ADVISORY AGREEMENT
Agreement, made as of this 1st day of June, 1994, between VANGUARD VARIABLE
INSURANCE FUND, a Pennsylvania trust (the "Fund"), and XXXXXXXX CAPITAL
MANAGEMENT INTERNATIONAL, INC., a New York corporation ("Xxxxxxxx Capital").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the" 1940
Act"), which offers several diversified investment Portfolios, each having its
own objective and policies; and
WHEREAS, the Fund desires to obtain Xxxxxxxx Capital to render investment
advisory services to the Fund's International Portfolio, and Xxxxxxxx Capital is
willing to render such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. Appointment of Xxxxxxxx Capital. The Fund hereby appoints Xxxxxxxx
Capital to act as investment adviser to the Fund's International Portfolio for
the period and on the terms set forth in this Agreement. Xxxxxxxx Capital
accepts such appointment and agrees to render the services herein set forth, for
the compensation herein provided.
2. Duties of Xxxxxxxx Capital. The Fund employs Xxxxxxxx Capital, through
its Xxxxxxxx Capital Management International, London, England, branch, to
manage the investment and reinvestment of the assets of the International
Portfolio of the Fund, continuously to review, supervise and administer the
investment program of the International Portfolio, to determine in its
discretion the securities to be purchased or sold and the portion of the
International Portfolio to be held uninvested, to provide as requested by the
Fund, records concerning Xxxxxxxx Capital's activities which the Fund is
required to maintain, and to render regular reports to the Fund's officers and
Board of Trustees concerning Xxxxxxxx Capital's discharge of the foregoing
responsibilities. Xxxxxxxx Capital 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 set forth in the Fund's prospectus provided to Xxxxxxxx Capital by
the Fund from time to time, and applicable laws and regulations. Xxxxxxxx
Capital 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. Securities Transactions. Xxxxxxxx Capital is authorized to select the
brokers or dealers that will execute the purchases and sales of securities for
the International Portfolio and
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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 Fund, Xxxxxxxx Capital may also be
authorized to effect individual securities transactions at commission rates in
excess of the minimum commission rates available, if Xxxxxxxx Capital 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 Xxxxxxxx Capital' s
overall responsibilities with respect to the Fund. The execution of such
transactions shall not be deemed to represent an unlawful act or breach of duty
created by this Agreement or otherwise. Xxxxxxxx Capital 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 Xxxxxxxx Capital. For the services to be rendered by
Xxxxxxxx Capital as provided in Section 2 of this Agreement, the Fund shall pay
to Xxxxxxxx Capital at the end of each of the Fund's fiscal quarters, a Basic
Fee calculated by applying an annual percentage rate of 0.125% to the average
month-end net assets of the International Portfolio for the quarter.
(a) Incentive/Penalty Fee. The Basic Fee, as set forth above (0.125%
annually), shall be increased or decreased by an amount equal to .0500% per
annum (0.0125% per quarter) of the average month-end net assets of the
International Portfolio if the investment performance of the Portfolio for the
thirty-six months preceding the end of the quarter is twelve percentage points
or more above or below, respectively, the investment record of the EAFE Index
for the same period; or by an amount equal to 0.025% per annum (0.00625% per
quarter) if the investment performance of the International Portfolio for such
thirty-six months is six or more, but less than twelve percentage points above
or below, respectively, the investment record of the EAFE Index for the same
period.
(b) Transition Periods. Until the quarter ending June 30, 1997, the
incentive/penalty fee adjustment for assets of the International Portfolio will
be calculated according to the following transition rules:
(1). June 1, 1994 through March 31, 1995. For the quarters ending on
or prior to March 31, 1995, the incentive/penalty fee adjustment will
not be operable. The advisory fee payable by the Fund will be the
Basic Fee, calculated as described above.
(2). April1, 1995 through June 30, 1997. Beginning with the quarter
ending June 30, 1995, the incentive/penalty fee adjustment will be
computed based upon a comparison of the investment performance of the
Portfolio and that of the EAFE Index over the number of months that
have elapsed between July 1, 1994 and the end of the quarter for which
the advisory fee is computed. The number of percentage points by which
the investment performance of the Portfolio must exceed or fall below
the investment record of the EAFE Index shall increase
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proportionately from four arid two, respectively, for the twelve
months ending June 30, 1995, to twelve and six, respectively, for the
thirty-six months ending June 30, 1997.
(c) General. For the purpose of determining the incentive/penalty fee
adjustment for investment performance, as described above, the net assets of the
International Portfolio will be averaged over the same period as the investment
performance of the International Portfolio and the investment record of the EAFE
Index are computed.
The investment performance of the International Portfolio for such period,
expressed as a percentage of the net asset value per share of the International
Portfolio at the beginning of such period, shall be the sum of: (i) the change
in the net asset value per share of the International Portfolio during such
period; (ii) the value of the cash distributions per share of the International
Portfolio accumulated to the end of such period; and (iii) the value of capital
gains taxes per share paid or payable by the International Portfolio on
undistributed realized long-term capital gains accumulated to the end of such
period. For this purpose, the value of distributions per share of realized
capital gains, of dividends per share paid from investment income and of capital
gains taxes per share paid or payable or undistributed realized long-term
capital gains shall be treated as reinvested in shares of the International
Portfolio at the net asset value per share 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.
The investment record of the EAFE Index for any period, expressed as a
percentage of the EAFE Index level at the beginning of such period, shall be the
sum of (i) the change in the level of the EAFE Index during such period and (ii)
the value, computed consistently with the EAFE Index, of cash distributions made
by companies whose securities comprise the EAFE Index accumulated to the end of
such period. For this purpose cash distributions on the securities which
comprise the EAFE Index shall be treated as reinvested in the EAFE Index at
least as frequently as the end of each calendar quarter following the payment of
the dividend. The foregoing notwithstanding, any computation of the investment
performance of the International Portfolio and the investment record of the EAFE
Index shall be in accordance with any then applicable rules of the Securities
and Exchange Commission.
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.
5. Reports. The Fund and Xxxxxxxx Capital agree to furnish to each other
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.
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6. Status of Xxxxxxxx Capital. The services of Xxxxxxxx Capital to the Fund
are not to be deemed exclusive, and Xxxxxxxx Capital shall be free to render
similar services to others so long as its services to the Fund are not impaired
thereby. Xxxxxxxx Capital 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 Xxxxxxxx Capital. No provision of this Agreement shall be
deemed to protect Xxxxxxxx Capital 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. The presence of
exculpatory language in this Agreement shall not be deemed by the Fund, Xxxxxxxx
Capital or any other party appointed pursuant to this Agreement, including
without limitation any custodian, as in any way limiting causes of action and
remedies which may, notwithstanding such language, be available to the Fund
either under common law or statutory law principles applicable to fiduciary
relationships or under the federal securities laws.
8. Duration and Termination. This Agreement shall become effective on June
1, 1994, and shall continue in effect until March 31, 1996, and thereafter, only
so long as such continuance is approved at least annually by votes of the Fund's
Board of Trustees, including the votes of a majority of the 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 such approval. In addition,
the question of continuance of the Agreement may be presented to the
shareholders of the International Portfolio; in such event, such continuance
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the International Portfolio.
Provided, however, that (1) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Trustees of the
Fund or by vote of a majority of the outstanding voting securities of the
International Portfolio, on sixty days' written notice to Xxxxxxxx Capital, (2)
this Agreement shall automatically terminate in the event of its assignment, and
(3) this Agreement may be terminated by Xxxxxxxx Capital on ninety days' written
notice to the Fund. Any notice under this Agreement shall 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 person," 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 Investment Company Act of 1940.
9. Severability .If any provision of this Agreement shall be held or made
invalid by a court decision, statue, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
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10. Regulatory Matters. In addition to being registered as an investment
adviser under the U.S. Investment Advisers Act of 1940 (the "Advisers Act")
Xxxxxxxx Capital is registered with the United Kingdom Investment Management
Regulatory Organization ("IMRO"). Xxxxxxxx Capital confirms that the Fund is a
Business Customer as defined by IMRO. The Fund confirms that it has taken
independent legal advice on this Agreement.
In accordance with Rule 204-3 under the Advisers Act, the Adviser has, not
less than 48 hours prior to entering into this Agreement, delivered to, and the
Fund hereby acknowledges receipt of, a copy of Part II of Form ADV of Xxxxxxxx
Capital.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this 28th day of April, 1994.
(SEAL)
ATTEST: VANGUARD VARIABLE INSURANCE FUND
/S/ Xxxxxxx X. Xxxxxxxxx By /S/ Xxxx X. Xxxxx
Secretary Chairman and Chief Executive Officer
ATTEST: XXXXXXXX CAPITAL MANAGEMENT
INTERNATIONAL INC.
/S/ Xxxxxxxx Xxxxxxx-Xxxxxxxx By /S/ Xxxxx Xxxxxxxxx
Secretary Chief Executive
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