INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 2nd day of October, 2000, between VANGUARD
WINDSOR FUNDS, a Delaware business trust (the "Company"), and Xxxxxxx X.
Xxxxxxxxx & Co., LLC, a Delaware Limited Liability Company (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 Company offers a series of shares known as Vanguard Windsor
Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Adviser to render investment
advisory services to certain assets of the Fund which the Board of Trustees of
the Company determines to assign to the Advisor (referred to in this agreement
as the "Xxxxxxxxx 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 hereinafter set forth,
the parties hereto agree as follows:
1. APPOINTMENT OF ADVISER. The Company hereby employs the Adviser as
investment adviser, on the terms and conditions set forth herein, for the assets
of the Fund that the Board of Trustees determines to assign to the Adviser. The
Board of Trustees may, from time to time, make additions to, and withdrawals
from, the assets of the Fund assigned to the Adviser. The Adviser accepts such
employment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES OF ADVISER. The Company employs the Adviser to manage the
investment and reinvestment of the assets of the Xxxxxxxxx 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 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.
2.1 DELEGATION OF RESPONSIBILITIES. The Adviser may delegate its investment
advisory and other responsibilities and duties hereunder to Alliance Capital
Management, subject to the Adviser retaining overall responsibility for such
powers and functions and any and all obligations and liabilities in connection
therewith.
3. SECURITIES TRANSACTIONS. The Adviser is authorized to select the brokers
or dealers that will execute purchases and sales of securities for the Xxxxxxxxx
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 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 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 Xxxxxxxxx Portfolio for the quarter:
.15% on the first $1 billion of net assets;
.14% on the next $2 billion of net assets;
.12% on the next $2 billion of net assets;
.10% on net assets in excess of $5 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 Xxxxxxxxx Portfolio relative to the investment performance of
the Xxxxxxx 1000 Value Index (the "Index"). The investment performance of the
Xxxxxxxxx Portfolio will be based on its cumulative return over a trailing
36-month period ending with the applicable quarter, compared with 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
FUND PORTFOLIO VS. INDEX PERCENTAGE OF BASIC FEE*
------------------------ ------------------------
Trails by -9% or more -0.50 x Basic Fee
Trails by less than -9% up to and
including 0% Linear decrease from 0 to -0.50
Exceeds by more than 0% but less
than 9% Linear increase from 0 to 0.50
Exceeds by 9% or more +0.50 x Basic Fee
---------------------------
* For purposes of the Adjustment calculation, the Basic Fee is calculated
by applying the above rate schedule against the average net assets of the
Xxxxxxxxx Portfolio over the same period for which the performance is measured.
Linear application of the adjustment provides for an infinite number of results
within the stated range.
4.1. Transition Rule for Calculating Adviser's Compensation. The Index will
not be fully operable as the sole performance index used to determine the
Adviser's Adjustment until August 1, 2002. Until that date, the following
transition rules will apply:
(a) JUNE 1, 2000 THROUGH JULY 31, 2002. Beginning June 1, 2000, the
Adjustment will take effect on a progressive basis, with regard to the
number of months elapsed between August 1, 1999, and the quarter for
which the Adviser's fee is computed. During this period, the
Adjustment that has been determined will be multiplied by a fraction,
which will equal the number of months elapsed since August 1, 1999,
divided by 36.
(b) ON AND AFTER AUGUST 1, 2002. The Adjustment will be fully operable at
this time.
4.2. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The following
special rules will also apply to the Adviser's compensation:
(a) XXXXXXXXX PORTFOLIO PERFORMANCE. The investment performance of the
Xxxxxxxxx Portfolio for any period, expressed as a percentage of the
"Xxxxxxxxx Portfolio unit value" at the beginning of the period, will
be the sum of: (i) the change in the Xxxxxxxxx Portfolio's unit value
during the period; (ii) the unit value of the Fund's cash
distributions from the Xxxxxxxxx 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 long-term capital gains realized by the Xxxxxxxxx
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 Xxxxxxxxx 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) "XXXXXXXXX PORTFOLIO UNIT VALUE". The "Xxxxxxxxx Portfolio unit value"
will be determined by dividing the total net assets of the Xxxxxxxxx
Portfolio by a given number of units. Initially, the number of units
in the Xxxxxxxxx Portfolio will equal the total Fund shares
outstanding on August 1, 1999. Subsequently, as assets are added to or
withdrawn from the Xxxxxxxxx Portfolio, the number of units of the
Xxxxxxxxx Portfolio will be adjusted based on the unit value of the
Xxxxxxxxx Portfolio on the day such changes are executed. Any cash
buffer maintained by the Fund outside of the Xxxxxxxxx Portfolio shall
neither be included in the total net assets of the Xxxxxxxxx Portfolio
nor included in the computation of the Xxxxxxxxx Portfolio Unit Value.
(c) INDEX PERFORMANCE. The investment record of the Index for any period,
expressed as a percentage of the Index level at the beginning of such
period, will be the sum of (i) the change in the level of the Index
during such period, and (ii) the value, computed consistently with the
Index, of cash distributions made by companies whose securities make
up the Index accumulated to the end of such period. For this purpose,
cash distributions on the securities that make up 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 Company 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 Fund's Board of Trustees 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
Company or the Fund in any way or otherwise be deemed an agent of the Company or
the Fund.
8. LIABILITY OF ADVISER. No provision of this Agreement will be deemed to
protect the Adviser against any liability to the Company, 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
October 2, 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, a continuance will be
effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
However this Agreement (i) may at any time be terminated without payment of
any penalty either by vote of the Fund's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, on sixty days'
written notice to Adviser; (ii) will automatically terminate in the event of its
assignment; and (iii) may be terminated by the 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,"
and 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 is held to be 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 28th day of September, 2000.
ATTEST: VANGUARD WINDSOR FUNDS
By /S/ Xxxxxxx Xxxxxx By /S/ Xxxx X. Xxxxxxx
Chairman, CEO and President
ATTEST: XXXXXXX X. XXXXXXXXX & CO., LLC
By /S/ Xxxxxx X. Glym By /S/ Xxxx Xxxxx Xxxx
Secretary
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of November, 2000, between the VANGUARD
WINDSOR FUNDS, a Delaware business trust (the "Trust"), and BARROW, HANLEY,
XXXXXXXXX & XXXXXXX, INC., which is wholly owned by United Asset Management
Corporation, a Delaware corporation, which is a wholly owned subsidiary of Old
Mutual plc, an international financial services group based in London (the
"Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Trust has retained the Adviser to render investment advisory
services to its series of shares known as Vanguard Windsor II Fund (the "Fund")
under prior investment advisory agreement dated May 1, 1993 (the "Prior
Agreement");
WHEREAS, the Adviser's Parent was acquired on October 5, 2000 by Old Mutual
plc, an international financial services group based in London, England and such
acquisition resulted in an "assignment" of the Prior Agreement within the
meaning of Section 2(a)(4) of the 1940 Act; and
WHEREAS, the Trust and Adviser wish to continue the advisory relationship
without interruption by entering into a new investment advisory agreement that
is substantially identical to the Prior Agreement;
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 Trust hereby employs Adviser as investment
adviser, on the terms and conditions set forth herein, for the assets of the
Fund that the Board of Trustees determines to assign to Adviser (referred to in
this Agreement as the "BHMS 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 Trust employs Adviser to manage the investment
and reinvestment of the assets of the BHMS Portfolio; 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 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 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 BHMS
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 pursuant to written policies and procedures
provided to Adviser. Subject to policies established by the Board of Trustees,
Adviser may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if 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
Adviser's overall responsibilities with respect to the accounts as to which
Adviser exercises investment discretion. 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. 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 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 BHMS Portfolio for the quarter.
NET ASSETS BASIC FEE
---------- ---------
First $200 million . . . . . . . . . . 0.300%
Next $300 million. . . . . . . . . . . 0.200%
Next $500 million. . . . . . . . . . . 0.150%
Over $1 billion. . . . . . . . . . . . 0.125%
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 BHMS Portfolio relative to the investment performance of
Standard & Poor's/BARRA Value Index (the "Index"). The investment performance of
the BHMS Portfolio will be based on its cumulative return over a trailing
36-month period ending with the applicable quarter, compared with the cumulative
total return of the Index for the same period. The Adjustment applies as
follows:
Cumulative 36-Month Performance of the Performance Fee Adjustment as a
BHMS Portfolio vs. Index Percentage of Basic Fee*
------------------------ ------------------------
Exceeds by +9% or more +25%
Exceeds by more than +6% but less than +9% +15%
Trails/exceeds from -6% through +6% 0%
Trails by more than -6% but less than -9% -15%
Trails by -9% or more -25%
---------------------------
* For purposes of the Adjustment calculation, the Basic Fee is calculated by
applying the above rate schedule against the average net assets of the BHMS
Portfolio over the same period for which the performance is measured.
4.1. TRANSITION RULES FOR CALCULATING ADVISER'S COMPENSATION. The
Adjustment set forth in Section 4 of this Agreement became fully operable after
the quarter ending April 30, 1996.
2
4.2. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The following
special rules will also apply to Adviser's compensation:
(a) BHMS PORTFOLIO UNIT VALUE. The "BHMS Portfolio unit value" shall be
determined by dividing the total net assets of the BHMS Portfolio by a
given number of units. At the inception of this Agreement, the number
of units in the BHMS Portfolio shall be equal to the number of such
units in existence as determined under the Prior Agreement; provided,
however, that as assets are added to or withdrawn from the BHMS
Portfolio thereafter, the number of units of the BHMS Portfolio shall
be adjusted based on the unit value of the BHMS Portfolio on the day
such changes are executed.
(b) BHMS PORTFOLIO PERFORMANCE. The investment performance of the BHMS
Portfolio for any period, expressed as a percentage of the "BHMS
Portfolio unit value" at the beginning of the period, will be the sum
of: (i) the change in the BHMS Portfolio unit value during such
period; (ii) the unit value of the Fund's cash distributions from the
BHMS Portfolio's net investment income and realized net capital gains
(whether short or long term) having an ex-dividend date occurring
within the period; and (iii) the unit value of capital gains taxes per
share paid or payable on undistributed realized long-term capital
gains accumulated to the end of such period; expressed as a percentage
of its net asset value per share at the beginning of such period. For
this purpose, the 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
shares of the investment company at the net asset value per share 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.
(c) INDEX PERFORMANCE. The investment record of the Index for any period,
expressed as a percentage of the Index level at the beginning of such
period, will be the sum of (i) the change in the level of the Index
during such period, and (ii) the value, computed consistently with the
Index, of cash distributions having an ex-dividend date occurring
within such period made by companies whose securities make up the
Index. For this purpose, cash distributions on the securities that
make up 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, and consistent with the methodology used by
Standard and Poor's.
(d) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the BHMS Portfolio and
the investment record of the Index shall be in accordance with any
then applicable rules of the U.S. Securities and Exchange Commission.
(e) 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.
3
5. REPORTS. The Fund and Adviser agree to furnish to each other with
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 ownership of Adviser.
6. COMPLIANCE. Adviser agrees to comply with all policies, procedures, or
reporting requirements that the Board of Trustees 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 Trust or
the Fund in any way or otherwise be deemed an agent of the Trust or the Fund.
8. LIABILITY OF ADVISER. In the absence of (i) willful misfeasance, bad
faith, or gross negligence on the part of Adviser in performance of its
obligations and duties hereunder; (ii) reckless disregard by 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), Adviser shall not be subject to
any liability whatsoever to the Fund, or to any shareholder of the Fund, for any
error or judgment, mistake of law, or any other act or omission in the course
of, or connected with, rendering services hereunder, including, without
limitation, for any losses that may be sustained in connection with the
purchase, holding, redemption, or sales of any security on behalf of the Fund.
9. DURATION AND TERMINATION. This Agreement will become effective on
November 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, a continuance will be
effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
However this Agreement (i) may at any time be terminated without payment of
any penalty either by vote of the Fund's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, on sixty days'
written notice to Adviser; (ii) will automatically terminate in the event of its
assignment; and (iii) 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,"
and 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.
4
10. SEVERABILITY. If any provision of this Agreement is held to be 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.
12. GOVERNING LAW. All questions concerning the validity, meaning, and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed this 1st day of November, 2000.
ATTEST: VANGUARD WINDSOR FUNDS
By /S/ Xxxxxxx Xxxxxx By /S/ Xxxx X. Xxxxxxx
Chairman, CEO and President
ATTEST: BARROW, HANLEY, XXXXXXXXX & XXXXXXX, INC.
By _________________________ By /S/ Xxxxx X. Xxxxxx
Founding Partner
5
