INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this 1st day, of April, 1996, between VANGUARD/XXXXXX
GROWTH FUND, INC., a Maryland corporation (the "Fund), and FRANKLIN PORTFOLIO
ASSOCIATES TRUST, a Massachusetts business trust ("FPA").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the lnvestment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain FPA to render investment advisory
services to certain assets of the Fund which the Board of Directors of the Fund
determines to assign to FPA (referred to in this Agreement as the "FPA
Portfolio"), and FPA 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 FPA. The Fund hereby employs FPA as investment adviser,
on the terms and conditions set forth herein, for the assets of the Fund which
the Board of Directors determines to assign to FPA. The Board of Directors may,
from time to time, make additions to, and withdrawals from, the assets of the
Fund assigned to FPA. FPA accepts such employment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Duties of FPA. The Fund employs FPA to manage the investment and
reinvestment of the assets of the FPA Portfolio, to continuously review,
supervise and administer an investment program for such assets of the Fund, 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 records
concerning the activities of FPA which the Fund is required to maintain, and to
render regular reports to the Fund's officers and Board of Directors concerning
the discharge of the foregoing responsibilities. FPA shall discharge the
foregoing responsibilities subject to the control of the officers and the Board
of Directors of the Fund, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus and applicable laws and
regulations. FPA 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. FPA is authorized to select the brokers or
dealers that will execute the purchases and sales of securities for the FPA
Portfolio, and is directed to use its best efforts to obtain the best available
price and most favorable execution, except as prescribed herein. Subject to
policies established by the Board of Directors of the Fund, FPA may also be
authorized to effect individual securities transactions at commission rates in
excess of the minimum commission rates available, if FPA determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage or research services provided by such broker or dealer, viewed in
terms of either that particular transaction or overall responsibilities of FPA
with respect to the Fund. The execution of such transactions shall not be deemed
to represent an unlawful act or breach of any duty created by this Agreement or
otherwise. - FPA will promptly communicate to the officers and Directors of the
Fund such information relating to portfolio transactions as they may reasonably
request.
4. Compensation of FPA. For the services to be rendered by FPA as provided
in this Agreement, the Fund shall 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:
The Basic Fee, as provided above, shall be increased or decreased in an
amount equal to .100% per annum (.025% per quarter) of the average month-end net
assets of the FPA Portfolio if the investment performance of the FPA Portfolio
for the thirty-six months preceding the end of the quarter is six percentage
points or more above or below, respectively, the investment record of The Growth
Fund Stock Index (the "Index") for the same period.
The lndex shall represent the composite portfolio of the 50 largest growth
mutual funds (unweighted by the asset size of the individual mutual funds) as
calculated by Morningstar, Inc. ("Morningstar"). The 50 mutual funds included in
the Index shall be determined annually (as of December 31st) by Morningstar. The
composition of the Index shall be constructed by Morningstar by calculating the
percentage weighting of each of the common stocks held by the 50 largest growth
mutual funds. The percentage weighting of each stock included in the Index shall
then be summed across the 50 mutual funds used in the Index, and then divided by
50 to create the total Index portfolio. This portfolio shall be revised at the
end of each calendar quarter to reflect changes in the common stock holdings of
the 50 mutual funds.
The investment performance of the FPA Portfolio for any period, expressed
as a percentage of the "FPA Portfolio unit value" at the beginning of such
period, shall be the sum of: (i) the change in the FPA Portfolio unit value
during such period; (ii) the unit value of the Fund's cash distributions from
the FPA portfolio net investment income and xxxxxxxx.xxx capital gains (whether
long-term or short-term) having an ex-dividend date occurring within such
period; and' (iii) the unit value of capital gains taxes paid or accrued during
such period by the Fund for undistributed realized long-term capital gains
realized from the FPA Portfolio.
The "FPA Portfolio unit value" shall be determined by dividing the
total net assets of the FPA Portfolio by a given number of units. On the initial
date of the Agreement, the number of units in the FPA Portfolio shall equal the
total shares outstanding of the Fund. After such initial date, as assets are
added to or are withdrawn from the FPA Portfolio, the number of units of the FPA
Portfolio shall be adjusted based on the unit value of the FPA Portfolio on the
day such changes are executed.
The investment record of the lndex shall be calculated quarterly by (i)
multiplying the total return for the quarter (change in market price plus
dividends) of each stock included in the Index by its weighing in the Index at
the beginning of the quarter, and (ii) adding the values discussed in (i). For
any period, therefore, the investment record of the Index shall be the
compounded quarterly returns of the Index.
For the purposes of determining the incentive/penalty fee, the net assets
of the FPA Portfolio shall be averaged over the same period as the investment
performance of the FPA Portfolio and the investment record of the Index are
computed.
In the event of termination of this Agreement, the fee provided in this
Section shall 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 elapsed in the current fiscal quarter as a percentage of
the total number of days in such quarter.
5. Reports. The Fund and FPA 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.
6. Status of FPA. The services of FPA to the Fund are not to be deemed
exclusive, and FPA shall be free to render similar services to others so long as
its services to the Fund are not impaired thereby. FPA shall be deemed to be an
independent contractor and shall, 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.
7. Liability of FPA. No provision of this Agreement shall be deemed to
protect FPA 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.
8. Duration and Termination. This Agreement shall become effective on April
1, 1996, and shall continue in effect until March 31, 1998, and thereafter, only
so long as such continuance is approved at least annually by votes of the Fund's
Board of Directors, including the votes of a majority of the Directors 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 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 shall be effected only
if approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund.
Provided, however, that (i) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Directors of the
Fund or by vote of a majority of the outstanding voting securities of the Fund,
on sixty days' written notice to FPA, (ii) this Agreement shall automatically
terminate in the event of its assignment, and (iii) this Agreement may be
terminated by FPA on ninety days' written notice to the Fund. Any notice under
this Agreement shall be given in writing, addressed and delivered, or mailed
postpaid, to the other party at any office of such party.
As used in this Section 8, the terms "assignment", "interested persons", a
"vote of a majority of the outstanding voting securities" shall 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.
9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
10. Proxy Policy. With regard to the solicitation of shareholder votes, the
Fund shall vote the shares of all Portfolio securities held by the Fund.
ATTEST: VANGUARD/XXXXXX GROWTH FUND, INC.
By: Xxxxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxxx
----------------------------- -----------------------------------------
Secretary President
ATTEST: FRANKLIN PORTFOLIO
ASSOCIATES TRUST
By:_____________________________ By:____________________________________
VANGUARD/XXXXXX GROWTH FUND, INC.
INVESTMENT ADVISORY AGREEMENT ADDENDUM
Effective May 1, 1998
This Addendum amends Section 4 of the Investment Advisory Agreement dated
April 1, 1996 between VANGUARD/XXXXXX GROWTH FUND, INC. (the "Fund") and
FRANKLIN PORTFOLIO ASSOCIATES ("FPA").
1. New Fee Schedules. The Fund will compensate FPA according to the
following fee schedules:
BASIC FEE
Assets Managed Annual Rate
INCENTIVE /PENALTY FEE vs. GROWTH FUND STOCK INDEX*
Performance Fee Adjustment
2. Transition Schedule for Incentive/Penalty Fees. The new
incentive/penalty fee schedule will not be fully operable until April 30, 2001.
Until that date, a transition schedule consisting of varying percentages of the
old and new incentive/penalty fees will be used. For each fiscal quarter
included in the 36 months beginning May 1, 1998, the incentive/penalty fee will
be calculated as the sum of a and b, whereby:
a = # of months elapsed since 5/1/1998 X the fee adjustment calculated
----------------------------------
36 months under the new schedule
b = # of months remaining until 4/30/2001 X the fee adjustment calculated
-------------------------------------
36 months under the old schedule
3. No Effect on Other Provisions. Except for the fee schedule revisions
described above, all provisions of the Investment Advisory Agreement dated April
1, 1996 remain in full force and effect.
ATTEST: VANGUARD/XXXXXX GROWTH FUND, INC.
By: Xxxxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxxx 5/1/98
----------------------------- -------------------------------- --------
Secretary President, Chief Executive Date
Officer & Chairman of the Board
ATTEST: FRANKLIN PORTFOLIO ASSOCIATES
By:_____________________ By:____________________________________
President Date
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:
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*
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.
2
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/ Xxxx X. Xxxxxxx
Chairman, CEO and President
ATTEST: FRANKLIN PORTFOLIO ASSOCIATES, LLC
By /s/ Xxxxx X Xxxxxxxxxx /s/
Title CEO & President
3
VANGUARD XXXXXX GROWTH FUND
INVESTMENT ADVISORY AGREEMENT ADDENDUM
EFFECTIVE JULY 1, 2006
This Addendum amends certain sections 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," or the "Advisor") as
follows:
A. AMENDMENT TO SECTION 2 (DUTIES OF FPA)
The following sentence shall be added to the end of Section 2 of the Agreement:
Pursuant to Rule 17a-10 under the 1940 Act, the Advisor is prohibited from
consulting with other advisors of the Fund concerning transactions for the Fund
in securities or other assets.
B. AMENDMENT TO SECTION 4 (COMPENSATION OF FPA)
The following shall replace the first paragraph of Section 4 of the Agreement in
its entirety:
4. Compensation of FPA. For the services to be rendered by FPA as provided in
this Agreement, the Fund shall pay to FPA at the end of the Fund's fiscal
quarters, a Basic Fee calculated by applying a quarterly rate, based on the
following annual percentage rates, to the FPA Portfolio's average daily net
assets for the quarter:
---------------------------------------------------------------------
Annual Percentage Rate Schedule
---------------------------------------------------------------------
C. MISCELLANEOUS
Except as specifically amended hereby, all of the terms and conditions of the
Investment Advisory Agreement are unaffected and shall continue to be in full
force and effect and shall be binding upon the parties in accordance with its
terms. In particular, and notwithstanding Section B of this Amendment, the
performance adjustment will continue to be applied to an asset-base that is
calculated using the average month-end net assets over the applicable
performance period.
Franklin Portfolio Associates, LLC Vanguard Xxxxxx Growth Fund
____________________________ __________ ________________________ ___________
Signature Date Signature Date
____________________________ ________________________
Print Name Print Name
