DRAFT 3-27-03
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this ___ day of _________, 2003, by and between
VANGUARD SPECIALIZED FUNDS, a Delaware statutory trust, (the "Fund"), and
WELLINGTON MANAGEMENT COMPANY, LLP, a Massachusetts partnership (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"), as
amended, offering several diversified investment Portfolios, each having its own
objective and policies; and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund's Energy Portfolio and Health Care Portfolio, and
the Adviser is willing to render such services;
NOW THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. APPOINTMENT OF ADVISER. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund's Energy Portfolio and Health Care Portfolio, for
the period and on the terms set forth in this Agreement. The Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES OF ADVISER. The Fund hereby employs the Adviser to manage the
investment and reinvestment of a portion of the assets of the Fund's said
Portfolios that the Fund's Board of Trustees (the Board of Trustees") determines
in its sole discretion to assign to the Adviser from time to time (referred to
in this Agreement as the "Wellington Management Portfolios"), and to
continuously review, supervise and administer the investment program of each of
the Wellington Management Portfolios, to determine in its discretion the
securities to be purchased or sold and the portion of each such Wellington
Management Portfolio's assets to be held uninvested, to provide the Fund with
records concerning the Adviser's activities which the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Trustees concerning the Adviser's discharge of the foregoing responsibilities.
The Adviser shall 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 for each Portfolio set forth in
the Fund's prospectus and applicable laws and regulations. The Board of Trustees
may, from time to time, make additions to, and withdrawals from, the assets of
the Portfolio assigned to the Adviser. The Adviser accepts such employment and
agrees to render the services and 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. PORTFOLIO TRANSACTIONS. The Adviser is authorized to use its best
judgment to select the brokers or dealers that will execute the purchases and
sales of securities for each of the Fund's Wellington Management Portfolios and
is directed to use its best efforts to obtain the best available price and most
favorable execution, except as otherwise permitted by the Board of Trustees
pursuant to written policies and procedures provided to the Adviser. Subject to
policies established by the Board of Trustees of the Fund, the Adviser may also
be authorized to effect individual securities transactions at commission rates
in excess of the minimum commission rates available, if the Adviser determines
in good faith that such rates were 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 the Adviser's overall
responsibilities with respect to the Wellington Management Portfolios, the Fund
and the other Funds in The Vanguard Group. 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. The Adviser will promptly
communicate to the officers and Trustees of the Fund such information relating
to portfolio transactions as they may reasonably request.
4. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Section 2 of this Agreement, the Fund shall pay to the
Adviser at the end of each of the Fund's fiscal quarters, a fee calculated by
applying a quarterly rate, based on the following annual percentage rates to the
aggregate average month-end net assets of the Fund's Wellington Management
Portfolios for which the Adviser serves as investment adviser under the terms of
this Agreement for the quarter:
0.150% on the first $500 million of the aggregate net assets of the
Wellington Management Portfolios;
0.125% on the next $500 million of the aggregate net assets of the
Wellington Management Portfolios;
0.100% on the next $1 billion of the aggregate net assets of the
Wellington Management Portfolios;
0.075% on the next $1 billion of the aggregate net assets of the
Wellington Management Portfolios;
0.050% on the aggregate net assets of the Wellington Management
Portfolios in excess of $3 billion.
The fee, as determined above, shall be allocated to each Portfolio based on
the relative net assets of each.
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 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.
[If reapproving the agreement, we suggest striking this and discussing
on a complex-wide basis.]
5. REPORTS. The Fund 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, including changes in
partners of the Adviser, with regard to their affairs as each may reasonably
request.
6. STATUS OF THE ADVISER. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Adviser shall be deemed to be an independent contractor and shall, 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.
7. LIABILITY OF ADVISER. No provision of this Agreement shall be deemed to
protect the Adviser 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.
8. PERMISSIBLE INTERESTS. Subject to and in accordance with the charters of
the Fund and the Adviser, respectively, Trustees, agents and shareholders of the
Fund are or may be interested in the Adviser (or any successor thereof) as
Trustees, partners, officers or shareholders, or otherwise; Trustees, officers
employees and partners of the Adviser are or may be interested in the Fund as
Trustees,
shareholders or otherwise; and the Adviser (or any successor) is or may be
interested in the Fund as a shareholder or otherwise; and that the effect of any
such interrelationships shall be governed by said charters and provisions of the
1940 Act.
9. DURATION AND TERMINATION. This Agreement will become effective on the
date hereof and will continue in effect for a period of two years thereafter,
and shall continue in effect for successive twelve-month periods thereafter,
only so long as each such successive continuance is approved at least annually
by votes of the Trust'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.
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 sixty days' written notice to the Adviser, (ii)
this Agreement will automatically terminate in the event of its assignment,
and (iii) this Agreement 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
as follows:
If to the Fund, at:
Vanguard Health Care Fund and Vanguard Energy Fund
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Attention: Portfolio Review Group
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Adviser, at:
Wellington Management Company, LLP
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▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
As used in this Section 10, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall 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 shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
11. PROXY POLICY. With regard to the solicitation of shareholder votes, the
Fund shall vote the shares of all Portfolio securities held by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this ___ day of __________, 2003.
VANGUARD SPECIALIZED FUNDS
By _____________________________
President and Chief Executive Officer
WELLINGTON MANAGEMENT COMPANY, LLP
By _______________________________
