DRAFT
VANGUARD EXPLORER FUND
INVESTMENT ADVISORY AGREEMENT ADDENDUM
Effective January 31, 2003
This Addendum amends Section 4 of the Investment Advisory Agreement dated
August 1, 2000 between Vanguard EXPLORER FUND (the "Fund") and WELLINGTON
MANAGEMENT COMPANY, LLP ("WMC") as follows.
4. Compensation of WMC. For the services to be rendered by WMC as provided in
this Agreement, the Fund will pay to WMC 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.
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 WMC
Portfolio relative to the investment performance of the Xxxxxxx 2500 Growth
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 Xxxxxxx 2500 Growth
Index for the same time period. The Adjustment applies as follows:
Cumulative 36-Month Performance of the WMC Performance Fee Adjustment as a
Portfolio vs. the Xxxxxxx 2500 Growth Index Percentage of the Basic Fee*
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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
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* For purposes of determining the Adjustment, the quarterly rate is applied
against the net assets of the WMC Portfolio averaged over the same time period
for which the performance is measured.
4.1. Transition Rule for Calculating WMC's Compensation.
The fee structure described in Section 4 will not be
fully operable until the quarter ending January 31,
2006. Until that date, the Adjustment will be
determined by linking the investment performance of
the Xxxxxxx 2500 Growth Index with that of the
Xxxxxxx 2000 Growth Index and that of the Small
Company Growth Fund Stock Index.
1. Quarter Ending April 30, 2003. The Adjustment will be determined by linking
the investment performance of the Small Company Growth Fund Stock Index for
the one quarter ending July 31, 2000, with that of the Xxxxxxx 2000 Growth
Index for the ten quarters ending January 31, 2003 with that of the Xxxxxxx
2500 Growth Index for the one quarter ending April 30, 2003.
2. Quarter Ending July 31, 2003. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the ten
quarters ending January 31, 2003 with that of the Xxxxxxx 2500 Growth Index
for the two quarters ending July 2003.
3. Quarter Ending October 31, 2003. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
nine quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the three quarters ending October 31, 2003.
4. Quarter Ending January 31, 2004. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
eight quarters ending January 31, 2003, with that of the Xxxxxxx 2500
Growth Index for the four quarters ending January 31, 2004.
5. Quarter Ending April 30, 2004. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the seven
quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the five quarters ending April 30, 2004.
6. Quarter Ending July 31, 2004. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the six
quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the six quarters ending July 31, 2004.
7. Quarter Ending October 31, 2004. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
five quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the seven quarters ending October 31, 2004.
8. Quarter Ending January 31, 2005. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
four quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the eight quarters ending January 31, 2005.
9. Quarter Ending April 30, 2005. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the three
quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the nine quarters ending April 30, 2005.
10. Quarter Ending July 31, 2005. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the two
quarters ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the ten quarters ending July 31, 2005.
11. Quarter Ending October 31, 2005. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
one quarter ending January 31, 2003, with that of the Xxxxxxx 2500 Growth
Index for the eleven quarters ending October 31, 2005.
12. Quarter Ending January 31, 2006. The benchmark transition is complete.
No Effect on Other Provisions. Except with respect to these fee schedules, all
other provisions of the Investment Advisory Agreement dated August 1, 2000
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed this ______ day of __________, 200_.
VANGUARD EXPLORER FUND
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Chairman, CEO and President
WELLINGTON MANAGEMENT COMPANY, LLP
By ____________________________________________
Title___________________________________________
