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IMPORTANT NEWS ABOUT WILSHIRE MUTUAL FUNDS, INC.
April 30, 2007
Dear Shareholder of the Large Company Growth Portfolio:
Wilshire Mutual Funds, Inc. (the "Company") has appointed Columbus Circle
Investors, Logan Capital Management, Inc., Payden & Rygel, Quest Investment
Management, Inc., Renaissance Investment Management, Sawgrass Asset Management,
L.L.C. and Victory Capital Management Inc. as additional subadvisers to the
Large Company Growth Portfolio.
Wilshire Associates Incorporated, the Company's investment adviser, continues to
oversee the subadvisers.
The next few pages of this package feature more information about the new
subadvisers, including their investment processes and styles. Please take a few
moments to read them and call us at 1-888-200-6796 if you have any questions.
On behalf of the Board of Directors, I thank you for your continued investment
in Wilshire Mutual Funds.
Sincerely,
/s/ Lawrence E. Davanzo
- -----------------------
Lawrence E. Davanzo
President
WILSHIRE MUTUAL FUNDS, INC.
INFORMATION STATEMENT
TO SHAREHOLDERS OF THE
LARGE COMPANY GROWTH PORTFOLIO
This document is an Information Statement and is being furnished to shareholders
of the Large Company Growth Portfolio (the "Portfolio"), a series of Wilshire
Mutual Funds, Inc. (the "Company"), in lieu of a proxy statement pursuant to the
terms of an exemptive order issued by the Securities and Exchange Commission
(the "SEC"). Wilshire Associates Incorporated ("Wilshire") serves as the
investment adviser for the Company. The exemptive order permits Wilshire and the
Board of Directors of the Company (the "Board") to employ additional
subadvisers, terminate subadvisers, and modify subadvisory agreements without
prior approval of the Company's shareholders.
Under the SEC order, if Wilshire and the Board retain a new subadviser or
materially change an existing subadvisory agreement between Wilshire and a
subadviser, Wilshire is required to provide an Information Statement to
shareholders of the affected portfolios of the Company explaining any changes
and disclosing the aggregate fees paid to the subadvisers as a result of those
changes. The Board reviews the subadvisory agreements annually. A form of
subadvisory agreement is attached to this Information Statement as Exhibit A.
This Information Statement is being mailed on or about April 30, 2007 to the
shareholders of the Portfolio of record as of March 30, 2007 (the "Record
Date"). The Portfolio will bear the expenses incurred in connection with
preparing this Information Statement. As of the Record Date, 15,060,795 shares
of the Portfolio were issued and outstanding. Information on shareholders who
owned beneficially 5% or more of the shares the Portfolio as of the Record Date
is set forth in Appendix B. To the knowledge of the Company, the executive
officers and Directors of the Company as a group owned less than 1% of the
outstanding shares of the Portfolio and of the Company as of the Record Date.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
1
APPOINTMENT OF NEW SUBADVISERS TO THE LARGE COMPANY GROWTH PORTFOLIO
On January 22, 2007, the Board unanimously approved the appointment of Columbus
Circle Investors ("CCI"), Logan Capital Management, Inc. ("Logan"), Payden &
Rygel ("Payden"), Quest Investment Management, Inc. ("Quest"), Renaissance
Investment Management ("Renaissance"), Sawgrass Asset Management, L.L.C.
("Sawgrass") and Victory Capital Management Inc. ("Victory"), as new subadvisers
to the Large Company Growth Portfolio (the "Portfolio"), effective February 1,
2007.
Los Angeles Capital Management and Equity Research ("LA Capital"), Delaware
Management Company, a series of Delaware Management Business Trust ("Delaware")
and Goldman Sachs Asset Management ("GSAM") will continue as subadvisers to the
Portfolio.
Effective February 1, 2007, Wilshire has allocated assets of the Portfolio to
the following seven subadvisers: CCI, Logan, Payden, Quest, Renaissance,
Sawgrass and Victory. LA Capital continues to manage a portion of the assets of
the Portfolio. Also effective February 1, 2007, Wilshire determined that 0% of
the assets of the Portfolio would be managed by Delaware and GSAM. Wilshire may
change the allocation of assets of any subadviser of the Company at any time
without Board approval.
No officers or Directors of the Company are officers, employees, directors,
general partners or shareholders of CCI, Logan, Payden, Quest, Renaissance,
Sawgrass or Victory (the "Subadvisers"). In addition, since January 1, 2006, the
beginning of the Company's most recently completed fiscal year, no Director of
the Company has had, directly or indirectly, a material interest, material
transaction or material proposed transaction to which CCI, Logan, Payden, Quest,
Renaissance, Sawgrass or Victory, or any of their parents or subsidiaries or any
subsidiaries of a parent of any such entities was or is to be a party.
At its January 22, 2007 meeting, in connection with its review of Wilshire's
proposed subadvisory agreements with CCI, Logan, Payden, Quest, Renaissance,
Sawgrass and Victory (the "Agreements"), the Board evaluated information
provided by Wilshire and CCI, Logan, Payden, Quest, Renaissance, Sawgrass and
Victory in accordance with Section 15(c) of the Investment Company Act of 1940,
as amended (the "1940 Act").
The information in this summary outlines the Board's considerations associated
with its approval of each of the Agreements. In connection with its
deliberations, the Board considered such information and factors as it believed
to be relevant. As described below, the Board considered the nature, extent and
quality of the services to be performed by the Subadvisers under the Agreements;
comparative fees as provided by the Subadvisers; the profits to be realized by
the Subadvisers; the extent to which the Subadviser would realize economies of
scale as the Portfolio grows; and whether any fall-out benefits would be
realized by the Subadvisers. In considering these matters, the Board was advised
with respect to relevant legal standards by independent counsel. In addition,
the Directors who are not "interested persons" of the Company as defined in the
1940 Act (the "Independent Directors") with management and in private sessions
with counsel at which no representatives of the Subadvisers were present.
2
As required by the 1940 Act, each approval was confirmed by the unanimous
separate vote of the Independent Directors. In deciding to approve the
Agreements, the Board did not identify a single factor as controlling and this
summary does not describe all of the matters considered. However, the Board
concluded that each of the various factors referred to below favored such
approval.
The Board, including all the Independent Directors, considered the Agreements
pursuant to a process that concluded at the Board's January 22, 2007 meeting,
following an extensive process. The Adviser sent memoranda to the Subadvisers
requesting information regarding the Subadvisory Agreements to be provided to
the Directors in advance of the meeting. Based upon a review of the information
received, counsel requested that Wilshire obtain additional information from the
Subadvisers which was provided to the Directors in advance of the meeting.
In response to the requests for information, the Directors received information
from each Subadviser describing: (i) the nature, extent and quality of services
to be provided; (ii) the investment performance for products managed by the
Subadviser that are similar to the Portfolio; (iii) the financial condition of
the Subadviser; (iv) the extent to which economies of scale may be realized as
the Portfolio grows; (v) whether fee levels reflect any possible economies of
scale for the benefit of shareholders; (vi) where applicable, comparisons of
services rendered and amounts paid to other registered investment companies and
any comparable advisory clients; and (vii) benefits to be realized by the
Subadvisers from its relationship with the Portfolio. The Independent Directors
also received a memorandum from counsel describing their duties in connection
with contract approvals, and they were assisted in their review by independent
legal counsel.
As to each Agreement, the Board considered the nature, extent and quality of
services to be provided under such Agreement. The Board considered the
reputation, qualifications and background of the Subadviser, investment approach
of the Subadviser, the experience and skills of investment personnel responsible
for the day-to-day management of the Portfolio, and the resources made available
to such personnel. The Board also considered the Subadviser's general legal
compliance and the assessment of the Company's chief compliance officer
regarding the Subadviser's compliance program. In addition, the Board considered
the analysis provided by Wilshire, which concluded that each Subadviser would
provide reasonable services and recommended that each Agreement be approved.
Based upon all relevant factors, the Board concluded that the investment
performance for products managed by the Subadvisers that are similar to the
Portfolio met or exceeded acceptable levels of investment performance and,
therefore, was satisfactory.
The Board considered each Subadviser's proposed subadvisory fees. The Board
evaluated the competitiveness of the subadvisory fees based upon data supplied
by each Subadviser about the fees charged to other clients. The Board also
considered that the subadvisory fee rates were negotiated at arm's length
between Wilshire and each Subadviser and that Wilshire compensates each
Subadviser from its fees and that the aggregate advisory fees had previously
been deemed reasonable by the Board.
3
Based upon all of the above, the Board determined that the subadvisory fees for
each Subadviser were reasonable.
The Board noted that Wilshire compensates each Subadviser from its own advisory
fees and that the fees were negotiated at arm's length between Wilshire and each
Subadviser. In addition, the Board noted that the revenues to the Subadvisers
would be limited due to the size of the Portfolio. Accordingly, the Board
concluded that they need not review estimated levels of profits to the
Subadvisers in order to conclude, as they did, that profitability to the
Subadvisers was not unreasonable.
The Board considered whether there may be economies of scale with respect to the
subadvisory services to be provided to the Portfolio and whether the subadvisory
fees reflect such economies of scale through breakpoints in fees. The Board also
considered whether the estimated effective subadvisory fee rate for each
Subadviser under the Agreement is reasonable in relation to the asset size of
the Portfolio. The Board concluded that the fee schedule for each Subadviser
reflects an appropriate recognition of any economies of scale.
The Board also considered the character and amount of other incidental benefits
to be received by each Subadviser. The Board considered each Subadviser's soft
dollar practices. The Board concluded that, taking into account the benefits
arising from these practices, the fees to be charged under each Agreement are
reasonable.
Based upon all of the information considered and the conclusions reached, the
Board determined that the terms of each Agreement are fair and reasonable and
that the approval of each Agreement is in the best interests of the Portfolio.
CCI
CCI, located at One Station Place, Stamford CT 06902, is a registered investment
advisory firm investing primarily in common stocks and other equity securities
with strong earnings growth potential. CCI had $8 billion in assets under
management as of December 31, 2006.
CCI uses a bottom-up approach (focusing on individual stock selection rather
than forecasting market trends) in its selection of individual securities that
it believes have an above average potential for earnings growth. Selection is
based on the premise that companies doing better than expected will have rising
securities prices, while companies producing less than expected results will
not. CCI refers to its discipline as positive momentum and positive surprise.
Through in-depth analysis of company fundamentals in the context of the
prevailing economic environment, CCI's team of investment professionals selects
companies that meet the criteria of positive momentum in a company's progress
and positive surprise in reported results.
The investment team is comprised of seven research analysts and Anthony Rizza,
the portfolio manager that is primarily responsible for the day-to-day
management of CCI's portion of the Portfolio. Anthony Rizza, CFA, Senior
Managing Director and Portfolio Manager, joined CCI in 1991. He has managed
CCI's large cap growth portfolios since 1998. His primary function during the
last five years has been Portfolio Manager for CCI's large cap growth
portfolios.
4
LOGAN
Logan, located at Six Coulter Avenue, Ardmore, PA 19003 is a registered
investment advisory firm specializing in Domestic Large Cap Growth Investments.
Logan had $1.333 billion in assets under management as of December 31, 2006.
Logan's investment policy is that superior security selection can be achieved by
combining the analysis of macroeconomic trends, fundamental characteristics and
technical trends. This combination results in a portfolio of securities that
have been chosen on factors beyond just the specifics of one company's business
and allows Logan's managers to factor in multiple inputs when evaluating a
decision. The resulting portfolio is one which contains companies with higher
expected earnings growth rates than the broader market that have been purchased
at inflection points of improving sustainable earnings growth.
Logan's investment team is comprised of Al Besse, David P. Harrison, Stephen S.
Lee and Dana H. Stewardson. Al Besse is a founder and portfolio manager for the
firm, and serves as Logan's President. As a member of the Growth Equity
investment team he is responsible for the firm's technical analysis effort.
Prior to joining Logan, Mr. Besse was a Vice President at First Fidelity Bank
serving as co-manager of the Charitable Equity Fund. During his decade at the
bank, he played a key role in the formation and development of First Fidelity's
$2 billion Charitable Funds Management unit. Mr. Besse is a graduate of
Haverford College (BA) and The Wharton School of the University of Pennsylvania
(MBA). Mr. Besse has 23 years of investment experience.
David P. Harrison is a founder, portfolio manager and a member of the Growth
Equity and Fixed Income investment teams for the firm. Additionally, he serves
as Chairman of Logan. During his 28 years at First Fidelity Bank, Mr. Harrison
served as research analyst, portfolio manager and, ultimately, head of the
bank's $2 billion Institutional Funds Management Group. He was also responsible
for establishing the Fidelity Social Principles Fund. Mr. Harrison received his
degree from St. Ambrose College (BA) and has been a member of The Financial
Analysts of Philadelphia since 1968. Mr. Harrison has 40 years of investment
experience.
Stephen S. Lee is a founder, portfolio manager and a member of the Growth Equity
investment team for the firm. Additionally, he is responsible for the firm's
compliance. His background includes finance, marketing and extensive programming
experience. Mr. Lee has served as a Vice President of Mercer Capital Management
and as a Financial Consultant at Merrill Lynch. He is a graduate of Lehigh
University (BS). Mr. Lee has 16 years of investment experience.
Dana H. Stewardson is a founder, portfolio manager and a member of the Growth
Equity investment team for the firm. He has served his clients as a portfolio
manager for several investment firms including Mercer Capital Management, Edward
C. Rorer & Co. and Kidder, Peabody & Co. Mr. Stewardson is a graduate of Ohio
Wesleyan University (BA) and is a member of The Financial Analysts of
Philadelphia. Mr. Stewardson has 23 years of investment experience.
5
PAYDEN
Payden is located at 333 S. Grand Avenue, Los Angeles, California 90071. As of
December 31, 2006, Payden managed approximately $50 billion in assets. Payden's
large cap growth strategy is based upon the philosophy that over the long term,
stock price appreciation follows earnings growth. The portfolio managers strive
to create a portfolio of companies that they expect will grow their profits
faster than their peer average. The managers believe that they can achieve such
a portfolio through a bottom-up stock selection process, focusing on three types
of companies: companies with long-term track records of above-average earnings
growth and companies with earnings growth that the managers believe is
underestimated.
Payden also places an emphasis on risk management. The portion of the Portfolio
managed by Payden is well diversified and generally contains 50 to 70 stocks.
Style consistency is maintained by monitoring risk factors, portfolio
characteristics and tracking error to the appropriate benchmark.
Payden's investment team is comprised of Christopher Orndorff, CFA, and James
Wong, CFA. Both Messrs. Orndorff and Wong have managed the large cap growth
strategy since its inception, seven years ago. The firm manages and sub-advises
for a variety of fixed income, equity and balanced strategies, predominantly for
institutional clients and co-mingled investment vehicles. The firm's strategies
include but are not limited to U.S. and global fixed income (low duration, core,
LIBOR-based, LDI, long duration) and U.S. and global equities (large cap growth,
all cap growth, global core) and alpha strategies (LIBOR plus and absolute
return).
Christopher Onrdorff, CFA, is a managing principal at Payden who oversees the
equity strategy group and is co-portfolio manager of the large-cap growth and
global equity strategies. Mr. Orndorff is a member of the firm's Investment
Policy Committee and the Executive Committee of the board of directors. He is a
trustee of The Payden & Rygel Investment Group, the sponsor of the Paydenfunds,
for which Payden is the investment adviser. He is frequently quoted in the
press, having published numerous articles and co-authored three books on
investing. Prior to joining Payden, Mr. Orndorff was a vice president at the
Northern Trust Company in Chicago, managing domestic and global institutional
fixed-income portfolios. He is a member of the CFA Society of Los Angeles, the
CFA Institute and the Investment Counsel Association of America, Inc. He also
serves as a Trustee of Westridge School and on the board of the Pasadena
American Baseball Little League. Mr. Orndorff holds the Chartered Financial
Analyst designation. He earned an MBA with an emphasis in Finance and
international business from the University of Chicago, and a BS in Finance from
Miami University in Ohio.
James Wong, CFA, is a principal and co-portfolio manager of both the large-cap
growth and global equity strategies at Payden. He has worked with the two
products since their inception. Prior to joining Payden, Mr. Wong was a trader
at the Union Bank of Switzerland where he focused on mortgage-backed securities.
Previously, he was in the mergers and acquisitions group at Salomon Brothers
Inc. Mr. Wong holds the Chartered Financial Analyst designation and the National
Association of Securities Dealers' series 7, 3 and 63 licenses. He earned an MBA
degree from The Anderson School at the University of California, Los Angeles
with an emphasis in Finance. Mr. Wong received a BS degree in Finance from The
Wharton School at the University of Pennsylvania.
6
QUEST
Quest is located at 1 SW Columbia Street, Suite 1100, Portland, Oregon 97258. As
of December 31, 2006, Quest managed approximately $2.01 billion in assets.
Quest's investment decision process begins with a disciplined top-down strategy,
initiating investment considerations with an analysis of credit, quantitative
valuation and psychological indicators, and a qualitative evaluation of
economic, political and social cycles/trends. This market cycle evaluation
incorporates examination of the valuation level of the market, the direction of
monetary policy and consideration of the psychology of the market. The purpose
of this top-down work is to determine the overall direction of the market.
Decisions on sector and industry weightings, as well as individual stock
selection, begin with an unbiased evaluation of sector, industry and stock
strength. Quest utilizes a multi-component screening process to examine
technical, fundamental and valuation metrics for the eligible investable
universe of stocks. The first level of screening determines the investment
health of the economic sectors and industries. This screen will help to
determine the sector weights of the portfolio and will generate an initial list
of attractive stocks. An additional level of screening narrows the list of
stocks to a shorter list of stocks to own taking into account subjective
qualifications on the economic outlook for the individual sectors and
industries. The final screen pinpoints the optimal time to buy the stock
factoring in technical chart analysis.
Quest's investment team is comprised of Cameron M. Johnson, Douglas P. Goebel,
CFA, E. Adrian Hamilton, Monte L. Johnson, Garth R. Nisbet, CFA, and Gregory G.
Sherwood. Mr. Johnson is the Chief Executive Officer of the firm and has 16
years of business experience in investment research and management. Mr. Goebel
is Senior Vice President of the firm. He has 15 years of business experience in
investment research and management. E. Adrian Hamilton is Vice President of
Quest and has 34 years of business experience in investment research and
management. Mr. Johnson is the Chairman of the firm. He has 40 years of business
experience in investment research and management. Mr. Nisbet is Senior Vice
President of the firm and he has 21 years of business experience in investment
research and management. Prior to joining Quest, Mr. Nisbet held the position of
Chief Investment Officer at Crabbe Huson. Mr. Sherwood is the President of the
firm and has 19 years of business experience in investment research and
management.
RENAISSANCE
Renaissance, located at 625 Eden Park Drive, Suite 1200, Cincinnati, Ohio 45202,
is a registered investment advisory firm specializing in large cap growth, small
cap growth, SMID growth and international equity products, as well as balanced
and tactical asset allocation portfolio management services. As of December 31,
2006, Renaissance managed approximately $6.0 billion in assets.
Renaissance utilizes disciplined and systematic methods for identifying
attractive growth companies with strong business and earnings momentum trading
at reasonable valuations. Renaissance believes that portfolio management is both
art and science. Renaissance employs advanced quantitative tools and techniques
to help identify superior companies and superior investment opportunities.
Ongoing research, in the form of both security selection and enhanced
quantitative methods, is integral to continued success. The investment style
seeks growth at a reasonable price. Renaissance's disciplined approach in
selecting stocks and building portfolios has been a strong contributor to its
performance. Renaissance's investment process consists of the following three
distinct stages:
7
1. Profitability & Financial Strength Analysis
The stock selection process begins with a universe of the 1,000 largest U.S.
companies. This universe is then screened to identify those companies with
above-average historical rates of profitability and strong financial
characteristics. This initial screening process highlights only those companies
with successful business records and strong operating results.
2. Multi-Dimensional Analysis
Renaissance is typically, then left with approximately 400-500 companies that
are given further consideration. These companies are subjected to a rigorous
quantitative scoring process whereby each is analyzed and ranked on the basis of
historical growth, future earnings expectations and valuation. The end result of
this analysis is a composite ranking. Only the top 20% of companies in this
composite ranking are eligible for further review.
3. Qualitative Analysis
At this point, the analysis becomes purely qualitative. Renaissance analysts
examine each company ranked in the top 20% considering their company
fundamentals, business momentum, and management strategy, as well as many other
factors. Renaissance utilizes outside research sources as well as their own
analysis in this effort. Only the most attractive companies on the basis of this
further qualitative review are then finally selected for client portfolios.
Renaissance's scoring process also serves as a very effective sell discipline.
Any issue falling below the top 40%, on the basis of our scoring process, is
considered an automatic sale candidate, and triggers the sell discipline. This
discipline results in companies being sold in favor of more attractively ranked
companies. Portfolios typically hold 50-60 positions, equal-weighted at time of
purchase. The maximum sector allocation is 40%. The maximum security position at
market is twice its initial equal weight.
Michael Schroer, Chief Investment Officer, is the portfolio manager that is
responsible for the day-to-day management of Renaissance's portion of the
Portfolio. Mr. Schroer has 24 years of investment experience, and has been with
Renaissance since 1984. As Chief Investment Officer and Managing Partner for
Renaissance, he supervises the management and direction of the firm's investment
research efforts, as well as, determining overall portfolio strategy.
SAWGRASS
Sawgrass, located at 1579 The Greens Way, Suite 20, Jacksonville Beach, Florida
32250, is a registered investment advisory firm specializing in Large
Capitalization Growth Equity. As of December 31, 2006, Sawgrass managed
approximately $1.3 billion in assets.
Sawgrass' large cap growth investment philosophy embraces the belief that it is
possible to add value over time by consistently applying a structured discipline
that identifies attractive companies with demonstrated earnings growth, strong
earnings momentum, rising earnings estimates and securities that are reasonably
valued relative to their long term growth expectations. Combining these elements
in a sector specific modeling process, allows Sawgrass to identify companies
early in their cycle of positive change, which offers above average growth
potential.
8
Sawgrass' investment team is comprised of four Chartered Financial Analysts
solely focused on growth investing. Martin LaPrade, CFA, is the firm's lead
large cap growth portfolio manager and is primarily responsible for the
day-to-day management of Sawgrass' portion of the Portfolio.
Martin Laprade, CFA, is the lead portfolio manager for Sawgrass' portion of the
Portfolio and has over 29 years of investment experience. Mr. LaPrade is a
Partner at Sawgrass and a member of the firm's management committee. As a member
equity research committee, he is responsible for merging quantitative equity
models with specific security selection. Prior to Sawgrass, he was an equity
portfolio manager with Barnett Capital Advisors, Inc. where he was an integral
part of the institutional investment team and research committee. Mr. LaPrade
received his B.S. in Accounting from Furman University. He is a member of the
CFA Society of Jacksonville and has earned the Chartered Financial Analyst (CFA)
designation from The CFA Institute, of which he is also a member.
Dean McQuiddy, CFA, offers a macro critique of Sawgrass's portion of the
Portfolio and has 24 years of investment experience. Mr. McQuiddy is a founding
Principal of Sawgrass and directs the firm's equity management and research
efforts.
Patrick Riley, CFA, generates new ideas for Sawgrass's portion of the Portfolio
and has over 16 years of investment experience. Mr. Riley is a founding Partner
of Sawgrass and serves as an Assistant Portfolio Manager on the small cap growth
equity portfolios, and serves on the equity management research committee with
direct responsibility for the firm's quantitative proprietary research modeling
system.
Marc Davis, CFA, provides a fundamental review of new ideas once securities have
been identified for possible inclusion into Sawgrass' portion of the Portfolio.
Mr. Davis has 10 years of investment experience and serves on the firm's equity
management research committee. He is primarily responsible for quantitative and
fundamental search.
VICTORY
Victory, located at 127 Public Square, Cleveland, Ohio 44114, is a New York
corporation registered as an investment adviser with the SEC and manages assets
for institutions and individuals. Victory, a second tier subsidian of KeyCorp,
had $60.9 billion in assets under management as of December 31, 2006. Victory
employs a growth-oriented style using bottom-up fundamental company analysis as
a basis for all investment decisions. Victory constructs its portion of the
Portfolio with high-quality, large-capitalization equity securities that Victory
believes are likely to produce superior earnings growth.
Earnings growth drives stock prices over time. Victory seeks high-quality
companies that have growing earnings, strong financial foundations,
market-leadership, and superb management teams. The investment team seeks to
generate alpha (relative to the Russell 1000 Growth Index) by owning a focused
portfolio of high-quality growth companies that Victory believes will deliver
earnings growth greater than that which the market expects. Victory employs a
bottom-up, long-term approach in managing a focused portfolio of approximately
25 stocks. Victory sells a stock when the fundamental characteristics
deteriorate or when a better investment opportunity is identified, and a
position is reduced when a 10% position size limit is reached. Victory does not
time the market and seeks to remain fully invested at all times.
9
An investment committee, comprised of three portfolio managers who are supported
by a dedicated research team, is primarily responsible for the day-to-day
management of Victory's portion of the Portfolio. The investment committee is
lead by Erick F. Maronak, and includes Scott R. Kefer and Jason E. Dahl.
Erick F. Maronack, has been the Chief Investment Officer, a Senior Portfolio
Manager and a Senior Managing Director with Victory NewBridge Capital
Management, a division of Victory, since July 2003. In his capacity as CIO, Mr.
Maronak oversees the investment decisions for the Victory NewBridge Growth
product. From 1999 to July 2003, he was the Director of Research for NewBridge
Partners, LLC.
Scott R. Kefer, is a Chartered Financial Analyst Charter Holder, and a Portfolio
Manager and Managing Director with Victory NewBridge Capital Management, a
division of Victory. From 1999 to July 2003, he was a Portfolio Manager/Analyst
for NewBridge Partners, LLC.
Jason E. Dahl, is a Chartered Financial Analyst Charter Holder, and a Portfolio
Manager and Managing Director with Victory NewBridge Capital Management, a
division of Victory. From 1999 to July 2003, he was a Portfolio Manager/Analyst
for NewBridge Partners, LLC.
AGGREGATE FEES
Wilshire's annual advisory fee for the Large Company Growth Portfolio is 0.75%
of the Portfolio's average daily net assets. For the fiscal year ended December
31, 2006, the Company paid Wilshire $4,535,976 in advisory fees for the Large
Company Growth Portfolio.
For the fiscal year ended December 31, 2006, the aggregate subadvisory fees paid
by Wilshire to all subadvisers with respect to the Large Company Growth
Portfolio were $1,747,057. These aggregate fees represent 0.29% of the average
net assets of the Large Company Growth Portfolio. The additional Subadvisers to
the Portfolio will not change the annual aggregate fees paid to Wilshire with
respect to the Portfolio, although the aggregate subadvisory fees will increase
as a result of this change.
All subadvisory fees are paid by Wilshire and not the Portfolio. The fees paid
by Wilshire to each subadviser depend on the fee rates negotiated by Wilshire
and on the percentage of the Portfolio's assets allocated to the subadviser by
Wilshire. Because Wilshire pays each subadviser's fees out of its own fees
received from the Portfolio, there is no "duplication" of advisory fees paid.
THERE WILL BE NO INCREASE IN ADVISORY FEES TO THE PORTFOLIO AND ITS SHAREHOLDERS
IN CONNECTION WITH THE HIRING OF ADDITIONAL SUBADVISERS TO THE PORTFOLIO.
10
TERMS OF SUBADVISORY AGREEMENTS
The Agreements with CCI, Logan, Payden, Quest, Renaissance, Sawgrass and Victory
continue in force until August 31, 2008, unless sooner terminated as provided in
certain provisions contained in the Agreements. The Agreements will continue in
force from year to year thereafter with respect to the Portfolio so long as it
is specifically approved at least annually in the manner required by the 1940
Act.
Each Agreement will automatically terminate in the event of its assignment (as
defined in the 1940 Act) and may be terminated at any time without payment of
any penalty by Wilshire or the Subadviser on sixty days' prior written notice to
the other party. Each Agreement may also be terminated by the Portfolio by
action of the Board or by a vote of a majority of the outstanding voting
securities of the Portfolio (as defined by the 1940 Act) on sixty days' written
notice to the Subadviser by the Company.
In addition, each Agreement may be terminated with respect to the Portfolio at
any time without payment of any penalty by Wilshire, the Board, or a vote of a
majority of the outstanding voting securities of the Portfolio in the event that
a Subadviser or any officers or directors of the Subadviser has taken any action
which results in a material breach of the covenants of the Subadviser under the
Agreement. The Agreements will automatically terminate with respect to the
Portfolio if the Investment Advisory Agreement between Wilshire and the Company
is terminated, assigned or not renewed.
ADDITIONAL DISCLOSURE REGARDING THE SUBADVISERS
CCI. The names and principal occupations of the principal executive officers of
CCI, all located at located at One Station Place, Stamford CT 06902, are listed
below:
NAME PRINCIPAL OCCUPATION/TITLE
Anthony Rizza, CFA Senior Managing Director, Portfolio Manager
Clifford G. Fox, CFA Senior Managing Director, Portfolio Manager
Oliver A. Marti Managing Director, Portfolio Manager
Michael Iacono, CFA Managing Director, Co-Portfolio Manager
Karl W. Anderson Managing Director, Client Servicing, Marketing Officer
Frank A. Cuttita Managing Director, Chief Administrative Officer, CCO
CCI would not disclose information regarding funds for which its acts as adviser
or subadviser due to certain confidentiality agreements.
11
LOGAN. The names and principal occupations of the principal executive officers
and each director of Logan, all located at Six Coulter Avenue, Ardmore, PA
19003, are listed below:
NAME PRINCIPAL OCCUPATION/TITLE
Al Besse Managing Director Portfolio Manager, Analyst
David P. Harrison Managing Director Portfolio Manager, Analyst
Stephen S. Lee Managing Director Portfolio Manager, Analyst
Dana H. Stewardson Managing Director Portfolio Manager, Analyst
The following information was provided by Logan regarding the Logan Large Cap
Growth Fund, for which Logan acts as investment adviser or sub-adviser and which
has investment objectives similar to that of the Portfolio:
- ----------------------------- ----------------------------- --------------------
FUND FEE RATE NET ASSETS AS OF
12/31/06 (MILLIONS)
- ----------------------------- ----------------------------- --------------------
Logan Large Cap Growth Fund 0.80% First $25 million $287
0.70% Next $25 million
0.50% Next $25 million
0.45% Next $25 million
- ----------------------------- ----------------------------- --------------------
PAYDEN. The names and principal occupations of the principal executive officers
and each director of Payden all located at 333 S. Grand Avenue, Los Angeles,
California 90071 are listed below:
NAME PRINCIPAL OCCUPATION/TITLE
Joan Payden President
Brian Matthews Managing Principal
Asha Joshi Managing Principal
Christopher Orndorff Managing Principal
James Sarni Managing Principal
Mary Beth Syal Managing Principal
Scott Weiner Managing Principal
Edward Garlock Managing Principal and General Counsel
Robin Creswell Managing Principal
12
The following information was provided by Payden regarding the below funds for
which Payden acts as investment adviser or sub-adviser and which have investment
objectives similar to that of the Portfolio:
- ------------------------ ---------------- -----------------------------------
FUND FEE RATE NET ASSETS AS OF
12/31/06
- ------------------------ ---------------- -----------------------------------
U.S. Growth Leader Fund 0.60% $72,741,910.34
- ------------------------ ---------------- -----------------------------------
QUEST. The names and principal occupations of the principal executive officers
and each director of Quest, all located at 1 SW Columbia Street, Suite 1100,
Portland, Oregon 97258, are listed below:
NAME PRINCIPAL OCCUPATION/TITLE
Monte L. Johnson Portfolio Manager/Chairman
Cameron M. Johnson Portfolio Manager/CEO & CCO
Gregory G. Sherwood Portfolio Manager/President
Kevin M. Johnson Secretary/Treasurer
The following information was provided by Quest regarding the American Fidelity
Dual Strategy Fund, Inc for which Quest acts as investment adviser or
sub-adviser and which has investment objectives similar to that of the
Portfolio:
- ---------------------------------- --------------------------------------- -----------------------
FUND FEE RATE NET ASSETS AS OF
12/31/06
- ---------------------------------- --------------------------------------- -----------------------
American Fidelity Dual Strategy 0.425% on first $100 million, $44,628,899.09
Fund, Inc. annually.
0.30% on assets over $100 million,
annually.
- ---------------------------------- --------------------------------------- -----------------------
RENAISSANCE. The names and principal occupations of the principal executive
officers and each director of Renaissance, all located at 625 Eden Park Drive,
Suite 1200, Cincinnati, Ohio 45202, are listed below:
NAME PRINCIPAL OCCUPATION/TITLE
Michael E. Schroer, CFA Managing Partner & Primary Portfolio Manager for Large & Mid Cap Growth Strategies
Paul A. Radomski, CPA, CFA Managing Partner & Primary Portfolio Manager for Small & SMID Cap Growth Strategies
The following information was provided by Renaissance regarding the American
Beacon Large Cap Growth Fund, Atlas Strategic Growth Fund and American Fidelity
Dual Strategy Fund, for which Renaissance acts as investment adviser or
subadviser and which have investment objectives similar to that of the
Portfolio:
- --------------------------------------------- --------------------------------------- -----------------------------------
FUND FEE RATE NET ASSETS AS OF 12/31/06
- --------------------------------------------- --------------------------------------- -----------------------------------
American Beacon Large Cap Growth Fund First $50 million 0.45% $39,965,854
Next $50 million 0.40%
Thereafter 0.35%
- --------------------------------------------- --------------------------------------- -----------------------------------
Atlas Strategic Growth Fund First $75 million 0.35% $95,112,927
Thereafter 0.25%
- --------------------------------------------- --------------------------------------- -----------------------------------
American Fidelity Dual Strategy Fund All assets 0.48% $46,958,895
- --------------------------------------------- --------------------------------------- -----------------------------------
13
SAWGRASS. The names and principal occupations of the principal executive
officers and each director of Sawgrass, all located at 1579 The Greens Way,
Suite 20, Jacksonville Beach, Florida 32250, are listed below:
NAME PRINCIPAL OCCUPATION/TITLE
Andrew M. Cantor, CFA Principal, Director of Fixed Income Investments
Dean E. McQuiddy, CFA Principal, Director of Equity Investments
Brian K. Monroe Principal, Director of Sales & Marketing
Sawgrass does not act as investment adviser or subadviser for a fund with
investment objectives similar to that of the Portfolio.
VICTORY. The names and principal occupations of the principal executive officers
and each director of Victory, all located at 127 Public Square, Cleveland, Ohio
44114, are listed below:
NAME PRINCIPAL OCCUPATION/TITLE
Kenneth F. Fox Chief Compliance Officer
Thomas M. Seay Chief Investment Officer of Fixed Income
Mark H. Summers Chief Administrative Officer and Senior Managing Director
Robert L. Wagner President and Chief Executive Officer
Richard G. Zeiger Secretary
David C. Brown Senior Managing Director and Chief Operating Officer
Gregory N. River Senior Managing Director and Head of Equities
The following information was provided by Victory regarding the Victory Focused
Growth Fund Fund, for which Victory acts as investment adviser or sub-adviser
and which has investment objectives similar to that of the Portfolio:
- -------------------------------- ------------------ ----------------------------
FUND FEE RATE NET ASSETS AS OF
12/31/06
- -------------------------------- ------------------ ----------------------------
Victory Focused Growth Fund 0.75% $4,608,586
- -------------------------------- ------------------ ----------------------------
14
GENERAL INFORMATION
The principal executive offices of the Company and Wilshire are located at 1299
Ocean Avenue, Suite 700, Santa Monica, CA 90401. The Company's administrator and
transfer and dividend disbursing agent is PFPC Inc., 760 Moore Road, King of
Prussia, Pennsylvania 19406. The Company's distributor is PFPC Distributors,
Inc., located at the same address. The Company's custodian is PFPC Trust
Company, located at 8800 Tinicum Boulevard, 3rd Floor, Philadelphia, PA 19153.
Counsel to the Company and the Independent Directors is Vedder, Price, Kaufman &
Kammholz, P.C., 222 North LaSalle Street, Chicago, Illinois 60601.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL
REPORT AND SEMI-ANNUAL REPORT TO SHAREHOLDERS OF THE COMPANY UPON REQUEST.
REQUESTS FOR SUCH REPORTS SHOULD BE DIRECTED TO WILSHIRE MUTUAL FUNDS, INC., C/O
PFPC INC., P.O. BOX 9807, PROVIDENCE, RHODE ISLAND 02940, OR BY CALLING
1-888-200-6796.
15
APPENDIX A
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT
This Investment Sub-Advisory Agreement ("Agreement") is made
as of the________ day of _________, 2006 by and between Wilshire Associates
Incorporated, a California corporation ("Adviser"), and ______________, a
registered investment adviser ("Sub-Adviser").
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 five separate series or
portfolios (collectively, the "Fund Portfolios") including the
including the Large Company Growth Portfolio, the Large Company Value
Portfolio, the Small Company Growth Portfolio, the Small Company Value
Portfolio, and the Dow Jones Wilshire 5000 Index Portfolio;
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 Directors 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 a Portfolio Segment'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 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
Directors and to Adviser. Sub-Adviser will make its officers and employees
available to Adviser and the Board of Directors from time to time at reasonable
times to review investment policies of each Fund Portfolio with 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 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 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-Adviser 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 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 a 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 Sub-Adviser will not be deemed
to have acted unlawfully, or to have breached a fiduciary duty to the
Fund or in respect of any Fund Portfolio, or be in breach of any
obligation owing to the Fund or in respect of any 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 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. The Adviser may,
from time to time, engage other sub-advisers to advise portions of a
Fund Portfolio other than the Portfolio Segment. The Sub-Adviser agrees
that it will not consult with any other sub-adviser engaged by the
Adviser with respect to transactions in securities or other assets
concerning a Fund Portfolio, except to the extent permitted by certain
exemptive rules under the 1940 Act that permit certain transactions
with a sub-adviser or its affiliates.
(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 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 each 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 Directors
and will make appropriate persons available for the purpose of
reviewing with representatives of Adviser and the Board of Directors 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 Directors 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. 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. Sub-Adviser agrees to bear any
Portfolio expenses caused by future changes at Sub-Adviser, 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, Adviser will pay Sub-Adviser, and Sub-Adviser agrees to accept
as full compensation therefor, 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 Directors
that Sub-Adviser may act 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 each Portfolio Segment.
6. AFFILIATED BROKER. Sub-Adviser or an affiliated person of Sub-Adviser
may act as broker for each Fund Portfolio in connection with the purchase or
sale of securities or other investments for each Portfolio Segment, subject to:
(a) the requirement that Sub-Adviser 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, Sub-Adviser or its affiliated persons may receive brokerage
commissions, fees or other remuneration from the Fund Portfolio or the Fund for
such services in addition to Sub-Adviser's fees for services under this
Agreement.
7. 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 control of the Sub-Adviser within a reasonable time
after such change.
8. BOOKS AND RECORDS. Adviser acknowledges receipt of Sub-Adviser's ADV
Part II. 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 for each Fund 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 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 representatives 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.
Notwithstanding the foregoing, Sub-Adviser may disclose (i) the investment
performance of each 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. Sub-Adviser 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 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.
10. LIMITATION OF LIABILITY. Neither Sub-Adviser 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 Sub-Adviser of its duties hereunder, except for liability
resulting from willful misfeasance, bad faith, or 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, 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.
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, made by Sub-Adviser and provided to Adviser or the Fund by
Sub-Adviser.
11. TERM AND TERMINATION. This Agreement shall become effective with
respect to each Portfolio Segment on __________, 2006, and shall remain in full
force until August 31, 2008, 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 1940 Act) and may be terminated with
respect to any Fund Portfolio 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 any Fund Portfolio by action of the Board of Directors or by
a vote of a majority of the outstanding voting securities of such Fund
Portfolio (as defined in the 1940 Act) on sixty days written notice to
Sub-Adviser by the Fund.
(b) This Agreement may be terminated with respect to any Fund
Portfolios at any time without payment of any penalty by Adviser, the
Board of Directors 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 with respect to a
Fund Portfolio in the event the Investment Management Agreement between
Adviser and the Fund with respect to that 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.
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. 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 each Fund Portfolio for the enforcement of any claims.
14. ADVISER RESPONSIBILITY. Adviser will provide Sub-Adviser 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 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.
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.
Adviser and Sub-Adviser have caused this Agreement to be executed as of the date
and year first above written.
WILSHIRE ASSOCIATES INCORPORATED (SUB ADVISOR)
By:_________________________________ By:_________________________________
Title:______________________________ Title:______________________________
EXHIBIT 1
FUND PORTFOLIO LISTING
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
rates:
_____________ Portfolio: ________%
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.
APPENDIX B
SHAREHOLDERS OWNING BENEFICIALLY OR OF RECORD MORE THAN 5%
OF THE LARGE COMPANY GROWTH PORTFOLIO
INVESTMENT CLASS SHARES
PERCENTAGE OWNED AS OF
SHAREHOLDERS MARCH 30, 2007
- -------------------------------------------------------------------------------- ----------------------
Charles Schwab & Co. 71.1%
Attn: Mutual Funds
Reinvest Account
101 Montgomery Street
San Francisco, CA 94104
Horace Mann Life Insurance Company 5.00%
1 Horace Mann Plaza
Springfield, IL 62715
SHAREHOLDERS OWNING BENEFICIALLY OR OF RECORD MORE THAN 5%
OF THE LARGE COMPANY GROWTH PORTFOLIO
INSTITUTIONAL CLASS SHARES
PERCENTAGE OWNED AS OF
SHAREHOLDERS MARCH 30, 2007
- -------------------------------------------------------------------------------- ----------------------
Charles Schwab & Co. 21.21%
Attn: Mutual Funds
Reinvest Account
101 Montgomery Street
San Francisco, CA 94104
Horace Mann Life Insurance Company 12.05%
1 Horace Mann Plaza
Springfield, IL 62715
Mori & Co. 11.98%
PO Box 13366
Kansas City, MO 64199-3366
NFS LLC FEBO 5.86%
101 N Broadway Ave Ste 300
Oklahoma City, OK 73126
B - 1