EXECUTION COPY
SUB-ADVISORY AGREEMENT
THIS SUB-ADVISORY AGREEMENT is made as of this 1st day of April, 2003,
among VANGUARD WHITEHALL FUNDS, a Delaware statutory trust (the "Trust"),
XXXXXXXX INVESTMENT MANAGEMENT NORTH AMERICA INC., a Delaware corporation (the
"Adviser"), and XXXXXXXX INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, a U.K.
corporation (the "Sub-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 Growth Fund (the "Fund"); and
WHEREAS, the Trust retains the Adviser to render investment advisory
services to the Fund under an Amended and Restated Investment Advisory Agreement
dated as of February 6, 2003 (the "Investment Advisory Agreement"); and
WHEREAS, prior to the date hereof, the Adviser directly employed a
portfolio management team which provided investment advisory services to the
Fund under the Investment Advisory Agreement ("Portfolio Management Team") and
which operated out of the Adviser's London branch office; and
WHEREAS, effective as of the date hereof, the Adviser completed a corporate
restructuring (the "Restructuring") under which (1) the Adviser contemplates
closing its London branch, (2) the Sub-Adviser agreed to act as sub-adviser and
make the Portfolio Management Team available to the Adviser for purposes of
providing investment advisory services to the Trust pursuant to the Investment
Advisory Agreement, (3) the Adviser and the Sub-Adviser determined that there
will be no change in the Portfolio Management Team, or in the investment
personnel who oversee and supervise the Portfolio Management Team, as a result
of the Restructuring, (4) the Sub-Adviser and the Portfolio Management Team will
be subject to day-to-day oversight, supervision and reporting by the Adviser,
and (5) in order to reasonably reflect the apportionment of such services and
responsibilities, the Adviser agreed to pay to the Sub-Adviser twenty-five
percent (25%) of all fees actually paid by the Fund to the Adviser under the
Investment Advisory Agreement; and
WHEREAS, on the basis of the foregoing, the Trust desires to employ the
Sub-Adviser as investment sub-adviser, and the Sub-Adviser is willing to render
investment sub-advisory services to the Trust, subject to and in accordance with
the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual promises and undertakings set
forth in this "Agreement," the Trust, the Adviser and the Sub-Adviser hereby
agree as follows:
1. APPOINTMENT OF SUB-ADVISER. The Adviser hereby employs the Sub-Adviser
as investment sub-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 "Schroder Portfolio"). As of
the date of this Agreement, the Schroder Portfolio will consist of the portion
of the assets of the Fund that the Board of Trustees has determined to assign to
the Adviser, as communicated to the Adviser on behalf of the Board of Trustees
by The Vanguard Group, Inc. ("Vanguard"). The Board of Trustees may, from time
to time, make additions to, and withdrawals from, the assets of the Fund
assigned to the Adviser. If and when the Adviser is notified of any such
addition or withdrawal, the Adviser shall promptly notify the Sub-Adviser of the
same. The Sub-Adviser accepts such employment and agrees to render the services
herein set forth, for the compensation herein provided.
2. DUTIES OF SUB-ADVISER.
(a) The Adviser employs the Sub-Adviser to manage the investment and
reinvestment of the assets of the Schroder Portfolio in accordance with the
Investment Advisory Agreement; to continuously review, supervise, and administer
an investment program for the Schroder 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 (either directly or through the Adviser) with
all records concerning the activities of the Sub-Adviser that the Fund is
required to maintain; and to render or assist the Adviser in rendering regular
reports to the Fund's officers and Board of Trustees concerning the discharge of
the Sub-Adviser's responsibilities hereunder. The Sub-Adviser will discharge the
foregoing responsibilities subject to the supervision and oversight of the
Adviser, 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 Sub-Adviser in writing (either
directly or through the Adviser), and applicable laws and regulations. The
Sub-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.
(b) The Sub-Adviser acknowledges and agrees that the Adviser is ultimately
responsible for providing to the Trust the services required of the Adviser
under the Investment Advisory Agreement. Accordingly, the Sub-Adviser shall
discharge its duties and responsibilities specified in paragraph (a) of this
Section 2 and elsewhere in this Agreement subject at all times to the direction,
control, supervision and oversight of the Adviser. In furtherance thereof, the
Sub-Adviser shall, without limitation, (i) make its offices available to
representatives of the Adviser for on-site inspections and consultations with
the officers and applicable portfolio managers of the Sub-Adviser responsible
for the day-to-day management of the Fund, (ii) upon request, provide the
Adviser with copies of all records it maintains regarding its management of the
Fund and (iii) report to the Adviser each calendar quarter and at such other
times as the Adviser may reasonably request regarding (A) the Sub-Adviser's
implementation of the Fund's investment program and the Fund's portfolio
composition and performance, (B) any policies and procedures implemented by the
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Sub-Adviser to ensure compliance with United States securities laws and
regulations applicable to the Sub-Adviser and the Fund, (C) the Fund's
compliance with the objectives, policies and limitations set forth in the Fund's
prospectus and Statement of Additional Information and any additional operating
policies or procedures that the Fund communicates to the Sub-Adviser in writing
(either directly or through the Adviser) and (D) such other matters as the
Adviser may reasonably request.
3. SECURITIES TRANSACTIONS. The Sub-Adviser is authorized to select the
brokers or dealers that will execute purchases and sales of securities for the
Schroder 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 Sub-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 Sub-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
Sub-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
Sub-Adviser agrees to comply with any directed brokerage or other brokerage
policies and procedures that the Fund communicates to the Sub-Adviser in writing
(either directly or through the Adviser). The Sub-Adviser will promptly
communicate or assist the Adviser in communicating to the Fund's officers and
the Board of Trustees any information relating to the portfolio transactions the
Sub-Adviser has directed on behalf of the Schroder Portfolio as the Adviser or
such officers or the Board may reasonably request.
4. COMPENSATION OF SUB-ADVISER. For the services to be rendered by the
Sub-Adviser as provided in this Agreement, the Adviser (and not the Trust or the
Fund) will pay to the Sub-Adviser at the end of each of the Fund's fiscal
quarters an amount equal to twenty-five percent (25%) of all fees actually paid
by the Fund to the Adviser for such fiscal quarter under Section 4 of the
Investment Advisory Agreement; provided, however, that the Sub-Adviser's fee
payable hereunder for any period shall be reduced such that the Sub-Adviser
bears twenty-five percent (25%) of any voluntary fee waiver observed or expense
reimbursement borne by the Adviser with respect to the Fund for such period. For
clarity, the Adviser (and not the Trust or the Fund) shall be obligated to pay
the Sub-Adviser fees hereunder for any period only out of and following the
Adviser's receipt from the Fund of advisory fees pursuant to Section 4 of the
Investment Advisory Agreement for such period.
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 Sub-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.
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5. REPORTS. The Fund and the Sub-Adviser (in either case either directly or
through 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
shareholders of the Sub-Adviser (to the extent applicable).
6. COMPLIANCE. The Sub-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 Sub-Adviser in writing (either
directly or through the Adviser), including, without limitation, any such
policies, procedures or reporting requirements relating to soft dollar or
directed brokerage arrangements.
7. STATUS OF SUB-ADVISER. The services of the Sub-Adviser to the Adviser
and the Fund are not to be deemed exclusive, and the Sub-Adviser will be free to
render similar services to others so long as its services to the Adviser and the
Fund are not impaired thereby. The Sub-Adviser will be deemed to be an
independent contractor with respect to the Fund 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 SUB-ADVISER. No provision of this Agreement will be deemed
to protect the Sub-Adviser against any liability to the Adviser or 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 Sub-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 Sub-Adviser shall notify the Fund promptly (either
directly or through the Adviser) when it becomes aware of any event described
above. Neither the Adviser nor the Fund shall be responsible for temporary
delays in the performance of its or their 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.
10. DURATION; TERMINATION; NOTICES; AMENDMENT. This Agreement will become
effective as of 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.
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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 Sub-Adviser, (ii)
this Agreement will automatically terminate in the event of its assignment,
(iii) this Agreement may be terminated by the Adviser on sixty days' written
notice to the Sub-Adviser and (iv) this Agreement may be terminated by the
Sub-Adviser on sixty days' written notice to the Trust and the Adviser. 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 Whitehall Funds - Vanguard International Explorer Fund
X.X. Xxx 0000
Xxxxxx Xxxxx, XX 00000
Attention: Portfolio Review Group
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Adviser, at:
Xxxxxxxx Investment Management North America Inc.
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Sub-Adviser, at:
Xxxxxxxx Investment Management North America Limited.
00 Xxxxxxx Xxxxxx
Xxxxxx, X.X. XX0X 0XX
Attention: Compliance Director
Telephone: 000 0000 0000
Facsimile: 020 7658 6965
This Agreement may be amended by mutual consent of the parties hereto, 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 or the
Trust.
As used in this Section 10, 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.
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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 Sub-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 Adviser,
the Trust, the Board of Trustees of the Trust, Vanguard, and any director,
officer, or employee of the Adviser, 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 the
Sub-Adviser, or (iii) for information that is publicly available other than due
to disclosure by the Sub-Adviser or its affiliates or becomes known to the
Sub-Adviser from a source other than the Adviser, the Trust, the Board of
Trustees of the Trust, or Vanguard.
13. PROXY POLICY. The Sub-Adviser acknowledges that Vanguard will vote the
shares of all securities that are held by the Fund unless other mutually
acceptable arrangements are made by the Trust, the Adviser and the Sub-Adviser
with respect to the Schroder 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.
15. TREATMENT OF FUND UNDER FSA RULES. The Fund will be treated as an
Intermediate Customer under rules of the Financial Services Authority in the
United Kingdom.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed and original, but all of which shall
together constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Sub-Advisory
Agreement to be executed as of the date first set forth herein.
VANGUARD WHITEHALL FUNDS
By: XXXXXX X. XXXXXXXX
--------------------------
Name: XXXXXX X. XXXXXXXX
Title: ASSISTANT SECRETARY
XXXXXXXX INVESTMENT MANAGEMENT
NORTH AMERICA INC.
By: XXXXXXX XXXXX XXXXXXX
----------------------------
Name: XXXXXXX XXXXX XXXXXXX
Title: SENIOR VICE PRESIDENT
XXXXXXXX INVESTMENT MANAGEMENT
NORTH AMERICA LIMITED
By: XXXXX X. XXXXX
------------------------------
Name: XXXXX X. XXXXX
Title: CHIEF EXECUTIVE OFFICER
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