The Fund seeks to track the return of the Bloomberg AusBond Composite 0+ Yr Index before taking into account fees, expenses, and tax. The Bloomberg AusBond Composite 0+ Yr Index is a market value weighted index of securities (bonds) issued by the Commonwealth Government of Australia, Australian State Government financing authorities and treasury corporations, as well as investment-grade corporate issuers and overseas entities that issue debt in Australia, in Australian dollars.

The Fund aims to hold an appropriate number of fixed and floating rate securities so as to produce a portfolio risk exposure consistent with that of the index. This is generally achieved by holding a representative sample of the securities included in the index or securities that provide similar characteristics to those securities in the index.

Benefits of investing in the Vanguard Australian Fixed Interest Index Fund

The significant features and benefits of investing in the Fund include:

• Competitive long-term performance - Vanguard's investment approach provides investors with an efficient way to capture long-term market performance.

• Diversification - The Fund provides exposure to a diversified portfolio of securities, which means the Fund is less exposed to the performance fluctuations of individual securities. This moderates the volatility of the portfolio and smooths out' investment returns over time. The Fund provides exposure to a wide selection of available securities in the relevant index, generally holding significantly more securities than most active funds with the same benchmark. From time to time, however, the number of securities in a given index may reduce due to factors such as index rebalancing.

• Low cost investing - The Fund has low ongoing fees as we strive to minimise the costs of managing and operating the Fund. The Fund typically has low portfolio turnover resulting in low trading costs such as brokerage and other transaction costs.

The significant features and benefits of investing with Vanguard include:

• Stability and experience - The Vanguard Group, Inc. established the world's first index mutual fund for individual investors in 1976 and has been a leader in low cost index investing ever since. In Australia, Vanguard leverages the scale, experience and resources of our established global business. Investing in the Fund allows you to access the knowledge and skill of Vanguard as a specialist investment manager.

• Client focus - The Vanguard Group, Inc. was founded on a simple but revolutionary idea - that an investment company should manage the funds it offers in the sole interest of its clients. From rigorous risk management to transparent pricing to plain talk communications, we put our clients' interest first.

• Low costs - Investors can't control the markets, but they can control the costs of investing. Providing low cost investments isn't a pricing strategy for us. It's how we do business. Vanguard's scale also helps to keep costs low.

Risk Level - Low

Relatively stable returns, with a low potential for loss of capital.

Investor Suitability

Investors with a medium term investment horizon, seeking a steady and reliable income stream.

Investors with a medium term investment horizon, seeking a steady and reliable income stream.

General

The investments in the Fund are predominantly rated BBB- or higher by Standard & Poor's ratings agency or equivalent.

While being low cost, the Fund also provides some protection against capital volatility.

While maintaining the objective of a fund, Vanguard tries to minimise the transaction costs associated with managing cash flows and making adjustments for index or benchmark changes.

Cash and liquidity management

To manage day-to-day transaction requirements such as investor withdrawals and collateral requirements, the Fund may maintain a variable balance of cash. To effectively manage this cash, the Fund may transact in cash equivalent instruments that aim to preserve capital and provide liquidity to the Fund.

Cash equivalent instruments include, but are not limited to, high quality short-term money market instruments and short dated debt securities such as government issued securities, government-related (semi-government) issued securities and repurchase agreements, where a high quality government or government related security is received or provided as collateral for the term of the agreement.

Derivative financial instruments

A fund may utilise over-the-counter and exchange traded derivatives such as futures, forwards and swaps, to help achieve its investment objective. Derivative financial instruments may be used for the purposes of maintaining fund liquidity and managing market exposure. Derivative financial instruments will not be used to leverage the assets of the Funds.

Borrowings

While the Funds' constitutions permit borrowing, Vanguard does not currently intend to borrow for the purposes of gearing. A Fund will only borrow where Vanguard believes it is in the best interests of investors to do so. 

Investment strategy and investment return objective

The Fund seeks to track the return of the Bloomberg AusBond Composite 0+ Yr Index before taking into account fees, expenses, and tax. The Bloomberg AusBond Composite 0+ Yr Index is a value-weighted index of securities (bonds) issued by the Commonwealth Government of Australia, Australian State Government financing authorities and treasury corporations, as well as investment-grade corporate issuers. 

Bond indices change far more quickly than share indices because bonds have a finite life (maturity). Index eligibility criteria such as time to maturity and credit rating may cause bonds to enter or fall out of the index at month end when the index is rebalanced. Every time a security is either added to or removed from the index, its composition changes and may require Vanguard to modify the portfolio.

The Fund aims to hold all of the securities in the index, where practical, or otherwise a representative sample of the securities included in the index. Vanguard selects the securities it holds based on liquidity, access to markets, portfolio cash-flow and minimum trade quantities with the aim of tracking the return of the index. Security weightings in the Fund may vary from the index weightings. The Fund may exclude certain securities that are included in the index or may invest in securities that have been or are expected to be included in the index.

Futures traded on a licensed exchange may be used in the Fund to gain market exposure without investing directly in securities. This allows Vanguard to maintain the Funds' liquidity without being under-invested. The Fund may utilise over-the- counter derivatives generally to manage the overall interest rate and credit risk exposure of the portfolio.

The use of over-the-counter derivatives will not be used to a material extent - that is, use will generally not exceed 5% of the net asset value of the Fund, other than temporarily and in exceptional circumstances. Importantly, derivatives will not be used to leverage the assets of the Fund.

Strategic asset allocation*

Australian fixed interest 100%

*This is a targeted strategic asset allocation. In addition, cash may be held for the purposes of liquidity management and derivatives may be used to manage market exposure.