INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of July 1, 1997, between VANGUARD ASSET
ALLOCATION FUND, INC., a Maryland Corporation, (the "Fund") and MELLON CAPITAL
MANAGEMENT CORPORATION (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
WITNESSETH:
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. Adviser 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) Articles of Incorporation of the Fund, dated July 19, 1988 (such
Articles of Incorporation, as presently in effect and as amended from time to
time, is 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 August 3, 1988, relating to shares of the
Fund's Shares of Common Stock 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 3, 1988, and all amendments thereto.
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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 for 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. 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 the Fund's
fiscal quarters, a fee calculated by applying a quarterly rate ("Basic Fee"),
based on the following annual percentage rates, to the Fund's average month-end
assets for the quarter:
This fee may be increased or decreased by applying an adjustment formula
based on the performance of the Fund's portfolio relative to the investment
record of a "Combined Index", 65% of which shall be comprised of the Standard &
Poor's 500 Composite Price Index and 35% of which shall be comprised of the
Xxxxxx Brothers Long-Term U.S. Treasury Index. The fee payment will be increased
(decreased) by an incentive (penalty) of 0.05% of average net assets, if the
Fund's cumulative investment performance for the thirty-six months preceding the
end of the quarter is at least six percentage points above (below) the
cumulative investment record of the Combined Index for the same period. 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 Combined
Index are computed.
Under the rules of the Securities and Exchange Commission, the new
incentive/penalty fee will not be fully operable until the quarter ending March
31, 2000. Until that date, a "blended" fee rate consisting of varying
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percentages of (i) the performance adjustment based on the schedule set forth
above (the "New Rate"(1)), and (ii) the performance adjustment based on the
schedule set forth in the Fund's previous investment advisory agreement with the
adviser(2) (the "Previous Rate") shall be used as follows:
1. Quarter Ending June 30, 1997. The incentive/penalty fee shall be
calculated as the sum of 8.3% (e.g., one of 12 quarters) of the fee payable
under the New Rate plus 91.7% (e.g., 11 of 12 quarters) of the fee payable under
the Previous Rate.
2. Quarter Ending September 30, 1997. The incentive/penalty fee shall be
calculated as the sum of 16.6% of the fee payable under the New Rate plus 83.4%
of the fee payable under the Previous Rate.
3. Quarter Ending December 31, 1997. The incentive/penalty fee shall be
calculated as the sum of 25% of the fee payable under the New Rate plus 75% of
the fee payable under the Previous Rate.
4. Quarter Ending March 31, 1998. The incentive/penalty fee shall be
calculated as the sum of 33.3% of the fee payable under the New Rate plus 66.7%
of the fee payable under the Previous Rate.
5. Quarter Ending June 30, 1998. The incentive/penalty fee shall be
calculated as the sum of 41.6% of the fee payable under the New Rate plus 58.4%
of the fee payable under the Previous Rate.
6. Quarter Ending September 30, 1998. The incentive/penalty fee shall be
calculated as the sum of 50% of the fee payable under the New Rate plus 50% of
the fee payable under the Previous Rate.
7. Quarter Ending December 31, 1998. The incentive/penalty fee shall be
calculated as the sum of 58.4% of the fee payable under the New Rate plus 41.6%
of the fee payable under the Previous Rate.
8. Quarter Ending March 31, 1999. The incentive/penalty fee shall be
calculated as the sum of 66.7% of the fee payable under the New Rate plus 33.3%
of the fee payable under the Previous Rate.
9. Quarter Ending June 30, 1999. The incentive/penalty fee shall be
calculated as the sum of 75% of the fee payable under the New Rate plus 25% of
the fee payable under the previous rate.
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(1) The benchmark used for the new rate calculation will consist of linking the
return of the "new" benchmark (a "Combined Index", 65 % of which is comprised of
the Standard & Poor's 500 Composite Price Index and 35% of which is comprised of
the Xxxxxx Brothers Long-Term U.S. Treasury Index) to the return of the
"previous" benchmark (Standard & Poor's 500 Composite Price Index) in the same
varying percentages that are listed below.
(2) The previous incentive/penalty fee structure provided that the Basic Fee be
increased or decreased by an amount equal to .05% of the average month-end
assets of the Fund if the Fund's investment performance for the thirty-six
months preceding the end of the quarter was six percentage points or more above
or below, respectively, the investment record of the Standard & Poor's 500
Composite Price Index.
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10. Quarter Ending September 30, 1999. The incentive/penalty fee shall be
calculated as the sum of 83.4% of the fee payable under the New Rate plus 16.6%
of the fee payable under the Previous Rate.
11. Quarter Ending December 31, 1999. The incentive/penalty fee shall be
calculated as the sum of 91.7% of the fee payable under the New Rate plus 8.3%
of the fee payable under the Previous Rate.
12. Quarter Ending March 31, 0000.Xxx Rate fully operable.
For the purpose of determining the fee adjustment for investment
performance, as described above, the net assets of the Fund shall be averaged
over the same period as the investment performance of the Fund and the
investment record of the Combined Index are computed. The "investment
performance" of the Fund for the period, expressed as a percentage of the Fund's
net asset value per share at the beginning of the 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 having an ex-dividend date
occurring within the 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.
The "investment record" of the Stock Index for the period, expressed as a
percentage of the Stock Index level at the beginning of the period, shall be the
sum of (i) the change in the level of the Stock Index during the period and (ii)
the value, computed consistently with the Stock Index, of cash distributions
having an ex-dividend date occurring within the period made by companies whose
securities comprise the Stock Index. The "investment record" of the Bond Index
for the period, expressed as a percentage of the Bond Index level at the
beginning of such period shall be the sum of (i) the change in the level of the
Bond Index during the period and (ii) the value of the interest accrued or paid
on the bonds included in the Bond Index, assuming the reinvestment of such
interest on a monthly basis. Computation of these two components as the Combined
Index shall be made on the basis of 65% in the Stock Index and 35% in the Bond
Index at the beginning of each quarter.
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
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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 or omission in the course of, or
connected with, rendering services hereunder including, without limitation, 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.
9. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until June 30, 1999, and, thereafter shall
continue automatically 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).
In the event of termination of this Agreement, the Fund will on the written
request and election of the Adviser either thereafter state in all prospectuses,
advertising material, letterheads and other material designed to be read by
investors and prospective investors in prominent position and in prominent type
(as may reasonably be approved by the Adviser) that Mellon Capital Management
Corporation has ceased to be its investment adviser.
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 by the Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ATTEST: VANGUARD ASSET ALLOCATION
FUND, INC.
Xxxxxxx X. Xxxxxxxxx By Xxxx X. Xxxxxxx
--------------------------------- -------------------------------------
Secretary President and Chief Executive Officer
ATTEST: MELLON CAPITAL MANAGEMENT
CORPORATION
Xxxxxxx X. Xxxxxxx By XXXXXX X. XXXX
--------------------------------- -------------------------------------
Vanguard Asset Allocation Fund
Investment Advisory Agreement Addendum
Effective July 1, 2006
This Addendum amends Section 7 of the Investment Advisory Agreement dated July
1, 1997, between Vanguard Malvern Funds, on behalf of Vanguard Asset Allocation
Fund (the "Fund"), and Mellon Capital Management Corporation ("Mellon," or the
"Advisor") for the management of the Fund, as follows:
A. AMENDMENT
The following shall replace the first paragraph of Section 7 of the Agreement in
its entirety:
7. COMPENSATION. 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:
In the event of termination of this Agreement, the fee provided in this Section
for the period beginning on the first day of the then-current fiscal quarter and
ending on the last business day on which this Agreement is in effect (the "Short
Quarter") shall be calculated by applying the foregoing annual percentage rates
to the average daily net assets of the Fund during the Short Quarter, dividing
the result by four, and multiplying that figure by a ratio equal to the number
of days in the Short Quarter divided by the total number of days in the full
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.
MELLON CAPITAL MANAGEMENT VANGUARD MALVERN FUNDS
CORPORATION
Xxxx Xxxxxxxx 10/31/2006 Xxxx X. Xxxxxxx 10/27/2006
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Signature Date Signature Date
XXXX XXXXXXXX XXXX X. XXXXXXX
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