AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 1st day of October, 2004, between
VANGUARD HORIZON FUNDS, a Delaware statutory trust (the "Trust"), and MARATHON
ASSET MANAGEMENT LLP, a United Kingdom partnership (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 Global
Equity 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 "Marathon Portfolio"). As of
the date of this Agreement, the Marathon 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 MARATHON Portfolio; to
continuously review, supervise, and administer an investment program for the
MARATHON 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 MARATHON
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 MARATHON
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 MARATHON 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.
6.1. COMPLIANCE WITH APPLICABLE LAW AND BOARD REQUIREMENTS. The Advisor
agrees to comply with all Applicable Law and 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.
6.2. DISCLOSURE OF COMPLIANCE MATTERS. If the Advisor receives any written
or other communication concerning or constituting a Compliance Matter,
then the Advisor shall provide the Trust a written summary of the
material facts and circumstances concerning such Compliance Matter
within five (5) calendar days of the earlier of the date on
which such Compliance Matter was received by the Advisor, or the date
on which the general counsel's office of the Advisor obtained actual
knowledge of such Compliance Matter. The Advisor shall provide the
Trust with a written summary of any material changes in the facts or
circumstances concerning any Compliance Matter within (5) calendar
days of the occurrence of such changes.
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6.3 CERTAIN DEFINITIONS. "Applicable Law" means (i) the "federal
securities laws" as defined in Rule 38a-1(e)(1) under the 1940 Act, as
amended from time to time, and (ii) any and all other laws, rules, and
regulations, whether foreign or domestic, in each case applicable at
any time and from time to time to the investment management operations
of the Advisor. "Compliance Matter" means any written or other
communication sent to the Advisor by any foreign, federal or state
agency or regulatory authority or any self-regulatory authority in
connection with any of the following: (i) the Advisor's compliance
with, or failure to comply with, Applicable Law as they relate to the
Advisor's investment management operations; (ii) the business or
affairs of the Advisor or any current or former client of the Advisor
as they relate to the Advisor's investment management operations; or
(iii) compliance by any person other than the Advisor with, or such
person's failure to comply with, Applicable Law as they relate to the
Advisor's investment management operations.
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.
9. LIMITATIONS ON CONSULTATIONS. The Advisor is prohibited from consulting
with other advisors of the Fund, except Vanguard, concerning transactions for
the Fund in securities or other assets.
10. DURATION; TERMINATION; NOTICES; AMENDMENT. This Agreement will become
effective on the date hereof and will continue in effect for a period of two
years thereafter, and
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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 Horizon Funds - Vanguard Global Equity 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:
Marathon Asset Management LLP
Orion House
0 Xxxxx Xx. Xxxxxx'x Xxxx
Xxxxxx XX0X 0XX
Attention: Xxxxxx Xxxxxxxx
Telephone: x00(0)00 0000 0000
Facsimile: x00(0)00 0000 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.
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11. 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.
12. 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.
13. 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 MARATHON
Portfolio.
14. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Investment
Advisory Agreement to be executed as of the date first set forth herein.
MARATHON ASSET MANAGEMENT LLP VANGUARD HORIZON FUNDS
/s/ William Arah 5-10-2004 /s/Xxxx X. Xxxxxxx
-------------------- --------- ------------------- ---------
Signature Date Signature Date
William Arah 5-10-2004 Xxxx X. Xxxxxxx
-------------------- --------- ------------------- ---------
Print Name Date Print Name Date
SCHEDULE A
Pursuant to Section 4 of the Agreement, the Fund shall pay the Advisor
compensation as follows:
14.1.CALCULATION OF THE BASE FEE. The Base Fee for each fiscal quarter
of the MARATHON Portfolio is calculated by applying a quarterly
rate, based on the following annual percentage rates, to the
average month-end net assets of the MARATHON Portfolio for the
quarter:
---------------------------------------------------------
Annual Percentage Rate Schedule
---------------------------------------------------------
Average Month-End Annual Percentage
Net Assets Rate
---------------------------------------------------------
On the first $100 million 0.45%
---------------------------------------------------------
On the next $150 million 0.40%
---------------------------------------------------------
On assets over $250 million 0.25%
---------------------------------------------------------
14.2.CALCULATION OF THE PERFORMANCE ADJUSTMENT. The Basic Fee, as
provided above, will be increased or decreased by applying a
Performance Fee Adjustment (the "Adjustment") based on the
investment performance of the MARATHON Portfolio relative to the
investment performance of the Xxxxxx Xxxxxxx Capital
International - All Country Index (the "Index"). The investment
performance of the MARATHON Portfolio will be based on the
cumulative return over a trailing 36-month period ending with the
applicable quarter, relative to the cumulative total return of
the Index for the same time period. The Adjustment applies as
follows:
------------------------------------------------------------------------------------------------------------------
PERFORMANCE ADJUSTMENT SCHEDULE
------------------------------------------------------------------------------------------------------------------
CUMULATIVE 36-MONTH PERFORMANCE OF MARATHON PORTFOLIO VS. PERFORMANCE FEE ADJUSTMENT
INDEX AS A PERCENTAGE OF BASIC FEE*
-----------------------------------------------------------------------------------------------------------------
Exceeds by 3% or less -0.50 x Basic Fee
-----------------------------------------------------------------------------------------------------------------
Exceeds by more than 5% up to 6% -0.25 x Basic Fee
-----------------------------------------------------------------------------------------------------------------
Exceeds by 6% through 9% 0.00 x Basic Fee
-----------------------------------------------------------------------------------------------------------------
Exceeds by more than 9% but less than 12% +0.25 x Basic Fee
-----------------------------------------------------------------------------------------------------------------
Exceeds by 12% or more +0.50 x Basic Fee
-----------------------------------------------------------------------------------------------------------------
* For purposes of determining the fee adjustment calculation, the quarterly rate
is applied against the net assets of the MARATHON Portfolio averaged over the
same time period for which the performance is measured.
14.3.OTHER SPECIAL RULES RELATING TO ADVISOR'S COMPENSATION. The
following special rules will also apply to the Advisor's
compensation:
(a) MARATHON PORTFOLIO UNIT VALUE. The "MARATHON Portfolio unit
value" shall be determined by dividing the total net assets
of the MARATHON Portfolio by a given number of units. The
number of units in the MARATHON 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 MARATHON Portfolio, the
number of units in the MARATHON Portfolio shall be adjusted
based on the unit value of the MARATHON Portfolio on the day
such changes are executed.
(b) MARATHON PORTFOLIO PERFORMANCe. The investment performance
of the MARATHON Portfolio for any period, expressed as a
percentage of the MARATHON Portfolio unit value at the
beginning of the period, will be the sum of: (i) the change
in the MARATHON Portfolio unit value during such period;
(ii) the unit value of the Fund's cash distributions from
the MARATHON 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 MARATHON
Portfolio, expressed as a percentage of the MARATHON
Portfolio unit value at the beginning of such period. For
this purpose, the value of distributions of realized capital
gains per unit of the MARATHON Portfolio, of dividends per
unit of the MARATHON Portfolio paid from investment income,
and of capital gains taxes per unit of the MARATHON
Portfolio paid or payable on undistributed realized
long-term capital gains shall be treated as reinvested in
units of the MARATHON 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 MARATHON Portfolio
unit value will be determined net of all fees and expenses
of the Fund attributable to the MARATHON Portfolio. Thus,
the performance of the MARATHON Portfolio will be net of all
fees and expenses of the Fund attributable to the MARATHON
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
the Index provider.
(d) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the MARATHON
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.
