Benefits of investing in the iShares Australian Bond Index Fund

• Index tracking: The Fund is an index tracker and seeks to provide investors with similar returns, before fees, to those of its benchmark index.

• Diversification: In contrast to a direct investment in a single company or bond, the Fund provides, as far as practicable and possible, exposure to all of the securities or instruments within its benchmark index.

• Lower cost: As the Fund is passively managed and designed to track a particular index, the expenses of managing the Fund are generally lower compared to other forms of retail managed funds.

Risk level

Low

Investor suitability

The Fund may be suitable for long-term investors seeking a broad exposure to Australian bonds.

Fund overview

The Fund aims to provide investors with the performance of the market, before fees, as measured by the Bloomberg AusBond Composite 0+ Yr Index (Index).

Our investment style is based on our belief that people, leveraged by technology, are central to the consistent achievement of our clients' investment goals.

We believe that a focus on total performance management is the best way to achieve superior investment results. Through total performance management, we aim to understand; measure; forecast; and manage the three dimensions of investment performance — return, risk and cost.

Fund strategy

The strategy aims to track the benchmark by closely matching the distribution of the benchmark's major risk and return factors. This is done using a methodology commonly referred to as stratified sampling, where the benchmark and the investment portfolio are broken down into "cells of securities with similar risk and return factors. The major risk and return factors are interest-rate risk, sector risk and specific (individual security) risk. We select securities that match the overall characteristics of each cell in amounts consistent with the index weighting and modified duration of the cells they represent. By matching at the cell level, the overall risk and return characteristics of the portfolio will closely match those of the benchmark.

Capturing additional returns

To overcome the impact that transaction costs and cash drag can have on relative performance, we undertake several value-adding strategies such as:

• Cash-flow management: We can use exchange-traded bond futures contracts to manage bond coupon flows to minimise market impact and therefore achieve a less-costly approach to trading.

• Anticipating Index changes: Through our knowledge of the Index rules, we try to anticipate future Index additions and deletions before they are announced.

• Buying new bonds in the primary market: This avoids the need to purchase a scarce bond in the secondary market at month-end and takes advantage of any spread concession offered when the security is first issued.

How we invest your money

To achieve its investment objective the Fund invests substantially all of its assets in the iShares Wholesale Australian Bond Index Fund (Underlying Fund), another fund managed by us which has the same investment strategy as the Fund. The Underlying Fund invests in the Australian fixed income securities that form the Index. Derivatives, such as futures, forwards and options can be used to manage risk and return. When derivative positions are established, they will always be backed by cash holdings and/or underlying assets. Derivative securities will not be used to gear the Underlying Fund.

The Fund and Underlying Fund may also hold a small allocation of cash (or cash equivalents that may include units in other BlackRock funds) for cash flow management purposes.

The Fund's investment strategy aims to remain fully exposed to the Australian bond market, with cash exposure being maintained to a minimum, which may be, where practicable, bondised using index futures.

While the constitution of the Fund allows the Responsible Entity to borrow, it is our intention that no borrowing arrangements will be entered into, other than temporary overdrafts, which may be used as a means of managing certain cash flows.

Currently the Underlying Fund is able to participate in a securities lending program managed by BlackRock and Underlying Fund's custodian. As part of this program, the Australian fixed income securities held by the Underlying Fund are lent to approved borrowers for a fee. The collected fee represents securities lending income, which generates additional investment returns for the Underlying Fund and Fund (as a result of its investment in the Underlying Fund). Borrowers are required to provide collateral, which exceeds the loan value each day. The custodian continuously monitors borrower credit quality, places loan limits on each borrower and provides indemnification in the event of borrower default. While participation in the securities lending program requires the payment of securities lending agent fees, all fees are paid for out of any generated securities lending income. If no securities lending income is generated, no securities lending agent fees will be payable.