INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 25th day of May, 2000, between VANGUARD MALVERN
FUNDS, a Delaware business trust (the "Trust"), and Grantham, Mayo, Van Otterloo
& Co. LLC, a Massachusetts limited liability corporation ("Adviser").
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 desires to retain tlhe Adviser to render investment
advisory services to the series of shares of the Trust known as Vanguard U.S.
Value Fund (the "Fund), and Adviser is willing to render such services;
NOW, THEREFORE, this Agreement
WITNESSETH
that in consideration of the premises and mutual1 promises hereinafter set
forth, the parties hereto agree as follows:
1. Appointment of Adviser. The Trust hereby employs Adviser as investment
adviser to the Fund, on the terms and conditions set forth herein. Adviser
accepts such employment and agrees to render the services herein set forth, for
the compensation herein provided.
2. Duties of Adviser. The Trust employs Adviser to manage the investment
and reinvestment of the assets of the Fund, 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 Adviser that the Fund is required to maintain, and to render
regular reports to the Fund's officers and Board of Trustees concerning the
discharge of the foregoing responsibilities. Adviser will discharge the
foregoing responsibilities subject to the control of the Fund's officers and the
Board of Trustees, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus, any additional operating
policies or procedures that the Fund communicates to the Adviser in writing, and
applicable laws and regulations. Adviser agrees 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. Adviser 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, except as otherwise permitted by the
Board of Trustees pursuant to written policies and procedures provided to
Adviser. Adviser will promptly communicate to the Fund's officers and Board of
Trustees such information relating to portfolio transactions a:; they may
reasonably request.
4. Compensation of Adviser. For the services to be rendered by Adviser as
provided in this Agreement, the Fund will pay to Adviser at the end of each of
the Fund's fiscal quarters, a Basic Fee calculated by applying a quarterly
ratr:, based on the following annual percentage rates, to the average month-end
net assets of the Fund for the quarter:
Subject to the transition rule described in Section 4.1 of this Agreement,
the Basic Fee, as provided above, will be increased or decreased by the amount
of a Performance Fee Adjustment ("Adjustment"). The Adjustment will be
calculated as a percentage of the average net assets of the Fund for the
36-month period ending with the then-ended quarter, and the Adjustment will
change proportionately with the investment performance of the Fund relative to
the investment performance of the Xxxxxxx 3000 Value Index (the "Index") fix the
same period. The Adjustment applies as follows:
Cumulative 36-Month Performance of the Fund vs. Index
-----------------------------------------------------
Adjustment as a Percentage of Average Net Assets*
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4.1. Transition Rule for Calculating Adviser's Compensation. The Adjustment
will not be fully operable until the close of the quarter ending June 30,2003.
Until that time, the following transition rules will apply:
(a) June 29,2000 through March 31,2001. The Adviser's compensation will
be the Basic Fee. No Adjustment will apply during this period.
(b) April 1,2001 through June 30,2003. Beginning April 1,2001, the
Adjustment will take effect on a progressive basis with regards to the
number of months elapsed between July 1, 2000, and the end of the quarter
for which the Adviser's fee is being computed. During this period, the
Adjustment outlined in Section 4.0 will be multiplied by a fraction. The
fraction will equal the number of rnonths elapsed since July 1, 2000,
divided by thirty- six.
(c) On and After July 1,2001. Commencing July 1,2003, the Adjustment
will be fully operable.
4.2. Other Special Rules Relating to Adviser's Compensation. The following
special rules will also apply to the Adviser's compensation:
(a) Fund Performance. The Fund's investment performance for any period,
expressed as a percentage of the net asset value per share of the Fund at
the beginning of such period, shall be the sum of: (i) the change in the
Fund's net asset value during such period; (ii) the value of the Fund's
cash distributions per share having an ex-dividend date occurring within
such period; and (iii) the per share amount of capital gains taxes paid or
accrued during such period by the Fund for undistributed realized long-term
capital gains.
(b) Index Performance. The investment record of the Index for any
period, expressed as a percentage of the Index at the beginning of such
period, shall 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 comprise the Index. For this
purpose, cash distributions on the securities which comprise the Index
shall be treated as reinvested in the Index at least as frequently as the
end of each calendar quarter following the payment of the dividend.
(c) Performance Computations. The foregoing notwithstanding, any
computation of the investment performance of the Fund and the investment
record of the Index shall be in accordance with any then applicable rules
of the U.S. Securities and Exchange Commission.
(d) Effect of Termination. 111 the event of termination of this
Agreement, the fees provided in Sections 4 and 4.1 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 Adviser agree to furnish to each other current
prospectuses, proxy statements, reports to shareholders, certified copies of
their balance sheet, and such other information with regard to their affairs as
each may reasonably request.
6. Compliance. Adviser agrees to comply with all policies, procedures or
reporting requirements that the Board of Trustees of the Fund reasonably adopts
and communicates to Adviser in writing, including any such policies, procedures
or reporting requirements relating to soft dollar or directed brokerage
arrangements.
7. Status of Adviser. The services of Adviser to the Fund are not to be
deemed exclusive, and Adviser will be free to render similar services to others
so long as its services to the Fund are not impaired thereby. Adviser 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 or
the Fund in any way or otherwise be deemed an agent of the Fund or the Fund.
8. Liability of Adviser. No provision of this Agreement will be deemed to
protect 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 will become effective on June
29, 2000, and will continue in effect until June 28, 2002, and thereafter, only
so long as such continuance is approved at least annually by votes of the Fund'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 shareholder:; 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.
Provided, however, that (i) 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 Fund,
on sixty days' written notice to Adviser, (ii) this Agreement will automatically
terminate in the event of its assignment, and (iii) this Agreement may be
terminated by Adviser 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 at any office of such party.
As used in this Section 9, the terms "assignment," "interested persons," a
"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 Investment Fund Act of 1940.
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed this 25th day of May, 2000.
ATTEST: VANGUARD MALVERN FUNDS
By /s/ Xxxxxxx Xxxxxx By /s/ Xxxx X. Xxxxxxx
Chairman, CEO and President
ATTEST: GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By /s/ Xxxxxxx Xxxxxxx By /s/Xxxxxxxxxxx Xxxxxxx
VANGUARD U.S. VALUE FUND
Exhibit to
Investment Advisory Agreement
Dated May 25, 2000
This Exhibit supplements and clarifies the provisions of Sections 4 and 4.1 of
the Agreement as follows:
1. For purposes of Adjustment calculations, the Fund's average net assets
will be determined 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 Fund versus the Index is +3.60%, an
Adjustment of 0.025%* or [(0.6% / 3.0%) 0.125%] would apply. This would be
calculated as [(a / b) 0.125%], where a equals the percentage amount by which
the performance of the Fund has exceeded the applicable baseline percentage for
the linear adjustment, and b equals the size of the range over which the linear
adjustment applies.
2. During the period described in Section 4.1(b) of the Agreement, the
Adjustment will be calculated using cumulative performance of the Fund and the
Index from July 1, 2000 through the end of the applicable quarter.
3. During the period described in Section 4.1(b) of the Agreement, the
endpoints and size of the range over which a positive or negative adjustment
applies and the corresponding maximum fee adjustment amount will be multiplied
by a fractional time-elapsed adjustment. The fraction will equal the number of
months elapsed since July 1, 2000, divided by thirty-six. Example: Assume that
the Adviser's compensation is being calculated for the quarter ended September
30, 2002, and that the cumulative performance of the Fund versus the Index for
the applicable period is +3.0%. In this case, an Adjustment of .031%* would
apply. This would be calculated as [(a / c)(0.09375%)], where a equals the
percentage amount by which the performance of the Fund has exceeded the baseline
percentage for the linear adjustment and c equals the sized of the adjusted
range over which the linear adjustment applies. The adjusted range is determined
as [(27/36) x 3.0%] to [(27/36) x 6.0%] = 2.25% to 4.50%. The size of the
adjusted range is 4.50% minus 2.25% = 2.25% = c. The value of a is 3.0% minus
2.25% = 0.75%. Similarly, 0.09375% is determined as [11:27/36) (0.125%)].
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*As rounded for purposes of example. In practice, calculations will be extended
to the eighth decimal point.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit to the
Agreement to be executed this 22 day of May, 2001.
ATTEST: VANGUARD MALVERN FUNDS
By /s/Xxxxxxx Xxxxxx By /s/ Xxxx X. Xxxxxxx
Chairman, CEO and President
ATTEST: GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC
By /s/Xxxxxx X. Xxxxxxxxx By /s/Xxxxxxx Xxxxxxx
Vanguard U.S. Value Fund
Investment Advisory Agreement Addendum
Effective July 1, 2006
This Addendum amends Section 4 of the Investment Advisory Agreement dated May
25, 2000, between Vanguard Malvern Funds (the "Trust") and Grantham, Mayo, Van
Otterloo & Co. LLC ("GMO," or the "Advisor") for the management of Vanguard U.S.
Value Fund, a series of the Trust (the "Fund"), as follows:
A. AMENDMENT
The following shall replace the first paragraph of Section 4 of the Agreement in
its entirety:
4. COMPENSATION OF ADVISOR. For the services to be rendered by the Advisor as
provided in this Agreement, the Fund shall pay to the Advisor at the end 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 daily net
assets for the quarter:
B. MISCELLANEOUS
Except as specifically amended hereby, all of the terms and conditions of the
Investment Advisory Agreement are unaffected and shall continue to be in full
force and effect and shall be binding upon the parties in accordance with its
terms. In particular, and notwithstanding Section A of this Amendment, the
performance adjustment will continue to be applied to an asset-base that is
calculated using the average month-end net assets over the applicable
performance period.
GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC VANGUARD MALVERN FUNDS
XX Xxxxxxxxx 10/10/06 Xxxx X. Xxxxxxx
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Signature Date Signature Date
XX XXXXXXXXX XXXX X. XXXXXXX
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