Vanguard Investor Index Funds

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1 Vanguard Investor Index Funds Supplementary Product Disclosure Statement Date: 7 November 2011 Legal details of issuer: Vanguard Investments Australia Ltd ABN AFSL Level 34, Freshwater Place 2 Southbank Boulevard Southbank Victoria 3006 About this document This document is a Supplementary Product Disclosure Statement issued by Vanguard Investments Australia Ltd ( Vanguard ). This Supplementary Product Disclosure Statement updates the Vanguard Investor Index Funds Product Disclosure Statement dated 1 March 2010 and the Supplementary Product Disclosure Statement dated 18 April 2010 ( PDS ) and must be read in conjunction with the PDS. Words and expressions defined in the PDS have the same meaning in this Supplementary Product Disclosure Statement. Except to the extent amended by this Supplementary Product Disclosure Statement or updated on our website, the PDS remains in full force. Change to buy/sell spread costs The buy/sell spread costs for some of the Funds have been reduced. Details of the changes are outlined below. On pages 11 and 13 of the PDS, the buy/sell spread cost for the following Funds are updated as follows: Fund Vanguard Index Diversified Bond Fund Vanguard LifeStrategy Conservative Fund Vanguard LifeStrategy Balanced Fund Vanguard LifeStrategy Growth Fund Vanguard LifeStrategy High Growth Fund Vanguard Index Hedged International Shares Fund Buy spread cost (purchase) D 0.16% 0.12% 0.18% 0.23% 0.26% 0.35% Sell spread cost (withdrawal) D 0.16% 0.09% 0.12% 0.15% 0.15% 0.15% D Note that buy/sell spread costs are estimates. Please refer to page 32 of the PDS for more information concerning the buy/sell spread costs. On page 32 of the PDS delete the table titled Buy/sell spread costs for the Funds and replace with the following: Buy/sell spread costs for the Funds BUY SPREAD COST* SELL SPREAD COST* Dollar example on Dollar example on % investment of $5,000 % withdrawal of $5,000 SECTOR INDEX FUNDS Vanguard Index Cash Plus Fund Nil n/a Nil n/a Vanguard Index Diversified Bond Fund 0.16 $ $8 Vanguard Index Australian Shares Fund 0.20 $ $5 Vanguard High Yield Australian Shares Fund 0.20 $ $5 Vanguard Index Australian Property Securities Fund 0.20 $ $10 Vanguard Index International Shares Fund 0.30 $ $5 Vanguard Index Hedged International Shares Fund 0.35 $ $7.50 DIVERSIFIED INDEX FUNDS Vanguard LifeStrategy Conservative Fund 0.12 $ $4.50 Vanguard LifeStrategy Balanced Fund 0.18 $ $6 Vanguard LifeStrategy Growth Fund 0.23 $ $7.50 Vanguard LifeStrategy High Growth Fund 0.26 $ $7.50 Note that buy/sell costs are estimates. Please refer to page 32 of the PDS for more information. Connect with Vanguard The indexing specialist > vanguard.com.au > In preparing the above information, your circumstances have not been taken into account and it may therefore not be applicable to your situation. Before making an investment decision, you should consider your circumstances and whether the above information is applicable to your situation. Vanguard Vanguard Investments, LifeStrategy and the ship logo are the registered trademarks of The Vanguard Group, Inc. Copyright Vanguard Investments Australia Ltd. All rights reserved. SUPPDS_INV_1011

2 Vanguard Investor Index Funds Supplementary Product Disclosure Statement Dated: 18 April 2011 About this document This document is a Supplementary Product Disclosure Statement issued by Vanguard Investments Australia Ltd ( Vanguard ). This Supplementary Product Disclosure Statement updates the Vanguard Investor Index Funds Product Disclosure Statement dated 1 March 2010 ( PDS ), and must be read in conjunction with the PDS. Words and expressions defined in the PDS have the same meaning in this Supplementary Product Disclosure Statement. Except to the extent amended by this Supplementary Product Disclosure Statement or updated on our website, the PDS remains in full force. Change to Vanguard High Yield Australian Shares Fund investment objective and policy Vanguard as responsible entity of the Vanguard High Yield Australian Shares Fund (the Fund ) has the discretion to vary, from time to time, the investment objective and policy of the Fund. Such variations may include changes to the target index or benchmark of the Fund. From 29 April 2011, the benchmark for the Fund will change from the custom benchmark produced by Vanguard to the FTSE ASFA Australia High Dividend Yield Index. The investment objective and policy will be adjusted accordingly to align with this index. There are no changes to the management fees and costs, or buy/sell spread costs for the Fund. On page 11 of the PDS, in the column titled Vanguard High Yield Australian Shares Fund, delete the following: Targeting a grossed-up dividend yield that is 1% above the S&P/ASX 200 Index (excluding A-REITs) and a return (income and capital appreciation) that is broadly in line with that index, before taking into account Fund fees and expenses, while providing higher yield and keeping net realised capital gains low. Replace with the following: To track the return (income and capital appreciation) of the FTSE ASFA Australia High Dividend Yield Index before Fund fees and expenses. On page 19 of the PDS under the heading High Yield Australian Shares, delete the sections titled Investment objective, The index, and Investment policy. Replace with the following: Investment objective To track the return (income and capital appreciation) of the FTSE ASFA Australia High Dividend Yield Index before taking into account Fund fees and expenses. The index The FTSE ASFA Australia High Dividend Yield ( Index ) is a real-time, market capitalisation-weighted index consisting of companies with higher forecast dividends relative to other companies listed on the Australian Stock Exchange (ASX). The Index is calculated on a before tax basis only and is not part of the after-tax FTSE ASFA Australia Index Series. The securities in the index are selected from the companies included in the FTSE ASFA Australia 200 Index 1 (the eligible securities ), a broad market index of ordinary and preferred equity securities listed on the Australian Securities Exchange. Real estate investment trusts (A-REITs) are excluded from the eligible securities. The eligible securities are ranked according to each security s median 12 month forecast dividend yield (sourced from I/B/E/S 2 ) with companies not forecast to pay dividends in the next 12 months being eliminated. Companies with the highest forecast dividend yield are included in the index until 50% of the float adjusted market capitalisation of the eligible securities is met. Lastly, diversification requirements are applied to restrict the proportion of the index invested in any one industry 3 or company. No more than 40% of the index continue next page 1 The FTSE ASFA Australia 200 Index typically represents the largest 200 companies listed on the Australian Securities Exchange meeting certain liquidity, free float criteria. For more information on this index please refer to 2 I/B/E/S is the Institutional Brokers Estimate System; a data service that collates detailed and consensus estimates of forecast measures of company earnings and performance. 3 Industries are grouped according to the Industry Classification Benchmark (ICB), a global standard developed in partnership between the FTSE Group and Dow Jones Indexes. Connect with Vanguard The indexing specialist > vanguard.com.au > In preparing the above information, your circumstances have not been taken into account and it may therefore not be applicable to your situation. Before making an investment decision, you should consider your circumstances and whether the above information is applicable to your situation. Vanguard Vanguard Investments, LifeStrategy and the ship logo are the registered trademarks of The Vanguard Group, Inc. Copyright Vanguard Investments Australia Ltd. All rights reserved. The Vanguard High Yield Australian Shares Fund is not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ( FTSE ), the London Stock Exchange Plc (the Exchange ), The Financial Times Limited ( FT ) or by The Association of Superannuation Funds of Australia ( ASFA ) (together the Licensor Parties ) and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE ASFA Australia High Dividend Yield Index (the Index ) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. All intellectual property rights in and to the Index vest in FTSE and ASFA. FTSE is a trade mark of the Exchange and the FT and is used by FTSE under licence. ASFATM is a trade mark of ASFA. VASHYF_SPDS_300311RT

3 Vanguard Investor Index Funds Supplementary Product Disclosure Statement Dated: 18 April 2011 can be invested in any one industry, and no more than 10% can be invested in any one company. The index constituents are reviewed on a quarterly basis in March, June, September, December based on data from the close of business on the last trading day of the previous month. The semi-annual review is a recalculation of the universe of securities in the index. For information regarding the benchmark index values and methodology please refer to Australia/ Investment policy The Fund will hold most of the securities in the index, allowing for individual security weightings to vary marginally from the Index from time to time. The Vanguard High Yield Australian Shares Fund may invest in securities that have been removed from or are expected to be included in the index. Change to Vanguard High Yield Australian Shares Fund distribution frequency Effective 31 May 2011, the Fund s income distribution frequency will change from monthly to quarterly. Change to Adviser Review Fee Vanguard has decided to discontinue the Adviser Review Fee service effective 16 May On page 33 of the PDS, delete the section titled What is paid to your adviser? Legal details of issuer: Vanguard Investments Australia Ltd ABN AFSL Level 34, Freshwater Place 2 Southbank Boulevard Southbank Victoria 3006 Change to Application for Investment Forms (this does not form part of the supplementary Product Disclosure Statement) On the application for investment forms 1, 2 and 3, under the section titled 10. Adviser or broker details (if applicable), delete the section titled 10.8 Adviser review payment election (investor/s to complete) to (Adviser declarations and signature). On page 11 of the PDS, in the column titled Vanguard High Yield Australian Shares Fund, delete the income distribution frequency from Monthly and replace it with Quarterly as at 31 March, 30 June, 30 September and 31 December. On page 38 of the PDS, in the table detailing income distribution frequency for the Funds, change the income distribution frequency for the Vanguard High Yield Australian Shares Fund from Monthly, on the last day of the month to Quarterly as at 31 March, 30 June, 30 September and 31 December. For the latest information on this Fund, please visit our website at: Connect with Vanguard The indexing specialist > vanguard.com.au > In preparing the above information, your circumstances have not been taken into account and it may therefore not be applicable to your situation. Before making an investment decision, you should consider your circumstances and whether the above information is applicable to your situation. Vanguard Vanguard Investments, LifeStrategy and the ship logo are the registered trademarks of The Vanguard Group, Inc. Copyright Vanguard Investments Australia Ltd. All rights reserved. The Vanguard High Yield Australian Shares Fund is not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ( FTSE ), the London Stock Exchange Plc (the Exchange ), The Financial Times Limited ( FT ) or by The Association of Superannuation Funds of Australia ( ASFA ) (together the Licensor Parties ) and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE ASFA Australia High Dividend Yield Index (the Index ) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. All intellectual property rights in and to the Index vest in FTSE and ASFA. FTSE is a trade mark of the Exchange and the FT and is used by FTSE under licence. ASFATM is a trade mark of ASFA. VASHYF_SPDS_300311RT

4 VANGUARD INVESTOR INDEX FUNDS PRODUCT DISCLOSURE STATEMENT DATED 1 MARCH 2010 VANGUARD INVESTMENTS AUSTRALIA LTD ABN / AFS LICENCE

5 2 vanguard.com.au

6 CONTENTS INDEXING WITH VANGUARD About Vanguard 6 Indexing and its benefits 6 Key benefits 7 Risks 8 FEATURES AT A GLANCE Asset Sector Index Funds 11 Diversified Index Funds 13 VANGUARD S RANGE OF INVESTOR INDEX FUNDS How Vanguard Invests 15 Asset Sector Index Funds 16 Cash Plus 17 Diversified Bond 18 Australian Shares 18 High Yield Australian Shares 19 Australian Property Securities 19 International Shares 20 International Shares (Hedged) 20 Diversified Index Funds 21 Conservative 22 Balanced 23 Growth 24 High Growth 25 BEFORE YOU INVEST Fees and other costs 27 Your guide to investing 35 Indirect investors 42 Taxation of the Funds 43 Vanguard s rights and responsibilities 45 APPLICATION FORM INSTRUCTIONS How to invest 48 Supporting/Identification documents 49 Application for Investment Forms Contacting Vanguard Inside back cover Product Disclosure Statement 3

7 INDEXING WITH VANGUARD Vanguard Investor Index Funds ARSN ABN APIR code ASSET SECTOR INDEX FUNDS Vanguard Index Cash Plus Fund VAN0100AU Vanguard Index Diversified Bond Fund VAN0101AU Vanguard Index Australian Shares Fund VAN0010AU Vanguard High Yield Australian Shares Fund VAN0017AU Vanguard Index Australian Property Securities Fund VAN0012AU Vanguard Index International Shares Fund VAN0011AU Vanguard Index Hedged International Shares Fund VAN0107AU DIVERSIFIED INDEX FUNDS Vanguard LifeStrategy Conservative Fund VAN0013AU Vanguard LifeStrategy Balanced Fund VAN0124AU Vanguard LifeStrategy Growth Fund VAN0014AU Vanguard LifeStrategy High Growth Fund VAN0015AU 4 vanguard.com.au

8 INDEXING WITH VANGUARD About this PDS This Product Disclosure Statement (PDS) is for the Vanguard Investor Index Funds (Funds) in the table opposite and is dated 1 March This PDS supersedes all previous offer documents. Vanguard Investments Australia Ltd ABN AFSL (Vanguard) is the issuer of this PDS and is solely responsible for its contents. In this PDS references to Vanguard, the responsible entity, manager, we, our and us refer to Vanguard Investments Australia Ltd. Important information If you have received this PDS electronically and would like a paper copy, please contact Client Services on and a copy will be provided free of charge. Unless otherwise stated data sources are Vanguard using market data, and all material is current as at the date of this PDS. Information in this PDS that is not materially adverse to investors is subject to change from time to time and may be updated by Vanguard by publishing such information on the Vanguard website at A paper copy of any updated information will be given to a person free of charge upon request. Restrictions on investments Please read the entire PDS carefully so that you understand the risks that may be applicable to the Funds. Applications for investment in the Funds may only be made on the Application for Investment Form attached to this PDS or accompanied by an electronic version of this PDS. The offer to which the electronic version of this PDS relates is only available to persons receiving the electronic version of this PDS in Australia. Applications from outside of Australia will not be accepted through this PDS. Disclaimers Your investment in the Funds is subject to investment and other risks, including possible delays in repayment and loss of income and principal invested. None of The Vanguard Group, Inc. (including Vanguard Investments Australia Ltd) or their related entities, directors or officers gives any guarantee or assurance as to the performance of, or the repayment of capital or income reinvested in, any of the Funds described in this PDS. Members of The Vanguard Group, Inc. may invest in, lend to or provide some other services to the Funds. This PDS is prepared for your general information only. It is not intended to be a recommendation by Vanguard, any of Vanguard s associates, or any other person to invest in the Funds. In preparing this PDS, Vanguard did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, investors need to consider (with or without the advice or assistance of an adviser) whether an investment in the Funds is appropriate to their needs, objectives and circumstances. Certain Funds may have multiple classes of units, each of which may have a different fee structure. That is, the management fees and other costs may be different in each class of units. This PDS relates to the retail class of units. BPAY registered to BPAY Pty Ltd ABN Performance information You can obtain up-to-date performance and asset allocation information by visiting the Vanguard website at Past performance is not an indicator of future returns. Indirect investors Investors investing indirectly through an investor directed portfolio service or master fund or other administration service should refer to page 42 prior to reading this PDS to ascertain what type of information in this PDS is relevant to you as an indirect investor. All such services or funds are collectively referred to as IDPS in this PDS. Product Disclosure Statement 5

9 INDEXING WITH VANGUARD ABOUT VANGUARD INDEXING AND ITS BENEFITS Vanguard Investments Australia Ltd is a wholly owned subsidiary of The Vanguard Group, Inc., which is based in the United States and currently manages more than A$1.5 trillion for over 23 million institutional and personal investor accounts as at 31 December Over the past 30 years, The Vanguard Group, Inc. has grown to be one of the world s largest and most respected investment management companies. Vanguard now has a global presence with offices in the United States, Australia, Asia and Europe. Vanguard has established a reputation in Australia as an index specialist, managing almost A$80 billion as at 31 December Offering a range of low-cost index funds, diversified funds and exchange traded funds (ETFs) covering major asset sectors, investors can benefit from Vanguard s high-quality, low-cost investment solutions. For further information on the ETFs and other Vanguard funds, refer to our website at Before you make an investment decision, it is important for you to read this Product Disclosure Statement (PDS) and assess whether the investment is appropriate for your objectives, financial situation and needs. What is an index? An index measures the performance or change in value of a particular group of securities, such as shares, bonds or other investments, over a period of time. Today, there are indexes measuring investment results of all major markets and asset classes. What are index funds? Investors can invest in securities indirectly through managed funds, in which a professional manager chooses and monitors a portfolio of securities. Index funds are managed funds that are structured to deliver investment returns that closely match the return (income and capital appreciation) of selected indexes. An index fund aims to generate a return as similar as possible to that of a particular index: it achieves this by effectively replicating the index, either by holding all of the securities included in the index or a representative sample of these securities. The value or return of an index fund typically goes up or down in line with the market. Because indexes change very infrequently, index funds by their nature are buyand-hold investments, a strategy that generally results in low portfolio turnover. Unlike indexes which are theoretical measures index funds will incur actual costs in assembling portfolios, for instance, brokerage. While index funds seek to minimise these costs, they usually result in the returns of index funds being less than the returns of the relevant indexes. 6 vanguard.com.au

10 INDEXING WITH VANGUARD KEY BENEFITS Competitive long-term performance Over the long term, it is very difficult to continually pick winners and outperform the major investment markets, such as Australian shares, international shares, bonds, property or cash. Index funds take the guesswork out of investing and eliminate the worry of trying to pick winners or attempting to time the markets. You don t have to try to analyse the strategies of various active managers to choose one you think can outperform the market. Tax efficiency Funds with a high level of portfolio turnover generally create greater capital gains tax (CGT) liabilities for investors than funds with lower turnover rates. Generally, the lower the portfolio turnover, the longer securities are held within a portfolio and if securities are held for more than 12 months, any capital gain on the sale of those securities will incur CGT at a discounted rate. Historically, the returns of index funds have been competitive with the returns of active funds over the long term. However, past performance is not a reliable indicator of future performance. Diversification Index funds provide a diversified portfolio of shares or securities, which means that you are less exposed to the performance fluctuations of individual shares or securities. The overall effect is that you moderate the volatility of your portfolio and smooth out your investment returns over time. Index funds invest in a wide selection of available securities in the relevant index, generally holding significantly more securities than most active funds with the same benchmark. While the majority of funds that Vanguard manages carry with them the benefit of broad diversification, from time to time the number of securities in a given index may reduce due to factors such as index rebalancing. This may lead to a change in the diversification of the portfolio. Low-cost investing Low management fees index funds have low ongoing fees as it costs less to manage and operate an index fund. OVER THE LONG TERM, IT IS VERY DIFFICULT TO CONTINUALLY PICK WINNERS AND OUTPERFORM THE MAJOR INVESTMENT MARKETS Low transaction costs index funds have low portfolio turnover resulting in low trading costs. Product Disclosure Statement 7

11 INDEXING WITH VANGUARD RISKS Investors in the Funds face a number of investment risks. As with investment in any fund, there is no guarantee that the value of your investment principal will be maintained. It is important to keep in mind one of the main principles of investing: the higher the potential reward, the higher the risk of losing money. The reverse is also true: the lower the risk, the lower the potential reward. When you consider an investment in one or more of the Funds, you should take into account your personal tolerance for fluctuating market values. Since each Fund seeks to match a different market index, investment risk will vary from Fund to Fund. Market risk Market risk is the possibility that the market has negative returns over short or extended periods. Cash investments have the lowest market risk. Bonds, property securities and equities have progressively increasing levels of market risk. Short term risks are high to very high for most asset classes. In any asset class, the returns of individual securities are a combination of market return (that is, index performance) and returns specific to each security. By diversifying their holdings across the market, index funds are generally well protected from the specific risk of individual securities. From time to time the number of securities in a given index may reduce due to factors such as index rebalancing and this may lead to a change in the diversification of the portfolio. Volatility risk is the likelihood of fluctuations in the market factors and currency exchange rates. Investors should be aware that markets and currencies can be volatile, therefore affecting the returns of an investment portfolio. The risk of performance difference is minimised by investing in derivative contracts where the behaviour is expected to resemble that of the Funds underlying securities. The risk that a Fund may not be able to close out a derivative position is minimised by entering into such transactions on an exchange with an active and liquid secondary market. Counterparty risk/credit risk Counterparty risk is the risk that a Fund s trading counterparties may become insolvent or cannot meet their obligations to the Fund. For Funds that invest in fixed interest and debt securities, there is credit risk. For example, there is a risk that issuers of fixed interest and debt securities may not be able to meet their payment obligations to the Funds. Vanguard seeks to minimise this risk by diversifying a Fund s holdings across issuers. For Funds that invest in forward foreign exchange contracts, there is a risk that profits associated with foreign exchange contracts may not be realised. Credit risk is most applicable to the Funds with significant exposure to fixed interest and debt securities such as: Vanguard LifeStrategy Conservative Fund; Vanguard LifeStrategy Balanced Fund; Vanguard Index Cash Plus Fund; and Vanguard Index Diversified Bond Fund. Any securities lending in the fixed interest Funds is with a selected group of counterparties, all of which have AA or better long term and A1+ short term credit ratings from Standard & Poor s (or Moody s equivalent ratings). Derivative risk The primary risks associated with the use of derivative contracts are: the value of derivatives may fail to move in line with the value of the underlying asset (a performance difference); the potential lack of liquidity of the derivative; the Funds may not be able to meet payment obligations for derivative contracts as they arise; and the counterparty to the derivative contract may not be able to meet its obligations under the contract. The Funds do not use derivative contracts for speculative purposes or to leverage assets of the Funds. 8 vanguard.com.au

12 INDEXING WITH VANGUARD Currency risk Fluctuations in the value of the Australian dollar and foreign currencies can affect the returns from overseas investments. This is because losses or gains must be converted back to Australian dollars. A weaker Australian dollar increases the value of investments held in non- Australian dollars, and therefore benefits the Australian investor holding non-australian assets such as international shares. Conversely, if the value of the Australian dollar rises, the value of investments held in non-australian assets will fall. Some fund managers avoid this uncertainty by hedging their overseas exposure back into Australian dollars. Fully hedging a portfolio involves locking in a known rate of currency exchange for any investment gains, using forward foreign exchange contracts, so that only the local currency movements in overseas securities are captured. The return (income and capital appreciation) of the fund is thus relatively unaffected by currency fluctuations. The Vanguard Index International Shares Fund does not hedge any of its exposure to foreign currencies. Accordingly, this Fund is affected by currency fluctuations and will outperform the Vanguard Index Hedged International Shares Fund if the Australian dollar falls in value. The Diversified Index Funds are also affected by currency fluctuations where they invest in unhedged international assets. The value of these Funds will be reduced with a rise in the value of the Australian dollar. The following Funds invest on a fully hedged basis (that is, they are hedged back into Australian dollars), reducing their exposure to currency risk: Vanguard Index Diversified Bond Fund; and Vanguard Index Hedged International Shares Fund. Investors should be aware that hedging portfolios against currency risk involves costs and implementation risks due to the volatility of currency and securities markets. Hedging may also result in side effects for distributions from a fund. When the Australian dollar is appreciating, the hedge gains can result in significant distributions. When it is depreciating, the hedge losses can totally offset other income in the fund, resulting in nil distributions. Regulatory risk This is the risk that a government or regulator may introduce regulatory or tax changes that affect the value of securities in which one or more of the Funds invest, or the value of units in the Funds. The Funds may be affected by changes to legislation or government policy in Australia or in other countries. These changes are monitored by Vanguard and action is taken, where appropriate, to facilitate the achievement of the Funds investment objectives. Manager risk Vanguard uses an indexing investment strategy in all asset classes in which the Funds invest. This significantly lowers the risk of short term underperformance relative to target indexes, compared with active managers. However, the Funds may fail to meet their objectives as a result of: Vanguard s selection of securities from the relevant index; the costs of managing the portfolios, which are not measured by the relevant index; and a currency hedge failing to behave in line with the target index. Please refer to the paragraphs headed Indexing in the How Vanguard Invests section on page 15 for more information on Vanguard s investment approach. Fund risk Fund risk relates to risks that are particular to the Funds. These may include risks that the Funds could terminate, the fees and expenses could change, Vanguard could be replaced as manager, or specifically in the case of index funds, the securities in the relevant index tracked may change due to changes in the industry or the relevant sector. There is also the risk that investing in the Funds may give different results than investing directly because of the income or capital gains accrued in the Funds and the consequences of investment and withdrawal by other investors. Other operational risks There is the risk that circumstances beyond Vanguard s reasonable control could prevent Vanguard from managing the Funds in accordance with its investment strategies, and as otherwise contemplated in this PDS. Examples of these circumstances include strikes, industrial disputes, fires or other casualty, war, civil disturbance, terrorist acts, government pre-emption in connection with an emergency of state and epidemics (including potential epidemics). By investing in these Funds you agree that Vanguard is not liable if Vanguard is prevented from managing the Funds by circumstances beyond its reasonable control. Product Disclosure Statement 9

13 FEATURES AT A GLANCE FEATURES AT A GLANCE 10 vanguard.com.au

14 FEATURES AT A GLANCE ASSET SECTOR INDEX FUNDS Features Vanguard Index Vanguard Index Vanguard Index Vanguard High Yield Cash Plus Fund Diversified Bond Fund Australian Shares Fund Australian Shares Fund Investment objective To match the return (income To match the return (income To match the return (income Targeting a grossed-up and capital appreciation) and capital appreciation) and capital appreciation) dividend yield that is 1% of a customised index (the of a tailored diversified index of the S&P/ASX 300 Index, above the S&P/ASX 200 Vanguard Cash Plus Index), representing a 40% before taking into account Index (excluding A-REITs) which is a measure of allocation to Australian fixed Fund fees and expenses. and a return (income and high-quality Australian cash interest securities (bonds) capital appreciation) that and short-term fixed interest and a 60% allocation to is broadly in line with that (debt) investments, before international fixed interest index, before taking into taking into account Fund securities (hedged), before account Fund fees and fees and expenses. taking into account Fund expenses, while providing fees and expenses. higher yield and keeping net realised capital gains low. Fund commencement date 19 January January October July 2004 Minimum initial application A $5,000 $5,000 $5,000 $5,000 Application/contribution fee Nil Nil Nil Nil Withdrawal fee Nil Nil Nil Nil Switching fee Nil Nil Nil Nil Minimum additional application amount: By cheque $1,000 $1,000 $1,000 $1,000 By BPAY $100 $100 $100 $100 Minimum holding balance $3,000 $3,000 $3,000 $3,000 Minimum withdrawal or switch $1,000 $1,000 $1,000 $1,000 Access to funds B Withdrawals are Withdrawals are Withdrawals are Withdrawals are normally paid within normally paid within normally paid within normally paid within four business days four business days four business days four business days Income distributions Quarterly as at Quarterly as at Half yearly as at Monthly 31 March, 30 June, 31 March, 30 June, 30 June and 30 September, 30 September, 31 December 31 December 31 December Unit pricing frequency Daily Daily Daily Daily Management costs C First $50, % p.a. 0.75% p.a. 0.75% p.a. 0.90% p.a. Next $50, % p.a. 0.50% p.a. 0.50% p.a. 0.60% p.a. Balance over $100, % p.a. 0.35% p.a. 0.35% p.a. 0.45% p.a. Buy spread cost (purchase) D Nil 0.25% 0.20% 0.20% Sell spread cost (withdrawal) D Nil 0.25% 0.10% 0.10% A B C D Vanguard may accept a lesser amount at its discretion. Please refer to Withdrawals on pages 36 and 37 for details of when withdrawal payment times may be longer. The management costs for the Funds incorporate goods and services tax (GST) after taking into account any expected input tax credits. Management costs for the Funds also incorporate management costs for the underlying Vanguard Wholesale Index Funds. Please see page 31 for more information about management costs. Note that buy/sell spread costs are estimates. Please refer to page 32 for more information concerning the buy/sell spread costs. The above information is subject to change. Details of any changes will be made available on the vanguard.com.au website. A paper copy of any updated information will be provided free of charge on request. Investors will be notified of material changes. Product Disclosure Statement 11

15 FEATURES AT A GLANCE Features Vanguard Index Vanguard Index Vanguard Index Australian Property International Hedged International Securities Fund Shares Fund Shares Fund Investment objective To match the return (income To match the return (income To match the return (income and capital appreciation) and capital appreciation) and capital appreciation) of of the S&P/ASX 300 A-REIT of the MSCI World the MSCI World ex-australia Index, before taking into ex-australia Index (with Index (with net dividends account Fund fees and net dividends reinvested) reinvested) hedged to expenses. in Australian dollars, before Australian dollars, before taking into account Fund taking into account Fund fees and expenses. fees and expenses. Fund commencement date 26 October October January 2001 Minimum initial application A $5,000 $5,000 $5,000 Application/contribution fee Nil Nil Nil Withdrawal fee Nil Nil Nil Switching fee Nil Nil Nil Minimum additional application amount: By cheque $1,000 $1,000 $1,000 By BPAY $100 $100 $100 Minimum holding balance $3,000 $3,000 $3,000 Minimum withdrawal or switch $1,000 $1,000 $1,000 Access to funds B Withdrawals are Withdrawals are Withdrawals are normally paid within normally paid within normally paid within four business days four business days four business days Income distributions Half yearly as at Half yearly as at Half yearly as at 30 June and 30 June and 30 June and 31 December 31 December 31 December Unit pricing frequency Daily Daily Daily Management costs C First $50, % p.a. 0.90% p.a. 0.90% p.a. Next $50, % p.a. 0.60% p.a. 0.60% p.a. Balance over $100, % p.a. 0.35% p.a. 0.35% p.a. Buy spread cost (purchase) D 0.20% 0.30% 0.40% Sell spread cost (withdrawal) D 0.20% 0.10% 0.20% A B C D Vanguard may accept a lesser amount at its discretion. Please refer to Withdrawals on pages 36 and 37 for details of when withdrawal payment times may be longer. The management costs for the Funds incorporate goods and services tax (GST) after taking into account any expected input tax credits. Management costs for the Funds also incorporate management costs for the underlying Vanguard Wholesale Index Funds. Please see page 31 for more information about management costs. Note that buy/sell spread costs are estimates. Please refer to page 32 for more information concerning the buy/sell spread costs. The above information is subject to change. Details of any changes will be made available on the vanguard.com.au website. A paper copy of any updated information will be provided free of charge on request. Investors will be notified of material changes. 12 vanguard.com.au

16 FEATURES AT A GLANCE DIVERSIFIED INDEX FUNDS Features Vanguard LifeStrategy Vanguard LifeStrategy Vanguard LifeStrategy Vanguard LifeStrategy Conservative Fund Balanced Fund Growth Fund High Growth Fund Investment objective To match the weighted To match the weighted To match the weighted To match the weighted average return of the target average return of the target average return of the target average return of the target indexes of each of the indexes of each of the indexes of each of the indexes of each of the underlying Vanguard underlying Vanguard underlying Vanguard underlying Vanguard Wholesale Index Funds Wholesale Index Funds Wholesale Index Funds Wholesale Index Funds in which it invests, before in which it invests, before in which it invests, before in which it invests, before taking into account Fund taking into account Fund taking into account Fund taking into account Fund fees and expenses. fees and expenses. fees and expenses. fees and expenses. The weights used are the The weights used are the The weights used are the The weights used are the strategic asset allocations strategic asset allocations strategic asset allocations strategic asset allocations to each asset class. to each asset class. to each asset class. to each asset class. Asset allocation Income 70% Income 50% Income 30% Income 10% Growth 30% Growth 50% Growth 70% Growth 90% Fund commencement date 26 October February October October 1998 Minimum initial application A $5,000 $5,000 $5,000 $5,000 Application/contribution fee Nil Nil Nil Nil Withdrawal fee Nil Nil Nil Nil Switching fee Nil Nil Nil Nil Minimum additional application amount: By cheque $1,000 $1,000 $1,000 $1,000 By BPAY $100 $100 $100 $100 Minimum holding balance $3,000 $3,000 $3,000 $3,000 Minimum withdrawal or switch $1,000 $1,000 $1,000 $1,000 Access to funds B Withdrawals are Withdrawals are Withdrawals are Withdrawals are normally paid within normally paid within normally paid within normally paid within four business days four business days four business days four business days Income distributions Half yearly as at Half yearly as at Half yearly as at Half yearly as at 30 June and 30 June and 30 June and 30 June and 31 December 31 December 31 December 31 December Unit pricing frequency Daily Daily Daily Daily Management costs C First $50, % p.a. 0.90% p.a. 0.90% p.a. 0.90% p.a. Next $50, % p.a. 0.60% p.a. 0.60% p.a. 0.60% p.a. Balance over $100, % p.a. 0.35% p.a. 0.35% p.a. 0.35% p.a. Buy spread cost (purchase) D 0.15% 0.20% 0.25% 0.30% Sell spread cost (withdrawal) D 0.10% 0.15% 0.15% 0.20% A B C D Vanguard may accept a lesser amount at its discretion. Please refer to Withdrawals on pages 36 and 37 for details of when withdrawal payment times may be longer. The management costs for the Funds incorporate goods and services tax (GST) after taking into account any expected input tax credits. Management costs for the Funds also incorporate management costs for the underlying Vanguard Wholesale Index Funds. Please see page 31 for more information about management costs. Note that buy/sell spread costs are estimates. Please refer to page 32 for more information concerning the buy/sell spread costs. The above information is subject to change. Details of any changes will be made available on the vanguard.com.au website. A paper copy of any updated information will be provided free of charge on request. Investors will be notified of material changes. Product Disclosure Statement 13

17 VANGUARD S RANGE OF INVESTOR INDEX FUNDS VANGUARD S RANGE OF INVESTOR INDEX FUNDS 14 vanguard.com.au

18 HOW VANGUARD INVESTS VANGUARD S RANGE OF INVESTOR INDEX FUNDS Indexing All Vanguard Funds seek to track a chosen index or benchmark. This is achieved by seeking to replicate the returns of the index or benchmark, either by holding all of the securities included in the index or benchmark or a representative sample of these securities. While maintaining the objective of closely tracking the returns represented by the index or benchmark, Vanguard tries to minimise the transaction costs associated with managing cash flows and making adjustments for index or benchmark changes. In some cases, Vanguard is required to trade securities to maintain a portfolio that closely matches the index or benchmark, in which case it seeks to minimise the associated transaction costs, turnover and realised capital gains within the portfolio. Please refer to the paragraphs on Manager risk in the Risks section on page 9 for more information on the potential risks associated with Vanguard s investment approach. Futures Futures may be used to gain market exposure without investing directly in securities. This allows Vanguard to maintain fund liquidity without being under-invested. Importantly, derivatives are not used to leverage the Funds portfolios. Investment objectives and policy Vanguard may from time to time vary the investment objective and policy of any Fund. Such variations may include changes to the target index or benchmark chosen for each Fund. Vanguard will notify investors of any such changes. Environmental, social and ethical considerations Vanguard does not take into account labour standards or environmental, social or ethical considerations when selecting, retaining or realising investments for the Vanguard Investor Index Funds. Proxy voting and engagement Vanguard votes proxies in companies/funds where the underlying funds have a significant economic interest and it is reasonably practicable to do so. This covers the vast majority of holdings by value. Vanguard believes the right to vote proxies for holdings is a significant asset. Vanguard exercises the votes with the goal of maximising the value of the investments. Details of Vanguard s proxy voting policy can be found at the Vanguard website ( Vanguard is a shareholder in Regnan Governance Research and Engagement Pty Limited, which engages with ASX 200 companies on environmental, social and governance issues from a long-term shareholder value perspective. Currency hedging The hedged versions of Vanguard Funds use forward foreign exchange contracts to offset depreciation and/or appreciation in the value of securities resulting from fluctuations of the currencies in the countries where the securities are held. The net result for the hedged Funds is that their returns (income and capital appreciation) are relatively unaffected by currency fluctuations only the investment performance of the actual portfolio is captured. However, there are side effects for the distributions from the hedged Funds. When the Australian dollar is appreciating, the hedge gains can result in significant distributions. When it is depreciating, the hedge losses can totally offset other income in the Funds, resulting in nil distributions. Borrowings A Fund will only borrow where Vanguard believes it is in the best interests of investors to do so. Currently, Vanguard does not intend to borrow for the purposes of gearing. Product Disclosure Statement 15

19 VANGUARD S RANGE OF INVESTOR INDEX FUNDS ASSET SECTOR INDEX FUNDS The following pages provide a description of the asset sector index funds, including a broad outline of the investment objectives, investment policy, asset allocation and other relevant information specific to each Fund. The asset sector index funds do not directly invest in securities in the target asset sector. The Funds each invest in units in underlying Vanguard Wholesale Index Funds (underlying fund(s)), which in turn invest in securities in the target asset sector or another Vanguard Wholesale Index Fund. Note that Vanguard may change the underlying funds in which the Funds invest at its discretion. For example, in future, some or all of the Funds may commence investing directly in additional or different underlying funds and may cease investing in the underlying funds named below. The following table lists the asset sector index funds and the underlying funds in which they invest. Fund Vanguard Index Cash Plus Fund Vanguard Index Diversified Bond Fund Vanguard Index Australian Shares Fund Vanguard High Yield Australian Shares Fund Vanguard Index Australian Property Securities Fund Vanguard Index International Shares Fund Vanguard Index Hedged International Shares Fund Underlying Fund Vanguard Cash Plus Index Fund Vanguard Australian Fixed Interest Index Fund Vanguard International Fixed Interest Index Fund (Hedged) Vanguard International Credit Securities Index Fund (Hedged) Vanguard Australian Shares Index Fund Vanguard Australian Shares High Yield Fund Vanguard Australian Property Securities Index Fund Vanguard International Shares Index Fund Vanguard International Shares Index Fund (Hedged) 16 vanguard.com.au

20 VANGUARD S RANGE OF INVESTOR INDEX FUNDS CASH PLUS Investment objective The Vanguard Index Cash Plus Fund seeks to match the return (income and capital appreciation) of a customised index (the Vanguard Cash Plus Index), before taking into account Fund fees and expenses. The index The Vanguard Cash Plus Index has been developed by Vanguard to measure the performance of high-quality Australian cash and short-term debt securities. The index has been constructed and is administered in the same manner as other market indexes. Like the UBS Australian Bank Bill Index, the index is calculated from reference rates that are derived from information supplied by key market participants daily. The index has fixed allocations of: 85% to a six-month discount security; 7.5% to a one-year fixed interest security; and 7.5% to a two-year fixed interest security. The index is reset weekly to maintain a stable duration, while the duration of each security bought for the Fund reduces each day (until maturity). Vanguard will not vary the allocations in an attempt to time the markets. The average maturity (duration) of the index is approximately eight months. It is expected that the index will outperform the UBS Australian Bank Bill Index in two out of every three years. However, it may underperform the UBS Australian Bank Bill Index when short-term yields are persistently above long-term yields. Longer-term investments typically (but not always) offer higher yields than money market or cash investments. Investment policy The Vanguard Index Cash Plus Fund gains its exposure to securities in the index by investing in the Vanguard Cash Plus Index Fund (the underlying fund). The passage of time changes the composition of the Fund s portfolio relative to the index, and requires Vanguard to trade to maintain a portfolio that closely matches the index. There is credit risk associated with debt securities. Vanguard seeks to reduce this risk by selecting only debt securities with a credit rating of at least A-1 (by Standard and Poor s or equivalent) and by diversifying the Fund s holdings across issuers. The investments to which the Fund is exposed are restricted to: a) Commonwealth Government securities; b) deposits or securities rated AA or above (by Standard & Poor s or Moody s equivalent); c) deposits secured by a) or b); d) securities issued by licensed banks rated A-1 or higher (by Standard & Poor s or Moody s equivalent), that mature within 90 days and together form not more than 25% of the total market value of the Fund; e) cash deposits with licensed banks rated A-1 or higher (by Standard & Poor s or Moody s equivalent); and f) futures. The maximum exposure to any single non-government issuer is 33% of the market value of the Fund. The modified duration of the Fund will not exceed nine months. To ensure liquidity of the Fund, at least 65% of investments will be maintained in the form of highly liquid securities. Futures may be used to maintain market risk. Futures will not be used to leverage the portfolio or modify the risk characteristics of the portfolio away from the index. For the latest information on this Fund including performance data, please visit our website at Product Disclosure Statement 17

21 VANGUARD S RANGE OF INVESTOR INDEX FUNDS DIVERSIFIED BOND AUSTRALIAN SHARES Investment objective The Vanguard Index Diversified Bond Fund seeks to match the return (income and capital appreciation) of a tailored diversified index, representing a 40% allocation to Australian fixed interest securities (bonds) and a 60% allocation to international fixed interest securities (hedged), before taking into account Fund fees and expenses. The index The index comprises: 40% UBS Australian Composite Bond Index, and 60% Barclays Capital Global Aggregate ex Securitised Index (hedged to Australian dollars). The UBS Australian Composite Bond Index is a value weighted index of approximately 330 securities (bonds) issued by the Commonwealth Government, state governments, guaranteed treasury corporations and semigovernment authorities, as well as investment-grade corporate issuers. Investment-grade issuers are defined as those rated BBB- or higher by Standard and Poor s or Baa3 or higher by Moody s. The Barclays Capital Global Aggregate ex Securitised Index is a value weighted index of approximately 10,000 securities (bonds) issued by government-owned entities, government-guaranteed entities and investment-grade corporations with a credit rating of at least BBB-. Investment objective The Vanguard Index Australian Shares Fund seeks to match the return (income and capital appreciation) of the S&P/ASX 300 Index before taking into account Fund fees and expenses. The index The S&P/ASX 300 Index comprises approximately 300 Australian equity securities (shares) and represents more than 94% of the value of all Australian-based companies and property trusts listed on the Australian Securities Exchange (ASX). Investment policy The Fund gains its exposure to securities in the index by investing in the Vanguard Australian Shares Index Fund (the underlying fund). The Fund is exposed to most of the securities in the index, allowing for individual security weightings to vary marginally from the index from time to time. The Fund may be exposed to securities that have been or are expected to be included in the index. For the latest information on this Fund including performance data, please visit our website at: Investment policy The Fund invests in Australian and international bonds through underlying Vanguard Wholesale Index Funds. The Australian fixed interest allocation invests in the Vanguard Australian Fixed Interest Index Fund, and the international fixed interest allocation invests in the Vanguard International Fixed Interest Index Fund (Hedged) and the Vanguard International Credit Securities Index Fund (Hedged). Bond indexes change far more quickly than share indexes, because bonds have a finite life. Every maturity and inclusion of new issues changes the composition of the index, requiring Vanguard to modify the portfolio. Accordingly, Vanguard pays careful attention to minimising transaction costs associated with investing cash flows and making adjustments to the portfolio. Futures may be used to gain market exposure without investing directly in securities. This allows Vanguard to maintain Fund liquidity, without being under-invested. Please refer to page 9 (Currency risk) and page 15 (How Vanguard invests Currency hedging) for details of hedging. For the latest information on this Fund including performance data, please visit our website at: 18 vanguard.com.au

22 VANGUARD S RANGE OF INVESTOR INDEX FUNDS HIGH YIELD AUSTRALIAN SHARES AUSTRALIAN PROPERTY SECURITIES Investment objective The Vanguard High Yield Australian Shares Fund is a stylebiased Fund that targets a grossed-up dividend yield that is 1% above that of the S&P/ASX 200 Index (excluding A-REITs) before taking into account Fund fees and expenses, while providing a return (income and capital appreciation) that is broadly in line with that index. Grossedup dividend yield is calculated taking into account both cash dividends and associated franking credits. The index The S&P/ASX 200 Index (excluding A-REITs) consists of approximately 180 Australian equity securities (shares) and represents more than 92% of the value of all Australianbased companies (excluding listed property trusts) listed on the Australian Securities Exchange (ASX). Investment policy The Fund gains exposure to the securities in the index by investing in the Vanguard Australian Shares High Yield Fund (the underlying fund). Style-biased index funds can be managed by tracking style-biased indexes such as published value and growth indexes or by biasing the portfolio to a desired characteristic while targeting a broad market index. As there is no published index that is biased to the high yield characteristic, Vanguard has selected the S&P/ASX 200 Index (excluding A-REITs) as the index for this Fund and selects shares from that index for the Fund s portfolio. Investment objective The Vanguard Index Australian Property Securities Fund seeks to match the return (income and capital appreciation) of the S&P/ASX 300 A-REIT Index before taking into account Fund fees and expenses. The index As at the date of this PDS, the S&P/ASX 300 A-REIT Index comprises between 20 and 30 property trust securities listed on the Australian Securities Exchange (ASX). However, the number of securities in the index may vary from time to time. Investment policy The Fund gains its exposure to securities in the index by investing in the Vanguard Australian Property Securities Index Fund (the underlying fund). The Fund will be exposed to all of the property securities in the index (at most times), allowing for individual security weightings to vary marginally from the index from time to time. The Fund may also be exposed to property securities that have been or are expected to be included in the index. For the latest information on this Fund, including performance data, please visit our website at: The underlying fund will overweight the shares of some companies and underweight and even exclude others (relative to their index weights). Those positions do not reflect a view that some companies will outperform others. Rather, they bias the portfolio to the desired higher dividend yield and franking credit characteristics. The return (income and capital appreciation) of the Fund is expected to be broadly in line with the S&P/ASX 200 Index (excluding A-REITs). However, the Fund s performance is likely to deviate further from the index than other Vanguard Investor Index Funds because shares for the Fund s portfolio are not being selected with the aim of replicating the index but rather for their expected grossed-up dividend yield. Where an assumption about the tax rate is relevant to an investment decision for example, decisions on participating in share buybacks Vanguard will assume that investors are in lower tax brackets. The taxation consequences may not be the same for all investors. For the latest information on this Fund including performance data, please visit our website at: Product Disclosure Statement 19

23 VANGUARD S RANGE OF INVESTOR INDEX FUNDS INTERNATIONAL SHARES INTERNATIONAL SHARES (HEDGED) Investment objective The Vanguard Index International Shares Fund seeks to match the return (income and capital appreciation) of the MSCI World ex-australia Index (with net dividends reinvested), in Australian dollars, before taking into account Fund fees and expenses. The hedged version of the Fund, the Vanguard Index Hedged International Shares Fund, seeks to match the return (income and capital appreciation) of the MSCI World ex-australia Index (with net dividends reinvested), hedged into Australian dollars, before taking into account Fund fees and expenses. The index The MSCI World ex-australia Index comprises approximately 1,600 securities (shares) listed on the exchanges of 22 of the world s major developed economies. Investment policy The Vanguard Index International Shares Fund gains its exposure to securities in the index by investing in the Vanguard International Shares Index Fund (the underlying fund). The Vanguard Index Hedged International Shares Fund gains its exposure to securities in the index by investing in the Vanguard International Shares Index Fund (Hedged) (the underlying fund). The Funds will be exposed to most of the shares in the index, allowing for individual share weightings to vary marginally from the index from time to time. The Funds may also be exposed to shares that have been or are expected to be included in the index. Vanguard may, at its discretion, commence investing directly in the securities in the index or in other Vanguard funds. Please refer to page 9 (Currency risk) and page 15 (How Vanguard invests Currency hedging) for details of hedging relevant to the hedged Fund. For the latest information on these Funds, including performance data, please visit our website at: for the unhedged Fund and for the hedged Fund. 20 vanguard.com.au

24 VANGUARD S RANGE OF INVESTOR INDEX FUNDS DIVERSIFIED INDEX FUNDS The Vanguard LifeStrategy Funds are diversified index funds investing across a number of asset sectors, including growth assets such as Australian shares, international shares and property, and Australian listed property securities and income assets, such as Australian and international fixed interest (bonds) and cash. The Funds provide a choice of asset allocations by maintaining differing allocations to shares, property securities, bonds and cash and vary from conservative to growth oriented allocations. The following pages provide a description of the diversified index funds, including a broad outline of the investment objectives, investment policy, asset allocation and other relevant information specific to each Fund. The diversified index funds do not invest directly in securities in the different asset classes. The Funds seek to achieve their investment objectives by investing in a blend of the underlying Vanguard Wholesale Index Funds listed below in accordance with their target asset allocations: Vanguard Cash Plus Index Fund; Vanguard Australian Fixed Interest Index Fund; Vanguard International Fixed Interest Index Fund (Hedged); Vanguard International Credit Securities Index Fund (Hedged); Vanguard Australian Property Securities Index Fund; Vanguard Australian Shares Index Fund; Vanguard International Shares Index Fund; Vanguard International Shares Index Fund (Hedged); Vanguard International Small Companies Index Fund; Vanguard International Small Companies Index Fund (Hedged); Vanguard International Property Securities Index Fund; Vanguard International Property Securities Index Fund (Hedged); and Vanguard Emerging Markets Shares Index Fund. Each diversified fund currently achieves its allocation to a particular sector by investing in the underlying funds listed left that correspond to the relevant sector. A Fund may commence investing directly in securities and/or may commence investing in different or additional underlying funds at Vanguard s discretion. The indexes tracked by the underlying funds are the same as the indexes referred to in pages 17 to 20 for the corresponding asset sector index funds. Some of the underlying funds invest in asset sectors that cannot be directly invested through this PDS. Information about the indexes relevant to these asset sectors is listed below: the index for emerging markets is the MSCI Emerging Markets Index; the index for international property (hedged) is the UBS Global Real Estate Investors Index ex-australia hedged into Australian dollars; the index for international small companies (hedged) is the MSCI World ex-australia Small Cap Index hedged into Australian dollars; the index for international fixed interest (hedged) is the Barclays Capital Global Treasury Index hedged into Australian dollars; the index for international credit securities (hedged) is the Barclays Capital Global Aggregate Government-Related and Corporate Index hedged into Australian dollars; and the index for Australian fixed interest is the UBS Australian Composite Bond Index. Product Disclosure Statement 21

25 VANGUARD S RANGE OF INVESTOR INDEX FUNDS CONSERVATIVE Investment objective The Vanguard LifeStrategy Conservative Fund seeks to match the weighted average return of the target indexes of the underlying funds (see below), before taking into account Fund fees and expenses (the Fund s benchmark). The weights used are the strategic asset allocations for each asset class. Investment policy The Fund s portfolio is designed to provide investors with a diversified asset allocation that emphasises the historically less risky and lower returning income asset classes over the historically riskier and higher returning growth asset classes. The Fund holds units in a range of Vanguard s sector index funds (the underlying funds), including but not limited to: Vanguard Cash Plus Index Fund; Vanguard Australian Fixed Interest Index Fund; Vanguard International Fixed Interest Index Fund (Hedged); Vanguard International Credit Securities Index Fund (Hedged); Vanguard Australian Property Securities Index Fund; Vanguard International Property Securities Index Fund (Hedged); Vanguard International Small Companies Index Fund (Hedged); Vanguard Australian Shares Index Fund; and Vanguard International Shares Index Fund. Asset class Income assets Strategic asset Asset allocation allocation % range % Australian fixed interest International fixed interest (hedged) Australian cash Total income assets Growth assets Australian shares International shares Australian property securities 2.0 International property securities (hedged) International small companies (hedged) Emerging markets shares Total growth assets The portfolio targets a 70% allocation to income asset classes (cash and fixed interest securities) and a 30% allocation to growth asset classes (property securities and shares). Actual allocations are permitted to deviate from the strategic asset allocations provided they remain within the ranges in the table right. Vanguard may vary the strategic asset allocations and asset allocation ranges or introduce new asset classes from time to time. For the latest information on this Fund including performance data, please visit our website at: 22 vanguard.com.au

26 VANGUARD S RANGE OF INVESTOR INDEX FUNDS BALANCED Investment objective The Vanguard LifeStrategy Balanced Fund seeks to match the weighted average return of the target indexes of the underlying funds (see below), before taking into account Fund fees and expenses (the Fund s benchmark). The weights used are the strategic asset allocations for each asset class. Investment policy The Fund s portfolio is designed to provide investors with a diversified asset allocation that equally mixes the historically less risky and lower returning income asset classes with the historically riskier and higher returning growth asset classes. The Fund holds units in a range of Vanguard s sector index funds (the underlying funds), including but not limited to: Vanguard Cash Plus Index Fund; Vanguard Australian Fixed Interest Index Fund; Vanguard International Fixed Interest Index Fund (Hedged); Vanguard International Credit Securities Index Fund (Hedged); Vanguard Australian Property Securities Index Fund; Vanguard International Property Securities Index Fund (Hedged); Vanguard International Small Companies Index Fund (Hedged); Vanguard Australian Shares Index Fund; Vanguard International Shares Index Fund; and Vanguard Emerging Markets Shares Index Fund. Asset class Income assets Strategic asset Asset allocation allocation % range % Australian fixed interest International fixed interest (hedged) Australian cash Total income assets Growth assets Australian shares International shares Australian property securities 3.0 International property securities (hedged) International small companies (hedged) Emerging markets shares Total growth assets The portfolio targets a 50% allocation to income asset classes (cash and fixed interest securities) and a 50% allocation to growth asset classes (property securities and shares). Actual allocations are permitted to deviate from the strategic asset allocations provided they remain within the ranges in the table right. Vanguard may vary the strategic asset allocations and asset allocation ranges or introduce new asset classes from time to time. For the latest information on this Fund including performance data, please visit our website at: Product Disclosure Statement 23

27 VANGUARD S RANGE OF INVESTOR INDEX FUNDS GROWTH Investment objective The Vanguard LifeStrategy Growth Fund seeks to match the weighted average return of the target indexes of the underlying funds (see below), before taking into account Fund fees and expenses (the Fund s benchmark). The weights used are the strategic asset allocations for each asset class. Investment policy The Fund s portfolio is designed to provide investors with a diversified asset allocation that emphasises the historically riskier and higher returning growth asset classes over the historically less risky and lower returning income asset classes. The Fund holds units in a range of Vanguard s sector index funds (the underlying funds), including but not limited to: Vanguard Cash Plus Index Fund; Vanguard Australian Fixed Interest Index Fund; Vanguard International Fixed Interest Index Fund (Hedged); Vanguard International Credit Securities Index Fund (Hedged); Vanguard Australian Property Securities Index Fund; Vanguard International Property Securities Index Fund (Hedged); Vanguard International Small Companies Index Fund (Hedged); Vanguard Australian Shares Index Fund; Vanguard International Shares Index Fund; and Vanguard Emerging Markets Shares Index Fund. Asset class Income assets Strategic asset Asset allocation allocation % range % Australian fixed interest International fixed interest (hedged) Australian cash Total income assets Growth assets Australian shares International shares Australian property securities 4.0 International property securities (hedged) International small companies (hedged) Emerging markets shares Total growth assets The portfolio targets a 30% allocation to income asset classes (cash and fixed interest securities) and a 70% allocation to growth asset classes (property securities and shares). Actual allocations are permitted to deviate from the strategic asset allocations provided they remain within the ranges in the table right. Vanguard may vary the strategic asset allocations and asset allocation ranges or introduce new asset classes from time to time. For the latest information on this Fund including performance data, please visit our website at: 24 vanguard.com.au

28 VANGUARD S RANGE OF INVESTOR INDEX FUNDS HIGH GROWTH Investment objective The Vanguard LifeStrategy High Growth Fund seeks to match the weighted average return of the target indexes of the underlying funds (see below), before taking into account Fund fees and expenses (the Fund s benchmark). The weights used are the strategic asset allocations for each asset class. Investment policy The Fund s portfolio is designed to provide investors with a diversified asset allocation that heavily emphasises the historically riskier and higher returning growth asset classes over the historically less risky and lower returning income asset classes. The Fund holds units in a range of Vanguard s sector index funds (the underlying funds), including but not limited to: Vanguard Cash Plus Index Fund; Vanguard Australian Fixed Interest Index Fund; Vanguard International Fixed Interest Index Fund (Hedged); Vanguard International Credit Securities Index Fund (Hedged); Vanguard Australian Property Securities Index Fund; Vanguard International Property Securities Index Fund (Hedged); Vanguard International Small Companies Index Fund (Hedged); Vanguard Australian Shares Index Fund; Vanguard International Shares Index Fund; and Vanguard Emerging Markets Shares Index Fund. Asset class Income assets Strategic asset Asset allocation allocation % range % Australian fixed interest International fixed interest (hedged) Australian cash Total income assets Growth assets Australian shares International shares Australian property securities 5.0 International property securities (hedged) International small companies (hedged) Emerging markets shares Total growth assets The portfolio targets a 10% allocation to the income asset class of fixed interest securities and a 90% allocation to growth asset classes (property securities and shares). Actual allocations are permitted to deviate from the strategic asset allocations provided they remain within the ranges in the table right. Vanguard may vary the strategic asset allocations and asset allocation ranges or introduce new asset classes from time to time. For the latest information on this Fund including performance data, please visit our website at: Product Disclosure Statement 25

29 BEFORE YOU INVEST BEFORE YOU INVEST 26 vanguard.com.au

30 BEFORE YOU INVEST FEES AND OTHER COSTS DID YOU KNOW? Small differences in both investment performance and fees and costs can have a substantial impact on your long term returns. For example, total annual fees and costs of 2% of your fund balance rather than 1% could reduce your final return by up to 20% over a 30 year period. (for example, reduce it from $100,000 to $80,000). You should consider whether features, such as superior investment performance or the provision of better member services, justify higher fees and costs. You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the fund or your financial adviser. TO FIND OUT MORE If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website ( has a managed investment fee calculator to help you check out different fee options. Product Disclosure Statement 27

31 BEFORE YOU INVEST This PDS shows fees and other costs that you may be charged. These fees and costs may be deducted from your money, from the returns on your investment or from each Fund s assets as a whole. Taxes are set out in another part of this PDS. You should read all the information about fees and costs because it is important to understand their impact on your investment. TYPE OF FEE OR COST AMOUNT HOW AND WHEN PAID Fees when your money moves in or out of the Funds A Establishment fee The fee to open your investment Nil Not applicable Application/Contribution fee The fee on each amount contributed to your investment Nil Not applicable Withdrawal fee The fee on each amount you take out of your investment Nil Not applicable Termination fee The fee to close your investment Nil Not applicable Management costs B The fees and costs for managing your investment 0.35% p.a. to 0.90% p.a. B The management cost for each Fund is calculated as a percentage of the The amount you pay for specific Funds is shown on pages 11 to 13 Based on a constant Fund s net asset value C. The fee is investment of $50,000, accrued daily in the unit price and the amount in dollars is paid monthly. The fee for a month is $175 p.a. to $450 p.a. paid on or after the first day of the following month. This fee is taken from the assets of the relevant Fund and/or underlying fund. The amount of this fee can be negotiated. Service fees Investment switching fee The fee for switching between the Funds A Nil Not applicable A B C You may also incur a buy/sell spread cost when your money moves in or out of the Funds. Please refer to page 32 for an explanation of buy/sell spread costs. The amount you pay for a specific fund including worked dollar examples is shown on pages 29 to 30 of this PDS. Please refer to Valuations and pricing on page 35 for an explanation of the net asset value for the Funds. 28 vanguard.com.au

32 BEFORE YOU INVEST Example of annual fees and costs The following tables provide examples of how the fees and costs for each of the Funds can affect your investment over a one year period. You should use these tables to compare these products with other managed investment products. EXAMPLE Vanguard Index Cash Plus Fund Contribution fees Nil Balance of $50,000 with a contribution of $5,000 during year A Plus management costs B First $50, % For the first $50,000 you will be charged $350 each year Next $50, % Balance over $100, % Equals cost of Fund EXAMPLE Vanguard Index Australian Shares Fund Vanguard Index Diversified Bond Fund Contribution fees Nil If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 A during that year, you would be charged a fee of at least $350. What it costs you will depend on the fees you may negotiate with Vanguard. Balance of $50,000 with a contribution of $5,000 during year A Plus management costs B First $50, % For the first $50,000 you will be charged $375 each year Next $50, % Balance over $100, % Equals cost of Fund EXAMPLE Vanguard High Yield Australian Shares Fund Contribution fees Nil If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 A during that year, you would be charged a fee of at least $375. What it costs you will depend on the fees you may negotiate with Vanguard. Balance of $50,000 with a contribution of $5,000 during year A Plus management costs B First $50, % For the first $50,000 you will be charged $450 each year Next $50, % Balance over $100, % Equals cost of Fund If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 A during that year, you would be charged fees of at least $450. What it costs you will depend on the fees you may negotiate with Vanguard. A Assumes that the $5,000 investment occurs on the last business day of the year and that there is a constant investment of $50,000 throughout the year. B Refer to Management fee rebates on page 31 for details about how lower fees apply to balances over $50,000. You may incur buy/sell spread costs when your money moves in and out of the Funds. Please refer to page 32 for an explanation of the buy/sell spread costs. Product Disclosure Statement 29

33 BEFORE YOU INVEST EXAMPLE Vanguard Index Australian Property Securities Fund Balance of $50,000 with a contribution of $5,000 during year A Vanguard Index International Shares Fund Vanguard Index Hedged International Shares Fund Vanguard LifeStrategy Conservative Fund Vanguard LifeStrategy Balanced Fund Vanguard LifeStrategy Growth Fund Vanguard LifeStrategy High Growth Fund Contribution fees Nil Plus management costs B First $50, % For the first $50,000 you will be charged $450 each year Next $50, % Balance over $100, % Equals cost of Fund If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 A during that year, you would be charged a fee of at least $450. What it costs you will depend on the fees you may negotiate with Vanguard. A Assumes that the $5,000 investment occurs on the last business day of the year and that there is a constant investment of $50,000 throughout the year. B Refer to Management fee rebates on page 31 for details about how lower fees apply to balances over $50,000. You may incur buy/sell spread costs when your money moves in and out of the Funds. Please refer to page 32 for an explanation of the buy/sell spread costs. 30 vanguard.com.au

34 BEFORE YOU INVEST Additional explanation of fees and costs Management costs The management costs for the Funds incorporate all relevant fees and other costs involved in managing the Funds and deriving investment returns, other than transaction and operational costs. They include: responsible entity/manager s fees; custodian fees (excluding transaction-based fees); accounting and audit fees; the management cost for the underlying funds; and any other recoverable expenses under the constitutions of the Funds such as the cost of preparing and amending the constitutions, the cost of producing the PDS, the cost of investor meetings, postage and other Fund administration expenses (other than transactional and operational costs). The management costs for the Funds include goods and services tax (GST) after taking into account any expected input tax credits. The management costs of investing in the Funds are capped until further notice. In calculating taxable income for the Funds, all available tax deductions are taken into account. This means that the effective after-tax cost to investors of investing in a Fund may be lower than the amounts specified here and on pages 11 to 13 to the extent that management costs are a tax-deductible expense and reduce the taxable income of that Fund. Please refer to page 43 for more information on taxation. Management fee rebates As detailed in this section of the PDS and also on pages 11 to 13, lower management costs are applied to the part of your investment that exceeds $50,000. To do this, management costs are initially deducted at the higher rate applying to amounts up to $50,000 for each Fund, with the difference between the higher and lower management costs then credited to your investment as a rebate, which is automatically reinvested in units in the same Fund. If you withdraw from a Fund before the rebate is applied, Vanguard will credit the rebate to the most recently advised Australian bank account. However, if you have withdrawn your investment and the management fee rebate is less than $50, Vanguard reserves the right to withhold the rebate. Note that the management fee rebate cannot be paid to an Australian bank account unless you have withdrawn from the Funds. There may be tax implications with the payment of the management fee rebate. Please refer to Taxation of the Funds on pages 43 and 44. Transaction and operational costs In addition to the management costs, there are other costs incurred by the Funds that are an additional cost to investors. They include government taxes and charges, regulatory fees and charges, bank charges and transaction costs. Most of these costs may also be incurred by investing directly in the underlying securities. The most significant of these costs are transaction costs brokerage commission, buy/sell spread costs in underlying securities and, in some markets, stamp duty. Such costs arise whenever the Funds buy or sell assets to invest application monies, meet withdrawals or from maintenance trading activity, which maintains the Vanguard Funds portfolios in line with their investment objectives. Due to the very low turnover inherent in index funds, the transaction costs arising from maintenance activity has been and is expected to be less than 0.05% p.a. (of net asset values) of all Funds, except those with currency hedging where the expectation is less than 0.15% p.a. The costs are deducted from the assets of the relevant Fund (or underlying fund/s) when they are incurred and are reflected in unit prices. Management fee rebates are usually reinvested within seven business days after the end of the distribution period for each Fund. Product Disclosure Statement 31

35 BEFORE YOU INVEST Buy/sell spread costs The buy/sell spread cost for each Fund is Vanguard s reasonable estimate of the transaction costs that the Fund will incur when buying and selling assets to invest application amounts and meet withdrawals. The buy/sell spread costs are paid to the Funds to meet these expenses and are not received by Vanguard. The purpose of the buy/sell spread is to protect investors from the costs generated by the transaction activity of other investors. Investors who invest into a Fund will pay the purchase price calculated by adding the buy spread to the Fund s net asset value per unit. Investors who withdraw from a Fund will receive the withdrawal price calculated by deducting the sell spread from the Fund s net asset value per unit. Until further notice, the buy/sell spread costs are as detailed in the table below. If a Fund receives applications and withdrawals on the same day there may be a reduction in either or both the buy and sell spread costs, as Vanguard may not need to buy or sell as many assets as would otherwise be the case. As a result, the Fund s transaction costs may be lower than normal. Vanguard passes its reasonable estimate of the reduction in transaction costs to investors in the form of a reduced buy or sell spread cost. Investors should note that this reduction in the buy/sell spread cost depends on investors application and withdrawal activity on a particular day and cannot be predetermined. There may be circumstances where the sell spread will be lower or higher for example, it may be higher when there are large or prolonged withdrawals from a Fund. In these circumstances, the sell spread cost could potentially be as much as the buy spread cost for the relevant Fund. Refer to page 34 for further details on the buy/sell spread costs. For further details of how buy/sell spreads and reductions are calculated, you can request a copy of Vanguard s policy on unit pricing discretion. Buy/sell spread costs for the Funds SECTOR INDEX FUNDS BUY SPREAD COST SELL SPREAD COST * % Dollar example % Dollar example on investment on withdrawal of $5,000 of $5,000 Vanguard Index Cash Plus Fund Nil n/a Nil n/a Vanguard Index Diversified Bond Fund 0.25 $ $12.50 Vanguard Index Australian Shares Fund 0.20 $ $5 Vanguard High Yield Australian Shares Fund 0.20 $ $5 Vanguard Index Australian Property Securities Fund 0.20 $ $10 Vanguard Index International Shares Fund 0.30 $ $5 Vanguard Index Hedged International Shares Fund 0.40 $ $10 DIVERSIFIED INDEX FUNDS Vanguard LifeStrategy Conservative Index Fund 0.15 $ $5 Vanguard LifeStrategy Balanced Index Fund 0.20 $ $7.50 Vanguard LifeStrategy Growth Index Fund 0.25 $ $7.50 Vanguard LifeStrategy High Growth Index Fund 0.30 $ $10 * Note that these sell spreads are estimates, as explained above. 32 vanguard.com.au

36 BEFORE YOU INVEST What is paid to your adviser? No adviser will receive any commission from Vanguard relating to your investment in the Funds. Vanguard may offer a facility to enable you to arrange for your adviser to be paid an agreed Adviser Review Fee from your investment for services provided. To establish the facility you and your adviser need to agree on an amount and a start date for ongoing service and advice in relation to your account. Together with your adviser, complete the Adviser or broker details section on the application form and return it to Vanguard. We will then establish the facility on your behalf. The Adviser Review Fee may be either (inclusive of GST): a fixed dollar amount up to $2,200 p.a. ($550 per quarter), or a percentage of the value of your account, up to 1.1% p.a. The percentage is based on the closing value of your account on each day from the start date of the facility. The fixed dollar fee is calculated from the start date and then becomes a fixed quarterly amount. If no start date is nominated on the form, the start date will be the day the form is received by Vanguard. The agreed amount will be deducted from your account quarterly on 15 February, May, August and November (or the next business day) by proportionately redeeming units in each of the Funds you are invested in. If the funds are not available, no deduction will be made and your adviser will not be remunerated. The form must be received by the start of the month for the first payment to be made by the 15th. For example, if you would like the first payment to be made on 15 February, we must receive your form by 1 February. You and your adviser will receive a letter confirming the establishment of the facility. Confirmation of each payment will be included on your quarterly transaction statement. You or your adviser may cancel the facility at any time by providing written notification to Vanguard. Cancellations received before 2:00 pm Melbourne time on a business day will be processed effective that day. Cancellations received after 2:00 pm Melbourne time on a business day will be processed effective the following business day. If the service is cancelled no payment will be made at the next payment date. If you wish to change the percentage or the amount, please send a completed Change of Details Form to Vanguard. This form is available on our website. Any change is effective from the first day of the next payment period. As payment of the fee is effected by way of a redemption of units, this facility may have tax implications. We suggest you seek your own tax advice in relation to the facility. Changes to management costs The management costs include a management fee component, which is Vanguard s remuneration for managing the Funds. (Management costs also include an expense reimbursement component.) The constitutions governing each Fund limit the amount of the management fee component. The management fee component cannot be increased above: 1.5% p.a. for the Vanguard High Yield Australian Shares Fund; 0.90% p.a. for the Vanguard LifeStrategy Balanced Fund and Vanguard Index Hedged International Shares Fund; and 0.85% p.a. for all other Funds. These limits exclude GST. An additional fee of $50 p.a. may be introduced for all Funds, except the Vanguard LifeStrategy Balanced Fund and Vanguard High Yield Australian Shares Fund. The are currently no withdrawal or early withdrawal fees charged for any of the Funds in this PDS and there is currently no intention to introduce such fees, however the constitutions for each Fund permit us to do so. The constitutions set out the maximum permissible withdrawal fees. For the Vanguard High Yield Australian Shares Fund, the early withdrawal fee per withdrawal cannot exceed the greater of $50 or 0.5% of the withdrawal value of each unit redeemed, and may be charged where units are redeemed at any time after being purchased. For the other Funds, the early withdrawal fee per withdrawal is currently fixed at the greater of $50 or 0.5% of the net asset value of each unit redeemed, and may be charged where units are redeemed within 180 days of being purchased. For all Funds other than the Vanguard Index Hedged International Shares Fund and the Vanguard LifeStrategy Balanced Fund, this fee cannot be amended to a rate greater than 1.0% of the net asset value per unit redeemed. Any increases above these limits will require unitholder approval. At least 30 days prior notice will be given to unitholders before any fee increase within these limits or the introduction of one of the fees not currently charged takes effect. Product Disclosure Statement 33

37 BEFORE YOU INVEST Changes to buy/sell spread costs Investors will generally be given prior notice of any increases in the buy/sell spread costs or the introduction of a buy/sell spread for the Vanguard Index Cash Plus Fund. Vanguard may increase buy/sell spread costs without notice when it is necessary to protect the interests of existing investors and if permitted by law. Rebates and related payments From time to time, Vanguard may enter into arrangements with certain wholesale investors who invest sizeable amounts in any of the Funds, under which we provide management cost rebates to those investors. Vanguard makes these payments from its own resources. Wholesale investors may contact Vanguard if they wish to apply for a management cost rebate. Similarly, Vanguard may from time to time enter into arrangements under which we make payments to clients, such as platform providers (for example, wrap accounts, master trusts or other investor directed portfolio services), who are investing sizeable amounts in a Fund on behalf of others. The Investment and Financial Services Association (IFSA) regards this type of payment as a fund manager payment. IFSA classifies a fund manager payment as a rebate if the recipient passes the benefit on to the underlying investors, and as a commission if it is retained by the recipient. Vanguard has no control over the application of fund manager payments and does not consider them to be commissions. The amount of each fund manager payment is decided by Vanguard at its discretion. As at the date of this PDS, Vanguard intends to make fund manager payments to platforms at a rate of up to 0.11% per annum on a weighted average basis (with regard to funds invested). Vanguard may also pay one-off or annual product access payments to platform providers for offering the Funds through their platforms. Vanguard makes all product access payments from its own resources. During the financial year ended 30 June 2009, the average product access payment was approximately $6,000 per annum per platform per Fund and payments of up to $12,875 per platform per fund were made. 34 vanguard.com.au

38 BEFORE YOU INVEST YOUR GUIDE TO INVESTING Classes of units All Funds in this PDS currently have a single class of units. Vanguard may create additional classes of units for certain Funds in the future. This PDS relates to the retail class of units. A unit confers a beneficial interest to an investor in the assets of a Fund but not an entitlement or interest in any particular part of a Fund or any asset. Valuations and pricing The net asset value per unit is determined by dividing the net asset value of a Fund by the number of units on issue in the Fund at the time of valuation (the valuation point). The net asset value for a Fund is the value of assets of that Fund, less liabilities of that Fund. A valuation point for a Fund is generally the close of business on a particular day in relevant markets. Where there are multiple classes of units for a Fund, the net asset value per unit in the relevant class is calculated by dividing the net asset value for the relevant class by the number of units on issue for that class at the valuation point. The prices are calculated as follows: Purchase price = net asset value per unit plus the buy spread cost Withdrawal price = net asset value per unit minus the sell spread cost Obtaining Vanguard unit prices For information on unit prices visit or contact Client Services on Investors who buy units in a Fund before a distribution date should be aware that the price will include income accumulated in the Fund since the last income distribution was made. This income will subsequently be distributed and will form part of an investor s taxable income. After a distribution, the Fund s unit price may drop to reflect the distribution paid. This would similarly affect investors who redeem units in the Fund before a distribution date. That is, the withdrawal price will include income accumulated in the Fund since the last income distribution was made and will affect any gains realised by investors on the disposal of units in the Fund. Transacting with us Standard forms are used for transactions, such as making additional applications, switches, redemptions or changing account details. Investors (other than indirect investors) must use Vanguard standard forms when issuing us with transaction instructions. Otherwise, we may not process your instructions. Contact Client Services on to find out more about how to transact with Vanguard. You can download Vanguard s standard forms at The buy/sell spread costs are explained on page 32. Impact of significant market events on unit pricing Vanguard does not price Fund units on public holidays or when markets are closed in relevant countries or where there are other factors preventing the accurate calculation of the unit prices. Applications or withdrawals for the affected Fund/s that are received on these days or after the cut-off time on the previous day will be processed as if they had been received on the business day following the affected dates. Changes to the cut-off times will be published on the website at You should check the website if you are contemplating a transaction. Product Disclosure Statement 35

39 BEFORE YOU INVEST Applications A minimum of $5,000 is required for the initial investment into each Fund and a minimum of $1,000 is required for additional investments made by cheque and $100 for additional investments made through BPAY. Vanguard, at its discretion, may accept other application amounts. Unless otherwise agreed, an application for units in the Vanguard Investor Index Funds must be made by completing the Application for Investment Form attached to this PDS. For initial and additional applications sent by post or delivered to the Vanguard office, the original application form and cheque must be received by the prescribed time to be processed at the purchase price to be applied for that day. For additional applications sent by fax, the application form and bank confirmation stating funds have been credited to Vanguard s bank account must be received by the prescribed time to be processed at the purchase price to be applied for that day. The prescribed time is 2:00 pm Melbourne time on a business day, except where otherwise determined by Vanguard. The unit price applicable for that day will not be known until the next business day. Units are issued at the purchase price calculated at the next valuation point after acceptance of your application. Applications received after the prescribed time will be processed at the next applicable purchase price as if they had been received on the next business day. Vanguard may, in its absolute discretion, accept or refuse to accept, in whole or in part, any application for units. Vanguard need not give any reason for refusal. If for any reason Vanguard refuses or is unable to process your application to invest in the Funds, Vanguard will return your application money to you. You will not be entitled to interest on your application money in this circumstance. Using BPAY BPAY allows you to transfer money from your bank account to your existing Vanguard Fund 24 hour a day, seven days a week. Once Vanguard has set up your investor number, you can use this service for your initial investment or to add to your existing investment. Using your bank s BPAY service, you simply make additional investments by telephone or via its internet banking services without the need for another application form. Please note that, although your BPAY transaction is processed from your bank account immediately, your funds and payment instructions may take some time to be transferred to Vanguard from your financial institution. Provided your BPAY request is made before your financial institution s cut-off time (usually 5:00 pm Melbourne time), Vanguard will typically receive your funds before 2:00 pm (Melbourne time) on the following business day. Units will only be issued once we receive your funds, and at the unit price applicable to the day payment is received. Additional investments to a Fund will be issued according to the terms and conditions of the current Vanguard Investor Index Funds PDS and the constitution of the relevant Fund. BPAY transactions cannot generally be reversed. Payments using credit card accounts cannot be made via BPAY. Any query on a BPAY transaction should be directed to your bank. Withdrawals You may withdraw part or all of your investment at any time. To access a Withdrawal Form, visit or contact Client Services on Withdrawal requests must be received by the prescribed time 2:00 pm Melbourne time on a business day, except where otherwise determined by Vanguard to be processed at the withdrawal price to be applied for that day. The unit price applicable for that day will not be known until the next business day. Units are withdrawn at the withdrawal price calculated at the next valuation point after receipt of your withdrawal request. Withdrawals received after the prescribed time will be processed at the next applicable withdrawal price as if they had been received on the next business day. Withdrawal proceeds will be paid in Australian dollars by electronic funds transfer (EFT) into your nominated Australian bank account or by cheque. Vanguard will normally remit withdrawal proceeds within four business days. Please note that withdrawal payments cannot be made to third parties. The minimum withdrawal amount is $1,000 for each Fund. The minimum account balance is $3,000 for each Fund. If your withdrawal request takes your Fund balance below this minimum, we reserve the right to treat your request as a full withdrawal from that Fund. For the Vanguard High Yield Australian Shares Fund, Vanguard Indexed Hedged International Shares Fund and Vanguard LifeStrategy Balanced Fund, withdrawals of more than 5% of the Fund value may be processed progressively over a period of up to 20 business days at the withdrawal price applicable for each day on which a withdrawal is processed. Withdrawals can be suspended in exceptional circumstances, subject to the constitutions of the Funds. 36 vanguard.com.au

40 BEFORE YOU INVEST Where Vanguard cannot accurately determine the net asset value per unit, such as where there is a closure of trading on the Australian Securities Exchange or an international stock exchange, Vanguard may suspend withdrawal of units. While a Fund is liquid for the purposes of the Corporations Act 2001, Vanguard must redeem your units in accordance with the relevant Fund s constitution on request. A Fund is liquid if 80% of the value of the Fund s assets are held in liquid assets as defined in the Corporations Act If a Fund is illiquid, a withdrawal request must be dealt with in accordance with the Fund s constitution and the Corporations Act You may not be able to withdraw your investment in a timely manner if a Fund is illiquid. It is not expected that any of the Funds in this PDS will be illiquid. On withdrawal of units, Vanguard may deduct from any amount to be paid to an investor any amount due by the investor to Vanguard. Withdrawing units may give rise to tax consequences and it is recommended that you check the tax implications with your tax adviser before withdrawing. Interest on amounts awaiting investment or withdrawal Amounts paid to a Fund may accrue interest in the Fund s accounts pending the issue of units or the return of application monies to you. Similarly, amounts made available to satisfy a withdrawal request may also accrue interest pending payment to you. Any such interest will be retained by the relevant Fund for the benefit of all investors. Switching You may request that Vanguard switch all or part of your investment between Funds. To access a Switching Form, visit or contact Client Services on A switching request must be received by the prescribed time 2:00 pm Melbourne time on a business day except where otherwise determined by Vanguard to be processed at the applicable withdrawal and purchase prices to be applied for that day. The unit price applicable for that day will not be known until the next business day. When you request a switch, we will withdraw your existing units in the Fund at the next available withdrawal price and will use the proceeds to buy units in the new Fund at the applicable purchase price. The normal buy/sell spread cost will apply to switch transactions. Switching requests received after the prescribed time will be processed at the applicable withdrawal and purchase price as if they had been received on the next business day. The minimum switch amount is $1,000 for each Fund, or $5,000 if you are a new investor in the Fund to which you are switching. If the switch causes your investment in a Fund to fall below $3,000, we reserve the right to treat your instruction as an instruction to switch your full investment in that Fund. If you switch into one of the Vanguard Wholesale Index Funds not covered by this PDS, you will be required to submit a switching request and complete an Application for Investment Form from the PDS for the Fund into which you are switching. Please note that you will have to meet the minimum initial investment requirement for that Fund. Switching from one Fund to another may give rise to tax consequences and it is recommended that you check the tax implications with your tax adviser before switching. If you intend to withdraw your holdings in the Vanguard Investor Index Funds and apply the proceeds to an equivalent fund listed in the current Vanguard Wholesale Index Funds Product Disclosure Statement, please contact Client Services on for information regarding the process to facilitate the switch to an equivalent wholesale fund. Please note that you will have to satisfy certain eligibility requirements. Transfers You may request that Vanguard transfer units of a Fund to another person in Australia as long as the value of the units transferred is at least $5,000 and only if your remaining units in the Fund are valued at more than $5,000 or if you would have no units in the Fund after the transfer (unless we determine otherwise). If you are transferring into a new investment, you will be required to submit a transfer request and complete an Application for Investment Form from the PDS for the investment into which you are transferring. To access a Transfer Form, visit or contact Client Services on Transfers must be received by the prescribed time 2:00 pm Melbourne time on a business day except where otherwise determined by Vanguard to be processed at the net asset value per unit on that day. Transfers received after the prescribed time will be processed at the applicable net asset value per unit as if they had been received on the next business day. Transferring units may give rise to tax consequences and it is recommended that you check the tax implications with your tax adviser before transferring. Vanguard reserves the right to decline to register a transfer of units. Product Disclosure Statement 37

41 BEFORE YOU INVEST Income distributions Each of the Funds may earn income, such as dividends, interest and profits and losses from currency hedges. The Funds may also realise capital gains or losses on the sale of investments. Income and net realised capital gains will be distributed to investors. Distributions for the Funds (if any) will be paid as shown below. Please note that the amount of distribution will vary from period to period, and there may be periods in which no distribution is made for a Fund. If this should occur, then details will be available on Distributions are calculated on a per unit basis and will be paid to investors based on the number and class of units held as at the end of the distribution period. This means that, for example, if the number of units on issue increases before the end of a distribution period, this may decrease the level of distributable income per unit that might otherwise have been payable. Distributions will normally be paid within 15 business days after the distribution dates. Investors in Funds using currency hedges should expect an increase in the volatility of income distributions compared to Funds with no currency hedge. Larger distributions are likely to result in periods where the currency hedge yields profits; conversely, there may be a number of periods where distributions are small (or even nil), where the currency hedge results in losses, or where there are accumulated hedge losses from prior periods. Any distribution of hedge profits will be taxable in the hands of unitholders. You may choose to have your distribution of income: reinvested in additional units in the same Fund; or paid directly to a nominated Australian bank account. If you do not make a choice, income distributions will automatically be reinvested in additional units in the Fund. Where your distribution of income is reinvested in the Fund, the units you receive will be issued to you without a buy spread being added to the price you pay for those units. For details on taxation of income distributions, see pages 43 and 44. You may change your standing instruction for distribution by providing us with your written instruction at least five business days before the end of the distribution period. To access a Change of Details Form, visit or contact Client Services on Please note that, unless otherwise advised, your new instruction will also apply to all subsequent distributions. Please note that Vanguard reserves the right to reinvest any distributions following the death of the investor even if the investor or the investor s representative requests the distributions be credited to an Australian bank account. Fund Vanguard High Yield Australian Share Fund Vanguard Index Cash Plus Fund Vanguard Index Diversified Bond Fund Vanguard Index Australian Shares Fund Vanguard Index International Shares Fund Vanguard Index Hedged International Shares Fund Vanguard Index Australian Property Securities Fund Vanguard LifeStrategy Conservative Fund Vanguard LifeStrategy Balanced Fund Vanguard LifeStrategy Growth Fund Vanguard LifeStrategy High Growth Fund Distribution frequency Monthly, on the last day of the month Quarterly as at 31 March, 30 June, 30 September and 31 December Half yearly as at 30 June and 31 December 38 vanguard.com.au

42 BEFORE YOU INVEST Investor communication By visiting the Vanguard website at you can obtain up-to-date information about the Funds, as well as a range of educational tools. The information available includes: unit prices. All Fund unit prices are generally available on a daily basis as described on page 35; after-tax reporting. The performance of all Funds is reported monthly on an after-tax basis for four different tax brackets; fund fact sheets. Monthly fund fact sheets outline the portfolio structure, composition, asset allocation and past performance of each Fund; fund profiles; standard forms. You should use the standard forms to make an additional investment, withdraw, switch between Funds or change your details; Transaction confirmation Vanguard Compass Personal identification number (PIN) mailed Quarterly transaction statements online Income distribution statements online Annual tax statement online Annual capital gains tax statement online Helm Fund fact sheets Annual report material information. Information that has not already been disclosed and that may have an impact on a Fund or Funds; tools and education. A knowledge centre on Vanguard s website includes a range of tools such as Plain Talk guides, investment calculators, research, and access to Vanguard news and commentary. is Vanguard s preferred means of sending you information relating to your investment. Please ensure you provide us with your address on the Application for Investment Form. If you do not have an address or would rather receive correspondence by mail please inform Client Services on As an investor in the Funds, you will receive information from Vanguard as shown in the table below. Detailing the number of units purchased or withdrawn, applicable unit price, effective date of transaction and the new balance of units after the transaction. A booklet containing instructions on how to contact Vanguard, make additional investments and access your investment information. To provide you with access to your investment details 24 hours a day, seven days a week via our online facility, Vanguard Online, which is accessed via You will be sent a quarterly notification that your statement is available online. The statement will set out each transaction that occurred during the reporting quarter, the number of units held and the current value at month end for your investment/s. You will be sent a quarterly notification that your statement is available online. The statement details the income, relevant taxation information and payment details setting out the number of units held and the value of the distribution following each income distribution. You will be sent a notification when your annual tax statement is available online. Your annual tax statement will summarise the distributions made to you during the financial year, as well as the relevant taxation information required to complete your Australian tax return. You will be sent an notification when your capital gains tax statement is available, if you have withdrawn, switched or transferred units during the period. Helm is Vanguard s quarterly investments newsletter, which will be sent to you with your quarterly statement. Incorporating Fund returns and unit prices. Available on request from Client Services on or at Annual reports will be available on Vanguard s website each financial financial year by late September. You can request to be sent a free copy of the annual report by or by post on the Application for Investment Form. The annual report details the financial performance and operation of the Funds, and the annual audited accounts for the financial year ending 30 June. Product Disclosure Statement 39

43 BEFORE YOU INVEST Vanguard Online Vanguard Online allows Vanguard investors access to the following functions: Investment summary Statements Transaction history Mailbox This provides you with the latest balance (or value) of your investments with Vanguard. You can also review the status of your Funds, including the date the Fund was priced, number of units held and the unit price. Your latest and historical quarterly transaction, annual tax, capital gains tax and distribution statements will be available to view and print on Vanguard Online. Provides the last 20 transactions for your investments, including the date and type of transaction, number of units transacted, the unit price and the total value of the transaction, and the number of units held in the Fund. A direct link from your investment to Vanguard Client Services. This enables you to update your personal details, receive updates, ask questions and receive feedback. Obtaining the latest PDS A copy of the latest PDS for the Funds is available on Vanguard s website ( If you do not have access to the internet, please contact Vanguard Client Services on A paper copy will be provided free of charge on request. Disclosing entities The Funds are disclosing entities and are subject to regular reporting and disclosure obligations. We will meet our continuous disclosure obligations by disclosing new material information on the Vanguard website Copies of documents lodged with the Australian Securities and Investments Commission (ASIC) in relation to the Funds may be obtained from, or inspected at, an ASIC office. Vanguard can also provide you with a copy (free of charge) of: the annual financial report most recently lodged with ASIC for each Fund; any half-yearly Fund financial reports lodged with ASIC in relation to a Fund; and any continuous disclosure notices given for a Fund after the lodgement of an annual report. Facsimile instructions If you are advising Vanguard via facsimile in respect of instructions (including applications, withdrawals and switching requests) it is important to be aware that Vanguard: a) will only process your facsimile instruction if it is received in full and has been signed by authorised signatories; b) is not responsible for any loss or delay that results from a facsimile transmission not being received by Vanguard; c) will not accept a facsimile receipt confirmation from the sender s facsimile machine as evidence of receipt of the facsimile; d) does not take responsibility for any fraudulently or incorrectly completed facsimile instructions; and e) will not compensate you for any losses relating to facsimiles, unless required by law. For example, you bear the risk that a facsimile may be sent by someone who knows your account details. Please note that initial applications should be sent via post as faxed copies may not be processed. In the event of fraud you agree to release, discharge and indemnify Vanguard from and against all actions, claims, demands, expenses and liabilities (however they arise) suffered by you or suffered by or brought against Vanguard, concerning the facsimile instructions, to the extent permitted by law. Cooling off period Investors have the right to a 14 day cooling off period. The 14 day period commences either from the time the investment is confirmed by Vanguard or the fifth day after the units are issued, whichever is the earlier. During this period, the investor may request (in writing) Vanguard to repay their investment. The amount returned to investors under the cooling off provisions may be less than the amount invested. The amount repaid will be based on the withdrawal price applicable for the day the withdrawal request is received, and may be reduced 40 vanguard.com.au

44 BEFORE YOU INVEST by tax or duty paid or payable by the investor in relation to the acquisition and termination of the investment. Please note, cooling off provisions do not include indirect investors. See Indirect investors on page 42. Privacy policy Privacy laws regulate, among other matters, the way organisations collect, use, disclose, keep secure and give people access to their personal information. Vanguard is committed to respecting the privacy of your personal information. Vanguard s privacy policy states how Vanguard manages personal information. Vanguard collects personal information in the Application for Investment Form, and may collect additional personal information in the course of managing your investment in order to provide this product to you and to establish and manage your investment account in the Fund. Some information must be collected for the purposes of compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, the Anti-Money Laundering and Counter-Terrorism Financing Rules and related regulations (AML/CTF laws). Vanguard may provide your personal information to your financial adviser if you provide us with written consent to do so. Vanguard may disclose your personal information to authorities investigating criminal or suspicious activity and to the Australian Transaction Reports and Analysis Centre (AUSTRAC) in connection with AML/CTF laws. Vanguard may provide your personal information to its service providers for certain related purposes (as described under the Privacy Act 1988) such as account administration and the production and mailing of statements. Vanguard may also use your personal information and disclose it to its service providers to improve customer service (including companies conducting market research) and to keep you informed of Vanguard s products and services, or to your financial adviser or broker (as noted on the Application for Investment Form) to provide you with financial advice and ongoing service. If you do not provide the information requested in the Application for Investment Form, Vanguard will not be able to process or accept your application. We will assume you consent to your personal information being used for the purposes of providing information to you about services offered by Vanguard and being disclosed to market research companies for the purposes of analysing Vanguard s investment base unless you tell us otherwise. To obtain a copy of our privacy policy or to access or update your personal information, visit or contact Client Services on , or write to GPO Box 3006FF, Melbourne Vic Restrictions on handling of funds or movement of funds into and out of Australia There is Australian legislation that may prohibit Vanguard from receiving funds from or paying funds to certain persons. At the present time, the Reserve Bank of Australia has not imposed any exchange controls or limitations (other than those described below) on the remittance of dividends, interest or other payments by Vanguard to non-australian unitholders. The consent of the Reserve Bank of Australia will be required for the movement of funds into and out of Australia if the funds are to be paid to, or received from certain countries, individuals or entities. There are also general prohibitions on making payments to, or receiving payments from, specifically designated persons prescribed as having a connection with terrorism. General prohibitions also apply under Australian law on various dealings with funds connected with terrorist organisations or acts or with other crimes. Public register of alternative remuneration As a member of the Investment and Financial Services Association, Vanguard is obliged to keep a public register that details any alternative form of remuneration, paid to or by Vanguard, worth more than $300 (for example, to advisers). You may request a copy from Client Services on If you have a complaint If you have a complaint regarding any of the Funds or services provided by Vanguard, please contact Client Services on from 8:00 am to 6:00 pm Melbourne time, Monday to Friday. If your complaint is not resolved to your satisfaction within three business days you can refer the matter in writing to: Manager Client Services Vanguard Investments Australia Ltd GPO Box 3006FF Melbourne Vic 3001 Vanguard will try to resolve the complaint and get back to you as soon as possible, but in any event, within 45 days of receiving the complaint. In the event that you are not satisfied with the outcome of your complaint, you have the right to refer the matter to an external complaints resolution scheme. Vanguard is a member of the Financial Ombudsman Service (FOS). You can contact FOS on Product Disclosure Statement 41

45 BEFORE YOU INVEST INDIRECT INVESTORS You may invest indirectly in the Funds through an investor directed portfolio service, master trust, wrap account, a nominee or a custody service (collectively referred to as IDPS ), by directing the trustee or operator (operator) of the IDPS to acquire units in a Fund on your behalf. As an indirect investor, you may rely on and are authorised to use the information in this PDS to direct the operator of the IDPS to invest in the Funds on your behalf. Indirect investors do not become investors in the Fund. Accordingly, indirect investors do not become, or acquire the rights of, a unitholder in the Fund or acquire any direct interests in the Fund. The operator of the IDPS acquires these rights and can exercise or decline to exercise them on your behalf according to the arrangement governing the IDPS. If you invest in a Fund through an IDPS, you should ignore information in this PDS that is relevant only for direct investors. This includes information relating to: Minimum initial investment and additional investment The minimum initial investment and additional investment for an indirect investor is stated in the offer document or client agreement of the operator of the IDPS. Application form Indirect investors should not complete the Application for Investment Form attached to or accompanied by this PDS, but should complete the application form supplied by the operator of the IDPS. Application and withdrawal times If you are investing via an IDPS, you may need to contact the relevant operator regarding its cut-off times for application and withdrawal purposes. Information You will not receive statements, tax information or other information directly from Vanguard if you invest in a Fund through an IDPS. You should receive the information that the operator of the IDPS is required to give you and you may request the operator of the IDPS to provide you with communications from Vanguard. Income distributions You will not receive income distributions directly from the Funds if you invest through an IDPS, but you will receive income from the operator of the IDPS on the terms set out in the IDPS offer document or client agreement. Withdrawals and switches If you wish to request a withdrawal or a switch between Funds, you must direct the operator of the IDPS to make the withdrawal or switch. Fees and expenses of the Funds Fees and expenses applicable to the IDPS (and set out in the IDPS offer document or client agreement) are payable in addition to the fees and expenses stated in this PDS. Payments to operators of an IDPS Vanguard may make payments to some IDPS account operators who offer the Funds on their investment menus. Vanguard makes these payments from its own resources. Refer to page 34 for more information. Complaints resolution If you are investing in a Fund through an IDPS and you wish to make a complaint in relation to an investment in the Fund, you must do so in accordance with the arrangements for the relevant IDPS. Cooling off You do not have a right to cool off if you invest in a Fund through an IDPS. This is because you do not acquire the rights of an investor in a Fund. The operator of the IDPS becomes the investor in the Fund. The terms and conditions set out in the IDPS offer document or client agreement will govern your investment in relation to the relevant Fund and any rights you may have in this regard. 42 vanguard.com.au

46 BEFORE YOU INVEST TAXATION OF THE FUNDS The taxation information in this PDS is provided for general information only. Vanguard does not provide tax advice. As each investor s circumstance is different, you should obtain professional tax advice concerning the particular tax implications of investing in any of the Funds for you. Discussion of tax in this PDS at the time of publication refers to Australian taxation laws current at the time publication, which may change. Taxation of Australian resident investors Distributions from the Funds The distributable income of the Funds for each financial year is allocated to investors during the financial year. The taxable income of the Funds to which you become entitled during a financial year (including reinvested income) forms part of your assessable income for that year, even though payment may not occur until some time later. The tax impact for you depends upon the components of the distribution. Your taxable income will also include any management fee rebate that you receive from a Fund during the year. Dividends For each of the Funds that invest in Australian equities, your share of the Fund s distributable income may include an entitlement to franking credits. These amounts are not cash receipts but will need to be included in your taxable income in your tax return and, depending on your particular circumstances, may be available to offset your tax liability or be paid as a refund if the franking credits exceed your total tax liability. Foreign income Income received by a Fund from sources outside Australia may be subject to taxation in the country of source. Australian resident investors may be entitled to claim a foreign tax offset against their Australian tax liability in respect of their share of the foreign tax paid. Foreign investment fund (FIF) regime The underlying funds may include investments in certain foreign companies and foreign trusts to which the FIF regime may apply. Under the FIF regime, you may be assessed on your portion of gain in the value of interests in certain foreign companies and foreign trusts that a Fund holds at the end of the tax year, even though those gains are unrealised. However, the underlying funds are unlikely to hold FIF assets in excess of the threshold at which the FIF regime applies. Vanguard will notify investors upon the distribution of any gains to which the FIF regime applies. Capital gains Taxable capital gains derived by the Funds to which you become entitled may form part of your assessable income. A Fund may make distributions of amounts that are non-assessable. Receipt of certain non-assessable amounts may have capital gains tax consequences. To the extent that certain amounts distributed are non-assessable as a result of the capital gain concession, no adjustment to the cost base of your units will be required. Other gains Gains and losses in relation to investments of certain Funds, including foreign currency gains arising from the investment of the Funds, may be assessed as income under provisions other than the capital gains tax provisions of the Income Tax Assessment Act In some cases, the amount may be recognised for tax purposes before the relevant gain or loss is realised. The distributions you receive from the Funds may include a component of assessable income that is referable to those gains. Disposal of units Investors may be liable for tax on gains realised on the disposal of units in the Funds. Disposal of units may be in the form of a withdrawal, a switch between Funds or a transfer of units. Under the capital gains tax provisions, any taxable capital gain arising on disposal of your units may form part of your assessable income. Some investors may be eligible for the discount capital gains concession upon disposal of their units if the units are held for 12 months or more before the disposal, and certain other requirements are satisfied. You should obtain professional advice about the availability of the discount capital gains concession. Any capital loss arising on a disposal of units may be able to be offset against capital gains arising in that year or subsequent years. Certain investors (for example, those carrying on a business of trading in units) may be assessed for tax on any gains made on the disposal of units under provisions other than the capital gains tax rules. Investors should seek professional advice about the capital gains tax treatment of the disposal of their units in the Funds. Product Disclosure Statement 43

47 BEFORE YOU INVEST Quoting your Tax File Number (TFN) or TFN exemption or Australian Business Number (ABN) Collection of your TFN is authorised and its use and disclosure are strictly regulated by the tax laws and the Privacy Act You may quote a TFN or claim a TFN exemption in relation to your investment in a Fund when completing your Application for Investment Form. If you choose not to quote a TFN or TFN exemption, Vanguard will be required to deduct tax at the prescribed rate (at the date of this PDS this was the highest marginal rate plus Medicare levy) from your income distributions. You may quote your ABN instead of a TFN if you are making this investment in the course of an enterprise carried on by you. Social security Investing in the Funds may affect your social security entitlements because your investment may be included in the income and assets tests of Centrelink and the Department of Veterans Affairs. You should obtain professional advice concerning your particular social security implications. Taxation of non-resident investors If you are not a resident of Australia for tax purposes, Vanguard may be required to withhold Australian tax on certain components of income distributions. If Vanguard fails to withhold an amount that it was required to, Vanguard is entitled to be indemnified by you in respect of the relevant amount. Generally, a non-resident investor should not be liable for Australian capital gains tax in respect of the disposal of their units in the Funds, if the Funds and the non-resident investor satisfy certain requirements at the time of disposal. Before investing in the Funds, it is very important that non-resident investors seek independent tax advice that takes into account their particular circumstances and the provisions of any relevant double tax agreement between Australia and their country of residence. It is particularly important that Australian tax advice is obtained if the non-resident investor is assessed on the disposal of their units in the Funds otherwise than under the capital gains provisions. Tax reform A comprehensive review of Australia s tax system is under way, encompassing Australian federal and state taxes, excluding GST. The terms of reference of the review include the taxation of savings, assets and investments. Investors should monitor developments. Goods and services tax (GST) The issue and withdrawal of units in the Funds will not be subject to GST. However, fees and expenses incurred by the Funds, such as management costs, will attract GST at the rate of 10%. Given the nature of the Funds activities, the Funds will not be entitled to claim input tax credits for the full amount of the GST incurred. However, for the majority of the expenses, a reduced input tax credit (RITC) of 75% of the GST paid can be claimed. The GST and expected RITC relating to fees and expenses are incorporated in the management cost for each Fund. 44 vanguard.com.au

48 BEFORE YOU INVEST VANGUARD S RIGHTS AND RESPONSIBILITIES Vanguard as the responsible entity Vanguard, as the responsible entity, is solely responsible for the management and administration of the Funds. Vanguard holds an Australian Financial Services Licence (AFSL ), which authorises it to act as the responsible entity of the Funds. The powers and duties of Vanguard are set out in each Fund s constitution, the Corporations Act 2001 and general trust law. The duties of Vanguard under the Corporations Act 2001 include: acting in the best interests of investors and, if there is a conflict between investors interests and Vanguard s interests, giving priority to investors interests; ensuring that each Fund s property is clearly identified as Fund property and held separately from property of Vanguard and property of any other fund, and is valued at regular intervals; ensuring that payments out of each Fund s property are made in accordance with the Corporations Act 2001; and reporting to ASIC any significant breach of the Corporations Act 2001 in relation to the Funds that has had, or is likely to have, a materially adverse effect on the interests of investors. Vanguard is liable for its actions and the actions of its agents engaged in connection with the Funds. The constitution Each Fund is a managed investment scheme governed by a constitution. Under the constitution, Vanguard has all the powers of a natural person in respect of the Funds. The constitution for each Fund sets out the rights of investors and the obligations of Vanguard as responsible entity of the Fund. This PDS outlines some of the more important provisions of the constitutions. The terms and conditions of the Funds constitutions are binding on each investor in the relevant Fund and all persons claiming through them respectively, as if the investor or person were a party to the constitutions. A copy of any of the Fund constitutions may be inspected by investors at Vanguard s office during business hours. Vanguard will provide investors with a copy of the required constitution upon request. Custody of assets The Funds hold units in other Vanguard funds (underlying funds). They do not hold other securities in their own right. As such, the Funds operate without a separate custodian. The assets of the Funds are held by Vanguard as the responsible entity on trust for investors The compliance plan Vanguard has prepared and lodged a compliance plan for each Fund with ASIC. The compliance plan sets out the key criteria that Vanguard will follow to ensure that it is complying with the Corporations Act 2001 and each Fund s constitutions. Each year each compliance plan is independently audited, as required by the Corporations Act 2001, and the auditor s report is lodged with ASIC. The compliance committee Vanguard is required to, and has, established a compliance committee with a majority of members that are external to Vanguard. The compliance committee s functions include: monitoring Vanguard s compliance with the compliance plans and reporting its findings to Vanguard; reporting breaches of the Corporations Act 2001 or the constitutions to Vanguard; reporting to ASIC if the committee believes that Vanguard has not taken or does not propose to take appropriate actions to deal with breaches reported to it by the committee; and assessing the adequacy of the compliance plans, recommending any changes and reporting these to Vanguard. Minimum holding The constitutions of all the Funds allow Vanguard to set minimum holding limits. Apart from the minimum initial investment amount, Vanguard does not intend enforcing a minimum holding at the present time, except in the case of transfers (refer to pages 37 and 38). Vanguard may enforce a minimum holding in the future such that Vanguard may treat a request by investors to withdraw some of their units in a Fund as a full withdrawal if the total value of the investors units in that Fund is below the minimum holding. Amendments to the constitutions Vanguard may amend the constitution of each Fund from time to time, subject to the provisions of the constitution and the Corporations Act Generally, Vanguard can only amend a constitution where Vanguard reasonably believes that the change will not adversely affect your rights as an investor. Otherwise, a constitution can only be amended if approved at a meeting of investors. Product Disclosure Statement 45

49 BEFORE YOU INVEST Unit pricing policy Vanguard has documented its policy in relation to various discretions that affect unit pricing within the Vanguard Investor Index Funds. The policy has been designed to meet the ASIC requirements and is available on request to all investors and prospective investors at no charge. The policy explains Vanguard s approach in relation to buy/sell spreads, valuation methodology, rounding of decimal places, cut-off times for receiving instructions, the frequency of income distributions and unit pricing discretions generally. Contact Client Services on if you require a copy of the policy. Reimbursement of expenses In addition to any other right of indemnity, which Vanguard may have under the Funds constitutions or at law, Vanguard is indemnified and entitled to be reimbursed out of, or paid from, the assets of each of the Funds for all losses, damages and costs incurred in the course of its office or in the administration or management of a particular Fund (other than if it is incurred by Vanguard s fraud, negligence or breach of trust). Without limitation, this includes amounts payable in properly performing any of its duties or exercising any of its powers. Retirement of Vanguard Vanguard may retire as responsible entity of a Fund by calling an investors meeting to enable investors to choose a company to be the new manager. Vanguard may be removed from office by an extraordinary resolution (i.e. 50% of the units that can be voted) passed at a meeting of investors, in accordance with the Corporations Act Meeting of investors Vanguard may convene a meeting of investors of a Fund at any time. Examples of circumstances where meetings may be called include to approve certain amendments to a Fund s constitution or to wind up a Fund. Investors also have limited rights to call meetings and have the right to vote at any investor meetings. Except where a particular Fund s constitution provides otherwise, or the Corporations Act 2001 requires otherwise, a resolution of investors must be passed by investors who hold units in the Fund exceeding 50% in value of the total value of all units held by investors who vote on the resolution. A resolution passed at a meeting of investors held in accordance with a Fund s constitution binds all investors of that Fund. Indemnities and limitation of liability of Vanguard In general, Vanguard may act on the opinion of, advice of and information obtained from advisers and experts. In those cases, Vanguard is not liable for anything done in good faith in reliance on that opinion, advice or information. Vanguard is indemnified out of each Fund against any expenses, loss, costs, damages and liabilities that may be incurred in properly performing any of its duties or prosecuting or defending any action or suit in connection with each of the Funds (other than if it arises out of Vanguard s fraud, negligence or breach of trust). Vanguard is not liable personally to investors or other persons for failing to act except in the case of fraud, negligence or breach of trust. Termination Vanguard may wind up the Funds or a Fund at any time by notifying the investors. Following winding up, the net proceeds will be distributed to investors. Limitation of liability of investors The Funds constitutions provide that the liability of each investor is limited to their investment in a Fund and that an investor is not required to indemnify Vanguard or a creditor of Vanguard against any liability of Vanguard in respect of a Fund. However, no complete assurance can be given in this regard, as the ultimate liability of an investor has not been finally determined by the courts. 46 vanguard.com.au

50 APPLICATION FORM INSTRUCTIONS APPLICATION FORM INSTRUCTIONS Product Disclosure Statement 47