DRAFT
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this __th day of ______, 2002, between
VANGUARD VARIABLE INSURANCE FUND, a Delaware business trust (the "Trust"), and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ COMPANY, a California corporation (the "Adviser").
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 Variable
Insurance Fund - Capital Growth Portfolio (the "Fund"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services to the Fund, and the Adviser 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 Adviser hereby agree as follows:
1. APPOINTMENT OF ADVISER. The Trust hereby employs the Adviser as
investment adviser, 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 Adviser from
time to time (referred to in this Agreement as the "Capital Growth Portfolio").
As of the date of this Agreement, the Capital Growth Portfolio will consist of
all of the assets of the Fund. The Board of Trustees may, from time to time,
make additions to, and withdrawals from, the assets of the Fund assigned to the
Adviser. The Adviser accepts such employment and agrees to render the services
herein set forth, for the compensation herein provided.
2. DUTIES OF ADVISER. The Trust employs the Adviser to manage the
investment and reinvestment of the assets of the Capital Growth Portfolio; to
continuously review, supervise, and administer an investment program for the
Capital Growth 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 Adviser 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 Adviser 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
Adviser in writing, and applicable laws and regulations. The Adviser 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 Adviser is authorized to select the brokers
or dealers that will execute purchases and sales of securities for the Capital
Growth Portfolio, and is directed to use its best efforts to obtain the best
available price and most favorable execution for such transactions. 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 or its staff, and other applicable law, the Adviser 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 Adviser
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
Adviser'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 Adviser agrees to comply with any directed brokerage
or other brokerage arrangements that the Fund communicates to the Adviser in
writing. The Adviser will promptly communicate to the Trust's officers and the
Board of Trustees any information relating to the portfolio transactions the
Adviser has directed on behalf of the Capital Growth Portfolio as such officers
or the Board may reasonably request.
4. COMPENSATION OF ADVISER. For the services to be rendered by the Adviser
as provided in this Agreement, the Fund will pay to the Adviser at the end of
each of the Fund's fiscal quarters a basic fee ("Basic Fee") calculated by
applying a quarterly rate, based on an annual percentage rate of 0.15%, to the
average month-end net assets of the Capital Growth Portfolio for the quarter.
OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The following
special rules will also apply to the Adviser's compensation:
(a) CAPITAL GROWTH PORTFOLIO UNIT VALUE. The "Capital Growth Portfolio
unit value" shall be determined by dividing the total net assets of the
Capital Growth Portfolio by a given number of units. The number of units in
the Capital Growth 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 Capital Growth Portfolio,
the number of units of the Capital Growth Portfolio shall be adjusted based
on the unit value of the Capital Growth Portfolio on the day such changes
are executed.
(b) CAPITAL GROWTH PORTFOLIO PERFORMANCE. The investment performance
of the Capital Growth Portfolio for any period, expressed as a percentage
of the Capital Growth Portfolio unit value at the beginning of the period,
will be the sum of: (i) the change in the Capital Growth Portfolio unit
value during such period; (ii) the unit value of the Fund's cash
distributions from the Capital Growth 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 Capital Growth Portfolio,
expressed as a percentage of the Capital Growth Portfolio unit value at the
beginning of such period. For this purpose, the value of distributions of
realized capital gains per unit of the Capital Growth Portfolio, of
dividends per unit of the Capital Growth Portfolio paid from investment
income, and of capital gains taxes per unit of the Capital Growth Portfolio
paid or payable on undistributed realized long-term capital gains shall be
treated as reinvested in units of the Capital Growth Portfolio at the unit
value in effect at the close of business on the record date for the payment
of such distributions and dividends (which date shall be the relevant
ex-dividend date) and the date on which provision is made for such taxes,
after giving effect to such distributions, dividends, and taxes.
(c) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the Capital Growth Portfolio
shall be in accordance with any then applicable rules of the U.S.
Securities and Exchange Commission.
(d) 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 Adviser 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.
5. REPORTS. The Fund and the Adviser 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 Adviser (to the extent applicable).
6. COMPLIANCE. The Adviser agrees to comply with all policies, procedures
or reporting requirements that the Board of Trustees of the Trust reasonably
adopts and communicates to the Adviser in writing, including, without
limitation, any such policies, procedures or reporting requirements relating to
soft dollar or directed brokerage arrangements.
7. STATUS OF ADVISER. The services of the Adviser to the Fund are not to be
deemed exclusive, and the Adviser will be free to render similar services to
others so long as its services to the Fund are not impaired thereby. The Adviser
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 ADVISER. No provision of this Agreement will be deemed to
protect the Adviser 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. 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 each such successive continuance 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 Adviser, (ii) this
Agreement will automatically terminate in the event of its assignment, and (iii)
this Agreement may be terminated by the Adviser 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 Variable Insurance Fund - Capital Growth Portfolio
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Portfolio Review Group
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Adviser, at:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: __________________
Telephone: _________________
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 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 9, 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.
10. 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.
11. CONFIDENTIALITY. The Adviser 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 The Vanguard Group,
Inc. ("Vanguard") and shall not disclose any such information to any person
other than the Trust, the Board of Directors 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 Adviser, or (iii) for
information that is publicly available other than due to disclosure by the
Adviser or its affiliates or becomes known to the Adviser from a source other
than the Trust, the Board of Directors of the Trust, or Vanguard.
12. PROXY POLICY. The Adviser acknowledges that The Vanguard Group, Inc.
will vote the shares of all securities that are held by the Fund unless other
mutually acceptable arrangements are made with the Adviser with respect to the
Capital Growth Portfolio.
13. 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-interest 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.
PRIMECAP VANGUARD VARIABLE
MANAGEMENT COMPANY INSURANCE FUND
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Signature Date Signature Date
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