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EXHIBIT 99.B5
INVESTMENT ADVISORY AGREEMENT
Agreement, made as of this 31st day of January, 1996, among VANGUARD
WHITEHALL FUNDS, INC., a Maryland corporation (the "Fund"), and BARROW, HANLEY,
XXXXXXXXX & XXXXXXX, INC, a Texas corporation ("BHM&S").
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain BHM&S to render to the Fund
investment advisory services to the Fund's Vanguard Selected Value Portfolio,
and BHM&S is willing to render such services;
NOW THEREFORE, this Agreement
WITNESSETH:
that in consideration of the premises and mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. Appointment of BHM&S. The Fund hereby employs BHM&S as
investment adviser to the Fund's Vanguard Selected Value Portfolio (the
"Portfolio"), on the terms and conditions set forth herein. BHM&S accepts such
employment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties of BHM&S. The Fund employs BHM&S to manage the
investment and reinvestment of the Portfolio's assets, to continuously review,
supervise and administer the investment program for the Portfolio, to determine
in its discretion the securities to be purchased or sold, subject to the
investment objectives, policies and limitations of the Fund, and the portion of
such assets to be held uninvested, to provide the Fund with records concerning
the activities of BHM&S 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. BHM&S 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, statement of additional
information, and applicable laws and regulations. BHM&S 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. BHM&S is authorized to select the
brokers or dealers that will execute the purchases and sales of securities for
the 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 from time
to time and delivered to BHM&S, BHM&S may also be
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authorized to effect individual securities transactions at commission rates in
excess of the minimum commission rates available, if BHM&S 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
BHM&S 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. BHM&S 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 BHM&S. For the services to be rendered by
BHM&S as provided in this Agreement, the Fund shall pay to BHM&S at the end of
each quarter a base advisory fee adjusted by an incentive/penalty performance
adjustment reflecting the investment performance of the Portfolio relative to
the return of the Xxxxxxx Midcap Index. The Xxxxxxx Xxxxxx Index is prepared by
Xxxxx Xxxxxxx Company (which is unaffiliated with the Fund or any of the Fund's
affiliates) and is composed of the 800 smallest stocks (by market
capitalization) in the Xxxxxxx 1000 Index. The fees shall be calculated
according to the following rules:
a) Total Quarterly Fee Payable. The total quarterly fee payable by the Fund to
BHM&S under this advisory agreement shall be the base advisory fee for the
quarter plus the performance adjustment (which may be negative).
b) Base Advisory Fee for the Quarter. The base advisory fee for the quarter
will be calculated by applying the following quarterly percentage rates to the
average of month-end assets of the Portfolio for the quarter:
Net Assets Annual Rate Quarterly Rate
---------- ----------- --------------
First $100 million 0.40% 0.1000%
Next $200 million 0.35% 0.0875%
Next $300 million 0.25% 0.0625%
Next $400 million 0.20% 0.0500%
Over $1 billion 0.15% 0.0375%
c) Performance Adjustment. The performance adjustment will be calculated as
follows:
i) prior to March 1, 1997, the performance adjustment will be $0.
ii) beginning with the quarter ending April 30, 1997 and
thereafter, the performance adjustment will be calculated for the relevant
performance period. The performance period will be the 36 months preceding
the quarter-end or the months that have elapsed between March 1, 1996 and
the end of the quarter for which the fee is being computed, whichever is
shorter. A base fee for the performance period will be calculated based on
the average of month end assets during the performance period multiplied by
the quarterly rates used in calculating the base advisory fee for the
quarter.
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An incentive/penalty adjustment reflecting the investment performance of the
Portfolio relative to the return of the Xxxxxxx Midcap Index will be applied
to the base fee for the performance period. The following table sets forth
the calculation of the performance adjustment:
Cumulative 36-month Performance
vs. the Xxxxxxx Xxxxxx Index Performance Adjustment
---------------------------- ----------------------
Less than -12% -0.50 x Base Fee for Performance Period
Between -12% and -6% -0.25 x Base Fee for Performance Period
Between -6% and +6% 0 x Base Fee for Performance Period
Between +6% and +12% 0.25 x Base Fee for Performance Period
More than +12% 0.50 x Base Fee for Performance Period
Up to and including the quarter ending April 30, 1999, the performance
adjustment for BHM&S will be calculated according to the following
transition rules:
(ii-a) March 1, 1997 through April 30, 1999. Beginning with
the quarter ending April 30, 1997, and until the quarter ending April
30, 1999, the Performance adjustment will be computed based upon a
comparison of the investment performance of the Portfolio and that of
the Xxxxxxx Midcap Index over the number of months that have elapsed
between March 1, 1996 and the end of the quarter for which the fee is
computed. The number of percentage points by which the investment
performance of the Portfolio must exceed the investment record of the
Xxxxxxx Xxxxxx Index shall increase proportionately from 4.67% and
2.33%, respectively, for the fourteen months ending April 30, 1997, to
12% and 6%, for the thirty-six months ending April 30, 1999.
(ii-b) After April 30, 1999. For the quarter ending July 31,
1999 and thereafter, the period used to calculate the
incentive/penalty adjustment shall be the 36 months preceding the end
of the quarter for which the fee is being computed and the number of
percentage points used shall be twelve and six.
Upon request, the Fund will provide BHM&S access to the documents
substantiating the calculation of the performance adjustment. An
example illustrating the methodology for calculating the total fee,
base plus performance adjustment, is attached hereto as Appendix A.
Calculating Relative Investment Performance
The investment performance of the Portfolio for such period, expressed
as a percentage of the net asset value per share of the Portfolio at the
beginning of such period, shall be the sum of: (i) the change in the net asset
value per share of the Portfolio during such period; (ii) the value of the cash
distributions per share of the Portfolio reinvested to the end of such period;
and (iii) the value of capital gains taxes per share paid or payable by
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the Portfolio on undistributed realized long-term capital gains accumulated to
the end of such period. For any period, therefore, the investment record of
the Portfolio will be the compounded daily returns of the Portfolio.
The investment record of the Xxxxxxx Midcap Index will be calculated
monthly by (i) multiplying the total return for the month (change in market
price plus dividends) of each stock included in the Xxxxxxx Xxxxxx Index by its
weighting in the Xxxxxxx Midcap Index at the beginning of the month, and (ii)
adding the values discussed in (i). For any period, therefore, the investment
record of the Xxxxxxx Xxxxxx Index will be the compounded monthly returns of
the Xxxxxxx Midcap Index.
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 BHM&S agree to furnish to each
other current prospectuses, statements of additional information, proxy
statements, reports to shareholders, Fund's Articles of Incorporation,
certified copies of its financial statements, and such other information with
regard to its affairs as each may reasonably request. BHM&S agrees to provide
the Fund with its current Form ADV and other reports or information the Fund
may request.
6. Status of BHM&S. The services of BHM&S to the Fund
are not to be deemed exclusive, and BHM&S shall be free to render similar
services to others so long as its services to the Fund are not impaired
thereby. BHM&S 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 BHM&S. Except for negligence or malfeasance, or
violation of applicable law, BHM&S shall not be liable to the Fund or its
shareholders with respect to any liabilities arising from its services rendered
hereunder. Further, no provision of this Agreement shall be deemed to protect
BHM&S against any liability to the Fund or its shareholders to which it might
otherwise be subject by reasons of any willful malfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations under this Agreement. Federal and state securities laws impose
liabilities under certain circumstances on persons who act in good faith, and
therefore nothing herein shall in any way constitute a waiver or limitation on
any rights which the Fund may have under any such laws.
8. Duration and Termination. This Agreement shall become
effective on January 31, 1996, and shall continue in effect until January 30,
1998. The Agreement shall continue after January 30, 1998, 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
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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 BHM&S, (ii) this
Agreement shall automatically terminate in the event of its assignment, and
(iii) this Agreement may be terminated by BHM&S 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", and 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 1940 Act.
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of this 31st day of January, 1996.
ATTEST: Vanguard Whitehall Funds, Inc.
By
------------------------ -----------------------------------
Secretary President
ATTEST: Barrow, Hanley, Xxxxxxxxx & Xxxxxxx, Inc.
By
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APPENDIX A - FEE CALCULATION EXAMPLE
Example of fee under full imposition of the incentive factor.
Cumulative 36-Month
Performance Relative to Incentive/Penalty
Base Fee for the Quarter Benchmark Performance Adustment
------------------------ ----------------------- ---------------------
Assets Annualized Rate
------ --------------- Less than -12% -0.50 x Base Fee *
First $100 million 0.40% Between -12% and -6% -0.25 x Base Fee *
Next $200 million 0.35% Between -6% and +6% 0.00 x Base Fee *
Next $300 million 0.25% Between +6% and +12% 0.25 x Base Fee *
Next $400 million 0.20% More than 12% 0.50 x Base Fee *
Over $1 billion 0.15%
Assets start the beginning of Year 1 at $100 million and grow by 10% per year.
For all periods prior to Year 1, assets are assumed to be constant at $100
million.
Assets and fees in thousands of dollars.
Average Assets ($000) Performance Adjustment ($000) TOTAL FEE ($000)
------------------------- Base Fee ----------------------------- -----------------------
Current Qtr 36-Months for Quarter ($000) MAX Adjust MIN Adjust MAX Adjust MIN Adjust
----------- -------- ------------------ ---------- ---------- ---------- ----------
First Quarter 101,202 100,130 101.1 50.1 -50.1 151.1 51.0
Second Quarter 103,643 100,459 103.2 50.2 -50.2 153.4 53.0
Third Quarter 106,142 100,991 105.4 50.4 -50.4 155.8 54.9
Fourth Quarter 108,702 101,731 107.6 50.8 -50.8 158.4 56.9
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TOTAL YEAR 1 $618.7 $215.8
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First Quarter 111,323 102,685 109.9 51.2 -51.2 161.1 58.7
Second Quarter 114,007 103,857 112.3 51.7 -51.7 163.9 60.6
Third Quarter 116,756 105,253 114.7 52.3 -52.3 167.0 62.4
Fourth Quarter 119,572 106,879 117.1 53.0 -53.0 170.1 64.1
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TOTAL YEAR 2 $662.1 $245.8
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First Quarter 122,455 108,739 119.6 53.8 -53.8 173.5 65.8
Second Quarter 125,408 110,839 122.2 54.7 -54.7 177.0 67.5
Third Quarter 128,432 113,186 124.9 55.8 -55.8 180.6 69.1
Fourth Quarter 131,529 115,784 127.6 56.9 -56.9 184.5 70.7
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TOTAL YEAR 3 $715.6 $273.1
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* For purposes of calculating the Incentive/Penalty Performance Adjustment, the
Base Fee represents the annual rate(s) used in calculating
the base advisory fee for the quarter multiplied by the
average assets for the applicable performance period.
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