VANGUARD VARIABLE INSURANCE FUND
INVESTMENT ADVISORY AGREEMENT ADDENDUM
Effective April 30, 2003
This Addendum amends Section 4 of the Investment Advisory Agreement dated
July 1, 2000 between Vanguard VARIABLE INSURANCE FUND - SMALL COMPANY GROWTH
PORTFOLIO (the "Fund") and XXXXXXXX INVESTMENT MANAGEMENT, INC. ("XXXXXXXX") as
follows.
4. COMPENSATION OF XXXXXXXX. For the services to be rendered by XXXXXXXX as
provided in this Agreement, the Fund will pay to XXXXXXXX at the end of each of
the Fund's fiscal quarters, a Basic Fee calculated by applying a quarterly rate,
based on the annual percentage rate of 0.15%, to the average month-end net
assets of the XXXXXXXX Portfolio for the quarter.
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 XXXXXXXX Portfolio relative to the investment performance of
the Xxxxxxx 2500 Growth Index. The investment performance of the XXXXXXXX
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 Xxxxxxx 2500 Growth Index for the same time period. The Adjustment applies
as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF THE
XXXXXXXX PORTFOLIO VS. THE XXXXXXX PERFORMANCE FEE ADJUSTMENT AS A
2500 GROWTH INDEX PERCENTAGE OF THE BASIC FEE*
----------------- ----------------------------
Trails by -12% or more -0.50 x Basic Fee
Trails by more than -6% up to -12% -0.25 x Basic Fee
Trails/Exceeds by -6% through 6% 0.00 x Basic Fee
Exceeds by more than 6% 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 basic fee is
calculated by applying the quarterly rate against the net assets of the Xxxxxxxx
Portfolio averaged over the same time period for which the performance is
measured.
4.1. TRANSITION RULE FOR CALCULATING XXXXXXXX'X COMPENSATION. The fee structure
described in Section 4 will not be fully operable until the quarter ending
June 30, 2006. Until that date, the Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2500 Growth Index and
that of the Xxxxxxx 2000 Growth Index.
1. QUARTER ENDING JUNE 30, 2003. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the eleven
quarters and one month ending April 30, 2003 with that of the Xxxxxxx 2500
Growth Index for the two months ending June 30, 2003.
2. QUARTER ENDING SEPTEMBER 30, 2003. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
ten quarters and one month ending April 30, 2003 with that of the Xxxxxxx
2500 Growth Index for the two months and one quarter ending September 30,
2003.
3. QUARTER ENDING DECEMBER 31, 2003. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
nine quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and two quarters ending December 31,
2003.
4. QUARTER ENDING MARCH 31, 2004. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the eight
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and three quarters ending March 31, 2004.
5. QUARTER ENDING JUNE 30, 2004. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the seven
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and four quarters ending June 30, 2004.
6. QUARTER ENDING SEPTEMBER 30, 2004. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
six quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and five quarters ending September 30,
2004.
7. QUARTER ENDING DECEMBER 31, 2004. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
five quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and six quarters ending December 31,
2004.
8. QUARTER ENDING MARCH 31, 2005. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the four
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and seven quarters ending March 31, 2005.
9. QUARTER ENDING JUNE 30, 2005. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the three
quarters and one month ending April 30, 2003, with that of the Xxxxxxx 2500
Growth Index for the two months and eight quarters ending June 30, 2005.
10. QUARTER ENDING SEPTEMBER 30, 2005. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
two quarters and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and nine quarters ending September 30,
2005.
11. QUARTER ENDING DECEMBER 31, 2005. The Adjustment will be determined by
linking the investment performance of the Xxxxxxx 2000 Growth Index for the
one quarter and one month ending April 30, 2003, with that of the Xxxxxxx
2500 Growth Index for the two months and ten quarters ending December 31,
2005.
12. QUARTER ENDING MARCH 31, 2006. The Adjustment will be determined by linking
the investment performance of the Xxxxxxx 2000 Growth Index for the one
month ended April 30, 2003, with that of the Xxxxxxx 2500 Growth Index for
the two months and eleven quarters ended March 31, 2006.
13. QUARTER ENDING JUNE 30, 2006. The benchmark transition is complete.
NO EFFECT ON OTHER PROVISIONS. Except with respect to these fee schedules, all
other provisions of the Investment Advisory Agreement dated September 29, 2000
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed this 2nd day of January, 2003.
VANGUARD VARIABLE INSURANCE FUND - SMALL COMPANY GROWTH PORTFOLIO
/S/ XXXX X. XXXXXXX
--------------------------------
Chairman, CEO and President
XXXXXXXX INVESTMENT MANAGEMENT, INC.
By /S/ XXXX X. XXXXXXXX
--------------------------
Title PRESIDENT
