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 ▇▇▇▇▇▇▇▇
INVESTMENT MANAGEMENT, INC. ("▇▇▇▇▇▇▇▇") as follows.
4. Compensation of ▇▇▇▇▇▇▇▇. For the services to be rendered by ▇▇▇▇▇▇▇▇ as
provided in this Agreement, the Fund will pay to ▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇▇ Portfolio for the quarter:
.300% 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
▇▇▇▇▇▇▇▇ Portfolio relative to the investment performance of the ▇▇▇▇▇▇▇ 2500
Growth Index. The investment performance of the ▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2500
Growth Index for the same time period. The Adjustment applies as follows:
Cumulative 36-Month Performance of the
▇▇▇▇▇▇▇▇ Portfolio vs. the ▇▇▇▇▇▇▇ Performance Fee Adjustment as a
2500 Growth Index Percentage of the Basic Fee*
------------------------------------- -----------------------------
Trails by -12% or more Decrease by .01875%
Trails by more than -6% up to -12% Decrease by .009375%
Trails/Exceeds by -6% through 6% No adjustment
Exceeds by more than 6% but less than 12% Increase by .009375%
Exceeds by 12% or more Increase by .01875%
------------------
* For purposes of determining the Adjustment, the quarterly rate is applied
against the net assets of the ▇▇▇▇▇▇▇▇ Portfolio averaged over the same time
period for which the performance is measured.
4.1. Transition Rule for Calculating ▇▇▇▇▇▇▇▇'▇
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 ▇▇▇▇▇▇▇ 2500 Growth Index and that
of the ▇▇▇▇▇▇▇ 2000 Growth 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 ▇▇▇▇▇▇▇ 2000 Growth
Index for the ten quarters ending January 31, 2003 with that of the ▇▇▇▇▇▇▇
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 ▇▇▇▇▇▇▇ 2000 Growth Index for the ten
quarters ending January 31, 2003 with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the
nine quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the
eight quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the seven
quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the six
quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the
five quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the
four quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the three
quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the two
quarters ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ 2000 Growth Index for the
one quarter ending January 31, 2003, with that of the ▇▇▇▇▇▇▇ 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
-------------------------------------------
Chairman, CEO and President
▇▇▇▇▇▇▇▇ INVESTMENT MANAGEMENT, INC.
By ____________________________________________
Title___________________________________________