Vanguard launches Tax-Exempt Bond Index Fund

OREANDA-NEWS. September 02, 2015. Vanguard today introduced Vanguard Tax-Exempt Bond Index Fund, the firm's first municipal bond index product.

"Vanguard is a pioneer in index investing and a leader in municipal bond fund management. Our new fund enables us to leverage our experience and expertise in both these areas," said Vanguard CEO Bill McNabb. "Not only did we offer the first index mutual fund to individual investors, but we were also the first to offer investors a choice among municipal bond funds of differing maturities. We are pleased now to provide a low-cost tax-exempt option for investors who prefer an index approach."

The Tax-Exempt Bond Index Fund is available to all investors in three low-cost share classes.

Vanguard Tax-Exempt Bond Index Fund

¹Conventional share classes include a purchase fee to defray portfolio transaction costs and enable the fund to track its benchmark more closely.

The Admiral and ETF Shares of the fund have expense ratios of 0.12%. The municipal bond funds in Lipper's General and Insured Municipal Debt Funds category have an average expense ratio of 0.95%; comparable ETFs in the category have an average expense ratio of 0.28% (source: Lipper, a Thomson Reuters Company, December 31, 2014).

The fund's target benchmark is the S&P National AMT-Free Municipal Bond Index. It seeks to offer diversified exposure to the national municipal bond market, representing bonds with maturities across the yield curve and an effective duration between 5 and 8 years. The index reflects a higher-quality, investment-grade* universe that focuses on the more liquid portion of the market.

"We believe a fund focused on high-quality municipal securities with greater liquidity relative to the overall municipal bond market will reduce credit and liquidity risk," said Chris Alwine, head of Vanguard Municipal Bond Group. "The fund will also benefit from our deep and long-tenured municipal market team, as well as our scale, to minimize trading costs and closely match the benchmark's risk characteristics.

"At the same time, the fund will carry the interest rate risk consistent with medium- to long-term bonds," Mr. Alwine said.

Adam Ferguson, a portfolio manager in Vanguard Fixed Income Group, will manage the new fund. Mr. Ferguson joined Vanguard in 2004 and currently manages several municipal bond funds.

* Investment grade is a rating that indicates that the risk of default of the bonds in the portfolio is relatively low.

Notes:

• All investments are subject to risk, including the possible loss of the money you invest. Although a majority of the dividends paid by the fund is expected to be exempt from federal income and alternative minimum taxes, a portion of the fund's distributions may be subject to federal income or alternative minimum taxes. A sale of mutual fund shares is also a taxable event, and you may owe federal income taxes on any capital gains realized on the sale of your mutual fund shares. Distributions that you receive, as well as any gains from the sales of your mutual fund shares, may also be subject to state and local income taxes. Please consult your tax advisor for detailed information about any tax consequences for you.
• Diversification does not ensure a profit or protect against a loss.
• Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
• S&P® and S&P® National AMT-Free Municipal Bond Index are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by Vanguard. The S&P National AMT-Free Municipal Bond Index is a product of S&P Dow Jones Indices LLC and has been licensed for use by Vanguard. Vanguard Tax-Exempt Bond Index Fund is not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, nor Dow Jones, nor S&P, nor their respective affiliates makes any representation regarding the advisability of investing in such a product.