INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 23rd day of May, 2005, between
VANGUARD WHITEHALL FUNDS, a Delaware statutory trust (the "Trust"), and
XXXXXX XXXXX & CO., INC.(the "Advisor"), a Delaware corporation.
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
SELECTED VALUE 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 "DSCO Portfolio"). As of the
date of this Agreement, the DSCO 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 DSCO Portfolio; to continuously
review, supervise, and administer an investment program for the DSCO 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
DSCO Portfolio, and is directed to use its best efforts to obtain best execution
for such transactions. In selecting brokers or dealers to execute trades for the
DSCO Portfolio, the Advisor will comply with all applicable statutes, rules,
interpretations by the Securities and Exchange Commission or its staff, other
applicable law, and the written policies and procedures established by the
Fund's Board of Trustees and communicated to the Advisor in writing.
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 DSCO Portfolio and will be paid to the Advisor quarterly. Notwithstanding
the foregoing, for the partial fiscal quarter beginning on the Effective Date
(defined in Section 10) and ending on July 31, 2005, the fee shall be calculated
as described above, subject to a pro rata adjustment based on the number of days
in the period during which the Fund had net assets greater than zero as a
percentage of the total number of days in such quarter.
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.
The Fund acknowledges receipt of Part II of the Advisor's Form ADV.
6. COMPLIANCE. 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 other brokerage arrangements.
"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.
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 with respect to the Advisor's management of the
DSCO Portfolio under this Agreement.
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9. LIMITATIONS OF 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 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 Selected Value Fund
X.X. Xxx 0000
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Advisor, at:
Xxxxxx Xxxxx & Co. Inc.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
Telephone: 000-000-0000
Facsimile:
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
3
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 10, 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.
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 Trustees 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
Trustees 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 DSCO
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.
XXXXXX XXXXX & CO., INC. VANGUARD WHITEHALL FUNDS
------------------------------- --------- ------------------------------- ---------
Signature Date Signature Date
---------------------------- --------- ---------------------------- ---------
Print Name Date Print Name Date
4
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SCHEDULE A
Pursuant to Section 4 of the Agreement, the Fund shall pay the Advisor
compensation as follows:
1.1. 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 DSCO Portfolio
during such fiscal quarter, and dividing the result by four. The
Fund's fiscal quarter ends are the months ending January, April, July,
and October.
ANNUAL PERCENTAGE RATE SCHEDULE
--------------------------------
AVERAGE MONTH-END ANNUAL PERCENTAGE
NET ASSETS RATE
---------- ----
First $100 million 0.40%
Next $200 million 0.35%
Next $300 million 0.25%
Over $600 million 0.20%
1.2. 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 DSCO Portfolio over the previous 60-months, and dividing the
result by four. The Adjustment Percentage for each fiscal quarter of
the DSCO Portfolio shall be determined by applying the following
Performance Adjustment Schedule to the cumulative performance of the
DSCO 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 DSCO PORTFOLIO
VS. ADJUSTMENT PERFORMANCE
INDEX OVER APPLICABLE 60-MONTH PERIOD
--------------------------------------- ----------------------
More than +12% +50% to base fee
Greater than 0% up to and including +12% Linear increase between 0% to 50%
From -12% up to and including 0% Linear decrease between -50% to 0%
Less than -12% -50% to base fee
1.3. TRANSITION RULES FOR CALCULATING THE ADVISOR'S COMPENSATION. The
Performance Adjustment will not be fully incorporated into the
determination of the Adjusted Fee until the fiscal quarter ended July
31, 2010. Until that date, the following transition rules will apply:
(a) MAY 23, 2005 THROUGH APRIL 30, 2006. 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.
A-1
(b) MAY 1, 2006 THROUGH JULY 31, 2010. Beginning May 1, 2006, the
Performance Adjustment will take effect on a progressive basis
with regard to the number of months elapsed between July 31,
2005, 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 DSCO Portfolio, as determined
for a period commencing August 1, 2005, 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 DSCO Portfolio and the Index for a
period commencing August 1, 2005 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 July 31, 2005, divided by 60. (See Fee Example #2.)
(c) ON AND AFTER JULY 31, 2010. The Adjusted Fee will be equal to the
Base Fee plus the Performance Adjustment.
1.4. OTHER SPECIAL RULES RELATING TO ADVISOR'S COMPENSATION. The following
special rules will also apply to the Advisor's compensation:
(a) DSCO PORTFOLIO UNIT VALUE. The "DSCO Portfolio unit value" shall
be determined by dividing the total net assets of the DSCO
Portfolio by a given number of units. The number of units in the
DSCO 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 DSCO
Portfolio, the number of units in the DSCO Portfolio shall be
adjusted based on the unit value of the DSCO Portfolio on the day
such changes are executed.
(b) DSCO PORTFOLIO PERFORMANCE. The investment performance of the
DSCO Portfolio for any period, expressed as a percentage of the
DSCO Portfolio unit value at the beginning of the period, will be
the sum of: (i) the change in the DSCO Portfolio unit value
during such period; (ii) the unit value of the Fund's cash
distributions from the DSCO 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 DSCO Portfolio, expressed as a
percentage of the DSCO Portfolio unit value at the beginning of
such period. For this purpose, the value of distributions of
realized capital gains per unit of the DSCO Portfolio, of
dividends per unit of the DSCO Portfolio paid from investment
income, and of capital gains taxes per unit of the DSCO Portfolio
paid or payable on undistributed realized long-term capital gains
shall be treated as
A-2
reinvested in units of the DSCO 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 DSCO Portfolio unit value will be
determined net of all fees and expenses of the Fund attributable
to the DSCO Portfolio. Thus, the performance of the DSCO
Portfolio will be net of all fees and expenses of the Fund
attributable to the DSCO 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 DSCO 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 when the cumulative excess return
of the portfolio versus the Index falls within the linear adjustment range:
"Greater than 0% up to and including +12%".
Assume the Adjusted Fee for the fiscal quarter ending July 31, 2010 is
being calculated, the transition rules described in Schedule A, section 14.3.
are not in effect, and the month-end net assets of the DSCO Portfolio over the
rolling 60-month period applicable to such fiscal quarter are as follows:
----------------------------------------------------------------------------------------------------------------------
Month-End Net Assets of DSCO Portfolio ($ million)
----------------------------------------------------------------------------------------------------------------------
Jan Feb Mar April May June July Aug Sep Oct Nov Dec
----------------------------------------------------------------------------------------------------------------------
2005 101 102 103 104 105
----------------------------------------------------------------------------------------------------------------------
2006 106 107 108 109 110 111 112 113 114 115 116 117
----------------------------------------------------------------------------------------------------------------------
2007 118 119 120 121 122 123 124 125 126 127 128 129
----------------------------------------------------------------------------------------------------------------------
2008 130 131 132 133 134 135 136 137 138 139 140 141
----------------------------------------------------------------------------------------------------------------------
2009 142 143 144 145 146 147 148 149 150 151 152 153
----------------------------------------------------------------------------------------------------------------------
2010 154 155 156 157 158 159 160
----------------------------------------------------------------------------------------------------------------------
Also, assume the cumulative performance of the DSCO Portfolio over the
rolling 60-month period applicable to such fiscal quarter is +26.0%, and the
cumulative performance of the Index over such period is +20.0%. Thus, the excess
return of the DSCO Portfolio over the applicable period is +6.0%. The Adjusted
Fee payable by the Fund to the Advisor for the fiscal quarter ending July 31,
2010 would be $183,296.88 and is calculated as follows:
a. BASE FEE OF $151,625.00, WHICH IS CALCULATED AS FOLLOWS. The average
month-end net assets of the DSCO Portfolio over the fiscal quarter ending July
31, 2010 ($159,000,000), with an Annual Percentage Rate of 0.40% applied to the
first $100 million and an Annual Percentage Rate of 0.35% applied to the
remaining $59 million. Therefore, the Base Fee is equal to:
Base Fee = [(a1 X b1) + ((a2 X b2)] / 4, where;
a = Average month-end net assets over the fiscal quarter ending July 31, 2010,
calculated as follows:
($158,000,000 + $159,000,000 + $160,000,000) / 3 = $159,000,000
a1 = $100,000,000
a2 = a - a1 = $59,000,000
b1 = Annual Percentage Rate applied to first $100 million, ( = 0.40%)
b2 = Annual Percentage Rate applied to next $200 million, ( = 0.35%)
Base Fee = [($100,000,000 X 0.40%) + ($59,000,000 X 0.35%)] / 4 = $151,625.00
b. PERFORMANCE ADJUSTMENT OF $31,671.88, WHICH IS CALCULATED AS FOLLOWS.
The average month-end net assets of the DSCO Portfolio over the rolling 60-month
period applicable
A-4
to the fiscal quarter ending July 31, 2010 are $130,500,000. The excess
return of the DSCO Portfolio (+26.0%) over the Index (+20.0%) over such period
is +6.0%. An excess return of +6.0%, when applied to the Performance Adjustment
Schedule, corresponds to an excess return of 0% up to and including +12%, which
corresponds to an Adjustment Percentage of +25%. The performance adjustment
percentage is calculated as follows:
The Performance Adjustment Percentage = ([c / d] X e), where;
c = Excess return over the performance period, (= +6.0%)
d = Maximum excess return for appropriate performance range, ( = +12.0%)
e = Maximum Adjustment Percentage for appropriate performance range, (=+50%)
Performance Adjustment Percentage = (6.0%/12.0%) X +50% = 25%
Therefore, the Performance Adjustment = [((f X g1) X h1) + ((f X g2) X h2)] / 4
f = Performance Adjustment Percentage, (= 25%)
g1 = Annual Percentage Rate applied to first 100 million, (= 0.40%)
g2 = Annual Percentage Rate applied to next $200 million, (= 0.35%)
h = Average month-end net assets for the 60-months ended
July 31, 2010, (= $130,500,000)
h1 = $100,000,000
h2 = h - $100,000,000 = $30,500,000
Performance Adjustment = [((25% X 0.40%) X $100,000,000) +
((25% X 0.35%) X $30,500,000)] / 4 = $31,671.88
c. AN ADJUSTED FEE OF $183,296.88, WHICH IS CALCULATED AS FOLLOWS:
Adjusted Fee = i + j, where;
i = Base Fee, ( = $151,625.00)
j = Performance Adjustment, ( = $31,671.88)
Adjusted Fee = $151,625.00 + $31,671.88
= $183,296.88
d. CERTAIN CONVENTIONS. In practice, calculations will be extended to the
eighth decimal point. Performance differences between the DSCO Portfolio and the
Index are treated in a symmetric manner, such as in the example.
A-5
2. FEE EXAMPLE #2 - ADJUSTED FEE CALCULATION UNDER TRANSITION RULES: The
following example serves as a guide for the calculation of the Adjusted Fee
during the transition period when the cumulative excess return of the portfolio
versus the Index falls within the linear adjustment range: "Greater than 0% up
to and including +12%".
Assume that the Advisor's compensation is being calculated for the fiscal
quarter ended October 31, 2007 and the month-end net assets of the DSCO
Portfolio over the 27-month period applicable to such fiscal quarter are as
follows:
----------------------------------------------------------------------------------------------------------------------
Month-End Net Assets of DSCO Portfolio ($ million)
----------------------------------------------------------------------------------------------------------------------
Jan Feb Mar April May June July Aug Sep Oct Nov Dec
----------------------------------------------------------------------------------------------------------------------
2005 101 102 103 104 105
----------------------------------------------------------------------------------------------------------------------
2006 106 107 108 109 110 111 112 113 114 115 116 117
----------------------------------------------------------------------------------------------------------------------
2007 118 119 120 121 122 123 124 125 126 127
----------------------------------------------------------------------------------------------------------------------
Also, assume the cumulative performance of the DSCO Portfolio over the 27-month
period applicable to the October 31, 2007 fiscal quarter is +16.0%, and the
cumulative performance of the Index over such period is +12.0%. Thus, the excess
return of the DSCO Portfolio over the applicable period is +4.0%. The Adjusted
Fee payable by the Fund to the Advisor for the fiscal quarter ending October 31,
2007 would be $141,462.08 and is calculated as follows:
BASE FEE OF $122,750, WHICH IS CALCULATED AS FOLLOWS. The average month-end net
assets of the DSCO Portfolio over the fiscal quarter ending October 31, 2007
($126,000,000), with an Annual Percentage Rate of 0.40% applied to the first
$100 million and an Annual Percentage Rate of 0.35% applied to the remaining $26
million. Therefore, the Base Fee is equal to:
Base Fee = [(a1 X b1) + ((a2 X b2)] / 4, where;
a=Average month-end net assets over the fiscal quarter ending October 31, 2007,
calculated as follows:
($125,000,000 + $126,000,000 + $127,000,000) / 3 = $126,000,000
a1 = $100,000,000
a2 = a - a1 = $26,000,000
b1 = Annual Percentage Rate applied to first $100 million, ( = 0.40%)
b2 = Annual Percentage Rate applied to next $200 million, ( = 0.35%)
Base Fee = [($100,000,000 X 0.40%) + ($26,000,000 X 0.35%)] / 4 = $122,750.00
a. PERFORMANCE ADJUSTMENT OF +$18,712.08, WHICH IS CALCULATED AS FOLLOWS.
The average month-end net assets of the DSCO Portfolio over the performance
period (August 1, 2005 to October 31, 2007) are $114,000,000. The excess return
of the DSCO Portfolio (+16.0%) over the Benchmark (+12.0%) over such period is
+4.0%. An excess return of +4.0%, when applied to the Performance Adjustment
Schedule, corresponds to a relative performance of 0%
A-6
and up to and including +12%, which corresponds to an Adjustment Percentage of
+16.67%, calculated as follows:
The Performance Adjustment Percentage = ([c / d] X k), where;
c = Percentage amount by which the performance of the Portfolio has
exceeded the Benchmark, ( = +4.0%)
d = Maximum Transition Period excess return for appropriate performance range,
determined as follows:
[(e / f) X g], where;
e = Number of months elapsed from July 31, 2005 to October 31, 2007 (= 27)
f = Number of months in full rolling performance period (= 60)
g = Maximum excess return for appropriate performance range (= +12.0%)
d = [(27/60) X +12.0%] = +5.4%
Maximum Transition Period Adjustment Percentage = [(e / f) X h] = k, where;
e = Number of months elapsed from July 31, 2005 to October 31, 2007 (= 27)
f = Number of months in full rolling performance period (= 60)
h= Maximum Adjustment Percentage for the appropriate performance range (= +50%)
Maximum Adjustment Percentage for transition period=[(27/60) X +50%)=+22.5%= k
Adjustment Percentage = ([c / d]) X k) = l, therefore,
l = ([+4.0%/+5.4%] X + 22.5%) = +16.67%
Therefore, the Performance Adjustment is equal to
[((l X m1)X n1) + ((l X m2) X n2)] /4,
where;
l = Adjustment Percentage, ( = +16.67%)
m1 = Annual Percentage Rate applied to first $100 million, (= 0.40%)
m2 = Annual Percentage Rate applied to next $200 million, (= 0.35%)
n= Average month-end net assets for the transition period ended October 31, 2007
(= $114,000,000)
n1 = $100,000
n2 = n - $100,000,000 = $14,000,000
A-7
Performance Adjustment = [((+16.67% X 0.40%) X $100,000,000) +
((+16.67% X 0.35%) X $14,000,000)] / 4 = +$18,712.08
Performance Adjustment = $18,712.08
b. AN ADJUSTED FEE OF $141,462.08, WHICH IS CALCULATED AS FOLLOWS:
o + p = Adjusted Fee, where;
o = Base Fee, ( = $122,750.00)
p = Performance Adjustment, ( = $18,712.08)
Adjusted Fee = $122,750.00 + $18,712.08= $141,462.08
c. CERTAIN CONVENTIONS. In practice, calculations will be extended to
the eighth decimal point. Performance differences between the DSCO
Portfolio and the Index are treated in a symmetric manner, such as in the
example.
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