VANGUARD VARIABLE INSURANCE FUND
INVESTMENT ADVISORY AGREEMENT ADDENDUM
Effective April 30, 2003
This Addendum amends Section 4 of the Investment Advisory Agreement dated
September 29, 2000 between Vanguard VARIABLE INSURANCE FUND - SMALL COMPANY
GROWTH PORTFOLIO (the "Fund") and GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC ("GMO")
as follows.
4. COMPENSATION OF GMO. For the services to be rendered by GMO as provided in
this Agreement, the Fund will pay to GMO at the end of each of the Fund's fiscal
quarters, a Basic Fee calculated by applying a quarterly rate, based on the
annual percentage rate of 0.225%, to the average month-end net assets of the GMO
Portfolio for the quarter.
The Basic Fee, as provided above, will be increased or decreased by
applying a Performance Fee Adjustment (the "Adjustment"). The Adjustment will be
calculated as a percentage of the average net assets of the GMO Portfolio for
the 36-month period ending with the then-ended quarter, and the Adjustment will
change proportionately with the investment performance of the GMO Portfolio
relative to the investment performance of the Xxxxxxx 2500 Growth Index for the
same period. The Adjustment applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE ADJUSTMENT AS A PERCENTAGE OF
GMO PORTFOLIO VS. INDEX AVERAGE NET ASSETS(A)
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Trails index -0.15%
Exceeds Index by 0% baseline to 3% Linear increase from -0.15% to 0%
Exceeds Index by 3% baseline to 6% Linear increase from 0% to +0.15%
Exceeds Index by more than 6% +0.15%
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(a) For purposes of this calculation, the average net assets will be calculated
as average month-end net assets over the same time period for which performance
is measured. Linear application of the Adjustment provides for an infinite
number of results within the stated range. Example: If the cumulative 36-month
performance of the GMO Portfolio versus the Index is +3.6%, and Adjustment of
+0.03%* or [(0.6% divided by 3%)0.15%] would apply. This would be calculated as
[(a divided by b)0.15%], where a equals the percentage amount by which the
performance of the GMO Portfolio has exceeded the applicable baseline percentage
for the linear adjustment, and b equals the size of the range over which the
linear adjustment applies.
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*As rounded for purposes of this example. In practice, the calculation will be
extended to the eighth decimal point.
4.1. TRANSITION RULE FOR CALCULATING GMO'S COMPENSATION. The fee structure
described in Section 4 will not be fully operable until the quarter
ending June 30, 2006. Until that date, the Adjustment will be
determined by linking the investment performance of the Xxxxxxx 2500
Growth Index and that of the Xxxxxxx 2000 Growth Index.
1. QUARTER ENDING JUNE 30, 2003. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the eleven
quarters and one month ending April 30, 2003 with that of the Xxxxxxx 2500
Growth Index for the two months ending June 30, 2003.
2. quarter ending september 30, 2003. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
ten quarters and one month ending April 30, 2003 with that of the Xxxxxxx
2500 Growth Index for the two months and one quarter ending September 30,
2003.
3. QUARTER ENDING DECEMBER 31, 2003. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
nine quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and two quarters ending December 31,
2003.
4. QUARTER ENDING MARCH 31, 2004. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the eight
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and three quarters ending March 31, 2004.
5. QUARTER ENDING JUNE 30, 2004. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the seven
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and four quarters ending June 30, 2004.
6. QUARTER ENDING SEPTEMBER 30, 2004. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
six quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and five quarters ending September 30,
2004.
7. QUARTER ENDING DECEMBER 31, 2004. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
five quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and six quarters ending December 31,
2004.
8. QUARTER ENDING MARCH 31, 2005. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the four
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and seven quarters ending March 31, 2005.
9. QUARTER ENDING JUNE 30, 2005. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the three
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and eight quarters ending June 30, 2005.
10. QUARTER ENDING SEPTEMBER 30, 2005. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
two quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and nine quarters ending September 30,
2005.
11. QUARTER ENDING DECEMBER 31, 2005. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
one quarter and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and ten quarters ending December 31,
2005.
12. QUARTER ENDING MARCH 31, 2006. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the one
month ended April 30, 2003, with that of the Xxxxxxx 2500 Growth Index for
the two months and eleven quarters ended March 31, 2006.
13. QUARTER ENDING JUNE 30, 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 September 29, 2000
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed this 29th day of January, 2003.
VANGUARD VARIABLE INSURANCE FUND - SMALL COMPANY GROWTH PORTFOLIO
/S/ XXXX X. XXXXXXX
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Chairman, CEO and President
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC.
By /S/ XXXXX XXXXX
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Title Chief Operating Officer
