INVESTMENT SUB-ADVISORY AGREEMENT
This Investment Sub-Advisory Agreement ("Agreement") is made as of the 8th day
of February, 2002 by and between Wilshire Associates Incorporated, a California
corporation ("Adviser") and Xxxxxxx International Advisors, LLC, a Delaware
limited liability company ("Sub-Adviser").
Whereas Adviser is the investment adviser of the Xxxxxx Xxxx Mutual
Funds (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 (collectively, the "Fund Portfolios") including the Xxxxxx
Xxxx Equity Fund, the Xxxxxx Xxxx Income Fund, the Xxxxxx Xxxx Balanced
Fund, the Xxxxxx Xxxx Short-Term Investment Fund, the Xxxxxx Xxxx
Socially Responsible Fund, the Xxxxxx Xxxx International Equity Fund,
and the Xxxxxx Xxxx Small-Cap Growth Fund;
Whereas Adviser desires to retain Sub-Adviser to furnish investment
advisory services for the Fund Portfolio(s) as described in Exhibit 1 -
Fund Portfolio Listing, as may be amended from time to time, and
Sub-Adviser 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. Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to each Fund Portfolio for the period and on
the terms set forth in this Agreement. Sub-Adviser hereby accepts such
appointment and agrees to furnish the services set forth for the compensation
herein provided.
2. Sub-Adviser Services. Subject always to the supervision of the Fund's Board
of Trustees and Adviser, Sub-Adviser will furnish an investment program in
respect of, and make investment decisions for, such portion of the assets of
each Fund Portfolio as Adviser shall from time to time designate (each a
"Portfolio Segment") and place all orders for the purchase and sale of
securities on behalf of each Portfolio Segment. In the performance of its
duties, Sub-Adviser will satisfy its fiduciary duties to the Fund and each Fund
Portfolio and will monitor each Portfolio Segment's investments, and will comply
with the provisions of the Fund's Declaration of Trust and By-laws, as amended
from time to time, and the stated investment objectives, policies and
restrictions of each Fund Portfolio as set forth in the prospectus and Statement
of Additional Information for each Fund Portfolio, as amended from time to time,
as well as any other objectives, policies or limitations as may be provided by
Adviser to Sub-Adviser in writing from time to time.
Sub-Adviser will provide reports at least quarterly to the Board of Trustees and
to Adviser. Sub-Adviser will make its officers and employees available to
Adviser and the Board of Trustees from time to time at reasonable times to
review investment policies of each Fund Portfolio with
1
respect to each Portfolio Segment and to consult with Adviser regarding the
investment affairs of each Portfolio Segment.
Sub-Adviser 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 each Portfolio Segment to comply with subchapter M and
Section 817(h) of the Internal Revenue Code as if it were a regulated
investment company thereunder;
(c) to the extent directed by Adviser in writing, will execute
purchases and sales of portfolio securities for each 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 Sub-Advisor determines that such brokers or dealers will
provide best execution in view of such other benefits, 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 each Portfolio Segment to such brokers or dealers
for the account of the relevant Fund Portfolio. Adviser and the Fund
understand that the brokerage commissions or transaction costs in such
transactions may be higher than those which the Sub-Adviser 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 each
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 each Portfolio
Segment for the account of each Fund Portfolio. In making such
selection, Sub-Adviser is directed to use its best efforts to obtain
best execution, which includes most favorable net results and execution
of each 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 paragraph
(d), it is understood that Sub-Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Fund or in
respect of each Fund Portfolio, or be in breach of any obligation owing
to the Fund or in respect of each Fund Portfolio under this Agreement,
or otherwise, solely by reason of its having caused a Fund Portfolio to
pay a member of a securities exchange, a broker or a dealer a
commission for effecting a securities transaction of a Fund Portfolio
in excess of the amount of commission another member of an exchange,
broker or dealer would have charged if Sub-Adviser determined in good
faith that the commission paid was
2
reasonable in relation to the brokerage and research services provided
by such member, broker, or dealer, viewed in terms of that particular
transaction or Sub-Adviser's overall responsibilities with respect to
its accounts, including the Fund, as to which it exercises investment
discretion;
(e) is authorized to consider for investment by each Portfolio Segment
securities that may also be appropriate for other funds and/or clients
served by Sub-Adviser. To assure fair treatment of each Portfolio
Segment and all other clients of Sub-Adviser 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 each Portfolio Segment and other clients in a manner
deemed equitable by Sub-Adviser. Sub-Adviser is authorized to aggregate
purchase and sale orders for securities held (or to be held) in each
Portfolio Segment with similar orders being made on the same day for
other eligible client accounts or portfolios managed by Sub-Adviser.
When an order is so aggregated, the actual prices applicable to the
aggregated transaction will be averaged and each 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 Sub-Adviser may not be able to aggregate
transactions through brokers or dealers designated by Adviser with
transactions through brokers or dealers selected by Sub-Adviser, in
which event the prices paid or received by each Portfolio Segment will
not be so averaged and may be higher or lower than those paid or
received by other accounts or portfolios of Sub-Adviser;
(f) will report regularly to Adviser and to the Board of Trustees and
will make appropriate persons available for the purpose of reviewing
with representatives of Adviser and the Board of Trustees on a regular
basis at reasonable times the management of each Portfolio Segment,
including without limitation, review of the general investment
strategies of each Portfolio Segment, the performance of each 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;
(g) will prepare such books and records with respect to each Portfolio
Segment's securities transactions as requested by Adviser and will
furnish Adviser and the Fund's Board of Trustees such periodic and
special reports as the Board or Adviser may reasonably request;
(h) will vote all proxies with respect to securities in each Portfolio
Segment; and
(i) will act upon reasonable instructions from Adviser which, in the
reasonable determination of Sub-Adviser, are not inconsistent with
Sub-Adviser's fiduciary duties under this Agreement.
3
3. Expenses. During the term of this Agreement, Sub-Adviser 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 each Portfolio Segment.
4. Compensation. For the services provided and the expenses assumed under this
Agreement, Adviser will pay Sub-Adviser, and Sub-Adviser agrees to accept as
full compensation therefore, a sub-advisory fee computed and paid as set forth
in Exhibit 2 - Fee Schedule.
5. Other Services. Sub-Adviser 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, the Fund or a
Fund Portfolio or otherwise be deemed an agent of Adviser, the Fund or a Fund
Portfolio. Adviser understands and has advised the Fund's Board of Trustees that
Sub-Adviser acts as an investment adviser or sub-investment adviser to other
investment companies and other advisory clients. Sub-Adviser understands that
during the term of this Agreement Adviser may retain one or more other
sub-advisers with respect to any portion of the assets of a Fund Portfolio other
than the Portfolio Segment.
6. Representations of Sub-Adviser. Sub-Adviser is registered with the Securities
and Exchange Commission under the Advisers Act. Sub-Adviser shall remain so
registered throughout the term of this Agreement and shall notify Adviser
immediately if Sub-Adviser ceases to be so registered as an investment adviser.
Sub-Adviser: (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 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 of any change in the membership of the senior management and investment
professional staff of the Sub-Adviser within a reasonable time after such
change. In addition, Sub-Adviser represents that it has provided Adviser with
copies of each of the following documents: (i) Sub-Adviser's Form ADV as filed
with the Securities Exchange Commission; and (ii) separate lists of persons who
Sub-Adviser wishes to have authorized to give written and/or oral instructions
to Custodians of Fund assets for the Portfolio. Sub-Adviser will furnish Adviser
from time to time with copies, properly certified or otherwise authenticated, of
all material amendments of or supplements to the foregoing, if any. Such
amendments or supplements as to items (i) through (ii) will be provided within
30 days of the time such materials became available to Sub-Adviser.
4
7. Books and Records. Sub-Adviser will maintain, in the form and for the period
required by Rule 31a-2 under the 1940 Act, all records relating to each
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. Sub-Adviser agrees that all
books and records which it maintains in connection with its management of the
portfolio segments 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 Sub-Adviser 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 Sub-Adviser's offices.
Adviser and the Fund or either of their authorized representative shall have the
right to copy any records in the possession of Sub-Adviser which pertain to each
Fund 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 Sub-Adviser may retain copies of
such records as required by law).
Sub-Adviser 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. Sub-Adviser
may disclose the investment performance of each Portfolio Segment, provided that
such disclosure does not reveal the identity of Adviser, each Fund Portfolio or
the Fund or the composition of each Portfolio Segment. Sub-Adviser may, however,
disclose that Adviser, the Fund and each Fund Portfolio are its clients.
8. Code of Ethics. Sub-Adviser has adopted a written code of ethics complying
with the requirements of Rule 17j-1(b) and (c) under the 1940 Act and will
provide Adviser and the Fund with a copy of such code. Within 20 days of the end
of each calendar quarter during which this Agreement remains in effect, the
president or a vice president of Sub-Adviser shall certify to Adviser or the
Fund that Sub-Adviser has complied with the requirements of Rule 17j-1 during
the previous quarter and that there have been no violations of Sub-Adviser'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.
9. Limitation of Liability. Neither Sub-Adviser nor any of its directors,
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 Sub-Adviser of its duties hereunder, except for liability
resulting from willful misfeasance, bad faith, or gross negligence on
Sub-Adviser's part in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement. Sub-Adviser
specifically acknowledges that the Fund is a third party beneficiary of this
Agreement and that the Fund is entitled to bring a lawsuit against the
Sub-Adviser for breach of this Agreement or any other duty in any court of
competent jurisdiction. Also Sub-Adviser
5
acknowledges that the Fund is not subject to or bound by any of the provisions
of paragraph 14 of this Agreement.
Sub-Adviser agrees to indemnify and defend Adviser, its officers, directors,
employees and any person who controls 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 each Fund
Portfolio, if such material misstatement or omission was made in reliance upon
and in conformity with written information furnished by Sub-Adviser to Adviser
or the Fund.
10. Term and Termination. Unless otherwise agreed in writing, this Agreement
shall become effective with respect to each Portfolio Segment on February 8,
2002, and shall remain in full force until October 31, 2002, unless sooner
terminated as hereinafter provided. This Agreement shall continue in force from
year to year thereafter with respect to each Fund Portfolio, but only as long as
such continuance is specifically approved for each Fund Portfolio at least
annually in the manner required by the 1940 Act and the rules and regulations
thereunder; provided, however, that if the continuation of this Agreement is not
approved for a Fund Portfolio, Sub-Adviser may continue to serve in such
capacity for such Fund Portfolio in the manner and to the extent permitted 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 or by Sub-Adviser on
sixty days written notice to the other party. This Agreement may also
be terminated by the Fund with respect to each Fund Portfolio by action
of the Board of Trustees or by a vote of a majority of the outstanding
voting securities of each Fund Portfolio (as defined in the 0000 Xxx)
on sixty days written notice to Sub-Adviser by the Fund.
(b) This Agreement may be terminated with respect to each Fund
Portfolio at any time without payment of any penalty by Adviser, the
Board of Trustees or a vote of majority of the outstanding voting
securities of such Fund Portfolio in the event that Sub-Adviser or any
officer or director of Sub-Adviser has taken any action which results
in a material breach of the covenants of Sub-Adviser under this
Agreement.
(c) This Agreement shall automatically terminate in the event the
Investment Management Agreement between Adviser and the Fund with
respect to a Fund Portfolio is terminated, assigned or not renewed.
Termination of this Agreement shall not affect the right of Sub-Adviser to
receive payments of any unpaid balance of the compensation described in Section
4 earned prior to such termination.
6
11. Notice. Any notice under this Agreement by a party shall be in writing,
addressed and personally 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.
12. Limitations on Liability. All parties are expressly put on notice of the
Fund's Agreement and Declaration of Trust and all amendments thereto, and the
limitation of shareholder and trustee liability contained therein. The
obligations of the Fund entered into in the name or on behalf thereof by any of
its Trustees, representatives or agents are made not individually but only in
such capacities and are not binding upon any of the Trustees, 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, with respect to a Fund
Portfolio, must look solely to the assets belonging to each Fund Portfolio for
the enforcement of any claims.
13. Adviser Responsibility. Adviser will provide Sub-Adviser with copies of the
Fund's Declaration of Trust, 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 Sub-Adviser's
performance under this Agreement; provided, however, that no changes or
modifications to the foregoing shall be binding on Sub-Adviser until it is
notified thereof.
14. 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.
15. 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.
7
16. Applicable Law This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 10 above which will be
construed in accordance with Delaware law) the laws of the state of California.
Adviser and Sub-Adviser have caused this Agreement to be executed as of the date
and year first above written.
WILSHIRE ASSOCIATES INCORPORATED XXXXXXX INTERNATIONAL ADVISORS, LLC
By: Oechsle Group, LLC Its Member Manager
By /s/ Xxxxx Xxxxxxx By /s/ Xxxxxxx X. Xxxxxx
------------------------------- -----------------------------------
Title Senior Managing Director Title Managing Principal
---------------------------- -------------------------------
8
EXHIBIT 1
FUND PORTFOLIO LISTING
Xxxxxx Xxxx International Equity Fund
9
EXHIBIT 2
FEE SCHEDULE
Adviser shall pay Sub-Adviser, promptly after receipt by Adviser of its advisory
fee from the Fund with respect to each Fund Portfolio each calendar month during
the term of this Agreement, a fee based on the average daily net assets of each
Portfolio Segment, at the following annual rate:
0.65% on first $50 million of assets under management
0.50% on the balance
Sub-Adviser'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 each
Portfolio Segment will be determined in the manner and on the dates set forth in
the current prospectus of the Fund with respect to each Fund 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.
10
