% 100% Dominated
 Large- and by large-cap and mid-cap Small-cap by large-cap
 mid-cap U.S. U.S. companies U.S. companies U.S. foreign
 companies companies companies
---------------------------------------------------------------------------------------------
Municipal 50%-55% None None None None
securities
---------------------------------------------------------------------------------------------

U.S. Stocks
Each Fund invests in U.S. stocks as a primary investment strategy, except for the Tax-Managed International Fund, which invests in foreign stocks as a primary investment strategy. The size of the companies on which the Funds focus varies with each Fund.

[FLAG]
Each Fund is subject to stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

To illustrate the volatility of stock prices, the following table shows the best, worst, and average annual total returns for the U.S. stock market over various periods as measured by the Standard & Poor's 500 Index, a widely used barometer of market activity. (Total returns consist of dividend income plus change in market price.) Note that the returns shown do not include the costs of buying and selling stocks or other expenses that a real-world investment portfolio would incur.

U.S. Stock Market Returns
(1926-2007)
 1 Year 5 Years 10 Years 20 Years
-------------------------------------------------------
Best 54.2% 28.6% 19.9% 17.8%
-------------------------------------------------------
Worst -43.1 -12.4 -0.8 3.1
-------------------------------------------------------
Average 12.2 10.4 11.1 11.4
-------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926 through 2007. You can see, for example, that although the average return on common stocks for all of the 5-year periods was 10.4%, average returns for individual 5-year periods ranged from -12.4% (from 1928 through 1932) to 28.6% (from 1995 through 1999). These average returns reflect past performance of common stocks; you should not regard them as an indication of future performance of either the stock market as a whole or the Funds in particular.

Keep in mind that the S&P 500 Index (the index tracked by the Tax-Managed Growth and Income Fund) holds mainly large-cap stocks. Historically, small- and mid-cap stocks have been more volatile than--and at times have performed quite differently from--large-cap stocks. This volatility is due to several factors, including less-certain growth and dividend prospects for smaller companies. The Tax-Managed Balanced and Tax-Managed Capital Appreciation Funds hold mid-cap stocks in addition to large-cap stocks; the Tax-Managed Small-Cap Fund holds small-cap stocks; and the Tax-Managed International Fund holds mainly large-cap foreign stocks.

Stocks of publicly traded companies and funds that invest in stocks are often classified according to market value, or market capitalization. These classifications typically include small-cap, mid-cap, and large-cap. It's important to understand that, for both companies and stock funds, market-capitalization ranges change over time. Also, interpretations of size vary, and there are no "official" definitions of small-, mid-, and large-cap, even among Vanguard fund advisors. The asset-weighted median market capitalization of each Fund as of December 31, 2007, was:

 Market
Tax-Managed Fund Capitalization
------------------------------------------
Balanced (stock portion) $39.0 billion
------------------------------------------
Growth and Income 55.7
------------------------------------------
Capital Appreciation 38.9
------------------------------------------
Small-Cap 1.3
------------------------------------------
International 43.9
------------------------------------------

Foreign Stocks
The Tax-Managed International Fund seeks to provide tax-efficient investment returns consisting of long-term capital appreciation by investing in a broadly diversified group of stocks of foreign companies.

[FLAG]
Investments in foreign stock markets can be riskier than U.S. stock investments. The prices of foreign stocks and the prices of U.S. stocks have, at times, moved in opposite directions.

PLAIN TALK ABOUT INTERNATIONAL INVESTING

U.S. investors who invest abroad will encounter risks not typically associated with U.S. companies, because foreign stock and bond markets operate differently from the U.S. markets. For instance, foreign companies are not subject to the same accounting, auditing, and financial-reporting standards and practices as U.S. companies, and their stocks may not be as liquid as those of similar U.S. firms. In addition, foreign stock exchanges, brokers, and companies generally have less government supervision and regulation than their counterparts in the United States. These factors, among others, could negatively affect the returns U.S. investors receive from foreign investments.

[FLAG]
The Tax-Managed International Fund is subject to country/regional risk and currency risk. Country/regional risk is the chance that world events--such as political upheaval, financial troubles, or natural disasters--will adversely affect the value of securities issued by companies in foreign countries or regions. Because the Fund may invest a large portion of its assets in securities of companies located in any one country or region, its performance may be hurt disproportionately by the poor performance of its investments in that area. Currency risk is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

When the U.S. dollar falls in value versus another currency, returns from international stocks are enhanced because a given sum in foreign currency translates into more U.S. dollars.

International investing involves other risks and considerations, including:
generally higher costs for trading securities; foreign withholding taxes payable on the Fund's securities, which can reduce dividend income available to distribute to shareholders; and adverse changes in regulatory or legal climates.

To illustrate the volatility of international stock prices, the following table shows the best, worst, and average annual total returns for foreign stock markets over various periods as measured by the Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index, a widely used barometer of international market activity. (Total returns consist of dividend income plus change in market price.) Note that the returns shown do not include the costs of buying and selling stocks or other expenses that a real-world investment portfolio would incur.

International Stock Market Returns
(1970-2007)
 1 Year 5 Years 10 Years 20 Years
------------------------------------------------------
Best 69.4% 36.1% 22.0% 15.5%
------------------------------------------------------
Worst -23.4 -2.9 4.0 7.4
------------------------------------------------------
Average 12.9 11.1 11.6 12.3
------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1970 through 2007. These average returns reflect past performance of international stocks; you should not regard them as an indication of future performance of either foreign markets as a whole or the Tax-Managed International Fund in particular.

Because the MSCI EAFE Index tracks the European and Pacific developed markets collectively, the returns in the preceding table do not reflect the variability of returns for these markets individually. To illustrate this variability, the following table shows returns for different international markets--as well as for the U.S. market for comparison--from 1998 through 2007, as measured by their respective indexes.

Returns for Various Stock Markets/1/
 European Pacific U.S.
 Market/2/ Market/2/ Market
------------------------------------------------------------------------------------
1998 28.53% 2.72% 28.58%
------------------------------------------------------------------------------------
1999 15.89 56.65 21.04
------------------------------------------------------------------------------------
2000 -8.39 -25.78 -9.10
------------------------------------------------------------------------------------
2001 -19.90 -25.40 -11.89
------------------------------------------------------------------------------------
2002 -18.38 -9.29 -22.10
------------------------------------------------------------------------------------
2003 38.54 38.48 28.68
------------------------------------------------------------------------------------
2004 20.88 18.98 10.88
------------------------------------------------------------------------------------
2005 9.42 22.64 4.91
------------------------------------------------------------------------------------
2006 33.72 12.20 15.79
------------------------------------------------------------------------------------
2007 13.86 5.30 5.49
------------------------------------------------------------------------------------
1 European market returns are measured by the MSCI Europe Index; Pacific market
 returns are measured by the MSCI Pacific Index; and U.S. market returns are
 measured by the Standard & Poor's 500 Index.
2 Index returns are adjusted for withholding taxes applicable to Luxembourg
 holding companies.

Keep in mind that these returns reflect past performance of the various indexes; you should not consider them as an indication of future performance of the indexes, or of the Tax-Managed International Fund in particular.

[FLAG]
Each Fund is subject to investment style risk, which is the chance that returns from the types of stocks in which the Fund invests will trail returns from the overall stock market. Specific types of stocks tend to go through cycles of doing better--or worse--than the stock market in general. These periods have, in the past, lasted for as long as several years.

PLAIN TALK ABOUT BALANCED FUNDS

Balanced funds are generally "middle-of-the-road" investments that seek to provide some combination of income, capital appreciation, and conservation of capital by investing in a mix of stocks and bonds. Because prices of stocks and bonds can respond differently to various economic events and influences, a balanced fund should experience less investment risk than a fund investing exclusively in stocks.

Municipal Securities

The Tax-Managed Balanced Fund invests 50% to 55% of its assets in municipal securities. These are bonds, notes, and other fixed income instruments issued by state and local governments and regional governmental authorities, which pay income that is exempt from federal taxes. The Fund emphasizes high-quality municipal securities: At least 75% of the municipal bonds purchased by the Fund will be rated in one of the top three credit-rating categories (Aaa, Aa, and A by Moody's, or AAA, AA, and A by Standard & Poor's), as determined by an independent bond-rating agency. No more than 20% of the Fund's municipal security assets may be invested in bonds rated in the fourth-highest credit rating category (Baa by Moody's or BBB by Standard & Poor's). The remaining 5% may be invested in securities with lower credit ratings or in those that are unrated. The dollar-weighted average maturity of the Fund's municipal securities holdings is expected to be between 6 and 12 years.

PLAIN TALK ABOUT MUNICIPAL BONDS

Municipal bonds are securities issued by state and local governments and regional governmental authorities as a way of raising money for public construction projects (for example, highways, airports, or housing); for operating expenses; or for loans to public institutions and facilities.

[FLAG]
The Tax-Managed Balanced Fund is subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates. Interest rate risk is moderate for intermediate-term bonds such as those purchased by the Fund. For the Fund overall, interest rate risk should range from low to moderate, because it invests only a portion of its assets in bonds.

Although bonds are often thought to be less risky than stocks, there have been periods when bond prices have fallen significantly because of rising interest rates. For instance, prices of long-term bonds fell by almost 48% between December 1976 and September 1981.

To illustrate the relationship between bond prices and interest rates, the following table shows the effect of a 1% and a 2% change (both up and down) in interest rates on the values of three noncallable bonds of different maturities, each with a face value of $1,000.

How Interest Rate Changes Affect the Value of a $1,000 Bond/1/
 After a 1% After a 1% After a 2% After a 2%
Type of Bond (Maturity) Increase Decrease Increase Decrease
------------------------------------------------------------------------------
Short-Term (2.5 years) $977 $1,024 $955 $1,048
------------------------------------------------------------------------------
Intermediate-Term (10 years) 926 1,082 858 1,172
------------------------------------------------------------------------------
Long-Term (20 years) 884 1,137 786 1,299
------------------------------------------------------------------------------
1 Assuming a 5% coupon.

PLAIN TALK ABOUT BONDS AND INTEREST RATES

As a rule, when interest rates rise, bond prices fall. The opposite is also true: Bond prices go up when interest rates fall. Why do bond prices and interest rates move in opposite directions? Let's assume that you hold a bond offering a 5% yield. A year later, interest rates are on the rise and bonds of comparable quality and maturity are offered with a 6% yield. With higher-yielding bonds available, you would have trouble selling your 5% bond for the price you paid--you would probably have to lower your asking price. On the other hand, if interest rates were falling and 4% bonds were being offered, you should be able to sell your 5% bond for more than you paid.

Changes in interest rates can affect bond income as well as bond prices.

[FLAG]
The Tax-Managed Balanced Fund is subject to income risk, which is the chance that the Fund's income will decline because of falling interest rates. A fund's income declines when interest rates fall because the fund then must invest in lower-yielding bonds. Income risk is generally higher for funds holding short-term bonds and lower for funds holding long-term bonds. For the Fund overall, income risk should range from low to moderate, because it invests only a portion of its assets in bonds.

PLAIN TALK ABOUT BOND MATURITIES

A bond is issued with a specific maturity date--the date when the issuer must pay back the bond's principal (face value). Bond maturities range from less than 1 year to more than 30 years. Typically, the longer a bond's maturity, the more price risk you, as a bond investor, face as interest rates rise--but also the higher yield you could receive. Longer-term bonds are more suitable for investors willing to take a greater risk of price fluctuations to get higher and more stable interest income. Shorter-term bond investors should be willing to accept lower yields and greater income variability in return for less fluctuation in the value of their investment.

[FLAG]
The Tax-Managed Balanced Fund is subject to credit risk, which is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline. Credit risk should be low for the Fund, because it invests only a portion of its assets in bonds, most of which are considered to be of high quality.

The credit quality of the Tax-Managed Balanced Fund is expected to be very high, thus credit risk should be low. The dollar-weighted average credit quality of the Fund's holdings, as rated by Moody's, was AA+ as of December 31, 2007.

PLAIN TALK ABOUT CREDIT QUALITY

A bond's credit-quality rating is an assessment of the issuer's ability to pay interest on the bond and, ultimately, to repay the principal. Credit quality is evaluated by one of the independent bond-rating agencies (for example, Moody's or Standard & Poor's) or through independent analysis conducted by a fund's advisor. The lower the rating, the greater the chance--in the rating agency's or advisor's opinion--that the bond issuer will default, or fail to meet its payment obligations. All things being equal, the lower a bond's credit rating, the higher its yield should be to compensate investors for assuming additional risk. Investment-grade bonds are those rated in one of the four highest ratings categories. A fund may treat an unrated bond as investment-grade if warranted by the advisor's analysis.

[FLAG]
The Tax-Managed Balanced Fund is subject to call risk, which is the chance that during periods of falling interest rates, issuers of callable bonds may call
(repay) securities with higher coupons or interest rates before their maturity dates. The Fund would then lose potential price appreciation and would be forced to reinvest the unanticipated proceeds at lower interest rates, resulting in a decline in the Fund's income. Call risk is generally moderate for intermediate-term bonds such as those purchased by the Fund. For the Fund overall, call risk should range from low to moderate, because it invests only a portion of its assets in bonds.

The Tax-Managed Balanced Fund's bond holdings and short-term investments help to reduce--but not eliminate--some of the stock market volatility experienced by the Fund. Likewise, changes in interest rates may not have as dramatic an effect on the Fund as they would on a fund made up entirely of bonds. The Fund's balanced portfolio, in the long run, should result in less investment risk--but a lower investment return--than a fund investing exclusively in common stocks.

Security Selection
Each Fund employs an index-oriented approach to stock investing, and the only stocks purchased by a Fund are those of issuers included in its benchmark index. The Tax-Managed Balanced Fund selects municipal securities, however, based upon traditional active-management techniques. The following grid shows, at a glance, the stock index tracked by each Fund.

Tax-Managed Fund Index
--------------------------------------------
Balanced (stock portion) Russell 1000
--------------------------------------------
Growth and Income S&P 500
--------------------------------------------
Capital Appreciation Russell 1000
--------------------------------------------
Small-Cap S&P SmallCap 600
--------------------------------------------
International MSCI EAFE
--------------------------------------------

Other Investment Policies and Risks
The Tax-Managed International Fund may enter into forward foreign currency exchange contracts to help protect its holdings against unfavorable changes in exchange rates. A forward foreign currency exchange contract is an agreement to buy or sell a country's currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date. The Fund may use these contracts to gain currency exposure when investing in stock index futures and to settle trades in a foreign currency. These

contracts will not, however, prevent the Fund's securities from falling in value during foreign market downswings.

Each Fund may invest, to a limited extent, in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, bond, or currency), a physical asset (such as gold), or a market index (such as the S&P 500 Index). The Funds will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.

Vanguard may invest a small portion of Fund assets in stock index futures and/or shares of exchange-traded funds (ETFs), including ETF Shares issued by Vanguard stock funds. Stock index futures and ETFs provide returns similar to those of common stocks. Vanguard may purchase futures or ETFs when doing so will reduce the Fund's transaction costs or provide flexibility for the Funds to seek better tax efficiency. Vanguard receives no additional revenue from investing Fund assets in ETF Shares of other Vanguard funds. Fund assets invested in ETF Shares are excluded when allocating to the Fund its share of the costs of Vanguard operations.

Cash Management
Each Fund's daily cash balance may be invested in one or more Vanguard CMT Funds, which are very low-cost money market funds. When investing in a Vanguard CMT Fund, each Fund bears its proportionate share of the at-cost expenses of the CMT Fund in which it invests.

Temporary Investment Measures
Each Fund may temporarily depart from its normal investment policies and strategies when doing so is believed to be in the Fund's best interest, so long as the alternative is consistent with the Fund's investment objective. For instance, the Fund may invest beyond the normal limits in derivatives or ETFs that are consistent with the Fund's objective when those instruments are more favorably priced or provide needed liquidity, as might be the case when the Fund receives large cash flows that it cannot prudently invest immediately.

Redemption and Account Service Fees

Each Fund charges a 1% fee on shares that you redeem before they have been held for five years. The fee applies if you redeem shares by selling or by exchanging to another Vanguard fund, or if Vanguard redeems your Investor shares because your Fund account balance falls below the minimum initial investment for any reason, including market fluctuation. Shares you have held the longest will be redeemed first.

Unlike a sales charge or a load paid to a broker or a fund management company, the redemption fee is paid directly to the Fund to offset the costs of buying and selling securities. The fee is designed to ensure that short-term investors pay their share of the Fund's transaction costs and that long-term investors do not subsidize the activities of short-term traders.

An account service fee of $20 per year applies to certain fund accounts whose balances are less than $10,000.

See the Fund Profiles and Investing With Vanguard for more information about fees.

Frequent Trading or Market-Timing

Background. Some investors try to profit from strategies involving frequent trading of mutual fund shares, such as market-timing. For funds holding foreign securities, investors may try to take advantage of an anticipated difference between the price of the fund's shares and price movements in overseas markets, a practice also known as time-zone arbitrage. Investors also may try to engage in frequent trading of funds holding investments such as small-cap stocks and high-yield bonds. As money is shifted into and out of a fund by a shareholder engaging in frequent trading, a fund incurs costs for buying and selling securities, resulting in increased brokerage and administrative costs. These costs are borne by all fund shareholders, including the long-term investors who do not generate the costs. In addition, frequent trading may interfere with an advisor's ability to efficiently manage the fund.

Policies to Address Frequent Trading. The Vanguard funds (other than money market funds, short-term bond funds, and Vanguard ETF(TM) Shares) do not knowingly accommodate frequent trading. The board of trustees of each Vanguard fund has adopted policies and procedures reasonably designed to detect and discourage frequent trading and, in some cases, to compensate the fund for the costs associated with it. Although there is no assurance that Vanguard will be able to detect or prevent frequent trading or market-timing in all circumstances, the following policies have been adopted to address these issues:

. Each Vanguard fund reserves the right to reject any purchase request--including exchanges from other Vanguard funds--without notice and regardless of size. For example, a purchase request could be rejected if Vanguard determines that such purchase may negatively affect a fund's operation or performance or because of a history of frequent trading by the investor.

. Each Vanguard fund (other than money market funds, short-term bond funds, and ETF Shares) generally prohibits, except as otherwise noted in the Investing With Vanguard section, an investor's purchases or exchanges into a fund account for 60 calendar days after the investor has redeemed or exchanged out of that fund account.

. Certain Vanguard funds charge shareholders purchase and/or redemption fees on transactions.

See the Investing With Vanguard section of this prospectus for further details on Vanguard's transaction policies.

Each fund (other than money market funds), in determining its net asset value, will, when appropriate, use fair-value pricing, as described in the Share Price section. Fair-value pricing may reduce or eliminate the profitability of certain frequent- trading strategies.

Do not invest with Vanguard if you are a market-timer.

PLAIN TALK ABOUT COSTS OF INVESTING

Costs are an important consideration in choosing a mutual fund. That's because you, as a shareholder, pay the costs of operating a fund, plus any transaction costs incurred when the fund buys or sells securities. These costs can erode a substantial portion of the gross income or the capital appreciation a fund achieves. Even seemingly small differences in expenses can, over time, have a dramatic effect on a fund's performance.

Turnover Rate
Although the Funds normally seek to invest for the long term, each Fund may sell securities regardless of how long they have been held. Generally, an index-oriented fund sells securities only to respond to redemption requests or to adjust the number of shares held to reflect a change in the fund's target index. Turnover rates for large-cap stock index funds tend to be very low because large-cap indexes--such as the S&P 500 Index--typically do not change significantly from year to year. Turnover rates for mid-cap and small-cap stock index funds tend to be higher (although still relatively low, compared with actively managed stock funds) because the indexes they track are the most likely to change as a result of companies merging, growing, or failing. The Financial Highlights section of this prospectus shows historical turnover rates for the Funds. A turnover rate of 100%, for example, would mean that a Fund had sold and replaced securities valued at 100% of its net assets within a one-year period. The average turnover rates for domestic and international stock funds were approximately 94% and 72%, respectively, as reported by Morningstar, Inc., on December 31, 2007.

PLAIN TALK ABOUT TURNOVER RATE

Before investing in a mutual fund, you should review its turnover rate. This gives an indication of how transaction costs, which are not included in the fund's expense ratio, could affect the fund's future returns. In general, the greater the volume of buying and selling by the fund, the greater the impact that brokerage commissions, dealer markups, and other transaction costs will have on its return. Also, funds with high turnover rates may be more likely to generate capital gains that must be distributed to shareholders as taxable income.

THE FUNDS AND VANGUARD

Each Fund is a member of The Vanguard Group, a family of 37 investment companies with more than 150 funds holding assets in excess of $1.2 trillion. All of the funds that are members of The Vanguard Group share in the expenses associated with administrative services and business operations, such as personnel, office space, equipment, and advertising.

Vanguard also provides marketing services to the funds. Although shareholders do not pay sales commissions or 12b-1 distribution fees, each fund (or in the case of a fund with multiple share classes, each share class of the fund) pays its allocated share of The Vanguard Group's marketing costs.

PLAIN TALK ABOUT VANGUARD'S UNIQUE CORPORATE STRUCTURE

The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by the funds it oversees and thus indirectly by the shareholders in those funds. Most other mutual funds are operated by management companies that may be owned by one person, by a group of individuals, or by investors who own the management company's stock. The management fees charged by these companies include a profit component over and above the companies' cost of providing services. By contrast, Vanguard provides services to its member funds on an at-cost basis, with no profit component, which helps to keep the funds' expenses low.

INVESTMENT ADVISOR

The Vanguard Group, Inc. (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, which began operations in 1975, serves as advisor to the Funds through its Quantitative Equity and Fixed Income Groups. As of December 31, 2007, Vanguard served as advisor for approximately $1 trillion in assets. Vanguard manages the Funds on an at-cost basis, subject to the supervision and oversight of the trustees and officers of the Funds.

For the fiscal year ended December 31, 2007, the advisory expenses for the Tax-Managed Balanced, Small-Cap, and International Funds represented an effective annual rate of approximately 0.01% of its average net assets. For the Tax-Managed Growth and Income and Capital Appreciation Funds, the advisory expenses represented an effective annual rate of less than 0.01% of the Fund's average net assets.

For a discussion of why the board of trustees approved each Fund's investment advisory arrangement, see the most recent semiannual report to shareholders covering the fiscal period ended June 30.

George U. Sauter is Chief Investment Officer and Managing Director of Vanguard. As Chief Investment Officer, he is responsible for the oversight of Vanguard's Quantitative Equity and Fixed Income Groups. The investments managed by these two groups include active quantitative equity funds, equity index funds, active bond funds, index bond funds, stable value portfolios, and money market funds. Since joining Vanguard in 1987, Mr. Sauter has been a key contributor to the development of Vanguard's stock indexing and active quantitative equity investment strategies. He received his A.B. in Economics from Dartmouth College and an M.B.A. in Finance from the University of Chicago.

Robert F. Auwaerter is Principal of Vanguard and head of Vanguard's Fixed Income Group. He has direct oversight responsibility for all money market funds, bond funds, and stable value portfolios managed by the Fixed Income Group. He has managed investment portfolios since 1978 and has been with Vanguard since 1981. He received his B.S. in Finance from The Wharton School of the University of Pennsylvania and an M.B.A. from Northwestern University.

Christopher W. Alwine, CFA, is Principal of Vanguard and head of Vanguard's Municipal Money Market and Municipal Bond Groups. He has direct oversight responsibility for all tax-exempt bond funds managed by the Fixed Income Group. He has been with Vanguard since 1990, has worked in investment management since 1991, and has managed investment portfolios since 1996. He received his B.B.A. from Temple University and an M.S. from Drexel University.

PLAIN TALK ABOUT THE FUNDS' PORTFOLIO MANAGERS

The managers primarily responsible for the day-to-day management of the Funds are:

Michael H. Buek, CFA, Principal of Vanguard. He has been with Vanguard since 1987; has managed investment portfolios since 1991; and has managed the Tax-Managed Capital Appreciation and Tax-Managed Small-Cap Funds since their inceptions. Education: B.S., University of Vermont; M.B.A., Villanova University.

Duane F. Kelly, Principal of Vanguard. He has been with Vanguard since 1989; has managed investment portfolios since 1992; and has managed the Tax-Managed International Fund since its inception (co-managed since 2008). Education:
B.S., LaSalle University.

Donald M. Butler, CFA, Principal of Vanguard. He has been with Vanguard since 1992; has managed investment portfolios since 1997; and has co-managed the Tax-Managed International Fund since 2008. Education: B.S.B.A., Shippensburg University.

Michael Perre, Principal of Vanguard. He has been with Vanguard since 1990; has managed investment portfolios, including the stock portion of the Tax-Managed Balanced Fund, since 1999; and has managed the Tax-Managed Growth and Income Fund since 2006. Education: B.A., Saint Joseph's University; M.B.A., Villanova University.

Reid O. Smith, CFA, Principal of Vanguard. He has managed investment portfolios since 1986; has been with Vanguard since 1992; and has managed the bond portion of the Tax-Managed Balanced Fund since October 2007 (co-managed since 2008). Education: B.A. and M.B.A., University of Hawaii.

Michael G. Kobs, Portfolio Manager. He has worked in investment management since 1990; has managed investment portfolios since 1998; and has co-managed the bond portion of the Tax-Managed Balanced Fund since joining Vanguard in 2008. Education: B.A., University of Iowa; M.B.A., University of Chicago.

The Statement of Additional Information provides information about each portfolio manager's compensation, other accounts under management, and ownership of securities in the Funds.

DIVIDENDS, CAPITAL GAINS, AND TAXES

Fund Distributions

Each Fund distributes to shareholders virtually all of its net income (interest and dividends, less expenses) as well as any net capital gains realized from the sale of its holdings. Income dividends for the Tax-Managed Balanced and Growth and Income Funds generally are distributed quarterly in March, June, September, and December; income dividends for the Tax-Managed Capital Appreciation, Small-Cap, and International Funds generally are distributed annually in December. Capital gains distributions generally occur annually in December. In addition, the Funds may occasionally make supplemental distributions at some other time during the year. You can receive distributions of income or capital gains in cash, or you can have them automatically reinvested in more shares of the Fund.

PLAIN TALK ABOUT DISTRIBUTIONS

As a shareholder, you are entitled to your portion of a fund's income from interest and dividends as well as gains from the sale of investments. Income consists of both the dividends that the fund earns from any stock holdings and the interest it receives from any money market and bond investments. Capital gains are realized whenever the fund sells securities for higher prices than it paid for them. These capital gains are either short-term or long-term, depending on whether the fund held the securities for one year or less or for more than one year. You receive the fund's earnings as either a dividend or capital gains distribution.

Basic Tax Points

Vanguard will send you a statement each year showing the tax status of all your distributions. In addition, investors in taxable accounts should be aware of the following basic federal income tax points:

. Distributions are taxable to you whether or not you reinvest these amounts in additional Fund shares.

. Distributions declared in December--if paid to you by the end of January--are taxable as if received in December.

. Any dividend and short-term capital gains distributions that you receive are taxable to you as ordinary income (except that dividends paid by the Tax-Managed Balanced Fund from its investments in municipal securities are expected to be exempt from federal income taxes). If you are an individual and meet certain holding-period requirements with respect to your Fund shares, you may be eligible for reduced federal tax rates on "qualified dividend income," if any, distributed by the Fund.

. Any distributions of net long-term capital gains are taxable to you as long-term capital gains, no matter how long you've owned shares in the Fund.

. Although the Funds seek to minimize distributions of taxable capital gains, they may not always achieve this goal. Capital gains distributions may vary considerably from year to year as a result of the Funds' normal investment activities and cash flows.

. A sale or exchange of Fund shares is a taxable event. This means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your tax return.

. Any conversion between classes of shares of the same fund is a nontaxable event. By contrast, an exchange between classes of shares of different funds is a taxable event.

Dividend and capital gains distributions that you receive, as well as your gains or losses from any sale or exchange of Fund shares, may be subject to state and local income taxes.

The Tax-Managed International Fund may be subject to foreign taxes or foreign tax withholding on dividends, interest, and some capital gains that it receives on foreign securities. You may qualify for an offsetting credit or deduction under U.S. tax laws for any amount designated as your portion of the Fund's foreign tax obligations, provided that you meet certain requirements. See your tax advisor or IRS publications for more information.

The Tax-Managed Balanced Fund's income dividends from interest earned on municipal securities of a state or its political subdivisions are generally exempt from that state's income taxes. Almost all states, however, tax interest earned on municipal securities of other states.

PLAIN TALK ABOUT "BUYING A DIVIDEND"

Unless you are investing through a tax-deferred retirement account (such as an IRA), you should consider avoiding a purchase of fund shares shortly before the fund makes a distribution, because doing so can cost you money in taxes. This is known as "buying a dividend." For example: On December 15, you invest $5,000, buying 250 shares for $20 each. If the fund pays a distribution of $1 per share on December 16, its share price will drop to $19 (not counting market change). You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250 shares x $1 = $250 in distributions), but you owe tax on the $250 distribution you received--even if you reinvest it in more shares. To avoid "buying a dividend," check a fund's distribution schedule before you invest.

General Information

Backup withholding. By law, Vanguard must withhold 28% of any taxable distributions or redemptions from your account if you do not:

. Provide us with your correct taxpayer identification number;

. Certify that the taxpayer identification number is correct; and

. Confirm that you are not subject to backup withholding.

Similarly, Vanguard must withhold taxes from your account if the IRS instructs us to do so.

Foreign investors. Vanguard funds generally are not sold outside the United States, except to certain qualified investors. If you reside outside the United States, please consult our website at www.vanguard.com and review "Non-U.S. investors." Foreign investors should be aware that U.S. withholding and estate taxes may apply to any investments in Vanguard funds.

Invalid addresses. If a dividend or capital gains distribution check mailed to your address of record is returned as undeliverable, Vanguard will automatically reinvest all future distributions until you provide us with a valid mailing address.

Tax consequences. This prospectus provides general tax information only. If you are investing through a tax-deferred retirement account, such as an IRA, special tax rules apply. Please consult your tax advisor for detailed information about a fund's tax consequences for you.

Share Price

Each Fund's share price, called its net asset value, or NAV, is calculated each business day as of the close of regular trading on the New York Stock Exchange, generally 4 p.m., Eastern time. Each share class has its own NAV, which, for the Tax-Managed Growth and Income, Capital Appreciation, Small-Cap, and International Funds, is computed by dividing the net assets allocated to each share class by the number of Fund shares outstanding for that class. NAV per share for the Tax-Managed Balanced Fund is computed by dividing the net assets of the Fund by the number of Fund shares outstanding. On holidays or other days when the Exchange is closed, the NAV is not calculated, and the Fund does not transact purchase or redemption requests. However, on those days the value of a Fund's assets may be affected to the extent that the Fund holds foreign securities that trade on foreign markets that are open.

Stocks held by a Vanguard fund are valued at their market value when reliable market quotations are readily available. Debt securities held by a fund are valued based on information furnished by an independent pricing service or market quotations. Certain short-term debt instruments used to manage a fund's cash are valued on the basis of amortized cost. The values of any foreign securities held by a fund are converted into U.S. dollars using an exchange rate obtained from an independent third party. The values of any mutual fund shares held by a fund are based on the NAVs of the shares. The values of any ETF or closed-end fund shares held by a fund are based on the market value of the shares.

When pricing-service information or reliable market quotations are not readily available, securities are priced at their fair value (the amount that the owner might reasonably expect to receive upon the current sale of a security). A fund also will use fair-value pricing if the value of a security it holds has been materially affected by events occurring before the fund's pricing time but after the close of the primary markets or exchanges on which the security is traded. This most commonly occurs with foreign securities, which may trade on foreign exchanges that close many hours before the fund's pricing time. Intervening events might be company-specific (e.g., earnings report, merger announcement); country-specific (e.g., natural disaster, economic or political news, act of terrorism, interest rate change); or global. Intervening events include price movements in U.S. markets that are deemed to affect the value of foreign securities. Fair-value pricing may be used for domestic securities--for example, if (1) trading in a security is halted and does not resume before the fund's pricing time or if a security does not trade in the course of a day, and (2) the fund holds enough of the security that its price could affect the fund's NAV. A fund may use fair-value pricing with respect to its fixed income securities (1) on bond market holidays when the fund is open for business (such as Columbus Day and Veterans Day), or (2) if the value of a security it holds has been materially affected by events occurring before the fund's pricing time but after 3 p.m., Eastern time (per industry standard, pricing services base bond prices on the 3 p.m. yield curve).

Fair-value prices are determined by Vanguard according to procedures adopted by the board of trustees. When fair-value pricing is employed, the prices of securities used by a fund to calculate the NAV may differ from quoted or published prices for the same securities.

Vanguard fund share prices can be found daily in the mutual fund listings of most major newspapers under various "Vanguard" headings.

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand each Fund's financial performance for the periods shown, and certain information reflects financial results for a single Fund share. The total returns in each table represent the rate that an investor would have earned or lost each period on an investment in the Fund (assuming reinvestment of all distributions). This information has been derived from the financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report--along with each Fund's financial statements--is included in the Funds' most recent annual report to shareholders. To receive a free copy of the latest annual or semiannual report, you may access a report online at www.vanguard.com, or you may contact Vanguard by telephone or by mail.

PLAIN TALK ABOUT HOW TO READ THE FINANCIAL HIGHLIGHTS TABLES

This explanation uses the Tax-Managed Balanced Fund as an example. The Fund began fiscal year 2007 with a net asset value (price) of $20.02 per share. During the year, the Fund earned $0.588 per share from investment income (interest and dividends) and $0.43 per share from investments that had appreciated in value or that were sold for higher prices than the Fund paid for them.

Shareholders received $0.588 per share in the form of dividend distributions. A portion of each year's distributions may come from the prior year's income or capital gains.

The share price at the end of the year was $20.45, reflecting earnings of $1.018 per share and distributions of $0.588 per share. This was an increase of $0.43 per share (from $20.02 at the beginning of the year to $20.45 at the end of the year). For a shareholder who reinvested the distributions in the purchase of more shares, the total return was 5.11% for the year.

As of December 31, 2007, the Fund had approximately $722 million in net assets. For the year, its expense ratio was 0.12% ($1.20 per $1,000 of net assets), and its net investment income amounted to 2.86% of its average net assets. The Fund sold and replaced securities valued at 10% of its net assets.

Tax-Managed Balanced Fund
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $20.02 $18.88 $18.49 $17.72 $15.54
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .588 .54 .496 .48(1) .42
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments(2) .430 1.15 .380 .77 2.20
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.018 1.69 .876 1.25 2.62
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income(3) (.588) (.55) (.486) (.48) (.44)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (.588) (.55) (.486) (.48) (.44)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $20.45 $20.02 $18.88 $18.49 $17.72
==========================================================================================================================
Total Return(4) 5.11% 9.09% 4.80% 7.16% 17.05%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $722 $662 $606 $561 $498
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.12% 0.12% 0.12% 0.12% 0.17%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 2.86% 2.84% 2.64% 2.70%(1) 2.58%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate 10% 4% 10% 15% 16%
==========================================================================================================================
1 Net investment income per share and ratio of net investment income to average
 net assets include $0.02 and 0.13%, respectively, resulting from a special
 dividend from Microsoft Corp. in November 2004.
2 Includes increases from redemption fees of $0.00, $0.00, $0.01, $0.01, and
 $0.01.
3 For tax purposes, nontaxable dividends represent 73%, 74%, 76%, 73%, and 77%
 of dividends from net investment income.
4 Total returns do not reflect the 1% redemption fee on shares held less than
 five years; the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year; or the account service fee that may be
 applicable to certain accounts with balances below $10,000.

Tax-Managed Growth and Income Fund Investor Shares
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $30.87 $27.15 $26.36 $24.23 $19.15
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .578 .504 .467 .47(1) .34
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 1.089 3.727 .801 2.13 5.08
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.667 4.231 1.268 2.60 5.42
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income (.577) (.511) (.478) (.47) (.34)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (.577) (.511) (.478) (.47) (.34)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $31.96 $30.87 $27.15 $26.36 $24.23
==========================================================================================================================
Total Return(2) 5.39% 15.73% 4.87% 10.83% 28.53%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $740 $784 $806 $1,395 $1,321
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.14% 0.14% 0.17%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 1.80% 1.77% 1.78% 1.89%(1) 1.63%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate 5% 6% 10% 8% 5%
==========================================================================================================================
1 Net investment income per share and the ratio of net investment income to
 average net assets include $0.08 and 0.31%, respectively, resulting from a
 special dividend from Microsoft Corp. in November 2004.
2 Total returns do not reflect the 1% redemption fee on shares held less than
 five years; the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year; or the account service fee that may be
 applicable to certain accounts with balances below $10,000.

Tax-Managed Growth and Income Fund Admiral Shares
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $63.44 $55.80 $54.17 $49.80 $39.35
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1.230 1.069 .989 .99(1) .733
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 2.245 7.648 1.645 4.37 10.443
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.475 8.717 2.634 5.36 11.176
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income (1.225) (1.077) (1.004) (.99) (.726)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.225) (1.077) (1.004) (.99) (.726)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $65.69 $63.44 $55.80 $54.17 $49.80
==========================================================================================================================
Total Return(2) 5.47% 15.77% 4.93% 10.87% 28.64%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $2,113 $1,935 $1,575 $954 $777
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.09% 0.10% 0.10% 0.10% 0.11%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 1.86% 1.82% 1.82% 1.96%(1) 1.69%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate 5% 6% 10% 8% 5%
==========================================================================================================================
1 Net investment income per share and the ratio of net investment income to
 average net assets include $0.16 and 0.31% respectively, resulting from a
 special dividend from Microsoft Corp. in November 2004.
2 Total returns do not reflect the 1% redemption fee on shares held less than
 five years or the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year.

Tax-Managed Capital Appreciation Fund Investor Shares
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $33.62 $29.80 $28.05 $25.43 $19.49
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .530 .471 .352 .365(1) .238
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 1.513 3.821 1.752 2.622 5.940
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.043 4.292 2.104 2.987 6.178
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income (.533) (.472) (.354) (.367) (.238)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (.533) (.472) (.354) (.367) (.238)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $35.13 $33.62 $29.80 $28.05 $25.43
==========================================================================================================================
Total Return(2) 6.07% 14.40% 7.49% 11.75% 31.72%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $782 $832 $857 $1,596 $1,466
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.14% 0.14% 0.17%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 1.51% 1.51% 1.25% 1.40%(1) 1.09%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate 5% 5% 8% 5% 11%
==========================================================================================================================
1 Net investment income per share and the ratio of net investment income to
 average net assets include $0.061 and 0.24%, respectively, resulting from a
 special dividend from Microsoft Corp. in November 2004.
2 Total returns do not reflect the 1% redemption fee on shares held less than
 five years; the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year; or the account service fee that may be
 applicable to certain accounts with balances below $10,000.

Tax-Managed Capital Appreciation Fund Admiral Shares
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $67.68 $60.00 $56.46 $51.20 $39.24
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1.113 .99 .729 .762(1) .51
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 3.026 7.68 3.543 5.263 11.96
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.139 8.67 4.272 6.025 12.47
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income (1.119) (.99) (.732) (.765) (.51)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.119) (.99) (.732) (.765) (.51)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $70.70 $67.68 $60.00 $56.46 $51.20
==========================================================================================================================
Total Return(2) 6.11% 14.44% 7.56% 11.77% 31.80%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $3,283 $2,941 $2,360 $1,397 $1,103
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.09% 0.10% 0.10% 0.10% 0.11%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 1.57% 1.56% 1.29% 1.47%(1) 1.16%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate 5% 5% 8% 5% 11%
==========================================================================================================================
1 Net investment income per share and the ratio of net investment income to
 average net assets include $0.122 and 0.24% respectively, resulting from a
 special dividend from Microsoft Corp. in November 2004.
2 Total returns do not reflect the 1% redemption fee on shares held less than
 five years or the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year.

Tax-Managed Small-Cap Fund Investor Shares
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $25.72 $22.70 $21.25 $17.44 $12.67
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .229 .191 .193 .172 .109
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments(1) (.097) 3.023 1.454 3.811 4.770
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .132 3.214 1.647 3.983 4.879
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income (.232) (.194) (.197) (.173) (.109)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (.232) (.194) (.197) (.173) (.109)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $25.62 $25.72 $22.70 $21.25 $17.44
==========================================================================================================================
Total Return(2) 0.51% 14.15% 7.74% 22.84% 38.51%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $1,793 $1,756 $1,458 $1,282 $929
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.13% 0.14% 0.14% 0.14% 0.17%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 0.86% 0.78% 0.92% 0.96% 0.77%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate(3) 53% 42% 20% 19% 21%
==========================================================================================================================
1 Includes increases from redemption fees of $0.01, $0.01, $0.01, $0.01, and
 $0.01.
2 Total returns do not reflect the 1% redemption fee on shares held less than
 five years; the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year; or the account service fee that may be
 applicable to certain accounts with balances below $10,000.
3 Excludes the value of portfolio securities received or delivered as a result
 of in-kind purchases or redemptions of the fund's
 capital shares.

Tax-Managed International Fund Investor Shares
 Year Ended December 31,
 -----------------------------------------------------------
 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $14.16 $11.48 $10.33 $8.76 $6.43
--------------------------------------------------------------------------------------------------------------------------
Investment Operations
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .332 .331 .246 .201 .158
--------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments(1) 1.244 2.685 1.161 1.571 2.325
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.576 3.016 1.407 1.772 2.483
--------------------------------------------------------------------------------------------------------------------------
Distributions
--------------------------------------------------------------------------------------------------------------------------
Dividends from Net Investment Income (.336) (.336) (.257) (.202) (.153)
--------------------------------------------------------------------------------------------------------------------------
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (.336) (.336) (.257) (.202) (.153)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.40 $14.16 $11.48 $10.33 $8.76
==========================================================================================================================
Total Return(2) 11.15% 26.27% 13.60% 20.25% 38.67%
==========================================================================================================================
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $1,915 $1,624 $1,119 $825 $514
--------------------------------------------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.15% 0.20% 0.20% 0.23% 0.28%
--------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets 2.71% 2.70% 2.50% 2.34% 2.33%
--------------------------------------------------------------------------------------------------------------------------
Turnover Rate 6% 4% 5% 5% 9%
==========================================================================================================================
1 Includes increases from redemption fees of $0.00, $0.00, $0.00, $0.00, and
 $0.01.
2 Total returns do not reflect the 1% redemption fee on shares held less than
 five years; the 2% redemption fee assessed prior to September 14, 2005, on
 shares held less than one year; or the account service fee that may be
 applicable to certain accounts with balances below $10,000.

INVESTING WITH VANGUARD

This section of the prospectus explains the basics of doing business with Vanguard. Be sure to carefully read each topic that pertains to your relationship with Vanguard. Vanguard reserves the right to change the following policies, without prior notice to shareholders. Please call or check online for current information.

Each fund you hold in an account is a separate "fund account." For example, if you hold three funds in a nonretirement account titled in your own name, two funds in a nonretirement account titled jointly with your spouse, and one fund in an individual retirement account, you have six fund accounts--and this is true even if you hold the same fund in multiple accounts.

PURCHASING SHARES

Vanguard reserves the right, without prior notice, to increase or decrease the minimum amount required to open, convert shares to, or maintain a fund account, or to add to an existing fund account.

Investment minimums may differ for certain categories of investors.

Account Minimums for Investor Shares

To open and maintain an account. $10,000.

To add to an existing account. $50 by Automatic Investment Plan; $100 by check, exchange, wire, or electronic bank transfer (other than Automatic Investment Plan).

Account Minimums for Admiral Shares

To open and maintain an account. $100,000 for new investors. Shareholders who are registered on Vanguard.com, have held shares of the Fund for ten years, and have $50,000 or more in the same Fund account are eligible to convert their Investor Shares to Admiral Shares. See Converting Shares. Institutional clients should contact Vanguard for information on special rules that may apply to them.

To add to an existing account. $50 by Automatic Investment Plan; $100 by check, exchange, wire, or electronic bank transfer (other than Automatic Investment Plan).

How to Initiate a Purchase Request
Be sure to check Exchanging Shares, Frequent-Trading Limits, and Other Rules You Should Know before placing your purchase request.

Online. You may open certain types of accounts, request an electronic bank transfer, and make an exchange (using the proceeds from the redemption of shares from one Vanguard fund to simultaneously purchase shares of a different Vanguard fund) through our website at www.vanguard.com if you are a registered user.

By telephone. You may call Vanguard to begin the account registration process or request that the account-opening forms be sent to you. You may also request a purchase of shares by wire, by electronic bank transfer, or by an exchange. See Contacting Vanguard.

By mail. You may send your account registration form and check to open a new fund account at Vanguard. To add to an existing fund account, you may send your check with an Invest-by-Mail form (from your account statement) or with a deposit slip (available online). You may also send a written request to Vanguard to add to a fund account or to make an exchange. For a list of Vanguard addresses, see Contacting Vanguard.

How to Pay For a Purchase

By electronic bank transfer. You may purchase shares of a Vanguard fund through an electronic transfer of money held in a designated bank account. To establish the electronic bank transfer option on an account, you must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form. After the option is set up on your account, you can purchase shares by electronic bank transfer on a regular schedule (Automatic Investment Plan) or whenever you wish. Your purchase request can be initiated online, by telephone, or by mail.

By wire. Wiring instructions vary for different types of purchases. Please call Vanguard for instructions and policies on purchasing shares by wire. See Contacting Vanguard.

By check. You may send a check to make initial or additional purchases to your fund account. Also see How to Initiate a Purchase Request: By mail. Make your check payable to Vanguard and include the appropriate fund number (e.g., Vanguard--xx). For a list of Fund numbers (for Funds and share classes in this prospectus), see Contacting Vanguard.

By exchange. You may purchase shares of a Vanguard fund using the proceeds from the simultaneous redemption of shares from another Vanguard fund. You may initiate an exchange online (if you are a registered user of Vanguard.com), by telephone, or by mail. See Exchanging Shares.

Trade Date

The trade date for any purchase request received in good order will depend on the day and time Vanguard receives your request, the manner in which you are paying, and the type of fund you are purchasing. Your purchase will be executed using the NAV as calculated on the trade date. NAVs are calculated only on days the New York Stock Exchange (NYSE) is open for trading (a business day).

4 p.m., Eastern time), the trade date will be the same day. If the purchase request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

For purchases by check into money market funds: If the purchase request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the next business day. If the purchase request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the second business day following the day Vanguard receives the purchase request. Because money market instruments must be purchased with federal funds and it takes a money market mutual fund one business day to convert check proceeds into federal funds, the trade date will be one business day later than for other funds.

For purchases by electronic bank transfer using an Automatic Investment Plan:
Your trade date generally will be one business day before the date you designated for withdrawal from your bank account.

For purchases by electronic bank transfer not using an Automatic Investment Plan: If the purchase request is received by Vanguard on a business day before 10 p.m., Eastern time, the trade date will be the next business day. If the purchase request is received on a business day after 10 p.m., Eastern time, or on a nonbusiness day, the trade date will be the second business day following the day Vanguard receives the request.

If your purchase request is not accurate and complete, it may be rejected. See Other Rules You Should Know--Good Order.

For further information about purchase transactions, consult our website at www.vanguard.com or see Contacting Vanguard.

Other Purchase Rules You Should Know

Admiral Shares. Please note that Admiral Shares are not available for:

. SIMPLE IRAs and 403(b)(7) custodial accounts;

. Other retirement plan accounts receiving special administrative services from Vanguard; or

. Accounts maintained by financial intermediaries, except in limited circumstances.

Check purchases. All purchase checks must be written in U.S. dollars and must be drawn on a U.S. bank. Vanguard does not accept cash, traveler's checks, or money orders. In addition, Vanguard may refuse "starter checks" and checks that are not made payable to Vanguard.

New accounts. We are required by law to obtain from you certain personal information that we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your identity, Vanguard reserves the right, without prior notice, to close your account or take such other steps as we deem reasonable.

Refused or rejected purchase requests. Vanguard reserves the right to stop selling fund shares or to reject any purchase request at any time and without prior notice, including, but not limited to, purchases requested by exchange from another Vanguard fund. This also includes the right to reject any purchase request because of a history of frequent trading by the investor or because the purchase may negatively affect a fund's operation or performance.

Large purchases. Please call Vanguard before attempting to invest a large dollar amount.

No cancellations. Vanguard will not accept your request to cancel any purchase request once processing has begun. Please be careful when placing a purchase request.

CONVERTING SHARES

When a conversion occurs, you receive shares of one class in place of shares of another class of the same fund. At the time of conversion, the dollar value of the "new" shares you receive equals the dollar value of the "old" shares that were converted. In other words, the conversion has no effect on the value of your investment in the fund. However, the number of shares you own after the conversion may be greater than or less than the number of shares you owned before the conversion, depending on the net asset values of the two share classes.

A conversion between share classes of the same fund is a nontaxable event.

Trade Date

The trade date for any conversion request received in good order will depend on the day and time Vanguard receives your request. Your conversion will be executed using the NAVs of the different share classes on the trade date. NAVs are calculated only on days the NYSE is open for trading (a business day).

For a conversion request (other than a request to convert to ETF Shares) received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. For a conversion request received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day. See Other Rules You Should Know. (Please see Conversion Privilege in the ETF Shares section for information on conversions to ETF Shares.)

Conversions From Investor Shares to Admiral Shares

Self-directed conversions. If your account balance in the Fund is at least $100,000, you may ask Vanguard to convert your Investor Shares to Admiral Shares. You can make conversion requests online (if you are a registered user of Vanguard.com), by telephone, or by mail. See Contacting Vanguard.

Automatic conversions. Vanguard conducts periodic reviews of account balances and may, if your account balance in the Fund exceeds $100,000, automatically convert your Investor Shares to Admiral Shares. You will be notified before an automatic conversion occurs and will have an opportunity to instruct Vanguard not to effect the conversion.

Tenure conversions. You are eligible for a tenure conversion from Investor Shares to Admiral Shares if you have had an account in the Fund for ten years, that account balance is at least $50,000, and you are registered with Vanguard.com. You may request a tenure conversion online, by telephone, or by mail.

Conversions to Institutional Shares
You are eligible for a self-directed conversion from another share class to Institutional Shares of the same Fund (if available), provided that your account meets all Institutional Shares' eligibility requirements. Registered users of our website, www.vanguard.com, may request a conversion online, or you may contact Vanguard by telephone or by mail to request this transaction. Accounts that qualify for Institutional Shares will not be automatically converted.

Mandatory Conversions to Another Share Class

If an account no longer meets the balance requirements for a share class, Vanguard may automatically convert the shares in the account to another share class, as appropriate. A decline in the account balance because of market movement may result in such a conversion. Vanguard will notify the investor in writing before any mandatory conversion occurs.

REDEEMING SHARES

How to Initiate a Redemption Request
Be sure to check Exchanging Shares, Frequent-Trading Limits, and Other Rules You Should Know before placing your redemption request.

Online. You may redeem shares, request an electronic bank transfer, and make an exchange (the purchase of shares of one Vanguard fund using the proceeds of a simultaneous redemption from another Vanguard fund) through our website at www.vanguard.com if you are a registered user.

By telephone. You may call Vanguard to request a redemption of shares by wire, by electronic bank transfer, by check, or by an exchange. See Contacting Vanguard.

By mail. You may send a written request to Vanguard to redeem from a fund account or to make an exchange. See Contacting Vanguard.

How to Receive Redemption Proceeds

By electronic bank transfer. You may have the proceeds of a fund redemption sent directly to a designated bank account. To establish the electronic bank transfer option, you must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form. After the option is set up on your account, you can redeem shares by electronic bank transfer on a regular schedule (Automatic Withdrawal Plan--$50 minimum) or whenever you wish ($100 minimum). Your transaction can be initiated online, by telephone, or by mail.

By wire. When redeeming from a money market fund or a bond fund, you may instruct Vanguard to wire your redemption proceeds ($1,000 minimum) to a previously designated bank account. Wire redemptions generally are not available for Vanguard's balanced or stock funds. The wire redemption option is not automatic; you must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form. Vanguard charges a $5 fee for wire redemptions under $5,000.

By exchange. You may have the proceeds of a Vanguard fund redemption invested directly in shares of another Vanguard fund. You may initiate an exchange online (if you are a registered user of Vanguard.com), by telephone, or by mail.

By check. If you have not chosen another redemption method, Vanguard will mail you a redemption check, normally within two business days of your trade date.

Trade Date

The trade date for any redemption request received in good order will depend on the day and time Vanguard receives your request and the manner in which you are redeeming. Your redemption will be executed using the NAV as calculated on the trade date. NAVs are calculated only on days that the NYSE is open for trading (a business day).

For redemptions by check, exchange, or wire: If the redemption request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. If the redemption request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

. Note on timing of wire redemptions from money market funds: For telephone requests received by Vanguard on a business day before 10:45 a.m., Eastern time (2 p.m., Eastern time, for Vanguard Prime Money Market Fund), the redemption proceeds will leave Vanguard by the close of business the same day. For telephone requests received by Vanguard on a business day after those cut-off times, or on a nonbusiness day, and for all requests other than by telephone, the redemption proceeds will leave Vanguard by the close of business on the next business day.

. Note on timing of wire redemptions from bond funds: For requests received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the redemption proceeds will leave Vanguard by the close of business on the next business day. For requests received by Vanguard on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the redemption proceeds will leave Vanguard by the close of business on the second business day after Vanguard receives the request.

For redemptions by electronic bank transfer using an Automatic Withdrawal Plan:
Your trade date generally will be the date you designated for withdrawal of funds (redemption of shares) from your Vanguard account. Proceeds of redeemed shares generally will be credited to your designated bank account two business days after your trade date. If the date you designated for withdrawal falls on a weekend, holiday, or other nonbusiness day, your trade date will be the previous business day.

For redemptions by electronic bank transfer not using an Automatic Withdrawal Plan: If the redemption request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date generally will be the same day. If the redemption request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

If your redemption request is not accurate and complete, it may be rejected. See Other Rules You Should Know--Good Order.

For further information about redemption transactions, consult our website at www.vanguard.com or see Contacting Vanguard.

Redemption Fees

Each Fund charges a 1% fee on shares redeemed within five years of purchase by selling or by exchanging to another fund, or if your shares are redeemed because your Fund account balance falls below the minimum initial investment for any reason, including market fluctuation. The fee is withheld from redemption proceeds and is paid directly to the Fund. Shares held for five years or more are not subject to the 1% fee.

In an effort to reduce or eliminate the redemption fees you pay, if you redeem less than your full investment in the Fund, we will first redeem those shares not subject to the fee, followed by those shares you have held the longest.

For Vanguard fund accounts (including participants in employer-sponsored defined contribution plans that are served by Vanguard Small Business Services), redemption fees will not apply to the following:

. Redemptions of shares purchased with reinvested dividend and capital gains distributions.

. Share transfers, rollovers, or re-registrations within the same fund.

. Conversions of shares from one share class to another in the same fund.

. Redemptions of shares to pay fund or account fees.

. Redemptions of shares to remove excess shareholder contributions to an IRA.

. Section 529 college savings plans.

. For a one-year period, shares rolled over to an IRA held at Vanguard from a retirement plan for which Vanguard serves as recordkeeper (except for Vanguard Small Business Services retirement plans).

. Distributions by shareholders age 701/2 or older from the following:

. Traditional IRAs.

. Inherited IRAs (traditional and Roth).

. Rollover IRAs.

. SEP-IRAs.

. SIMPLE IRAs.

. Section 403(b)(7) plans served by the Vanguard Small Business Services Department.

. Vanguard Retirement Plans for which Vanguard Fiduciary Trust Company serves as trustee.

For participants in employer-sponsored defined contribution plans (other than those served by the Vanguard Small Business Services Department), in addition to the exclusions previously listed, redemption fees will not apply to the following:

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

. Distributions, loans, and in-service withdrawals from a plan.

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

. Direct rollovers into IRAs.

Redemption fees will apply to shares exchanged out of a fund within the fund's redemption-fee period into which fund the shares had previously been exchanged, rolled over, or transferred by a participant.

If Vanguard does not serve as recordkeeper for your plan, redemption fees may be applied differently. Please read your recordkeeper's plan materials carefully to learn of any other rules or fees that may apply. Also see Frequent-Trading Limits--Accounts Held by Intermediaries for information about the assessment of redemption fees by intermediaries.

Other Redemption Rules You Should Know

Documentation for certain accounts. Special documentation may be required to redeem from certain types of accounts, such as trust, corporate, nonprofit, or retirement accounts. Please call us before attempting to redeem from these types of accounts.

Potentially disruptive redemptions. Vanguard reserves the right to pay all or part of a redemption in kind--that is, in the form of securities--if we reasonably believe that a cash redemption would negatively affect the fund's operation or performance or that the shareholder may be engaged in market-timing or frequent trading. Under these circumstances, Vanguard also reserves the right to delay payment of the redemption proceeds for up to seven calendar days. By calling us before you attempt to redeem a large dollar amount, you may avoid in-kind or delayed payment of your redemption. Please see Frequent-Trading Limits for information about Vanguard's policies to limit frequent trading.

Recently purchased shares. Although you can redeem shares at any time, proceeds may not be made available to you until the fund collects payment for your purchase. This may take up to ten calendar days for shares purchased by check or by electronic bank transfer. If you have written a check on a fund with checkwriting privileges, that check may be rejected if your fund account does not have a sufficient available balance.

Share certificates. If you hold shares in certificates, those shares cannot be redeemed, exchanged, or converted until you return the certificates (unsigned) to Vanguard by registered mail. For the correct address, see Contacting Vanguard.

Address change. If you change your address online or by telephone, there may be a 15-day restriction on your ability to make online and telephone redemptions. You can request a redemption in writing at any time. Confirmations of address changes are sent to both the old and new addresses.

Payment to a different person or address. At your request, we can make your redemption check payable to a different person or send it to a different address. However, this requires the written consent of all registered account owners and may require a signature guarantee. You can obtain a signature guarantee from most commercial and savings banks, credit unions, trust companies, or member firms of a U.S. stock exchange. A notary public cannot provide a signature guarantee.

No cancellations. Vanguard will not accept your request to cancel any redemption request once processing has begun. Please be careful when placing a redemption request.

Emergency circumstances. Vanguard funds can postpone payment of redemption proceeds for up to seven calendar days. In addition, Vanguard funds can suspend redemptions and/or postpone payments of redemption proceeds beyond seven calendar days at times when the NYSE is closed or during emergency circumstances, as determined by the SEC.

EXCHANGING SHARES

An exchange occurs when you use the proceeds from the redemption of shares of one Vanguard fund to simultaneously purchase shares of a different Vanguard fund. You can make exchange requests online (if you are a registered user of Vanguard.com), by telephone, or by mail. See Purchasing Shares and Redeeming Shares.

If the NYSE is open for regular trading (a business day) at the time an exchange request is received in good order, the trade date will generally be the same day.
See Other Rules You Should Know--Good Order for additional information on all transaction requests.

Please note that Vanguard reserves the right, without prior notice, to revise or terminate the exchange privilege, limit the amount of any exchange, or reject an exchange, at any time, for any reason.

FREQUENT-TRADING LIMITS

Because excessive transactions can disrupt management of a fund and increase the fund's costs for all shareholders, Vanguard places certain limits on frequent trading in the Vanguard funds. Each Vanguard fund (other than money market funds, short-term bond funds, and ETF Shares) limits an investor's purchases or exchanges into a fund account for 60 calendar days after the investor has redeemed or exchanged out of that fund account.

For Vanguard Retirement Investment Program pooled plans, the policy applies to exchanges made by participants online or by phone.

The policy does not apply to the following:

. Purchases of shares with reinvested dividend or capital gains distributions.

. Transactions through Vanguard's Automatic Investment Plan, Automatic Exchange Service, Direct Deposit Service, Automatic Withdrawal Plan, Required Minimum Distribution Service, and Vanguard Small Business Online/(R)/.

. Redemptions of shares to pay fund or account fees.

. Transaction requests submitted by mail to Vanguard from shareholders who hold their accounts directly with Vanguard. (Wire transactions and transaction requests submitted by fax are not mail transactions and are subject to the policy.)

. Transfers and re-registrations of shares within the same fund.

. Purchases of shares by asset transfer or direct rollover.

. Conversions of shares from one share class to another in the same fund.

. Checkwriting redemptions.

. Section 529 college savings plans.

. Certain approved institutional portfolios and asset allocation programs, as well as trades made by Vanguard funds that invest in other Vanguard funds. (Please note that shareholders of Vanguard's funds of funds are subject to the policy.)

For participants in employer-sponsored defined contribution plans that are not served by Vanguard Small Business Services, the frequent-trading policy does not apply to:

. Purchases of shares with participant payroll or employer contributions or loan repayments.

. Purchases of shares with reinvested dividend or capital gains distributions.

. Distributions, loans, and in-service withdrawals from a plan.

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

. Automated transactions executed during the first six months of a participant's enrollment in the Vanguard Managed Account Program.

. Redemptions of shares to pay fund or account fees.

. Share or asset transfers or rollovers.

. Re-registrations of shares.

. Conversions of shares from one share class to another in the same fund.

. Exchange requests submitted by mail to Vanguard. (Exchange requests submitted by fax or wire are not mail requests and remain subject to the policy.)

Accounts Held by Institutions (Other Than Defined Contribution Plans) Vanguard will systematically monitor for frequent trading in institutional clients' accounts. If we detect suspicious trading activity, we will investigate and take appropriate action, which may include applying to a client's accounts the 60-day policy previously described, prohibiting a client's purchases of fund shares, and/or eliminating the client's exchange privilege.

Accounts Held by Intermediaries
When intermediaries establish accounts in Vanguard funds for their clients, we cannot always monitor the trading activity of the individual clients. However, we review trading activity at the omnibus level, and if we detect suspicious activity, we will investigate and take appropriate action. If necessary, Vanguard may prohibit additional purchases of fund shares by an intermediary or by certain of the intermediary's clients. Intermediaries may also monitor their clients' trading activities in the Vanguard funds.

For those Vanguard funds that charge purchase or redemption fees, intermediaries will be asked to assess purchase and redemption fees on shareholder and participant accounts and remit these fees to the funds. The application of purchase and redemption fees and frequent-trading policies may vary among intermediaries. There are no assurances that Vanguard will successfully identify all intermediaries or that intermediaries will properly assess purchase and redemption fees or administer frequent-trading policies. If you invest with Vanguard through an intermediary, please read that firm's materials carefully to learn of any other rules or fees that may apply.

OTHER RULES YOU SHOULD KNOW

Prospectus and Shareholder Report Mailings Vanguard attempts to eliminate the unnecessary expense of duplicate mailings by sending just one prospectus and/or report when two or more shareholders have the same last name and address. You may request individual prospectuses and reports by contacting our Client Services Department in writing, by telephone, or by e-mail.

Vanguard.com

Registration. If you are a registered user of Vanguard.com, you can use your personal computer to review your account holdings; to buy, sell, or exchange shares of most Vanguard funds; and to perform most other transactions. You must register for this service online.

revoke your electronic consent at any time, and we will begin to send paper copies of these documents within 30 days of receiving your notice.

Telephone Transactions

Automatic. When we set up your account, we'll automatically enable you to do business with us by telephone, unless you instruct us otherwise in writing.

Tele-Account/(R)/. To conduct account transactions through Vanguard's automated telephone service, you must first obtain a Personal Identification Number (PIN). Call Tele-Account at 800-662-6273 to obtain a PIN, and allow seven days after requesting the PIN before using this service.

Proof of a caller's authority. We reserve the right to refuse a telephone request if the caller is unable to provide the requested information or if we reasonably believe that the caller is not an individual authorized to act on the account. Before we allow a caller to act on an account, we may request the following information:

. Authorization to act on the account (as the account owner or by legal documentation or other means).

. Account registration and address.

. Fund name and account number, if applicable.

. Other information relating to the caller, the account holder, or the account.

Subject to revision. For any or all shareholders, we reserve the right, at any time and without prior notice, to revise, suspend, or terminate the privilege to transact or communicate with Vanguard by telephone.

Good Order
We reserve the right to reject any transaction instructions that are not in "good order." Good order generally means that your instructions include:

. The fund name and account number.

. The amount of the transaction (stated in dollars, shares, or percentage).

Written instructions also must include:

. Signatures of all registered owners.

. Signature guarantees, if required for the type of transaction. (Call Vanguard for specific signature-guarantee requirements.)

. Any supporting documentation that may be required.

The requirements vary among types of accounts and transactions.

Vanguard reserves the right, without prior notice, to revise the requirements for good order.

Future Trade-Date Requests
Vanguard does not accept requests to hold a purchase, conversion, redemption, or exchange transaction for a future date. All such requests will receive trade dates as previously described in Purchasing Shares, Converting Shares, and Redeeming Shares. Vanguard reserves the right to return future-dated purchase checks.

Accounts With More Than One Owner
If an account has more than one owner or authorized person, Vanguard will accept telephone or online instructions from any one owner or authorized person.

Responsibility for Fraud
Vanguard will not be responsible for any account losses because of fraud if we reasonably believe that the person transacting business on an account is authorized to do so. Please take precautions to protect yourself from fraud. Keep your account information private, and immediately review any account statements that we provide to you. It is important that you contact Vanguard immediately about any transactions you believe to be unauthorized.

Uncashed Checks
Please cash your distribution or redemption checks promptly. Vanguard will not pay interest on uncashed checks.

Unusual Circumstances
If you experience difficulty contacting Vanguard online, by telephone, or by Tele-Account, you can send us your transaction request by regular or express mail. See Contacting Vanguard for addresses.

Investing With Vanguard Through Other Firms You may purchase or sell shares of most Vanguard funds through a financial intermediary, such as a bank, broker, or investment advisor. Please consult your financial intermediary to determine which, if any, shares are available through that firm and to learn about other rules that may apply.

Please see Frequent-Trading Limits--Accounts Held by Intermediaries for information about the assessment of redemption fees and monitoring of frequent trading for accounts held by intermediaries.

Account Service Fee
For most shareholders, Vanguard deducts a $20 account service fee from all fund accounts that have a balance below $10,000 for any reason, including market fluctuation. The account service fee applies to both retirement and nonretirement

fund accounts. The fee will be assessed on fund accounts in all Vanguard funds, regardless of a fund's minimum investment amount. The account service fee, which will be collected by redeeming fund shares in the amount of $20, will be deducted from a fund account only once per calendar year.

If you register on Vanguard.com and elect to receive electronic delivery of statements, reports, and other materials for all of your fund accounts, the account service fee for balances below $10,000 will not be charged, so long as that election remains in effect.

The account service fee also does not apply to the following:

. Money market sweep accounts held through Vanguard Brokerage Services/(R)/.

. Accounts held through intermediaries.

. Accounts held by Voyager, Voyager Select, and Flagship clients. Membership is based on total household assets held at Vanguard, with a minimum of $100,000 to qualify for Vanguard Voyager Services/TM/, $500,000 for Vanguard Voyager Select Services/TM/, and $1 million for Vanguard Flagship Services/TM/. Vanguard determines membership by aggregating assets of all eligible accounts held by the investor and immediate family members who reside at the same address. Aggregate assets include investments in Vanguard mutual funds, Vanguard ETFs/TM/, annuities through Vanguard, the Vanguard 529 Plan, certain small-business accounts, and employer-sponsored retirement plans for which Vanguard provides recordkeeping services.

. Participant accounts in employer-sponsored defined contribution plans (other than those served by the Vanguard Small Business Services Department, which are subject to various fee structures). Please consult your enrollment materials for the rules that apply to your account.

. Section 529 college savings plans.

Low-Balance Accounts

Each Fund reserves the right to liquidate any investment-only retirement-plan fund account or any nonretirement fund account whose balance falls below the minimum initial investment for any reason, including market fluctuation. Shares redeemed in accordance with this policy will be subject to applicable redemption fees.

between the registered or beneficial account owners or when we reasonably believe a fraudulent transaction may occur or has occurred; (4) temporarily freeze any account and/or suspend account services upon initial notification to Vanguard of the death of the shareholder until Vanguard receives required documentation in good order; (5) alter, impose, discontinue, or waive any redemption fee, account service fee, or other fees charged to a group of shareholders; and (6) redeem an account, without the owner's permission to do so, in cases of threatening conduct or suspicious, fraudulent, or illegal activity. Changes may affect any or all investors. These actions will be taken when, at the sole discretion of Vanguard management, we reasonably believe they are deemed to be in the best interest of a fund.

Share Classes
Vanguard reserves the right, without prior notice, to change the eligibility requirements of its share classes, including the types of clients who are eligible to purchase each share class.

FUND AND ACCOUNT UPDATES

Confirmation Statements

We will send (or provide online, whichever you prefer) a confirmation of your trade date and the amount of your transaction when you buy, sell, exchange, or convert shares. However, we will not send confirmations reflecting only checkwriting redemptions or the reinvestment of dividend or capital gains distributions. For any month in which you had a checkwriting redemption, a Checkwriting Activity Statement will be sent to you itemizing the checkwriting redemptions for that month. Promptly review each confirmation statement that we provide to you by mail or online. It is important that you contact Vanguard immediately with any questions you may have about any transaction reflected on a confirmation statement, or Vanguard will consider the transaction properly processed.

Portfolio Summaries
We will send (or provide online, whichever you prefer) quarterly portfolio summaries to help you keep track of your accounts throughout the year. Each summary shows the market value of your account at the close of the statement period, as well as all distributions, purchases, redemptions, exchanges, transfers, and conversions for the current calendar year. Promptly review each summary that we provide to you by mail or online. It is important that you contact Vanguard immediately with any questions you may have about any transaction reflected on the summary, or Vanguard will consider the transaction properly processed.

Tax Statements
For most taxable accounts, we will send annual tax statements to assist you in preparing your income tax returns. These statements, which are generally mailed in January, will report the previous year's dividend and capital gains distributions, proceeds from the sale of shares, and distributions from IRAs and other retirement plans. These statements can be viewed online.

Average-Cost Review Statements
For most taxable accounts, average-cost review statements will accompany annual 1099B tax forms. These tax forms show the average cost of shares that you redeemed during the previous calendar year, using the average-cost single-category method, which is one of the methods established by the IRS.

Annual and Semiannual Reports
We will send (or provide online, whichever you prefer) financial reports about Vanguard Tax-Managed Funds twice a year, in February and August. These comprehensive reports include overviews of the financial markets and provide the following specific Fund information:

. Performance assessments and comparisons with industry benchmarks.

. Financial statements with listings of Fund holdings.

Portfolio Holdings
We generally post on our website at www.vanguard.com, in the Holdings section of each Fund's Profile page, a detailed list of the securities held by the Fund (under Portfolio Holdings), as of the most recent calendar-quarter-end. This list is generally updated within 30 days after the end of each calendar quarter. Vanguard may exclude any portion of these portfolio holdings from publication when deemed in the best interest of the Fund. We also generally post the ten largest stock portfolio holdings of the Fund and the percentage of the Fund's total assets that each of these holdings represents, as of the most recent calendar-quarter-end. This list is generally updated within 15 calendar days after the end of each calendar quarter. Please consult the Fund's Statement of Additional Information or our website for a description of the policies and procedures that govern disclosure of the Fund's portfolio holdings.

CONTACTING VANGUARD

Web

Vanguard.com For the most complete source of Vanguard news
24 hours a day, 7 days For fund, account, and service information
a week For most account transactions
 For literature requests
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Phone

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Vanguard For automated fund and account information
Tele-Account/(R)/ For exchange transactions (subject to limitations)
800-662-6273 Toll-free, 24 hours a day, 7 days a week
(ON-BOARD)
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Investor Information For fund and service information
800-662-7447 (SHIP) For literature requests
(Text telephone for Business hours only: Monday-Friday, 8 a.m. to 10 p.m.,
people with hearing Eastern time; Saturday, 9 a.m. to 4 p.m., Eastern time
impairment at
800-952-3335)
----------------------------------------------------------------------------------------
Client Services For account information
800-662-2739 (CREW) For most account transactions
(Text telephone for Business hours only: Monday-Friday, 8 a.m. to 10 p.m.,
people with hearing Eastern time; Saturday, 9 a.m. to 4 p.m., Eastern time
impairment at
800-749-7273)
----------------------------------------------------------------------------------------
Admiral Service Center For Admiral account information
888-237-9949 For most Admiral transactions
 Business hours only: Monday-Friday, 8 a.m. to 10 p.m.,
 Eastern time; Saturday, 9 a.m. to 4 p.m., Eastern time
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Institutional Division For information and services for large institutional investors
888-809-8102 Business hours only: Monday-Friday, 8:30 a.m. to 9 p.m.,
 Eastern time
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Intermediary Sales For information and services for financial intermediaries
Support including broker-dealers, trust institutions, insurance
800-997-2798 companies, and financial advisors
 Business hours only: Monday-Friday, 8:30 a.m. to
 7 p.m., Eastern time
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Vanguard Addresses

Please be sure to use the correct address, depending on your method of delivery. Use of an incorrect address could delay the processing of your transaction.

Regular Mail (Individuals) The Vanguard Group
 P.O. Box 1110
 Valley Forge, PA 19482-1110
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Regular Mail (Institutions) The Vanguard Group
 P.O. Box 2900
 Valley Forge, PA 19482-2900
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Registered, Express, or Overnight The Vanguard Group
 455 Devon Park Drive
 Wayne, PA 19087-1815
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Fund Numbers
Please use the specific fund number when contacting us:

 Investor Shares Admiral Shares
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Vanguard Tax-Managed Balanced Fund 103 --
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Vanguard Tax-Managed Growth and Income Fund 101 5101
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Vanguard Tax-Managed Capital Appreciation 102 5102
Fund
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Vanguard Tax-Managed Small-Cap Fund 116 --
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Vanguard Tax-Managed International Fund 127 --
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Vanguard, Vanguard.com, Connect with Vanguard, Plain Talk, Admiral, Vanguard Tele-Account, Tele-Account, Vanguard Tax-Managed Funds, Vanguard ETF, Vanguard ETFs, Vanguard Small Business Online, Vanguard Brokerage Services, Vanguard Voyager Services, Voyager, Vanguard Voyager Select Services, Voyager Select, Vanguard Flagship Services, Flagship, and the ship logo are trademarks of The Vanguard Group, Inc. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For any such funds or securities, the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group and any related funds. CFA/(R)/ is a trademark owned by CFA Institute. All other marks are the exclusive property of their respective owners.

ETF SHARES

In addition to Investor Shares, certain Vanguard funds offer a class of shares, known as Vanguard ETF* Shares, that are listed for trading on a national securities exchange. If you own Investor Shares issued by one of these funds, you may convert those shares into ETF Shares of the same fund.

Note: Vanguard reserves the right to modify or terminate the conversion privilege in the future.

The Tax-Managed International Fund offers an ETF Share class:

Fund ETF Shares Ticker Symbol
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Vanguard Tax-Managed International Fund Europe Pacific ETF VEA
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Although ETF Shares represent an investment in the same portfolio of securities as Investor Shares, they have different characteristics and may appeal to a different group of investors. It is important that you understand the differences before deciding whether to convert your shares to ETF Shares.

The following material summarizes key information about ETF Shares. A separate prospectus with more complete information about ETF Shares is also available. Investors should review that prospectus before deciding whether to convert.

Differences Between ETF Shares and Conventional Mutual Fund Shares Investor Shares are "conventional" mutual fund shares; that is, they can be purchased from and redeemed with the issuing fund for cash at a net asset value (NAV) calculated once a day. ETF Shares, by contrast, cannot be purchased from or redeemed with the issuing fund, except as noted.

An organized secondary trading market is expected to exist for ETF Shares, unlike conventional mutual fund shares, because ETF Shares are listed for trading on a national securities exchange. Investors can purchase and sell ETF Shares on the secondary market through a broker. Secondary-market transactions occur not at NAV, but at market prices that change throughout the day based on the supply of, and demand for, ETF Shares and on changes in the prices of the fund's portfolio holdings.

The market price of a fund's ETF Shares will differ somewhat from the NAV of those shares. The difference between market price and NAV is expected to be small most of the time, but in times of extreme market volatility the difference may become significant.

Buying and Selling ETF Shares
Vanguard ETF Shares must be held in a brokerage account. Therefore, before acquiring ETF Shares, whether through a conversion or an open-market purchase, you must have an account with a broker.

*U.S. Pat. No. 6,879,964 B2; 7,337,138.

You buy and sell ETF Shares in the same way you buy and sell any other exchange-traded security--on the open market, through a broker. In most cases, the broker will charge you a commission to execute the transaction. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must purchase. Because open-market transactions occur at market prices, you may pay more than NAV when you buy ETF Shares and receive less than NAV when you sell those shares.

If you own conventional shares of a Vanguard fund that issues ETF Shares, you can convert those shares into ETF Shares of equivalent value--but you cannot convert back. See "Conversion Privilege" for a discussion of the conversion process.

There is one other way to buy and sell ETF Shares. Investors can purchase and redeem ETF Shares directly from the issuing fund at NAV if they do so (1) through certain authorized broker-dealers, (2) in large blocks of shares known as Creation Units, and (3) in exchange for baskets of securities rather than cash. However, because Creation Units will be worth millions of dollars, and because most investors prefer to transact in cash rather than with securities, it is expected that only a limited number of institutional investors will purchase and redeem ETF Shares this way.

Risks
ETF Shares issued by a fund are subject to the same risks as conventional shares of the same fund. ETF Shares also are subject to the following risks:

. The market price of a fund's ETF Shares will vary somewhat from the NAV of those shares. Therefore, you may pay more than NAV when buying ETF Shares and you may receive less than NAV when selling them.

. ETF Shares cannot be redeemed with the Fund, except in Creation Unit aggregations. Therefore, if you no longer wish to own ETF Shares, you must sell them on the open market. Although ETF Shares will be listed for trading on a national securities exchange, it is possible that an active trading market may not be maintained.

. Trading of a fund's ETF Shares on an exchange may be halted if exchange officials deem such action appropriate, if the shares are delisted from the listing exchange, or if the activation of marketwide "circuit breakers" (which are tied to large decreases in stock prices) halts stock trading generally.

Fees and Expenses
When you buy and sell ETF Shares through a brokerage firm, you will pay whatever commissions the firm charges. You also will incur the cost of the "bid-asked spread," which is the difference between the price a dealer will pay for a security and the somewhat higher price at which the dealer will sell the same security. If you convert from conventional shares to ETF Shares, you will not pay a brokerage commission or a bid-asked spread. However, Vanguard charges $50 for each conversion transaction, and your broker may impose its own conversion fees as well.

Account Services
Because you hold ETF Shares through a brokerage account, Vanguard will have no record of your ownership unless you hold the shares through Vanguard Brokerage Services/(R)/ (Vanguard Brokerage). Your broker will service your account. For example, the broker will provide account statements, confirmations of your purchases and sales of ETF Shares, and year-end tax information. The broker also will be responsible for ensuring that you receive shareholder reports and other communications from the fund whose ETF Shares you own. You will receive certain services (e.g., dividend reinvestment and average-cost information) only if your broker offers those services.

Conversion Privilege
Owners of conventional shares issued by Vanguard Tax-Managed International Fund may convert those shares into ETF Shares of equivalent value. Please note that investors who own conventional shares through a 401(k) plan or other employer-sponsored retirement or benefit plan may not convert those shares into ETF Shares. Vanguard imposes a $50 charge on conversion transactions and reserves the right, in the future, to raise or lower the fee and to limit or terminate the conversion privilege. Your broker may charge an additional fee to process a conversion. ETF Shares, whether acquired through a conversion or purchased on the open market, cannot be converted into conventional shares of the same Fund. Similarly, ETF Shares of one fund cannot be exchanged for ETF Shares of another fund.

Unless you are an Authorized Participant, you must hold ETF Shares in a brokerage account. Thus, before converting conventional shares into ETF Shares, you must have an existing, or open a new, brokerage account. To initiate a conversion of conventional shares into ETF Shares, please contact your broker.

Please note that upon converting your conventional mutual fund shares to ETF Shares, you will need to select a cost-basis method of accounting for your ETF Shares. Options for your cost-basis method will depend on your historical transaction activity in the conventional shares. Prior to conversion, please consult your tax advisor to identify your options and select a method. You should also contact your broker to ensure that the method you choose is offered by your particular brokerage firm.

Converting conventional shares into ETF Shares generally is accomplished as follows. First, after your broker notifies Vanguard of your request to convert, Vanguard will transfer your conventional shares from your account to the broker's omnibus account with Vanguard (an account maintained by the broker on behalf of all its customers who hold conventional Vanguard fund shares through the broker). After the transfer, Vanguard's records will reflect your broker, not you, as the owner of the shares. Next, your broker will instruct Vanguard to convert the appropriate number or dollar amount of conventional shares in its omnibus account to ETF Shares of equivalent value, based on the respective net asset values of the two share classes.

Your Fund's transfer agent will reflect ownership of all ETF Shares in the name of the Depository Trust Company (DTC). The DTC will keep track of which ETF Shares belong to your broker, and your broker, in turn, will keep track of which ETF Shares belong to you.

Because the DTC is unable to handle fractional shares, only whole shares will be converted. For example, if you owned 300.250 conventional shares, and this was equivalent in value to 90.750 ETF Shares, the DTC account would receive 90 ETF Shares. Conventional shares worth 0.750 ETF Shares (in this example, that would be 2.481 conventional shares) would remain in the broker's omnibus account with Vanguard. Your broker then could either (1) credit your account with 0.750 ETF Shares rather than 2.481 conventional shares, or (2) redeem the 2.481 conventional shares at net asset value, in which case you would receive cash in place of those shares. If your broker chooses to redeem your conventional shares, you will realize a gain or loss on the redemption that must be reported on your tax return (unless you hold the shares in an IRA or other tax-deferred account). Please consult your broker for information on how it will handle the conversion process, including whether it will impose a fee to process a conversion.

If you convert your conventional shares to ETF Shares through Vanguard Brokerage, all conventional shares for which you request conversion will be converted into ETF Shares of equivalent value. Because no fractional shares will have to be sold, the transaction will be 100% tax-free. Vanguard Brokerage does not impose a conversion fee over and above the fee imposed by Vanguard.

Here are some important points to keep in mind when converting conventional shares of a Vanguard fund to ETF Shares:

. The conversion transaction is nontaxable except, as applicable, to the limited extent as previously described.

. The conversion process can take anywhere from several days to several weeks, depending on your broker. Vanguard generally will process conversion requests either on the day they are received or on the next business day. Vanguard imposes conversion blackout windows around the dates when a fund with ETF Shares declares dividends. This is necessary to prevent a shareholder from collecting a dividend from both the conventional share class currently held and also from the ETF share class into which the shares will be converted.

. Until the conversion process is complete, you will remain fully invested in a fund's conventional shares, and your investment will increase or decrease in value in tandem with the net asset value of those shares.

. During the conversion process, you will be able to liquidate all or part of your investment by instructing Vanguard or your broker (depending on who maintains records of your share ownership) to redeem your conventional shares. After the conversion process is complete, you will be able to liquidate all or part of your investment by instructing your broker to sell your ETF Shares.

GLOSSARY OF INVESTMENT TERMS

Active Management. An investment approach that seeks to exceed the average returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

Balanced Fund. A mutual fund that seeks to provide some combination of income, capital appreciation, and conservation of capital by investing in stocks and bonds.

Bid-Asked Spread. The difference between what a buyer is willing to bid (pay) for a security and the seller's asking (offer) price.

Capital Gains Distribution. Payment to mutual fund shareholders of gains realized on securities that a fund has sold at a profit, minus any realized losses.

Cash Investments. Cash deposits, short-term bank deposits, and money market instruments that include U.S. Treasury bills and notes, bank certificates of deposit (CDs), repurchase agreements, commercial paper, and banker's acceptances.

Circuit Breaker. A rule that requires a halt in trading in the U.S. stock markets for a specific period of time when the Dow Jones Industrial Average declines by a specified percentage during the course of a trading day.

Common Stock. A security representing ownership rights in a corporation. A stockholder is entitled to share in the company's profits, some of which may be paid out as dividends.

Country/Regional Risk. The chance that world events--such as political upheaval, financial troubles, or natural disasters--will adversely affect the value of securities issued by companies in foreign countries or regions. Because a fund may invest a large portion of its assets in securities of companies located in any one country or region, its performance may be hurt disproportionately by the poor performance of its investments in that area.

Coupon. The interest rate paid by the issuer of a debt security until its maturity. It is expressed as an annual percentage of the face value of the security.

Creation Unit. A large block of a specified number of ETF Shares. Authorized Participants may purchase and redeem ETF Shares from the fund only in Creation Unit-size aggregations.

Currency Risk. The chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

Dividend Distribution. Payment to mutual fund shareholders of income from interest or dividends generated by a fund's investments.

ETF Shares. A class of exchange-traded shares issued by certain Vanguard mutual funds. ETF Shares can be bought and sold continuously throughout the day at market prices.

Expense Ratio. The percentage of a fund's average net assets used to pay its expenses during a fiscal year. The expense ratio includes management expenses--such as advisory fees, account maintenance, reporting, accounting, legal, and other administrative expenses--and any 12b-1 distribution fees. It does not include the transaction costs of buying and selling portfolio securities.

Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund's investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.

Investment Advisor. An organization that is responsible for making the day-to-day decisions regarding a fund's investments.

Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund's stocks, weighted by the proportion of the fund's assets invested in each stock. Stocks representing half of the fund's assets have market capitalizations above the median, and the rest are below it.

Net Asset Value (NAV). The market value of a mutual fund's total assets, minus liabilities, divided by the number of shares outstanding. The value of a single share is also called its share value or share price.

Passive Management. A low-cost investment strategy in which a mutual fund attempts to track--rather than outperform--a specified market benchmark or "index"; also known as indexing.

Principal. The face value of a debt instrument or the amount of money put into an investment.

Securities. Stocks, bonds, money market instruments, and other investment vehicles.

Total Return. A percentage change, over a specified time period, in a mutual fund's net asset value, assuming the reinvestment of all distributions of dividends and capital gains.

Volatility. The fluctuations in value of a mutual fund or other security. The greater a fund's volatility, the wider the fluctuations in its returns.

Yield. Income (interest or dividends) earned by an investment, expressed as a percentage of the investment's price.

[VANGUARD SHIP LOGO/R/]
P.O. Box 2600
Valley Forge, PA 19482-2600

CONNECT WITH VANGUARD/(R)/ > www.vanguard.com

For More Information
If you would like more information about Vanguard Tax-Managed Funds, the following documents are available free upon request:

Annual/Semiannual Reports to Shareholders Additional information about the Funds' investments is available in the Funds' annual and semiannual reports to shareholders. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during their last fiscal year.

Statement of Additional Information (SAI) The SAI provides more detailed information about the Funds.

The current annual and semiannual reports and the SAI are incorporated by reference into (and are thus legally a part of) this prospectus.

To receive a free copy of the latest annual or semiannual report or the SAI, or to request additional information about the Funds or other Vanguard funds, please visit www.vanguard.com or contact us as follows:

The Vanguard Group
Investor Information Department
P.O. Box 2600
Valley Forge, PA 19482-2600
Telephone: 800-662-7447 (SHIP)
Text telephone for people with hearing impairment: 800-952-3335 If you are a current Vanguard shareholder and would like information about your account, account transactions, and/or account statements, please call:

Client Services Department
Telephone: 800-662-2739 (CREW)
Text telephone for people with hearing impairment: 800-749-7273

Information Provided by the Securities and Exchange Commission (SEC)
You can review and copy information about the Funds (including the SAI) at the SEC's Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 202-551-8090. Reports and other information about the Funds are also available in the EDGAR database on the SEC's Internet site at www.sec.gov, or you can receive copies of this information, for a fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section, Securities and Exchange Commission, Washington, DC 20549-0102.

Funds' Investment Company Act file number: 811-07175
(C) 2008 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.

P087 072008

VANGUARD TAX-MANAGED FUNDS/(R)/

> Prospectus

Institutional Shares

July 29, 2008

[VANGUARD SHIP LOGO/R/]

VANGUARD TAX-MANAGED GROWTH AND INCOME FUND

VANGUARD TAX-MANAGED CAPITAL APPRECIATION FUND

VANGUARD TAX-MANAGED SMALL-CAP FUND

VANGUARD TAX-MANAGED INTERNATIONAL FUND

This prospectus contains financial data for the Funds through the fiscal year ended December 31, 2007.

Contents

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Vanguard Fund Profiles 1 Investing With Vanguard 37
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Tax-Managed Growth and Income Fund 1 Purchasing Shares 37
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Tax-Managed Capital Appreciation Fund 5 Converting Shares 40
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Tax-Managed Small-Cap Fund 9 Redeeming Shares 41
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Tax-Managed International Fund* 13 Exchanging Shares 45
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Investing in Tax-Managed Funds 17 Frequent-Trading Limits 46
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More on the Funds 18 Other Rules You Should Know 47
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The Funds and Vanguard 26 Fund and Account Updates 51
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Investment Advisor 27 Contacting Vanguard 53
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Dividends, Capital Gains, and Taxes 28 ETF Shares 55
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Share Price 31 Glossary of Investment Terms 60
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Financial Highlights 32
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Why Reading This Prospectus Is Important This prospectus explains the investment objective, policies, strategies, and risks associated with each Fund. To highlight terms and concepts important to mutual fund investors, we have provided Plain Talk/(R)/ explanations along the way. Reading the prospectus will help you decide whether a Fund is the right investment for you. We suggest that you keep this prospectus for future reference.

Share Class Overview

This prospectus offers the Funds' Institutional Shares, which are for investors who invest a minimum of $5 million. A separate prospectus offers Investor Shares for all of the Funds and Admiral/TM/ Shares for the Tax-Managed Growth and Income and Capital Appreciation Funds. Investor Shares and Admiral Shares have investment minimums of $10,000 and $100,000, respectively. In addition, the Tax-Managed International Fund issues an exchange-traded class of shares (Vanguard Europe Pacific ETF), which are also offered through a separate prospectus. A brief description of ETF Shares and how to convert into them appears on pages 55 to 59 of this prospectus.

The Funds' separate share classes have different expenses; as a result, their investment performances will differ.

An investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Company or any other government agency.

*[INDEXED TO MSCI]

FUND PROFILE--VANGUARD/(R)/ TAX-MANAGED
GROWTH AND INCOME FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of a moderate level of current income and long-term capital appreciation.

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Institutional Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund's Institutional Shares (including operating expenses and any applicable shareholder fees) compare with those of the Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Institutional Shares/1/
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[Bar Chart Range: 60% to -40%]
2000 -8.96%
2001 -11.84
2002 -21.88
2003 28.69
2004 10.87
2005 4.94
2006 15.82
2007 5.47
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1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 15.39% (quarter ended June 30, 2003), and the lowest return for a quarter was -17.08% (quarter ended September 30, 2002).

Average Annual Total Returns for Periods Ended December 31, 2007
 Since
 1 Year 5 Years Inception(1)
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Vanguard Tax-Managed Growth and Income Fund
Institutional Shares
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Return Before Taxes 4.44% 12.84% 3.61%
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Return After Taxes on Distributions 4.15 12.53 3.21
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Return After Taxes on Distributions and Sale of Fund Shares 3.28 11.21 2.93
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S&P 500 Index
(reflects no deduction for fees, expenses, or taxes) 5.49% 12.83% 3.53%
-------------------------------------------------------------------------------------------------------
1 Since-inception returns are from March 4, 1999--the inception date of the
 Institutional Shares--through December 31, 2007.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns will differ for each share class in an amount approximately equal to the difference in expense ratios. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same

period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Fees and Expenses
The following table describes the fees and expenses you may pay if you buy and hold Institutional Shares of the Fund. As is the case with all mutual funds, transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. However, these costs are reflected in the investment performance figures included in this prospectus. The expenses shown under Annual Fund Operating Expenses are based on those incurred in the fiscal year ended December 31, 2007.

Shareholder Fees
(Fees paid directly from your investment)
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Sales Charge (Load) Imposed on Purchases None
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Purchase Fee None/1/
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Sales Charge (Load) Imposed on Reinvested Dividends None
----------------------------------------------------------------
Redemption Fee 1%/2/
----------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
----------------------------------------------------------------
Management Expenses 0.05%
----------------------------------------------------------------
12b-1 Distribution Fee None
----------------------------------------------------------------
Other Expenses 0.02%
----------------------------------------------------------------
Total Annual Fund Operating Expenses 0.07%
----------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.

The following examples are intended to help you compare the cost of investing in the Fund's Institutional Shares with the cost of investing in other mutual funds. They illustrate the hypothetical expenses that you would incur over various periods if you invest $10,000 in the Fund's shares. The first example assumes that the Shares provide a return of 5% a year, that operating expenses remain the same, and that you redeem your shares at the end of the given period.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$112 $138 $40 $90
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$7 $23 $40 $90
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
----------------------------------------------------------------------------------------------
Net Assets (all share classes) $3.3 billion
----------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge Pa., since inception
----------------------------------------------------------------------------------------------
Dividends and Capital Gains Dividends are distributed quarterly in March, June,
 September, and December; capital gains, if any, are
 distributed annually in December.
----------------------------------------------------------------------------------------------
Inception Date Investor Shares--September 6, 1994
 Institutional Shares--March 4, 1999
----------------------------------------------------------------------------------------------
Minimum Initial Investment $5 million
----------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMGIIst
----------------------------------------------------------------------------------------------
Vanguard Fund Number 136
----------------------------------------------------------------------------------------------
CUSIP Number 921943700
----------------------------------------------------------------------------------------------
Ticker Symbol VTMIX
----------------------------------------------------------------------------------------------

FUND PROFILE--VANGUARD TAX-MANAGED
CAPITAL APPRECIATION FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of long-term capital appreciation.

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Institutional Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund's Institutional Shares (including operating expenses and any applicable shareholder fees) compare with those of the Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Institutional Shares/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
2000 -10.07%
2001 -15.26
2002 -23.37
2003 31.87
2004 11.78
2005 7.61
2006 14.49
2007 6.13
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 16.07% (quarter ended June 30, 2003), and the lowest return for a quarter was -18.57% (quarter ended September 30, 2001).

Average Annual Total Returns for Periods Ended December 31, 2007
 Since
 1 Year 5 Years Inception(1)
-------------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Capital Appreciation Fund
Institutional Shares
-------------------------------------------------------------------------------------------------------
Return Before Taxes 5.09% 14.02% 4.43%
-------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 4.84 13.79 4.18
-------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 3.64 12.30 3.75
-------------------------------------------------------------------------------------------------------
Russell 1000 Index
(reflects no deduction for fees, expenses, or taxes) 5.77% 13.43% 3.99%
-------------------------------------------------------------------------------------------------------
1 Since-inception returns are from February 24, 1999--the inception date of the
 Institutional Shares--through December 31, 2007.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns will differ for each share class in an amount approximately equal to the difference in expense ratios. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on

Distributions and Sale of Fund Shares will be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Shareholder Fees
(Fees paid directly from your investment)
------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None
------------------------------------------------------------------------
Purchase Fee None/1/
------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None
------------------------------------------------------------------------
Redemption Fee 1%/2/
------------------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
------------------------------------------------------------------------
Management Expenses 0.06%
------------------------------------------------------------------------
12b-1 Distribution Fee None
------------------------------------------------------------------------
Other Expenses 0.01%
------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.07%
------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$112 $138 $40 $90
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$7 $23 $40 $90
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
----------------------------------------------------------------------------------------------
Net Assets (all share classes) $4.4 billion
----------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge Pa., since inception
----------------------------------------------------------------------------------------------
Dividends and Capital Gains Distributed annually in December
----------------------------------------------------------------------------------------------
Inception Date Investor Shares--September 6, 1994
 Institutional Shares--February 24, 1999
----------------------------------------------------------------------------------------------
Minimum Initial Investment $5 million
----------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMCaIst
----------------------------------------------------------------------------------------------
Vanguard Fund Number 135
----------------------------------------------------------------------------------------------
CUSIP Number 921943601
----------------------------------------------------------------------------------------------
Ticker Symbol VTCIX
----------------------------------------------------------------------------------------------

FUND PROFILE--VANGUARD TAX-MANAGED SMALL-CAP FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of long-term capital appreciation.

. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Institutional Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund's Institutional Shares (including operating expenses and any applicable shareholder fees) compare with those of the Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Institutional Shares/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
2000 13.53%
2001 5.53
2002 -14.36
2003 38.68
2004 22.83
2005 7.82
2006 14.23
2007 0.51
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 20.43% (quarter ended December 31, 2001), and the lowest return for a quarter was -18.39% (quarter ended September 30, 2002).

Average Annual Total Returns for Periods Ended December 31, 2007
 Since
 1 Year 5 Years Inception(1)
-------------------------------------------------------------------------------------------------------
Vanguard Tax-Managed Small-Cap Fund Institutional Shares
-------------------------------------------------------------------------------------------------------
Return Before Taxes -0.48% 16.09% 11.36%
-------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions -0.62 15.95 11.15
-------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -0.12 14.19 10.03
-------------------------------------------------------------------------------------------------------
S&P SmallCap 600 Index
(reflects no deduction for fees, expenses, or taxes) -0.30% 16.04% 11.11%
-------------------------------------------------------------------------------------------------------
1 Since-inception returns are from April 21, 1999--the inception date of the
 Institutional Shares--through December 31, 2007.

Note on after-tax returns. Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns will differ for each share class in an amount approximately equal to the difference in expense ratios. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares will be higher than other figures for the same

period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Shareholder Fees
(Fees paid directly from your investment)
-----------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None
-----------------------------------------------------------------------
Purchase Fee None/1/
-----------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None
-----------------------------------------------------------------------
Redemption Fee 1%/2/
-----------------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
-----------------------------------------------------------------------
Management Expenses 0.06%
-----------------------------------------------------------------------
12b-1 Distribution Fee None
-----------------------------------------------------------------------
Other Expenses 0.03%
-----------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.09%
-----------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$114 $145 $51 $115
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$9 $29 $51 $115
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
-----------------------------------------------------------------------------------------------
Net Assets (all share classes) $2.0 billion
-----------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge, Pa., since inception
-----------------------------------------------------------------------------------------------
Dividends and Capital Gains Distributed annually in December
-----------------------------------------------------------------------------------------------
Inception Date Investor Shares--March 25, 1999
 Institutional Shares--April 21, 1999
-----------------------------------------------------------------------------------------------
Minimum Initial Investment $5 million
-----------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMSCIst
-----------------------------------------------------------------------------------------------
Vanguard Fund Number 118
-----------------------------------------------------------------------------------------------
CUSIP Number 921943502
-----------------------------------------------------------------------------------------------
Ticker Symbol VTSIX
-----------------------------------------------------------------------------------------------

FUND PROFILE--VANGUARD TAX-MANAGED INTERNATIONAL FUND

Investment Objective
The Fund seeks to provide a tax-efficient investment return consisting of long-term capital appreciation.

. Currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

Performance/Risk Information
The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund's Institutional Shares (including operating expenses but excluding shareholder fees) has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the Fund's Institutional Shares (including operating expenses and any applicable shareholder fees) compare with those of the

Fund's benchmark index. Keep in mind that the Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future.

Annual Total Returns--Institutional Shares/1/
-------------------------------------------------------------------------------
[Bar Chart Range: 60% to -40%]
2002 -15.52%
2003 38.94
2004 20.19
2005 13.66
2006 26.42
2007 11.21
-------------------------------------------------------------------------------
1 If applicable shareholder fees were reflected, returns would be less than
 those shown.

During the periods shown in the bar chart, the highest return for a calendar quarter was 19.32% (quarter ended June 30, 2003), and the lowest return for a quarter was -19.87% (quarter ended September 30, 2002).

Average Annual Total Returns for Periods Ended December 31, 2007
 Since
 1 Year 5 Years Inception(1)
-------------------------------------------------------------------------------------------------------
Vanguard Tax-Managed International Fund Institutional Shares
-------------------------------------------------------------------------------------------------------
Return Before Taxes 10.12% 21.69% 8.46%
-------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 9.90 21.46 8.11
-------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 7.21 19.39 7.31
-------------------------------------------------------------------------------------------------------
MSCI EAFE Index(2)
(reflects no deduction for fees or expenses) 11.17% 21.59% 8.40%
-------------------------------------------------------------------------------------------------------
1 Since-inception returns are from January 4, 2001--the inception date of the
 Institutional Shares--through December 31, 2007.
2 Index returns are adjusted for withholding taxes applicable to Luxembourg
 holding companies.

Shareholder Fees
(Fees paid directly from your investment)
---------------------------------------------------------------------------
Sales Charge (Load) Imposed on Purchases None

---------------------------------------------------------------------------
Purchase Fee None/1/
---------------------------------------------------------------------------
Sales Charge (Load) Imposed on Reinvested Dividends None
---------------------------------------------------------------------------
Redemption Fee 1%/2/
---------------------------------------------------------------------------


Annual Fund Operating Expenses
(Expenses deducted from the Fund's assets)
---------------------------------------------------------------------------
Management Expenses 0.04%
---------------------------------------------------------------------------
12b-1 Distribution Fee None
---------------------------------------------------------------------------
Other Expenses 0.05%
---------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.09%
---------------------------------------------------------------------------
1 The Fund reserves the right to deduct a purchase fee from future purchases of
 shares.
2 The 1% fee applies to shares redeemed within five years of purchase. The fee
 applies to shares redeemed by selling or by exchanging to another fund. The
 fee is withheld from redemption proceeds and retained by the Fund. Shares
 held for five years or more are not subject to the 1% fee.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$114 $145 $51 $115
----------------------------------------------------------

The preceding one- and three-year figures include the Fund's 1% redemption fee. The five- and ten-year figures do not include the fee, because it applies only to shares held for less than five years.

1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------
$9 $29 $51 $115
----------------------------------------------------------

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

Additional Information
As of December 31, 2007
----------------------------------------------------------------------------------------------
Net Assets (all share classes) $3.1 billion
----------------------------------------------------------------------------------------------
Investment Advisor The Vanguard Group, Inc., Valley Forge Pa., since inception
----------------------------------------------------------------------------------------------
Dividends and Capital Gains Distributed annually in December
----------------------------------------------------------------------------------------------
Inception Date Investor Shares--August 17, 1999
 Institutional Shares--January 4, 2001
----------------------------------------------------------------------------------------------
Minimum Initial Investment $5 million
----------------------------------------------------------------------------------------------
Newspaper Abbreviation TxMInIst
----------------------------------------------------------------------------------------------
Vanguard Fund Number 137
----------------------------------------------------------------------------------------------
CUSIP Number 921934882
----------------------------------------------------------------------------------------------
Ticker Symbol VTMNX
----------------------------------------------------------------------------------------------

INVESTING IN TAX-MANAGED FUNDS

. Low turnover. Each Fund seeks to minimize turnover by employing an index-oriented approach to stock investing. Frequent trading--a hallmark of many actively managed funds--causes a fund to realize capital gains, which must then be distributed to shareholders, reducing after-tax returns.

. Bias against taxable dividend income. The Tax-Managed Capital Appreciation Fund minimizes taxable dividend income by focusing on the lower-yielding stocks in its benchmark index (the Russell 1000 Index).

MORE ON THE FUND AND ETF SHARES

The following sections explain the primary investment strategies and policies that the Fund uses in pursuit of its objective. Look for this [FLAG] symbol throughout the prospectus. It is used to mark detailed information about the more significant risks that you would confront as a Fund shareholder. The Fund's board of trustees, which oversees the Fund's management, may change investment strategies or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental. Note that the Fund's investment objective is not fundamental and may be changed without a shareholder vote.

Market Exposure
The Fund seeks to provide tax-efficient investment returns consisting of long- term capital appreciation by investing in a broadly diversified group of stocks of foreign companies.

[FLAG]
The Fund is subject to stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. In addition, investments in foreign stock markets can be riskier than U.S. stock investments. The prices of foreign stocks and the prices of U.S. stocks have, at times, moved in opposite directions.

PLAIN TALK ABOUT INTERNATIONAL INVESTING

[FLAG]
The Fund is subject to country/regional risk and currency risk. Country/regional risk is the chance that world events--such as political upheaval, financial troubles, or natural disasters--will adversely affect the value of securities issued by companies in foreign countries or regions. Because the Fund may invest a large portion of its assets in securities of companies located in any one country or region, its performance may be hurt disproportionately by the poor performance of its investments in that area. Currency risk is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

When the U.S. dollar falls in value versus another currency, returns from international stocks are enhanced because a given sum in foreign currency translates into more U.S. dollars.

International Stock Market Returns
(1970-2007)
 1 Year 5 Years 10 Years 20 Years
------------------------------------------------------
Best 69.4% 36.1% 22.0% 15.5%
------------------------------------------------------
Worst -23.4 -2.9 4.0 7.4
------------------------------------------------------
Average 12.9 11.1 11.6 12.3
------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1970 through 2007. These average returns reflect past performance of international stocks; you should not regard them as an indication of future performance from either foreign markets as a whole or the ETF Shares in particular.

Returns for Various Stock Markets/1/
 European Pacific U.S.
 Market/2/ Market/2/ Market
------------------------------------------------------------------------------------
1998 28.53% 2.72% 28.58%
------------------------------------------------------------------------------------
1999 15.89 56.65 21.04
------------------------------------------------------------------------------------
2000 -8.39 -25.78 -9.10
------------------------------------------------------------------------------------
2001 -19.90 -25.40 -11.89
------------------------------------------------------------------------------------
2002 -18.38 -9.29 -22.10
------------------------------------------------------------------------------------
2003 38.54 38.48 28.68
------------------------------------------------------------------------------------
2004 20.88 18.98 10.88
------------------------------------------------------------------------------------
2005 9.42 22.64 4.91
------------------------------------------------------------------------------------
2006 33.72 12.20 15.79
------------------------------------------------------------------------------------
2007 13.86 5.30 5.49
------------------------------------------------------------------------------------
1 European market returns are measured by the MSCI Europe Index; Pacific market
 returns are measured by the MSCI Pacific Index; and U.S. market returns are
 measured by the Standard & Poor's 500 Index.
2 Index returns are adjusted for withholding taxes applicable to Luxembourg
 holding companies.

Stocks of publicly traded companies and funds that invest in stocks are often classified according to market value, or market capitalization. These classifications typically include small-cap, mid-cap, and large-cap. It's important to understand that, for both companies and stock funds, market-capitalization ranges change over time. Also, interpretations of size vary, and there are no "official" definitions of small-, mid-, and large-cap, even among Vanguard fund advisors. The Fund is dominated by large- and mid-cap foreign companies. The asset-weighted median market capitalization of the Fund as of December 31, 2007, was $43.9 billion.

The Fund is subject to investment style risk, which is the chance that returns from the types of stocks in which the Fund invests will trail returns from the overall stock market. Specific types of stocks tend to go through cycles of doing better--or worse--than the stock market in general. These periods have, in the past, lasted for as long as several years.

Security Selection
The Fund employs an index-oriented approach to stock investing, and the only stocks purchased by a Fund are those of issuers included in the MSCI EAFE Index.

Other Investment Policies and Risks
The Fund may enter into forward foreign currency exchange contracts to help protect its holdings against unfavorable changes in exchange rates. A forward foreign currency exchange contract is an agreement to buy or sell a country's currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date. The Fund may use these contracts to gain currency exposure when investing in stock index futures and to settle trades in a foreign currency. These contracts will not, however, prevent the Fund's securities from falling in value during foreign market downswings.

The Fund may invest, to a limited extent, in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, bond, or currency), a physical asset (such as gold), or a market index (such as the S&P 500 Index). The Fund will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.

Vanguard may invest a small portion of Fund assets in stock index futures and/or shares of exchange-traded funds (ETFs), including ETF Shares issued by Vanguard stock funds. Stock index futures and ETFs provide returns similar to those of common stocks. Vanguard may purchase futures or ETFs when doing so will reduce the Fund's transaction costs or provide flexibility for the Fund to seek better tax efficiency. Vanguard receives no additional revenue from investing Fund assets in ETF Shares of other Vanguard funds. Fund assets invested in ETF Shares are excluded when allocating to the Fund its share of the costs of Vanguard operations.

Cash Management
The Fund's daily cash balance may be invested in one or more Vanguard CMT Funds, which are very low-cost money market funds. When investing in a Vanguard CMT Fund, the Fund bears its proportionate share of the at-cost expenses of the CMT Fund in which it invests.

Temporary Investment Measures
The Fund may temporarily depart from its normal investment policies and strategies when doing so is believed to be in the Fund's best interest, so long as the alternative is consistent with the Fund's investment objective. For instance, the Fund may invest beyond the normal limits in derivatives or ETFs that are consistent with the Fund's objective when those instruments are more favorably priced or provide needed liquidity, as might be the case when the Fund receives large cash flows that it cannot prudently invest immediately.

Special Risks of Exchange-Traded Shares

[FLAG]
ETF Shares are not individually redeemable. They can be redeemed with the issuing Fund at NAV only in large blocks known as Creation Units. You would incur brokerage costs in purchasing enough ETF Shares to constitute a Creation Unit.

[FLAG]
The market price of ETF Shares may differ from net asset value. Vanguard ETF Shares are listed for trading on a national securities exchange and can be bought and sold on the secondary market at market prices. Although it is expected that the market price of an ETF Share typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when you buy ETF Shares on the secondary market, and you may receive less than NAV when you sell those shares.

The market price of ETF Shares, like the price of any exchange-traded security, includes a "bid-asked spread" charged by the exchange specialist and other market-makers that cover the particular security. In times of severe market disruption, the bid-asked spread can increase significantly. This means that ETF Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest, when the price of ETF Shares is falling fastest--and this may be the time that you most want to sell ETF Shares.

The following table shows the number of times the Fund's ETF Shares traded at a premium or discount to NAV as well as the size of the premium or discount.

Premium/Discount Information as of the Most Recent Calendar Quarter Ended June 30, 2008

 Market Price Above or
 Equal to NAV Market Price Below NAV
----------------------------------------------------------------------------------------------
Basis Point Differential/1/ Number Percentage of Number Percentage of
 of Days Total Days of Days Total Days
----------------------------------------------------------------------------------------------
Vanguard Europe Pacific ETF
(Beginning July 20, 2007)
----------------------------------------------------------------------------------------------
0-24.9 104 43.51% 11 4.60%
----------------------------------------------------------------------------------------------
25-49.9 100 41.84 1 0.42
----------------------------------------------------------------------------------------------
50-74.9 20 8.37 0 0.00
----------------------------------------------------------------------------------------------
75-100 0 0.00 0 0.00
----------------------------------------------------------------------------------------------
>100 3 1.26 0 0.00
----------------------------------------------------------------------------------------------
Total 227 94.98% 12 5.02%
----------------------------------------------------------------------------------------------
1 One basis point equals 1/100 of 1%.

The following table shows the cumulative (not annual) total returns of the Fund's ETF Shares, based on the shares' NAV and market price, and of the Fund's target index. Please note that the performance shown is for less than a calendar year.

Cumulative Total Returns as of the Most Recent Calendar Quarter Ended June 30, 2008

 Since Inception/1/
--------------------------------------------------------------------
Vanguard Europe Pacific ETF
--------------------------------------------------------------------
Return Based on NAV -12.40%
--------------------------------------------------------------------
Return Based on Market Price -12.33
--------------------------------------------------------------------
MSCI EAFE Index -12.85%
--------------------------------------------------------------------
1 Since-inception returns are from July 20, 2007--the inception date of the
 ETF Shares--through June 30, 2008.

Note: Vanguard's website will show the prior day's closing NAV and closing market price for the Fund's ETF Shares. The website also will disclose how frequently the Fund's ETF Shares traded at a premium or discount to NAV (based on closing NAVs and market prices) and the magnitudes of such premiums and discounts.

[FLAG]
An active trading market may not exist. Although Vanguard ETF Shares are listed on a national securities exchange, it is possible that an active trading market may not be maintained.

[FLAG]
Trading may be halted. Trading of Vanguard ETF Shares on a national securities exchange will be halted whenever trading in equity securities generally is halted by the activation of marketwide "circuit breakers," which are tied to large decreases in the Dow Jones Industrial Average. Trading of ETF Shares also will be halted if (1) the shares are delisted from the listing exchange without first being listed on another exchange, or (2) exchange officials determine that such action is appropriate in the interest of a fair and orderly market or to protect investors.

Note: If trading of ETF Shares on the listing exchange is halted, eligible investors (see the following section) will still be able to purchase Creation Units of ETF Shares directly from the issuing Fund and redeem such units with the Fund.

Purchasing Vanguard ETF Shares From the Issuing Fund You can purchase ETF Shares from the issuing Fund if you meet the following criteria and comply with the following procedures:

. Eligible Investors. To purchase ETF Shares from the Fund, you must be an Authorized Participant or you must purchase through a broker that is an Authorized Participant. An Authorized Participant is a participant in the Depository Trust Company (DTC) that has executed a Participant Agreement with the Fund's Distributor. Most Authorized Participants are expected to be brokerage firms.

. Creation Units. You must purchase ETF Shares in large blocks known as "Creation Units." The number of ETF Shares in a Creation Unit is 500,000. The Fund will not issue fractional Creation Units.

. In-Kind Creation Basket. To purchase a Creation Unit-size block of ETF Shares, you must deposit with the issuing Fund a basket of securities. Each business day, after the close of trading on the AMEX, the Fund's advisor will make available, on the National Securities Clearing Corporation (NSCC) bulletin board, a list identifying the name and number of shares of each security to be included in the next business day's creation basket (each, a Deposit Security). The Fund reserves the right to permit or require purchasers to tender a nonconforming creation basket, including a basket that contains cash in lieu of any Deposit Security. A portion of the Fund's creation basket may include American Depositary Receipts (ADRs).

. Purchase Balancing Amount. In addition to the in-kind deposit of securities, you will either pay to, or receive from, the Fund an amount of cash (the Purchase Balancing Amount) equal to the difference between the NAV of a Creation Unit and the value of the Deposit Securities. The Purchase Balancing Amount ensures that the consideration paid by an investor for a Creation Unit is exactly equal to the value of the

Creation Unit. The Fund's advisor will publish, on a daily basis, information about the previous day's Purchase Balancing Amount. You also must pay a transaction fee in cash. The Purchase Balancing Amount and the transaction fee, taken together, are referred to as the "Cash Component."

. Placement and Timing of Purchase Orders. A purchase order must be received by the Fund's Distributor prior to the close of regular trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the day the order is placed, and all other procedures set forth in the Participant Agreement must be followed, in order for you to receive the NAV determined on that day.

. Transaction Fee on Purchase of Creation Units. The Fund imposes a transaction fee in the amount of $15,000 on each purchase of Creation Units, regardless of the number of units purchased. When cash is included in the creation basket in lieu of one or more securities, the Fund may impose an additional transaction fee in an amount not to exceed 2% of the cash-in-lieu amount. The transaction fee (paid to the Fund, not to Vanguard or a third party) protects existing shareholders of the Fund from the costs associated with issuing Creation Units and investing cash.

Redeeming Vanguard ETF Shares With the Issuing Fund The redemption process is essentially the reverse of the purchase process.

. Eligible Investors. To redeem ETF Shares with the Fund, you must be an Authorized Participant or you must redeem through a broker that is an Authorized Participant.

. Creation Units. To redeem ETF Shares with the Fund, you must tender the shares in Creation Unit-size blocks.

. In-Kind Redemption Proceeds. Redemption proceeds will be paid in kind with a basket of securities (Redemption Securities). In most cases, the Redemption Securities you receive will be the same as the Deposit Securities required of investors purchasing Creation Units on the same day. There will be times, however, when the Deposit and Redemption Securities differ. The name and number of the Redemption Securities in the redemption basket will be available on the NSCC bulletin board. The Fund reserves the right to deliver a nonconforming redemption basket.

. Redemption Balancing Amount. Depending on whether the NAV of a Creation Unit is higher or lower than the value of the Redemption Securities, you will either receive from or pay to the Fund a Redemption Balancing Amount in cash. If you are due to receive a Redemption Balancing Amount, the amount you actually receive will be reduced by the amount of the applicable transaction fee.

. Placement and Timing of Redemption Orders. A redemption order is deemed received on the date of transmittal if it is received by Vanguard prior to the close of regular trading on the New York Stock Exchange on that date (generally 4 p.m., Eastern time), and if all other procedures set forth in the Participation Agreement are followed.

. Transaction Fee on Redemption of Creation Units. The Fund imposes a transaction fee in the amount of $15,000 on each redemption of Creation Units, regardless of the number of units redeemed. When cash is included in the redemption basket in lieu of one or more securities, the Fund may impose an additional transaction fee in an amount not to exceed 2% of the cash-in-lieu amount. As with the transaction fee on purchases, the transaction fee on redemptions (paid to the Fund, not to Vanguard or a third party) protects existing shareholders of the Fund from the costs associated with redeeming Creation Units and liquidating securities to generate cash.

Purchasing and Selling Vanguard ETF Shares on the Secondary Market You can buy and sell ETF Shares on the secondary market in the same way you buy and sell any other exchange-traded security--through a broker. In most cases, the broker will charge you a commission to execute the transaction. The price at which you buy or sell ETF Shares (i.e., the market price) may be more or less than the NAV of the shares. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must buy.

Conversion Privilege
Owners of conventional shares issued by the Fund may convert those shares into ETF Shares of equivalent value. Please note that investors who own conventional shares through a 401(k) plan or other employer-sponsored retirement or benefit plan may not convert those shares into ETF Shares. Vanguard imposes a $50 charge on conversion transactions and reserves the right, in the future, to raise or lower the fee and to limit or terminate the conversion privilege. Your broker may charge an additional fee to process a conversion. ETF Shares, whether acquired through a conversion or purchased on the open market, cannot be converted into conventional shares of the same fund. Similarly, ETF Shares of one fund cannot be exchanged for ETF Shares of another fund.

Converting conventional shares into ETF Shares generally is accomplished as follows. First, after your broker notifies Vanguard of your request to convert, Vanguard will transfer your conventional shares from your account to the broker's omnibus account with Vanguard (an account maintained by the broker on behalf of all its customers who hold conventional Vanguard fund shares through the broker). After the transfer, Vanguard's records will reflect your broker, not you, as the owner of the shares. Next, your broker will instruct Vanguard to convert the appropriate number or dollar amount of conventional shares in its omnibus account into ETF Shares of equivalent value, based on the respective net asset values of the two share classes.

Your Fund's transfer agent will reflect ownership of all ETF Shares in the name of the DTC. The DTC will keep track of which ETF Shares belong to your broker, and your broker, in turn, will keep track of which ETF Shares belong to you.

If you convert your conventional shares to ETF Shares through Vanguard Brokerage Services/(R)/ (Vanguard Brokerage), all conventional shares for which you request conversion will be converted into ETF Shares of equivalent value. Because no fractional shares will have to be sold, the transaction will be 100% tax-free. Vanguard Brokerage does not impose a conversion fee over and above the fee imposed by Vanguard.

Here are some important points to keep in mind when converting conventional shares of a Vanguard fund into ETF Shares:

. The conversion transaction is nontaxable except, as applicable, to the limited extent as previously described.

both the conventional share class currently held and also from the ETF share class into which the shares will be converted.

Frequent Trading and Market-Timing
Unlike frequent trading of a Vanguard fund's conventional (i.e., not exchange-traded) classes of shares, frequent trading of ETF Shares does not disrupt portfolio management, increase the fund's trading costs, lead to realization of capital gains, or otherwise harm fund shareholders. The vast majority of trading in ETF Shares occurs on the secondary market. Because these trades do not involve the issuing fund directly, they do not harm the fund or its shareholders. A few institutional investors are authorized to purchase and redeem ETF Shares directly with the issuing fund. Because these trades are effected in-kind (i.e., for securities and not for cash), they do not cause any of the harmful effects (as previously noted) that may result from frequent cash trades. Moreover, the issuing fund imposes transaction fees on in-kind purchases and redemptions of ETF Shares to cover the custodial and other costs incurred by the fund in effecting in-kind trades. These fees increase if an investor substitutes cash in part or in whole for securities, reflecting the fact that the fund's trading costs increase in those circumstances. For these reasons, the board of trustees of each fund that issues ETF Shares has determined that it is not necessary to adopt policies and procedures to detect and deter frequent trading and market-timing of ETF Shares.

Portfolio Holdings
We generally post on our website at www.vanguard.com, in the Holdings section of the Fund's Profile page, a detailed list of the securities held by the Fund (under Portfolio Holdings), as of the most recent calendar-quarter-end. This list is generally updated within 30 days after the end of each calendar quarter. Vanguard may exclude any portion of these portfolio holdings from publication when deemed in the best interest of the Fund. We also generally post the ten largest stock portfolio holdings of the Fund and the percentage of the Fund's total assets that each of these holdings represents, as of the most recent calendar-quarter-end. This list is generally updated within 15 calendar days after the end of each calendar quarter. Please consult the

Fund's Statement of Additional Information or our website for a description of the policies and procedures that govern disclosure of the Fund's portfolio holdings.

Precautionary Notes
A precautionary note to retail investors: The DTC or its nominee will be the registered owner of all outstanding ETF Shares. Your ownership of ETF Shares will be shown on the records of the DTC and the DTC Participant broker through which you hold the shares. Vanguard will not have any record of your ownership. Your account information will be maintained by your broker, which will provide you with account statements, confirmations of your purchases and sales of ETF Shares, and tax information. Your broker also will be responsible for distributing income and capital gains distributions and for ensuring that you receive shareholder reports and other communications from the fund whose ETF Shares you own. You will receive other services (e.g., dividend reinvestment and average cost information) only if your broker offers these services.

A precautionary note to purchasers of Creation Units: You should be aware of certain legal risks unique to investors purchasing Creation Units directly from the issuing Fund.

Because new ETF Shares may be issued on an ongoing basis, a "distribution" of ETF Shares could be occurring at any time. Certain activities that you perform as a dealer could, depending on the circumstances, result in your being deemed a participant in the distribution, in a manner that could render you a statutory underwriter and subject you to the prospectus delivery and liability provisions of the Securities Act of 1933. For example, you could be deemed a statutory underwriter if you purchase Creation Units from the issuing Fund, break them down into the constituent ETF Shares, and sell those shares directly to customers, or if you choose to couple the creation of a supply of new ETF Shares with an active selling effort involving solicitation of secondary-market demand for ETF Shares. Whether a person is an underwriter depends upon all of the facts and circumstances pertaining to that person's activities, and the examples mentioned here should not be considered a complete description of all the activities that could cause you to be deemed an underwriter.

Dealers who are not "underwriters" but are participating in a distribution (as opposed to engaging in ordinary secondary-market transactions), and thus dealing with ETF Shares as part of an "unsold allotment" within the meaning of Section 4(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act.

A precautionary note to shareholders redeeming Creation Units: An Authorized Participant that is not a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933 will not be able to receive, as part of the redemption

basket, restricted securities eligible for resale under Rule 144A. (For this reason, the Fund does not intend to include 144A securities in a redemption basket.)

A precautionary note to investment companies: For purposes of the Investment Company Act of 1940, Vanguard ETF Shares are issued by registered investment companies, and the acquisition of such shares by other investment companies is subject to the restrictions of Section 12(d)(1) of that Act, except as permitted by an SEC exemptive order that allows registered investment companies to invest in the issuing fund beyond the limits of Section 12(d)(1), subject to certain terms and conditions.

A note on unusual circumstances: Vanguard reserves the right to reject any purchase request at any time, for any reason, and without notice. Vanguard funds can stop selling shares or postpone payment of redemption proceeds at times when the New York Stock Exchange is closed or under any emergency circumstances as determined by the Securities and Exchange Commission.

Turnover Rate
Although the Fund normally seeks to invest for the long term, it may sell securities regardless of how long they have been held. Generally, an index-oriented fund sells securities only to respond to redemption requests or to adjust the number of shares held to reflect a change in the fund's target index. Turnover rates for large-cap stock index funds tend to be very low because large-cap indexes--such as the S&P 500 Index--typically do not change significantly from year to year. Turnover rates for mid-cap and small-cap stock index funds tend to be higher (although still relatively low, compared with actively managed stock funds) because the indexes they track are the most likely to change as a result of companies merging, growing, or failing. The Financial Highlights section of this prospectus shows historical turnover rates for the Fund. A turnover rate of 100%, for example, would mean that the Fund had sold and replaced securities valued at 100% of its net assets within a one-year period. The average turnover rate for international stock funds was approximately 72%, as reported by Morningstar, Inc., on December 31, 2007.

PLAIN TALK ABOUT TURNOVER RATE

Before investing in a mutual fund, you should review its turnover rate. This gives an indication of how transaction costs, which are not included in the fund's expense ratio, could affect the fund's future returns. In general, the greater the volume of buying and selling by the fund, the greater the impact that brokerage commissions and other transaction costs will have on its return. Also, funds with high turnover rates may be more likely to generate capital gains that must be distributed to shareholders as taxable income.

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of 37 investment companies with more than 150 funds holding assets in excess of $1.2 trillion. All of the funds that are members of The Vanguard Group share in the expenses associated with administrative services and business operations, such as personnel, office space, equipment, and advertising.

PLAIN TALK/(R)/ ABOUT VANGUARD'S UNIQUE CORPORATE STRUCTURE

INVESTMENT ADVISOR

The Vanguard Group, Inc. (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, which began operations in 1975, serves as advisor to the Fund through its Quantitative Equity Group. As of December 31, 2007, Vanguard served as advisor for approximately $1 trillion in assets. Vanguard manages the Fund on an at-cost basis, subject to the supervision and oversight of the trustees and officers of the Fund.

For the fiscal year ended December 31, 2007, the advisory expenses represented an effective annual rate of approximately 0.01% of the Fund's average net assets.

For a discussion of why the board of trustees approved the Fund's investment advisory arrangement, see the most recent semiannual report to shareholders covering the fiscal period ended June 30.

bond funds, stable value portfolios, and money market funds. Since joining Vanguard in 1987, Mr. Sauter has been a key contributor to the development of Vanguard's stock indexing and active quantitative equity investment strategies. He received his A.B. in Economics from Dartmouth College and an M.B.A. in Finance from the University
of Chicago.

PLAIN TALK ABOUT THE FUND'S PORTFOLIO MANAGERS

The managers primarily responsible for the day-to-day management of the Fund are:

The Statement of Additional Information provides information about the portfolio manager's compensation, other accounts under management, and ownership of securities in the Fund.

DIVIDENDS, CAPITAL GAINS, AND TAXES

Fund Distributions

The Fund distributes to shareholders virtually all of its net income (interest and dividends, less expenses) as well as any net capital gains realized from the sale of its holdings. Distributions generally occur annually in December. In addition, the Fund may occasionally make supplemental distributions at some other time during the year.

PLAIN TALK ABOUT DISTRIBUTIONS

Reinvestment of Distributions
In order to reinvest dividend and capital gains distributions, investors in the Fund's ETF Shares must hold their shares at a broker that offers a reinvestment service (either the broker's own service or a service made available by a third party, such as the broker's outside clearing firm or the Depository Trust Company). If a reinvestment service is available and used, distributions of both income and capital gains will automatically be reinvested in additional whole and fractional ETF Shares of the Fund. If a reinvestment service is not available, investors would receive their distributions in cash. To determine whether a reinvestment service is available and whether there is a commission or other charge for using this service, consult your broker.

As with all exchange-traded funds, reinvestment of dividend and capital gains distributions in additional ETF Shares will occur four business days or more after the ex-dividend date (the date when a distribution of dividends or capital gains is deducted from the price of the Fund's shares). The exact number of days depends on your broker. During that time, the amount of your distribution will not be invested in the Fund and therefore will not share in the Fund's income, gains, and losses.

Basic Tax Points

Investors in taxable accounts should be aware of the following basic federal income tax points:

. Distributions are taxable to you whether or not you reinvest these amounts in additional ETF Shares.

. Distributions declared in December--if paid to you by the end of January--are taxable as if received in December.

. Any distributions of net long-term capital gains are taxable to you as long-term capital gains no matter how long you've owned ETF Shares.

. Although the Fund seeks to minimize distributions of taxable capital gains, it may not always achieve this goal. Capital gains distributions may vary considerably from year to year as a result of the Fund's normal investment activities and cash flows.

. A sale of ETF Shares is a taxable event. This means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your tax return.

Dividend and capital gains distributions that you receive, as well as your gains or losses from any sale of ETF Shares, may be subject to state and local income taxes.

The Fund may be subject to foreign taxes or foreign tax withholding on dividends, interest, and some capital gains that the Fund receives on foreign securities. You may qualify for an offsetting credit or deduction under U.S. tax laws for any amount designated as your portion of the Fund's foreign tax obligations, provided that you meet certain requirements. See your tax advisor or IRS publications for more information.

Note: This prospectus provides general tax information only. If you are investing through a tax-deferred retirement account, such as an IRA, special tax rules apply. Please consult your tax advisor for detailed information about any tax consequences for you.

DAILY PRICING

The net asset value, or NAV, of the Fund's ETF Shares is calculated each business day as of the close of regular trading on the New York Stock Exchange, generally 4 p.m., Eastern time. NAV per share is computed by dividing the net assets allocated to each share class by the number of Fund shares outstanding for that class.

Remember: If you buy or sell ETF Shares on the secondary market, you will pay or receive the market price, which may be higher or lower than NAV. Your transaction will be priced at NAV only if you purchase or redeem your ETF Shares in Creation Unit blocks, or if you convert your conventional fund shares into ETF Shares.

Stocks held by a Vanguard fund are valued at their market value when reliable market quotations are readily available. Certain short-term debt instruments used to manage a fund's cash are valued on the basis of amortized cost. The values of any foreign securities held by a fund are converted into U.S. dollars using an exchange rate obtained from an independent third party. The values of any mutual fund shares held by a fund are based on the NAV's of the shares. The values of any ETF or closed-end fund shares held by a fund are based on the market value of the shares.

Fair value prices are determined by Vanguard according to procedures adopted by the board of trustees. When fair-value pricing is employed, the prices of securities used by a fund to calculate its NAV may differ from quoted or published prices for the same securities.

Vanguard's website will show the previous day's closing NAV and closing market price for the Fund's ETF Shares. The previous day's closing market price also will be published in the business section of most major newspapers in the listing of securities traded on the AMEX.

Financial Highlights

The following financial highlights table is intended to help you understand the ETF Shares' financial performance for the periods shown, and certain information reflects financial results for a single ETF Share. The total returns in the table represent the rate that an investor would have earned or lost each period on an investment in the ETF Shares (assuming reinvestment of all distributions). This information has been derived from the financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report--along with the Fund's financial statements--is included in the Fund's most recent annual report to shareholders. To receive a free copy of the latest annual or semiannual report, you may access a report online at www.vanguard.com, or you may contact Vanguard by telephone or by mail.

PLAIN TALK ABOUT HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The ETF Shares began the fiscal period ended December 31, 2007, with a net asset value (price) of $49.99 per share. During the period, each ETF Share earned $0.204 from investment income (interest and dividends). There was a decline of $1.219 per share in the value of investments held or sold by the Fund, resulting in a net decline of $1.015 per share from investment operations.

Shareholders received $1.055 per share in the form of dividend distributions.

The share price at the end of the period was $47.92, reflecting losses of $1.015 per share and distributions of $1.055 per share. This was a decrease of $2.07 per share (from $49.99 at the beginning of the period to $47.92 at the end of the period). For a shareholder who reinvested the distributions in the purchase of more shares, the total return was -2.02% for the period.

As of December 31, 2007, the ETF Shares had approximately $653 million in net assets. For the period, the annualized expense ratio was 0.12% ($1.20 per $1,000 of net assets), and the annualized net investment income amounted to 2.74% of average net assets. The ETF Shares sold and replaced securities valued at an annualized rate of 6% of its net assets.

Europe Pacific ETF
 July 20/1/ to
 Dec. 31,
 2007
------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $49.99
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Investment Operations
------------------------------------------------------------------------------------
Net Investment Income .204
------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments (1.219)
------------------------------------------------------------------------------------
Total from Investment Operations (1.015)
------------------------------------------------------------------------------------
Distributions
------------------------------------------------------------------------------------
Dividends from Net Investment Income (1.055)
------------------------------------------------------------------------------------
Distributions from Realized Capital Gains --
------------------------------------------------------------------------------------
Total Distributions (1.055)
------------------------------------------------------------------------------------
Net Asset Value, End of Period $47.92
====================================================================================
Total Return -2.02%
====================================================================================
Ratios/Supplemental Data
------------------------------------------------------------------------------------
Net Assets, End of Period (Millions) $653
------------------------------------------------------------------------------------
Ratio of Total Expenses to Average Net Assets 0.12%(2)
------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 2.74%(2)
------------------------------------------------------------------------------------
Turnover Rate 6%
====================================================================================
1 Inception.
2 Annualized.

Vanguard, Connect with Vanguard, Plain Talk, Vanguard ETF, Vanguard Brokerage Services, and the ship logo are trademarks of The Vanguard Group, Inc. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For any such funds or securities, the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group and any related funds. All other marks are the exclusive property of their respective owners.

GLOSSARY OF INVESTMENT TERMS

Authorized Participant. Institutional investors that are permitted to purchase Creation Units directly from, and redeem Creation Units directly with, the fund. To be an Authorized Participant, an entity must be a participant in the Depository Trust Company and must enter into an agreement with the fund's Distributor.