Vanguard, long reluctant to embrace the ETF revolution, has turned 180 degrees: It is now approaching ETFs with the fervor of a convert.

The company announced plans this morning to launch an Extended Duration Treasury Index Fund. It will be available in three share classes: Institutional, Institutional Plus and Exchange-Traded Shares.

What’s missing?  Investor shares: the traditional mutual fund share class that has been Vanguard’s bread and butter since time immemorial. Individual investors will have just one share class from which to choose, and that will be ETFs. The initial investment and expense ratios break down like this.

The new fund will track the performance of the Lehman Brothers Treasury STRIPS 20-25 Year Equal Par Bond Index, a benchmark of “zero coupon Treasuries” with a duration of 20-25 years. STRIPS, or zero coupon bonds, are bonds that are issued at a deep discount to face value. They make no interest payments over time, but they slowly build in value as the “virtual interest” piles up. At maturity, they can be redeemed for face value. They are a favorite for long-term planners like pension funds, because they guarantee a certain amount of money at a certain point in time. The downside is that investors typically still owe taxes on the virtual interest income, which must be paid each year out of pocket.

The fund is targeted primarily at pension plans: New accounting regulations require pension plans to closely match risks with long-term liabilities, and zero coupon bond funds allow you to do that quite well.

“We have witnessed a sea change in how our clients are managing defined benefit plans as a result of the Pension Protection Act of 2006,” said Vanguard Chairman and CEO John J. Brennan. “Long-duration bond portfolios can be an important part of an overall solution for pension plans seeking to balance their portfolio risk to pension liabilities.”