Additional explanation of fees and costs

Management costs
Management costs comprise the fees or costs that a unitholder incurs by investing in a Fund. Management costs are made up of Vanguard’s management fee that is deducted from the returns of the Funds and may include indirect costs. The management costs shown do not include any potential extraordinary expenses. In addition, management costs do not include transactional and operational costs i.e. costs associated with investing the underlying assets, some of which may be recovered through buy/sell spreads.
Management fees
The management fee component is a fixed amount that Vanguard deducts from the assets of the Funds and comprises Vanguard’s remuneration for managing and overseeing the operations of the Funds. The management fee is calculated as a percentage of the Fund’s net asset value (or the relevant class of units where the Fund has multiple classes). The fee is accrued daily in the unit price and paid monthly in arrears. The fee for a month is paid on or after the first day of the following month. This fee is taken from the assets of the relevant Fund.
As at the date of this PDS, Vanguard pays any expenses that are recoverable from the Funds out of the management fee at no additional charge to you. The management fee includes Goods and Services Tax (GST) after taking into account any expected input tax credits.
Ordinary expenses of the Funds that Vanguard may be recovering through the management fee include:
 custodian fees (excluding transaction-based fees);
 accounting and audit fees;
 fund administration expenses, such as the cost of preparing and amending the constitution, the cost of producing the PDS, postage and the other fund administration expenses.
The management fee may not be used to cover extraordinary expenses (such as litigation, the cost of investor meetings or other costs if incurred in the future). Such extraordinary expenses may be recovered from the assets of the Fund as an additional expense to the management fee where permitted under the constitutions.
The management fee of investing in each of the Funds is 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 in the PDS for the Fund, to the extent that management costs are a tax deductible expense and reduce the taxable income of that Fund.
Indirect costs
Indirect costs are included as part of the management costs disclosed in the fee table for each Fund in the PDS. Indirect costs include the management costs of interposed vehicles (for example, the management fee of an underlying investment trust or exchange traded fund) and certain costs of over-the-counter derivatives. For any Funds that invest in an underlying Vanguard Fund which is managed by Vanguard, Vanguard’s management fee in the underlying Fund(s) is fully rebated back to the relevant investing Fund and so does not need to be counted in indirect costs for the relevant Fund.
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It is important to note that indirect costs are reflected in the unit price of a Fund. Indirect costs are not an additional fee paid to Vanguard. Indirect costs disclosed in the PDS are based on the financial year immediately prior to the issue date of the PDS and to the extent necessary are estimated by Vanguard using reasonable assumptions. Indirect costs may vary over time. Where changes to indirect costs are not materially adverse to investors, the information may be updated on our website.
Changes to management fees
Vanguard may alter the management fee in accordance with the constitutions of the Funds. The constitutions governing each Fund generally limit the amount of the management fee component (excluding GST) to 0.85% – 1.50% p.a. This limit does not apply to ordinary expenses of the Funds that Vanguard incurs and covers out of the management fee or to any extraordinary expense of the Fund that is otherwise able to be recovered. Any increase above these maximums will generally require unitholder approval.
Withdrawal fee
A withdrawal fee or an early withdrawal fee could be introduced for several of the Funds, except the Vanguard LifeStrategy® Balanced Fund and Vanguard High Yield Australian Shares Fund, as permitted under the applicable constitution, although there is no current intention to do so.
The constitutions set out the maximum permissible withdrawal fees. Any increases above these limits will require unitholder approval. 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.
Management fee rebates
Vanguard’s management fees are reduced by a rebate applicable to the part of your investment that exceeds $50,000 and the next
$100,000 for each Fund. Management fees are initially deducted from a Fund at the highest rate – this cost accrues daily in the unit price and is paid monthly. Vanguard will then, from its own resources, credit to your investment a rebate that is reinvested into units of the same Fund. Management fee rebates are calculated on a daily basis and reinvested in arrears, in the month following the end of the distribution period for the relevant Fund. Buy spread costs apply to the reinvestment of the rebate.
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 Fund. There may be tax implications with the payment of management fee rebates. Please refer to the section “Taxation”.
Transactional and operational costs
In addition to the management costs, there are transactional and operational costs incurred in managing the assets of the Funds. Most of these costs would be incurred by investing directly in the underlying securities. Such costs arise whenever the Funds buy or sell assets to invest applications, fund withdrawals or to generally manage the Fund in accordance with its investment objective. Where these costs arise as a result of applications and withdrawals, these costs will generally be covered by the inclusion of a buy/sell spread in the purchase or withdrawal price
Transactional costs can include either “explicit costs”, comprising those costs that are deducted from the assets of the Fund for a particular transaction, such as brokerage, commission and stamp duties, or “implicit costs”, comprising those costs that are incurred in day-to-day trading of the Fund’s assets and reflected in the unit price. Implicit costs can arise as a result of bid-offer spreads being applied by trading counterparties to securities traded by the Fund and are factored into the individual asset value and reflected in the unit price. They are an additional cost of investing to the investor and are not a fee paid to Vanguard.
These costs will depend on the actual turnover of assets. There may occasionally be higher trading activity than usual, such as to implement a change of index or asset allocation. In this case, there may be a higher than usual turnover of assets and consequently a temporary increase in transaction costs.
Further information about the Fund’s transactional and operational costs, including the estimated costs for the last financial year, is contained in the Vanguard Transactional and Operational Costs Guide. This document should be read together with the current PDS for the Funds, and available on our website. It is also possible to obtain a copy free of charge, on request.
Buy/sell spreads
Vanguard may include a buy spread component in the purchase price and a sell spread component in the withdrawal price. The buy/sell spread for each Fund is Vanguard’s reasonable estimate of the transaction costs that the Fund will incur to buy and sell assets when investing applications and funding withdrawals and is not separately charged to the investor. The buy/sell spread is paid to the Funds to meet these expenses and is 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 (or the net asset value of the relevant class of units where the Fund has multiple classes). 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 (or the net asset value of the relevant class of units where the Fund has multiple classes).
Vanguard Investor Funds Product Disclosure Statement 27
There may be circumstances where the buy spreads or sell spreads will be lower or higher – for example, they may be higher when there are large or prolonged withdrawals from the Fund. For further details on how buy/sell spreads are calculated, you can request a copy of Vanguard’s policy on unit pricing discretion.
Changes to buy/sell spreads
Vanguard may vary the buy/sell spreads, from time to time, without notice when it is necessary to protect the interests of existing investors and if permitted by law. The updated information will be disclosed on Vanguard’s website.
Payments to financial advisers
No adviser will receive any commission from Vanguard relating to your investment in the Funds.
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Your guide to investing
Applications
New investors – initial application for investment
Vanguard offers investors multiple ways to open an investment account with us. With the recent addition of an online application facility, we’ve made the process even easier. For more details on how to complete your application online, please visit the Vanguard website.
Initial applications and supporting documentation must be submitted online, sent via post, or delivered to the Vanguard office. Facsimile or email copies will not be processed. Vanguard will not process initial applications until all required information and/or supporting documentation is received.
Vanguard may, in its absolute discretion, accept or refuse to accept, in whole or in part, any application or subscription 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, subject to any legal or regulatory requirements, return your application money to you. You will not be entitled to interest on your application money in this circumstance. Any interest accrued on application amounts pending the issue of units or the return of application money will be retained for the benefit of investors.
Initial investment
The minimum initial investment amount for the Vanguard Investor Funds is $5,000 per Fund. Vanguard, at its discretion, may accept lower investment amounts.
Your initial investment may be funded via one of the following methods:
 BPAY®
 Cheque
Payment methods
BPAY®
Once your investment account has been established, Vanguard will forward an email to you with details on how to use the BPAY facility to make your initial investment via your financial institution’s telephone or internet banking service. Please note that although your BPAY transactions may be 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 that your BPAY request is made before your financial institution’s cut-off time, Vanguard will typically receive your funds before 2.00pm Melbourne, Australia 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.
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 financial institution.
Cheque
As a new investor, you can choose to complete the application process by either one of the methods described below.
 Submit your application form online via Vanguard’s website. Upon submitting the online application form, you will also be required to print the Application Pack and return it to Vanguard by either post or delivery to the Vanguard office, along with your cheque and supporting documentation (if required).
 Request a paper copy of the Application Form from the Client Services Team on 1300 655 101 and return it to Vanguard by either post or delivery to the Vanguard office, along with your cheque and supporting documentation.
Cheques are to be made payable to “Vanguard Investor Funds”. Vanguard will accept and process cheques received as cleared funds if received by 2.00pm Melbourne, Australia time on a business day, except where otherwise determined by Vanguard. If a cheque cannot be honoured (e.g. due to insufficient funds or validation issues), Vanguard reserves the right to cancel the transaction.
Existing investors – additional investments
You may choose to make an additional investment into your existing Vanguard Investor Fund(s) or into a new Fund.
An additional investment may be funded via one of the following methods:
 BPAY®
 Cheque
A minimum of $1,000 is required for additional investments made by cheque and $100 made by BPAY. Vanguard, at its discretion, may accept other investment amounts.
Please note that additional investments made by cheque must be accompanied by an Additional Investment Form. You can access an Additional Investment Form by visiting our website or contacting Client Services on 1300 655 101.
Vanguard Investor Funds Product Disclosure Statement 29
It is a condition of using the BPAY® facility and a condition of submitting the Additional Investment Form, that you obtain and read the current PDS for the Fund into which you are investing prior to making each and every investment in a Fund, as the PDS may be updated or replaced between the time you last invested and when you make request. Alternatively you can download a copy by visiting the Vanguard website at www.vanguard.com.au/offerdocuments or request a copy from Client Services your next investment in the Fund. A copy of the most up-to-date PDS (including any supplementary PDS) will be provided free of charge upon on 1300 655 101.
Payment methods
BPAY®
Vanguard may offer a BPAY facility to enable you to transfer money from your bank account to invest in the Funds. BPAY is a service and registered trademark of BPAY Pty Ltd ABN 69 079 137 518.
When making an additional investment to an existing Fund or a new Fund via BPAY, there is no requirement to complete any additional Vanguard forms. For details on how to use the BPAY facility via your financial institutions telephone or internet banking service, please contact Client Services on 1300 655 101.
Investors wishing to invest into a new Fund will need to contact Client Services on 1300 655 101 to obtain the BPAY Code and Customer Reference Number for the new Fund.
Please note that although your BPAY transaction may be 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, Vanguard will typically receive your funds before 2:00pm Melbourne, Australia 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.
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 financial institution.
Cheque
To make an additional investment by cheque, attach the cheque to a completed Additional Investment Form and return it to Vanguard via post.
Cheques should be made payable to “Vanguard Investor Funds”. Vanguard will accept and process cheques received as cleared funds if received by 2:00pm Melbourne, Australia time on a business day, except where otherwise determined by Vanguard. If a cheque cannot be honoured (e.g. due to insufficient funds or validation issues), Vanguard reserves the right to cancel the transaction.
Other payment methods
In certain limited situations, Vanguard may, at its discretion, make other payment facilities such as direct credit available to you. In these circumstances, Vanguard will provide you instructions on how to make your payment. If you wish to receive the unit price for the day you make your direct credit, Vanguard needs to receive a fax copy of the bank receipt that confirms the transfer, by 2:00pm Melbourne, Australia time on a business day, except where otherwise determined by Vanguard.
Cut-off times
The cut-off time for processing application instructions, is normally 2:00pm Melbourne, Australia time on a business day. An earlier cut-off time may be adopted on business days when financial markets have shortened trading hours (for example, the last business day before Christmas day).
Application instructions received by the cut-off time, will be processed at the applicable purchase price to be applied for that business day. The purchase 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.
Where an application instruction is received after the cut-off time, the application will be processed at the next applicable purchase price, as if it had been received on the following business day.
Changes to the cut-off times will be published on our website. You should check the website if you are contemplating a transaction.
Withdrawals
Withdrawal requests
To make a withdrawal from your existing Vanguard account, you must complete a Withdrawal Form and return it to us by fax or post. In order to access a Withdrawal Form, please visit the Vanguard website or contact Client Services on 1300 655 101.
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.
Withdrawal proceeds will be paid by Electronic Funds Transfer (EFT) into your nominated Australian bank account or by cheque. Vanguard will not process payments to third party bank accounts. In certain circumstances, if we are unable to verify your
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nominated bank account from the details you have previously provided or by contacting you, your withdrawal proceeds may be paid by cheque.
Subject to the constitutions of the Funds, withdrawal requests received which exceed 5 percent of a Fund’s value, may be processed progressively over a period of up to 20 business days at the withdrawal prices applicable for each day on which a withdrawal is processed.
Subject to the constitutions of the Funds, there may be circumstances where Vanguard suspends withdrawals or delays the payment of withdrawal proceeds. For example, where there is a closure of an international market or exchange or during the first ten business days of July each year due to end of financial year activities for the Funds.
While a Fund is liquid for the purposes of the Corporations Act 2001 (Cth) (Corporations Act), Vanguard must redeem your units in accordance with the relevant Fund’s constitution on request. A Fund is liquid if 80 percent of the value of a Fund’s assets is 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 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. Amounts made available to satisfy a withdrawal request may accrue interest pending payment to you. Any such interest will be retained for the benefit of existing investors.
Subject to the constitutions of the Funds, Vanguard is allowed to set minimum unit holding limits. Vanguard may increase the minimum unit 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 increase to the minimum holding. We will give you appropriate notice before increasing minimum holding limits for the Funds.
Cut-off times
The cut-off time for processing withdrawal instructions is normally 2:00pm Melbourne, Australia time on a business day. An earlier cut-off time may be adopted on business days when financial markets have shortened trading hours (for example, the last business day before Christmas day).
Withdrawal instructions must be received by the cut-off time in order to be processed at the applicable withdrawal price to be applied for that business day. The withdrawal 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. Where a withdrawal request is received after the cut-off time, the withdrawal request will be processed at the next applicable withdrawal price, as if it had been received on the following business day.
Changes to the cut-off times will be published on our website. You should check the website if you are contemplating a transaction.
Switches
You may request that Vanguard switch all or part of your investment between Funds. This operates as a withdrawal of units from the existing Fund and an investment into units of the new Fund and you will need to meet the minimum initial investment requirement for that Fund. If you switch into one of the Vanguard Wholesale Funds not covered by this PDS, you will be required to submit a switching request and complete a Vanguard Wholesale Funds Application Form. To access a Switch Form, please visit the Vanguard website at www.vanguard.com.au or contact Client Services on 1300 655 101.
The minimum switch amount is $1,000 for each Fund, or $5,000 if you are a new investor in the Fund which you are switching into. If a 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.
Switching requests must be received by the prescribed time – 2:00pm Melbourne, Australia 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 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.
It is a condition of submitting a Switch Form that you obtain and read the current PDS for the Fund you are switching into prior to making the investment, as the PDS for the Fund may be updated or replaced from time to time. A copy of the most up-to-date PDS (including any supplementary PDS) will be provided free of charge upon request. Alternatively you can download a copy by visiting the Vanguard website at www.vanguard.com.au/offerdocuments or request a copy from Client Services on 1300 655 101.
Vanguard Investor Funds Product Disclosure Statement 31
Transfers
Vanguard may allow you to transfer units of a Fund to another person or entity 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 $3,000 or if you would have no units in the Fund after the transfer (unless we determine otherwise). You and the recipient of the transferred units will need to complete a Transfer Form. The recipient will also be required to obtain the latest PDS, complete an Application Form and provide any supporting documentation as required before units can be transferred.
Transfers must be received by the prescribed time – 2:00pm Melbourne, Australia time on a business day except where otherwise determined by Vanguard – to be processed effective that day. Transfers received after the prescribed time will be processed 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.
Unit pricing
The value of a unit is determined by dividing the net asset value for that Fund (total assets less total liabilities) by the number of units on issue in a Fund at the time of valuation (the valuation point). Units are usually valued daily, except on public holidays, if the market is closed or the Fund is suspended. The value of units will change from time to time as the market value of the assets rises or falls. The price you pay when contributing to a Fund (buying units) or receive when withdrawing from a Fund (selling units) is calculated as follows:
Buy price = net asset value per unit plus the buy spread Sell price = net asset value per unit minus the sell spread
For the latest information on unit prices, please visit our website.
Policy on unit pricing
Vanguard has documented its policy in relation to various discretions that affect unit pricing within the 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.
A copy of the policy on unit pricing discretions can be obtained by contacting Client Services on 1300 655 101.
Impact of significant market events
Vanguard may determine to close a Fund to applications, withdrawals, switches and transfers where there are factors that Vanguard believes may prevent the accurate calculation of unit prices. This may include where markets are closed due to public holidays or when markets are closed in relevant countries. Generally, applications, withdrawals, switches, and transfers for the affected Fund(s), which 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 next business day following the affected dates.
Fund closures determined in advance as a result of a known public holiday and market closures are published on our website.
In some circumstances, Vanguard may determine to close a Fund to cash transactions but may remain open to accept in-specie transactions (where the payment is made in assets in kind instead of cash). This may include where a particular security or combination of securities in a Fund is subject to a trading halt or suspension announcement.
Impact of distributions
Investors should be aware that the price may include income accumulated in the Fund that is yet to be distributed. After a distribution, the Fund’s unit price will reduce to reflect the distribution paid. This would similarly affect investors who sell units in a Fund. That is, the amount which an investor receives on withdrawal may be referable to income held in the Fund that is yet to be distributed, or which may be accumulated by Vanguard.
Vanguard may determine to pay distributions at times other than at the end of the normal distribution periods.
Impact of end of financial year
Unit prices, transaction confirmations, and the payment of withdrawal and distribution proceeds may be delayed in the first ten business days of July each year due to end of financial year activities for the Funds.
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How to transact with us
Standard forms
Vanguard has standard forms that are to be used for transactions, including: additional investments, withdrawals, switches, transfers or change of account details. Investors (other than indirect investors) must use Vanguard standard forms when issuing Vanguard with transaction instructions – otherwise we may not process your instructions.
You can download Vanguard’s standard forms from our website or contact Client Services on 1300 655 101 to find out more about how to transact with Vanguard.
Facsimile instructions
If you are advising Vanguard via facsimile in respect of instructions (including additional investments, withdrawals, switches, change of details and transfer requests) it is important to be aware that Vanguard:
 will only process your facsimile instruction if it is received in full and has been signed by authorised signatories
 is not responsible for any loss or delay that results from a facsimile transmission not being received by Vanguard
 will not accept a facsimile receipt confirmation from the sender’s facsimile machine as evidence of receipt of the facsimile
 does not take responsibility for any fraudulently or incorrectly completed facsimile instructions
 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 must be submitted online via Vanguard’s website, sent via post, or delivered to the Vanguard office, as facsimile or email copies will 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.