Exhibit 6
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 17th day of June, 2002, between VANGUARD
WHITEHALL FUNDS, a Delaware business trust (the "Trust"), and PROVIDENT
INVESTMENT COUNSEL, INC., a Massachusetts 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 Mid-Cap
Growth Fund (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 "Provident Portfolio"). As of
the date of this Agreement, the Provident 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 Provident Portfolio; to
continuously review, supervise, and administer an investment program for the
Provident 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 Provident
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 Provident 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 Adviser at the end of each
of the Fund's fiscal quarters an amount (the "Adjusted Fee") equal to a basic
fee ("Basic Fee") plus a performance adjustment amount ("Adjustment Amount").
For purposes of the calculations, both the Basic Fee and the Adjustment Amount
will incorporate an asset-based fee ("Asset Fee") that is determined by applying
a quarterly rate, calculated based on the following annual percentage rate
schedule, to the average month-end net assets of the Provident Portfolio over
the applicable time period:
ANNUAL PERCENTAGE RATE SCHEDULE
------------------------------------------
ANNUAL
PERCENTAGE AVERAGE MONTH-END
RATE NET ASSETS
---------- ------------------------
0.50% On the first $50 million
0.25% On the next $200 million
0.175% On the next $750 million
0.125% Over $1 billion
The Basic Fee is equal to the Asset Fee as computed over the fiscal quarter for
which the Adjusted Fee is being calculated ("Relevant Fiscal Quarter").
2
Subject to the transition rules described below, the Adjustment Amount is equal
to the product of an adjustment percentage ("Adjustment Percentage") and the
Asset Fee as computed over the 36-month period ending with the Relevant Fiscal
Quarter ("Relevant 36-Month Period"). The Adjustment Percentage will change
proportionately with the investment performance of the Provident Portfolio
relative to the investment performance of the Xxxxxxx Mid-Cap Growth Index (the
"Index") as determined for the Relevant 36-Month Period. The Adjustment
Percentage applies as follows:
CUMULATIVE PERFORMANCE OF
PROVIDENT PORTFOLIO VS. INDEX
OVER RELEVANT 36-MONTH PERIOD ADJUSTMENT PERCENTAGE
----------------------------- ---------------------
Less than -7.5% -60%
From -7.5% up to and including 0% Linear increase from -60% to 0%
Greater than 0% and up to +7.5% Linear increase from 0% to +60%
More than +7.5% +60%
4.1. TRANSITION RULE FOR CALCULATING ADVISER'S COMPENSATION. The
Adjustment Amount will not be fully incorporated into the determination of
the Adjusted Fee until the close of the quarter ending July 31, 2005. Until
that date, the following transition rules will apply:
(a) DATE OF REORGANIZATION THROUGH APRIL 30, 2003. The Adjusted
Fee will be equal to the Basic Fee. No Adjustment Amount will apply
during this period.
(b) MAY 1, 2003 THROUGH JULY 31, 2005. Beginning May 1, 2003, the
Adjusted Fee will be equal to the Basic Fee plus the Adjustment Amount
as calculated on the following basis. The Adjustment Amount for the
Relevant Fiscal Quarter will be determined on a progressive basis with
regards to the number of months elapsed between July 31, 2002, and the
end of the Relevant Fiscal Quarter ("Progressive Adjustment Period").
During the Progressive Adjustment Period, the Asset Fee for purposes
of calculating the Adjustment Amount will be determined with respect
to the period from July 31, 2002, through and including the end of the
Relevant Fiscal Quarter. Similarly, the Adjustment Percentage will be
calculated with respect to the cumulative performance of the Fund and
the Index from August 1, 2002, through and including the end of the
Relevant Fiscal Quarter. For these purposes, the endpoints and size of
the range over which a positive or negative Adjustment Percentage
applies and the corresponding maximum Adjusted Percentage will be
multiplied by a fractional --- time-elapsed Adjustment Percentage. The
fraction will equal the number of months elapsed since July 31, 2002,
divided by thirty-six.
EXAMPLE: Assume that Adviser's compensation is being calculated for
the quarter ended January 31, 2004, and that the cumulative
performance of the Fund versus the Index for the applicable period is
+3%. In this case, an Adjustment Percentage of 24% of the Asset Fee
calculated over the 18-month period would apply. This would be
calculated as [(a / c) x d], where A equals the percentage amount by
which the performance of the Fund has exceeded the Index (e.g., 3%), C
equals the size of the ADJUSTED range over which the linear adjustment
applies, and is the ADJUSTED maximum Adjustment Percentage. The
3
adjusted range in this case is determined as [(18/36) x 0%] to
[(18/36) x 7.5%] = 0% to 3.75%. The size of the adjusted range is then
3.75% minus 0% = C. The maximum Adjustment Percentage is determined as
[(18/36) x 60%] = 30% = d. The Adjustment Amount as a percentage of
the Basic Fee is then computed as [(3 / 3.75) x 30%] = 24%. (Note that
this example reflects rounding. In practice, calculations will be
extended to the eighth decimal point. Performance shortfalls versus
the Index are treated in a symmetric manner to the example provided.)
(c) 3. ON AND AFTER AUGUST 1, 2005. The Adjusted Fee will be
equal to the Basic Fee plus the Adjustment Amount as determined for
the Relevant 36-Month Period.
4.2. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The
following special rules will also apply to the Adviser's compensation:
(a) PROVIDENT PORTFOLIO UNIT VALUE. The "Provident Portfolio unit
value" shall be determined by dividing the total net assets of the
Provident Portfolio by a given number of units. The number of units in
the Provident 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 Provident
Portfolio, the number of units of the Provident Portfolio shall be
adjusted based on the unit value of the Provident Portfolio on the day
such changes are executed.
(b) PROVIDENT PORTFOLIO PERFORMANCE. The investment performance
of the Provident Portfolio for any period, expressed as a percentage
of the Provident Portfolio unit value at the beginning of the period,
will be the sum of: (i) the change in the Provident Portfolio unit
value during such period; (ii) the unit value of the Fund's cash
distributions from the Provident 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 Provident Portfolio, expressed as a percentage of the Provident
Portfolio unit value at the beginning of such period. For this
purpose, the value of distributions of realized capital gains per unit
of the Provident Portfolio, of dividends per unit of the Provident
Portfolio paid from investment income, and of capital gains taxes per
unit of the Provident Portfolio paid or payable on undistributed
realized long-term capital gains shall be treated as reinvested in
units of the Provident Portfolio at the unit value in effect at the
close of business on the record date for the payment of such
distributions and dividends and the date on which provision is made
for such taxes, after giving effect to such distributions, dividends,
and taxes.
(c) INDEX PERFORMANCE. The investment record of the Index for any
period, expressed as a percentage of the Index level at the beginning
of such period, will be the sum of (i) the change in the level of the
Index during such period, and (ii) the value, computed consistently
with the Index, of cash distributions having an ex-dividend date
occurring within such period made by companies whose securities make
4
up the Index. For this purpose, cash distributions on the securities
that make up the Index will be treated as reinvested in the Index, at
least as frequently as the end of each calendar quarter following the
payment of the dividend. The calculation will be gross of applicable
costs and expenses, and consistent with the methodology used by Xxxxx
Xxxxxxx Company.
(d) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the Provident Portfolio
and the investment record of the Index shall be in accordance with any
then applicable rules of the U.S. Securities and Exchange Commission.
(e) 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.
5
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 MidCap Growth Fund
X.X. Xxx 0000
Xxxxxx Xxxxx, XX 00000
Attention: ____________
Telephone: 610-___-____
Facsimile: 610-___-____
If to the Adviser, at:
Provident Investment Counsel, Inc.
000 Xxxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: ____________
Telephone: 000-000-0000
Facsimile: 000-000-0000
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.
6
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
Provident 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.
PROVIDENT
INVESTMENT COUNSEL, INC. VANGUARD WHITEHALL FUNDS
----------------------------------- ----------------------------------------
Signature Date Signature Date
----------------------------------- ----------------------------------------
Print Name Title Print Name Title
7
