INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of April, 1996, between VANGUARD
QUANTITATIVE PORTFOLIOS, INC., a Maryland Corporation, (the "Fund") and FRANKLIN
PORTFOLIO ASSOCIATES TRUST, a Massachusetts business trust (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); 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 September 2, 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 "Commission") on September 5, 1986,
relating to shares of the Fund's Shares, and all amendments thereto;
2
(e) Notification of Registration of the Fund under the 1940 Act on Form
N-8A as filed with the Commission on September 5, 1986, 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 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by Rule 31a-1(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 Adviser. 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 $100 million 0.30%
Next $650 million 0.15%
Over $750 million 0.10%
Effective with the quarter ending June 30, 1996, the Basic Fee, as provided
above, shall be increased or decreased by an amount equal to .20% per annum
(.05% per quarter) of the first $100 million of average month-end net assets of
the Fund, and .10% per annum (.025% per quarter) of average month-end net assets
over $100 million, if the Fund's investment performance for the thirty-six
months preceding the end of the quarter is six percentage points or more above
or below, respectively, the investment record of the Standard & Poor's 500
Composite Stock Price Index (the "S&P Index") for the same period; or by an
amount equal to .10% per annum (.025% per quarter) of the first $100 million of
average month-end net assets of the Fund, and .05% per annum (.0124% per
quarter) of average month-end net assets over $100 million, if the Fund's
investment performance for such thirty-six months is three or more but less than
six percentage points above or below, respectively, the investment record of the
S&P Index for the same period.
3
For the purpose of determining the fee adjustment for investment
performance, as described above, the net assets of the Fund will be averaged
over the same period as the performance of the Fund and the investment record of
the S&P Index are computed.
The investment performance of the Fund for such period, expressed as a
percentage of the Fund's net asset value per share at the beginning of such
period, shall be the sum of: (i) the change in the Fund's net asset value per
share during such period; (ii) the value of the Fund's cash distributions per
share accumulated to the end of such period; and (iii) the value of capital
gains taxes per share paid or payable on undistributed realized long-term
capital gains accumulated to the end of such period. For this purpose, the value
of distributions per share of realized capital gains, of dividends per share
paid from investment income and of capital gains taxes per share paid or payable
on undistributed realized long-term capital gains shall be treated as reinvested
in shares of the Fund at the net asset value per share in effect at the close of
business on the ex-dividend 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. The investment record of the
S&P Index for any period, expressed as a percentage of the S&P Index level at
the beginning of such period, shall be the sum of (i) the change in the level of
the S&P Index during such period and (ii) the value, computed consistently with
the S&P Index, of cash distributions made by companies whose securities comprise
the S&P Index accumulated to the end of such period. For this purpose cash
distributions on the securities which comprise the S&P Index shall be treated as
reinvested in the S&P Index at least as frequently as the end of each calendar
quarter following the payment of the dividend. The foregoing notwithstanding,
any computation of the investment performance of the Fund and the investment
record of the S&P Index shall be in accordance with any then applicable rules of
the Securities and Exchange Commission.
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.
8. Limitation of Liability. In the absence of (i) misfeasance, negligence,
or the violation of applicable law, on the part of the Adviser in performance of
its obligations and duties hereunder, (ii) reckless disregard by the Adviser of
its obligations and duties hereunder, or (iii) a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act), the Adviser shall not be subject
to any liability to the Fund, or to any shareholder of the Fund, for any error
of judgment, mistake of law or any other act of omission in the course of, or
connected with, rendering services hereunder including, without limitations, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund. Federal and state
securities laws and ERISA impose liabilities under certain circumstances on
persons who act in good faith, and therefore nothing herein shall in any way
constitute a waiver or limitation of any rights which the Fund may have under
any such laws.
4
9. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until March 31, 1998 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).
10. 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 shall vote the shares of all portfolio securities held of the Fund.
ATTEST: VANGUARD QUANTITATIVE
PORTFOLIOS, INC.
By Xxxxxxx X. Xxxxxxxxx By Xxxx X. Xxxxxxx
--------------------- ------------------------
Secretary President and Chief Executive Officer
ATTEST: FRANKLIN PORTFOLIO
ASSOCIATES TRUST
By By
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
INVESTMENT ADVISORY AGREEMENT ADDENDUM
--------------------------------------
EFFECTIVE MAY 1, 1998
This Addendum amends Section 4 of the Investment Advisory Agreement dated
April 1, 1996 between Vanguard QUANTITATIVE PORTFOLIOS, Inc. (the "Fund") and
Franklin Portfolio Associates ("FPA").
1. NEW FEE SCHEDULES. The Fund will compensate FPA according to the
following fee schedules:
BASIC FEE
---------
ASSETS MANAGED ANNUAL RATE
-------------- -----------
First $100 million 0.30%
Next $650 million 0.15%
Next $1.25 billion 0.10%
Next $3 billion 0.08%
Over $5 billion 0.06%
INCENTIVE /PENALTY FEE vs. S&P 500 COMPOSITE STOCK PRICE INDEX*
---------------------------------------------------------------
PERFORMANCE FEE ADJUSTMENT
----------- --------------
+6% or more +60% of Basic Fee
+3% to +6% +30% of Basic Fee
-3% to +3% 0
-3% to -6% -30% of Basic Fee
Less than -6% -60%of Basic Fee
*Incentive/penalty fees will be calculated based on performance of the Fund
relative to the performance of the S&P 500 Composite Stock Price Index for the
thirty-six months preceding the end of the fiscal quarter for which advisory
fees are due.
2. TRANSITION SCHEDULE FOR INCENTIVE/PENALTY FEES. The new
incentive/penalty fee schedule will not be fully operable until April 30, 2001.
Until that date, a transition schedule consisting of varying percentages of the
old and new incentive/penalty fees will be used. For each fiscal quarter
included in the 36 months beginning May 1, 1998, the incentive/penalty fee will
be calculated as the sum of a and b, whereby:
a = # of months elapsed since 5/1/1998 X the fee adjustment calculated
-------------------------------------- under the new schedule
36 months
b = # of months remaining until 4/30/2001 X the fee adjustment calculated
-------------------------------------- under the old schedule
36 months
3. NO EFFECT ON OTHER PROVISIONS. Except with respect to these fee
schedules, all other provisions of the Investment Advisory Agreement dated April
1, 1996 remain in full force and effect.
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
XXXX X. XXXXXXX 5/1/98
------------------------------------------------
President, Chief Executive Officer Date &
Chairman of the Board
FRANKLIN PORTFOLIO ASSOCIATES
XXXX X. XXXXXXXXX 6/12/98
-----------------------------------------------
President Date
