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Fund Times: Two Vanguard Funds Close

Plus, news on Janus, Third Avenue, Masters' Select, Dodge & Cox, more.

Morningstar Analysts, 02/03/2006

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Effectively immediately, Vanguard Explorer VEXPX and Vanguard Precious Metals and Mining VGPMX are closed to new investors.

Over the past few years the funds have enjoyed tremendous growth. Explorer now tops $12 billion in small-cap growth stocks, and Precious Metals is up to $3.3 billion. The closures are an effort to temper asset flows. Existing shareholders are limited to $25,000 annual investments.

In other news regarding Precious Metals and Mining, Vanguard has negotiated a new management fee structure with the fund's subadvisor, M&G Investment Management. The new fee arrangement revises breakpoints that benefited M&G, but also includes a performance adjustment. Previously, the fee was not adjusted for the performance of the fund.

M&G will be paid 0.3% on the first $200 million in assets, and then 0.2% for assets above $300 million, 0.15% for assets above $500 million, and finally 0.1% for assets above $1 billion. Previously, it took just $500 million or more to reach the breakpoint of 0.1%.

While we never like to see management fees rising, we take some solace in the fact that the expense ratio on the fund is actually going down from 0.48% to 0.45% thanks to a growing asset base. Moreover, we like performance fees in general, so even though it may actually raise fees in the future, it better aligns the subadvisor's interests with the fund's success.

New Vanguard Fund

Vanguard is adding another quant-driven fund to its lineup. Vanguard Strategic Small-Cap Equity will be managed by James Stetler of Vanguard's quantitative equity group, which has posted good results at Vanguard Strategic Equity VSEQX and Vanguard Equity-Income VEIPX.

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