Vanguard Diversified Index Funds Annual Report

Vanguard? Diversified Index Funds Annual Report

30th June 2010 For Wholesale Investors

Vanguard? Conservative Index Fund Vanguard? Balanced Index Fund Vanguard? Growth Index Fund Vanguard? High Growth Index Fund

ABN 24 396 176 911 ABN 14 193 060 779 ABN 43 698 348 922 ABN 71 339 405 674

Contents

About Vanguard Directors' Report Auditor's Independence Declaration Statement of comprehensive income Balance sheet Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' Declaration Independent Auditor's Report

Vanguard? Diversified Index Funds

2 3 7 8 9 10 11 12 31 32

Vanguard? Annual Report

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Vanguard? Diversified Index Funds

About Vanguard

Since launching the first index mutual fund for individual investors in 1976, Vanguard has strived to be the world's highest value provider of investment products and services. We have an unwavering focus on our clients and a commitment to champion what is best for investors by keeping costs as low as possible.

Our investment philosophy

Underlying Vanguard's investment approach is an enduring philosophy based on four key beliefs:

1. Minimise costs All else being equal, investments with consistently low management fees and transaction costs can give investors a head start in achieving competitive returns*. Management fees create a drag on returns that make it difficult for a fund manager to add value. High fund turnover can drive up transaction costs and lower a fund's tax efficiency. To keep portfolio costs down, Vanguard adopts a buy-and-hold investment approach to minimise transaction costs and taxes.

2. Focus on strategic asset allocation

Research suggests that asset allocation is the most important investment decision investors will make, that is their mix of equities, fixed interest, property and cash within a portfolio. Historically asset allocation has accounted for more than 80 per cent of the variation in long term investment performance.

3. Invest for the long term

A sound investment approach starts with asset allocation with consideration to the time horizon of the investment objective.

4. Maintain diversification in portfolios

Being broadly diversified, with exposure to all parts of the share, fixed interest and property markets reduces the amount of risk a portfolio is exposed to.

Vanguard Investments Australia Ltd is one of Australia's leading fund managers with a recognised reputation as an indexing specialist. Established in Australia in 1996, Vanguard now manages over A$80 billion in funds on behalf of Australian and international clients at 30 June 2010.

We are a wholly owned subsidiary of The Vanguard Group, Inc, headquartered in the US with offices in Australia, Asia and Europe. The Vanguard Group is one of the world's largest investment managers with over 23 million investors. In fact, the Vanguard Group manages A$1.6 trillion worldwide.

*Past performance is not an indicator of future performance. Our products are designed to closely track market returns before fees, expenses and taxes. Investments are not guaranteed and may rise or fall.

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Connect with VanguardTM > .au > 1300 655 205

Directors' Report

Vanguard? Diversified Index Funds

The directors of Vanguard Investments Australia Ltd, the Responsible Entity of the Vanguard Diversified Index Funds, present their report together with the financial report of the Vanguard Diversified Index Funds (`the Funds') for the year ended 30 June 2010.

Principal activities

The Funds invest in accordance with the investment policy of the Funds as set out in the current Product Disclosure Statement (PDS) and in accordance with the Constitutions of the Funds. The Funds seek to closely track the weighted average return of each of the underlying Vanguard Wholesale Index Funds in which they invest, before taking into account Fund fees and expenses. The weights used are the strategic asset allocations to each asset class, for each individual Fund.

The Funds did not have any employees during the year.

There were no significant changes in the nature of the activities of the Funds during the year.

Directors

The following persons held office as directors of Vanguard Investments Australia Ltd during the year or since the end of the year and up to the date of this report: J G Duffield J H Wily J M Norris G W Reed I L Alcock ? resigned 6 November 2009 J P Brennan ? appointed 14 July 2009 K A Watt ? appointed 6 November 2009 J M James ? appointed 1 May 2010

Review and results of operations

During the year, the investment policy of the Funds continues to be that detailed in the current PDS and in accordance with the provisions of the Constitutions of the Funds.

The Funds maintained their investment strategy by investing in unlisted unit trusts. There have been no changes to the operations of the Funds since last year.

Results

The results of the operations of the Funds were as follows:

Operating profit/(loss) before financing costs attributable to unitholders Distributions Distribution paid and payable Distribution (cents per unit)

Vanguard Conservative Index Fund

Vanguard Balanced Index Fund

Vanguard Growth Index Fund

Vanguard High Growth Index Fund

For the year ended 30 June For the year ended 30 June For the year ended 30 June For the year ended 30 June

2010

2009

2010

2009

2010

2009

2010

2009

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

7,383

1,146

9,971

(5,146)

14,484

(12,747)

7,421

(10,546)

5,032 4.6191

1,930 4.1334

6,876 4.5059

3,047 3.9838

8,405 4.0842

3,349 3.1950

3,835 3.7684

1,853 3.4905

Vanguard? Annual Report

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