INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 1st day of December, 2003, between
VANGUARD WINDSOR FUNDS, a Delaware statutory trust (the "Trust"), and HOTCHKIS
AND WILEY CAPITAL MANAGEMENT, LLC, a Delaware limited liability company (the
"Advisor").
W I T N E S S E T H
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust offers a series of shares known as Vanguard Windsor II
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, in consideration of the mutual promises and undertakings set
forth in this "Agreement," the Trust and the Advisor hereby agree as follows:
1. APPOINTMENT OF ADVISOR. The Trust hereby employs the Advisor as
investment advisor, on the terms and conditions set forth herein, for the
portion of the assets of the Fund that the Trust's Board of Trustees (the "Board
of Trustees") determines in its sole discretion to assign to the Advisor from
time to time (referred to in this Agreement as the "H&W Portfolio"). As of the
date of this Agreement, the H&W Portfolio will consist of the portion of the
assets of the Fund that the Board of Trustees has determined to assign to the
Advisor, as communicated to the Advisor on behalf of the Board of Trustees by
The Vanguard Group, Inc. ("Vanguard"). The Board of Trustees may, from time to
time, make additions to, and withdrawals from, the assets of the Fund assigned
to the Advisor. 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 the assets of the H&W Portfolio; to continuously
review, supervise, and administer an investment program for the H&W Portfolio;
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 TRANSACTIONS. The Advisor is authorized to select the brokers
or dealers that will execute purchases and sales of securities for the H&W
Portfolio, 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 H&W Portfolio
as such officers or the Board may reasonably request.
4. COMPENSATION OF ADVISOR. For services to be provided by the Advisor
pursuant to this Agreement, the Fund will pay to the Advisor, and the Advisor
agrees to accept as full compensation therefore, an investment advisory fee at
the rate specified in Schedule A to this Agreement. The fee will be calculated
based on annual percentage rates applied to the average month-end net assets of
the H&W Portfolio and will be paid to the Advisor quarterly.
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, including, but not limited to,
information about changes in partners of the Advisor.
6. COMPLIANCE. The Advisor agrees to comply with 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.
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 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.
2
9. DURATION; TERMINATION; NOTICES; AMENDMENT. This Agreement will become
effective on the date hereof and will continue in effect for a period of three
years thereafter, and shall continue in effect for successive twelve-month
periods thereafter, 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 Windsor Funds - Vanguard Windsor II Fund
X.X. Xxx 0000
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Advisor, at:
Hotchkis and Wiley Capital Management, LLC
Attention: Compliance Department
000 Xxxxx Xxxxxxxx Xx, 00xx Xxx.
Xxx Xxxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
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.
3
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. 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 Directors 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.
12. PROXY POLICY. The Advisor acknowledges that Vanguard will vote the
shares of all securities that are held by the Fund unless other mutually
acceptable arrangements are made with the Advisor with respect to the H&W
Portfolio.
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.
4
IN WITNESS WHEREOF, the parties hereto have caused this Investment Advisory
Agreement to be executed as of the date first set forth herein.
HOTCHKIS AND WILEY CAPTIAL MANAGEMENT, LLC VANGUARD WINDSOR FUNDS
/S/ XXXXX X. XXXXXX 12/1/2003 /S/ R. XXXXXXX XXXXXX 11/24/2003
Signature Date Signature Date
Xxxxx X. Xxxxxx 12/1/2003 R. Xxxxxxx Xxxxxx 11/24/2003
------------------------------ -------- --------------------- ----------
Print Name Date Print Name Date
5
SCHEDULE A
Pursuant to Section 4 of the Agreement, the Fund shall pay the Advisor
compensation as follows:
13.1.CALCULATION OF THE BASE FEE. The Base Fee for each fiscal quarter of the
Fund is calculated by multiplying an Annual Percentage Rate (shown below)
to the average month-end net assets of the H&W Portfolio during such fiscal
quarter, and dividing the result by 4.
--------------------------------------------------------------------
ANNUAL PERCENTAGE RATE SCHEDULE
--------------------------------------------------------------------
AVERAGE MONTH-END ANNUAL PERCENTAGE
NET ASSETS RATE
--------------------------------------------------------------------
On the first $1.5 billion 0.150%
--------------------------------------------------------------------
On the next $3.5 billion 0.125%
--------------------------------------------------------------------
On assets over $5.0 billion 0.100%
--------------------------------------------------------------------
13.2.CALCULATION OF THE PERFORMANCE ADJUSTMENT. The Performance Adjustment for
each fiscal quarter of the Fund shall be calculated by multiplying the
appropriate Adjustment Percentage (shown below) to the Annual Percentage
Rate applied to the average of the month-end net assets of the H&W
Portfolio over the previous 60 months, and dividing the result by four. The
Adjustment Percentage for each fiscal quarter of the H&W Portfolio shall be
determined by applying the following Performance Adjustment Schedule to the
cumulative performance of the H&W Portfolio relative to the MSCI Investable
Market 2500 Index (the "Index") over the rolling 60-month period applicable
to such fiscal quarter. (See Fee Example #1.)
--------------------------------------------------------------------------------
PERFORMANCE ADJUSTMENT SCHEDULE
--------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE OF H&W PORTFOLIO
VS. ADJUSTMENT PERCENTAGE
INDEX OVER APPLICABLE 60-MONTH PERIOD
--------------------------------------------------------------------------------
More than +15% +50%
--------------------------------------------------------------------------------
Greater than 0% up to and including +15% Linear increase between 0% to +50%
--------------------------------------------------------------------------------
From -15% up to and including 0% Linear decrease between -50% to 0%
--------------------------------------------------------------------------------
Less than -15% -50%
--------------------------------------------------------------------------------
13.3.TRANSITION RULES FOR CALCULATING ADVISOR'S COMPENSATION. The Performance
Adjustment will not be fully incorporated into the determination of the
Adjusted Fee until the fiscal quarter ended January 31, 2009. Until that
date, the following transition rules will apply:
(a) DECEMBER 1, 2003 THROUGH OCTOBER 31, 2004. The Adjusted Fee will be
deemed to equal the Base Fee. No Performance Adjustment will apply to
the calculation of the Adjusted Fee during this period.
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(b) NOVEMBER 1, 2004 THROUGH JANUARY 31, 2009. Beginning November 1, 2004,
the Performance Adjustment will take effect on a progressive basis
with regard to the number of months elapsed between January 31, 2004,
and the end of the quarter for which the Adjusted Fee is being
computed. During this period, the Base Fee for purposes of calculating
the Performance Adjustment will be computed using the average
month-end net assets of the H&W Portfolio, as determined for a period
commencing February 1, 2004, and ending as of the end of the
applicable fiscal quarter of the Fund. During this period, the
Performance Adjustment will be calculated using the cumulative
performance of the H&W Portfolio and the Index for a period commencing
February 1, 2004 and ending as of the end of the applicable fiscal
quarter of the Fund. For these purposes, the endpoints and the size of
the range over which a positive or negative adjustment percentage
applies and the corresponding maximum adjusted percentage will be
multiplied by a time-elapsed fraction. The fraction will equal the
number of months elapsed since January 31, 2004, divided by 60. (See
Fee Example #2.)
(c) ON AND AFTER JANUARY 31, 2009. The Adjusted Fee will be equal to the
Base Fee plus the Performance Adjustment.
13.4.OTHER SPECIAL RULES RELATING TO ADVISOR'S COMPENSATION. The following
special rules will also apply to the Advisor's compensation:
(a) H&W PORTFOLIO UNIT VALUE. The "H&W Portfolio unit value" shall be
determined by dividing the total net assets of the H&W Portfolio by a
given number of units. The number of units in the H&W Portfolio shall
be equal to the total shares outstanding of the Fund on the effective
date of this Agreement; provided, however, that as assets are added to
or withdrawn from the H&W Portfolio, the number of units in the H&W
Portfolio shall be adjusted based on the unit value of the H&W
Portfolio on the day such changes are executed.
(b) H&W PORTFOLIO PERFORMANCE. The investment performance of the H&W
Portfolio for any period, expressed as a percentage of the H&W
Portfolio unit value at the beginning of the period, will be the sum
of: (i) the change in the H&W Portfolio unit value during such period;
(ii) the unit value of the Fund's cash distributions from the H&W
Portfolio's net investment income and realized net capital gains
(whether short or long term) having an ex-dividend date occurring
within the period; and (iii) the unit value of capital gains taxes per
share paid or payable on undistributed realized long-term capital
gains accumulated to the end of such period by the H&W Portfolio,
expressed as a percentage of the H&W Portfolio unit value at the
beginning of such period. For this purpose, the value of distributions
of realized capital gains per unit of the H&W Portfolio, of dividends
per unit of the H&W Portfolio paid from investment income, and of
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capital gains taxes per unit of the H&W Portfolio paid or payable on
undistributed realized long-term capital gains shall be treated as
reinvested in units of the H&W Portfolio at the unit value 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. For purposes of calculating investment performance, the H&W
Portfolio unit value will be determined net of all fees and expenses
of the Fund attributable to the H&W Portfolio. Thus, the performance
of the H&W Portfolio will be net of all fees and expenses of the Fund
attributable to the H&W Portfolio when compared to the Index.
(c) INDEX PERFORMANCE. The investment record of the Index for any period,
expressed as a percentage of the Index level at the beginning of such
period, will be the sum of (i) the change in the level of the Index
during such period, and (ii) the value, computed consistently with the
Index, of cash distributions having an ex-dividend date occurring
within such period made by companies whose securities make up the
Index. For this purpose, cash distributions on the securities that
make up the Index will be treated as reinvested in the Index, at least
as frequently as the end of each calendar quarter following the
payment of the dividend. The calculation will be gross of applicable
costs and expenses, and consistent with the methodology used by Xxxxxx
Xxxxxxx Capital International Inc.
(d) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the H&W Portfolio and the
investment record of the Index shall be in accordance with any then
applicable rules of the U.S. Securities and Exchange Commission.
(e) EFFECT OF TERMINATION. In the event of termination of this Agreement,
the fees provided in this Agreement will 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 the Advisor performed services hereunder during the fiscal
quarter in which such termination becomes effective as a percentage of
the total number of days in such quarter.
A-3
1. FEE EXAMPLE #1 - ADJUSTED FEE CALCULATION: The following example serves as a
guide for the calculation of the Adjusted Fee.
Assume the Adjusted Fee for the fiscal quarter ending January 31, 2009 is
being calculated, the transition rules described in Schedule A, section 13.3 are
not in effect, and the month-end net assets of the H&W Portfolio over the
rolling 60-month period applicable to such fiscal quarter are as follows:
---------------------------------------------------------------------------------------------------------
MONTH-END NET ASSETS OF H&W PORTFOLIO ($MILLION)
---------------------------------------------------------------------------------------------------------
JAN FEB MAR APRIL MAY JUNE JULY AUG SEP OCT NOV DEC
---------------------------------------------------------------------------------------------------------
2004 1001 1002 1003 1004 1005 1006 1007 1008 1009 1010 1011
---------------------------------------------------------------------------------------------------------
2005 1012 1013 1014 1015 1016 1017 1018 1019 1020 1021 1022 1023
---------------------------------------------------------------------------------------------------------
2006 1024 1025 1026 1027 1028 1029 1030 1031 1032 1033 1034 1035
---------------------------------------------------------------------------------------------------------
2007 1036 1037 1038 1039 1040 1041 1042 1043 1044 1045 1046 1047
---------------------------------------------------------------------------------------------------------
2008 1048 1049 1050 1051 1052 1053 1054 1055 1056 1057 1058 1059
---------------------------------------------------------------------------------------------------------
2009 1060
---------------------------------------------------------------------------------------------------------
Also, assume the cumulative performance of the H&W Portfolio over the
rolling 60-month period applicable to such fiscal quarter is +17.5%, and the
cumulative performance of the Index over such period is +10.0%. Thus, the excess
return of the H&W Portfolio over the applicable period is +7.5%. The Adjusted
Fee payable by the Fund to the Advisor for the fiscal quarter ending January 31,
2009 would be $493,734.38 and is calculated as follows:
a. BASE FEE OF $397,125.00, WHICH IS CALCULATED AS FOLLOWS. The average
month-end net assets of the H&W Portfolio over the fiscal quarter ending January
31, 2009 ($1,059,000,000), with an Annual Percentage Rate of (0.15%) applied.
Therefore, the Base Fee is equal to:
Base Fee = (a X b) /4, where;
a = Average month-end net assets over the fiscal quarter ending January
31, 2009, calculated as follows:
($1,058,000,000 + $1,059,000,000 + $1,060,000,000) / 3 = $1,059,000,000
b = Annual Percentage Rate applied to average month end net assets, ( =
0.15%)
Base Fee = ($1,059,000,000 X 0.15%) / 4 = $397,125.00
b. PERFORMANCE ADJUSTMENT OF +$96,609.38, WHICH IS CALCULATED AS FOLLOWS.
The average month-end net assets of the H&W Portfolio over the rolling 60-month
period applicable to the fiscal quarter ending January 31, 2009 is
$1,030,500,000. The excess return of the H&W Portfolio (+17.5%) over the Index
(+10.0%) over such period is +7.5%. An excess return of +7.5%, when applied to
the Performance Adjustment Schedule, corresponds to an excess return of 0% up to
and including +15%, which corresponds to an Adjustment Percentage of +25%. The
performance adjustment percentage is calculated as follows:
A-4
The Performance Adjustment = ([c / d] X e) / 4, where;
c = Excess return over the performance period, (= +7.5%)
d = Maximum excess return for appropriate performance range, ( = +15.0%)
e = Maximum Adjustment Percentage for appropriate performance range,
(=+50%)
Adjustment Percentage = (7.5%/15.0%) X +50% = +25%
Therefore, the Performance Adjustment = ([f X g] X h) / 4
f = Adjustment Percentage, (= +25%)
g = Annual Percentage Rate applied to average month end net assets, (=
0.15%)
h = Average month-end net assets for the 60-months ended January 31,
2009, (= $1,030,500,000)
Performance Adjustment = ([+25% X 0.15%] X $1,030,500,000) / 4 = +$96,609.38
c. AN ADJUSTED FEE OF $493,734.38, WHICH IS CALCULATED AS FOLLOWS:
Adjusted Fee = i + j, where;
i = Base Fee, ( = $397,125.00)
j = Performance Adjustment, ( = $96,609.38)
Adjusted Fee = $397,125.00 + $96,609.38 = $493,734.38
d. CERTAIN CONVENTIONS. In practice, calculations will be extended to the
eighth decimal point. Performance differences between the H&W Portfolio and the
Index are treated in a symmetric manner, such as in the example.
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2. FEE EXAMPLE #2 - ADJUSTED FEE CALCULATION UNDER TRANSITION RULES: The
following example serves as a guide for the calculation of the Adjusted Fee
during the transition period.
Assume that the Advisor's compensation is being calculated for the fiscal
quarter ended July 31, 2006 and the month-end net assets of the H&W Portfolio
over the 30-month period applicable to such fiscal quarter are as follows:
---------------------------------------------------------------------------------------------------------
MONTH-END NET ASSETS OF H&W PORTFOLIO ($MILLION)
---------------------------------------------------------------------------------------------------------
JAN FEB MAR APRIL MAY JUNE JULY AUG SEP OCT NOV DEC
---------------------------------------------------------------------------------------------------------
2004 1001 1002 1003 1004 1005 1006 1007 1008 1009 1010 1011
---------------------------------------------------------------------------------------------------------
2005 1012 1013 1014 1015 1016 1017 1018 1019 1020 1021 1022 1023
---------------------------------------------------------------------------------------------------------
2006 1024 1025 1026 1027 1028 1029 1030
---------------------------------------------------------------------------------------------------------
Also, assume the cumulative performance of the H&W Portfolio over the 30-month
period applicable to the July 31, 2006 fiscal quarter is +10.75%, and the
cumulative performance of the Index over such period is +7.0%. Thus, the excess
return of the H&W Portfolio over the applicable period is +3.75%. The Adjusted
Fee payable by the Fund to the Advisor for the fiscal quarter ending July 31,
2006 would be $433,476.56 and is calculated as follows:
a. BASE FEE OF $385,875.00, WHICH IS CALCULATED AS FOLLOWS. The average
month-end net assets of the H&W Portfolio over the fiscal quarter ending July
31, 2006 ($1,029,000,000), when applied to the Annual Percentage Rate of
(0.15%). Therefore, the Base Fee is equal to:
Base Fee = (a X b) / 4, where;
a = Average month-end net assets over the fiscal quarter ending July 31,
2006, calculated as follows:
($1,028,000,000 + $1,029,000,000 + $1,030,000,000) / 3 = $1,029,000,000
b = Annual Percentage Rate applied to average month end net assets, ( =
0.15%)
Base Fee = ($1,029,000,000 X 0.15%) / 4 = $385,875.00
b. PERFORMANCE ADJUSTMENT OF +$47,601.56, WHICH IS CALCULATED AS FOLLOWS.
The average month-end net assets of the H&W Portfolio over the performance
period (January 31, 2004 to July 31, 2006) are $1,015,500,000. The excess return
of the H&W Portfolio (+10.75%) over the Benchmark (+7.0%) over such period is
+3.75%. An excess return of +3.75%, when applied to the Performance Adjustment
Schedule, corresponds to a relative performance of 0% and up to and including
+15%, which corresponds to an Adjustment Percentage of +12.5%, calculated as
follows:
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c = Percentage amount by which the performance of the Portfolio has
exceeded the Benchmark, ( = +3.75%)
d = Size of the adjusted range, determined as follows:
adjusted range = [(e / f) X g] to [(e / f) X h] = d
e = Number of months elapsed from January 31, 2004 to July 31, 2006 (=
30)
f = Number of months in full rolling performance period (= 60)
g = Maximum excess return for appropriate performance range (= +15.0%)
h = Minimum excess return for appropriate performance range (= 0.0%)
d = [(30/60) X +15.0%] to [(30/60) X +0.0%] = (+7.5% to +0.0%),
therefore, the excess return of the portfolio falls within the
adjustment range = (+7.5% - 0.0%)
k = The Maximum Transition Period Adjustment Percentage, which is
determined as follows:
Maximum Transition Period Adjustment Percentage = [(e / f) X j] = k
e = Number of months elapsed from January 31, 2004 to July 31, 2006 (=
30)
f = Number of months in full rolling performance period (= 60)
j = Maximum Adjustment Percentage for the appropriate performance range
(= +50%)
Maximum Adjustment Percentage for transition period =
[(30/60) X +50%) = +25% = k
Adjustment Percentage = ([c / d]) X k) = l, therefore,
([3.75%/7.50%] X 25%) = +12.5% = l
Therefore, the Performance Adjustment is equal to ([l X m] X n) / 4, where;
l = Adjustment Percentage, ( = +12.5%)
m = Annual Percentage Rate applied to average month-end net assets, ( =
0.15%)
n = Average month-end net assets for the transition period ended July
31, 2006, (= $1,015,500,000)
Performance Adjustment = ([+12.5% X 0.15%] X $1,015,500,000) / 4 = +$47,601.56
A-7
c. AN ADJUSTED FEE OF $433,476.56, WHICH IS CALCULATED AS FOLLOWS:
o + p = Adjusted Fee, where;
o = Base Fee, ( = $385,875.00)
p = Performance Adjustment, ( = $47,601.56)
Adjusted Fee = $385,875.00 + $47,601.56 = $433,476.56
d. CERTAIN CONVENTIONS. In practice, calculations will be extended to the
eighth decimal point. Performance differences between the H&W Portfolio and the
Index are treated in a symmetric manner, such as in the example.
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