INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of April, 2000, between VANGUARD
WELLESLEY INCOME FUND, a Delaware business trust (the "Fund"), and WELLINGTON
MANAGEMENT COMPANY, LLP, a Massachusetts limited liability partnership (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 and the Adviser is willing to render such
services;
NOW, THEREFORE, this Agreement
WITNESSETH
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 the Adviser as
investment adviser, on the terms and conditions set forth herein, for the Fund.
The 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 the Adviser to manage the investment
and reinvestment of the assets of the Fund, to continuously review, supervise
and administer an investment program for 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 records concerning the
activities of the 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. The 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. The 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. The Adviser is authorized to select the brokers
or dealers that will execute purchases and sales of securities for the Fund, 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. The 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 the Adviser
as provided in this Agreement, the Fund will pay to the 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 Fund for the quarter:
.100% on the first $1 billion of net assets;
.050% on the next $2 billion of net assets;
.040% on the next $7 billion of net assets;
.030% on the net assets of the Fund in excess of $10 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 Fund relative to the investment performance of the
"Benchmark," of which 65% will comprise of the Xxxxxx Brothers Corporate A or
Better Bond Index (the "Bond Index") and 35% of which will comprise of a
"Blended Equity Composite," (75% Standard and Poor's/Barra Value Index, 12.5%
Standard and Poor's Utilities Index, and 12.5% Standard and Poor's Telephone
Index). The investment performance of the Fund 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 Benchmark for the same time
period. The Adjustment applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE PERFORMANCE FEE ADJUSTMENT AS A
FUND PORTFOLIO VS. BENCHMARK PERCENTAGE OF BASIC FEE*
---------------------------- -----------------------
Trails by -3% or more -0.20 x Basic Fee
Trails by more than -1.5% up to -3% -0.10 x Basic Fee
Trails/Exceeds from -1.5% through 1.5% 0.00 x Basic Fee
Exceeds by more than 1.5% but less than 3% +0.10 x Basic Fee
Exceeds by 3% or more +0.20 x Basic Fee
*For purposes of determining the fee adjustment calculation, the quarterly
rate is applied against the net assets of the Fund averaged over the same time
period for which the performance is measured.
4.1. TRANSITION RULE FOR CALCULATING ADVISER'S COMPENSATION. The Benchmark
will not be fully operable as the sole performance index used to determine the
Adviser's Adjustment until the quarter ending March 31, 2003. Until that date,
the Adviser's Adjustment will be determined by linking the investment
performance of the Benchmark and that of the "Prior Benchmark," 65% of which
will comprise of the Xxxxxx Brothers Long-Term Corporate
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AA or Better Bond Index (the "Prior Bond Index") and 35% of which will comprise
of the Blended Equity Composite as follows.
1. QUARTER ENDING JUNE 30, 2000. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the eleven quarters ending March 31, 2000, with that of the Benchmark for
the quarter ending June 30, 2000.
2. QUARTER ENDING SEPTEMBER 30, 2000. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the ten quarters ending March 31, 2000, with that of the Benchmark for the
two quarters ending September 30, 2000.
3. QUARTER ENDING DECEMBER 31, 2000. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the nine quarters ending March 31, 2000, with that of the Benchmark for the
three quarters ending December 31, 2000.
4. QUARTER ENDING MARCH 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
eight quarters ending March 31, 2000, with that of the Benchmark for the
four quarters ending March 31, 2001.
5. QUARTER ENDING JUNE 30, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the seven quarters ending March 31, 2000, with that of the Benchmark for
the five quarter ending June 30, 2001.
6. QUARTER ENDING SEPTEMBER 30, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the six quarters ending March 31, 2000, with that of the Benchmark for the
six quarter ending September 30, 2001.
7. QUARTER ENDING DECEMBER 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the five quarters ending March 31, 2000, with that of the Benchmark for the
seven quarters ending December 31, 2001.
8. QUARTER ENDING MARCH 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
four quarters ending March 31, 2000, with that of the Benchmark for the
eight quarters ending March 31, 2002.
9. QUARTER ENDING JUNE 30, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the three quarters ending March 31, 2000, with that of the Benchmark for
the nine quarter ending June 30, 2002.
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10. QUARTER ENDING SEPTEMBER 30, 2002. The Adviser's Adjustment will
be determined by linking the investment performance of the Prior Benchmark
for the two quarters ending March 31, 2000, with that of the Benchmark for
the ten quarter ending September 30, 2002.
11. QUARTER ENDING DECEMBER 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of the Prior Benchmark for
the one quarter ending March 31, 2000, with that of the Benchmark for the
eleven quarters ending December 31, 2002.
12. QUARTER ENDING MARCH 31, 2003. The Benchmark 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:
1. FUND PERFORMANCE. The investment performance of the Fund for any
period, expressed as a percentage of the Fund's net asset value per share
at the beginning of the period will be the sum of (i) the change in the
Fund's net asset value per share during the period; (ii) the value of the
Fund's cash distributions per share having an ex-dividend date occurring
within the period; (iii) the per share amount of capital gains taxes paid
or accrued during such period by the Fund for undistributed realized
long-term capital gains.
2. BENCHMARK AND INDEX PERFORMANCE.
(a) BENCHMARK. The investment record of the Benchmark for any
period, expressed as a percentage of the Benchmark at the beginning of
such period, will be the sum of: (i) the change in the level of the
Benchmark during the period; (ii) the value of the interest accrued or
paid on the bonds included in the Benchmark, assuming the reinvestment
of such interest on a monthly basis. Computations of the two
components of the Benchmark will be made at the beginning of each
quarter, based on the allocation set forth in this Agreement.
x. XXXX INDEX. The investment record of the Bond Index for
the period, expressed as a percentage of the Bond Index at the
beginning of such period, will be the sum of (i) the change in
the level of the Benchmark during the period; (ii) the value of
the interest accrued or paid on the bonds included in the
Benchmark, assuming the reinvestment of such interest on a
monthly basis.
ii. BLENDED EQUITY COMPOSITE. The investment record of the
Blended Equity Composite for any period, expressed as a weighted
percentage of the respective indices at the beginning of such
period, will be the sum of (i) the change in the level of the
indices during the period; (ii) the value, computed consistently
with the applicable indices, of cash distributions having an
ex-dividend date occurring within the period made by companies
whose securities comprise the applicable indices.
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(b) PRIOR BENCHMARK. The investment record of the Prior Benchmark
for any period will be computed in the same manner as that of the
Benchmark; provided, however, that the Prior Bond Index will be
substituted for the Bond Index.
(c) 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 the 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, including information about changes in
partners of the Adviser.
6. COMPLIANCE. The Adviser agrees to comply with all policies, procedures
or reporting requirements that the Board of Trustees of the Fund reasonably
adopts and communicates to the 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 the Adviser to the Fund are not to be
deemed exclusive, and the Adviser will be free to render similar services to
others so long as its services to the Fund are not impaired thereby. The 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 the 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 April
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.
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
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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 1940 Act.
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 30th day of March, 2000.
ATTEST: VANGUARD WELLESLEY INCOME FUND
By /S/ Xxxxxxx Xxxxxx By /S/ Xxxx X. Xxxxxxx
Chairman, CEO and President
ATTEST: WELLINGTON MANAGEMENT COMPANY, LLP.
By /S/ Xxxx Xxx Xxxxxxx By /S/ Xxxx X. Xxxxx
Senior Vice President and Partner
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VANGUARD WELLESLEY INCOME FUND
INVESTMENT ADVISORY AGREEMENT ADDENDUM
EFFECTIVE JANUARY 1, 2002
This Addendum amends Section 4 of the Investment Advisory Agreement dated
April 1, 2000 between Vanguard WELLESLEY INCOME FUND (the "Fund") and WELLINGTON
MANAGEMENT COMPANY, LLP (the "Adviser") as follows.
4. COMPENSATION OF ADVISER. For the services to be rendered by Adviser as
provided in this Agreement, the Fund will pay to the 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 Fund for the quarter:
.100% on the first $1 billion of net assets;
.050% on the next $2 billion of net assets;
.040% on the next $7 billion of net assets;
.030% on the net assets of the Fund in excess of $10 billion.
Subject to the Transition Rule described in Section 4.1, 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 Fund
relative to the investment performance of the "Benchmark," of which 65% will
comprise of the Xxxxxx Brothers Corporate A or Better Bond Index (the "Bond
Index"), and 35% of which will comprise of a "Blended Equity Composite," (75%
Standard and Poor's/Barra Value Index, 12.5% Standard and Poor's Utilities
Index, and 12.5% Standard and Poor's Integrated Telecommunication Services
Index). The investment performance of the Fund 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 Benchmark for the same time
period. The Adjustment applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE PERFORMANCE FEE ADJUSTMENT AS A
FUND VS. THE BENCHMARK PERCENTAGE OF BASIC FEE*
---------------------- -----------------------
Trails by -3% or more -0.20 x Basic Fee
Trails by more than -1.5% up to -3% -0.10 x Basic Fee
Trails/Exceeds from -1.5% to 1.5% 0.00 x Basic Fee
Exceeds by more than 1.5% but less than 3% +0.10 x Basic Fee
Exceeds by 3% or more +0.20 x Basic Fee
------------------
* For purposes of determining the fee adjustment calculation, the quarterly
rate is applied against the net assets of the Fund averaged over the same time
period for which the performance is measured.
4.1. Transition Rule for Calculating Adviser's Compensation. The Benchmark
will not be fully operable as the sole performance index used to determine the
Adviser's Adjustment until the quarter ending December 31, 2004. Until that
date, the Adviser's Adjustment will be determined by linking the investment
performance of the Benchmark and that of the following measures:
o Benchmark 1: 65% Xxxxxx Brothers Long-Term Corporate AA or Better Bond
Index; 26.25% Standard and Poor's/Barra Value Index; 4.375% Standard and
Poor's Utilities Index; and 4.375% Standard and Poor's Telephone Index .
o Benchmark 2: 65% Xxxxxx Brothers Credit A or Better Bond Index; 26.25%
Standard and Poor's/Barra Value Index; 4.375% Standard and Poor's Utilities
Index; and 4.375% Standard and Poor's Telephone Index.
1. QUARTER ENDING DECEMBER 31, 2001. The Adviser's Adjustment will be
determined by linking the investment performance of the Benchmark 1 for the
five quarters ending March 31, 2000, with that of Benchmark 2 for the seven
quarters ending December 31, 2001.
2. QUARTER ENDING MARCH 31, 2002. The Adviser's Adjustment will be determined
by linking the investment performance of Benchmark 1 for four quarters
ending March 31, 2000, with that of Benchmark 2 for the seven quarters
ending December 31, 2001 with the Benchmark for the one quarter ending
March 31, 2002.
3. QUARTER ENDING JUNE 30, 2002. The Adviser's Adjustment will be determined
by linking the investment performance of Benchmark 1 for the three quarters
ending March 31, 2000, with that of Benchmark 2 for the seven quarters
ending December 31, 2001, with that of the Benchmark for the two quarters
ending June 30, 2002.
4. QUARTER ENDING SEPTEMBER 30, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of Benchmark 1 for the two
quarters ending March 31, 2000, with that of Benchmark 2 for the seven
quarters ending December 31, 2001, with that of the Benchmark for the three
quarters ending September 30, 2002.
5. QUARTER ENDING DECEMBER 31, 2002. The Adviser's Adjustment will be
determined by linking the investment performance of Benchmark 1 for the one
quarter ending March 31, 2000, with that of Benchmark 2 for the seven
quarters ending December 31, 2001, with that of the Benchmark for the four
quarters ending December 31, 2002.
6. QUARTER ENDING MARCH 31, 2003. The Adviser's Adjustment will be determined
by linking the investment performance of Benchmark 2 for the seven quarters
ending December 31, 2001 with that of the Benchmark for the five quarters
ending March 31, 2003.
7. QUARTER ENDING JUNE 30, 2003. The Adviser's Adjustment will be determined
by linking the investment performance of Benchmark 2 for the six quarters
ending December 31, 2001 with that of the Benchmark for the six quarters
ending June 30, 2003.
8. QUARTER ENDING SEPTEMBER 30, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of Benchmark 2 for the
five quarters ending December 31, 2001 with that of the Benchmark for the
seven quarters ending September 30, 2003.
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9. QUARTER ENDING DECEMBER 31, 2003. The Adviser's Adjustment will be
determined by linking the investment performance of Benchmark 2 for the
four quarters ending December 31, 2001 with that of the Benchmark for the
eight quarters ending December 31, 2003.
10. QUARTER ENDING MARCH 31, 2004. The Adviser's Adjustment will be determined
by linking the investment performance of Benchmark 2 for the three quarters
ending December 31, 2001 with that of the Benchmark for the nine quarters
ending March 31, 2004.
11. QUARTER ENDING JUNE 30, 2004. The Adviser's Adjustment will be determined
by linking the investment performance of Benchmark 2 for the two quarters
ending December 31, 2001 with that of the Benchmark for the ten quarters
ending June 30, 2004.
12. QUARTER ENDING SEPTEMBER 30, 2004. The Adviser's Adjustment will be
determined by linking the investment performance of Benchmark 2 for the one
quarter ending December 31, 2001 with that of the Benchmark for the eleven
quarters ending September 30, 2004.
13. QUARTER ENDING DECEMBER 31, 2004. The Benchmark is fully operable.
NO EFFECT ON OTHER PROVISIONS. Except with respect to these fee schedules, all
other provisions of the Investment Advisory Agreement dated April 1, 2000 remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed this 19th day of December, 2001.
ATTEST: VANGUARD WELLESLEY INCOME FUND
By /S/ XXXX X. XXXXXXXX /S/ XXXX X. XXXXXXX
-------------------- -------------------
Chairman, CEO and President
ATTEST: WELLINGTON MANAGEMENT COMPANY, LLP
By /S/ XXXXXX XXXXXX /S/ XXXXXX X. XXXXXXXXX
----------------- -----------------------
Xxxxxx Xxxxxx Xxxxxx X. XxXxxxxxx
President
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