INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 31st day of July, 2000, between VANGUARD
TRUSTEES' EQUITY FUNDS, a Delaware business trust (the "Trust"), and XXXXXXXXXX
GLOBAL INVESTORS, a Delaware corporation ("Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Trust offers a series of shares known as Vanguard
International Value Fund (the "Fund"); and
WHEREAS, the Trust desires to retain Adviser to render investment advisory
services to certain assets of the Fund which the Board of Trustees of the Trust
determines to assign to Adviser (referred to in this Agreement as the "HGI
Portfolio"), and Adviser 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 ADVISER. The Trust hereby employs Adviser as investment
adviser, on the terms and conditions set forth herein, for the assets of the
Fund that the Board of Trustees determines to assign to Adviser. The Trust's
Board of Trustees may, from time to time, make additions to, and withdrawals
from, the assets of the Fund assigned to Adviser. 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 Adviser to manage the investment
and reinvestment of the assets of the HGI 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 all
records concerning the activities of 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. Adviser
will discharge the foregoing responsibilities subject to the control of the
officers and the Board of Trustees of the Trust, and in compliance with the
objectives, policies and limitations set forth in the Fund's prospectus, any
additional operating policies or procedures that the Fund communicates to the
Adviser in writing, and applicable laws and regulations. Adviser 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. Adviser is authorized to select the brokers or
dealers that will execute purchases and sales of securities for the HGI
Portfolio, and is directed to use its best efforts to obtain the best available
price and most favorable execution for such transactions, except
as otherwise permitted by the Board of Trustees of the Trust pursuant to written
policies and procedures provided to the Adviser. Adviser will promptly
communicate to the Trust's officers and Board of Trustees such information
relating to portfolio transactions as they may reasonably request.
4. COMPENSATION OF ADVISER. For the services to be rendered by Adviser as
provided in this Agreement, the Fund will pay to Adviser 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 HGI Portfolio for the quarter:
0.475% on the first $50 million of average net assets;
0.150% on the next $450 million of average net assets;
0.120% on the next $500 million of average net assets;
0.110% on average net assets in excess of $1 billion.
Subject to the transition rule described in Section 4.1 of this Agreement,
the Basic Fee, as provided above, will be increased or decreased by the amount
of a Performance Fee Adjustment ("Adjustment"). The Adjustment will be
calculated as a percentage of the average month-end net assets of the HGI
Portfolio for the 36-month period ending with the then-ended quarter, and the
Adjustment will change proportionately with the investment performance of the
HGI Portfolio relative to the investment performance of the Xxxxxx Xxxxxxx
Capital International (MSCI) EAFE Index (the "Index") for the same period. The
Adjustment applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE ADJUSTMENT AS A PERCENTAGE OF
OF HGI PORTFOLIO VS. INDEX BASE FEE*
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More than 13.5% 50%
4.5% through 13.5% 25%
0 through 4.5% No adjustment
-9% to 0 25%
Less than -9% 50%
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* For purposes of this calculation, the Base Fee will be calculated based on
average month-end net assets over the 36-month period.
4.1. TRANSITION RULE FOR CALCULATING ADVISER'S COMPENSATION. The Adjustment
will not be fully operable until the close of the quarter ending September 30,
2003. Until that time, the following transition rules will apply:
(a) JULY 31, 2000 THROUGH JUNE 30, 2001. The Adviser's
compensation will be the Basic Fee. No Adjustment will apply during
this period.
(b) JULY 1, 2001 THROUGH SEPTEMBER 30, 2003. Beginning July 1,
2001, the Adjustment will take effect on a progressive basis with
regards to the number of months elapsed between October 1, 2000, and
the quarter for which the Adviser's fee is being computed. During this
period, the Adjustment outlined in Section 4.0 will be multiplied by a
fraction. The fraction will equal the number of months elapsed since
October 1, 2000, divided by thirty-six.
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(c) ON AND AFTER SEPTEMBER 30, 2003. Commencing September 30,
2003, the Adjustment will be fully operable.
4.2. OTHER SPECIAL RULES RELATING TO ADVISER'S COMPENSATION. The following
special rules will also apply to the Adviser's compensation:
(a) HGI PORTFOLIO PERFORMANCE. The investment performance of the
HGI Portfolio for any period, expressed as a percentage of the "HGI
Portfolio unit value" at the beginning of such period, shall be the
sum of: (i) the change in the HGI Portfolio unit value during such
period; (ii) the unit value of the Fund's cash distributions from the
HGI Portfolio's net investment income and realized net 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 HGI Portfolio.
(b) "HGI PORTFOLIO UNIT VALUE." The "HGI Portfolio unit value"
will be determined by dividing the total net assets of the HGI
Portfolio by a given number of units. Initially, the number of units
in the HGI Portfolio will equal a nominal value as determined by
dividing initial assets by a unit value of $100.00 on October 1, 2000.
Subsequently, as assets are added to or withdrawn from the HGI
Portfolio, the number of units of the HGI Portfolio will be adjusted
based on the unit value of the HGI Portfolio on the day such changes
are executed. Any cash buffer maintained by the Fund outside of the
HGI Portfolio shall neither be included in the total net assets of the
HGI Portfolio nor included in the computation of the HGI Portfolio
Unit Value.
(c) INDEX PERFORMANCE. The investment record of the Index for any
period, expressed as a percentage of the Index at the beginning of
such period, shall 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
comprise the Index. For this purpose, cash distributions on the
securities which comprise the Index shall be treated as reinvested in
the Index at least as frequently as the end of each calendar quarter
following the payment of the dividend.
(d) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the HGI 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 Sections 4 and 4.1 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.
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5. REPORTS. The Trust and 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.
6. COMPLIANCE. Adviser agrees to comply with all policies, procedures or
reporting requirements that the Board of Trustees of the Trust reasonably adopts
and communicates to Adviser in writing, including any such policies, procedures
or reporting requirements relating to soft dollar or directed brokerage
arrangements.
7. STATUS OF ADVISER. The services of Adviser to the Fund are not to be
deemed exclusive, and Adviser will be free to render similar services to others
so long as its services to the Fund are not impaired thereby. 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 or
the Fund in any way or otherwise be deemed an agent of the Fund or the Fund.
8. LIABILITY OF ADVISER. No provision of this Agreement will be deemed
to protect Adviser against any liability to the Fund, the Fund or their
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 AND TERMINATION. This Agreement will become effective on July
31, 2000, and will continue in effect until July 30, 2002, and thereafter, only
so long as such 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.
Provided, however, that (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' written notice to Adviser, (ii) this Agreement will
automatically terminate in the event of its assignment, and (iii) this Agreement
may be terminated by 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 at any office of such party.
This Agreement may be amended by mutual consent, but the consent of the
Trust must be approved (a) 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 (b) to the extent required by the 1940 Act, by 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," 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 Fund Act of 1940.
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. PROXY POLICY. The Fund will vote the shares of all securities that it
holds, unless other mutually acceptable arrangements are made with Adviser.
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12. 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 Agreement to be
executed this 28th day of July, 2000.
ATTEST: VANGUARD TRUSTEES' EQUITY FUND
By /S/ Xxxxxxx X. Xxxxxx By /S/ Xxxx X. Xxxxxxx
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Principal and Associate Counsel Chairman, CEO and President
ATTEST: XXXXXXXXXX GLOBAL INVESTORS
By /S/ J. Xxxxxxxxxxx Xxxxxxx By /S/ Xxxxxx Xxxxxxxxxx
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Senior Vice President and Chief Investment Officer
General Counsel
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