INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this __ day of _____, 1999,
between VANGUARD WINDSOR FUNDS, a Delaware
business trust (the "Company"),
and Xxxxxxx X. Xxxxxxxxx & Co., Inc., a New York
corporation ("Adviser").
WHEREAS, the Company is an open-end, diversified
management investment company registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company offers a series of shares known as
Vanguard Windsor Fund (the "Fund"); and
WHEREAS, the Company desires to retain Adviser to
render investment advisory services to certain assets of the
Fund which the Board of Trustees of the Company
determines to assign to Adviser (referred to in this
Agreement as the "Xxxxxxxxx Portfolio"), and 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 Adviser as investment adviser, on the terms and
conditions set forth herein, for the assets of the Fund which
the Board of Trustees determines to assign to Adviser. 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 Company employs 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 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 Company, and in
compliance with the objectives, policies and limitations set
forth in the Fund's prospectus 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 the 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, except as prescribed
herein. Subject to policies established by the Board of
Trustees of the Company, 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 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 overall responsibilities of Adviser with respect to its
portion of the Fund. The execution of such transactions will
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 officers and Trustees of the
Company such information relating to portfolio transactions
as they may reasonably request.
4. Compensation of Adviser. For the 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 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.
Subject to the transition rule described in Section 4.1 of this
Agreement, the Basic Fee, as provided above, will be
increased or decreased by the amount of a Performance Fee
Adjustment ("Adjustment"). The Adjustment will
calculated as a percentage of the Basic Fee and will change
proportionately with the investment performance of the
Fund relative to the investment performance of the Xxxxxxx
1000 Value Index (the "Index") for the thirty-six month
period ending with the applicable quarter. The Adjustment
apply as follows:
Cumulative 36-Month
Performance of Xxxxxxxxx Portfolio
Performance Fee Adjustment
Versus the Index as a
Percentage of Basic Fee*
Trails by more than 9% -
50%
Trails by 0 to 9%
Linear decrease from 0 to -50%
Exceeds by 0 to 9%
Linear increase from 0 to +50%
Exceeds by more than 9%
+50%
___________________________
*The Adjustment represents a percentage increase or
decrease to the Basic Fee payable to the Adviser for the
quarter.
4.1. Transition Rule for Calculating Adviser's
Compensation. The Performance Fee Adjustment will not
be fully operable until June 1, 2002. Until that time, the
following transition rules will apply:
(a) June 1, 1999 through May 31, 2000. The Adviser's
compensation will be the Basic Fee. No Performance Fee
Adjustment will apply during this period.
(b) June 1, 2000 through May 31, 2002. Beginning June
1, 2000, the Performance Fee Adjustment will take effect on
a progressive basis with regards to the number of months
elapsed between June, 1999 and the quarter for which the
Adviser's fee is being computed. During this period, the
Performance Fee Adjustment that has been determined
under Section will be multiplied by a fraction. The fraction
will equal the number of months elapsed since June 1, 1999
divided by thirty-six.
(c) On and After June 1, 2002. Beginning June 1, 2002,
the Performance Fee Adjustment will be fully operable.
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 such period, will be the sum of:
(i) the change in the Xxxxxxxxx Portfolio unit value during
such 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 long-term or
short-term) having an ex-dividend date occurring within
such period; and (iii) the unit value of capital gains taxes
paid or accrued during such period by the Fund for
undistributed realized long-term capital gains realized from
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 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. The number of units in the Xxxxxxxxx Portfolio
initially will equal to the total shares outstanding of the
Fund on June 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.
(c) Index Performance. The investment record of the
Index for any period, expressed as a percentage of the Index
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 comprise
the Index. For this purpose, cash distributions on the
securities which comprise 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.
(d) Effect of Termination. In the event of termination of
this Agreement, the fees provided in Sections 4 and 4.1 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 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.
6. 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 Company or the Fund in
any way or otherwise be deemed an agent of the Company
or the Fund.
7. Liability of Adviser. No provision of this
Agreement will be deemed to protect Adviser against any
liability to the Company, the Fund or their 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.
8. Duration and Termination. This Agreement will
become effective on June 1, 1999, and will continue in
effect until May 31, 2001, and thereafter, only so long as
such continuance is approved at least annually by votes of
the Company'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 Company 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 Company. 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 8, 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 Investment Company Act of 1940.
9. 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.
10. 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 ___ day of _______,
1999.
ATTEST: VANGUARD WINDSOR FUNDS
By _________________ By _________________
Secretary Chairman, CEO and
President
ATTEST: XXXXXXX X. XXXXXXXXX & CO., INC.
By ____________________ By_____________
7
26340-1 3/29/1999
