INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of October, 1997, between
VANGUARD/PRIMECAP FUND, INC., a Maryland Corporation, (the "Fund") and XXXXXXXX
XXXXXXXXXX COMPANY, a California corporation (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (xxx "X 000
Xxx"); and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund, and the Adviser 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 Adviser. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund 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. Advisory Duties. Subject to the supervision of the Board of Directors of
the Fund, the Adviser shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Fund's investment objective and
policies as stated in the Registration Statement (as defined in paragraph 3(d)
of this Agreement) and subject to the following understandings:
(a) The Adviser shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio, determine from
time to time what investments or securities will be purchased, retained or sold
by the Fund, and what portion of the assets will be invested or held uninvested
as cash;
(b) The Adviser shall use the same skill and care in the management of the
Fund's portfolio as it uses in the administration of other fiduciary accounts
for which it has investment responsibility;
(c) The Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of Incorporation,
By-Laws and Registration Statement of the Fund and with the instructions and
directions of the Board of Directors of the Fund and will conform to and comply
with the requirements of the 1940 Act and all other applicable federal and state
laws and regulations;
(d) The Adviser shall
determine the securities to be purchased or sold by the Fund and will place
orders pursuant to its determinations either directly with the issuer or with
any
broker and/or dealer who deals in the securities in which the Fund is active.
The Adviser 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 Directors 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 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 the Adviser'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 any duty created
by this Agreement or otherwise. The Adviser will promptly communicate to the
officers and Directors of the Fund such information relating to portfolio
transactions as they may reasonably request:
On occasions when the Adviser deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased in order to obtain the best execution and
lower brokerage commissions, if any. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other clients;
(e) The Adviser shall maintain books and records with respect to the Fund's
securities transactions and shall render to the Fund's Board of Directors such
periodic and special reports as the Board may reasonably request;
(f) The Adviser shall provide the Fund on each business day with a list of
all securities transactions for that day;
(g) The investment advisory services of the Adviser to the Fund under this
Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar services to others.
3. Documents Delivered. The Fund has delivered to the Adviser copies of
each of the following documents and will deliver to it all future amendments and
supplements, if any:
(a) Amended and Restated Articles of Incorporation of the Fund, dated
October 16, 1986 (such Articles of Incorporation, as presently in effect
and as amended from time to time, are herein called the "Articles of
Incorporation");
(b) By-Laws of the Fund (such By-Laws, as presently in effect and as
amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Adviser and approving the form of this
Agreement:
(d) Registration Statement under the Securities Act of 1933, on Form
N-1A (the "Registration Statement") as filed with the Securities and
Exchange Commission (the
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"Commission") on August 27, 1984, relating to shares of the Fund's Shares, and
all amendments thereto;
(e) Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the Commission on August 27, 1984, and all
amendments thereto.
4. Books and Records. The Adviser shall keep the Fund's
books and records required to be maintained by it pursuant to paragraph 2(e)
hereof. The Adviser agrees that all records which it maintains for the Fund are
the property of the Fund and it will surrender promptly to the Fund any of such
records upon the Fund's request. The Adviser further agrees to preserve for the
periods prescribed by Rule 3 1 a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by Rule 3 1 a- l(F) of the Commission
under the 1940 Act.
5. Reports to Adviser. The Fund agrees to furnish the
Adviser at its principal office all prospectuses, proxy statements, reports to
stockholders, sales literature, or other material prepared or distribution to
shareholders of the Fund or the public, which refer in any way to the Adviser,
ten (10) days prior to use thereof and not to use such material if the Adviser
should object thereto in writing within seven (7) days after receipt of such
material. In the event of termination of this Agreement, the Fund will, on
written request of the Adviser, forthwith delete any reference to the Adviser
from any materials described in the preceding sentence. The Fund shall furnish
or otherwise make available to the Adviser such other information relating to
the business affairs of the Fund as the Adviser at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
6. Expenses. During the term of this Agreement the Adviser will pay all expenses
incurred by it in connection with its activities under this Agreement other than
the cost of securities purchased for the Fund and the taxes, and brokerage
commissions, if any, payable in connection with the purchase and/or sale of such
securities.
7. Compensation of the Advises. For the services to be rendered by the Adviser
as provided in this Agreement, the Fund shall pay to the Adviser at the end of
each of the Fund's fiscal quarters, a Basic Fee calculated by applying a
quarterly rate, based on the following annual percentage rates, to the Fund's
average month-end assets for the quarter.
Net Assets Rate
---------- ----
First $50 million 0.500%
Next $200 million 0.450%
Next $250 million 0.375%
Next $1,750 million 0.250%
Next $2,750 million 0.200%
Next $5,000 million 0.175%
Over $10,000 million 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.
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8. Liability ofAdviser. 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.
9. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until September 30, 1999 and will be renewable
thereafter for periods of one year so long as such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Directors of the Fund who are not parties to this Agreement or
interested persons (as defined in the 0000 Xxx) of any such party, cast in
person at a meeting called for the purpose of voting such approval, and (b) by
the Board of Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Fund. This Agreement may be terminated by the Fund at
any time, without the payment of any penalty, by vote of a majority of the
entire Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
Adviser. This Agreement may also be terminated by the Adviser on 90 days'
written notice to the Fund. This Agreement will automatically and immediately
terminate in the event of its assignment (as defined in the 1940 Act).
1O. Independent Contractor. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Directors of the Fund from time to
time, have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
11. Amendment of Agreement. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Directors of the Fund 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 (b) by vote of a
majority of the outstanding voting securities of the Fund.
12. Proxy Policy. With regard to the solicitation of shareholder votes, the
Fund shal I vote the shares of all portfolio securities held of the Fund.
ATTEST: VANGUARD/PRIMECAP
FUND, INC.
By:/S/ Xxxxxxx X. Xxxxxxxxx By:/S/ Xxxx X. Xxxxxxx
President and Chief Executive Officer
ATTEST: XXXXXXXX XXXXXXXXXX COMPANY
/S/ Xxxxx X. Xxxxxx By: /S/ Xxxxxx X. Xxxxx
Secretary Chairman of the Board
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