AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 17 day ofAugust, 2004, between VANGUARD
CONVERTIBLE SECURITIES FUND, a Delaware statutory trust (the "Fund"), and
OAKTREE CAPITAL MANAGEMENT, LLC, a California limited liability company (the
"Advisor").
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Fund and the Advisor are currently parties to an Advisory
Agreement dated November 1, 1996, and intend for said Advisory Agreement to
remain in full effect until the effective date of this Amended and Restated
Investment Advisory Agreement which is set forth at the end of this Agreement;
and
WHEREAS, the Fund desires to retain the Advisor to render investment
advisory services to certain assets of the Fund which the Board of Trustees of
the Fund determines to assign to the Advisor (referred to in the Agreement as
the "Oaktree Portfolio"), and the Advisor is willing to render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. APPOINTMENT OF ADVISOR. The Fund hereby appoints the Advisor as
investment Advisor, on the terms and conditions set forth herein, for the
portion of the assets of the Fund that the Board of Trustees determines to
assign to the Advisor from time to time (referred to in this Agreement as the
"Oaktree Portfolio"). As of the date of this Agreement, the Oaktree 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
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. DUTIES OF ADVISOR. The Fund appoints the Advisor to manage the
investment and reinvestment of the assets of the Oaktree Portfolio; to
continuously review, supervise and administer an investment program for the
Oaktree 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 by applicable law; and upon written request to the Advisor
to render regular reports to
the Fund'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 Fund's officers and 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 the 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 in its
discretion the brokers or dealers that will execute purchases and sales of
securities for the Oaktree Portfolio, and is directed to use its reasonable best
efforts to obtain the best available price and most favorable execution for such
transactions, which may include consideration of factors set forth below. In
selecting brokers and/or dealers to execute transactions for the Oaktree
Portfolio, the Advisor may give consideration to such factors as the price of
the security, the rate of commission, the size and difficulty of the order, the
reliability, integrity, financial condition, and general execution and
operational capabilities of competing brokers and/or dealers. In addition, 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 reasonable best efforts to comply with any directed brokerage or
other brokerage arrangements that the Fund communicates to the Advisor in
writing. Where Fund directs the Advisor to use a particular broker or dealer to
execute portfolio transactions for the Fund, the Fund acknowledges that it may
not be practicable for the Advisor to freely negotiate commission rates or
spreads. The Fund also acknowledges that transactions for a client that directs
brokerage may not be batched for execution purposes with orders for the
securities or instruments for other accounts managed by the Advisor which may
result in higher commissions, greater spreads or less favorable net prices than
would be the case if the Advisor were empowered to select brokers and dealers to
execute transactions for the Oaktree Portfolio. The Advisor will promptly
communicate to the Fund's officers and Board of Trustees any information
relating to the portfolio transactions the Advisor has directed on behalf of the
Oaktree Portfolio as such officers or the Board may reasonably request.
On occasions when the Advisor deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients of the Advisor, the
Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be purchased or
sold. 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 Advisor in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other customers.
4. Compensation of Advisor. 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
each of the Fund's fiscal quarters, a fee calculated by applying a quarterly
rate, based on the following annual percentage rates, to the average month-end
net assets of the Oaktree Portfolio for the quarter (the "Basic fee"):
.425% with respect to the first $100 million of assets;
.400% with respect to the next $100 million of assets;
.375% with respect to the next $100 million of assets;
.350% with respect to the next $100 million of assets; and
.325% with respect to assets in excess of $400 million.
The Basic Fee payment, as provided above, will be increased or
decreased by applying a Performance Fee Adjustment (the "Adjustment") based on
the investment performance of the Oaktree Portfolio relative to the investment
performance of the Xxxxxxx Xxxxx All US Convertible Index (the "Index"). The
investment performance of the Oaktree 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:
Cumulative 36-Month Performance Performance Fee Adjustment as a
of the Fund vs. the Index Percentage of the Basic Fee*
------------------------- ----------------------------
trails by -2% or more -50% x Basic Fee
trails by 0 to -2% linear decrease from 0 to -50% x Basic Fee
exceeds by 0 to +2% linear increase from 0 to +50% x Basic Fee
exceeds by +2% or more +50% x Basic Fee
The Adjustment will be calculated as follows:
To calculate the Adjustment for a given quarter, (1) for the prior 36
months, the difference between the investment performance of the Fund and the
investment performance of the Index (the "Performance Differential") will be
calculated, and (2) the Adjustment will be the appropriate percentage of the
Basic Fee* for an average quarter in the prior 36 months determined from the
table above.
* For purposes of this calculation, the relevant Basic Fee is
calculated by applying the quarterly rate against average assets over the same
time period for which the performance is measured.
4.1 TRANSITION RULE FOR CALCULATING OAKTREE'S COMPENSATION. The Index
will not be fully operable as the sole performance index used to
determine the Advisor's Adjustment until the quarter ending
November 30, 2007. Until that date, the
Advisor's Adjustment will
be determined by linking the investment performance of the Xxxxxxx
Xxxxx All US Convertible Index and that of the Credit Suisse First
Boston Convertible Index.
1. QUARTER ENDING FEBRUARY 28, 2005. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the eleven quarters ending November 30, 2004
with that of the Xxxxxxx Xxxxx All US Convertible Index for the one
quarter ending February 28, 2005.
2. QUARTER ENDING MAY 31, 2005. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the ten quarters ending November 30, 2004 with
that of the Xxxxxxx Xxxxx All US Convertible Index for the two
quarters ending May 31, 2005.
3. QUARTER ENDING AUGUST 31, 2005. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the nine quarters ending November 30, 2004 with
that of the Xxxxxxx Xxxxx All US Convertible Index for the three
quarters ending August 31, 2005.
4. QUARTER ENDING NOVEMBER 30, 2005. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the eight quarters ending November 30, 2004,
with that of the Xxxxxxx Xxxxx All US Convertible Index for the four
quarters ending November 30, 2005.
5. QUARTER ENDING FEBRUARY 28, 2006. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the seven quarters ending November 30, 2004,
with that of the Xxxxxxx Xxxxx All US Convertible Index for the five
quarters ending February 28, 2006.
6. QUARTER ENDING MAY 31, 2006. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the six quarters ending November 30, 2004, with
that of the Xxxxxxx Xxxxx All US Convertible Index for the six
quarters ending May 31, 2006.
7. QUARTER ENDING AUGUST 31, 2006. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the five quarters ending November 30, 2004, with
that of the Xxxxxxx Xxxxx All US Convertible Index for the seven
quarters ending August 31, 2006.
8. QUARTER ENDING NOVEMBER 30, 2006. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the four quarters ending November 30, 2004, with
that of the Xxxxxxx Xxxxx All US Convertible Index for the eight
quarters ending November 30, 2006.
9. QUARTER ENDING FEBRUARY 28, 2007. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the three quarters ending November 30, 2004,
with that of the Xxxxxxx Xxxxx All US Convertible Index for the nine
quarters ending February 28, 2007.
10. QUARTER ENDING MAY 31, 2007. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the two quarters ending November 30, 2004, with
that of the Xxxxxxx Xxxxx All US Convertible Index for the ten
quarters ending May 31, 2007.
11. QUARTER ENDING AUGUST 31, 2007. The Adjustment will be determined by
linking the investment performance of the Credit Suisse First Boston
Convertible Index for the one quarter ending November 30, 2004, with
that of the Xxxxxxx Xxxxx All US Convertible Index for the eleven
quarters ending August 31, 2007.
12. QUARTER ENDING NOVEMBER 30, 2007. The benchmark transition is
complete.
5. REPORTS. The Fund agrees to furnish to the Advisor all current
prospectuses, proxy statements, reports to shareholders sales literature and
other materials prepared for distribution to the shareholders of the Fund or the
public that refer in any way to the Advisor ten (10) days prior to the use of
such materials and the Fund agrees that it will not use such materials if the
Advisor reasonably objects in writing within seven (7) days after receipt of
such materials. Notwithstanding the foregoing, the Fund shall not be required to
furnish sales literature or marketing materials to the Advisor for review if
such material is substantially similar to materials previously reviewed and
approved by the Advisor. In the event of a termination of this Agreement, the
Fund will, on written request of the Advisor, promptly delete any reference to
the Advisor from any the documents and others materials described in the first
sentence of this Section 5. In addition, the Fund shall furnish such other
information with regard to its affairs as the Advisor may reasonably request.
The Advisor agrees to furnish to the Fund the most recent
audited statement of financial conditions of the Advisor and such other
information with regard to its affairs as the Fund may reasonably request,
including, but not limited to, information regarding any change in the
investment officers of the Advisor who are responsible for managing the Oaktree
Portfolio.
6. COMPLIANCE.
6.1 COMPLIANCE WITH APPLICABLE LAW AND BOARD REQUIREMENTS. The Advisor
agrees to comply with all Applicable Law. In addition, the Advisor
agrees to use commercially reasonable efforts to comply with all
policies, procedures or reporting requirements, including, without
limitation, any such policies, procedures or reporting requirements
relating to the soft dollar or directed brokerage arrangements, that
the Board of Trustees of the Fund reasonably adopts and communicates to
the Advisor in writing sufficiently in advance of the effective date of
any such policies, procedures or reporting requirements.
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 Fund a written summary of
the material facts and circumstances concerning such Compliance Matter
within five (5) business days of the earlier date 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 Fund
with a written summary of any material changes in the facts or
circumstances concerning any Compliance Matter of with the Advisor has
actual knowledge within five (5) business days of the occurrence of
such changes.
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 for the Oaktree Portfolio. "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 for the
Oaktree Portfolio; or (ii) the business or affairs of the Advisor as
they relate to the Advisor's investment management operations for the
Oaktree Portfolio.
7. STATUS OF ADVISOR. The services of the Advisor to the Fund are not
to be deemed exclusive, and the Advisor will be free at all times, in its
discretion, to render investment management and advisory services to other
investors and institutions. Actions or decisions regarding the Oaktree Portfolio
may be the same as or different from actions or decisions which the Advisor, or
any of its affiliates, or any of their respective officers, directors or
employees may take with respect its other client accounts so long as the Advisor
acts in good faith. The Advisor will be deemed to be an independent contractor
and will, unless otherwise expressly provided or authorized in this agreement or
otherwise by the Fund, have no authority to act for or represent the Fund in any
way or otherwise be deemed an agent of the Fund.
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 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 Fund'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 Fund or by vote of a majority of the outstanding voting
securities of the Fund, on thirty days' prior 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 sixty days' prior
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 Convertible Securities 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:
Oaktree Capital Management, LLC
000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
with a copy to
Attention: Legal Department
Facsimile: 000-000-0000
Each party may change its address or other information for notice
purposes by giving the other party written notice thereof as provided herein.
This Agreement may be amended by mutual consent, but the consent of the
Fund 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.
As used in this Section 10, the terms "assignment," "interested
persons," a "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 Investment Company Act of 1940.
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. Each party hereto shall keep confidential any and
all information obtained in connection with the services rendered hereunder and
relating directly or indirectly to the other party (and in the case of the Fund,
including Vanguard) and shall not disclose any such information to any person,
except that notwithstanding the previous sentence each party may disclose such
information (i) to its respective agents, representatives (including attorneys,
accountants, consultants and advisors), directors, officers, employees and
members of any board of trustees, (ii) with the prior written consent of the the
other party, (iii) 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 the Fund, as applicable, (iv) that is
publicly available other than due to the disclosure by the it or its affiliates
in breach of this Section 12 or (v) becomes known to it from a source other than
the other party.
Notwithstanding the foregoing, the Advisor may include in its
own sales materials the Fund's name, performance information relating to the
Advisor's management of the Fund and a brief description of this Agreement.
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 Oaktree
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.
15. EXPENSES. The Advisor shall not be required to pay (and if paid by
the Advisor, shall be reimbursed by the Fund) for payments of (i) the cost of
investments purchased for the Oaktree Portfolio, (ii) taxes or other
governmental charges of the Fund, (iii) professional fees and expenses related
to the investments of the Fund, including without limitation legal, auditing,
accounting and investment banking fees and expenses (any of which the Advisor
agrees not to incur on behalf of the Fund without the Fund's written approval)
and (iv) custodian, commission, brokerage, finders' or similar fees related to
the investments for the Fund.
16. INDEMNIFICATION. The Fund agrees to indemnify the Advisor and the
Advisor's officers, directors, employees and agents, as well as persons who
control or are controlled by the Advisor (collectively, the "Indemnified
Parties") to the fullest extent permitted under law against any liabilities and
expenses (including reasonable attorneys' fees) that the Indemnified Parties may
incur as a result of any untrue statement of a material fact in any of the
Fund's registration statement relating to shares of the Fund's common stock, and
all amendments thereto, or any other sales materials relating to the Fund, or
the omission of a material fact known or which should have been known and was
required to have been included in such registration statement or sales material,
or was necessary to make the statements therein not misleading, unless the
statement or omission was made in reliance upon the written information that the
Indemnified Parties provided to the Fund or to Vanguard.
IN WITNESS WHEREOF, the parties hereto have caused this Investment Advisory
Agreement to be executed as of the date first set forth herein, and to be
declared effective on December 1, 2004:
VANGUARD CONVERTIBLE SECURITIES FUND
By Xxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxxxx
Chairman, CEO and President
OAKTREE CAPITAL MANAGEMENT, LLC
By Xxxxx X. Xxxxx
/s/ xxxxx X. Xxxxx
Principal
Xxxxxxx Xxxx
/s/Xxxxxxx Xxxx
Vice President, Legal
By________________________________
Title_______________________________
