Chartwell Investment Partners, LLC, no longer serves as an advisor to either fund. Assets formerly managed by Chartwell for the Explorer Fund (approximately 7%) have been allocated to Arrowpoint Asset Management, LLC (“Arrowpoint”) and Stephens Investment Management Group, LLC (“Stephens”). Assets formerly managed by Chartwell for the Mid-Cap Growth Fund (approximately 50%) have been allocated to RS Investments, an investment franchise of Victory Capital Management.

As part of its oversight responsibilities, each fund’s board of trustees considers numerous factors when evaluating investment advisors. The advisor changes were determined to be in the best interests of the funds’ shareholders, based on ongoing evaluation of their investment staffs and portfolio management processes.

Multimanager approach continues

The Explorer Fund is a small-capitalization growth fund that has used a multi-manager approach since 1990. The fund will now use six advisors with the following expected allocation of assets (excluding cash holdings): Wellington Management Company LLP, 34%; Arrowpoint Partners, 15%; Granahan Investment Management, Inc., 14%; Kalmar Investment Advisers, 13%; Stephens Investment Management Group, LLC, 13%; and Vanguard Quantitative Equity Group, 11%.

The Mid-Cap Growth Fund has used a multi-manager approach since 2006. William Blair Investment Management, LLC, continues as the fund’s other advisor.

Vanguard first adopted a multi-manager approach in 1987, and today employs the structure for 18 of its actively managed U.S.-domiciled equity funds. We believe the combination of high-caliber investment management teams with differentiated but complementary strategies can reduce portfolio volatility, provide potential for long-term outperformance, and mitigate manager risk.

How portfolios are affected

Each fund’s investment objective and principal investment strategies will remain the same. The Explorer Fund’s characteristics, including valuations, market capitalization profile, and sector allocations, will be substantially similar to what they were previously. The Mid-Cap Growth Fund is expected to have lower beta exposure (risk arising from general market movements) and be less valuation-sensitive. The expense ratios of the funds are not expected to be affected by the changes.

The transition of assets from Chartwell to the new managers is expected to result in a modest level of portfolio turnover. The repositioning of assets may also result in modest transaction costs and/or capital gain distributions, subject to market conditions and other variables.

About RS Investments

RS Investments, based in San Francisco, is a new relationship for Vanguard. It’s one of 11 independent investment franchises of Victory Capital Management, a multi-boutique asset management firm based in Brooklyn, Ohio, that had $51.4 billion in assets under management as of September 30, 2016.

RS Investments’ core investment philosophy is that companies that are able to sustainably deliver above-average growth in revenue and earnings will outperform over time. Given the elevated price volatility and less-stable nature of high-growth stocks, the team believes that diligent risk management is essential to avoiding behavioral biases and costly mistakes.

The four portfolio managers responsible for day-to-day management of RS Investments’ portion of Mid-Cap Growth Fund are:

  • Scott Tracy, CFA, Chief Investment Officer of RS Investments, who joined RS Investments in 2001 and has worked in investment management since 1997. He earned a B.A. from Trinity College and an M.B.A. from the University of California at Berkeley.
  • Steve Bishop, who joined RS Investments in 2001 and has worked in investment management since 1992. He earned a B.A. from the University of Notre Dame and an M.B.A. from Harvard Business School.
  • Melissa Chadwick-Dunn, who joined RS Investments in 2001 and has worked in investment management since 1992. She earned a B.A. and an M.A. from the University of Chicago and an M.B.A. from The Wharton School of the University of Pennsylvania.
  • Chris Clark, CFA, who joined RS Investments in 2007 and has worked in investment management since 2001. He earned a B.A. from the University of Virginia.

Notes:

All asset figures are as of October 31, 2016, unless otherwise noted.

All investing is subject to risk, including the possible loss of the money you invest.

Prices of mid- and small-cap stocks often fluctuate more than those of large-company stocks.