INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of August, 2000, between VANGUARD
EXPLORER FUND, a Delaware business trust (the "Fund"), and WELLINGTON MANAGEMENT
COMPANY, a Massachusetts limited liability partnership (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the 1940 Act, as amended; and
WHEREAS, the Fund desires to retain Adviser to render investment advisory
services to certain assets of the Fund which the Board of Trustees of the Fund
determines to assign to Adviser (referred to in this Agreement as the "WMC
Portfolio"), and Adviser is willing to render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. APPOINTMENT OF ADVISER. The Fund hereby employs Adviser as investment
adviser, on the terms and conditions set forth herein, for the assets of the WMC
Portfolio. The Board of Trustees may, from time to time, make additions to, and
withdrawals from, the assets of the Fund assigned to Adviser. Adviser accepts
such employment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES OF ADVISER. The Fund employs Adviser to manage the investment and
reinvestment of the assets of the WMC Portfolio, to continuously review,
supervise and administer an investment program for such assets of the Fund, to
determine in its discretion the securities to be purchased or sold and the
portion of such assets to be held uninvested, to provide the Fund with all
records concerning the activities of Adviser that the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Trustees concerning the discharge of the foregoing responsibilities. Adviser
will discharge the foregoing responsibilities subject to the control of the
officers and the Board of Trustees of the Fund, and in compliance with the
objectives, policies and limitations set forth in the Fund's prospectus, any
additional operating policies or procedures that the Fund communicates to the
Adviser in writing, and applicable laws and regulations. Adviser agrees to
provide, at its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation provided herein.
3. SECURITIES TRANSACTIONS. Adviser is authorized to select the brokers or
dealers that will execute purchases and sales of securities for the WMC
Portfolio, and is directed to use its best efforts to obtain the best available
price and most favorable execution for such
transactions, except as otherwise permitted by the Board of Trustees of the Fund
pursuant to written policies and procedures provided to the Adviser. The Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if the
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage or research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and the other Funds
in the same Fund Group. Adviser will promptly communicate to the Fund's officers
and Board of Trustees such information relating to portfolio transactions as
they may reasonably request.
4. COMPENSATION OF ADVISER. For the services to be rendered by Adviser as
provided in this Agreement, the Fund will pay to Adviser at the end of each of
the Fund's fiscal quarters, a Basic Fee calculated by applying a quarterly rate,
based on the following annual percentage rates, to the average month-end net
assets of the WMC Portfolio for the quarter:
.250% on the first $500 million of net assets;
.200% on the next $250 million of net assets;
.150% on the next $250 million of net assets;
.100% on net assets in excess of $1 billion.
The Basic Fee, as provided above, will be increased or decreased by
applying a Performance Fee Adjustment (the "Adjustment") based on the investment
performance of the WMC Portfolio relative to the investment performance of the
Xxxxxxx 2000 Growth Index (the "Index"). The investment performance of the WMC
Portfolio will be based on the cumulative return over a trailing 36-month period
ending with the applicable quarter, relative to the cumulative total return of
the Index for the same time period. The Adjustment applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE PERFORMANCE FEE ADJUSTMENT AS A
WMC PORTFOLIO VS. BENCHMARK PERCENTAGE OF BASIC FEE*
--------------------------- ------------------------
Trails by -12% or more -0.50 x Basic Fee
Trails by more than -6% up to -12% -0.25 x Basic Fee
Trails/Exceeds by -6% through 6% -0.00 x Basic Fee
Exceeds by more than 6% but less than 12% +0.25 x Basic Fee
Exceeds by 12% or more +0.50 x Basic Fee
---------------------------
* For purposes of determining the fee adjustment calculation, the basic fee
is calculated by applying the quarterly rate against the net assets of the Fund
averaged over the same time period for which the performance is measured.
4.1. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The Index will
not be fully operable as the sole performance index used to determine the
Adviser's Adjustment until the quarter ending July 31, 2003. Until that date,
the Adviser's Adjustment will be determined
2
by linking the investment performance of the Index and that of the Small Company
Growth Fund Stock Index (the "Prior Index") as follows.
(a) QUARTER ENDING OCTOBER 31, 2000. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the eleven quarters ending July 31, 2000, with that of the Index
for the quarter ending October 31, 2000.
(b) QUARTER ENDING JANUARY 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the ten quarters ending July 31, 2000, with that of the Index for
the two quarters ending January 31, 2001.
(c) QUARTER ENDING APRIL 30, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the nine quarters ending July 31, 2000, with that of the Index for
the three quarters ending April 30, 2001.
(d) QUARTER ENDING JULY 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for eight quarters ending July 31, 2000, with that of the Index for
the four quarters ending July 31, 2001.
(e) QUARTER ENDING OCTOBER 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the seven quarters ending July 31, 2000, with that of the Index
for the five quarters ending October 31, 2001.
(f) QUARTER ENDING JANUARY 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the six quarters ending July 31, 2000, with that of the Index for
the six quarters ending January 31, 2002.
(g) QUARTER ENDING APRIL 30, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the five quarters ending July 31, 2000, with that of the Index for
the seven quarters ending April 30, 2002.
(h) QUARTER ENDING JULY 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for four quarters ending July 31, 2000, with that of the Index for the
eight quarters ending July 31, 2002.
(i) QUARTER ENDING OCTOBER 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the
3
three quarters ending July 31, 2000, with that of the Index for the
nine quarters ending October 31, 2002.
(j) QUARTER ENDING JANUARY 31, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the two quarters ending July 31, 2000, with that of the Index for
the ten quarters ending January 31, 2003.
(k) QUARTER ENDING APRIL 30, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Index
for the one quarter ending July 31, 2000, with that of the Index for
the eleven quarters ending April 30, 2003.
(l) QUARTER ENDING JULY 31, 2003. The Index is fully operable.
4.2. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The following
special rules will also apply to the Adviser's compensation:
(a) PORTFOLIO PERFORMANCE. The investment performance of the WMC Portfolio
for any period, expressed as a percentage of the "WMC Portfolio unit
value" per share at the beginning of the period, will be the sum of:
(i) the change in the WMC Portfolio's net asset value per share during
the period; (ii) the unit value of the Fund's cash distributions from
WMC Portfolio's net investment income and realized net capital gains
(whether short or long term) having an ex-dividend date occurring
within the period; (iii) the unit value of capital gains taxes paid or
accrued during such period by the Fund for undistributed realized
long-term capital gains realized by the WMC Portfolio. For this
purpose, the unit value of distributions per share of realized capital
gains, of dividends per share paid from investment income and of
capital gains taxes per share paid or payable on undistributed
realized long-term capital gains shall be treated as reinvested in the
WMC Portfolio at the unit value in effect at the close of business on
the record date for the payment of such distributions and dividends
and the date on which provision is made for such taxes, after giving
effect to such distributions, dividends and taxes.
(b) "WMC PORTFOLIO UNIT VALUE." The "WMC Portfolio unit value" will be
determined by dividing the total net assets of the WMC Portfolio by a
given number of units. Initially, the number of units in the WMC
Portfolio will equal the total shares outstanding of the Fund on
August 1, 2000. Subsequently, as assets are added to or withdrawn from
the WMC Portfolio, the number of units of the WMC Portfolio will be
adjusted based on the unit value of the WMC Portfolio on the day such
changes are executed. Any cash buffer maintained by the Fund outside
of the WMC Portfolio shall neither be included in the total net assets
of the WMC Portfolio nor included in the computation of the WMC
Portfolio Unit Value.
4
(c) INDEX PERFORMANCE. The investment record of the Index for any period,
expressed as a percentage of the Index at the beginning of such
period, will be the sum of: (i) the change in the level of the Index
during the period; (ii) the value, computed consistently with the
Index, of cash distributions having an ex-dividend date occurring
within the period made by companies whose securities comprise the
Index. For this purpose, cash distributions on the securities which
comprise the Index will be treated as reinvested in the Index at least
as frequently as the end of each calendar quarter following the
payment of the dividend. The calculation will be gross of applicable
costs and expenses.
(d) EFFECT OF TERMINATION. In the event of termination of this Agreement,
the fees provided in this Agreement will be computed on the basis of
the period ending on the last business day on which this Agreement is
in effect, subject to a pro rata adjustment based on the number of
days elapsed in the current fiscal quarter as a percentage of the
total number of days in such quarter.
5. REPORTS. The Fund and Adviser agree to furnish to each other current
prospectuses, proxy statements, reports to shareholders, certified copies of
their financial statements, and such other information with regard to their
affairs as each may reasonably request.
6. COMPLIANCE. Adviser agrees to comply with all policies, procedures or
reporting requirements that the Board of Trustees of the Fund reasonably adopts
and communicates to Adviser in writing, including any such policies, procedures
or reporting requirements relating to soft dollar or directed brokerage
arrangements.
7. STATUS OF ADVISER. The services of Adviser to the Fund are not to be
deemed exclusive, and Adviser will be free to render similar services to others
so long as its services to the Fund are not impaired thereby. Adviser will be
deemed to be an independent contractor and will, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
8. LIABILITY OF ADVISER. No provision of this Agreement will be deemed to
protect Adviser against any liability to the Fund or its shareholders to which
it might otherwise be subject by reason of any willful misfeasance, bad faith or
gross negligence in the performance of its duties or the reckless disregard of
its obligations under this Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective on August
1, 2000, and will continue in effect thereafter only so long as such continuance
is approved at least annually by votes of the Fund's Board of Trustees who are
not parties to such Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. In
addition, the question of continuance of the Agreement may be presented to the
shareholders of the Fund; in such event, such continuance will be effected only
if approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund.
5
Provided, however, that (i) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Trustees of the
Fund or by vote of a majority of the outstanding voting securities of the Fund,
on sixty days' written notice to Adviser, (ii) this Agreement will automatically
terminate in the event of its assignment, and (iii) this Agreement may be
terminated by Adviser on ninety days' written notice to the Fund. Any notice
under this Agreement will be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons," a
"vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the Investment Company Act of 1940.
10. SEVERABILITY. If any provision of this Agreement will be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement will not be affected thereby.
11. PROXY POLICY. With regard to the solicitation of shareholder votes, the
Fund will vote the shares of all securities held by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed this 1ST day of August, 2000.
ATTEST: VANGUARD EXPLORER FUND
By Xxxxxxx Xxxxxx By Xxxx X. Xxxxxxx
-------------------- ------------------------------------
Chairman, CEO and President
ATTEST: WELLINGTON MANAGEMENT company, LLP
By Xxxxxxx X. Koonces By Xxxxxxxx X. Xxxxxx
------------------- ------------------------------------
Senior Vice President
6
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of August, 2000, between VANGUARD
EXPLORER FUND, a Delaware business trust (the "Fund"), and XXXXXXXX INVESTMENT
MANAGEMENT, INC., a Massachusetts Corporation (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the 1940 Act, as amended; and
WHEREAS, the Fund desires to retain Adviser to render investment advisory
services to certain assets of the Fund which the Board of Trustees of the Fund
determines to assign to Adviser (referred to in this Agreement as the "Xxxxxxxx
Portfolio"), and Adviser is willing to render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H
that in consideration of the premises and mutual promises hereinafter
set forth, the parties hereto agree as follows:
1. APPOINTMENT OF ADVISER. The Fund hereby employs Adviser as investment
adviser, on the terms and conditions set forth herein, for the assets of the
Xxxxxxxx Portfolio. The Board of Trustees may, from time to time, make additions
to, and withdrawals from, the assets of the Fund assigned to Adviser. Adviser
accepts such employment and agrees to render the services herein set forth, for
the compensation herein provided.
2. DUTIES OF ADVISER. The Fund employs Adviser to manage the investment and
reinvestment of the assets of the Xxxxxxxx Portfolio, to continuously review,
supervise and administer an investment program for such assets of the Fund, to
determine in its discretion the securities to be purchased or sold and the
portion of such assets to be held uninvested, to provide the Fund with all
records concerning the activities of Adviser that the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Trustees concerning the discharge of the foregoing responsibilities. Adviser
will discharge the foregoing responsibilities subject to the control of the
officers and the Board of Trustees of the Fund, and in compliance with the
objectives, policies and limitations set forth in the Fund's prospectus, any
additional operating policies or procedures that the Fund communicates to the
Adviser in writing, and applicable laws and regulations. Adviser agrees to
provide, at its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation provided herein.
3. SECURITIES TRANSACTIONS. Adviser is authorized to select the brokers or
dealers that will execute purchases and sales of securities for the Xxxxxxxx
Portfolio, and is directed to use its best efforts to obtain the best available
price and most favorable execution for such
transactions, except as otherwise permitted by the Board of Trustees of the Fund
pursuant to written policies and procedures provided to the Adviser. The Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if the
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage or research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and the other Funds
in the same Fund Group. Adviser will promptly communicate to the Fund's officers
and Board of Trustees such information relating to portfolio transactions as
they may reasonably request.
4. COMPENSATION OF ADVISER. For the services to be rendered by Adviser as
provided in this Agreement, the Fund will pay to Adviser at the end of each of
the Fund's fiscal quarters, a Basic Fee calculated by applying a quarterly rate,
based on the following annual percentage rates, to the average month-end net
assets of the Xxxxxxxx Portfolio for the quarter:
.300% on the first $500 million of net assets;
.200% on the next $250 million of net assets;
.150% on the next $250 million of net assets;
.100% on net assets in excess of $1 billion.
The Basic Fee, as provided above, will be increased or decreased by
applying a Performance Fee Adjustment (the "Adjustment") based on the investment
performance of the Xxxxxxxx Portfolio relative to the investment performance of
the Xxxxxxx 2000 Growth Index (the "Index"). The investment performance of the
Xxxxxxxx Portfolio will be based on the cumulative return over a trailing
36-month period ending with the applicable quarter, relative to the cumulative
total return of the Index for the same time period. The Adjustment applies as
follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE PERFORMANCE FEE ADJUSTMENT AS A
XXXXXXXX PORTFOLIO VS. BENCHMARK PERCENTAGE OF BASIC FEE*
-------------------------------- ------------------------
Trails by -12% or more Decrease by .01875%
Trails by more than -6% up to -12% Decrease by .009375%
Trails/Exceeds by -6% through 6% No adjustment
Exceeds by more than 6% but less than 12% Increase by .009375%
Exceeds by 12% or more Increase by .01875%
---------------------------
* For purposes of determining the fee adjustment calculation, the basic fee
is calculated by applying the quarterly rate against the net assets of the Fund
averaged over the same time period for which the performance is measured.
4.1. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The Index will
not be fully operable as the sole performance index used to determine the
Adviser's Adjustment until the quarter ending July 31, 2003. Until that date,
the Adviser's Adjustment will be determined
2
by linking the investment performance of the Index and that of the Small Company
Growth Fund Stock Index (the "Prior Index") as follows.
(a) QUARTER ENDING OCTOBER 31, 2000. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the eleven quarters ending July 31, 2000, with that of
the Index for the one quarter ending October 31, 2000.
(b) QUARTER ENDING JANUARY 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the ten quarters ending July 31, 2000, with that of the
Index for the two quarters ending January 31, 2001.
(c) QUARTER ENDING APRIL 30, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the nine quarters ending July 31, 2000, with that of
the Index for the three quarters ending April 30, 2001.
(d) QUARTER ENDING JULY 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for eight quarters ending July 31, 2000, with that of the
Index for the four quarters ending July 31, 2001.
(e) QUARTER ENDING OCTOBER 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the seven quarters ending July 31, 2000, with that of
the Index for the five quarters ending October 31, 2001.
(f) QUARTER ENDING JANUARY 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the six quarters ending July 31, 2000, with that of the
Index for the six quarters ending January 31, 2002.
(g) QUARTER ENDING APRIL 30, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the five quarters ending July 31, 2000, with that of
the Index for the seven quarters ending April 30, 2002.
(h) QUARTER ENDING JULY 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for four quarters ending July 31, 2000, with that of the
Index for the eight quarters ending July 31, 2002.
(i) QUARTER ENDING OCTOBER 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the
3
threequarters ending July 31, 2000, with that of the Index for
the nine quarters ending October 31, 2002.
(j) QUARTER ENDING JANUARY 31, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the two quarters ending July 31, 2000, with that of the
Index for the ten quarters ending January 31, 2003.
(k) QUARTER ENDING APRIL 30, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the one quarter ending July 31, 2000, with that of the
Index for the eleven quarters ending April 30, 2003.
(l) QUARTER ENDING JULY 31, 2003. The Index will be fully operable.
4.2. Other Special Rules Relating to Adviser's Compensation. The following
special rules will also apply to the Adviser's compensation:
(a) PORTFOLIO PERFORMANCE. The investment performance of the Xxxxxxxx
Portfolio for any period, expressed as a percentage of the
"Xxxxxxxx Portfolio unit value" per share at the beginning of the
period, will be the sum of: (i) the change in the Xxxxxxxx
Portfolio's net asset value per share during the period; (ii) the
unit value of the Fund's cash distributions from Xxxxxxxx
Portfolio's net investment income and realized net capital gains
(whether short or long term) having an ex-dividend date occurring
within the period; (iii) the unit value of capital gains taxes
paid or accrued during such period by the Fund for undistributed
realized long-term capital gains realized by the Xxxxxxxx
Portfolio. For this purpose, the unit value of distributions per
share of realized capital gains, of dividends per share paid from
investment income and of capital gains taxes per share paid or
payable on undistributed realized long-term capital gains shall
be treated as reinvested in the Xxxxxxxx Portfolio at the unit
value in effect at the close of business on the record date for
the payment of such distributions and dividends and the date on
which provision is made for such taxes, after giving effect to
such distributions, dividends and taxes.
(b) "XXXXXXXX PORTFOLIO UNIT VALUE." The "Xxxxxxxx Portfolio unit
value" will be determined by dividing the total net assets of the
Xxxxxxxx Portfolio by a given number of units. Initially, the
number of units in the Xxxxxxxx Portfolio will equal the total
shares outstanding of the Fund on August 1, 2000. Subsequently,
as assets are added to or withdrawn from the Xxxxxxxx Portfolio,
the number of units of the Xxxxxxxx Portfolio will be adjusted
based on the unit value of the Xxxxxxxx Portfolio on the day such
changes are executed. Any cash buffer maintained by the Fund
outside of the Xxxxxxxx Portfolio shall neither be included in
the total net assets of the Xxxxxxxx Portfolio nor included in
the computation of the Xxxxxxxx Portfolio Unit Value.
4
(c) INDEX PERFORMANCE. The investment record of the Index for any
period, expressed as a percentage of the Index at the beginning
of such period, will be the sum of: (i) the change in the level
of the Index during the period; (ii) the value, computed
consistently with the Index, of cash distributions having an
ex-dividend date occurring within the period made by companies
whose securities comprise the Index. For this purpose, cash
distributions on the securities which comprise the Index will be
treated as reinvested in the Index at least as frequently as the
end of each calendar quarter following the payment of the
dividend. The calculation will be gross of applicable costs and
expenses.
(d) EFFECT OF TERMINATION. In the event of termination of this
Agreement, the fees provided in this Agreement will be computed
on the basis of the period ending on the last business day on
which this Agreement is in effect, subject to a pro rata
adjustment based on the number of days elapsed in the current
fiscal quarter as a percentage of the total number of days in
such quarter.
5. REPORTS. The Fund and Adviser agree to furnish to each other current
prospectuses, proxy statements, reports to shareholders, certified copies of
their financial statements, and such other information with regard to their
affairs as each may reasonably request.
6. COMPLIANCE. Adviser agrees to comply with all policies, procedures or
reporting requirements that the Board of Trustees of the Fund reasonably adopts
and communicates to Adviser in writing, including any such policies, procedures
or reporting requirements relating to soft dollar or directed brokerage
arrangements.
7. STATUS OF ADVISER. The services of Adviser to the Fund are not to be
deemed exclusive, and Adviser will be free to render similar services to others
so long as its services to the Fund are not impaired thereby. Adviser will be
deemed to be an independent contractor and will, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
8. LIABILITY OF ADVISER. No provision of this Agreement will be deemed to
protect Adviser against any liability to the Fund or its shareholders to which
it might otherwise be subject by reason of any willful misfeasance, bad faith or
gross negligence in the performance of its duties or the reckless disregard of
its obligations under this Agreement.
9. Duration and Termination. This Agreement will become effective on
August 1, 2000, and will continue in effect thereafter only so long as such
continuance is approved at least annually by votes of the Fund's Board of
Trustees who are not parties to such Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. In addition, the question of continuance of the Agreement may be
presented to the shareholders of the Fund; in such event, such continuance will
be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
5
Provided, however, that (i) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Trustees of the
Fund or by vote of a majority of the outstanding voting securities of the Fund,
on sixty days' written notice to Adviser, (ii) this Agreement will automatically
terminate in the event of its assignment, and (iii) this Agreement may be
terminated by Adviser on ninety days' written notice to the Fund. Any notice
under this Agreement will be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons," a
"vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the Investment Company Act of 1940.
10. SEVERABILITY. If any provision of this Agreement will be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement will not be affected thereby.
11. PROXY POLICY. With regard to the solicitation of shareholder votes, the
Fund will vote the shares of all securities held by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed this 24th day of July, 2000.
ATTEST: VANGUARD EXPLORER FUND
By Xxxxxxx Xxxxxx By Xxxx X. Xxxxxxx
----------------- --------------------------
Chairman, CEO and President
ATTEST: XXXXXXXX INVESTMENT MANAGEMENT, INC.
By Xxxxx X. Xxxxxxxx By Xxxx X. Xxxxxxxx
------------------ --------------------------
Xxxx X. Xxxxxxxx
6
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of August, 2000, between VANGUARD
EXPLORER FUND, a Delaware business trust (the "Fund"), and CHARTWELL INVESTMENT
PARTNERS (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the 1940 Act, as amended; and
WHEREAS, the Fund desires to retain Adviser to render investment advisory
services to certain assets of the Fund which the Board of Trustees of the Fund
determines to assign to Adviser (referred to in this Agreement as the "Chartwell
Portfolio"), and Adviser is willing to render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. APPOINTMENT OF ADVISER. The Fund hereby employs Adviser as investment
adviser, on the terms and conditions set forth herein, for the assets of the
Chartwell Portfolio. The Board of Trustees may, from time to time, make
additions to, and withdrawals from, the assets of the Fund assigned to Adviser.
Adviser accepts such employment and agrees to render the services herein set
forth, for the compensation herein provided.
2. DUTIES OF ADVISER. The Fund employs Adviser to manage the investment and
reinvestment of the assets of the Chartwell Portfolio, to continuously review,
supervise and administer an investment program for such assets of the Fund, to
determine in its discretion the securities to be purchased or sold and the
portion of such assets to be held uninvested, to provide the Fund with all
records concerning the activities of Adviser that the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Trustees concerning the discharge of the foregoing responsibilities. Adviser
will discharge the foregoing responsibilities subject to the control of the
officers and the Board of Trustees of the Fund, and in compliance with the
objectives, policies and limitations set forth in the Fund's prospectus, any
additional operating policies or procedures that the Fund communicates to the
Adviser in writing, and applicable laws and regulations. Adviser agrees to
provide, at its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation provided herein.
3. SECURITIES TRANSACTIONS. Adviser is authorized to select the brokers or
dealers that will execute purchases and sales of securities for the Chartwell
Portfolio, and is directed to use its best efforts to obtain the best available
price and most favorable execution for such
transactions, except as otherwise permitted by the Board of Trustees of the Fund
pursuant to written policies and procedures provided to the Adviser. The Adviser
may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if the
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage or research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and the other Funds
in the same Fund Group. Adviser will promptly communicate to the Fund's officers
and Board of Trustees such information relating to portfolio transactions as
they may reasonably request.
4. COMPENSATION OF ADVISER. For the services to be rendered by Adviser as
provided in this Agreement, the Fund will pay to Adviser at the end of each of
the Fund's fiscal quarters, a Basic Fee calculated by applying a quarterly rate,
based on the following annual percentage rates, to the average month-end net
assets of the Chartwell Portfolio for the quarter:
.40% on the first $250 million of net assets;
.30% on the next $250 million of net assets;
.20% on net assets in excess of $500 million.
The Basic Fee, as provided above, will be increased or decreased by
applying a Performance Fee Adjustment (the "Adjustment") based on the investment
performance of the Chartwell Portfolio relative to the investment performance of
the Xxxxxxx 2000 Growth Index (the "Index"). The investment performance of the
Chartwell Portfolio will be based on the cumulative return over a trailing
36-month period ending with the applicable quarter, relative to the cumulative
total return of the Index for the same time period. The Adjustment applies as
follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE PERFORMANCE FEE ADJUSTMENT AS A
CHARTWELL PORTFOLIO VS. BENCHMARK PERCENTAGE OF BASIC FEE*
--------------------------------- ------------------------
Trails by -12% or more -0.20 x Basic Fee
Trails by more than -6% up to -12% -0.10 x Basic Fee
Trails/Exceeds by -6% through 6% -0.00 x Basic Fee
Exceeds by more than 6% but less than 12% +0.10 x Basic Fee
Exceeds by 12% or more +0.20 x Basic Fee
---------------------------
* For purposes of determining the fee adjustment calculation, the basic fee
is calculated by applying the quarterly rate against the net assets of the Fund
averaged over the same time period for which the performance is measured.
4.1. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The Index will
not be fully operable as the sole performance index used to determine the
Adviser's Adjustment until the quarter ending July 31, 2003. Until that date,
the Adviser's Adjustment will be determined
2
by linking the investment performance of the Index and that of the Small Company
Growth Fund Stock Index (the "Prior Index") as follows.
(a) QUARTER ENDING OCTOBER 31, 2000. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the eleven quarters ending July 31, 2000, with that of
the Index for the quarter ending October 31, 2000.
(b) QUARTER ENDING JANUARY 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the ten quarters ending July 31, 2000, with that of the
Index for the two quarters ending January 31, 2001.
(c) QUARTER ENDING APRIL 30, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the nine quarters ending July 31, 2000, with that of
the Index for the three quarters ending April 30, 2001.
(d) QUARTER ENDING JULY 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for eight quarters ending July 31, 2000, with that of the
Index for the four quarters ending July 31, 2001.
(e) QUARTER ENDING OCTOBER 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the seven quarters ending July 31, 2000, with that of
the Index for the five quarters ending October 31, 2001.
(f) Quarter Ending January 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the six quarters ending July 31, 2000, with that of the
Index for the six quarters ending January 31, 2002.
(g) Quarter Ending April 30, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the five quarters ending July 31, 2000, with that of
the Index for the seven quarters ending April 30, 2002.
(h) Quarter Ending July 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for four quarters ending July 31, 2000, with that of the
Index for the eight quarters ending July 31, 2002.
(i) Quarter Ending October 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the
3
three quarters ending July 31, 2000, with that of the Index for
the nine quarters ending October 31, 2002.
(j) QUARTER ENDING JANUARY 31, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the two quarters ending July 31, 2000, with that of the
Index for the ten quarters ending January 31, 2003.
(k) QUARTER ENDING APRIL 30, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior
Index for the one quarter ending July 31, 2000, with that of the
Index for the eleven quarters ending April 30, 2003.
(l) QUARTER ENDING JULY 31, 2003. The Index is fully operable.
4.2. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The following
special rules will also apply to the Adviser's compensation:
(a) PORTFOLIO PERFORMANCE. The investment performance of the
Chartwell Portfolio for any period, expressed as a percentage of
the "Chartwell Portfolio unit value" per share at the beginning
of the period, will be the sum of: (i) the change in the
Chartwell Portfolio's net asset value per share during the
period; (ii) the unit value of the Fund's cash distributions from
Chartwell Portfolio's net investment income and realized net
capital gains (whether short or long term) having an ex-dividend
date occurring within the period; (iii) the unit value of capital
gains taxes paid or accrued during such period by the Fund for
undistributed realized long-term capital gains realized by the
Chartwell Portfolio. For this purpose, the unit value of
distributions per share of realized capital gains, of dividends
per share paid from investment income and of capital gains taxes
per share paid or payable on undistributed realized long-term
capital gains shall be treated as reinvested in the Chartwell
Portfolio at the unit value in effect at the close of business on
the record date for the payment of such distributions and
dividends and the date on which provision is made for such taxes,
after giving effect to such distributions, dividends and taxes.
(b) "CHARTWELL PORTFOLIO UNIT VALUE." The "Chartwell Portfolio unit
value" will be determined by dividing the total net assets of the
Chartwell Portfolio by a given number of units. Initially, the
number of units in the Chartwell Portfolio will equal the total
shares outstanding of the Fund on August 1, 2000. Subsequently,
as assets are added to or withdrawn from the Chartwell Portfolio,
the number of units of the Chartwell Portfolio will be adjusted
based on the unit value of the Chartwell Portfolio on the day
such changes are executed. Any cash buffer maintained by the Fund
outside of the Chartwell Portfolio shall neither be included in
the total net assets of the Chartwell
4
Portfolio nor included in the computation of the Chartwell
Portfolio Unit Value.
(c) INDEX PERFORMANCE. The investment record of the Index for any
period, expressed as a percentage of the Index at the beginning
of such period, will be the sum of: (i) the change in the level
of the Index during the period; (ii) the value, computed
consistently with the Index, of cash distributions having an
ex-dividend date occurring within the period made by companies
whose securities comprise the Index. For this purpose, cash
distributions on the securities which comprise the Index will be
treated as reinvested in the Index at least as frequently as the
end of each calendar quarter following the payment of the
dividend. The calculation will be gross of applicable costs and
expenses.
(d) EFFECT OF TERMINATION. In the event of termination of this
Agreement, the fees provided in this Agreement will be computed
on the basis of the period ending on the last business day on
which this Agreement is in effect, subject to a pro rata
adjustment based on the number of days elapsed in the current
fiscal quarter as a percentage of the total number of days in
such quarter.
5. REPORTS. The Fund and Adviser agree to furnish to each other current
prospectuses, proxy statements, reports to shareholders, certified copies of
their financial statements, and such other information with regard to their
affairs as each may reasonably request.
6. COMPLIANCE. Adviser agrees to comply with all policies, procedures or
reporting requirements that the Board of Trustees of the Fund reasonably adopts
and communicates to Adviser in writing, including any such policies, procedures
or reporting requirements relating to soft dollar or directed brokerage
arrangements.
7. STATUS OF ADVISER. The services of Adviser to the Fund are not to be
deemed exclusive, and Adviser will be free to render similar services to others
so long as its services to the Fund are not impaired thereby. Adviser will be
deemed to be an independent contractor and will, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
8. LIABILITY OF ADVISER. No provision of this Agreement will be deemed to
protect Adviser against any liability to the Fund or its shareholders to which
it might otherwise be subject by reason of any willful misfeasance, bad faith or
gross negligence in the performance of its duties or the reckless disregard of
its obligations under this Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective on August
1, 2000, and will continue in effect thereafter only so long as such continuance
is approved at least annually by votes of the Fund's Board of Trustees who are
not parties to such Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. In
addition, the question of continuance of the Agreement may be presented to
5
the shareholders of the Fund; in such event, such continuance will be effected
only if approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund.
Provided, however, that (i) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Trustees of the
Fund or by vote of a majority of the outstanding voting securities of the Fund,
on sixty days' written notice to Adviser, (ii) this Agreement will automatically
terminate in the event of its assignment, and (iii) this Agreement may be
terminated by Adviser on ninety days' written notice to the Fund. Any notice
under this Agreement will be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons," a
"vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the Investment Company Act of 1940.
10. SEVERABILITY. If any provision of this Agreement will be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement will not be affected thereby.
11. PROXY POLICY. With regard to the solicitation of shareholder votes, the
Fund will vote the shares of all securities held by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed this 1st day of August, 2000.
ATTEST: VANGUARD EXPLORER FUND
By Xxxxxxx Xxxxxx By Xxxx X. Xxxxxxx
----------------------------- -----------------------------
Chairman, CEO and President
ATTEST: CHARTWELL INVESTMENT PARTNERS
By XxXxx Xxxxxx By Xxxxxx X. Xxxxxxx
----------------------------- -----------------------------
6
