SEC Company Response from VANGUARD FENWAY FUNDS (CIK 0000826473) — Nov 26, 2004
VANGUARD FENWAY FUNDS (CIK 0000826473)
Date: Nov. 26, 2004 · CIK: 0000826473 · Accession: 0000932471-04-001392
AI Filing Summary & Sentiment
Referenced dates: November 16, 2004
Letter
<DESCRIPTION>RESPONSE TO SEC COMMENTS REGARDING PRIMECAP CORE [SHIP GRAPHIC] November 26, 2004 Christian Sandoe, Esq. Division of Investment Management U.S. Securities and Exchange Commission via electronic filing 450 Fifth Street, N.W., Fifth Floor Washington, D.C. 20549
RE: VANGUARD FENWAY FUNDS, FILE NO. 33-19446
Dear Mr. Sandoe:
The following responds to your comments of November 4, 2004 on the post-effective amendment of the registration statement of Vanguard Fenway Funds. You commented on PEA number 35 that was filed on September 24, 2004 pursuant to Rule 485(a). Specifically, we are responding to your comment on disclosure in the Statement of Additional Information concerning board review of advisory arrangements. We responded to your other comments on the filing in a separate letter dated November 16, 2004.
Comment: Add disclosure to the SAI that relates the factors considered by each fund's board of trustees in reviewing investment advisory agreements to the particulars of each fund, pursuant to Item 12(b)(10) of Form N-1A.
Response: We propose to revise the relevant SAI disclosure as indicated on Appendix A to this letter.
Please call me at (610) 503-5804 if you have any questions or further comments.
Sincerely,
/s/ Frances T. Han
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>corresp.txt
<DESCRIPTION>RESPONSE TO SEC COMMENTS REGARDING PRIMECAP CORE
<TEXT>
[SHIP GRAPHIC]
November 26, 2004
Christian Sandoe, Esq.
Division of Investment Management
U.S. Securities and Exchange Commission via electronic filing
450 Fifth Street,
N.W., Fifth Floor
Washington, D.C. 20549
RE: VANGUARD FENWAY FUNDS, FILE NO. 33-19446
Dear Mr. Sandoe:
The following responds to your comments of November 4, 2004 on the
post-effective amendment of the registration statement of Vanguard Fenway Funds.
You commented on PEA number 35 that was filed on September 24, 2004 pursuant to
Rule 485(a). Specifically, we are responding to your comment on disclosure in
the Statement of Additional Information concerning board review of advisory
arrangements. We responded to your other comments on the filing in a separate
letter dated November 16, 2004.
Comment: Add disclosure to the SAI that relates the factors considered
by each fund's board of trustees in reviewing investment
advisory agreements to the particulars of each fund, pursuant
to Item 12(b)(10) of Form N-1A.
Response: We propose to revise the relevant SAI disclosure as indicated
on Appendix A to this letter.
Please call me at (610) 503-5804 if you have any questions or further
comments.
Sincerely,
/s/ Frances T. Han
Frances T. Han
Associate Counsel
<PAGE>
APPENDIX A
BOARD REVIEW OF INVESTMENT ADVISORY ARRANGEMENTS
Each Fund's board of trustees oversees the Fund's management and performance on
a regular basis. For Vanguard Equity Income Fund, Vanguard Growth Equity Fund,
and Vanguard PRIMECAP Core Fund, which are advised by independent third-party
advisory firms unaffiliated with Vanguard (collectively the "Externally-Advised
Funds"), the board determines annually whether to approve and renew the Funds'
investment advisory arrangements. For Vanguard Equity Income Fund, (which is
also managed by Vanguard (the "Vanguard-Advised Fund"), the board considers
annually whether the Fund and its shareholders continue to benefit from the
internalized management structure whereby the Fund receives investment
management services at cost from Vanguard's Quantitative Equity Group. Vanguard
provides the board with monthly, quarterly, and annual analyses of each
advisor's performance, as well as other information of interest from time to
time. In addition, the investment advisors provide the board with quarterly
self-evaluations and certain other information the board deems important to
evaluate the short- and long-term performance of the advisors of each Fund, and
the internalized management services provided by Vanguard. Each Fund's portfolio
managers meet with the board periodically to discuss the management and
performance of the Fund.
When considering whether to renew an investment advisory contract (in the case
of the Externally-Advised Funds), or continue the internalized management
structure of the Vanguard-Advised Fund, the board examines several factors, but
does not identify any particular factor as controlling their decision. Some of
the factors considered by the board include: the nature, extent, and quality of
the advisory services provided as well as other material facts, such as the
investment performance of the Fund's assets managed by the advisor and the fair
market value of the services provided. The board reviews and considers the
extent to which the advisor has realized or will realize economies of scale as
the Fund grows. Additional information is provided to the board detailing other
sources of revenue to the advisor or its affiliates from its relationship with
the Fund; intangible or "fall-out" benefits that accrue to the advisor and its
affiliates, if relevant; and the advisor's control of the investment expenses of
the Fund, such as transaction costs, including ways in which portfolio
transactions for the Fund are conducted and brokers are selected.
For the Externally-Advised Funds, the board also takes into account the nature
of the fee arrangements, which include breakpoints that decrease the fee rate as
the size of the advisor's portfolio increases.
The board also reviews the investment performance of each Fund compared with a
peer group of funds and an appropriate index or combination of indexes, in
addition to a comparative analysis of expense ratios of, and advisory fees paid
by, similar funds.
VANGUARD EQUITY INCOME FUND
The board considered performance and advisory fee information when determining
whether to continue the Fund's investment advisory agreement arrangements with
John A. Levin & Co.,
<PAGE>
Wellington Management Company, Inc., and The Vanguard Group, Inc. Recent
performance and advisory fee information follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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AVERAGE ANNUAL RETURN (BEFORE TAXES) FOR
PERIODS ENDED MARCH 31, 2004
------------------------------------------------------------------------------------------------------------------------
ADVISORY FEES
EXPRESSED AS AN
ANNUAL EFFECTIVE
RATE OF THE FUNDS'
ONE YEAR FIVE YEARS TEN YEARS EXPENSE RATIO AVERAGE NET ASSETS
---------------------------------- ------------- -------------- -------------- ------------------- ---------------------
Equity Income Fund
Investor Shares* 34.51% 3.69% 11.96% 0.34% 0.10%
---------------------------------- ------------- -------------- -------------- ------------------- ---------------------
Average Equity Income Fund** 35.78 2.47 9.62 1.47 0.60
---------------------------------- ------------- -------------- -------------- ------------------- ---------------------
S&P 500 Index 35.12 -1.20 11.68 N/A N/A
------------------------------------------------------------------------------------------------------------------------
*Information about the Fund's Admiral Share class may be found elsewhere in this
Statement of Additional Information. **Data provided by Lipper Inc.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
JOHN A. LEVIN & Co., Inc.
The board considered the Fund's short- and long-term performance records, which
are disclosed in the table above. The board noted that the performance results
show that the Fund outperformed (for short- and long-term periods) relevant
performance standards, including the performance results of the average equity
income fund (derived from data provided by Lipper Inc.) and other appropriate
benchmarks.
The board assessed the advisory fee paid by the Fund and compared it to the
average advisory fee for the Fund's Lipper peer group. The board also took into
account the nature of the fee arrangements, which include breakpoints that
decrease the fee rate as the size of the advisor's portfolio increases. The
board noted that the advisory fee paid to John A. Levin & Co., Inc., was
significantly less that the average advisory fee paid by others in the Fund's
Lipper peer group.
The board evaluated the advisor's investment staff and portfolio management
process, and reviewed the composition and overall performance of the advisor's
portfolio on both a short-term and long-term basis. The board noted the
portfolio management team's depth and stability. The board concluded that the
advisor's investment staff and portfolio management process were solid and
suitable for the Fund.
Finally, the board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the circumstances
and based on its informed business judgment, the most appropriate course of
action in the best interest of the Fund's shareholders was to renew the
agreement with John A. Levin & Co., Inc.
WELLINGTON MANAGEMENT COMPANY
The board considered the Fund's short- and long-term performance records, which
are disclosed in the table above. The board noted that the performance results
for the Fund were strong, particularly over the long-term, as compared with
relevant performance standards, including the performance results of the average
equity income fund (derived from data provided by Lipper Inc.) and other
appropriate benchmarks.
<PAGE>
The board assessed the advisory fee paid by the Fund and compared it to the
average advisory fee for the Fund's Lipper peer group. The board also took into
account the nature of the fee arrangements, which include breakpoints that
decrease the fee rate as the size of the advisor's portfolio increases. The
board noted that the advisory fee paid to Wellington Management Company, was
significantly less that the average advisory fee paid by others in the Fund's
Lipper peer group.
The board evaluated the advisor's investment staff and portfolio management
process, and reviewed the composition and overall performance of the advisor's
portfolio on both a short-term and long-term basis. The board found that the
portfolio management team had depth and stability, and concluded that the
advisor's investment staff and portfolio management process were suitable for
the Fund.
Finally, the board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the circumstances
and based on its informed business judgment, the most appropriate course of
action in the best interest of the Fund's shareholders was to renew the
agreement with Wellington Management Company.
THE VANGUARD GROUP, INC.
The board considered the following factors when determining whether Vanguard
should continue providing internalized investment management services at cost to
the Fund:
- The nature, extent, and quality of the services provided.
- The investment performance of the Fund's assets managed by Vanguard.
- The fair market value of the services provided.
- A comparative analysis of expense ratios of, and advisory fees paid by,
similar funds.
Vanguard's control of the operating expenses of the Fund, such as transaction
costs, including ways in which portfolio transactions for the Fund are conducted
and brokers are selected.
The board also considered the Fund's short- and long-term investment
performance, which are disclosed in the table above. The board determined that
the Fund outperformed its average peer group fund (derived from data provided by
Lipper Inc.) and other appropriate market indexes.
The board concluded that, in the aggregate, the nature, extent, and quality of
services provided by Vanguard to the Fund are appropriate and should continue.
The board assessed the advisory fee paid by the Fund and considered the fair
market value of the services provided in light of the fee being paid. The board
concluded that the fee paid to Vanguard was very reasonable and was
significantly less than the average advisory fee paid by others in the Fund's
Lipper peer group.
Based upon its most recent evaluation of the investment staff, the portfolio
management process, the short- and long-term performance, and the at-cost,
internalized management arrangements, the board of the Fund determined that it
would be in the best interests of the Fund's shareholders to continue its
internalized management arrangement.
<PAGE>
Finally, the board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the circumstances
and based on its informed business judgment, the most appropriate course of
action in the best interest of the Fund's shareholders was to continue the
investment management arrangement with Vanguard.
VANGUARD GROWTH EQUITY FUND
TURNER INVESTMENT PARTNERS
The board considered performance and advisory fee information when determining
whether to continue the Fund's investment advisory agreement arrangement with
Turner Investment Partners. Recent performance and advisory fee information
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN (BEFORE TAXES) FOR
PERIODS ENDED MARCH 31, 2004
------------------------------------------------------------------------------------------------------------------------
ADVISORY FEES
EXPRESSED AS AN
ANNUAL EFFECTIVE
RATE OF THE FUNDS'
ONE YEAR FIVE YEARS TEN YEARS EXPENSE RATIO AVERAGE NET ASSETS
---------------------------------- ------------- -------------- -------------- ------------------- ---------------------
Growth Equity Fund * 40.70% -5.02% 8.83% 0.73% 0.39%
---------------------------------- ------------- -------------- -------------- ------------------- ---------------------
Average Large-Cap Growth Fund 29.15 -5.25 9.06 1.61 0.64
---------------------------------- ------------- -------------- -------------- ------------------- ---------------------
Russell 1000 Growth Index 32.18 -6.13 9.79 N/A N/A
------------------------------------------------------------------------------------------------------------------------
*Data provided by Lipper Inc.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The board considered the Fund's short- and long-term performance records, which
are disclosed in the table above. The board determined that the performance
results for the Fund were reasonable, particularly over the long-term, as
compared with relevant performance standards, including the performance r