June 14, 1999
PROSPECTUS WILSHIRE 5000 INDEX PORTFOLIO
(Qualified Class Shares)
(http://www.wilfunds.com)
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Wilshire 5000 Index Portfolio (the "Portfolio") is a series of Wilshire
Target Funds, Inc. (the "Company"), a diversified open-end investment company,
known as a mutual fund. This prospectus offers Qualified Class shares of the
Portfolio. Qualified Class shares of the Portfolio are available only through a
variable annuity contract ("Contract") your employer bought from an insurance
company with which the Portfolio has entered into an agreement (each an
"Insurer" and collectively the "Insurers"). The goal of the Wilshire 5000 Index
Portfolio is to replicate as closely as possible the performance of the Wilshire
5000 Index (the "Index") before the deduction of fund expenses. See "Description
of the Portfolio."
Wilshire Associates Incorporated ("Wilshire" or the "Adviser") serves
as the Portfolio's investment adviser. First Data Investor Services Group, Inc.
("Investor Services Group") serves as the Portfolio's administrator and
transfer agent. First Data Distributors, Inc. ("FDDI") serves as the
Portfolio's distributor.
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This prospectus sets forth concisely information about the Portfolio
that you should know before investing. It should be read and retained for future
reference.
The Statement of Additional Information, dated June 14, 1999, which may
be revised from time to time, provides a further discussion of certain topics in
this prospectus and other matters which may be of interest to some investors.
It has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. For a free copy, write to the Company at
P.O. Box 60488, King of Prussia, Pennsylvania 19406-0488, or call
1-888-200-6796. In addition, the SEC maintains a web site (http://www.sec.gov)
that contains the Statement of Additional Information, information incorporated
by reference to this prospectus and the Statement of Additional Information and
other information regarding registrants that file electronically with the SEC.
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Shares of the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency, and involve risk, including the possible loss of principal amount
invested.
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TABLE OF CONTENTS Page
Fee Table.................................................... 2
Description of the Portfolio................................. 3
Investment Considerations and Risks.......................... 4
Management of the Portfolio.................................. 6
Purchase and Redemption of Shares............................ 7
Service and Distribution Plans............................... 8
Dividends, Distributions and Taxes........................... 9
Performance Information...................................... 9
General Information.......................................... 10
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FEE TABLE
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The following table illustrates the expenses and fees expected to be
incurred by a shareholder and the Portfolio for the current fiscal year. The
Portfolio's annual operating expenses do not reflect expenses imposed by
separate accounts of the Insurers through which an investment in the Portfolio
is made. See your employer's Contract disclosure document for a
description of such contract charges and expenses.
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<TABLE>
<CAPTION>
<S> <C>
WILSHIRE 5000
INDEX PORTFOLIO
Qualified Class Shares
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases or reinvestment of dividends
None
Contingent deferred sales load upon redemption of investments.....
None
Redemption Fees................................................... None
Exchange Fees..................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees (after waiver)*................................... .00%
12b-1 Fee......................................................... .25%
Other Expenses**.................................................. .50%
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Total Portfolio Operating Expenses (after waiver)+................ .75%
</TABLE>
* Reflects voluntary waiver of advisory fees which will continue in
effect until at least December 31, 1999. Absent such voluntary waiver,
the ratio of management fees to average daily net assets would be
0.10%.
** The Portfolio maintains a Shareholder Services Plan which allows for
expenditures at an annual rate of up to 0.15% of the Portfolio's
average daily net assets with respect to the Qualified Class shares.
The Adviser will reimburse expenses with respect to the Portfolio to
the extent necessary to maintain the Portfolio's expense ratio (other
than Rule 12b-1 Plan and Shareholder Services Plan fees) at .35% of the
Portfolio's average daily net assets until at least December 31, 1999.
+ Absent the voluntary fee waivers and expense reimbursements referred to
above, the ratio of total Portfolio operating expenses to average daily
net assets would be 1.07%.
The purpose of the foregoing table is to assist you in understanding
the various estimated costs and expenses that the Portfolio and investors will
bear, the payment of which will reduce investors' annual return.
Actual expenses may be greater or less than such estimates.
The following example illustrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Portfolio. These amounts are based on payments
by the Portfolio of operating expenses at the levels set forth in the above
table and also based on the following assumptions:
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EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 Year $ 8
3 Years $24
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE PORTFOLIO'S PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
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DESCRIPTION OF THE PORTFOLIO
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Investment Objective
The goal of the Wilshire 5000 Index Portfolio is to replicate as
closely as possible (before fund expenses) the total return of the Index.
Investment Approach
The Portfolio is appropriate for investors who seek a return comparable
to that of the U.S. stock market as a whole as represented by the Index. The
Index, an unmanaged capitalization-weighted index of over 7,000 U.S. equity
securities, consists of all the U.S. stocks regularly traded on the New York and
American Stock Exchanges and the NASDAQ over-the-counter market. The Index has
been computed continuously since 1974 and is published daily in many major
newspapers.
The Portfolio will invest primarily in the common stocks of companies
included in the Index, that Wilshire deems representative of the entire Index,
selected on the basis of computer generated statistical data. Although the
Portfolio will not hold securities of all the issuers whose securities are
included in the Index, it will normally hold securities representing at least
90% of the total market value of the Index.
The Portfolio is managed through the use of a "quantitative" or
"indexing" investment approach, which attempts to duplicate the investment
composition and performance of the Index (before the deduction of fund expenses)
through statistical procedures. As a result, the Adviser does not employ
traditional methods of fund investment management, such as selecting securities
on the basis of economic, financial and market analysis. Securities are selected
based primarily on market capitalization and industry weightings.
Wilshire will keep the Portfolio invested in common stocks as fully as
practicable. During ordinary market conditions, it anticipates that more than
95% of the Portfolio's assets will be so invested. In connection with these
investments, the Portfolio may from time to time receive dividends or
distributions of other securities with equity characteristics, such as preferred
stocks, warrants, rights and securities convertible into common stock; Wilshire
will determine whether it is in the best interest of the Portfolio to hold these
securities or dispose of them. It is not Wilshire's intent to use other
securities, whether issues of individual companies or derivative securities, to
enhance or modify the return of the Portfolio. Nor is it Wilshire's intent to
actively manage the Portfolio's cash position for defensive reasons. From time
to time as the result of unforeseen market conditions or to facilitate the
handling of contributions or withdrawals, Wilshire may purchase such securities
if in its judgement this is in the best interest of the shareholders. Such
positions will be limited to an amount necessary to deal with the specific
condition at hand and will be liquidated as soon as Wilshire deems it
appropriate. In order to meet anticipated redemption requests, the Portfolio may
invest part or all of its assets in U.S. government securities and high quality
(within the two highest rating categories assigned by a nationally recognized
securities rating organization) U.S. dollar-denominated money market securities,
including certificates of deposit, bankers' acceptances, commercial paper,
short-term debt securities and repurchase agreements.
INVESTMENT CONSIDERATIONS AND RISKS
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General -- The Portfolio's net asset value is not fixed and should be
expected to fluctuate. You should consider the Portfolio as a supplement to an
overall investment program and should invest only if you are willing to
undertake the risks involved.
The Portfolio may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially higher long-term
returns. The Portfolio invests for growth and does not pursue income as a
primary objective. Over time, stocks, although more volatile, have shown greater
growth potential than other types of securities. In the shorter term, however,
stock prices can fluctuate dramatically in response to market factors. The
Portfolio is intended to be a long-term investment vehicle and is not designed
to provide investors with a means of speculating on short-term market movements.
Equity securities fluctuate in value, often based on factors unrelated
to the value of the issuer of the securities, and such fluctuations can be
pronounced. Changes in the value of the Portfolio's investment securities will
result in changes in the value of the Portfolio's shares and thus the
Portfolio's total return to investors. See "Investment Objective and Management
Policies" in the Statement of Additional Information.
Over time, Wilshire expects the correlation between the performance of
the Portfolio and the Index to be 0.95 or higher before deduction of fund
expenses. A correlation of 1.00 would indicate perfect correlation, which would
be achieved when the net asset value of the Portfolio, including the value of
its dividend and any capital gain distributions, increases or decreases in exact
proportion to changes in the Index. The Portfolio's ability to track the Index
may be affected by, among other things, transaction costs, administration and
other expenses incurred by the Portfolio, changes in either the composition of
the Index or the assets of the Portfolio, and the timing and amount of Portfolio
contributions and withdrawals. If for any reason the Portfolio does not achieve
a high correlation, the Company's Board of Directors will consider alternatives.
Except as otherwise indicated, the Portfolio's investment objectives
and policies are not fundamental and may be changed without a vote of
shareholders. There can be no assurance that the Portfolio's objective will be
met. See "Investment Objective and Management Policies -- Policies" in the
Statement of Additional Information for a further discussion of certain risks.
Borrowing Money -- The Portfolio is permitted to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 15% of the
value of its total assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the amount borrowed) at the
time the borrowing is made. While borrowings exceed 5% of the Portfolio's total
assets, the Portfolio will not purchase any additional securities.
Simultaneous Investments -- Investment decisions for the Portfolio are
made independently from those of other series of the Company, other investment
companies and other accounts advised by Wilshire. However, if such other
investment companies or accounts are prepared to invest in, or desire to dispose
of, securities of the type in which the Portfolio invests at approximately the
same time as the Portfolio, available investments or opportunities for sales
will be allocated equitably to each. In some cases, this procedure may adversely
affect the size of the position obtained for or disposed of by the Portfolio or
the price paid or received by the Portfolio.
Lending Portfolio Securities -- The Portfolio may lend securities from
its portfolio to brokers, dealers and other financial institutions. In
connection with such loans, the Portfolio continues to be entitled to payments
in amounts equal to the interest, dividends or other distributions payable on
the loaned securities. Loans of portfolio securities afford the Portfolio an
opportunity to earn interest on the amount of the loan and at the same time to
earn income on the loan collateral. Loans of portfolio securities may not exceed
33 1/3% of the value of the Portfolio's total assets. In connection with such
loans, the Portfolio will receive collateral consisting of cash, U.S. government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Portfolio at any time upon
specified notice. The Portfolio might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its agreement
with the Portfolio and the Portfolio is delayed or prevented from recovering the
collateral or completing the transaction.
Year 2000 -- The date-related computer issues known as the "Year 2000
problem" could have an adverse impact on the quality of services provided to the
Company and its shareholders. However, the Company understands that its key
service providers, including Wilshire, are taking steps to address the issue. In
addition, the Year 2000 problem may adversely affect the issuers in which the
Portfolio invests. However, because the objective of the Portfolio is to
replicate as closely as possible the total return of the Wilshire 5000 Index,
Wilshire does not perform fundamental analyses of the companies in which the
Portfolio invests, and does not attempt to monitor the impact of the problem on
individual issuers.
MANAGEMENT OF THE PORTFOLIO
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Investment Adviser -- Wilshire, located at 1299 Ocean Avenue, Santa
Monica, California 90401, was formed in 1972 and serves as the Portfolio's
investment adviser. As of February 28, 1999, Wilshire managed approximately $8.4
billion in assets. Under the terms of the Investment Advisory Agreement
described below, Wilshire, subject to the overall authority of the Company's
Board of Directors in accordance with Maryland law, manages the investment of
the assets of the Portfolio. The Portfolio's primary portfolio manager is Thomas
D. Stevens, the President and Chairman of the Board of Directors of the Company
and a Senior Vice President of Wilshire. He has been employed by Wilshire since
1980. The Portfolio's other portfolio manager is identified in the Statement of
Additional Information. Wilshire also provides research services for the
Portfolio through a professional staff of portfolio managers and securities
analysts. Wilshire is controlled by its President, Dennis Tito, who owns a
majority of its outstanding voting stock.
Pursuant to the terms of an Investment Advisory Agreement with Wilshire
(the "Advisory Agreement"), the Company has agreed to pay Wilshire a fee
computed daily and paid monthly at the annual rate of .10% of the value of the
Portfolio's average daily net assets. Wilshire will waive advisory fees and
reimburse other expenses with respect to the Portfolio to the extent necessary
to maintain the Portfolio's expense ratio with respect to the Qualified Class
shares (other than Rule 12b-1 Plan and Shareholder Services Plan fees) at 0.35%
of the Portfolio's average daily net assets until at least December 31, 1999.
The agreement of Wilshire to waive its advisory fees and to pay the Portfolio's
expenses is subject to the obligation of the Portfolio to repay Wilshire such
expenses and fee waivers in the future years, if any, when the Portfolio's
expenses fall below 0.35% (exluding 12b-1 Plan and Shareholder Services Plan
fees), but only to the extent that such repayment would not cause the
Portfolio's expenses in any future year to exceed 0.35%, and provided that the
Portfolio is not obligated to repay such expenses more than two years after the
end of the fiscal year in which incurred.
Administrator and Transfer Agent -- Investor Services Group ("Transfer
Agent"), a subsidiary of First Data Corporation, 4400 Computer Drive,
Westborough, Massachusetts 01581, serves as the Company's administrator and
transfer agent pursuant to a Services Agreement with the Company. Under the
terms of the Services Agreement, Investor Services Group serves as the Company's
administrator, fund accounting agent, transfer agent, dividend disbursing agent
and agent in connection with certain other activities, subject to the overall
authority of the Company's Board of Directors in accordance with Maryland law.
Pursuant to the terms of the Services Agreement, the Company has agreed to pay
Investor Services Group a fee, computed daily and paid monthly, at the annual
rate of .15 of 1% of the value of the Company's monthly average net assets up to
aggregate assets of $1 billion, .10 of 1% of the Company's monthly average net
assets on the next $4 billion, and .08 of 1% the Company's monthly average net
assets on the excess net assets. In addition, the Company has agreed to pay
Investor Services Group an annual fee of $25,000 per series and $2,000 for each
additional class.
Custodian -- The Northern Trust Company is the custodian of the
Company's investments.
Distributor -- FDDI, 4400 Computer Drive, Westborough, Massachusetts
01581, serves as the distributor of the Company's shares. FDDI is an indirect
wholly-owned subsidiary of First Data Corporation. FDDI is not compensated for
its services as distributor.
Expenses -- From time to time, Wilshire or Investor Services Group may
waive receipt of its fees and/or voluntarily assume certain expenses of the
Portfolio or the Company, which would have the effect of lowering the overall
expense ratio of the Portfolio and increasing the return to investors at the
time such amounts are waived or assumed, as the case may be. The Company will
not pay Wilshire or Investor Services Group for any amounts which may be waived
or assumed. Each of FDDI, Wilshire or Investor Services Group may bear other
expenses of distribution of the shares of the Portfolio or of the provision of
shareholder services to the Portfolio's shareholders, including payments to
securities dealers or other financial intermediaries or service providers, out
of its profits and available resources other than the advisory and
administration fees paid by the Company.
All expenses incurred in the operation of the Company are borne by the
Company, except to the extent specifically assumed by FDDI, Wilshire, Investor
Services Group or an Insurer. The expenses borne by the Company include:
organizational costs; taxes; interest; brokerage fees and commissions, if any;
fees of Directors who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of FDDI, Wilshire or Investor Services
Group or any of their affiliates; SEC fees; state Blue Sky qualification fees;
advisory and administration fees; charges of custodians, transfer and dividend
disbursing agents' fees; certain insurance premiums; industry association fees;
outside auditing and legal expenses; costs of maintaining the Company's
existence; costs of independent pricing services; costs attributable to investor
services (including, without limitation, telephone and personnel expenses);
costs of shareholders' reports and meetings; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; and any extraordinary expenses.
Expenses attributable to a particular series or class of shares are charged
against the assets of that series or class. Other expenses of the Company are
allocated among the Portfolio and other series of the Company on the basis
determined by the Board of Directors, including, but not limited to,
proportionately in relation to the net assets of the Portfolio and other series
of the Company.
PURCHASE AND REDEMPTION OF SHARES
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Individuals cannot invest in Qualified Class shares directly. Instead,
they participate through a variable annuity Contract purchased by their employer
from an Insurer. The availability of an investment in Qualified Class shares,
and the procedures for investing, depend on the provisions of the Contract. See
your employer's Contract disclosure document for further information.
Shares of the Portfolio are continuously offered to Insurers at the net
asset value per share next determined after a proper purchase request has been
received and accepted by the Company. Net asset value per share is determined as
of the close of trading on the floor of the New York Stock Exchange (normally
4:00 p.m., New York time) on each day the New York Stock Exchange is open for
business. Each Insurer submits purchase and redemption orders to the Company's
transfer agent on a daily basis. The Company, the Portfolio and the Distributor
reserve the right to reject any purchase order from any party for shares of the
Portfolio.
<PAGE>
The Portfolio ordinarily will make payment for all shares redeemed
within seven (7) business days after a proper redemption order has been received
and accepted by the Company. A proper redemption order will contain all the
necessary information and signatures required to process the redemption order.
The redemption price will be the net asset value per share next determined after
the Company receives and accepts an Insurer's request in proper form.
The Portfolio may suspend the right of redemption or postpone the date
of payment during any period when trading on the NYSE is restricted, or the NYSE
is closed for other than weekends and holidays; when an emergency makes it not
reasonably practicable for the Portfolio to dispose of its assets or calculate
its net asset value; or as permitted by the SEC.
SERVICE AND DISTRIBUTION PLANS
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The Directors of the Company have adopted a distribution plan (the
"Rule 12b-1 Plan") with respect to the Qualified Class shares of the Portfolio
pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. Under the
Service and Distribution Plan, the Company reimburses FDDI, distributor of the
Company, at an annual rate of up to 0.25% of the value of the average daily net
assets attributable to the Qualified Class shares of the Portfolio for certain
service and distribution expenses paid to others by FDDI. Generally, the service
fees covered under the Service and Distribution Plan are fees paid to securities
dealers and other financial intermediaries for personal services to holders of
the Qualified Class shares of the Portfolio and/or for the maintenance of the
accounts of the holders of the Qualified Class shares. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Company and providing reports and other
information, and services related to the maintenance of shareholder accounts. To
the extent that such service fees do not aggregate 0.25% of the value of the
average daily net assets attributable to the Qualified Class shares of the
Portfolio, the Service and Distribution Plan also permits reimbursement for
distribution expenses paid to others by FDDI for the purpose of financing or
assisting in the financing of any activity which is primarily intended to result
in the sale of the Qualified Class shares of the Portfolio. The types of
distribution expenses covered include, but are not limited to, the costs and
expenses of direct marketing activities (including related travel, meals and
lodging); the design, preparation, printing and distribution of promotional
materials, advertising and offering materials, and shareholder materials; the
compensation of securities dealers and other financial intermediaries for sales
activities; and related capital, overhead and interest expenses. Amounts payable
under the Service and Distribution Plan relating to the Portfolio are charged
to, and therefore reduce, income allocated to the Qualified Class shares of the
Portfolio.
The Directors of the Company have adopted a shareholder services plan
(the "Shareholder Services Plan") with respect to the Qualified Class shares.
Under the Shareholder Services Plan, the Company pays an annual fee of up to
0.15% of the value of the average daily net assets attributable to the Qualified
Class shares for certain shareholder services provided by Insurers or other
financial intermediaries. The shareholder services provided may include personal
services to holders of the Qualified Class shares and for the maintenance of the
accounts of the holders of the Qualified Class shares. The amount payable under
the Shareholder Services Plan is charged to, and therefore reduces, income
allocated to the Qualified Class shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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The Portfolio ordinarily declares and distributes net realized gains,
if any, once a year, but may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), in all events in a manner consistent with the
provisions of the 1940 Act. The Company will not make distributions from net
realized gains unless capital loss carryovers, if any, have been utilized or
have expired. The Portfolio intends to distribute substantially all of its net
investment income and net realized securities gains on a current basis. All
expenses are accrued daily and deducted before declaration of dividends to
investors.
For a discussion of the impact on Contract Owners of income taxes an
Insurer may owe as a result of its ownership of shares of the Portfolio, its
receipt of dividends and distributions thereon, and its gains from the purchase
and sale thereof, reference should be made to your employer's Contract
disclosure document.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferral benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Adviser intends to diversify the
Portfolio's investments in accordance with those requirements.
The foregoing is only a brief summary of important tax law provisions
that affect the Portfolio. Other Federal, state or local tax law provisions may
also affect the Portfolio and its operations. Anyone who is considering
allocating, transferring or withdrawing monies held under a Contract to or from
the Portfolio should consult a qualified tax adviser.
PERFORMANCE INFORMATION
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For purposes of advertising, performance may be calculated on the basis
of average annual total returns and/or total returns of the Portfolio. "Total
return" is the change in value of an investment in the Portfolio for a specified
period. The "average annual total return" of the Portfolio is the average annual
compound rate of return on an investment in the Portfolio assuming the
investment has been held for one-, five- and ten year periods (or the life of
the Portfolio if shorter).
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management and is also affected by
operating expenses, market conditions and the risks associated with the
Portfolio's objective and investment policies. Performance information, such as
that described above, may not provide a basis for comparison with other
investments or other investment companies using a different method of
calculating performance.
<PAGE>
Comparative performance information may be used from time to time in
advertising or marketing the shares of the Portfolio, including data from the
Wilshire 5000 Index, Lipper Analytical Services, Inc., the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, Morningstar, Inc.
and other industry publications.
Quotations of Portfolio total returns and yields will not reflect
Contract charges and expenses. The Contract disclosure document will
contain information about performance of the relevant separate
account and Contract. Shareholders and Contract Owners will receive reports
semi-annually and annually that include the Portfolio's financial statements,
including listings of investment securities held by the Portfolio as of those
dates. The Portfolio's annual report is audited by the Portfolio's independent
accountants.
GENERAL INFORMATION
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The Company was incorporated under Maryland law on July 30, 1992, and
commenced operations on September 30, 1992. The Company is authorized to issue
600 million shares of Common Stock, par value $.001 per share.
The Company is a "series fund," which is a mutual fund divided into
separate series. Each series of the Company is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of one
series is not deemed to be a shareholder of any other series. As described
below, for certain matters shareholders of all series vote together as a group;
as to others they vote separately by series or by class.
To date the Board of Directors has authorized the creation of five
series of shares, including the Portfolio, and four classes of shares of the
Portfolio. The Investment Class, Institutional Class and Horace Mann Class
shares of the Portfolio are offered in separate Prospectuses. All consideration
received by the Company for shares of one of the series and all assets in which
such consideration is invested will belong to that series (subject only to the
rights of creditors) and will be subject to the liabilities related thereto.
Each share of a class of a series represents an equal proportionate interest in
the series with each other class share, subject to the liabilities of the
particular class. Each class of shares of a series participates equally in the
earnings, dividends and assets attributable to that class. The income
attributable to, and the expenses of, one class are treated separately from
those of the other classes. Shares are fully paid and non-assessable. Should a
series be liquidated, the holders of each class are entitled to share pro rata
in the net assets attributable to that class available for distribution to
shareholders. The Board of Directors has the ability to create, from time to
time, new series and additional classes without shareholder approval. Shares
have no pre-emptive or conversion rights.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Company to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Directors or the
appointment of auditors. However, pursuant to the Company's By-Laws, the holders
of at least 10% of the shares outstanding and entitled to vote may require the
Company to hold a special meeting of shareholders for the purpose of considering
the removal of a Director from office or for any other purpose. Shareholders may
remove a Director by the affirmative vote of a majority of the Company's
outstanding voting shares. In addition, the Board of Directors will call a
meeting of shareholders for the purpose of electing Directors if, at any time,
less than a majority of the Directors then holding office have been elected by
shareholders. Each share has one vote and shares of each series are entitled to
vote separately to approve investment advisory agreements or changes in
investment restrictions, but shares of all series vote together in the election
of Directors or selection of accountants. Each class of a series is also
entitled to vote separately on any material increases in the fees under its
Service and Distribution Plan or on any other matter that affects solely that
class of shares, but will otherwise vote together with all other classes of
shares of the series on all other matters on which shareholders are entitled to
vote. As a Contract Owner, you vote on matters indirectly by voting your units.
When a matter comes up for vote, the separate account will vote its shares in
the same proportion as the unit votes it actually receives.
Shareholder inquiries may be made by writing to the Fund at P.O. Box
60488, King of Prussia, Pennsylvania 19406-0488, or by calling toll free
1-888-200-6796.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus and in the
Company's official sales literature in connection with the offer of the
Portfolio's shares, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Company. This prospectus does not constitute an offer in any state in which, or
to any person to whom, such offering may not lawfully be made.
<PAGE>
WILSHIRE 5000 INDEX PORTFOLIO
(Qualified Class Shares)
STATEMENT OF ADDITIONAL INFORMATION
June 14, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current prospectus of
Wilshire 5000 Index Portfolio (the "Portfolio") (Qualified Class shares) dated
June 14, 1999 (the "Prospectus"). Qualified Class shares of the Portfolio are
available through a variable annuity contract your employer bought from an
insurance company with which the Portfolio has entered into an agreement (each
an "Insurer" and collectively the "Insurers"). The Portfolio is a series of
Wilshire Target Funds, Inc. (the "Company"). To obtain a copy of the Prospectus,
please write to the Portfolio at P.O. Box 60488, King of Prussia, Pennsylvania
19406-0488. Capitalized terms not otherwise defined herein have the same meaning
as in the Prospectus.
Wilshire Associates Incorporated ("Wilshire") serves as the Portfolio's
investment adviser.
First Data Investor Services Group, Inc. ("Investor Services Group") serves
as the Portfolio's administrator and transfer agent.
First Data Distributors, Inc. ("FDDI") serves as the Portfolio's distributor.
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY.........................................2
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES............................2
MANAGEMENT OF THE COMPANY...............................................9
INVESTMENT ADVISORY AND OTHER AGREEMENTS................................12
SERVICE AND DISTRIBUTION PLAN...........................................13
PURCHASE OF SHARES......................................................14
REDEMPTION OF SHARES....................................................14
DETERMINATION OF NET ASSET VALUE........................................15
DIVIDENDS, DISTRIBUTION AND TAXES.......................................16
SPECIAL TAX CONSIDERATIONS..............................................17
PERFORMANCE INFORMATION.................................................18
PORTFOLIO TRANSACTIONS..................................................18
INFORMATION ABOUT THE PORTFOLIO.........................................19
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT ACCOUNTANTS.....................................20
<PAGE>
GENERAL INFORMATION AND HISTORY
On September 17, 1992, Dreyfus-Wilshire Series Fund, Inc. changed its name
to Dreyfus-Wilshire Target Funds, Inc.
On May 29, 1996, Dreyfus-Wilshire Target Funds, Inc. changed its name to
Wilshire Target Funds, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "Description of the Portfolio."
GENERAL
Individuals cannot invest in Qualified Class shares directly. Instead, they
participate through a variable annuity contract ("Contract") purchased by their
employer from an Insurer. Most often employers enter into these Contracts so
they can offer their employees a way to save for retirement. Retirement Plans
through employers may be entitled to tax benefits to which individual retirement
plans may not be entitled. These tax benefits are fully explained in
your employer's Contract disclosure document. Once you are invested in
Qualified
Class shares of the Portfolio, you participate in Portfolio earnings or losses
in proportion to the amount of money you invest. Depending on your employer's
Contract, if you withdraw your money before retirement, you may incur charges
and additional tax liabilities. However, to save for retirement, you generally
should let your investments and their earnings build. At retirement, you may
withdraw all or a portion of your money, leave it in the account until you need
it, or start receiving annuity payments. At a certain age you may be required to
begin withdrawals. Holders of Contracts ("Contract Owners") should consider
their investment objectives and tolerance for risk when making an investment
decision. The Portfolio's net asset value is not fixed and should be expected to
fluctuate. You should consider the Portfolio as a supplement to an overall
investment program and should invest only if you are willing to undertake the
risks involved.
OTHER PORTFOLIO SECURITIES
U.S. GOVERNMENT SECURITIES. The Portfolio may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, which
include U.S. Treasury securities that differ in their interest rates, maturities
and times of issuance. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law.
BANK OBLIGATIONS. The Portfolio may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, the Portfolio may be subject to additional investment risks that are
different in some respects from those incurred by a portfolio which invests only
in debt obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. The Portfolio only
will only invest in time deposits of domestic banks that have total assets in
excess of one billion dollars. Time deposits which may be held by the Portfolio
will not benefit from insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit Insurance
Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term bank obligations in which the
Portfolio may invest may include uninsured, direct obligations bearing fixed,
floating or variable interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys, and the
seller agrees to repurchase, a security at a mutually agreed upon time and price
(usually within seven days). The repurchase agreement thereby determines the
yield during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. Repurchase
agreements could involve risks in the event of a default or insolvency of the
other party to the agreement, including possible delays or restrictions upon the
Portfolio's ability to dispose of the underlying securities. The Company's
custodian or sub-custodian will have custody of, and will hold in a segregated
account, securities acquired by the Portfolio under a repurchase agreement.
Repurchase agreements are considered by the staff of the SEC to be loans by the
Portfolio. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, the Portfolio will enter into repurchase agreements only with
domestic banks with total assets in excess of one billion dollars with respect
to securities of the type in which the Portfolio may invest, and will require
that additional securities be deposited with it if the value of the securities
purchased should decrease below resale price.
LENDING PORTFOLIO SECURITIES. In connection with its securities lending
transactions, the Portfolio may return to the borrower or a third party which is
unaffiliated with the Company, and which is acting as a "placing broker," a part
of the interest earned from the investment of collateral received for securities
loaned.
The SEC currently requires that the following conditions must be met whenever
portfolio securities are loaned: (1) the Portfolio must receive at least 100%
cash collateral from the borrower; (2) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (3) the Portfolio must be able to terminate the loan at any
time; (4) the Portfolio must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions payable on the loaned securities,
and any increase in market value; (5) the Portfolio may pay only reasonable
custodian fees in connection with the loan; and (6) while voting rights on the
loaned securities may pass to the borrower, the Company's Board of Directors
must terminate the loan and regain the right to vote the securities if a
material event adversely affecting the investment occurs. These conditions may
be subject to future modification.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. Commercial paper
consists of short-term, unsecured promissory notes issued to finance short-term
credit needs. The commercial paper purchased by the Portfolio will consist only
of direct obligations which, at the time of their purchase, are (a) rated not
lower than Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's
Ratings Group, F-1 by Fitch Investors Service, L.P. or D-1 by Duff & Phelps
Credit Rating Co.; (b) issued by companies having an outstanding unsecured debt
issue currently rated not lower than Aa3 by Moody's Investors Service, Inc. or
AA- by Standard & Poor's Ratings Group, Fitch Investors Service, L.P. or Duff &
Phelps Credit Rating Co.; or (c) if unrated, determined by Wilshire to be of
comparable quality to those rated obligations which may be purchased by the
Portfolio. These instruments include variable amount master demand notes, which
are obligations that permit the Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the Portfolio,
as lender, and the borrower. These notes permit daily changes in the amounts
borrowed. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued interest,
at any time. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with floating and variable rate demand obligations,
Wilshire will consider, on an ongoing basis, earning power, cash flow and other
liquidity ratios of the borrower, and the borrower's ability to pay principal
and interest on demand. Such obligations frequently are not rated by credit
rating agencies, and the Portfolio may invest in them only if at the time of an
investment the borrower meets the criteria set forth above for other commercial
paper issuers.
PREFERRED STOCK. The Portfolio may invest up to 5% of its assets in preferred
stock. Preferred stock, unlike common stock, offers a stated dividend rate
payable from a corporation's earnings. Such preferred stock dividends may be
cumulative or non-cumulative, participating or auction rate. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. The Portfolio may invest up to 5% of its assets in
convertible securities when its appears to Wilshire that it may not be prudent
to be fully invested in common stocks. In evaluating a convertible security,
Wilshire places primary emphasis on the attractiveness of the underlying common
stock and the potential for capital appreciation through conversion. Convertible
securities may include corporate notes or preferred stock but are ordinarily a
long-term debt obligation of the issuer convertible at a stated exchange rate
into common stock of the issuer. As with all debt securities, the market value
of convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the price
of the convertible security tends to reflect the value of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus may
not depreciate to the same extent as the underlying common stock. Convertible
securities rank senior to common stocks in an issuer's capital structure and are
consequently of higher quality and entail less risk than the issuer's common
stock, although the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security.
WARRANTS AND RIGHTS. The Portfolio may invest up to 5% of its assets in
warrants and similar rights to purchase stock. Warrants basically are options to
purchase equity securities at a specified price valid for a specific period of
time. Their prices do not necessarily move parallel to the prices of the
underlying securities. Rights are similar to warrants, but normally have a short
duration and are distributed directly by the issuer to its shareholders. Rights
and warrants have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
DERIVATIVES. Although Wilshire has no current intention to invest Portfolio
assets in financial instruments which derive their performance, at least in
part, from the performance of an underlying assets or index ("Derivatives"), it
reserves the right to do so in the future. Under normal market conditions, less
than 5% of the net assets of the Portfolio would be invested in Derivatives.
Derivatives may provide a cheaper, quicker or more specifically focused way for
the Portfolio to invest than "traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
Portfolio as a whole. Derivatives permit the Portfolio to increase, decrease or
change the level of risk to which it is exposed in much the same way as the
Portfolio can increase, decrease or change its risk by making investments in
specific securities.
In addition, Derivatives may entail investment exposures that are greater
than their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Portfolio's performance. If the
Portfolio invests in Derivatives at inappropriate times or judges market
conditions incorrectly, such investments may lower the Portfolio's return or
result in a loss. The Portfolio also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Portfolio were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
When required by the SEC, the Portfolio will set aside permissible liquid
assets in a segregated account to cover its obligations relating to its purchase
of Derivatives. To maintain this required cover, the Portfolio may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a Derivative position at a reasonable price. Derivatives
may be purchased on established exchanges or through privately negotiated
transactions referred to as over-the-counter Derivatives. Exchange-traded
Derivatives generally are guaranteed by the clearing agency which is the issuer
or counterparty to such Derivatives. This guarantee usually is supported by a
daily payment system operated by the clearing agency in order to reduce overall
credit risk. As a result, unless the clearing agency defaults, there is
relatively little counterparty credit risk associated with Derivatives purchased
on an exchange. By contrast, no clearing agency guarantees over-the-counter
Derivatives. Therefore, each party to an over-the-counter Derivative bears the
risk that the counterparty will default. Accordingly, Wilshire will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Portfolio. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding for
it.
OPTIONS. The Portfolio may write covered call options, buy put options, buy
call options and write secured put options on particular securities or the
Wilshire 5000 Index. Options trading is a highly specialized activity which
entails greater than ordinary investment risks. A call option for a particular
security gives the purchaser of the option the right to buy, and a writer the
obligation to sell, the underlying security at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is in consideration for undertaking
the obligations under the option contract. A put option for a particular
security gives the purchaser the right to sell the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security.
Options on stock indices are similar to options on specific securities,
described above, except that, rather than the right to take or make delivery of
the specific security at a specific price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of that stock index is greater than, in the case of a call
option, or less than, in the case of a put option, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollar
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. Unlike options on
specific securities, all settlements of options on stock indices are in cash,
and gain or loss depends on general movements in the stocks included in the
index rather than price movements in particular stock.
FUTURES TRANSACTIONS. The Portfolio may enter into futures contracts on
particular securities or stock indices in U.S. domestic markets, such as the
Chicago Board of Trade and the International Monetary Market of the Chicago
Mercantile Exchange. A futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock or stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
Engaging in these transactions involves risk of loss to the Portfolio which
could affect the value of the Portfolio's net assets adversely. Although the
Portfolio intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid market
will exist for any particular contract at any particular time. Many futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Portfolio to
substantial losses.
Successful use of futures by the Portfolio also is subject to the ability of
Wilshire to predict correctly movements in the direction of the relevant market
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Portfolio uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Portfolio will lose part or all of the benefit of the increased
value of securities which it has hedged because it will have offsetting losses
in its futures positions. Furthermore, if in such circumstances the Portfolio
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. The Portfolio may have to sell such securities at a time
when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the SEC, the Portfolio
may be required to segregate cash or liquid assets in connection with its
commodities transactions in an amount generally equal to the value of the
underlying commodity. The segregation of such assets will have the effect of
limiting the Portfolio's ability otherwise to invest those assets.
FUTURE DEVELOPMENTS. The Portfolio may take advantage of opportunities in the
area of futures contracts and any other Derivatives which presently are not
contemplated for use by the Portfolio or which currently are not available but
which may be developed, to the extent such opportunities are both consistent
with the Portfolio's investment objective and legally permissible for the
Portfolio. Before entering into such transactions or making any such investment,
the Portfolio will provide appropriate disclosure in its Prospectus or SAI.
MANAGEMENT POLICIES
FUND INVESTMENT RESTRICTIONS. The Portfolio has adopted investment
restrictions numbered 1 through 9 as fundamental policies, which cannot be
changed without approval by the holders of a majority (as defined in the 1940
Act) of the Portfolio's outstanding voting shares. Investment restrictions
numbered 10 through 12 are not fundamental policies and may be changed by vote
of a majority of the Directors at any time. The Portfolio may not:
1. Invest in commodities, except that the Portfolio may purchase and sell
options and futures contracts, including those relating to indices and options
on futures contracts or indices.
2. Purchase, hold or deal in real estate or oil, gas or other mineral
leases or exploration or development programs, but the Portfolio may purchase
and sell securities that are secured by real estate or issued by companies that
invest or deal in real estate.
3. Borrow money, except for temporary or emergency (not leveraging) purposes
in an amount up to 33 1/3% of the value of the Portfolio's total assets
(including the amount borrowed) based on the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any additional investments. For purposes of this
investment restriction, the entry into options, forward contracts, or futures
contracts, including those relating to indices, and options on futures contracts
or indices shall not constitute borrowing.
4. Make loans to others, except through the purchase of debt obligations and
the entry into repurchase agreements. However, the Portfolio may lend its
portfolio securities in an amount not to exceed 33 1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Company's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to the extent
the Portfolio may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
6. Invest more than 25% of its assets in the securities of issuers in any
single industry, provided there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7. Invest more than 5% of its assets in the obligations of any single issuer,
except that up to 25% of the value of the Portfolio's total assets may be
invested, and securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities may be purchased, without regard to any such
limitation.
8. Hold more than 10% of the outstanding voting securities of any single
issuer. This investment restriction applies only with respect to 75% of the
Portfolio's total assets.
9. Issue any senior security (as such term is defined in Section 18(f) of the
1940 Act), except to the extent that the activities permitted in investment
restrictions No. 1 and 3 may be deemed to give rise to a senior security.
10. Invest in the securities of a company for the purpose of exercising
management or control, but the Portfolio will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
11. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 15% of the value of the Portfolio's net assets would be so
invested.
12. Purchase securities of other investment companies, except to the extent
permitted under the 1940 Act or those received as part of a merger or
consolidation.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
MANAGEMENT OF THE COMPANY
Directors and officers of the Company, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Director who is deemed to be an "interested person" of the Company,
as defined in the 1940 Act, is indicated by an asterisk.
DIRECTORS OF THE COMPANY
*THOMAS D. STEVENS, Chairman of the Board, President and Director. Senior
Vice President and Principal of Wilshire for more than the past five years. He
is the Chief Investment Officer of the Wilshire Asset Management division of
Wilshire. Wilshire Asset Management is a provider of index and structured equity
and fixed income applications. He is 50 years old and his address is c/o
Wilshire Associates Incorporated, 1299 Ocean Avenue, Santa Monica, California
90401.
DEWITT F. BOWMAN, Director. Since January 1994, Pension Investment Consultant
providing advice on large pension fund investment strategy, new product
evaluation and integration, and large plan investment analysis and management.
For more than four years prior thereto, he was Chief Investment Officer of the
California Public Employees Retirement System. He currently serves as a director
of the RREEF America REIT, Dresdner RCM Capital and Equity Funds, Inc., and as a
trustee of the Pacific Gas & Electric Nuclear Decommissioning Trust, Brandes
Investment Trust and PCG Private Equity Fund. He is 68 years old and his address
is 79 Eucalyptus Knoll, Mill Valley, California 94941.
*ROBERT J. RAAB, JR., Director. Senior Vice President and Principal of
Wilshire for more than the past five years. He is head of Wilshire's
Institutional Services Division and is responsible for Wilshire Equity, Fixed
Income, Index Fund and Portfolio Accounting products. He is 49 years old and his
address is c/o Wilshire Associates Incorporated, 1299 Ocean Avenue, Santa
Monica, California 90401.
ANNE WEXLER, Director. Chairman of the Wexler Group, consultants specializing
in government relations and public affairs for more than fifteen years. She is
also a director of Alumax, The Dreyfus Corporation, Comcast Corporation, The New
England Electric System, Nova Corporation, and sixteen mutual funds in the
Dreyfus mutual fund family as well as a member of the Board of the Carter Center
of Emory University, the Council of Foreign Relations, the National Park
Foundation, the Visiting Committee of the John F. Kennedy School of Government
at Harvard University and the Board of Visitors of the University of Maryland
School of Public Affairs. She is 69 years old and her address is c/o The Wexler
Group, 1317 F Street, N.W., Suite 600, Washington, D.C. 20004.
CYNTHIA A. HARGADON, Director. Since July 1998, Director of Investments for
the National Automobile Dealers Association. From November 1996 to July 1998,
President of Stable Value Investment Association, Inc. educating the public
about stable value as a fixed income alternative and how to use it in the asset
allocation process for defined contribution plan participants. She is also a
project consultant of Johnson Custom Strategies, Inc. an independent investment
services firm founded in 1992 to provide specialized asset management strategies
to institutional clients. For more than nine years prior thereto, she was Senior
Vice President and Chief Investment Officer of ICMA Retirement Corporation/ICMA
Retirement Trust. She is 44 years old and her address is c/o National Auto
Dealers Association, Retirement Trust, 8400 Westpark Drive, McLean, VA 22102.
<PAGE>
For so long as the Company's plan described in the section captioned "Service
and Distribution Plan" remains in effect, the Directors of the Company who are
not "interested persons" of the Company, as defined in the 1940 Act, will be
selected and nominated by the Directors who are not "interested persons" of the
Company.
The Company typically pays its Directors an annual retainer and a per meeting
fee and reimburses them for their expenses. The aggregate amount of compensation
paid to each current Director by the Company for the fiscal year ended August
31, 1998, was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PENSION OR
RETIREMENT BENEFITS TOTAL COMPENSATION
ACCRUED AS PART OF ESTIMATED ANNUAL FROM REGISTRANT AND
AGGREGATE COMPANY'S EXPENSES BENEFITS UPON COMPANY COMPLEX
COMPENSATION RETIREMENT
NAME OF FROM
BOARD MEMBER COMPANY*
Thomas D. Stevens $0 N/A N/A $0
DeWitt F. Bowman $13,000 N/A N/A $13,000
Robert J. Raab, Jr. $0 N/A N/A $0
Anne L. Wexler $13,000 N/A N/A $13,000
Cynthia A. Hargadon** $ 6,500 N/A N/A $ 6,500
Peter J. Carre*** $ 3,250 N/A N/A $ 3,250
</TABLE>
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $18,422 for all Directors as a group.
** Appointed as a Director on June 8, 1998.
*** Resigned as a Director on February 19, 1998.
OFFICERS OF THE COMPANY
THOMAS D. STEVENS (see "Directors of the Company" above).
DAVID R. BORGER, Vice President and Treasurer. Vice President and Principal
of Wilshire and Director of Research for its Wilshire Asset Management division
for more than five years. He is 50 years old and his address is c/o Wilshire
Associates Incorporated, 1299 Ocean Avenue, Santa Monica, California 90401.
ALAN L. MANNING, Secretary. Since 1990, Vice President, Secretary and
General Counsel of Wilshire. He is 50 years old and his address is c/o Wilshire
Associates Incorporated, 1299 Ocean Avenue, Santa Monica, California 90401.
MICHAEL J. NAPOLI, JR., Vice President. Vice President and Principal of
Wilshire for more than five years. He is Director of Marketing for its Wilshire
Asset Management division. He is 47 years old and his address is c/o Wilshire
Associates Incorporated, 1299 Ocean Avenue, Santa Monica, California 90401.
<PAGE>
JULIE A. TEDESCO, Vice President and Assistant Secretary. Since May 1994,
Counsel to Investor Services Group. From July 1992 to May 1994, Assistant Vice
President and Counsel of The Boston Company Advisors, Inc. She is 41 years old
and her address is c/o First Data Investor Services Group, Inc., 101 Federal
Street, Boston, Massachusetts 02110.
THERESE M. HOGAN, Vice President and Assistant Secretary. Since June 1994,
Manager (State Regulation) of Investor Services Group. From October 1993 to June
1994, Senior Legal Assistant at Palmer & Dodge, Boston, Massachusetts. For more
than eight years prior thereto, a paralegal at Robinson & Cole in Hartford,
Connecticut. She is 37 years old and her address is c/o First Data Investor
Services Group, Inc., 101 Federal Street, Boston, Massachusetts 02110.
TERESA M.R. HAMLIN, Assistant Secretary. Since 1995, Counsel to Investor
Services Group. Prior to that time, she was a paralegal manager with The Boston
Company Advisors, Inc. She is 35 years old and her address is c/o First Data
Investor Services Group, Inc., 101 Federal Street, Boston, Massachusetts 02110.
KENNETH J. KEMPF, Assistant Treasurer. Since 1998 Senior Vice-President of
Investor Services Group. From November 1993 to February 1998, President and
Chief Executive Officer of FPS Services, Inc., King of Prussia, Pennsylvania. He
is 49 years old and his address is c/o First Data Investor Services Group, Inc.,
3200 Horizon Drive, King of Prussia, Pennsylvania 19406.
GERALD J. HOLLAND, Assistant Treasurer. Since 1994, Vice President of
Investor Services Group's Fund Administration Department. Prior to that time, he
was Senior Vice President of Finance and Administration for Delaware Management
Co. and its affiliates. He is 48 years old and his address is c/o First Data
Investor Services Group, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania
19406.
BRIAN O'NEILL, Assistant Treasurer. Since 1994, Director of Investor
ServicesGroup's Financial Reporting Department. From 1992 to 1994, Mr. O'Neill
was a Supervisor in the Accounting Services Unit of Investor Services Group. He
is 31 years old and his address is c/o First Data Investor Services Group, Inc.,
3200 Horizon Drive, King of Prussia, Pennsylvania 19406.
SUSAN T. NAUGHTON, Assistant Treasurer. Since 1995, Section Manager of
Investor Services Group's Financial Reporting Department. From 1993 to 1995, Ms.
Naughton was a Supervisor of International Funds in the Mutual Funds Accounting
Department at PFPC, Inc. She is 39 years old and her address is c/o First Data
Investor Services Group, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania
19406.
ROBERT C. HERFORTH, Assistant Treasurer. Since 1998, Section Manager of
Investor Services Group's Financial Reporting Department. From 1995 to 1998, Mr.
Herforth served as a Financial Administrator. Prior to 1995, he was a Supervisor
in the Transfer Agent Control Department. He is 30 years old and his address is
c/o First Data Investor Services Group, Inc., 3200 Horizon Drive, King of
Prussia, Pennsylvania 19406.
Directors and officers of the Company, as a group, owned less than 1% of the
Company's shares of Common Stock outstanding on March 1, 1999.
<PAGE>
INVESTMENT ADVISORY AND OTHER AGREEMENTS
The following information supplements and should be read in conjunction with
the section in the Portfolio's Prospectus entitled "Management of the
Portfolio."
INVESTMENT ADVISORY AGREEMENT. Wilshire provides investment advisory services
to the Portfolio pursuant to Investment Advisory Agreement (the "Advisory
Agreement") dated July 11, 1996 with the Company as amended to include the
Portfolio on June 8, 1998. As to the Portfolio, the Advisory Agreement has an
initial term of two years and thereafter is subject to annual approval by (i)
the Company's Board of Directors or (ii) vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of such Portfolio, provided that
in either event the continuance also is approved by a majority of the Directors
who are not "interested persons" (as defined in the 1940 Act) of the Company or
Wilshire, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to the Portfolio, the Advisory Agreement is terminable
without penalty, on 60 days' notice, by the Company's Board of Directors or by
vote of the holders of a majority of the Portfolio's shares, or, on not less
than 90 days' notice, by Wilshire. The Advisory Agreement will terminate
automatically, as to the Portfolio, in the event of its assignment (as defined
in the 1940 Act).
The following persons are executive officers and directors of Wilshire:
Dennis A. Tito, Chairman of the Board of Directors, President and Chief
Executive Officer; Robert J. Raab, Jr., Director and Senior Vice President;
Thomas D. Stevens, Director and Senior Vice President; Stephen L. Nesbitt,
Director and Senior Vice President; Rosalind M. Hewsenian, Director and Vice
President; Robert C. Kuberek, Director and Vice President; Howard M. Yata,
Director and Vice President; Cecilia I. Loo, Director and Vice President; Thomas
J. Ryan, Director and Vice President; Alan L. Manning, Vice President, General
Counsel and Secretary; and San Slawson, Vice President and Treasurer.
Wilshire provides day-to-day management of the Portfolio's investments in
accordance with the stated policies of the Portfolio, subject to the oversight
of the Company's Board of Directors. Wilshire provides the Portfolio with
portfolio managers who are authorized by the Board of Directors to execute
purchases and sales of securities. The Portfolio's primary Portfolio Manager is
Thomas D. Stevens and he is assisted by David R. Borger.
SERVICES AGREEMENT. Pursuant to a Services Agreement (the "Services
Agreement") with the Company, Investor Services Group, a subsidiary of First
Data Corporation, 4400 Computer Drive, Westborough, Massachusetts 01581,
furnishes the Company with clerical help and accounting, data processing,
internal auditing and legal services and certain other services required by the
Company, prepares reports to the Portfolio's shareholders, tax returns, reports
to and filings with the SEC and state Blue Sky authorities, and generally
assists in all aspects of the Company's operations, other than providing
investment advice.
The Services Agreement has an initial three year term ("Initial Term") and
upon the expiration date of the Initial Term, the Services Agreement shall
automatically renew for successive terms of three years ("Renewal Terms") each,
unless the Company or Investor Services Group provides written notice to the
other of its intent not to renew. Such notice must be received not less than 90
days and not more than 180 days prior to the expiration of the Initial Term or
the then current Renewal Term.
As compensation for Investor Services Group's services under the Services
Agreement, Investor Services Group is entitled to receive from the Company a
monthly administration fee at the annual rate of .15 of 1% of the Company's
monthly average net assets up to aggregate assets of $1 billion, .10 of 1% such
value on the next $4 billion, and .08 of 1% on the excess net assets. In
addition, the Company has agreed to pay Investor Services Group an annual fee of
$25,000 for each series (including the Portfolio) and $2,000 for each additional
class.
The Advisory Agreement provides that Wilshire shall exercise its best
judgment in rendering the services to be provided to the Portfolio under the
Agreement. Wilshire is not liable under the Advisory Agreement for any error of
judgment or mistake of law or for any loss suffered by the Portfolio. Wilshire
is not protected, however, against any liability to the Portfolio or its
shareholders to which Wilshire would otherwise be subject by reasons of willful
misfeasance, bad faith or gross negligence in the performance of its duties
under the Advisory Agreement or by reason of Wilshire's reckless disregard of
its obligations and duties under the Advisory Agreement.
SERVICE AND DISTRIBUTION PLAN
The Service and Distribution Plan ("12b-1 Plan") of the Company adopted
pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder was approved
as to the Qualified Class shares of the Portfolio by vote of the majority of
both (a) the Directors of the Company, and (b) those Directors of the Company
who are not interested persons of the Company, and have no direct or indirect
financial interest in the operation of the 12b-1 Plan or any agreements related
to it (the "Independent Directors"), in each case cast in person at a meeting
called for the purpose of voting on the 12b-1 Plan.
Under the 12b-1 Plan, FDDI is required to provide to the Directors of the
Company for their review, at least quarterly, a written report of the amounts
expended by the Portfolio and the purposes for which such expenditures were
made.
The 12b-1 Plan will continue in effect with respect to the Qualified Class
shares of the Portfolio only so long as such continuance is specifically
approved at least annually by votes of the majority (or whatever other
percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 or the rules and regulations thereunder) of both
(a) the Directors of the Company, and (b) the Independent Directors of the
Company, cast in person at a meeting called for the purpose of voting on the
Service and Distribution Plans. The Service and Distribution Plan may not be
amended in any material respect with respect to the Qualified Class shares of
the Portfolio unless such amendment is approved by votes of the majority (or
whatever other percentage may, from time to time, be required by Section 12(b)
of the Investment Company Act of 1940 or the rules and regulations thereunder)
of both (a) the Directors of the Company, and (b) the Independent Directors of
the Company, cast in person at a meeting called for the purpose of voting on the
Service and Distribution Plan, and may not be amended to increase materially the
amount to be spent thereunder without such approvals and approval by vote of at
least a majority of the outstanding shares of the Qualified Class shares of the
Portfolio. The Service and Distribution Plan may be terminated at any time with
respect to the Qualified Class shares of the Portfolio by vote of a majority of
the Independent Directors or, as to the Qualified Class shares of the Portfolio,
by vote of a majority of the outstanding shares of the Qualified Class of the
Portfolio.
<PAGE>
PURCHASE OF SHARES
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "Purchase and Redemption of Shares."
THE DISTRIBUTOR. FDDI, a subsidiary of Investor Services Group, 4400 Computer
Drive, Westborough, Massachusetts 01581, serves as the Company's distributor
pursuant to an agreement which is renewable annually by the Board of Directors.
The Qualified Class Shares of the Portfolio are continuously offered to Insurers
at the net asset value per share next determined after a proper purchase request
has been received and accepted by the Company. The Distribution Agreement
between the Distributor and the Company provides that the Company shall
indemnify the Distributor against any liability arising out of any untrue
statement of a material fact or any omission of a material fact in the Company's
registration statement necessary to make the statements therein misleading,
unless such liability results from the Distributor's willful misfeasance, bad
faith or negligence in the performance of its duties under the Agreement.
IN-KIND PURCHASES. Payments for the Portfolio's shares may, at the discretion
of Wilshire, be made in the form of securities which are permissible investments
for the Portfolio. For further information about this form of payment, please
contact the Transfer Agent. Generally, securities which are accepted by the
Portfolio as payment for the Portfolio's shares will be valued using the
Portfolio's procedures for valuing its own shares at the time the Portfolio's
net asset value is next determined after receipt of a properly completed order.
All dividends, interest, subscription or other rights pertaining to such
securities will become the property of the Portfolio and must be delivered to
the Portfolio upon receipt from the issuer. The Portfolio will require that (1)
it will have good and marketable title to the securities received by it; (2) the
securities are in proper form for transfer to the Portfolio and are not subject
to any restriction on sale by the Portfolio under the Securities Act of 1933, as
amended, or otherwise; and (3) the Portfolio receives such other documentation
as Wilshire may, in its discretion, deem necessary or appropriate. Investors who
are subject to Federal taxation may realize a gain or loss for Federal income
tax purpose upon such a payment.
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "Purchase and Redemption of Shares."
STOCK CERTIFICATES; SIGNATURES. Any certificates representing shares to be
redeemed must be submitted with the redemption request. Written redemption
requests must be signed by each shareholder, including each holder of a joint
account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Transfer
Agent has adopted standards and procedures pursuant to which signature
guarantees in proper form generally will be accepted from domestic banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, as well as
from participants in the New York Stock Exchange Medallion Signature Program,
the Securities Transfer Agents Medallion Program ("STAMP") and the Stock
Exchanges Medallion Program. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature Guaranteed" must appear with the
signature. The Transfer Agent may request additional documentation from
corporations, administrators or trustees. For more information with respect to
signature guarantees, please call the telephone number listed on the cover.
REDEMPTION COMMITMENT. The Company has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% of the value of the Portfolio's
net assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amount, the Board of Directors reserves the right to make
payments in whole or in part in securities or other assets in case of an
emergency or any time a cash distribution would impair the liquidity of the
Portfolio to the detriment of the existing shareholders. In such event, the
securities would be readily marketable, to the extent available, and would be
valued in the same manner as the Portfolio's investment securities are valued.
If the recipient sold such securities, brokerage charges would be incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock Exchange
is closed (other than customary weekend and holiday closings), (b) when trading
in the markets the Portfolio ordinarily utilizes is restricted, or when an
emergency exists as determined by the SEC so that disposal of the Portfolio's
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the SEC by order may permit to
protect the Portfolio's shareholders.
NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which the
New York Stock Exchange is closed currently are: New Year's Day, Presidents'
Day, Rev. Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "Purchase and Redemption of Shares."
VALUATION OF PORTFOLIO SECURITIES. The Portfolio's investment securities are
valued at the last sale price on the securities exchange or national securities
market on which such securities primarily are traded. Securities not listed on
an exchange or national securities market, or securities in which there were no
transactions, are valued at the average of the most recent bid and asked prices.
Bid price is used when no asked price is available. Short-term investments are
carried at amortized cost, which approximates value. Any securities or other
assets for which recent market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Directors. Expenses
and fees, including the advisory and administration fees, are accrued daily and
taken into account for the purpose of determining the net asset value of the
Portfolio's shares.
<PAGE>
DIVIDENDS, DISTRIBUTION AND TAXES
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "Dividends, Distributions and Taxes." For
a discussion of the impact on Contract Owners of income taxes an Insurer may owe
as a result of its ownership of shares of the Portfolio, its receipt of
dividends and distributions thereon, and its gains from the purchase and sale
thereof, reference should be made to your employer's Contract disclosure
document.
REGULATED INVESTMENT COMPANY. The Portfolio intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Qualification as a regulated investment company relieves
the Portfolio from any liability for Federal income taxes to the extent its
earnings are distributed in accordance with the applicable provisions of the
Code. The term "regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Qualification as a regulated investment company under the Code requires,
among other things, that the Portfolio (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities or currencies; (b) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the market value of the Portfolio's assets
is represented by cash, U.S. Government securities and securities of other
regulated investment companies, and other securities (for purposes of this
calculation generally limited, in respect of any one issuer, to an amount not
greater than 5% of the market value of the Portfolio's assets and 10% of the
outstanding voting securities of such issuer) and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government or foreign government securities or the securities of other
regulated investment companies), or two or more issuers which the Company
controls and which are determined to be engaged in the same or similar trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes dividends, interest, and net short-term capital gains in
excess of net long-term capital losses each taxable year). A distribution of the
Portfolio's income or gain will be treated as paid on December 31 of the
calendar year if it is declared by the Portfolio in October, November, or
December of that year to shareholders of record on a date in such a month and
paid by the Portfolio during January of the following year.
Dividends paid by the Portfolio from ordinary income, and distributions of
the Portfolio's net realized short-term capital gains, are treated as ordinary
income in the hands of an Insurer. Under the Code, any distributions designated
as being made from net capital gains will be treated as long-term capital gains
in the hands of the Insurer, regardless of the holding period of such Insurer.
Such distributions of net capital gains will be designated by the Portfolio as a
capital gains distribution in a written notice to its shareholders which
accompanies the distribution payment. Any loss on the sale of shares held for
less than six months will be treated as a long-term capital loss for federal tax
purposes to the extent an Insurer receives net capital gain distributions on
such shares.
<PAGE>
SPECIAL TAX CONSIDERATIONS. Any dividend or distribution paid shortly after
an Insurer's purchase may have the effect of reducing the aggregate net asset
value of shares below the cost of investment. Such a dividend or distribution
would be a return on investment in an economic sense.
If an Insurer holds shares of the Portfolio while holding a short position in
a regulated futures contract or an option in such regulated futures contract
that substantially diminishes the Insurer's risk of loss in its Portfolio shares
(an "offsetting position"), recently proposed Internal Revenue Service
regulations clarify that (i) any losses on the disposition of Portfolio shares
will be required to be deferred to the extent of any unrealized appreciation in
the short position and (ii) such holding will limit the Insurer's ability to
claim the corporate dividends received deduction in respect of Portfolio
dividends.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as a capital gain or loss. All or a portion of the gain realized from
engaging in "conversion transactions" may be treated as ordinary income under
Section 1258. "Conversion transactions" are defined to include certain forward,
futures, option and "straddle" transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, a gain or loss realized by the Portfolio from
certain financial futures transactions will be treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. Gain or loss will arise
upon the exercise or lapse of such futures as well as from closing transactions.
In addition, any such futures remaining unexercised at the end of the
Portfolio's taxable year will be treated as sold for their then fair market
value, resulting in additional gain or loss to the Portfolio characterized in
the manner described above.
Offsetting positions held by the Portfolio involving financial futures may
constitute "straddles." Straddles are defined to include "offsetting positions"
in actively traded personal property. The tax treatment of straddles is governed
by Sections 1092 and 1258 of the Code, which, in certain circumstances,
overrides or modifies the provisions of Section 1256. As such, all or a portion
of any short- or long-term capital gain from certain "straddle" and/or
conversion transactions may be recharacterized to ordinary income.
If the Portfolio were treated as entering into straddles by reason of its
futures transactions, such straddles could be characterized as "mixed straddles"
if the futures transactions comprising such straddles were governed by Section
1256 of the Code. The Portfolio may make one or more elections with respect to
"mixed straddles." Depending upon which election is made, if any, the results to
the Portfolio may differ. If no election is made, to the extent the straddle
rules apply to positions established by the Portfolio, losses realized by the
Portfolio will be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle rules, short-term capital loss
on straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain on straddle positions may be recharacterized as
short-term capital gain, and as a result of the conversion transaction rules,
long-term capital gain may be recharacterized as ordinary income.
Under Section 1259 of the Code, enacted as part of the Taxpayer Relief Act of
1997, the Portfolio will recognize gain if it enters into a future or forward
contract relating to an appreciated direct position in any stock or debt
instrument, or if it acquires stock or a debt instrument at a time when the
Portfolio has an offsetting appreciated position in the stock or debt
instrument. Such transactions are considered to be constructive sales for income
tax purposes.
Investment by the Portfolio in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount, timing
and character of distributions to shareholders by causing the Portfolio to
recognize income prior to the receipt of cash payments. For example, the
Portfolio could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued each year and to distribute such
income in order to maintain its qualification as a regulated investment company.
In such case, the Portfolio may have to dispose of securities which it might
otherwise have continued to hold in order to generate cash to satisfy these
distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "Performance Information."
From time to time, quotations of the Portfolio's performance may be presented
in advertisements, sales literature or reports to shareholders or prospective
investors. All performance information is calculated separately for each class.
The data is calculated as follows:
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased at net asset value per share with a
hypothetical $1,000 payment made at the beginning of the period (assuming the
reinvestment of dividends and distributions), dividing by the amount of the
initial investment, taking the "nth" root of the quotient (where "n" is the
number of years in the period) and subtracting 1 from the result.
Total return is calculated by subtracting the amount of the net asset value
per share at the beginning of a stated period from the net asset value per share
at the end of the period (after giving effect to the reinvestment of dividends
and distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.
From time to time, advertising materials for the Portfolio may refer to
Morningstar ratings and related analysis supporting such ratings.
Quotations of Portfolio total returns and yields will not reflect Contract
charges and expenses. The Contract disclosure document will contain
information about performance of the relevant separate account and
Contract. Shareholders and Contract Owners will receive reports
semi-annually and annually that include the Portfolio's
financial statements, including listings of investment securities
held by the Portfolio as of those dates. The Portfolio's
annual report is audited by the Portfolio's independent accountants.
PORTFOLIO TRANSACTIONS
Wilshire supervises the placement of orders on behalf of the Portfolio for
the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the best judgment of
Wilshire and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders at the most favorable net price.
Subject to this consideration, the brokers selected may include those that
supplement Wilshire's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in addition
to and not in lieu of services required to be performed by Wilshire and its fees
are not reduced as a consequence of the receipt of such supplemental
information. Such information may be useful to Wilshire in serving both the
Portfolio and other clients which it advises and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to Wilshire in carrying out its obligations to the Portfolio. Brokers also are
selected because of their ability to handle special executions such as are
involved in large block trades or broad distributions, provided the primary
consideration is met. Large block trades, in certain cases, may result from two
or more clients Wilshire might advise being engaged simultaneously in the
purchase or sale of the same security. When transactions are executed in the
over-the-counter market, the Portfolio will deal with the primary market makers
unless a more favorable price or execution otherwise is obtainable.
Portfolio turnover may vary from year to year, as well as within a year.
Under normal market conditions, the Portfolio's turnover rate generally will not
exceed 10%. High turnover rates are likely to result in comparatively greater
brokerage expenses. The overall reasonableness of brokerage commissions paid is
evaluated by Wilshire based upon its knowledge of available information as to
the general level of commissions paid by other institutional investors for
comparable services.
INFORMATION ABOUT THE PORTFOLIO
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "General Information."
Each share of the Portfolio has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable. As
a Contract Owner, you vote on matters indirectly by voting your units. When a
matter comes up for a vote, the separate account will vote its shares in the
same proportion as the unit votes it actually receives. Shares of the class of
the Portfolio have equal rights as to dividends and in liquidation. Shares have
no preemptive, subscription or conversion rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as the Company, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
the series affected by such matter as defined by the 1940 Act. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter unless
it is clear that the interests of all series in the matter are identical or that
the matter does not affect any interest of all series. However, the Rule exempts
the selection of independent accountants and the election of Directors from the
separate voting requirements of the Rule. Rule 18f-3 under the 1940 Act makes
further provision for the voting rights of each class of shares, such as the
Qualified Class shares, of an investment company which issues more than one
class of voting shares. In particular, Rule 18f-3 provides that each class shall
have exclusive voting rights on any matter submitted to Shareholders that
relates solely to the class' arrangement for services and expenses, and shall
have separate voting rights on any matter submitted to Shareholders in which the
interests of one class differ from the interests of any other class.
The Company will send annual and semi-annual financial statements to all its
shareholders.
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT ACCOUNTANTS
The Northern Trust Company, an Illinois trust company located at 50 South
LaSalle Street, Chicago, Illinois 60675, acts as custodian of the Company's
investments. Investor Services Group, a subsidiary of First Data Corporation,
P.O. Box 60488, King of Prussia, Pennsylvania 19406-0488, is the Company's
transfer and dividend disbursing agent. Neither The Northern Trust Company nor
Investor Services Group has any part in determining the investment policies of
the Portfolio or which securities are to be purchased or sold by the Portfolio.
Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, Los Angeles,
California 90071-2371, is counsel for the Company.
PricewaterhouseCoopers LLP., 2400 Eleven Penn Center, Philadelphia, PA 19103,
independent accountants, have been selected as auditors of the Company.
<PAGE>
