INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 29th day of June, 2002, between VANGUARD
WHITEHALL FUNDS, a Delaware business trust (the "Trust"), and XXXXXXXX
INVESTMENT MANAGEMENT NORTH AMERICA INC., a Delaware 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
International Explorer 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 "Xxxxxxxx Portfolio"). As of
the date of this Agreement, the Xxxxxxxx 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 Xxxxxxxx Portfolio; to
continuously review, supervise, and administer an investment program for the
Xxxxxxxx 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 Fund'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 Fund'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
the 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 Xxxxxxxx
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. Subject to the first sentence of this Section 3, the Adviser agrees
to comply with any directed brokerage or other brokerage policies and procedures
that the Fund communicates to the Adviser in writing. The Adviser will promptly
communicate to the Fund's officers and the Board of Trustees any information
relating to the portfolio transactions the Adviser has directed on behalf of the
Xxxxxxxx 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 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
Xxxxxxxx Portfolio over the applicable time period:
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ANNUAL PERCENTAGE RATE SCHEDULE
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ANNUAL PERCENTAGE AVERAGE MONTH-END
RATE NET ASSETS
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0.30% On the first $500 million
0.22% On the next $500 million
0.15% Over $1 billion
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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").
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 vary
based on the investment performance of the Xxxxxxxx Portfolio relative to the
investment performance of the Xxxxxxx Xxxxx Barney Extended Market EPAC Index
(the "Index") as determined for the Relevant 36-Month Period. The Adjustment
Percentage applies as follows:
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CUMULATIVE PERFORMANCE OF
XXXXXXXX PORTFOLIO VS. INDEX ADJUSTMENT PERCENTAGE
OVER RELEVANT 36-MONTH PERIOD
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Less than -12% -50%
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From -12% up to and including -6% -25%
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Between -6% and +6% 0%
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From +6% up to and including +12% +25%
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More than +12% +50%
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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 Xxxxxxxx Portfolio
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.
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Example: Assume that the Adviser's compensation is being calculated for the
quarter ended January 31, 2004, and that the cumulative performance of the
Xxxxxxxx Portfolio versus the Index for the applicable period is +4%. In this
case, an Adjustment Percentage of 12.5% of the Asset Fee calculated over the
18-month period would apply. Each performance breakpoint would be scaled by
18/36 = 0.5, and the performance adjustment percentage would also be scaled by
18/36 = 0.5. Hence, 4% cumulative outperformance for the 18 months ending
January 31, 2004, would result in a 12.5% Adjustment. (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) 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) XXXXXXXX PORTFOLIO UNIT VALUE. The "Xxxxxxxx Portfolio unit value"
shall be determined by dividing the total net assets of the Xxxxxxxx Portfolio
by a given number of units. The number of units in the Xxxxxxxx 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 Xxxxxxxx Portfolio, the number of units of the Xxxxxxxx Portfolio shall be
adjusted based on the unit value of the Xxxxxxxx Portfolio on the day such
changes are executed.
(b) XXXXXXXX PORTFOLIO PERFORMANCE. The investment performance of the
Xxxxxxxx Portfolio for any period, expressed as a percentage of the Xxxxxxxx
Portfolio unit value at the beginning of the period, will be the sum of: (i) the
change in the Xxxxxxxx Portfolio unit value during such period; (ii) the unit
value of the Fund's cash distributions from the Xxxxxxxx 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 Xxxxxxxx
Portfolio, expressed as a percentage of the Xxxxxxxx Portfolio unit value at the
beginning of such period. For this purpose, the value of distributions of
realized capital gains per unit of the Xxxxxxxx Portfolio, of dividends per unit
of the Xxxxxxxx Portfolio paid from investment income, and of capital gains
taxes per unit of the Xxxxxxxx Portfolio paid or payable on undistributed
realized long-term capital gains shall be treated as reinvested in units of the
Xxxxxxxx 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) INDEX PERFORMANCE. The investment record of the Index for any period,
expressed as a percentage of the Index level at the beginning of such
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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 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
Xxxxxxx Xxxxx Xxxxxx Inc.
(d) PERFORMANCE COMPUTATIONS. The foregoing notwithstanding, any
computation of the investment performance of the Xxxxxxxx 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. FORCE MAJEURE. The Adviser shall not be responsible for any loss or
damage, or failure to comply or reasonable delay in complying with any duty or
obligation, under or pursuant to this Agreement arising as a direct or indirect
result of any reason, cause or contingency beyond its reasonable control,
including (without limitation) natural disasters, nationalization, currency
restrictions, act of war, act of terrorism, act of God, postal or other strikes
or industrial actions, or the failure, suspension or disruption of any relevant
stock exchange or market. The Adviser shall notify the Fund promptly when it
becomes aware of any event described above. The Fund shall not be responsible
for temporary delays in the performance of its duties and obligations hereunder
and correspondingly shall not be liable for any loss or damage attributable to
such delay in consequence of any event described above.
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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 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 sixty 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 International Explorer Fund
X.X. Xxx 0000
Xxxxxx Xxxxx, XX 00000
Attention: Portfolio Review Group
Telephone: 000-000-0000
Facsimile: 000-000-0000
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If to the Adviser, at:
Xxxxxxxx Investment Management North America Inc.
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx X. Xxxxx
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.
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. The Adviser shall keep confidential any and all
information obtained in connection with the services rendered hereunder and
shall not disclose any such information to any person other than the Trust, the
Board of Directors of the Trust, The Vanguard Group, Inc. ("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.
13. 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
Xxxxxxxx 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-interest law principles thereof) of
the State of Delaware applicable to contracts made and to be performed in that
state.
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IN WITNESS WHEREOF, the parties hereto have caused this Investment Advisory
Agreement to be executed as of the date first set forth herein.
XXXXXXXX INVESTMENT
MANAGEMENT
NORTH AMERICA INC. VANGUARD WHITEHALL FUNDS
Xxxx X.X. Xxxx 6/18/02 Xxxxxx X. Xxxxxxxx 6/19/02
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Signature Date Signature Date
Assistant
Xxxx X.X. Xxxx Chief Executive Officer Xxxxxx X. Xxxxxxxx Secretary
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