Vanguard Debuts First Muni Index, ETF Fund

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Vanguard is expanding its existing lineup of municipal bond funds with the upcoming launch of its first-ever national municipal bond index fund.

The fund will offer an exchange-traded [ETF] fund share class, the firm said in a press release.

The firm filed a registration statement with the U.S. Securities and Exchange Commission Tuesday to offer the new fund to investors in high tax brackets that seek a high-quality, diversified product with tax advantages and an alternative to the risks of the equity market, Vanguard chief executive officer Bill McNabb said in the release.

"Vanguard is please to bring a low-cost index option to the municipal category as a complement to our lineup of low-cost actively-managed tax-exempt bond funds," McNabb said.

The new fund, which is targeted for official launch to investors sometime in the second quarter, will track the S&P National AMT-Free Municipal Bond Index as its benchmark target.

Its three share classes will include: Investor Shares, Admiral Shares, and ETF Shares, carrying estimated expense ratios of 0.20%, 0.12%, and 0.12%, respectively, according to the firm. The Investor Shares require a minimum initial investment of $3,000 and Admiral Shares will require a minimum initial investment of $10,000. Both classes will also include a 0.50% purchase fee to defray portfolio transaction costs and enable the fund to more closely track its benchmark.

The fund will offer investors exposure to investment-grade municipal bonds across the yield curve, and is intended to provide a sustainable level of current income that is exempt from federal personal income taxes, according to the release.

Managed by Adam Ferguson, a portfolio manager who joined Vanguard in 2004 and manages multiple municipal bond funds, the new fund adds to the 12 other actively-managed municipal bond funds, consisting of five national and seven state-specific funds.

Its ETF shares will be the first tax-exempt ETF offered by the firm which manages 67 low-cost ETFs in the U.S., including 15 bond ETFs.

Headquartered in Valley Forge, Pa., the investment management firm currently oversees its dozen tax-exempt bond funds, as well as one national and five state specific tax-exempt money market funds totaling $140 billion as of Nov. 30, 2014, according to the release.

Vanguard pioneered the idea of offering shareholders different durations of funds in 1977 with the launch of its short, intermediate, and long-term bond funds - which were also its first three tax-exempt funds.

Overall, the firm manages more than $2.85 trillion in U.S. mutual fund assets, which includes more than $422.6 billion in ETF assets, as of Nov. 30.

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