AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 1st day of July, 2005, between
VANGUARD WELLESLEY INCOME FUND, a Delaware statutory trust (the "Trust"), and
WELLINGTON MANAGEMENT COMPANY, LLP, a Massachusetts partnership (the "ADVISOR").
W I T N E S S E T H
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 offers a series of shares known as Vanguard
Wellesley Income Fund (the "Fund);
WHEREAS, the Trust retains the Advisor to render investment advisory
services to the Fund under an Investment Advisory Agreement, dated as of April
1, 2000, and amended January 1, 2002, and continuing for successive twelve month
periods until June 30, 2005;
WHEREAS, the Trust desires to amend and restate such Investment
Advisory Agreement in certain respects, and the Advisor is willing to render
investment advisory services to the Fund in accordance with such amendments.
NOW THEREFORE, in consideration of the mutual promises and undertakings
set forth in this "Agreement," the Trust and the Advisor hereby agree as
follows:
1. APPOINTMENT OF ADVISOR. The Trust hereby employs the Advisor as
investment advisor, on the terms and conditions set forth herein, for the
portion of the assets of the Fund that the Trust's Board of Trustees (the "Board
of Trustees") determines in its sole discretion to assign to the Advisor from
time to time (referred to in this Agreement as the "Wellington Portfolio"). As
of the date of this Agreement, the Wellington Portfolio will consist of the
portion of the assets of the Fund that the Board of Trustees has determined to
assign to the Advisor, as communicated to the Advisor on behalf of the Board of
Trustees by The Vanguard Group, Inc. ("Vanguard"). The Board of Trustees may,
from time to time, make additions to, and withdrawals from, the assets of the
Fund assigned to the Advisor. The Advisor accepts such employment and agrees to
render the services herein set forth, for the compensation herein provided.
2. DUTIES OF ADVISOR. The Trust employs the Advisor to manage the
investment and reinvestment of the assets of the Wellington Portfolio; to
continuously review, supervise, and administer an investment program for the
Wellington Portfolio; 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
the Advisor that the Fund is required to maintain; and to render regular reports
to the Trust's officers and Board of Trustees concerning the discharge of the
foregoing responsibilities. The Advisor will discharge the foregoing
responsibilities subject to the supervision and oversight of the Trust's
officers and the Board of Trustees, and in compliance with the objectives,
policies and limitations set forth in the Fund's prospectus and Statement of
Additional Information, any additional operating policies or procedures that the
Fund communicates to the Advisor in writing, and applicable laws and
regulations. The Advisor agrees to provide, at its own expense, the office
space, furnishings and equipment, and personnel required by it to perform the
services on the terms and for the compensation provided herein.
3. SECURITIES TRANSACTIONS. The Advisor is authorized to select the brokers
or dealers that will execute purchases and sales of securities for the
Wellington Portfolio, and is directed to use its best efforts to obtain best
execution for such transactions. In selecting brokers or dealers to execute
trades for the Wellington Portfolio, the Advisor will comply with all applicable
statutes, rules, interpretations by the Securities and Exchange Commission or
its staff, other applicable law, and the written policies and procedures
established by the Fund's Board of Trustees and communicated to the Advisor in
writing.
4. COMPENSATION OF ADVISOR. For services rendered pursuant to this
Agreement, the Fund shall pay to the Advisor 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 Wellington Portfolio for the quarter, then dividing the result by four.
Average Net Assets Annual Rates
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First $2 billion 0.10%
Next $4 billion 0.05%
Over $6 billion 0.04%
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:
PERFORMANCE ADJUSTMENT SCHEDULE
CUMULATIVE PERFORMANCE OF WELLINGTON PORTFOLIO VS.
INDEX OVER APPLICABLE 36-MONTH PERIOD ADJUSTMENT PERCENTAGE*
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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
*In calculating the Adjustment, the quarterly rate will be applied against the
net assets of the Fund averaged over the same time period for which the
performance is measured.
5. SPECIAL RULES RELATING TO ADVISOR'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;
and (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.
(b) Effect of Termination. 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
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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.
6. REPORTS. The Fund and the Advisor 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.
7. COMPLIANCE WITH APPLICABLE LAW AND BOARD REQUIREMENTS. The Advisor
agrees to comply with all Applicable Law and all policies, procedures or
reporting requirements that the Board of Trustees of the Trust reasonably adopts
and communicates to the Advisor in writing, including, without limitation, any
such policies, procedures or reporting requirements relating to soft dollar or
directed brokerage arrangements. "Applicable Law" means (i) the "federal
securities laws" as defined in Rule 38a-1(e)(1) under the 1940 Act, as amended
from time to time, as they relate to the services provided by the Advisor to the
Trust pursuant to this Agreement, and (ii) any and all other laws, rules, and
regulations, whether foreign or domestic, in each case applicable at any time
and from time to time to the investment management operations of the Advisor.
8. STATUS OF ADVISOR. The services of the Advisor to the Fund are not to be
deemed exclusive, and the Advisor will be free to render similar services to
others so long as its services to the Fund are not impaired thereby. The Advisor
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 or the Trust.
9. LIABILITY OF ADVISOR. No provision of this Agreement will be deemed to
protect the Advisor 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.
10. DURATION; TERMINATION; NOTICES; AMENDMENT. This Agreement will become
effective on the date hereof and shall continue in effect for successive
twelve-month periods, only so long as this Agreement is approved at least
annually by votes of the members of the Board of Trustees of the Trust 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.
Notwithstanding the foregoing, however, (i) this Agreement may at any
time be terminated without payment of any penalty either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund, on thirty days' written notice to the Advisor, (ii) this
Agreement will automatically terminate in the event of its assignment, and (iii)
this Agreement may be terminated by the Advisor on
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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 as follows:
If to the Fund, at:
Vanguard Wellesley Income Fund
X.X. Xxx 0000 Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Advisor, at:
Wellington Management Company, LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxx Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
This Agreement may be amended by mutual consent, but the consent of the
Trust must be approved (i) by a majority of those members of the Board of
Trustees 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, and (ii) to the extent required by the 1940 Act, by a vote of a
majority of the outstanding voting securities of the Fund of the Trust.
As used in this Section 9, the terms "assignment," "interested persons," and
"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.
11. 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.
12. CONFIDENTIALITY. The Advisor shall keep confidential any and all
information obtained in connection with the services rendered hereunder and
relating directly or indirectly to the Fund, the Trust, or Vanguard and shall
not disclose any such information to any person other than the Trust, the Board
of Trustees of the Trust, Vanguard, and any director, officer, or employee of
the Trust or Vanguard, except (i) with the prior written consent of the Trust,
(ii) as required by law, regulation, court order or the rules or regulations of
any self-regulatory organization, governmental body or official having
jurisdiction over the Advisor, or (iii) for information that is publicly
available other than due to disclosure by the Advisor or its affiliates or
becomes known to the Advisor from a source other than the Trust, the Board of
Trustees of the Trust, or Vanguard.
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13. PROXY POLICY. The Advisor acknowledges that Vanguard will vote the
shares of all securities that are held by the Fund unless other mutually
acceptable arrangements are made with the Advisor with respect to the Wellington
Portfolio.
14. 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 Investment Advisory
Agreement to be executed as of the date first set forth herein.
WELLINGTON MANAGEMENT VANGUARD WELLESLEY INCOME
COMPANY, LLP FUND
/s/ Xxxxxxxx X. Xxxxxx 15 June 05 /s/ R. Xxxxxxx Xxxxxx 6/17/05
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Signature Date Signature Date
Xxxxxxxx X. Xxxxxx 15 June 05 R. Xxxxxxx Xxxxxx, Secretary 6/17/05
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Print Name Date Print Name Date
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