EXECUTION COPY
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of October, 2004, between VANGUARD
XXXXXXX FUNDS, a Delaware business trust (the "Trust"), XXXXXXXX Xxxxxxxxxx
Company, a California corporation (the "Advisor").
WHEREAS, the Trust is an open-end, diversified management investment Trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust offers a series of shares known as Vanguard PRIMECAP
Fund (the "Fund"); and
WHEREAS, the Trust desires to retain the Advisor to render investment
advisory services to the Fund, and the Advisor 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 ADVISOR. The Trust hereby employs the Advisor as
investment advisor, on the terms and conditions set forth herein, to manage
assets of the Fund, at the discretion of the Trust's Board of Trustees. The
Advisor accepts such employment and agrees to render the services herein set
forth, for the compensation herein provided.
2. DUTIES OF ADVISOR. The Trust employs the Advisor to manage the
investment and reinvestment of Fund assets; to continuously review, supervise,
and administer an investment program for 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 the Advisor that the Fund is required to maintain; and to render
regular reports to the Trust's officers and Board of Trustees concerning the
discharge of the foregoing responsibilities. The Advisor will discharge the
foregoing responsibilities subject to the supervision and oversight of the
Trust's officers and the Board of Trustees, and in compliance with the
objectives, policies and limitations set forth in the Fund's prospectus and
Statement of Additional Information, any additional operating policies or
procedures that the Fund communicates to the Advisor in writing, and applicable
laws and regulations. The Advisor agrees to provide, at its own expense, the
office space, furnishings and equipment, and personnel required by it to perform
the services on the terms and for the compensation provided herein.
3. SECURITIES TRANSACTION. The Advisor is authorized to select the brokers or
dealers that will execute purchases and sales of securities for the Fund, and is
directed to use its best efforts to obtain the best available price and most
favorable execution for such transactions.
To the extent expressly permitted by the written policies and procedures
established by the Board of Trustees, and subject to Section 28(e) of the
Securities Exchange Act of 1934, as amended, any interpretations thereof by the
Securities and Exchange Commission (the "SEC") or its staff, and other
applicable law, the Advisor is permitted to pay a broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities to the accounts
as to which it exercises investment discretion. The execution of such
transactions in conformity with the authority expressly referenced in the
immediately preceding sentence shall not be deemed to represent an unlawful act
or breach of any duty created by this Agreement or otherwise. The Advisor agrees
to use its best efforts to comply with any directed brokerage or other brokerage
arrangements that the Fund communicates to the Advisor in writing. The Advisor
will promptly communicate to the Trust's officers and the Board of Trustees any
information relating to the portfolio transactions the Advisor has directed on
behalf of the Fund as such officers or the Board may reasonably request.
4. COMPENSATION OF ADVISOR. For services rendered pursuant to this
Agreement, the Fund shall pay to the Advisor, for the first fiscal quarter in
which this Agreement is in effect, a fee calculated as described in APPENDIX A.
For each fiscal quarter after the first fiscal quarter in which this Agreement
is in effect, the Fund shall pay to the Advisor, at the end of the quarter, a
fee calculated by applying the following annual percentage rates to the average
month-end net assets of the Fund, then divide the result by four. For purposes
of the compensation calculation, the average month end net assets of the Fund
are the Fund assets that are managed by the Advisor (including cash that may be
directed to The Vanguard Group, Inc. for cash management purposes) during the
quarter.
Average Net Assets Annual Rates
------------------ ------------
First $50 million 0.500%
Next $200 million 0.450%
Next $250 million 0.375%
Next $9.5 billion 0.250%
Next $10 billion 0.200%
Next $20 billion 0.175%
Over $40 billion 0.150%
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 the Advisor agree to furnish to each other 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.
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6. COMPLIANCE.
6.1 COMPLIANCE WITH APPLICABLE LAW AND BOARD REQUIREMENTS. The
Advisor agrees to comply with all Applicable Law and all
policies, procedures or reporting requirements that the Board of
Trustees of the Trust reasonably adopts and communicates to the
Advisor in writing, including, without limitation, any such
policies, procedures or reporting requirements relating to soft
dollar or directed brokerage arrangements.
6.2 DISCLOSURE OF COMPLIANCE MATTERS. If the Advisor receives any
written or other communication concerning or constituting a
Compliance Matter, then the Advisor shall provide the Trust a
written summary of the material facts and circumstances
concerning such Compliance Matter within five (5) calendar days
of the earlier of the date on which such Compliance Matter was
received by the Advisor, or the date on which the general
counsel's office of the Advisor obtained actual knowledge of such
Compliance Matter. The Advisor shall provide the Trust with a
written summary of any material changes in the facts or
circumstances concerning any Compliance Matter within (5)
calendar days of the occurrence of such changes.
6.3 CERTAIN DEFINITIONS. "Applicable Law" means (i) the "federal
securities laws" as defined in Rule 38a-1(e)(1) under the 1940
Act, as amended from time to time, and (ii) any and all other
laws, rules, and regulations, whether foreign or domestic, in
each case applicable at any time and from time to time to the
investment management operations of the Advisor. "Compliance
Matter" means any written or other communication sent to the
Advisor by any foreign, federal or state agency or regulatory
authority or any self-regulatory authority in connection with any
of the following: (i) the Advisor's compliance with, or failure
to comply with, Applicable Law as they relate to the Advisor's
investment management operations; (ii) the business or affairs of
the Advisor or any current or former client of the Advisor as
they relate to the Advisor's investment management operations; or
(iii) compliance by any person other than the Advisor with, or
such person's failure to comply with, Applicable Law as they
relate to the Advisor's investment management operations.
7. STATUS OF ADVISOR. The services of the Advisor to the Fund are not to be
deemed exclusive, and the Advisor will be free to render similar services to
others so long as its services to the Fund are not impaired thereby. The Advisor
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
Fund in any way or otherwise be deemed an agent of the Fund or the Trust.
8. LIABILITY OF ADVISOR. No provision of this Agreement will be deemed to
protect the Advisor against any liability to the Trust, 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.
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9. DURATION; TERMINATION; NOTICES; AMENDMENT. This Agreement will become
effective on OCTOBER 1, 2004 and shall continue in effect for successive
twelve-month periods, only so long as this Agreement 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 thirty days' written notice to the Advisor, (ii) this
Agreement will automatically terminate in the event of its assignment, and (iii)
this Agreement may be terminated by the Advisor 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 Xxxxxxx Funds - Vanguard PRIMECAP Fund
X.X. Xxx 0000
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
If to the Advisor, at:
XXXXXXXX Xxxxxxxxxx Company
000 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxxxx
This Agreement may be amended by mutual consent, but the consent of the
Trust must be approved (i) by a majority of those members of the Board of
Trustees who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
amendment, and (ii) to the extent required by the 1940 Act, by a vote of a
majority of the outstanding voting securities of the Fund of the Trust.
As used in this Section 9, the terms "assignment," "interested persons,"
and "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 1940 Act.
10. 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.
11. PROXY POLICY. With regard to the solicitation of shareholder votes, the
Fund will vote the shares of all securities held by the Fund.
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12. CONFIDENTIALITY. The Advisor shall keep confidential any and all
information obtained in connection with the services rendered hereunder and
relating directly or indirectly to the Fund, the Trust, or Vanguard and shall
not disclose any such information to any person other than the Trust, the Board
of Trust of the Trust, Vanguard), and any director, officer, or employee of the
Trust or Vanguard, except (i) with the prior written consent of the Trust, (ii)
as required by law, regulation, court order or the rules or regulations of any
self-regulatory organization, governmental body or official having jurisdiction
over the Advisor, or (iii) for information that is publicly available other than
due to disclosure by the Advisor or its affiliates or becomes known to the
Advisor from a source other than the Trust, the Board of Directors of the Trust,
or Vanguard.
13. Governing Law. All questions concerning the validity, meaning, and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first set forth herein:
XXXXXXXX XXXXXXXXXX COMPANY VANGUARD XXXXXXX FUNDS
/S/ Xxxx X. Xxxxx /S/ Xxxx X. Xxxxxxx 9/30/2004
_______________________________ _________ _______________________________ _________
Signature Date Signature Date
By: Xxxx X. Xxxxx By: Xxxx X. Xxxxxxx
Title: Executive Vice President Title: Chairman and Chief Executive Officer
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APPENDIX A
The fee for the first fiscal quarter in which this Agreement is in effect
(October through December, 2004) shall be the sum of the amounts calculated in
paragraphs (a) and (b) below:
(a) The following annual percentage rates shall be applied to the average
month-end net assets of the Fund. The result shall then be divided by four
(for one fiscal quarter), and then multiplied by 0.167 (a factor
representing one-sixth of the fiscal quarter). For purposes of the
compensation calculation, the average month end net assets of the Fund are
the Fund assets that are managed by the Advisor (including cash that may be
directed to The Vanguard Group, Inc. for cash management purposes) during
the quarter.
Average Net Assets Annual Rates
------------------ ------------
First $50 million 0.500%
Next $200 million 0.450%
Next $250 million 0.375%
Next $1.75 billion 0.250%
Next $2.75 billion 0.200%
Next $5 billion 0.175%
Over $10 billion 0.150%
(b) The following annual percentage rates shall be applied to the average
month-end net assets of the Fund. The result shall then be divided by four
(for one fiscal quarter), and then multiplied by 0.833 (a factor
representing five-sixths of the fiscal quarter). For purposes of the
compensation calculation, the average month end net assets of the Fund are
the Fund assets that are managed by the Advisor (including cash that may be
directed to The Vanguard Group, Inc. for cash management purposes) during
the quarter.
Average Net Assets Annual Rate
------------------ -----------
First $50 million 0.500%
Next $200 million 0.450%
Next $250 million 0.375%
Next $9.5 billion 0.250%
Next $10 billion 0.200%
Next $20 billion 0.175%
Over $40 billion 0.150%
