EXECUTION COPY
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 6th day of February, 2003, between
VANGUARD WORLD FUND, a Delaware statutory 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 Growth Fund (the "Fund"); and
WHEREAS, the Trust retains the Adviser to render investment advisory
services to the Fund under an Investment Advisory Agreement dated as of April 1,
1993; and
WHEREAS, the Trust desires to amend and restate such Investment Advisory
Agreement in certain respects, and the Adviser is willing to render investment
advisory services to the Fund in accordance with such amendments.
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 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. 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.
(a) BASIC FEE. For the services to be rendered by the Adviser as provided
in Section 2 of this Agreement, the Fund shall pay to the Adviser at the end of
each of the Fund's fiscal quarters, a Basic Fee calculated by applying the
following annual percentage rates to the average month-end net assets of the
Xxxxxxxx Portfolio for the quarter:
0.350% on the first $50 million of net assets of the Xxxxxxxx Portfolio;
0.175% on the next $950 million of net assets of the Xxxxxxxx Portfolio; and
0.125% on the net assets of the Xxxxxxxx Portfolio in excess of $1 billion.
(b) INCENTIVE/PENALTY FEE ON ASSETS OF $1 BILLION OR LESS. On the assets of
the Xxxxxxxx Portfolio of $1 billion or less, the Basic Fee, as provided above,
shall be increased or decreased by an amount equal to 0.075% per annum (0.01875
of 1% per quarter) of the average month-end net assets of the Xxxxxxxx Portfolio
of $1 billion or less, if the investment performance of the Xxxxxxxx Portfolio
for the thirty-six months preceding the end of the quarter is twelve percentage
points or more above or below, respectively, the investment record of the Xxxxxx
Xxxxxxx Capital International Europe, Australasian, Far East Index (the "Index")
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for the same period; or by an amount equal to 0.0375% per annum (0.009375 of 1%
per quarter) if the investment performance of the Xxxxxxxx Portfolio for such
thirty-six months is six or more but less than twelve percentage points above or
below, respectively, the investment record of the Index for the same period.
(c) INCENTIVE/PENALTY FEE ON ASSETS IN EXCESS OF $1 BILLION. On assets of
the Xxxxxxxx Portfolio in excess of $1 billion, the Basic Fee, applicable to
that amount of assets, as set forth above (0.125% annually), shall be increased
or decreased by an amount equal to 0.0500% per annum (0.0125% per quarter) of
the average month-end net assets of the Xxxxxxxx Portfolio in excess of $1
billion if the investment performance of the Xxxxxxxx Portfolio for the
thirty-six months preceding the end of the quarter is twelve percentage points
or more above or below, respectively, the investment record of the Index for the
same period; or by an amount equal to 0.025% per annum (0.00625% per quarter) if
the investment performance of the Xxxxxxxx Portfolio for such thirty-six months
is six or more, but less than twelve percentage points above or below,
respectively, the investment record of the Index for the same period.
(d) BASIC FEE CALCULATION AND INCENTIVE/PENALTY FEE CALCULATION. The
calculation of the compensation payable by the Fund to the Adviser pursuant to
Section 4(a) shall be referred to as the "Basic Fee Calculation." The
calculation of the compensation payable by the Fund to the Adviser pursuant to
Sections 4(b) and 4(c) shall be referred to as the "Incentive/Penalty Fee
Calculation."
4.1. 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 at the close of business on
January 27, 2003; 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
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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 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 Xxxxxx Xxxxxxx Capital International
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) XXXXXXXX PORTFOLIO UNIT VALUE CALCULATION. The calculation of the
Xxxxxxxx Portfolio unit value pursuant to Section 4.1(a) and the calculation of
the investment performance of the Xxxxxxxx Portfolio for any period pursuant to
Section 4.1(b) each shall be referred to as the "Xxxxxxxx Portfolio unit value
Calculation."
(f) 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.
4.2 TRANSITION RULES FOR CALCULATING ADVISER'S COMPENSATION. The following
transition rules will apply to the determination of the Basic Fee Calculation,
the determination of the Incentive/Penalty Fee Calculation, and the
determination of the Xxxxxxxx Portfolio unit value Calculation:
(a) DETERMINATION OF THE BASIC FEE CALCULATION. The Basic Fee Calculation
with respect to the Fund's fiscal quarter ending February 28, 2003 shall be
based on an average of the following three month-end net asset determinations:
(i) the month-end net assets of the Fund for the month of December, 2002; (ii)
the month-end net assets of the Fund for the month of January, 2003; and (iii)
the month-end net assets of the Xxxxxxxx Portfolio for the month of February,
2003. The Basic Fee Calculation with respect to the Fund's fiscal quarters
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ending after February 28, 2003 shall be based on the average month-end net
assets of the Xxxxxxxx Portfolio for the quarter.
(b) DETERMINATION OF THE INCENTIVE/PENALTY FEE CALCULATION. The
Incentive/Penalty Fee Calculation shall be modified as follows:
(i) in making the average month-end net assets determination in connection
with the Incentive/Penalty Fee Calculation with respect to any thirty-six month
period inclusive of a calendar month prior to the month of January, 2003, such
average month-end net assets determination shall be based on the average
month-end net assets of the Fund (and not the average month-end net assets of
the Xxxxxxxx Portfolio) for each such calendar month prior to the month of
January, 2003;
(ii) in making the average month-end net assets determination in connection
with the Incentive/Penalty Fee Calculation with respect to any thirty-six month
period inclusive of the month of January, 2003, and in determining the month-end
net assets for the month of January, 2003, such month-end net assets for the
month of January, 2003 shall be determined in a manner that makes [a pro rata
adjustment] to reflect the Adviser's management of the entire Fund prior to
January 28, 2003, and the Adviser's management of only the Xxxxxxxx Portfolio on
and after January 28, 2003.
(c) DETERMINATION OF THE XXXXXXXX PORTFOLIO UNIT VALUE CALCULATION. The
Xxxxxxxx Portfolio unit value Calculation shall be determined in a manner that
makes an appropriate adjustment for the application of the transition rules
provided in Section 4.2(a) and 4.2(b).
(d) VERIFICATION AND PROOF. The determinations and calculations required
under this Section 4.2 shall be subject to reasonable requests for written
verification and proof by any party to this Agreement.
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.
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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.
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:
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If to the Fund, at:
Vanguard World Fund - Vanguard International Growth 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
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 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.
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, 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.
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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 THE FUND UNDER FSA RULES. The Fund will be treated as an
Intermediate Customer under the rules of the Financial Services Authority in the
United Kingdom.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Investment Advisory Agreement to be executed as of the date first set
forth herein.
XXXXXXXX INVESTMENT
MANAGEMENT
NORTH AMERICA INC. VANGUARD WORLD FUND
Xxxxxxx X. Xxxxx February 6, 2003 R. Xxxxxxx Xxxxxx February 6, 2003
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Signature Date Signature Date
Xxxxxxx X. Xxxxx Executive Vice President R. Xxxxxxx Xxxxxx February 6, 2003
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