VANGUARD XXXXXX GROWTH FUND
INVESTMENT ADVISORY AGREEMENT ADDENDUM
Effective September 1, 2002
This Addendum amends Section 4 of the Investment Advisory Agreement dated
April 1, 1996, and amended May 1, 1998 between Vanguard XXXXXX GROWTH FUND (the
"Fund") and FRANKLIN PORTFOLIO ASSOCIATES LLC ("FPA") as follows.
4. Compensation of FPA. For the services to be rendered by FPA as provided in
this Agreement, the Fund will pay to FPA 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 average month-end net assets of the
FPA Portfolio for the quarter:
.25% on the first $100 million of net assets;
.20% on the next $200 million of net assets;
.15% on the next $200 million of net assets;
.10% on the next $500 million of net assets;
.08% on the next $4 billion of next assets
.06% on the net assets in excess of $5 billion.
Subject to the Transition Rule described in Section 4.1, 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 FPA
Portfolio relative to the investment performance of the Xxxxxxx Mid-Cap Growth
Index. The investment performance of the FPA 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 Mid-Cap Growth
Index for the same time period. The Adjustment applies as follows:
Cumulative 36-Month Performance of the FPA Performance Fee Adjustment as a
Portfolio vs. the Xxxxxxx Mid-Cap Growth Index Percentage of the Basic Fee*
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Trails by -6% or more -0.80 x Basic Fee
Trails by more than -3% but less than -6% -0.40 x Basic Fee
Trails/Exceeds from -3% to 3% 0.00 x Basic Fee
Exceeds by more than 3% but less than 6% +0.40 x Basic Fee
Exceeds by 6% or more +0.80 x Basic Fee
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* For purposes of determining the Adjustment, the quarterly rate is
applied against the net assets of the FPA Portfolio averaged over the same time
period for which the performance is measured.
4.1. Transition Rule for Calculating FPA's Compensation. The fee structure
described in Section 4 will not be fully operable until the quarter ending
September 30, 2005. Until that date, the Adjustment will be determined by
linking the investment performance of the Xxxxxxx Mid-Cap Growth Index and
that of the Growth Fund Stock Index.
1. Quarter Ending September 30, 2002. The Adjustment will be determined by
linking the investment performance of the Growth Fund Stock Index for the
eleven quarters and two months ending August 31, 2002, with that of the
Xxxxxxx Mid-Cap Growth Index for the one month ending September 30, 2002.
2. Quarter Ending December 31, 2002. The Adjustment will be determined by
linking the investment performance of the Growth Fund Stock Index for the
ten quarters and two months ending August 31, 2002, with that of the
Xxxxxxx Mid-Cap Growth Index for the one month and one quarter ending
December 31, 2002.
3. Quarter Ending March 31, 2003. The Adjustment will be determined by linking
the investment performance of the Growth Fund Stock Index for the nine
quarters and two months ending August 31, 2002, with that of the Xxxxxxx
Mid-Cap Growth Index for the one month and two quarters ending March 31,
2003.
4. Quarter Ending June 30, 2003. The Adjustment will be determined by linking
the investment performance of the Growth Fund Stock Index for the eight
quarters and two months ending August 31, 2002, with that of the Xxxxxxx
Mid-Cap Growth Index for the one month and three quarters ending June 30,
2003.
5. Quarter Ending September 30, 2003. The Adjustment will be determined by
linking the investment performance of the Growth Fund Stock Index for the
seven quarters and two months ending August 31, 2002, with that of the
Xxxxxxx Mid-Cap Growth Index for the one month and four quarters ending
September 30, 2003.
6. Quarter Ending December 31, 2003. The Adjustment will be determined by
linking the investment performance of the Growth Fund Stock Index for the
six quarters and two months ending August 31, 2002, with that of the
Xxxxxxx Mid-Cap Growth Index for the one month and five quarters ending
December 31, 2003.
7. Quarter Ending March 31, 2004. The Adjustment will be determined by linking
the investment performance of the Growth Fund Stock Index for the five
quarters and two months ending August 31, 2002, with that of the Xxxxxxx
Mid-Cap Growth Index for the one month and six quarters ending March 31,
2004.
8. Quarter Ending June 30, 2004. The Adjustment will be determined by linking
the investment performance of the Growth Fund Stock Index for the four
quarters and two months ending August 31, 2002, with that of the Xxxxxxx
Mid-Cap Growth Index for the one month and seven quarters ending June 30,
2004.
9. Quarter Ending September 30, 2004. The Adjustment will be determined by
linking the investment performance of the Growth Fund Stock Index for the
three quarters and two months ending August 31, 2002, with that of the
Xxxxxxx Mid-Cap Growth Index for the one month and eight quarters ending
September 30, 2004.
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10. Quarter Ending December 31, 2004. The Adjustment will be determined by
linking the investment performance of the Growth Fund Stock Index for the
two quarters and two months ending August 31, 2002, with that of the
Xxxxxxx Mid-Cap Growth Index for the one month and nine quarters ending
December 31, 2004.
11. Quarter Ending March 31, 2005. The Adjustment will be determined by linking
the investment performance of the Growth Fund Stock Index for the one
quarter and two months ending August 31, 2002, with that of the Xxxxxxx
Mid-Cap Growth Index for the one month and ten quarters ending March 31,
2005.
12. Quarter Ending June 30, 2005. The Adjustment will be determined by linking
the investment performance of the Growth Fund Stock Index for the two
months ending August 31, 2002, with that of the Xxxxxxx Mid-Cap Growth
Index for the one month and eleven quarters ending June 30, 2005.
13. Quarter Ending September 30, 2005. 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 April 1, 1996 remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed this 22nd day of July, 2002.
ATTEST: VANGUARD XXXXXX GROWTH FUND
By /s/ Xxxxx Xxxxxxxx _______/s/______________________________
Chairman, CEO and President
ATTEST: FRANKLIN PORTFOLIO ASSOCIATES, LLC
By ____/s/___________________ By ___/s/_______________________________
Title CEO & President
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