INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 21st day of May, 1998, between
VANGUARD/TRUSTEES' EQUITY FUND, a Pennsylvania common law trust, (the "Fund")
and FRANKLIN PORTFOLIO ASSOCIATES LLC, a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund's U.S. Portfolio (the "Portfolio"), and the
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 set forth below, the
Fund and the Adviser agree as follows:
1. Appointment of Adviser. The Fund hereby appoints the Adviser to act
as investment adviser to Portfolio for the period and on the terms set
forth in this Agreement. The Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation
herein provided.
2. Advisory Duties. Subject to the supervision of the Fund's Board of
Trustees, the Adviser shall manage the investment operations and
composition of the Portfolio in accordance with the investment
objective and policies stated in the Fund's Registration Statement (as
defined in paragraph 3(d) of this Agreement), and subject to the
following understandings:
(a) The Adviser shall supervise the Portfolio's investments, furnish a
continuous investment program for the Portfolio, determine from time to
time what investments or securities will be purchased, retained or sold
by the Portfolio, and what portion of the Portfolio's assets will be
invested or held uninvested as cash;
(b) The Adviser shall use the same skill and care in the management of
the Portfolio as it uses in the administration of other fiduciary
accounts for which it has investment responsibility;
(c) The Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Declaration of Trust,
By-Laws and Registration Statement of the Fund, and with the
instructions and directions of the Board of Trustees of the Fund. The
Adviser will conform to and comply with the requirements of the 1940
Act and all other applicable federal and state laws and regulations;
(d) The Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders pursuant to its determinations
either directly with the issuer or with any broker and/or dealer who
deals in the securities in which the Portfolio is active. The Adviser
is directed to use its best efforts to obtain the best available price
and most favorable execution, except as prescribed herein. Subject to
policies established by the Board of Trustees of the Fund, 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
was 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 Portfolio. The execution of such transactions shall
not be deemed to represent an unlawful act or breach of any duty
created by this Agreement or otherwise. The Adviser will promptly
communicate to the officers and Trustees of the Fund such information
relating to portfolio transactions as they may reasonably request:
On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients, the Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased in
order to obtain the best execution and lower brokerage commissions, if
any. In such event, allocation of the securities so purchased or sold,
as well as the expenses incurred in the transaction, will be made by
the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio and to such
other clients;
(e) The Adviser shall maintain books and records with respect
to the Portfolio's securities transactions and shall render to the
Fund's Board of Trustees such periodic and special reports as the Board
may reasonably request;
(f) The Adviser shall provide the Portfolio on each business
day with a list of all securities transactions for that day;
(g) The investment advisory services of the Adviser to the
Portfolio under this Agreement are not to be deemed exclusive, and the
Adviser shall be free to render similar services to others.
3. Documents Delivered. The Fund has delivered to the Adviser, or will
promptly deliver to the Adviser upon full execution of this Agreement, copies of
each of the following documents and will deliver to it all future amendments and
supplements, if any:
(a) the Declaration of Trust of the Fund, dated April 12,
1993;
(b) By-Laws of the Fund;
(c) Certified resolutions of the Board of Trustees of the Fund
authorizing the appointment of the Adviser and approving the form of
this Agreement:
(d) Registration Statement under the Securities Act of 1933,
on Form N-1A (the "Registration Statement") as filed with the
Securities and Exchange Commission (the "Commission") for effectiveness
of on April 30, 1997, and all amendments thereto;
4. Books and Records. The Adviser shall keep the Portfolio's books and
records required to be maintained by it pursuant to paragraph 2(e) hereof. The
Adviser agrees that all records which it maintains for the Portfolio are the
property of the Fund and it will surrender promptly to the Fund any of such
records upon the Fund's request. The Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by Rule 31a-1(f) of the Commission
under the 1940 Act.
5. Expenses. During the term of this Agreement the Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities purchased for the Portfolio and the taxes, and
brokerage commissions, if any, payable in connection with the purchase and/or
sale of such securities.
6. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in this Agreement, the Fund shall pay to the Adviser at the
end of each of the Portfolio's fiscal quarters, a Basic Fee calculated by
applying a quarterly rate, based on an annual percentage rate of 0.08%, to the
Portfolio's average month-end assets for the quarter In the event of termination
of this Agreement, the fee provided in this Section shall 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.
7. Limitation of Liability. In the absence of : (i) misfeasance,
negligence, or the violation of applicable law on the part of the Adviser in
performance of its obligations and duties hereunder; (ii) reckless disregard by
the Adviser of its obligations and duties hereunder; or (iii) a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act), the Adviser shall not
be subject to any liability to the Fund, or to any shareholder of the Fund, for
any error of judgment, mistake of law or any other act or omission in the course
of, or connected with, rendering services hereunder, including, without
limitations, liability for any losses that may be sustained in connection with
the purchase, holding, redemption or sale of any security on behalf of the Fund.
Federal and state securities laws and ERISA impose liabilities under certain
circumstances on persons who act in good faith, and therefore nothing herein
shall in any way constitute a waiver or limitation of any rights which the Fund
may have under any such laws.
8. Duration and Termination. This Agreement, unless sooner terminated
as provided herein, shall continue until May 20, 2000 and will be renewable
thereafter for periods of one year so long as such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Trustees of the Fund who are not parties to this Agreement or
interested persons (as defined in the ▇▇▇▇ ▇▇▇) of any such party, cast in
person at a meeting called for the purpose of voting such approval, and (b) by
the Board of Trustees of the Fund or by vote of a majority of the outstanding
voting securities of the Fund. This Agreement may be terminated by the Fund at
any time, without the payment of any penalty, by vote of a majority of the
entire Board of Trustees of the Fund or by vote of a majority of the outstanding
voting securities of the Portfolio on 60 days' written notice to the Adviser.
This Agreement may also be terminated by the Adviser on 90 days' written notice
to the Fund. This Agreement will automatically and immediately terminate in the
event of its assignment (as defined in the 1940 Act).
9. Independent Contractor. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Fund from time to
time, have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
10. Amendment of Agreement. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Trustees of the Fund who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, or (b) by vote of a
majority of the outstanding voting securities of the Fund.
11. Proxy Policy. With regard to any proxy solicitations, the Fund
shall vote the shares of all securities held by the Portfolio.
ATTEST: VANGUARD/TRUSTEES' EQUITY FUND
By ___/s/▇▇▇▇▇▇▇ J Klapinsky____ By__/s/ ▇▇▇▇ ▇. Bennan_____
Secretary President and Chief Executive Officer
ATTEST: FRANKLIN PORTFOLIO ASSOCIATES LLC
____Lynne Opdyke_____________ By /s/ ▇▇▇▇ ▇. Kolokotrones____
