UNDERLYING MANAGER AGREEMENT
This
Underlying Manager Agreement (“Agreement”) is made as of the________ day of
_________, 2008 by and between Wilshire Associates Incorporated, a California
corporation (“Adviser”), MAXAM Capital Management LLC, a Delaware limited
liability company (“Sub-Adviser”) and Paradigm
Asset Management, Inc., a registered investment adviser (“Underlying
Manager”).
Whereas Adviser is the
investment adviser of the Wilshire Mutual Funds, Inc. (the “Fund”), an open-end
diversified, management investment company registered under the Investment
Company Act of 1940, as amended (“1940 Act”), currently consisting of seven
separate series or portfolios, including the Wilshire/MAXAM Diversity Fund (the
“Portfolio”);
Whereas Adviser has retained
Sub-Adviser as investment sub-adviser to the Portfolio;
Whereas Sub-Adviser desires to
retain Underlying Manager to furnish investment advisory services for the
Portfolio, and Underlying Manager wishes to provide such services, upon the
terms and conditions set forth herein;
Now Therefore, in
consideration of the mutual covenants herein contained, the parties agree as
follows:
1. Appointment. Sub-Adviser
hereby appoints Underlying Manager to provide certain sub-investment advisory
services to the Portfolio for the period and on the terms set forth in this
Agreement. Underlying Manager hereby accepts such appointment and
agrees to furnish the services set forth for the compensation herein
provided.
2. Underlying Manager
Services. Subject always to the supervision of the Fund’s
Board of Directors, Adviser and Sub-Adviser, Underlying Manager will furnish an
investment program in respect of, and make investment decisions for, such
portion of the assets of the Portfolio as Adviser shall from time to time
designate (the “Portfolio Segment”) and place all orders for the purchase and
sale of securities on behalf of the Portfolio Segment. In the
performance of its duties, Underlying Manager will satisfy its fiduciary duties
to the Fund and the Portfolio and will monitor the Portfolio’s investments, and
will comply with the provisions of the Fund’s Articles of Incorporation and
By-laws, as amended from time to time, and the stated investment objectives,
policies and restrictions of the Fund as set forth in the prospectus and
Statement of Additional Information for the Fund, as amended from time to time,
as well as any other objectives, policies or limitations as may be provided by
Sub-Adviser to Underlying Manager in writing from time to time.
Underlying
Manager will provide reports at least quarterly to the Board of Directors,
Adviser and Sub-Adviser. Underlying Manager will make its officers
and employees available to Adviser, Sub-Adviser and the Board of Directors from
time to time at reasonable times to review investment policies of the Portfolio
with respect to the Portfolio Segment and to consult with Sub-Adviser regarding
the investment affairs of the Portfolio Segment.
Underlying
Manager agrees that it:
(a) will use
the same skill and care in providing such services as it uses in providing
services to fiduciary accounts for which it has investment
responsibilities;
(b) will
conform with all applicable provisions of the 1940 Act and rules and regulations
of the Securities and Exchange Commission in all material respects and in
addition will conduct its activities under this Agreement in accordance with any
applicable laws and regulations of any governmental authority pertaining to its
investment advisory activities, including all portfolio diversification
requirements necessary for the Portfolio Segment to comply with subchapter M of
the Internal Revenue Code as if each were a regulated investment company
thereunder;
(c) to the
extent authorized by Adviser in writing, and to the extent permitted by law,
will execute purchases and sales of portfolio securities and other investments
for the Portfolio Segment through brokers or dealers designated by management of
the Fund to Adviser for the purpose of providing direct benefits to the Fund,
provided that Underlying Manager determines that such brokers or dealers will
provide best execution in view of all appropriate factors, and is hereby
authorized as the agent of the Fund to give instructions to the Fund’s custodian
as to deliveries of securities or other investments and payments of cash of the
Portfolio Segment to such brokers or dealers for the account of the
Portfolio. Adviser and the Fund understand that the brokerage
commissions or transaction costs in such transactions may be higher than those
which the Underlying Manager could obtain from another broker or dealer, in
order to obtain such benefits for the Fund;
(d) is
authorized to and will select all other brokers or dealers that will execute the
purchases and sales of portfolio securities for the Portfolio Segment and is
hereby authorized as the agent of the Fund to give instructions to the Fund’s
custodian as to deliveries of securities or other investments and payments of
cash of the Portfolio Segment for the account of each Portfolio. In making such
selection, Underlying Manager is directed to use its best efforts to obtain best
execution, which includes most favorable net results and execution of the
Portfolio Segment’s orders, taking into account all appropriate factors,
including price, dealer spread or commission, size and difficulty of the
transaction and research or other services provided. With respect to
transactions under sub-paragraph (c) or this sub-paragraph (d), it is understood
that Underlying Manager will not be deemed to have acted unlawfully, or to have
breached a fiduciary duty to the Fund or in respect of the Portfolio, or be in
breach of any obligation owing to the Fund or in respect of the Portfolio under
this Agreement, or otherwise, solely by reason of its having caused the
Portfolio to pay a member of a securities exchange, a broker or a dealer a
commission for effecting a securities transaction of the Fund Portfolio in
excess of the amount of commission another member of an exchange, broker or
dealer would have charged if Underlying Manager determined in good faith that
the commission paid was reasonable in relation to the brokerage and research
services provided by such member, broker, or dealer, viewed in terms of that
particular transaction or Underlying Manager’s overall responsibilities with
respect to its accounts, including the Fund, as to which it exercises investment
discretion. The Sub-Adviser may, from time to time, engage other
underlying managers to advise portions of the Portfolio other than the Portfolio
Segment. Underlying Manager agrees that it will not consult with any
other underlying manager engaged by the Sub-Adviser with respect to transactions
in securities or other assets concerning the Portfolio, except to the extent
permitted by certain exemptive rules under the 1940 Act that permit certain
transactions with a Underlying Manager or its affiliates.
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(e) is
authorized to consider for investment by the Portfolio Segment securities that
may also be appropriate for other funds and/or clients served by Underlying
Manager. To assure fair treatment of the Portfolio Segment and all
other clients of Underlying Manager in situations in which two or more clients’
accounts participate simultaneously in a buy or sell program involving the same
security, such transactions will be allocated among the Portfolio Segment and
other clients in a manner deemed equitable by Underlying
Manager. Underlying Manager is authorized to aggregate purchase and
sale orders for securities held (or to be held) in the Portfolio Segment with
similar orders being made on the same day for other client accounts or
portfolios managed by Underlying Manager. When an order is so
aggregated, the actual prices applicable to the aggregated transaction will be
averaged and the Portfolio Segment and each other account or portfolio
participating in the aggregated transaction will be treated as having purchased
or sold its portion of the securities at such average price, and all transaction
costs incurred in effecting the aggregated transaction will be shared on a
pro-rata basis among the accounts or portfolios (including the Portfolio
Segment) participating in the transaction. Adviser and the Fund
understand that Underlying Manager may not be able to aggregate transactions
through brokers or dealers designated by Adviser with transactions through
brokers or dealers selected by Underlying Manager, in which event the prices
paid or received by the Portfolio Segment will not be so averaged and may be
higher or lower than those paid or received by other accounts or portfolios of
Underlying Manager;
(f) will
report regularly to Adviser, Sub-Adviser and to the Board of Directors and will
make appropriate persons available for the purpose of reviewing with
representatives of Adviser, Sub-Adviser and the Board of Directors on a regular
basis at reasonable times the management of the Portfolio Segment, including
without limitation, review of the general investment strategies of the Portfolio
Segment, the performance of the Portfolio Segment in relation to standard
industry indices, interest rate considerations and general conditions affecting
the marketplace, and will provide various other reports from time to time as
reasonably requested by Adviser and Sub-Adviser;
(g) will
prepare such books and records with respect to the Portfolio Segment’s
securities transactions as requested by Adviser and Sub-Adviser and will furnish
Adviser and the Fund’s Board of Directors such periodic and special reports as
the Board, Sub-Adviser or Adviser may reasonably request;
(h) will vote
all proxies with respect to securities in the Portfolio Segment;
and
(i) will act
upon reasonable instructions from Adviser and Sub-Adviser which, in the
reasonable determination of Underlying Manager, are not inconsistent with
Underlying Manager’s fiduciary duties under this Agreement.
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3. Expenses. During
the term of this Agreement, Underlying Manager will provide the office space,
furnishings, equipment and personnel required to perform its activities under
this Agreement, and will pay all customary management expenses incurred by it in
connection with its activities under this Agreement, which shall not include the
cost of securities (including brokerage commissions, if any) purchased for the
Portfolio Segment. Underlying Manager agrees to bear any Portfolio
expenses caused by future changes at Underlying Manager, such expenses including
but not limited to preparing, printing, and mailing to Portfolio shareholders of
information statements or stickers to or complete prospectuses or statements of
additional information.
4. Compensation. For
the services provided and the expenses assumed under this Agreement, Sub-Adviser
will pay Underlying Manager, and Underlying Manager agrees to accept as full
compensation therefor, a sub-advisory fee computed and paid as set forth in
Exhibit 1 - Fee Schedule.
5. Other
Services. Underlying Manager will for all purposes herein be
deemed to be an independent contractor and will, unless otherwise expressly
provided or authorized, have no authority to act for or represent Adviser,
Sub-Adviser, the Fund or the Portfolio or otherwise be deemed an agent of
Adviser, Sub-Adviser, the Fund or the Portfolio. Adviser understands
and has advised the Fund’s Board of Directors that Underlying Manager may act as
an investment adviser or sub-investment adviser to other investment companies
and other advisory clients. Underlying Manager understands that
during the term of this Agreement Sub-Adviser may retain one or more other
underlying managers with respect to any portion of the assets of the Portfolio
other than the Portfolio Segment.
6. Affiliated
Broker. Underlying Manager or an affiliated person of
Underlying Manager may act as broker for the Portfolio in connection with the
purchase or sale of securities or other investments for the Portfolio Segment,
subject to: (a) the requirement that Underlying Manager seek to obtain best
execution as set forth above; (b) the provisions of the Investment Advisers
Act of 1940, as amended (the “Advisers Act”); (c) the provisions of the
Securities Exchange Act of 1934, as amended; and (d) other applicable
provisions of law. Subject to the requirements of applicable law and
any procedures adopted by the Fund’s Board of Directors, Underlying Manager or
its affiliated persons may receive brokerage commissions, fees or other
remuneration from the Portfolio or the Fund for such services in addition to
Underlying Manager’s fees for services under this Agreement.
7. Representations of Underlying
Manager. Underlying Manager is registered with the Securities
and Exchange Commission under the Advisers Act. Underlying Manager
shall remain so registered throughout the term of this Agreement and shall
notify Adviser and Sub-Adviser immediately if Underlying Manager ceases to be so
registered as an investment adviser. Underlying Manager: (a) is
duly organized and validly existing under the laws of the state of its
organization with the power to own and possess its assets and carry on its
business as it is now being conducted, (b) has the authority to enter into
and perform the services contemplated by this Agreement, (c) is not
prohibited by the 1940 Act or the Advisers Act from performing the services
contemplated by this Agreement, (d) has met, and will continue to seek to
meet for the duration of this Agreement, any other applicable federal or state
requirements, and the applicable requirements of any regulatory or industry
self-regulatory agency, necessary to be met in order to perform its services
under this Agreement, (e) will promptly notify Adviser and Sub-Adviser of
the occurrence of any event that would disqualify it from serving as an
investment adviser to an investment company pursuant to Section 9(a) of the
1940 Act, and (f) will notify Adviser and Sub-Adviser of any change in
control of the Underlying Manager within a reasonable time prior to such
change.
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8. Books and
Records. Underlying Manager will maintain, in the form and for
the period required by Rule 31a-2 under the 1940 Act, all records relating to
the Portfolio Segment’s investments that are required to be maintained by the
Fund pursuant to the requirements of paragraphs (b)(5), (b)(6), (b)(7), (b)(9),
(b)(10) and (f) of Rule 31a-1 under the 1940 Act. Underlying Manager
agrees that all books and records which it maintains for the Portfolio or the
Fund are the property of the Fund and further agrees to surrender promptly to
the Adviser or the Fund any such books, records or information upon the
Adviser’s or the Fund’s request (provided, however, that Underlying Manager may
retain copies of such records). All such books and records shall be
made available, within five business days of a written request, to the Fund’s
accountants or auditors during regular business hours at Underlying Manager’s
offices. Adviser, Sub-Adviser and the Fund or their authorized
representatives shall have the right to copy any records in the possession of
Underlying Manager which pertain to the Portfolio or the Fund. Such
books, records, information or reports shall be made available to properly
authorized government representatives consistent with state and federal law
and/or regulations. In the event of the termination of this
Agreement, all such books, records or other information shall be returned to
Adviser or the Fund (provided, however, that Underlying Manager may retain
copies of such records as required by law).
Underlying
Manager agrees that it will not disclose or use any records or confidential
information obtained pursuant to this Agreement in any manner whatsoever except
as authorized in this Agreement or in writing by Adviser or the Fund, or if such
disclosure is required by federal or state regulatory
authorities. Underlying Manager may disclose the investment
performance of the Portfolio Segment, provided that such disclosure does not
reveal the identity of Adviser, the Portfolio or the Fund or the composition of
the Portfolio Segment. Underlying Manager may, however, disclose that
Adviser, the Fund and the Portfolio are its clients; provided, however, that
Underlying Manager will not advertise or market the relationship with Adviser or
the Fund or issue press reliances regarding such relationship without the
express written consent of Adviser. Notwithstanding the foregoing,
Underlying Manager may disclose (i) the investment performance of the
Portfolio Segment to Fund officers and directors and other service providers of
the Fund, and (ii) any investment performance that is public information to
any person.
9. Code of
Ethics. Underlying Manager has adopted a written code of
ethics complying with the requirements of Rule 17j-1 under the 1940 Act and will
provide Adviser and the Fund with a copy of such code. Within 35 days
of the end of each calendar quarter during which this Agreement remains in
effect, the chief compliance officer of Underlying Manager shall certify to
Adviser or the Fund that Underlying Manager has complied with the requirements
of Rule 17j-1 during the previous quarter and that there have been no violations
of Underlying Manager’s code of ethics or, if any violation has occurred that is
material to the Fund, the nature of such violation and of the action taken in
response to such violation.
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10. Limitation of
Liability. Neither Underlying Manager nor any of its partners,
officers, stockholders, agents or employees shall have any liability to Adviser,
the Fund or any shareholder of the Fund for any error of judgment, mistake of
law, or loss arising out of any investment, or for any other act or omission in
the performance by Underlying Manager of its duties hereunder, except for
liability resulting from willful misfeasance, bad faith, or negligence on
Underlying Manager’s part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement, except to
the extent otherwise provided in Section 36(b) of the 1940 Act concerning
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services.
Underlying
Manager agrees to indemnify and defend Adviser and Sub-Adviser and each of its
officers, directors, employees and any person who controls Adviser or
Sub-Adviser for any loss or expense (including reasonable attorneys’ fees)
arising out of or in connection with any claim, demand, action, suit or
proceeding relating to any actual or alleged material misstatement or omission
in the Fund’s registration statement, any proxy statement, or any communication
to current or prospective investors in the Portfolio, made by Underlying Manager
and provided to Adviser, Sub-Adviser or the Fund by Underlying
Manager.
11. Term and
Termination. This Agreement shall become effective with
respect to the Portfolio Segment on __________, 2008, and shall remain in full
force until August 31, 2009, unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year
thereafter with respect to the Portfolio, but only as long as such continuance
is specifically approved at least annually in the manner required by the 1940
Act and the rules and regulations thereunder.
This
Agreement shall terminate as follows:
(a) This
Agreement shall automatically terminate in the event of its assignment (as
defined in the 0000 Xxx) and may be terminated at any time without the payment
of any penalty by Adviser, by Sub-Adviser or by Underlying Manager on sixty days
written notice to the other parties. This Agreement may also be
terminated by the Fund by action of the Board of Directors or by a vote of a
majority of the outstanding voting securities of the Portfolio (as defined in
the 0000 Xxx) on sixty days written notice to Sub-Adviser and Underlying Manager
by the Fund.
(b) This
Agreement may be terminated at any time without payment of any penalty by
Adviser, Sub-Adviser, the Board of Directors or a vote of majority of the
outstanding voting securities of the Portfolio in the event that Underlying
Manager or any officer or director of Underlying Manager has taken any action
which results in a material breach of the covenants of Underlying Manager under
this Agreement.
(c) This
Agreement shall automatically terminate in the event the Investment Management
Agreement between Adviser and the Fund with respect to the Portfolio is
terminated, assigned or not renewed, or in the event the Investment Sub-Advisory
Agreement between Adviser and Sub-Adviser with respect to the Portfolio is
terminated, assigned or not renewed.
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Termination
of this Agreement shall not affect the right of Underlying Manager to receive
payments of any unpaid balance of the compensation described in Section 4
earned prior to such termination.
12. Notice. Any notice
under this Agreement by a party shall be in writing, addressed and delivered,
mailed postage prepaid, or sent by facsimile transmission with confirmation of
receipt, to the other party at such address as such other party may designate
for the receipt of such notice.
13. Fund Limitations on
Liability. The obligations of the Fund entered into in the
name or on behalf thereof by any of its directors, representatives or agents are
made not individually but only in such capacities and are not binding upon any
of the directors, officers, or shareholders of the Fund individually but are
binding upon only the assets and property of the Fund, and persons dealing with
the Fund must look solely to the assets of the Fund and those assets belonging
to the Portfolio for the enforcement of any claims.
14. Adviser/Sub-Adviser
Responsibility. Adviser or Sub-Adviser will provide Underlying
Manager with copies of the Fund’s Articles of Incorporation, By-laws,
prospectus, and Statement of Additional Information and any amendment thereto,
and any objectives, policies or limitations not appearing therein as they may be
relevant to Underlying Manager’s performance under this Agreement; provided,
however, that no changes or modifications to the foregoing shall be binding on
Underlying Manager until it is notified thereof.
15. Arbitration of
Disputes. Any claim or controversy arising out of or relating
to this Agreement which is not settled by agreement of the parties shall be
settled by arbitration in Santa Monica, California before a panel of three
arbitrators in accordance with the commercial arbitration rules of the American
Arbitration Association then in effect. The parties agree that such
arbitration shall be the exclusive remedy hereunder, and each party expressly
waives any right it may have to seek redress in any other forum. Any
arbitrator acting hereunder shall be empowered to assess no remedy other than
payment of fees and out-of-pocket damages. Each party shall bear its
own expenses of arbitration, and the expenses of the arbitrators and of a
transcript of any arbitration proceeding shall be divided equally between the
parties. Any decision and award of the arbitrators shall be binding
upon the parties, and judgment thereon may be entered in the Superior Court of
the State of California or any other court having jurisdiction. If
litigation is commenced to enforce any such award, the prevailing party will be
entitled to recover reasonable attorneys’ fees and costs.
16. Miscellaneous. This
Agreement sets forth the entire understanding of the parties with respect to the
subject matter hereof and may be amended only by written consent of both
parties. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of
this Agreement is held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the
benefit of the parties and their respective successors.
17. Applicable
Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the state of California.
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Adviser,
Sub-Adviser and Underlying Manager have caused this Agreement to be executed as
of the date and year first above written.
|
WILSHIRE
ASSOCIATES INCORPORATED
By: ______________________________
Title:
______________________________
|
MAXAM
CAPITAL MANAGEMENT LLC
By: ______________________________
Title: ______________________________
|
|
PARADIGM
ASSET MANAGEMENT, INCORPORATED
By: ______________________________
Title: ______________________________
|
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EXHIBIT 1
FEE
SCHEDULE
Adviser
shall pay Underlying Manager, promptly after receipt by Sub-Adviser of its
sub-advisory fee from the Adviser with respect to the Portfolio each calendar
month during the term of this Agreement, a fee based on the average daily net
assets of the Portfolio Segment, at the following annual rate:
________%
Underlying
Manager’s fee shall be accrued daily at 1/365th of the annual rate set forth
above. For the purpose of accruing compensation, the net assets of
the Portfolio Segment will be determined in the manner and on the dates set
forth in the current prospectus of the Fund with respect to the Portfolio and,
on days on which the net assets are not so determined, the net asset value
computation to be used will be as determined on the immediately preceding day on
which the net assets were determined. Upon the termination of this
Agreement, all compensation due through the date of termination will be
calculated on a pro-rata basis through the date of termination and paid within
thirty business days of the date of termination.
